For a company that lost $334 million last year, The Ryland Group sounds awfully confident about its business model. The Calabasas, Calif.-based builder, which operates in 28 states, told investors at Wachovia's Home Building and Building Products Conference in Las Vegas yesterday afternoon that its strategies for land acquisition and construction haven't changed, and that it would continue to focus on growing capital and earnings per share, and on scaling down its size to proportions best suited for current market conditions.

Like many large production builders, Ryland has become a smaller, tighter company. Its operating expenses, at 10 percent in the fourth quarter of 2007, were second-best among public builders, as Ryland cut its workforce from its peak in the third quarter of 2006 by 32 percent to around 2,000, or equal to 1999 levels. It has consolidated its California operations into two divisions, from four, and moved its Fort Myers, Fla., operations into its Tampa division. It ended last year with only 823 spec homes valued at $164 million, compared to 1,950 units valued at $360 million at the company's peak period.

Gordon Milne, Ryland's CFO and executive vice president, made the point that his company isn't saddled with some of the weight that its competitors have been dragging around. For example, it was never big on joint ventures, and only had $30 million invested and $40 million in shared indebtedness at the end of 2007. While nearly one-fifth of its inventory is in Florida, Ryland's geographic diversity protected it, somewhat, from the severe downturns in California, Arizona, Colorado, and Nevada, where cumulatively only 16 percent of its inventory is located. (Looked at another way, the company's inventory, as of December 31, was down in Northern California by 64 percent, in Southern California by 65 percent, in Las Vegas by 60 percent, in Phoenix by 72 percent, and in Fort Myers by 69 percent.)

Milne said that he is encouraged by recent building permit data which showed a 61 percent decline in permits issued nationwide since September. "When you see that kind of fall, you've got to believe that the industry is getting better." He also pointed to data showing how home prices have been coming down, although he added that it's going to take some "pricing power" for Ryland to raise its gross margins--which were 17 percent in the fourth quarter last year, and negative 2 percent when impairments were included--back up into the 20 percent range it prefers.

Meanwhile, Milne emphasized that his company's financial condition is sound. It continues to buy back stock, having repurchased 41.6 million shares for $59.3 million last year. It will make a $50 million debt payment in 2008, but doesn't have another due until 2012. And it ended last year with $180 million in cash. (Last year, Ryland also lowered its credit line to $750 million from $1.1 billion.) Ryland owns about three-quarters of its 40,000 lots, and Milne said the company wants to get that down to 50 percent owned. At the same time, it continues to reduce its exposure to land options.

The one area from the recent boom that Ryland misses, said Milne, is the disappearance of Alt-A mortgages, which in 2005 accounted for 17 percent of the loans its mortgage subsidiary wrote. By the end of last year, Alt-A and subprime loans accounted for zero percent of Ryland Mortgage's business. "Alt-A was a big loss," said Milne.

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