UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K/A

Amendment No. 1

x Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2005

o 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 1-8029

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

Maryland	52-0849948
(State or other jurisdiction	(I.R.S. Employer Identification No.)
of incorporation or organization)

24025 Park Sorrento, Suite 400, Calabasas, California 91302
(Address of principal executive offices)

Registrant’s telephone number, including area code: (818) 223-7500

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

Title of each class	Name of each exchange on which registered
Common stock, par value $1.00 per share	New York Stock Exchange
Common share purchase rights	New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:	None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes x

No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes o

No x

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.

Yes x

No o

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

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

Large accelerated filer x

Accelerated filer o

Non-accelerated filer o

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

Yes o

No x

The aggregate market value of the common stock of The Ryland Group, Inc. held by nonaffiliates of the registrant (46,176,085 shares) at June 30, 2005, was $3,503,379,569.

The number of shares of common stock of The Ryland Group, Inc. outstanding on February 13, 2006, was 46,043,293.

DOCUMENTS INCORPORATED BY REFERENCE

Name of Document	Location in Report

Proxy Statement for the 2006 Annual Meeting of Stockholders		Parts I, III

Explanatory Paragraph

This Form 10-K/A is being filed to provide additional segment reporting footnote disclosure related to the Company’s homebuilding operations. The Company has restated the accompanying 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 B, “Segment Information,” to the Consolidated Financial Statements. Unless otherwise indicated, no information in this Form 10-K/A has been updated from the original filing for any subsequent information or events.

For the convenience of the reader, this Form 10-K/A sets forth the entire 2005 Form 10-K. However, this Form 10-K/A amends and restates only “Part I. Financial Information, Items 1., 7., 8. and 9A.” of the 2005 Form 10-K, 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. Information previously incorporated by reference from Exhibit 13 to the Form 10-K has been included in this Form 10-K/A and cross-references to such information have been adjusted. The aforementioned changes to the consolidated financial statements have no effect on the Company’s financial position as of December 31, 2005 and 2004, or its results of operations and cash flows for the fiscal years ended December 31, 2005, 2004 and 2003.

THE RYLAND GROUP, INC.

FORM 10-K/A

INDEX

ITEM NO.
PART I
Item 1.	Business	4
Item 1A.	Risk Factors	10
Item 1B.	Unresolved Staff Comments	12
Item 2.	Properties	12
Item 3.	Legal Proceedings	12
Item 4.	Submission of Matters to a Vote of Security Holders	13

PART II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	14
Item 6.	Selected Financial Data	15
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	32
Item 8.	Financial Statements and Supplementary Data	33
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	65
Item 9A.	Controls and Procedures	65
Item 9B.	Other Information	66

PART III

Item 10.	Directors and Executive Officers of the Registrant	66
Item 11.	Executive Compensation	66
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	66
Item 13.	Certain Relationships and Related Transactions	66
Item 14.	Principal Accountant Fees and Services	66

PART IV

Item 15.	Exhibits and Financial Statement Schedules	67


SIGNATURES		73

INDEX OF EXHIBITS		74

PART I

Item 1. Business

With headquarters in Southern California, The Ryland Group, Inc., a Maryland corporation (the “Company”), is one of the nation’s largest homebuilders and a leading mortgage-finance company. The Company is a Fortune 500 company and is traded on the New York Stock Exchange under the symbol “RYL.” Founded in 1967, the Company has built more than 250,000 homes during its 38-year history. In addition, Ryland Mortgage Company and its subsidiaries (RMC) has provided mortgage financing and related services for more than 210,000 homebuyers. The Company consists of six segments: four geographically-determined homebuilding regions; financial services; and corporate.

The Company’s operations span all significant aspects of the homebuying process – from design, construction and sale to mortgage origination, title insurance, escrow and insurance services. The homebuilding operations are by far the most substantial part of its business, comprising approximately 98 percent of consolidated revenues in fiscal year 2005. 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. In addition to building single-family detached homes, the Company’s homebuilding segments also build attached homes, such as town homes and condominiums, including some mid-rise buildings, which share common walls and roofs. The Company builds homes for entry-level buyers, as well as for first- and second-time move-up buyers. The Company’s prices range from $92,000 to more than $600,000, with the average price of a Ryland home closed during 2005 being $278,000. The financial services segment offers mortgage, title, escrow and insurance services to its homeowners and subcontractors.

Over the last 12 years, the Company has concentrated on expanding its operations by investing its available capital into both existing and new markets. It believes that measured “organic” growth avoids the risk, debt, intangible assets and distractions associated with external acquisitions. The Company focuses on achieving a high return on invested capital and profitable operations in every one of its markets. New communities are evaluated based on return and profitability benchmarks, and both senior and local management are incentivized based on their ability to achieve such returns. Management continually monitors the land acquisition process, sales revenues, margins and returns achieved in each of the Company’s markets as part of its evaluation of the use of its capital.

The Company is highly diversified throughout the United States, with no more than 10 percent and 20 percent of its deployed capital allocated to any given market or geographic area, respectively. The Company believes diversification minimizes exposure to economic and market fluctuations and enhances growth potential. Capital is strategically allocated to avoid concentration in any given geographic area and to circumvent the accompanying risk associated with excessive dependence on local market anomalies. Subject to economic conditions, the Company plans to continue expanding in its existing markets and strives to be among the largest builders in each of those markets. It also intends to continue diversification by entering new markets, primarily through establishing start-up or satellite operations in markets near its existing divisions.

The Company’s national scale has provided increased opportunities for negotiation of volume discounts and rebates from national and regional material suppliers. Additionally, it has greater access to a lower cost of capital due to the strength and transparency of its balance sheet, as well as to its lending and capital markets relationships. The Company’s economies of scale and diversification have contributed to significant improvements in its operating margins.

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

The Company is dedicated to building quality homes and customer relationships. With customer satisfaction as a major priority, it continues to make innovative enhancements designed to attract homebuyers. During 2005, the Company developed new training programs for service representatives and implemented on-line systems for

tracking requests, processing issues and improving customer interaction. In addition, the Company contracted with Eliant, an organization that analyzes customer feedback, in order to better serve homebuyers’ needs.

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

Aside from being an added value to customers, the financial services segment greatly enhances the Company’s profitability while limiting its risk. A competitively high capture rate for mortgage financing and other services allows the homebuilder to monitor its backlog and closing process. Risk is further reduced because substantially all loans are sold on the day they close to a third party, which the third party then services and manages.

Homebuilding

General

Ryland homes are built on-site and marketed in four major geographic regions, or segments. At December 31, 2005, 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, Orlando and Tampa
West		California’s Central Valley, California’s Inland Empire, Denver, Las Vegas, Phoenix, Sacramento and the San Diego area

The Company has decentralized its operations to provide more flexibility to local division presidents and management teams. Each of its 22 homebuilding divisions across the country generally consists of a division president, a controller and other management personnel focused on land entitlement, acquisition and development; sales, construction, customer service, and purchasing; as well as accounting and administrative personnel. The Company’s operations in each of its homebuilding markets may differ due to a number of market-specific factors. These factors include regional economic conditions and job growth; land availability and local land development; consumer preferences; competition from other homebuilders; and home resale activity. The Company not only considers each of these factors upon entering into new markets, but also in determining the extent of its operations and capital allocation in existing markets. The Company’s local management teams are familiar with these factors, and their market experience and expertise are critical in making decisions regarding local operations.

The Company provides oversight and centralizes key elements of its homebuilding business through its corporate and regional offices. The Company has four regional offices, which generally consist of a region president; a chief financial officer; real estate legal counsel; and other management personnel focused on human resources, marketing and operations. Regional offices provide oversight and standardization where appropriate. The staff in each of the Company’s region offices monitors activities by using various operational metrics in order to achieve Company return benchmarks.

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

Homebuyers are able to customize certain features of their homes by selecting from numerous options and upgrades displayed in the Company’s model homes and design centers. These design centers, which are conveniently located in most of the Company’s markets, also represent an increasing source of additional revenue and profit for the

Company. Custom options contributed in excess of 11 percent of revenues in 2005 and significantly higher margins than base homes.

Land Acquisition and Development

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

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

At December 31, 2005, the Company had cash deposits and letters of credit outstanding of $188.5 million in connection with option and land purchase contracts having a total purchase price of $2.1 billion. These options and commitments expire at various dates through 2018.

Materials Costs

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

Construction

Substantially all on-site construction is performed for a fixed price by independent subcontractors selected on a competitive-bid basis. The Company generally requires a minimum of three competitive bids for each phase of construction. Construction activities are supervised by the Company’s production team, which schedules and coordinates subcontractor work, monitors quality, and ensures compliance with local zoning and building codes. Construction time for homes depends on weather, availability of labor or subcontractors, materials, the size of the home, geological conditions and other factors. The duration of the home construction process is generally between three and six months. The Company has an integrated financial and homebuilding management system that assists in scheduling production and controlling costs. Through this system, the Company monitors construction status and job costs incurred for each home during each phase of construction. The system provides for detailed budgeting and allows the Company to track and control actual costs, versus construction bids, for each community and subcontractor. The Company has, on occasion, experienced shortages of skilled labor in certain markets. If shortages were to occur in the future, such shortages could result in longer construction times and higher costs than those experienced in the past.

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

Marketing

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

The Company advertises in newspapers and trade publications, as well as with marketing brochures and newsletters. It also uses billboards, radio and television advertising, and its Web site to market the location, price range and availability of its homes. The Company also attempts to operate in conspicuously located communities that permit it to take advantage of local traffic patterns. Model homes play a significant role in the Company’s marketing efforts, as they create an attractive atmosphere and display options and upgrades.

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

Customer Service and Warranties

The Company’s operating divisions are responsible for pre-closing quality control inspections and responding to homebuyers’ post-closing needs. The Company believes that a prompt and courteous response to homebuyers’ needs during and after construction reduces post-closing repair costs, enhances its reputation for quality and service, and ultimately leads to repeat and referral business. The subcontractors, who perform most of the actual construction, also provide warranties on workmanship.

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

Seasonality

The Company experiences seasonal variations in its quarterly operating results and capital requirements. Historically, new order activity is higher during the spring and summer months. As a result, it typically has more homes under construction, closes more homes, and has greater revenues and operating income in the third and fourth quarters of a fiscal year. This is primarily due to the preference of many homebuyers to act during those periods.

Financial Services

The Company’s financial services segment includes RMC, Ryland Homes Insurance Company (RHIC), LPS Holdings Corporation and its subsidiaries (LPS) and Columbia National Risk Retention Group, Inc. (CNRRG). The financial services segment provides mortgage-related products and services, as well as insurance services, primarily for the Company’s homebuyers and subcontractors. By aligning its operations with the Company’s homebuilding segments, the financial services segment leverages this relationship to capture homebuyers’ loans.

Loan Origination

In 2005, RMC’s mortgage origination operations consisted primarily of the Company’s homebuilder loans, which were originated in connection with the sale of the Company’s homes. During the year, mortgage operations originated 12,774 loans, totaling approximately $3.1 billion, of which 99.5 percent was for purchases of homes built by the Company and 0.5 percent was for the purchase of homes built by others, the purchase of existing homes or for the refinancing of existing mortgage loans.

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

Title and Escrow Services

Cornerstone Title Company, a wholly-owned subsidiary of RMC and its subsidiaries doing business as Ryland Title Company, provides title services and acts as a title insurance agent primarily for the Company’s homebuyers. At December 31, 2005, Ryland Title Company had offices in Arizona, Colorado, Florida, Georgia, Illinois, Indiana, Maryland, Minnesota, Nevada, North Carolina, Ohio, South Carolina, Texas and Virginia. The Company also operates Ryland Escrow Company, which performs escrow and loan closing functions for the Company’s homebuyers in California. During 2005, Ryland Title Company and Ryland Escrow Company provided these services to 96.9 percent of the Company’s homebuyers in the markets in which they operate, compared to 95.9 percent during 2004.

LPS is a wholly-owned subsidiary of the Company and was formed to operate certain limited purpose subsidiaries, including Ryland Escrow Company.

Insurance Services

Ryland Insurance Services, a wholly-owned subsidiary of RMC, provides insurance services to the Company’s homebuyers. At December 31, 2005, Ryland Insurance Services was licensed to operate in all of the states in which the Company’s homebuilding segments operate. During 2005, it provided insurance services to 60.4 percent of the Company’s homebuyers, compared to 58.7 percent during 2004.

RHIC is a wholly-owned subsidiary of the Company providing insurance services to the homebuilding segments’ subcontractors in certain markets.

CNRRG is a wholly-owned subsidiary of the Company and some of its affiliates. CNRRG was formed to directly insure liability risks, specifically homeowners’ warranty coverage, arising in connection with the homebuilding business of the Company and its affiliates.

Corporate

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

Real Estate and Economic Conditions

The Company is significantly affected by fluctuations in economic activity, interest rates and levels of consumer confidence. The effects of these fluctuations differ among the various geographic markets in which the Company operates. Higher interest rates may affect the ability of buyers to qualify for mortgage financing and decrease demand for new homes. As a result, rising interest rates generally will decrease the Company’s home sales and mortgage originations. The Company’s business is also affected by local economic conditions, such as employment rates and housing demand, in the markets in which it operates. Some of these markets have, at times, experienced a significant decline in housing demand.

Inventory risk can be substantial for homebuilders. The market value of land, lots and housing inventories fluctuates as a result of changing market and economic conditions. The Company must continuously locate and acquire land not only for expansion into new markets, but also for replacement and expansion of land inventory within current markets. The Company employs various measures, including a corporate land approval process and a continuous review by senior management, designed to control inventory risk. However, it cannot assure that these measures will avoid or eliminate this risk.

Competition

The Company competes in each of its markets with a large number of national, regional and local homebuilding companies. Some of these national companies are larger than the Company, and most national homebuilders have greater financial resources than in the past. The strength and expanded presence of national homebuilders, plus the continued viability of regional and local homebuilders, has increased competition in many markets. This competition could make it more difficult to acquire suitable land at acceptable prices, force an increase in selling incentives or decrease sales. Any of these could have an adverse impact on the Company’s financial performance or results of operations. The Company also competes with other housing alternatives, including existing homes and rental housing. Principal competitive factors in the homebuilding industry include price; design; quality; reputation; relationship with developers; accessibility of subcontractors; availability and location of lots; and availability of customer financing.

Regulatory and Environmental Matters

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

RMC is subject to the rules and regulations of FHA, FHLMC, FNMA, VA and the Department of Housing and Urban Development (HUD) with respect to originating, processing and selling mortgage loans. In addition, there are other federal and state laws and regulations that affect not only these activities, but also RMC’s title, escrow and insurance brokerage operations. These rules and regulations prohibit discrimination and establish underwriting guidelines that include provisions for inspections and appraisals; require credit reports on prospective borrowers; and fix maximum loan amounts. RMC is required to submit audited financial statements to various regulatory agencies annually, and each regulatory entity has its own financial requirements. The Company’s affairs are also subject to examination by these regulatory agencies and by state agencies, at all times, to assure compliance with applicable regulations, policies and procedures. Mortgage origination activities are subject to the Equal Credit Opportunity Act, the Federal Truth-in-Lending Act and the Real Estate Settlement Procedures Act (RESPA), as well as to associated regulations that prohibit discrimination and require the disclosure of certain information to mortgagors concerning credit and settlement costs.

RHIC is registered and licensed under Section 431, Article 19 of the Hawaii Revised Statutes and is required to meet certain minimum capital and surplus requirements. Additionally, no dividends may be paid without prior approval of the Hawaii Insurance Commissioner.

Employees

At December 31, 2005, the Company had 3,217 employees. The Company considers its employee relations to be good. No employees are represented by a collective bargaining agreement.

Web Site Access to Reports

The Company files annual, quarterly and special reports; proxy statements; and other information with the U.S. Securities and Exchange Commission (SEC) under the Exchange Act. Any document the Company files may be read at the SEC’s public reference room, Room 1580 at 100 F Street, NE, Washington, D.C. 20549. Please call the SEC toll free at 1-800-SEC-0330 for information regarding its public reference room. The Company files information electronically with the SEC. The Company’s SEC filings are available from the SEC’s Web site at www.sec.gov. Reports, proxy and information statements, and other information regarding issuers that file electronically are readily obtainable there.

Stockholders, securities analysts and others seeking information about the Company’s business operations and financial performance can receive copies of the 2005 Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, all amendments to those reports and other publications ﬁled with the SEC in Washington, D.C., without charge, by contacting the treasurer’s office at (818) 223-7677; by writing to The Ryland Group, Inc., Investor Relations, 24025 Park Sorrento, Suite 400, Calabasas, California 91302; or via e-mail at investors@ryland.com. In addition, all filings with the SEC, news releases and quarterly earnings announcements, including live audio and replays of the most recent quarterly earnings conference calls, can be accessed free of charge on the Company’s Web site (www.ryland.com). Information on the Company’s Web site is not part of this report. Ryland makes its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act available on its Web site as soon as reasonably practicable after it electronically files such material with, or furnishes it to, the SEC. To retrieve any of this information, go to www.ryland.com, select “Investor Information” and scroll down the page to “SEC Filings.”

Item 1A. Risk Factors

If real estate and economic conditions deteriorate, the Company’s revenue may decrease.

The Company can be significantly affected by the cyclical nature of the homebuilding industry which is sensitive to fluctuations in general and local economic conditions, interest rates, housing demand, employment levels, availability of financing and levels of consumer confidence. The effects of these fluctuations differ among the various geographic markets in which it operates. Sales of new homes are affected by market conditions for resale homes and rental properties. Its business is also affected by local economic conditions, such as employment rates and housing demand in the markets in which the Company builds homes. The markets in which it operates can experience mild to significant declines in housing demand. The Company is currently experiencing a decline in market demand in some of its markets.

If market demand significantly changes, the Company is subject to inventory risk.

Inventory risk can be substantial for homebuilders. The market value of the Company’s land, building lots and housing inventories fluctuates as a result of changing market and economic conditions. In addition, inventory carrying costs can result in losses in poorly performing projects or markets. In the event of significant changes in economic or market conditions, the Company may dispose of land or housing inventories on a basis that may result in a loss. In the course of its business, the Company continuously seeks and makes acquisitions of land for expansion into new markets, as well as for replacement and expansion of land inventory within its current markets. Although it employs various measures, including its land approval process and continued review by senior management

designed to manage inventory risks, the Company cannot assure that these measures will enable it to avoid or eliminate its inventory risk.

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

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

If interest rates rise further, then the Company’s business may decline and profitability may be reduced.

Interest rates can significantly affect the Company’s lines of business. Higher interest rates affect the ability of buyers to qualify for mortgage financing and decrease demand for new homes. As a result, rising interest rates can decrease its home sales and mortgage originations. Further, the level and expected direction of interest rates can adversely affect the profitability of sales. Any of these factors could have an adverse impact on the Company’s results of operations or financial position.

Because the Company’s industry is highly competitive, others may be more successful and cause its business to decline.

The residential housing industry is highly competitive. The Company competes in each of its markets with a large number of national, regional and local homebuilding companies. This competition could make it more difficult to acquire suitable land at acceptable prices, force it to increase selling incentives or lower its sales per community. Any of these could have an adverse impact on the Company’s financial performance or results of operations. It also competes with other housing alternatives, including existing homes and rental housing. Principal competitive factors in homebuilding are home price, design, quality, reputation, relationship with developers, accessibility of subcontractors, availability and location of lots and availability of customer financing.

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

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

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

The Company’s financial services segment is subject to the rules and regulations of FHA, FHLMC, FNMA, VA and HUD with respect to originating, processing, selling and servicing mortgage loans. Mortgage origination activities are further subject to the Equal Credit Opportunity Act, Federal Truth-in-Lending Act and RESPA and their associated regulations. These and other federal and state statutes and regulations, among other things, prohibit discrimination and establish underwriting guidelines which include provisions for audits, inspections and appraisals, require credit reports on prospective borrowers, fix maximum loan amounts and require the disclosure of certain

information concerning credit and settlement costs. The Company is required to submit audited financial statements annually, and each agency or other entity has its own financial requirements. The Company’s affairs are also subject to examination by these entities at all times to assure compliance with applicable regulations, policies and procedures.

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

The climates and geology of many of the states in which the Company operates present increased risks of natural disasters. To the extent that hurricanes, severe storms, earthquakes, droughts, floods, wildfires or other natural disasters or similar events occur, its business in those states may be adversely affected.

Because this report contains forward-looking statements, it may not prove to be accurate.

This report and other Company releases and filings with the SEC may contain forward-looking statements. The Company generally identifies forward-looking statements using words like “believe,” “intend,” “expect,” “may,” “should,” “plan,” “project,” “contemplate,” “anticipate,” “target,” “estimate,” “foresee,” “goal,” “likely,” “will” or similar statements. Because these statements reflect its current views concerning future events, these statements involve risks, uncertainties and assumption, including the risks and uncertainties identified in this report. Actual results may differ significantly from the results discussed in these forward-looking statements. The Company does not undertake to update its forward-looking statements or risk factors to reflect future events or circumstances.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

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

Item 3. Legal Proceedings

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

On January 15, 2004, a stockholder class action lawsuit was filed against the Company and two of its officers in the United States District Court for the Northern District of Texas. The lawsuit alleged violations of federal securities law as a result of information about home sales during the fourth quarter of 2003. The lawsuit has been dismissed, but is under review by the court with respect to various procedural matters which if determined adversely to the Company could cause the lawsuit to be reinstated.

In November 2003, the Company received a request from the United States Environmental Protection Agency (the “EPA”) pursuant to Section 308 of the Clean Water Act for information about storm water discharge practices in connection with recent homebuilding projects undertaken by the Company. The Company is working with the EPA to provide the requested information and review its compliance with the Clean Water Act. It is not known at this time whether the EPA will seek to take legal action or impose penalties in connection with either the information requested or the prior storm water discharge practices employed by the Company.

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 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 2005.

Executive Officers of the Company

The following sets forth certain information regarding the executive officers of the Company:

Name	Age	Position (date elected to position) Prior Business Experience
R. Chad Dreier	58	Chairman of the Board of Directors (since 1994); President and Chief Executive Officer of the Company (since 1993)
Mark L. Beisswanger	45	Senior Vice President of the Company (since 2000); President of the West Region of Ryland Homes (since 2000)
Robert J. Cunnion, III	50	Senior Vice President, Human Resources of the Company (since 1999)
Eric E. Elder	48	Senior Vice President, Marketing and Communications of the Company (since 2000)
David L. Fristoe	49	Senior Vice President, Controller and Chief Accounting Officer of the Company (since 2004); Senior Vice President, Controller, Chief Accounting Officer and Chief Information Officer of the Company (2000–2004)
Timothy J. Geckle	53	Senior Vice President, General Counsel and Secretary of the Company (since 1997)
Cathey S. Lowe	52	Senior Vice President, Finance and Treasurer of the Company (since 2002); Vice President and Treasurer of the Company (2000–2002)
Gordon A. Milne	54	Executive Vice President and Chief Financial Officer of the Company (since 2002); Senior Vice President and Chief Financial Officer of the Company (2000–2002)
Larry T. Nicholson	48	Senior Vice President of the Company (since 2004); President of the Southeast Region of Ryland Homes (since 2004); President of the Orlando Division of Ryland Homes (1999–2004)
Daniel G. Schreiner	48	Senior Vice President of the Company (since 1999); President of Ryland Mortgage Company (since 1998)
Kipling W. Scott	51	Executive Vice President of the Company (since 2003); Senior Vice President of the Company (1995–2003); President of the North Central Region of Ryland Homes (since 1997)

The Board of Directors elects all officers.

There are no family relationships between any director or executive officer, or arrangements or understandings pursuant to which the officers listed above were elected. For a description of the Company’s employment and severance arrangements with certain of its executive officers, see the Company’s Proxy Statement for the 2006 Annual Meeting of Stockholders, which is filed pursuant to Regulation 14A under the Exchange Act (the “2006 Proxy Statement”).

PART II

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

Information required by this item appears in Part II, Item 8: “Financial Statements and Supplementary Data,” in the section entitled “Quarterly Financial Data” and “Common Stock Prices and Dividends.”

The following is a table summarizing the Company’s purchases of its own equity securities during the 12 months ended December 31, 2005:

				Total Number
				of Shares	Maximum Number
	Total			Purchased as Part	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	-	$	-	-	2,938,326
February 1 – 28	130,000	67.12		130,000	2,808,326
March 1 – 31	355,000	65.70		355,000	2,453,326
April 1 – 30	366,500	60.92		366,500	2,086,826
May 1 – 31	215,000	64.23		215,000	1,871,826
June 1 – 30	166,200	70.47		166,200	1,705,626
July 1 – 31	220,000	80.71		220,000	1,485,626
August 1 – 31	345,000	75.20		345,000	1,140,626
September 1 – 30	100,000	67.60		100,000	1,040,626
October 1 – 31	110,000	67.53		110,000	930,626
November 1 – 30	550,000	69.87		550,000	380,626
December 1 – 31	-	-		-	3,846,590	*

Total	2,557,700	$	68.90	2,557,700	3,846,590

* Estimate based on shares remaining under previous authorization plus $250.0 million new authorization divided by the Company’s stock price at December 31, 2005.

On December 22, 2004, the Company announced that it had received authorization from its Board of Directors to purchase two million additional shares of its common stock in open-market transactions. At December 31, 2005, there were 380,626 shares available for purchase in accordance with this authorization. This authorization does not have an expiration date.

On December 12, 2005, the Company announced that it had received authorization from its Board of Directors to purchase shares totaling $250.0 million, or approximately 3.5 million shares based on the Company’s stock price at December 31, 2005. As of December 31, 2005, no shares had been repurchased in accordance with this authorization. This authorization does not have an expiration date.

Item 6. Selected Financial Data

(in millions, except share data) unaudited	2005			2004			2003			2002			2001
ANNUAL RESULTS
REVENUES
Homebuilding	$	4,726		$	3,867		$	3,355		$	2,805		$	2,684
Financial services	92			85			89			72			63
TOTAL REVENUES	4,818			3,952			3,444			2,877			2,747
Cost of sales	3,538			2,964			2,616			2,216			2,182
Selling, general and administrative expenses	550			466			419			342			316
Interest expense	1			1			8			10			24
Expense related to early retirement of debt	8			-			5			-			7
Earnings before taxes	721			521			396			309			218
Tax expense	274			201			154			124			86
NET EARNINGS	$	447		$	320		$	242		$	185		$	132
YEAR-END POSITION
ASSETS
Cash and cash equivalents	$	461		$	88		$	317		$	269		$	298
Housing inventories	2,580			2,024			1,397			1,100			899
Other assets	346			313			294			289			314
TOTAL ASSETS	3,387			2,425			2,008			1,658			1,511
LIABILITIES
Debt	922			559			574			537			557
Other liabilities and minority interest	1,089			809			609			441			391
TOTAL LIABILITIES	2,011			1,368			1,183			978			948
STOCKHOLDERS’ EQUITY	$	1,376		$	1,057		$	825		$	680		$	563
PER COMMON SHARE DATA
NET EARNINGS
Basic	$	9.52		$	6.72		$	4.86		$	3.51		$	2.47
Diluted	9.03			6.36			4.56			3.32			2.32
DIVIDENDS DECLARED	$	0.30		$	0.21		$	0.08		$	0.04		$	0.04
STOCKHOLDERS’ EQUITY PER SHARE	$	29.68		$	22.32		$	16.98		$	13.46		$	10.65
OTHER FINANCIAL DATA
EBITDA1	$	810		$	603		$	478		$	384		$	311
EBITDA/interest incurred2	12.2X			11.3X			9.5X			7.8X			5.6X
Return on beginning equity3	42.3		%	38.9		%	35.5		%	33.0		%	29.1		%
Debt-to-total capital4	40.1		%	34.6		%	41.0		%	44.1		%	49.7		%

1EBITDA (earnings before interest, taxes, depreciation and amortization) is a measure commonly used in the homebuilding industry and is presented to assist in understanding the ability of the operations of The Ryland Group, Inc. and its subsidiaries (“the Company”) to generate cash beyond that which is needed to service existing interest requirements and ongoing tax obligations. EBITDA equals net earnings before (a) interest expense; (b) previously capitalized interest amortized to cost of sales; (c) income taxes; and (d) depreciation and amortization. EBITDA is not a financial measure recognized in accordance with generally accepted accounting principles (GAAP). EBITDA should neither be considered an alternative to net earnings determined in accordance with GAAP as an indicator of operating performance nor an alternative to cash flows from operating activities determined in accordance with GAAP as a measure of liquidity.

2EBITDA/interest incurred is calculated as EBITDA (defined above) divided by total interest incurred, which is the sum of interest expense and capitalized interest for the period.

3Return on beginning equity is calculated as net earnings divided by total stockholders’ equity at the beginning of the period.

4Debt-to-total capital is calculated as debt divided by the sum of debt and total stockholders’ equity.

The following table sets forth the computation of EBITDA for each period presented.

	YEAR ENDED DECEMBER 31,
(in thousands)	2005		2004		2003		2002		2001
Earnings before taxes	$	721,051	$	521,212	$	396,217	$	309,340	$	218,336
Interest expense	738		1,227		7,523		9,391		23,652
Capitalized interest amortized to cost of sales	45,483		41,764		38,263		32,162		31,878
Depreciation and amortization	43,166		38,519		36,436		32,670		37,068
EBITDA	$	810,438	$	602,722	$	478,439	$	383,563	$	310,934

A reconciliation of EBITDA to net cash provided by operations, the most directly comparable GAAP measure, is provided below for each period presented.

	YEAR ENDED DECEMBER 31,
(in thousands)	2005			2004			2003			2002			2001
Net cash provided by (used for) operating activities	$	216,264		$	(78,471	)	$	139,471		$	87,715		$	182,736
Increase in inventory	490,971			585,562			239,989			200,623			10,984
Tax expense	273,999			200,667			154,525			123,736			86,243
Interest expense	738			1,227			7,523			9,391			23,652
Capitalized interest amortized to cost of sales	45,483			41,764			38,263			32,162			31,878
Net change in other assets, payables and other liabilities	(194,220		)	(119,632		)	(83,299		)	(52,866		)	(22,404		)
Tax benefit from exercise of stock options and vesting of restricted stock	(30,505		)	(17,475		)	(17,120		)	(12,103		)	(8,337		)
Other	7,708			(10,920		)	(913		)	(5,095		)	6,182
EBITDA	$	810,438		$	602,722		$	478,439		$	383,563		$	310,934

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

Forward-looking Statements

NOTE: Certain statements in this annual report may be regarded as “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, and may qualify for the safe harbor provided for in Section 21E of the 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 annual report will be achieved. These forward-looking statements can generally be identified by the use of statements that include words such as “anticipate,” “believe,” “estimate,” “expect,” “foresee,” “goal,” “intend,” “likely,” “may,” “plan,” “project,” “should,” “target,” “will” or other similar words or phrases. All forward-looking statements contained herein are based upon information available to the Company on the date of this annual report. Except as may be required under applicable law, the Company does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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

· economic changes nationally or in the Company’s local markets, including volatility 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.

The discussion in the Results of Operations section of Management’s Discussion and Analysis of Financial Condition and Results of Operations for the years ended December 31, 2005, 2004 and 2003 reflects a restatement to contain expanded disclosure of 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.” The Company had historically aggregated its homebuilding operating segments into a single, national reportable segment, but has restated its segment disclosure to include four homebuilding reportable segments for the years ended December 31, 2005, 2004 and 2003. (See Note B “Segment Information.”) The restatement has no impact on the Company’s consolidated balance sheets as of December 31, 2005 and 2004, or consolidated statements of earnings and related earnings per share amounts, consolidated statements of cash flows or consolidated statements of stockholders’ equity for the years ended December 31, 2005, 2004 and 2003.

Results of Operations

Earnings, revenues, new orders and deliveries of homes reached record-breaking highs for the seventh consecutive year in 2005. These trends were indicative of another year of favorable economic and demographic environments, as well as of the Company’s ability to deliver a competitive product in superior locations while achieving higher relative economies through cost-saving initiatives. In 2005, the Company’s internally generated top- and bottom-line growth was fueled by increased volume and operating profits. The Company improved its Fortune 500 ranking and maintained its investment-grade rating while lowering the average interest rate on its debt. The Company continues to make significant investments in new marketing initiatives, product development, customer service, training and technology, all of which are critical to streamlining processes and improving the customer’s experience.

NET EARNINGS		DILUTED EARNINGS		EBITDA
(in millions)		PER SHARE		(in millions)
2003	$ 242	2003	$ 4.56	2003	$ 478
2004	$ 320	2004	$ 6.36	2004	$ 603
2005	$ 447	2005	$ 9.03	2005	$ 810

The Company reported consolidated net earnings of $447.1 million, or $9.03 per diluted share, for 2005, compared to $320.5 million, or $6.36 per diluted share, for 2004 and $241.7 million, or $4.56 per diluted share, for 2003. These net earnings increases resulted from higher revenues, increased operating margins and decreased expenses for its homebuilding operations.

The Company’s revenues reached a historical high of $4.8 billion for 2005, up 21.9 percent from $4.0 billion for 2004. Total revenues for 2004 exceeded 2003 levels by $507.7 million, or 14.7 percent. Homebuilding pretax operating margins increased to 15.8 percent for 2005, compared to 13.6 percent for 2004 and 11.8 percent for 2003.

EBITDA was $810.4 million for the year ended December 31, 2005, compared to $602.7 million and $478.4 million for the same period in 2004 and 2003, respectively. The Company’s ratio of EBITDA to interest incurred improved to 12.2 for the year ended December 31, 2005, compared to 11.3 for 2004 and 9.5 for 2003.

The Company generated significantly more cash flow from its operational growth and continued to position itself for expansion in 2006 with a 24.5 percent increase in inventory owned and 75,671 lots under control, or a projected four- to five-year supply. Its balance sheet exemplifies strength, low risk and transparency. Goodwill of $18.2 million was among the lowest in the industry. The Company’s debt-to-capital ratio was 40.1 percent at December 31, 2005, despite adding $353.0 million of new low-rate financing during the year.

Stockholders’ equity increased 30.2 percent, or $319.2 million, during 2005, compared to an increase of 28.2 percent, or $232.3 million, during 2004. As a result of balancing cash outlays among achieving growth objectives, common stock repurchases and increasing dividends, stockholders’ equity per share increased 33.0 percent, to $29.68 in 2005, compared to $22.32 in 2004. The Company’s book value at December 31, 2005, was 98.7 percent tangible. The

Company is not a significant participant in off-balance sheet type financing outside of traditional option contracts with land developers, and its investments in joint ventures represent less than one percent of its total assets.

RETURN ON		RETURN ON		STOCKHOLDERS’
EQUITY		CAPITAL		EQUITY PER SHARE
2003	35.5%	2003	22.1%	2003	$ 16.98
2004	38.9%	2004	24.8%	2004	$ 22.32
2005	42.3%	2005	29.4%	2005	$ 29.68

During 2005, the Company continued to deliver superior returns to stockholders while maintaining its strategically low-risk model. In addition, it has focused on developing competitive advantages through training and technology initiatives. Revenues grew 21.9 percent, net earnings increased 39.5 percent, diluted earnings per share improved 42.0 percent, EBITDA increased 34.5 percent, return on beginning equity was 42.3 percent, return on beginning capital5 was 29.4 percent and inventory was turned 1.5 times. Dividends declared were doubled for the second time in two years. The Company’s returns remained among the highest in the industry and Fortune 500 companies. The Company’s credit quality continues to improve, and its financial position is stronger than at any time in its history.

Homebuilding Overview

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

New orders represent sales contracts that have been signed by the homebuyer and approved by the Company, subject to cancellation. The dollar value of new order contracts increased $702.5 million, or 15.8 percent, to $5.1 billion at December 31, 2005, from $4.4 billion at December 31, 2004 and $3.6 billion at December 31, 2003. Unit orders increased 3.8 percent in 2005 and 11.1 percent in 2004. The Company continued to diversify geographically as newer markets in the West and Southeast contributed more significant gains during the year.

NEW ORDER				OUTSTANDING
DOLLARS				CONTRACT DOLLARS		OUTSTANDING
(in millions)		NEW ORDERS		(in millions)		CONTRACTS
2003	$ 3,584	2003	15,197	2003	$ 1,473	2003	5,841
2004	$ 4,433	2004	16,880	2004	$ 2,115	2004	7,620
2005	$ 5,136	2005	17,517	2005	$ 2,622	2005	8,464

The combined homebuilding operations reported pretax earnings of $744.2 million for 2005, compared to $525.5 million for 2004 and $395.0 million for 2003. Homebuilding results in 2005 increased from 2004, primarily due to higher average closing prices, gross profit margins and closing volume. Homebuilding results in 2004 increased from 2003, primarily due to these same factors.

Homebuilding revenues increased 22.2 percent for 2005, compared to 2004, due to a 10.4 percent increase in closings and a 10.8 percent increase in average closing price. The rise in closings in 2005 was due to a higher backlog at the beginning of the year and a 3.8 percent increase in new home orders during the year. Homebuilding revenues increased 15.3 percent for 2004, compared to 2003, due to a 2.6 percent increase in closings and a 12.1 percent increase in average closing price. The increase in closings in 2004 was due to a higher backlog at the beginning of the year and an 11.1 percent increase in new home orders during the year.

5Return on beginning capital is calculated by dividing net earnings before tax-affected interest by the sum of beginning debt and total stockholders’ equity

Consistent with its policy of managing land investments according to return and risk targets, the Company executed several land and lot sales during the year. Homebuilding revenues for the year ended December 31, 2005, included $96.9 million from land and lot sales, compared to revenues of $74.2 million for 2004 and $56.0 million for 2003, which contributed net gains of $23.9 million, $25.2 million and $10.5 million to pretax earnings in 2005, 2004 and 2003, respectively.

GROSS PROFIT		SG&A		PRETAX EARNINGS
MARGIN		EXPENSE		MARGIN
2003	22.1%	2003	10.1%	2003	11.8%
2004	23.2%	2004	9.8%	2004	13.6%