10-Q/A 1 a06-21887_210qa.htm AMENDMENT TO QUARTERLY REPORT PURSUANT TO SECTIONS 13 OR 15(D)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

Amendment No. 1

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

For the quarterly period ended June 30, 2006

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

For the transition period from to .

Commission File Number: 001-08029

THE RYLAND GROUP, INC.

(Exact name of Registrant as specified in its charter)

Maryland	52-0849948
(State of Incorporation)	(I.R.S. Employer Identification Number)

24025 Park Sorrento, Suite 400

Calabasas, California 91302

818-223-7500

(Address and telephone number of principal executive offices)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one:)

Large Accelerated Filer [X] Accelerated Filer [ ] Non-Accelerated Filer [ ]

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

[ ] Yes [ X ] No

The number of shares of common stock of The Ryland Group, Inc. outstanding on July 28, 2006, was 43,666,680.

Explanatory Paragraph

This Form 10-Q/A is being filed to provide additional segment reporting footnote disclosure related to the Company’s homebuilding operations. The Company has restated the accompanying unaudited consolidated financial statements with revisions to its segment disclosure for all periods presented in order to disaggregate its homebuilding operations into regional reporting segments. See revised disclosures in Note 3, “Segment Information,” to the unaudited consolidated financial statements. Unless otherwise indicated, no information in this Form 10-Q/A has been updated from the original filing for any subsequent information or events.

For the convenience of the reader, this Form 10-Q/A sets forth the entire June 30, 2006, Form 10-Q. However, this Form 10-Q/A amends and restates only “Part I. Financial Information, Items 1., 2. and 4.” of the June 30, 2006, Form 10-Q, in each case solely to be responsive to a disclosure comment, indicating a preference for additional segment reporting, received from the Division of Corporation Finance of the Securities and Exchange Commission. The aforementioned changes to the unaudited consolidated financial statements have no effect on the Company’s financial position as of June 30, 2006, and December 31, 2005, or its results of operations and cash flows for the three and six months ended June 30, 2006 and 2005.

THE RYLAND GROUP, INC.

FORM 10-Q/A

INDEX

			PAGE NO.
PART I. Financial Information

	Item 1.	Financial Statements

	Consolidated Statements of Earnings for the Three and Six
		Months Ended June 30, 2006 and 2005 (Unaudited)	4

	Consolidated Balance Sheets at June 30, 2006 (Unaudited) and
		December 31, 2005	5

	Consolidated Statements of Cash Flows for the Six Months
		Ended June 30, 2006 and 2005 (Unaudited)	6

	Consolidated Statement of Stockholders’ Equity for the Six
		Months Ended June 30, 2006 (Unaudited)	7

	Notes to Consolidated Financial Statements (Unaudited)		8-24

	Item 2.	Management’s Discussion and Analysis of
		Financial Condition and Results of Operations	25-37

	Item 3.	Quantitative and Qualitative Disclosures about
		Market Risk	38

	Item 4.	Controls and Procedures	38

PART II. Other Information

	Item 1.	Legal Proceedings	39

	Item 1A.	Risk Factors	39

	Item 2.	Unregistered Sales of Equity Securities and
		Use of Proceeds	40

	Item 4.	Submission of Matters to a Vote of Security Holders	40-41

	Item 6.	Exhibits	42

SIGNATURES			43

INDEX OF EXHIBITS			44

PART I. Financial Information

Item 1. Financial Statements

	Consolidated Statements of Earnings (Unaudited)
	The Ryland Group, Inc. and Subsidiaries

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands, except share data)	2006		2005		2006		2005

REVENUES
Homebuilding	$	1,170,362	$	1,135,744	$	2,226,241	$	1,994,121
Financial services	26,530		23,968		45,489		39,565
TOTAL REVENUES	1,196,892		1,159,712		2,271,730		2,033,686

EXPENSES
Cost of sales	898,149		853,178		1,697,073		1,514,023
Selling, general and administrative	118,409		111,244		227,827		202,800
Financial services	9,655		7,720		17,080		15,062
Corporate	18,973		19,280		33,997		32,343
TOTAL EXPENSES	1,045,186		991,422		1,975,977		1,764,228

EARNINGS
Earnings before taxes	151,706		168,290		295,753		269,458
Tax expense	56,889		63,950		110,907		102,392
NET EARNINGS	$	94,817	$	104,340	$	184,846	$	167,066

NET EARNINGS PER COMMON SHARE
Basic	$	2.11	$	2.22	$	4.06	$	3.53
Diluted	2.03		2.10		3.88		3.35

AVERAGE COMMON SHARES OUTSTANDING	45,025,672		47,056,571		45,580,235		47,273,041
Basic	46,762,816		49,624,859		47,590,596		49,857,403
Diluted

DIVIDENDS DECLARED PER COMMON SHARE	$	0.12	$	0.06	$	0.24	$	0.12

See Notes to Consolidated Financial Statements.

	Consolidated Balance Sheets
	The Ryland Group, Inc. and Subsidiaries

	June 30,		December 31,
(in thousands, except share data)	2006		2005
	(Unaudited)
ASSETS
Cash and cash equivalents	$	193,456	$	461,383
Housing inventories
Homes under construction	1,445,449		1,253,460
Land under development and improved lots	1,285,975		1,087,016
Consolidated inventory not owned	207,378		239,191
Total inventories	2,938,802		2,579,667
Property, plant and equipment	75,382		65,980
Net deferred taxes	62,759		50,099
Purchase price in excess of net assets acquired	18,185		18,185
Other	238,991		211,559
TOTAL ASSETS	3,527,575		3,386,873

LIABILITIES
Accounts payable	265,446		249,539
Accrued and other liabilities	517,115		664,691
Debt	1,185,480		921,970
TOTAL LIABILITIES	1,968,041		1,836,200

MINORITY INTEREST	145,018		174,652

STOCKHOLDERS’ EQUITY
Common stock, $1.00 par value:
Authorized – 200,000,000 shares
Issued – 44,254,440 shares at June 30, 2006
(46,368,143 shares at December 31, 2005)	44,254		46,368
Retained earnings	1,364,928		1,326,689
Accumulated other comprehensive income	5,334		2,964
TOTAL STOCKHOLDERS’ EQUITY	1,414,516		1,376,021
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	3,527,575	$	3,386,873

See Notes to Consolidated Financial Statements.

	Consolidated Statements of Cash Flows (Unaudited)
	The Ryland Group, Inc. and Subsidiaries

	Six Months Ended June 30,
(in thousands)	2006			2005

CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings	$	184,846		$	167,066
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization	21,766			19,757
Stock-based compensation expense	13,650			9,712
Changes in assets and liabilities:
Increase in inventories	(386,824		)	(418,502		)
Net change in other assets, payables and other liabilities	(167,742		)	17,624
Tax benefit from exercise of stock options and vesting of restricted stock	-			10,493
Excess tax benefits from stock-based compensation	(11,947		)	-
Other operating activities, net	(2,878		)	(6,011		)
Net cash used for operating activities	(349,129		)	(199,861		)

CASH FLOWS FROM INVESTING ACTIVITIES
Net additions to property, plant and equipment	(28,359		)	(27,219		)
Principal reduction of mortgage-backed securities,
notes receivable and mortgage collateral	2,015			2,667
Net cash used for investing activities	(26,344		)	(24,552		)

CASH FLOWS FROM FINANCING ACTIVITIES
Cash proceeds of long-term debt	250,000			500,000
Increase in short-term borrowings	13,510			18,837
Common stock dividends	(11,148		)	(5,715		)
Common stock repurchases	(174,981		)	(79,897		)
Issuance of common stock under stock-based compensation	18,265			15,429
Excess tax benefits from stock-based compensation	11,947			-
Other financing activities, net	(47		)	(912		)
Net cash provided by financing activities	107,546			447,742
Net (decrease) increase in cash and cash equivalents	(267,927		)	223,329
Cash and cash equivalents at beginning of period	461,383			88,388

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	193,456		$	311,717
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES
(Decrease) increase in consolidated inventory not owned related to land options	$	(27,689	)	$	80,198

See Notes to Consolidated Financial Statements.

	Consolidated Statement of Stockholders’ Equity (Unaudited)
	The Ryland Group, Inc. and Subsidiaries

										Accumulated
										Other		Total
	Common			Paid-in			Retained			Comprehensive		Stockholders’
(in thousands, except share data)	Stock			Capital			Earnings			Income		Equity
BALANCE AT DECEMBER 31, 2005	$	46,368		$	-		$	1,326,689		$	2,964	$	1,376,021
Comprehensive income:
Net earnings							184,846					184,846
Other comprehensive income, net of tax:
Change in net unrealized gain on
mortgage-backed securities and cash flow
hedging instruments, net of taxes of $1,468										2,370		2,370
Total comprehensive income												187,216
Common stock dividends (per share $0.24)							(10,894		)			(10,894		)
Repurchase of common stock	(2,850		)	(36,418		)	(135,713		)			(174,981		)
Stock-based compensation and related
income tax benefit	736			36,418								37,154
BALANCE AT JUNE 30, 2006	$	44,254		$	-		$	1,364,928		$	5,334	$	1,414,516

See Notes to Consolidated Financial Statements.

	Notes to Consolidated Financial Statements (Unaudited)
	The Ryland Group, Inc. and Subsidiaries

Note 1. Consolidated Financial Statements

The consolidated financial statements include the accounts of The Ryland Group, Inc. and its wholly-owned subsidiaries (the “Company”). Intercompany transactions have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform to the 2006 presentation. See Note A, “Summary of Significant Accounting Policies,” in the Company’s 2005 Annual Report on Form 10-K/A for a description of its accounting policies.

The consolidated balance sheet at June 30, 2006, the consolidated statements of earnings for the three- and six- month periods ended June 30, 2006 and 2005, and the consolidated statements of cash flows for the six-month periods ended June 30, 2006 and 2005, have been prepared by the Company without audit. In the opinion of management, all adjustments, including normally recurring adjustments necessary to present fairly the Company’s financial position, results of operations and cash flows at June 30, 2006, and for all periods presented, have been made. Certain information and footnote disclosures normally included in the financial statements have been condensed or omitted. These financial statements should be read in conjunction with the financial statements and related notes included in the Company’s 2005 Annual Report on Form 10-K/A.

The Company has historically experienced, and expects to continue to experience, variability in quarterly results. Accordingly, the results of operations for the three and six months ended June 30, 2006, are not necessarily indicative of the operating results expected for the year ended December 31, 2006.

Note 2. Comprehensive Income

Comprehensive income consists of net income and the increase or decrease in unrealized gains or losses on the Company’s available-for-sale securities, as well as the increase or decrease in unrealized gains or losses associated with treasury interest rate locks (treasury locks), net of applicable taxes. (See Note 9, “Debt.”) Comprehensive income totaled $91.7 million and $104.3 million for the three-month periods ended June 30, 2006 and 2005, respectively. Comprehensive income for the six-month periods ended June 30, 2006 and 2005, totaled $187.2 million and $167.0 million, respectively.

Note 3. Segment Information (Restated)

The Company is a leading national homebuilder and mortgage-related financial services firm. As one of the largest single-family on-site homebuilders in the United States, it builds homes in 28 markets. The Company consists of six segments: four geographically-determined homebuilding regions, referred to as North, Texas, Southeast and West; financial services; and corporate. The Company’s homebuilding segments specialize in the sale and construction of single-family attached and detached housing. The Company’s financial services segment provides loan origination and offers mortgage, title, escrow and insurance services. Corporate is a non-operating business segment with the sole purpose of supporting operations. Certain corporate expenses are allocated to the homebuilding and financial services segments. As a result of disaggregating the Company’s homebuilding operations into formal segments, certain employee benefit plan assets and costs have been reclassified from corporate to other segments in order to best reflect the financial position and results of the Company’s segments.

The Company evaluates performance and allocates resources based on a number of factors, including segment pretax earnings. The accounting policies of the segments are the same as those described in Note 1, “Consolidated Financial Statements.”

	Notes to Consolidated Financial Statements (Unaudited)
	The Ryland Group, Inc. and Subsidiaries

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2006			2005			2006			2005

REVENUES
Homebuilding
North	$	322,622		$	319,179		$	572,617		$	544,799
Texas	160,363			133,537			298,261			238,314
Southeast	367,628			309,236			702,792			532,580
West	319,749			373,792			652,571			678,428
Financial services	26,530			23,968			45,489			39,565
Total	$	1,196,892		$	1,159,712		$	2,271,730		$	2,033,686

PRETAX EARNINGS
Homebuilding
North	$	51,331		$	49,511		$	84,613		$	82,809
Texas	13,604			8,003			21,505			10,928
Southeast	64,402			41,406			118,909			64,122
West	24,467			72,402			76,314			119,439
Financial services	16,875			16,248			28,409			24,503
Corporate and unallocated	(18,973		)	(19,280		)	(33,997		)	(32,343		)
Total	$	151,706		$	168,290		$	295,753		$	269,458

Note 4. Earnings Per Share Reconciliation

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

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands, except share data)	2006		2005		2006		2005

NUMERATOR
Net earnings	$	94,817	$	104,340	$	184,846	$	167,066

DENOMINATOR
Basic earnings per share – weighted-average shares	45,025,672		47,056,571		45,580,235		47,273,041
Effect of dilutive securities:
Stock options	1,330,710		2,210,695		1,602,839		2,257,558
Equity incentive plan	406,434		357,593		407,522		326,804
Dilutive potential of common shares	1,737,144		2,568,288		2,010,361		2,584,362
Diluted earnings per share – adjusted weighted-average
shares and assumed conversions	46,762,816		49,624,859		47,590,596		49,857,403

NET EARNINGS PER COMMON SHARE

Basic	$	2.11	$	2.22	$	4.06	$	3.53
Diluted	2.03		2.10		3.88		3.35

	Notes to Consolidated Financial Statements (Unaudited)
	The Ryland Group, Inc. and Subsidiaries

Options to purchase 1.1 million shares and 205,000 shares of common stock at various prices were outstanding for the three- and six-month periods ended June 30, 2006, respectively, but were not included in the computation of diluted earnings per share because their effect would have been antidilutive since their exercise prices were greater than the average market price of the shares. For the three- and six-month periods ended June 30, 2005, all options were included in the diluted earnings per share calculation.

Note 5. Inventories

Housing inventories consist principally of homes under construction, land under development and improved lots. 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 fair value.

The following table is a summary of capitalized interest:

(in thousands)	2006			2005
Capitalized interest at January 1	$	75,890		$	55,414
Interest capitalized	34,626			33,130
Interest amortized to cost of sales	(21,365		)	(20,560		)
Capitalized interest at June 30	$	89,151		$	67,984

The Company recorded $20.0 million on three impaired projects in the West region for inventory write-downs during the three-month period ended June 30, 2006.

Note 6. Purchase Price in Excess of Net Assets Acquired

The Company performs impairment tests of its goodwill annually as of March 31. The Company tests goodwill for impairment by using the two-step process prescribed in Statement of Financial Accounting Standards No. 142 (SFAS 142), “Goodwill and Other Intangible Assets.” The first step identifies potential impairment, while the second step measures the amount of impairment. The Company had no impairment at March 31, 2006 or 2005.

As a result of the Company’s application of the nonamortization provisions of SFAS 142, no amortization of goodwill was recorded during the three and six months ended June 30, 2006 or 2005.

Note 7. Variable Interest Entities

Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities,” requires a variable interest entity (VIE) to be consolidated by a company if that company is subject to a majority of the risk of loss from the VIE’s activities and/or entitled to receive a majority of the VIE’s residual returns. FIN 46 also requires disclosure about VIEs that the Company is not required 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. In accordance with the requirements of FIN 46, certain of the Company’s lot option purchase contracts may result in the creation of a variable interest in a VIE.

	Notes to Consolidated Financial Statements (Unaudited)
	The Ryland Group, Inc. and Subsidiaries

In compliance with the provisions of FIN 46, the Company consolidated $207.4 million of inventory not owned at June 30, 2006, $149.1 million of which pertained to land and lot option purchase contracts and $58.3 million of which pertained to three of the Company’s homebuilding joint ventures. (See Note 8, “Investments in Joint Ventures.”) While the Company may not have had legal title to the optioned land or guaranteed the seller’s debt associated with that property, under FIN 46 it had the primary variable interest and was required to consolidate the particular VIE’s assets under option at fair value. This represents the fair value of the optioned property. Additionally, to reflect the fair value of the inventory consolidated under FIN 46, the Company eliminated $13.7 million of its related cash deposits for lot option purchase contracts, which are included in consolidated inventory not owned. Minority interest totaling $135.4 million was recorded with respect to the consolidation of these contracts, representing the selling entities’ ownership interests in these VIEs. At June 30, 2006, the Company had cash deposits and letters of credit totaling $23.9 million relating to lot option purchase contracts that were consolidated, reflecting its current maximum exposure to loss. Creditors of these VIEs, if any, have no recourse against the Company. At June 30, 2006, the Company had cash deposits and/or letters of credit totaling $95.3 million that were associated with lot option purchase contracts that had an aggregate purchase price of $1.2 billion, which were related to VIEs in which it was not the primary beneficiary.

Note 8. 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. Currently, the Company participates in homebuilding joint ventures in the Atlanta, Austin, Chicago, Dallas, Denver, Las Vegas, Orlando and Phoenix markets. The Company participates in a number of joint ventures in which it has less than a controlling interest. At June 30, 2006, and December 31, 2005, the Company’s investments in its unconsolidated joint ventures totaled $13.0 million and $10.2 million, respectively, and were classified under “Other” assets. The Company recognizes its share of the respective joint ventures’ earnings from the sale of lots to other homebuilders. It does not, however, recognize earnings from lots that it purchases from the joint ventures. Instead, it reduces its cost basis in these lots by its share of the earnings from the lots. The Company’s equity in earnings of its unconsolidated joint ventures totaled $38,000 and $70,000 for the three months ended June 30, 2006 and 2005, respectively. For the six months ended June 30, 2006, the Company’s equity in losses totaled $345,000, compared to equity in earnings of $168,000 for the same period in 2005.

The aggregate assets of the unconsolidated joint ventures in which the Company participated were $608.8 million and $581.4 million at June 30, 2006, and December 31, 2005, respectively. The aggregate debt of the unconsolidated joint ventures in which the Company participated totaled $408.7 million and $394.0 million at June 30, 2006, and December 31, 2005, respectively. The Company and its partners provide guarantees of debt on a pro rata basis for one of its unconsolidated joint ventures. The Company had a 3.3 percent pro rata interest on the debt, or $12.8 million, at June 30, 2006, and a completion guarantee related to project development. The guarantees apply if a partner in the joint venture defaults on its loan arrangement and the fair value of the collateral (land and improvements) is less than the loan balance.

At June 30, 2006, three of the joint ventures in which the Company participates were consolidated in accordance with the provisions of FIN 46, as the Company was determined to have the primary variable interest in the entities. In association with these consolidated joint ventures, the Company recorded pretax earnings of $393,000 and $4,000 for the three-month periods ended June 30, 2006 and 2005, respectively. For the six-month periods ended June 30, 2006 and 2005, the Company recorded pretax earnings of $435,000 and pretax losses of $1,000, respectively. Total assets of $59.2 million and $63.7 million, including consolidated inventory not owned (see Note 7, “Variable Interest Entities.”); total liabilities of $42.3 million and $43.3 million; and minority interest of $9.6 million and $11.5 million, were consolidated as of June 30, 2006, and December 31, 2005, respectively. During the first quarter of 2006, the Company guaranteed up to 50.0 percent of a $55.0 million revolving credit facility for one of its consolidated joint ventures. At June 30, 2006, the actual borrowings against the revolving credit facility for this consolidated joint venture were $35.2 million, of which the Company guaranteed $17.6 million.

	Notes to Consolidated Financial Statements (Unaudited)
	The Ryland Group, Inc. and Subsidiaries

Note 9. Debt

In May 2006, the Company issued $250.0 million aggregate principal amount of 6.9 percent senior notes. The notes will mature on June 15, 2013, and may be redeemed at a stated redemption price, in whole or in part, at any time. Commencing on December 15, 2006, the Company will pay interest semiannually in arrears on June 15 and December 15 of each year.

Additionally, at June 30, 2006, the Company had outstanding (a) $100.0 million of 8.0 percent senior notes due August 2006, with interest payable semiannually, which may not be redeemed prior to maturity; (b) $150.0 million of 5.4 percent senior notes due June 2008, with interest payable semiannually, which may be redeemed at a stated redemption price at the option of the Company, in whole or in part, at any time; (c) $250.0 million of 5.4 percent senior notes due May 2012, with interest payable semiannually, which may be redeemed at a stated redemption price at the option of the Company, in whole or in part, at any time; and (d) $250.0 million of 5.4 percent senior notes due January 2015, with interest payable semiannually, which may be redeemed at a stated redemption price, in whole or in part, at any time. The Company intends to repay its outstanding $100.0 million of 8.0 percent senior notes due August 2006.

At June 30, 2006, the Company also had outstanding $150.0 million of 9.1 percent senior subordinated notes due June 2011, of which it owned $6.5 million, with interest payable semiannually. In July 2006, the Company redeemed the senior subordinated notes due June 2011. (See Management’s Discussion and Analysis, “Financial Condition and Liquidity.”)

During the second quarter of 2006, the Company terminated its $100.0 million treasury lock at 4.2 percent and its $150.0 million treasury lock at 4.1 percent. These hedges were entered into in 2005 to facilitate the replacement of higher-rate senior and senior subordinated debt in 2006. The hedges were evaluated and deemed to be highly effective at the inception of the contracts. In accordance with Statement of Financial Accounting Standards No. 133 (SFAS 133), “Accounting for Derivative Instruments and Hedging Activities,” the Company accounted for the treasury locks as cash flow hedges. As a result of timing in the Company’s debt issuance and in the term of debt issued in the second quarter of 2006, a gain of $9.2 million was recognized during that period, reflecting the ineffective portion of those cash flow hedges. The effective portion of the settlement value of the $150.0 million treasury lock of $8.4 million was recorded, net of income tax effect, in “Accumulated Other Comprehensive Income” and will be amortized to earnings over the seven-year life of the related debt instrument.

In January 2006, the Company entered into a $750.0 million unsecured revolving credit facility. The credit agreement, which matures in January 2011, also provides access to an additional $750.0 million of financing through an accordion feature under which the aggregate commitment may be increased up to $1.5 billion, subject to the availability of additional lending commitments. The $750.0 million revolving credit facility includes a $75.0 million swing-line facility and a $600.0 million sublimit for issuance of standby letters of credit. Amounts borrowed under the credit agreement are guaranteed on a joint and several basis by substantially all of the Company’s wholly-owned homebuilding subsidiaries. Such guarantees are full and unconditional. Interest rates on outstanding borrowings are determined either by reference to LIBOR, with margins determined based on changes in the Company’s leverage ratio and credit ratings, or by reference to an alternate base rate. The credit agreement contains various customary affirmative, negative and financial covenants. The credit agreement replaces the Company’s prior $500.0 million revolving credit facility and will be used for general corporate purposes. There were no outstanding borrowings under this agreement or under the Company’s prior $500.0 million revolving credit facility at June 30, 2006, or December 31, 2005.

At June 30, 2006, the Company’s obligations to pay principal, premium, if any, and interest under its $750.0 million unsecured revolving credit facility; 8.0 percent senior notes due August 2006; 5.4 percent senior notes due June 2008; 5.4 percent senior notes due May 2012; 6.9 percent senior notes due June 2013; and 5.4 percent senior notes due January 2015 are guaranteed on a joint and several basis by substantially all of its wholly-owned

	Notes to Consolidated Financial Statements (Unaudited)
	The Ryland Group, Inc. and Subsidiaries

homebuilding subsidiaries. Such guarantees are full and unconditional. (See Note 14, “Supplemental Guarantor Information.”)

The senior and senior subordinated notes and indenture agreements, as well as the unsecured revolving credit facility, contain numerous restrictive covenants. At June 30, 2006, the Company was in compliance with these covenants.

To finance its land purchases, the Company may also use seller-financed nonrecourse secured notes payable. At June 30, 2006, such notes payable outstanding amounted to $42.0 million, versus $28.5 million at December 31, 2005.

Note 10. Postretirement Benefits

The Company has supplemental nonqualified retirement plans that vest over five-year periods beginning in 2003, pursuant to which it will pay supplemental pension benefits to key employees upon retirement. In connection with these plans, the Company has purchased cost-recovery life insurance on the lives of certain employees. Insurance contracts associated with the plans are held by trusts established as part of the plans to implement and carry out their provisions and finance their related benefits. The trusts are owners and beneficiaries of such contracts. The amount of coverage is designed to provide sufficient revenue to cover all costs of the plans if assumptions made as to employment term, mortality experience, policy earnings and other factors are realized. At June 30, 2006, and December 31, 2005, the cash surrender value of these contracts was $23.2 million and $19.2 million, respectively. The net periodic benefit cost for these plans for the three months ended June 30, 2006, was $1.9 million and included service costs of $1.3 million, interest costs of $284,000 and investment losses of $354,000. For the three months ended June 30, 2005, the net periodic benefit cost was $471,000 and included service costs of $627,000, interest income of $18,000 and investment earnings of $138,000. The net periodic benefit cost for these plans for the six months ended June 30, 2006, was $2.2 million and included service costs of $2.1 million, interest costs of $498,000 and investment earnings of $466,000. For the six months ended June 30, 2005, the net periodic benefit cost was $1.7 million and included service costs of $1.4 million, interest costs of $158,000 and investment losses of $163,000. The $15.2 million and $12.6 million projected benefit obligations at June 30, 2006, and December 31, 2005, respectively, were equal to the net liability recognized in the balance sheet at those dates. The weighted-average discount rate used for the plans was 7.6 percent for the six months ended June 30, 2006 and 2005.

Note 11. Stock-Based Compensation

The Ryland Group, Inc. 2005 Equity Incentive Plan (the “Plan”) permits the granting of stock options, stock appreciation rights, restricted or unrestricted stock awards, stock units or any combination of the foregoing to employees. Stock options granted in accordance with the Plan generally have a maximum term of five years and vest in equal annual installments over three years. Outstanding stock options granted under previous plans generally have a maximum term of ten years and vest over three years. At June 30, 2006, and December 31, 2005, stock options or other awards or units available for grant totaled 178,365 and 659,263, respectively.

The Ryland Group, Inc. 2006 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 30 days after their date of appointment or election based on the remaining portion of the plan year (May 1 to April 30) in which they are appointed or elected. Stock awards are fully vested and non-forfeitable on their applicable award date. At June 30, 2006, 120,000 stock awards were available for future grant in accordance with the Director Plan. Previously, The Ryland Group, Inc. 2004 Non-Employee Director Equity Plan (the “Predecessor Director Plan”) provided automatic grants of nonstatutory stock options to directors for the purchase of shares at prices not less

	Notes to Consolidated Financial Statements (Unaudited)
	The Ryland Group, Inc. and Subsidiaries

than the fair market value of the shares at the date of grant. Stock options vested and became exercisable six months after the date of grant and had a maximum term of ten years. Upon termination of service on the Board of Directors, all stock options expire three years after the date of termination, regardless of their stated expiration dates. Upon approval of the Director Plan, stock options available for future grant under the Predecessor Director Plan were canceled. At December 31, 2005, there were 953,200 stock options available for grant.

All outstanding stock options, stock awards and restricted stock awards have been granted in accordance with the terms of the Plan, the 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).

Prior to January 1, 2006, the Company accounted for stock options granted in accordance with the Plan, the Director Plan and their predecessor plans by adhering to the provisions and related interpretation of Accounting Principles Board Opinion No. 25 (APB 25), “Accounting for Stock Issued to Employees,” as permitted by Statement of Financial Accounting Standards No. 123 (SFAS 123), “Accounting for Stock-Based Compensation,” as amended. Therefore, except for costs related to restricted stock units, no stock-based employee compensation cost was recognized in net earnings since all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant.

Effective January 1, 2006, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards No. 123(R) (SFAS 123(R)), “Share-Based Payment,” by using the modified-prospective transition method. Under that transition method, compensation cost recognized in 2006 includes: (a) compensation cost for all share-based payments granted prior to January 1, 2006, but not yet vested, based on the grant-date fair value estimated in accordance with the original provisions of SFAS 123; and (b) compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123(R). Results for prior periods have not been restated.

The fair value of each of the Company’s stock-option awards is estimated on the date of grant by using the Black-Scholes-Merton option-pricing formula, which requires input assumptions for the Company’s expected dividend yield, expected volatility, risk-free interest rate and expected option life. 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 $0.48 per common share. The risk-free interest 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 stock-option awards granted are expected to be outstanding.

Prior to the adoption of SFAS 123(R), the Company presented all tax benefits of deductions resulting from the exercise of stock options as operating cash flows in the Consolidated Statements of Cash Flows. SFAS 123(R) requires cash flows attributable to tax benefits resulting from tax deductions in excess of compensation cost recognized for those stock options (“excess tax benefits”) to be classified as financing cash flows. Had the Company not adopted SFAS 123(R), the $11.9 million excess tax benefit classified as a financing cash inflow would have been classified as an operating cash inflow.

Net earnings for the three months ended June 30, 2006, included $7.2 million, or $0.10 per diluted share of stock-based compensation expense, before income tax benefits of $2.7 million. Net earnings for the six months ended June 30, 2006, included $13.6 million, or $0.18 per diluted share of stock-based compensation expense, before income tax benefits of $5.1 million. Stock-based compensation expenses have been allocated to the Company’s reportable segments and are reported within “Corporate,” “Financial services” and “Selling, general and administrative” expenses.

	Notes to Consolidated Financial Statements (Unaudited)
	The Ryland Group, Inc. and Subsidiaries

The following table illustrates the effect on net earnings and earnings per share had the Company applied the fair value recognition provisions of SFAS 123 to stock options granted under its equity-based compensation plans in the three- and six-month periods ended June 30, 2005. For purposes of this pro forma disclosure, the grant-date fair value of the Company’s stock options was estimated by using a Black-Scholes-Merton option-pricing formula and amortized to expense over the stock options’ vesting periods.

	Three Months Ended June 30,			Six Months Ended June 30,
(in thousands, except per share data)	2005			2005
Net earnings, as reported	$	104,340		$	167,066
Add: Stock-based employee compensation expense included in
reported net earnings, net of related tax effects¹	2,808			6,021
Deduct: Total stock-based employee compensation expense
determined under fair-value method for all awards,
net of related tax effects	(4,604		)	(10,014		)
Pro forma net earnings	$	102,544		$	163,073
Earnings per share:
Basic – as reported	$	2.22		$	3.53
Basic – pro forma	2.18			3.45
Diluted – as reported	2.10			3.35
Diluted – pro forma	2.07			3.27

¹Amount represents the Company’s net stock-based compensation expense associated with restricted stock units.

The Company has determined the grant-date fair value of stock options by using the Black-Scholes-Merton formula. The weighted-average inputs used and fair values determined for stock options granted during the six-month periods ended June 30, 2006 and 2005, were as follows:

	Six Months Ended June 30,
	2006			2005

Expected volatility	38.0		%	38.6		%
Expected dividend yield	0.8		%	0.4		%
Expected term (in years)	3.2			3.0
Risk-free rate	5.0		%	3.7		%
Weighted-average grant date fair value	$	19.21		$	18.13

	Notes to Consolidated Financial Statements (Unaudited)
	The Ryland Group, Inc. and Subsidiaries

A summary of stock option activity in accordance with the Company’s plans as of June 30, 2006, and changes for the six-month period then ended follows:

			Weighted-		Weighted-Average	Aggregate
			Average		Remaining	Intrinsic
			Exercise		Contractual Life	Value
	Shares		Price		(in years)	(in thousands)

Options outstanding at January 1, 2006	4,654,570		$	25.91	5.71
Granted	372,500		62.43
Exercised	(590,133	)	14.33
Forfeited	(2,430	)	36.81

Options outstanding at June 30, 2006	4,434,507		$	30.51	5.35	$	79,771
Available for future grant	298,365

Total shares reserved	4,732,872

Options exercisable at June 30, 2006	3,571,073		$	24.41	5.34	$	78,868

The total intrinsic value of stock options exercised during the three- and six-month periods ended June 30, 2006, was $14.2 million and $31.5 million, respectively. For the three- and six-month periods ended June 30, 2005, the total intrinsic value of stock options exercised was $11.4 million and $27.4 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.

A summary of the Company’s nonvested options as of and for the six-month period ended June 30, 2006, follows:

			Weighted-
			Average
			Grant-Date
	Shares		Fair Value

Nonvested options outstanding at January 1, 2006	1,294,035		$	13.40
Granted	372,500		19.21
Vested	(800,671	)	12.80
Forfeited	(2,430	)	9.93

Nonvested options outstanding at June 30, 2006	863,434		$	16.47

As of June 30, 2006, there was $11.5 million of total unrecognized compensation cost that related to nonvested stock option awards granted under the Company’s plans. That cost is expected to be recognized over the next 2.8 years.

The Company has made several restricted stock awards to senior executives under the Plan and its predecessor plans. Compensation expense recognized for such awards was $2.7 million and $4.5 million for the three months ended June 30, 2006 and 2005, respectively, and $5.8 million and $9.7 million for the six months ended June 30, 2006 and 2005, respectively.

		Notes to Consolidated Financial Statements (Unaudited)
		The Ryland Group, Inc. and Subsidiaries

The following is a summary of activity relating to restricted stock awards:

	2006		2005
Restricted shares at January 1	441,000		356,800
Shares awarded	133,000		253,000
Shares vested	(138,336	)	(168,800	)
Restricted shares at June 30	435,664		441,000

At June 30, 2006, the Company’s outstanding restricted shares will vest as follows: 2007 – 182,664; 2008 – 128,664; 2009 – 84,336; and 2010 – 40,000.

Note 12. Commitments and Contingencies

In the normal course of business, the Company acquires rights under option agreements to purchase land or lots for use in future homebuilding operations. At June 30, 2006, it had related cash deposits and letters of credit outstanding that totaled $184.1 million for land options pertaining to land purchase contracts with an aggregate purchase price of $2.0 billion. At June 30, 2006, the Company had commitments with respect to option contracts having specific performance provisions of approximately $53.9 million, compared to $60.5 million at December 31, 2005.

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 June 30, 2006, total development bonds were $478.3 million, while total related deposits and letters of credit were $78.0 million. In the event that any such bonds or letters of credit are called, the Company would be required to reimburse the issuer; however, it does not expect that any currently outstanding bonds or letters of credit will be called.

At June 30, 2006, one of the joint ventures in which the Company participates had debt of $385.9 million. In this joint venture, the Company and its partners provided guarantees of debt on a pro rata basis. The Company had a 3.3 percent pro rata interest on the debt, or $12.8 million, at June 30, 2006, and a completion guarantee related to project development. The guarantees apply if a partner defaults on its loan arrangement and the fair value of the collateral (land and improvements) is less than the loan balance. In another of its joint ventures, the Company guaranteed up to 50.0 percent of a $55.0 million revolving credit facility. At June 30, 2006, the actual borrowings against the revolving credit facility for this consolidated joint venture were $35.2 million, of which the Company guaranteed $17.6 million.

Interest rate lock commitments (IRLCs) represent loan commitments with customers at market rates generally up to 180 days before settlement. At June 30, 2006, the Company had outstanding IRLCs totaling $316.4 million. Hedging contracts are utilized to mitigate the risk associated with interest rate fluctuations on IRLCs.

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

		Notes to Consolidated Financial Statements (Unaudited)
		The Ryland Group, Inc. and Subsidiaries

Changes in the Company’s product liability reserve during the period are as follows:

(in thousands)	2006			2005
Balance at January 1	$	41,647		$	33,090
Warranties issued	10,517			11,019
Settlements made	(13,413		)	(11,380		)
Changes in liability for accruals related to pre-existing warranties	3,557			5,607
Balance at June 30	$	42,308		$	38,336

The Company requires substantially all of its subcontractors to have general liability insurance (including construction defect coverage) and workmans compensation insurance. These insurance policies protect the Company against a portion of its risk of loss from claims, subject to certain self-insured retentions, deductibles and other coverage limits. However, with fewer insurers participating, general liability insurance for the homebuilding industry has become more difficult to obtain over the past several years. As a result, Ryland Homes Insurance Company (RHIC), a wholly-owned subsidiary of the Company, provides insurance services to the homebuilding segments’ subcontractors in certain markets. At June 30, 2006, RHIC had $22.9 million in cash and $19.4 million in subcontractor product liability reserves, which are included in the consolidated balance sheet. At December 31, 2005, RHIC had $16.3 million in cash and $16.9 million in subcontractor product liability reserves, which are included in the consolidated balance sheet.

Please refer to “Part II. Other Information, Item 1. Legal Proceedings” of this document for additional information regarding the Company’s commitments and contingencies.

Note 13. New Accounting Pronouncements

FSP 109-1

In December 2004, the FASB issued Staff Position 109-1 (FSP 109-1), “Application of FASB Statement No. 109 (SFAS 109), ‘Accounting for Income Taxes,’ to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004.” The American Jobs Creation Act, which was signed into law in October 2004, provides a tax deduction on qualified domestic production activities. When fully phased-in, the deduction will be up to nine percent of the lesser of “qualified production activities income” or taxable income. Based on the guidance provided by FSP 109-1, this deduction should be accounted for as a special deduction under SFAS 109 and will reduce tax expense in the period or periods that the amounts are deductible on the tax return. The tax benefit resulting from the new deduction was effective beginning in the Company’s fiscal year 2005. The Company currently estimates the reduction in its federal income tax rate to be in the range of one-half of one percent to one percent.

FIN 48

In July 2006, the FASB issued Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes - An Interpretation of FASB Statement No. 109.” In accordance with SFAS 109, FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. FIN 48 also prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in a tax return. The new FASB standard also provides guidance on derecognition; classification; interest and penalties; accounting in interim periods; disclosure; and transition. The provisions of FIN 48 are effective for the Company’s first quarter ending March 31, 2007. The impact on the Company’s financial statements for that period has not yet been determined.

		Notes to Consolidated Financial Statements (Unaudited)
		The Ryland Group, Inc. and Subsidiaries

Note 14. Supplemental Guarantor Information

The Company’s obligations to pay principal, premium, if any, and interest under its $750.0 million unsecured revolving credit facility; 8.0 percent senior notes due August 2006; 5.4 percent senior notes due June 2008; 5.4 percent senior notes due May 2012; 6.9 percent senior notes due June 2013; and 5.4 percent senior notes due January 2015 are guaranteed on a joint and several basis by substantially all of its homebuilding subsidiaries that are 100 percent owned by the Company (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.

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 STATEMENT OF EARNINGS

Three Months Ended June 30, 2006

NON-

GUARANTOR

CONSOLIDATING

CONSOLIDATED

(in thousands)

TRG, INC.

SUBSIDIARIES

ELIMINATIONS

TOTAL

REVENUES

714,696

480,689

35,334

(33,827

)

1,196,892

EXPENSES

Corporate, general and administrative

604,337

456,217

18,459

(33,827

)

1,045,186

TOTAL EXPENSES

604,337

456,217

18,459

(33,827

)

1,045,186

Earnings before taxes

110,359

24,472

16,875

151,706

Tax expense

41,423

9,177

6,289

56,889

Equity in net earnings of subsidiaries

25,881

(25,881

)

NET EARNINGS

94,817

15,295

10,586

(25,881

)

94,817

CONSOLIDATING STATEMENT OF EARNINGS

Six Months Ended June 30, 2006

NON-

GUARANTOR

CONSOLIDATING

CONSOLIDATED

(in thousands)

TRG, INC.

SUBSIDIARIES

ELIMINATIONS

TOTAL

REVENUES

1,324,047

950,967

58,417

(61,701

)

2,271,730

EXPENSES

Corporate, general and administrative

1,130,539

877,131

30,008

(61,701

)

1,975,977

TOTAL EXPENSES

1,130,539

877,131

30,008

(61,701

)

1,975,977

Earnings before taxes

193,508

73,836

28,409

295,753

Tax expense

72,641

27,688

10,578

110,907

Equity in net earnings of subsidiaries

63,979

(63,979

)

NET EARNINGS

184,846

46,148

17,831

(63,979

)

184,846

		Notes to Consolidated Financial Statements (Unaudited)
		The Ryland Group, Inc. and Subsidiaries

CONSOLIDATING STATEMENT OF EARNINGS

	Three Months Ended June 30, 2005
					NON-
			GUARANTOR		GUARANTOR		CONSOLIDATING			CONSOLIDATED
(in thousands)	TRG, INC.		SUBSIDIARIES		SUBSIDIARIES		ELIMINATIONS			TOTAL
REVENUES	$	669,640	$	499,003	$	23,968	$	(32,899	)	$	1,159,712

EXPENSES
Corporate, general and administrative	583,996		432,605		7,720		(32,899		)	991,422
TOTAL EXPENSES	583,996		432,605		7,720		(32,899		)	991,422
Earnings before taxes	85,644		66,398		16,248		-			168,290
Tax expense	32,585		25,232		6,133		-			63,950
Equity in net earnings of subsidiaries	51,281		-		-		(51,281		)	-
NET EARNINGS	$	104,340	$	41,166	$	10,115	$	(51,281	)	$	104,340

CONSOLIDATING STATEMENT OF EARNINGS

	Six Months Ended June 30, 2005
					NON-
			GUARANTOR		GUARANTOR		CONSOLIDATING			CONSOLIDATED
(in thousands)	TRG, INC.		SUBSIDIARIES		SUBSIDIARIES		ELIMINATIONS			TOTAL
REVENUES	$	1,145,930	$	906,188	$	39,565	$	(57,997	)	$	2,033,686

EXPENSES
Corporate, general and administrative	1,009,341		797,822		15,062		(57,997		)	1,764,228
TOTAL EXPENSES	1,009,341		797,822		15,062		(57,997		)	1,764,228
Earnings before taxes	136,589		108,366		24,503		-			269,458
Tax expense	51,975		41,179		9,238		-			102,392
Equity in net earnings of subsidiaries	82,452		-		-		(82,452		)	-
NET EARNINGS	$	167,066	$	67,187	$	15,265	$	(82,452	)	$	167,066

		Notes to Consolidated Financial Statements (Unaudited)
		The Ryland Group, Inc. and Subsidiaries

CONSOLIDATING BALANCE SHEET

June 30, 2006

NON-

GUARANTOR

CONSOLIDATING

CONSOLIDATED

(in thousands)

TRG, INC.

SUBSIDIARIES

ELIMINATIONS

TOTAL

ASSETS

Cash and cash equivalents

44,231

112,050

37,175

193,456

Consolidated inventories owned

1,695,786

1,035,638

2,731,424

Consolidated inventories not owned

6,596

7,064

193,718

207,378

Total inventories

1,702,382

1,042,702

193,718

2,938,802

Purchase price in excess of net assets acquired

15,383

2,802

18,185

Investment in subsidiaries/

intercompany receivables

1,065,195

1,154

(1,066,349

)

Other assets

255,585

80,396

41,151

377,132

TOTAL ASSETS

3,082,776

1,237,950

273,198

(1,066,349

)

3,527,575

LIABILITIES

Accounts payable and other accrued liabilities

503,277

173,836

105,448

782,561

Debt

1,164,983

20,497

1,185,480

Intercompany payables

420,210

(420,210

)

TOTAL LIABILITIES

1,668,260

614,543

105,448

(420,210

)

1,968,041

MINORITY INTEREST

145,018

STOCKHOLDERS’ EQUITY

1,414,516

623,407

22,732

(646,139

)

1,414,516

TOTAL LIABILITIES AND

STOCKHOLDERS’ EQUITY

3,082,776

1,237,950

273,198

(1,066,349

)

3,527,575

		Notes to Consolidated Financial Statements (Unaudited)
		The Ryland Group, Inc. and Subsidiaries

CONSOLIDATING BALANCE SHEET

	December 31, 2005
					NON-
			GUARANTOR		GUARANTOR		CONSOLIDATING			CONSOLIDATED
(in thousands)	TRG, INC.		SUBSIDIARIES		SUBSIDIARIES		ELIMINATIONS			TOTAL

ASSETS
Cash and cash equivalents	$	81,895	$	359,709	$	19,779	$	-		$	461,383
Consolidated inventories owned	1,382,900		957,576		-		-			2,340,476
Consolidated inventories not owned	6,681		6,576		225,934		-			239,191
Total inventories	1,389,581		964,152		225,934		-			2,579,667
Purchase price in excess of net assets acquired	15,383		2,802		-		-			18,185
Investment in subsidiaries/
intercompany receivables	1,169,987		-		23,259		(1,193,246		)	-
Other assets	216,190		66,208		45,240		-			327,638
TOTAL ASSETS	2,873,036		1,392,871		314,212		(1,193,246		)	3,386,873

LIABILITIES
Accounts payable and other accrued liabilities	589,279		205,985		118,966		-			914,230
Debt	907,736		14,234		-		-			921,970
Intercompany payables	-		594,071		-		(594,071		)	-
TOTAL LIABILITIES	1,497,015		814,290		118,966		(594,071		)	1,836,200

MINORITY INTEREST	-		-		174,652		-			174,652

STOCKHOLDERS’ EQUITY	1,376,021		578,581		20,594		(599,175		)	1,376,021

TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY	$	2,873,036	$	1,392,871	$	314,212	$	(1,193,246	)	$	3,386,873

		Notes to Consolidated Financial Statements (Unaudited)
		The Ryland Group, Inc. and Subsidiaries

CONSOLIDATING STATEMENT OF CASH FLOWS

Six Months Ended June 30, 2006

NON-

GUARANTOR

CONSOLIDATING

CONSOLIDATED

(in thousands)

TRG, INC.

SUBSIDIARIES

ELIMINATIONS

TOTAL

CASH FLOWS FROM OPERATING ACTIVITIES

Net earnings

184,846

46,148

17,831

(63,979

)

184,846

Adjustments to reconcile net earnings to net cash provided

by operating activities:

Depreciation and amortization

12,874

8,585

307

21,766

Stock-based compensation expense

13,650

Changes in assets and liabilities:

(Increase) decrease in inventories

(312,801

)

(78,550

)

4,527

(386,824

)

Net change in other assets, payables and other liabilities

(5,861

)

(218,383

)

(7,477

)

63,979

(167,742

)

Excess tax benefits from stock-based compensation

(11,947

)

(11,947

)

Other operating activities, net

(2,878

)

(2,878

)

Net cash (used for) provided by operating activities

(122,117

)

(242,200

)

15,188

(349,129

)

CASH FLOWS FROM INVESTING ACTIVITIES

Net additions to property, plant and equipment

(16,877

)

(11,722

)

240

(28,359

)

Principal reduction of mortgage-backed securities,

notes receivable and mortgage collateral

2,015

Net cash (used for) provided by investing activities

(16,877

)

(11,722

)

2,255

(26,344

)

CASH FLOWS FROM FINANCING ACTIVITIES

Cash proceeds of long-term debt

250,000

Increase in short-term borrowings

7,247

6,263

13,510

Common stock dividends

(11,148

)

(11,148

)

Common stock repurchases

(174,981

)

(174,981

)

Issuance of common stock under stock-based

compensation

18,265

Excess tax benefits from stock-based compensation

11,947

Other financing activities, net

(47

)

(47

)

Net cash provided by (used for) financing activities

101,330

6,263

(47

)

107,546

Net (decrease) increase in cash and cash equivalents

(37,664

)

(247,659

)

17,396

(267,927

)

Cash and cash equivalents at beginning of year

81,895

359,709

19,779

461,383

CASH AND CASH EQUIVALENTS AT END OF PERIOD

44,231

112,050

37,175

193,456

		Notes to Consolidated Financial Statements (Unaudited)
		The Ryland Group, Inc. and Subsidiaries

CONSOLIDATING STATEMENT OF CASH FLOWS

	Six Months Ended June 30, 2005
							NON-
				GUARANTOR			GUARANTOR			CONSOLIDATING			CONSOLIDATED
(in thousands)	TRG, INC.			SUBSIDIARIES			SUBSIDIARIES			ELIMINATIONS			TOTAL

CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings	$	167,066		$	67,187		$	15,265		$	(82,452	)	$	167,066
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization	11,338			7,863			556			-			19,757
Stock-based compensation expense	9,712			-			-			-			9,712
Changes in assets and liabilities:
Increase in inventories	(206,503		)	(204,637		)	(7,362		)	-			(418,502		)
Net change in other assets, payables and other liabilities	(395,184		)	341,338			(10,982		)	82,452			17,624
Tax benefit from exercise of stock options and
vesting of restricted stock	10,493			-			-			-			10,493
Other operating activities, net	(6,011		)	-			-			-			(6,011		)
Net cash (used for) provided by operating activities	(409,089		)	211,751			(2,523		)	-			(199,861		)

CASH FLOWS FROM INVESTING ACTIVITIES
Net additions to property, plant and equipment	(13,567		)	(13,220		)	(432		)	-			(27,219		)
Principal reduction of mortgage-backed securities,
notes receivable and mortgage collateral	-			-			2,667			-			2,667
Net cash (used for) provided by investing activities	(13,567		)	(13,220		)	2,235			-			(24,552		)

CASH FLOWS FROM FINANCING ACTIVITIES
Cash proceeds of long-term debt	500,000			-			-			-			500,000
Increase (decrease) in short-term borrowings	7,530			12,865			(1,558		)	-			18,837
Common stock dividends	(5,715		)	-			-			-			(5,715		)
Common stock repurchases	(79,897		)	-			-			-			(79,897		)
Issuance of common stock under stock-based
compensation	15,429			-			-			-			15,429
Other financing activities, net	-			-			(912		)	-			(912		)
Net cash provided by (used for) financing activities	437,347			12,865			(2,470		)	-			447,742
Net increase (decrease) in cash and cash equivalents	14,691			211,396			(2,758		)	-			223,329
Cash and cash equivalents at beginning of year	36,090			31,390			20,908			-			88,388

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	50,781		$	242,786		$	18,150		$	-		$	311,717

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Note: Certain statements in this quarterly 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 Securities Exchange Act of 1934, as amended. 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 quarterly report will be achieved. These forward-looking statements can generally be identified by the use of statements that include words such as “anticipate,” “believe,” “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 quarterly 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 in interest rates, inflation, changes in consumer confidence levels and the state of the market for homes in general;

• the availability and cost of land;

• increased land development costs on projects under development;

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

• increased prices for labor, land and raw materials used in the production of houses;

• increased competition;

• 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;

• 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 and the environment);

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

• the risk factors set forth in the Company’s most recent Annual Report on Form 10-K/A; and

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

Management’s Discussion and Analysis of
Financial Condition and Results of Operation

Results of Operations

Overview

The Company consists of six operating business segments: four geographically-determined homebuilding operating regions; financial services; and corporate. The homebuilding operations are, by far, the most substantial part of its business, comprising approximately 98 percent of consolidated revenues in fiscal year 2005 and for the six months ended June 30, 2006. The homebuilding segments generate nearly all of their revenues from the sale of completed homes, with a lesser amount from the sale of land and lots.

The Company reported consolidated net earnings of $94.8 million, or $2.03 per diluted share, for the second quarter of 2006, compared to consolidated net earnings of $104.3 million, or $2.10 per diluted share, for the second quarter of 2005. The decline in net earnings was due to lower margins, resulting from a broad trend toward softening demand in residential housing and a more competitive sales environment in most markets. Pretax earnings from the homebuilding and financial services segments were $153.8 million and $16.9 million for the three months ended June 30, 2006, compared to $171.3 million and $16.2 million for the same period in 2005, respectively.

The Company’s revenues reached $1.2 billion for the second quarter of 2006, up 3.2 percent. This increase was primarily attributable to higher average closing prices. Homebuilding and financial services revenues were $1,170.4 million and $26.5 million for the second quarter of 2006, compared to $1,135.7 million and $24.0 million in the same period in 2005, respectively.

New order dollars decreased 40.0 percent for the second quarter of 2006, compared with the second quarter of 2005, primarily reflecting reduced demand in some housing markets. As a result of declining sales trends, new orders decreased 39.4 percent to 3,023 units in the second quarter ended June 30, 2006, from 4,988 units for the same period in 2005.

Consolidated inventories owned by the Company, which include homes under construction, land under development and improved lots, grew 16.7 percent to $2.7 billion at June 30, 2006, compared to $2.3 billion at December 31, 2005. Land under development rose by 18.3 percent to $1.3 billion during the second quarter of 2006, compared to $1.1 billion at December 31, 2005. Consolidated inventories owned by the Company grew 21.5 percent to $2.3 billion at June 30, 2005, compared to $1.9 billion at December 31, 2004.

The Company continued to repurchase stock, acquiring 1,815,000 shares during the second quarter of 2006 and 2,850,000 shares for the six months ended June 30, 2006. Outstanding shares at June 30, 2006, were 44,254,440, versus 46,833,035 for June 30, 2005, a decrease of 5.5 percent. The Company’s debt-to-capital ratio increased to 45.6 percent at June 30, 2006, from 40.1 percent at December 31, 2005, primarily due to the issuance of $250.0 million of senior notes in May 2006. A portion of these proceeds will be used to redeem its $150.0 million senior subordinated notes in July 2006, while the remaining proceeds will be used to redeem its $100.0 million senior notes due August 2006, which is expected to bring the Company’s debt-to-capital ratio closer to its 40.0 percent target by the end of the year.

Stockholders’ equity increased $38.5 million, or 2.8 percent, for the six months ended June 30, 2006, compared to an increase of 10.2 percent for the same period in 2005. As a result of balancing cash outlays among achieving operating objectives, common stock repurchases and dividend increases, stockholders’ equity per share rose 28.6 percent from $24.86 at June 30, 2005, to $31.96 at June 30, 2006.

Management’s Discussion and Analysis of
Financial Condition and Results of Operation

Homebuilding

General

Ryland homes are built on-site and marketed in four major geographic regions. At June 30, 2006, the Company operated in the following metropolitan areas:

Region/Segment		Major Markets Served
North		Baltimore, Chicago, Cincinnati, Delaware, Indianapolis, Minneapolis and Washington, D.C.
Texas		Austin, Dallas, Houston and San Antonio
Southeast		Atlanta, Charleston, Charlotte, Fort Myers, Greensboro, Greenville, Jacksonville, Myrtle Beach, Orlando and Tampa
West		California’s Central Valley, California’s Inland Empire, Denver, Las Vegas, Phoenix, Sacramento and the San Diego area

Three months ended June 30, 2006, compared to three months ended June 30, 2005

The homebuilding segments reported pretax earnings of $153.8 million for the second quarter of 2006, compared to $171.3 million for the same period in the prior year. Homebuilding results for the second quarter of 2006 decreased from 2005 primarily due to a decline in margins.

Homebuilding revenues increased $34.6 million for the second quarter of 2006, compared to 2005, primarily due to an 8.5 percent rise in the average closing price of a home. Also included in revenues was $9.2 million of other income recognized in the second quarter of 2006 related to the termination of a $100.0 million treasury lock at 4.2 percent and a $150.0 million treasury lock at 4.1 percent. (See Note 9, “Debt.”)

Consistent with its policy of managing land investments according to return and risk targets, the Company executed several land sales during the second quarter of 2006. Homebuilding revenues for the second quarter of 2006 included $29.2 million from land sales, compared to $38.2 million for the second quarter of 2005, which contributed net gains of $10.0 million and $13.6 million to pretax earnings in 2006 and 2005, respectively.

Gross profit margins from home sales averaged 23.2 percent for the second quarter of 2006, compared to 24.5 percent for the second quarter of 2005. This decrease was primarily due to inventory write-downs in Southern California that totaled $20.0 million and to increased sales discounts during the second quarter of 2006.

Selling, general and administrative expenses, as a percentage of revenue, were 10.1 percent for the three months ended June 30, 2006, compared to 9.8 percent for the same period in the prior year. This increase, as a percentage of revenue, was primarily attributable to a rise in sales and marketing expenses.

In the second quarters of 2006 and 2005, the homebuilding segments capitalized all interest incurred, resulting in no interest expense being recorded during those periods due to development activity.

Six months ended June 30, 2006, compared to six months ended June 30, 2005

The homebuilding segments reported pretax earnings of $301.3 million for the six months ended June 30, 2006, compared to $277.3 million for the same period in the prior year. Homebuilding results for the six months ended June 30, 2006, rose from 2005 primarily due to a slight increase in closings and an increase in average closing price.

Homebuilding revenues increased $232.1 million for the six months ended June 30, 2006, compared to the six months ended June 30, 2005, primarily due to an 8.9 percent rise in the average closing price of a home.

Management’s Discussion and Analysis of
Financial Condition and Results of Operation

Consistent with its policy of managing land investments according to return and risk targets, the Company executed several land sales during the six months ended June 30, 2006. Homebuilding revenues for that period included $33.9 million from land sales, compared to $46.6 million for the six months ended June 30, 2005, which contributed net gains of $11.4 million and $14.2 million to pretax earnings in 2006 and 2005, respectively.

Gross profit margins from home sales averaged 23.8 percent for the six months ended June 30, 2006, compared to 23.9 percent for the same period in 2005.

Selling, general and administrative expenses, as a percentage of revenue, were 10.2 percent for both the six months ended June 30, 2006 and 2005.

During the six-month periods ended June 30, 2006 and 2005, the homebuilding segments capitalized all interest incurred, resulting in no interest expense being recorded for those periods due to development activity.

Homebuilding Segment Information

New order dollars decreased 40.0 percent during the second quarter of 2006, compared to the same period in the prior year. New order dollars for the three months ended June 30, 2006, increased 4.3 percent in Texas and decreased 33.0 percent in the North, 40.9 percent in the Southeast and 62.1 percent in the West, compared to the second quarter of 2005. New orders for the second quarter of 2006 decreased 39.4 percent to 3,023 units from 4,988 units for the same period in 2005 primarily due to moderating demand in most markets and higher cancellation rates in selective markets. The cancellation rate was 35.9 percent for the quarter ended June 30, 2006, compared to 20.3 percent for the same period in 2005. The decrease in sales and increase in cancellation rates were more pronounced in markets that experienced significant price appreciation over the last several years.

New order dollars decreased 28.6 percent during the first six months of 2006, compared to the same period in the prior year. New order dollars for the six months ended June 30, 2006, increased 7.4 percent in Texas and decreased 24.7 percent in the North, 21.5 percent in the Southeast and 52.3 percent in the West, compared to the first six months of 2005. New orders for the first six months of 2006 decreased 30.2 percent to 7,044 units from 10,090 units for the same period in 2005.

	Three Months Ended June 30,				Six Months Ended June 30,
NEW ORDERS	2006		2005		2006		2005
Units
North	778		1,214		1,814		2,534
Texas	944		1,016		1,968		2,020
Southeast	851		1,539		2,109		3,055
West	450		1,219		1,153		2,481
Total	3,023		4,988		7,044		10,090

Dollars (in millions)
North	$	258	$	385	$	591	$	785
Texas	193		185		390		363
Southeast	260		440		649		827
West	180		475		443		928
Total	$	891	$	1,485	$	2,073	$	2,903

Management’s Discussion and Analysis of
Financial Condition and Results of Operation

	Three Months Ended June 30,				Six Months Ended June 30,
CLOSINGS	2006		2005		2006		2005
Units
North	966		1,058		1,756		1,828
Texas	821		762		1,561		1,337
Southeast	1,216		1,169		2,414		2,103
West	800		1,049		1,626		1,908
Total	3,803		4,038		7,357		7,176

Average closing price (in thousands)
North	$	307	$	297	$	309	$	295
Texas	189		170		187		170
Southeast	293		251		286		246
West	394		343		398		348
Total	295		272		295		271

	JUNE 30,
OUTSTANDING CONTRACTS	2006		2005
Units
North	1,832		2,514
Texas	1,736		1,675
Southeast	3,296		3,810
West	1,287		2,535
Total	8,151		10,534

Dollars (in millions)
North	$	620	$	813
Texas	356		308
Southeast	1,065		1,036
West	482		913
Total	$	2,523	$	3,070

Average price (in thousands)
North	$	338	$	323
Texas	205		184
Southeast	323		272
West	375		360
Total	310		291

Outstanding contracts denote the Company’s backlog of sold but not closed homes, which are generally built and closed, subject to cancellation, over the subsequent two quarters. At June 30, 2006, the Company had outstanding contracts for 8,151 units, representing a 22.6 percent decrease compared to the number of outstanding contracts at June 30, 2005. The $2.5 billion value of outstanding contracts declined 17.8 percent at June 30, 2006, compared to June 30, 2005. The average sales price for outstanding contracts increased by 6.5 percent for the three months ended June 30, 2006, from the same period in 2005.

Management’s Discussion and Analysis of
Financial Condition and Results of Operation

RESULTS OF OPERATIONS

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2006		2005		2006		2005

North
Revenues	$	322,622	$	319,179	$	572,617	$	544,799
Expenses
Cost of sales	240,491		239,476		432,051		408,242
Selling, general and administrative expenses	30,800		30,192		55,953		53,748
Total expenses	271,291		269,668		488,004		461,990
Pretax earnings	$	51,331	$	49,511	$	84,613	$	82,809

Texas
Revenues	$	160,363	$	133,537	$	298,261	$	238,314
Expenses
Cost of sales	128,627		110,119		242,145		198,815
Selling, general and administrative expenses	18,132		15,415		34,611		28,571
Total expenses	146,759		125,534		276,756		227,386
Pretax earnings	$	13,604	$	8,003	$	21,505	$	10,928

Southeast
Revenues	$	367,628	$	309,236	$	702,792	$	532,580
Expenses
Cost of sales	266,308		238,603		513,036		415,944
Selling, general and administrative expenses	36,918		29,227		70,847		52,514
Total expenses	303,226		267,830		583,883		468,458
Pretax earnings	$	64,402	$	41,406	$	118,909	$	64,122

West
Revenues	$	319,749	$	373,792	$	652,571	$	678,428
Expenses
Cost of sales	262,723		264,980		509,841		491,022
Selling, general and administrative expenses	32,559		36,410		66,416		67,967
Total expenses	295,282		301,390		576,257		558,989
Pretax earnings	$	24,467	$	72,402	$	76,314	$	119,439

Total
Revenues	$	1,170,362	$	1,135,744	$	2,226,241	$	1,994,121
Expenses
Cost of sales	898,149		853,178		1,697,073		1,514,023
Selling, general and administrative expenses	118,409		111,244		227,827		202,800
Total expenses	1,016,558		964,422		1,924,900		1,716,823
Pretax earnings	$	153,804	$	171,322	$	301,341	$	277,298

Management’s Discussion and Analysis of
Financial Condition and Results of Operation

	Three Months Ended June 30,				Six Months Ended June 30,
GROSS PROFIT MARGINS BY REGION/SEGMENT	2006		2005		2006		2005
Housing gross profit margins
North	25.6	%	25.1	%	24.8	%	25.1	%
Texas	19.4		17.9		18.4		17.2
Southeast	27.5		22.2		27.0		21.5
West	17.8		28.3		21.8		27.1
Total	23.2		24.5		23.8		23.9

Three months ended June 30, 2006, compared to three months ended June 30, 2005

North – Homebuilding revenues rose by 1.1 percent to $322.6 million in 2006 from $319.2 million in 2005 primarily due to a 3.4 percent increase in the average sales price of homes delivered, partially offset by an 8.7 percent decrease in the number of homes delivered in this segment. Gross margins on home sales were 25.6 percent in 2006, compared to 25.1 percent in 2005.

Texas – Homebuilding revenues increased by 20.1 percent to $160.4 million in 2006 from $133.5 million in 2005 primarily due to a 7.7 percent increase in the number of homes delivered in this segment, as well as to an 11.2 percent increase in the average sales price of homes delivered. Gross margins on home sales were 19.4 percent in 2006, compared to 17.9 percent in 2005.

Southeast – Homebuilding revenues were $367.6 million in 2006, compared to $309.2 million in 2005, an increase of 18.9 percent, primarily due to a 4.0 percent rise in the number of homes delivered and to a 16.7 percent increase in the average sales price of homes delivered. Gross margins on home sales were 27.5 percent in 2006, compared to 22.2 percent in 2005. Gross margins on home sales increased in 2006 primarily due to sales prices rising at a greater rate than costs.

West – Homebuilding revenues decreased $54.0 million, or 14.5 percent, to $319.7 million in 2006, compared to $373.8 million in 2005, primarily due to a 23.7 percent decrease in the number of homes delivered, partially offset by a 14.9 percent increase in the average sales price of homes delivered. Gross margins from home sales were 17.8 percent in 2006, compared to 28.3 percent in 2005. Gross margins on home sales decreased in 2006 due to a significant increase in discounts that resulted from a more competitive sales environment.

Six months ended June 30, 2006, compared to six months ended June 30, 2005

North – Homebuilding revenues increased by 5.1 percent to $572.6 million in 2006 from $544.8 million in 2005 primarily due to a 4.7 percent increase in the average sales price of homes delivered, offset by a 3.9 percent decrease in the number of homes delivered. Gross margins on home sales were 24.8 percent in 2006, compared to 25.1 percent in 2005.

Texas – Homebuilding revenues increased by 25.2 percent to $298.3 million in 2006 from $238.3 million in 2005 primarily due to an increase in the average sales price of homes delivered in all of the markets in this segment and to a decrease in the number of homes delivered. Gross margins on home sales were 18.4 percent in 2006, compared to 17.2 percent in 2005.

Southeast – Homebuilding revenues were $702.8 million in 2006, compared to $532.6 million in 2005, an increase of 32.0 percent, primarily due to a 14.8 percent increase in the number of homes delivered and to a 16.3 percent increase in the average sales price of homes delivered. Gross margins on home sales were 27.0 percent in 2006,

Management’s Discussion and Analysis of
Financial Condition and Results of Operation

compared to 21.5 percent in 2005. Gross margins on home sales increased in 2006 primarily due to sales prices rising at a greater rate than costs and the mix of homes delivered.

West – Homebuilding revenues decreased $25.9 million, or 3.8 percent, to $652.6 million in 2006, compared to $678.4 million in 2005, primarily due to a 14.8 percent decrease in the number of homes delivered, partially offset by a 14.4 percent increase in the average sales price of homes delivered. Gross margins from home sales were 21.8 percent in 2006, compared to 27.1 percent in 2005. Gross margins on home sales decreased in 2006 due to a significant increase in discounts that resulted from a more competitive sales environment.

Financial Services

The Company’s financial services segment provides mortgage-related products and services, as well as insurance services to its homebuyers and subcontractors. By aligning its operations with the Company’s homebuilding segments, the financial services segment leverages this relationship to capture homebuyers’ loans. In addition to being a valuable asset to customers, the financial services segment greatly enhances the Company’s profitability. Providing mortgage financing and other services to its customers allows the homebuilder to better monitor its backlog and closing process. Substantially all loans are sold within one business day of the date they close to a third party, which the third party then services and manages. Insurance services provide subcontractors with construction-related insurance in the western markets. Additionally, this segment provides insurance for liability risks, specifically homeowners’ warranty coverage arising in connection with the homebuilding business of the Company and its affiliates.

STATEMENT OF EARNINGS

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2006			2005			2006			2005

REVENUES
Net gains on sales of mortgages and
mortgage servicing rights	$	11,250		$	12,778		$	20,163		$	20,991
Title/escrow/insurance	11,211			6,699			17,960			11,818
Net origination fees	3,705			3,870			6,754			5,519
Interest
Mortgage-backed securities and
notes receivable	117			360			214			758
Other	246			260			397			466
Total interest	363			620			611			1,224
Other	1			1			1			13
TOTAL REVENUES	26,530			23,968			45,489			39,565

EXPENSES
General and administrative	9,602			7,510			16,952			14,627
Interest	53			210			128			435
TOTAL EXPENSES	9,655			7,720			17,080			15,062

PRETAX EARNINGS	$	16,875		$	16,248		$	28,409		$	24,503
Originations (units)	2,995			3,132			5,630			5,495
Ryland Homes origination capture rate	82.5		%	82.9		%	81.4		%	81.8		%
Mortgage-backed securities and
notes receivable average balance	$	1,359		$	9,012		$	2,016		$	9,427

Management’s Discussion and Analysis of
Financial Condition and Results of Operation

Three months ended June 30, 2006, compared to three months ended June 30, 2005

For the three months ended June 30, 2006, the financial services segment reported pretax earnings of $16.9 million, compared to $16.2 million for the same period in 2005. The increase was primarily attributable to an increase in RHIC and insurance operations, partially offset by a rise in incentives, which resulted from a competitive marketplace.

Revenues for the financial services segment decreased 10.7 percent to $26.5 million for the second quarter of 2006, compared to the same period in the prior year. The decrease was primarily due to a 4.4 percent decline in loans originated. The capture rate of mortgages originated for customers of the Company’s homebuilding operations was 82.5 percent and 82.9 percent for the second quarters of 2006 and 2005, respectively.

For the three months ended June 30, 2006, general and administrative expenses were $7.4 million, versus $7.5 million for the same period in 2005.

Interest expense decreased 74.8 percent for the three months ended June 30, 2006, compared to the same period in 2005. The decrease in interest expense corresponded to a similar decrease in interest income and was primarily due to a continued decline in bonds payable and short-term notes payable, which resulted from the sale or redemption of substantially all of the investment portfolio and continued runoff of the underlying collateral.

Six months ended June 30, 2006, compared to six months ended June 30, 2005

For the six months ended June 30, 2006, the financial services segment reported pretax earnings of $28.4 million, compared to $24.5 million for the same period in 2005. The increase was primarily attributable to a 2.5 percent increase in loans originated and a 9.7 percent rise in average loan size, as well as to increased profitability from title and insurance operations.

Revenues for the financial services segment rose 15.0 percent to $45.5 million for the six months ended June 30, 2006, compared to the same period in the prior year. The increase was primarily attributable to a rise in mortgage origination dollars, which resulted from a 2.5 percent increase in loans originated and a 9.7 percent rise in average loan size. The capture rate of mortgages originated for customers of the Company’s homebuilding operations was 81.4 percent and 81.8 percent for the six months ended June 30, 2006 and 2005, respectively.

General and administrative expenses were $14.8 million for the six months ended June 30, 2006, and $14.6 million for the same period in 2005.

Interest expense decreased 70.6 percent for the six months ended June 30, 2006, compared to the same period in 2005. The decrease in interest expense corresponded to a similar decrease in interest income and was primarily due to a continued decline in bonds payable and short-term notes payable, which resulted from the sale or redemption of substantially all of the investment portfolio and continued runoff of the underlying collateral.

Corporate

Three months ended June 30, 2006, compared to three months ended June 30, 2005

Corporate expenses were $19.0 million and $19.3 million for the three months ended June 30, 2006 and 2005, respectively. Excluding stock option expense required by a change in accounting principle, corporate expenses were $16.7 million, a decline of $2.6 million. The decrease was due to lower executive compensation expense that resulted from lower earnings and a decline in stock price.

Management’s Discussion and Analysis of
Financial Condition and Results of Operation

Six months ended June 30, 2006, compared to six months ended June 30, 2005

Corporate expenses were $34.0 million and $32.3 million for the six months ended June 30, 2006 and 2005, respectively. Excluding stock option expense required by a change in accounting principle, corporate expenses were $29.4 million, a decline of $2.9 million. The decrease was due to lower executive compensation expense that resulted from lower earnings and a decline in stock price.

Income Taxes

The Company’s provision for income tax represented effective income tax rates of 37.5 percent for 2006 and 38.0 percent for 2005. The decrease in the effective income tax rate in 2006 was primarily due to the estimated benefits of the new “qualified production activities income” tax deduction created by the American Jobs Creation Act of 2004.

Financial Condition and Liquidity

Cash requirements for the Company are generally provided from internally generated funds and outside borrowings.

Net earnings provided cash flows of $184.8 million for the six-month period ended June 30, 2006, and $167.1 million for the same period in 2005. New debt was issued during the second quarter of 2006 that provided $250.0 million. Net changes in other assets, payables and other liabilities used $167.7 million and provided $17.6 million during the six months ended June 30, 2006 and 2005, respectively. The cash provided was invested principally in inventory of $386.8 million and $418.5 million, as well as in stock repurchases of $175.0 million and $79.9 million, during the six months ended June 30, 2006 and 2005, respectively. Dividends totaled $0.24 and $0.12 per share for the six months ended June 30, 2006 and 2005, respectively. Effective in the fourth quarter of 2005, the Company’s quarterly common stock dividend was increased to $0.12 per share from the previous quarterly common stock dividend of $0.06 per share.

Consolidated inventories owned by the Company increased to $2.7 billion at June 30, 2006, from $2.3 billion at December 31, 2005. The Company attempts to maintain approximately a four- to five-year supply of land, with half or more controlled through options. At June 30, 2006, the Company controlled 75,685 lots, with 33,934 lots owned and 41,751 lots, or 55.2 percent, under option. The Company has historically funded the acquisition of land and the exercise of land options through a combination of operating cash flows, capital transactions and borrowings under its revolving credit facility. The Company expects these sources to continue to be adequate to fund future obligations with regard to the acquisition of land and the exercise of land options; therefore, it does not anticipate that the exercise of land options will have a material adverse effect on its liquidity. In an effort to increase liquidity, models have been sold and leased back on a selective basis. The Company owned 78.3 percent and 78.9 percent of its model homes at June 30, 2006 and 2005, respectively.

The homebuilding segments’ borrowings include senior notes, senior subordinated notes, an unsecured revolving credit facility and nonrecourse secured notes payable. Senior and senior subordinated notes outstanding totaled $1,143.5 million and $893.5 million at June 30, 2006, and December 31, 2005, respectively.

In July 2006, the Company redeemed its $150.0 million of 9.1 percent senior subordinated notes due June 2011, of which it owned $6.5 million. The redemption price was 104.6 percent of the principal amount of the notes

Management’s Discussion and Analysis of
Financial Condition and Results of Operation

outstanding, plus accrued interest as of the redemption date. The notes were redeemed at a price of $1,045.63 per $1,000 notes outstanding, plus accrued interest. The Company will recognize a loss related to the early retirement of these senior subordinated notes of $7.7 million in the third quarter of 2006.

Additionally, the Company intends to repay its outstanding $100.0 million of 8.0 percent senior notes due in August 2006.

In January 2006, the Company entered into a $750.0 million unsecured revolving credit facility. The credit agreement, which matures in January 2011, also provides access to an additional $750.0 million of financing through an accordion feature under which the aggregate commitment may be increased up to $1.5 billion, subject to the availability of additional lending commitments. The $750.0 million revolving credit facility includes a $75.0 million swing-line facility and a $600.0 million sublimit for issuance of standby letters of credit. Amounts borrowed under the credit agreement are guaranteed on a joint and several basis by substantially all of the Company’s wholly-owned homebuilding subsidiaries. Such guarantees are full and unconditional. Interest rates on outstanding borrowings are determined either by reference to LIBOR, with margins determined based on changes in its leverage ratio and credit ratings, or by reference to an alternate base rate. The credit agreement contains various customary affirmative, negative and financial covenants and replaces the Company’s prior $500.0 million revolving credit facility. (See Note 9, “Debt.”)

The Company uses its $750.0 million unsecured revolving credit facility to finance increases in its homebuilding inventory and working capital, when necessary. There were no borrowings under the current facility at June 30, 2006, or at December 31, 2005. Under these facilities, the Company had letters of credit outstanding that totaled $173.8 million at June 30, 2006, and $185.6 million at December 31, 2005. Unused borrowing capacity under these facilities totaled $576.2 million and $314.4 million, respectively.

The $100.0 million of 8.0 percent senior notes due August 2006 and the $150.0 million of 9.1 percent senior subordinated notes due June 2011 contain various restrictive covenants that include, among other things, limitations on additional indebtedness; change of control; transactions with affiliates; liens and guarantees; dividends and distributions; sale of assets; modification of debt instruments; transactions with affiliates; and inventory. At June 30, 2006, the Company was in compliance with these covenants.

The $150.0 million of 5.4 percent senior notes due June 2008; the $250.0 million of 5.4 percent senior notes due May 2012; the $250.0 million of 6.9 percent senior notes due June 2013; and the $250.0 million of 5.4 percent senior notes due January 2015 are subject to certain covenants that include, among other things, restrictions on additional secured debt and the sale of assets. At June 30, 2006, the Company was in compliance with these covenants.

During the second quarter of 2006, the Company terminated its treasury locks to facilitate the replacement of higher-rate senior and senior subordinated debt in 2006. The Company recognized a $9.2 million gain in the second quarter of 2006 related to the termination of these locks. (See Note 9, “Debt.”)

The financial services segment uses cash generated internally and from outside borrowing arrangements to finance its operations. During the fourth quarter of 2005, the financial services segment terminated its revolving credit facility, which was previously used to finance investment portfolio securities. Accordingly, the financial services segment had no borrowings outstanding at June 30, 2006, or December 31, 2005.

Management’s Discussion and Analysis of
Financial Condition and Results of Operation

The Company filed a shelf registration statement with the SEC for up to $1.0 billion of its debt and equity securities on April 11, 2005. At June 30, 2006, $600.0 million remained available under this registration statement due to the issuance of $250.0 million of senior notes in May 2005, of which $100.0 million was applied to a previous shelf registration statement, and the issuance of $250.0 million of senior notes in May 2006. 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. 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 the six months ended June 30, 2006, the Company repurchased 2,850,000 shares of its outstanding common stock at a cost of approximately $175.0 million. The Company had existing authorization from its Board of Directors to purchase approximately 2.3 million shares at a cost of $101.7 million, based on the Company’s stock price at June 30, 2006. Outstanding shares at June 30, 2006, were 44,254,440, versus 46,833,035 for June 30, 2005, a decrease of 5.5 percent.

The Company believes that its current cash position, cash generation capabilities, amounts available under its revolving credit facility and its ability to access the capital markets in a timely manner with its existing shelf registration statement are adequate to meet its cash needs for the foreseeable future.

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 and substantially reduce the risks associated with land ownership and development. At June 30, 2006, the Company had $184.1 million in cash deposits and letters of credit to purchase land and lots with a total purchase price of $2.0 billion. Only $53.9 million of the $2.0 billion in land and lot option purchase contracts contain specific performance provisions. Additionally, the Company’s liability is generally limited to forfeiture of the nonrefundable deposits, letters of credit and other nonrefundable amounts incurred.

Pursuant to FIN 46, the Company consolidated $207.4 million of inventory not owned at June 30, 2006, $149.1 million of which pertained to land and lot option purchase contracts and $58.3 million of which pertained to three of the Company’s homebuilding joint ventures. (See Note 7, “Variable Interest Entities,” and Note 8, “Investments in Joint Ventures.”)

At June 30, 2006, the Company had outstanding letters of credit totaling $173.8 million and development or performance bonds totaling $478.3 million, issued by third parties, to secure performance under various contracts and land or municipal improvement obligations. 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 $750.0 million unsecured revolving credit facility, its senior notes and its investments in joint ventures. (See Note 8, “Investments in Joint Ventures,” and Note 14, “Supplemental Guarantor Information.”)

Management’s Discussion and Analysis of
Financial Condition and Results of Operation

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. There were no significant changes to the Company’s critical accounting policies during the six-month period ended June 30, 2006, compared to those policies disclosed in the Company’s Annual Report on Form 10-K/A for the fiscal year ended December 31, 2005, other than those related to its accounting for stock-based compensation.

On January 1, 2006, the Company adopted the provisions of SFAS 123(R), 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. The determination of the fair value of share-based awards at the grant date requires judgment in developing assumptions, which involve a number of variables. These variables include, but are not limited to, the expected stock-price volatility over the term of the awards, the expected dividend yield and the 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 the accounting for stock-based compensation is a critical accounting policy because it requires the use of complex judgment in its application.

Outlook

In the first seven months of the year, the Company experienced a decline in sales orders for new homes, compared to the same period last year. The Company continues to believe its sales orders thus far reflect broader market trends toward a softening in demand for residential housing. Nearly all markets have been affected by reduced demand and higher cancellation rates, leading to a buildup of new and resale home inventories. At June 30, 2006, the Company’s backlog of orders for new homes totaled 8,151 units, or a projected dollar value of $2.5 billion, and reflected a 17.8 percent decline in dollar volume from June 30, 2005. As a result of these trends, the Company projects its diluted earnings per share will be between $7.75 and $8.25 for the fiscal year ending December 31, 2006.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes in the Company’s market risk since December 31, 2005. For information regarding the Company’s market risk, refer to “Item 7A, Quantitative and Qualitative Disclosures about Market Risk,” in the Company’s Annual Report on Form 10-K/A for the fiscal year ended December 31, 2005.

Item 4. Controls and Procedures

At the end of the period covered by this report on Form 10-Q/A, an evaluation was performed by the Company’s management, including the CEO and CFO, regarding the effectiveness of the Company’s disclosure controls and procedures as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934. 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 June 30, 2006.

The Company has a committee consisting of key officers, including the chief accounting officer and general counsel, to ensure that all information required to be disclosed in the Company’s reports is accumulated and communicated to those individuals responsible for the preparation of the reports, as well as to all principal executive and financial officers, in a manner that will allow timely decisions regarding required disclosures.

At December 31, 2005, 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 summarized its assessment process and documented its conclusions in the Report of Management, which appears in the Company’s 2005 Annual Report on Form 10-K/A for the year ended December 31, 2005. 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 that also appears in the Company’s 2005 Annual Report on Form 10-K/A.

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 quarterly period ended June 30, 2006, and has concluded that there was no change during the quarterly period ended June 30, 2006, that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

The Company has restated Note 3 to expand the disclosure of its homebuilding reportable segments in accordance with the provisions of Statement of Financial Accounting Standards No. 131 (SFAS 131), “Disclosures about Segments of an Enterprise and Related Information,” to report segment information relating to its homebuilding operations based on regions of the country, rather than reporting its homebuilding business as a single, national reportable segment. The Company’s management, including its CEO and CFO, has re-evaluated its disclosure controls and procedures as of the end of the period covered by this report to determine whether the restatement changes any prior conclusion. The Company has determined that the restatement does not change any conclusion that, at June 30, 2006, its disclosure controls and procedures were effective to ensure that the information included in the reports that the Company filed or submitted under the Exchange Act was recorded, processed, summarized and disclosed within the time periods specified in the SEC’s rules and forms. The treatment of the Company’s homebuilding business as a single, national reportable segment was previously in accordance with SFAS 131 and the practice was followed by substantially all the large, geographically diverse homebuilders that file reports with the SEC. The restatement represents a change in interpretation and practice with respect to the application of SFAS 131. The change in the way the Company reports segment information did not affect its previously reported consolidated financial position, results of operations or cash flows.

In the description of its business and Management’s Discussion and Analysis of Financial Condition and Result of Operations, the Company previously included certain information on the basis of the geographic regions within which the Company operates. Based upon a recent technical correction to the interpretation of homebuilding segment reporting, the Company presents in this Restatement additional information so that all geographic regional data in its reports are presented on the basis of the same geographic homebuilding segments. In light of, and after

considering this change in reporting homebuilding geographic segment information, the Company’s management continues to believe and has concluded that its disclosure controls and procedures are effective.

PART II. Other Information

Item 1. Legal Proceedings

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

On January 15, 2004, a securities class action was filed against the Company and two of its officers in the United States District Court for the Northern District of Texas. The action alleges violations of the federal securities laws in connection with the disclosure by the Company of new home sales for the fourth quarter of 2003. In September 2005, the Court dismissed the action because the lead plaintiff previously selected by the Court had failed to state a claim upon which relief could be granted. As a result, the Court also dismissed the class action complaint. Subsequently, a different member of the purported class asked to be substituted as a new lead plaintiff. In June 2006, the Court granted that request and reinstated the action. The defendants believe that the Court erred in doing so and has asked the Court to certify the issue for an immediate appeal to the United States Court of Appeals for the Fifth Circuit. The new lead plaintiff has opposed that request. The Court has yet to rule.

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 liabilities arising from these matters will not have a material adverse effect on the financial condition of the Company.

Item 1A. Risk Factors

There were no material changes in the risk factors set forth in the Company’s most recent Annual Report on Form 10-K/A.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table summarizes the Company’s purchases of its own equity securities during the six months ended June 30, 2006:

				Total Number
				of Shares	Approximate Dollar
	Total			Purchased as Part	Value of Shares that
	Number of	Average		of Publicly	May Yet Be
	Shares	Price Paid		Announced Plans	Purchased under the
Period	Purchased	Per Share		or Programs	Plans or Programs

January 1 – 31	110,000	$	72.85	110,000	$	268,691,465
February 1 – 28	600,000	69.11		600,000	227,226,200
March 1 – 31	325,000	68.87		325,000	204,842,315
April 1 – 30	300,000	65.63		300,000	185,153,580
May 1 – 31	1,315,000	55.84		1,315,000	111,727,083
June 1 – 30	200,000	50.01		200,000	101,724,373

Total	2,850,000	$	61.40	2,850,000

On December 22, 2004, the Company announced that it had received authorization from its Board of Directors to purchase 2.0 million additional shares of its common stock in open-market transactions. During the six-month period ended June 30, 2006, 380,626 shares were repurchased in accordance with this authorization. At June 30, 2006, there were no remaining shares available for purchase in accordance with this authorization.

On December 12, 2005, the Company announced that it had received authorization from its Board of Directors to purchase shares totaling $250.0 million. During the six-month period ended June 30, 2006, 2.5 million shares were repurchased in accordance with this authorization. At June 30, 2006, there was approximately $101.7 million, or 2.3 million shares, available for purchase based on the Company’s stock price on that date. This authorization does not have an expiration date.

Item 4. Submission of Matters to a Vote of Security Holders

The annual meeting of stockholders of the Company was held on April 26, 2006. Proxies were solicited by the Company, pursuant to Regulation 14 under the Securities Exchange Act of 1934, to elect directors of the Company for the ensuing year; approve The Ryland Group, Inc. 2006 Non-Employee Director Stock Plan; consider two stockholder proposals; and to ratify the appointment of Ernst & Young LLP as the Company’s independent auditors for the fiscal year ending December 31, 2006.

Proxies representing 41,972,396 shares of common stock eligible to vote at the meeting, or 91.2 percent of the 46,043,294 outstanding shares, were voted.

The 11 incumbent directors nominated by the Company were re-elected. The following is a separate tabulation with respect to the vote for each nominee:

Name	Total Votes For	Total Votes Withheld
R. Chad Dreier	41,880,455	91,941
Daniel T. Bane	41,928,266	44,130
Leslie M. Frécon	39,006,009	2,966,387
Roland A. Hernandez	40,009,644	1,962,752
William L. Jews	27,669,205	14,303,191
Ned Mansour	41,929,454	42,942
Robert E. Mellor	27,486,876	14,485,520
Norman J. Metcalfe	27,676,000	14,296,396
Charlotte St. Martin	27,679,309	14,293,087
Paul J. Varello	41,916,879	55,517
John O. Wilson	41,912,675	43,949

The Ryland Group, Inc. 2006 Non-Employee Director Stock Plan was approved by 92.5 percent of the shares voting. The following is a breakdown of the vote on such matter:

Total Votes For		Total Votes Against		Abstain
29,340,365		2,367,874		33,361

A proposal from the International Brotherhood of Electrical Workers’ Pension Benefit Fund (a stockholder) requesting stockholder approval of future severance agreements for senior executives that provide benefits exceeding 2.99 times the sum of the executives’ base salary plus bonus was approved by 70.5 percent of the shares voting. The following is a breakdown of the vote on such matter:

Total Votes For		Total Votes Against		Abstain
22,331,655		9,366,163		33,361

A proposal from the Indiana State District Council of Laborers and HOD Carriers Pension Fund (a stockholder) requesting stockholder approval of any future extraordinary retirement benefits for senior executives was approved by 57.3 percent of the shares voting. The following is a breakdown of the vote on such matter:

Total Votes For		Total Votes Against		Abstain
18,151,546		13,547,331		42,731

The ratification of the appointment of Ernst & Young LLP as Ryland’s independent auditors for the fiscal year ending December 31, 2006, was approved by 99.6 percent of the shares voting. The following is a breakdown of the vote on such matter:

Total Votes For		Total Votes Against		Abstain
41,781,402		168,988		22,002

Item 6. Exhibits

10.1	The Ryland Group, Inc. 2006 Non-Employee Director Stock Plan
	(Incorporated by reference from Form 10-Q, filed July 31, 2006)

12.1	Computation of Ratio of Earnings to Fixed Charges
	(Incorporated by reference from Form 10-Q, filed July 31, 2006)

31.1	Certification of Principal Executive Officer Pursuant to Section 302 of the
	Sarbanes-Oxley Act of 2002
	(Filed herewith)

31.2	Certification of Principal Financial Officer Pursuant to Section 302 of the
	Sarbanes-Oxley Act of 2002
	(Filed herewith)

32.1	Certification of Principal Executive Officer Pursuant to Section 906 of the
	Sarbanes-Oxley Act of 2002
	(Furnished herewith)

32.2	Certification of Principal Financial Officer Pursuant to Section 906 of the
	Sarbanes-Oxley Act of 2002
	(Furnished herewith)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	THE RYLAND GROUP, INC.
	Registrant



November 7, 2006	By: /s/ Gordon A. Milne
Date	Gordon A. Milne
	Executive Vice President and Chief Financial Officer
	(Principal Financial Officer)



November 7, 2006	By: /s/ David L. Fristoe
Date	David L. Fristoe
	Senior Vice President, Controller and Chief Accounting Officer
	(Principal Accounting Officer)

INDEX OF EXHIBITS

Exhibit No.
10.1	The Ryland Group, Inc. 2006 Non-Employee Director Plan
	(Incorporated by reference from Form 10-Q, filed July 31, 2006)

12.1	Computation of Ratio of Earnings to Fixed Charges
	(Incorporated by reference from Form 10-Q, filed July 31, 2006)

31.1	Certification of Principal Executive Officer Pursuant to Section 302 of the
	Sarbanes-Oxley Act of 2002
	(Filed herewith)

31.2	Certification of Principal Financial Officer Pursuant to Section 302 of the
	Sarbanes-Oxley Act of 2002
	(Filed herewith)

32.1	Certification of Principal Executive Officer Pursuant to Section 906 of the
	Sarbanes-Oxley Act of 2002
	(Furnished herewith)

32.2	Certification of Principal Financial Officer Pursuant to Section 906 of the
	Sarbanes-Oxley Act of 2002
	(Furnished herewith)