Note 20. 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 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 that 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, 2014

NON-

GUARANTOR

CONSOLIDATING

CONSOLIDATED

(in thousands)

TRG, INC.

SUBSIDIARIES

ELIMINATIONS

TOTAL

REVENUES

297,734

280,874

11,145

(12,364

)

577,389

EXPENSES

268,737

256,838

13,079

(12,364

)

526,290

OTHER INCOME

790

289

1,104

Income (loss) from continuing
operations before taxes

29,787

24,325

(1,909

)

52,203

Tax expense (benefit)

11,505

9,394

(738

)

20,161

Equity in net earnings of subsidiaries

13,760

(13,760

)

NET INCOME (LOSS)

32,042

14,931

(1,171

)

(13,760

)

32,042

SIX MONTHS ENDED JUNE 30, 2014

REVENUES

548,141

521,108

19,343

(21,520

)

1,067,072

EXPENSES

497,607

479,917

22,688

(21,520

)

978,692

OTHER INCOME

1,485

483

1,993

Income (loss) from continuing
operations before taxes

52,019

41,674

(3,320

)

90,373

Tax expense (benefit)

20,033

16,050

(1,279

)

34,804

Equity in net earnings of subsidiaries

23,583

(23,583

)

NET INCOME (LOSS)

55,569

25,624

(2,041

)

(23,583

)

55,569

CONSOLIDATING STATEMENTS OF EARNINGS

	THREE MONTHS ENDED JUNE 30, 2013
							NON-
				GUARANTOR			GUARANTOR		CONSOLIDATING			CONSOLIDATED
(in thousands)	TRG, INC.			SUBSIDIARIES			SUBSIDIARIES		ELIMINATIONS			TOTAL
REVENUES	$	269,336		$	219,784		$	15,004	$	(11,129	)	$	492,995
EXPENSES	250,168			203,204			7,378		(11,129		)	449,621
OTHER INCOME	792			113			-		-			905
Income from continuing operations before taxes	19,960			16,693			7,626		-			44,279
Tax (benefit) expense	(101,273		)	(85,769		)	90		-			(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		)	-		12			(37		)
NET INCOME	$	231,194		$	102,450		$	7,536	$	(109,986	)	$	231,194

	SIX MONTHS ENDED JUNE 30, 2013
REVENUES	$	471,634		$	388,823		$	26,183	$	(18,965	)	$	867,675
EXPENSES	443,788			364,035			14,236		(18,965		)	803,094
OTHER INCOME	1,682			219			-		-			1,901
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	76			41			-		(41		)	76
NET INCOME	$	253,311		$	110,743		$	11,818	$	(122,561	)	$	253,311

CONSOLIDATING STATEMENTS OF OTHER COMPREHENSIVE INCOME

	THREE MONTHS ENDED JUNE 30, 2014
						NON-
				GUARANTOR		GUARANTOR			CONSOLIDATING			CONSOLIDATED
(in thousands)	TRG, INC.			SUBSIDIARIES		SUBSIDIARIES			ELIMINATIONS			TOTAL
Net income (loss)	$	32,042		$	14,931	$	(1,171	)	$	(13,760	)	$	32,042
Other comprehensive income, net of tax:
Amortization of actuarial loss on defined benefit pension plan, net	4			-		-			-			4
Unrealized gain on marketable securities, available-for-sale, net	236			-		-			-			236
Other comprehensive income, net of tax	240			-		-			-			240
Comprehensive income (loss)	$	32,282		$	14,931	$	(1,171	)	$	(13,760	)	$	32,282

	SIX MONTHS ENDED JUNE 30, 2014
Net income (loss)	$	55,569		$	25,624	$	(2,041	)	$	(23,583	)	$	55,569
Other comprehensive income, net of tax:
Amortization of actuarial loss on defined benefit pension plan, net	9			-		-			-			9
Unrealized gain on marketable securities, available-for-sale, net	424			-		-			-			424
Other comprehensive income, net of tax	433			-		-			-			433
Comprehensive income (loss)	$	56,002		$	25,624	$	(2,041	)	$	(23,583	)	$	56,002

	THREE MONTHS ENDED JUNE 30, 2013
Net income	$	231,194		$	102,450	$	7,536		$	(109,986	)	$	231,194
Other comprehensive loss, net of tax:
Unrealized loss on marketable securities, available-for-sale, net	(851		)	-		-			-			(851		)
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, net of tax:
Unrealized loss on marketable securities, available-for-sale, net	(975		)	-		-			-			(975		)
Other comprehensive loss, net of tax	(975		)	-		-			-			(975		)
Comprehensive income	$	252,336		$	110,743	$	11,818		$	(122,561	)	$	252,336

CONSOLIDATING BALANCE SHEETS

	JUNE 30, 2014
					NON-
			GUARANTOR		GUARANTOR		CONSOLIDATING			CONSOLIDATED
(in thousands)	TRG, INC.		SUBSIDIARIES		SUBSIDIARIES		ELIMINATIONS			TOTAL
ASSETS
Cash and cash equivalents	$	19,126	$	186,748	$	8,325	$	-		$	214,199
Marketable securities and restricted cash	283,188		-		26,698		-			309,886
Consolidated inventory owned	1,147,784		734,981		-		-			1,882,765
Consolidated inventory not owned	17,215		-		16,854		-			34,069
Total housing inventories	1,164,999		734,981		16,854		-			1,916,834
Investment in subsidiaries	388,872		-		-		(388,872		)	-
Intercompany receivables	497,494		-		3,438		(500,932		)	-
Other assets	270,191		56,011		85,445		-			411,647
TOTAL ASSETS	2,623,870		977,740		140,760		(889,804		)	2,852,566

LIABILITIES
Accounts payable and other accrued liabilities	241,050		115,122		37,642		-			393,814
Financial services credit facilities	-		-		59,078		-			59,078
Debt	1,397,395		-		-		-			1,397,395
Intercompany payables	-		500,932		-		(500,932		)	-
TOTAL LIABILITIES	1,638,445		616,054		96,720		(500,932		)	1,850,287
EQUITY
STOCKHOLDERS’ EQUITY	985,425		361,686		27,186		(388,872		)	985,425
NONCONTROLLING INTEREST	-		-		16,854		-			16,854
TOTAL LIABILITIES AND EQUITY	$	2,623,870	$	977,740	$	140,760	$	(889,804	)	$	2,852,566

	DECEMBER 31, 2013
ASSETS
Cash and cash equivalents	$	25,521	$	193,356	$	9,109	$	-		$	227,986
Marketable securities and restricted cash	377,267		-		25,922		-			403,189
Consolidated inventory owned	955,943		660,664		-		-			1,616,607
Consolidated inventory not owned	17,297		-		15,879		-			33,176
Total housing inventories	973,240		660,664		15,879		-			1,649,783

Investment in subsidiaries	369,580		-		-		(369,580		)	-
Intercompany receivables	517,057		-		-		(517,057		)	-
Other assets	290,153		54,052		155,149		-			499,354
Assets of discontinued operations	-		30		-		-			30
TOTAL ASSETS	2,552,818		908,102		206,059		(886,637		)	2,780,342

LIABILITIES
Accounts payable and other accrued liabilities	247,328		106,420		31,773		-			385,521
Financial services credit facility	-		-		73,084		-			73,084
Debt	1,397,308		-		-		-			1,397,308
Intercompany payables	-		465,252		51,805		(517,057		)	-
Liabilities of discontinued operations	136		368		-		-			504
TOTAL LIABILITIES	1,644,772		572,040		156,662		(517,057		)	1,856,417
EQUITY
STOCKHOLDERS’ EQUITY	908,046		336,062		33,518		(369,580		)	908,046
NONCONTROLLING INTEREST	-		-		15,879		-			15,879
TOTAL LIABILITIES AND EQUITY	$	2,552,818	$	908,102	$	206,059	$	(886,637	)	$	2,780,342

CONSOLIDATING STATEMENTS OF CASH FLOWS

	SIX MONTHS ENDED JUNE 30, 2014
				GUARANTOR			NON-GUARANTOR			CONSOLIDATING			CONSOLIDATED
(in thousands)	TRG, INC.			SUBSIDIARIES			SUBSIDIARIES			ELIMINATIONS			TOTAL
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) from continuing operations	$	55,569		$	25,624		$	(2,041	)	$	(23,583	)	$	55,569
Adjustments to reconcile net income (loss) from continuing operations to net cash (used for) provided by operating activities	16,095			4,489			203			-			20,787
Changes in assets and liabilities	(207,928		)	(69,021		)	71,126			23,583			(182,240		)
Other operating activities, net	(586		)	-			-			-			(586		)
Net cash (used for) provided by operating activities from continuing operations	(136,850		)	(38,908		)	69,288			-			(106,470		)
CASH FLOWS FROM INVESTING ACTIVITIES
Return of investment in unconsolidated joint ventures, net	366			-			-			-			366
Additions to property, plant and equipment	(6,448		)	(3,380		)	(47		)	-			(9,875		)
Purchases of marketable securities, available-for-sale	(238,315		)	-			(800		)	-			(239,115		)
Proceeds from sales and maturities of marketable securities, available-for-sale	339,157			-			1,800			-			340,957
Net cash provided by (used for) investing activities from continuing operations	94,760			(3,380		)	953			-			92,333
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in debt	(252		)	-			-			-			(252		)
Repayments of borrowings against revolving credit facilities, net	-			-			(14,006		)	-			(14,006		)
Common stock dividends and stock-based compensation	20,243			-			-			-			20,243
Increase in restricted cash	(3,859		)	-			(1,776		)	-			(5,635		)
Intercompany balances	19,563			35,680			(55,243		)	-			-
Net cash provided by (used for) financing activities from continuing operations	35,695			35,680			(71,025		)	-			350
Net decrease in cash and cash equivalents from continuing operations	(6,395		)	(6,608		)	(784		)	-			(13,787		)
Cash flows from operating activities–discontinued operations	-			(27		)	-			-			(27		)
Cash and cash equivalents at beginning of year	25,521			193,383			9,109			-			228,013
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	19,126		$	186,748		$	8,325		$	-		$	214,199


	SIX MONTHS ENDED JUNE 30, 2013
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	(198,272		)	3,725			93			-			(194,454		)
Changes in assets and liabilities	(186,467		)	(155,116		)	6,501			122,520			(212,562		)
Other operating activities, net	(238		)	-			-			-			(238		)
Net cash (used for) provided by operating activities from continuing operations	(131,742		)	(40,689		)	18,412			-			(154,019		)
CASH FLOWS FROM INVESTING ACTIVITIES
Return of investment in (contributions to) unconsolidated joint ventures, net	135			(4,950		)	-			-			(4,815		)
Additions to property, plant and equipment	(4,158		)	(3,699		)	(403		)	-			(8,260		)
Purchases of marketable securities, available-for-sale	(495,137		)	-			(2,476		)	-			(497,613		)
Proceeds from sales and maturities of marketable securities, available-for-sale	519,508			-			3,350			-			522,858
Cash paid to acquire a business	-			(31,007		)	-			-			(31,007		)
Net cash provided by (used for) investing activities from continuing operations	20,348			(39,656		)	471			-			(18,837		)
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	(9,953		)	117,357			1,255			-			108,659
Cash flows from operating activities–discontinued operations	-			(24		)	-			-			(24		)
Cash flows from investing activities–discontinued operations	-			24			-			-			24
Cash and cash equivalents at beginning of year	32,130			117,865			8,119			-			158,114
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	22,177		$	235,222		$	9,374		$	-		$	266,773