Ryland Reports Diluted EPS of $1.98 for the Fourth Quarter and $7.83 for the Fiscal Year 2006

CALABASAS, Calif., Jan. 24 /PRNewswire-FirstCall/ -- The Ryland Group, Inc. , today announced results for its fourth quarter ended December 31, 2006. Items of note included:

* Diluted earnings of $1.98 per share for the quarter ended December 31, 2006, including pretax charges of $42.8 million for inventory valuation adjustments and $11.6 million for write-offs of deposits and preacquisition costs, compared to $3.32 per share for the same period in the prior year; * Consolidated revenues of $1.4 billion for the quarter ended December 31, 2006, reflecting a decrease of 11.4 percent from the quarter ended December 31, 2005; * Gross profit margins from home sales averaged 22.0 percent prior to inventory valuation adjustments and write-offs and 17.8 percent subsequent to these adjustments for the quarter ended December 31, 2006, compared to 26.3 percent for the same period in 2005; * Closings for the quarter ended December 31, 2006, totaled 4,347, reflecting a decrease of 15.8 percent from the same period in the prior year; * Average closing price for the quarter ended December 31, 2006, increased 4.2 percent to $298,000 from $286,000 for the same period in 2005; * New order units in the fourth quarter of 2006 decreased 44.0 percent to 1,718 units from 3,066 units in the fourth quarter of 2005; * Inventory totaled $2.5 billion, a decrease of $341.3 million from September 30, 2006, excluding consolidated inventory not owned; * Debt-to-total capital ratio was 38.6 percent at December 31, 2006; and * Anticipated diluted earnings per share for fiscal year 2007 is projected to be between $3.75 and $4.25 per share. RESULTS FOR THE FOURTH QUARTER OF 2006

The Company's consolidated net earnings decreased 46.2 percent for the fourth quarter ended December 31, 2006, to $87.2 million, or $1.98 per diluted share, compared to $162.0 million, or $3.32 per diluted share, for the same period in 2005.

The homebuilding segments reported pretax earnings of $130.5 million during the fourth quarter of 2006, representing a 50.8 percent decline, compared to $265.2 million in pretax earnings reported for the same period in 2005. This decrease was primarily due to a decline in closings and margins, which included the impact of inventory valuation adjustments and write-offs of deposits and preacquisition costs.

Homebuilding revenues decreased $180.2 million, or 12.0 percent, to $1.3 billion for the fourth quarter of 2006, compared to $1.5 billion for the same period in 2005. This decline was primarily attributable to a 15.8 percent decrease in closings, partially offset by a 4.2 percent increase in the average closing price of a home, which rose to $298,000 for the quarter ended December 31, 2006, from $286,000 for the quarter ended December 31, 2005. Homebuilding revenues for the fourth quarter of 2006 included $23.0 million from land sales, compared to $24.3 million from land sales for the fourth quarter of 2005, contributing net gains of $6.1 million and $5.6 million to pretax earnings in 2006 and 2005, respectively.

For the fourth quarter of 2006, new order dollars decreased 48.7 percent to $463.9 million from $904.2 million in the fourth quarter of 2005. New orders of 1,718 units for the quarter ended December 31, 2006, represented a decrease of 44.0 percent, compared to new orders of 3,066 units for the same period in 2005. The Dollar value of the Company's backlog at December 31, 2006, was $1.3 billion, reflecting a decline of 50.6 percent from December 31, 2005. Backlog units at the end of the fourth quarter of 2006 decreased 50.3 percent to 4,206 from 8,464 at the end of the fourth quarter of 2005.

Gross profit margins from home sales averaged 17.8 percent for the fourth quarter of 2006, compared to 26.3 percent for the same period in 2005. Total gross profit margins, including land sales, decreased to 17.9 percent in the fourth quarter of 2006 from 26.3 percent in the fourth quarter of 2005. This decrease was primarily due to pretax charges totaling $54.4 million, which were comprised of $42.8 million for inventory valuation adjustments and $11.6 million for write-offs of deposits and preacquisition costs, as well as to increased sales incentives relating to deliveries for the fourth quarter of 2006. Homebuilding selling, general and administrative expenses, as a percentage of homebuilding revenue, were 8.0 percent for the fourth quarter of 2006, compared to 8.6 percent for the same period in 2005. This decrease was primarily attributable to cost reduction initiatives and lower compensation costs resulting from a decline in earnings. The homebuilding segments capitalized all interest incurred during the fourth quarter of 2006 due to development activity. The pretax homebuilding margin was 9.9 percent for the fourth quarter of 2006, compared to 17.7 percent for the fourth quarter of 2005.

Corporate expenses were $16.0 million for the fourth quarter of 2006, compared to $23.6 million for the same period in the prior year. This decrease was primarily due to lower executive compensation expense that resulted from a decline in earnings and stock price.

The Company's financial services segment, which includes mortgage, title, escrow and insurance services, reported pretax earnings of $24.9 million for the fourth quarter of 2006, compared to pretax earnings of $19.7 million for the same period in 2005. This rise was primarily attributable to a $3.5 million increase in insurance income for 2006, compared to the same period in 2005, as well as to a 4.4 percent increase in average loan size. The capture rate of mortgages originated for the Company's homebuilding customers was 82.3 percent for the fourth quarters of 2006 and 2005.

ANNUAL RESULTS FOR 2006

Consolidated net earnings for the twelve months ended December 31, 2006, declined 19.5 percent to $359.9 million, or $7.83 per diluted share, from $447.1 million, or $9.03 per diluted share, for the twelve months ended December 31, 2005.

The Company's homebuilding segments reported pretax earnings of $573.1 million for the twelve months ended December 31, 2006, compared to $744.2 million for the same period in the prior year, representing a decrease of 23.0 percent. Homebuilding revenues declined $71.8 million, or 1.5 percent, to $4.7 billion for the twelve months ended December 31, 2006, compared to $4.7 billion for the same period in 2005. Homebuilding revenues for the twelve months ended December 31, 2006, included $94.3 million from land sales, compared to $96.9 million from land sales for the twelve months ended December 31, 2005, contributing net gains of $24.8 million and $23.9 million to pretax earnings in 2006 and 2005, respectively. The Company closed 15,392 homes during the year ended December 31, 2006, reflecting a decrease of 7.7 percent from 2005.

New order dollars declined 37.5 percent to $3.2 billion for the twelve months ended December 31, 2006, from $5.1 billion for the same period in 2005. New orders decreased 36.4 percent to 11,134 units for the twelve months ended December 31, 2006, from 17,517 units for the twelve months ended December 31, 2005.

Gross profit margins from home sales were 21.8 percent for the twelve months ended December 31, 2006, versus 25.2 percent for the same period in 2005. This decrease was primarily due to pretax charges totaling $80.7 million, which were comprised of $62.8 million for inventory valuation adjustments and $17.9 million for write-offs of deposits and preacquisition costs, as well as to increased sales incentives for 2006. Homebuilding selling, general and administrative expenses, as a percentage of revenue, were 9.5 percent and 9.4 percent for the twelve months ended December 31, 2006 and 2005, respectively. Additionally, the Company recorded $7.7 million of expenses related to the early retirement of debt in 2006.

Corporate expenses were $66.0 million for the twelve months ended December 31, 2006, compared to $74.3 million for the same period in the prior year, reflecting a decrease of $8.2 million. Excluding stock option expense required by a change in accounting principle, corporate expenses were $60.8 million, representing a decline of $13.5 million. This decrease was primarily due to lower executive compensation expense that resulted from a decline in earnings and stock price.

The Company's financial services segment reported pretax earnings of $67.7 million for the year ended December 31, 2006, compared to $59.4 million for the same period in the prior year primarily due to an increase in insurance income for 2006, compared to the same period in 2005.

SEGMENT REPORTING

The Company revised its segment disclosure for all periods presented to disaggregate its homebuilding operations into regional reporting segments. The aforementioned changes to the Consolidated Financial Statements have no effect on the Company's financial position as of December 31, 2006 and 2005, or its results of operations and cash flows for the three- and twelve-month periods ended December 31, 2006 and 2005.

DEBT AMENDMENT

In November 2006, the Company amended its revolving credit agreement to increase its borrowing capacity from $750.0 million to $1.1 billion.

CHANGE IN OVERALL EFFECTIVE TAX RATE

The Company's effective income tax rate from operations remained at 37.5 percent for the fourth quarter of 2006. However, in the third quarter, the Company reversed prior years' tax provisions no longer required due to the expiration of various tax statutes. Therefore, its overall effective rate was 36.5 percent for the year ended December 31, 2006.

STOCK REPURCHASE PROGRAM

For the twelve months ended December 31, 2006, the Company repurchased 4,700,000 shares of its common stock at a cost of $250.1 million. Outstanding shares at December 31, 2006, were 42,612,525, versus 46,368,143 at December 31, 2005, representing a decrease of 8.1 percent. In December 2006, the Company's Board of Directors authorized the purchase of additional shares totaling $175.0 million. At December 31, 2006, the Company had authorization from its Board of Directors to purchase approximately $200 million of additional shares.

2007 EARNINGS GUIDANCE

The Company projects its diluted earnings per share to be between $3.75 and $4.25 for the fiscal year ending December 31, 2007.

With headquarters in Southern California, Ryland is one of the nation's largest homebuilders and a leading mortgage-finance company. The Company currently operates in 28 markets across the country and has built more than 265,000 homes and financed more than 225,000 mortgages since its founding in 1967. Ryland is a Fortune 500 company listed on the New York Stock Exchange under the symbol "RYL." Previous news releases may be obtained at http://www.ryland.com/.

Note: Certain statements in this press release 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 future results described in this press release 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 press release. 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 are subject to risks and uncertainties which include, among others:

* economic changes nationally or in the Company's local markets, including volatility and increases in interest rates, inflation, changes in consumer demand and 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. Four financial-statement pages follow. THE RYLAND GROUP, INC. and Subsidiaries CONSOLIDATED STATEMENTS OF EARNINGS (in thousands, except share data) Three months ended Twelve months ended December 31, December 31, 2006 2005 2006 2005 REVENUES Homebuilding $1,320,344 $1,500,518 $4,653,920 $4,725,751 Financial services 34,200 29,049 103,296 91,815 TOTAL REVENUES 1,354,544 1,529,567 4,757,216 4,817,566 EXPENSES Cost of sales 1,084,551 1,106,534 3,640,075 3,537,603 Selling, general and administrative 105,286 128,782 440,702 443,938 Financial services 9,297 9,326 35,601 32,442 Corporate 15,962 23,645 66,035 74,255 Expenses related to early retirement of debt -- -- 7,695 8,277 TOTAL EXPENSES 1,215,096 1,268,287 4,190,108 4,096,515 Earnings before taxes 139,448 261,280 567,108 721,051 Tax expense 52,293 99,288 207,166 273,999 NET EARNINGS $87,155 $161,992 $359,942 $447,052 NET EARNINGS PER COMMON SHARE Basic $2.05 $3.48 $8.14 $9.52 Diluted 1.98 3.32 7.83 9.03 AVERAGE COMMON SHARES OUTSTANDING Basic 42,593,567 46,539,739 44,228,502 46,966,317 Diluted 44,122,663 48,860,375 45,944,448 49,490,887 THE RYLAND GROUP, INC. and Subsidiaries CONSOLIDATED BALANCE SHEETS (in thousands, except share data) December 31, December 31, 2006 2005 ASSETS Cash and cash equivalents $215,037 $461,383 Housing inventories Homes under construction 1,079,702 1,253,460 Land under development and improved lots 1,427,930 1,087,016 Consolidated inventory not owned 263,853 239,191 Total inventories 2,771,485 2,579,667 Property, plant and equipment 76,887 65,980 Net deferred taxes 84,199 50,099 Purchase price in excess of net assets acquired 18,185 18,185 Other 250,904 211,559 TOTAL ASSETS 3,416,697 3,386,873 LIABILITIES Accounts payable 186,868 249,539 Accrued and other liabilities 586,797 664,691 Debt 950,117 921,970 TOTAL LIABILITIES 1,723,782 1,836,200 MINORITY INTEREST 181,749 174,652 STOCKHOLDERS' EQUITY Common stock, $1.00 par value: Authorized - 200,000,000 shares Issued - 42,612,525 shares at December 31, 2006 (46,368,143 shares at December 31, 2005) 42,612 46,368 Retained earnings 1,463,727 1,326,689 Accumulated other comprehensive income 4,827 2,964 TOTAL STOCKHOLDERS' EQUITY 1,511,166 1,376,021 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,416,697 $3,386,873 THE RYLAND GROUP, INC. and Subsidiaries SEGMENT INFORMATION Three months ended Twelve months ended December 31, December 31, 2006 2005 2006 2005 PRETAX EARNINGS (in thousands) Homebuilding North $41,401 $87,869 $170,636 $241,183 Southeast 74,872 73,662 253,120 179,242 Texas 24,430 21,533 59,854 44,308 West (10,196) 82,138 89,533 279,477 Financial services 24,903 19,723 67,695 59,373 Corporate and unallocated (15,962) (23,645) (73,730) (82,532) Total $139,448 $261,280 $567,108 $721,051 NEW ORDERS Units North 477 754 2,987 4,333 Southeast 433 1,041 3,164 5,630 Texas 508 791 3,237 3,702 West 300 480 1,746 3,852 Total 1,718 3,066 11,134 17,517 Dollars (in millions) North $146 $232 $970 $1,355 Southeast 105 327 921 1,621 Texas 106 148 653 680 West 107 197 666 1,480 Total $464 $904 $3,210 $5,136 CLOSINGS Units North 907 1,345 3,604 4,367 Southeast 1,516 1,577 5,126 4,887 Texas 1,088 1,160 3,546 3,365 West 836 1,083 3,116 4,054 Total 4,347 5,165 15,392 16,673 Average closing price (in thousands) North $334 $324 $320 $310 Southeast 301 265 293 254 Texas 202 184 193 177 West 376 378 385 356 Total 298 286 295 278 December 31, OUTSTANDING CONTRACTS 2006 2005 Units North 1,157 1,774 Southeast 1,639 3,601 Texas 1,020 1,329 West 390 1,760 Total 4,206 8,464 Dollars (in millions) North $387 $571 Southeast 526 1,106 Texas 228 259 West 153 686 Total $1,294 $2,622 Average price (in thousands) North $334 $322 Southeast 321 307 Texas 224 195 West 391 390 Total 308 310 THE RYLAND GROUP, INC. and Subsidiaries FINANCIAL SERVICES SUPPLEMENTAL INFORMATION (in thousands, except origination data) Three months ended Twelve months ended December 31, December 31, RESULTS OF OPERATIONS 2006 2005 2006 2005 Revenues Net gains on sales of mortgages and mortgage servicing rights $14,217 $13,370 $44,231 $45,918 Title/escrow/ insurance 13,232 9,269 41,086 28,489 Net origination fees 6,282 5,740 16,552 15,032 Interest and other 469 670 1,427 2,376 Total revenues 34,200 29,049 103,296 91,815 General and administrative expenses 9,297 9,326 35,601 32,442 Pretax earnings $24,903 $19,723 $67,695 $59,373 OPERATIONAL DATA Retail operations: Originations (units) 3,279 3,956 11,744 12,774 Ryland Homes closings as a percentage of total closings 99.8% 99.7% 99.7% 99.5% Ryland Homes origination capture rate 82.3% 82.3% 81.9% 81.9% Investment operations: Mortgage-backed securities and notes receivable average balance $1,165 $2,370 $1,707 $7,365