Note 18. 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

	THREE MONTHS ENDED MARCH 31, 2013
							NON-
				GUARANTOR			GUARANTOR		CONSOLIDATING			CONSOLIDATED
(in thousands)	TRG, INC.			SUBSIDIARIES			SUBSIDIARIES		ELIMINATIONS			TOTAL
REVENUES	$	202,298		$	169,039		$	11,179	$	(7,836	)	$	374,680
EXPENSES	193,435			160,725			6,858		(7,836		)	353,182
OTHER INCOME	705			-			-		-			705
Income from continuing operations before taxes	9,568			8,314			4,321		-			22,203
Tax expense	86			74			39		-			199
Equity in net earnings of subsidiaries	12,522			-			-		(12,522		)	-
Net income from continuing operations	22,004			8,240			4,282		(12,522		)	22,004
Income from discontinued operations, net of taxes	113			53			-		(53		)	113
NET INCOME	$	22,117		$	8,293		$	4,282	$	(12,575	)	$	22,117

	THREE MONTHS ENDED MARCH 31, 2012
REVENUES	$	110,907		$	98,628		$	6,334	$	-		$	215,869
EXPENSES	112,833			100,814			5,689		-			219,336
OTHER INCOME	446			-			-		-			446

(Loss) income from continuing operations before taxes	(1,480		)	(2,186		)	645		-			(3,021		)
Tax expense	-			-			-		-			-
Equity in net loss of subsidiaries	(1,541		)	-			-		1,541			-
Net (loss) income from continuing operations	(3,021		)	(2,186		)	645		1,541			(3,021		)
Loss from discontinued operations, net of taxes	(2,087		)	(976		)	-		976			(2,087		)
NET (LOSS) INCOME	$	(5,108	)	$	(3,162	)	$	645	$	2,517		$	(5,108	)

CONSOLIDATING STATEMENTS OF OTHER COMPREHENSIVE INCOME

	THREE MONTHS ENDED MARCH 31, 2013
							NON-
				GUARANTOR			GUARANTOR		CONSOLIDATING			CONSOLIDATED
(in thousands)	TRG, INC.			SUBSIDIARIES			SUBSIDIARIES		ELIMINATIONS			TOTAL
Net income	$	22,117		$	8,293		$	4,282	$	(12,575	)	$	22,117
Other comprehensive loss before tax:
Unrealized gain on marketable securities, available-for-sale:
Unrealized gain	28			-			-		-			28
Less: reclassification adjustments for gains included in net income	(152		)	-			-		-			(152		)
Other comprehensive loss before tax	(124		)	-			-		-			(124		)
Income tax benefit related to items of other comprehensive loss	-			-			-		-			-
Other comprehensive loss, net of tax	(124		)	-			-		-			(124		)
Comprehensive income	$	21,993		$	8,293		$	4,282	$	(12,575	)	$	21,993

	THREE MONTHS ENDED MARCH 31, 2012
Net (loss) income	$	(5,108	)	$	(3,162	)	$	645	$	2,517		$	(5,108	)
Other comprehensive income before tax:
Reduction of unrealized gain related to cash flow hedging instruments	(302		)	-			-		-			(302		)
Unrealized gain on marketable securities, available-for-sale:
Unrealized gain	794			-			-		-			794
Less: reclassification adjustments for gains included in net (loss) income	67			-			-		-			67
	861			-			-		-			861
Other comprehensive income before tax	559			-			-		-			559
Income tax benefit related to items of other comprehensive income	115			-			-		-			115
Other comprehensive income, net of tax	674			-			-		-			674
Comprehensive (loss) income	$	(4,434	)	$	(3,162	)	$	645	$	2,517		$	(4,434	)

CONSOLIDATING BALANCE SHEETS

	MARCH 31, 2013
					NON-
			GUARANTOR		GUARANTOR		CONSOLIDATING			CONSOLIDATED
(in thousands)	TRG, INC.		SUBSIDIARIES		SUBSIDIARIES		ELIMINATIONS			TOTAL
ASSETS
Cash and cash equivalents	$	20,898	$	149,786	$	9,233	$	-		$	179,917
Marketable securities and restricted cash	407,842		-		26,820		-			434,662
Consolidated inventory owned	681,725		441,694		-		-			1,123,419
Consolidated inventory not owned	17,315		-		16,629		-			33,944
Total housing inventories	699,040		441,694		16,629		-			1,157,363
Investment in subsidiaries	255,398		-		-		(255,398		)	-
Intercompany receivables	390,983		-		-		(390,983		)	-
Other assets	77,604		44,379		70,648		-			192,631
Assets of discontinued operations	-		536		-		-			536
TOTAL ASSETS	1,851,765		636,395		123,330		(646,381		)	1,965,109

LIABILITIES
Accounts payable and other accrued liabilities	177,920		64,916		31,106		-			273,942
Debt	1,133,160		-		-		-			1,133,160
Intercompany payables	-		349,534		41,449		(390,983		)	-
Liabilities of discontinued operations	565		693		-		-			1,258
TOTAL LIABILITIES	1,311,645		415,143		72,555		(390,983		)	1,408,360
EQUITY
STOCKHOLDERS’ EQUITY	540,120		221,252		34,146		(255,398		)	540,120
NONCONTROLLING INTEREST	-		-		16,629		-			16,629
TOTAL LIABILITIES AND EQUITY	$	1,851,765	$	636,395	$	123,330	$	(646,381	)	$	1,965,109

	DECEMBER 31, 2012
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
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

CONSOLIDATING STATEMENTS OF CASH FLOWS

	THREE MONTHS ENDED MARCH 31, 2013
				GUARANTOR			NON-GUARANTOR			CONSOLIDATING			CONSOLIDATED
(in thousands)	TRG, INC.			SUBSIDIARIES			SUBSIDIARIES			ELIMINATIONS			TOTAL
CASH FLOWS FROM OPERATING ACTIVITIES
Net income from continuing operations	$	22,004		$	8,240		$	4,282		$	(12,522	)	$	22,004
Adjustments to reconcile net income from continuing operations to net cash (used for) provided by operating activities	(1,703		)	1,675			45			-			17
Changes in assets and liabilities	(39,720		)	(50,725		)	47,875			12,522			(30,048		)
Other operating activities, net	(197		)	-			-			-			(197		)
Net cash (used for) provided by operating activities from continuing operations	(19,616		)	(40,810		)	52,202			-			(8,224		)
CASH FLOWS FROM INVESTING ACTIVITIES
Return of investment in unconsolidated joint ventures, net	165			-			-			-			165
Additions to property, plant and equipment	(1,992		)	(1,613		)	(214		)	-			(3,819		)
Purchases of marketable securities, available-for-sale	(177,520		)	-			(1,050		)	-			(178,570		)
Proceeds from sales and maturities of marketable securities, available-for-sale	202,327			-			1,424			-			203,751
Net cash provided by (used for) investing activities from continuing operations	22,980			(1,613		)	160			-			21,527
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in short-term borrowings, net	(1,462		)	-			-			-			(1,462		)
Common stock dividends and stock-based compensation	13,095			-			-			-			13,095
(Increase) decrease in restricted cash	(977		)	-			266			-			(711		)
Intercompany balances	(22,857		)	74,371			(51,514		)	-			-
Net cash (used for) provided by financing activities from continuing operations	(12,201		)	74,371			(51,248		)	-			10,922
Net (decrease) increase in cash and cash equivalents from continuing operations	(8,837		)	31,948			1,114			-			24,225
Cash flows from operating activities–discontinued operations	-			(15		)	-			-			(15		)
Cash flows from investing activities–discontinued operations	-			15			-			-			15
Cash flows from financing activities–discontinued operations	-			-			-			-			-
Cash and cash equivalents at beginning of year	29,735			117,865			8,119			-			155,719
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	20,898		$	149,813		$	9,233		$	-		$	179,944


	THREE MONTHS ENDED MARCH 31, 2012
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income from continuing operations	$	(3,021	)	$	(2,186	)	$	645		$	1,541		$	(3,021	)
Adjustments to reconcile net (loss) income from continuing operations to net cash (used for) provided by operating activities	7,247			3,019			191			-			10,457
Changes in assets and liabilities	(41,994		)	(10,951		)	37,061			(1,541		)	(17,425		)
Other operating activities, net	(206		)	-			-			-			(206		)
Net cash (used for) provided by operating activities from continuing operations	(37,974		)	(10,118		)	37,897			-			(10,195		)
CASH FLOWS FROM INVESTING ACTIVITIES
(Contributions to) return of investment in unconsolidated joint ventures, net	(10		)	672			-			-			662
Additions to property, plant and equipment	(1,640		)	(1,063		)	(8		)	-			(2,711		)
Purchases of marketable securities, available-for-sale	(330,773		)	-			(1,426		)	-			(332,199		)
Proceeds from sales and maturities of marketable securities, available-for-sale	389,938			-			701			-			390,639
Other investing activities, net	-			-			5			-			5
Net cash provided by (used for) investing activities from continuing operations	57,515			(391		)	(728		)	-			56,396
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in short-term borrowings, net	6			(1,188		)	-			-			(1,182		)
Decrease in borrowings against revolving credit facilities, net	-			-			(17,603		)	-			(17,603		)
Common stock dividends and stock-based compensation	1,619			-			-			-			1,619
(Increase) decrease in restricted cash	(11,270		)	-			71			-			(11,199		)
Intercompany balances	(15,001		)	34,610			(19,609		)	-			-
Net cash (used for) provided by financing activities from continuing operations	(24,646		)	33,422			(37,141		)	-			(28,365		)
Net (decrease) increase in cash and cash equivalents from continuing operations	(5,105		)	22,913			28			-			17,836
Cash flows from operating activities–discontinued operations	(26		)	(59		)	-			-			(85		)
Cash flows from investing activities–discontinued operations	(1		)	87			-			-			86
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 PERIOD	$	20,298		$	140,042		$	16,666		$	-		$	177,006