10-K

United States
Securities and Exchange Commission
Washington, DC 20549

FORM 10-K

ý Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")

For the fiscal year ended December 31, 2012

or

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

For the transition period from              to             
Commission File Number 001-08029

THE RYLAND GROUP, INC.
(Exact name of registrant as specified in its charter)

Maryland	52-0849948
(State or other jurisdiction of incorporation or organization)	(I.R.S. employer identification no.)

3011 Townsgate Road, Suite 200, Westlake Village, California 91361
(Address of principal executive offices)

Registrant's telephone number, including area code: (805) 367-3800

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common stock, par value $1.00 per share	New York Stock Exchange
Preferred stock purchase rights	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ý    No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o    No ý

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ý    No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ý Accelerated filer o Non-accelerated filer o
(Do not check if a smaller
reporting company) Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes o    No ý

The aggregate market value of the common stock of The Ryland Group, Inc. held by nonaffiliates of the registrant (43,807,894 shares) at June 30, 2012, was $1,120,605,929. The number of shares of common stock of The Ryland Group, Inc. outstanding on February 25, 2013, was 45,461,914.

DOCUMENT INCORPORATED BY REFERENCE

Name of Document	Location in Report
Proxy Statement for the 2013 Annual Meeting of Stockholders	Part III

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THE RYLAND GROUP, INC.
FORM 10-K
INDEX

ITEM NO.
PART I
Item 1.	Business	4
Item 1A.	Risk Factors	10
Item 1B.	Unresolved Staff Comments	15
Item 2.	Properties	15
Item 3.	Legal Proceedings	15
Item 4.	Mine Safety Disclosures	15
PART II
Item 5.	Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	15
Item 6.	Selected Financial Data	17
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	18
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	40
Item 8.	Financial Statements and Supplementary Data	41
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	79
Item 9A.	Controls and Procedures	79
Item 9B.	Other Information	79
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	80
Item 11.	Executive Compensation	81
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	81
Item 13.	Certain Relationships and Related Transactions, and Director Independence	81
Item 14.	Principal Accountant Fees and Services	81
PART IV
Item 15.	Exhibits and Financial Statement Schedules	81
SIGNATURES		86
INDEX OF EXHIBITS		87

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PART I

Item 1.    Business

With headquarters in Southern California, The Ryland Group, Inc., a Maryland corporation (the "Company"), is one of the nation's largest homebuilders and a mortgage-finance company. The Company is traded on the New York Stock Exchange ("NYSE") under the symbol "RYL." Founded in 1967, the Company has built more than 300,000 homes. In addition, Ryland Mortgage Company and its subsidiaries and RMC Mortgage Corporation (collectively referred to as "RMC") have provided mortgage financing and related services for more than 250,000 homebuyers.

The Company consists of six operating business segments: four geographically determined homebuilding regions; financial services; and corporate. All of the Company's business is conducted and located in the United States. The Company's operations span all significant aspects of the homebuying process—from design, construction and sale to mortgage origination, title insurance, escrow and insurance services. The homebuilding operations are, by far, the most substantial part of its business, comprising approximately 97 percent of consolidated revenues in 2012. The homebuilding segments generate nearly all of their revenues from sales of completed homes, with a lesser amount from sales of land and lots. In addition to building single-family detached homes, the homebuilding segments also build attached homes, such as townhomes and condominiums, that share common walls and roofs. The Company generally builds homes for entry-level buyers and first- and second-time move-up buyers. Its prices generally range from $150,000 to more than $500,000, with the average price of a home closed during 2012 being $263,000. The financial services segment provides mortgage-related products and services, as well as title, escrow and insurance services, to its homebuyers.

The Company has traditionally concentrated on expanding its operations by investing its available capital in both existing and new markets. New and existing communities are evaluated based on return, profitability and cash flow, and both senior and local management are incentivized based on the achievement of such returns. Management monitors the land acquisition process, sales revenues, margins and returns achieved in each of the Company's markets as part of its capital allocation process. (See discussion in Part I, Item 1A, "Risk Factors.")

The Company, which is diversified throughout the United States, believes diversification not only reduces its exposure to economic and market fluctuations, but also enhances its growth potential. Capital is strategically allocated to avoid concentration in any given geographic area and to reduce the risk associated with excessive dependence on local market anomalies. Subject to macroeconomic and local market conditions, the Company generally tries to either manage its exposure or expand its presence in its existing markets in an effort to be among the largest builders in each of those markets. In managing its exposure, the Company may decide to exit a market or reduce its inventory position because of current factors or conditions, or it may determine that a market is no longer viable for the achievement of its strategic goals. In 2011, the Company exited its homebuilding operations in Jacksonville and Dallas. It may seek diversification or expansion by selectively entering new markets, primarily through establishing start-up or satellite operations, or by acquiring the operations of local builders in markets within its existing divisions. In 2012, the Company acquired the operations of Timberstone Homes in the Charlotte and Raleigh markets and Trend Homes in the Phoenix market.

The Company's national scale has provided opportunities for the negotiation of volume discounts and rebates from material suppliers. Additionally, it has access to a lower cost of capital due to the strength and transparency of its balance sheet, as well as to its relationships within the banking industry and capital markets. The Company believes that economies of scale and diversification may contribute to improvements in its operating margins during periods of growth and mitigate its overall risk.

Committed to product innovation, the Company conducts ongoing research into consumer preferences and trends. It is constantly adapting and improving its floor plans, design features and customized options. The Company strives to offer value, selection, location and quality to all homebuyers.

The Company is dedicated to building quality homes and customer relationships. With customer satisfaction as a major priority, it continues to make innovative enhancements designed to attract

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homebuyers. The Company continues to develop its ability to collect customer feedback, which includes online systems for tracking requests, processing issues and improving customer interaction. In addition, it uses a third party to analyze customer feedback in order to better serve its homebuyers' needs.

The Company enters into land development joint ventures, from time to time, as a means to building lot positions, reducing its risk profile and enhancing its return on capital. It periodically partners with developers, other homebuilders or financial investors to develop finished lots for sale to the joint ventures' members or other third parties.

Recent Trends

Housing markets in the United States experienced a prolonged downturn from 2006 to 2012 due to weak consumer demand for housing and an oversupply of homes available-for-sale. A challenging economic and employment environment, mortgage losses, and related uncertainty within financial and credit markets have led the Company to downsize its operations in response. As a result, the Company decreased its overhead; exited or reduced its investments in certain markets; restructured its debt; focused on improving its operating efficiencies; and redesigned its products to be more affordable and less costly to build, all in an effort to better align its operations with current home sale trends.

As a result of improving affordability statistics in 2012, demographics and household creation trends, and based upon its experience during prior cycles in the homebuilding industry, the Company believes that attractive land acquisition opportunities exist and may arise for those builders that have the financial strength to take advantage of them. During 2012, the Company began to expand more aggressively through its acquisitions of homebuilders with operations in the Charlotte, Raleigh and Phoenix markets and accelerated land acquisitions in most markets which will increase its community count to attain volume levels to support a return to higher profitability. With its strong balance sheet, liquidity, broad geographic presence and experienced personnel, the Company believes that it is well positioned to continue to make selective investments in markets with perceived growth prospects.

Homebuilding

General

The Company's homes are built on-site and marketed in four major geographic regions, or segments: North, Southeast, Texas and West. Within each of those segments, the Company operated in the following metropolitan areas at December 31, 2012:

North	Baltimore, Chicago, Indianapolis, Minneapolis, Northern Virginia and Metro Washington, D.C.
Southeast	Atlanta, Charleston, Charlotte, Myrtle Beach, Orlando, Raleigh and Tampa
Texas	Austin, Houston and San Antonio
West	Denver, Las Vegas, Phoenix and Southern California

The Company has decentralized operations to provide more flexibility to its local division presidents and management teams. Each of its homebuilding divisions across the country generally consists of a division president; a controller; management personnel focused on land entitlement, acquisition and development, sales, construction, customer service and purchasing; and accounting and administrative personnel. The Company's operations in each of its homebuilding markets may differ due to a number of market-specific factors, including regional economic conditions and job growth; land availability and local land development; consumer preferences; competition from other homebuilders; and home resale activity. The Company not only considers each of these factors upon entering into new markets, but also in determining the extent of its operations and the allocation of its capital in existing markets. The market experience and expertise of local management teams are critical in making decisions regarding operations.

The Company markets attached and detached single-family homes, which are generally targeted to entry-level and first- and second-time move-up buyers. Its diverse product line is tailored to the local styles and preferences found in each of its geographic markets. The product line offered in a particular community is determined in conjunction with the land acquisition process and is dependent upon a number of factors, including consumer preferences, competitive product offerings and development costs.

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In most of the Company's single-family detached home communities, it offers at least four different floor plans, each with several substantially unique architectural styles. In addition, the exterior of each home may be varied further by the use of stone, stucco, brick or siding. The Company's traditional attached home communities generally offer several different floor plans with two, three or four bedrooms.

Although some of the same basic home designs are found in similar communities within the Company, it is continuously developing new designs to replace or augment existing ones to ensure that its homes reflect current consumer preferences. The Company relies on its own architectural staff and also engages unaffiliated architectural firms to develop new designs. During 2012, the Company introduced 130 new models.

Homebuyers are able to customize certain features of their homes by selecting from numerous options and upgrades displayed in the Company's model homes and design centers. These design centers, which are conveniently located in most of the Company's markets, showcase upgrades that represent increasing sources of additional revenue and profit for the Company. In all of the Company's communities, a wide selection of options is available to homebuyers for additional charges. The number and complexity of options typically increase with the size and base selling price of the home. Custom options contributed 16.9 percent of homebuilding revenues in 2012 and resulted in significantly higher margins in comparison to base homes.

Land Acquisition and Development

The Company's long-term objective is to control a portfolio of building lots sufficient to meet its anticipated homebuilding requirements for a period of approximately three to four years. The Company acquires land only after completing due diligence and feasibility studies. The land acquisition process is controlled by a corporate land approval committee to help ensure that transactions meet the Company's standards for financial performance and risk. In the ordinary course of its homebuilding business, the Company utilizes both direct acquisition and lot option purchase contracts to control lot inventory for use in the sale and construction of homes. The Company's direct land acquisition activities include the purchase of finished lots from developers and the purchase of undeveloped entitled land from third parties. The Company generally does not purchase unentitled or unzoned land.

Although control of lot inventory through the use of option contracts minimizes the Company's investment, such a strategy is not viable in certain markets due to the absence of third-party land developers. In other markets, competitive conditions may prevent the Company from controlling quality lots solely through the use of option contracts. In such situations, the Company may acquire undeveloped entitled land and/or finished lots on a bulk basis. The Company utilizes the selective development of land to gain access to prime locations, increase margins and position itself as a leader in the area through its influence over a community's character, layout and amenities. After determining the size, style, price range, density, layout and overall design of a community, the Company obtains governmental and other approvals necessary to begin the development process. Land is then graded; roads, utilities, amenities and other infrastructures are installed; and individual homesites are created.

Materials Costs

Substantially all materials used in construction are available from a number of sources, but they may fluctuate in price due to various factors. To increase purchasing efficiencies, the Company not only standardizes certain building materials and products, but also acquires such products through national supply contracts. The Company has, on occasion, experienced shortages of certain materials. If shortages were to occur in the future, such shortages could result in longer construction times and higher costs than those experienced in the past.

Construction

Substantially all on-site construction is performed for a fixed price by independent subcontractors selected on a competitive-bid basis. The Company generally requires a minimum of three competitive bids for each phase of construction. Construction activities are supervised by the Company's production team, which coordinates subcontractor work; monitors quality; and ensures compliance with local zoning and building codes. The Company requires substantially all of its subcontractors to have workers' compensation insurance and general liability insurance, including construction defect coverage. Construction time for

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homes depends on weather, availability of labor or subcontractors, materials, home size, geological conditions and other factors. The duration of the home construction process is generally between three and six months. The Company has an integrated financial and homebuilding management system that assists in scheduling production and controlling costs. Through this system, the Company monitors construction status and job costs incurred for each home during each phase of construction. The system provides for detailed budgeting and allows the Company to track and control actual costs, versus construction bids, for each community and subcontractor. The Company has, on occasion, experienced shortages of skilled labor in certain markets. If shortages were to occur in the future, such shortages could result in longer construction times and higher costs than those experienced in the past.

The Company, its subcontractors and its suppliers maintain insurance, subject to deductibles and self-insured amounts, to protect against various risks associated with homebuilding activities, including, among others, general liability, "all-risk" property, workers' compensation, automobile and employee fidelity. The Company accrues for expected costs associated with the deductibles and self-insured amounts, when appropriate.

Marketing

The Company generally markets its homes to entry-level and first- and second-time move-up buyers through targeted product offerings in each of the communities in which it operates. The Company's marketing strategy is determined during the land acquisition and feasibility stages of a community's development. Employees and independent real estate brokers sell the Company's homes, generally by showing furnished models. A new order is reported when a customer's sales contract has been signed by the homebuyer, approved by the Company and secured by a deposit, subject to cancellation. The Company normally starts construction of a home when a customer has selected a lot, chosen a floor plan and received preliminary mortgage approval. However, construction may begin prior to this in order to satisfy market demand for completed homes and to facilitate construction scheduling and/or cost savings. Homebuilding revenues are recognized when home sales are closed, title and possession are transferred to the buyer, and there is no significant continuing involvement from the Company.

The Company advertises directly to potential homebuyers through the Internet and in newspapers and trade publications, as well as with marketing brochures and newsletters. It also uses billboards; radio and television advertising; and its website to market the location, price range and availability of its homes. The Company also attempts to operate in conspicuously located communities that permit it to take advantage of local traffic patterns. Model homes play a significant role in the Company's marketing efforts by not only creating an attractive atmosphere, but also by displaying options and upgrades.

The Company's sales contracts typically require an earnest money deposit. The amount of earnest money required varies between markets and communities. Buyers are generally required to pay additional deposits when they select options or upgrades for their homes. Most of the Company's sales contracts stipulate that when homebuyers cancel their contracts with the Company, it has the right to retain their earnest money and option deposits; however, its operating divisions may refund a portion of such deposits. The Company's sales contracts may also include contingencies that permit homebuyers to cancel and receive a refund of their deposits if they cannot obtain mortgage financing at prevailing or specified interest rates within a specified time period, or if they cannot sell an existing home. The length of time between the signing of a sales contract for a home and delivery of the home to the buyer may vary, depending on customer preferences, permit approval and construction cycles.

Customer Service and Warranties

The Company's operating divisions are responsible for conducting pre-closing quality control inspections and responding to homebuyers' post-closing needs. The Company believes that prompt and courteous acknowledgment of its homebuyers' needs during and after construction reduces post-closing repair costs; enhances its reputation for quality and service; and ultimately leads to repeat and referral business.

The Company provides each homeowner with product warranties covering workmanship and materials for one year, certain mechanical systems for two years and structural systems for ten years from the time of closing. The Company believes its warranty program meets or exceeds terms customarily offered in the

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homebuilding industry. The subcontractors who perform most of the actual construction also provide warranties on workmanship.

Seasonality

The Company experiences seasonal variations in its quarterly operating results and capital requirements. Historically, new order activity is higher during the spring and summer months. As a result, the Company typically has more homes under construction, closes more homes, and has greater revenues and operating income in the third and fourth quarters of its fiscal year. Historical results are not necessarily indicative of current or future homebuilding activities.

Financial Services

The Company's financial services segment provides mortgage-related products and services, as well as title, escrow and insurance services, to its homebuyers. The Company's financial services segment includes RMC, RH Insurance Company, Inc. ("RHIC"), LPS Holdings Corporation and its subsidiaries ("LPS") and Columbia National Risk Retention Group, Inc. ("CNRRG"). By aligning its operations with the Company's homebuilding segments, the financial services segment leverages this relationship to offer its lending services to homebuyers. Providing mortgage financing and other services to its customers helps the Company monitor its backlog and closing process. Substantially all of the loans the Company originates are sold within a short period of time in the secondary mortgage market on a servicing-released basis. The third-party purchaser then services and manages the loans.

Loan Origination

In 2012, RMC's mortgage operations consisted primarily of loans originated in connection with sales of the Company's homes. During the year, mortgage operations originated 3,039 loans totaling $695.8 million. The vast majority of that amount was used for purchasing homes built by the Company, while the remainder was used for purchasing homes built by others, purchasing existing homes or refinancing existing mortgage loans.

RMC arranges various types of mortgage financing, including conventional, Federal Housing Administration ("FHA") and Veterans Administration ("VA") mortgages, with various fixed- and adjustable-rate features. RMC is approved to originate loans that conform to the guidelines established by the Federal Home Loan Mortgage Corporation ("Freddie Mac") and the Federal National Mortgage Association ("Fannie Mae"). The Company sells the loans it originates, along with the related servicing rights, to others.

Title and Escrow Services

Cornerstone Title Company, doing business as Ryland Title Company, is a 100 percent-owned subsidiary of RMC that provides escrow and title services and acts as a title insurance agent primarily for the Company's homebuyers. At December 31, 2012, it provided title services in Arizona, Colorado, Florida, Illinois, Indiana, Maryland, Minnesota, Nevada, Texas and Virginia.

Insurance Services

Ryland Insurance Services ("RIS"), a 100 percent-owned subsidiary of RMC, provides insurance services to the Company's homebuyers. At December 31, 2012, RIS was licensed to operate in all of the states in which the Company's homebuilding segments operate. During 2012, it provided insurance services to 40.7 percent of the Company's homebuyers, compared to 41.5 percent during 2011.

RHIC, a 100 percent-owned subsidiary of the Company, provided insurance services to the homebuilding segments' subcontractors in certain markets. Effective June 1, 2008, RHIC ceased providing such services. Registered and licensed under Section 431, Article 19 of the Hawaii Revised Statutes, RHIC is required to meet certain minimum capital and surplus requirements. Additionally, no dividends may be paid without prior approval of the Hawaii Insurance Commissioner.

CNRRG, a 100 percent-owned subsidiary of the Company and some of its affiliates, was established to directly offer insurance, specifically structural warranty coverage, to protect homeowners against liability risks arising in connection with the homebuilding business of the Company and its affiliates.

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Corporate

Corporate is a non-operating business segment whose purpose is to support operations. Its departments are responsible for establishing operational policies and internal control standards; implementing strategic initiatives; and monitoring compliance with policies and controls throughout the Company's operations. Corporate acts as an internal source of capital and provides financial, human resource, information technology, insurance, legal and tax compliance services. In addition, it performs administrative functions associated with a publicly traded entity.

Real Estate and Economic Conditions

The Company is significantly affected by fluctuations in economic activity, interest rates and levels of consumer confidence. The effects of these fluctuations differ among the various geographic markets in which the Company operates. Higher interest rates and the availability of homeowner financing may affect the ability of buyers to qualify for mortgage financing and reduce the demand for new homes. As a result, rising interest rates generally will decrease the Company's home sales and mortgage originations. During 2012, continued tight credit standards negatively impacted the Company's ability to attract homebuyers. The Company's business is also affected by national and local economic conditions such as employment rates, consumer confidence and housing demand.

Inventory risk can be substantial for homebuilders. The market value of land, lots and housing inventories fluctuates as a result of changing market and economic conditions. The Company must continuously locate and acquire land not only for expansion into new markets, but also for replacement and expansion of land inventory within current markets. The Company employs various measures designed to control inventory risk, including a corporate land approval process and a continuous review by senior management. It cannot, however, assure that these measures will avoid or eliminate this risk. The Company has experienced substantial losses from inventory and other valuation adjustments and write-offs in recent periods.

Competition

The Company competes in each of its markets with a large number of national, regional and local homebuilding companies. The strong presence of national homebuilders, plus the viability of regional and local homebuilders, impacts the level of competition in many markets. The Company also competes with other housing alternatives, including existing homes and rental properties. Principal competitive factors in the homebuilding industry include price; design; quality; reputation; relationships with developers; accessibility of subcontractors; availability and location of lots; and availability of customer financing. The Company's financial services segment competes with other mortgage bankers to arrange financing for homebuyers. Principal competitive factors include interest rates, fees and other mortgage loan product features available to the consumer.

Employees

At December 31, 2012, the Company had 1,100 employees. The Company considers its employee relations to be good. No employees are represented by a collective bargaining agreement.

Website Access to Reports

The Company files annual, quarterly and special reports; proxy statements; and other information with the U.S. Securities and Exchange Commission ("SEC") under the Exchange Act and the Securities Act of 1933, as amended (the "Securities Act"). The Company files information electronically with the SEC, and its filings are available from the SEC's website at www.sec.gov. The Company's website address is www.ryland.com. Information on the Company's website is not part of this report. The Company makes its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, XBRL filings, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act available on its website as soon as possible after it electronically files such material with or furnishes it to the SEC. To retrieve any of this information, visit www.ryland.com, select "Investor Relations" and scroll down the page to "SEC Filings." Through its website, the Company shares information about itself with the securities marketplace.

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Item 1A.    Risk Factors

The homebuilding industry is cyclical in nature and has experienced downturns, which have in the past and may in the future cause the Company to incur losses in financial and operating results.

The Company is affected by the cyclical nature of the homebuilding industry, which is sensitive to many factors, including fluctuations in general and local economic conditions; interest rates; housing demand; employment levels; levels of new and existing homes for sale; demographic trends; availability of homeowner financing; and consumer confidence. In recent years, the markets served by the Company, and the U.S. homebuilding industry as a whole, continued to experience a prolonged decrease in demand for new homes, as well as an oversupply of new and existing homes available-for-sale. In addition, an oversupply of alternatives to new homes, such as rental properties and existing homes, has further depressed prices and reduced margins.

Demand for new homes is sensitive to economic conditions over which the Company has no control, such as the availability of mortgage financing and the level of employment.

Demand for new homes is sensitive to changes in economic conditions such as the level of employment, consumer confidence, consumer income, the availability of financing and interest rate levels. During the last few years, the mortgage lending industry has experienced significant instability. As a result of increased default rates, particularly (but not entirely) with regard to subprime and other nonconforming loans, many lenders have reduced their willingness to make residential mortgage loans and have tightened their credit requirements with regard to them. Fewer loan products, stricter loan qualification standards and higher down payments have made it more difficult for some borrowers to finance home purchases. Although the Company's financial services segment offers mortgage loans to potential buyers, the Company may no longer be able to offer financing terms that are attractive to its potential buyers. Lack of available mortgage financing at acceptable rates reduces demand for the homes the Company builds and, in some instances, causes potential buyers to cancel contracts they have signed.

There has also been a substantial loss of jobs in the United States during the last several years. People who are unemployed or concerned about job loss are unlikely to purchase new homes, and many may be forced to sell the homes they already own. Therefore, current employment levels can adversely affect the Company both by reducing demand for the homes it builds and by increasing the supply of homes for sale.

Because most of the Company's homebuyers finance the purchase of their homes, the terms and availability of mortgage financing can affect the demand for and the ability to complete the purchase of a home, as well as the Company's future operating and financial results.

The Company's business and earnings depend on the ability of its homebuyers to obtain financing for the purchase of their homes. Many of the Company's homebuyers must sell their existing homes in order to buy a home from the Company. In recent years, the mortgage lending industry as a whole experienced significant instability due to, among other things, defaults on subprime and other loans, resulting in the declining market value of such loans. In light of these developments, lenders, investors, regulators and other third parties questioned the adequacy of lending standards and other credit requirements for several loan programs made available to borrowers in recent years. This has led to tightened credit requirements and an increase in indemnity claims for mortgages that were originated and sold by the Company. Deterioration in credit quality among subprime and other nonconforming loans has caused most lenders to eliminate subprime mortgages and most other loan products that do not conform to Fannie Mae, Freddie Mac, FHA or VA standards. Fewer loan products and tighter loan qualifications, in turn, make it more difficult for a borrower to finance the purchase of a new home or the purchase of an existing home from a potential move-up buyer who wishes to purchase one of the Company's homes. In general, these developments have resulted in reduced demand for homes sold by the Company and have delayed any general improvement in the housing market. This, in turn, has decreased demand for mortgage loans that the Company originates through RMC. If the Company's potential homebuyers or the buyers of the homebuyers' existing homes cannot obtain suitable financing, or if increased indemnity claims are made for mortgages that are originated and sold, the result will have an adverse effect on the Company's operating and financial results and performance.

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Rising interest rates, decreased availability of mortgage financing or of certain mortgage programs, higher down payment requirements or increased monthly mortgage costs, as discussed above, may lead to reduced demand for the Company's homes and mortgage loans. Increased interest rates can also hinder the Company's ability to realize its backlog because its home purchase contracts provide customers with a financing contingency. Financing contingencies allow customers to cancel their home purchase contracts in the event that they cannot arrange for adequate financing. As a result, rising interest rates can decrease the Company's home sales and mortgage originations. Any of these factors could have an adverse impact on the Company's results of operations or financial position.

As a result of turbulence in the credit markets and mortgage finance industry in 2008 and 2009, the federal government has taken on a significant role in supporting mortgage lending through its conservatorship of Fannie Mae and Freddie Mac, both of which purchase home mortgages and mortgage-backed securities originated by mortgage lenders, and its insurance of mortgages originated by lenders through the FHA and VA. FHA backing of mortgages has recently been particularly important to the mortgage finance industry and to the Company's business. In 2012, 49.0 percent of the Company's homebuyers who chose to finance with RMC purchased a home using an FHA- or VA-backed loan. In addition, the Federal Reserve has purchased a sizable amount of mortgage-backed securities in an effort to stabilize mortgage interest rates and to support the market for mortgage-backed securities. The availability and affordability of mortgage loans, including consumer interest rates for such loans, could be adversely affected by a curtailment or ceasing of the federal government's mortgage-related programs or policies. The FHA may continue to impose stricter loan qualification standards, raise minimum down payment requirements, impose higher mortgage insurance premiums and other costs, and/or limit the number of mortgages it insures. Due to growing federal budget deficits, the U.S. Treasury may not be able to continue supporting the mortgage-related activities of Fannie Mae, Freddie Mac, the FHA and the VA at present levels, or it may revise significantly the federal government's participation in and support of the residential mortgage market.

Since the availability of Fannie Mae, Freddie Mac, FHA- and VA-backed mortgage financing is an important factor in marketing and selling many of the Company's homes, any limitations, restrictions or changes in the availability of such government-backed financing could reduce its home sales and adversely affect the Company's results of operations, including its income from RMC.

The Company may be subject to indemnification claims on mortgages sold to third parties.

Substantially all of the loans the Company originates are sold within a short period of time in the secondary mortgage market on a servicing-released basis. The mortgage industry has experienced substantial increases in delinquencies, foreclosures and foreclosures-in-process. All mortgages are generally sold, although under certain limited circumstances, RMC is required to indemnify loan investors for losses incurred on sold loans. Reserves are created to address repurchase and indemnity claims made by these third-party investors or purchasers. These reserves are based on pending claims received that are associated with previously sold mortgage loans, industry foreclosure data, the Company's portfolio delinquency and foreclosure rates on sold loans made available by investors, as well as on historical loss payment patterns used to develop ultimate loss projections. Estimating loss has been made more difficult by the recent processing delays related to foreclosure losses affecting agencies and financial institutions. Because of the uncertainties inherent in estimating these matters, the Company cannot provide assurance that the amounts reserved will be adequate or that any potential inadequacies will not have an adverse effect on its results of operations.

Tax law changes could make home ownership more expensive or less attractive.

Significant expenses of owning a home, including mortgage interest expense and real estate taxes, generally are deductible expenses for the purpose of calculating an individual's federal and, in some cases, state taxable income, subject to various limitations under current tax law and policy. If the federal or state governments change income tax laws by eliminating or substantially reducing these income tax benefits, as some policymakers have discussed, the after-tax cost of owning a new home will increase significantly. This could adversely impact both demand for and/or sales prices of new homes.

11

The Company is subject to inventory risk for its land, options for land, building lots and housing inventory.

The market value of the Company's land, building lots and housing inventories fluctuates as a result of changing market and economic conditions. In addition, inventory carrying costs can result in losses in poorly performing projects or markets. Changes in economic and market conditions have caused the Company to dispose of land and options for land and housing inventories on a basis that has resulted in loss and required it to write down or reduce the carrying value of its inventory. During the year ended December 31, 2012, the Company decided not to pursue development and construction in certain areas where it held land or made option deposits, which resulted in $4.2 million in recorded write-offs of option deposits and preacquisition feasibility costs. In addition, market conditions led to recorded land-related impairments on communities and land in the aggregate amount of $1.9 million during the same period. The Company can provide no assurance that it will not need to record additional write-offs in the future.

In the course of its business, the Company makes acquisitions of land. Although it employs various measures, including its land approval process and continued review by senior management, designed to manage inventory risk, the Company cannot assure that these measures will enable it to avoid or eliminate its inventory risk.

Construction costs can fluctuate and impact the Company's margins.

The homebuilding industry has, from time to time, experienced significant difficulties, including shortages of qualified tradespeople; reliance on local subcontractors who may be inadequately capitalized; shortages of materials; and volatile increases in the cost of materials, particularly increases in the prices of lumber, drywall and cement, which are significant components of home construction costs. The Company may not be able to recapture increased costs by raising prices because of either market conditions or because it fixes its prices at the time home sales contracts are signed.

Supply shortages and other risks related to demand for building materials and/or skilled labor could increase costs and delay deliveries.

There is a high level of competition in the homebuilding industry for skilled labor and building materials. Rising costs or shortages in building materials or skilled labor could cause increases in construction costs and construction delays. The Company is generally unable to pass on increases in construction costs to homebuyers who have already entered into purchase contracts. A purchase contract generally fixes the price of the home at the time the contract is signed, and this may occur well in advance of when construction commences. Further, the Company may not be able to pass on rising construction costs because of market conditions. Sustained increases in construction costs due to competition for materials and skilled labor, as well as higher commodity prices (including prices for lumber, metals and other building material inputs), among other things, may decrease the Company's margins over time.

Shortages in the availability of subcontract labor may delay construction schedules and increase the Company's costs.

The Company conducts its construction operations only as a general contractor. Virtually all architectural, construction and development work is performed by unaffiliated third-party subcontractors. As a consequence, the Company depends on the continued availability of and satisfactory performance by these subcontractors for the design and construction of its homes. The Company cannot make assurances that there will be sufficient availability of and satisfactory performance by these unaffiliated third-party subcontractors. In addition, inadequate subcontractor resources could delay the Company's construction schedules and have a material adverse effect on its business.

Because the homebuilding industry is competitive, the business practices of other homebuilders can have an impact on the Company's financial results and cause these results to decline.

The residential homebuilding industry is highly competitive. The Company competes in each of its markets with a large number of national, regional and local homebuilding companies. This competition could cause the Company to adjust selling prices in response to competitive conditions in the markets in which it operates and could require it to increase the use of sales incentives. The Company cannot predict whether these measures will be successful or if additional incentives will be made in the future. It also competes with other housing alternatives, including existing homes and rental housing. The homebuilding industry's principal competitive factors are home price, availability of customer financing, design, quality, reputation,

12

relationships with developers, accessibility of subcontractors, and availability and location of homesites. Any of the foregoing factors could have an adverse impact on the Company's financial performance and results of operations.

The Company's financial services segment competes with other mortgage bankers to arrange financing for homebuyers. The principal competitive factors for the financial services segment include interest rates, fees and other features of mortgage loan products available to the consumer.

Homebuilding is subject to warranty claims in the ordinary course of business that can be subject to uncertainty.

As a homebuilder, the Company is subject to warranty claims arising in the ordinary course of business. The Company records warranty and other reserves for the homes it sells to cover expected costs of materials and outside labor during warranty periods based on historical experience in the Company's markets and on the judgment of the qualitative risks associated with the types of homes built by the Company, including an analysis of historical claims. Because of the uncertainties inherent to these matters, the Company cannot provide assurance that the amounts reserved for warranty claims will be adequate or that any potential inadequacies will not have an adverse effect on its results of operations.

Because the Company's business is subject to various regulatory and environmental limitations, it may not be able to conduct its business as planned.

The Company's homebuilding segments are subject to various local, state and federal laws, statutes, ordinances, rules and regulations concerning zoning, building design, construction, stormwater permitting and discharge, and similar matters, as well as open spaces, wetlands and environmentally protected areas. These include local regulations that impose restrictive zoning and density requirements in order to limit the number of homes that can be built within the boundaries of a particular area, as well as other municipal or city land planning restrictions, requirements or limitations. The Company may also experience periodic delays in homebuilding projects due to regulatory compliance, municipal appeals and other governmental planning processes in any of the markets in which it operates. These factors could result in delays or increased operational costs.

With respect to originating, processing, selling and servicing mortgage loans, the Company's financial services segment is subject to the rules and regulations of FHA, Freddie Mac, Fannie Mae, VA and the U.S. Department of Housing and Urban Development ("HUD"). Mortgage origination activities are further subject to the Equal Credit Opportunity Act, Federal Truth-in-Lending Act and the Real Estate Settlement Procedures Act, and their associated regulations. These and other federal and state statutes and regulations prohibit discrimination and establish underwriting guidelines that include provisions for audits, inspections and appraisals; require credit reports on prospective borrowers; fix maximum loan amounts; and require the disclosure of certain information concerning credit and settlement costs. The Company is required to submit audited financial statements annually, and each agency or other entity has its own financial requirements. The Company's affairs are also subject to examination by these entities at all times to assure compliance with applicable regulations, policies and procedures.

The Company's ability to grow its business and operations depends, to a significant degree, upon its ability to access capital on favorable terms.

The ability to access capital on favorable terms is an important factor in growing the Company's business and operations in a profitable manner. In 2007, Moody's lowered the Company's debt rating to non-investment grade, and Standard & Poor's ("S&P") also reduced the Company's investment-grade rating to non-investment grade in 2008. The Company received additional downgrades in 2008 and 2011. At December 31, 2012, Moody's and S&P reported the Company's rating outlook as stable. The loss of an investment-grade rating affects the cost, availability and terms of credit available to the Company, making it more difficult and costly to access the debt capital markets for funds that may be required to implement its business plans.

Natural disasters may have a significant impact on the Company's business.

The climates and geology of many of the states in which the Company operates present increased risks of natural disasters. To the extent that hurricanes, severe storms, tornadoes, earthquakes, droughts, floods,

13

wildfires or other natural disasters or similar events occur, its business and financial condition may be adversely affected.

The Company's net operating loss carryforwards could be substantially limited if it experiences an ownership change as defined in the Internal Revenue Code.

Section 382 of the Internal Revenue Code contains rules that limit the ability of a company that undergoes an ownership change, which is generally any change in ownership of more than 50.0 percent of its stock over a three-year period, to utilize its net operating loss carryforwards and certain built-in losses recognized in years after the ownership change. These rules generally operate by focusing on ownership changes among stockholders owning directly or indirectly 5.0 percent or more of the stock of a company and any change in ownership arising from a new issuance of stock by the company.

If the Company undergoes an ownership change for purposes of Section 382 as a result of future transactions involving its common stock, including purchases or sales of stock between 5.0 percent stockholders, the Company's ability to use its net operating loss carryforwards and to recognize certain built-in losses would be subject to the limitations of Section 382. Depending on the resulting limitation, a significant portion of the Company's net operating loss carryforwards could expire before it would be able to use them. The Company's inability to utilize its net operating loss carryforwards could have a negative impact on its financial position and results of operations.

In late 2008 and early 2009, the Company adopted a shareholder rights plan and amended its charter to implement certain share transfer restrictions in order to preserve stockholder value and the value of certain tax assets primarily associated with net operating loss carryforwards and built-in losses under Section 382 of the Internal Revenue Code. The shareholder rights plan and charter provisions are intended to prevent share transfers that could cause a loss of these tax assets. Both the rights plan and the charter amendment were approved by the Company's stockholders. The Company can provide no assurance that the rights plan and charter provisions will protect the Company's ability to use its net operating losses and unrealized losses to reduce potential future federal income tax obligations.

Information technology failures and data security breaches could harm the Company's business.

The Company's information technology systems are dependent upon global communications providers, web browsers, telephone systems and other aspects of the Internet infrastructure that have experienced significant systems failures and electrical outages in the past. While the Company takes measures to ensure its major systems have redundant capabilities, the Company's systems are susceptible to outages from fire, floods, power loss, telecommunications failures, break-ins, cyber-attacks and similar events. Despite the Company's implementation of network security measures, its servers are vulnerable to computer viruses, break-ins and similar disruptions resulting from unauthorized tampering with its computer systems. The occurrence of any of these events could disrupt or damage the Company's information technology systems and hamper its internal operations, its ability to provide services to its customers and the ability of its customers to access the Company's information technology systems. In addition, the Company's business requires the collection and retention of large volumes of internal and customer data. The Company also maintains personally identifiable information about its employees. The integrity and protection of customer, employee and company data is critical to the Company. A material network breach in the security of the Company's information technology systems could include the theft of customer or employee data or its intellectual property or trade secrets. To the extent that any disruption or security breach results in a loss or damage to the Company's data, or in the inappropriate disclosure of confidential information, it could cause significant damage to its reputation, affect relationships with its customers, reduce demand for the Company's services, lead to claims against the Company and ultimately harm its business. In addition, the Company may be required to incur significant costs to protect against damage caused by these disruptions or security breaches in the future.

The Company's short-term investments and marketable securities are subject to certain risks which could materially adversely affect overall financial position.

The Company invests a portion of its available cash and cash equivalent balances by purchasing marketable securities with maturities in excess of three months in a managed portfolio. The primary objectives of these investments are the preservation of capital and the maintenance of a high degree of liquidity, with a secondary objective being the attainment of yields higher than those earned on the Company's cash and

14

cash equivalent balances. Should any of the Company's short-term investments or marketable securities lose value or have their liquidity impaired, it could materially and adversely affect the Company's overall financial position by limiting its ability to fund operations.

Item 1B.    Unresolved Staff Comments

None.

Item 2.    Properties

The Company leases office space for its corporate headquarters in Westlake Village, California, and for its IT Department and RMC's operations center in Scottsdale, Arizona. In addition, the Company leases office space in the various markets in which it operates.

Item 3.    Legal Proceedings

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

On December 23, 2011, Countrywide Home Loans, Inc. filed a lawsuit against RMC in California, which was subsequently amended, alleging breach of contract related to repurchase obligations arising out of the sale of mortgage loans associated with a loan purchase agreement between Countrywide and RMC and breach of contract related to indemnity obligations. The Company intends to vigorously defend itself against the asserted allegations and causes of actions contained within this lawsuit. (See Note K, "Commitments and Contingencies.")

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

Item 4.    Mine Safety Disclosures

Not applicable.

PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market for Common Equity, Common Stock Prices and Dividends

The Company lists its common shares on the NYSE, trading under the symbol "RYL." The latest reported sale price of the Company's common stock on February 12, 2013, was $39.04, and there were 1,706 common stockholders of record on that date.

The following table presents high and low market prices, as well as dividend information, for the Company:

2012		HIGH		LOW		DIVIDENDS DECLARED PER SHARE	2011		HIGH		LOW		DIVIDENDS DECLARED PER SHARE
First quarter	$	21.15	$	15.70	$	0.03	First quarter	$	19.28	$	15.59	$	0.03
Second quarter		26.23		17.18		0.03	Second quarter		18.29		15.47		0.03
Third quarter		33.93		23.04		0.03	Third quarter		17.15		9.39		0.03
Fourth quarter		38.28		29.00		0.03	Fourth quarter		16.22		9.15		0.03

15

Issuer Purchases of Equity Securities

On December 6, 2006, the Company announced that it had received authorization from its Board of Directors to purchase shares totaling $175.0 million. During 2007, 747,000 shares had been repurchased in accordance with this authorization. At December 31, 2012, there was $142.3 million, or 3.9 million additional shares, available for purchase in accordance with this authorization, based on the Company's stock price on that date. This authorization does not have an expiration date. The Company did not purchase any of its own equity securities during the years ended December 31, 2012, 2011 or 2010.

Performance Graph

The following performance graph and related information shall not be deemed "soliciting material" or be "filed" with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference into such filing.

The following graph compares the Company's cumulative total stockholder returns since December 31, 2007, to the S&P 500 and the Dow Jones U.S. Home Construction indices for the calendar years ended December 31:

COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN¹
Among The Ryland Group, Inc., The S&P 500 Index
And The Dow Jones U.S. Home Construction Index

¹ $100 invested on 12/31/07 in stock or index, including reinvestment of dividends.

Securities Authorized for Issuance Under Equity Compensation Plans

The Company's equity compensation plan information as of December 31, 2012, is summarized as follows:

	NUMBER OF SECURITIES TO BE ISSUED UPON EXERCISE OF OUTSTANDING OPTIONS, WARRANTS AND RIGHTS	WEIGHTED-AVERAGE EXERCISE PRICE OF OUTSTANDING OPTIONS, WARRANTS AND RIGHTS	NUMBER OF SECURITIES REMAINING AVAILABLE FOR FUTURE ISSUANCE UNDER EQUITY COMPENSATION PLANS (EXCLUDING SECURITIES REFLECTED IN COLUMN (a))
PLAN CATEGORY	(a)	(b)	(c)
Equity compensation plans approved by stockholders	4,193,640	$     26.92	3,174,108
Equity compensation plans not approved by stockholders1	–	–	–

¹

The Company does not have any equity compensation plans that have not been approved by stockholders.

16

Item 6.    Selected Financial Data

	YEAR ENDED DECEMBER 31,
(in millions, except per share data)		2012			2011			2010			2009			2008
ANNUAL RESULTS
REVENUES
Homebuilding	$	1,271		$	863		$	970		$	1,144		$	1,740
Financial services		37			27			31			41			63
TOTAL REVENUES		1,308			890			1,001			1,185			1,803
Cost of sales		1,027			727			844			1,194			1,845
Operating expenses		230			198			224			246			336
TOTAL EXPENSES		1,257			925			1,068			1,440			2,181
Gain from marketable securities, net		2			4			5			4			–
(Loss) income related to early retirement of debt, net		(9	)		(2	)		(19	)		11			(1	)
Income (loss) from continuing operations before taxes		44			(33	)		(81	)		(240	)		(379	)
Tax expense (benefit)		2			(3	)		–			(97	)		(9	)
Net income (loss) from continuing operations		42			(30	)		(81	)		(143	)		(370	)
Loss from discontinued operations, net of taxes		(2	)		(21	)		(4	)		(19	)		(27	)
NET INCOME (LOSS)	$	40		$	(51	)	$	(85	)	$	(162	)	$	(397	)
YEAR-END POSITION
ASSETS
Cash, cash equivalents and marketable securities	$	615		$	563		$	739		$	815		$	423
Housing inventories		1,077			795			752			612			994
Other assets		240			186			111			208			336
Assets of discontinued operations		2			35			51			59			109
TOTAL ASSETS		1,934			1,579			1,653			1,694			1,862
LIABILITIES
Debt and financial services credit facility		1,134			874			880			854			781
Other liabilities		272			215			207			251			327
Liabilities of discontinued operations		2			6			4			7			15
TOTAL LIABILITIES		1,408			1,095			1,091			1,112			1,123
NONCONTROLLING INTEREST		22			34			62			–			14
STOCKHOLDERS' EQUITY		504			450			500			582			725
TOTAL EQUITY	$	526		$	484		$	562		$	582		$	739
PER COMMON SHARE DATA
NET INCOME (LOSS)
Basic
Continuing operations	$	0.93		$	(0.67	)	$	(1.83	)	$	(3.30	)	$	(8.69	)
Discontinued operations		(0.04	)		(0.47	)		(0.10	)		(0.44	)		(0.64	)
Total		0.89			(1.14	)		(1.93	)		(3.74	)		(9.33	)
Diluted
Continuing operations		0.88			(0.67	)		(1.83	)		(3.30	)		(8.69	)
Discontinued operations		(0.04	)		(0.47	)		(0.10	)		(0.44	)		(0.64	)
Total	$	0.84		$	(1.14	)	$	(1.93	)	$	(3.74	)	$	(9.33	)
DIVIDENDS DECLARED	$	0.12		$	0.12		$	0.12		$	0.12		$	0.39
STOCKHOLDERS' EQUITY	$	11.16		$	10.12		$	11.31		$	13.27		$	16.97

17

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

The following management's discussion and analysis is intended to assist the reader in understanding the Company's business and is provided as a supplement to, and should be read in conjunction with, the Company's consolidated financial statements and accompanying notes. The Company's results of operations discussed below are presented in conformity with U.S. generally accepted accounting principles ("GAAP").

Forward-Looking Statements

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

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

•

economic changes nationally or in the Company's local markets, including volatility and increases in interest rates, the impact of, and changes in, governmental stimulus, tax and deficit reduction programs, inflation, changes in consumer demand and confidence levels and the state of the market for homes in general;

•

changes and developments in the mortgage lending market, including revisions to underwriting standards for borrowers and lender requirements for originating and holding mortgages, changes in government support of and participation in such market, and delays or changes in terms and conditions for the sale of mortgages originated by the Company;

•

the availability and cost of land and the future value of land held or under development;

•

increased land development costs on projects under development;

•

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

•

increased prices for labor, land and materials used in the production of homes;

•

increased competition, including continued competition and price pressure from distressed home sales;

•

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

•

increased costs and delays in land development or home construction resulting from adverse weather conditions or other factors;

•

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

•

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

•

changes in the Company's effective tax rate and assumptions and valuations related to its tax accounts;

•

the risk factors set forth in this Annual Report on Form 10-K; and

•

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

18

Results of Operations
Overview

During 2012, attractive housing affordability levels, historically low interest rates and higher rental rates have led to changes in buyer perceptions. These factors, combined with moderate declines in the number of distressed properties and national housing inventory, have led to increased demand in most of the Company's markets. On average, continuing increases in sales rates and prices; decreases in required sales incentives and cancellation rates; and improvement in average sales traffic through its communities have allowed the Company to begin raising prices in many markets. It reported increases of 51.8 percent in sales volume, 40.9 percent in closing volume and 61.4 percent in backlog for the year ended December 31, 2012, compared to 2011. These trends seem to indicate that demand for new housing is improving, although high unemployment levels and tight mortgage credit standards continue to negatively impact the homebuilding industry by keeping sales absorption rates per community depressed, compared to traditional levels. The Company believes that continued advances in revenue growth and financial performance will primarily come from a greater presence in its already established markets, its entry into new markets, and higher demand in the form of a return to more traditional absorption rates. The Company also believes its strategic goals of increasing its profitability and leverage through this expansion and strengthening of its balance sheet will position it to take full advantage of a continuation of the housing recovery.

The Company made significant progress during the year with a 47.1 percent increase in consolidated revenues; a 2.4 percent rise in housing gross profit margin; a 3.4 percent decline in the selling, general and administrative expense ratio; and a decisive increase in homebuilding and mortgage operations profitability in 2012, compared to the prior year. In 2012, the Company achieved its highest operating margin since 2006. Strategic land acquisitions in its Charlotte, Raleigh and Phoenix markets during 2012, as well as ongoing land acquisitions in all of its markets, should enhance the Company's ability to establish significant market share and create a platform for future growth. The Company issued $225.0 million of 1.6 percent convertible senior notes due May 2018, issued $250.0 million of 5.4 percent senior notes due October 2022 and redeemed $167.2 million of its 6.9 percent senior notes due June 2013 during the year to provide additional low-cost capital. This capital, combined with a strong beginning backlog of homes sold, a lean operating structure, and continuing improvements in economic conditions and potential homebuyer demographics, should allow the Company to meet volume and profitability expectations in 2013.

The Company's net income from continuing operations totaled $42.4 million, or $0.88 per diluted share, for the year ended December 31, 2012, compared to a net loss of $29.9 million, or $0.67 per diluted share, for 2011 and a net loss of $80.7 million, or $1.83 per diluted share, for 2010. The increase in net income for 2012, compared to 2011, was primarily due to a rise in closing volume; higher housing gross profit margin, including lower inventory and other valuation adjustments and write-offs; a decline in interest expense; and a reduced selling, general and administrative expense ratio. The decrease in net loss for 2011, compared to 2010, was primarily due to lower inventory and other valuation adjustments and write-offs and to a decline in interest expense, partially offset by lower closing volume and by a higher selling, general and administrative expense ratio. Pretax charges related to inventory and other valuation adjustments and write-offs totaled $6.3 million, $17.3 million and $41.9 million for the years ended December 31, 2012, 2011 and 2010, respectively. The Company continued to raise gross margins by investing in new communities; selectively increasing prices; completing less profitable communities; and lowering expense ratios. Housing gross profit margin for 2012 was 19.1 percent, compared to 16.7 percent for 2011 and 13.4 percent for 2010.

The Company's consolidated revenues increased 47.1 percent to $1.3 billion for the year ended December 31, 2012, from $889.5 million for 2011. This increase was primarily attributable to a 40.9 percent rise in closings and to a 4.8 percent increase in average closing price. The increase in average closing price was due to a more stable price environment, as well as to a change in the product and geographic mix of homes delivered during 2012, versus 2011. The Company's consolidated revenues decreased 11.1 percent to $889.5 million for 2011 from $1.0 billion for 2010. This decrease was primarily attributable to a 13.4 percent decline in closings, partially offset by a 2.4 percent increase in average closing price. Revenues for the homebuilding and financial services segments were $1.3 billion and $37.6 million in 2012,

19

compared to $862.6 million and $26.9 million in 2011, and $969.8 million and $31.0 million in 2010, respectively.

The Company reported a rise in closing volume for the year ended December 31, 2012, compared to 2011, primarily due to increases in sales. New orders rose 51.8 percent to 5,719 units for the year ended December 31, 2012, from 3,767 units for 2011 primarily due to increases in sales rates and the number of active communities. New order dollars increased 61.9 percent for the year ended December 31, 2012, compared to 2011. The Company's average monthly sales absorption rate was 2.2 homes per community for the year ended December 31, 2012, versus 1.5 homes per community for 2011 and 1.6 homes per community for 2010. In order to prepare for the housing recovery and to increase profitability, the Company has grown its community count since the third quarter of 2010. The number of active communities rose 12.8 percent to 238 active communities at December 31, 2012, from 211 active communities at December 31, 2011. Backlog increased 61.4 percent to 2,391 units at December 31, 2012, compared to 1,481 units at December 31, 2011.

Selling, general and administrative expense, including corporate expense, totaled 14.9 percent of homebuilding revenues for 2012, compared to 18.3 percent for 2011. This decrease was primarily attributable to higher leverage resulting from increased revenues, partially offset by higher compensation expense primarily due to the impact of fluctuations in the Company's stock price. Selling, general and administrative expense, including corporate expense, totaled 18.3 percent of homebuilding revenues for 2011, compared to 17.4 percent for 2010. This increase was primarily attributable to lower leverage resulting from a decline in revenues and to severance expense, partially offset by reduced operating expenses and by the impact of cost-saving initiatives.

The Company ended 2012 with $614.6 million in cash, cash equivalents and marketable securities. Investments in new communities increased consolidated inventory owned by $294.4 million, or 38.7 percent, at December 31, 2012, compared to December 31, 2011. The Company's earliest senior debt maturity is in 2015. Its net debt-to-capital ratio, including marketable securities, was 50.8 percent at December 31, 2012, compared to 36.7 percent at December 31, 2011, as a result of the additional debt issued to facilitate growth during an anticipated housing recovery over the next few years. Stockholders' equity per share rose 10.3 percent to $11.16 at December 31, 2012, compared to $10.12 at December 31, 2011.

The net debt-to-capital ratio, including marketable securities, is a non-GAAP financial measure that is calculated as debt, net of cash, cash equivalents and marketable securities, divided by the sum of debt and total stockholders' equity, net of cash, cash equivalents and marketable securities. The Company believes that the net debt-to-capital ratio, including marketable securities, is useful in understanding the leverage employed in its operations and in comparing it with other homebuilders.

Homebuilding Overview

The combined homebuilding operations reported pretax earnings from continuing operations of $63.9 million for 2012, compared to pretax losses of $16.8 million and $42.7 million for 2011 and 2010, respectively. Homebuilding results in 2012 improved from those in 2011 primarily due to a rise in closing volume; higher housing gross profit margin, including lower inventory and other valuation adjustments and write-offs; a decline in interest expense; and a reduced selling, general and administrative expense ratio. Homebuilding results in 2011 improved from those in 2010 primarily due to lower inventory and other valuation adjustments and write-offs and to a decline in interest expense, partially offset by reduced closing volume and by a higher selling, general and administrative expense ratio.

20

STATEMENTS OF EARNINGS

	YEAR ENDED DECEMBER 31,
(in thousands, except units)		2012			2011			2010
REVENUES
Housing	$	1,263,120		$	857,180		$	964,419
Land and other		7,727			5,424			5,399
TOTAL REVENUES		1,270,847			862,604			969,818
EXPENSES
Cost of sales
Housing
Cost of sales		1,017,124			705,633			801,903
Valuation adjustments and write-offs		5,166			8,336			33,399
Total housing cost of sales		1,022,290			713,969			835,302
Land and other
Cost of sales		5,182			4,998			4,499
Valuation adjustments and write-offs		–			7,989			4,563
Total land and other cost of sales		5,182			12,987			9,062
Total cost of sales		1,027,472			726,956			844,364
Selling, general and administrative		163,373			134,113			143,748
Interest		16,118			18,348			24,389
TOTAL EXPENSES		1,206,963			879,417			1,012,501
PRETAX EARNINGS (LOSS)	$	63,884		$	(16,813	)	$	(42,683	)
Closings (units)		4,809			3,413			3,939
Housing gross profit margin		19.1	%		16.7	%		13.4	%
Selling, general and administrative ratio		12.9	%		15.5	%		14.8	%

Consolidated inventory owned by the Company, which includes homes under construction; land under development and improved lots; inventory held-for-sale; and cash deposits related to consolidated inventory not owned, rose 38.7 percent to $1.1 billion at December 31, 2012, from $761.2 million at December 31, 2011. Homes under construction increased 43.8 percent to $459.3 million at December 31, 2012, from $319.5 million at December 31, 2011, as a result of higher backlog. Land under development and improved lots increased 38.8 percent to $574.0 million at December 31, 2012, compared to $413.6 million at December 31, 2011, as the Company acquired additional land and opened more communities in 2012. The Company had 296 model homes with inventory values totaling $67.1 million at December 31, 2012, compared to 281 model homes with inventory values totaling $59.9 million at December 31, 2011. In addition, it had 724 started and unsold homes with inventory values totaling $120.2 million at December 31, 2012, compared to 555 started and unsold homes with inventory values totaling $99.2 million at December 31, 2011. Inventory held-for-sale declined 57.5 percent to $4.7 million at December 31, 2012, compared to $11.0 million at December 31, 2011. Investments in the Company's unconsolidated joint ventures decreased to $8.3 million at December 31, 2012, from $10.0 million at December 31, 2011, primarily due to net distributions from its joint ventures. The Company consolidated $39.5 million of inventory not owned at December 31, 2012, compared to $51.4 million at December 31, 2011.

The following table provides certain information with respect to the Company's number of residential communities and lots under development at December 31, 2012:

	COMMUNITIES
	ACTIVE	NEW AND NOT YET OPEN	INACTIVE	HELD- FOR-SALE	TOTAL	TOTAL LOTS CONTROLLED1
North	67	30	8	1	106	9,672
Southeast	85	36	14	8	143	9,389
Texas	57	20	–	1	78	5,105
West	29	21	3	1	54	4,456
Total	238	107	25	11	381	28,622

¹

Includes lots controlled through the Company's investments in joint ventures.

21

Inactive communities consist of projects either under development or on hold for future home sales. At December 31, 2012, of the 11 communities that were held-for-sale, 9 communities had fewer than 20 lots remaining.

Low interest rates and home prices have led to more favorable affordability levels and an appearance of stabilization in most housing submarkets. The Company is primarily focused on reloading inventory and increasing profitability as housing market dynamics continue to recover, all while balancing those two objectives with cash preservation. Increasing community count is among the Company's greatest challenges and highest priorities. The Company secured 14,509 owned or optioned lots, opened 116 communities and closed 89 communities during the year ended December 31, 2012. The Company operated from 12.8 percent more active communities at December 31, 2012, than it did at December 31, 2011. The number of lots controlled was 28,305 lots at December 31, 2012, compared to 21,579 lots at December 31, 2011. Optioned lots, as a percentage of total lots controlled, were 37.2 percent and 33.6 percent at December 31, 2012 and 2011, respectively. In addition, the Company controlled 317 lots and 342 lots under joint venture agreements at December 31, 2012 and 2011, respectively.

New orders represent sales contracts that have been signed by the homebuyer and approved by the Company, subject to cancellations. The dollar value of new orders increased $590.7 million, or 61.9 percent, to $1.5 billion for the year ended December 31, 2012, from $954.0 million for the year ended December 31, 2011. This increase in new orders was primarily attributable to a 51.8 percent rise in sales rates and to a 12.8 percent increase in the number of active communities. The dollar value of new orders increased 14.4 percent to $954.0 million for 2011 from $834.2 million for 2010. This increase in new orders was primarily attributable to a 9.9 percent rise in sales rates and to a 9.3 percent increase in the number of active communities. For the years ended December 31, 2012, 2011 and 2010, cancellation rates totaled 19.0 percent, 20.2 percent and 21.2 percent, respectively. Unit orders increased 51.8 percent to 5,719 new orders in 2012, compared to 3,767 new orders in 2011. Unit orders increased 9.9 percent to 3,767 new orders in 2011, compared to 3,428 new orders in 2010.

Homebuilding revenues increased 47.3 percent to $1.3 billion for 2012 from $862.6 million for 2011 primarily due to a 40.9 percent rise in closings and to a 4.8 percent increase in average closing price. Homebuilding revenues decreased 11.1 percent to $862.6 million for 2011 from $969.8 million for 2010 primarily due to a 13.4 percent decline in closings, partially offset by a 2.4 percent increase in average closing price.

In order to manage risk and return of land investments, match land supply with anticipated volume levels and monetize marginal land positions, the Company executed several land and lot sales during the year. Homebuilding revenues included $7.7 million from land and lot sales for the year ended December 31, 2012, compared to $5.4 million for each of the years ended December 31, 2011 and 2010, which resulted in pretax earnings of $2.5 million, $426,000 and $900,000 for 2012, 2011 and 2010, respectively. Gross profit margin from land and lot sales was 32.9 percent, 7.9 percent and 16.7 percent for the years ended December 31, 2012, 2011 and 2010, respectively. Fluctuations in revenues and gross profit percentages from land and lot sales are a product of local market conditions and changing land portfolios. The Company generally purchases land and lots with the intent to build homes on those lots and sell them; however, it occasionally sells a portion of its land to other homebuilders or third parties.

Housing gross profit margin was 19.1 percent for the year ended December 31, 2012, compared to 16.7 percent for 2011. This improvement in housing gross profit margin was primarily attributable to a relative decline in direct construction costs of 0.9 percent; higher leverage of direct overhead expense of 0.6 percent due to an increase in the number of homes delivered; and lower land costs of 0.5 percent. Housing gross profit margin was 16.7 percent for the year ended December 31, 2011, compared to 13.4 percent for 2010. This improvement in housing gross profit margin was primarily attributable to a relative decline in direct construction costs of 1.6 percent; lower land costs of 1.2 percent; and the recovery of Chinese drywall warranty costs from third parties of 0.3 percent. Inventory and other valuation adjustments and write-offs affecting housing gross profit margin decreased to $5.2 million for the year ended December 31, 2012, from $8.3 million for 2011 and $33.4 million for 2010.

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The homebuilding segments' selling, general and administrative expense ratio totaled 12.9 percent of homebuilding revenues for 2012, 15.5 percent for 2011 and 14.8 percent for 2010. The decrease in the selling, general and administrative expense ratio for 2012, compared to 2011, was primarily attributable to higher leverage resulting from increased revenues, as well as to the impact of cost-saving initiatives. The increase in the selling, general and administrative expense ratio for 2011, compared to 2010, was primarily attributable to lower leverage resulting from a decline in revenues and to severance charges totaling $4.6 million, partially offset by the impact of cost-saving initiatives.

Interest, which was incurred principally to finance land acquisitions, land development and home construction, totaled $58.4 million, $56.4 million and $55.6 million for the years ended December 31, 2012, 2011 and 2010, respectively. The homebuilding segments recorded $16.1 million, $18.3 million and $24.4 million of interest expense for the years ended December 31, 2012, 2011 and 2010, respectively. The decrease in interest expense in 2012 from 2011 was primarily due to the capitalization of a greater amount of interest incurred during 2012, which resulted from a higher level of inventory under development, partially offset by interest incurred on additional senior notes issued in 2012. The decrease in interest expense in 2011 from 2010 was primarily due to the capitalization of a greater amount of interest incurred during 2011, which resulted from a higher level of inventory under development, and to lower debt outstanding. (See "Housing Inventories" within Note A, "Summary of Significant Accounting Policies.")

The Company's net loss from discontinued operations totaled $2.0 million, or $0.04 per diluted share, for the year ended December 31, 2012, compared to a net loss of $20.9 million, or $0.47 per diluted share, for 2011 and a net loss of $4.4 million, or $0.10 per diluted share, for 2010. Pretax charges related to inventory and other valuation adjustments and write-offs from discontinued operations totaled $1.9 million, or $0.04 per diluted share, $16.0 million, or $0.36 per diluted share, and $2.1 million, or $0.05 per diluted share, for the years ended December 31, 2012, 2011 and 2010, respectively. (See Note M, "Discontinued Operations.")

Homebuilding Segment Information

The Company's homebuilding operations consist of four geographically determined regional reporting segments: North, Southeast, Texas and West.

New Orders

New orders increased 51.8 percent to 5,719 units for the year ended December 31, 2012, from 3,767 units for 2011, and new order dollars for 2012 rose 61.9 percent, compared to 2011. New orders for 2012, compared to 2011, increased 32.0 percent in the North, 65.2 percent in the Southeast, 19.4 percent in Texas and 182.3 percent in the West. New orders for 2011, compared to 2010, increased 8.5 percent in the North, 13.2 percent in the Southeast and 15.6 percent in Texas, and decreased 9.9 percent in the West. The rise in new orders in 2012 was primarily due to a general increase in consumer demand and to a 12.8 percent rise in the number of active communities, although broader market trends and economic conditions that contribute to soft demand for residential housing persist. Additionally, the Company's average monthly sales absorption rate was 2.2 homes per community for the year ended December 31, 2012, versus 1.5 homes per community for 2011 and 1.6 homes per community for 2010.

The following table provides the number of the Company's active communities:

	DECEMBER 31,
		2012	% CHG		2011	% CHG		2010	% CHG
North		67	8.1	%	62	6.9	%	58	20.8	%
Southeast		85	39.3		61	13.0		54	(8.5	)
Texas		57	(14.9	)	67	1.5		66	46.7
West		29	38.1		21	40.0		15	(6.3	)
Total		238	12.8	%	211	9.3	%	193	14.9	%

The Company experiences seasonal variations in its quarterly operating results and capital requirements. Historically, new order activity is higher in the spring and summer months. As a result, the Company typically has more homes under construction, closes more homes, and has greater revenues and operating

23

income in the third and fourth quarters of its fiscal year. Historical results are not necessarily indicative of current or future homebuilding activities.

The following table provides the Company's new orders (units and aggregate sales values) for the years ended December 31, 2012, 2011 and 2010:

		2012	% CHG			2011	% CHG			2010	% CHG
UNITS
North		1,571	32.0	%		1,190	8.5	%		1,097	(30.6	)%
Southeast		1,936	65.2			1,172	13.2			1,035	(18.6	)
Texas		1,286	19.4			1,077	15.6			932	(23.5	)
West		926	182.3			328	(9.9	)		364	(53.7	)
Total		5,719	51.8	%		3,767	9.9	%		3,428	(29.4	)%
DOLLARS (in millions)
North	$	461	41.5	%	$	326	12.5	%	$	289	(30.4	)%
Southeast		454	79.3			253	13.3			224	(23.3	)
Texas		345	26.7			272	17.9			231	(20.0	)
West		285	177.1			103	13.9			90	(48.3	)
Total	$	1,545	61.9	%	$	954	14.4	%	$	834	(28.8	)%

The following table provides the Company's cancellation rates for the years ended December 31, 2012, 2011 and 2010:

	2012		2011		2010
North	19.4	%	19.4	%	23.3	%
Southeast	18.3		18.7		17.5
Texas	22.2		21.9		21.7
West	14.9		22.3		23.2
Total	19.0	%	20.2	%	21.2	%

The following table provides the Company's sales incentives and price concessions (average dollar value per unit closed and percentage of revenues) for the years ended December 31, 2012, 2011 and 2010:

	2012				2011				2010
(in thousands)		AVG $ PER UNIT	% OF REVENUES			AVG $ PER UNIT	% OF REVENUES			AVG $ PER UNIT	% OF REVENUES
North	$	25	8.0	%	$	29	9.6	%	$	33	11.2	%
Southeast		23	9.3			26	10.7			26	10.3
Texas		40	13.5			40	13.8			35	12.2
West		21	6.3			29	9.2			30	11.6
Total	$	28	9.6	%	$	31	11.2	%	$	31	11.3	%

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Closings

The following table provides the Company's closings and average closing prices for the years ended December 31, 2012, 2011 and 2010:

		2012	% CHG			2011	% CHG			2010	% CHG
UNITS
North		1,372	23.9	%		1,107	(13.5	)%		1,280	(21.7	)%
Southeast		1,576	59.5			988	(14.4	)		1,154	(2.9	)
Texas		1,242	19.0			1,044	7.2			974	(14.3	)
West		619	125.9			274	(48.4	)		531	(22.4	)
Total		4,809	40.9	%		3,413	(13.4	)%		3,939	(15.2	)%
AVERAGE PRICE (in thousands)
North	$	286	5.5	%	$	271	1.9	%	$	266	1.1	%
Southeast		225	3.2			218	(3.1	)		225	(5.5	)
Texas		259	3.2			251	0.8			249	6.4
West		314	7.2			293	26.8			231	1.3
Total	$	263	4.8	%	$	251	2.4	%	$	245	0.4	%

Outstanding Contracts

Outstanding contracts denote the Company's backlog of homes sold, but not closed, which are generally built and closed, subject to cancellations, over the subsequent two quarters. At December 31, 2012, the Company had outstanding contracts for 2,391 units, representing a 61.4 percent increase from 1,481 units at December 31, 2011, primarily due to a 51.8 percent rise in unit orders during 2012, compared to 2011. The $663.4 million value of outstanding contracts at December 31, 2012, represented a 73.8 percent increase from $381.8 million at December 31, 2011.

The following table provides the Company's outstanding contracts (units, aggregate dollar values and average prices) at December 31, 2012, 2011 and 2010:

	DECEMBER 31, 2012						DECEMBER 31, 2011						DECEMBER 31, 2010
		UNITS		DOLLARS (in millions)		AVERAGE PRICE (in thousands)		UNITS		DOLLARS (in millions)		AVERAGE PRICE (in thousands)		UNITS		DOLLARS (in millions)		AVERAGE PRICE (in thousands)
North		619	$	188	$	305		420	$	121	$	288		337	$	95	$	283
Southeast		881		211		239		521		111		214		337		74		219
Texas		477		135		283		433		112		258		400		101		252
West		414		129		311		107		38		353		53		15		285
Total		2,391	$	663	$	277		1,481	$	382	$	258		1,127	$	285	$	253

At December 31, 2012, the Company projected that approximately 50 percent of its outstanding contracts will close during the first quarter of 2013, subject to cancellations.

25

STATEMENTS OF EARNINGS

The following table provides a summary of the results for the homebuilding segments for the years ended December 31, 2012, 2011 and 2010:

(in thousands)		2012			2011			2010
NORTH
Revenues	$	393,238		$	299,595		$	344,154
Expenses
Cost of sales		324,572			254,566			298,479
Selling, general and administrative		50,963			47,162			52,737
Interest		6,101			6,921			8,780
Total expenses		381,636			308,649			359,996
Pretax earnings (loss)	$	11,602		$	(9,054	)	$	(15,842	)
Housing gross profit margin		17.5	%		15.0	%		13.3	%
SOUTHEAST
Revenues	$	355,621		$	218,672		$	259,357
Expenses
Cost of sales		286,450			189,895			230,573
Selling, general and administrative		46,399			35,175			37,631
Interest		4,206			5,278			7,599
Total expenses		337,055			230,348			275,803
Pretax earnings (loss)	$	18,566		$	(11,676	)	$	(16,446	)
Housing gross profit margin		19.5	%		16.5	%		12.7	%
TEXAS
Revenues	$	323,162		$	262,321		$	242,691
Expenses
Cost of sales		257,402			213,457			208,398
Selling, general and administrative		39,900			36,070			31,299
Interest		2,876			3,551			5,486
Total expenses		300,178			253,078			245,183
Pretax earnings (loss)	$	22,984		$	9,243		$	(2,492	)
Housing gross profit margin		20.4	%		19.1	%		14.4	%
WEST
Revenues	$	198,826		$	82,016		$	123,616
Expenses
Cost of sales		159,048			69,038			106,914
Selling, general and administrative		26,111			15,706			22,081
Interest		2,935			2,598			2,524
Total expenses		188,094			87,342			131,519
Pretax earnings (loss)	$	10,732		$	(5,326	)	$	(7,903	)
Housing gross profit margin		19.4	%		15.7	%		13.3	%
TOTAL
Revenues	$	1,270,847		$	862,604		$	969,818
Expenses
Cost of sales		1,027,472			726,956			844,364
Selling, general and administrative		163,373			134,113			143,748
Interest		16,118			18,348			24,389
Total expenses		1,206,963			879,417			1,012,501
Pretax earnings (loss)	$	63,884		$	(16,813	)	$	(42,683	)
Housing gross profit margin		19.1	%		16.7	%		13.4	%

Homebuilding Segments 2012 versus 2011

North—Homebuilding revenues increased 31.3 percent to $393.2 million in 2012 from $299.6 million in 2011 primarily due to a 23.9 percent rise in the number of homes delivered and to a 5.5 percent increase in average closing price. Gross profit margin on home sales was 17.5 percent in 2012, compared to 15.0 percent in 2011. This improvement was primarily due to higher leverage of direct overhead expense of 0.7 percent, reduced relative direct construction costs of 0.5 percent and lower land costs of 0.5 percent. As a result, the North region generated pretax earnings of $11.6 million in 2012, compared to a pretax loss of $9.1 million in 2011.

26

Southeast—Homebuilding revenues increased 62.6 percent to $355.6 million in 2012 from $218.7 million in 2011 primarily due to a 59.5 percent rise in the number of homes delivered and to a 3.2 percent increase in average closing price. Gross profit margin on home sales was 19.5 percent in 2012, compared to 16.5 percent in 2011. This improvement was primarily due to a decline in land costs of 1.8 percent and higher leverage of direct overhead expense of 0.8 percent. As a result, the Southeast region generated pretax earnings of $18.6 million in 2012, compared to a pretax loss of $11.7 million in 2011.

Texas—Homebuilding revenues increased 23.2 percent to $323.2 million in 2012 from $262.3 million in 2011 primarily due to a 19.0 percent rise in the number of homes delivered and to a 3.2 percent increase in average closing price. Gross profit margin on home sales was 20.4 percent in 2012, compared to 19.1 percent in 2011. This improvement was primarily due to a decline in land costs of 0.9 percent and to reduced relative direct construction costs of 0.5 percent. As a result, the Texas region generated pretax earnings of $23.0 million in 2012, compared to pretax earnings of $9.2 million in 2011.

West—Homebuilding revenues increased 142.4 percent to $198.8 million in 2012 from $82.0 million in 2011 primarily due to a 125.9 percent rise in the number of homes delivered and to a 7.2 percent increase in average closing price. Gross profit margin on home sales was 19.4 percent in 2012, compared to 15.7 percent in 2011. This improvement was primarily due to higher leverage of direct overhead expense of 1.4 percent, lower warranty costs of 1.1 percent and reduced relative direct construction costs of 1.0 percent. As a result, the West region generated pretax earnings of $10.7 million in 2012, compared to a pretax loss of $5.3 million in 2011.

Homebuilding Segments 2011 versus 2010

North—Homebuilding revenues decreased 12.9 percent to $299.6 million in 2011 from $344.2 million in 2010 primarily due to a 13.5 percent decline in the number of homes delivered, partially offset by a 1.9 percent increase in average closing price. Gross profit margin on home sales was 15.0 percent in 2011, compared to 13.3 percent in 2010. This improvement was primarily due to declines in relative direct construction costs of 1.4 percent and land costs of 1.2 percent, partially offset by a joint venture impairment of 0.6 percent. As a result, the North region incurred a pretax loss of $9.1 million in 2011, compared to a pretax loss of $15.8 million in 2010.

Southeast—Homebuilding revenues decreased 15.7 percent to $218.7 million in 2011 from $259.4 million in 2010 primarily due to a 14.4 percent decline in the number of homes delivered and to a 3.1 percent decrease in average closing price. Gross profit margin on home sales was 16.5 percent in 2011, compared to 12.7 percent in 2010. This improvement was primarily due to declines in land costs of 2.5 percent and relative direct construction costs of 1.5 percent, partially offset by lower leverage of direct overhead expense of 0.5 percent. As a result, the Southeast region incurred a pretax loss of $11.7 million in 2011, compared to a pretax loss of $16.4 million in 2010.

Texas—Homebuilding revenues increased 8.1 percent to $262.3 million in 2011 from $242.7 million in 2010 primarily due to a 7.2 percent rise in the number of homes delivered and to a 0.8 percent increase in average closing price. Gross profit margin on home sales was 19.1 percent in 2011, compared to 14.4 percent in 2010. This improvement was primarily due to a decrease in land costs of 3.8 percent. As a result, the Texas region generated pretax earnings of $9.2 million in 2011, compared to a pretax loss of $2.5 million in 2010.

West—Homebuilding revenues decreased 33.7 percent to $82.0 million in 2011 from $123.6 million in 2010 primarily due to a 48.4 percent decline in the number of homes delivered, partially offset by a 26.8 percent increase in average closing price. Gross profit margin on home sales was 15.7 percent in 2011, compared to 13.3 percent in 2010. This improvement was primarily due to reduced joint venture impairments of 3.7 percent. As a result, the West region incurred a pretax loss of $5.3 million in 2011, compared to a pretax loss of $7.9 million in 2010.

Impairments

As required by the Financial Accounting Standards Board's ("FASB") Accounting Standards Codification ("ASC") No. 360 ("ASC 360"), "Property, Plant and Equipment," inventory is reviewed for potential write-downs on an ongoing basis. ASC 360 requires that, in the event that impairment indicators are present and

27

undiscounted cash flows signify that the carrying amount of an asset is not recoverable, impairment charges must be recorded if the fair value of the asset is less than its carrying amount. (See "Housing Inventories" within Note A, "Summary of Significant Accounting Policies.")

The following table provides the total inventory and other valuation adjustments and write-offs taken during the years ended December 31, 2012, 2011 and 2010:

(in thousands)		2012		2011			2010
North
Inventory impairment charges	$	–	$	2,993		$	11,658
Joint venture and other valuation adjustments and write-offs		–		1,889			2,850
Option deposit and preacquisition feasibility cost write-offs		3,580		849			686
Total		3,580		5,731			15,194
Southeast
Inventory impairment charges		–		8,673			12,400
Joint venture and other valuation adjustments and write-offs		8		25			125
Option deposit and preacquisition feasibility cost write-offs		251		316			882
Total		259		9,014			13,407
Texas
Inventory impairment charges		–		1,624			8,186
Joint venture and other valuation adjustments and write-offs		–		–			–
Option deposit and preacquisition feasibility cost write-offs		119		26			44
Total		119		1,650			8,230
West
Inventory impairment charges		1,880		437			–
Joint venture and other valuation adjustments and write-offs		140		(6	)		4,633
Option deposit and preacquisition feasibility cost write-offs		284		493			474
Total		2,304		924			5,107
Total
Inventory impairment charges		1,880		13,727			32,244
Joint venture and other valuation adjustments and write-offs		148		1,908			7,608
Option deposit and preacquisition feasibility cost write-offs		4,234		1,684			2,086
Total	$	6,262	$	17,319		$	41,938

Additionally, the Company had $1.9 million, $16.0 million and $2.1 million of inventory and other valuation adjustments and write-offs associated with its discontinued operations in 2012, 2011 and 2010, respectively.

The Company recorded inventory impairment charges of $1.9 million, $13.7 million and $32.2 million during the years ended December 31, 2012, 2011 and 2010, respectively, in order to reduce the carrying values of the impaired communities to their estimated fair values. During 2012, one community in which the Company expects to build homes was impaired for a total of $1.9 million due to declining prices resulting from the competitive pressure of new, resale and distressed properties. At December 31, 2012, the fair value of this community's inventory that was subject to impairment during the year was $2.9 million. During 2011, eight communities in which the Company expects to build homes were impaired for a total of $5.7 million and ten communities with land or lots held-for-sale were impaired for a total of $8.0 million due to declining prices resulting from the competitive pressure of new, resale and distressed properties. During 2010, eleven communities in which the Company expects to build homes were impaired for a total of $27.7 million and seven communities with land or lots held-for-sale were impaired for a total of $4.5 million due to declining prices resulting from the competitive pressure of new, resale and distressed properties. Should market conditions deteriorate or costs increase, it is possible that the Company's estimates of undiscounted cash flows from its communities could decline, resulting in additional future impairment charges.

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The following table provides the total number of communities impaired for the years ended December 31, 2012, 2011 and 2010:

	2012	% CHG		2011	% CHG		2010	% CHG
North	–	(100.0	)%	3	(25.0	)%	4	(85.7	)%
Southeast	–	(100.0	)	8	(11.1	)	9	(74.3	)
Texas	–	(100.0	)	5	–		5	–
West	1	(50.0	)	2	100.0		–	(100.0	)
Total	1	(94.4	)%	18	–	%	18	(77.8	)%

Additionally, the Company impaired 2 communities, 20 communities and 4 communities associated with its discontinued operations in 2012, 2011 and 2010, respectively.

The Company periodically writes off earnest money deposits and preacquisition feasibility costs related to land and lot option purchase contracts that it no longer plans to pursue. During the year ended December 31, 2012, the Company wrote off $3.2 million and $996,000 of earnest money deposits and preacquisition feasibility costs, respectively. The Company wrote off $690,000 and $994,000 of earnest money deposits and preacquisition feasibility costs, respectively, during 2011, compared to $1.4 million and $690,000, respectively, during 2010. Should homebuilding market conditions weaken or the Company be unsuccessful in renegotiating certain land option purchase contracts, it may write off additional earnest money deposits and preacquisition feasibility costs in future periods.

Investments in Joint Ventures

As of December 31, 2012, the Company participated in five active homebuilding joint ventures in the Austin, Chicago, Denver and Washington, D.C., markets. These joint ventures exist for the purpose of acquisition and co-development of land parcels and lots, which are then sold to the Company, its joint venture partners or others at market prices. Depending on the number of joint ventures and the level of activity in the entities, annual earnings from the Company's joint ventures investments will vary significantly. The Company's investments in its unconsolidated joint ventures totaled $8.3 million at December 31, 2012, compared to $10.0 million at December 31, 2011. For the year ended December 31, 2012, the Company's equity in earnings from its unconsolidated joint ventures totaled $1.2 million. For the year ended December 31, 2011, the Company's equity in losses from its unconsolidated joint ventures totaled $976,000 primarily as a result of a $1.9 million impairment related to a commercial parcel in a joint venture in Chicago. For the year ended December 31, 2010, the Company's equity in losses from its unconsolidated joint ventures totaled $3.7 million primarily as a result of $4.1 million in valuation adjustments recorded against its investments in two joint ventures in Denver. (See "Investments in Joint Ventures" within Note A, "Summary of Significant Accounting Policies.")

Financial Services

The Company's financial services segment provides mortgage-related products and services, as well as title, escrow and insurance services, to its homebuyers. By aligning its operations with the Company's homebuilding segments, the financial services segment leverages this relationship to offer its lending services to homebuyers. Providing mortgage financing and other services to its customers helps the Company monitor its backlog and closing process. Substantially all of the loans the Company originates are sold within a short period of time in the secondary mortgage market on a servicing-released basis. The third-party purchaser then services and manages the loans. The fair values of the Company's mortgage loans held-for-sale totaled $108.0 million and $82.4 million at December 31, 2012 and 2011, respectively.

29

STATEMENTS OF EARNINGS

	YEAR ENDED DECEMBER 31,
(in thousands, except units)		2012			2011			2010
REVENUES
Income from origination and sale of mortgage loans, net	$	28,634		$	19,873		$	23,933
Title, escrow and insurance		7,199			5,895			6,573
Interest and other		1,786			1,159			501
TOTAL REVENUES		37,619			26,927			31,007
EXPENSES		24,477			21,188			30,162
PRETAX EARNINGS	$	13,142		$	5,739		$	845
Originations (units)		3,039			2,556			3,183
Ryland Homes origination capture rate		68.1	%		75.7	%		81.2	%

In 2012, RMC's mortgage origination operations consisted primarily of mortgage loans originated in connection with the sale of the Company's homes. The number of mortgage originations was 3,039 in 2012, compared to 2,556 in 2011 and 3,183 in 2010. During 2012, origination volume totaled $695.8 million. The vast majority of this amount was used for purchasing homes built by the Company, while the remainder was used for either purchasing homes built by others, purchasing existing homes or refinancing existing mortgage loans. The capture rate of mortgages originated for customers of the Company's homebuilding operations was 68.1 percent in 2012, compared to 75.7 percent in 2011 and 81.2 percent in 2010. The mortgage capture rate represents the percentage of homes sold and closed by the Company that were financed with mortgage loans obtained from RMC. Approximately eight percent of the Company's homebuyers did not finance their home purchase with a mortgage.

The financial services segment reported pretax earnings of $13.1 million, $5.7 million and $845,000 for the years ended December 31, 2012, 2011 and 2010, respectively. The rise in pretax earnings for 2012, compared to 2011, was primarily due to increases in locked loan pipeline and origination volumes and to higher title income, partially offset by a rise in personnel and legal expenses and by interest related to the financial services credit facility that was entered into during December 2011. The increase in pretax earnings for 2011, compared to 2010, was primarily due to decreases in loan indemnification expense and overhead costs and to a higher locked loan pipeline, partially offset by lower origination income due to a decline in volume and by lower income related to the Company's insurance captive.

Revenues for the financial services segment totaled $37.6 million in 2012, compared to $26.9 million in 2011 and $31.0 million in 2010. The 39.7 percent increase in revenues for 2012, compared to 2011, was primarily due to increases in locked loan pipeline and origination volumes and to higher title income. The 13.2 percent decrease in revenues for 2011, compared to 2010, was primarily due to a decline in origination volume and to lower title income, partially offset by a higher locked loan pipeline.

During 2012, financial services expense totaled $24.5 million and included $11.9 million related to direct expenses of RMC's mortgage operations; $7.9 million related to operating and other expenses; $3.3 million related to title and insurance expenses; and $1.4 million related to loan indemnification expense. Financial services expense totaled $21.2 million for 2011. The increase in expense for 2012 from 2011 was primarily attributable to higher personnel and legal expenses and to interest related to the financial services credit facility that was entered into during December 2011. Financial services expense for 2011 decreased to $21.2 million from $30.2 million for 2010 primarily due to a decline in loan indemnification expense and to savings that resulted from personnel and other reductions made in an effort to align overhead expense with lower production volume, partially offset by lower income from the Company's insurance captive.

In 2012, 99.1 percent of the loans originated by RMC had fixed interest rates. Approximately 51 percent were government loans and 49 percent were prime loans, which included bond loans administered by various city, state or municipality housing programs. Prime mortgage loans are generally defined as agency-eligible loans (Fannie Mae/Freddie Mac) and any nonconforming loans that would otherwise meet agency criteria. Currently, these loans are generally obtained by borrowers with Fair Isaac Corporation ("FICO") credit scores that exceed 620. RMC did not originate mortgage loans classified as subprime, reduced documentation or pay-option adjustable-rate. During 2012, the mortgage loans originated by RMC were

30

sold to investors such as Wells Fargo, JPMorgan Chase Bank, N.A. ("JPM") and Freddie Mac, or to specialized state bond loan programs. The Company has an early purchase program with a financial institution and a repurchase credit facility with JPM. RMC is typically not required to repurchase mortgage loans. Generally, the Company is required to indemnify its investors to which mortgage loans are sold if it is shown that there has been undiscovered fraud on the part of the borrower; if there are losses due to origination deficiencies attributable to RMC; or if the borrower does not make a first payment. The Company incurred $1.4 million in indemnification expense during 2012 and 2011, compared to $8.5 million in indemnification expense during 2010, and held loan loss or related litigation reserves of $10.5 million and $10.1 million for payment of future indemnifications at December 31, 2012 and 2011, respectively. (See Note K, "Commitments and Contingencies.")

Early Retirement of Debt

The Company recognized pretax charges related to early retirement of debt that totaled $9.1 million, $1.6 million and $19.3 million in 2012, 2011 and 2010, respectively.

Income Taxes

The Company evaluates its deferred tax assets on a quarterly basis to determine whether a valuation allowance is required. During 2012, the Company determined that a full valuation allowance was warranted. At December 31, 2012, the balance of the deferred tax valuation allowance was $258.9 million. The decrease of $11.6 million in the deferred tax valuation allowance during the year was primarily due to a reversal resulting from net income generated during the year.

The Company made a $1.6 million settlement payment for income tax, interest and penalty to a state taxing authority during 2011. Additionally, it recorded a tax benefit of $2.4 million to reverse the excess reserve previously recorded for the tax position that related to this settlement.

The Company's provision for income tax presented an overall effective income tax expense rate of 3.8 percent for the year ended December 31, 2012, an overall effective income tax benefit rate of 5.3 percent for 2011 and an effective income tax expense rate of 0.2 percent for 2010. For the years ended December 31, 2012, 2011 and 2010, the Company's effective rates differed from the federal and state statutory rates primarily due to changes in the net valuation allowance against its deferred tax assets. Changes in the effective income tax rate for 2012, 2011 and 2010 were primarily due to the settlement of previously reserved unrecognized tax benefits. (See "Critical Accounting Policies" within Management's Discussion and Analysis of Financial Condition and Results of Operations, and Note H, "Income Taxes.")

Discontinued Operations

During 2011, the Company discontinued future homebuilding operations in its Jacksonville and Dallas divisions. The Company intends to complete all homes currently under contract and to sell its remaining available land in these divisions as part of a strategic plan designed to efficiently manage its invested capital. The results of operations and cash flows for Jacksonville and Dallas, which were historically reported in the Company's Southeast and Texas segments, respectively, have been classified as discontinued operations. Additionally, the assets and liabilities related to these discontinued operations were presented separately in "Assets of discontinued operations" and "Liabilities of discontinued operations" within the Consolidated Balance Sheets. All prior period amounts have been reclassified to conform to the 2012 presentation.

The Company's net loss from discontinued operations totaled $2.0 million, or $0.04 per diluted share, for the year ended December 31, 2012, compared to a net loss of $20.9 million, or $0.47 per diluted share, for 2011 and a net loss of $4.4 million, or $0.10 per diluted share, for 2010. Pretax charges related to inventory and other valuation adjustments and write-offs associated with discontinued operations totaled $1.9 million, or $0.04 per diluted share, for the year ended December 31, 2012, compared to $16.0 million, or $0.36 per diluted share, for 2011 and $2.1 million, or $0.05 per diluted share, for 2010.

Financial Condition and Liquidity

The Company has historically funded its homebuilding and financial services operations with cash flows from operating activities; the issuance of new debt securities; borrowings under a repurchase credit facility;

31

and a revolving credit facility that was terminated by the Company in 2009. In light of current market conditions, the Company is focused on maintaining a strong balance sheet by generating cash from existing communities and by extending debt maturities when market conditions are favorable, as well as by investing in new communities to facilitate continued profitability. As a result of this strategy, the Company opened 116 new communities during 2012; ended the year with $614.6 million in cash, cash equivalents and marketable securities; issued $225.0 million of new 1.6 percent convertible senior notes; issued $250.0 million of new 5.4 percent senior notes; and redeemed $167.2 million of its existing 6.9 percent senior notes. The Company's housing gross profit margin increased to 19.1 percent in 2012 from 16.7 percent in 2011. This improvement in housing gross profit margin was primarily attributable to a relative decline in direct construction costs of 0.9 percent; higher leverage of direct overhead expense of 0.6 percent due to an increase in the number of homes delivered; and lower land costs of 0.5 percent.

	DECEMBER 31,
(in millions)		2012			2011
Cash, cash equivalents and marketable securities	$	615		$	563
Housing inventories1		1,056			761
Debt		1,134			824
Stockholders' equity	$	504		$	450
Net debt-to-capital ratio, including marketable securities		50.8	%		36.7	%

¹

Excludes consolidated inventory not owned, net of cash deposits.

Consolidated inventory owned by the Company increased 38.7 percent to $1.1 billion at December 31, 2012, compared to $761.2 million at December 31, 2011. The Company attempts to maintain a projected three- to four-year supply of land, assuming historically normalized sales rates. At December 31, 2012, it controlled 28,305 lots, with 17,781 lots owned and 10,524 lots, or 37.2 percent, under option. Lots controlled increased 31.2 percent at December 31, 2012, from 21,579 lots controlled at December 31, 2011. The Company also controlled 317 lots and 342 lots under joint venture agreements at December 31, 2012 and 2011, respectively. (See "Housing Inventories" and "Investments in Joint Ventures" within Note A, "Summary of Significant Accounting Policies.")

At December 31, 2012, the Company's net debt-to-capital ratio, including marketable securities, increased to 50.8 percent from 36.7 percent at December 31, 2011, primarily as a result of investments in inventory. The Company remains focused on maintaining its liquidity so that it can be flexible in reacting to changing market conditions. The Company had $614.6 million and $563.2 million in cash, cash equivalents and marketable securities at December 31, 2012 and 2011, respectively.

The following table provides the Company's cash flow activities from continuing operations for the years ended December 31, 2012, 2011 and 2010:

(in thousands)		2012			2011			2010
Net cash from continuing operations provided by (used for):
Operating activities	$	(200,875	)	$	(157,668	)	$	(67,532	)
Investing activities		(47,659	)		82,311			5,984
Financing activities		245,113			8,112			2,996
Net decrease in cash and cash equivalents from continuing operations	$	(3,421	)	$	(67,245	)	$	(58,552	)
Increase (decrease) in investments in marketable securities, available-for-sale, net	$	41,004		$	(90,779	)	$	(20,059	)

During 2012, the Company used $200.9 million of cash for operating activities from continuing operations, which included cash outflows related to a $301.6 million increase in inventories and $404,000 for income tax payments, offset by cash inflows of $101.1 million from other operating activities. Investing activities from continuing operations used $47.7 million, which included cash outflows of $37.4 million related to net investments in marketable securities and $12.7 million related to property, plant and equipment, offset by cash inflows of $2.3 million related to a net return of investment in unconsolidated joint ventures. Financing activities from continuing operations provided $245.1 million, which included cash inflows related to a $299.9 million net increase in senior debt and short-term borrowings and to $14.4 million from the issuance of common stock, offset by cash outflows related to a $49.9 million net decrease in borrowings against its financial services credit facility, an increase of $13.8 million in restricted cash and

32

payments of $5.4 million for dividends. Net cash used for continuing operations during 2012 was $3.4 million.

During 2011, the Company used $157.7 million of cash for operating activities from continuing operations, which included cash outflows related to an $85.5 million increase in inventories, $70.9 million for other operating activities and $1.3 million for income tax payments. Investing activities from continuing operations provided $82.3 million, which included cash inflows of $91.2 million related to net investments in marketable securities and $2.0 million related to a net return of investment in unconsolidated joint ventures, offset by cash outflows of $11.0 million related to property, plant and equipment. The Company provided $8.1 million for financing activities from continuing operations, which included cash inflows related to a $49.9 million increase in net borrowings against its financial services credit facility, a decline of $18.0 million in restricted cash and $3.6 million from the issuance of common stock, offset by cash outflows related to $58.0 million from net decreases in senior debt and short-term borrowings and to payments of $5.4 million for dividends. The net cash used for continuing operations during 2011 was $67.2 million.

During 2010, the Company used $67.5 million of cash for operating activities from continuing operations, which included cash outflows related to a $112.1 million increase in inventories and $54.7 million for other operating activities, offset by cash inflows of $99.3 million from net income tax refunds. Investing activities from continuing operations provided $6.0 million, which included cash inflows of $22.4 million related to net investments in marketable securities, offset by cash outflows of $12.4 million related to property, plant and equipment and $4.0 million related to net contributions to unconsolidated joint ventures. Financing activities from continuing operations provided $3.0 million, which included cash inflows of $6.4 million from net increases in senior debt and short-term borrowings and $4.9 million from the issuance of common stock, offset by cash outflows related to payments of $5.4 million for dividends and to an increase of $2.9 million in restricted cash. The net cash used for continuing operations during 2010 was $58.6 million.

Dividends declared totaled $0.12 per share for the annual periods ended December 31, 2012, 2011 and 2010.

For the year ended December 31, 2012, borrowing arrangements for the homebuilding segments included senior notes, convertible senior notes and nonrecourse secured notes payable.

Senior Notes

Senior notes outstanding, net of discount, totaled $1.1 billion and $820.0 million at December 31, 2012 and 2011, respectively.

During 2012, the Company issued $250.0 million of 5.4 percent senior notes due October 2022. The Company will pay interest on the notes on April 1 and October 1 of each year, commencing on April 1, 2013. The Company will use the $246.6 million in net proceeds that it received from this offering for general corporate purposes, which may include the repayment or repurchase of outstanding debt or the purchase of marketable securities.

Additionally during 2012, the Company issued $225.0 million of 1.6 percent convertible senior notes due May 2018. The Company will pay interest on the notes on May 15 and November 15 of each year, which commenced on November 15, 2012. The Company received net proceeds of $218.8 million from this offering prior to offering expenses. A portion of the proceeds was used for debt redemption, and the remaining proceeds will be used for general corporate purposes. (See Note G, "Debt and Credit Facilities.")

For the year ended December 31, 2012, the Company paid $177.2 million to redeem and repurchase $167.2 million of its 6.9 percent senior notes due June 2013, resulting in a loss of $9.1 million. For the year ended December 31, 2011, the Company's repurchases of its senior notes totaled $51.5 million in the open market, for which it paid $52.9 million, resulting in a loss of $1.6 million. For the year ended December 31, 2010, the Company's repurchases of its senior notes totaled $27.0 million in the open market, for which it paid $26.6 million, resulting in a net gain of $196,000. The gains or losses resulting

33

from these debt repurchases were included in "Loss related to early retirement of debt, net" within the Consolidated Statements of Earnings.

During 2010, the Company issued $300.0 million of 6.6 percent senior notes due May 2020. The Company used the proceeds from the sale of these notes to purchase existing notes pursuant to the tender offer and redemption, as well as to pay related fees and expenses. The Company will pay interest on the notes on May 1 and November 1 of each year, which commenced on November 1, 2010. The notes will mature on May 1, 2020, and are redeemable at stated redemption prices, in whole or in part, at any time.

Additionally in 2010, the Company redeemed and repurchased, pursuant to a tender offer and redemption, an aggregate $255.7 million of its senior notes due 2012, 2013 and 2015 for $273.9 million in cash. It recognized a charge of $19.5 million resulting from the tender offer and redemption, which was included in "Loss related to early retirement of debt, net" within the Consolidated Statements of Earnings.

Senior notes and indenture agreements are subject to certain covenants that include, among other things, restrictions on additional secured debt and the sale of assets. The Company was in compliance with these covenants at December 31, 2012.

The Company's obligations to pay principal, premium and interest under its 5.4 percent senior notes due January 2015; 8.4 percent senior notes due May 2017; 1.6 percent convertible senior notes due May 2018; 6.6 percent senior notes due May 2020; and 5.4 percent senior notes due October 2022 are guaranteed on a joint and several basis by substantially all of its 100 percent-owned homebuilding subsidiaries (the "Guarantor Subsidiaries"). Such guarantees are full and unconditional. (See Note L, "Supplemental Guarantor Information.")

Financial Services Credit Facility

During 2011, RMC entered into a $50.0 million repurchase credit facility with JPM. This facility is used to fund, and is secured by, mortgages that were originated by RMC and are pending sale. During 2012, this facility was increased to $75.0 million and extended to December 2013. Under the terms of this facility, RMC is required to maintain various financial and other covenants and to satisfy certain requirements relating to the mortgages securing the facility. At December 31, 2012, the Company was in compliance with these covenants. The Company had no outstanding borrowings against this credit facility at December 31, 2012, compared to outstanding borrowings against this credit facility that totaled $49.9 million at December 31, 2011.

Letter of Credit Agreements

To provide letters of credit required in the ordinary course of its business, the Company has various secured letter of credit agreements that require it to maintain restricted cash deposits for outstanding letters of credit. Outstanding letters of credit totaled $79.5 million and $66.0 million under these agreements at December 31, 2012 and 2011, respectively. (See Note G, "Debt and Credit Facilities.")

Nonrecourse Secured Notes Payable

To finance its land purchases, the Company may also use seller-financed nonrecourse secured notes payable. At December 31, 2012 and 2011, outstanding seller-financed nonrecourse secured notes payable totaled $6.0 million and $3.8 million, respectively. (See Note G, "Debt and Credit Facilities.")

Financial Services Subsidiaries

The financial services segment uses existing equity and cash generated internally to finance its operations. The Company has an early purchase program with a financial institution and a repurchase credit facility with JPM.

Other

During 2012, the Company filed a shelf registration with the SEC. The registration statement provides that securities may be offered, from time to time, in one or more series and in the form of senior, subordinated or convertible debt; preferred stock; preferred stock represented by depository shares; common stock; stock purchase contracts; stock purchase units; and warrants to purchase both debt and equity securities. The Company filed this registration statement to replace the prior registration statement

34

that expired February 6, 2012. In the future, the Company intends to continue to maintain effective shelf registration statements that will facilitate access to the capital markets. The timing and amount of future offerings, if any, will depend on market and general business conditions.

During 2012, the Company did not repurchase any shares of its outstanding common stock. The Company had existing authorization of $142.3 million from its Board of Directors to purchase 3.9 million additional shares, based on the Company's stock price at December 31, 2012. Outstanding shares of common stock at December 31, 2012 and 2011, totaled 45,175,053 and 44,413,594, respectively.

The following table provides a summary of the Company's contractual cash obligations and commercial commitments at December 31, 2012, and the effect such obligations are expected to have on its future liquidity and cash flow:

(in thousands)	TOTAL		2013		2014–2015		2016–2017		AFTER 2017
Debt, principal maturities	$	1,137,468	$	4,054	$	126,794	$	231,620	$	775,000
Interest on debt		407,483		63,087		122,775		102,918		118,703
Operating leases		20,225		4,414		8,619		4,571		2,621
Land option contracts1		455		455		–		–		–
Total at December 31, 2012	$	1,565,631	$	72,010	$	258,188	$	339,109	$	896,324

¹

Represents obligations under option contracts with specific performance provisions, net of cash deposits.

While the Company expects challenging economic conditions to eventually subside, it is focused on managing overhead expense, land acquisition, development and homebuilding construction activity in order to maintain cash and debt levels commensurate with its existing business and growth expectations. The Company believes that it will be able to fund its homebuilding and financial services operations through its existing cash resources and issuances of replacement debt.

Off-Balance Sheet Arrangements

In the ordinary course of business, the Company enters into land and lot option purchase contracts in order to procure land or lots for the construction of homes. Land and lot option purchase contracts enable the Company to control significant lot positions with a minimal capital investment, thereby reducing the risks associated with land ownership and development. At December 31, 2012, the Company had $53.1 million in cash deposits and letters of credit outstanding pertaining to land and lot option purchase contracts with an aggregate purchase price of $589.6 million, of which option contracts totaling $492,000 contained specific performance provisions. At December 31, 2011, the Company had $51.9 million in cash deposits and letters of credit outstanding pertaining to land and lot option purchase contracts with an aggregate purchase price of $407.6 million, of which option contracts totaling $1.0 million contained specific performance provisions. Additionally, the Company's liability is generally limited to forfeiture of nonrefundable deposits, letters of credit and other nonrefundable amounts incurred.

Pursuant to ASC No. 810 ("ASC 810"), "Consolidation," the Company consolidated $39.5 million and $51.4 million of inventory not owned related to land and lot option purchase contracts at December 31, 2012 and 2011, respectively. (See "Variable Interest Entities" within Note A, "Summary of Significant Accounting Policies.")

At December 31, 2012 and 2011, the Company had outstanding letters of credit under secured letter of credit agreements that totaled $79.5 million and $66.0 million, respectively. Additionally, at December 31, 2012, it had development or performance bonds that totaled $108.4 million, issued by third parties, to secure performance under various contracts and obligations related to land or municipal improvements, compared to $93.9 million at December 31, 2011. The Company expects that the obligations secured by these letters of credit and performance bonds will generally be satisfied in the ordinary course of business and in accordance with applicable contractual terms. To the extent that the obligations are fulfilled, the related letters of credit and performance bonds will be released, and the Company will not have any continuing obligations.

The Company has no material third-party guarantees other than those associated with its senior notes. (See Note L, "Supplemental Guarantor Information.")

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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 those policies that management believes are critical and require the use of complex judgment in their application. There are items within the financial statements that require estimation, but they are not considered critical.

Management has discussed the critical accounting policies with the Audit Committee of its Board of Directors, and the Audit Committee has reviewed the disclosure.

Use of Estimates

In budgeting land acquisitions, development and homebuilding construction costs associated with real estate projects, the Company evaluates market conditions; material and labor costs; buyer preferences; construction timing; and provisions for insurance, mortgage loan reserves and warranty obligations. The Company accrues its best estimate of probable cost for the resolution of legal claims. Estimates, which are based on historical experience and other assumptions, are reviewed continually, updated when necessary and believed to be reasonable under the circumstances. Management believes that the timing and scope of its evaluation procedures are proper and adequate. Changes in assumptions relating to such factors, however, could have a material effect on the Company's results of operations for a particular quarterly or annual period.

Income Recognition

As required by ASC No. 976 ("ASC 976"), "Real Estate—Retail Land," revenues and cost of sales are recorded at the time each home or lot is closed; title and possession are transferred to the buyer; and there is no significant continuing involvement from the Company. In order to match revenues with related expenses, land, land development, interest, taxes and other related costs (both incurred and estimated to be incurred in the future) are allocated to the cost of homes closed, based upon the relative sales value basis of the total number of homes to be constructed in each community, in accordance with ASC No. 970 ("ASC 970"), "Real Estate—General." Estimated land, common area development and related costs of planned communities, including the cost of amenities, are allocated to individual parcels or communities on a relative sales value basis. Changes to estimated costs, subsequent to the commencement of the delivery of homes, are allocated to the remaining undelivered homes in the community. Home construction and related costs are charged to the cost of homes closed under the specific-identification method.

Marketable Securities

In 2009, the Company began to invest a portion of its available cash and cash equivalent balances in marketable securities having maturities in excess of three months in a managed portfolio. These investments are primarily held in the custody of a single financial institution. To be considered for investment, securities must meet certain minimum requirements as to their credit ratings, maturity terms and other risk-related criteria as defined by the Company's investment policies. The primary objectives of these investments are the preservation of capital and the maintenance of a high degree of liquidity, with a secondary objective being the attainment of yields higher than those earned on the Company's cash and cash equivalent balances.

The Company considers its investment portfolio to be available-for-sale. Accordingly, these investments are recorded at their fair values, with unrealized gains and losses included in "Accumulated other comprehensive income" within the Consolidated Balance Sheets. (See Note F, "Fair Values of Financial and Nonfinancial Instruments.")

The Company periodically reviews its available-for-sale securities for other-than-temporary declines in fair values that are below their cost basis, as well as whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. This evaluation is based on factors such as the length of time and extent to which the fair value has been less than the security's cost basis and the adverse conditions specifically related to the security, including any changes to the rating of the security by a rating agency. A temporary impairment results in an unrealized loss being recorded in "Accumulated

36

other comprehensive income" in "Stockholders' equity" within the Consolidated Balance Sheets. An other-than-temporary impairment charge is recorded as a realized loss in the Consolidated Statements of Earnings. Since the portfolio's inception, none of the unrealized losses associated with the Company's marketable securities, available-for-sale, have been determined to be other-than-temporary. The Company believes that the cost bases for its marketable securities, available-for-sale, were recoverable in all material respects at December 31, 2012 and 2011.

Inventory Valuation

Housing inventories consist principally of homes under construction; land under development and improved lots; and inventory held-for-sale. Inventory includes land and development costs; direct construction costs; capitalized indirect construction costs; capitalized interest; and real estate taxes. The costs of acquiring and developing land and constructing certain related amenities are allocated to the parcels to which these costs relate. Interest and taxes are capitalized during active development and construction stages. Inventories to be held and used are stated at cost unless a community is determined to be impaired, in which case the impaired inventories are written down to their fair values. Inventories held-for-sale are stated at the lower of their costs or fair values, less cost to sell.

As required by ASC 360, inventory is reviewed for potential write-downs on an ongoing basis. ASC 360 requires that, in the event that impairment indicators are present and undiscounted cash flows signify that the carrying amount of an asset is not recoverable, impairment charges must be recorded if the fair value of the asset is less than its carrying amount. The Company reviews all communities on a quarterly basis for changes in events or circumstances indicating signs of impairment. Examples of events or changes in circumstances include, but are not limited to: price declines resulting from sustained competitive pressures; a change in the manner in which the asset is being used; a change in assessments by a regulator or municipality; cost increases; the expectation that, more likely than not, an asset will be sold or disposed of significantly before the end of its previously estimated useful life; or the impact of local economic or macroeconomic conditions, such as employment or housing supply, on the market for a given product. Signs of impairment may include, but are not limited to: very low or negative profit margins, the absence of sales activity in an open community and/or significant price differences for comparable parcels of land held-for-sale.

If it is determined that indicators of impairment exist in a community, undiscounted cash flows are prepared and analyzed at a community level based on expected pricing; sales rates; construction costs; local municipality fees; and warranty, closing, carrying, selling, overhead and other related costs; or on similar assets to determine if the realizable values of the assets held are less than their respective carrying amounts. In order to determine assumed sales prices included in cash flow models, the Company analyzes historical sales prices on homes delivered in the community and in other communities located within the same geographic area, as well as sales prices included in its current backlog for such communities. In addition, it analyzes market studies and trends, which generally include statistics on sales prices in neighboring communities and sales prices of similar products in non-neighboring communities in the same geographic area. In order to estimate the costs of building and delivering homes, the Company generally assumes cost structures reflecting contracts currently in place with vendors, adjusted for any anticipated cost-reduction initiatives or increases. The Company's analysis of each community generally assumes current pricing equal to current sales orders for a particular or comparable community. For a minority of communities that the Company does not intend to operate for an extended period of time or where the operating life extends beyond several years, slight increases over current sales prices are assumed in later years. Once a community is considered to be impaired, the Company's determinations of fair value and new cost basis are primarily based on discounting estimated cash flows at rates commensurate with inherent risks associated with the continuing assets. Discount rates used generally vary from 19.0 percent to 30.0 percent, depending on market risk, the size or life of a community and development risk. Due to the fact that estimates and assumptions included in cash flow models are based on historical results and projected trends, unexpected changes in market conditions that may lead to additional impairment charges in the future cannot be anticipated.

Valuation adjustments are recorded against homes completed or under construction, land under development or improved lots when analyses indicate that the carrying values are greater than the fair values. Write-downs of impaired inventories to their fair values are recorded as adjustments to the cost

37

basis of the respective inventory. At December 31, 2012 and 2011, valuation reserves related to impaired inventories totaled $207.8 million and $277.2 million, respectively. The net carrying values of the related inventories totaled $182.2 million and $195.8 million at December 31, 2012 and 2011, respectively.

The costs of acquiring and developing land and constructing certain related amenities are allocated to the parcels to which these costs relate. Management believes its processes are designed to properly assess the market and the carrying values of assets.

Warranty Reserves

The Company's homes are sold with limited third-party warranties. Warranty reserves are established as homes close on a house-by-house basis and in an amount estimated to adequately cover the expected costs of materials and outside labor during warranty periods. Certain factors are considered in determining the reserves, including the historical range of amounts paid per house; experience with respect to similar home designs and geographic areas; the historical amount paid as a percentage of home construction costs; any warranty expenditures not considered to be normal and recurring; and conditions that may affect certain subdivisions. Improvements in quality control and construction techniques expected to impact future warranty expenditures are also considered. Accordingly, the process of determining the Company's warranty reserves balance requires estimates associated with various assumptions, each of which can positively or negatively impact this balance.

Generally, warranty reserves are reviewed monthly to determine the reasonableness and adequacy of both the aggregate reserve amount and the per unit reserve amount originally included in housing cost of sales, as well as to note the timing of any reversals of the original reserve. General warranty reserves not utilized for a particular house are evaluated for reasonableness in the aggregate on both a market-by-market basis and a consolidated basis. Warranty payments for an individual house may exceed the related reserve. Payments in excess of the related reserve are evaluated in the aggregate to determine if an adjustment to the warranty reserve should be recorded, which could result in a corresponding adjustment to housing cost of sales.

The Company continues to evaluate the adequacy of its warranty reserves and believes that its existing estimation process is materially accurate. Since the Company's warranty reserves can be impacted by a significant number of factors, it is possible that changes to the Company's assumptions could have a material impact on its warranty reserve balance.

Income Taxes

The Company calculates a provision for its income taxes by using the asset and liability method, under which deferred tax assets and liabilities are recognized by identifying temporary differences arising from the diverse treatment of items for tax and general accounting purposes. The Company evaluates its deferred tax assets on a quarterly basis to determine whether a valuation allowance is required. In accordance with ASC No. 740 ("ASC 740"), "Income Taxes," the Company assesses whether a valuation allowance should be established based on available evidence indicating whether it is more likely than not that all or some portion of the deferred tax assets will not be realized. Significant judgment is required in estimating valuation allowances for deferred tax assets. The realization of a deferred tax asset ultimately depends on the existence of sufficient taxable income in either the carryback or carryforward periods under tax law. This assessment considers, among other matters, current and cumulative income and loss; future profitability; the duration of statutory carryback or carryforward periods; asset turns; and tax planning alternatives. The Company bases its estimate of deferred tax assets and liabilities on current tax laws and rates. In certain cases, it also bases this estimate on business plan forecasts and other expectations about future outcomes. Changes in existing tax laws or rates could affect the Company's actual tax results, and future business results may affect the amount of its deferred tax liabilities or the valuation of its deferred tax assets over time. Due to uncertainties in the estimation process, particularly with respect to changes in facts and circumstances in future reporting periods, as well as to the residential homebuilding industry's cyclicality and sensitivity to changes in economic conditions, it is possible that actual results could differ from the estimates used in the Company's historical analyses. These differences could have a material impact on the Company's consolidated results of operations or financial position.

38

The Company recorded significant deferred tax assets in 2012, 2011 and 2010. These deferred tax assets were generated primarily by inventory impairments and by the Company's inability to carry back its 2012, 2011 and 2010 net operating losses. The Company believes that the inability to carry back its current net operating losses and its recent earnings history are significant evidence of the need for a valuation allowance against its net deferred tax assets. At December 31, 2012, the Company had a valuation allowance equal to 100 percent of its net deferred tax assets. The Company is allowed to carry forward tax losses for 20 years and to apply such tax losses to future taxable income in order to realize federal deferred tax assets. To the extent that the Company generates sufficient taxable income in the future to utilize the tax benefits of related deferred tax assets, it expects to experience a reduction in its effective tax rate as the valuation allowance is reversed.

Mortgage Loan Loss Reserves

Reserves are created to address repurchase and indemnity claims by third-party investors or purchasers that arise primarily if the borrower obtained the loan through fraudulent information or omissions; if there are origination deficiencies attributable to RMC; or if the borrower does not make a first payment. Reserves are determined based on pending claims received that are associated with previously sold mortgage loans, industry foreclosure data, the Company's portfolio delinquency and foreclosure rates on sold loans made available by investors, as well as on historical loss payment patterns used to develop ultimate loss projections. Estimating loss is difficult due to the inherent uncertainty in predicting foreclosure activity, as well as to delays in processing and requests for payment related to the loan loss by agencies and financial institutions. Recorded reserves represent the Company's best estimates of current and future unpaid losses as of December 31, 2012, based on existing conditions and available information. The Company continues to evaluate the adequacy of its mortgage loan loss reserves and believes that its existing estimation process provides a reasonable estimate of loss. Since the Company's mortgage loan loss reserves can be impacted by a significant number of factors, it is possible that subsequent changes in conditions or available information may change assumptions and estimates, which could have a material impact on its mortgage loan loss reserve balance.

Share-Based Payments

The Company follows the provisions of ASC No. 718 ("ASC 718"), "Compensation—Stock Compensation," which requires that compensation expense be measured and recognized at an amount equal to the fair value of share-based payments granted under compensation arrangements. The Company calculates the fair value of stock options by using the Black-Scholes-Merton option-pricing model. Determination of the fair value of share-based awards at the grant date requires judgment in developing assumptions and involves a number of variables. These variables include, but are not limited to: expected price volatility of the stock over the term of the awards, expected dividend yield and expected stock option exercise behavior. Additionally, judgment is also required in estimating the number of share-based awards that are expected to forfeit. If actual results differ significantly from these estimates, stock-based compensation expense and the Company's consolidated results of operations could be materially impacted. The Company believes that accounting for stock-based compensation is a critical accounting policy because it requires the use of complex judgment in its application.

Outlook

During 2012, improving economic conditions; historically high affordability levels for new homes; low interest rates; a reduced supply of new homes; and a more favorable product mix have led to a shift in housing fundamentals in most markets, which has resulted in increased demand and improved sales traffic through the Company's communities. On average, sales rates, prices and margins have improved. Absent any unexpected changes in economic conditions, and other unforeseen circumstances, these developments, combined with reductions in relative overhead expenditures, should allow the Company to continue to improve its performance. The Company increased its number of active communities by 12.8 percent during the year ended December 31, 2012, and it anticipates continued growth in its community count in 2013. Sales orders for new homes rose 51.8 percent during 2012, compared to 2011. At December 31, 2012, the Company's backlog of orders for new homes totaled 2,391 units, or a projected dollar value of $663.4 million, reflecting a 73.8 percent increase in projected dollar value from $381.8 million at December 31, 2011. These trends seem to indicate that demand for new housing is improving, although high unemployment levels and tight mortgage credit standards continue to negatively

39

impact the homebuilding industry by keeping sales absorption rates per community depressed, compared to traditional levels. The pace at which the Company acquires new land and opens additional communities will depend on market and economic conditions, as well as future sales rates. Although the Company's outlook remains cautious, the strength of its balance sheet, additional liquidity and improved operating leverage have positioned it to successfully take advantage of any continued improvements in economic trends and in the demand for new homes.

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk

Market Risk Summary

The following table provides information about the Company's significant financial instruments that are sensitive to changes in interest rates at December 31, 2012. For debt obligations, the table presents principal cash flows and related weighted-average interest rates by expected maturity dates. For other financial instruments, weighted-average rates are based on implied forward rates as of the reporting date.

Interest Rate Sensitivity
Principal Amount by Expected Maturity

(in thousands)		2013			2014-2015			2016-2017			THERE- AFTER			TOTAL			FAIR VALUE
Senior notes (fixed-rate)	$	–		$	126,481		$	230,000		$	775,000		$	1,131,481		$	1,300,829
Average interest rate		–	%		5.4	%		8.4	%		4.8	%		5.6	%
Other financial instruments
Mortgage interest rate lock commitments:
Notional amount	$	137,741		$	–		$	–		$	–		$	137,741		$	4,737
Average interest rate		3.5	%		–	%		–	%		–	%		3.5	%
Forward-delivery contracts:
Notional amount	$	68,000		$	–		$	–		$	–		$	68,000		$	(369	)
Average interest rate		3.0	%		–	%		–	%		–	%		3.0	%

Interest rate risk is a primary market risk facing the Company. Interest rate risk arises principally in the Company's financial services segment. The Company enters into forward-delivery contracts and may, at times, use other hedging contracts to mitigate its exposure to movement in interest rates on mortgage interest rate lock commitments ("IRLCs"). In managing interest rate risk, the Company does not speculate on the direction of interest rates. (See "Derivative Instruments" within Note A, "Summary of Significant Accounting Policies," and Note D, "Derivative Instruments.")

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Item 8.    Financial Statements and Supplementary Data

CONSOLIDATED STATEMENTS OF EARNINGS

	YEAR ENDED DECEMBER 31,
(in thousands, except share data)		2012			2011			2010
REVENUES
Homebuilding	$	1,270,847		$	862,604		$	969,818
Financial services		37,619			26,927			31,007
TOTAL REVENUES		1,308,466			889,531			1,000,825
EXPENSES
Cost of sales		1,027,472			726,956			844,364
Selling, general and administrative		189,500			158,045			168,873
Financial services		24,477			21,188			30,162
Interest		16,118			18,348			24,389
TOTAL EXPENSES		1,257,567			924,537			1,067,788
OTHER (LOSS) INCOME
Gain from marketable securities, net		2,214			3,882			5,774
Loss related to early retirement of debt, net		(9,146	)		(1,608	)		(19,308	)
TOTAL OTHER (LOSS) INCOME		(6,932	)		2,274			(13,534	)
Income (loss) from continuing operations before taxes		43,967			(32,732	)		(80,497	)
Tax expense (benefit)		1,585			(2,865	)		195
NET INCOME (LOSS) FROM CONTINUING OPERATIONS		42,382			(29,867	)		(80,692	)
Loss from discontinued operations, net of taxes		(2,000	)		(20,883	)		(4,447	)
NET INCOME (LOSS)	$	40,382		$	(50,750	)	$	(85,139	)
NET INCOME (LOSS) PER COMMON SHARE
Basic
Continuing operations	$	0.93		$	(0.67	)	$	(1.83	)
Discontinued operations		(0.04	)		(0.47	)		(0.10	)
Total		0.89			(1.14	)		(1.93	)
Diluted
Continuing operations		0.88			(0.67	)		(1.83	)
Discontinued operations		(0.04	)		(0.47	)		(0.10	)
Total	$	0.84		$	(1.14	)	$	(1.93	)
AVERAGE COMMON SHARES OUTSTANDING
Basic		44,761,178			44,357,470			44,050,013
Diluted		49,655,321			44,357,470			44,050,013
DIVIDENDS DECLARED PER COMMON SHARE	$	0.12		$	0.12		$	0.12

See Notes to Consolidated Financial Statements.

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CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME

	YEAR ENDED DECEMBER 31,
(in thousands)		2012			2011			2010
Net income (loss)	$	40,382		$	(50,750	)	$	(85,139	)
Other comprehensive loss before tax:
Reduction of unrealized gain related to cash flow hedging instruments		(1,709	)		(1,207	)		(1,207	)
Unrealized gain (loss) on marketable securities, available-for-sale:
Unrealized gain		1,217			360			1,750
Less: reclassification adjustments for gains included in net income (loss)		(233	)		(1,358	)		(2,558	)
		984			(998	)		(808	)
Other comprehensive loss before tax		(725	)		(2,205	)		(2,015	)
Income tax benefit related to items of other comprehensive loss		653			502			771
Other comprehensive loss, net of tax		(72	)		(1,703	)		(1,244	)
Comprehensive income (loss)	$	40,310		$	(52,453	)	$	(86,383	)

See Notes to Consolidated Financial Statements.

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CONSOLIDATED BALANCE SHEETS

	DECEMBER 31,
(in thousands, except share data)		2012		2011
ASSETS
Cash, cash equivalents and marketable securities
Cash and cash equivalents	$	155,692	$	159,113
Restricted cash		70,893		57,049
Marketable securities, available-for-sale		388,020		347,016
Total cash, cash equivalents and marketable securities		614,605		563,178
Housing inventories
Homes under construction		459,269		319,476
Land under development and improved lots		573,975		413,569
Inventory held-for-sale		4,684		11,015
Consolidated inventory not owned		39,490		51,400
Total housing inventories		1,077,418		795,460
Property, plant and equipment		20,409		19,920
Mortgage loans held-for-sale		107,950		82,351
Other		111,057		82,911
Assets of discontinued operations		2,480		35,324
TOTAL ASSETS		1,933,919		1,579,144
LIABILITIES
Accounts payable		124,797		74,327
Accrued and other liabilities		147,358		140,930
Financial services credit facility		–		49,933
Debt		1,134,468		823,827
Liabilities of discontinued operations		1,536		6,217
TOTAL LIABILITIES		1,408,159		1,095,234
EQUITY
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par value:
Authorized—10,000 shares Series A Junior
Participating Preferred, none outstanding		–		–
Common stock, $1.00 par value:
Authorized—199,990,000 shares
Issued—45,175,053 shares at December 31, 2012
(44,413,594 shares at December 31, 2011)		45,175		44,414
Retained earnings		458,669		405,109
Accumulated other comprehensive income		92		164
TOTAL STOCKHOLDERS' EQUITY FOR THE RYLAND GROUP, INC.		503,936		449,687
NONCONTROLLING INTEREST		21,824		34,223
TOTAL EQUITY		525,760		483,910
TOTAL LIABILITIES AND EQUITY	$	1,933,919	$	1,579,144

See Notes to Consolidated Financial Statements.

43

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands, except per share data)		COMMON STOCK		RETAINED EARNINGS			ACCUMULATED OTHER COMPREHENSIVE INCOME			TOTAL STOCKHOLDERS' EQUITY
STOCKHOLDERS' EQUITY BALANCE AT JANUARY 1, 2010	$	43,845	$	534,906		$	3,111		$	581,862
Net loss				(85,139	)					(85,139	)
Other comprehensive loss, net of tax							(1,244	)		(1,244	)
Common stock dividends (per share $0.12)				(5,381	)					(5,381	)
Stock-based compensation		343		9,415						9,758
STOCKHOLDERS' EQUITY BALANCE AT DECEMBER 31, 2010	$	44,188	$	453,801		$	1,867		$	499,856
NONCONTROLLING INTEREST										61,806
TOTAL EQUITY BALANCE AT DECEMBER 31, 2010									$	561,662
STOCKHOLDERS' EQUITY BALANCE AT JANUARY 1, 2011	$	44,188	$	453,801		$	1,867		$	499,856
Net loss				(50,750	)					(50,750	)
Other comprehensive loss, net of tax							(1,703	)		(1,703	)
Common stock dividends (per share $0.12)				(5,410	)					(5,410	)
Stock-based compensation		226		7,468						7,694
STOCKHOLDERS' EQUITY BALANCE AT DECEMBER 31, 2011	$	44,414	$	405,109		$	164		$	449,687
NONCONTROLLING INTEREST										34,223
TOTAL EQUITY BALANCE AT DECEMBER 31, 2011									$	483,910
STOCKHOLDERS' EQUITY BALANCE AT JANUARY 1, 2012	$	44,414	$	405,109		$	164		$	449,687
Net income				40,382						40,382
Other comprehensive loss, net of tax							(72	)		(72	)
Common stock dividends (per share $0.12)				(5,479	)					(5,479	)
Stock-based compensation		761		18,657						19,418
STOCKHOLDERS' EQUITY BALANCE AT DECEMBER 31, 2012	$	45,175	$	458,669		$	92		$	503,936
NONCONTROLLING INTEREST										21,824
TOTAL EQUITY BALANCE AT DECEMBER 31, 2012									$	525,760

See Notes to Consolidated Financial Statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS

	YEAR ENDED DECEMBER 31,
(in thousands)		2012			2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) from continuing operations	$	42,382		$	(29,867	)	$	(80,692	)
Adjustments to reconcile net income (loss) from continuing operations to net cash used for operating activities:
Depreciation and amortization		15,399			11,312			16,399
Inventory and other asset impairments and write-offs		6,262			17,319			41,938
Loss on early extinguishment of debt, net		9,146			1,608			19,308
Gain on sale of marketable securities		(1,482	)		(2,141	)		(3,189	)
(Decrease) increase in deferred tax valuation allowance		(11,584	)		20,243			32,740
Stock-based compensation expense		17,841			9,671			11,528
Changes in assets and liabilities:
Increase in inventories		(301,643	)		(85,520	)		(112,053	)
Net change in other assets, payables and other liabilities		23,596			(99,305	)		6,946
Other operating activities, net		(792	)		(988	)		(457	)
Net cash used for operating activities from continuing operations		(200,875	)		(157,668	)		(67,532	)
CASH FLOWS FROM INVESTING ACTIVITIES
Return of investment in (contributions to) unconsolidated joint ventures, net		2,310			1,955			(4,043	)
Additions to property, plant and equipment		(12,710	)		(10,964	)		(12,423	)
Purchases of marketable securities, available-for-sale		(1,174,314	)		(1,308,572	)		(1,720,473	)
Proceeds from sales and maturities of marketable securities, available-for-sale		1,136,946			1,399,774			1,742,913
Other investing activities		109			118			10
Net cash (used for) provided by investing activities from continuing operations		(47,659	)		82,311			5,984
CASH FLOWS FROM FINANCING ACTIVITIES
Cash proceeds of long-term debt		475,000			–			300,000
Retirement of long-term debt		(177,219	)		(52,917	)		(300,554	)
(Decrease) increase in borrowings against revolving credit facilities, net		(49,933	)		49,933			–
Increase (decrease) in short-term borrowings		2,154			(5,110	)		7,001
Common stock dividends		(5,411	)		(5,405	)		(5,367	)
Issuance of common stock under stock-based compensation		14,366			3,622			4,851
(Increase) decrease in restricted cash		(13,844	)		17,989			(2,935	)
Net cash provided by financing activities from continuing operations		245,113			8,112			2,996
Net decrease in cash and cash equivalents from continuing operations		(3,421	)		(67,245	)		(58,552	)
Cash flows from operating activities—discontinued operations		(104	)		469			2,052
Cash flows from investing activities—discontinued operations		75			(363	)		(551	)
Cash flows from financing activities—discontinued operations		–			(89	)		(1,501	)
Cash and cash equivalents at beginning of period1		159,169			226,397			284,949
CASH AND CASH EQUIVALENTS AT END OF PERIOD2	$	155,719		$	159,169		$	226,397
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION FROM CONTINUING OPERATIONS
Cash paid for interest, net of capitalized interest	$	(12,777	)	$	(22,949	)	$	(27,389	)
Cash (paid) refunds received for income taxes		(404	)		(1,343	)		99,320
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES FROM CONTINUING OPERATIONS
Decrease (increase) in consolidated inventory not owned related to land options	$	12,399		$	27,583		$	(61,806	)

¹

Includes cash and cash equivalents associated with discontinued operations of $56,000 at December 31, 2011, and $39,000 at December 31, 2010 and 2009.

²

Includes cash and cash equivalents associated with discontinued operations of $27,000, $56,000 and $39,000 at December 31, 2012, 2011 and 2010, respectively.

See Notes to Consolidated Financial Statements.

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Note A: Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of The Ryland Group, Inc. and its 100 percent-owned subsidiaries. Noncontrolling interest represents the selling entities' ownership interests in land and lot option purchase contracts. Intercompany transactions have been eliminated in consolidation. Information is presented on a continuing operations basis unless otherwise noted. The results from continuing and discontinued operations are presented separately in the consolidated financial statements. (See Note M, "Discontinued Operations.") Effective January 1, 2012, the Company elected to reclassify its external commissions expense from cost of sales to selling, general and administrative expense in its Consolidated Statements of Earnings in order to not only be consistent with a majority of its peers, but also to combine external and internal commissions. This had the effect of increasing both housing gross profit and selling, general and administrative expense by the amount of external commissions, which totaled $27.9 million, $18.2 million and $18.7 million, or 2.2 percent, 2.1 percent and 1.9 percent of housing revenues, for the years ended December 31, 2012, 2011 and 2010, respectively. Effective July 1, 2012, the Company's selling, general and administrative expense included corporate expense. All prior period amounts have been reclassified to conform to the 2012 presentation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates.

Cash and Cash Equivalents

Cash and cash equivalents totaled $155.7 million and $159.1 million at December 31, 2012 and 2011, respectively. The Company considers all highly liquid short-term investments purchased with an original maturity of three months or less and cash held in escrow accounts to be cash equivalents.

Restricted Cash

At December 31, 2012 and 2011, the Company had restricted cash of $70.9 million and $57.0 million, respectively. The Company has various secured letter of credit agreements that require it to maintain cash deposits as collateral for outstanding letters of credit. Cash restricted under these agreements totaled $70.3 million and $56.7 million at December 31, 2012 and 2011, respectively. In addition, RMC had restricted cash of $627,000 and $391,000 at December 31, 2012 and 2011, respectively.

Marketable Securities, Available-for-sale

The Company considers its investment portfolio to be available-for-sale. Accordingly, these investments are recorded at their fair values, with unrealized gains or losses generally recorded in other comprehensive income. (See Note E, "Marketable Securities, Available-for-sale.")

Homebuilding Revenues

In accordance with ASC 976, homebuilding revenues are recognized when home and lot sales are closed; title and possession are transferred to the buyer; and there is no significant continuing involvement from the Company. Sales incentives offset revenues and are expensed when homes are closed.

Housing Inventories

Housing inventories consist principally of homes under construction; land under development and improved lots; and inventory held-for-sale. Inventory includes land and development costs; direct construction costs; capitalized indirect construction costs; capitalized interest; and real estate taxes. The costs of acquiring and developing land and constructing certain related amenities are allocated to the parcels to which these costs relate. Interest and taxes are capitalized during active development and construction stages. Inventories to be held and used are stated at cost unless a community is determined to be impaired, in which case the impaired inventories are written down to their fair values. Inventories held-for-sale are stated at the lower of their costs or fair values, less cost to sell.

As required by ASC 360, inventory is reviewed for potential write-downs on an ongoing basis. ASC 360 requires that, in the event that impairment indicators are present and undiscounted cash flows signify that

46

the carrying amount of an asset is not recoverable, impairment charges must be recorded if the fair value of the asset is less than its carrying amount. The Company reviews all communities on a quarterly basis for changes in events or circumstances indicating signs of impairment. Examples of events or changes in circumstances include, but are not limited to: price declines resulting from sustained competitive pressures; a change in the manner in which the asset is being used; a change in assessments by a regulator or municipality; cost increases; the expectation that, more likely than not, an asset will be sold or disposed of significantly before the end of its previously estimated useful life; or the impact of local economic or macroeconomic conditions, such as employment or housing supply, on the market for a given product. Signs of impairment may include, but are not limited to: very low or negative profit margins, the absence of sales activity in an open community and/or significant price differences for comparable parcels of land held-for-sale.

If it is determined that indicators of impairment exist in a community, undiscounted cash flows are prepared and analyzed at a community level based on expected pricing; sales rates; construction costs; local municipality fees; and warranty, closing, carrying, selling, overhead and other related costs; or on similar assets to determine if the realizable values of the assets held are less than their respective carrying amounts. In order to determine assumed sales prices included in cash flow models, the Company analyzes historical sales prices on homes delivered in the community and in other communities located within the same geographic area, as well as sales prices included in its current backlog for such communities. In addition, it analyzes market studies and trends, which generally include statistics on sales prices in neighboring communities and sales prices of similar products in non-neighboring communities in the same geographic area. In order to estimate the costs of building and delivering homes, the Company generally assumes cost structures reflecting contracts currently in place with vendors, adjusted for any anticipated cost-reduction initiatives or increases. The Company's analysis of each community generally assumes current pricing equal to current sales orders for a particular or comparable community. For a minority of communities that the Company does not intend to operate for an extended period of time or where the operating life extends beyond several years, slight increases over current sales prices are assumed in later years. Once a community is considered to be impaired, the Company's determinations of fair value and new cost basis are primarily based on discounting estimated cash flows at rates commensurate with inherent risks associated with the continuing assets. Discount rates used generally vary from 19.0 percent to 30.0 percent, depending on market risk, the size or life of a community and development risk. Due to the fact that estimates and assumptions included in cash flow models are based on historical results and projected trends, unexpected changes in market conditions that may lead to additional impairment charges in the future cannot be anticipated.

Valuation adjustments are recorded against homes completed or under construction, land under development or improved lots when analyses indicate that the carrying values are greater than the fair values. Write-downs of impaired inventories to their fair values are recorded as adjustments to the cost basis of the respective inventory. At December 31, 2012 and 2011, valuation reserves related to impaired inventories totaled $207.8 million and $277.2 million, respectively. The net carrying values of the related inventories totaled $182.2 million and $195.8 million at December 31, 2012 and 2011, respectively.

The costs of acquiring and developing land and constructing certain related amenities are allocated to the parcels to which these costs relate. (See "Homebuilding Overview" within Management's Discussion and Analysis of Financial Condition and Results of Operations.)

Interest and taxes are capitalized during active development and construction stages. Capitalized interest is amortized when the related inventory is delivered to homebuyers. The following table summarizes activity that relates to capitalized interest:

(in thousands)		2012			2011			2010
Capitalized interest at January 1	$	81,058		$	75,094		$	84,664
Interest capitalized		42,327			38,032			31,221
Interest amortized to cost of sales		(40,612	)		(32,068	)		(40,791	)
Capitalized interest at December 31	$	82,773		$	81,058		$	75,094

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The following table summarizes each reporting segment's total number of lots owned and lots controlled under option agreements:

	DECEMBER 31, 2012				DECEMBER 31, 2011
		LOTS OWNED	LOTS OPTIONED	TOTAL		LOTS OWNED	LOTS OPTIONED	TOTAL
North		5,471	4,056	9,527		4,981	3,405	8,386
Southeast		7,268	2,121	9,389		4,933	1,894	6,827
Texas		2,438	2,667	5,105		2,486	1,081	3,567
West		2,604	1,680	4,284		1,937	862	2,799
Total		17,781	10,524	28,305		14,337	7,242	21,579

Additionally, at December 31, 2012, the Company controlled 479 lots associated with discontinued operations, all of which were owned. At December 31, 2011, the Company controlled 1,386 lots associated with discontinued operations, of which 1,330 lots were owned and 56 lots were under option.

Variable Interest Entities ("VIE")

As required by ASC 810, a VIE is to be consolidated by a company if that company has the power to direct the VIE's activities and the obligation to absorb its losses or the right to receive its benefits, which are potentially significant to the VIE. ASC 810 also requires disclosures about VIEs that a company is not obligated to consolidate, but in which it has a significant, though not primary, variable interest.

The Company enters into joint ventures, from time to time, for the purpose of acquisition and co-development of land parcels and lots. Its investment in these joint ventures may create a variable interest in a VIE, depending on the contractual terms of the arrangement. Additionally, in the ordinary course of business, the Company enters into lot option purchase contracts in order to procure land for the construction of homes. Under such lot option purchase contracts, the Company funds stated deposits in consideration for the right to purchase lots at a future point in time, usually at predetermined prices. The Company's liability is generally limited to forfeiture of nonrefundable deposits, letters of credit and other nonrefundable amounts incurred. In accordance with the requirements of ASC 810, certain of the Company's lot option purchase contracts may result in the creation of a variable interest in a VIE.

In compliance with the provisions of ASC 810, the Company consolidated $39.5 million and $51.4 million of inventory not owned related to land and lot option purchase contracts at December 31, 2012 and 2011, respectively. Although the Company may not have had legal title to the optioned land, under ASC 810, it had the primary variable interest and was required to consolidate the particular VIE's assets under option at fair value. To reflect the fair value of the inventory consolidated under ASC 810, the Company included $17.7 million and $17.2 million of its related cash deposits for lot option purchase contracts at December 31, 2012 and 2011, respectively, in "Consolidated inventory not owned" within the Consolidated Balance Sheets. Noncontrolling interest totaled $21.8 million and $34.2 million with respect to the consolidation of these contracts at December 31, 2012 and 2011, respectively, representing the selling entities' ownership interests in these VIEs. Additionally, the Company had cash deposits and/or letters of credit totaling $22.2 million and $22.3 million at December 31, 2012 and 2011, respectively, that were associated with lot option purchase contracts having aggregate purchase prices of $310.1 million and $208.5 million, respectively. As the Company did not have the primary variable interest in these contracts, it was not required to consolidate them.

Investments in Joint Ventures

The Company enters into joint ventures, from time to time, for the purpose of acquisition and co-development of land parcels and lots. It participates in a number of joint ventures in which it has less than a controlling interest. As of December 31, 2012, the Company participated in five active homebuilding joint ventures in the Austin, Chicago, Denver and Washington, D.C., markets. The Company recognizes its share of the respective joint ventures' earnings or losses from the sale of lots to other homebuilders. It does not, however, recognize earnings from lots that it purchases from the joint ventures. Instead, the Company reduces its cost basis in each lot by its share of the earnings from the lot.

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The following table summarizes each reporting segment's total estimated share of lots owned and controlled by the Company under its joint ventures:

	DECEMBER 31, 2012				DECEMBER 31, 2011
		LOTS OWNED	LOTS OPTIONED	TOTAL		LOTS OWNED	LOTS OPTIONED	TOTAL
North		145	–	145		150	–	150
Texas		–	–	–		20	–	20
West		172	–	172		172	–	172
Total		317	–	317		342	–	342

At December 31, 2012 and 2011, the Company's investments in its unconsolidated joint ventures totaled $8.3 million and $10.0 million, respectively, and were included in "Other" assets within the Consolidated Balance Sheets. For the year ended December 31, 2012, the Company's equity in earnings from its unconsolidated joint ventures totaled $1.2 million, compared to equity in losses of $976,000 and $3.7 million for the same periods in 2011 and 2010, respectively. During 2011, the Company recorded a $1.9 million impairment related to a commercial parcel in a joint venture in Chicago. During 2010, the Company recorded $4.1 million of impairments against its investments in two joint ventures in Denver.

Property, Plant and Equipment

Property, plant and equipment totaled $20.4 million and $19.9 million at December 31, 2012 and 2011, respectively. These amounts are carried at cost less accumulated depreciation and amortization. Depreciation is provided for, principally, by the straight-line method over the estimated useful lives of the assets. Property, plant and equipment included model home furnishings of $19.4 million and $18.9 million at December 31, 2012 and 2011, respectively. Model home furnishings are amortized over the life of the community as homes are closed. The amortization expense was included in "Selling, general and administrative" expense within the Consolidated Statements of Earnings.

Service Liabilities

Service, warranty and completion costs are estimated and accrued at the time a home closes and are updated as experience requires.

Advertising Costs

The Company expenses advertising costs as they are incurred. Advertising costs totaled $4.6 million, $5.2 million and $4.4 million in 2012, 2011 and 2010, respectively, and were included in "Selling, general and administrative" expense within the Consolidated Statements of Earnings.

Loan Origination Fees, Mortgage Discount Points and Loan Sales

Mortgage loans are recorded at fair value at the time of origination in accordance with ASC No. 825 ("ASC 825"), "Financial Instruments," and are classified as held-for-sale. Loan origination fees, net of mortgage discount points, are recognized in current earnings upon origination of the related mortgage loan. Sales of mortgages and the related servicing rights are accounted for in accordance with ASC No. 860 ("ASC 860"), "Transfers and Servicing." Generally, in order for a transfer of financial assets to be recognized as a sale, ASC 860 requires that control of the loans be passed to the purchaser and that consideration other than beneficial interests be received in return.

Derivative Instruments

In the normal course of business and pursuant to its risk-management policy, the Company enters, as an end user, into derivative instruments, including forward-delivery contracts for loans; options on forward-delivery contracts; and options on futures contracts, to minimize the impact of movement in market interest rates on IRLCs. Major factors influencing the use of various hedging contracts include general market conditions, interest rates, types of mortgages originated and the percentage of IRLCs expected to fund. The Company is exposed to credit-related losses in the event of nonperformance by counterparties to certain hedging contracts. Credit risk is limited to those instances where the Company is in a net unrealized gain position. It manages this credit risk by entering into agreements with counterparties meeting its credit standards and by monitoring position limits. The Company elected not to use hedge accounting treatment with respect to its economic hedging activities. Accordingly, all derivative instruments

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used as economic hedges were included at their fair value in "Other" assets or "Accrued and other liabilities" within the Consolidated Balance Sheets, with changes in value recorded in current earnings. The Company's mortgage pipeline includes IRLCs, which represent commitments that have been extended by the Company to those borrowers who have applied for loan funding and who have met certain defined credit and underwriting criteria.

Comprehensive Income

Comprehensive income consists of net income or loss and the increase or decrease in unrealized gains or losses on the Company's available-for-sale securities, as well as the decrease in unrealized gains associated with treasury locks, net of applicable taxes. Comprehensive income totaled $40.3 million for the year ended December 31, 2012, compared to comprehensive losses of $52.5 million and $86.4 million for the same periods in 2011 and 2010, respectively.

Income Taxes

The Company files a consolidated federal income tax return. Certain items of income and expense are included in one period for financial reporting purposes and in another for income tax purposes. Deferred income taxes are provided in recognition of these differences. Deferred tax assets and liabilities are determined based on enacted tax rates and are subsequently adjusted for changes in these rates. A valuation allowance against the Company's deferred tax assets may be established if it is more likely than not that all or some portion of the deferred tax assets will not be realized. A change in deferred tax assets or liabilities results in a charge or credit to deferred tax expense. (See "Critical Accounting Policies" within Management's Discussion and Analysis of Financial Condition and Results of Operations, and Note H, "Income Taxes.")

Per Share Data

The Company computes earnings per share in accordance with ASC No. 260 ("ASC 260"), "Earnings per Share," which requires the presentation of both basic and diluted earnings per common share to be calculated using the two-class method. Basic net earnings per common share is computed by dividing net earnings by the weighted-average number of common shares outstanding. The Company's nonvested outstanding shares of restricted stock are classified as participating securities in accordance with ASC 260. As such, earnings or loss for the reporting period are allocated between common shareholders and nonvested restricted stockholders, based upon their respective participating rights in dividends and undistributed earnings. For purposes of determining diluted earnings per common share, basic earnings per common share is further adjusted to include the effect of potential dilutive common shares outstanding, including stock options and warrants using the treasury stock method and convertible debt using the if-converted method. For the years ended December 31, 2011 and 2010, the effects of outstanding restricted stock units and stock options, as well as nonvested restricted stock, were not included in the diluted earnings per share calculation as they would have been antidilutive due to the Company's net loss in each of those years.

Stock-Based Compensation

In accordance with the terms of its shareholder-approved equity incentive plan, the Company issues various types of stock awards that include, but are not limited to, grants of stock options and restricted stock units to its employees. The Company records expense associated with its grant of stock awards in accordance with the provisions of ASC 718, which requires that stock-based payments to employees be recognized, based on their estimated fair values, in the Consolidated Statements of Earnings as compensation expense over the vesting period of the awards.

Additionally, the Company grants stock awards to the non-employee members of its Board of Directors pursuant to its shareholder-approved director stock plan. Stock-based compensation is recognized over the service period for such awards.

New Accounting Pronouncements

ASU 2011-11 and ASU 2013-01

In December 2011, the FASB issued Accounting Standards Update ("ASU") No. 2011-11 ("ASU 2011-11"), "Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities," and also issued ASU No. 2013-01 ("ASU 2013-01"), "Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about

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Offsetting Assets and Liabilities," in January 2013. The amendments in ASU 2011-11 and 2013-01 will enhance disclosures required by GAAP by requiring improved information about financial and derivative instruments that are either (a) offset in accordance with Section 210-20-45 or Section 815-10-45 or (b) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with Section 210-20-45 or Section 815-10-45. This information will enable users of an entity's financial statements to evaluate the effect or potential effect of netting arrangements on an entity's financial position, including the effect or potential effect of rights of setoff associated with certain financial instruments and derivative instruments in the scope of this update. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and for interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. The Company does not anticipate that the adoption of this guidance will have a material impact on its consolidated financial statements.

ASU 2013-02

In February 2013, the FASB issued ASU No. 2013-02 ("ASU 2013-02"), "Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income." The amendments in ASU 2013-02 require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement of earnings or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income, but only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference other disclosures required under GAAP that provide additional details about those amounts. An entity is required to apply the amendments prospectively for annual reporting periods beginning after December 15, 2012, and for interim periods within those annual periods. The Company does not anticipate that the adoption of this guidance will have a material impact on its consolidated financial statements.

Note B: Segment Information

The Company is a leading national homebuilder and provider of mortgage-related financial services. As one of the largest single-family on-site homebuilders in the United States, it operates in 14 states across the country. The Company consists of six segments: four geographically determined homebuilding regions (North, Southeast, Texas and West); financial services; and corporate. The homebuilding segments specialize in the sale and construction of single-family attached and detached housing. The Company's financial services segment, which includes RMC, RHIC, LPS and CNRRG, provides mortgage-related products and services, as well as title, escrow and insurance services, to its homebuyers. Corporate is a nonoperating business segment with the sole purpose of supporting operations. In order to best reflect the Company's financial position and results of operations, certain corporate expenses are allocated to the homebuilding and financial services segments, along with certain assets and liabilities relating to employee benefit plans.

The Company evaluates performance and allocates resources based on a number of factors, including segment pretax earnings and risk. The accounting policies of the segments are the same as those described in Note A, "Summary of Significant Accounting Policies."

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Selected Segment Information

	YEAR ENDED DECEMBER 31,
(in thousands)		2012			2011			2010
REVENUES
Homebuilding
North	$	393,238		$	299,595		$	344,154
Southeast		355,621			218,672			259,357
Texas		323,162			262,321			242,691
West		198,826			82,016			123,616
Financial services		37,619			26,927			31,007
Total	$	1,308,466		$	889,531		$	1,000,825
EARNINGS (LOSS) BEFORE TAXES
Homebuilding
North	$	11,602		$	(9,054	)	$	(15,842	)
Southeast		18,566			(11,676	)		(16,446	)
Texas		22,984			9,243			(2,492	)
West		10,732			(5,326	)		(7,903	)
Financial services		13,142			5,739			845
Corporate and unallocated		(33,059	)		(21,658	)		(38,659	)
Total	$	43,967		$	(32,732	)	$	(80,497	)
DEPRECIATION AND AMORTIZATION
Homebuilding
North	$	4,710		$	3,527		$	4,773
Southeast		4,308			3,145			4,116
Texas		2,834			2,610			2,429
West		2,984			1,295			4,354
Financial services		78			181			254
Corporate and unallocated		485			554			473
Total	$	15,399		$	11,312		$	16,399

	DECEMBER 31,
(in thousands)		2012		2011
IDENTIFIABLE ASSETS
Homebuilding
North	$	408,341	$	367,096
Southeast		315,043		198,196
Texas		196,397		161,779
West		274,050		160,004
Financial services		157,781		144,652
Corporate and unallocated		579,827		512,093
Total	$	1,931,439	$	1,543,820

Note C: Earnings Per Share Reconciliation

The Company computes earnings per share in accordance with ASC 260, which requires earnings per share for each class of stock to be calculated using the two-class method. The two-class method is an allocation of earnings or loss between a company's holders of common stock and its participating security holders. Under the two-class method, earnings or loss for the reporting period are allocated between common shareholders and other security holders, based on their respective participation rights in dividends and undistributed earnings. All outstanding nonvested shares of restricted stock that contain non-forfeitable rights to dividends are considered participating securities and are included in the computation of earnings per share pursuant to the two-class method. The Company's nonvested restricted stock are considered participating securities in accordance with ASC 260.

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

	YEAR ENDED DECEMBER 31,
(in thousands, except share data)		2012			2011			2010
NUMERATOR
Net income (loss) from continuing operations	$	42,382		$	(29,867	)	$	(80,692	)
Net loss from discontinued operations		(2,000	)		(20,883	)		(4,447	)
Less: distributed earnings allocated to nonvested restricted stock		(42	)		–			–
Less: undistributed earnings allocated to nonvested restricted stock		(313	)		–			–
Numerator for basic income (loss) per share		40,027			(50,750	)		(85,139	)
Plus: interest on 1.6 percent convertible senior notes due 2018		1,829			–			–
Plus: undistributed earnings allocated to nonvested restricted stock		313			–			–
Less: undistributed earnings reallocated to nonvested restricted stock		(284	)		–			–
Numerator for diluted income (loss) per share	$	41,885		$	(50,750	)	$	(85,139	)
DENOMINATOR
Basic earnings per share—weighted-average shares		44,761,178			44,357,470			44,050,013
Effect of dilutive securities:
Share-based payments		487,443			–			–
1.6 percent convertible senior notes due 2018		4,406,700			–			–
Diluted earnings per share—adjusted weighted-average shares and assumed conversions		49,655,321			44,357,470			44,050,013
NET INCOME (LOSS) PER COMMON SHARE
Basic
Continuing operations	$	0.93		$	(0.67	)	$	(1.83	)
Discontinued operations		(0.04	)		(0.47	)		(0.10	)
Total		0.89			(1.14	)		(1.93	)
Diluted
Continuing operations		0.88			(0.67	)		(1.83	)
Discontinued operations		(0.04	)		(0.47	)		(0.10	)
Total	$	0.84		$	(1.14	)	$	(1.93	)

For the years ended December 31, 2011 and 2010, the effects of outstanding restricted stock units and stock options, as well as nonvested restricted stock, were not included in the diluted earnings per share calculation, as they would have been antidilutive due to the Company's net loss in each of those years.

Note D: Derivative Instruments

The Company, which uses derivative financial instruments in its normal course of operations, has no derivative financial instruments that are held for trading purposes.

The following table presents the contract or notional amounts of the Company's derivative financial instruments:

	DECEMBER 31,
(in thousands)		2012		2011
Mortgage interest rate lock commitments	$	137,741	$	114,583
Hedging contracts:
Forward-delivery contracts	$	68,000	$	56,500

IRLCs represent loan commitments with customers at market rates generally up to 180 days before settlement. IRLCs expose the Company to market risk if mortgage rates increase. IRLCs had interest rates generally ranging from 3.3 percent to 4.5 percent at December 31, 2012 and 2011.

Hedging contracts are regularly entered into by the Company for the purpose of mitigating its exposure to movement in interest rates on IRLCs. The selection of these hedging contracts is based upon the Company's secondary marketing strategy, which establishes a risk-tolerance level. Major factors influencing the use of various hedging contracts include general market conditions, interest rates, types of mortgages

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originated and the percentage of IRLCs expected to fund. The market risk assumed while holding the hedging contracts generally mitigates the market risk associated with IRLCs. The Company is exposed to credit-related losses in the event of nonperformance by counterparties to certain hedging contracts. Credit risk is limited to those instances where the Company is in a net unrealized gain position. The Company manages this credit risk by entering into agreements with counterparties meeting its credit standards and by monitoring position limits.

During 2006, the Company terminated its treasury lock commitments that were deemed to be highly effective cash flow hedges related to future senior note issuances. The gain resulting from these settlements was recorded, net of income tax effect, in "Accumulated other comprehensive income" and was amortized until the Company's 6.9 percent senior notes due June 2013 were redeemed during 2012, at which time the remaining gain was amortized. The Company amortized $1.7 million of the gain in the year ended December 31, 2012, and amortized $1.2 million of the gain in each of the years ended December 31, 2011 and 2010. The income tax benefit associated with the gain was $653,000 for the year ended December 31, 2012, compared to $462,000 for each of the years ended December 31, 2011 and 2010.

Note E: Marketable Securities, Available-for-sale

The Company's investment portfolio includes U.S. Treasury securities; obligations of U.S. government and local government agencies; corporate debt backed by U.S. government/agency programs; corporate debt securities; asset-backed securities of U.S. government agencies and covered bonds; time deposits; and short-term pooled investments. These investments are primarily held in the custody of a single financial institution. Time deposits and short-term pooled investments, which are not considered cash equivalents, have original maturities in excess of 90 days. The Company considers its investment portfolio to be available-for-sale as defined in ASC No. 320 ("ASC 320"), "Investments—Debt and Equity Securities." Accordingly, these investments are recorded at their fair values. The cost of securities sold is based on an average-cost basis. Unrealized gains and losses on these investments were included in "Accumulated other comprehensive income" within the Consolidated Balance Sheets.

The Company periodically reviews its available-for-sale securities for other-than-temporary declines in fair values that are below their cost bases, as well as whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. At December 31, 2012 and 2011, the Company believed that the cost bases for its available-for-sale securities were recoverable in all material respects.

For the years ended December 31, 2012, 2011 and 2010, net realized earnings associated with the Company's investment portfolio, which includes interest, dividends, and net realized gains and losses on sales of marketable securities, totaled $2.2 million, $3.9 million and $5.8 million, respectively. These earnings were included in "Gain from marketable securities, net" within the Consolidated Statements of Earnings.

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The following table displays the fair values of marketable securities, available-for-sale, by type of security:

	DECEMBER 31, 2012
(in thousands)		AMORTIZED COST		GROSS UNREALIZED GAINS		GROSS UNREALIZED LOSSES			ESTIMATED FAIR VALUE
Type of security:
U.S. Treasury securities	$	3,098	$	1	$	–		$	3,099
Obligations of U.S. and local government agencies		154,774		1,008		(489	)		155,293
Corporate debt securities		165,153		116		(75	)		165,194
Asset-backed securities		27,325		153		(164	)		27,314
Total debt securities		350,350		1,278		(728	)		350,900
Short-term pooled investments		37,127		–		(7	)		37,120
Total marketable securities, available-for-sale	$	387,477	$	1,278	$	(735	)	$	388,020

	DECEMBER 31, 2011
Type of security:
U.S. Treasury securities	$	1,557	$	–	$	(2	)	$	1,555
Obligations of U.S. and local government agencies		147,557		123		(860	)		146,820
Corporate debt securities issued under U.S. government/agency-backed programs		1,453		3		–			1,456
Corporate debt securities		126,088		101		(523	)		125,666
Asset-backed securities		46,198		42		(496	)		45,744
Total debt securities		322,853		269		(1,881	)		321,241
Time deposits		25,500		–		–			25,500
Short-term pooled investments		275		–		–			275
Total marketable securities, available-for-sale	$	348,628	$	269	$	(1,881	)	$	347,016

The primary objectives of the Company's investment portfolio are safety of principal and liquidity. Investments are made with the purpose of achieving the highest rate of return consistent with these two objectives. The Company's investment policy limits investments to debt rated investment grade or better, as well as to bank and money market instruments and to issues by the U.S. government, U.S. government agencies and municipal or other institutions primarily with investment-grade credit ratings. Policy restrictions are placed on maturities, as well as on concentration by type and issuer.

The following table displays the fair values of marketable securities, available-for-sale, by contractual maturity:

	DECEMBER 31,
(in thousands)		2012		2011
Contractual maturity:
Maturing in one year or less	$	68,347	$	167,413
Maturing after one year through three years		257,595		120,952
Maturing after three years		24,958		32,876
Total debt securities		350,900		321,241
Time deposits and short-term pooled investments		37,120		25,775
Total marketable securities, available-for-sale	$	388,020	$	347,016

Note F: Fair Values of Financial and Nonfinancial Instruments

Financial Instruments

The Company's financial instruments are held for purposes other than trading. The fair values of these financial instruments are based on quoted market prices, where available, or are estimated using other valuation techniques. Estimated fair values are significantly affected by the assumptions used. As required by ASC No. 820 ("ASC 820"), "Fair Value Measurements and Disclosures," fair value measurements of financial instruments are categorized as Level 1, Level 2 or Level 3, based on the types of inputs used in estimating fair values.

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Level 1 fair values are those determined using quoted market prices in active markets for identical assets or liabilities with no valuation adjustments applied. Level 2 fair values are those determined using directly or indirectly observable inputs in the marketplace that are other than Level 1 inputs. Level 3 fair values are those determined using unobservable inputs, including the use of internal assumptions, estimates or models. Valuations, therefore, are sensitive to the assumptions used for these items. Fair values represent the Company's best estimates as of the balance sheet date and are based on existing conditions and available information at the issuance date of these financial statements. Subsequent changes in conditions or available information may change assumptions and estimates.

The carrying values of cash, cash equivalents, restricted cash and secured notes payable are reported in the Consolidated Balance Sheets and approximate their fair values due to their short-term natures and liquidity. The aggregate carrying values of the senior notes, net of discount, reported at December 31, 2012 and 2011, were $1.1 billion and $820.0 million, respectively. The aggregate fair values of the senior notes were $1.3 billion and $824.6 million at December 31, 2012 and 2011, respectively. The fair values of the Company's senior notes have been determined using quoted market prices.

The following table displays the values and methods used for measuring fair values of financial instruments on a recurring basis:

	FAIR VALUE AT DECEMBER 31,
(in thousands)	HIERARCHY		2012			2011
Marketable securities, available-for-sale:
U.S. Treasury securities	Level 1	$	3,099		$	1,555
Obligations of U.S. and local government agencies	Levels 1 and 2		155,293			146,820
Corporate debt securities issued under U.S. government/agency-backed programs	Level 2		–			1,456
Corporate debt securities	Level 2		165,194			125,666
Asset-backed securities	Level 2		27,314			45,744
Time deposits	Level 2		–			25,500
Short-term pooled investments	Levels 1 and 2		37,120			275
Mortgage loans held-for-sale	Level 2		107,950			82,351
Mortgage interest rate lock commitments	Level 2		4,737			3,359
Forward-delivery contracts	Level 2	$	(369	)	$	(1,235	)

Marketable Securities, Available-for-sale

At December 31, 2012 and 2011, the Company had $388.0 million and $347.0 million, respectively, of marketable securities that were available-for-sale and comprised of U.S. Treasury securities; obligations of U.S. government and local government agencies; corporate debt backed by U.S. government/agency programs; corporate debt securities; asset-backed securities of U.S. government agencies and covered bonds; time deposits; and short-term pooled investments. (See Note E, "Marketable Securities, Available-for-sale.")

Other Financial Instruments

Mortgage loans held-for-sale and forward-delivery contracts are based on quoted market prices of similar instruments (Level 2). IRLCs are valued at their aggregate market price premium or deficit, plus a servicing premium, multiplied by the projected close ratio (Level 2). The market price premium or deficit is based on quoted market prices of similar instruments; the servicing premium is based on contractual investor guidelines for each product; and the projected close ratio is determined utilizing an external modeling system, widely used within the industry, to estimate customer behavior at an individual loan level. At December 31, 2012 and 2011, contractual principal amounts of mortgage loans held-for-sale totaled $103.4 million and $79.7 million, respectively. The fair values of IRLCs were included in "Other" assets within the Consolidated Balance Sheets, and forward-delivery contracts were included in "Other" assets and "Accrued and other liabilities" within the Consolidated Balance Sheets. Gains realized on the conversion of IRLCs to loans totaled $25.0 million, $16.3 million and $18.4 million for the years ended December 31, 2012, 2011 and 2010, respectively. Increases in the fair value of the locked loan pipeline totaled $1.4 million and $1.9 million for the years ended December 31, 2012 and 2011, compared to a decrease of $559,000 for the year ended December 31, 2010. Partially offsetting these items, losses from forward-delivery contracts used to hedge IRLCs totaled $8.1 million, $7.3 million and $6.1 million for the

56

years ended December 31, 2012, 2011 and 2010, respectively. Net gains and losses related to forward-delivery contracts and IRLCs were included in "Financial services" revenues within the Consolidated Statements of Earnings.

At December 31, 2012 and 2011, the excess of the aggregate fair value over the aggregate unpaid principal balance for mortgage loans held-for-sale measured at fair value totaled $4.6 million and $2.7 million, respectively, and was included in "Financial services" revenues within the Consolidated Statements of Earnings. At December 31, 2012, the Company held no loans with payments 90 days or more past due. At December 31, 2011, the Company held two repurchased loans with payments 90 days or more past due that had an aggregate carrying value of $542,000 and an aggregate unpaid principal balance of $623,000.

While recorded fair values represent management's best estimate based on data currently available, future changes in interest rates or in market prices for mortgage loans, among other factors, could materially impact these fair values.

Nonfinancial Instruments

In accordance with ASC 820, the Company measures certain nonfinancial homebuilding assets at their fair values on a nonrecurring basis. See "Housing Inventories" within Note A, "Summary of Significant Accounting Policies," for further discussion of the valuation of the Company's nonfinancial assets.

The following table summarizes the fair values of the Company's nonfinancial assets that represent the fair values for communities and other homebuilding assets for which it recognized noncash impairment charges during the reporting periods:

	FAIR VALUE AT DECEMBER 31,
(in thousands)	HIERARCHY		2012		2011
Housing inventory and inventory held-for-sale1	Level 3	$	2,923	$	9,121
Other assets held-for-sale and investments in joint ventures2	Level 3		1,563		2,366
Total		$	4,486	$	11,487

¹

In accordance with ASC No. 330, ("ASC 330"), "Inventory," the fair values of housing inventory and inventory held-for-sale that were impaired during 2012 and 2011 totaled $2.9 million and $9.1 million at December 31, 2012 and 2011, respectively. The impairment charges related to these assets totaled $1.9 million and $9.5 million for the years ended December 31, 2012 and 2011, respectively.

²

In accordance with ASC 330, the fair values of other assets held-for-sale that were impaired during 2012 and 2011 totaled $263,000 and $973,000 at December 31, 2012 and 2011, respectively. The impairment charges related to these assets totaled $41,000 and $35,000 for the years ended December 31, 2012 and 2011, respectively. In accordance with ASC 330, the fair values of investments in joint ventures that were impaired during 2012 and 2011 totaled $1.3 million and $1.4 million at December 31, 2012 and 2011, respectively. The impairment charges related to these assets totaled $40,000 and $2.0 million for the years ended December 31, 2012 and 2011, respectively.

Note G: Debt and Credit Facilities

The following table presents the composition of the Company's homebuilder debt and its financial services credit facility at December 31, 2012 and 2011:

(in thousands)		2012			2011
Senior notes
6.9 percent senior notes due June 2013	$	–		$	167,182
5.4 percent senior notes due January 2015		126,481			126,481
8.4 percent senior notes due May 2017		230,000			230,000
1.6 percent convertible senior notes due May 2018		225,000			–
6.6 percent senior notes due May 2020		300,000			300,000
5.4 percent senior notes due October 2022		250,000			–
Total senior notes		1,131,481			823,663
Debt discount		(3,000	)		(3,647	)
Senior notes, net		1,128,481			820,016
Secured notes payable		5,987			3,811
Total debt	$	1,134,468		$	823,827
Financial services credit facility	$	–		$	49,933

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At December 31, 2012, maturities of the Company's homebuilder debt were scheduled as follows:

(in thousands)
2013	$	4,054
2014		300
2015		126,494
2016		1,620
2017		230,000
After 2017		775,000
Total	$	1,137,468

At December 31, 2012, the Company had outstanding (a) $126.5 million of 5.4 percent senior notes due January 2015; (b) $230.0 million of 8.4 percent senior notes due May 2017; (c) $225.0 million of 1.6 percent convertible senior notes due May 2018; (d) $300.0 million of 6.6 percent senior notes due May 2020; and (e) $250.0 million of 5.4 percent senior notes due October 2022. Each of the senior notes pays interest semiannually and all, except for the convertible senior notes, may be redeemed at a stated redemption price, in whole or in part, at the option of the Company at any time.

During 2012, the Company issued $250.0 million of 5.4 percent senior notes due October 2022. The Company will pay interest on the notes on April 1 and October 1 of each year, commencing on April 1, 2013. The Company will use the $246.6 million in net proceeds that it received from this offering for general corporate purposes, which may include the repayment or repurchase of outstanding debt or the purchase of marketable securities.

Additionally during 2012, the Company issued $225.0 million of 1.6 percent convertible senior notes due May 2018. The Company will pay interest on the notes on May 15 and November 15 of each year, which commenced on November 15, 2012. The Company received net proceeds of $218.8 million from this offering prior to offering expenses. A portion of the proceeds was used for debt redemption, and the remaining proceeds will be used for general corporate purposes. At any time prior to the close of business on the business day immediately preceding the stated maturity date, holders may convert all or any portion of their convertible senior notes. These notes will mature on May 15, 2018, unless converted earlier by the holder, at its option, or purchased by the Company upon the occurrence of a fundamental change. These notes are initially convertible into shares of the Company's common stock at a conversion rate of 31.2 shares per $1,000 of their principal amount. This corresponds to an initial conversion price of approximately $32.03 per share and represents a conversion premium of approximately 42.5 percent, based on the closing price of the Company's common stock on May 10, 2012, which was $22.48 per share. The conversion rate is subject to adjustment for certain events, including subdivisions and combinations of the Company's common stock; the issuance to all or substantially all holders of its common stock of stock dividends; certain rights; options or warrants; capital stock; indebtedness; assets or cash; and certain issuer tender or exchange offers. The conversion rate will not, however, be adjusted for other events, such as a third-party tender or exchange offer or an issuance of common stock for cash or an acquisition, that may adversely affect the trading price of the notes or the common stock, should an event that adversely affects the value of these notes occur, that event may not result in an adjustment to the conversion rate. These events are considered standard anti-dilution provisions under a conventional convertible debt security.

For the year ended December 31, 2012, the Company paid $177.2 million to redeem and repurchase $167.2 million of its 6.9 percent senior notes due June 2013, resulting in a loss of $9.1 million. For the year ended December 31, 2011, the Company's repurchases of its senior notes totaled $51.5 million in the open market, for which it paid $52.9 million, resulting in a loss of $1.6 million. For the year ended December 31, 2010, the Company's repurchases of its senior notes totaled $27.0 million in the open market, for which it paid $26.6 million, resulting in a net gain of $196,000. The gains or losses resulting from these debt repurchases were included in "Loss related to early retirement of debt, net" within the Consolidated Statements of Earnings.

During 2010, the Company issued $300.0 million of 6.6 percent senior notes due May 2020. The Company used the proceeds from the sale of these notes to purchase existing notes pursuant to the tender offer and redemption, as well as to pay related fees and expenses. The Company will pay interest on the notes

58

on May 1 and November 1 of each year, which commenced on November 1, 2010. The notes will mature on May 1, 2020, and are redeemable at stated redemption prices, in whole or in part, at any time.

Additionally in 2010, the Company redeemed and repurchased, pursuant to a tender offer and redemption, an aggregate $255.7 million of its senior notes due 2012, 2013 and 2015 for $273.9 million in cash. It recognized a charge of $19.5 million resulting from the tender offer and redemption, which was included in "Loss related to early retirement of debt, net" within the Consolidated Statements of Earnings.

To provide letters of credit required in the ordinary course of its business, the Company has various secured letter of credit agreements that require it to maintain restricted cash deposits for outstanding letters of credit. Outstanding letters of credit totaled $79.5 million and $66.0 million under these agreements at December 31, 2012 and 2011, respectively.

To finance its land purchases, the Company may also use seller-financed nonrecourse secured notes payable. At December 31, 2012 and 2011, outstanding seller-financed nonrecourse secured notes payable totaled $6.0 million and $3.8 million, respectively.

Senior notes and indenture agreements are subject to certain covenants that include, among other things, restrictions on additional secured debt and the sale of assets. The Company was in compliance with these covenants at December 31, 2012.

During 2011, RMC entered into a $50.0 million repurchase credit facility with JPM. This facility is used to fund, and is secured by, mortgages that were originated by RMC and are pending sale. During 2012, this facility was increased to $75.0 million and extended to December 2013. Under the terms of this facility, RMC is required to maintain various financial and other covenants and to satisfy certain requirements relating to the mortgages securing the facility. At December 31, 2012, the Company was in compliance with these covenants. The Company had no outstanding borrowings against this credit facility at December 31, 2012, compared to outstanding borrowings against this credit facility that totaled $49.9 million at December 31, 2011.

Note H: Income Taxes

Deferred tax assets are recognized for estimated tax effects that are attributable to deductible temporary differences and tax carryforwards related to tax credits and operating losses. They are realized when existing temporary differences are carried back to a profitable year(s) and/or carried forward to a future year(s) having taxable income. Deferred tax assets are reduced by a valuation allowance if an assessment of their components indicates that it is more likely than not that all or some portion of these assets will not be realized. This assessment considers, among other things, cumulative losses; forecasts of future profitability; the duration of statutory carryforward periods; the Company's experience with loss carryforwards not expiring unused; and tax planning alternatives. In light of the unavailability of net operating loss carrybacks and the Company's assessment of the factors listed above, it was determined that an allowance against its deferred tax assets was required. Therefore, in accordance with ASC 740, the Company maintained a full valuation allowance against its net deferred tax assets. In light of the Company's return to profitability, its net valuation allowance was reduced by $11.6 million in 2012, of which $10.5 million was for federal taxes and $1.1 million was for state taxes. The Company recorded net valuation allowances totaling $16.6 million and $32.7 million against its deferred tax assets in 2011 and 2010, respectively, which were reflected as noncash charges to income tax expense. The net valuation allowance taken for net state taxes was comprised of increases that totaled $1.4 million and $2.7 million in 2011 and 2010, respectively. The net valuation allowance taken for federal taxes totaled increases of $15.2 million and $30.0 million in 2011 and 2010, respectively. The net decrease in the valuation allowance was $11.6 million from 2011 to 2012, and the balance of the deferred tax valuation allowance totaled $258.9 million and $270.5 million at December 31, 2012 and 2011, respectively. To the extent that the Company generates sufficient taxable income in the future to utilize the tax benefits of related deferred tax assets, it will experience a reduction in its effective tax rate during those periods in which the valuation allowance is reversed. For federal purposes, net operating losses can be carried forward 20 years; for state purposes, they can generally be carried forward 10 to 20 years, depending on the taxing jurisdiction. Federal net operating loss carryforwards, if not utilized, will begin to expire in 2031. For federal purposes,

59

the Company's carryforwards of $768,000 can be carried forward 20 years and its remaining carryforwards of $289,000 can be carried forward 5 years, with expiration dates beginning in 2014.

The Company's provision for income tax presented an overall effective income tax expense rate of 3.8 percent for the year ended December 31, 2012, an overall effective income tax benefit rate of 5.3 percent for 2011 and an overall effective income tax expense rate of 0.2 percent for 2010. Changes in the effective income tax rate for the years ended 2012, 2011 and 2010 were primarily due the settlement of previously reserved unrecognized tax benefits.

The Company made a $1.6 million settlement payment for income tax, interest and penalty to a state taxing authority during 2011. Additionally, it recorded a tax benefit of $2.4 million to reverse the excess reserve previously recorded for the tax position that related to this settlement.

The following table reconciles the federal income tax statutory rate to the Company's effective income tax rate for the years ended December 31, 2012, 2011 and 2010:

	2012		2011		2010
Federal income tax statutory rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal tax	3.5		3.2		3.2
Deferred tax valuation allowance	(39.3	)	(37.8	)	(38.5	)
Compensation expense	2.7		(1.6	)	(0.9	)
Settlement of uncertain tax positions	–		4.6		–
Other	1.9		1.9		1.0
Effective income tax rate	3.8	%	5.3	%	(0.2	)%

The Company's income tax expense (benefit) for the years ended December 31, 2012, 2011 and 2010, is summarized as follows:

(in thousands)		2012		2011			2010
CURRENT TAX EXPENSE (BENEFIT)
Federal	$	568	$	(227	)	$	(244	)
State		1,017		(2,638	)		439
Total current tax expense (benefit)		1,585		(2,865	)		195
DEFERRED TAX EXPENSE
Federal		–		–			–
State		–		–			–
Total deferred tax expense		–		–			–
Total income tax expense (benefit)	$	1,585	$	(2,865	)	$	195

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

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The following table presents significant components of the Company's deferred tax assets and liabilities:

	DECEMBER 31,
(in thousands)		2012			2011
DEFERRED TAX ASSETS
Warranty, legal and other accruals	$	17,482		$	17,206
Employee benefits		19,285			17,131
Noncash tax charge for impairment of long-lived assets		88,042			115,226
Joint ventures		4,188			3,604
Federal net operating loss carryforwards		120,068			107,529
Other carryforwards		1,057			1,352
State net operating loss carryforwards		37,893			36,831
Other		912			1,313
Total		288,927			300,192
Valuation allowance		(258,867	)		(270,451	)
Total deferred tax assets		30,060			29,741
DEFERRED TAX LIABILITIES
Deferred recognition of income and gains		(2,277	)		(3,385	)
Capitalized expenses		(25,748	)		(24,842	)
Other		(2,035	)		(1,514	)
Total deferred tax liabilities		(30,060	)		(29,741	)
NET DEFERRED TAX ASSET	$	–		$	–

The Company accounts for unrecognized tax benefits in accordance with ASC 740. It accounts for interest and penalties on unrecognized tax benefits through its provision for income taxes. At December 31, 2012, the Company's liability for gross unrecognized tax benefits was $318,000, of which $207,000, if recognized, will affect the Company's effective tax rate. At December 31, 2011, the Company's liability for gross unrecognized tax benefits was $129,000, of which $84,000, if recognized, will affect the Company's effective tax rate. The Company had $18,000 and $19,000 in accrued interest and penalties at December 31, 2012 and 2011, respectively. The Company estimates that, within 12 months, none of its gross state unrecognized tax benefits will reverse due to the anticipated expiration of time to assess tax.

The following table displays a reconciliation of changes in the Company's tax uncertainties:

(in thousands)		2012			2011
Balance at January 1	$	129		$	3,164
Additions related to prior year positions		218			100
Reductions related to prior year positions		–			(450	)
Reductions due to settlements		–			(1,878	)
Reductions due to expiration of the statute of limitations		(29	)		(807	)
Balance at December 31	$	318		$	129

As of December 31, 2012, tax years 2004, 2005 and 2009 through 2012 remain subject to examination. On March 15, 2013, the assessment statute of limitations closes on tax years 2004, 2005 and 2009.

Note I: Employee Savings, Stock Purchase and Supplemental Executive Retirement Plans

Retirement Savings Opportunity Plan ("RSOP")

All full-time employees are eligible to participate in the RSOP. Part-time employees are eligible to participate in the RSOP following the completion of 1,000 hours of service within the first 12 months of employment or within any plan year after the date of hire. Pursuant to Section 401(k) of the Internal Revenue Code, the plan permits deferral of a portion of a participant's income into a variety of investment options. Total compensation expense related to the Company's matching contributions for this plan totaled $2.0 million, $1.8 million and $1.9 million in 2012, 2011 and 2010, respectively.

Employee Stock Purchase Plan ("ESPP")

All full-time employees of the Company, with the exception of its executive officers, are eligible to participate in the ESPP. Eligible employees authorize payroll deductions to be made for the purchase of

61

shares. The Company matches a portion of the employee's contribution by donating an additional 20.0 percent of the employee's payroll deduction. Stock is purchased by a plan administrator on a monthly basis. All brokerage and transaction fees for purchasing the stock are paid for by the Company. The Company's expense related to its matching contributions for this plan totaled $164,000, $153,000 and $135,000 in 2012, 2011 and 2010, respectively.

Supplemental Executive Retirement Plan

The Company has a supplemental nonqualified retirement plan, which generally vests over five-year periods beginning in 2003, pursuant to which it will pay supplemental pension benefits to key employees upon retirement. In connection with this plan, the Company has purchased cost-recovery life insurance on the lives of certain employees. Insurance contracts associated with the plan are held by trusts established as part of the plan to implement and carry out its provisions and to finance its 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 plan if assumptions made as to employment term, mortality experience, policy earnings and other factors are realized. At December 31, 2012, the value of the assets held in trust totaled $13.1 million, compared to $11.1 million at December 31, 2011, and was included in "Other" assets within the Consolidated Balance Sheets. The net periodic benefit income of this plan for the year ended December 31, 2012, totaled $599,000, which included an investment gain of $1.1 million on the cash surrender value of the insurance contracts and a death benefit of $863,000, offset by interest costs of $1.2 million and by service costs of $121,000. The net periodic benefit cost for the year ended December 31, 2011, totaled $1.6 million, which included interest costs of $731,000, an investment loss of $521,000 on the cash surrender value of the insurance contracts and service costs of $347,000. The net periodic benefit cost for the year ended December 31, 2010, totaled $351,000, which included interest costs of $660,000 and service costs of $204,000, offset by an investment gain of $513,000 on the cash surrender value of the insurance contracts. The $12.7 million and $11.3 million projected benefit obligations at December 31, 2012 and 2011, respectively, were equal to the net liabilities recognized in the Consolidated Balance Sheets at those dates. The weighted-average discount rates used for the plan were 6.6 percent for 2012 and 7.0 percent for 2011 and 2010.

Note J: Stock-Based Compensation

The Ryland Group, Inc. 2011 Equity and Incentive Plan (the "Plan") permits the granting of stock options, restricted stock awards, stock units, cash incentive awards or any combination of the foregoing to employees. Stock options granted in accordance with the Plan generally have a maximum term of seven years and vest in equal annual installments over three years. Certain outstanding stock options granted under predecessor plans have maximum terms of either five or ten years. Outstanding restricted stock units granted under the Plan or its predecessor plans generally vest in three equal annual installments with performance criteria. At December 31, 2012 and 2011, stock options or other awards or units available for grant under the Plan or its predecessor plans totaled 3,016,108 and 3,346,508, respectively.

The Ryland Group, Inc. 2011 Non-Employee Director Stock Plan (the "Director Plan") provides for a stock award of 3,000 shares to each non-employee director on May 1 of each year. New non-employee directors will receive a pro rata stock award within 30 days after their date of appointment or election, based on the remaining portion of the plan year in which they are appointed or elected. Stock awards are fully vested and nonforfeitable on their applicable award dates. There were 158,000 and 176,000 stock awards available for future grant in accordance with the Director Plan at December 31, 2012 and 2011, respectively. Previously, The Ryland Group, Inc. 2004 Non-Employee Director Equity Plan and its predecessor plans provided for automatic grants of nonstatutory stock options to directors. These stock options are fully vested and have a maximum term of ten years.

All outstanding stock options, stock awards and restricted stock awards have been granted in accordance with the terms of the applicable Plan, Director Plan and their respective predecessor plans, all of which were approved by the Company's stockholders. Certain option and share awards provide for accelerated vesting if there is a change in control (as defined in the plans).

The Company recorded stock-based compensation expense of $17.8 million, $9.7 million and $11.5 million for the years ended December 31, 2012, 2011 and 2010, respectively. Stock-based compensation expenses

62

have been allocated to the Company's business units and included in "Financial services" and "Selling, general and administrative" expenses within the Consolidated Statements of Earnings.

ASC 718 requires cash flows attributable to tax benefits resulting from tax deductions in excess of compensation costs recognized for exercised stock options ("excess tax benefits") to be classified as financing cash flows. There were no excess tax benefits for the years ended December 31, 2012, 2011 and 2010.

A summary of stock option activity in accordance with the Company's equity incentive plans as of December 31, 2012, 2011 and 2010, and changes for the years then ended, follows:

	SHARES			WEIGHTED- AVERAGE EXERCISE PRICE	WEIGHTED- AVERAGE REMAINING CONTRACTUAL LIFE (in years)		AGGREGATE INTRINSIC VALUE (in thousands)
Options outstanding at January 1, 2010	3,693,697		$	36.43	3.1
Granted	846,000			23.30
Exercised	(200,758	)		8.62
Forfeited	(616,283	)		46.46
Options outstanding at December 31, 2010	3,722,656		$	33.29	2.8	$	1,315
Available for future grant	1,477,072
Total shares reserved at December 31, 2010	5,199,728
Options exercisable at December 31, 2010	2,580,526		$	38.23	2.3	$	588
Options outstanding at January 1, 2011	3,722,656		$	33.29	2.8
Granted	781,000			16.52
Exercised	(44,398	)		11.97
Forfeited	(510,384	)		43.36
Options outstanding at December 31, 2011	3,948,874		$	28.91	2.4	$	553
Available for future grant	3,346,508
Total shares reserved at December 31, 2011	7,295,382
Options exercisable at December 31, 2011	2,574,246		$	34.35	1.7	$	369
Options outstanding at January 1, 2012	3,948,874		$	28.91	2.4
Granted	756,000			18.55
Exercised	(568,293	)		18.89
Forfeited	(717,158	)		35.38
Options outstanding at December 31, 2012	3,419,423		$	26.92	2.9	$	42,992
Available for future grant	3,016,108
Total shares reserved at December 31, 2012	6,435,531
Options exercisable at December 31, 2012	1,967,786		$	33.10	1.6	$	16,939

A summary of stock options outstanding and exercisable at December 31, 2012, follows:

	OPTIONS OUTSTANDING					OPTIONS EXERCISABLE
RANGE OF EXERCISE PRICES		NUMBER OUTSTANDING	WEIGHTED- AVERAGE REMAINING LIFE (in years)		WEIGHTED- AVERAGE EXERCISE PRICE		NUMBER EXERCISABLE		WEIGHTED- AVERAGE EXERCISE PRICE
$14.13 to $18.22		1,638,376	4.2	$	16.96		417,067	$	15.24
$20.99 to $37.37		1,012,603	1.6		25.66		782,275		26.18
$40.00 to $72.13		768,444	1.6		49.84		768,444		49.84

The total intrinsic values of stock options exercised during the years ended December 31, 2012, 2011 and 2010, were $5.4 million, $284,000 and $2.1 million, respectively. The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option.

The Company has determined the grant-date fair value of stock options using the Black-Scholes-Merton option-pricing model. Expected volatility is based upon the historical volatility of the Company's common

63

stock. The expected dividend yield is based on an annual dividend rate of $0.12 per common share. The risk-free rate for periods within the contractual life of the stock option award is based upon the zero-coupon U.S. Treasury bond on the date the stock option is granted, with a maturity equal to the expected option life of the stock option granted. The expected option life is derived from historical experience under the Company's share-based payment plans and represents the period of time that a stock option award granted is expected to be outstanding.

The following table presents the weighted-average inputs used and grant date fair values determined for stock options granted during the years ended December 31, 2012, 2011 and 2010:

		2012			2011			2010
Expected volatility		49.3	%		51.0	%		53.6	%
Expected dividend yield		0.7	%		0.7	%		0.5	%
Expected term (in years)		4.5			3.5			3.5
Risk-free rate		0.8	%		1.4	%		1.6	%
Weighted-average grant-date fair value	$	7.21		$	6.02		$	9.05

Pursuant to the Plan, on March 1, 2012, the Company awarded 275,000 stock options to senior executive officers. Effective October 1, 2012, the Company established the 2012 Amended Executive Officer Non-Qualified Stock Option Agreement, which amended the previous grants made to senior executive officers in 2012. In order to encourage a significant level of appreciation in stockholder value, this agreement added a condition to the exercisability of stock options, which requires that the stock option may only be exercised if and when the Company's stock price is greater than or equal to 150 percent of the grant price. In accordance with ASC 718, the Company used a Black-Scholes-Merton option-pricing model to calculate the incremental expense resulting from the modification of the performance stock options. Expected volatility is based upon the historical volatility of the Company's common stock. The expected dividend yield is based on an annual dividend rate of $0.12 per common share. The zero coupon rate of interest is derived from the observable Treasury rates. The expected option life is derived using a Monte Carlo simulation methodology to model the expected exercise and termination behavior of optionees. This incremental expense, plus the grant-date fair value, will be recognized over the requisite service period in stock-based compensation expense.

Stock-based compensation expense related to employee stock options totaled $5.0 million, $4.0 million and $4.7 million for the years ended December 31, 2012, 2011 and 2010, respectively.

A summary of the Company's nonvested options as of and for the years ended December 31, 2012, 2011 and 2010, follows:

	2012					2011					2010
		SHARES			WEIGHTED- AVERAGE GRANT-DATE FAIR VALUE		SHARES			WEIGHTED- AVERAGE GRANT-DATE FAIR VALUE		SHARES			WEIGHTED- AVERAGE GRANT-DATE FAIR VALUE
Nonvested options outstanding at January 1		1,374,628		$	7.00		1,142,130		$	8.31		883,398		$	8.23
Granted		756,000			7.21		781,000			6.02		846,000			9.05
Vested		(611,659	)		7.03		(498,507	)		8.37		(425,107	)		9.44
Forfeited		(67,332	)		7.47		(49,995	)		7.89		(162,161	)		8.79
Nonvested options outstanding at December 31		1,451,637		$	7.08		1,374,628		$	7.00		1,142,130		$	8.31

At December 31, 2012, the total unrecognized compensation cost related to nonvested stock option awards previously granted under the Company's plans was $5.6 million. That cost is expected to be recognized over the next 2.7 years.

Compensation expense associated with restricted stock unit awards to senior executives totaled $12.4 million, $5.3 million and $6.3 million for the years ended December 31, 2012, 2011 and 2010, respectively.

64

The following table summarizes activity that relates to the Company's restricted stock unit awards:

	2012		2011		2010
Restricted stock units at January 1	657,825		727,317		609,812
Shares awarded	473,408		305,000		404,000
Shares vested	(350,349	)	(314,492	)	(235,496	)
Shares forfeited	(6,667	)	(60,000	)	(50,999	)
Restricted stock units at December 31	774,217		657,825		727,317

At December 31, 2012, the outstanding restricted stock units are expected to vest as follows: 2013–368,469; 2014–259,468; and 2015–146,280.

The Company has granted stock awards to its non-employee directors pursuant to the terms of the Director Plan. The Company recorded stock-based compensation expense related to Director Plan stock awards in the amounts of $404,000, $415,000 and $547,000 for the years ended December 31, 2012, 2011 and 2010, respectively.

Note K: Commitments and Contingencies

Commitments

In the ordinary course of business, the Company acquires rights under option agreements to purchase land or lots for use in future homebuilding operations. At December 31, 2012 and 2011, it had cash deposits and letters of credit outstanding that totaled $53.1 million and $51.9 million, respectively, pertaining to land and lot option purchase contracts with aggregate purchase prices of $589.6 million and $407.6 million, respectively. At December 31, 2012 and 2011, the Company had $492,000 and $1.0 million, respectively, in commitments with respect to option contracts having specific performance provisions.

IRLCs represent loan commitments with customers at market rates generally up to 180 days before settlement. The Company had outstanding IRLCs with notional amounts that totaled $137.7 million and $114.6 million at December 31, 2012 and 2011, respectively. Hedging instruments, including forward-delivery contracts, are utilized to mitigate the risk associated with interest rate fluctuations on IRLCs.

The following table summarizes the Company's rent expense, which primarily relates to its office facilities, model homes, furniture and equipment:

	YEAR ENDED DECEMBER 31,
(in thousands)		2012			2011			2010
Total rent expense1	$	5,933		$	7,087		$	11,210
Less: income from subleases		(385	)		(456	)		(1,431	)
Net rent expense	$	5,548		$	6,631		$	9,779

¹

Excludes rent expense associated with the Company's discontinued operations, which totaled $556,000, $365,000 and $306,000 for the years ended December 31, 2012, 2011 and 2010, respectively.

At December 31, 2012, future minimum rental commitments under noncancellable leases with remaining terms in excess of one year were as follows:

(in thousands)
2013	$	4,501
2014		4,623
2015		4,087
2016		2,868
2017		1,751
Thereafter		2,621
Less: income from subleases		(226	)
Total lease commitments	$	20,225

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Contingencies

As an on-site housing producer, the Company is often required by some municipalities to obtain development or performance bonds and letters of credit in support of its contractual obligations. At December 31, 2012, development bonds totaled $108.4 million, while performance-related cash deposits and letters of credit totaled $52.0 million. At December 31, 2011, development bonds totaled $93.9 million, while performance-related cash deposits and letters of credit totaled $37.2 million. In the event that any such bonds or letters of credit are called, the Company would be required to reimburse the issuer; however, it does not believe that any currently outstanding bonds or letters of credit will be called.

Substantially all of the loans the Company originates are sold within a short period of time in the secondary mortgage market on a servicing-released basis. After the loans are sold, ownership, credit risk and management, including servicing of the loans, passes to the third-party purchaser. RMC retains no role or interest other than standard industry representations and warranties. The Company retains potential liability for possible claims by loan purchasers that it breached certain limited standard industry representations and warranties in its sale agreements. There has been an increased industrywide effort by loan purchasers to defray losses from mortgages purchased in an unfavorable economic environment by claiming to have found inaccuracies related to sellers' representations and warranties in particular sale agreements. There is industry debate regarding the extent to which such claims are justified. The significant majority of these claims relate to loans originated in 2005, 2006 and 2007, when underwriting standards were less stringent.

The following table summarizes the composition of the Company's mortgage loan types originated, its homebuyers' average credit scores and its loan-to-value ratios:

	TWELVE MONTHS ENDED DECEMBER 31,											AVERAGE
		2012		2011		2010		2009		2008			2005-2007
Prime		48.6	%	42.2	%	34.9	%	32.9	%	51.8	%		67.7	%
Government (FHA/VA/USDA)		51.4		57.8		65.1		67.1		48.2			13.8
Alt A		–		–		–		–		–			16.5
Subprime		–		–		–		–		–			2.0
Total		100.0	%	100.0	%	100.0	%	100.0	%	100.0	%		100.0	%
Average FICO credit score		731		726		723		717		711			713
Average combined loan-to-value ratio		90.1	%	90.3	%	90.8	%	91.4	%	90.1	%		88.4	%

While the Company's access to delinquency information is limited subsequent to loan sale, based on a review of information provided voluntarily by certain investors and on government loan reports made available by HUD, the Company believes that the average delinquency rates of RMC's loans are generally in line with industry averages. Delinquency rates for loans originated in 2008 and subsequent years are significantly lower than those originated in 2005 through 2007. The Company primarily attributes this decrease in delinquency rates to the industrywide tightening of credit standards and the elimination of most nontraditional loan products.

The Company's mortgage operations have established reserves for possible losses associated with mortgage loans previously originated and sold to investors based upon, among other things, actual past repurchases and losses through the disposition of affected loans; an analysis of repurchase requests received and the validity of those requests; and an estimate of potential liability for valid claims not yet received. Although the amount of an ultimate loss cannot be definitively estimated, the Company has accrued $10.5 million for these types of claims as of December 31, 2012, but it may have additional exposure. (See "Part I, Item 3, Legal Proceedings.")

66

The following table displays changes in the Company's mortgage loan loss and related legal reserves during the years ended December 31, 2012, 2011 and 2010:

(in thousands)		2012			2011			2010
Balance at January 1	$	10,141		$	8,934		$	17,875
Provision for losses		1,156			1,368			8,461
Settlements made		(813	)		(161	)		(17,402	)
Balance at December 31	$	10,484		$	10,141		$	8,934

Subsequent changes in conditions or available information may change assumptions and estimates. Mortgage loan loss reserves and related legal reserves were included in "Accrued and other liabilities" within the Consolidated Balance Sheets, and their associated expenses were included in "Financial services" expense within the Consolidated Statements of Earnings.

The Company provides product warranties covering workmanship and materials for one year, certain mechanical systems for two years and structural systems for ten years. It estimates and records warranty liabilities based upon historical experience and known risks at the time a home closes as a component of cost of sales, as well as upon identification and quantification of obligations in cases of unexpected claims. Actual future warranty costs could differ from current estimates.

The following table summarizes changes in the Company's product liability reserves during the years ended December 31, 2012, 2011 and 2010:

(in thousands)		2012			2011			2010
Balance at January 1	$	20,648		$	20,112		$	24,268
Warranties issued		3,899			3,549			4,565
Changes in liability for accruals related to pre-existing warranties		1,866			2,823			5,645
Settlements made		(8,225	)		(5,836	)		(14,366	)
Balance at December 31	$	18,188		$	20,648		$	20,112

The Company requires substantially all of its subcontractors to have workers' compensation insurance and general liability insurance, including construction defect coverage. RHIC provided insurance services to the homebuilding segments' subcontractors in certain markets until June 1, 2008. RHIC insurance reserves may have the effect of lowering the Company's product liability reserves, as collectibility of claims against subcontractors enrolled in the RHIC program is generally higher. At December 31, 2012 and 2011, RHIC had $14.8 million and $18.2 million, respectively, in subcontractor product liability reserves, which were included in "Accrued and other liabilities" within the Consolidated Balance Sheets. Reserves for loss and loss adjustment expense are based upon industry trends and the Company's annual actuarial projections of historical loss development.

The following table displays changes in RHIC's insurance reserves during the years ended December 31, 2012, 2011 and 2010:

(in thousands)		2012			2011			2010
Balance at January 1	$	18,209		$	21,141		$	25,069
Insurance expense provisions or adjustments		(1,369	)		(900	)		(2,553	)
Loss expenses paid		(2,027	)		(2,032	)		(1,375	)
Balance at December 31	$	14,813		$	18,209		$	21,141

Expense provisions or adjustments to RHIC's insurance reserves were included in "Financial services" expense within the Consolidated Statements of Earnings.

The Company is party to various legal proceedings generally incidental to its businesses. Litigation reserves have been established based on discussions with counsel and the Company's analysis of historical claims. The Company has, and requires its subcontractors to have, general liability insurance to protect it against a

67

portion of its risk of loss and to cover it against construction-related claims. The Company establishes reserves to cover its self-insured retentions and deductible amounts under those policies.

In view of the inherent unpredictability of outcomes in legal matters, particularly where (a) the damages sought are speculative, unspecified or indeterminate, (b) the proceedings are in the early stages or impacted significantly by future legal determinations or judicial decisions, (c) the matters involve unsettled questions of law, multiple parties or complex facts and circumstances, or (d) insured risk transfer or coverage is undetermined, there is considerable uncertainty surrounding the timing or resolution of these matters, including a possible eventual loss. Given this inherent unpredictability, actual future litigation costs could differ from the Company's current estimates. At the same time, the Company believes that adequate provisions have been made for the resolution of all known claims and pending litigation for probable losses. In accordance with applicable accounting guidance, the Company accrues amounts for legal matters where it believes they present loss contingencies that are both probable and reasonably estimable. In such cases, however, the Company may be exposed to losses in excess of any amounts accrued and may need to adjust the accruals from time to time to reflect developments that could affect its estimate of potential losses. Moreover, in accordance with applicable accounting guidance, if the Company does not believe that the potential loss from a particular matter is both probable and reasonably estimable, it does not make an accrual and will monitor the matter for any developments that would make the loss contingency both probable and reasonably estimable. For matters as to which the Company believes a loss is reasonably probable and estimable, at December 31, 2012 and 2011, the Company had legal reserves of $17.9 million and $16.5 million, respectively. (See "Part I, Item 3, Legal Proceedings.") It currently estimates that the range of reasonably possible losses, in excess of amounts accrued, could be up to approximately $13 million in the aggregate.

Note L: Supplemental Guarantor Information

The Company's obligations to pay principal, premium, if any, and interest under its 5.4 percent senior notes due January 2015; 8.4 percent senior notes due May 2017; 1.6 percent convertible senior notes due May 2018; 6.6 percent senior notes due May 2020; and 5.4 percent senior notes due October 2022 are guaranteed on a joint and several basis by substantially all of its 100 percent-owned homebuilding subsidiaries (the "Guarantor Subsidiaries"). Such guarantees are full and unconditional.

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

In the event a Guarantor Subsidiary is sold or disposed of (whether by merger, consolidation, sale of its capital stock or sale of all or substantially all of its assets [other than by lease]), and whether or not the Guarantor Subsidiary is the surviving corporation in such transaction, to a Person which is not Ryland or a Restricted Subsidiary of Ryland, such Guarantor Subsidiary will be released from its obligations under its guarantee if (a) the sale or other disposition is in compliance with the indenture and (b) all the obligations of such Guarantor Subsidiary under any agreements relating to any other indebtedness of Ryland or its restricted subsidiaries terminate upon consummation of such transaction. In addition, a Guarantor Subsidiary will be released from its obligations under the indenture if such Subsidiary ceases to be a Restricted Subsidiary (in compliance with the applicable provisions of the indenture).

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

68

CONSOLIDATING STATEMENTS OF EARNINGS

	YEAR ENDED DECEMBER 31, 2012
(in thousands)		TRG, INC.			GUARANTOR SUBSIDIARIES			NON- GUARANTOR SUBSIDIARIES		CONSOLIDATING ELIMINATIONS			CONSOLIDATED TOTAL
REVENUES	$	711,947		$	562,181		$	37,619	$	(3,281	)	$	1,308,466
EXPENSES		688,026			548,345			24,477		(3,281	)		1,257,567
OTHER LOSS		(6,932	)		–			–		–			(6,932	)
Income from continuing operations before taxes		16,989			13,836			13,142		–			43,967
Tax expense		612			499			474		–			1,585
Equity in net earnings of subsidiaries		26,005			–			–		(26,005	)		–
Net income from continuing operations		42,382			13,337			12,668		(26,005	)		42,382
Loss from discontinued operations, net of taxes		(2,000	)		(1,018	)		–		1,018			(2,000	)
NET INCOME	$	40,382		$	12,319		$	12,668	$	(24,987	)	$	40,382

		YEAR ENDED DECEMBER 31, 2011
REVENUES	$	458,500		$	404,104		$	26,927	$	–	$	889,531
EXPENSES		491,505			411,844			21,188		–		924,537
OTHER INCOME		2,274			–			–		–		2,274
(Loss) income from continuing operations before taxes		(30,731	)		(7,740	)		5,739		–		(32,732	)
Tax (benefit) expense		(2,690	)		(677	)		502		–		(2,865	)
Equity in net loss of subsidiaries		(1,826	)		–			–		1,826		–
Net (loss) income from continuing operations		(29,867	)		(7,063	)		5,237		1,826		(29,867	)
Loss from discontinued operations, net of taxes		(20,883	)		(5,763	)		–		5,763		(20,883	)
NET (LOSS) INCOME	$	(50,750	)	$	(12,826	)	$	5,237	$	7,589	$	(50,750	)

		YEAR ENDED DECEMBER 31, 2010
REVENUES	$	539,184		$	430,634		$	31,007		$	–	$	1,000,825
EXPENSES		587,638			449,988			30,162			–		1,067,788
OTHER LOSS		(13,534	)		–			–			–		(13,534	)
(Loss) income from continuing operations before taxes		(61,988	)		(19,354	)		845			–		(80,497	)
Tax expense (benefit)		149			48			(2	)		–		195
Equity in net loss of subsidiaries		(18,555	)		–			–			18,555		–
Net (loss) income from continuing operations		(80,692	)		(19,402	)		847			18,555		(80,692	)
Loss from discontinued operations, net of taxes		(4,447	)		(1,665	)		–			1,665		(4,447	)
NET (LOSS) INCOME	$	(85,139	)	$	(21,067	)	$	847		$	20,220	$	(85,139	)

69

CONSOLIDATING STATEMENTS OF OTHER COMPREHENSIVE INCOME

	YEAR ENDED DECEMBER 31, 2012
(in thousands)		TRG, INC.			GUARANTOR SUBSIDIARIES		NON- GUARANTOR SUBSIDIARIES		CONSOLIDATING ELIMINATIONS			CONSOLIDATED TOTAL
Net income	$	40,382		$	12,319	$	12,668	$	(24,987	)	$	40,382
Other comprehensive loss before tax:
Reduction of unrealized gain related to cash flow hedging instruments		(1,709	)		–		–		–			(1,709	)
Unrealized gain on marketable securities, available-for-sale:
Unrealized gain		1,217			–		–		–			1,217
Less: reclassification adjustments for gains included in net income		(233	)		–		–		–			(233	)
		984			–		–		–			984
Other comprehensive loss before tax		(725	)		–		–		–			(725	)
Income tax benefit related to items of other comprehensive loss		653										653
Other comprehensive loss, net of tax		(72	)		–		–		–			(72	)
Comprehensive income	$	40,310		$	12,319	$	12,668	$	(24,987	)	$	40,310

		YEAR ENDED DECEMBER 31, 2011
Net (loss) income	$	(50,750	)	$	(12,826	)	$	5,237	$	7,589	$	(50,750	)
Other comprehensive loss before tax:
Reduction of unrealized gain related to cash flow hedging instruments		(1,207	)		–			–		–		(1,207	)
Unrealized loss on marketable securities, available-for-sale:
Unrealized gain		360			–			–		–		360
Less: reclassification adjustments for gains included in net (loss) income		(1,358	)		–			–		–		(1,358	)
		(998	)		–			–		–		(998	)
Other comprehensive loss before tax		(2,205	)		–			–		–		(2,205	)
Income tax benefit related to items of other comprehensive loss		502			–			–		–		502
Other comprehensive loss, net of tax		(1,703	)		–			–		–		(1,703	)
Comprehensive (loss) income	$	(52,453	)	$	(12,826	)	$	5,237	$	7,589	$	(52,453	)

		YEAR ENDED DECEMBER 31, 2010
Net (loss) income	$	(85,139	)	$	(21,067	)	$	847	$	20,220	$	(85,139	)
Other comprehensive loss before tax:
Reduction of unrealized gain related to cash flow hedging instruments		(1,207	)		–			–		–		(1,207	)
Unrealized loss on marketable securities, available-for-sale:
Unrealized gain		1,750			–			–		–		1,750
Less: reclassification adjustments for gains included in net (loss) income		(2,558	)		–			–		–		(2,558	)
		(808	)		–			–		–		(808	)
Other comprehensive loss before tax		(2,015	)		–			–		–		(2,015	)
Income tax benefit related to items of other comprehensive loss		771			–			–		–		771
Other comprehensive loss, net of tax		(1,244	)		–			–		–		(1,244	)
Comprehensive (loss) income	$	(86,383	)	$	(21,067	)	$	847	$	20,220	$	(86,383	)

70

CONSOLIDATING BALANCE SHEETS

	DECEMBER 31, 2012
(in thousands)		TRG, INC.		GUARANTOR SUBSIDIARIES		NON- GUARANTOR SUBSIDIARIES		CONSOLIDATING ELIMINATIONS			CONSOLIDATED TOTAL
ASSETS
Cash and cash equivalents	$	29,735	$	117,838	$	8,119	$	–		$	155,692
Marketable securities and restricted cash		431,452		–		27,461		–			458,913
Consolidated inventory owned		643,619		394,309		–		–			1,037,928
Consolidated inventory not owned		17,666		–		21,824		–			39,490
Total housing inventories		661,285		394,309		21,824		–			1,077,418
Investment in subsidiaries		244,917		–		–		(244,917	)		–
Intercompany receivables		368,126		–		–		(368,126	)		–
Other assets		76,183		43,572		119,661		–			239,416
Assets of discontinued operations		187		2,293		–		–			2,480
TOTAL ASSETS		1,811,885		558,012		177,065		(613,043	)		1,933,919
LIABILITIES
Accounts payable and other accrued liabilities		172,906		68,929		30,320		–			272,155
Financial services credit facility		–		–		–		–			–
Debt		1,134,468		–		–		–			1,134,468
Intercompany payables		–		275,163		92,963		(368,126	)		–
Liabilities of discontinued operations		575		961		–		–			1,536
TOTAL LIABILITIES		1,307,949		345,053		123,283		(368,126	)		1,408,159
EQUITY
STOCKHOLDERS' EQUITY		503,936		212,959		31,958		(244,917	)		503,936
NONCONTROLLING INTEREST		–		–		21,824		–			21,824
TOTAL LIABILITIES AND EQUITY	$	1,811,885	$	558,012	$	177,065	$	(613,043	)	$	1,933,919

		DECEMBER 31, 2011
ASSETS
Cash and cash equivalents	$	25,403	$	117,072	$	16,638	$	–		$	159,113
Marketable securities and restricted cash		370,975		–		33,090		–			404,065
Consolidated inventory owned		470,269		273,791		–		–			744,060
Consolidated inventory not owned		17,177		–		34,223		–			51,400
Total housing inventories		487,446		273,791		34,223		–			795,460
Investment in subsidiaries		230,432		–		–		(230,432	)		–
Intercompany receivables		226,521		–		–		(226,521	)		–
Other assets		56,758		34,045		94,379		–			185,182
Assets of discontinued operations		8,853		26,471		–		–			35,324
TOTAL ASSETS		1,406,388		451,379		178,330		(456,953	)		1,579,144
LIABILITIES
Accounts payable and other accrued liabilities		131,879		48,750		34,628		–			215,257
Financial services credit facility		–		–		49,933		–			49,933
Debt		822,639		1,188		–		–			823,827
Intercompany payables		–		196,767		29,754		(226,521	)		–
Liabilities of discontinued operations		2,183		4,034		–		–			6,217
TOTAL LIABILITIES		956,701		250,739		114,315		(226,521	)		1,095,234
EQUITY
STOCKHOLDERS' EQUITY		449,687		200,640		29,792		(230,432	)		449,687
NONCONTROLLING INTEREST		–		–		34,223		–			34,223
TOTAL LIABILITIES AND EQUITY	$	1,406,388	$	451,379	$	178,330	$	(456,953	)	$	1,579,144

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CONSOLIDATING STATEMENTS OF CASH FLOWS

	YEAR ENDED DECEMBER 31, 2012
(in thousands)		TRG, INC.			GUARANTOR SUBSIDIARIES			NON- GUARANTOR SUBSIDIARIES			CONSOLIDATING ELIMINATIONS			CONSOLIDATED TOTAL
CASH FLOWS FROM OPERATING ACTIVITIES
Net income from continuing operations	$	42,382		$	13,337		$	12,668		$	(26,005	)	$	42,382
Adjustments to reconcile net income from continuing operations to net cash used for operating activities		27,209			7,873			500			–			35,582
Changes in assets and liabilities		(168,994	)		(94,450	)		(40,608	)		26,005			(278,047	)
Other operating activities, net		(792	)		–			–			–			(792	)
Net cash used for operating activities from continuing operations		(100,195	)		(73,240	)		(27,440	)		–			(200,875	)
CASH FLOWS FROM INVESTING ACTIVITIES
Return of investment in unconsolidated joint ventures, net		708			1,602			–			–			2,310
Additions to property, plant and equipment		(7,838	)		(4,804	)		(68	)		–			(12,710	)
Purchases of marketable securities, available-for-sale		(1,168,833	)		–			(5,481	)		–			(1,174,314	)
Proceeds from sales and maturities of marketable securities, available-for-sale		1,130,653			–			6,293			–			1,136,946
Other investing activities, net		–			–			109			–			109
Net cash (used for) provided by investing activities from continuing operations		(45,310	)		(3,202	)		853			–			(47,659	)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in senior debt and short-term borrowings, net		301,145			(1,188	)		(22	)		–			299,935
Decrease in borrowings against revolving credit facilities, net		–			–			(49,933	)		–			(49,933	)
Common stock dividends and stock-based compensation		8,955			–			–			–			8,955
(Increase) decrease in restricted cash		(18,658	)		–			4,814			–			(13,844	)
Intercompany balances		(141,605	)		78,396			63,209			–			–
Net cash provided by financing activities from continuing operations		149,837			77,208			18,068			–			245,113
Net increase (decrease) in cash and cash equivalents from continuing operations		4,332			766			(8,519	)		–			(3,421	)
Cash flows from operating activities—discontinued operations		(31	)		(73	)		–			–			(104	)
Cash flows from investing activities—discontinued operations		4			71			–			–			75
Cash flows from financing activities—discontinued operations		–			–			–			–			–
Cash and cash equivalents at beginning of year		25,430			117,101			16,638			–			159,169
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	29,735		$	117,865		$	8,119		$	–		$	155,719

72

CONSOLIDATING STATEMENTS OF CASH FLOWS

	YEAR ENDED DECEMBER 31, 2011
(in thousands)		TRG, INC.			GUARANTOR SUBSIDIARIES			NON- GUARANTOR SUBSIDIARIES			CONSOLIDATING ELIMINATIONS			CONSOLIDATED TOTAL
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income from continuing operations	$	(29,867	)	$	(7,063	)	$	5,237		$	1,826		$	(29,867	)
Adjustments to reconcile net (loss) income from continuing operations to net cash used for operating activities		50,860			6,564			588			–			58,012
Changes in assets and liabilities		(57,722	)		(40,741	)		(84,536	)		(1,826	)		(184,825	)
Other operating activities, net		(988	)		–			–			–			(988	)
Net cash used for operating activities from continuing operations		(37,717	)		(41,240	)		(78,711	)		–			(157,668	)
CASH FLOWS FROM INVESTING ACTIVITIES
(Contributions to) return of investment in unconsolidated joint ventures, net		(912	)		2,867			–			–			1,955
Additions to property, plant and equipment		(7,368	)		(3,443	)		(153	)		–			(10,964	)
Purchases of marketable securities, available-for-sale		(1,303,185	)		–			(5,387	)		–			(1,308,572	)
Proceeds from sales and maturities of marketable securities, available-for-sale		1,393,210			–			6,564			–			1,399,774
Other investing activities, net		–			–			118			–			118
Net cash provided by (used for) investing activities from continuing operations		81,745			(576	)		1,142			–			82,311
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in senior debt and short-term borrowings, net		(55,243	)		(2,784	)		–			–			(58,027	)
Increase in borrowings against revolving credit facilities, net		–			–			49,933			–			49,933
Common stock dividends and stock-based compensation		(1,783	)		–			–			–			(1,783	)
Decrease (increase) in restricted cash		18,315			–			(326	)		–			17,989
Intercompany balances		(6,625	)		(15,480	)		22,105			–			–
Net cash (used for) provided by financing activities from continuing operations		(45,336	)		(18,264	)		71,712			–			8,112
Net decrease in cash and cash equivalents from continuing operations		(1,308	)		(60,080	)		(5,857	)		–			(67,245	)
Cash flows from operating activities—discontinued operations		353			116			–			–			469
Cash flows from investing activities—discontinued operations		(237	)		(126	)		–			–			(363	)
Cash flows from financing activities—discontinued operations		(89	)		–			–			–			(89	)
Cash and cash equivalents at beginning of year		26,711			177,191			22,495			–			226,397
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	25,430		$	117,101		$	16,638		$	–		$	159,169

73

CONSOLIDATING STATEMENT OF CASH FLOWS

	YEAR ENDED DECEMBER 31, 2010
(in thousands)		TRG, INC.			GUARANTOR SUBSIDIARIES			NON- GUARANTOR SUBSIDIARIES			CONSOLIDATING ELIMINATIONS			CONSOLIDATED TOTAL
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income from continuing operations	$	(80,692	)	$	(19,402	)	$	847		$	18,555		$	(80,692	)
Adjustments to reconcile net (loss) income from continuing operations to net cash used for operating activities		102,567			15,280			877			–			118,724
Changes in assets and liabilities		(43,237	)		(26,916	)		(16,399	)		(18,555	)		(105,107	)
Other operating activities, net		2,093			(2,550	)		–			–			(457	)
Net cash used for operating activities from continuing operations		(19,269	)		(33,588	)		(14,675	)		–			(67,532	)
CASH FLOWS FROM INVESTING ACTIVITIES
(Contributions to) return of investment in unconsolidated joint ventures, net		(6,443	)		2,400			–			–			(4,043	)
Additions to property, plant and equipment		(6,184	)		(6,206	)		(33	)		–			(12,423	)
Purchases of marketable securities, available-for-sale		(1,314,086	)		(400,583	)		(5,804	)		–			(1,720,473	)
Proceeds from sales and maturities of marketable securities, available-for-sale		1,358,315			375,906			8,692			–			1,742,913
Other investing activities, net		–			–			10			–			10
Net cash provided by (used for) investing activities from continuing operations		31,602			(28,483	)		2,865			–			5,984
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in senior debt and short-term borrowings, net		2,475			3,972			–			–			6,447
Common stock dividends and stock-based compensation		(516	)		–			–			–			(516	)
(Increase) decrease in restricted cash		(13,470	)		10,468			67			–			(2,935	)
Intercompany balances		23,957			(34,218	)		10,261			–			–
Net cash provided by (used for) financing activities from continuing operations		12,446			(19,778	)		10,328			–			2,996
Net increase (decrease) in cash and cash equivalents from continuing operations		24,779			(81,849	)		(1,482	)		–			(58,552	)
Cash flows from operating activities—discontinued operations		1,891			161			–			–			2,052
Cash flows from investing activities—discontinued operations		(390	)		(161	)		–			–			(551	)
Cash flows from financing activities—discontinued operations		(1,501	)		–			–			–			(1,501	)
Cash and cash equivalents at beginning of year		1,932			259,040			23,977			–			284,949
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	26,711		$	177,191		$	22,495		$	–		$	226,397

Note M: Discontinued Operations

During 2011, the Company discontinued future homebuilding operations in its Jacksonville and Dallas divisions. The Company intends to complete all homes currently under contract and to sell its remaining available land in these divisions as part of a strategic plan designed to efficiently manage its invested capital. The results of operations and cash flows for Jacksonville and Dallas, which were historically reported in the Company's Southeast and Texas segments, respectively, have been classified as discontinued operations. Additionally, the assets and liabilities related to these discontinued operations were presented separately in "Assets of discontinued operations" and "Liabilities of discontinued operations" within the Consolidated Balance Sheets. All prior period amounts have been reclassified to conform to the 2012 presentation.

74

BALANCE SHEETS

	DECEMBER 31,
(in thousands)		2012		2011
Assets
Cash and cash equivalents	$	27	$	56
Housing inventories		2,239		30,670
Other assets		214		4,598
Total assets of discontinued operations		2,480		35,324
Liabilities
Accounts payable and accrued liabilities		1,536		6,217
Total liabilities of discontinued operations	$	1,536	$	6,217

The Company's net loss from discontinued operations totaled $2.0 million, $20.9 million and $4.4 million for the years ended December 31, 2012, 2011 and 2010, respectively.

Note N: Subsequent Events

No events have occurred subsequent to December 31, 2012, that have required recognition or disclosure in the Company's financial statements.

Note O: Quarterly Financial Data (Unaudited)

	2012										2011
(in thousands, except per share data)		DEC. 31			SEPT. 30		JUN. 30		MAR. 31			DEC. 31			SEPT. 30			JUN. 30			MAR. 31
CONSOLIDATED RESULTS
Revenues	$	440,135		$	358,693	$	293,769	$	215,869		$	261,445		$	248,566		$	211,848		$	167,672
Income (loss) from continuing operations before taxes		30,319			10,430		6,239		(3,021	)		814			(3,908	)		(9,801	)		(19,837	)
Tax expense (benefit)		1,372			23		190		–			(449	)		(18	)		–			(2,398	)
Net income (loss) from continuing operations		28,947			10,407		6,049		(3,021	)		1,263			(3,890	)		(9,801	)		(17,439	)
(Loss) income from discontinued operations, net of taxes		(374	)		238		223		(2,087	)		(451	)		(17,423	)		(912	)		(2,097	)
Net income (loss)	$	28,573		$	10,645	$	6,272	$	(5,108	)	$	812		$	(21,313	)	$	(10,713	)	$	(19,536	)
Net income (loss) per common share:
Basic
Continuing operations	$	0.64		$	0.23	$	0.14	$	(0.07	)	$	0.03		$	(0.09	)	$	(0.22	)	$	(0.39	)
Discontinued operations		(0.01	)		0.01		0.00		(0.04	)		(0.01	)		(0.39	)		(0.02	)		(0.05	)
Total		0.63			0.24		0.14		(0.11	)		0.02			(0.48	)		(0.24	)		(0.44	)
Diluted
Continuing operations		0.56			0.21		0.14		(0.07	)		0.03			(0.09	)		(0.22	)		(0.39	)
Discontinued operations		(0.01	)		0.01		0.00		(0.04	)		(0.01	)		(0.39	)		(0.02	)		(0.05	)
Total	$	0.55		$	0.22	$	0.14	$	(0.11	)	$	0.02		$	(0.48	)	$	(0.24	)	$	(0.44	)
Weighted-average common shares outstanding:
Basic		45,115			44,826		44,628		44,474			44,410			44,409			44,369			44,239
Diluted		53,053			52,654		48,571		44,474			45,075			44,409			44,369			44,239

75

Report of Management

Management of the Company is responsible for the integrity and accuracy of the financial statements and all other annual report information. The financial statements are prepared in conformity with generally accepted accounting principles and include amounts based on management's judgments and estimates.

The accounting systems, which record, summarize and report financial information, are supported by internal control systems designed to provide reasonable assurance, at an appropriate cost, that the assets are safeguarded and that transactions are recorded in accordance with Company policies and procedures. Developing and maintaining these systems are the responsibility of management. Proper selection, training and development of personnel also contribute to the effectiveness of the internal control systems. For the purpose of evaluating and documenting its systems of internal control, management elected to use the integrated framework promulgated by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). The Company's systems, evaluation and test results were documented. The Company's internal auditors regularly test these systems. Based on its evaluation, management believes that its systems of internal control over financial reporting were effective and is not aware of any material weaknesses.

The Company's independent registered public accounting firm also reviewed and tested the effectiveness of these systems to the extent it deemed necessary to express an opinion on the consolidated financial statements and systems of internal control.

The Audit Committee of the Board of Directors periodically meets with management, the internal auditors and the independent registered public accounting firm to review accounting, auditing and financial matters. Both internal auditors and the independent registered public accounting firm have unrestricted access to the Audit Committee.

/s/ Gordon A. Milne
Gordon A. Milne
Executive Vice President and
Chief Financial Officer

/s/ David L. Fristoe
David L. Fristoe
Senior Vice President, Controller and
Chief Accounting Officer

76

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of
The Ryland Group, Inc.

We have audited the accompanying consolidated balance sheets of The Ryland Group, Inc. and subsidiaries as of December 31, 2012 and 2011, and the related consolidated statements of earnings and other comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2012. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Ryland Group, Inc. and subsidiaries at December 31, 2012 and 2011, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), The Ryland Group, Inc. and subsidiaries' internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 27, 2013, expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Los Angeles, California
February 27, 2013

77

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of
The Ryland Group, Inc.

We have audited The Ryland Group, Inc. and subsidiaries' internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). The Ryland Group, Inc. and subsidiaries' management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Report of Management. Our responsibility is to express an opinion on the company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, The Ryland Group, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of The Ryland Group, Inc. and subsidiaries as of December 31, 2012 and 2011, and the related consolidated statements of earnings and other comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2012, of The Ryland Group, Inc. and subsidiaries and our report dated February 27, 2013, expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Los Angeles, California
February 27, 2013

78

Item 9.    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None.

Item 9A.    Controls and Procedures

The Company has procedures in place for accumulating and evaluating information that enable it to prepare and file reports with the SEC. At the end of the year covered by this report on Form 10-K, 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 as defined in Rule 13a-15(e) promulgated under the Exchange Act. Based on that evaluation, the Company's management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of December 31, 2012.

The Company has a committee consisting of its chief accounting officer and general counsel to ensure that its disclosure controls and procedures are effective at the reasonable assurance level. These disclosure controls and procedures are designed such that information required to be disclosed in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC and is accumulated and communicated to the Company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

The Company's management summarized its assessment process and documented its conclusions in the Report of Management, which appears in Part II, Item 8, "Financial Statements and Supplementary Data." The Company's independent registered public accounting firm summarized its review of management's assessment of internal control over financial reporting in an attestation report, which also appears in Part II, Item 8, "Financial Statements and Supplementary Data."

At December 31, 2012, the Company completed a detailed evaluation of its internal control over financial reporting, including the assessment, documentation and testing of its controls, as required by the Sarbanes-Oxley Act of 2002. No material weaknesses were identified. The Company's management, including the CEO and CFO, has evaluated any changes in the Company's internal control over financial reporting that occurred during the annual period ended December 31, 2012, and has concluded that there was no change during this period that materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

NYSE Certification

The NYSE requires that the chief executive officers of its listed companies certify annually to the NYSE that they are not aware of violations by their companies of NYSE corporate governance listing standards. The Company submitted a non-qualified certification by its Chief Executive Officer to the NYSE last year in accordance with the NYSE's rules. Further, the Company files certifications by its Chief Executive Officer and Chief Financial Officer with the SEC in accordance with the Sarbanes-Oxley Act of 2002. These certifications are filed as exhibits to this Annual Report on Form 10-K.

Item 9B.    Other Information

None.

79

PART III

Item 10.    Directors, Executive Officers and Corporate Governance

Executive Officers of the Company

The following sets forth certain information regarding the Company's executive officers at December 31, 2012:

Name	Age	Position (date elected to position) Prior Business Experience
Larry T. Nicholson	55	Chief Executive Officer of the Company (since 2009); President of the Company (since 2008); Chief Operating Officer of the Company (2007-2009); Senior Vice President of the Company and President of the Southeast Region of Ryland Homes (2005-2007)
Gordon A. Milne	61	Executive Vice President and Chief Financial Officer of the Company (since 2002); Senior Vice President and Chief Financial Officer of the Company (2000-2002)
Robert J. Cunnion, III	57	Senior Vice President, Human Resources of the Company (since 1999)
David L. Fristoe	56	Senior Vice President, Controller and Chief Accounting Officer of the Company (since 1999)
Timothy J. Geckle	60	Senior Vice President, General Counsel and Secretary of the Company (since 1997)
Peter G. Skelly	49	Senior Vice President of the Company and President of the Company's Homebuilding Operations (since 2011); Senior Vice President of the Company and President of the North/West Region of Ryland Homes (2008-2011); Senior Vice President of the Company and President of the North Region of Ryland Homes (2006-2008)

The Board of Directors elects all officers.

There are no family relationships between any director or executive officer, or arrangements or understandings pursuant to which the officers listed above were elected. For a description of the Company's employment and severance arrangements with certain of its executive officers, see the Company's Proxy Statement for the 2013 Annual Meeting of Stockholders (the "2013 Proxy Statement"), which is filed pursuant to Regulation 14A under the Exchange Act.

Information as to the Company's directors, executive officers and corporate governance is incorporated by reference from the Company's 2013 Proxy Statement, including the determination by the Board of Directors, with respect to the Audit Committee's financial expert, and the identity of each member of the Audit Committee of the Board of Directors.

The Company has adopted a code of ethics that is applicable to its senior officers, directors and employees. To retrieve the Company's code of ethics, visit www.ryland.com, select "Investor Relations" and then select "Corporate Governance." Scroll down the page to "Code of Ethics."

80

Item 11.    Executive Compensation

The information required by this item is incorporated by reference from the 2013 Proxy Statement. The Compensation Committee Report to be included in the 2013 Proxy Statement shall be deemed furnished in this Annual Report on Form 10-K and shall not be incorporated by reference into any filing under the Securities Act or the Exchange Act as a result of such furnishing in this Item 11.

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item is set forth on page 16 of this Annual Report on Form 10-K and is incorporated by reference from the 2013 Proxy Statement.

Item 13.    Certain Relationships and Related Transactions, and Director Independence

The information required by this item is incorporated by reference from the 2013 Proxy Statement.

Item 14.    Principal Accountant Fees and Services

The information required by this item is incorporated by reference from the 2013 Proxy Statement.

PART IV

Item 15.    Exhibits and Financial Statement Schedules

			Page No.
(a)	1.	Financial Statements
		Consolidated Statements of Earnings—years ended December 31, 2012, 2011 and 2010		41
		Consolidated Statements of Other Comprehensive Income—years ended December 31, 2012, 2011 and 2010		42
		Consolidated Balance Sheets—December 31, 2012 and 2011		43
		Consolidated Statements of Stockholders' Equity—years ended December 31, 2012, 2011 and 2010		44
		Consolidated Statements of Cash Flows—years ended December 31, 2012, 2011 and 2010		45
		Notes to Consolidated Financial Statements		46
	2.	Financial Statement Schedules
		Financial statement schedules have been omitted because they are either not applicable or because the required information has been provided in the financial statements or notes thereto.
	Exhibits
		The following exhibits are included with this report or incorporated herein by reference as indicated below:

3.1	Articles of Restatement of The Ryland Group, Inc., as amended (Incorporated by reference from Form 10-Q for the quarter ended March 31, 2005)
3.2	Articles of Amendment of The Ryland Group, Inc. (Incorporated by reference from Form 10-Q for the quarter ended June 30, 2009)
3.3	Bylaws of The Ryland Group, Inc., as amended (Incorporated by reference from Form 8-K, filed December 14, 2010)
3.4	Amendment to the Bylaws of The Ryland Group, Inc. (Incorporated by reference from Form 8-K, filed March 5, 2012)

81

Exhibits, continued
3.5	Amendment to the Bylaws of The Ryland Group, Inc. (Incorporated by reference from Form 8-K, filed February 13, 2013)
4.1	Senior Notes, dated as of January 11, 2005 (Incorporated by reference from Registration Statement on Form S-3, Registration No. 333-121469)
4.2	Articles Supplementary of The Ryland Group, Inc. (Incorporated by reference from Registration Statement on Form S-3, Registration No. 333-157170)
4.3	Senior Notes, dated as of May 5, 2009 (Incorporated by reference from Registration Statement on Form S-3, Registration No. 333-157170)
4.4	Senior Notes, dated as of April 15, 2010 (Incorporated by reference from Registration Statement on Form S-3, Registration No. 333-157170)
4.5	Convertible Senior Notes, dated as of May 14, 2012 (Incorporated by reference from Registration Statement on Form S-3, Registration No. 333-179206)
4.6	Senior Notes, dated as of September 19, 2012 (Incorporated by reference from Registration Statement on Form S-3, Registration No. 333-179206)
4.7	Rights Agreement, dated as of December 18, 2008, between The Ryland Group, Inc. and American Stock Transfer & Trust Company, LLC (Incorporated by reference from Form 8-A, filed December 29, 2008)
4.8	Amendment to the Rights Agreement, dated as of May 18, 2009, between The Ryland Group, Inc. and American Stock Transfer & Trust Company, LLC (Incorporated by reference from Form 8-K, filed May 22, 2009)
4.9	Seventh Supplemental Indenture dated as of May 16, 2012 (including the form of Note and the Form of Guarantee) by and among the Company, the Guarantors and The Bank of New York Mellon Trust Company, N.A., as successor to JPMorgan Chase Bank, N.A., formerly known as The Chase Manhattan Bank, as trustee (Incorporated by reference from Form 8-K, filed May 16, 2012)
4.10	Eighth Supplemental Indenture, dated as of September 21, 2012 (including the form of Note and the form of Guarantee) by and among the Company, the Guarantors and The Bank of New York Mellon Trust Company, N.A., as successor to JPMorgan Chase Bank, N.A., formerly known as The Chase Manhattan Bank, as trustee (Incorporated by reference from Form 8-K, filed September 21, 2012)
10.1	Credit Agreement, dated January 24, 2008, between Ryland Mortgage Company and Guaranty Bank (Incorporated by reference from Form 10-Q for the quarter ended June 30, 2009)
10.2	Master Repurchase Agreement, dated December 14, 2011, between Ryland Mortgage Company and RMC Mortgage Corporation and JPMorgan Chase Bank, N.A. (Incorporated by reference from Form 8-K, filed December 20, 2011)
10.3	First Amendment to Master Repurchase Agreement, dated December 12, 2012, between Ryland Mortgage Company and RMC Mortgage Company and JPMorgan Chase Bank, N.A. (Filed herewith)

82

Exhibits, continued
10.4	2002 Equity Incentive Plan of The Ryland Group, Inc. (Incorporated by reference from Form 10-Q for the quarter ended June 30, 2002)
10.5	Amendment and Restatement of 2005 Equity Incentive Plan of The Ryland Group, Inc. (Incorporated by reference from Form 10-K for the year ended December 31, 2008)
10.6	Amendment and Restatement of The Ryland Group, Inc. 2007 Equity Incentive Plan (Incorporated by reference from Form 10-K for the year ended December 31, 2008)
10.7	Amendment and Restatement of The Ryland Group, Inc. 2008 Equity Incentive Plan (Incorporated by reference from Form 10-K for the year ended December 31, 2008)
10.8	The Ryland Group, Inc. 2011 Equity and Incentive Plan (Incorporated by reference from Form 8-K, filed March 24, 2011)
10.9	The Ryland Group, Inc. 2012 Executive Officer Long-Term Incentive Plan (Incorporated by reference from Form 8-K, filed October 2, 2012)
10.10	Form of Non-Qualified Stock Option Agreement (Incorporated by reference from Form 8-K, filed April 29, 2005)
10.11	2012 Amended Executive Officer Non-Qualified Stock Option Agreement (Incorporated by reference from Form 8-K, filed October 2, 2012)
10.12	Form of Amended and Restated Stock Unit Agreement (Incorporated by reference from Form 8-K, filed April 18, 2006)
10.13	Form of Stock Unit Agreement for Executive Officers (Incorporated by reference from Form 8-K, filed April 30, 2008)
10.14	Amendment No. 1 to Form of Stock Unit Agreement for Executive Officers (Incorporated by reference from Form 10-K for the year ended December 31, 2008)
10.15	Non-Employee Directors' Stock Unit Plan, effective January 1, 2005 (Incorporated by reference from Form 10-K for the year ended December 31, 2008)
10.16	2000 Non-Employee Director Equity Plan of The Ryland Group, Inc., as amended (Incorporated by reference from Form 10-K for the year ended December 31, 2000)
10.17	2004 Non-Employee Director Equity Plan of The Ryland Group, Inc. (Incorporated by reference from Form 10-Q for the quarter ended March 31, 2004)
10.18	Non-Employee Director Stock Plan, effective April 26, 2006 (Incorporated by reference from Form 8-K, filed April 27, 2006)
10.19	The Ryland Group, Inc. 2011 Non-Employee Director Stock Plan (Incorporated by reference from Form DEF 14, filed March 14, 2011)
10.20	Form of Senior Executive Severance Agreement between The Ryland Group, Inc. and certain executive officers of the Company (Incorporated by reference from Form 10-Q for the quarter ended September 30, 2000)
10.21	Amendment and Restatement of The Ryland Group, Inc. Senior Executive Supplemental Retirement Plan (Incorporated by reference from Form 10-K for the year ended December 31, 2008)
10.22	Form of Amendment No. 1 to Senior Executive Severance Agreement between The Ryland Group, Inc. and certain executive officers of the Company (Incorporated by reference from Form 10-K for the year ended December 31, 2008)
10.23	Form of Amendment No. 2 to Senior Executive Severance Agreement between The Ryland Group, Inc. and certain executive officers of the Company (Incorporated by reference from Form 10-K for the year ended December 31, 2011)

83

Exhibits, continued
10.24	Form of Amendment No. 3 to Senior Executive Severance Agreement between The Ryland Group, Inc. and executive officers of the Corporation (Incorporated by reference from Form 8-K, filed October 2, 2012)
10.25	Form of 2007 Senior Executive Severance Agreement between The Ryland Group, Inc. and certain executive officers of the Company (Incorporated by reference from Form 10-K for the year ended December 31, 2006)
10.26	Form of Amendment No. 1 to 2007 Senior Executive Severance Agreement between The Ryland Group, Inc. and certain executive officers of the Company (Incorporated by reference from Form 10-K for the year ended December 31, 2008)
10.27	Form of Amendment No. 2 to 2007 Senior Executive Severance Agreement between The Ryland Group, Inc. and certain executive officers of the Company (Incorporated by reference from Form 10-K for the year ended December 31, 2011)
10.28	The Ryland Group, Inc. Executive and Director Deferred Compensation Plan II, effective January 1, 2005 (Incorporated by reference from Form 10-K for the year ended December 31, 2008)
10.29	TRG Incentive Plan, as amended and restated, effective January 1, 2005 (Incorporated by reference from Form 10-K for the year ended December 31, 2008)
10.30	The Ryland Group, Inc. Performance Award Program (Incorporated by reference from Form 8-K, filed April 30, 2008)
10.31	The Ryland Group, Inc. 2011 Retention Incentive Plan (Incorporated by reference from Form 10-K for the year ended December 31, 2011)
10.32	Amendment No. 1 to The Ryland Group, Inc. Performance Award Program (Incorporated by reference from Form 10-K for the year ended December 31, 2008)
10.33	CEO Severance Agreement, dated as of December 17, 2009, by and between The Ryland Group, Inc. and Larry T. Nicholson (Incorporated by reference from Form 8-K, filed December 21, 2009)
10.34	The Ryland Group, Inc. Senior Executive Performance Plan (Incorporated by reference from Form 8-K, filed April 30, 2008)
10.35	Amendment No. 1 to The Ryland Group, Inc. Senior Executive Performance Plan (Incorporated by reference from Form 10-K for the year ended December 31, 2008)
10.36	Lease Agreement, dated December 21, 2010, by and between The Ryland Group, Inc. and Westlake Plaza Center East,  LLC (Incorporated by reference from Form 10-K for the year ended December 31, 2010)
10.37	Office Lease Agreement Perimeter Gateway III, dated August 11, 2011, by and between The Ryland Group, Inc. and DTR10,  LLC (Incorporated by reference from Form 10-Q for the quarter ended September 30, 2012)
10.38	Form of Indemnification Agreement (Incorporated by reference from Form 10-K for the year ended December 31, 2011)
12.1	Computation of Ratio of Earnings to Fixed Charges (Filed herewith)
21	Subsidiaries of the Registrant (Filed herewith)
23	Consent of Independent Registered Public Accounting Firm (Filed herewith)

84

Exhibits, continued
24	Power of Attorney (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 (Filed herewith)
32.2	Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herewith)
101.INS	XBRL Instance Document (Furnished herewith)
101.SCH	XBRL Taxonomy Extension Schema Document (Furnished herewith)
101.CAL	XBRL Taxonomy Calculation Linkbase Document (Furnished herewith)
101.LAB	XBRL Taxonomy Label Linkbase Document (Furnished herewith)
101.PRE	XBRL Taxonomy Presentation Linkbase Document (Furnished herewith)
101.DEF	XBRL Taxonomy Extension Definition Document (Furnished herewith)

85

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

The Ryland Group, Inc.
By:
/s/ Larry T. Nicholson
Larry T. Nicholson President and Chief Executive Officer (Principal Executive Officer)	February 27, 2013
Pursuant to the requirements of the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Principal Executive Officer:
/s/ Larry T. Nicholson
Larry T. Nicholson President and Chief Executive Officer	February 27, 2013
Principal Financial Officer:
/s/ Gordon A. Milne
Gordon A. Milne Executive Vice President and Chief Financial Officer	February 27, 2013
Principal Accounting Officer:
/s/ David L. Fristoe
David L. Fristoe Senior Vice President, Controller and Chief Accounting Officer	February 27, 2013
A majority of the Board of Directors: William L. Jews, Ned Mansour, Robert E. Mellor, Norman J. Metcalfe, Larry T. Nicholson, Charlotte St. Martin and Robert G. van Schoonenberg
By:
/s/ Timothy J. Geckle
Timothy J. Geckle As Attorney-in-Fact	February 27, 2013

86

Index of Exhibits

10.3	First Amendment to Master Repurchase Agreement, dated December 12, 2012, between Ryland Mortgage Company and RMC Mortgage Company and JPMorgan Chase Bank, N.A.
12.1	Computation of Ratio of Earnings to Fixed Charges
21	Subsidiaries of the Registrant
23	Consent of Independent Registered Public Accounting Firm
24	Power of Attorney
31.1	Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Calculation Linkbase Document
101.LAB	XBRL Taxonomy Label Linkbase Document
101.PRE	XBRL Taxonomy Presentation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Document

87

EX-10.3

Exhibit 10.3

FIRST AMENDMENT TO MASTER REPURCHASE AGREEMENT

Dated as of December 12, 2012

Between:

RYLAND MORTGAGE COMPANY, as Seller jointly and severally with the other Sellers

and

RMC MORTGAGE CORPORATION, as Seller jointly and severally with the other Sellers

and

JPMORGAN CHASE BANK, N.A., as Buyer

1.THIS AMENDMENT

The Parties agree hereby to amend the Master Repurchase Agreement dated December 14, 2011 between them (the “Original MRA”) to make certain changes to the Original MRA as set forth herein, and they hereby amend the Original MRA as follows:

All capitalized terms used in the Original MRA and used, but not defined differently, in this amendment (this “Amendment”) have the same meanings here as there.

2.Definitions

A.The definition of “Termination Date” in Paragraph 2(a) of the Amended MRA is hereby amended to read as follows:

“Termination Date” means the  earliest of (i) that Business Day which any Seller designates as the Termination Date by written notice to Buyer at least thirty (30) days prior to such date, (ii) the date of declaration of the Termination Date pursuant to Paragraph 12(c), and (iii) 364 days after December 12, 2012, as such date may be extended by written agreement of Buyer and Sellers.

II.Seller’s Covenants.

A.Paragraph 11(w) is hereby amended in its entirety to read as follows:

(w)Financial Covenants (Applicable to Sellers in the Aggregate).

(i)Leverage Ratio.Sellers shall not permit the Leverage Ratio of all Sellers (and, if applicable, their Subsidiaries. on a consolidated basis) to exceed 12 to 1 computed as of the end of each calendar month.

(ii)Minimum Adjusted Tangible Net Worth. Sellers shall not permit the Adjusted Tangible Net Worth of all Sellers (and, if applicable,

their Subsidiaries, on a consolidated basis), computed as of the end of each calendar month to be less than $10,000,000.

(iii)Minimum Current Ratio.Sellers shall not permit the Current Ratio of all Sellers (and, if applicable, their Subsidiaries, on a consolidated basis), computed as of the end of each calendar month, to be less than 1.05 to 1.

(iv)Maintenance of Liquidity. Sellers shall maintain, in the aggregate, at all times unencumbered Liquidity in an amount greater than or equal to 3% of actual total assets of all Sellers (including the balance on deposit in the Cash Pledge Account, but excluding any restricted cash or cash pledged to third parties).

(v)Net Income. Sellers shall not permit their combined net loss for the first (1st) fiscal quarter of each fiscal year to be greater than One Million Dollars ($1,000,000) and shall not permit the net income of all Sellers before taxes for any other fiscal quarter to be less than One Dollar ($1).

(vi)Maximum Facility Ratio. Sellers shall not permit the Maximum Facility Ratio of all Sellers (and, if applicable, their Subsidiaries, on a consolidated basis) to exceed 30 to 1 computed as of the end of each calendar month.

(The remainder of this page is intentionally blank)

2

As amended hereby, the Original MRA remains in full force and effect, and the Parties hereby ratify and confirm it.

JPMORGAN CHASE BANK, N.A.

By:	/s/ John Greene
	John Greene
	Vice President and Underwriter

RYLAND MORTGAGE COMPANY,

jointly and severally with the

other Sellers

By:	/s/ Kimberly G. Nelson
Name:	Kimberly G. Nelson
Title:	Treasurer

RMC MORTGAGE CORPORATION,

jointly and severally with the

other Sellers

By:	/s/ Kimberly G. Nelson
Name:	Kimberly G. Nelson
Title:	Asst. Treasurer

Counterpart signature page to First Amendment to Master Repurchase Agreement among Ryland Mortgage Company and RMC Mortgage Corporation, as Seller, and JP Morgan Chase Bank, N.A., as Buyer

EX-12.1

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Exhibit 12.1:    Computation of Ratio of Earnings to Fixed Charges

	YEAR ENDED DECEMBER 31,
(in thousands, except ratio)		2008			2009			2010			2011			2012
(Loss) income from continuing operations before taxes	$	(378,571	)	$	(240,542	)	$	(80,497	)	$	(32,732	)	$	43,967
Share of distributed loss (income) of 50%-or-less-owned affiliates, net of equity pickup		43,926			(308	)		3,705			976			(1,218	)
Amortization of capitalized interest		57,700			51,477			40,791			32,068			40,612
Interest		37,348			46,949			55,615			56,635			59,503
Less: interest capitalized during the period		(44,893	)		(35,931	)		(31,221	)		(38,032	)		(42,327	)
Interest portion of rental expense		7,114			4,354			3,733			2,360			1,976
(LOSS) EARNINGS	$	(277,376	)	$	(174,001	)	$	(7,874	)	$	21,275		$	102,513
Interest	$	37,348		$	46,949		$	55,615		$	56,635		$	59,503
Interest portion of rental expense		7,114			4,354			3,733			2,360			1,976
FIXED CHARGES	$	44,462		$	51,303		$	59,348		$	58,995		$	61,479
(DEFICIENCY) SURPLUS	$	(321,838	)	$	(225,304	)	$	(67,222	)	$	(37,720	)	$	41,034
Ratio of earnings to fixed charges		–			–			–			–			1.67

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Exhibit 12.1: Computation of Ratio of Earnings to Fixed Charges

EX-21

Exhibit 21:    Subsidiaries of the Registrant

As of December 31, 2012, the following subsidiary represents the significant subsidiaries of the Registrant:

The Ryland Corporation, a California corporation

EX-23

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Exhibit 23:    Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the following Registration Statements:

(1)

Registration Statement (Form S-3 No. 333-100167) and related Prospectus of The Ryland Group, Inc.,

(2)

Registration Statement (Form S-3 No. 333-113756) and related Prospectus of The Ryland Group, Inc.,

(3)

Registration Statement (Form S-3 No. 333-121469) and related Prospectus of The Ryland Group, Inc.,

(4)

Registration Statement (Form S-3 No. 333-124000) and related Prospectus of The Ryland Group, Inc.,

(5)

Registration Statement (Form S-3 No. 333-157170) and related Prospectus of The Ryland Group, Inc.,

(6)

Registration Statement (Form S-3 No. 333-179206) and related Prospectus of The Ryland Group, Inc.,

(7)

Registration Statement (Form S-8 No. 33-32431) pertaining to The Ryland Group, Inc. Retirement Savings Opportunity Plan,

(8)

Registration Statement (Form S-8 No. 333-68397) pertaining to The Ryland Group, Inc. Executive and Director Deferred Compensation Plan and The Ryland Group, Inc. Non-Employee Directors' Stock Unit Plan,

(9)

Registration Statement (Form S-8 No. 333-176155) pertaining to The Ryland Group, Inc. 2011 Equity Incentive Plan, and

(10)

Registration Statement (Form S-8 No. 333-176156) pertaining to The Ryland Group, Inc. 2011 Non-Employee Director Stock Plan;

of our reports dated February 27, 2013, with respect to the consolidated financial statements and schedule of The Ryland Group, Inc. and subsidiaries and the effectiveness of internal control over financial reporting of The Ryland Group, Inc. and subsidiaries, included in this Annual Report (Form 10-K) of The Ryland Group, Inc. for the year ended December 31, 2012.

/s/ Ernst & Young LLP
Ernst & Young LLP
Los Angeles, California
February 27, 2013

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Exhibit 23: Consent of Independent Registered Public Accounting Firm

EX-24

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Exhibit 24:    Power of Attorney

The undersigned directors of The Ryland Group, Inc., a Maryland corporation, constitute and appoint Timothy J. Geckle the true and lawful agent and attorney-in-fact of the undersigned, with full power and authority in said agent and attorney-in-fact to sign for the undersigned, in their respective names as directors of The Ryland Group, Inc., the Annual Report on Form 10-K of The Ryland Group, Inc. for the fiscal year ended December 31, 2012, and any amendments thereto, to be filed with the Securities and Exchange Commission under the Exchange Act, as amended.

Dated: February 27, 2013

/s/ William L. Jews William L. Jews, Chairman of the Board

/s/ Ned Mansour Ned Mansour, Director

/s/ Robert E. Mellor Robert E. Mellor, Director

/s/ Norman J. Metcalfe Norman J. Metcalfe, Director

/s/ Larry T. Nicholson Larry T. Nicholson, Director

/s/ Charlotte St. Martin Charlotte St. Martin, Director

/s/ Robert G. van Schoonenberg Robert G. van Schoonenberg, Director

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Exhibit 24: Power of Attorney

EX-31.1

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

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

I, Larry T. Nicholson, certify that:

1.

I have reviewed this Annual Report on Form 10-K of The Ryland Group, Inc. (the "registrant");

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 the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant 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 the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)

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

c)

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

d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant'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 the registrant'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 the registrant's internal control over financial reporting.

Date: February 27, 2013 /s/ Larry T. Nicholson Larry T. Nicholson
President and Chief Executive Officer

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

EX-31.2

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

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

I, Gordon A. Milne, certify that:

1.

I have reviewed this Annual Report on Form 10-K of The Ryland Group, Inc. (the "registrant");

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 the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant 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 the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)

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

c)

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

d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant'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 the registrant'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 the registrant's internal control over financial reporting.

Date: February 27, 2013 /s/ Gordon A. Milne Gordon A. Milne
Executive Vice President and Chief Financial Officer

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

EX-32.1

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

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

I, Larry T. Nicholson, President and Chief Executive Officer (principal executive officer) of The Ryland Group, Inc. (the "Company"), certify, to the best of my knowledge, based upon a review of the Annual Report on Form 10-K for the year ended December 31, 2012, of the Company (the "Report"), that:

(1)

The Report fully complies with the requirements of Section 13(a) of the Exchange Act, as amended; and



(2)

The information contained and incorporated by reference in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Larry T. Nicholson Larry T. Nicholson
February 27, 2013

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

EX-32.2

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

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

I, Gordon A. Milne, Executive Vice President and Chief Financial Officer (principal financial officer) of The Ryland Group, Inc. (the "Company"), certify, to the best of my knowledge, based upon a review of the Annual Report on Form 10-K for the year ended December 31, 2012, of the Company (the "Report"), that:

(1)

The Report fully complies with the requirements of Section 13(a) of the Exchange Act, as amended; and



(2)

The information contained and incorporated by reference in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Gordon A. Milne Gordon A. Milne
February 27, 2013

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

XML

Summary of Significant Accounting Policies (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Summary of Significant Accounting Policies
Ownership interest in subsidiaries (as a percent)	100.00%
External commissions	$ 27,900,000	$ 18,200,000	$ 18,700,000
Percentage of external commissions to housing revenues	2.20%	2.10%	1.90%
Cash and cash equivalents	155,692,000	159,113,000
Restricted cash deposits kept as collateral for outstanding letters of credit	70,300,000	56,700,000
Restricted cash
Restricted cash	70,893,000	57,049,000
RMC
Restricted cash
Restricted cash	$ 627,000	$ 391,000

XML

Income Taxes (Details 3) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Unrecognized tax benefits
Liability for gross unrecognized tax benefits	$ 318	$ 129
Unrecognized tax benefits which if recognized will affect the entity's effective tax rate	207	84
Accrued interest and penalties	18	19
Company's summary of accounting for tax uncertainties
Balance at the beginning of the period	129	3,164
Additions related to prior year positions	218	100
Reductions related to prior year positions	0	(450)
Reductions due to settlements	0	(1,878)
Reductions due to expiration of the statute of limitations	(29)	(807)
Balance at the end of the period	$ 318	$ 129

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Marketable Securities, Available-for-sale (Details 2) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Contractual maturity:
ESTIMATED FAIR VALUE	$ 388,020	$ 347,016
Total debt securities
Contractual maturity:
Maturing in one year or less	68,347	167,413
Maturing after one year through three years	257,595	120,952
Maturing after three years	24,958	32,876
ESTIMATED FAIR VALUE	350,900	321,241
Time deposits and short-term pooled investments
Contractual maturity:
ESTIMATED FAIR VALUE	$ 37,120	$ 25,775

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Employee Savings, Stock Purchase and Supplemental Executive Retirement Plans (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Retirement Saving Opportunity Plan (RSOP)
Employee benefit plan
Eligibility requirement, initial period of employment for which part-time employees must complete 1,000 hours of service	12 months
Eligibility requirement, service hours that must be completed by part-time employees within the first 12 months of employment or within any plan year after the date of hire	1000 hours
Total compensation expense related to Company's matching contributions	$ 2,000,000	$ 1,800,000	$ 1,900,000
Employee Stock Purchase Plan (ESPP)
Employee benefit plan
Employer contribution as a percentage of employee's payroll deduction	20.00%
Total compensation expense related to Company's matching contributions	164,000	153,000	135,000
Supplemental Executive Retirement plan
Employee benefit plan
Retirement plan vesting period	5 years
Value of assets held in trust	13,100,000	11,100,000
Net periodic benefit (income) cost of plans	(599,000)	1,600,000	351,000
Death benefit	863,000
Service costs	121,000	347,000	204,000
Interest costs	1,200,000	731,000	660,000
Investment gain (loss)	1,100,000	(521,000)	513,000
Projected benefit obligations	$ 12,700,000	$ 11,300,000
Weighted-average discount rate (as a percent)	6.60%	7.00%	7.00%

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Derivative Instruments (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
6.9 percent senior notes due June 2013
Notional amounts
Interest rate stated percentage	6.90%
Designated hedge
Notional amounts
Change in net unrealized gain (loss) related to cash flow hedging instruments, net of taxes	$ 1,700,000	$ 1,200,000	$ 1,200,000
Income tax benefit associated with the gain resulting from settlements	653,000	462,000	462,000
Mortgage interest rate lock commitments ("IRLCs")
Notional amounts
Average number of days of interest rate commitment before closing	180 days
Interest rate, low end range	3.30%	3.30%
Interest rate, high end range	4.50%	4.50%
Notional amount	137,741,000	114,583,000
Forward-delivery contracts
Notional amounts
Notional amount	$ 68,000,000	$ 56,500,000

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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2012

Income Taxes

Reconciliation of the federal income tax statutory rate to the Company's effective income tax rate

	2012		2011		2010
Federal income tax statutory rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal tax	3.5		3.2		3.2
Deferred tax valuation allowance	(39.3	)	(37.8	)	(38.5	)
Compensation expense	2.7		(1.6	)	(0.9	)
Settlement of uncertain tax positions	–		4.6		–
Other	1.9		1.9		1.0
Effective income tax rate	3.8	%	5.3	%	(0.2	)%

Summary of the Company's income tax expense (benefit)

(in thousands)		2012		2011			2010
CURRENT TAX EXPENSE (BENEFIT)
Federal	$	568	$	(227	)	$	(244	)
State		1,017		(2,638	)		439
Total current tax expense (benefit)		1,585		(2,865	)		195
DEFERRED TAX EXPENSE
Federal		–		–			–
State		–		–			–
Total deferred tax expense		–		–			–
Total income tax expense (benefit)	$	1,585	$	(2,865	)	$	195

Significant components of the Company's deferred tax assets and liabilities

	DECEMBER 31,
(in thousands)		2012			2011
DEFERRED TAX ASSETS
Warranty, legal and other accruals	$	17,482		$	17,206
Employee benefits		19,285			17,131
Noncash tax charge for impairment of long-lived assets		88,042			115,226
Joint ventures		4,188			3,604
Federal net operating loss carryforwards		120,068			107,529
Other carryforwards		1,057			1,352
State net operating loss carryforwards		37,893			36,831
Other		912			1,313
Total		288,927			300,192
Valuation allowance		(258,867	)		(270,451	)
Total deferred tax assets		30,060			29,741
DEFERRED TAX LIABILITIES
Deferred recognition of income and gains		(2,277	)		(3,385	)
Capitalized expenses		(25,748	)		(24,842	)
Other		(2,035	)		(1,514	)
Total deferred tax liabilities		(30,060	)		(29,741	)
NET DEFERRED TAX ASSET	$	–		$	–

Summary of accounting for tax uncertainties

(in thousands)		2012			2011
Balance at January 1	$	129		$	3,164
Additions related to prior year positions		218			100
Reductions related to prior year positions		–			(450	)
Reductions due to settlements		–			(1,878	)
Reductions due to expiration of the statute of limitations		(29	)		(807	)
Balance at December 31	$	318		$	129

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Stock-Based Compensation (Details 2) (2012 Amended Executive Officer Non-Qualified Stock Option Agreement, USD $)	12 Months Ended
	Dec. 31, 2012
$14.13 to $18.82
Stock options outstanding and exercisable
Exercise Price Range, Lower Range Limit (in dollars per share)	$ 14.13
Exercise Price Range, Upper Range Limit (in dollars per share)	$ 18.22
OPTIONS OUTSTANDING
NUMBER OUTSTANDING (in shares)	1,638,376
WEIGHTED-AVERAGE REMAINING LIFE	4 years 2 months 12 days
WEIGHTED-AVERAGE EXERCISE PRICE (in dollars per share)	$ 16.96
OPTIONS EXERCISABLE
NUMBER EXERCISABLE (in shares)	417,067
WEIGHTED-AVERAGE EXERCISE PRICE (in dollars per share)	$ 15.24
$20.99 to $37.37
Stock options outstanding and exercisable
Exercise Price Range, Lower Range Limit (in dollars per share)	$ 20.99
Exercise Price Range, Upper Range Limit (in dollars per share)	$ 37.37
OPTIONS OUTSTANDING
NUMBER OUTSTANDING (in shares)	1,012,603
WEIGHTED-AVERAGE REMAINING LIFE	1 year 7 months 6 days
WEIGHTED-AVERAGE EXERCISE PRICE (in dollars per share)	$ 25.66
OPTIONS EXERCISABLE
NUMBER EXERCISABLE (in shares)	782,275
WEIGHTED-AVERAGE EXERCISE PRICE (in dollars per share)	$ 26.18
$40.00 to $72.13
Stock options outstanding and exercisable
Exercise Price Range, Lower Range Limit (in dollars per share)	$ 40.00
Exercise Price Range, Upper Range Limit (in dollars per share)	$ 72.13
OPTIONS OUTSTANDING
NUMBER OUTSTANDING (in shares)	768,444
WEIGHTED-AVERAGE REMAINING LIFE	1 year 7 months 6 days
WEIGHTED-AVERAGE EXERCISE PRICE (in dollars per share)	$ 49.84
OPTIONS EXERCISABLE
NUMBER EXERCISABLE (in shares)	768,444
WEIGHTED-AVERAGE EXERCISE PRICE (in dollars per share)	$ 49.84

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Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2012

Summary of Significant Accounting Policies

Basis of Presentation

Basis of Presentation

The consolidated financial statements include the accounts of The Ryland Group, Inc. and its 100 percent-owned subsidiaries. Noncontrolling interest represents the selling entities' ownership interests in land and lot option purchase contracts. Intercompany transactions have been eliminated in consolidation. Information is presented on a continuing operations basis unless otherwise noted. The results from continuing and discontinued operations are presented separately in the consolidated financial statements. (See Note M, "Discontinued Operations.") Effective January 1, 2012, the Company elected to reclassify its external commissions expense from cost of sales to selling, general and administrative expense in its Consolidated Statements of Earnings in order to not only be consistent with a majority of its peers, but also to combine external and internal commissions. This had the effect of increasing both housing gross profit and selling, general and administrative expense by the amount of external commissions, which totaled $27.9 million, $18.2 million and $18.7 million, or 2.2 percent, 2.1 percent and 1.9 percent of housing revenues, for the years ended December 31, 2012, 2011 and 2010, respectively. Effective July 1, 2012, the Company's selling, general and administrative expense included corporate expense. All prior period amounts have been reclassified to conform to the 2012 presentation.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates.

Cash and Cash Equivalents

Cash and Cash Equivalents

Cash and cash equivalents totaled $155.7 million and $159.1 million at December 31, 2012 and 2011, respectively. The Company considers all highly liquid short-term investments purchased with an original maturity of three months or less and cash held in escrow accounts to be cash equivalents.

Restricted Cash

Restricted Cash

At December 31, 2012 and 2011, the Company had restricted cash of $70.9 million and $57.0 million, respectively. The Company has various secured letter of credit agreements that require it to maintain cash deposits as collateral for outstanding letters of credit. Cash restricted under these agreements totaled $70.3 million and $56.7 million at December 31, 2012 and 2011, respectively. In addition, RMC had restricted cash of $627,000 and $391,000 at December 31, 2012 and 2011, respectively.

Marketable Securities, Available-for-sale

Marketable Securities, Available-for-sale

The Company considers its investment portfolio to be available-for-sale. Accordingly, these investments are recorded at their fair values, with unrealized gains or losses generally recorded in other comprehensive income. (See Note E, "Marketable Securities, Available-for-sale.")

Homebuilding Revenues

Homebuilding Revenues

In accordance with ASC 976, homebuilding revenues are recognized when home and lot sales are closed; title and possession are transferred to the buyer; and there is no significant continuing involvement from the Company. Sales incentives offset revenues and are expensed when homes are closed.

Housing Inventories

Housing Inventories

Housing inventories consist principally of homes under construction; land under development and improved lots; and inventory held-for-sale. Inventory includes land and development costs; direct construction costs; capitalized indirect construction costs; capitalized interest; and real estate taxes. The costs of acquiring and developing land and constructing certain related amenities are allocated to the parcels to which these costs relate. Interest and taxes are capitalized during active development and construction stages. Inventories to be held and used are stated at cost unless a community is determined to be impaired, in which case the impaired inventories are written down to their fair values. Inventories held-for-sale are stated at the lower of their costs or fair values, less cost to sell.

As required by ASC 360, inventory is reviewed for potential write-downs on an ongoing basis. ASC 360 requires that, in the event that impairment indicators are present and undiscounted cash flows signify that the carrying amount of an asset is not recoverable, impairment charges must be recorded if the fair value of the asset is less than its carrying amount. The Company reviews all communities on a quarterly basis for changes in events or circumstances indicating signs of impairment. Examples of events or changes in circumstances include, but are not limited to: price declines resulting from sustained competitive pressures; a change in the manner in which the asset is being used; a change in assessments by a regulator or municipality; cost increases; the expectation that, more likely than not, an asset will be sold or disposed of significantly before the end of its previously estimated useful life; or the impact of local economic or macroeconomic conditions, such as employment or housing supply, on the market for a given product. Signs of impairment may include, but are not limited to: very low or negative profit margins, the absence of sales activity in an open community and/or significant price differences for comparable parcels of land held-for-sale.

If it is determined that indicators of impairment exist in a community, undiscounted cash flows are prepared and analyzed at a community level based on expected pricing; sales rates; construction costs; local municipality fees; and warranty, closing, carrying, selling, overhead and other related costs; or on similar assets to determine if the realizable values of the assets held are less than their respective carrying amounts. In order to determine assumed sales prices included in cash flow models, the Company analyzes historical sales prices on homes delivered in the community and in other communities located within the same geographic area, as well as sales prices included in its current backlog for such communities. In addition, it analyzes market studies and trends, which generally include statistics on sales prices in neighboring communities and sales prices of similar products in non-neighboring communities in the same geographic area. In order to estimate the costs of building and delivering homes, the Company generally assumes cost structures reflecting contracts currently in place with vendors, adjusted for any anticipated cost-reduction initiatives or increases. The Company's analysis of each community generally assumes current pricing equal to current sales orders for a particular or comparable community. For a minority of communities that the Company does not intend to operate for an extended period of time or where the operating life extends beyond several years, slight increases over current sales prices are assumed in later years. Once a community is considered to be impaired, the Company's determinations of fair value and new cost basis are primarily based on discounting estimated cash flows at rates commensurate with inherent risks associated with the continuing assets. Discount rates used generally vary from 19.0 percent to 30.0 percent, depending on market risk, the size or life of a community and development risk. Due to the fact that estimates and assumptions included in cash flow models are based on historical results and projected trends, unexpected changes in market conditions that may lead to additional impairment charges in the future cannot be anticipated.

Valuation adjustments are recorded against homes completed or under construction, land under development or improved lots when analyses indicate that the carrying values are greater than the fair values. Write-downs of impaired inventories to their fair values are recorded as adjustments to the cost basis of the respective inventory. At December 31, 2012 and 2011, valuation reserves related to impaired inventories totaled $207.8 million and $277.2 million, respectively. The net carrying values of the related inventories totaled $182.2 million and $195.8 million at December 31, 2012 and 2011, respectively.

The costs of acquiring and developing land and constructing certain related amenities are allocated to the parcels to which these costs relate. (See "Homebuilding Overview" within Management's Discussion and Analysis of Financial Condition and Results of Operations.)

Interest and taxes are capitalized during active development and construction stages. Capitalized interest is amortized when the related inventory is delivered to homebuyers. The following table summarizes activity that relates to capitalized interest:

(in thousands)		2012			2011			2010
Capitalized interest at January 1	$	81,058		$	75,094		$	84,664
Interest capitalized		42,327			38,032			31,221
Interest amortized to cost of sales		(40,612	)		(32,068	)		(40,791	)
Capitalized interest at December 31	$	82,773		$	81,058		$	75,094

The following table summarizes each reporting segment's total number of lots owned and lots controlled under option agreements:

	DECEMBER 31, 2012				DECEMBER 31, 2011
		LOTS OWNED	LOTS OPTIONED	TOTAL		LOTS OWNED	LOTS OPTIONED	TOTAL
North		5,471	4,056	9,527		4,981	3,405	8,386
Southeast		7,268	2,121	9,389		4,933	1,894	6,827
Texas		2,438	2,667	5,105		2,486	1,081	3,567
West		2,604	1,680	4,284		1,937	862	2,799
Total		17,781	10,524	28,305		14,337	7,242	21,579

Additionally, at December 31, 2012, the Company controlled 479 lots associated with discontinued operations, all of which were owned. At December 31, 2011, the Company controlled 1,386 lots associated with discontinued operations, of which 1,330 lots were owned and 56 lots were under option.

Variable Interest Entities ("VIE")

Variable Interest Entities ("VIE")

As required by ASC 810, a VIE is to be consolidated by a company if that company has the power to direct the VIE's activities and the obligation to absorb its losses or the right to receive its benefits, which are potentially significant to the VIE. ASC 810 also requires disclosures about VIEs that a company is not obligated to consolidate, but in which it has a significant, though not primary, variable interest.

The Company enters into joint ventures, from time to time, for the purpose of acquisition and co-development of land parcels and lots. Its investment in these joint ventures may create a variable interest in a VIE, depending on the contractual terms of the arrangement. Additionally, in the ordinary course of business, the Company enters into lot option purchase contracts in order to procure land for the construction of homes. Under such lot option purchase contracts, the Company funds stated deposits in consideration for the right to purchase lots at a future point in time, usually at predetermined prices. The Company's liability is generally limited to forfeiture of nonrefundable deposits, letters of credit and other nonrefundable amounts incurred. In accordance with the requirements of ASC 810, certain of the Company's lot option purchase contracts may result in the creation of a variable interest in a VIE.

In compliance with the provisions of ASC 810, the Company consolidated $39.5 million and $51.4 million of inventory not owned related to land and lot option purchase contracts at December 31, 2012 and 2011, respectively. Although the Company may not have had legal title to the optioned land, under ASC 810, it had the primary variable interest and was required to consolidate the particular VIE's assets under option at fair value. To reflect the fair value of the inventory consolidated under ASC 810, the Company included $17.7 million and $17.2 million of its related cash deposits for lot option purchase contracts at December 31, 2012 and 2011, respectively, in "Consolidated inventory not owned" within the Consolidated Balance Sheets. Noncontrolling interest totaled $21.8 million and $34.2 million with respect to the consolidation of these contracts at December 31, 2012 and 2011, respectively, representing the selling entities' ownership interests in these VIEs. Additionally, the Company had cash deposits and/or letters of credit totaling $22.2 million and $22.3 million at December 31, 2012 and 2011, respectively, that were associated with lot option purchase contracts having aggregate purchase prices of $310.1 million and $208.5 million, respectively. As the Company did not have the primary variable interest in these contracts, it was not required to consolidate them.

Investments in Joint Ventures

Investments in Joint Ventures

The Company enters into joint ventures, from time to time, for the purpose of acquisition and co-development of land parcels and lots. It participates in a number of joint ventures in which it has less than a controlling interest. As of December 31, 2012, the Company participated in five active homebuilding joint ventures in the Austin, Chicago, Denver and Washington, D.C., markets. The Company recognizes its share of the respective joint ventures' earnings or losses from the sale of lots to other homebuilders. It does not, however, recognize earnings from lots that it purchases from the joint ventures. Instead, the Company reduces its cost basis in each lot by its share of the earnings from the lot.

The following table summarizes each reporting segment's total estimated share of lots owned and controlled by the Company under its joint ventures:

	DECEMBER 31, 2012				DECEMBER 31, 2011
		LOTS OWNED	LOTS OPTIONED	TOTAL		LOTS OWNED	LOTS OPTIONED	TOTAL
North		145	–	145		150	–	150
Texas		–	–	–		20	–	20
West		172	–	172		172	–	172
Total		317	–	317		342	–	342

At December 31, 2012 and 2011, the Company's investments in its unconsolidated joint ventures totaled $8.3 million and $10.0 million, respectively, and were included in "Other" assets within the Consolidated Balance Sheets. For the year ended December 31, 2012, the Company's equity in earnings from its unconsolidated joint ventures totaled $1.2 million, compared to equity in losses of $976,000 and $3.7 million for the same periods in 2011 and 2010, respectively. During 2011, the Company recorded a $1.9 million impairment related to a commercial parcel in a joint venture in Chicago. During 2010, the Company recorded $4.1 million of impairments against its investments in two joint ventures in Denver.

Property, Plant and Equipment

Property, Plant and Equipment

Property, plant and equipment totaled $20.4 million and $19.9 million at December 31, 2012 and 2011, respectively. These amounts are carried at cost less accumulated depreciation and amortization. Depreciation is provided for, principally, by the straight-line method over the estimated useful lives of the assets. Property, plant and equipment included model home furnishings of $19.4 million and $18.9 million at December 31, 2012 and 2011, respectively. Model home furnishings are amortized over the life of the community as homes are closed. The amortization expense was included in "Selling, general and administrative" expense within the Consolidated Statements of Earnings.

Service Liabilities

Service Liabilities

Service, warranty and completion costs are estimated and accrued at the time a home closes and are updated as experience requires.

Advertising Costs

Advertising Costs

The Company expenses advertising costs as they are incurred. Advertising costs totaled $4.6 million, $5.2 million and $4.4 million in 2012, 2011 and 2010, respectively, and were included in "Selling, general and administrative" expense within the Consolidated Statements of Earnings.

Loan Origination Fees, Mortgage Discount Points and Loan Sales

Loan Origination Fees, Mortgage Discount Points and Loan Sales

Mortgage loans are recorded at fair value at the time of origination in accordance with ASC No. 825 ("ASC 825"), "Financial Instruments," and are classified as held-for-sale. Loan origination fees, net of mortgage discount points, are recognized in current earnings upon origination of the related mortgage loan. Sales of mortgages and the related servicing rights are accounted for in accordance with ASC No. 860 ("ASC 860"), "Transfers and Servicing." Generally, in order for a transfer of financial assets to be recognized as a sale, ASC 860 requires that control of the loans be passed to the purchaser and that consideration other than beneficial interests be received in return.

Derivative Instruments

Derivative Instruments

In the normal course of business and pursuant to its risk-management policy, the Company enters, as an end user, into derivative instruments, including forward-delivery contracts for loans; options on forward-delivery contracts; and options on futures contracts, to minimize the impact of movement in market interest rates on IRLCs. Major factors influencing the use of various hedging contracts include general market conditions, interest rates, types of mortgages originated and the percentage of IRLCs expected to fund. The Company is exposed to credit-related losses in the event of nonperformance by counterparties to certain hedging contracts. Credit risk is limited to those instances where the Company is in a net unrealized gain position. It manages this credit risk by entering into agreements with counterparties meeting its credit standards and by monitoring position limits. The Company elected not to use hedge accounting treatment with respect to its economic hedging activities. Accordingly, all derivative instruments used as economic hedges were included at their fair value in "Other" assets or "Accrued and other liabilities" within the Consolidated Balance Sheets, with changes in value recorded in current earnings. The Company's mortgage pipeline includes IRLCs, which represent commitments that have been extended by the Company to those borrowers who have applied for loan funding and who have met certain defined credit and underwriting criteria.

Comprehensive Income

Comprehensive Income

Comprehensive income consists of net income or loss and the increase or decrease in unrealized gains or losses on the Company's available-for-sale securities, as well as the decrease in unrealized gains associated with treasury locks, net of applicable taxes. Comprehensive income totaled $40.3 million for the year ended December 31, 2012, compared to comprehensive losses of $52.5 million and $86.4 million for the same periods in 2011 and 2010, respectively.

Income Taxes

Income Taxes

The Company files a consolidated federal income tax return. Certain items of income and expense are included in one period for financial reporting purposes and in another for income tax purposes. Deferred income taxes are provided in recognition of these differences. Deferred tax assets and liabilities are determined based on enacted tax rates and are subsequently adjusted for changes in these rates. A valuation allowance against the Company's deferred tax assets may be established if it is more likely than not that all or some portion of the deferred tax assets will not be realized. A change in deferred tax assets or liabilities results in a charge or credit to deferred tax expense. (See "Critical Accounting Policies" within Management's Discussion and Analysis of Financial Condition and Results of Operations, and Note H, "Income Taxes.")

Per Share Data

Per Share Data

The Company computes earnings per share in accordance with ASC No. 260 ("ASC 260"), "Earnings per Share," which requires the presentation of both basic and diluted earnings per common share to be calculated using the two-class method. Basic net earnings per common share is computed by dividing net earnings by the weighted-average number of common shares outstanding. The Company's nonvested outstanding shares of restricted stock are classified as participating securities in accordance with ASC 260. As such, earnings or loss for the reporting period are allocated between common shareholders and nonvested restricted stockholders, based upon their respective participating rights in dividends and undistributed earnings. For purposes of determining diluted earnings per common share, basic earnings per common share is further adjusted to include the effect of potential dilutive common shares outstanding, including stock options and warrants using the treasury stock method and convertible debt using the if-converted method. For the years ended December 31, 2011 and 2010, the effects of outstanding restricted stock units and stock options, as well as nonvested restricted stock, were not included in the diluted earnings per share calculation as they would have been antidilutive due to the Company's net loss in each of those years.

Stock-Based Compensation

Stock-Based Compensation

In accordance with the terms of its shareholder-approved equity incentive plan, the Company issues various types of stock awards that include, but are not limited to, grants of stock options and restricted stock units to its employees. The Company records expense associated with its grant of stock awards in accordance with the provisions of ASC 718, which requires that stock-based payments to employees be recognized, based on their estimated fair values, in the Consolidated Statements of Earnings as compensation expense over the vesting period of the awards.

Additionally, the Company grants stock awards to the non-employee members of its Board of Directors pursuant to its shareholder-approved director stock plan. Stock-based compensation is recognized over the service period for such awards.

New Accounting Pronouncements

New Accounting Pronouncements

ASU 2011-11 and ASU 2013-01

In December 2011, the FASB issued Accounting Standards Update ("ASU") No. 2011-11 ("ASU 2011-11"), "Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities," and also issued ASU No. 2013-01 ("ASU 2013-01"), "Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities," in January 2013. The amendments in ASU 2011-11 and 2013-01 will enhance disclosures required by GAAP by requiring improved information about financial and derivative instruments that are either (a) offset in accordance with Section 210-20-45 or Section 815-10-45 or (b) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with Section 210-20-45 or Section 815-10-45. This information will enable users of an entity's financial statements to evaluate the effect or potential effect of netting arrangements on an entity's financial position, including the effect or potential effect of rights of setoff associated with certain financial instruments and derivative instruments in the scope of this update. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and for interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. The Company does not anticipate that the adoption of this guidance will have a material impact on its consolidated financial statements.

ASU 2013-02

In February 2013, the FASB issued ASU No. 2013-02 ("ASU 2013-02"), "Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income." The amendments in ASU 2013-02 require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement of earnings or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income, but only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference other disclosures required under GAAP that provide additional details about those amounts. An entity is required to apply the amendments prospectively for annual reporting periods beginning after December 15, 2012, and for interim periods within those annual periods. The Company does not anticipate that the adoption of this guidance will have a material impact on its consolidated financial statements.

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Fair Values of Financial and Nonfinancial Instruments (Details 2) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Nonfinancial instruments measured on nonrecurring basis
Impairment charges	$ 6,262,000	$ 17,319,000	$ 41,938,000
Mortgage interest rate lock commitments ("IRLCs")
Nonfinancial instruments measured on nonrecurring basis
Gain realized on conversion to loans	25,000,000	16,300,000	18,400,000
Increase (decrease) in fair value of the pipeline of IRLCs	1,400,000	1,900,000	(559,000)
Offsetting gains (losses) from instruments used to hedge IRLCs	(8,100,000)	(7,300,000)	(6,100,000)
Measured on a non-recurring basis | Level 3
Nonfinancial instruments measured on nonrecurring basis
Fair value of impaired assets	4,486,000	11,487,000
Measured on a non-recurring basis | Level 3 | Housing inventory and inventory held-for-sale
Nonfinancial instruments measured on nonrecurring basis
Fair value of impaired assets	2,923,000	9,121,000
Impairment charges	1,900,000	9,500,000
Measured on a non-recurring basis | Level 3 | Other assets held-for-sale and investments in joint ventures
Nonfinancial instruments measured on nonrecurring basis
Fair value of impaired assets	1,563,000	2,366,000
Measured on a non-recurring basis | Level 3 | Other assets held-for-sale
Nonfinancial instruments measured on nonrecurring basis
Fair value of impaired assets	263,000	973,000
Impairment charges	41,000	35,000
Measured on a non-recurring basis | Level 3 | Investments in joint ventures
Nonfinancial instruments measured on nonrecurring basis
Fair value of impaired assets	1,300,000	1,400,000
Impairment charges	$ 40,000	$ 2,000,000

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Summary of Significant Accounting Policies (Details 4) (USD $)	12 Months Ended
	Dec. 31, 2012 jointventure	Dec. 31, 2011	Dec. 31, 2010
Summary of Significant Accounting Policies
Number of active homebuilding joint ventures	5
Unconsolidated Joint Ventures
Investments in unconsolidated joint ventures	$ 8,300,000	$ 10,000,000
Equity in earnings (losses) from unconsolidated joint ventures	1,200,000	(976,000)	(3,700,000)
Joint ventures
Lots
Impairment in a joint venture		$ 1,900,000	$ 4,100,000
Segment total | Joint ventures
Lots
JV LOTS OWNED	317	342
JV LOTS OPTIONED	0	0
TOTAL (in lots)	317	342
North | Joint ventures
Lots
JV LOTS OWNED	145	150
JV LOTS OPTIONED	0	0
TOTAL (in lots)	145	150
Texas | Joint ventures
Lots
JV LOTS OWNED	0	20
JV LOTS OPTIONED	0	0
TOTAL (in lots)	0	20
West | Joint ventures
Lots
JV LOTS OWNED	172	172
JV LOTS OPTIONED	0	0
TOTAL (in lots)	172	172
Denver | Joint ventures
Lots
Number of investments in joint ventures against which the Company has recorded an impairment			2

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Discontinued Operations (Tables)

12 Months Ended

Dec. 31, 2012

Discontinued Operations

Schedule of assets and liabilities related to discontinued operations

	DECEMBER 31,
(in thousands)		2012		2011
Assets
Cash and cash equivalents	$	27	$	56
Housing inventories		2,239		30,670
Other assets		214		4,598
Total assets of discontinued operations		2,480		35,324
Liabilities
Accounts payable and accrued liabilities		1,536		6,217
Total liabilities of discontinued operations	$	1,536	$	6,217

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Income Taxes (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Income Taxes
Deferred tax valuation allowance	$ (11,600,000)	$ 16,600,000	$ 32,700,000
Balance of deferred tax valuation allowance	258,867,000	270,451,000
Tax credit carryforwards	768,000
Other remaining carryforwards	289,000
Overall effective income tax expense (benefit) rate (as a percent)	3.80%	(5.30%)	0.20%
Tax adjustments, settlements and unusual provisions		2,400,000
Federal
Income Taxes
Deferred tax valuation allowance	(10,500,000)	15,200,000	30,000,000
Period of net operating losses carryforward	20 years
Period of federal tax credit carryforwards	5 years
Period of other remaining tax carryforwards	20 years
State
Income Taxes
Deferred tax valuation allowance	(1,100,000)	1,400,000	2,700,000
Settlement payment with taxing authority		$ 1,600,000
State | Minimum
Income Taxes
Period of net operating losses carryforward	10 years
State | Maximum
Income Taxes
Period of net operating losses carryforward	20 years

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Quarterly Financial Data (Unaudited) (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
CONSOLIDATED RESULTS
Revenues	$ 440,135	$ 358,693	$ 293,769	$ 215,869	$ 261,445	$ 248,566	$ 211,848	$ 167,672	$ 1,308,466	$ 889,531	$ 1,000,825
Income (loss) income from continuing operations before taxes	30,319	10,430	6,239	(3,021)	814	(3,908)	(9,801)	(19,837)	43,967	(32,732)	(80,497)
Tax expense (benefit)	1,372	23	190	0	(449)	(18)	0	(2,398)	1,585	(2,865)	195
Net income (loss) from continuing operations	28,947	10,407	6,049	(3,021)	1,263	(3,890)	(9,801)	(17,439)	42,382	(29,867)	(80,692)
Loss from discontinued operations, net of taxes	(374)	238	223	(2,087)	(451)	(17,423)	(912)	(2,097)	(2,000)	(20,883)	(4,447)
Net income (loss)	$ 28,573	$ 10,645	$ 6,272	$ (5,108)	$ 812	$ (21,313)	$ (10,713)	$ (19,536)	$ 40,382	$ (50,750)	$ (85,139)
Basic
Continuing operations (in dollars per share)	$ 0.64	$ 0.23	$ 0.14	$ (0.07)	$ 0.03	$ (0.09)	$ (0.22)	$ (0.39)	$ 0.93	$ (0.67)	$ (1.83)
Discontinued operations (in dollars per share)	$ (0.01)	$ 0.01	$ 0.00	$ (0.04)	$ (0.01)	$ (0.39)	$ (0.02)	$ (0.05)	$ (0.04)	$ (0.47)	$ (0.10)
Total (in dollars per share)	$ 0.63	$ 0.24	$ 0.14	$ (0.11)	$ 0.02	$ (0.48)	$ (0.24)	$ (0.44)	$ 0.89	$ (1.14)	$ (1.93)
Diluted
Continuing operations (in dollars per share)	$ 0.56	$ 0.21	$ 0.14	$ (0.07)	$ 0.03	$ (0.09)	$ (0.22)	$ (0.39)	$ 0.88	$ (0.67)	$ (1.83)
Discontinued operations (in dollars per share)	$ (0.01)	$ 0.01	$ 0.00	$ (0.04)	$ (0.01)	$ (0.39)	$ (0.02)	$ (0.05)	$ (0.04)	$ (0.47)	$ (0.10)
Total (in dollars per share)	$ 0.55	$ 0.22	$ 0.14	$ (0.11)	$ 0.02	$ (0.48)	$ (0.24)	$ (0.44)	$ 0.84	$ (1.14)	$ (1.93)
Weighted-average common shares outstanding:
Basic (in shares)	45,115,000	44,826,000	44,628,000	44,474,000	44,410,000	44,409,000	44,369,000	44,239,000	44,761,178	44,357,470	44,050,013
Diluted (in shares)	53,053,000	52,654,000	48,571,000	44,474,000	45,075,000	44,409,000	44,369,000	44,239,000	49,655,321	44,357,470	44,050,013

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Supplemental Guarantor Information (Details)	12 Months Ended
	Dec. 31, 2012
Supplemental Guarantor Information
Percentage ownership of Guarantor Subsidiaries	100.00%
5.4 percent senior notes due January 2015
Interest rate on obligations of the parent, guaranteed by the Guarantor Subsidiaries
Interest rate stated percentage	5.40%
8.4 percent senior notes due May 2017
Interest rate on obligations of the parent, guaranteed by the Guarantor Subsidiaries
Interest rate stated percentage	8.40%
1.6 percent convertible senior notes due May 2018
Interest rate on obligations of the parent, guaranteed by the Guarantor Subsidiaries
Interest rate stated percentage	1.60%
6.6 percent senior notes due May 2020
Interest rate on obligations of the parent, guaranteed by the Guarantor Subsidiaries
Interest rate stated percentage	6.60%
5.4 percent senior notes due October 2022
Interest rate on obligations of the parent, guaranteed by the Guarantor Subsidiaries
Interest rate stated percentage	5.40%

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Marketable Securities, Available-for-sale (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Marketable Securities, Available-for-sale
Gain from marketable securities, net	$ 2,214	$ 3,882	$ 5,774
Schedule of fair values of available-for-sale marketable securities
AMORTIZED COST	387,477	348,628
GROSS UNREALIZED GAINS	1,278	269
GROSS UNREALIZED LOSSES	(735)	(1,881)
ESTIMATED FAIR VALUE	388,020	347,016
Total debt securities
Schedule of fair values of available-for-sale marketable securities
AMORTIZED COST	350,350	322,853
GROSS UNREALIZED GAINS	1,278	269
GROSS UNREALIZED LOSSES	(728)	(1,881)
ESTIMATED FAIR VALUE	350,900	321,241
U.S. Treasury securities
Schedule of fair values of available-for-sale marketable securities
AMORTIZED COST	3,098	1,557
GROSS UNREALIZED GAINS	1	0
GROSS UNREALIZED LOSSES	0	(2)
ESTIMATED FAIR VALUE	3,099	1,555
Obligations of U.S. and local government agencies
Schedule of fair values of available-for-sale marketable securities
AMORTIZED COST	154,774	147,557
GROSS UNREALIZED GAINS	1,008	123
GROSS UNREALIZED LOSSES	(489)	(860)
ESTIMATED FAIR VALUE	155,293	146,820
Corporate debt securities issued under U.S. government/agency-backed programs
Schedule of fair values of available-for-sale marketable securities
AMORTIZED COST	0	1,453
GROSS UNREALIZED GAINS	0	3
GROSS UNREALIZED LOSSES	0	0
ESTIMATED FAIR VALUE	0	1,456
Corporate debt securities
Schedule of fair values of available-for-sale marketable securities
AMORTIZED COST	165,153	126,088
GROSS UNREALIZED GAINS	116	101
GROSS UNREALIZED LOSSES	(75)	(523)
ESTIMATED FAIR VALUE	165,194	125,666
Asset-backed securities
Schedule of fair values of available-for-sale marketable securities
AMORTIZED COST	27,325	46,198
GROSS UNREALIZED GAINS	153	42
GROSS UNREALIZED LOSSES	(164)	(496)
ESTIMATED FAIR VALUE	27,314	45,744
Time deposits
Schedule of fair values of available-for-sale marketable securities
AMORTIZED COST	0	25,500
GROSS UNREALIZED GAINS	0	0
GROSS UNREALIZED LOSSES	0	0
ESTIMATED FAIR VALUE	0	25,500
Short-term pooled investments
Schedule of fair values of available-for-sale marketable securities
AMORTIZED COST	37,127	275
GROSS UNREALIZED GAINS	0	0
GROSS UNREALIZED LOSSES	(7)	0
ESTIMATED FAIR VALUE	$ 37,120	$ 275

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CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash and cash equivalents - discontinued operations	$ 27	$ 56	$ 39	$ 39

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Supplemental Guarantor Information (Details 2) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Consolidating statements of earnings details
REVENUES	$ 440,135	$ 358,693	$ 293,769	$ 215,869	$ 261,445	$ 248,566	$ 211,848	$ 167,672	$ 1,308,466	$ 889,531	$ 1,000,825
EXPENSES									1,257,567	924,537	1,067,788
OTHER INCOME (LOSS)									(6,932)	2,274	(13,534)
Income (loss) from continuing operations before taxes	30,319	10,430	6,239	(3,021)	814	(3,908)	(9,801)	(19,837)	43,967	(32,732)	(80,497)
Tax expense (benefit)	1,372	23	190	0	(449)	(18)	0	(2,398)	1,585	(2,865)	195
Equity in net earnings (loss) of subsidiaries									0	0	0
NET INCOME (LOSS) FROM CONTINUING OPERATIONS	28,947	10,407	6,049	(3,021)	1,263	(3,890)	(9,801)	(17,439)	42,382	(29,867)	(80,692)
Loss from discontinued operations, net of taxes	(374)	238	223	(2,087)	(451)	(17,423)	(912)	(2,097)	(2,000)	(20,883)	(4,447)
NET INCOME (LOSS)	28,573	10,645	6,272	(5,108)	812	(21,313)	(10,713)	(19,536)	40,382	(50,750)	(85,139)
TRG, INC.
Consolidating statements of earnings details
REVENUES									711,947	458,500	539,184
EXPENSES									688,026	491,505	587,638
OTHER INCOME (LOSS)									(6,932)	2,274	(13,534)
Income (loss) from continuing operations before taxes									16,989	(30,731)	(61,988)
Tax expense (benefit)									612	(2,690)	149
Equity in net earnings (loss) of subsidiaries									26,005	(1,826)	(18,555)
NET INCOME (LOSS) FROM CONTINUING OPERATIONS									42,382	(29,867)	(80,692)
Loss from discontinued operations, net of taxes									(2,000)	(20,883)	(4,447)
NET INCOME (LOSS)									40,382	(50,750)	(85,139)
GUARANTOR SUBSIDIARIES
Consolidating statements of earnings details
REVENUES									562,181	404,104	430,634
EXPENSES									548,345	411,844	449,988
OTHER INCOME (LOSS)									0	0	0
Income (loss) from continuing operations before taxes									13,836	(7,740)	(19,354)
Tax expense (benefit)									499	(677)	48
Equity in net earnings (loss) of subsidiaries									0	0	0
NET INCOME (LOSS) FROM CONTINUING OPERATIONS									13,337	(7,063)	(19,402)
Loss from discontinued operations, net of taxes									(1,018)	(5,763)	(1,665)
NET INCOME (LOSS)									12,319	(12,826)	(21,067)
NON-GUARANTOR SUBSIDIARIES
Consolidating statements of earnings details
REVENUES									37,619	26,927	31,007
EXPENSES									24,477	21,188	30,162
OTHER INCOME (LOSS)									0	0	0
Income (loss) from continuing operations before taxes									13,142	5,739	845
Tax expense (benefit)									474	502	(2)
Equity in net earnings (loss) of subsidiaries									0	0	0
NET INCOME (LOSS) FROM CONTINUING OPERATIONS									12,668	5,237	847
Loss from discontinued operations, net of taxes									0	0	0
NET INCOME (LOSS)									12,668	5,237	847
CONSOLIDATING ELIMINATIONS
Consolidating statements of earnings details
REVENUES									(3,281)	0	0
EXPENSES									(3,281)	0	0
OTHER INCOME (LOSS)									0	0	0
Income (loss) from continuing operations before taxes									0	0	0
Tax expense (benefit)									0	0	0
Equity in net earnings (loss) of subsidiaries									(26,005)	1,826	18,555
NET INCOME (LOSS) FROM CONTINUING OPERATIONS									(26,005)	1,826	18,555
Loss from discontinued operations, net of taxes									1,018	5,763	1,665
NET INCOME (LOSS)									$ (24,987)	$ 7,589	$ 20,220

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Summary of Significant Accounting Policies (Details 5) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Property, Plant and Equipment
Property, plant and equipment	$ 20,409,000	$ 19,920,000
Model home furnishings	19,400,000	18,900,000
Advertising Costs
Advertising costs	4,600,000	5,200,000	4,400,000
Comprehensive Income
Comprehensive income (loss)	$ 40,310,000	$ (52,453,000)	$ (86,383,000)

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Derivative Instruments (Tables)

12 Months Ended

Dec. 31, 2012

Derivative Instruments

Contract or notional amounts of derivative financial instruments

	DECEMBER 31,
(in thousands)		2012		2011
Mortgage interest rate lock commitments	$	137,741	$	114,583
Hedging contracts:
Forward-delivery contracts	$	68,000	$	56,500

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Earnings Per Share Reconciliation (Tables)

12 Months Ended

Dec. 31, 2012

Earnings Per Share Reconciliation

Computation of basic and diluted earnings per share

	YEAR ENDED DECEMBER 31,
(in thousands, except share data)		2012			2011			2010
NUMERATOR
Net income (loss) from continuing operations	$	42,382		$	(29,867	)	$	(80,692	)
Net loss from discontinued operations		(2,000	)		(20,883	)		(4,447	)
Less: distributed earnings allocated to nonvested restricted stock		(42	)		–			–
Less: undistributed earnings allocated to nonvested restricted stock		(313	)		–			–
Numerator for basic income (loss) per share		40,027			(50,750	)		(85,139	)
Plus: interest on 1.6 percent convertible senior notes due 2018		1,829			–			–
Plus: undistributed earnings allocated to nonvested restricted stock		313			–			–
Less: undistributed earnings reallocated to nonvested restricted stock		(284	)		–			–
Numerator for diluted income (loss) per share	$	41,885		$	(50,750	)	$	(85,139	)
DENOMINATOR
Basic earnings per share—weighted-average shares		44,761,178			44,357,470			44,050,013
Effect of dilutive securities:
Share-based payments		487,443			–			–
1.6 percent convertible senior notes due 2018		4,406,700			–			–
Diluted earnings per share—adjusted weighted-average shares and assumed conversions		49,655,321			44,357,470			44,050,013
NET INCOME (LOSS) PER COMMON SHARE
Basic
Continuing operations	$	0.93		$	(0.67	)	$	(1.83	)
Discontinued operations		(0.04	)		(0.47	)		(0.10	)
Total		0.89			(1.14	)		(1.93	)
Diluted
Continuing operations		0.88			(0.67	)		(1.83	)
Discontinued operations		(0.04	)		(0.47	)		(0.10	)
Total	$	0.84		$	(1.14	)	$	(1.93	)

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Stock-Based Compensation (Details) (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
Stock-based compensation
Number of shares available for grant	3,016,108	3,346,508
Stock option / award activity
Granted (in shares)	756,000	781,000	846,000
Number of shares available for grant	3,016,108	3,346,508
Stock options / awards
Stock-based compensation expense	$ 17,800	$ 9,700	$ 11,500
Stock options
Stock-based compensation
Number of shares available for grant	3,016,108	3,346,508	1,477,072
Stock option / award activity
Options outstanding at the beginning of the period (in shares)	3,948,874	3,722,656	3,693,697
Granted (in shares)	756,000	781,000	846,000
Exercised (in shares)	(568,293)	(44,398)	(200,758)
Forfeited (in shares)	(717,158)	(510,384)	(616,283)
Options outstanding at the end of the period (in shares)	3,419,423	3,948,874	3,722,656	3,693,697
Number of shares available for grant	3,016,108	3,346,508	1,477,072
Total shares reserved at the end of period	6,435,531	7,295,382	5,199,728
Options exercisable at the end of period (in shares)	1,967,786	2,574,246	2,580,526
WEIGHTED-AVERAGE EXERCISE PRICE
Options outstanding at the beginning of the period (in dollars per option)	$ 28.91	$ 33.29	$ 36.43
Granted (in dollars per option)	$ 18.55	$ 16.52	$ 23.30
Exercised (in dollars per option)	$ 18.89	$ 11.97	$ 8.62
Forfeited (in dollars per option)	$ 35.38	$ 43.36	$ 46.46
Options outstanding at the end of the period (in dollars per option)	$ 26.92	$ 28.91	$ 33.29	$ 36.43
Options exercisable at the end of period (in dollars per option)	$ 33.10	$ 34.35	$ 38.23
WEIGHTED-AVERAGE REMAINING CONTRACTUAL LIFE (in years)
Weighted average remaining contractual life, Options outstanding at the end of the period	2 years 10 months 24 days	2 years 4 months 24 days	2 years 9 months 18 days	3 years 1 month 6 days
Weighted average remaining contractual life, Options exercisable at the end of the period	1 year 7 months 6 days	1 year 8 months 12 days	2 years 3 months 18 days
AGGREGATE INTRINSIC VALUE
Aggregate intrinsic value, Options outstanding at the end of the period	42,992	553	1,315
Aggregate intrinsic value, Options exercisable at the end of period	16,939	369	588
Stock options / awards
Stock-based compensation expense	5,000	4,000	4,700
Intrinsic values of stock options exercised	5,400	284	2,100
2011 Equity and Incentive Plan
Stock-based compensation
Expiration period of stock options from date of grant	7 years
Number of equal annual installments in which awards vest, no performance criteria	3
Predecessor plans to the 2011 Equity and Incentive Plan | Maximum
Stock-based compensation
Expiration period of stock options from date of grant	10 years
Predecessor plans to the 2011 Equity and Incentive Plan | Minimum
Stock-based compensation
Expiration period of stock options from date of grant	5 years
2004 Non-Employee Director Stock Plan and predecessor plans | Maximum
Stock-based compensation
Expiration period of stock options from date of grant	10 years
Non-Employee Director Stock Plans
Stock options / awards
Stock-based compensation expense	404	415	547
2011 Non-Employee Director Stock Plan (the Director Plan)
Stock-based compensation
Number of shares authorized for issuance to each director	3,000
The maximum period of time that can elapse subsequent to a new director's appointment prior to receipt of an initial award in accordance with the plan	30 days
Number of shares available for grant	158,000	176,000
Stock option / award activity
Number of shares available for grant	158,000	176,000
Restricted stock units
Stock-based compensation
Number of equal annual installments in which awards vest, no performance criteria	3
Stock options / awards
Stock-based compensation expense	$ 12,400	$ 5,300	$ 6,300

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Segment Information (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2012 Segment State	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2012 Segment State	Dec. 31, 2011	Dec. 31, 2010
Segment Information
Number of states in which the entity operates	14								14
Number of reportable segments	6								6
Number of geographic segments	4								4
REVENUES
Homebuilding revenues									$ 1,270,847	$ 862,604	$ 969,818
Financial services revenue									37,619	26,927	31,007
Total	440,135	358,693	293,769	215,869	261,445	248,566	211,848	167,672	1,308,466	889,531	1,000,825
EARNINGS (LOSS) BEFORE TAXES
Total	30,319	10,430	6,239	(3,021)	814	(3,908)	(9,801)	(19,837)	43,967	(32,732)	(80,497)
DEPRECIATION AND AMORTIZATION
Total									15,399	11,312	16,399
IDENTIFIABLE ASSETS
Total	1,933,919				1,579,144				1,933,919	1,579,144
Segment total
IDENTIFIABLE ASSETS
Total	1,931,439				1,543,820				1,931,439	1,543,820
Homebuilding | North
REVENUES
Homebuilding revenues									393,238	299,595	344,154
EARNINGS (LOSS) BEFORE TAXES
Total									11,602	(9,054)	(15,842)
DEPRECIATION AND AMORTIZATION
Total									4,710	3,527	4,773
IDENTIFIABLE ASSETS
Total	408,341				367,096				408,341	367,096
Homebuilding | Southeast
REVENUES
Homebuilding revenues									355,621	218,672	259,357
EARNINGS (LOSS) BEFORE TAXES
Total									18,566	(11,676)	(16,446)
DEPRECIATION AND AMORTIZATION
Total									4,308	3,145	4,116
IDENTIFIABLE ASSETS
Total	315,043				198,196				315,043	198,196
Homebuilding | Texas
REVENUES
Homebuilding revenues									323,162	262,321	242,691
EARNINGS (LOSS) BEFORE TAXES
Total									22,984	9,243	(2,492)
DEPRECIATION AND AMORTIZATION
Total									2,834	2,610	2,429
IDENTIFIABLE ASSETS
Total	196,397				161,779				196,397	161,779
Homebuilding | West
REVENUES
Homebuilding revenues									198,826	82,016	123,616
EARNINGS (LOSS) BEFORE TAXES
Total									10,732	(5,326)	(7,903)
DEPRECIATION AND AMORTIZATION
Total									2,984	1,295	4,354
IDENTIFIABLE ASSETS
Total	274,050				160,004				274,050	160,004
Financial Services
REVENUES
Financial services revenue									37,619	26,927	31,007
EARNINGS (LOSS) BEFORE TAXES
Total									13,142	5,739	845
DEPRECIATION AND AMORTIZATION
Total									78	181	254
IDENTIFIABLE ASSETS
Total	157,781				144,652				157,781	144,652
Corporate and unallocated
EARNINGS (LOSS) BEFORE TAXES
Total									(33,059)	(21,658)	(38,659)
DEPRECIATION AND AMORTIZATION
Total									485	554	473
IDENTIFIABLE ASSETS
Total	$ 579,827				$ 512,093				$ 579,827	$ 512,093

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Marketable Securities, Available-for-sale (Tables)

12 Months Ended

Dec. 31, 2012

Marketable Securities, Available-for-sale

Fair value of the available-for-sale marketable securities, by type of security

	DECEMBER 31, 2012
(in thousands)		AMORTIZED COST		GROSS UNREALIZED GAINS		GROSS UNREALIZED LOSSES			ESTIMATED FAIR VALUE
Type of security:
U.S. Treasury securities	$	3,098	$	1	$	–		$	3,099
Obligations of U.S. and local government agencies		154,774		1,008		(489	)		155,293
Corporate debt securities		165,153		116		(75	)		165,194
Asset-backed securities		27,325		153		(164	)		27,314
Total debt securities		350,350		1,278		(728	)		350,900
Short-term pooled investments		37,127		–		(7	)		37,120
Total marketable securities, available-for-sale	$	387,477	$	1,278	$	(735	)	$	388,020

	DECEMBER 31, 2011
Type of security:
U.S. Treasury securities	$	1,557	$	–	$	(2	)	$	1,555
Obligations of U.S. and local government agencies		147,557		123		(860	)		146,820
Corporate debt securities issued under U.S. government/agency-backed programs		1,453		3		–			1,456
Corporate debt securities		126,088		101		(523	)		125,666
Asset-backed securities		46,198		42		(496	)		45,744
Total debt securities		322,853		269		(1,881	)		321,241
Time deposits		25,500		–		–			25,500
Short-term pooled investments		275		–		–			275
Total marketable securities, available-for-sale	$	348,628	$	269	$	(1,881	)	$	347,016

Fair value of the available-for-sale marketable securities, by contractual maturity

	DECEMBER 31,
(in thousands)		2012		2011
Contractual maturity:
Maturing in one year or less	$	68,347	$	167,413
Maturing after one year through three years		257,595		120,952
Maturing after three years		24,958		32,876
Total debt securities		350,900		321,241
Time deposits and short-term pooled investments		37,120		25,775
Total marketable securities, available-for-sale	$	388,020	$	347,016

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Fair Values of Financial and Nonfinancial Instruments (Tables)

12 Months Ended

Dec. 31, 2012

Fair Values of Financial and Nonfinancial Instruments

Fair value measurement methods and values for financial instruments measured on a recurring basis

	FAIR VALUE AT DECEMBER 31,
(in thousands)	HIERARCHY		2012			2011
Marketable securities, available-for-sale:
U.S. Treasury securities	Level 1	$	3,099		$	1,555
Obligations of U.S. and local government agencies	Levels 1 and 2		155,293			146,820
Corporate debt securities issued under U.S. government/agency-backed programs	Level 2		–			1,456
Corporate debt securities	Level 2		165,194			125,666
Asset-backed securities	Level 2		27,314			45,744
Time deposits	Level 2		–			25,500
Short-term pooled investments	Levels 1 and 2		37,120			275
Mortgage loans held-for-sale	Level 2		107,950			82,351
Mortgage interest rate lock commitments	Level 2		4,737			3,359
Forward-delivery contracts	Level 2	$	(369	)	$	(1,235	)

Summary of the fair value measurements of the entity's nonfinancial assets measured on a nonrecurring basis

	FAIR VALUE AT DECEMBER 31,
(in thousands)	HIERARCHY		2012		2011
Housing inventory and inventory held-for-sale1	Level 3	$	2,923	$	9,121
Other assets held-for-sale and investments in joint ventures2	Level 3		1,563		2,366
Total		$	4,486	$	11,487

¹

In accordance with ASC No. 330, ("ASC 330"), "Inventory," the fair values of housing inventory and inventory held-for-sale that were impaired during 2012 and 2011 totaled $2.9 million and $9.1 million at December 31, 2012 and 2011, respectively. The impairment charges related to these assets totaled $1.9 million and $9.5 million for the years ended December 31, 2012 and 2011, respectively.

²

In accordance with ASC 330, the fair values of other assets held-for-sale that were impaired during 2012 and 2011 totaled $263,000 and $973,000 at December 31, 2012 and 2011, respectively. The impairment charges related to these assets totaled $41,000 and $35,000 for the years ended December 31, 2012 and 2011, respectively. In accordance with ASC 330, the fair values of investments in joint ventures that were impaired during 2012 and 2011 totaled $1.3 million and $1.4 million at December 31, 2012 and 2011, respectively. The impairment charges related to these assets totaled $40,000 and $2.0 million for the years ended December 31, 2012 and 2011, respectively.

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CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012		Dec. 31, 2011		Dec. 31, 2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) from continuing operations	$ 42,382		$ (29,867)		$ (80,692)
Adjustments to reconcile net income (loss) from continuing operations to net cash used for operating activities:
Depreciation and amortization	15,399		11,312		16,399
Inventory and other asset impairments and write-offs	6,262		17,319		41,938
Loss on early extinguishment of debt, net	9,146		1,608		19,308
Gain on sale of marketable securities	(1,482)		(2,141)		(3,189)
(Decrease) increase in deferred tax valuation allowance	(11,584)		20,243		32,740
Stock-based compensation expense	17,841		9,671		11,528
Changes in assets and liabilities:
Increase in inventories	(301,643)		(85,520)		(112,053)
Net change in other assets, payables and other liabilities	23,596		(99,305)		6,946
Other operating activities, net	(792)		(988)		(457)
Net cash used for operating activities from continuing operations	(200,875)		(157,668)		(67,532)
CASH FLOWS FROM INVESTING ACTIVITIES
Return of investment in (contributions to) unconsolidated joint ventures, net	2,310		1,955		(4,043)
Additions to property, plant and equipment	(12,710)		(10,964)		(12,423)
Purchases of marketable securities, available-for-sale	(1,174,314)		(1,308,572)		(1,720,473)
Proceeds from sales and maturities of marketable securities, available-for-sale	1,136,946		1,399,774		1,742,913
Other investing activities	109		118		10
Net cash (used for) provided by investing activities from continuing operations	(47,659)		82,311		5,984
CASH FLOWS FROM FINANCING ACTIVITIES
Cash proceeds of long-term debt	475,000		0		300,000
Retirement of long-term debt	(177,219)		(52,917)		(300,554)
(Decrease) increase in borrowings against revolving credit facilities, net	(49,933)		49,933		0
Increase (decrease) in short-term borrowings	2,154		(5,110)		7,001
Common stock dividends	(5,411)		(5,405)		(5,367)
Issuance of common stock under stock-based compensation	14,366		3,622		4,851
(Increase) decrease in restricted cash	(13,844)		17,989		(2,935)
Net cash provided by financing activities from continuing operations	245,113		8,112		2,996
Net decrease in cash and cash equivalents from continuing operations	(3,421)		(67,245)		(58,552)
Cash flows from operating activities-discontinued operations	(104)		469		2,052
Cash flows from investing activities-discontinued operations	75		(363)		(551)
Cash flows from financing activities-discontinued operations	0		(89)		(1,501)
Cash and cash equivalents at beginning of period	159,169	[1],[2]	226,397	[1],[2]	284,949	[1]
CASH AND CASH EQUIVALENTS AT END OF PERIOD	155,719	[2]	159,169	[1],[2]	226,397	[1],[2]
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION FROM CONTINUING OPERATIONS
Cash paid for interest, net of capitalized interest	(12,777)		(22,949)		(27,389)
Cash (paid) refunds received for income taxes	(404)		(1,343)		99,320
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES FROM CONTINUING OPERATIONS
Decrease (increase) in consolidated inventory not owned related to land options	$ 12,399		$ 27,583		$ (61,806)

[1] Includes cash and cash equivalents associated with discontinued operations of $56,000 at December 31, 2011, and $39,000 at December 31, 2010 and 2009.

[2] Includes cash and cash equivalents associated with discontinued operations of $27,000, $56,000, and $39,000 at December 31, 2012, 2011 and 2010, respectively.

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Debt and Credit Facilities (Tables)

12 Months Ended

Dec. 31, 2012

Debt and Credit Facilities

Schedule of long-term and short-term debt and credit facilities

(in thousands)		2012			2011
Senior notes
6.9 percent senior notes due June 2013	$	–		$	167,182
5.4 percent senior notes due January 2015		126,481			126,481
8.4 percent senior notes due May 2017		230,000			230,000
1.6 percent convertible senior notes due May 2018		225,000			–
6.6 percent senior notes due May 2020		300,000			300,000
5.4 percent senior notes due October 2022		250,000			–
Total senior notes		1,131,481			823,663
Debt discount		(3,000	)		(3,647	)
Senior notes, net		1,128,481			820,016
Secured notes payable		5,987			3,811
Total debt	$	1,134,468		$	823,827
Financial services credit facility	$	–		$	49,933

Schedule of maturities of debt

(in thousands)
2013	$	4,054
2014		300
2015		126,494
2016		1,620
2017		230,000
After 2017		775,000
Total	$	1,137,468

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Summary of Significant Accounting Policies (Details 2) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Housing Inventories
Discount rate, low end of the range (as a percent)	19.00%
Discount rate, high end of the range (as a percent)	30.00%
Valuation reserves related to impaired inventories	$ 207,800,000	$ 277,200,000
Carrying value of impaired inventories	182,200,000	195,800,000
Summary of activity related to capitalized interest
Capitalized interest, balance at the beginning of the period	81,058,000	75,094,000	84,664,000
Interest capitalized	42,327,000	38,032,000	31,221,000
Interest amortized to cost of sales	(40,612,000)	(32,068,000)	(40,791,000)
Capitalized interest, balance at the end of the period	$ 82,773,000	$ 81,058,000	$ 75,094,000
Total continuing operations | Segment total
Real Estate JVs
LOTS OWNED	17,781	14,337
LOTS OPTIONED	10,524	7,242
TOTAL (in lots)	28,305	21,579
Total continuing operations | North
Real Estate JVs
LOTS OWNED	5,471	4,981
LOTS OPTIONED	4,056	3,405
TOTAL (in lots)	9,527	8,386
Total continuing operations | Southeast
Real Estate JVs
LOTS OWNED	7,268	4,933
LOTS OPTIONED	2,121	1,894
TOTAL (in lots)	9,389	6,827
Total continuing operations | Texas
Real Estate JVs
LOTS OWNED	2,438	2,486
LOTS OPTIONED	2,667	1,081
TOTAL (in lots)	5,105	3,567
Total continuing operations | West
Real Estate JVs
LOTS OWNED	2,604	1,937
LOTS OPTIONED	1,680	862
TOTAL (in lots)	4,284	2,799
Discontinued operations
Real Estate JVs
LOTS OWNED	479	1,330
LOTS OPTIONED	0	56
TOTAL (in lots)	479	1,386

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Income Taxes (Details 2) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Reconciliation of the federal income tax statutory rate to the Company's effective income tax rate
Federal income tax statutory rate (as a percent)									35.00%	35.00%	35.00%
State income taxes, net of federal tax (as a percent)									3.50%	3.20%	3.20%
Deferred tax valuation allowance (as a percent)									(39.30%)	(37.80%)	(38.50%)
Compensation expense (as a percent)									2.70%	(1.60%)	(0.90%)
Settlement of uncertain tax positions (as a percent)									0.00%	4.60%	0.00%
Other (as a percent)									1.90%	1.90%	1.00%
Effective income tax rate (as a percent)									3.80%	5.30%	(0.20%)
CURRENT TAX EXPENSE (BENEFIT)
Federal									$ 568	$ (227)	$ (244)
State									1,017	(2,638)	439
Total current tax expense (benefit)									1,585	(2,865)	195
DEFERRED TAX EXPENSE
Federal									0	0	0
State									0	0	0
Total deferred expense									0	0	0
Total income tax (benefit) expense	1,372	23	190	0	(449)	(18)	0	(2,398)	1,585	(2,865)	195
DEFERRED TAX ASSETS
Warranty, legal and other accruals	17,482				17,206				17,482	17,206
Employee benefits	19,285				17,131				19,285	17,131
Noncash tax charge for impairment of long-lived assets	88,042				115,226				88,042	115,226
Joint ventures	4,188				3,604				4,188	3,604
Federal net operating loss carryforwards	120,068				107,529				120,068	107,529
Other carryforwards	1,057				1,352				1,057	1,352
State net operating loss carryforwards	37,893				36,831				37,893	36,831
Other	912				1,313				912	1,313
Total	288,927				300,192				288,927	300,192
Valuation allowance	(258,867)				(270,451)				(258,867)	(270,451)
Total deferred tax assets	30,060				29,741				30,060	29,741
DEFERRED TAX LIABILITIES
Deferred recognition of income and gains	(2,277)				(3,385)				(2,277)	(3,385)
Capitalized expenses	(25,748)				(24,842)				(25,748)	(24,842)
Other	(2,035)				(1,514)				(2,035)	(1,514)
Total deferred tax liabilities	(30,060)				(29,741)				(30,060)	(29,741)
NET DEFERRED TAX ASSET	$ 0				$ 0				$ 0	$ 0

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CONSOLIDATED STATEMENTS OF EARNINGS (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
REVENUES
Homebuilding	$ 1,270,847	$ 862,604	$ 969,818
Financial services	37,619	26,927	31,007
TOTAL REVENUES	1,308,466	889,531	1,000,825
EXPENSES
Cost of sales	1,027,472	726,956	844,364
Selling, general and administrative	189,500	158,045	168,873
Financial services	24,477	21,188	30,162
Interest	16,118	18,348	24,389
TOTAL EXPENSES	1,257,567	924,537	1,067,788
OTHER (LOSS) INCOME
Gain from marketable securities, net	2,214	3,882	5,774
Loss related to early retirement of debt, net	(9,146)	(1,608)	(19,308)
TOTAL OTHER (LOSS) INCOME	(6,932)	2,274	(13,534)
Income (loss) from continuing operations before taxes	43,967	(32,732)	(80,497)
Tax expense (benefit)	1,585	(2,865)	195
NET INCOME (LOSS) FROM CONTINUING OPERATIONS	42,382	(29,867)	(80,692)
Loss from discontinued operations, net of taxes	(2,000)	(20,883)	(4,447)
NET INCOME (LOSS)	$ 40,382	$ (50,750)	$ (85,139)
Basic
Continuing operations (in dollars per share)	$ 0.93	$ (0.67)	$ (1.83)
Discontinued operations (in dollars per share)	$ (0.04)	$ (0.47)	$ (0.10)
Total (in dollars per share)	$ 0.89	$ (1.14)	$ (1.93)
Diluted
Continuing operations (in dollars per share)	$ 0.88	$ (0.67)	$ (1.83)
Discontinued operations (in dollars per share)	$ (0.04)	$ (0.47)	$ (0.10)
Total (in dollars per share)	$ 0.84	$ (1.14)	$ (1.93)
AVERAGE COMMON SHARES OUTSTANDING
Basic (in shares)	44,761,178	44,357,470	44,050,013
Diluted (in shares)	49,655,321	44,357,470	44,050,013
DIVIDENDS DECLARED PER COMMON SHARE (in dollars per share)	$ 0.12	$ 0.12	$ 0.12

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Earnings Per Share Reconciliation (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
NUMERATOR
Net income (loss) from continuing operations	$ 28,947	$ 10,407	$ 6,049	$ (3,021)	$ 1,263	$ (3,890)	$ (9,801)	$ (17,439)	$ 42,382	$ (29,867)	$ (80,692)
Net loss from discontinued operations	(374)	238	223	(2,087)	(451)	(17,423)	(912)	(2,097)	(2,000)	(20,883)	(4,447)
Less: distributed earnings allocated to nonvested restricted stock									(42)	0	0
Less: undistributed earnings allocated to nonvested restricted stock									(313)	0	0
Numerator for basic income (loss) per share									40,027	(50,750)	(85,139)
Plus: interest on 1.6 percent convertible senior notes due 2018									1,829	0	0
Plus: undistributed earnings allocated to nonvested restricted stock									313	0	0
Less: undistributed earnings reallocated to nonvested restricted stock									(284)	0	0
Numerator for diluted income (loss) per share									$ 41,885	$ (50,750)	$ (85,139)
DENOMINATOR
Basic earnings per share-weighted-average shares	45,115,000	44,826,000	44,628,000	44,474,000	44,410,000	44,409,000	44,369,000	44,239,000	44,761,178	44,357,470	44,050,013
Effect of dilutive securities:
Share-based payments (in shares)									487,443	0	0
1.6 percent convertible senior notes due 2018 (in shares)									4,406,700	0	0
Diluted earnings per share-adjusted weighted-average shares and assumed conversions	53,053,000	52,654,000	48,571,000	44,474,000	45,075,000	44,409,000	44,369,000	44,239,000	49,655,321	44,357,470	44,050,013
Basic
Continuing operations (in dollars per share)	$ 0.64	$ 0.23	$ 0.14	$ (0.07)	$ 0.03	$ (0.09)	$ (0.22)	$ (0.39)	$ 0.93	$ (0.67)	$ (1.83)
Discontinued operations (in dollars per share)	$ (0.01)	$ 0.01	$ 0.00	$ (0.04)	$ (0.01)	$ (0.39)	$ (0.02)	$ (0.05)	$ (0.04)	$ (0.47)	$ (0.10)
Total (in dollars per share)	$ 0.63	$ 0.24	$ 0.14	$ (0.11)	$ 0.02	$ (0.48)	$ (0.24)	$ (0.44)	$ 0.89	$ (1.14)	$ (1.93)
Diluted
Continuing operations (in dollars per share)	$ 0.56	$ 0.21	$ 0.14	$ (0.07)	$ 0.03	$ (0.09)	$ (0.22)	$ (0.39)	$ 0.88	$ (0.67)	$ (1.83)
Discontinued operations (in dollars per share)	$ (0.01)	$ 0.01	$ 0.00	$ (0.04)	$ (0.01)	$ (0.39)	$ (0.02)	$ (0.05)	$ (0.04)	$ (0.47)	$ (0.10)
Total (in dollars per share)	$ 0.55	$ 0.22	$ 0.14	$ (0.11)	$ 0.02	$ (0.48)	$ (0.24)	$ (0.44)	$ 0.84	$ (1.14)	$ (1.93)
1.6 percent convertible senior notes due 2018
Convertible senior notes
Interest rate stated percentage	1.60%								1.60%

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (USD $) In Thousands, unless otherwise specified	Total	COMMON STOCK	RETAINED EARNINGS	ACCUMULATED OTHER COMPREHENSIVE INCOME
STOCKHOLDERS' EQUITY BALANCE at Dec. 31, 2009	$ 581,862	$ 43,845	$ 534,906	$ 3,111
Increase (Decrease) in Stockholders' Equity
Net (loss) income	(85,139)		(85,139)
Other comprehensive loss, net of tax	(1,244)			(1,244)
Common stock dividends (per share $0.12)	(5,381)		(5,381)
Stock-based compensation	9,758	343	9,415
TOTAL EQUITY BALANCE at Dec. 31, 2010	561,662
STOCKHOLDERS' EQUITY BALANCE at Dec. 31, 2010	499,856	44,188	453,801	1,867
NONCONTROLLING INTEREST at Dec. 31, 2010	61,806
Increase (Decrease) in Stockholders' Equity
Net (loss) income	(50,750)		(50,750)
Other comprehensive loss, net of tax	(1,703)			(1,703)
Common stock dividends (per share $0.12)	(5,410)		(5,410)
Stock-based compensation	7,694	226	7,468
TOTAL EQUITY BALANCE at Dec. 31, 2011	483,910
STOCKHOLDERS' EQUITY BALANCE at Dec. 31, 2011	449,687	44,414	405,109	164
NONCONTROLLING INTEREST at Dec. 31, 2011	34,223
Increase (Decrease) in Stockholders' Equity
Net (loss) income	40,382		40,382
Other comprehensive loss, net of tax	(72)			(72)
Common stock dividends (per share $0.12)	(5,479)		(5,479)
Stock-based compensation	19,418	761	18,657
TOTAL EQUITY BALANCE at Dec. 31, 2012	525,760
STOCKHOLDERS' EQUITY BALANCE at Dec. 31, 2012	503,936	45,175	458,669	92
NONCONTROLLING INTEREST at Dec. 31, 2012	$ 21,824

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Commitments and Contingencies (Details) (USD $)	12 Months Ended					36 Months Ended
	Dec. 31, 2012 score	Dec. 31, 2011 score	Dec. 31, 2010 score	Dec. 31, 2009 score	Dec. 31, 2008 score	Dec. 31, 2007 score
Commitments and Contingencies
Mortgage loan types originated (as a percent)	100.00%	100.00%	100.00%	100.00%	100.00%	100.00%
Average FICO credit score	731	726	723	717	711	713
Average combined loan-to-value ratio (as a percent)	90.10%	90.30%	90.80%	91.40%	90.10%	88.40%
Company's rent expense
Total rent expense	$ 5,933,000	$ 7,087,000	$ 11,210,000
Income from subleases	(385,000)	(456,000)	(1,431,000)
Net rent expense	5,548,000	6,631,000	9,779,000
Future minimum rental commitments under noncancellable leases
2013	4,501,000
2014	4,623,000
2015	4,087,000
2016	2,868,000
2017	1,751,000
Thereafter	2,621,000
Income from subleases	(226,000)
Total lease commitments	20,225,000
Discontinued operations
Company's rent expense
Net rent expense	556,000	365,000	306,000
Mortgage interest rate lock commitments ("IRLCs")
Commitments and Contingencies
Average number of days of interest rate commitment before closing	180 days
Notional amount	137,700,000	114,600,000
Development bonds
Commitments and Contingencies
Guarantee obligations estimated exposure pertaining to land development and improvements	108,400,000	93,900,000
Performance-related cash deposits and letters of credit
Commitments and Contingencies
Guarantee obligations estimated exposure pertaining to land development and improvements	52,000,000	37,200,000
Prime
Commitments and Contingencies
Mortgage loan types originated (as a percent)	48.60%	42.20%	34.90%	32.90%	51.80%	67.70%
Government (FHA/VA/USDA)
Commitments and Contingencies
Mortgage loan types originated (as a percent)	51.40%	57.80%	65.10%	67.10%	48.20%	13.80%
Alt A
Commitments and Contingencies
Mortgage loan types originated (as a percent)	0.00%	0.00%	0.00%	0.00%	0.00%	16.50%
Subprime
Commitments and Contingencies
Mortgage loan types originated (as a percent)	0.00%	0.00%	0.00%	0.00%	0.00%	2.00%
Lot option purchase contracts
Commitments and Contingencies
Cash deposits and/or letters of credit	53,100,000	51,900,000
Aggregate purchase price	589,600,000	407,600,000
Purchase commitments, specific performance	$ 492,000	$ 1,000,000

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Commitments and Contingencies (Tables)

12 Months Ended

Dec. 31, 2012

Commitments and Contingencies

Summary of rent expense, which primarily relates to facilities, model homes, furniture and equipment

	YEAR ENDED DECEMBER 31,
(in thousands)		2012			2011			2010
Total rent expense1	$	5,933		$	7,087		$	11,210
Less: income from subleases		(385	)		(456	)		(1,431	)
Net rent expense	$	5,548		$	6,631		$	9,779

¹

Excludes rent expense associated with the Company's discontinued operations, which totaled $556,000, $365,000 and $306,000 for the years ended December 31, 2012, 2011 and 2010, respectively.

Schedule of future minimum rental commitments under noncancellable leases with remaining terms in excess of one year

(in thousands)
2013	$	4,501
2014		4,623
2015		4,087
2016		2,868
2017		1,751
Thereafter		2,621
Less: income from subleases		(226	)
Total lease commitments	$	20,225

Summary of composition of mortgage loans originated, by loan type; credit score; and loan-to-value ratio

	TWELVE MONTHS ENDED DECEMBER 31,											AVERAGE
		2012		2011		2010		2009		2008			2005-2007
Prime		48.6	%	42.2	%	34.9	%	32.9	%	51.8	%		67.7	%
Government (FHA/VA/USDA)		51.4		57.8		65.1		67.1		48.2			13.8
Alt A		–		–		–		–		–			16.5
Subprime		–		–		–		–		–			2.0
Total		100.0	%	100.0	%	100.0	%	100.0	%	100.0	%		100.0	%
Average FICO credit score		731		726		723		717		711			713
Average combined loan-to-value ratio		90.1	%	90.3	%	90.8	%	91.4	%	90.1	%		88.4	%

Changes in mortgage loan loss and related legal reserves

(in thousands)		2012			2011			2010
Balance at January 1	$	10,141		$	8,934		$	17,875
Provision for losses		1,156			1,368			8,461
Settlements made		(813	)		(161	)		(17,402	)
Balance at December 31	$	10,484		$	10,141		$	8,934

Changes in product liability reserves

(in thousands)		2012			2011			2010
Balance at January 1	$	20,648		$	20,112		$	24,268
Warranties issued		3,899			3,549			4,565
Changes in liability for accruals related to pre-existing warranties		1,866			2,823			5,645
Settlements made		(8,225	)		(5,836	)		(14,366	)
Balance at December 31	$	18,188		$	20,648		$	20,112

Changes in RHIC's insurance reserves

(in thousands)		2012			2011			2010
Balance at January 1	$	18,209		$	21,141		$	25,069
Insurance expense provisions or adjustments		(1,369	)		(900	)		(2,553	)
Loss expenses paid		(2,027	)		(2,032	)		(1,375	)
Balance at December 31	$	14,813		$	18,209		$	21,141

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Supplemental Guarantor Information (Details 5) (USD $) In Thousands, unless otherwise specified	3 Months Ended												12 Months Ended
	Dec. 31, 2012		Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012		Dec. 31, 2011		Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011		Dec. 31, 2012		Dec. 31, 2011		Dec. 31, 2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) from continuing operations	$ 28,947		$ 10,407	$ 6,049	$ (3,021)		$ 1,263		$ (3,890)	$ (9,801)	$ (17,439)		$ 42,382		$ (29,867)		$ (80,692)
Adjustments to reconcile net (loss) income from continuing operations to net cash used for operating activities													35,582		58,012		118,724
Changes in assets and liabilities													(278,047)		(184,825)		(105,107)
Other operating activities, net													(792)		(988)		(457)
Net cash used for operating activities from continuing operations													(200,875)		(157,668)		(67,532)
CASH FLOWS FROM INVESTING ACTIVITIES
(Contributions to) return of investment in unconsolidated joint ventures, net													2,310		1,955		(4,043)
Additions to property, plant and equipment													(12,710)		(10,964)		(12,423)
Purchases of marketable securities, available-for-sale													(1,174,314)		(1,308,572)		(1,720,473)
Proceeds from sales and maturities of marketable securities, available-for-sale													1,136,946		1,399,774		1,742,913
Other investing activities													109		118		10
Net cash (used for) provided by investing activities from continuing operations													(47,659)		82,311		5,984
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in senior debt and short-term borrowings, net													299,935		(58,027)		6,447
Increase (decrease) in borrowings against revolving credit facilities, net													(49,933)		49,933		0
Common stock dividends and stock-based compensation													8,955		(1,783)		(516)
(Increase) decrease in restricted cash													(13,844)		17,989		(2,935)
Intercompany balances													0		0		0
Net cash provided by financing activities from continuing operations													245,113		8,112		2,996
Net decrease in cash and cash equivalents from continuing operations													(3,421)		(67,245)		(58,552)
Cash flows from operating activities-discontinued operations													(104)		469		2,052
Cash flows from investing activities-discontinued operations													75		(363)		(551)
Cash flows from financing activities-discontinued operations													0		(89)		(1,501)
Cash and cash equivalents at beginning of period					159,169	[1],[2]					226,397	[1],[2]	159,169	[1],[2]	226,397	[1],[2]	284,949	[1]
CASH AND CASH EQUIVALENTS AT END OF PERIOD	155,719	[2]					159,169	[1],[2]					155,719	[2]	159,169	[1],[2]	226,397	[1],[2]
TRG, INC.
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) from continuing operations													42,382		(29,867)		(80,692)
Adjustments to reconcile net (loss) income from continuing operations to net cash used for operating activities													27,209		50,860		102,567
Changes in assets and liabilities													(168,994)		(57,722)		(43,237)
Other operating activities, net													(792)		(988)		2,093
Net cash used for operating activities from continuing operations													(100,195)		(37,717)		(19,269)
CASH FLOWS FROM INVESTING ACTIVITIES
(Contributions to) return of investment in unconsolidated joint ventures, net													708		(912)		(6,443)
Additions to property, plant and equipment													(7,838)		(7,368)		(6,184)
Purchases of marketable securities, available-for-sale													(1,168,833)		(1,303,185)		(1,314,086)
Proceeds from sales and maturities of marketable securities, available-for-sale													1,130,653		1,393,210		1,358,315
Other investing activities													0		0		0
Net cash (used for) provided by investing activities from continuing operations													(45,310)		81,745		31,602
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in senior debt and short-term borrowings, net													301,145		(55,243)		2,475
Increase (decrease) in borrowings against revolving credit facilities, net													0		0
Common stock dividends and stock-based compensation													8,955		(1,783)		(516)
(Increase) decrease in restricted cash													(18,658)		18,315		(13,470)
Intercompany balances													(141,605)		(6,625)		23,957
Net cash provided by financing activities from continuing operations													149,837		(45,336)		12,446
Net decrease in cash and cash equivalents from continuing operations													4,332		(1,308)		24,779
Cash flows from operating activities-discontinued operations													(31)		353		1,891
Cash flows from investing activities-discontinued operations													4		(237)		(390)
Cash flows from financing activities-discontinued operations													0		(89)		(1,501)
Cash and cash equivalents at beginning of period					25,430						26,711		25,430		26,711		1,932
CASH AND CASH EQUIVALENTS AT END OF PERIOD	29,735						25,430						29,735		25,430		26,711
GUARANTOR SUBSIDIARIES
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) from continuing operations													13,337		(7,063)		(19,402)
Adjustments to reconcile net (loss) income from continuing operations to net cash used for operating activities													7,873		6,564		15,280
Changes in assets and liabilities													(94,450)		(40,741)		(26,916)
Other operating activities, net													0		0		(2,550)
Net cash used for operating activities from continuing operations													(73,240)		(41,240)		(33,588)
CASH FLOWS FROM INVESTING ACTIVITIES
(Contributions to) return of investment in unconsolidated joint ventures, net													1,602		2,867		2,400
Additions to property, plant and equipment													(4,804)		(3,443)		(6,206)
Purchases of marketable securities, available-for-sale													0		0		(400,583)
Proceeds from sales and maturities of marketable securities, available-for-sale													0		0		375,906
Other investing activities													0		0		0
Net cash (used for) provided by investing activities from continuing operations													(3,202)		(576)		(28,483)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in senior debt and short-term borrowings, net													(1,188)		(2,784)		3,972
Increase (decrease) in borrowings against revolving credit facilities, net													0		0
Common stock dividends and stock-based compensation													0		0		0
(Increase) decrease in restricted cash													0		0		10,468
Intercompany balances													78,396		(15,480)		(34,218)
Net cash provided by financing activities from continuing operations													77,208		(18,264)		(19,778)
Net decrease in cash and cash equivalents from continuing operations													766		(60,080)		(81,849)
Cash flows from operating activities-discontinued operations													(73)		116		161
Cash flows from investing activities-discontinued operations													71		(126)		(161)
Cash flows from financing activities-discontinued operations													0		0		0
Cash and cash equivalents at beginning of period					117,101						177,191		117,101		177,191		259,040
CASH AND CASH EQUIVALENTS AT END OF PERIOD	117,865						117,101						117,865		117,101		177,191
NON-GUARANTOR SUBSIDIARIES
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) from continuing operations													12,668		5,237		847
Adjustments to reconcile net (loss) income from continuing operations to net cash used for operating activities													500		588		877
Changes in assets and liabilities													(40,608)		(84,536)		(16,399)
Other operating activities, net													0		0		0
Net cash used for operating activities from continuing operations													(27,440)		(78,711)		(14,675)
CASH FLOWS FROM INVESTING ACTIVITIES
(Contributions to) return of investment in unconsolidated joint ventures, net													0		0		0
Additions to property, plant and equipment													(68)		(153)		(33)
Purchases of marketable securities, available-for-sale													(5,481)		(5,387)		(5,804)
Proceeds from sales and maturities of marketable securities, available-for-sale													6,293		6,564		8,692
Other investing activities													109		118		10
Net cash (used for) provided by investing activities from continuing operations													853		1,142		2,865
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in senior debt and short-term borrowings, net													(22)		0		0
Increase (decrease) in borrowings against revolving credit facilities, net													(49,933)		49,933		0
Common stock dividends and stock-based compensation													0		0		0
(Increase) decrease in restricted cash													4,814		(326)		67
Intercompany balances													63,209		22,105		10,261
Net cash provided by financing activities from continuing operations													18,068		71,712		10,328
Net decrease in cash and cash equivalents from continuing operations													(8,519)		(5,857)		(1,482)
Cash flows from operating activities-discontinued operations													0		0		0
Cash flows from investing activities-discontinued operations													0		0		0
Cash flows from financing activities-discontinued operations													0		0		0
Cash and cash equivalents at beginning of period					16,638						22,495		16,638		22,495		23,977
CASH AND CASH EQUIVALENTS AT END OF PERIOD	8,119						16,638						8,119		16,638		22,495
CONSOLIDATING ELIMINATIONS
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) from continuing operations													(26,005)		1,826		18,555
Adjustments to reconcile net (loss) income from continuing operations to net cash used for operating activities													0		0		0
Changes in assets and liabilities													26,005		(1,826)		(18,555)
Other operating activities, net													0		0		0
Net cash used for operating activities from continuing operations													0		0		0
CASH FLOWS FROM INVESTING ACTIVITIES
(Contributions to) return of investment in unconsolidated joint ventures, net													0		0		0
Additions to property, plant and equipment													0		0		0
Purchases of marketable securities, available-for-sale													0		0		0
Proceeds from sales and maturities of marketable securities, available-for-sale													0		0		0
Other investing activities													0		0		0
Net cash (used for) provided by investing activities from continuing operations													0		0		0
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in senior debt and short-term borrowings, net													0		0		0
Increase (decrease) in borrowings against revolving credit facilities, net													0		0		0
Common stock dividends and stock-based compensation													0		0		0
(Increase) decrease in restricted cash													0		0		0
Intercompany balances													0		0		0
Net cash provided by financing activities from continuing operations													0		0		0
Net decrease in cash and cash equivalents from continuing operations													0		0		0
Cash flows from operating activities-discontinued operations													0		0		0
Cash flows from investing activities-discontinued operations													0		0		0
Cash flows from financing activities-discontinued operations													0		0		0
Cash and cash equivalents at beginning of period					0						0		0		0		0
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$ 0						$ 0						$ 0		$ 0		$ 0

[1] Includes cash and cash equivalents associated with discontinued operations of $56,000 at December 31, 2011, and $39,000 at December 31, 2010 and 2009.

[2] Includes cash and cash equivalents associated with discontinued operations of $27,000, $56,000, and $39,000 at December 31, 2012, 2011 and 2010, respectively.

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Discontinued Operations

12 Months Ended

Dec. 31, 2012

Discontinued Operations

Discontinued Operations

Note M: Discontinued Operations

During 2011, the Company discontinued future homebuilding operations in its Jacksonville and Dallas divisions. The Company intends to complete all homes currently under contract and to sell its remaining available land in these divisions as part of a strategic plan designed to efficiently manage its invested capital. The results of operations and cash flows for Jacksonville and Dallas, which were historically reported in the Company's Southeast and Texas segments, respectively, have been classified as discontinued operations. Additionally, the assets and liabilities related to these discontinued operations were presented separately in "Assets of discontinued operations" and "Liabilities of discontinued operations" within the Consolidated Balance Sheets. All prior period amounts have been reclassified to conform to the 2012 presentation.

BALANCE SHEETS

	DECEMBER 31,
(in thousands)		2012		2011
Assets
Cash and cash equivalents	$	27	$	56
Housing inventories		2,239		30,670
Other assets		214		4,598
Total assets of discontinued operations		2,480		35,324
Liabilities
Accounts payable and accrued liabilities		1,536		6,217
Total liabilities of discontinued operations	$	1,536	$	6,217

The Company's net loss from discontinued operations totaled $2.0 million, $20.9 million and $4.4 million for the years ended December 31, 2012, 2011 and 2010, respectively.

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Supplemental Guarantor Information (Tables)

12 Months Ended

Dec. 31, 2012

Supplemental Guarantor Information

CONSOLIDATING STATEMENTS OF EARNINGS

	YEAR ENDED DECEMBER 31, 2012
(in thousands)		TRG, INC.			GUARANTOR SUBSIDIARIES			NON- GUARANTOR SUBSIDIARIES		CONSOLIDATING ELIMINATIONS			CONSOLIDATED TOTAL
REVENUES	$	711,947		$	562,181		$	37,619	$	(3,281	)	$	1,308,466
EXPENSES		688,026			548,345			24,477		(3,281	)		1,257,567
OTHER LOSS		(6,932	)		–			–		–			(6,932	)
Income from continuing operations before taxes		16,989			13,836			13,142		–			43,967
Tax expense		612			499			474		–			1,585
Equity in net earnings of subsidiaries		26,005			–			–		(26,005	)		–
Net income from continuing operations		42,382			13,337			12,668		(26,005	)		42,382
Loss from discontinued operations, net of taxes		(2,000	)		(1,018	)		–		1,018			(2,000	)
NET INCOME	$	40,382		$	12,319		$	12,668	$	(24,987	)	$	40,382

		YEAR ENDED DECEMBER 31, 2011
REVENUES	$	458,500		$	404,104		$	26,927	$	–	$	889,531
EXPENSES		491,505			411,844			21,188		–		924,537
OTHER INCOME		2,274			–			–		–		2,274
(Loss) income from continuing operations before taxes		(30,731	)		(7,740	)		5,739		–		(32,732	)
Tax (benefit) expense		(2,690	)		(677	)		502		–		(2,865	)
Equity in net loss of subsidiaries		(1,826	)		–			–		1,826		–
Net (loss) income from continuing operations		(29,867	)		(7,063	)		5,237		1,826		(29,867	)
Loss from discontinued operations, net of taxes		(20,883	)		(5,763	)		–		5,763		(20,883	)
NET (LOSS) INCOME	$	(50,750	)	$	(12,826	)	$	5,237	$	7,589	$	(50,750	)

		YEAR ENDED DECEMBER 31, 2010
REVENUES	$	539,184		$	430,634		$	31,007		$	–	$	1,000,825
EXPENSES		587,638			449,988			30,162			–		1,067,788
OTHER LOSS		(13,534	)		–			–			–		(13,534	)
(Loss) income from continuing operations before taxes		(61,988	)		(19,354	)		845			–		(80,497	)
Tax expense (benefit)		149			48			(2	)		–		195
Equity in net loss of subsidiaries		(18,555	)		–			–			18,555		–
Net (loss) income from continuing operations		(80,692	)		(19,402	)		847			18,555		(80,692	)
Loss from discontinued operations, net of taxes		(4,447	)		(1,665	)		–			1,665		(4,447	)
NET (LOSS) INCOME	$	(85,139	)	$	(21,067	)	$	847		$	20,220	$	(85,139	)

CONSOLIDATING STATEMENTS OF OTHER COMPREHENSIVE INCOME

	YEAR ENDED DECEMBER 31, 2012
(in thousands)		TRG, INC.			GUARANTOR SUBSIDIARIES		NON- GUARANTOR SUBSIDIARIES		CONSOLIDATING ELIMINATIONS			CONSOLIDATED TOTAL
Net income	$	40,382		$	12,319	$	12,668	$	(24,987	)	$	40,382
Other comprehensive loss before tax:
Reduction of unrealized gain related to cash flow hedging instruments		(1,709	)		–		–		–			(1,709	)
Unrealized gain on marketable securities, available-for-sale:
Unrealized gain		1,217			–		–		–			1,217
Less: reclassification adjustments for gains included in net income		(233	)		–		–		–			(233	)
		984			–		–		–			984
Other comprehensive loss before tax		(725	)		–		–		–			(725	)
Income tax benefit related to items of other comprehensive loss		653										653
Other comprehensive loss, net of tax		(72	)		–		–		–			(72	)
Comprehensive income	$	40,310		$	12,319	$	12,668	$	(24,987	)	$	40,310

		YEAR ENDED DECEMBER 31, 2011
Net (loss) income	$	(50,750	)	$	(12,826	)	$	5,237	$	7,589	$	(50,750	)
Other comprehensive loss before tax:
Reduction of unrealized gain related to cash flow hedging instruments		(1,207	)		–			–		–		(1,207	)
Unrealized loss on marketable securities, available-for-sale:
Unrealized gain		360			–			–		–		360
Less: reclassification adjustments for gains included in net (loss) income		(1,358	)		–			–		–		(1,358	)
		(998	)		–			–		–		(998	)
Other comprehensive loss before tax		(2,205	)		–			–		–		(2,205	)
Income tax benefit related to items of other comprehensive loss		502			–			–		–		502
Other comprehensive loss, net of tax		(1,703	)		–			–		–		(1,703	)
Comprehensive (loss) income	$	(52,453	)	$	(12,826	)	$	5,237	$	7,589	$	(52,453	)

		YEAR ENDED DECEMBER 31, 2010
Net (loss) income	$	(85,139	)	$	(21,067	)	$	847	$	20,220	$	(85,139	)
Other comprehensive loss before tax:
Reduction of unrealized gain related to cash flow hedging instruments		(1,207	)		–			–		–		(1,207	)
Unrealized loss on marketable securities, available-for-sale:
Unrealized gain		1,750			–			–		–		1,750
Less: reclassification adjustments for gains included in net (loss) income		(2,558	)		–			–		–		(2,558	)
		(808	)		–			–		–		(808	)
Other comprehensive loss before tax		(2,015	)		–			–		–		(2,015	)
Income tax benefit related to items of other comprehensive loss		771			–			–		–		771
Other comprehensive loss, net of tax		(1,244	)		–			–		–		(1,244	)
Comprehensive (loss) income	$	(86,383	)	$	(21,067	)	$	847	$	20,220	$	(86,383	)

CONSOLIDATING BALANCE SHEETS

	DECEMBER 31, 2012
(in thousands)		TRG, INC.		GUARANTOR SUBSIDIARIES		NON- GUARANTOR SUBSIDIARIES		CONSOLIDATING ELIMINATIONS			CONSOLIDATED TOTAL
ASSETS
Cash and cash equivalents	$	29,735	$	117,838	$	8,119	$	–		$	155,692
Marketable securities and restricted cash		431,452		–		27,461		–			458,913
Consolidated inventory owned		643,619		394,309		–		–			1,037,928
Consolidated inventory not owned		17,666		–		21,824		–			39,490
Total housing inventories		661,285		394,309		21,824		–			1,077,418
Investment in subsidiaries		244,917		–		–		(244,917	)		–
Intercompany receivables		368,126		–		–		(368,126	)		–
Other assets		76,183		43,572		119,661		–			239,416
Assets of discontinued operations		187		2,293		–		–			2,480
TOTAL ASSETS		1,811,885		558,012		177,065		(613,043	)		1,933,919
LIABILITIES
Accounts payable and other accrued liabilities		172,906		68,929		30,320		–			272,155
Financial services credit facility		–		–		–		–			–
Debt		1,134,468		–		–		–			1,134,468
Intercompany payables		–		275,163		92,963		(368,126	)		–
Liabilities of discontinued operations		575		961		–		–			1,536
TOTAL LIABILITIES		1,307,949		345,053		123,283		(368,126	)		1,408,159
EQUITY
STOCKHOLDERS' EQUITY		503,936		212,959		31,958		(244,917	)		503,936
NONCONTROLLING INTEREST		–		–		21,824		–			21,824
TOTAL LIABILITIES AND EQUITY	$	1,811,885	$	558,012	$	177,065	$	(613,043	)	$	1,933,919

		DECEMBER 31, 2011
ASSETS
Cash and cash equivalents	$	25,403	$	117,072	$	16,638	$	–		$	159,113
Marketable securities and restricted cash		370,975		–		33,090		–			404,065
Consolidated inventory owned		470,269		273,791		–		–			744,060
Consolidated inventory not owned		17,177		–		34,223		–			51,400
Total housing inventories		487,446		273,791		34,223		–			795,460
Investment in subsidiaries		230,432		–		–		(230,432	)		–
Intercompany receivables		226,521		–		–		(226,521	)		–
Other assets		56,758		34,045		94,379		–			185,182
Assets of discontinued operations		8,853		26,471		–		–			35,324
TOTAL ASSETS		1,406,388		451,379		178,330		(456,953	)		1,579,144
LIABILITIES
Accounts payable and other accrued liabilities		131,879		48,750		34,628		–			215,257
Financial services credit facility		–		–		49,933		–			49,933
Debt		822,639		1,188		–		–			823,827
Intercompany payables		–		196,767		29,754		(226,521	)		–
Liabilities of discontinued operations		2,183		4,034		–		–			6,217
TOTAL LIABILITIES		956,701		250,739		114,315		(226,521	)		1,095,234
EQUITY
STOCKHOLDERS' EQUITY		449,687		200,640		29,792		(230,432	)		449,687
NONCONTROLLING INTEREST		–		–		34,223		–			34,223
TOTAL LIABILITIES AND EQUITY	$	1,406,388	$	451,379	$	178,330	$	(456,953	)	$	1,579,144

CONSOLIDATING STATEMENTS OF CASH FLOWS

	YEAR ENDED DECEMBER 31, 2012
(in thousands)		TRG, INC.			GUARANTOR SUBSIDIARIES			NON- GUARANTOR SUBSIDIARIES			CONSOLIDATING ELIMINATIONS			CONSOLIDATED TOTAL
CASH FLOWS FROM OPERATING ACTIVITIES
Net income from continuing operations	$	42,382		$	13,337		$	12,668		$	(26,005	)	$	42,382
Adjustments to reconcile net income from continuing operations to net cash used for operating activities		27,209			7,873			500			–			35,582
Changes in assets and liabilities		(168,994	)		(94,450	)		(40,608	)		26,005			(278,047	)
Other operating activities, net		(792	)		–			–			–			(792	)
Net cash used for operating activities from continuing operations		(100,195	)		(73,240	)		(27,440	)		–			(200,875	)
CASH FLOWS FROM INVESTING ACTIVITIES
Return of investment in unconsolidated joint ventures, net		708			1,602			–			–			2,310
Additions to property, plant and equipment		(7,838	)		(4,804	)		(68	)		–			(12,710	)
Purchases of marketable securities, available-for-sale		(1,168,833	)		–			(5,481	)		–			(1,174,314	)
Proceeds from sales and maturities of marketable securities, available-for-sale		1,130,653			–			6,293			–			1,136,946
Other investing activities, net		–			–			109			–			109
Net cash (used for) provided by investing activities from continuing operations		(45,310	)		(3,202	)		853			–			(47,659	)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in senior debt and short-term borrowings, net		301,145			(1,188	)		(22	)		–			299,935
Decrease in borrowings against revolving credit facilities, net		–			–			(49,933	)		–			(49,933	)
Common stock dividends and stock-based compensation		8,955			–			–			–			8,955
(Increase) decrease in restricted cash		(18,658	)		–			4,814			–			(13,844	)
Intercompany balances		(141,605	)		78,396			63,209			–			–
Net cash provided by financing activities from continuing operations		149,837			77,208			18,068			–			245,113
Net increase (decrease) in cash and cash equivalents from continuing operations		4,332			766			(8,519	)		–			(3,421	)
Cash flows from operating activities—discontinued operations		(31	)		(73	)		–			–			(104	)
Cash flows from investing activities—discontinued operations		4			71			–			–			75
Cash flows from financing activities—discontinued operations		–			–			–			–			–
Cash and cash equivalents at beginning of year		25,430			117,101			16,638			–			159,169
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	29,735		$	117,865		$	8,119		$	–		$	155,719

	YEAR ENDED DECEMBER 31, 2011
(in thousands)		TRG, INC.			GUARANTOR SUBSIDIARIES			NON- GUARANTOR SUBSIDIARIES			CONSOLIDATING ELIMINATIONS			CONSOLIDATED TOTAL
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income from continuing operations	$	(29,867	)	$	(7,063	)	$	5,237		$	1,826		$	(29,867	)
Adjustments to reconcile net (loss) income from continuing operations to net cash used for operating activities		50,860			6,564			588			–			58,012
Changes in assets and liabilities		(57,722	)		(40,741	)		(84,536	)		(1,826	)		(184,825	)
Other operating activities, net		(988	)		–			–			–			(988	)
Net cash used for operating activities from continuing operations		(37,717	)		(41,240	)		(78,711	)		–			(157,668	)
CASH FLOWS FROM INVESTING ACTIVITIES
(Contributions to) return of investment in unconsolidated joint ventures, net		(912	)		2,867			–			–			1,955
Additions to property, plant and equipment		(7,368	)		(3,443	)		(153	)		–			(10,964	)
Purchases of marketable securities, available-for-sale		(1,303,185	)		–			(5,387	)		–			(1,308,572	)
Proceeds from sales and maturities of marketable securities, available-for-sale		1,393,210			–			6,564			–			1,399,774
Other investing activities, net		–			–			118			–			118
Net cash provided by (used for) investing activities from continuing operations		81,745			(576	)		1,142			–			82,311
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in senior debt and short-term borrowings, net		(55,243	)		(2,784	)		–			–			(58,027	)
Increase in borrowings against revolving credit facilities, net		–			–			49,933			–			49,933
Common stock dividends and stock-based compensation		(1,783	)		–			–			–			(1,783	)
Decrease (increase) in restricted cash		18,315			–			(326	)		–			17,989
Intercompany balances		(6,625	)		(15,480	)		22,105			–			–
Net cash (used for) provided by financing activities from continuing operations		(45,336	)		(18,264	)		71,712			–			8,112
Net decrease in cash and cash equivalents from continuing operations		(1,308	)		(60,080	)		(5,857	)		–			(67,245	)
Cash flows from operating activities—discontinued operations		353			116			–			–			469
Cash flows from investing activities—discontinued operations		(237	)		(126	)		–			–			(363	)
Cash flows from financing activities—discontinued operations		(89	)		–			–			–			(89	)
Cash and cash equivalents at beginning of year		26,711			177,191			22,495			–			226,397
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	25,430		$	117,101		$	16,638		$	–		$	159,169

	YEAR ENDED DECEMBER 31, 2010
(in thousands)		TRG, INC.			GUARANTOR SUBSIDIARIES			NON- GUARANTOR SUBSIDIARIES			CONSOLIDATING ELIMINATIONS			CONSOLIDATED TOTAL
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income from continuing operations	$	(80,692	)	$	(19,402	)	$	847		$	18,555		$	(80,692	)
Adjustments to reconcile net (loss) income from continuing operations to net cash used for operating activities		102,567			15,280			877			–			118,724
Changes in assets and liabilities		(43,237	)		(26,916	)		(16,399	)		(18,555	)		(105,107	)
Other operating activities, net		2,093			(2,550	)		–			–			(457	)
Net cash used for operating activities from continuing operations		(19,269	)		(33,588	)		(14,675	)		–			(67,532	)
CASH FLOWS FROM INVESTING ACTIVITIES
(Contributions to) return of investment in unconsolidated joint ventures, net		(6,443	)		2,400			–			–			(4,043	)
Additions to property, plant and equipment		(6,184	)		(6,206	)		(33	)		–			(12,423	)
Purchases of marketable securities, available-for-sale		(1,314,086	)		(400,583	)		(5,804	)		–			(1,720,473	)
Proceeds from sales and maturities of marketable securities, available-for-sale		1,358,315			375,906			8,692			–			1,742,913
Other investing activities, net		–			–			10			–			10
Net cash provided by (used for) investing activities from continuing operations		31,602			(28,483	)		2,865			–			5,984
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in senior debt and short-term borrowings, net		2,475			3,972			–			–			6,447
Common stock dividends and stock-based compensation		(516	)		–			–			–			(516	)
(Increase) decrease in restricted cash		(13,470	)		10,468			67			–			(2,935	)
Intercompany balances		23,957			(34,218	)		10,261			–			–
Net cash provided by (used for) financing activities from continuing operations		12,446			(19,778	)		10,328			–			2,996
Net increase (decrease) in cash and cash equivalents from continuing operations		24,779			(81,849	)		(1,482	)		–			(58,552	)
Cash flows from operating activities—discontinued operations		1,891			161			–			–			2,052
Cash flows from investing activities—discontinued operations		(390	)		(161	)		–			–			(551	)
Cash flows from financing activities—discontinued operations		(1,501	)		–			–			–			(1,501	)
Cash and cash equivalents at beginning of year		1,932			259,040			23,977			–			284,949
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	26,711		$	177,191		$	22,495		$	–		$	226,397

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Quarterly Financial Data (Unaudited)

12 Months Ended

Dec. 31, 2012

Quarterly Financial Data (Unaudited)

Quarterly Financial Data (Unaudited)

Note O: Quarterly Financial Data (Unaudited)

	2012										2011
(in thousands, except per share data)		DEC. 31			SEPT. 30		JUN. 30		MAR. 31			DEC. 31			SEPT. 30			JUN. 30			MAR. 31
CONSOLIDATED RESULTS
Revenues	$	440,135		$	358,693	$	293,769	$	215,869		$	261,445		$	248,566		$	211,848		$	167,672
Income (loss) from continuing operations before taxes		30,319			10,430		6,239		(3,021	)		814			(3,908	)		(9,801	)		(19,837	)
Tax expense (benefit)		1,372			23		190		–			(449	)		(18	)		–			(2,398	)
Net income (loss) from continuing operations		28,947			10,407		6,049		(3,021	)		1,263			(3,890	)		(9,801	)		(17,439	)
(Loss) income from discontinued operations, net of taxes		(374	)		238		223		(2,087	)		(451	)		(17,423	)		(912	)		(2,097	)
Net income (loss)	$	28,573		$	10,645	$	6,272	$	(5,108	)	$	812		$	(21,313	)	$	(10,713	)	$	(19,536	)
Net income (loss) per common share:
Basic
Continuing operations	$	0.64		$	0.23	$	0.14	$	(0.07	)	$	0.03		$	(0.09	)	$	(0.22	)	$	(0.39	)
Discontinued operations		(0.01	)		0.01		0.00		(0.04	)		(0.01	)		(0.39	)		(0.02	)		(0.05	)
Total		0.63			0.24		0.14		(0.11	)		0.02			(0.48	)		(0.24	)		(0.44	)
Diluted
Continuing operations		0.56			0.21		0.14		(0.07	)		0.03			(0.09	)		(0.22	)		(0.39	)
Discontinued operations		(0.01	)		0.01		0.00		(0.04	)		(0.01	)		(0.39	)		(0.02	)		(0.05	)
Total	$	0.55		$	0.22	$	0.14	$	(0.11	)	$	0.02		$	(0.48	)	$	(0.24	)	$	(0.44	)
Weighted-average common shares outstanding:
Basic		45,115			44,826		44,628		44,474			44,410			44,409			44,369			44,239
Diluted		53,053			52,654		48,571		44,474			45,075			44,409			44,369			44,239

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Parenthetical) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common stock dividends, per share (in dollars per share)	$ 0.12	$ 0.12	$ 0.12

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CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME
Net income (loss)	$ 28,573	$ 10,645	$ 6,272	$ (5,108)	$ 812	$ (21,313)	$ (10,713)	$ (19,536)	$ 40,382	$ (50,750)	$ (85,139)
Other comprehensive loss before tax:
Reduction of unrealized gain related to cash flow hedging instruments									(1,709)	(1,207)	(1,207)
Unrealized gain (loss) on marketable securities, available-for-sale:
Unrealized gain									1,217	360	1,750
Less: reclassification adjustments for gains included in net income (loss)									(233)	(1,358)	(2,558)
Total unrealized gains (losses) on marketable securities, available-for-sale									984	(998)	(808)
Other comprehensive loss before tax									(725)	(2,205)	(2,015)
Income tax benefit related to items of other comprehensive loss									653	502	771
Other comprehensive loss, net of tax									(72)	(1,703)	(1,244)
Comprehensive income (loss)									$ 40,310	$ (52,453)	$ (86,383)

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Income Taxes

12 Months Ended

Dec. 31, 2012

Income Taxes

Income Taxes

Note H: Income Taxes

Deferred tax assets are recognized for estimated tax effects that are attributable to deductible temporary differences and tax carryforwards related to tax credits and operating losses. They are realized when existing temporary differences are carried back to a profitable year(s) and/or carried forward to a future year(s) having taxable income. Deferred tax assets are reduced by a valuation allowance if an assessment of their components indicates that it is more likely than not that all or some portion of these assets will not be realized. This assessment considers, among other things, cumulative losses; forecasts of future profitability; the duration of statutory carryforward periods; the Company's experience with loss carryforwards not expiring unused; and tax planning alternatives. In light of the unavailability of net operating loss carrybacks and the Company's assessment of the factors listed above, it was determined that an allowance against its deferred tax assets was required. Therefore, in accordance with ASC 740, the Company maintained a full valuation allowance against its net deferred tax assets. In light of the Company's return to profitability, its net valuation allowance was reduced by $11.6 million in 2012, of which $10.5 million was for federal taxes and $1.1 million was for state taxes. The Company recorded net valuation allowances totaling $16.6 million and $32.7 million against its deferred tax assets in 2011 and 2010, respectively, which were reflected as noncash charges to income tax expense. The net valuation allowance taken for net state taxes was comprised of increases that totaled $1.4 million and $2.7 million in 2011 and 2010, respectively. The net valuation allowance taken for federal taxes totaled increases of $15.2 million and $30.0 million in 2011 and 2010, respectively. The net decrease in the valuation allowance was $11.6 million from 2011 to 2012, and the balance of the deferred tax valuation allowance totaled $258.9 million and $270.5 million at December 31, 2012 and 2011, respectively. To the extent that the Company generates sufficient taxable income in the future to utilize the tax benefits of related deferred tax assets, it will experience a reduction in its effective tax rate during those periods in which the valuation allowance is reversed. For federal purposes, net operating losses can be carried forward 20 years; for state purposes, they can generally be carried forward 10 to 20 years, depending on the taxing jurisdiction. Federal net operating loss carryforwards, if not utilized, will begin to expire in 2031. For federal purposes, the Company's carryforwards of $768,000 can be carried forward 20 years and its remaining carryforwards of $289,000 can be carried forward 5 years, with expiration dates beginning in 2014.

The Company's provision for income tax presented an overall effective income tax expense rate of 3.8 percent for the year ended December 31, 2012, an overall effective income tax benefit rate of 5.3 percent for 2011 and an overall effective income tax expense rate of 0.2 percent for 2010. Changes in the effective income tax rate for the years ended 2012, 2011 and 2010 were primarily due the settlement of previously reserved unrecognized tax benefits.

The Company made a $1.6 million settlement payment for income tax, interest and penalty to a state taxing authority during 2011. Additionally, it recorded a tax benefit of $2.4 million to reverse the excess reserve previously recorded for the tax position that related to this settlement.

The following table reconciles the federal income tax statutory rate to the Company's effective income tax rate for the years ended December 31, 2012, 2011 and 2010:

	2012		2011		2010
Federal income tax statutory rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal tax	3.5		3.2		3.2
Deferred tax valuation allowance	(39.3	)	(37.8	)	(38.5	)
Compensation expense	2.7		(1.6	)	(0.9	)
Settlement of uncertain tax positions	–		4.6		–
Other	1.9		1.9		1.0
Effective income tax rate	3.8	%	5.3	%	(0.2	)%

The Company's income tax expense (benefit) for the years ended December 31, 2012, 2011 and 2010, is summarized as follows:

(in thousands)		2012		2011			2010
CURRENT TAX EXPENSE (BENEFIT)
Federal	$	568	$	(227	)	$	(244	)
State		1,017		(2,638	)		439
Total current tax expense (benefit)		1,585		(2,865	)		195
DEFERRED TAX EXPENSE
Federal		–		–			–
State		–		–			–
Total deferred tax expense		–		–			–
Total income tax expense (benefit)	$	1,585	$	(2,865	)	$	195

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

The following table presents significant components of the Company's deferred tax assets and liabilities:

	DECEMBER 31,
(in thousands)		2012			2011
DEFERRED TAX ASSETS
Warranty, legal and other accruals	$	17,482		$	17,206
Employee benefits		19,285			17,131
Noncash tax charge for impairment of long-lived assets		88,042			115,226
Joint ventures		4,188			3,604
Federal net operating loss carryforwards		120,068			107,529
Other carryforwards		1,057			1,352
State net operating loss carryforwards		37,893			36,831
Other		912			1,313
Total		288,927			300,192
Valuation allowance		(258,867	)		(270,451	)
Total deferred tax assets		30,060			29,741
DEFERRED TAX LIABILITIES
Deferred recognition of income and gains		(2,277	)		(3,385	)
Capitalized expenses		(25,748	)		(24,842	)
Other		(2,035	)		(1,514	)
Total deferred tax liabilities		(30,060	)		(29,741	)
NET DEFERRED TAX ASSET	$	–		$	–

The Company accounts for unrecognized tax benefits in accordance with ASC 740. It accounts for interest and penalties on unrecognized tax benefits through its provision for income taxes. At December 31, 2012, the Company's liability for gross unrecognized tax benefits was $318,000, of which $207,000, if recognized, will affect the Company's effective tax rate. At December 31, 2011, the Company's liability for gross unrecognized tax benefits was $129,000, of which $84,000, if recognized, will affect the Company's effective tax rate. The Company had $18,000 and $19,000 in accrued interest and penalties at December 31, 2012 and 2011, respectively. The Company estimates that, within 12 months, none of its gross state unrecognized tax benefits will reverse due to the anticipated expiration of time to assess tax.

The following table displays a reconciliation of changes in the Company's tax uncertainties:

(in thousands)		2012			2011
Balance at January 1	$	129		$	3,164
Additions related to prior year positions		218			100
Reductions related to prior year positions		–			(450	)
Reductions due to settlements		–			(1,878	)
Reductions due to expiration of the statute of limitations		(29	)		(807	)
Balance at December 31	$	318		$	129

As of December 31, 2012, tax years 2004, 2005 and 2009 through 2012 remain subject to examination. On March 15, 2013, the assessment statute of limitations closes on tax years 2004, 2005 and 2009.

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Document and Entity Information (USD $)	12 Months Ended
	Dec. 31, 2012	Feb. 25, 2013	Jun. 30, 2012
Document and Entity Information
Entity Registrant Name	RYLAND GROUP INC
Entity Central Index Key	0000085974
Document Type	10-K
Document Period End Date	Dec. 31, 2012
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Public Float			$ 1,120,605,929
Entity Common Stock, Shares Outstanding		45,461,914
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	FY

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Employee Savings, Stock Purchase and Supplemental Executive Retirement Plans

12 Months Ended

Dec. 31, 2012

Employee Savings, Stock Purchase and Supplemental Executive Retirement Plans

Employee Savings, Stock Purchase and Supplemental Executive Retirement Plans

Note I: Employee Savings, Stock Purchase and Supplemental Executive Retirement Plans

Retirement Savings Opportunity Plan ("RSOP")

All full-time employees are eligible to participate in the RSOP. Part-time employees are eligible to participate in the RSOP following the completion of 1,000 hours of service within the first 12 months of employment or within any plan year after the date of hire. Pursuant to Section 401(k) of the Internal Revenue Code, the plan permits deferral of a portion of a participant's income into a variety of investment options. Total compensation expense related to the Company's matching contributions for this plan totaled $2.0 million, $1.8 million and $1.9 million in 2012, 2011 and 2010, respectively.

Employee Stock Purchase Plan ("ESPP")

All full-time employees of the Company, with the exception of its executive officers, are eligible to participate in the ESPP. Eligible employees authorize payroll deductions to be made for the purchase of shares. The Company matches a portion of the employee's contribution by donating an additional 20.0 percent of the employee's payroll deduction. Stock is purchased by a plan administrator on a monthly basis. All brokerage and transaction fees for purchasing the stock are paid for by the Company. The Company's expense related to its matching contributions for this plan totaled $164,000, $153,000 and $135,000 in 2012, 2011 and 2010, respectively.

Supplemental Executive Retirement Plan

The Company has a supplemental nonqualified retirement plan, which generally vests over five-year periods beginning in 2003, pursuant to which it will pay supplemental pension benefits to key employees upon retirement. In connection with this plan, the Company has purchased cost-recovery life insurance on the lives of certain employees. Insurance contracts associated with the plan are held by trusts established as part of the plan to implement and carry out its provisions and to finance its 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 plan if assumptions made as to employment term, mortality experience, policy earnings and other factors are realized. At December 31, 2012, the value of the assets held in trust totaled $13.1 million, compared to $11.1 million at December 31, 2011, and was included in "Other" assets within the Consolidated Balance Sheets. The net periodic benefit income of this plan for the year ended December 31, 2012, totaled $599,000, which included an investment gain of $1.1 million on the cash surrender value of the insurance contracts and a death benefit of $863,000, offset by interest costs of $1.2 million and by service costs of $121,000. The net periodic benefit cost for the year ended December 31, 2011, totaled $1.6 million, which included interest costs of $731,000, an investment loss of $521,000 on the cash surrender value of the insurance contracts and service costs of $347,000. The net periodic benefit cost for the year ended December 31, 2010, totaled $351,000, which included interest costs of $660,000 and service costs of $204,000, offset by an investment gain of $513,000 on the cash surrender value of the insurance contracts. The $12.7 million and $11.3 million projected benefit obligations at December 31, 2012 and 2011, respectively, were equal to the net liabilities recognized in the Consolidated Balance Sheets at those dates. The weighted-average discount rates used for the plan were 6.6 percent for 2012 and 7.0 percent for 2011 and 2010.

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CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Cash, cash equivalents and marketable securities
Cash and cash equivalents	$ 155,692	$ 159,113
Restricted cash	70,893	57,049
Marketable securities, available-for-sale	388,020	347,016
Total cash, cash equivalents and marketable securities	614,605	563,178
Housing inventories
Homes under construction	459,269	319,476
Land under development and improved lots	573,975	413,569
Inventory held-for-sale	4,684	11,015
Consolidated inventory not owned	39,490	51,400
Total housing inventories	1,077,418	795,460
Property, plant and equipment	20,409	19,920
Mortgage loans held-for-sale	107,950	82,351
Other	111,057	82,911
Assets of discontinued operations	2,480	35,324
TOTAL ASSETS	1,933,919	1,579,144
LIABILITIES
Accounts payable	124,797	74,327
Accrued and other liabilities	147,358	140,930
Financial services credit facility	0	49,933
Debt	1,134,468	823,827
Liabilities of discontinued operations	1,536	6,217
TOTAL LIABILITIES	1,408,159	1,095,234
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par value: Authorized-10,000 shares Series A Junior Participating Preferred, none outstanding	0	0
Common stock, $1.00 par value: Authorized-199,990,000 shares Issued-45,175,053 shares at December 31, 2012 (44,413,594 shares at December 31, 2011)	45,175	44,414
Retained earnings	458,669	405,109
Accumulated other comprehensive income	92	164
TOTAL STOCKHOLDERS' EQUITY FOR THE RYLAND GROUP, INC.	503,936	449,687
NONCONTROLLING INTEREST	21,824	34,223
TOTAL EQUITY	525,760	483,910
TOTAL LIABILITIES AND EQUITY	$ 1,933,919	$ 1,579,144

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Earnings Per Share Reconciliation

12 Months Ended

Dec. 31, 2012

Earnings Per Share Reconciliation

Earnings Per Share Reconciliation

Note C: Earnings Per Share Reconciliation

The Company computes earnings per share in accordance with ASC 260, which requires earnings per share for each class of stock to be calculated using the two-class method. The two-class method is an allocation of earnings or loss between a company's holders of common stock and its participating security holders. Under the two-class method, earnings or loss for the reporting period are allocated between common shareholders and other security holders, based on their respective participation rights in dividends and undistributed earnings. All outstanding nonvested shares of restricted stock that contain non-forfeitable rights to dividends are considered participating securities and are included in the computation of earnings per share pursuant to the two-class method. The Company's nonvested restricted stock are considered participating securities in accordance with ASC 260.

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

	YEAR ENDED DECEMBER 31,
(in thousands, except share data)		2012			2011			2010
NUMERATOR
Net income (loss) from continuing operations	$	42,382		$	(29,867	)	$	(80,692	)
Net loss from discontinued operations		(2,000	)		(20,883	)		(4,447	)
Less: distributed earnings allocated to nonvested restricted stock		(42	)		–			–
Less: undistributed earnings allocated to nonvested restricted stock		(313	)		–			–
Numerator for basic income (loss) per share		40,027			(50,750	)		(85,139	)
Plus: interest on 1.6 percent convertible senior notes due 2018		1,829			–			–
Plus: undistributed earnings allocated to nonvested restricted stock		313			–			–
Less: undistributed earnings reallocated to nonvested restricted stock		(284	)		–			–
Numerator for diluted income (loss) per share	$	41,885		$	(50,750	)	$	(85,139	)
DENOMINATOR
Basic earnings per share—weighted-average shares		44,761,178			44,357,470			44,050,013
Effect of dilutive securities:
Share-based payments		487,443			–			–
1.6 percent convertible senior notes due 2018		4,406,700			–			–
Diluted earnings per share—adjusted weighted-average shares and assumed conversions		49,655,321			44,357,470			44,050,013
NET INCOME (LOSS) PER COMMON SHARE
Basic
Continuing operations	$	0.93		$	(0.67	)	$	(1.83	)
Discontinued operations		(0.04	)		(0.47	)		(0.10	)
Total		0.89			(1.14	)		(1.93	)
Diluted
Continuing operations		0.88			(0.67	)		(1.83	)
Discontinued operations		(0.04	)		(0.47	)		(0.10	)
Total	$	0.84		$	(1.14	)	$	(1.93	)

For the years ended December 31, 2011 and 2010, the effects of outstanding restricted stock units and stock options, as well as nonvested restricted stock, were not included in the diluted earnings per share calculation, as they would have been antidilutive due to the Company's net loss in each of those years.

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Segment Information

12 Months Ended

Dec. 31, 2012

Segment Information

Segment Information

Note B: Segment Information

The Company is a leading national homebuilder and provider of mortgage-related financial services. As one of the largest single-family on-site homebuilders in the United States, it operates in 14 states across the country. The Company consists of six segments: four geographically determined homebuilding regions (North, Southeast, Texas and West); financial services; and corporate. The homebuilding segments specialize in the sale and construction of single-family attached and detached housing. The Company's financial services segment, which includes RMC, RHIC, LPS and CNRRG, provides mortgage-related products and services, as well as title, escrow and insurance services, to its homebuyers. Corporate is a nonoperating business segment with the sole purpose of supporting operations. In order to best reflect the Company's financial position and results of operations, certain corporate expenses are allocated to the homebuilding and financial services segments, along with certain assets and liabilities relating to employee benefit plans.

The Company evaluates performance and allocates resources based on a number of factors, including segment pretax earnings and risk. The accounting policies of the segments are the same as those described in Note A, "Summary of Significant Accounting Policies."

Selected Segment Information

	YEAR ENDED DECEMBER 31,
(in thousands)		2012			2011			2010
REVENUES
Homebuilding
North	$	393,238		$	299,595		$	344,154
Southeast		355,621			218,672			259,357
Texas		323,162			262,321			242,691
West		198,826			82,016			123,616
Financial services		37,619			26,927			31,007
Total	$	1,308,466		$	889,531		$	1,000,825
EARNINGS (LOSS) BEFORE TAXES
Homebuilding
North	$	11,602		$	(9,054	)	$	(15,842	)
Southeast		18,566			(11,676	)		(16,446	)
Texas		22,984			9,243			(2,492	)
West		10,732			(5,326	)		(7,903	)
Financial services		13,142			5,739			845
Corporate and unallocated		(33,059	)		(21,658	)		(38,659	)
Total	$	43,967		$	(32,732	)	$	(80,497	)
DEPRECIATION AND AMORTIZATION
Homebuilding
North	$	4,710		$	3,527		$	4,773
Southeast		4,308			3,145			4,116
Texas		2,834			2,610			2,429
West		2,984			1,295			4,354
Financial services		78			181			254
Corporate and unallocated		485			554			473
Total	$	15,399		$	11,312		$	16,399

	DECEMBER 31,
(in thousands)		2012		2011
IDENTIFIABLE ASSETS
Homebuilding
North	$	408,341	$	367,096
Southeast		315,043		198,196
Texas		196,397		161,779
West		274,050		160,004
Financial services		157,781		144,652
Corporate and unallocated		579,827		512,093
Total	$	1,931,439	$	1,543,820

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Subsequent Events

12 Months Ended

Dec. 31, 2012

Subsequent Events

Subsequent Events

Note N: Subsequent Events

No events have occurred subsequent to December 31, 2012, that have required recognition or disclosure in the Company's financial statements.

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Stock-Based Compensation

12 Months Ended

Dec. 31, 2012

Stock-Based Compensation

Stock-Based Compensation

Note J: Stock-Based Compensation

The Ryland Group, Inc. 2011 Equity and Incentive Plan (the "Plan") permits the granting of stock options, restricted stock awards, stock units, cash incentive awards or any combination of the foregoing to employees. Stock options granted in accordance with the Plan generally have a maximum term of seven years and vest in equal annual installments over three years. Certain outstanding stock options granted under predecessor plans have maximum terms of either five or ten years. Outstanding restricted stock units granted under the Plan or its predecessor plans generally vest in three equal annual installments with performance criteria. At December 31, 2012 and 2011, stock options or other awards or units available for grant under the Plan or its predecessor plans totaled 3,016,108 and 3,346,508, respectively.

The Ryland Group, Inc. 2011 Non-Employee Director Stock Plan (the "Director Plan") provides for a stock award of 3,000 shares to each non-employee director on May 1 of each year. New non-employee directors will receive a pro rata stock award within 30 days after their date of appointment or election, based on the remaining portion of the plan year in which they are appointed or elected. Stock awards are fully vested and nonforfeitable on their applicable award dates. There were 158,000 and 176,000 stock awards available for future grant in accordance with the Director Plan at December 31, 2012 and 2011, respectively. Previously, The Ryland Group, Inc. 2004 Non-Employee Director Equity Plan and its predecessor plans provided for automatic grants of nonstatutory stock options to directors. These stock options are fully vested and have a maximum term of ten years.

All outstanding stock options, stock awards and restricted stock awards have been granted in accordance with the terms of the applicable Plan, Director Plan and their respective predecessor plans, all of which were approved by the Company's stockholders. Certain option and share awards provide for accelerated vesting if there is a change in control (as defined in the plans).

The Company recorded stock-based compensation expense of $17.8 million, $9.7 million and $11.5 million for the years ended December 31, 2012, 2011 and 2010, respectively. Stock-based compensation expenses have been allocated to the Company's business units and included in "Financial services" and "Selling, general and administrative" expenses within the Consolidated Statements of Earnings.

ASC 718 requires cash flows attributable to tax benefits resulting from tax deductions in excess of compensation costs recognized for exercised stock options ("excess tax benefits") to be classified as financing cash flows. There were no excess tax benefits for the years ended December 31, 2012, 2011 and 2010.

A summary of stock option activity in accordance with the Company's equity incentive plans as of December 31, 2012, 2011 and 2010, and changes for the years then ended, follows:

	SHARES			WEIGHTED- AVERAGE EXERCISE PRICE	WEIGHTED- AVERAGE REMAINING CONTRACTUAL LIFE (in years)		AGGREGATE INTRINSIC VALUE (in thousands)
Options outstanding at January 1, 2010	3,693,697		$	36.43	3.1
Granted	846,000			23.30
Exercised	(200,758	)		8.62
Forfeited	(616,283	)		46.46
Options outstanding at December 31, 2010	3,722,656		$	33.29	2.8	$	1,315
Available for future grant	1,477,072
Total shares reserved at December 31, 2010	5,199,728
Options exercisable at December 31, 2010	2,580,526		$	38.23	2.3	$	588
Options outstanding at January 1, 2011	3,722,656		$	33.29	2.8
Granted	781,000			16.52
Exercised	(44,398	)		11.97
Forfeited	(510,384	)		43.36
Options outstanding at December 31, 2011	3,948,874		$	28.91	2.4	$	553
Available for future grant	3,346,508
Total shares reserved at December 31, 2011	7,295,382
Options exercisable at December 31, 2011	2,574,246		$	34.35	1.7	$	369
Options outstanding at January 1, 2012	3,948,874		$	28.91	2.4
Granted	756,000			18.55
Exercised	(568,293	)		18.89
Forfeited	(717,158	)		35.38
Options outstanding at December 31, 2012	3,419,423		$	26.92	2.9	$	42,992
Available for future grant	3,016,108
Total shares reserved at December 31, 2012	6,435,531
Options exercisable at December 31, 2012	1,967,786		$	33.10	1.6	$	16,939

A summary of stock options outstanding and exercisable at December 31, 2012, follows:

	OPTIONS OUTSTANDING					OPTIONS EXERCISABLE
RANGE OF EXERCISE PRICES		NUMBER OUTSTANDING	WEIGHTED- AVERAGE REMAINING LIFE (in years)		WEIGHTED- AVERAGE EXERCISE PRICE		NUMBER EXERCISABLE		WEIGHTED- AVERAGE EXERCISE PRICE
$14.13 to $18.22		1,638,376	4.2	$	16.96		417,067	$	15.24
$20.99 to $37.37		1,012,603	1.6		25.66		782,275		26.18
$40.00 to $72.13		768,444	1.6		49.84		768,444		49.84

The total intrinsic values of stock options exercised during the years ended December 31, 2012, 2011 and 2010, were $5.4 million, $284,000 and $2.1 million, respectively. The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option.

The Company has determined the grant-date fair value of stock options using the Black-Scholes-Merton option-pricing model. Expected volatility is based upon the historical volatility of the Company's common stock. The expected dividend yield is based on an annual dividend rate of $0.12 per common share. The risk-free rate for periods within the contractual life of the stock option award is based upon the zero-coupon U.S. Treasury bond on the date the stock option is granted, with a maturity equal to the expected option life of the stock option granted. The expected option life is derived from historical experience under the Company's share-based payment plans and represents the period of time that a stock option award granted is expected to be outstanding.

The following table presents the weighted-average inputs used and grant date fair values determined for stock options granted during the years ended December 31, 2012, 2011 and 2010:

		2012			2011			2010
Expected volatility		49.3	%		51.0	%		53.6	%
Expected dividend yield		0.7	%		0.7	%		0.5	%
Expected term (in years)		4.5			3.5			3.5
Risk-free rate		0.8	%		1.4	%		1.6	%
Weighted-average grant-date fair value	$	7.21		$	6.02		$	9.05

Pursuant to the Plan, on March 1, 2012, the Company awarded 275,000 stock options to senior executive officers. Effective October 1, 2012, the Company established the 2012 Amended Executive Officer Non-Qualified Stock Option Agreement, which amended the previous grants made to senior executive officers in 2012. In order to encourage a significant level of appreciation in stockholder value, this agreement added a condition to the exercisability of stock options, which requires that the stock option may only be exercised if and when the Company's stock price is greater than or equal to 150 percent of the grant price. In accordance with ASC 718, the Company used a Black-Scholes-Merton option-pricing model to calculate the incremental expense resulting from the modification of the performance stock options. Expected volatility is based upon the historical volatility of the Company's common stock. The expected dividend yield is based on an annual dividend rate of $0.12 per common share. The zero coupon rate of interest is derived from the observable Treasury rates. The expected option life is derived using a Monte Carlo simulation methodology to model the expected exercise and termination behavior of optionees. This incremental expense, plus the grant-date fair value, will be recognized over the requisite service period in stock-based compensation expense.

Stock-based compensation expense related to employee stock options totaled $5.0 million, $4.0 million and $4.7 million for the years ended December 31, 2012, 2011 and 2010, respectively.

A summary of the Company's nonvested options as of and for the years ended December 31, 2012, 2011 and 2010, follows:

	2012					2011					2010
		SHARES			WEIGHTED- AVERAGE GRANT-DATE FAIR VALUE		SHARES			WEIGHTED- AVERAGE GRANT-DATE FAIR VALUE		SHARES			WEIGHTED- AVERAGE GRANT-DATE FAIR VALUE
Nonvested options outstanding at January 1		1,374,628		$	7.00		1,142,130		$	8.31		883,398		$	8.23
Granted		756,000			7.21		781,000			6.02		846,000			9.05
Vested		(611,659	)		7.03		(498,507	)		8.37		(425,107	)		9.44
Forfeited		(67,332	)		7.47		(49,995	)		7.89		(162,161	)		8.79
Nonvested options outstanding at December 31		1,451,637		$	7.08		1,374,628		$	7.00		1,142,130		$	8.31

At December 31, 2012, the total unrecognized compensation cost related to nonvested stock option awards previously granted under the Company's plans was $5.6 million. That cost is expected to be recognized over the next 2.7 years.

Compensation expense associated with restricted stock unit awards to senior executives totaled $12.4 million, $5.3 million and $6.3 million for the years ended December 31, 2012, 2011 and 2010, respectively.

The following table summarizes activity that relates to the Company's restricted stock unit awards:

	2012		2011		2010
Restricted stock units at January 1	657,825		727,317		609,812
Shares awarded	473,408		305,000		404,000
Shares vested	(350,349	)	(314,492	)	(235,496	)
Shares forfeited	(6,667	)	(60,000	)	(50,999	)
Restricted stock units at December 31	774,217		657,825		727,317

At December 31, 2012, the outstanding restricted stock units are expected to vest as follows: 2013–368,469; 2014–259,468; and 2015–146,280.

The Company has granted stock awards to its non-employee directors pursuant to the terms of the Director Plan. The Company recorded stock-based compensation expense related to Director Plan stock awards in the amounts of $404,000, $415,000 and $547,000 for the years ended December 31, 2012, 2011 and 2010, respectively.

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Fair Values of Financial and Nonfinancial Instruments

12 Months Ended

Dec. 31, 2012

Fair Values of Financial and Nonfinancial Instruments

Fair Values of Financial and Nonfinancial Instruments

Note F: Fair Values of Financial and Nonfinancial Instruments

Financial Instruments

The Company's financial instruments are held for purposes other than trading. The fair values of these financial instruments are based on quoted market prices, where available, or are estimated using other valuation techniques. Estimated fair values are significantly affected by the assumptions used. As required by ASC No. 820 ("ASC 820"), "Fair Value Measurements and Disclosures," fair value measurements of financial instruments are categorized as Level 1, Level 2 or Level 3, based on the types of inputs used in estimating fair values.

Level 1 fair values are those determined using quoted market prices in active markets for identical assets or liabilities with no valuation adjustments applied. Level 2 fair values are those determined using directly or indirectly observable inputs in the marketplace that are other than Level 1 inputs. Level 3 fair values are those determined using unobservable inputs, including the use of internal assumptions, estimates or models. Valuations, therefore, are sensitive to the assumptions used for these items. Fair values represent the Company's best estimates as of the balance sheet date and are based on existing conditions and available information at the issuance date of these financial statements. Subsequent changes in conditions or available information may change assumptions and estimates.

The carrying values of cash, cash equivalents, restricted cash and secured notes payable are reported in the Consolidated Balance Sheets and approximate their fair values due to their short-term natures and liquidity. The aggregate carrying values of the senior notes, net of discount, reported at December 31, 2012 and 2011, were $1.1 billion and $820.0 million, respectively. The aggregate fair values of the senior notes were $1.3 billion and $824.6 million at December 31, 2012 and 2011, respectively. The fair values of the Company's senior notes have been determined using quoted market prices.

The following table displays the values and methods used for measuring fair values of financial instruments on a recurring basis:

	FAIR VALUE AT DECEMBER 31,
(in thousands)	HIERARCHY		2012			2011
Marketable securities, available-for-sale:
U.S. Treasury securities	Level 1	$	3,099		$	1,555
Obligations of U.S. and local government agencies	Levels 1 and 2		155,293			146,820
Corporate debt securities issued under U.S. government/agency-backed programs	Level 2		–			1,456
Corporate debt securities	Level 2		165,194			125,666
Asset-backed securities	Level 2		27,314			45,744
Time deposits	Level 2		–			25,500
Short-term pooled investments	Levels 1 and 2		37,120			275
Mortgage loans held-for-sale	Level 2		107,950			82,351
Mortgage interest rate lock commitments	Level 2		4,737			3,359
Forward-delivery contracts	Level 2	$	(369	)	$	(1,235	)

Marketable Securities, Available-for-sale

At December 31, 2012 and 2011, the Company had $388.0 million and $347.0 million, respectively, of marketable securities that were available-for-sale and comprised of U.S. Treasury securities; obligations of U.S. government and local government agencies; corporate debt backed by U.S. government/agency programs; corporate debt securities; asset-backed securities of U.S. government agencies and covered bonds; time deposits; and short-term pooled investments. (See Note E, "Marketable Securities, Available-for-sale.")

Other Financial Instruments

Mortgage loans held-for-sale and forward-delivery contracts are based on quoted market prices of similar instruments (Level 2). IRLCs are valued at their aggregate market price premium or deficit, plus a servicing premium, multiplied by the projected close ratio (Level 2). The market price premium or deficit is based on quoted market prices of similar instruments; the servicing premium is based on contractual investor guidelines for each product; and the projected close ratio is determined utilizing an external modeling system, widely used within the industry, to estimate customer behavior at an individual loan level. At December 31, 2012 and 2011, contractual principal amounts of mortgage loans held-for-sale totaled $103.4 million and $79.7 million, respectively. The fair values of IRLCs were included in "Other" assets within the Consolidated Balance Sheets, and forward-delivery contracts were included in "Other" assets and "Accrued and other liabilities" within the Consolidated Balance Sheets. Gains realized on the conversion of IRLCs to loans totaled $25.0 million, $16.3 million and $18.4 million for the years ended December 31, 2012, 2011 and 2010, respectively. Increases in the fair value of the locked loan pipeline totaled $1.4 million and $1.9 million for the years ended December 31, 2012 and 2011, compared to a decrease of $559,000 for the year ended December 31, 2010. Partially offsetting these items, losses from forward-delivery contracts used to hedge IRLCs totaled $8.1 million, $7.3 million and $6.1 million for the years ended December 31, 2012, 2011 and 2010, respectively. Net gains and losses related to forward-delivery contracts and IRLCs were included in "Financial services" revenues within the Consolidated Statements of Earnings.

At December 31, 2012 and 2011, the excess of the aggregate fair value over the aggregate unpaid principal balance for mortgage loans held-for-sale measured at fair value totaled $4.6 million and $2.7 million, respectively, and was included in "Financial services" revenues within the Consolidated Statements of Earnings. At December 31, 2012, the Company held no loans with payments 90 days or more past due. At December 31, 2011, the Company held two repurchased loans with payments 90 days or more past due that had an aggregate carrying value of $542,000 and an aggregate unpaid principal balance of $623,000.

While recorded fair values represent management's best estimate based on data currently available, future changes in interest rates or in market prices for mortgage loans, among other factors, could materially impact these fair values.

Nonfinancial Instruments

In accordance with ASC 820, the Company measures certain nonfinancial homebuilding assets at their fair values on a nonrecurring basis. See "Housing Inventories" within Note A, "Summary of Significant Accounting Policies," for further discussion of the valuation of the Company's nonfinancial assets.

The following table summarizes the fair values of the Company's nonfinancial assets that represent the fair values for communities and other homebuilding assets for which it recognized noncash impairment charges during the reporting periods:

	FAIR VALUE AT DECEMBER 31,
(in thousands)	HIERARCHY		2012		2011
Housing inventory and inventory held-for-sale1	Level 3	$	2,923	$	9,121
Other assets held-for-sale and investments in joint ventures2	Level 3		1,563		2,366
Total		$	4,486	$	11,487

¹

In accordance with ASC No. 330, ("ASC 330"), "Inventory," the fair values of housing inventory and inventory held-for-sale that were impaired during 2012 and 2011 totaled $2.9 million and $9.1 million at December 31, 2012 and 2011, respectively. The impairment charges related to these assets totaled $1.9 million and $9.5 million for the years ended December 31, 2012 and 2011, respectively.

²

In accordance with ASC 330, the fair values of other assets held-for-sale that were impaired during 2012 and 2011 totaled $263,000 and $973,000 at December 31, 2012 and 2011, respectively. The impairment charges related to these assets totaled $41,000 and $35,000 for the years ended December 31, 2012 and 2011, respectively. In accordance with ASC 330, the fair values of investments in joint ventures that were impaired during 2012 and 2011 totaled $1.3 million and $1.4 million at December 31, 2012 and 2011, respectively. The impairment charges related to these assets totaled $40,000 and $2.0 million for the years ended December 31, 2012 and 2011, respectively.

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Commitments and Contingencies (Details 2) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Changes in the entity's loan loss and related legal reserves
Balance at the beginning of the period	$ 10,141,000	$ 8,934,000	$ 17,875,000
Provision for losses	1,156,000	1,368,000	8,461,000
Settlements made	(813,000)	(161,000)	(17,402,000)
Balance at the end of the period	10,484,000	10,141,000	8,934,000
Product warranty
Number of years of product warranty for workmanship and materials	1 year
Number of years of product warranty for mechanical systems	2 years
Number of years of product warranty for structural systems	10 years
Product liability reserves
Balance at the beginning of the period	20,648,000	20,112,000	24,268,000
Warranties issued	3,899,000	3,549,000	4,565,000
Changes in liability for accruals related to pre-existing warranties	1,866,000	2,823,000	5,645,000
Settlements made	(8,225,000)	(5,836,000)	(14,366,000)
Balance at the end of the period	18,188,000	20,648,000	20,112,000
Insurance reserves | RHIC
Changes in entity's subcontractor insurance reserves
Balance at the beginning of period	18,209,000	21,141,000	25,069,000
Insurance expense provisions or adjustments	(1,369,000)	(900,000)	(2,553,000)
Loss expenses paid	(2,027,000)	(2,032,000)	(1,375,000)
Balance at the end of period	14,813,000	18,209,000	21,141,000
Legal reserves
Changes in entity's legal reserves
Legal reserves	17,900,000	16,500,000
Reasonably possible losses in excess of amounts accrued	$ 13,000,000

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Derivative Instruments

12 Months Ended

Dec. 31, 2012

Derivative Instruments

Derivative Instruments

Note D: Derivative Instruments

The Company, which uses derivative financial instruments in its normal course of operations, has no derivative financial instruments that are held for trading purposes.

The following table presents the contract or notional amounts of the Company's derivative financial instruments:

	DECEMBER 31,
(in thousands)		2012		2011
Mortgage interest rate lock commitments	$	137,741	$	114,583
Hedging contracts:
Forward-delivery contracts	$	68,000	$	56,500

IRLCs represent loan commitments with customers at market rates generally up to 180 days before settlement. IRLCs expose the Company to market risk if mortgage rates increase. IRLCs had interest rates generally ranging from 3.3 percent to 4.5 percent at December 31, 2012 and 2011.

Hedging contracts are regularly entered into by the Company for the purpose of mitigating its exposure to movement in interest rates on IRLCs. The selection of these hedging contracts is based upon the Company's secondary marketing strategy, which establishes a risk-tolerance level. Major factors influencing the use of various hedging contracts include general market conditions, interest rates, types of mortgages originated and the percentage of IRLCs expected to fund. The market risk assumed while holding the hedging contracts generally mitigates the market risk associated with IRLCs. The Company is exposed to credit-related losses in the event of nonperformance by counterparties to certain hedging contracts. Credit risk is limited to those instances where the Company is in a net unrealized gain position. The Company manages this credit risk by entering into agreements with counterparties meeting its credit standards and by monitoring position limits.

During 2006, the Company terminated its treasury lock commitments that were deemed to be highly effective cash flow hedges related to future senior note issuances. The gain resulting from these settlements was recorded, net of income tax effect, in "Accumulated other comprehensive income" and was amortized until the Company's 6.9 percent senior notes due June 2013 were redeemed during 2012, at which time the remaining gain was amortized. The Company amortized $1.7 million of the gain in the year ended December 31, 2012, and amortized $1.2 million of the gain in each of the years ended December 31, 2011 and 2010. The income tax benefit associated with the gain was $653,000 for the year ended December 31, 2012, compared to $462,000 for each of the years ended December 31, 2011 and 2010.

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Marketable Securities, Available-for-sale

12 Months Ended

Dec. 31, 2012

Marketable Securities, Available-for-sale

Marketable Securities, Available-for-sale

Note E: Marketable Securities, Available-for-sale

The Company's investment portfolio includes U.S. Treasury securities; obligations of U.S. government and local government agencies; corporate debt backed by U.S. government/agency programs; corporate debt securities; asset-backed securities of U.S. government agencies and covered bonds; time deposits; and short-term pooled investments. These investments are primarily held in the custody of a single financial institution. Time deposits and short-term pooled investments, which are not considered cash equivalents, have original maturities in excess of 90 days. The Company considers its investment portfolio to be available-for-sale as defined in ASC No. 320 ("ASC 320"), "Investments—Debt and Equity Securities." Accordingly, these investments are recorded at their fair values. The cost of securities sold is based on an average-cost basis. Unrealized gains and losses on these investments were included in "Accumulated other comprehensive income" within the Consolidated Balance Sheets.

The Company periodically reviews its available-for-sale securities for other-than-temporary declines in fair values that are below their cost bases, as well as whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. At December 31, 2012 and 2011, the Company believed that the cost bases for its available-for-sale securities were recoverable in all material respects.

For the years ended December 31, 2012, 2011 and 2010, net realized earnings associated with the Company's investment portfolio, which includes interest, dividends, and net realized gains and losses on sales of marketable securities, totaled $2.2 million, $3.9 million and $5.8 million, respectively. These earnings were included in "Gain from marketable securities, net" within the Consolidated Statements of Earnings.

The following table displays the fair values of marketable securities, available-for-sale, by type of security:

	DECEMBER 31, 2012
(in thousands)		AMORTIZED COST		GROSS UNREALIZED GAINS		GROSS UNREALIZED LOSSES			ESTIMATED FAIR VALUE
Type of security:
U.S. Treasury securities	$	3,098	$	1	$	–		$	3,099
Obligations of U.S. and local government agencies		154,774		1,008		(489	)		155,293
Corporate debt securities		165,153		116		(75	)		165,194
Asset-backed securities		27,325		153		(164	)		27,314
Total debt securities		350,350		1,278		(728	)		350,900
Short-term pooled investments		37,127		–		(7	)		37,120
Total marketable securities, available-for-sale	$	387,477	$	1,278	$	(735	)	$	388,020

	DECEMBER 31, 2011
Type of security:
U.S. Treasury securities	$	1,557	$	–	$	(2	)	$	1,555
Obligations of U.S. and local government agencies		147,557		123		(860	)		146,820
Corporate debt securities issued under U.S. government/agency-backed programs		1,453		3		–			1,456
Corporate debt securities		126,088		101		(523	)		125,666
Asset-backed securities		46,198		42		(496	)		45,744
Total debt securities		322,853		269		(1,881	)		321,241
Time deposits		25,500		–		–			25,500
Short-term pooled investments		275		–		–			275
Total marketable securities, available-for-sale	$	348,628	$	269	$	(1,881	)	$	347,016

The primary objectives of the Company's investment portfolio are safety of principal and liquidity. Investments are made with the purpose of achieving the highest rate of return consistent with these two objectives. The Company's investment policy limits investments to debt rated investment grade or better, as well as to bank and money market instruments and to issues by the U.S. government, U.S. government agencies and municipal or other institutions primarily with investment-grade credit ratings. Policy restrictions are placed on maturities, as well as on concentration by type and issuer.

The following table displays the fair values of marketable securities, available-for-sale, by contractual maturity:

	DECEMBER 31,
(in thousands)		2012		2011
Contractual maturity:
Maturing in one year or less	$	68,347	$	167,413
Maturing after one year through three years		257,595		120,952
Maturing after three years		24,958		32,876
Total debt securities		350,900		321,241
Time deposits and short-term pooled investments		37,120		25,775
Total marketable securities, available-for-sale	$	388,020	$	347,016

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Debt and Credit Facilities

12 Months Ended

Dec. 31, 2012

Debt and Credit Facilities

Debt and Credit Facilities

Note G: Debt and Credit Facilities

The following table presents the composition of the Company's homebuilder debt and its financial services credit facility at December 31, 2012 and 2011:

(in thousands)		2012			2011
Senior notes
6.9 percent senior notes due June 2013	$	–		$	167,182
5.4 percent senior notes due January 2015		126,481			126,481
8.4 percent senior notes due May 2017		230,000			230,000
1.6 percent convertible senior notes due May 2018		225,000			–
6.6 percent senior notes due May 2020		300,000			300,000
5.4 percent senior notes due October 2022		250,000			–
Total senior notes		1,131,481			823,663
Debt discount		(3,000	)		(3,647	)
Senior notes, net		1,128,481			820,016
Secured notes payable		5,987			3,811
Total debt	$	1,134,468		$	823,827
Financial services credit facility	$	–		$	49,933

At December 31, 2012, maturities of the Company's homebuilder debt were scheduled as follows:

(in thousands)
2013	$	4,054
2014		300
2015		126,494
2016		1,620
2017		230,000
After 2017		775,000
Total	$	1,137,468

At December 31, 2012, the Company had outstanding (a) $126.5 million of 5.4 percent senior notes due January 2015; (b) $230.0 million of 8.4 percent senior notes due May 2017; (c) $225.0 million of 1.6 percent convertible senior notes due May 2018; (d) $300.0 million of 6.6 percent senior notes due May 2020; and (e) $250.0 million of 5.4 percent senior notes due October 2022. Each of the senior notes pays interest semiannually and all, except for the convertible senior notes, may be redeemed at a stated redemption price, in whole or in part, at the option of the Company at any time.

During 2012, the Company issued $250.0 million of 5.4 percent senior notes due October 2022. The Company will pay interest on the notes on April 1 and October 1 of each year, commencing on April 1, 2013. The Company will use the $246.6 million in net proceeds that it received from this offering for general corporate purposes, which may include the repayment or repurchase of outstanding debt or the purchase of marketable securities.

Additionally during 2012, the Company issued $225.0 million of 1.6 percent convertible senior notes due May 2018. The Company will pay interest on the notes on May 15 and November 15 of each year, which commenced on November 15, 2012. The Company received net proceeds of $218.8 million from this offering prior to offering expenses. A portion of the proceeds was used for debt redemption, and the remaining proceeds will be used for general corporate purposes. At any time prior to the close of business on the business day immediately preceding the stated maturity date, holders may convert all or any portion of their convertible senior notes. These notes will mature on May 15, 2018, unless converted earlier by the holder, at its option, or purchased by the Company upon the occurrence of a fundamental change. These notes are initially convertible into shares of the Company's common stock at a conversion rate of 31.2 shares per $1,000 of their principal amount. This corresponds to an initial conversion price of approximately $32.03 per share and represents a conversion premium of approximately 42.5 percent, based on the closing price of the Company's common stock on May 10, 2012, which was $22.48 per share. The conversion rate is subject to adjustment for certain events, including subdivisions and combinations of the Company's common stock; the issuance to all or substantially all holders of its common stock of stock dividends; certain rights; options or warrants; capital stock; indebtedness; assets or cash; and certain issuer tender or exchange offers. The conversion rate will not, however, be adjusted for other events, such as a third-party tender or exchange offer or an issuance of common stock for cash or an acquisition, that may adversely affect the trading price of the notes or the common stock, should an event that adversely affects the value of these notes occur, that event may not result in an adjustment to the conversion rate. These events are considered standard anti-dilution provisions under a conventional convertible debt security.

For the year ended December 31, 2012, the Company paid $177.2 million to redeem and repurchase $167.2 million of its 6.9 percent senior notes due June 2013, resulting in a loss of $9.1 million. For the year ended December 31, 2011, the Company's repurchases of its senior notes totaled $51.5 million in the open market, for which it paid $52.9 million, resulting in a loss of $1.6 million. For the year ended December 31, 2010, the Company's repurchases of its senior notes totaled $27.0 million in the open market, for which it paid $26.6 million, resulting in a net gain of $196,000. The gains or losses resulting from these debt repurchases were included in "Loss related to early retirement of debt, net" within the Consolidated Statements of Earnings.

During 2010, the Company issued $300.0 million of 6.6 percent senior notes due May 2020. The Company used the proceeds from the sale of these notes to purchase existing notes pursuant to the tender offer and redemption, as well as to pay related fees and expenses. The Company will pay interest on the notes on May 1 and November 1 of each year, which commenced on November 1, 2010. The notes will mature on May 1, 2020, and are redeemable at stated redemption prices, in whole or in part, at any time.

Additionally in 2010, the Company redeemed and repurchased, pursuant to a tender offer and redemption, an aggregate $255.7 million of its senior notes due 2012, 2013 and 2015 for $273.9 million in cash. It recognized a charge of $19.5 million resulting from the tender offer and redemption, which was included in "Loss related to early retirement of debt, net" within the Consolidated Statements of Earnings.

To provide letters of credit required in the ordinary course of its business, the Company has various secured letter of credit agreements that require it to maintain restricted cash deposits for outstanding letters of credit. Outstanding letters of credit totaled $79.5 million and $66.0 million under these agreements at December 31, 2012 and 2011, respectively.

To finance its land purchases, the Company may also use seller-financed nonrecourse secured notes payable. At December 31, 2012 and 2011, outstanding seller-financed nonrecourse secured notes payable totaled $6.0 million and $3.8 million, respectively.

Senior notes and indenture agreements are subject to certain covenants that include, among other things, restrictions on additional secured debt and the sale of assets. The Company was in compliance with these covenants at December 31, 2012.

During 2011, RMC entered into a $50.0 million repurchase credit facility with JPM. This facility is used to fund, and is secured by, mortgages that were originated by RMC and are pending sale. During 2012, this facility was increased to $75.0 million and extended to December 2013. Under the terms of this facility, RMC is required to maintain various financial and other covenants and to satisfy certain requirements relating to the mortgages securing the facility. At December 31, 2012, the Company was in compliance with these covenants. The Company had no outstanding borrowings against this credit facility at December 31, 2012, compared to outstanding borrowings against this credit facility that totaled $49.9 million at December 31, 2011.

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Supplemental Guarantor Information (Details 4) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
ASSETS
Cash and cash equivalents	$ 155,692	$ 159,113
Marketable securities and restricted cash	458,913	404,065
Consolidated inventory owned	1,037,928	744,060
Consolidated inventory not owned	39,490	51,400
Total housing inventories	1,077,418	795,460
Other assets	239,416	185,182
Assets of discontinued operations	2,480	35,324
TOTAL ASSETS	1,933,919	1,579,144
LIABILITIES
Accounts payable and other accrued liabilities	272,155	215,257
Financial services credit facility	0	49,933
Debt	1,134,468	823,827
Intercompany payables	0	0
Liabilities of discontinued operations	1,536	6,217
TOTAL LIABILITIES	1,408,159	1,095,234
EQUITY
STOCKHOLDERS' EQUITY	503,936	449,687	499,856	581,862
NONCONTROLLING INTEREST	21,824	34,223	61,806
TOTAL LIABILITIES AND EQUITY	1,933,919	1,579,144
TRG, INC.
ASSETS
Cash and cash equivalents	29,735	25,403
Marketable securities and restricted cash	431,452	370,975
Consolidated inventory owned	643,619	470,269
Consolidated inventory not owned	17,666	17,177
Total housing inventories	661,285	487,446
Investment in subsidiaries	244,917	230,432
Intercompany receivables	368,126	226,521
Other assets	76,183	56,758
Assets of discontinued operations	187	8,853
TOTAL ASSETS	1,811,885	1,406,388
LIABILITIES
Accounts payable and other accrued liabilities	172,906	131,879
Financial services credit facility	0	0
Debt	1,134,468	822,639
Intercompany payables	0	0
Liabilities of discontinued operations	575	2,183
TOTAL LIABILITIES	1,307,949	956,701
EQUITY
STOCKHOLDERS' EQUITY	503,936	449,687
NONCONTROLLING INTEREST	0	0
TOTAL LIABILITIES AND EQUITY	1,811,885	1,406,388
GUARANTOR SUBSIDIARIES
ASSETS
Cash and cash equivalents	117,838	117,072
Marketable securities and restricted cash	0	0
Consolidated inventory owned	394,309	273,791
Consolidated inventory not owned	0	0
Total housing inventories	394,309	273,791
Other assets	43,572	34,045
Assets of discontinued operations	2,293	26,471
TOTAL ASSETS	558,012	451,379
LIABILITIES
Accounts payable and other accrued liabilities	68,929	48,750
Financial services credit facility	0	0
Debt	0	1,188
Intercompany payables	275,163	196,767
Liabilities of discontinued operations	961	4,034
TOTAL LIABILITIES	345,053	250,739
EQUITY
STOCKHOLDERS' EQUITY	212,959	200,640
NONCONTROLLING INTEREST	0	0
TOTAL LIABILITIES AND EQUITY	558,012	451,379
NON-GUARANTOR SUBSIDIARIES
ASSETS
Cash and cash equivalents	8,119	16,638
Marketable securities and restricted cash	27,461	33,090
Consolidated inventory owned	0	0
Consolidated inventory not owned	21,824	34,223
Total housing inventories	21,824	34,223
Other assets	119,661	94,379
Assets of discontinued operations	0	0
TOTAL ASSETS	177,065	178,330
LIABILITIES
Accounts payable and other accrued liabilities	30,320	34,628
Financial services credit facility	0	49,933
Debt	0	0
Intercompany payables	92,963	29,754
Liabilities of discontinued operations	0	0
TOTAL LIABILITIES	123,283	114,315
EQUITY
STOCKHOLDERS' EQUITY	31,958	29,792
NONCONTROLLING INTEREST	21,824	34,223
TOTAL LIABILITIES AND EQUITY	177,065	178,330
CONSOLIDATING ELIMINATIONS
ASSETS
Cash and cash equivalents	0	0
Marketable securities and restricted cash	0	0
Consolidated inventory owned	0	0
Consolidated inventory not owned	0	0
Total housing inventories	0	0
Investment in subsidiaries	(244,917)	(230,432)
Intercompany receivables	(368,126)	(226,521)
Other assets	0	0
Assets of discontinued operations	0	0
TOTAL ASSETS	(613,043)	(456,953)
LIABILITIES
Accounts payable and other accrued liabilities	0	0
Financial services credit facility	0	0
Debt	0	0
Intercompany payables	(368,126)	(226,521)
Liabilities of discontinued operations	0	0
TOTAL LIABILITIES	(368,126)	(226,521)
EQUITY
STOCKHOLDERS' EQUITY	(244,917)	(230,432)
NONCONTROLLING INTEREST	0	0
TOTAL LIABILITIES AND EQUITY	$ (613,043)	$ (456,953)

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Discontinued Operations (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
Assets
Cash and cash equivalents - discontinued operations	$ 27				$ 56				$ 27	$ 56	$ 39	$ 39
Total assets of discontinued operations	2,480				35,324				2,480	35,324
Liabilities
Total liabilities of discontinued operations	1,536				6,217				1,536	6,217
Loss from discontinued operations, net of taxes	(374)	238	223	(2,087)	(451)	(17,423)	(912)	(2,097)	(2,000)	(20,883)	(4,447)
Jacksonville and Dallas divisions
Assets
Cash and cash equivalents - discontinued operations	27				56				27	56
Housing Inventories	2,239				30,670				2,239	30,670
Other assets	214				4,598				214	4,598
Total assets of discontinued operations	2,480				35,324				2,480	35,324
Liabilities
Accounts payable and accrued liabilities	1,536				6,217				1,536	6,217
Total liabilities of discontinued operations	1,536				6,217				1,536	6,217
Loss from discontinued operations, net of taxes									$ (2,000)	$ (20,900)	$ (4,400)

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Supplemental Guarantor Information (Details 3) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Consolidating statements of other comprehensive income
Net income (loss)	$ 28,573	$ 10,645	$ 6,272	$ (5,108)	$ 812	$ (21,313)	$ (10,713)	$ (19,536)	$ 40,382	$ (50,750)	$ (85,139)
Other comprehensive loss before tax:
Reduction of unrealized gain related to cash flow hedging instruments									(1,709)	(1,207)	(1,207)
Unrealized gain (loss) on marketable securities, available-for-sale:
Unrealized gain									1,217	360	1,750
Less: reclassification adjustments for gains included in net income (loss)									(233)	(1,358)	(2,558)
Total unrealized gains (losses) on marketable securities, available-for-sale									984	(998)	(808)
Other comprehensive loss before tax									(725)	(2,205)	(2,015)
Income tax benefit related to items of other comprehensive loss									653	502	771
Other comprehensive loss, net of tax									(72)	(1,703)	(1,244)
Comprehensive income (loss)									40,310	(52,453)	(86,383)
TRG, INC.
Consolidating statements of other comprehensive income
Net income (loss)									40,382	(50,750)	(85,139)
Other comprehensive loss before tax:
Reduction of unrealized gain related to cash flow hedging instruments									(1,709)	(1,207)	(1,207)
Unrealized gain (loss) on marketable securities, available-for-sale:
Unrealized gain									1,217	360	1,750
Less: reclassification adjustments for gains included in net income (loss)									(233)	(1,358)	(2,558)
Total unrealized gains (losses) on marketable securities, available-for-sale									984	(998)	(808)
Other comprehensive loss before tax									(725)	(2,205)	(2,015)
Income tax benefit related to items of other comprehensive loss									653	502	771
Other comprehensive loss, net of tax									(72)	(1,703)	(1,244)
Comprehensive income (loss)									40,310	(52,453)	(86,383)
GUARANTOR SUBSIDIARIES
Consolidating statements of other comprehensive income
Net income (loss)									12,319	(12,826)	(21,067)
Other comprehensive loss before tax:
Reduction of unrealized gain related to cash flow hedging instruments									0	0	0
Unrealized gain (loss) on marketable securities, available-for-sale:
Unrealized gain									0	0	0
Less: reclassification adjustments for gains included in net income (loss)									0	0	0
Total unrealized gains (losses) on marketable securities, available-for-sale									0	0	0
Other comprehensive loss before tax									0	0	0
Income tax benefit related to items of other comprehensive loss									0	0	0
Other comprehensive loss, net of tax									0	0	0
Comprehensive income (loss)									12,319	(12,826)	(21,067)
NON-GUARANTOR SUBSIDIARIES
Consolidating statements of other comprehensive income
Net income (loss)									12,668	5,237	847
Other comprehensive loss before tax:
Reduction of unrealized gain related to cash flow hedging instruments									0	0	0
Unrealized gain (loss) on marketable securities, available-for-sale:
Unrealized gain									0	0	0
Less: reclassification adjustments for gains included in net income (loss)									0	0	0
Total unrealized gains (losses) on marketable securities, available-for-sale									0	0	0
Other comprehensive loss before tax									0	0	0
Income tax benefit related to items of other comprehensive loss									0	0	0
Other comprehensive loss, net of tax									0	0	0
Comprehensive income (loss)									12,668	5,237	847
CONSOLIDATING ELIMINATIONS
Consolidating statements of other comprehensive income
Net income (loss)									(24,987)	7,589	20,220
Other comprehensive loss before tax:
Reduction of unrealized gain related to cash flow hedging instruments									0	0	0
Unrealized gain (loss) on marketable securities, available-for-sale:
Unrealized gain									0	0	0
Less: reclassification adjustments for gains included in net income (loss)									0	0	0
Total unrealized gains (losses) on marketable securities, available-for-sale									0	0	0
Other comprehensive loss before tax									0	0	0
Income tax benefit related to items of other comprehensive loss									0	0	0
Other comprehensive loss, net of tax									0	0	0
Comprehensive income (loss)									$ (24,987)	$ 7,589	$ 20,220

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Stock-Based Compensation (Tables)

12 Months Ended

Dec. 31, 2012

Stock-Based Compensation

Summary of stock option activity

	SHARES			WEIGHTED- AVERAGE EXERCISE PRICE	WEIGHTED- AVERAGE REMAINING CONTRACTUAL LIFE (in years)		AGGREGATE INTRINSIC VALUE (in thousands)
Options outstanding at January 1, 2010	3,693,697		$	36.43	3.1
Granted	846,000			23.30
Exercised	(200,758	)		8.62
Forfeited	(616,283	)		46.46
Options outstanding at December 31, 2010	3,722,656		$	33.29	2.8	$	1,315
Available for future grant	1,477,072
Total shares reserved at December 31, 2010	5,199,728
Options exercisable at December 31, 2010	2,580,526		$	38.23	2.3	$	588
Options outstanding at January 1, 2011	3,722,656		$	33.29	2.8
Granted	781,000			16.52
Exercised	(44,398	)		11.97
Forfeited	(510,384	)		43.36
Options outstanding at December 31, 2011	3,948,874		$	28.91	2.4	$	553
Available for future grant	3,346,508
Total shares reserved at December 31, 2011	7,295,382
Options exercisable at December 31, 2011	2,574,246		$	34.35	1.7	$	369
Options outstanding at January 1, 2012	3,948,874		$	28.91	2.4
Granted	756,000			18.55
Exercised	(568,293	)		18.89
Forfeited	(717,158	)		35.38
Options outstanding at December 31, 2012	3,419,423		$	26.92	2.9	$	42,992
Available for future grant	3,016,108
Total shares reserved at December 31, 2012	6,435,531
Options exercisable at December 31, 2012	1,967,786		$	33.10	1.6	$	16,939

Summary of stock options outstanding and exercisable

	OPTIONS OUTSTANDING					OPTIONS EXERCISABLE
RANGE OF EXERCISE PRICES		NUMBER OUTSTANDING	WEIGHTED- AVERAGE REMAINING LIFE (in years)		WEIGHTED- AVERAGE EXERCISE PRICE		NUMBER EXERCISABLE		WEIGHTED- AVERAGE EXERCISE PRICE
$14.13 to $18.22		1,638,376	4.2	$	16.96		417,067	$	15.24
$20.99 to $37.37		1,012,603	1.6		25.66		782,275		26.18
$40.00 to $72.13		768,444	1.6		49.84		768,444		49.84

Summary of weighted-average inputs used and grant date fair values determined for stock options granted

		2012			2011			2010
Expected volatility		49.3	%		51.0	%		53.6	%
Expected dividend yield		0.7	%		0.7	%		0.5	%
Expected term (in years)		4.5			3.5			3.5
Risk-free rate		0.8	%		1.4	%		1.6	%
Weighted-average grant-date fair value	$	7.21		$	6.02		$	9.05

Summary of the Company's nonvested options

	2012					2011					2010
		SHARES			WEIGHTED- AVERAGE GRANT-DATE FAIR VALUE		SHARES			WEIGHTED- AVERAGE GRANT-DATE FAIR VALUE		SHARES			WEIGHTED- AVERAGE GRANT-DATE FAIR VALUE
Nonvested options outstanding at January 1		1,374,628		$	7.00		1,142,130		$	8.31		883,398		$	8.23
Granted		756,000			7.21		781,000			6.02		846,000			9.05
Vested		(611,659	)		7.03		(498,507	)		8.37		(425,107	)		9.44
Forfeited		(67,332	)		7.47		(49,995	)		7.89		(162,161	)		8.79
Nonvested options outstanding at December 31		1,451,637		$	7.08		1,374,628		$	7.00		1,142,130		$	8.31

Summary of activity that relates to the Company's restricted stock unit awards

	2012		2011		2010
Restricted stock units at January 1	657,825		727,317		609,812
Shares awarded	473,408		305,000		404,000
Shares vested	(350,349	)	(314,492	)	(235,496	)
Shares forfeited	(6,667	)	(60,000	)	(50,999	)
Restricted stock units at December 31	774,217		657,825		727,317

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Debt and Credit Facilities (Details) (USD $)	12 Months Ended											12 Months Ended			12 Months Ended			12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2011 Senior notes	Dec. 31, 2010 Senior notes	Dec. 31, 2012 6.9 percent senior notes due June 2013	Dec. 31, 2011 6.9 percent senior notes due June 2013	Dec. 31, 2012 5.4 percent senior notes due January 2015	Dec. 31, 2011 5.4 percent senior notes due January 2015	Dec. 31, 2012 8.4 percent senior notes due May 2017	Dec. 31, 2011 8.4 percent senior notes due May 2017	Dec. 31, 2012 1.6 percent convertible senior notes due May 2018	May 10, 2012 1.6 percent convertible senior notes due May 2018	Dec. 31, 2011 1.6 percent convertible senior notes due May 2018	Dec. 31, 2010 6.6 percent senior notes due May 2020	Dec. 31, 2012 6.6 percent senior notes due May 2020	Dec. 31, 2011 6.6 percent senior notes due May 2020	Dec. 31, 2012 5.4 percent senior notes due October 2022	Dec. 31, 2011 5.4 percent senior notes due October 2022	Dec. 31, 2012 Seller-financed nonrecourse notes	Dec. 31, 2011 Seller-financed nonrecourse notes	Dec. 31, 2012 Repurchase credit facility JPMorgan Chase Bank, N.A. ("JPM")	Dec. 31, 2011 Repurchase credit facility JPMorgan Chase Bank, N.A. ("JPM")
Debt
Total senior notes	$ 1,131,481,000	$ 823,663,000				$ 0	$ 167,182,000	$ 126,481,000	$ 126,481,000	$ 230,000,000	$ 230,000,000	$ 225,000,000		$ 0		$ 300,000,000	$ 300,000,000	$ 250,000,000	$ 0
Debt discount	(3,000,000)	(3,647,000)
Senior notes, net	1,128,481,000	820,016,000
Secured notes payable	5,987,000	3,811,000																		5,987,000	3,811,000
Total debt	1,134,468,000	823,827,000
Financial services credit facility	0	49,933,000																				0	49,900,000
Maturities of debt
2013	4,054,000
2014	300,000
2015	126,494,000
2016	1,620,000
2017	230,000,000
After 2017	775,000,000
Total homebuilder debt and financial services credit facility	1,137,468,000
Other debt disclosures
Interest rate stated percentage						6.90%		5.40%		8.40%		1.60%				6.60%		5.40%
Net proceeds from senior notes	475,000,000	0	300,000,000															246,600,000
Principal amount of senior notes issued												225,000,000			300,000,000			250,000,000
Conversion ratio of debt instrument per $1,000 principal amount												0.0312
Debt instrument, initial conversion price (in dollars per share)												$ 32.03
Debt instrument, conversion premium (as a percent)												42.50%
Closing price of common stock (in dollars per share)													$ 22.48
Net proceeds from offering												218,800,000
Face value of additional debt instrument redeemed					255,700,000
Cash paid for redemption and repurchase of additional senior notes					273,900,000
Charges resulting from the tender offer and redemption					19,500,000
Face value of debt instrument redeemed and repurchased				51,500,000	27,000,000	177,200,000
Cash paid for redemption and repurchase of senior notes	177,219,000	52,917,000	300,554,000	52,900,000	26,600,000	167,200,000
(Loss) gain on repurchase of debt	(9,146,000)	(1,608,000)	(19,308,000)	(1,600,000)	196,000	(9,100,000)
Letters of credit outstanding	79,500,000	66,000,000
Maximum borrowing capacity																						$ 75,000,000	$ 50,000,000

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Supplemental Guarantor Information

12 Months Ended

Dec. 31, 2012

Supplemental Guarantor Information

Supplemental Guarantor Information

Note L: Supplemental Guarantor Information

The Company's obligations to pay principal, premium, if any, and interest under its 5.4 percent senior notes due January 2015; 8.4 percent senior notes due May 2017; 1.6 percent convertible senior notes due May 2018; 6.6 percent senior notes due May 2020; and 5.4 percent senior notes due October 2022 are guaranteed on a joint and several basis by substantially all of its 100 percent-owned homebuilding subsidiaries (the "Guarantor Subsidiaries"). Such guarantees are full and unconditional.

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

In the event a Guarantor Subsidiary is sold or disposed of (whether by merger, consolidation, sale of its capital stock or sale of all or substantially all of its assets [other than by lease]), and whether or not the Guarantor Subsidiary is the surviving corporation in such transaction, to a Person which is not Ryland or a Restricted Subsidiary of Ryland, such Guarantor Subsidiary will be released from its obligations under its guarantee if (a) the sale or other disposition is in compliance with the indenture and (b) all the obligations of such Guarantor Subsidiary under any agreements relating to any other indebtedness of Ryland or its restricted subsidiaries terminate upon consummation of such transaction. In addition, a Guarantor Subsidiary will be released from its obligations under the indenture if such Subsidiary ceases to be a Restricted Subsidiary (in compliance with the applicable provisions of the indenture).

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

CONSOLIDATING STATEMENTS OF EARNINGS

	YEAR ENDED DECEMBER 31, 2012
(in thousands)		TRG, INC.			GUARANTOR SUBSIDIARIES			NON- GUARANTOR SUBSIDIARIES		CONSOLIDATING ELIMINATIONS			CONSOLIDATED TOTAL
REVENUES	$	711,947		$	562,181		$	37,619	$	(3,281	)	$	1,308,466
EXPENSES		688,026			548,345			24,477		(3,281	)		1,257,567
OTHER LOSS		(6,932	)		–			–		–			(6,932	)
Income from continuing operations before taxes		16,989			13,836			13,142		–			43,967
Tax expense		612			499			474		–			1,585
Equity in net earnings of subsidiaries		26,005			–			–		(26,005	)		–
Net income from continuing operations		42,382			13,337			12,668		(26,005	)		42,382
Loss from discontinued operations, net of taxes		(2,000	)		(1,018	)		–		1,018			(2,000	)
NET INCOME	$	40,382		$	12,319		$	12,668	$	(24,987	)	$	40,382

		YEAR ENDED DECEMBER 31, 2011
REVENUES	$	458,500		$	404,104		$	26,927	$	–	$	889,531
EXPENSES		491,505			411,844			21,188		–		924,537
OTHER INCOME		2,274			–			–		–		2,274
(Loss) income from continuing operations before taxes		(30,731	)		(7,740	)		5,739		–		(32,732	)
Tax (benefit) expense		(2,690	)		(677	)		502		–		(2,865	)
Equity in net loss of subsidiaries		(1,826	)		–			–		1,826		–
Net (loss) income from continuing operations		(29,867	)		(7,063	)		5,237		1,826		(29,867	)
Loss from discontinued operations, net of taxes		(20,883	)		(5,763	)		–		5,763		(20,883	)
NET (LOSS) INCOME	$	(50,750	)	$	(12,826	)	$	5,237	$	7,589	$	(50,750	)

		YEAR ENDED DECEMBER 31, 2010
REVENUES	$	539,184		$	430,634		$	31,007		$	–	$	1,000,825
EXPENSES		587,638			449,988			30,162			–		1,067,788
OTHER LOSS		(13,534	)		–			–			–		(13,534	)
(Loss) income from continuing operations before taxes		(61,988	)		(19,354	)		845			–		(80,497	)
Tax expense (benefit)		149			48			(2	)		–		195
Equity in net loss of subsidiaries		(18,555	)		–			–			18,555		–
Net (loss) income from continuing operations		(80,692	)		(19,402	)		847			18,555		(80,692	)
Loss from discontinued operations, net of taxes		(4,447	)		(1,665	)		–			1,665		(4,447	)
NET (LOSS) INCOME	$	(85,139	)	$	(21,067	)	$	847		$	20,220	$	(85,139	)

CONSOLIDATING STATEMENTS OF OTHER COMPREHENSIVE INCOME

	YEAR ENDED DECEMBER 31, 2012
(in thousands)		TRG, INC.			GUARANTOR SUBSIDIARIES		NON- GUARANTOR SUBSIDIARIES		CONSOLIDATING ELIMINATIONS			CONSOLIDATED TOTAL
Net income	$	40,382		$	12,319	$	12,668	$	(24,987	)	$	40,382
Other comprehensive loss before tax:
Reduction of unrealized gain related to cash flow hedging instruments		(1,709	)		–		–		–			(1,709	)
Unrealized gain on marketable securities, available-for-sale:
Unrealized gain		1,217			–		–		–			1,217
Less: reclassification adjustments for gains included in net income		(233	)		–		–		–			(233	)
		984			–		–		–			984
Other comprehensive loss before tax		(725	)		–		–		–			(725	)
Income tax benefit related to items of other comprehensive loss		653										653
Other comprehensive loss, net of tax		(72	)		–		–		–			(72	)
Comprehensive income	$	40,310		$	12,319	$	12,668	$	(24,987	)	$	40,310

		YEAR ENDED DECEMBER 31, 2011
Net (loss) income	$	(50,750	)	$	(12,826	)	$	5,237	$	7,589	$	(50,750	)
Other comprehensive loss before tax:
Reduction of unrealized gain related to cash flow hedging instruments		(1,207	)		–			–		–		(1,207	)
Unrealized loss on marketable securities, available-for-sale:
Unrealized gain		360			–			–		–		360
Less: reclassification adjustments for gains included in net (loss) income		(1,358	)		–			–		–		(1,358	)
		(998	)		–			–		–		(998	)
Other comprehensive loss before tax		(2,205	)		–			–		–		(2,205	)
Income tax benefit related to items of other comprehensive loss		502			–			–		–		502
Other comprehensive loss, net of tax		(1,703	)		–			–		–		(1,703	)
Comprehensive (loss) income	$	(52,453	)	$	(12,826	)	$	5,237	$	7,589	$	(52,453	)

		YEAR ENDED DECEMBER 31, 2010
Net (loss) income	$	(85,139	)	$	(21,067	)	$	847	$	20,220	$	(85,139	)
Other comprehensive loss before tax:
Reduction of unrealized gain related to cash flow hedging instruments		(1,207	)		–			–		–		(1,207	)
Unrealized loss on marketable securities, available-for-sale:
Unrealized gain		1,750			–			–		–		1,750
Less: reclassification adjustments for gains included in net (loss) income		(2,558	)		–			–		–		(2,558	)
		(808	)		–			–		–		(808	)
Other comprehensive loss before tax		(2,015	)		–			–		–		(2,015	)
Income tax benefit related to items of other comprehensive loss		771			–			–		–		771
Other comprehensive loss, net of tax		(1,244	)		–			–		–		(1,244	)
Comprehensive (loss) income	$	(86,383	)	$	(21,067	)	$	847	$	20,220	$	(86,383	)

CONSOLIDATING BALANCE SHEETS

	DECEMBER 31, 2012
(in thousands)		TRG, INC.		GUARANTOR SUBSIDIARIES		NON- GUARANTOR SUBSIDIARIES		CONSOLIDATING ELIMINATIONS			CONSOLIDATED TOTAL
ASSETS
Cash and cash equivalents	$	29,735	$	117,838	$	8,119	$	–		$	155,692
Marketable securities and restricted cash		431,452		–		27,461		–			458,913
Consolidated inventory owned		643,619		394,309		–		–			1,037,928
Consolidated inventory not owned		17,666		–		21,824		–			39,490
Total housing inventories		661,285		394,309		21,824		–			1,077,418
Investment in subsidiaries		244,917		–		–		(244,917	)		–
Intercompany receivables		368,126		–		–		(368,126	)		–
Other assets		76,183		43,572		119,661		–			239,416
Assets of discontinued operations		187		2,293		–		–			2,480
TOTAL ASSETS		1,811,885		558,012		177,065		(613,043	)		1,933,919
LIABILITIES
Accounts payable and other accrued liabilities		172,906		68,929		30,320		–			272,155
Financial services credit facility		–		–		–		–			–
Debt		1,134,468		–		–		–			1,134,468
Intercompany payables		–		275,163		92,963		(368,126	)		–
Liabilities of discontinued operations		575		961		–		–			1,536
TOTAL LIABILITIES		1,307,949		345,053		123,283		(368,126	)		1,408,159
EQUITY
STOCKHOLDERS' EQUITY		503,936		212,959		31,958		(244,917	)		503,936
NONCONTROLLING INTEREST		–		–		21,824		–			21,824
TOTAL LIABILITIES AND EQUITY	$	1,811,885	$	558,012	$	177,065	$	(613,043	)	$	1,933,919

		DECEMBER 31, 2011
ASSETS
Cash and cash equivalents	$	25,403	$	117,072	$	16,638	$	–		$	159,113
Marketable securities and restricted cash		370,975		–		33,090		–			404,065
Consolidated inventory owned		470,269		273,791		–		–			744,060
Consolidated inventory not owned		17,177		–		34,223		–			51,400
Total housing inventories		487,446		273,791		34,223		–			795,460
Investment in subsidiaries		230,432		–		–		(230,432	)		–
Intercompany receivables		226,521		–		–		(226,521	)		–
Other assets		56,758		34,045		94,379		–			185,182
Assets of discontinued operations		8,853		26,471		–		–			35,324
TOTAL ASSETS		1,406,388		451,379		178,330		(456,953	)		1,579,144
LIABILITIES
Accounts payable and other accrued liabilities		131,879		48,750		34,628		–			215,257
Financial services credit facility		–		–		49,933		–			49,933
Debt		822,639		1,188		–		–			823,827
Intercompany payables		–		196,767		29,754		(226,521	)		–
Liabilities of discontinued operations		2,183		4,034		–		–			6,217
TOTAL LIABILITIES		956,701		250,739		114,315		(226,521	)		1,095,234
EQUITY
STOCKHOLDERS' EQUITY		449,687		200,640		29,792		(230,432	)		449,687
NONCONTROLLING INTEREST		–		–		34,223		–			34,223
TOTAL LIABILITIES AND EQUITY	$	1,406,388	$	451,379	$	178,330	$	(456,953	)	$	1,579,144

CONSOLIDATING STATEMENTS OF CASH FLOWS

	YEAR ENDED DECEMBER 31, 2012
(in thousands)		TRG, INC.			GUARANTOR SUBSIDIARIES			NON- GUARANTOR SUBSIDIARIES			CONSOLIDATING ELIMINATIONS			CONSOLIDATED TOTAL
CASH FLOWS FROM OPERATING ACTIVITIES
Net income from continuing operations	$	42,382		$	13,337		$	12,668		$	(26,005	)	$	42,382
Adjustments to reconcile net income from continuing operations to net cash used for operating activities		27,209			7,873			500			–			35,582
Changes in assets and liabilities		(168,994	)		(94,450	)		(40,608	)		26,005			(278,047	)
Other operating activities, net		(792	)		–			–			–			(792	)
Net cash used for operating activities from continuing operations		(100,195	)		(73,240	)		(27,440	)		–			(200,875	)
CASH FLOWS FROM INVESTING ACTIVITIES
Return of investment in unconsolidated joint ventures, net		708			1,602			–			–			2,310
Additions to property, plant and equipment		(7,838	)		(4,804	)		(68	)		–			(12,710	)
Purchases of marketable securities, available-for-sale		(1,168,833	)		–			(5,481	)		–			(1,174,314	)
Proceeds from sales and maturities of marketable securities, available-for-sale		1,130,653			–			6,293			–			1,136,946
Other investing activities, net		–			–			109			–			109
Net cash (used for) provided by investing activities from continuing operations		(45,310	)		(3,202	)		853			–			(47,659	)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in senior debt and short-term borrowings, net		301,145			(1,188	)		(22	)		–			299,935
Decrease in borrowings against revolving credit facilities, net		–			–			(49,933	)		–			(49,933	)
Common stock dividends and stock-based compensation		8,955			–			–			–			8,955
(Increase) decrease in restricted cash		(18,658	)		–			4,814			–			(13,844	)
Intercompany balances		(141,605	)		78,396			63,209			–			–
Net cash provided by financing activities from continuing operations		149,837			77,208			18,068			–			245,113
Net increase (decrease) in cash and cash equivalents from continuing operations		4,332			766			(8,519	)		–			(3,421	)
Cash flows from operating activities—discontinued operations		(31	)		(73	)		–			–			(104	)
Cash flows from investing activities—discontinued operations		4			71			–			–			75
Cash flows from financing activities—discontinued operations		–			–			–			–			–
Cash and cash equivalents at beginning of year		25,430			117,101			16,638			–			159,169
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	29,735		$	117,865		$	8,119		$	–		$	155,719

	YEAR ENDED DECEMBER 31, 2011
(in thousands)		TRG, INC.			GUARANTOR SUBSIDIARIES			NON- GUARANTOR SUBSIDIARIES			CONSOLIDATING ELIMINATIONS			CONSOLIDATED TOTAL
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income from continuing operations	$	(29,867	)	$	(7,063	)	$	5,237		$	1,826		$	(29,867	)
Adjustments to reconcile net (loss) income from continuing operations to net cash used for operating activities		50,860			6,564			588			–			58,012
Changes in assets and liabilities		(57,722	)		(40,741	)		(84,536	)		(1,826	)		(184,825	)
Other operating activities, net		(988	)		–			–			–			(988	)
Net cash used for operating activities from continuing operations		(37,717	)		(41,240	)		(78,711	)		–			(157,668	)
CASH FLOWS FROM INVESTING ACTIVITIES
(Contributions to) return of investment in unconsolidated joint ventures, net		(912	)		2,867			–			–			1,955
Additions to property, plant and equipment		(7,368	)		(3,443	)		(153	)		–			(10,964	)
Purchases of marketable securities, available-for-sale		(1,303,185	)		–			(5,387	)		–			(1,308,572	)
Proceeds from sales and maturities of marketable securities, available-for-sale		1,393,210			–			6,564			–			1,399,774
Other investing activities, net		–			–			118			–			118
Net cash provided by (used for) investing activities from continuing operations		81,745			(576	)		1,142			–			82,311
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in senior debt and short-term borrowings, net		(55,243	)		(2,784	)		–			–			(58,027	)
Increase in borrowings against revolving credit facilities, net		–			–			49,933			–			49,933
Common stock dividends and stock-based compensation		(1,783	)		–			–			–			(1,783	)
Decrease (increase) in restricted cash		18,315			–			(326	)		–			17,989
Intercompany balances		(6,625	)		(15,480	)		22,105			–			–
Net cash (used for) provided by financing activities from continuing operations		(45,336	)		(18,264	)		71,712			–			8,112
Net decrease in cash and cash equivalents from continuing operations		(1,308	)		(60,080	)		(5,857	)		–			(67,245	)
Cash flows from operating activities—discontinued operations		353			116			–			–			469
Cash flows from investing activities—discontinued operations		(237	)		(126	)		–			–			(363	)
Cash flows from financing activities—discontinued operations		(89	)		–			–			–			(89	)
Cash and cash equivalents at beginning of year		26,711			177,191			22,495			–			226,397
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	25,430		$	117,101		$	16,638		$	–		$	159,169

	YEAR ENDED DECEMBER 31, 2010
(in thousands)		TRG, INC.			GUARANTOR SUBSIDIARIES			NON- GUARANTOR SUBSIDIARIES			CONSOLIDATING ELIMINATIONS			CONSOLIDATED TOTAL
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income from continuing operations	$	(80,692	)	$	(19,402	)	$	847		$	18,555		$	(80,692	)
Adjustments to reconcile net (loss) income from continuing operations to net cash used for operating activities		102,567			15,280			877			–			118,724
Changes in assets and liabilities		(43,237	)		(26,916	)		(16,399	)		(18,555	)		(105,107	)
Other operating activities, net		2,093			(2,550	)		–			–			(457	)
Net cash used for operating activities from continuing operations		(19,269	)		(33,588	)		(14,675	)		–			(67,532	)
CASH FLOWS FROM INVESTING ACTIVITIES
(Contributions to) return of investment in unconsolidated joint ventures, net		(6,443	)		2,400			–			–			(4,043	)
Additions to property, plant and equipment		(6,184	)		(6,206	)		(33	)		–			(12,423	)
Purchases of marketable securities, available-for-sale		(1,314,086	)		(400,583	)		(5,804	)		–			(1,720,473	)
Proceeds from sales and maturities of marketable securities, available-for-sale		1,358,315			375,906			8,692			–			1,742,913
Other investing activities, net		–			–			10			–			10
Net cash provided by (used for) investing activities from continuing operations		31,602			(28,483	)		2,865			–			5,984
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in senior debt and short-term borrowings, net		2,475			3,972			–			–			6,447
Common stock dividends and stock-based compensation		(516	)		–			–			–			(516	)
(Increase) decrease in restricted cash		(13,470	)		10,468			67			–			(2,935	)
Intercompany balances		23,957			(34,218	)		10,261			–			–
Net cash provided by (used for) financing activities from continuing operations		12,446			(19,778	)		10,328			–			2,996
Net increase (decrease) in cash and cash equivalents from continuing operations		24,779			(81,849	)		(1,482	)		–			(58,552	)
Cash flows from operating activities—discontinued operations		1,891			161			–			–			2,052
Cash flows from investing activities—discontinued operations		(390	)		(161	)		–			–			(551	)
Cash flows from financing activities—discontinued operations		(1,501	)		–			–			–			(1,501	)
Cash and cash equivalents at beginning of year		1,932			259,040			23,977			–			284,949
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	26,711		$	177,191		$	22,495		$	–		$	226,397

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Summary of Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2012

Summary of Significant Accounting Policies

Summary of activity that relates to capitalized interest

(in thousands)		2012			2011			2010
Capitalized interest at January 1	$	81,058		$	75,094		$	84,664
Interest capitalized		42,327			38,032			31,221
Interest amortized to cost of sales		(40,612	)		(32,068	)		(40,791	)
Capitalized interest at December 31	$	82,773		$	81,058		$	75,094

Summary of each reporting segment's total number of lots owned and lots controlled under option agreements

	DECEMBER 31, 2012				DECEMBER 31, 2011
		LOTS OWNED	LOTS OPTIONED	TOTAL		LOTS OWNED	LOTS OPTIONED	TOTAL
North		5,471	4,056	9,527		4,981	3,405	8,386
Southeast		7,268	2,121	9,389		4,933	1,894	6,827
Texas		2,438	2,667	5,105		2,486	1,081	3,567
West		2,604	1,680	4,284		1,937	862	2,799
Total		17,781	10,524	28,305		14,337	7,242	21,579

Schedule of reporting segment's total estimated share of lots owned and controlled by the entity under its joint ventures

	DECEMBER 31, 2012				DECEMBER 31, 2011
		LOTS OWNED	LOTS OPTIONED	TOTAL		LOTS OWNED	LOTS OPTIONED	TOTAL
North		145	–	145		150	–	150
Texas		–	–	–		20	–	20
West		172	–	172		172	–	172
Total		317	–	317		342	–	342

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Fair Values of Financial and Nonfinancial Instruments (Details) (USD $)	Dec. 31, 2012	Dec. 31, 2011 Loan
Fair value measurement for financial instruments
Marketable securities, available-for-sale	$ 388,020,000	$ 347,016,000
Mortgage loans held-for-sale, unpaid principal balance	103,400,000	79,700,000
Mortgage loans held-for-sale, difference between the aggregate fair value and the aggregate unpaid principal balance	4,600,000	2,700,000
Number of loans 90 days or more past due		2
Mortgage loans held-for-sale, aggregate carrying value of loans with payments 90 days or more past due	0	542,000
Mortgage loans held-for-sale, aggregate unpaid principal balance of loans with payments 90 days or more past due	0	623,000
Senior notes, net	1,128,481,000	820,016,000
U.S. Treasury securities
Fair value measurement for financial instruments
Marketable securities, available-for-sale	3,099,000	1,555,000
Obligations of U.S. and local government agencies
Fair value measurement for financial instruments
Marketable securities, available-for-sale	155,293,000	146,820,000
Corporate debt securities issued under U.S. government/agency-backed programs
Fair value measurement for financial instruments
Marketable securities, available-for-sale	0	1,456,000
Corporate debt securities
Fair value measurement for financial instruments
Marketable securities, available-for-sale	165,194,000	125,666,000
Asset-backed securities
Fair value measurement for financial instruments
Marketable securities, available-for-sale	27,314,000	45,744,000
Time deposits
Fair value measurement for financial instruments
Marketable securities, available-for-sale	0	25,500,000
Short-term pooled investments
Fair value measurement for financial instruments
Marketable securities, available-for-sale	37,120,000	275,000
Total Fair Value
Fair value measurement for financial instruments
Senior notes, net	1,300,000,000	824,600,000
Carrying value
Fair value measurement for financial instruments
Senior notes, net	1,100,000,000	820,000,000
Recurring Measurement | Levels 1 and 2 | Obligations of U.S. and local government agencies
Fair value measurement for financial instruments
Fair value of assets	155,293,000	146,820,000
Recurring Measurement | Levels 1 and 2 | Short-term pooled investments
Fair value measurement for financial instruments
Fair value of assets	37,120,000	275,000
Recurring Measurement | Level 1 | U.S. Treasury securities
Fair value measurement for financial instruments
Fair value of assets	3,099,000	1,555,000
Recurring Measurement | Level 2 | Mortgage loans held-for-sale
Fair value measurement for financial instruments
Fair value of assets	107,950,000	82,351,000
Recurring Measurement | Level 2 | Mortgage interest rate lock commitments ("IRLCs")
Fair value measurement for financial instruments
Fair value of assets	4,737,000	3,359,000
Recurring Measurement | Level 2 | Forward-delivery contracts
Fair value measurement for financial instruments
Fair value of assets	(369,000)	(1,235,000)
Recurring Measurement | Level 2 | Corporate debt securities issued under U.S. government/agency-backed programs
Fair value measurement for financial instruments
Fair value of assets	0	1,456,000
Recurring Measurement | Level 2 | Corporate debt securities
Fair value measurement for financial instruments
Fair value of assets	165,194,000	125,666,000
Recurring Measurement | Level 2 | Asset-backed securities
Fair value measurement for financial instruments
Fair value of assets	27,314,000	45,744,000
Recurring Measurement | Level 2 | Time deposits
Fair value measurement for financial instruments
Fair value of assets	$ 0	$ 25,500,000

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Summary of Significant Accounting Policies (Details 3) (USD $)	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Lot Option Purchase Disclosures
Consolidated inventory not owned	$ 39,490,000	$ 51,400,000
Noncontrolling interest	21,824,000	34,223,000	61,806,000
Primary variable interest | Lot option purchase contracts
Lot Option Purchase Disclosures
Consolidated inventory not owned	39,500,000	51,400,000
Cash deposits	17,700,000	17,200,000
Noncontrolling interest	21,800,000	34,200,000
Not primary variable interest | Lot option purchase contracts
Lot Option Purchase Disclosures
Cash deposits and/or letters of credit	22,200,000	22,300,000
Aggregate purchase price	$ 310,100,000	$ 208,500,000

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CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)	Dec. 31, 2012	Dec. 31, 2011
CONSOLIDATED BALANCE SHEETS
Preferred stock, par value (in dollars per share)	$ 1.00	$ 1.00
Preferred stock, Authorized shares Series A Junior Participating Preferred	10,000	10,000
Preferred stock, outstanding shares Series A Junior Participating Preferred	0	0
Common stock, par value (in dollars per share)	$ 1.00	$ 1.00
Common stock, Authorized shares	199,990,000	199,990,000
Common stock, Issued shares	45,175,053	44,413,594

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Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2012

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

Note A: Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of The Ryland Group, Inc. and its 100 percent-owned subsidiaries. Noncontrolling interest represents the selling entities' ownership interests in land and lot option purchase contracts. Intercompany transactions have been eliminated in consolidation. Information is presented on a continuing operations basis unless otherwise noted. The results from continuing and discontinued operations are presented separately in the consolidated financial statements. (See Note M, "Discontinued Operations.") Effective January 1, 2012, the Company elected to reclassify its external commissions expense from cost of sales to selling, general and administrative expense in its Consolidated Statements of Earnings in order to not only be consistent with a majority of its peers, but also to combine external and internal commissions. This had the effect of increasing both housing gross profit and selling, general and administrative expense by the amount of external commissions, which totaled $27.9 million, $18.2 million and $18.7 million, or 2.2 percent, 2.1 percent and 1.9 percent of housing revenues, for the years ended December 31, 2012, 2011 and 2010, respectively. Effective July 1, 2012, the Company's selling, general and administrative expense included corporate expense. All prior period amounts have been reclassified to conform to the 2012 presentation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates.

Cash and Cash Equivalents

Cash and cash equivalents totaled $155.7 million and $159.1 million at December 31, 2012 and 2011, respectively. The Company considers all highly liquid short-term investments purchased with an original maturity of three months or less and cash held in escrow accounts to be cash equivalents.

Restricted Cash

At December 31, 2012 and 2011, the Company had restricted cash of $70.9 million and $57.0 million, respectively. The Company has various secured letter of credit agreements that require it to maintain cash deposits as collateral for outstanding letters of credit. Cash restricted under these agreements totaled $70.3 million and $56.7 million at December 31, 2012 and 2011, respectively. In addition, RMC had restricted cash of $627,000 and $391,000 at December 31, 2012 and 2011, respectively.

Marketable Securities, Available-for-sale

The Company considers its investment portfolio to be available-for-sale. Accordingly, these investments are recorded at their fair values, with unrealized gains or losses generally recorded in other comprehensive income. (See Note E, "Marketable Securities, Available-for-sale.")

Homebuilding Revenues

In accordance with ASC 976, homebuilding revenues are recognized when home and lot sales are closed; title and possession are transferred to the buyer; and there is no significant continuing involvement from the Company. Sales incentives offset revenues and are expensed when homes are closed.

Housing Inventories

Housing inventories consist principally of homes under construction; land under development and improved lots; and inventory held-for-sale. Inventory includes land and development costs; direct construction costs; capitalized indirect construction costs; capitalized interest; and real estate taxes. The costs of acquiring and developing land and constructing certain related amenities are allocated to the parcels to which these costs relate. Interest and taxes are capitalized during active development and construction stages. Inventories to be held and used are stated at cost unless a community is determined to be impaired, in which case the impaired inventories are written down to their fair values. Inventories held-for-sale are stated at the lower of their costs or fair values, less cost to sell.

As required by ASC 360, inventory is reviewed for potential write-downs on an ongoing basis. ASC 360 requires that, in the event that impairment indicators are present and undiscounted cash flows signify that the carrying amount of an asset is not recoverable, impairment charges must be recorded if the fair value of the asset is less than its carrying amount. The Company reviews all communities on a quarterly basis for changes in events or circumstances indicating signs of impairment. Examples of events or changes in circumstances include, but are not limited to: price declines resulting from sustained competitive pressures; a change in the manner in which the asset is being used; a change in assessments by a regulator or municipality; cost increases; the expectation that, more likely than not, an asset will be sold or disposed of significantly before the end of its previously estimated useful life; or the impact of local economic or macroeconomic conditions, such as employment or housing supply, on the market for a given product. Signs of impairment may include, but are not limited to: very low or negative profit margins, the absence of sales activity in an open community and/or significant price differences for comparable parcels of land held-for-sale.

If it is determined that indicators of impairment exist in a community, undiscounted cash flows are prepared and analyzed at a community level based on expected pricing; sales rates; construction costs; local municipality fees; and warranty, closing, carrying, selling, overhead and other related costs; or on similar assets to determine if the realizable values of the assets held are less than their respective carrying amounts. In order to determine assumed sales prices included in cash flow models, the Company analyzes historical sales prices on homes delivered in the community and in other communities located within the same geographic area, as well as sales prices included in its current backlog for such communities. In addition, it analyzes market studies and trends, which generally include statistics on sales prices in neighboring communities and sales prices of similar products in non-neighboring communities in the same geographic area. In order to estimate the costs of building and delivering homes, the Company generally assumes cost structures reflecting contracts currently in place with vendors, adjusted for any anticipated cost-reduction initiatives or increases. The Company's analysis of each community generally assumes current pricing equal to current sales orders for a particular or comparable community. For a minority of communities that the Company does not intend to operate for an extended period of time or where the operating life extends beyond several years, slight increases over current sales prices are assumed in later years. Once a community is considered to be impaired, the Company's determinations of fair value and new cost basis are primarily based on discounting estimated cash flows at rates commensurate with inherent risks associated with the continuing assets. Discount rates used generally vary from 19.0 percent to 30.0 percent, depending on market risk, the size or life of a community and development risk. Due to the fact that estimates and assumptions included in cash flow models are based on historical results and projected trends, unexpected changes in market conditions that may lead to additional impairment charges in the future cannot be anticipated.

Valuation adjustments are recorded against homes completed or under construction, land under development or improved lots when analyses indicate that the carrying values are greater than the fair values. Write-downs of impaired inventories to their fair values are recorded as adjustments to the cost basis of the respective inventory. At December 31, 2012 and 2011, valuation reserves related to impaired inventories totaled $207.8 million and $277.2 million, respectively. The net carrying values of the related inventories totaled $182.2 million and $195.8 million at December 31, 2012 and 2011, respectively.

The costs of acquiring and developing land and constructing certain related amenities are allocated to the parcels to which these costs relate. (See "Homebuilding Overview" within Management's Discussion and Analysis of Financial Condition and Results of Operations.)

Interest and taxes are capitalized during active development and construction stages. Capitalized interest is amortized when the related inventory is delivered to homebuyers. The following table summarizes activity that relates to capitalized interest:

(in thousands)		2012			2011			2010
Capitalized interest at January 1	$	81,058		$	75,094		$	84,664
Interest capitalized		42,327			38,032			31,221
Interest amortized to cost of sales		(40,612	)		(32,068	)		(40,791	)
Capitalized interest at December 31	$	82,773		$	81,058		$	75,094

The following table summarizes each reporting segment's total number of lots owned and lots controlled under option agreements:

	DECEMBER 31, 2012				DECEMBER 31, 2011
		LOTS OWNED	LOTS OPTIONED	TOTAL		LOTS OWNED	LOTS OPTIONED	TOTAL
North		5,471	4,056	9,527		4,981	3,405	8,386
Southeast		7,268	2,121	9,389		4,933	1,894	6,827
Texas		2,438	2,667	5,105		2,486	1,081	3,567
West		2,604	1,680	4,284		1,937	862	2,799
Total		17,781	10,524	28,305		14,337	7,242	21,579

Additionally, at December 31, 2012, the Company controlled 479 lots associated with discontinued operations, all of which were owned. At December 31, 2011, the Company controlled 1,386 lots associated with discontinued operations, of which 1,330 lots were owned and 56 lots were under option.

Variable Interest Entities ("VIE")

As required by ASC 810, a VIE is to be consolidated by a company if that company has the power to direct the VIE's activities and the obligation to absorb its losses or the right to receive its benefits, which are potentially significant to the VIE. ASC 810 also requires disclosures about VIEs that a company is not obligated to consolidate, but in which it has a significant, though not primary, variable interest.

The Company enters into joint ventures, from time to time, for the purpose of acquisition and co-development of land parcels and lots. Its investment in these joint ventures may create a variable interest in a VIE, depending on the contractual terms of the arrangement. Additionally, in the ordinary course of business, the Company enters into lot option purchase contracts in order to procure land for the construction of homes. Under such lot option purchase contracts, the Company funds stated deposits in consideration for the right to purchase lots at a future point in time, usually at predetermined prices. The Company's liability is generally limited to forfeiture of nonrefundable deposits, letters of credit and other nonrefundable amounts incurred. In accordance with the requirements of ASC 810, certain of the Company's lot option purchase contracts may result in the creation of a variable interest in a VIE.

In compliance with the provisions of ASC 810, the Company consolidated $39.5 million and $51.4 million of inventory not owned related to land and lot option purchase contracts at December 31, 2012 and 2011, respectively. Although the Company may not have had legal title to the optioned land, under ASC 810, it had the primary variable interest and was required to consolidate the particular VIE's assets under option at fair value. To reflect the fair value of the inventory consolidated under ASC 810, the Company included $17.7 million and $17.2 million of its related cash deposits for lot option purchase contracts at December 31, 2012 and 2011, respectively, in "Consolidated inventory not owned" within the Consolidated Balance Sheets. Noncontrolling interest totaled $21.8 million and $34.2 million with respect to the consolidation of these contracts at December 31, 2012 and 2011, respectively, representing the selling entities' ownership interests in these VIEs. Additionally, the Company had cash deposits and/or letters of credit totaling $22.2 million and $22.3 million at December 31, 2012 and 2011, respectively, that were associated with lot option purchase contracts having aggregate purchase prices of $310.1 million and $208.5 million, respectively. As the Company did not have the primary variable interest in these contracts, it was not required to consolidate them.

Investments in Joint Ventures

The Company enters into joint ventures, from time to time, for the purpose of acquisition and co-development of land parcels and lots. It participates in a number of joint ventures in which it has less than a controlling interest. As of December 31, 2012, the Company participated in five active homebuilding joint ventures in the Austin, Chicago, Denver and Washington, D.C., markets. The Company recognizes its share of the respective joint ventures' earnings or losses from the sale of lots to other homebuilders. It does not, however, recognize earnings from lots that it purchases from the joint ventures. Instead, the Company reduces its cost basis in each lot by its share of the earnings from the lot.

The following table summarizes each reporting segment's total estimated share of lots owned and controlled by the Company under its joint ventures:

	DECEMBER 31, 2012				DECEMBER 31, 2011
		LOTS OWNED	LOTS OPTIONED	TOTAL		LOTS OWNED	LOTS OPTIONED	TOTAL
North		145	–	145		150	–	150
Texas		–	–	–		20	–	20
West		172	–	172		172	–	172
Total		317	–	317		342	–	342

At December 31, 2012 and 2011, the Company's investments in its unconsolidated joint ventures totaled $8.3 million and $10.0 million, respectively, and were included in "Other" assets within the Consolidated Balance Sheets. For the year ended December 31, 2012, the Company's equity in earnings from its unconsolidated joint ventures totaled $1.2 million, compared to equity in losses of $976,000 and $3.7 million for the same periods in 2011 and 2010, respectively. During 2011, the Company recorded a $1.9 million impairment related to a commercial parcel in a joint venture in Chicago. During 2010, the Company recorded $4.1 million of impairments against its investments in two joint ventures in Denver.

Property, Plant and Equipment

Property, plant and equipment totaled $20.4 million and $19.9 million at December 31, 2012 and 2011, respectively. These amounts are carried at cost less accumulated depreciation and amortization. Depreciation is provided for, principally, by the straight-line method over the estimated useful lives of the assets. Property, plant and equipment included model home furnishings of $19.4 million and $18.9 million at December 31, 2012 and 2011, respectively. Model home furnishings are amortized over the life of the community as homes are closed. The amortization expense was included in "Selling, general and administrative" expense within the Consolidated Statements of Earnings.

Service Liabilities

Service, warranty and completion costs are estimated and accrued at the time a home closes and are updated as experience requires.

Advertising Costs

The Company expenses advertising costs as they are incurred. Advertising costs totaled $4.6 million, $5.2 million and $4.4 million in 2012, 2011 and 2010, respectively, and were included in "Selling, general and administrative" expense within the Consolidated Statements of Earnings.

Loan Origination Fees, Mortgage Discount Points and Loan Sales

Mortgage loans are recorded at fair value at the time of origination in accordance with ASC No. 825 ("ASC 825"), "Financial Instruments," and are classified as held-for-sale. Loan origination fees, net of mortgage discount points, are recognized in current earnings upon origination of the related mortgage loan. Sales of mortgages and the related servicing rights are accounted for in accordance with ASC No. 860 ("ASC 860"), "Transfers and Servicing." Generally, in order for a transfer of financial assets to be recognized as a sale, ASC 860 requires that control of the loans be passed to the purchaser and that consideration other than beneficial interests be received in return.

Derivative Instruments

In the normal course of business and pursuant to its risk-management policy, the Company enters, as an end user, into derivative instruments, including forward-delivery contracts for loans; options on forward-delivery contracts; and options on futures contracts, to minimize the impact of movement in market interest rates on IRLCs. Major factors influencing the use of various hedging contracts include general market conditions, interest rates, types of mortgages originated and the percentage of IRLCs expected to fund. The Company is exposed to credit-related losses in the event of nonperformance by counterparties to certain hedging contracts. Credit risk is limited to those instances where the Company is in a net unrealized gain position. It manages this credit risk by entering into agreements with counterparties meeting its credit standards and by monitoring position limits. The Company elected not to use hedge accounting treatment with respect to its economic hedging activities. Accordingly, all derivative instruments used as economic hedges were included at their fair value in "Other" assets or "Accrued and other liabilities" within the Consolidated Balance Sheets, with changes in value recorded in current earnings. The Company's mortgage pipeline includes IRLCs, which represent commitments that have been extended by the Company to those borrowers who have applied for loan funding and who have met certain defined credit and underwriting criteria.

Comprehensive Income

Comprehensive income consists of net income or loss and the increase or decrease in unrealized gains or losses on the Company's available-for-sale securities, as well as the decrease in unrealized gains associated with treasury locks, net of applicable taxes. Comprehensive income totaled $40.3 million for the year ended December 31, 2012, compared to comprehensive losses of $52.5 million and $86.4 million for the same periods in 2011 and 2010, respectively.

Income Taxes

The Company files a consolidated federal income tax return. Certain items of income and expense are included in one period for financial reporting purposes and in another for income tax purposes. Deferred income taxes are provided in recognition of these differences. Deferred tax assets and liabilities are determined based on enacted tax rates and are subsequently adjusted for changes in these rates. A valuation allowance against the Company's deferred tax assets may be established if it is more likely than not that all or some portion of the deferred tax assets will not be realized. A change in deferred tax assets or liabilities results in a charge or credit to deferred tax expense. (See "Critical Accounting Policies" within Management's Discussion and Analysis of Financial Condition and Results of Operations, and Note H, "Income Taxes.")

Per Share Data

The Company computes earnings per share in accordance with ASC No. 260 ("ASC 260"), "Earnings per Share," which requires the presentation of both basic and diluted earnings per common share to be calculated using the two-class method. Basic net earnings per common share is computed by dividing net earnings by the weighted-average number of common shares outstanding. The Company's nonvested outstanding shares of restricted stock are classified as participating securities in accordance with ASC 260. As such, earnings or loss for the reporting period are allocated between common shareholders and nonvested restricted stockholders, based upon their respective participating rights in dividends and undistributed earnings. For purposes of determining diluted earnings per common share, basic earnings per common share is further adjusted to include the effect of potential dilutive common shares outstanding, including stock options and warrants using the treasury stock method and convertible debt using the if-converted method. For the years ended December 31, 2011 and 2010, the effects of outstanding restricted stock units and stock options, as well as nonvested restricted stock, were not included in the diluted earnings per share calculation as they would have been antidilutive due to the Company's net loss in each of those years.

Stock-Based Compensation

In accordance with the terms of its shareholder-approved equity incentive plan, the Company issues various types of stock awards that include, but are not limited to, grants of stock options and restricted stock units to its employees. The Company records expense associated with its grant of stock awards in accordance with the provisions of ASC 718, which requires that stock-based payments to employees be recognized, based on their estimated fair values, in the Consolidated Statements of Earnings as compensation expense over the vesting period of the awards.

Additionally, the Company grants stock awards to the non-employee members of its Board of Directors pursuant to its shareholder-approved director stock plan. Stock-based compensation is recognized over the service period for such awards.

New Accounting Pronouncements

ASU 2011-11 and ASU 2013-01

In December 2011, the FASB issued Accounting Standards Update ("ASU") No. 2011-11 ("ASU 2011-11"), "Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities," and also issued ASU No. 2013-01 ("ASU 2013-01"), "Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities," in January 2013. The amendments in ASU 2011-11 and 2013-01 will enhance disclosures required by GAAP by requiring improved information about financial and derivative instruments that are either (a) offset in accordance with Section 210-20-45 or Section 815-10-45 or (b) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with Section 210-20-45 or Section 815-10-45. This information will enable users of an entity's financial statements to evaluate the effect or potential effect of netting arrangements on an entity's financial position, including the effect or potential effect of rights of setoff associated with certain financial instruments and derivative instruments in the scope of this update. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and for interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. The Company does not anticipate that the adoption of this guidance will have a material impact on its consolidated financial statements.

ASU 2013-02

In February 2013, the FASB issued ASU No. 2013-02 ("ASU 2013-02"), "Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income." The amendments in ASU 2013-02 require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement of earnings or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income, but only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference other disclosures required under GAAP that provide additional details about those amounts. An entity is required to apply the amendments prospectively for annual reporting periods beginning after December 15, 2012, and for interim periods within those annual periods. The Company does not anticipate that the adoption of this guidance will have a material impact on its consolidated financial statements.

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Stock-Based Compensation (Details 3) (USD $) In Millions, except Share data, unless otherwise specified	12 Months Ended										0 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2012 2012 Amended Executive Officer Non-Qualified Stock Option Agreement	Dec. 31, 2012 Restricted stock units	Dec. 31, 2011 Restricted stock units	Dec. 31, 2010 Restricted stock units	Dec. 31, 2012 Stock options	Dec. 31, 2011 Stock options	Dec. 31, 2010 Stock options	Mar. 01, 2012 Stock options Senior executive officers
Weighted-average inputs used and fair values determined for stock options granted
Assumed annual dividend rate upon which expected dividend yield is based (in dollars per share)								$ 0.12
Expected volatility (as a percent)								49.30%	51.00%	53.60%
Expected dividend yield (as a percent)								0.70%	0.70%	0.50%
Expected term								4 years 6 months	3 years 6 months	3 years 6 months
Risk-free rate (as a percent)								0.80%	1.40%	1.60%
Weighted-average grant-date fair value (in dollars per share)	$ 7.21	$ 6.02	$ 9.05					$ 7.21	$ 6.02	$ 9.05
Additional disclosure
Stock options awarded (in shares)	756,000	781,000	846,000					756,000	781,000	846,000	275,000
Minimum stock price as a percentage of grant price				150.00%
Restricted stock units
Restricted stock units at the beginning of the period (in shares)					657,825	727,317	609,812
Shares awarded					473,408	305,000	404,000
Shares vested					(350,349)	(314,492)	(235,496)
Shares forfeited					(6,667)	(60,000)	(50,999)
Restricted stock units at the end of the period (in shares)					774,217	657,825	727,317
Outstanding restricted shares vesting schedule
Outstanding restricted stock unit awards, vesting in 2013 (in shares)					368,469
Outstanding restricted stock unit awards, vesting in 2014 (in shares)					259,468
Outstanding restricted stock unit awards, vesting in 2015 (in shares)					146,280
Share-based compensation arrangement by share-based payment award, nonvested options
Nonvested options at the beginning of the period (in shares)	1,374,628	1,142,130	883,398
Granted (in shares)	756,000	781,000	846,000					756,000	781,000	846,000	275,000
Vested (in shares)	(611,659)	(498,507)	(425,107)
Forfeited (in shares)	(67,332)	(49,995)	(162,161)
Nonvested options at the end of the period (in shares)	1,451,637	1,374,628	1,142,130
Nonvested stock options weighted average grant date fair value
Nonvested options at the beginning of the period, weighted-average grant-date fair value (in dollars per share)	$ 7.00	$ 8.31	$ 8.23
Weighted-average grant-date fair value (in dollars per share)	$ 7.21	$ 6.02	$ 9.05					$ 7.21	$ 6.02	$ 9.05
Vested (in dollars per share)	$ 7.03	$ 8.37	$ 9.44
Forfeited (in dollars per share)	$ 7.47	$ 7.89	$ 8.79
Nonvested options at the end of the period, weighted-average grant-date fair value (in dollars per share)	$ 7.08	$ 7.00	$ 8.31
Information related to nonvested options
Total unrecognized compensation cost related to nonvested stock option awards	$ 5.6
Total unrecognized compensation cost, period of recognition	2 years 8 months 12 days

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Segment Information (Tables)

12 Months Ended

Dec. 31, 2012

Segment Information

Schedule of segment revenues, earnings (loss) before taxes, depreciation and amortization and identifiable assets

Selected Segment Information

	YEAR ENDED DECEMBER 31,
(in thousands)		2012			2011			2010
REVENUES
Homebuilding
North	$	393,238		$	299,595		$	344,154
Southeast		355,621			218,672			259,357
Texas		323,162			262,321			242,691
West		198,826			82,016			123,616
Financial services		37,619			26,927			31,007
Total	$	1,308,466		$	889,531		$	1,000,825
EARNINGS (LOSS) BEFORE TAXES
Homebuilding
North	$	11,602		$	(9,054	)	$	(15,842	)
Southeast		18,566			(11,676	)		(16,446	)
Texas		22,984			9,243			(2,492	)
West		10,732			(5,326	)		(7,903	)
Financial services		13,142			5,739			845
Corporate and unallocated		(33,059	)		(21,658	)		(38,659	)
Total	$	43,967		$	(32,732	)	$	(80,497	)
DEPRECIATION AND AMORTIZATION
Homebuilding
North	$	4,710		$	3,527		$	4,773
Southeast		4,308			3,145			4,116
Texas		2,834			2,610			2,429
West		2,984			1,295			4,354
Financial services		78			181			254
Corporate and unallocated		485			554			473
Total	$	15,399		$	11,312		$	16,399

	DECEMBER 31,
(in thousands)		2012		2011
IDENTIFIABLE ASSETS
Homebuilding
North	$	408,341	$	367,096
Southeast		315,043		198,196
Texas		196,397		161,779
West		274,050		160,004
Financial services		157,781		144,652
Corporate and unallocated		579,827		512,093
Total	$	1,931,439	$	1,543,820

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Quarterly Financial Data (Unaudited) (Tables)

12 Months Ended

Dec. 31, 2012

Quarterly Financial Data (Unaudited)

Schedule of quarterly financial data

	2012										2011
(in thousands, except per share data)		DEC. 31			SEPT. 30		JUN. 30		MAR. 31			DEC. 31			SEPT. 30			JUN. 30			MAR. 31
CONSOLIDATED RESULTS
Revenues	$	440,135		$	358,693	$	293,769	$	215,869		$	261,445		$	248,566		$	211,848		$	167,672
Income (loss) from continuing operations before taxes		30,319			10,430		6,239		(3,021	)		814			(3,908	)		(9,801	)		(19,837	)
Tax expense (benefit)		1,372			23		190		–			(449	)		(18	)		–			(2,398	)
Net income (loss) from continuing operations		28,947			10,407		6,049		(3,021	)		1,263			(3,890	)		(9,801	)		(17,439	)
(Loss) income from discontinued operations, net of taxes		(374	)		238		223		(2,087	)		(451	)		(17,423	)		(912	)		(2,097	)
Net income (loss)	$	28,573		$	10,645	$	6,272	$	(5,108	)	$	812		$	(21,313	)	$	(10,713	)	$	(19,536	)
Net income (loss) per common share:
Basic
Continuing operations	$	0.64		$	0.23	$	0.14	$	(0.07	)	$	0.03		$	(0.09	)	$	(0.22	)	$	(0.39	)
Discontinued operations		(0.01	)		0.01		0.00		(0.04	)		(0.01	)		(0.39	)		(0.02	)		(0.05	)
Total		0.63			0.24		0.14		(0.11	)		0.02			(0.48	)		(0.24	)		(0.44	)
Diluted
Continuing operations		0.56			0.21		0.14		(0.07	)		0.03			(0.09	)		(0.22	)		(0.39	)
Discontinued operations		(0.01	)		0.01		0.00		(0.04	)		(0.01	)		(0.39	)		(0.02	)		(0.05	)
Total	$	0.55		$	0.22	$	0.14	$	(0.11	)	$	0.02		$	(0.48	)	$	(0.24	)	$	(0.44	)
Weighted-average common shares outstanding:
Basic		45,115			44,826		44,628		44,474			44,410			44,409			44,369			44,239
Diluted		53,053			52,654		48,571		44,474			45,075			44,409			44,369			44,239

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Commitments and Contingencies

12 Months Ended

Dec. 31, 2012

Commitments and Contingencies

Commitments and Contingencies

Note K: Commitments and Contingencies

Commitments

In the ordinary course of business, the Company acquires rights under option agreements to purchase land or lots for use in future homebuilding operations. At December 31, 2012 and 2011, it had cash deposits and letters of credit outstanding that totaled $53.1 million and $51.9 million, respectively, pertaining to land and lot option purchase contracts with aggregate purchase prices of $589.6 million and $407.6 million, respectively. At December 31, 2012 and 2011, the Company had $492,000 and $1.0 million, respectively, in commitments with respect to option contracts having specific performance provisions.

IRLCs represent loan commitments with customers at market rates generally up to 180 days before settlement. The Company had outstanding IRLCs with notional amounts that totaled $137.7 million and $114.6 million at December 31, 2012 and 2011, respectively. Hedging instruments, including forward-delivery contracts, are utilized to mitigate the risk associated with interest rate fluctuations on IRLCs.

The following table summarizes the Company's rent expense, which primarily relates to its office facilities, model homes, furniture and equipment:

	YEAR ENDED DECEMBER 31,
(in thousands)		2012			2011			2010
Total rent expense1	$	5,933		$	7,087		$	11,210
Less: income from subleases		(385	)		(456	)		(1,431	)
Net rent expense	$	5,548		$	6,631		$	9,779

¹

Excludes rent expense associated with the Company's discontinued operations, which totaled $556,000, $365,000 and $306,000 for the years ended December 31, 2012, 2011 and 2010, respectively.

At December 31, 2012, future minimum rental commitments under noncancellable leases with remaining terms in excess of one year were as follows:

(in thousands)
2013	$	4,501
2014		4,623
2015		4,087
2016		2,868
2017		1,751
Thereafter		2,621
Less: income from subleases		(226	)
Total lease commitments	$	20,225

Contingencies

As an on-site housing producer, the Company is often required by some municipalities to obtain development or performance bonds and letters of credit in support of its contractual obligations. At December 31, 2012, development bonds totaled $108.4 million, while performance-related cash deposits and letters of credit totaled $52.0 million. At December 31, 2011, development bonds totaled $93.9 million, while performance-related cash deposits and letters of credit totaled $37.2 million. In the event that any such bonds or letters of credit are called, the Company would be required to reimburse the issuer; however, it does not believe that any currently outstanding bonds or letters of credit will be called.

Substantially all of the loans the Company originates are sold within a short period of time in the secondary mortgage market on a servicing-released basis. After the loans are sold, ownership, credit risk and management, including servicing of the loans, passes to the third-party purchaser. RMC retains no role or interest other than standard industry representations and warranties. The Company retains potential liability for possible claims by loan purchasers that it breached certain limited standard industry representations and warranties in its sale agreements. There has been an increased industrywide effort by loan purchasers to defray losses from mortgages purchased in an unfavorable economic environment by claiming to have found inaccuracies related to sellers' representations and warranties in particular sale agreements. There is industry debate regarding the extent to which such claims are justified. The significant majority of these claims relate to loans originated in 2005, 2006 and 2007, when underwriting standards were less stringent.

The following table summarizes the composition of the Company's mortgage loan types originated, its homebuyers' average credit scores and its loan-to-value ratios:

	TWELVE MONTHS ENDED DECEMBER 31,											AVERAGE
		2012		2011		2010		2009		2008			2005-2007
Prime		48.6	%	42.2	%	34.9	%	32.9	%	51.8	%		67.7	%
Government (FHA/VA/USDA)		51.4		57.8		65.1		67.1		48.2			13.8
Alt A		–		–		–		–		–			16.5
Subprime		–		–		–		–		–			2.0
Total		100.0	%	100.0	%	100.0	%	100.0	%	100.0	%		100.0	%
Average FICO credit score		731		726		723		717		711			713
Average combined loan-to-value ratio		90.1	%	90.3	%	90.8	%	91.4	%	90.1	%		88.4	%

While the Company's access to delinquency information is limited subsequent to loan sale, based on a review of information provided voluntarily by certain investors and on government loan reports made available by HUD, the Company believes that the average delinquency rates of RMC's loans are generally in line with industry averages. Delinquency rates for loans originated in 2008 and subsequent years are significantly lower than those originated in 2005 through 2007. The Company primarily attributes this decrease in delinquency rates to the industrywide tightening of credit standards and the elimination of most nontraditional loan products.

The Company's mortgage operations have established reserves for possible losses associated with mortgage loans previously originated and sold to investors based upon, among other things, actual past repurchases and losses through the disposition of affected loans; an analysis of repurchase requests received and the validity of those requests; and an estimate of potential liability for valid claims not yet received. Although the amount of an ultimate loss cannot be definitively estimated, the Company has accrued $10.5 million for these types of claims as of December 31, 2012, but it may have additional exposure. (See "Part I, Item 3, Legal Proceedings.")

The following table displays changes in the Company's mortgage loan loss and related legal reserves during the years ended December 31, 2012, 2011 and 2010:

(in thousands)		2012			2011			2010
Balance at January 1	$	10,141		$	8,934		$	17,875
Provision for losses		1,156			1,368			8,461
Settlements made		(813	)		(161	)		(17,402	)
Balance at December 31	$	10,484		$	10,141		$	8,934

Subsequent changes in conditions or available information may change assumptions and estimates. Mortgage loan loss reserves and related legal reserves were included in "Accrued and other liabilities" within the Consolidated Balance Sheets, and their associated expenses were included in "Financial services" expense within the Consolidated Statements of Earnings.

The Company provides product warranties covering workmanship and materials for one year, certain mechanical systems for two years and structural systems for ten years. It estimates and records warranty liabilities based upon historical experience and known risks at the time a home closes as a component of cost of sales, as well as upon identification and quantification of obligations in cases of unexpected claims. Actual future warranty costs could differ from current estimates.

The following table summarizes changes in the Company's product liability reserves during the years ended December 31, 2012, 2011 and 2010:

(in thousands)		2012			2011			2010
Balance at January 1	$	20,648		$	20,112		$	24,268
Warranties issued		3,899			3,549			4,565
Changes in liability for accruals related to pre-existing warranties		1,866			2,823			5,645
Settlements made		(8,225	)		(5,836	)		(14,366	)
Balance at December 31	$	18,188		$	20,648		$	20,112

The Company requires substantially all of its subcontractors to have workers' compensation insurance and general liability insurance, including construction defect coverage. RHIC provided insurance services to the homebuilding segments' subcontractors in certain markets until June 1, 2008. RHIC insurance reserves may have the effect of lowering the Company's product liability reserves, as collectibility of claims against subcontractors enrolled in the RHIC program is generally higher. At December 31, 2012 and 2011, RHIC had $14.8 million and $18.2 million, respectively, in subcontractor product liability reserves, which were included in "Accrued and other liabilities" within the Consolidated Balance Sheets. Reserves for loss and loss adjustment expense are based upon industry trends and the Company's annual actuarial projections of historical loss development.

The following table displays changes in RHIC's insurance reserves during the years ended December 31, 2012, 2011 and 2010:

(in thousands)		2012			2011			2010
Balance at January 1	$	18,209		$	21,141		$	25,069
Insurance expense provisions or adjustments		(1,369	)		(900	)		(2,553	)
Loss expenses paid		(2,027	)		(2,032	)		(1,375	)
Balance at December 31	$	14,813		$	18,209		$	21,141

Expense provisions or adjustments to RHIC's insurance reserves were included in "Financial services" expense within the Consolidated Statements of Earnings.

The Company is party to various legal proceedings generally incidental to its businesses. Litigation reserves have been established based on discussions with counsel and the Company's analysis of historical claims. The Company has, and requires its subcontractors to have, general liability insurance to protect it against a portion of its risk of loss and to cover it against construction-related claims. The Company establishes reserves to cover its self-insured retentions and deductible amounts under those policies.

In view of the inherent unpredictability of outcomes in legal matters, particularly where (a) the damages sought are speculative, unspecified or indeterminate, (b) the proceedings are in the early stages or impacted significantly by future legal determinations or judicial decisions, (c) the matters involve unsettled questions of law, multiple parties or complex facts and circumstances, or (d) insured risk transfer or coverage is undetermined, there is considerable uncertainty surrounding the timing or resolution of these matters, including a possible eventual loss. Given this inherent unpredictability, actual future litigation costs could differ from the Company's current estimates. At the same time, the Company believes that adequate provisions have been made for the resolution of all known claims and pending litigation for probable losses. In accordance with applicable accounting guidance, the Company accrues amounts for legal matters where it believes they present loss contingencies that are both probable and reasonably estimable. In such cases, however, the Company may be exposed to losses in excess of any amounts accrued and may need to adjust the accruals from time to time to reflect developments that could affect its estimate of potential losses. Moreover, in accordance with applicable accounting guidance, if the Company does not believe that the potential loss from a particular matter is both probable and reasonably estimable, it does not make an accrual and will monitor the matter for any developments that would make the loss contingency both probable and reasonably estimable. For matters as to which the Company believes a loss is reasonably probable and estimable, at December 31, 2012 and 2011, the Company had legal reserves of $17.9 million and $16.5 million, respectively. (See "Part I, Item 3, Legal Proceedings.") It currently estimates that the range of reasonably possible losses, in excess of amounts accrued, could be up to approximately $13 million in the aggregate.