-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, ebdiC/0E87jJ1zyg8JZTXBpSJf2VSnt/aK8dC//bDbTYlGAuWKNWYTqLzs+Xl7dr Xsn1m4cW2Qcbd2vMEOShpg== 0000085974-94-000021.txt : 19940815 0000085974-94-000021.hdr.sgml : 19940815 ACCESSION NUMBER: 0000085974-94-000021 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RYLAND GROUP INC CENTRAL INDEX KEY: 0000085974 STANDARD INDUSTRIAL CLASSIFICATION: 1531 IRS NUMBER: 520849948 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08029 FILM NUMBER: 94543441 BUSINESS ADDRESS: STREET 1: 11000 BROKEN LAND PARKWAY CITY: COLUMBIA STATE: MD ZIP: 21044 BUSINESS PHONE: 4107157000 FORMER COMPANY: FORMER CONFORMED NAME: RYAN JAMES P CO DATE OF NAME CHANGE: 19720414 10-Q 1 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q --------- [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 1994 ---------------- or [ ] 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 of (I.R.S. Employer of incorporation or organization) Identification No.) 11000 Broken Land Parkway, Columbia, Maryland 21044 --------------------------------------------------------- (Address of principal executive offices) (Zip Code) (410) 715-7000 --------------------------------------------------------- (Registrant's telephone number, including area code) 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 ------ ------ The number of shares of common stock of The Ryland Group, Inc., outstanding on August 2, 1994 was 15,415,758. THE RYLAND GROUP, INC. FORM 10-Q INDEX Page Number PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets at June 30, 1994 (unaudited) and December 31, 1993 1-2 Consolidated Statements of Earnings for the three and six months ended June 30, 1994 and 1993 (unaudited) 3 Consolidated Statements of Cash Flows for the six months ended June 30, 1994 and 1993 (unaudited) 4 Notes to Consolidated Financial Statements (unaudited) 5-8 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 9-16 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 17 Item 6. Exhibits and Reports on Form 8-K 18 SIGNATURES 19 INDEX OF EXHIBITS 20 The Ryland Group, Inc. and subsidiaries CONSOLIDATED BALANCE SHEETS (amounts in thousands)
June 30, December 31, 1994 1993 ------------ ------------ (unaudited) ASSETS HOMEBUILDING: Cash and cash equivalents $ 42,463 $ 44,251 Homebuilding inventories: Homes under construction 409,797 318,266 Land under development and improved lots 143,594 163,459 Land held for development or resale 4,974 7,821 ------------ ------------ Total inventories 558,365 489,546 Investment in/advances to unconsolidated joint ventures 18,220 23,066 Property, plant and equipment 16,949 13,999 Purchase price in excess of net assets acquired 23,123 23,639 Other assets 37,495 43,976 ------------ ------------ 696,615 638,477 ------------ ------------ FINANCIAL SERVICES: Cash and cash equivalents 2,269 2,239 Mortgage loans held for sale, net 260,948 535,679 Mortgage-backed securities, net 239,202 192,417 Purchased servicing and administration rights, net 13,557 14,446 Other assets 62,479 76,150 ------------ ------------ 578,455 820,931 ------------ ------------ LIMITED-PURPOSE SUBSIDIARIES: Collateral for bonds payable, net 521,196 798,074 Other assets 6,721 9,882 ------------ ------------ 527,917 807,956 ------------ ------------ Other assets 50,276 48,329 ------------ ------------ TOTAL ASSETS $ 1,853,263 $ 2,315,693 ============ ============ See notes to consolidated financial statements.
1 The Ryland Group, Inc. and subsidiaries CONSOLIDATED BALANCE SHEETS (amounts in thousands, except share data)
June 30, December 31, 1994 1993 ------------ ------------ (unaudited) LIABILITIES HOMEBUILDING: Accounts payable and other liabilities $ 92,066 $ 59,082 Long-term debt 397,832 381,040 ------------ ------------ 489,898 440,122 ------------ ------------ FINANCIAL SERVICES: Accounts payable and other liabilities 51,873 34,453 Short-term notes payable 450,014 716,933 ------------ ------------ 501,887 751,386 ------------ ------------ LIMITED-PURPOSE SUBSIDIARIES: Accounts payable and other liabilities 16,828 22,591 Bonds payable, net * 506,256 778,428 ------------ ------------ 523,084 801,019 ------------ ------------ Other liabilities 31,130 29,919 ------------ ------------ TOTAL LIABILITIES 1,545,999 2,022,446 ------------ ------------ STOCKHOLDERS' EQUITY Convertible preferred stock, $1 par value Authorized - 1,400,000 shares Issued - 1,115,128 shares (1,153,652 for 1993) 1,115 1,154 Common stock, $1 par value Authorized - 78,600,000 shares Issued - 15,396,772 shares (15,342,624 for 1993) 15,397 15,343 Paid-in capital 115,624 116,386 Retained earnings 188,537 180,351 Net unrealized gain on securities 4,230 Other (17,639) (19,987) ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 307,264 293,247 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,853,263 $ 2,315,693 ============ ============ See notes to consolidated financial statements. * The 'bonds payable, net' shown in the financial statements represent obligations solely of the limited-purpose subsidiaries, which are secured by the assets of the limited-purpose subsidiaries. The bonds are not guaranteed or insured by The Ryland Group, Inc. or any of its subsidiaries.
2 The Ryland Group, Inc. and subsidiaries CONSOLIDATED STATEMENTS OF EARNINGS (unaudited) (amounts in thousands, except share data)
Three months ended Six months ended June 30, June 30, 1994 1993 1994 1993 ----------- ----------- ----------- ----------- REVENUES: Homebuilding: Residential revenues $ 363,385 $ 301,832 $ 637,629 $ 518,554 Other revenues 786 1,857 1,556 3,329 ----------- ----------- ----------- ----------- Total homebuilding revenues 364,171 303,689 639,185 521,883 Financial services 38,937 38,528 79,710 81,421 Limited-purpose subsidiaries 13,601 29,776 30,306 64,241 ----------- ----------- ----------- ----------- Total revenues 416,709 371,993 749,201 667,545 EXPENSES: Homebuilding: Cost of sales 317,269 268,992 557,251 462,099 Interest expense 6,925 6,697 13,581 12,341 Selling, general and administrative 35,328 27,945 64,377 51,938 ----------- ----------- ----------- ----------- Total 359,522 303,634 635,209 526,378 Financial services: Interest expense 6,594 7,397 14,457 14,418 General and administrative 20,002 17,157 41,045 33,857 ----------- ---------- ----------- ----------- Total 26,596 24,554 55,502 48,275 Limited-purpose subsidiaries: Interest expense 12,975 28,377 28,558 60,738 Other expenses 564 1,347 1,675 3,419 ----------- ----------- ----------- ----------- Total 13,539 29,724 30,233 64,157 Corporate expenses 4,503 4,706 8,833 8,344 ----------- ----------- ----------- ----------- Total expenses 404,160 362,618 729,777 647,154 Equity in earnings (losses) of unconsolidated joint ventures 87 33 137 (240) ----------- ----------- ----------- ----------- EARNINGS BEFORE TAXES AND CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE 12,636 9,408 19,561 20,151 Tax expense 5,054 3,668 7,824 7,858 ----------- ----------- ----------- ----------- NET EARNINGS BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE 7,582 5,740 11,737 12,293 Cumulative effect of a change in accounting principle - (net of taxes of $1,384) 0 0 2,076 0 ----------- ----------- ----------- ----------- NET EARNINGS $ 7,582 $ 5,740 $ 13,813 $ 12,293 =========== =========== =========== =========== Preferred dividends $ 616 $ 651 $ 1,245 $ 1,310 Net earnings available for common shareholders $ 6,966 $ 5,089 $ 12,568 $ 10,983 NET EARNINGS PER COMMON SHARE: Primary: Net earnings before cumulative effect of a change in accounting principle $ 0.45 $ 0.33 $ 0.68 $ 0.71 Cumulative effect of a change in accounting principle 0.13 ----------- ----------- ----------- ----------- Net earnings per common share $ 0.45 $ 0.33 $ 0.81 $ 0.71 =========== =========== =========== =========== Fully diluted: Net earnings before cumulative effect of a change in accounting principle $ 0.44 $ 0.33 $ 0.66 $ 0.70 Cumulative effect of a change in accounting principle 0.13 ----------- ----------- ----------- ----------- Net earnings per common share $ 0.44 $ 0.33 $ 0.79 $ 0.70 =========== =========== =========== =========== Dividends per common share $ 0.15 $ 0.15 $ 0.30 $ 0.30 Dividends per preferred share 0.55 0.55 1.10 1.10 See notes to consolidated financial statements.
3 The Ryland Group, Inc. and subsidiaries CONSOLIDATED STATEMENT OF CASH FLOWS (amounts in thousands) (unaudited)
Six months ended June 30, 1994 1993 ---------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 13,813 $ 12,293 Adjustments to reconcile net earnings to net cash provided by (used for) operating activities: Depreciation and amortization 9,084 9,831 Cumulative effect of a change in accounting principle (3,460) Gain on sale of investment (5,322) Increase in inventories (68,819) (92,497) Net change in other assets, payables and other liabilities 60,305 (49,966) Equity in (earnings) losses of unconsolidated joint ventures (137) 240 Decrease in investment in/advances to unconsolidated joint ventures 4,837 4,447 Decrease (increase)in mortgage loans held for sale, net 274,731 (6,852) Decrease in mortgage-backed securities, net 31,750 ---------- --------- Net cash provided by (used for) operating activities 290,354 (96,076) ---------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Net additions to property, plant and equipment (10,363) (4,509) Principal reduction of mortgage collateral 392,618 Principal reduction of mortgage-backed securities-available for sale 21,742 Principal reduction of mortgage-backed securities-held to maturity 168,138 Decrease in funds held by trustee 54,327 58,118 Other investing activities, net (909) 7,154 ---------- --------- Net cash provided by investing activities 232,935 453,381 ---------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Decrease in short-term notes payable (266,919) (18,287) Cash proceeds of long-term debt 29,717 138,417 Reduction of long-term debt (12,925) (13,645) Bond principal payments (274,884) (448,413) Common and preferred stock dividends (5,915) (5,916) Other financing activities, net 5,879 1,410 ---------- --------- Net cash used for financing activities (525,047) (346,434) ---------- --------- Net (decrease) increase in cash (1,758) 10,871 Cash at beginning of year 46,490 10,413 ---------- --------- CASH AT END OF PERIOD $ 44,732 $ 21,284 ========== ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest $ 62,232 $100,237 Cash paid for income taxes $ 18,906 $ 18,513 See notes to consolidated financial statements.
4 The Ryland Group, Inc. and subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (amounts in thousands, except share data, in all notes) Note 1. Segment Information
Three months ended June 30, 1994 1993 ---------- --------- Pretax earnings (loss): Homebuilding $ 4,736 $ 88 Financial Services 12,341 13,974 Limited-purpose subsidiaries 62 52 Corporate expenses (4,503) (4,706) ---------- --------- Total $ 12,636 $ 9,408 ========== =========
Six months ended June 30, 1994 1993 ---------- --------- Pretax earnings (loss): Homebuilding $ 4,113 $ (4,735) Financial Services 24,208 33,146 Limited-purpose subsidiaries 73 84 Corporate expenses (8,833) (8,344) ---------- --------- Total $ 19,561 $ 20,151 ========== =========
5 The Ryland Group, Inc. and subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (unaudited) Note 2. 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 investments in joint ventures are accounted for by the equity method. The consolidated balance sheet as of June 30, 1994, the consolidated statements of earnings for the three and six months ended June 30, 1994 and 1993, and the consolidated statements of cash flows for the six months ended June 30, 1994 and 1993 have been prepared by the Company without audit. In the opinion of management, all adjustments, which include normal recurring adjustments necessary to present fairly the financial position, results of operations and cash flows at June 30, 1994, and for all periods presented, have been made. The consolidated balance sheet at December 31, 1993 is taken from the audited financial statements as of that date. Certain amounts in the consolidated statements have been reclassified to conform to the 1994 presentation. Certain information and footnote disclosures normally included in the financial statements have been condensed or omitted. It is suggested that these financial statements be read in conjunction with the financial statements and related notes included in the Company's December 31, 1993 annual report to shareholders. The results of operations for the three and six months ended June 30, 1994 are not necessarily indicative of the operating results for the full year. Assets presented in the financial statements are net of any valuation allowances. In calculating primary earnings per common share, the dividend requirements of the preferred shares held by the Ryland Retirement and Stock Ownership Plan Trust (the RSOP Trust) have been deducted from net earnings. For the three and six months ended June 30, 1994 and 1993, the average shares outstanding have been increased by the common stock equivalents relating to the employee stock option and employee incentive plans. Net earnings used in calculating fully diluted earnings per common share, for the three and six months ended June 30, 1994 and 1993, were decreased by the amount of the additional RSOP contribution required to fund the difference between the RSOP's earnings from preferred stock dividends and the RSOP's potential earnings from common stock dividends after an assumed conversion. 6 The Ryland Group, Inc. and subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (unaudited) Note 2. Consolidated Financial Statements - continued Fully diluted earnings per common share for the three and six months ended June 30, 1994, gives effect to the common stock equivalents and the assumed conversion of the preferred stock into 1,127,250 shares and 1,136,816 shares, respectively, of common stock, in accordance with the RSOP Trust Agreement. Fully diluted earnings per share for the three and six months ended June 30, 1993, gives effect to the common stock equivalents and assumed conversion of the preferred stock into 1,182,097 shares and 1,188,181 shares respectively, of common stock, in accordance with the RSOP Trust Agreement. Note 3. Accounting Changes In May 1993 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 115 ("FAS 115"), "Accounting for Certain Investments in Debt and Equity Securities." The Company adopted the provisions of the new standard for investments held as of or acquired after January 1, 1994. In accordance with FAS 115, prior period financial statements have not been restated to reflect the change in accounting principle. In compliance with the new standard, the Company has classified its investments into one of three categories: Held-to-maturity, available- for-sale, or trading, based on management's intent and ability to hold such securities. Management determines the appropriate classification of investment securities at the time of purchase and reevaluates such designations as of each balance sheet date. Investment securities are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Securities which are classified as held-to-maturity will continue to be stated at amortized cost. Securities which are classified as available-for-sale are measured at fair value with the unrealized gains and losses, net of tax, reflected as a component of stockholders' equity. Lastly, securities classified as trading are measured at fair value with gains and losses, both realized and unrealized, flowing through the income statement. At June 30, 1994, there were no securities designated as trading account assets. The cumulative effect of adopting FAS 115 as of January 1, 1994 increased net income by $2,076 (net of $1,384 in deferred income taxes), or $.13 per share. This cumulative effect adjustment relates to unearned income or discount points on investment securities, which can now be amortized into income during 7 The Ryland Group, Inc. and subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (unaudited) Note 3. Accounting Changes - continued the period that the investment securities are held. Prior to adopting FAS 115, discount points were recognized into income only when the related investment security was sold. The January 1, 1994 balance of stockholders' equity was increased by $7,594 (net of $5,063 in deferred income taxes) to reflect the net unrealized holding gains on securities classified as available-for-sale, which were previously carried at the lower of amortized cost or market. Subsequent to January 1, 1994, the fair value of the mortgage-backed securities in the available-for-sale portfolio declined, resulting in a net unrealized gain adjustment to stockholders' equity as of June 30, 1994 of $4,230. 8 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS CONSOLIDATED In the second quarter of 1994, the Company reported consolidated net earnings of $7.6 million, or $.45 per share. This compares with consolidated net earnings of $5.7 million, or $.33 per share, for the same period in 1993. The improvement in the Company's second quarter results was attributable to improved performance in the homebuilding segment which reported pretax earnings of $4.7 million for the second quarter of 1994, compared with pretax earnings of $88 thousand in the second quarter of 1993. The financial services segment reported pretax earnings for the second quarter of 1994 of $12.3 million, compared with $14.0 million for the same period of 1993. The Company reported year-to-date consolidated net earnings of $13.8 million, or $.81 per share, which included the cumulative impact of a first quarter accounting change of $.13 per share. This compares with consolidated net earnings of $12.3 million, or $.71 per share, for the same period in 1993, which included a non-recurring first quarter gain of $.21 per share. Excluding these non-recurring items, year-to-date consolidated net earnings for 1994 amounted to $11.7 million, or $.68 per share, compared with $9.1 million, or $.50 per share, for the same period of 1993. The homebuilding segment's year-to-date pretax earnings of $4.1 million compared with a pretax loss of $4.7 million for the same period in 1993. The financial services segment reported year-to-date pretax earnings of $24.2 million for 1994 compared with $33.1 million for the same period in 1993, when a non-recurring pretax gain of $5.3 million was realized from the sale of the Company's remaining interest in a real estate investment trust. The Company's first half results for 1994 include the cumulative impact of an accounting change to adopt Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," as of January 1, 1994. The impact of this accounting rule change, which increased year-to-date net earnings by $2.1 million, or $.13 per share, relates to the financial services segment's investment portfolio. The limited-purpose subsidiaries, whose operations continue to decline as the related mortgage collateral and bonds payable decrease, reported pretax earnings of $62 thousand for the second quarter of 1994, compared with pretax earnings of $52 thousand for the same period in 1993. Year-to-date pretax earnings were $73 thousand compared with $84 thousand for the same period in 1993. 9 HOMEBUILDING Operations of the Company's homebuilding segment are summarized as follows ($ amounts in thousands):
Three months ended Six months ended June 30, June 30, 1994 1993 1994 1993 ---- ---- ---- ---- Revenues $364,171 $303,689 $639,185 $521,883 Gross profit 46,902 34,697 81,934 59,784 Selling, general and administrative expenses 35,328 27,945 64,377 51,938 Interest expense 6,925 6,697 13,581 12,341 Equity in earnings (losses) of unconsolidated joint ventures 87 33 137 (240) -------- --------- ------- --------- Pretax earnings (loss) $ 4,736 $ 88 $ 4,113 $ (4,735) ======== ========= ======= ========= Operational Unit Data: (includes joint ventures) New orders 2,316 2,158 5,164 4,405 Settlements 2,303 2,159 4,132 3,767 Outstanding contracts at June 30, Units 3,751 3,243 Dollar Value $621,239 $508,508 Average Settlement Price (excludes unconsolidated joint ventures) $161 $145 $158 $143
For the three and six months ended June 30, 1994 revenues increased 19.9 percent and 22.5 percent, respectively, compared with the same periods in 1993, due to an overall increase in settlements and higher average settlement prices. For the three and six months ended June 30, 1994, settlements increased 6.7 percent and 9.7 percent, respectively, and the average settlement price increased 11.0 percent and 10.5 percent from the same respective periods a year ago. 10 The gross margin for the second quarter of 1994 was 12.9 percent, compared with 11.4 percent for the second quarter of 1993. The year-to-date gross margin increased to 12.8 percent from 11.5 percent for the same period of 1993. The improvement in overall gross margins during the second quarter and first six months of 1994 was primarily attributable to increased sales prices, higher volume and a better mix of sales from higher margin communities. Despite the improvement, the Company's gross margins continue to be negatively impacted by the build out of low margin inventory in California. Total homebuilding new orders increased 7.3 percent to 2,316 units during the second quarter of 1994 and 17.2 percent to 5,164 units for the year-to-date compared with the same respective periods in 1993. The year-to-date growth in new orders is primarily attributable to significant gains in the California and Southwest regions more than compensating for lower sales in the Mid-Atlantic and Southeast regions. The California region showed substantial improvement in sales compared to last year, due in large part to the changes in strategy implemented in the latter part of 1993. The increase in new orders in the Southwest region is attributable to improved sales in the Houston and Dallas divisions, as well as the sales increase resulting from the acquisition of Scott Felder Homes. The decline in the Southeast region was primarily due to the Company's withdrawals from the Jacksonville, Florida and Charleston, South Carolina markets, while the decline in new orders in the Mid-Atlantic region was partially weather-related and partially due to economic conditions in the region. The Company acquired a majority interest in Scott Felder Homes in March 1993 through a limited partnership. On July 1, 1994 the Company completed the full acquisition of this enterprise strengthening its position in the Austin, San Antonio and Dallas markets. For the homebuilding segment, outstanding contracts as of June 30, 1994 were up 15.7 percent from June 30, 1993. The $621.2 million value of outstanding contracts, which increased 22.2 percent over the same period of 1993, is the highest June 30th backlog in the Company's history. Selling, general and administrative expenses as a percentage of revenues, were 9.7 percent for the first quarter and 10.1 percent for the first six months of 1994 compared with 9.2 percent and 10.0 percent for the same respective periods of 1993. These increases were primarily attributable to the costs associated with the Company's expansion into new markets. Interest expense for the second quarter and first six months of 1994 increased somewhat compared with the same periods of 1993, due to an increase in the overall borrowing costs of the Company, partially offset by a higher amount of interest capitalization in 1994. 11 FINANCIAL SERVICES The financial services segment reported pretax earnings of $12.3 million for the second quarter of 1994, compared with $14.0 million in the second quarter of 1993. Year-to-date pretax earnings were $24.2 million compared with $33.1 million for the same period of 1993. The decrease in year-to-date earnings was primarily due to a non-recurring first quarter pretax gain of $5.3 million from the sale of the Company's remaining interest in a real estate investment trust, as well as $6.4 million in pretax gains from sales of called collateral, $2.4 million of which occurred in the second quarter. Expenses increased from the prior year due to expansion of operations during 1993. Retail Operations: - ----------------- Pretax earnings for retail operations were as follows (amounts in thousands):
Three months Six months ended June 30, ended June 30, 1994 1993 1994 1993 ---- ---- ---- ---- Revenues: Interest and net origination fees $ 4,229 $6,557 $11,183 $12,456 Gains on sales of mortgages and servicing rights 12,923 6,591 22,380 12,749 ------- ------- ------- ------ Mortgage production revenue 17,152 13,148 33,563 25,205 Loan servicing 8,425 10,526 19,678 21,043 Title/escrow 1,087 886 1,977 1,481 ------- ------- ------- ------ Total retail revenues 26,664 24,560 55,218 47,729 Expenses 19,740 19,571 41,996 37,655 ------- ------- ------- ------ Pretax earnings $ 6,924 $ 4,989 $13,222 $10,074 ======= ======= ======= =======
Interest and net origination fees have decreased as a result of the industry- wide decline in mortgage origination activity resulting from the current higher interest rate environment, while loan servicing revenues have declined due to reductions in the loan servicing portfolio. These trends are likely to continue. The increases in total revenues for the three months ended June 30, 1994 and the six months ended June 30, 1994 compared with the same periods in 1993, were the result of higher gains on the sales of mortgages and servicing rights. Expenses increased between periods due to the overall expansion of the Company's operations in 1993. The Company has recently reduced staffing levels in anticipation of continued lower origination volumes. 12 Mortgage origination activities were as follows:
Three months Six months ended June 30, ended June 30, 1994 1993 1994 1993 ---- ---- ---- ---- Dollar volume of mortgages originated (in millions) $ 525 $ 975 $1,200 $ 1,516 Number of mortgages originated 4,224 7,595 9,579 11,861 Percentage Ryland Homes settlements 28% 19% 23% 22% Percentage other settlements 72% 81% 77% 78% ---- ---- ---- ---- Total settlements 100% 100% 100% 100%
The Company earns interest on mortgages held for sale and pays interest on borrowings secured by the mortgages. Significant data from these operations were as follows:
Three months Six months ended June 30, ended June 30, 1994 1993 1994 1993 ---- ---- ---- ---- Interest spread (in thousands) $2,126 $3,079 $5,475 $6,128 Average balance of mortgages held for sale (in millions) $ 273 $ 413 $ 362 $ 386 Interest spread rate 3.1% 3.0% 3.1% 3.2% The interest spread decreased in the current six months as compared to 1993 due to a lower average balance of mortgages held for sale. The loan servicing portfolio balances were as follows at June 30, (in billions):
1994 1993 ---- ---- Originated $3.1 $3.7 Acquired 4.3 5.2 Subserviced for others 0.1 .8 ---- ---- Total portfolio $7.5 $9.7 ==== ====
The decrease in the portfolio balance is primarily attributable to the decline in origination volume combined with higher sales of servicing in the current year. 13 Institutional Operations: The institutional operations encompass securities issuance and securities administration services. Pretax earnings for the three months ended June 30, 1994 decreased 11.6 percent as compared to the same period in 1993 due to an increase in expenses. Year-to-date pretax earnings increased 2.7 percent as compared to the same period in 1993, despite a decline in the overall portfolio balance, due to improved margins per series.
Three months Six months ended June 30, ended June 30, 1994 1993 1994 1993 ---- ---- ---- ---- Revenues $6,060 $5,960 $11,760 $10,883 Expenses 3,450 3,008 6,841 6,091 ------ ------ ------- ------- Pretax earnings $2,610 $2,952 $ 4,919 $ 4,792 ====== ====== ======= =======
Significant data on the securities administration portfolio as of June 30, were as follows:
1994 1993 ---- ---- Total securities administration portfolio (in billions) $48.2 $64.3 Number of series in the administration portfolio 542 505
Investment Operations: The Company's investment operations hold certain assets, primarily mortgage- backed securities, which were obtained as a result of the redemption of mortgage-backed bonds issued by the Company's limited-purpose subsidiaries. As shown in the table below, pretax earnings for the three and six months ended June 30, 1994 decreased substantially as compared to the same period of 1993. The $5.3 million gain in the first quarter of 1993 was the result of the sale of the Company's remaining interest in a real estate investment trust (REIT) and is a non-recurring item. The Company also realized net revenues of $2.4 million and $6.4 million from the sale of mortgage-backed securities in the three and six months ended June 30, 1993, respectively. 14 Pretax earnings were comprised of the following:
Three months Six months ended June 30, ended June 30, 1994 1993 1994 1993 ---- ---- ---- ---- Sale of REIT stock $ 0 $ 0 $ 0 $ 5,322 Sale of mortgage-backed securities 0 2,356 0 6,396 Interest spread and other 2,807 3,677 6,067 6,562 ------ ------- ------ ------- Pretax earnings $2,807 $ 6,033 $6,067 $18,280 ====== ======= ====== =======
The Company earns a net interest spread on the investment portfolio from the difference between the interest rates on the mortgage-backed securities and the related borrowing rates. The slight decrease in the interest spread rate in the second quarter of 1994 as compared to 1993, is primarily due to an increase in borrowing rates. The increase in the interest spread rate between the year-to-date periods is due to a higher yield earned on the mortgage- backed securities, partially as a result of the adoption of FAS 115 as of January 1, 1994. Prior to FAS 115, unearned income (discount points) was deferred and recognized upon the sale of the related investment security. Under FAS 115, this unearned income is amortized into income as an adjustment to the interest yield over the remaining term of the investment security. Significant data from the investment operations was as follows:
Three months Six months ended June 30, ended June 30, 1994 1993 1994 1993 ---- ---- ---- ---- Interest spread earned (in thousands) $3,781 $3,646 $8,179 $6,653 Average balance outstanding at June 30 (in millions) $ 228 $ 215 $ 226 $ 217 Interest spread rate 6.6% 6.8% 7.3% 6.1%
15 FINANCIAL CONDITION AND LIQUIDITY The Company generally provides for the cash requirements of the homebuilding segment and financial services segment from internally generated funds and outside borrowings. The Company believes that its sources of cash are sufficient to finance its expected requirements. Housing inventories increased to $558.4 million as of June 30, 1994, from $489.5 million as of December 31, 1993, primarily due to normal seasonal increases in homes under construction and expansion into new and existing markets. The Company primarily uses its unsecured revolving credit agreement to finance its homes under construction. This agreement, which was renewed in July 1993, allows the Company to borrow up to $215 million for a three-year period. As of June 30, 1994, the Company had borrowed $118 million under this agreement, compared with $90 million as of December 31, 1993. The increase is primarily attributable to the aforementioned increases in homebuilding inventories. The financial services segment uses cash generated from operations and borrowing arrangements to finance operations. Borrowing arrangements include a $400 million combined mortgage warehouse and working capital funding agreement, repurchase agreement facilities aggregating $800 million and a secured $35 million credit agreement to be used for the short-term financing of optional bond redemptions. At June 30, 1994 and December 31, 1993, the combined borrowings under the mortgage warehouse funding agreement, the repurchase agreements, and the revolving credit agreement were $450.0 million and $716.9 million, respectively. As of June 30, 1994 and December 31, 1993, the balance of mortgage loans and mortgage-backed securities, net were $500.2 million and $728.1 million, respectively. 16 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The Annual Meeting of Stockholders of the Company was held on April 20, 1994. 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, to approve the amendment of the 1992 non-employee director equity plan and to approve the appointment of Ernst & Young as independent public accountants of the Company for 1994. The ten incumbent directors proposed by the Company were elected. Proxies representing 14,222,809 shares of stock eligible to vote at this meeting, or 92.6 percent of the outstanding shares, were voted for the election of directors. The following is a separate tabulation with respect to the vote for each director:
Name Total Vote For Total Vote Withheld - ---- -------------- ------------------- Andre P. Brewster 14,151,235 71,574 Robert J. Gaw 14,137,531 85,278 Alan P. Hoblitzell, Jr. 14,136,700 86,109 John H. Mullin III 14,151,335 71,474 Leonard M. Harlan 14,149,990 72,819 William G. Kagler 14,151,435 71,374 John O. Wilson 14,151,435 71,374 L.C. Heist 14,151,535 71,274 James A. Flick, Jr. 14,151,435 71,374 R. Chad Dreier 14,151,535 71,274
The amendment to the 1992 non-employee director equity plan was approved by 91 percent of the shares voting. The following is a breakdown of the vote on such matter:
For Against Abstain --- ------- ------- 12,939,569 1,025,065 258,175
Ernst & Young was approved as the independent public accountants for the Company for 1994 by 99.3 percent of the shares voting. The following is a breakdown of the vote on such matter:
For Against Abstain --- ------- ------- 14,129,410 39,185 54,213
17 PART II. OTHER INFORMATION (continued) Page Number ----------- Item 6. Exhibits and Reports on Form 8-K A. Exhibits 10 1992 Non-Employee Director Equity Plan (as amended) 21-27 11 Statement Re computation of earnings per share 28 B. Reports on Form 8-K No reports on Form 8-K were filed with the Securities and Exchange Commission during the three months ended June 30, 1994. 18 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 August 12, 1994 By: /s/ Alan P. Hoblitzell, Jr. - --------------- ------------------------------------------ Date Alan P. Hoblitzell, Jr., Director, Executive Vice President and Chief Financial Officer (Principal Financial Officer) August 12, 1994 By: /s/ Stephen B. Cook - --------------- ------------------------------------------ Date Stephen B. Cook, Vice President and Corporate Controller (Principal Accounting Officer) 19 INDEX OF EXHIBITS A. Exhibits Page of Sequentially Numbered Pages -------------- 10 1992 Non-Employee Director Equity Plan (as amended) 21-27 11 Statement Re computation of earnings per share 28 20 EX-10 2 EXHIBIT 10 EXHIBIT 10 THE RYLAND GROUP, INC. 1992 NON-EMPLOYEE DIRECTOR EQUITY PLAN (as amended) Section 1. PURPOSE The purpose of The Ryland Group, Inc. 1992 Non-Employee Director Equity Plan (the "plan") is to advance the interests of the corporation and its stockholders by encouraging increased common stock ownership by members of the board of directors who are not significant stockholders of the corporation or employees of the corporation, in order to promote long-term stockholder value through directors' continuing ownership of the common stock. Section 2. DEFINITIONS "Annual retainer" means the amount payable annually to each non-employee director for service on the board (exclusive of any per meeting fees or expense reimbursements). "Board" means the board of directors of the corporation. "Committee" means a committee of the board of directors elected or designated from time to time to administer the plan, which initially shall be the compensation committee of the board of directors. "Common stock" means the common stock, $1.00 par value, of the corporation. "Corporation" means The Ryland Group, Inc. "Employee" means any officer or employee of the corporation or of its subsidiaries. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Last trading day" means the last day of a calendar year in which the common stock trades on the New York Stock Exchange; or, if the common stock is not listed on the New York Stock Exchange, such other exchange on which the common stock is traded; or, the NASDAQ National Market System or other over-the- counter market on which the common stock is traded or quoted. 21 "Market price" means the last reported sale price of the common stock on the New York Stock Exchange; or, if the common stock is not listed on the New York Stock Exchange, the closing price on such other exchange on which the common stock is traded; or, if quoted on the NASDAQ National Market System or other over-the-counter market, the last reported sales price on the NASDAQ National Market System or other over-the-counter market; or, if the common stock is not publicly traded, such price as shall be determined by the committee to be the fair market value. "Meeting fee" means the amount payable to a non-employee director for a meeting of the board. "Non-employee director" or "participant" means any person who is elected or appointed to the board. "Stock options" means stock options granted under the plan which shall be nonstatutory stock options not intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended. Section 3. SHARES OF COMMON STOCK SUBJECT TO THE PLAN (a) Subject to adjustment as provided in Section 3(b) below, the maximum aggregate number of shares of common stock that may be issued under the plan is 100,000 shares. The common stock to be issued under the plan will be made available from authorized but unissued shares of common stock, and the corporation shall set aside and reserve for issuance under the plan said number of shares. (b) In the event of any stock dividend, extraordinary cash dividend, creation of a class of equity securities, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, exchange of shares, warrants or rights offering to purchase common stock at a price substantially below fair market value or similar change affecting the common stock, appropriate adjustment shall be made in the maximum number and kind of shares subject to the plan, outstanding stock options and subsequent grants of stock options and in the exercise price of outstanding stock options. 22 Section 4. ADMINISTRATION OF THE PLAN Stock options under the plan shall be automatic as provided in Section 6. The plan shall be administered by the committee. The committee shall have the powers vested in it by the terms of the plan. The committee shall, subject to the provisions of the plan, have the power to construe the plan, to determine all questions arising thereunder and to adopt and amend rules and regulations for the administration of the plan. Notwithstanding the foregoing, the committee shall have no discretion with respect to the eligibility or selection of participants, the timing or exercise price of stock options, or the number of shares of common stock subject to stock option grants. Any decision of the committee on the administration of the plan shall be final and conclusive. Section 5. PARTICIPATION IN THE PLAN All non-employee directors shall participate in the plan. Section 6. DETERMINATION OF STOCK OPTIONS Each stock option granted under the plan shall be evidenced by a written instrument in such form as the committee may approve and shall be subject to the following terms and conditions: (a) Each current non-employee director shall receive, effective as of Dec. 31, 1991, a stock option to purchase 1,100 shares of common stock at an exercise price of $23.25 per share. (b) On Dec. 31 of each year before 1994 in which a non-employee director is first elected to the board, such newly elected non-employee director shall receive a stock option to purchase the number of shares of common stock calculated by dividing the aggregate cash value of the annual retainer for that year plus an amount equal to six meeting fees for that year by the market price of the common stock on the last trading day of the year in which such non-employee director was elected to the board. The stock options granted to a newly elected non-employee director pursuant to this Section 6(b) shall be in lieu of any stock options to which such non-employee director otherwise would be entitled in such year under Section 6(c). 23 (c) On Dec. 31 of each year before 1994, each non-employee director (except for non-employee directors first elected during such year) shall receive a stock option to purchase the number of shares of common stock determined by dividing one-half of the cash value of the annual retainer for the calendar year during which the grant is being made by the market price of the common stock on the last trading day of the year in which such grant is being made. (d) On Dec. 31, 1994, and on each Dec. 31 thereafter during the term of the plan, each non-employee director first elected to the board during the calendar year that includes such date shall receive an option to purchase 2,000 shares of common stock and each other non-employee director on such date shall receive an option to purchase 1,000 shares of common stock. (e) The purchase price for the common stock subject to stock options shall be the market price of the common stock on the date of grant. (f) Stock options shall fully vest and become exercisable six months from the date of grant. Stock options shall be exercisable in whole or in part with respect to a whole number of vested shares (rounded to the next highest whole number in the case of fractional shares) at any time prior to the expiration of 10 years from the date of grant, subject to Section 6(g) of the plan. (g) In the event service on the board by a participant terminates for any reason, all of the participant's stock options shall fully vest and become immediately exercisable and will expire three years after termination regardless of their stated expiration dates. Stock options shall not be transferable by the participant otherwise than by will or the laws of descent and distribution. The rights of a participant in a stock option may be exercised by the participant's guardian or legal representative in the case of disability and by the participant's estate or a beneficiary designated by the participant in the case of death. (h) The purchase price for the common stock subject to a stock option may be paid in cash, by check, in shares of common stock of the corporation or in a combination of cash and common stock. The value of shares of common stock delivered in payment of the purchase price shall be their market price as of the date of exercise. (i) Each participant shall pay to the corporation, or make arrangements satisfactory to the committee for the payment of, any federal, state or local taxes of any kind required by law to be withheld with respect to the receipt of shares of common stock pursuant to the exercise of a stock option. Such tax obligations may be paid in whole or in part in shares of common stock, 24 including shares issued upon exercise of the stock option, valued at market price on the date of delivery. Section 7. STOCKHOLDER RIGHTS (a) Non-employee directors shall not be deemed for any purpose to be or have rights as stockholders of the corporation with respect to any shares of common stock except as and when such shares are issued and then only from the date of the certificate thereof. No adjustment shall be made for dividends, distributions or other rights for which the record date precedes the date of such stock certificate. (b) Subject to the provisions of Section 7(a) above, a participant will have all rights of a stockholder with respect to common stock issued to the participant, including the right to vote the shares and receive all dividends and other distributions paid or made with respect thereto. Section 8. CONTINUATION OF DIRECTOR OR OTHER STATUS Nothing in the plan or in any instrument executed pursuant to the plan or any action taken pursuant to the plan shall be construed as creating or constituting evidence of any agreement or understanding, express or implied, that the corporation will retain a non-employee director as a director or in any other capacity for any period of time or at a particular retainer or other rate of compensation, as conferring upon any participant any legal or other right to continue as a director or in any other capacity, or as limiting, interfering with or otherwise affecting the provisions of the corporation's charter, bylaws or the Maryland General Corporation Law relating to the removal of directors. 25 Section 9. COMPLIANCE WITH GOVERNMENT REGULATIONS Neither the plan nor the corporation shall be obligated to issue any shares of common stock pursuant to the plan at any time unless and until all applicable requirements imposed by any federal and state securities and other laws, rules, and regulations, by any regulatory agencies, or by any stock exchanges upon which the common stock may be listed have been fully met. As a condition precedent to any issuance of shares of common stock and delivery of certificates evidencing such shares pursuant to the plan, the committee may require a participant to take any such action and to make any such covenants, agreements and representations as the committee, as the case may be, in its discretion deems necessary or advisable to ensure compliance with such requirements. The corporation shall in no event be obligated to register the shares of common stock issued or issuable under the plan pursuant to the Securities Act of 1933, as now or hereafter amended, or to qualify or register such shares under any securities laws of any state upon their issuance under the plan or at any time thereafter, or to take any other action in order to cause the issuance and delivery of such shares under the plan or any subsequent offer, sale or other transfer of such shares to comply with any such law, regulation or requirement. Participants are responsible for complying with all applicable federal and state securities and other laws, rules and regulations in connection with any offer, sale or other transfer of the shares of common stock issued under the plan or any interest therein including, without limitation, compliance with the registration requirements of the Securities Act of 1933 (unless an exemption therefrom is available), or with the provisions of Rule 144 promulgated thereunder, if available, or any successor provisions. Section 10. NON-TRANSFERABILITY OF RIGHTS No participant shall have the right to assign any stock option or any other right or interest under the plan, contingent or otherwise, or to cause or permit any encumbrance, pledge or charge of any nature to be imposed on any such stock option or any such right or interest, other than by will or the laws of descent and distribution. Stock options shall be exercisable during the participant's lifetime only by the participant or the participant's guardian or legal representative. 26 Section 11. TERM OF PLAN The plan as amended shall become effective immediately upon approval by the affirmative vote of a majority of the shares of common stock present or represented and entitled to vote at the 1994 annual meeting of the corporation's stockholders. When so approved, the plan as amended shall be deemed to have been in effect as of Dec. 18, 1991. The plan shall terminate on Dec. 18, 2001. Section 12. AMENDMENT OF THE PLAN The committee may amend, suspend or terminate the plan or any portion thereof at any time, provided that to the extent required to qualify transactions under the plan for exemption under Rule 16b-3 under the Exchange Act and any successor provision, no amendment may be made to change the eligibility or selection of participants in the plan, the timing of stock option grants, or the number of shares of common stock subject to the plan or stock options granted thereunder, other than as permitted by such rule or successor provision. Notwithstanding the foregoing, the plan may not be amended more than once in any six-month period except to comply with changes in the Internal Revenue Code (the "code"), the Employment Retirement Income Securities Act ("ERISA") or any rules or regulations promulgated under either the code or ERISA. Section 13. GOVERNING LAW The plan shall be governed by and interpreted in accordance with the laws of the state of Maryland. 27 EX-11 3 EXHIBIT 11 EXHIBIT 11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS:
Three months ended Six months ended June 30, June 30, 1994 1993 1994 1993 ----------- ----------- ----------- ---------- Primary: Net earnings before cumulative effect of a change in accounting principle $ 7,582 $ 5,740 $ 11,737 $ 12,293 Cumulative effect of a change in accounting principle 2,076 ----------- ----------- ----------- ----------- Net earnings 7,582 5,740 13,813 12,293 Adjustment for dividends on convertible preferred shares (616) (651) (1,245) (1,310) ----------- ----------- ----------- ----------- Adjusted net earnings $ 6,966 $ 5,089 $ 12,568 $ 10,983 =========== =========== =========== =========== Weighted average common shares outstanding 15,385,297 15,350,408 15,371,672 15,342,773 Common stock equivalents: Stock options 44,606 44,940 86,194 54,960 Employee incentive plans 123,135 150,309 126,011 150,578 Restricted stock 0 9,504 0 9,948 ----------- ----------- ----------- ----------- Total 15,553,038 15,555,161 15,583,877 15,558,259 ============ =========== =========== =========== Primary earnings per common share before cumulative effect of a change in accounting principle $ 0.45 $ 0.33 $ 0.68 $ 0.71 Cumulative effect of a change in accounting principle 0.13 ----------- ----------- ----------- ----------- Primary earnings per common share$ 0.45 $ 0.33 $ 0.81 $ 0.71 =========== =========== =========== =========== Fully-Diluted: Net earnings before cumulative effect of a change in accounting principle $ 7,582 $ 5,740 $ 11,737 $ 12,293 Cumulative effect of a change in accounting principle 2,076 ----------- ----------- ----------- ----------- Net earnings 7,582 5,740 13,813 12,293 Adjustment for incremental expense from conversion of convertible preferred shares (272) (290) (549) (585) ----------- ----------- ----------- ----------- Adjusted net earnings $ 7,310 $ 5,450 $ 13,264 $ 11,708 =========== =========== =========== =========== Weighted average common shares outstanding 15,385,297 15,350,408 15,371,672 15,342,773 Common stock equivalents: Stock options 44,606 44,940 86,194 54,960 Employee incentive plans 123,135 150,309 126,011 150,578 Restricted stock 18,815 16,080 Convertible preferred stock 1,127,250 1,182,097 1,136,816 1,188,181 ----------- ----------- ----------- ----------- Total 16,680,288 16,746,569 16,720,693 16,752,572 ============ =========== =========== =========== Fully diluted earnings per common share before cumulative effect of a change in accounting principle $ 0.44 $ 0.33 $ 0.66 $ 0.70 Cumulative effect of a change in accounting principle 0.13 ----------- ----------- ----------- ----------- Fully diluted earnings per common share $ 0.44 $ 0.33 $ 0.79 $ 0.70 =========== =========== =========== ===========
28 -----END PRIVACY-ENHANCED MESSAGE-----