Note 19. 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; 0.25 percent convertible senior notes due June 2019; 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 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 the Company or a Restricted Subsidiary of the Company, 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 the Company 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 JUNE 30, 2013

NON-

GUARANTOR

CONSOLIDATING

CONSOLIDATED

(in thousands)

TRG, INC.

SUBSIDIARIES

ELIMINATIONS

TOTAL

REVENUES

269,336

219,784

15,004

(11,129

)

492,995

EXPENSES

249,937

203,091

7,378

(11,129

)

449,277

OTHER INCOME

561

Income from continuing

operations before taxes

19,960

16,693

7,626

44,279

Tax (benefit) expense

(101,273

)

(85,769

)

(186,952

)

Equity in net earnings of subsidiaries

109,998

(109,998

)

Net income from continuing

operations

231,231

102,462

7,536

(109,998

)

231,231

Loss from discontinued operations,

net of taxes

(37

)

(12

)

(37

)

NET INCOME

231,194

102,450

7,536

(109,986

)

231,194

(in thousands)

SIX MONTHS ENDED JUNE 30, 2013

REVENUES

471,634

388,823

26,183

(18,965

)

867,675

EXPENSES

443,372

363,816

14,236

(18,965

)

802,459

OTHER INCOME

1,266

Income from continuing

operations before taxes

29,528

25,007

11,947

66,482

Tax (benefit) expense

(101,187

)

(85,695

)

129

(186,753

)

Equity in net earnings of subsidiaries

122,520

(122,520

)

Net income from continuing

operations

253,235

110,702

11,818

(122,520

)

253,235

Income from discontinued operations,

net of taxes

(41

)

NET INCOME

253,311

110,743

11,818

(122,561

)

253,311

CONSOLIDATING STATEMENTS OF EARNINGS

	THREE MONTHS ENDED JUNE 30, 2012
							NON-
				GUARANTOR			GUARANTOR		CONSOLIDATING			CONSOLIDATED
(in thousands)	TRG, INC.			SUBSIDIARIES			SUBSIDIARIES		ELIMINATIONS			TOTAL
REVENUES	$	156,304		$	128,289		$	9,176	$	-		$	293,769
EXPENSES	153,859			127,958			6,232		-			288,049
OTHER INCOME	519			-			-		-			519
Income from continuing
operations before taxes	2,964			331			2,944		-			6,239
Tax expense (benefit)	88			(110		)	212		-			190
Equity in net earnings of subsidiaries	3,173			-			-		(3,173		)	-
Net income from continuing
operations	6,049			441			2,732		(3,173		)	6,049
Income from discontinued operations,
net of taxes	223			135			-		(135		)	223
NET INCOME	$	6,272		$	576		$	2,732	$	(3,308	)	$	6,272

(in thousands)	SIX MONTHS ENDED JUNE 30, 2012
REVENUES	$	267,211		$	226,917		$	15,510	$	-		$	509,638
EXPENSES	266,692			228,772			11,921		-			507,385
OTHER INCOME	965			-			-		-			965
Income (loss) from continuing
operations before taxes	1,484			(1,855		)	3,589		-			3,218
Tax expense (benefit)	88			(110		)	212		-			190
Equity in net earnings of subsidiaries	1,632			-			-		(1,632		)	-
Net income (loss) from continuing
operations	3,028			(1,745		)	3,377		(1,632		)	3,028
Loss from discontinued operations,
net of taxes	(1,864		)	(841		)	-		841			(1,864		)
NET INCOME (LOSS)	$	1,164		$	(2,586	)	$	3,377	$	(791	)	$	1,164

CONSOLIDATING STATEMENTS OF OTHER COMPREHENSIVE INCOME

THREE MONTHS ENDED JUNE 30, 2013

NON-

GUARANTOR

CONSOLIDATING

CONSOLIDATED

(in thousands)

TRG, INC.

SUBSIDIARIES

ELIMINATIONS

TOTAL

Net income

231,194

102,450

7,536

(109,986

)

231,194

Other comprehensive loss before tax:

Unrealized loss on marketable

securities, available-for-sale:

Unrealized loss

(662

)

(662

)

Less: reclassification adjustments for

gains included in net income

(189

)

(189

)

Other comprehensive loss before tax

(851

)

(851

)

Income tax benefit related to items

of other comprehensive loss

Other comprehensive loss, net of tax

(851

)

(851

)

Comprehensive income

230,343

102,450

7,536

(109,986

)

230,343

SIX MONTHS ENDED JUNE 30, 2013

Net income

253,311

110,743

11,818

(122,561

)

253,311

Other comprehensive loss before tax:

Unrealized loss on marketable

securities, available-for-sale:

Unrealized loss

(634

)

(634

)

Less: reclassification adjustments for

gains included in net income

(341

)

(341

)

Other comprehensive loss before tax

(975

)

(975

)

Income tax benefit related to items

of other comprehensive loss

Other comprehensive loss, net of tax

(975

)

(975

)

Comprehensive income

252,336

110,743

11,818

(122,561

)

252,336

CONSOLIDATING STATEMENTS OF OTHER COMPREHENSIVE INCOME

	THREE MONTHS ENDED JUNE 30, 2012
							NON-
				GUARANTOR			GUARANTOR		CONSOLIDATING			CONSOLIDATED
(in thousands)	TRG, INC.			SUBSIDIARIES			SUBSIDIARIES		ELIMINATIONS			TOTAL
Net income	$	6,272		$	576		$	2,732	$	(3,308	)	$	6,272
Other comprehensive loss before tax:
Reduction of unrealized gain related to
cash flow hedging instruments	(301		)	-			-		-			(301		)
Unrealized gain on marketable
securities, available-for-sale:
Unrealized gain	139			-			-		-			139
Less: reclassification adjustments for
gains included in net income	(80		)	-			-		-			(80		)
Total unrealized gain on marketable
securities, available-for-sale	59			-			-		-			59
Other comprehensive loss before tax	(242		)	-			-		-			(242		)
Income tax benefit related to items
of other comprehensive loss	115			-			-		-			115
Other comprehensive loss, net of tax	(127		)	-			-		-			(127		)
Comprehensive income	$	6,145		$	576		$	2,732	$	(3,308	)	$	6,145

	SIX MONTHS ENDED JUNE 30, 2012
Net income (loss)	$	1,164		$	(2,586	)	$	3,377	$	(791	)	$	1,164
Other comprehensive income before tax:
Reduction of unrealized gain related to
cash flow hedging instruments	(603		)	-			-		-			(603		)
Unrealized gain on marketable
securities, available-for-sale:
Unrealized gain	933			-			-		-			933
Less: reclassification adjustments for
gains included in net income (loss)	(13		)	-			-		-			(13		)
Total unrealized gain on marketable
securities, available-for-sale	920			-			-		-			920
Other comprehensive income before tax	317			-			-		-			317
Income tax benefit related to items
of other comprehensive income	230			-			-		-			230
Other comprehensive income, net of tax	547			-			-		-			547
Comprehensive income (loss)	$	1,711		$	(2,586	)	$	3,377	$	(791	)	$	1,711

CONSOLIDATING BALANCE SHEETS

	JUNE 30, 2013
					NON-
			GUARANTOR		GUARANTOR		CONSOLIDATING			CONSOLIDATED
(in thousands)	TRG, INC.		SUBSIDIARIES		SUBSIDIARIES		ELIMINATIONS			TOTAL
ASSETS
Cash and cash equivalents	$	20,020	$	235,195	$	9,374	$	-		$	264,589
Marketable securities and restricted cash	414,506		-		26,344		-			440,850
Consolidated inventory owned	746,257		585,270		-		-			1,331,527
Consolidated inventory not owned	17,415		-		16,379		-			33,794
Total housing inventories	763,672		585,270		16,379		-			1,365,321
Investment in subsidiaries	360,692		-		-		(360,692		)	-
Intercompany receivables	547,957		-		-		(547,957		)	-
Other assets	275,451		59,842		113,006		-			448,299
Assets of discontinued operations	-		32		-		-			32
TOTAL ASSETS	2,382,298		880,339		165,103		(908,649		)	2,519,091

LIABILITIES
Accounts payable and other
accrued liabilities	199,375		83,293		36,642		-			319,310
Debt	1,400,085		-		-		-			1,400,085
Intercompany payables	-		472,865		75,092		(547,957		)	-
Liabilities of discontinued operations	564		479		-		-			1,043
TOTAL LIABILITIES	1,600,024		556,637		111,734		(547,957		)	1,720,438
EQUITY
STOCKHOLDERS’ EQUITY	782,274		323,702		36,990		(360,692		)	782,274
NONCONTROLLING INTEREST	-		-		16,379		-			16,379
TOTAL LIABILITIES AND EQUITY	$	2,382,298	$	880,339	$	165,103	$	(908,649	)	$	2,519,091

	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 STATEMENT OF CASH FLOWS

	SIX MONTHS ENDED JUNE 30, 2013
				GUARANTOR			NON-GUARANTOR			CONSOLIDATING			CONSOLIDATED
(in thousands)	TRG, INC.			SUBSIDIARIES			SUBSIDIARIES			ELIMINATIONS			TOTAL
CASH FLOWS FROM OPERATING ACTIVITIES
Net income from continuing operations	$	253,235		$	110,702		$	11,818		$	(122,520	)	$	253,235
Adjustments to reconcile net income from continuing
operations to net cash (used for) provided by
operating activities	(198,615		)	3,725			93			-			(194,797		)
Changes in assets and liabilities	(186,174		)	(155,066		)	6,501			122,520			(212,219		)
Other operating activities, net	(238		)	-			-			-			(238		)
Net cash (used for) provided by operating activities from continuing operations	(131,792		)	(40,639		)	18,412			-			(154,019		)
CASH FLOWS FROM INVESTING ACTIVITIES
Return of investment in (contributions to) unconsolidated
joint ventures, net	185			(5,000		)	-			-			(4,815		)
Additions to property, plant and equipment	(4,158		)	(3,699		)	(403		)	-			(8,260		)
Purchases of marketable securities, available-for-sale	(488,424		)	-			(2,476		)	-			(490,900		)
Proceeds from sales and maturities of marketable securities,
available-for-sale	513,033			-			3,350			-			516,383
Cash paid to acquire a business	-			(31,007		)	-			-			(31,007		)
Net cash provided by (used for) investing activities from continuing operations	20,636			(39,706		)	471			-			(18,599		)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in debt	265,305			-			-			-			265,305
Common stock dividends and stock-based compensation	23,973			-			-			-			23,973
(Increase) decrease in restricted cash	(8,006		)	-			243			-			(7,763		)
Intercompany balances	(179,831		)	197,702			(17,871		)	-			-
Net cash provided by (used for) financing activities from continuing operations	101,441			197,702			(17,628		)	-			281,515
Net (decrease) increase in cash and cash equivalents from continuing operations	(9,715		)	117,357			1,255			-			108,897
Cash flows from operating activities–discontinued operations	-			(24		)	-			-			(24		)
Cash flows from investing activities–discontinued operations	-			24			-			-			24
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	$	20,020		$	235,222		$	9,374		$	-		$	264,616

	SIX MONTHS ENDED JUNE 30, 2012
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) from continuing operations	$	3,028		$	(1,745	)	$	3,377		$	(1,632	)	$	3,028
Adjustments to reconcile net income (loss) from continuing
operations to net cash (used for) provided by
operating activities	8,687			4,418			268			-			13,373
Changes in assets and liabilities	(70,561		)	(13,597		)	11,786			1,632			(70,740		)
Other operating activities, net	(784		)	-			-			-			(784		)
Net cash (used for) provided by operating activities from continuing operations	(59,630		)	(10,924		)	15,431			-			(55,123		)
CASH FLOWS FROM INVESTING ACTIVITIES
Return of investment in unconsolidated joint ventures, net	539			1,332			-			-			1,871
Additions to property, plant and equipment	(3,503		)	(1,915		)	(16		)	-			(5,434		)
Purchases of marketable securities, available-for-sale	(468,012		)	-			(1,678		)	-			(469,690		)
Proceeds from sales and maturities of marketable securities,
available-for-sale	506,783			-			1,904			-			508,687
Other investing activities, net	-			-			(10		)	-			(10		)
Net cash provided by (used for) investing activities from continuing operations	35,807			(583		)	200			-			35,424
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in debt	224,909			(1,188		)	-			-			223,721
Increase in borrowings against revolving credit facilities, net	-			-			338			-			338
Common stock dividends and stock-based compensation	1,750			-			-			-			1,750
(Increase) decrease in restricted cash	(14,175		)	-			4,164			-			(10,011		)
Intercompany balances	(194,164		)	210,429			(16,265		)	-			-
Net cash provided by (used for) financing activities from continuing operations	18,320			209,241			(11,763		)	-			215,798
Net (decrease) increase in cash and cash equivalents from continuing operations	(5,503		)	197,734			3,868			-			196,099
Cash flows from operating activities–discontinued operations	436			(73		)	-			-			363
Cash flows from investing activities–discontinued operations	6			73			-			-			79
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	$	20,369		$	314,835		$	20,506		$	-		$	355,710