-----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, atXLQS8EKucRXo6GkmVi+l/2OeKFEQN/aeBuAL8PskXCeG5iCplbFo2zKP3z3EK9 BL0CkEBBlXNoXfMYSRLzRw== 0000085974-94-000028.txt : 19941116 0000085974-94-000028.hdr.sgml : 19941116 ACCESSION NUMBER: 0000085974-94-000028 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941114 SROS: NYSE 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: 94558940 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 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 September 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 (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 November 1, 1994 was 15,466,829. THE RYLAND GROUP, INC. FORM 10-Q INDEX Page Number ----------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets at September 30, 1994 (unaudited) and December 31, 1993 1-2 Consolidated Statements of Earnings for the three and nine months ended September 30, 1994 and 1993 (unaudited) 3 Consolidated Statements of Cash Flows for the nine months ended September 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 6. Exhibits and Reports on Form 8-K 17 SIGNATURES 18 INDEX OF EXHIBITS 19 The Ryland Group, Inc. and subsidiaries CONSOLIDATED BALANCE SHEETS (amounts in thousands)
September 30, December 31, 1994 1993 ------------ ------------ (unaudited) ASSETS HOMEBUILDING: Cash and cash equivalents $ 30,178 $ 44,251 Homebuilding inventories: Homes under construction 431,571 318,266 Land under development and improved lots 140,025 163,459 Land held for future development or resale 4,694 7,821 ------------ ------------ Total inventories 576,290 489,546 Investment in/advances to unconsolidated joint ventures 17,403 23,066 Property, plant and equipment 19,356 13,999 Purchase price in excess of net assets acquired 22,865 23,639 Other assets 51,894 43,976 ------------ ------------ 717,986 638,477 ------------ ------------ FINANCIAL SERVICES: Cash and cash equivalents 2,303 2,239 Mortgage loans held for sale, net 246,472 535,679 Mortgage-backed securities, net 187,911 192,417 Purchased servicing and administration rights, net 12,689 14,446 Other assets 66,750 76,150 ------------ ------------ 516,125 820,931 ------------ ------------ LIMITED-PURPOSE SUBSIDIARIES: Collateral for bonds payable, net 470,661 798,074 Other assets 5,816 9,882 ------------ ------------ 476,477 807,956 ------------ ------------ Other assets 48,182 48,329 ------------ ------------ TOTAL ASSETS $ 1,758,770 $ 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)
September 30, December 31, 1994 1993 ------------ ------------ (unaudited) LIABILITIES HOMEBUILDING: Accounts payable and other liabilities $ 81,452 $ 59,082 Long-term debt 419,321 381,040 ------------ ------------ 500,773 440,122 ------------ ------------ FINANCIAL SERVICES: Accounts payable and other liabilities 25,782 34,453 Short-term notes payable 407,229 716,933 ------------ ------------ 433,011 751,386 ------------ ------------ LIMITED-PURPOSE SUBSIDIARIES: Accounts payable and other liabilities 14,671 22,591 Bonds payable, net * 458,043 778,428 ------------ ------------ 472,714 801,019 ------------ ------------ Other liabilities 40,437 29,919 ------------ ------------ TOTAL LIABILITIES 1,446,935 2,022,446 ------------ ------------ STOCKHOLDERS' EQUITY Convertible preferred stock, $1 par value Authorized - 1,400,000 shares Issued - 1,090,990 shares (1,153,652 for 1993) 1,091 1,154 Common stock, $1 par value Authorized - 78,600,000 shares Issued - 15,430,155 shares (15,342,624 for 1993) 15,430 15,343 Paid-in capital 116,053 116,386 Retained earnings 194,162 180,351 Net unrealized gain on securities 2,585 Other (17,486) (19,987) ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 311,835 293,247 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,758,770 $ 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 Page> The Ryland Group, Inc. and subsidiaries CONSOLIDATED STATEMENTS OF EARNINGS (unaudited) (amounts in thousands, except share data)
Three months ended Nine months ended September 30, September 30, 1994 1993 1994 1993 ----------- ----------- ----------- ----------- REVENUES: Homebuilding: Residential revenues $ 396,725 $ 314,486 $1,034,354 $ 833,009 Other revenues 1,740 535 3,296 3,895 ----------- ----------- ----------- ----------- Total homebuilding revenues 398,465 315,021 1,037,650 836,904 Financial services 38,000 36,672 117,710 118,093 Limited-purpose subsidiaries 11,367 24,966 41,673 89,207 ----------- ----------- ----------- ----------- Total revenues 447,832 376,659 1,197,033 1,044,204 EXPENSES: Homebuilding: Cost of sales 348,373 319,519 905,624 781,618 Interest expense 7,680 6,974 21,261 19,315 Selling, general and administrative 37,866 29,930 102,243 81,868 ----------- ----------- ----------- ----------- Total 393,919 356,423 1,029,128 882,801 Financial services: Interest expense 5,852 7,480 20,309 21,898 General and administrative 18,014 19,378 59,059 53,235 ----------- ---------- ----------- ----------- Total 23,866 26,858 79,368 75,133 Limited-purpose subsidiaries: Interest expense 11,082 23,867 39,640 84,605 Other expenses 263 1,059 1,938 4,478 ----------- ----------- ----------- ----------- Total 11,345 24,926 41,578 89,083 Corporate expenses 4,581 3,119 13,414 11,463 ----------- ----------- ----------- ----------- Total expenses 433,711 411,326 1,163,488 1,058,480 Equity in losses of unconsolidated joint ventures (139) (1,903) (2) (2,143) ----------- ----------- ----------- ----------- EARNINGS (LOSS) BEFORE TAXES AND CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE 13,982 (36,570) 33,543 (16,419) Tax expense (benefit) 5,593 (14,014) 13,417 (6,156) ----------- ----------- ----------- ----------- NET EARNINGS (LOSS) BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE 8,389 (22,556) 20,126 (10,263) Cumulative effect of a change in accounting principle - (net of taxes of $1,384) 2,076 ----------- ----------- ----------- ----------- NET EARNINGS (LOSS) 8,389 (22,556) 22,202 (10,263) =========== =========== =========== =========== Preferred dividends $ 603 $ 642 $ 1,848 $ 1,952 Net earnings (loss) available for common shareholders $ 7,786 $ (23,198) $ 20,354 $ (12,215) NET EARNINGS (LOSS) PER COMMON SHARE: Primary: Net earnings (loss) before cumulative effect of a change in accounting principle $ 0.50 $ (1.52) $ 1.18 $ (0.80) Cumulative effect of a change in accounting principle 0.13 ----------- ----------- ----------- ----------- Net earnings (loss) per common share $ 0.50 $ (1.52) $ 1.31 $ (0.80) =========== =========== =========== =========== Fully diluted: Net earnings (loss) before cumulative effect of a change in accounting principle $ 0.49 $ (1.52) $ 1.16 $ (0.80) Cumulative effect of a change in accounting principle 0.12 ----------- ----------- ----------- ----------- Net earnings (loss) per common share $ 0.49 $ (1.52) $ 1.28 $ (0.80) =========== =========== =========== =========== Dividends per common share $ 0.15 $ 0.15 $ 0.45 $ 0.45 Dividends per preferred share 0.55 0.55 1.65 1.65 =========== =========== =========== =========== See notes to consolidated financial statements.
3 The Ryland Group, Inc. and subsidiaries CONSOLIDATED STATEMENT OF CASH FLOWS (amounts in thousands) (unaudited)
Nine months ended September 30, 1994 1993 ---------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings (loss) $ 22,202 $(10,263) Adjustments to reconcile net earnings (loss) to net cash provided by (used for) operating activities: Depreciation and amortization 14,332 14,942 Cumulative effect of a change in accounting principle (3,460) Gain on sale of investment (5,322) Increase in inventories (86,744) (63,433) Net change in other assets, payables and other liabilities 13,572 (10,507) Equity in losses of unconsolidated joint ventures 2 2,143 Decrease in investment in/advances to unconsolidated joint ventures 5,475 8,809 Increase in mortgage-backed securities - trading (2,546) Decrease (increase)in mortgage loans held for sale, net 289,207 (10,229) Decrease in mortgage-backed securities, net 23,542 ---------- --------- Net cash provided by (used for) operating activities 252,040 (50,318) ---------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Net additions to property, plant and equipment (14,054) (9,123) Principal reduction of mortgage collateral 563,759 Principal reduction of mortgage-backed securities-available for sale 33,262 Sales of mortgage-backed securities available for sale 30,557 Principal reduction of mortgage-backed securities-held to maturity 208,717 Decrease in funds held by trustee 73,779 85,590 Other investing activities, net (909) 6,726 ---------- --------- Net cash provided by investing activities 331,352 646,952 ---------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Decrease in short-term notes payable (309,704) (26,960) Cash proceeds of long-term debt 55,421 114,080 Reduction of long-term debt (17,140) (26,363) Bond principal payments (323,603) (643,151) Common and preferred stock dividends (8,832) (8,850) Other financing activities, net 6,457 1,441 ---------- --------- Net cash used for financing activities (597,401) (589,803) ---------- --------- Net (decrease) increase in cash (14,009) 6,831 Cash at beginning of year 46,490 10,413 ---------- --------- CASH AT END OF PERIOD $ 32,481 $ 17,244 ========== ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest $ 89,606 $131,888 Cash paid for income taxes $ 20,411 $ 26,225 ========== ========= 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 September 30, 1994 1993 ---------- --------- Pretax earnings (loss): Homebuilding $ 4,407 $(43,305) Financial Services 14,134 9,814 Limited-purpose subsidiaries 22 40 Corporate expenses (4,581) (3,119) ---------- --------- Total $ 13,982 $(36,570) ========== =========
Nine months ended September 30, 1994 1993 ---------- --------- Pretax earnings (loss): Homebuilding $ 8,520 $(48,040) Financial Services 38,342 42,960 Limited-purpose subsidiaries 95 124 Corporate expenses (13,414) (11,463) ---------- --------- Total $ 33,543 $(16,419) ========== =========
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 September 30, 1994, the consolidated statements of earnings for the three and nine months ended September 30, 1994 and 1993, and the consolidated statements of cash flows for the nine months ended September 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 September 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 nine months ended September 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 (loss) 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 or added to net loss. For the three and nine months ended September 30, 1994, the average shares outstanding have been increased by the common stock equivalents relating to the employee stock option and employee incentive plans. For the three and nine months ended September 30,1993, these common stock equivalents were not considered as the effect would be anti-dilutive. 6 The Ryland Group, Inc. and subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (unaudited) Note 2. Consolidated Financial Statements - continued Net earnings used in calculating fully diluted earnings per common share for the three and nine months ended September 30, 1994 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. Net loss used in calculating fully diluted loss per common share for the three and nine months ending September 30, 1993 was increased by the dividend requirements of the preferred shares held by the RSOP Trust, as an adjustment for incremental dividends on convertible preferred shares would be anti- dilutive. Fully diluted earnings per common share for the three and nine months ended September 30, 1994, gives effect to the common stock equivalents and the assumed conversion of the preferred stock into 1,103,318 shares and 1,125,650 shares, respectively, of common stock, in accordance with the RSOP Trust Agreement. In computing fully diluted loss per share for the three and nine months ended September 30, 1993, average shares outstanding have not been increased by the common stock equivalents relating to the employee stock option and employee incentive plans and the assumed conversion of the preferred stock held by the RSOP Trust as the effect would be anti-dilutive. 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 three categories: held-to-maturity, available-for-sale, and trading. 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. 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (unaudited) Note 3. Accounting Changes - continued Those securities meeting the held-to-maturity criteria are primarily those currently held in a limited-purpose subsidiary whose bond indentures prohibit liquidation of the collateral for bonds payable unless the corresponding bonds payable are redeemed. The bonds payable in this category generally cannot be redeemed until the principal balance of the bonds payable is less than 15 percent of the original balance. Prepayment risk is the only significant risk associated with the mortgage-backed securities classified as held-to-maturity. 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. At September 30, 1994, these securities are primarily mortgage-backed securities that had previously been held as collateral for bonds payable in a limited-purpose subsidiary, but had call rights that allowed for redemption prior to the principal balance being paid down to 15 percent of the original balance. Lastly, securities classified as trading are measured at fair value with gains and losses, both realized and unrealized, recognized in the statement of earnings. At September 30, 1994 trading securities totaled $2.5 million. 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 related to unearned income or discount points on investment securities, which can now be amortized into income during 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. At September 30, 1994, the balance of the net unrealized gain on securities classified as available for sale, which is reflected as a component of stockholders' equity, was $2,585. The decline in this balance from January 1, 1994 is due to a reduction in fair value caused by the rising interest rate environment and the sale by the Company of a portion of this portfolio. 8 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS CONSOLIDATED In the third quarter of 1994, the Company reported consolidated net earnings of $8.4 million, or $.50 per share. This compares with a consolidated net loss of $22.6 million, or ($1.52) per share, for the same period in 1993. The 1994 results represent improvement from 1993 when the Company took a pretax provision of $45 million against its homebuilding inventories. The homebuilding segment reported pretax earnings of $4.4 million for the third quarter of 1994, compared with a pretax loss of $43.3 million in the third quarter of 1993, which included the aforementioned pretax provision for homebuilding inventories. The financial services segment reported pretax earnings for the third quarter of 1994 of $14.1 million, compared with $9.8 million for the same period of 1993. The Company reported year-to-date consolidated net earnings of $22.2 million, or $1.31 per share, which included the cumulative impact of an accounting change of $.13 per share recognized in the first quarter. This compares with a consolidated net loss of $10.3 million, or ($.80) per share, for the same period in 1993, which included a non-recurring first quarter gain of $.21 per share. The homebuilding segment's year-to-date pretax earnings of $8.5 million compared with a pretax loss of $48.0 million for the same period in 1993. The financial services segment reported year-to-date pretax earnings of $38.3 million for 1994 compared with $43.0 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 results for the first nine months of 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 first quarter 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 $22 thousand for the third quarter of 1994, compared with pretax earnings of $40 thousand for the same period in 1993. Year-to-date pretax earnings were $95 thousand compared with $124 thousand for the same period in 1993. 9 HOMEBUILDING Operations of the Company's homebuilding segment are summarized as follows ($ amounts in thousands):
Three months ended Nine months ended September 30, September 30, 1994 1993 1994 1993 Revenues $398,465 $315,021 $1,037,650 $836,904 Gross profit 50,092 (4,498) 132,026 55,286 Selling, general and administrative expenses 37,866 29,930 102,243 81,868 Interest expense 7,680 6,974 21,261 19,315 Equity in earnings (losses) of unconsolidated joint ventures (139) (1,903) (2) (2,143) ________ _________ _________ ________ Pretax earnings (loss) $ 4,407 $(43,305) $ 8,520 $(48,040) ======== ========= ========= ========= Operational Unit Data: (includes joint ventures) New orders 2,200 2,103 7,364 6,508 Settlements 2,488 2,148 6,620 5,915 Outstanding contracts at September 30, Units 3,463 3,198 Dollar Value $570,000 $515,000 Average Settlement Price (excludes unconsolidated joint ventures) $161 $151 $159 $146
For the three and nine months ended September 30, 1994 revenues increased 26.5 percent and 24.0 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 nine months ended September 30, 1994, settlements increased 15.8 percent and 11.9 percent, respectively, and the average settlement price increased 6.6 percent and 8.9 percent from the same respective periods a year ago. 10 The gross margin for the third quarter of 1994 was 12.6 percent, compared with 12.2 percent for the third quarter of 1993, excluding the 1993 provision for inventory reserves. The year-to-date gross margin increased to 12.7 percent from 11.7 percent, for the same period of 1993, which also excludes the inventory reserve provision. The improvement in overall gross margins during the third quarter and first nine months of 1994 was primarily attributable to a better mix of sales from higher margin communities. The Company's gross margins continue to be negatively impacted by the build out of inventory in California that was impacted by the decline in economic and market conditions. In the third quarter of 1993, the Company took a $45 million provision for homebuilding inventories, of which $40 million was for inventory in the California region. At September 30, 1994 the remaining net book value of the California inventory that was impacted by this provision was approximately $88 million and consisted of approximately 1,600 homebuilding lots and improvements, of which 218 were sold but not settled. Sales of homes on these lots for the quarter and the first nine months of 1994 were 171 units and 543 units, respectively. Settlements of homes on these lots for the third quarter and first nine months of 1994 were 196 units and 453 units, respectively. Total homebuilding new orders increased 4.6 percent to 2,200 units during the third quarter of 1994 and 13.2 percent to 7,364 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, Southwest, and West regions which more than compensated for lower sales in the 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, to accelerate the sale of inventories. The increase in new orders in the Southwest region is attributable to improved sales in the Houston and Dallas divisions, and the addition of sales from Scott Felder Homes. The increase in the West region is due to strong homebuilding markets in Denver and Phoenix. The decline in the Southeast region was due to the Company's withdrawals from the Jacksonville, Florida and Charleston, South Carolina markets and the impact of higher interest rates on home sales, while the decline in new orders in the Mid-Atlantic region was primarily 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 acquisition of Scott Felder Homes by purchasing the remaining minority interest, strengthening its position in the Austin, San Antonio and Dallas markets. 11 Outstanding homebuilding contracts as of September 30, 1994 were up 8.3 percent from September 30, 1993. The $570.0 million value of outstanding contracts represented an increase of 10.7 percent over the same period of 1993. Selling, general and administrative (S,G&A) expenses as a percentage of revenues, were 9.5 percent for the third quarter and 9.9 percent for the first nine months of 1994 compared with 9.5 percent and 9.8 percent for the same respective periods of 1993. The Company has been incurring additional costs associated with its expansion into new markets and the costs associated with implementation of the Company's marketing and merchandising initiatives. Interest expense for the third quarter and first nine months of 1994 increased compared with the same periods of 1993, due to increased overall borrowing costs of the Company and additions to inventory, partially offset by higher interest capitalization in 1994. FINANCIAL SERVICES The financial services segment reported pretax earnings of $14.1 million for the third quarter of 1994, compared with $9.8 million in the third quarter of 1993. Included in the third quarter 1994 results was a pretax gain of $2.3 million on a sale of mortgage-backed securities and a pretax gain of $7.2 million on a bulk sale of mortgage servicing rights. Year-to-date pretax earnings were $38.3 million, compared with $43.0 million for the same period of 1993. Year-to-date pretax earnings for 1993 included a non-recurring first quarter gain of $5.3 million from the sale of the Company's remaining interest in a real estate investment trust, as well as $5.6 million in pretax gains from sales of mortgage-backed securities, as compared to $2.3 million in pretax gains from sales of mortgage-backed securities in 1994. Retail Operations: Pretax earnings for retail operations were as follows (amounts in thousands):
Three months Nine months ended September 30, ended September 30, 1994 1993 1994 1993 ______ _____ ____ _____ Revenues: Interest and net origination fees $ 3,955 $ 7,713 $15,138 $20,169 Gains on sales of mortgages and servicing rights 10,750 5,230 33,130 17,979 Loan servicing 8,653 11,424 28,331 32,467 Title/escrow 1,304 940 3,281 2,421 ______ ______ ______ ______ Total retail revenues 24,662 25,307 79,880 73,036 Expenses 17,347 21,372 59,343 59,027 ______ ______ ______ ______ Pretax earnings $ 7,315 $ 3,935 $20,537 $14,009 ======= ======= ======= =======
12 Interest and net origination fees have decreased as a result of the industry- wide decline in mortgage origination activity which has resulted from the current higher interest rate environment. It is expected that this trend will continue. Loan servicing revenues have declined as the Company has reduced its loan servicing portfolio. Ryland's loan origination activity experienced a 47 percent decline during the third quarter of 1994 and is down 30 percent year-to-date. The Company is continuing to reduce staffing levels in response to the continued lower origination volumes. Higher gains on the sales of mortgages and servicing rights in the current year were primarily the result of selling a greater amount of mortgage servicing rights. Mortgage origination activities were as follows:
Three months Nine months ended September 30, ended September 30, 1994 1993 1994 1993 ----- ----- ------ ------ Dollar volume of mortgages originated (in millions) $ 467 $ 903 $1,667 $ 2,419 Number of mortgages originated 3,795 7,179 13,374 19,040 Percentage Ryland Homes settlements 33% 20% 26% 21% Percentage other settlements 67% 80% 74% 79% ---- ----- ---- ----- 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 Nine months ended September 30, ended September 30, 1994 1993 1994 1993 ----- ---- ----- ----- Interest spread (in thousands) $1,905 $2,829 $7,380 $8,957 Average balance of mortgages held for sale (in millions) $ 221 $ 396 $ 315 $ 389 Interest spread rate 3.4% 2.8% 3.1% 3.1% Interest spread for the three and nine months ended September 30, 1994 decreased as compared to the same periods in 1993 primarily due to the lower average balance of mortgages held for sale.
13 The loan servicing portfolio balances were as follows at September 30, (in billions):
1994 1993 ---- ---- Originated $2.9 $4.1 Acquired 4.1 5.0 Subserviced for others .4 .6 ---- ---- Total portfolio $7.4 $9.7 ==== ====
The decrease in the portfolio balance is primarily attributable to the decline in origination volume combined with higher sales of servicing rights in the current year. At September 30, 1994 the subserviced-for-others category includes servicing related to the bulk sale in the third quarter, which the Company is subservicing for an interim period. Institutional Operations: The institutional operations encompass securities issuance and securities administration services. Pretax earnings for the three months ended September 30, 1994 decreased 27.8 percent, as compared to the same period in 1993 primarily due to lower revenues as a result of fewer security issuances. Year-to-date pretax earnings decreased 10.5 percent due to an increase in expenses.
Three months Nine months ended September 30, ended September 30, 1994 1993 1994 1993 ------ ----- ----- ----- Revenues $ 5,857 $ 6,748 $17,617 $17,631 Expenses 3,253 3,139 10,094 9,230 ------- ------- ------- ------ Pretax earnings $ 2,604 $ 3,609 $ 7,523 $ 8,401 ======= ======= ======= =======
Significant data on the securities administration portfolio as of September 30, were as follows:
1994 1993 ----- ---- Total securities administration portfolio (in billions) $46.3 $57.7 Number of series in the administration portfolio 549 518
Potential Sale of Institutional Financial Services: On October 17, 1994, the Company announced that it is exploring the sale of the institutional financial services business as part of the Company's continued focus on its core homebuilding and related mortgage businesses. 14 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. Pretax earnings for the three months ended September 30, 1994 increased substantially as compared to the same period in 1993 as the result of a gain on the sale of mortgage-backed securities. Year-to-date pretax earnings have decreased substantially as compared to the same period in 1993. The decline is primarily attributable to the $5.3 million gain in 1993 resulting from the sale of the Company's remaining interest in a real estate investment trust and is a non-recurring item. The Company also realized higher net revenues from the sale of mortgage-backed securities in 1993. Pretax earnings were comprised of the following:
Three months Nine months ended September 30, ended September 30, 1994 1993 1994 1993 ------ ----- ----- ----- Sale of interest in real estate $ 0 $ 0 $ 0 $ 5,322 investment trust Sale of mortgage-backed securities 2,349 (761) 2,349 5,635 Interest spread and other 1,866 3,031 7,933 9,593 ------ ------- ------- ------- Pretax earnings $4,215 $ 2,270 $10,282 $20,550 ====== ======= ======= =======
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 decrease in the interest spread rate in the third quarter of 1994 as compared to 1993, is due to an increase in borrowing rates. The slight 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. 15 Significant data from the investment operations were as follows:
Three months Nine months ended September 30, ended September 30, 1994 1993 1994 1993 ----- ----- ----- ------ Interest spread earned (in thousands) $2,740 $3,377 $10,919 $10,030 Average balance outstanding at September 30 (in millions) $ 196 $ 196 $ 216 $ 210 Interest spread rate 5.5% 6.9% 6.8% 6.4%
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 $576.3 million as of September 30, 1994, from $489.5 million as of December 31, 1993, due to normal seasonal increases in homes under construction, increased sales of homes, 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, permitted the Company to borrow up to $215 million for a three-year period. In September 1994, the Company obtained additional credit commitments which increased the total revolving credit facility commitments to $250 million. As of September 30, 1994, the Company had borrowed $143.5 million under this agreement, compared with $90 million as of December 31, 1993. The increase is 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 September 30, 1994 and December 31, 1993, the combined borrowings under the mortgage warehouse funding agreement, the repurchase agreements, and the revolving credit agreement were $407.2 million and $716.9 million, respectively. As of September 30, 1994 and December 31, 1993, the balance of mortgage loans and mortgage-backed securities, net, were $434.4 million and $728.1 million, respectively. 16 PART II. OTHER INFORMATION Page Number ----------- Item 6. Exhibits and Reports on Form 8-K A. Exhibits 11 Statement Re computation of per share earnings 20 27 Financial Data Schedule 21 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 September 30, 1994. 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE RYLAND GROUP, INC. Registrant November 10, 1994 By: /s/ Alan P. Hoblitzell, Jr. Date ------------------------------- Alan P. Hoblitzell, Jr., Director, Executive Vice President and Chief Financial Officer (Principal Financial Officer) November 10, 1994 By: /s/ Stephen B. Cook Date ------------------------------ Stephen B. Cook, Vice President and Corporate Controller (Principal Accounting Officer) 18 INDEX OF EXHIBITS A. Exhibits Page of Sequentially Numbered Pages ------------- 11 Statement Re computation per share earnings 20 27 Financial Data Schedule 21 19 EXHIBIT 11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS:
Three months ended Nine months ended September 30, September 30, 1994 1993 1994 1993 ----------- ----------- ----------- ---------- Primary: Net earnings (loss) before cumulative effect of a change in accounting principle $ 8,389 $ (22,556) $ 20,126 $ (10,263) Cumulative effect of a change in accounting principle 2,076 ----------- ----------- ----------- ----------- Net earnings (loss) $ 8,389 $ (22,556) $ 22,202 $ (10,263) Adjustment for dividends on convertible preferred shares (603) (642) (1,848) (1,952) ----------- ----------- ----------- ----------- Adjusted net earnings (loss) $ 7,786 $ (23,198) $ 20,354 $ (12,215) =========== =========== =========== =========== Weighted average common shares outstanding 15,416,704 15,309,541 15,386,683 15,332,243 Common stock equivalents:(1) Stock options 19,316 0 61,969 0 Employee incentive plans 117,931 0 123,308 0 Restricted stock 0 0 0 0 ----------- ----------- ----------- ----------- Total 15,553,951 15,309,541 15,571,960 15,332,243 ============ =========== =========== =========== Primary earnings (loss) per common share before cumulative effect of a change in accounting principle $ 0.50 $ (1.52) $ 1.18 $ (0.80) Cumulative effect of a change in accounting principle $ $ 0.13 $ ----------- ----------- ----------- ----------- Primary earnings (loss) per common share $ 0.50 $ (1.52) $ 1.31 $ (0.80) =========== =========== =========== =========== Fully-Diluted: Net earnings (loss) before cumulative effect of a change in accounting principle 8,389 (22,556) 20,126 (10,263) Cumulative effect of a change in accounting principle 2,076 ----------- ----------- ----------- ----------- Net earnings (loss) $ 8,389 $ (22,556) $ 22,202 $ (10,263) Adjustment for incremental expense from conversion of convertible preferred shares(1) (266) (815) Adjustment for dividends on convertible preferred shares (642) (1,952) ---------- ----------- ----------- ----------- Adjusted net earnings (loss) $ 8,123 $ (23,198) $ 21,387 $ (12,215) =========== =========== =========== =========== Weighted average common shares outstanding 15,416,704 15,309,541 15,386,683 15,332,243 Common stock equivalents:(1) Stock options 19,316 0 61,969 0 Employee incentive plans 117,931 0 123,308 0 Restricted stock 0 0 0 0 Convertible preferred stock 1,103,318 0 1,125,650 0 ----------- ----------- ----------- ----------- Total 16,657,269 15,309,541 16,697,610 15,332,243 ============ =========== =========== =========== Fully diluted earnings (loss) per common share before cumulative effect of a change in accounting principle $ 0.49 $ (1.52) $ 1.16 $ (0.80) Cumulative effect of a change in accounting principle $ $ 0.12 $ ----------- ----------- ----------- ----------- Fully diluted earnings (loss) per common share $ 0.49 $ (1.52) $ 1.28 $ (0.80) =========== =========== =========== ===========
(1) For the three and nine months ended September 30, 1993, no adjustment has been made for incremental dividends on convertible preferred shares or common stock equivalents as these adjustments would be anti-dilutive. 20 EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE RYLAND GROUP INC. FORM 10-Q FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30,1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 9-MOS DEC-31-1994 SEP-30-1994 32481 187911 246472 0 576290 0 19356 0 1758770 0 865272 15430 0 1091 295314 1758770 1037650 1197033 905624 1066926 15352 0 81210 33543 13417 20126 0 0 2076 22202 1.31 1.28
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