-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A+1KO/HYpwP+YMhwJDwm1s3ARwfaFQKilYSyTMqLa2sBV3cC7EN69XD+taZOLX9f bqV3oul8mqAnnSxibY2ZIQ== 0000085974-96-000017.txt : 19960816 0000085974-96-000017.hdr.sgml : 19960816 ACCESSION NUMBER: 0000085974-96-000017 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: RYLAND GROUP INC CENTRAL INDEX KEY: 0000085974 STANDARD INDUSTRIAL CLASSIFICATION: OPERATIVE BUILDERS [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: 96614720 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 June 30, 1996 -------------- 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 ------ ------ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. The number of shares of common stock of The Ryland Group, Inc., outstanding on August 2, 1996 was 15,805,585. THE RYLAND GROUP, INC. FORM 10-Q INDEX Page Number PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets at June 30, 1996 (unaudited) and December 31, 1995 1-2 Consolidated Statements of Earnings for the three and six months ended June 30, 1996 and 1995 (unaudited) 3 Consolidated Statements of Cash Flows for the six months ended June 30, 1996 and 1995 (unaudited) 4 Notes to Consolidated Financial Statements (unaudited) 5-7 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 8-16 PART II. OTHER INFORMATION Item 1. Legal Proceedings 17 Item 4. Submission of Matters to a Vote of Security Holders 18 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, 1996 1995 ---------- ------------ (unaudited) ASSETS HOMEBUILDING: Cash and cash equivalents $ 34,797 $ 54,518 Housing inventories: Homes under construction 370,057 332,272 Land under development and improved lots 223,390 205,646 --------- --------- Total inventories 593,447 537,918 Property, plant and equipment 34,298 34,662 Purchase price in excess of net assets acquired 21,059 21,575 Other assets 40,480 47,903 ---------- --------- 724,081 696,576 ---------- --------- FINANCIAL SERVICES: Cash and cash equivalents 993 1,474 Mortgage loans held for sale, net 196,817 285,001 Mortgage-backed securities and notes receivable, net 136,404 112,544 Mortgage servicing rights, net 10,022 7,814 Other assets 40,633 42,586 ---------- --------- 384,869 449,419 ---------- --------- OTHER ASSETS: Collateral for bonds payable of limited-purpose subsidiaries 305,307 375,146 Net deferred taxes 39,997 41,259 Other 12,765 18,389 ---------- --------- TOTAL ASSETS $ 1,467,019 $ 1,580,789 ============ =========== See notes to consolidated financial statements.
The Ryland Group, Inc. and subsidiaries CONSOLIDATED BALANCE SHEETS (amounts in thousands, except share data)
June 30, December 31, 1996 1995 ------------ ------------ (unaudited) LIABILITIES HOMEBUILDING: Accounts payable and other liabilities $ 68,287 $ 78,853 Long-term debt 435,162 396,607 ------------ ----------- 503,449 475,460 ------------ ----------- FINANCIAL SERVICES: Accounts payable and other liabilities 26,817 27,219 Short-term notes payable 296,573 367,469 ------------ ----------- 323,390 394,688 ------------ ----------- OTHER LIABILITIES: Bonds payable of limited-purpose subsidiaries 297,357 364,672 Other 37,340 44,845 ------------ ----------- TOTAL LIABILITIES 1,161,536 1,279,665 STOCKHOLDERS' EQUITY Convertible preferred stock, $1 par value Authorized - 1,400,000 shares Issued - 903,672 shares (943,097 for 1995) 904 943 Common stock, $1 par value Authorized - 78,600,000 shares Issued - 15,726,266 shares (15,681,891 for 1995) 15,726 15,682 Paid-in capital 116,825 115,611 Retained earnings 180,756 179,937 Net unrealized gain on mortgage-backed securities 3,050 2,550 Due from RSOP Trust (11,778) (13,599) ----------- ----------- TOTAL STOCKHOLDERS' EQUITY 305,483 301,124 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,467,019 $ 1,580,789 =========== =========== STOCKHOLDERS' EQUITY PER COMMON SHARE $ 18.84 $ 18.69 See notes to consolidated financial statements.
The Ryland Group, Inc. and subsidiaries CONSOLIDATED STATEMENTS OF EARNINGS (unaudited) (amounts in thousands, except share data)
Three months Six months ended June 30, ended June 30, 1996 1995 1996 1995 -------- -------- -------- ------- REVENUES: Homebuilding: Residential revenues $ 380,832 $ 355,894 $ 675,640 $ 667,686 Other revenues 7,550 315 10,417 832 -------- ----------- ---------- ------- Total homebuilding revenues 388,382 356,209 686,057 668,518 Financial services 18,335 23,472 40,104 46,359 Limited-purpose subsidiaries 7,537 9,547 15,526 19,548 -------- ----------- ---------- - ----- Total revenues 414,254 389,228 741,687 734,425 EXPENSES: Homebuilding: Cost of sales 335,117 316,121 592,160 591,839 Interest expense 6,261 6,785 12,055 14,294 Selling, general and administrative 37,377 37,959 70,874 71,328 -------- ----------- ---------- - ----- Total homebuilding expenses 378,755 360,865 675,089 677,461 Financial services: Interest expense 4,834 5,627 10,633 11,167 General and administrative 11,021 11,556 23,763 23,406 -------- ----------- ---------- - ----- Total financial services expenses 15,855 17,183 34,396 34,573 Limited-purpose subsidiaries expense 7,537 9,545 15,526 19,539 Corporate expenses 3,062 3,171 6,066 6,851 -------- ----------- ---------- - ----- Total expenses 405,209 390,764 731,077 738,424 Earnings (loss) from continuing operations before taxes 9,045 (1,536) 10,610 (3,999) Tax expense (benefit) 3,618 (614) 4,244 (1,600) -------- ----------- ---------- - ----- Net earnings (loss) from continuing operations 5,427 (922) 6,366 (2,399) Discontinued Operations: Earnings from discontinued operations (net of taxes of $778 & $2,212) 0 1,168 0 3,318 Gain on sale of discontinued operations (net of taxes of $13,025) 0 19,538 0 19,538 -------- ----------- ---------- - ----- NET EARNINGS $ 5,427 $ 19,784 $ 6,366 $ 20,457 =========== =========== ======== ========= Preferred dividends $ 499 $ 560 $ 1,009 $ 1,139 Net earnings available for common shareholders $ 4,928 $ 19,224 $ 5,357 $ 19,318 NET EARNINGS PER COMMON SHARE: Primary: Net earnings (loss) from continuing operations $ 0.31 $ (0.09) $ 0.34 $ (0.22) Discontinued Operations 0.00 1.31 0.00 1.45 -------- ----------- ---------- - ----- Net earnings $ 0.31 $ 1.22 $ 0.34 $ 1.23 ========== ========== ======= ======== Fully diluted: (1) Net earnings (loss) from continuing operations $ 0.31 $ (0.07) $ 0.34 $ (0.17) Discontinued Operations 0.00 1.23 0.00 1.36 -------- ----------- ---------- - ----- Net earnings $ 0.31 $ 1.16 $ 0.34 $ 1.19 ========= ========== ========= ======= AVERAGE COMMON SHARES OUTSTANDING: PRIMARY 15,955,000 15,764,000 15,949,000 15,727,000 FULLY DILUTED (1) 16,868,000 16,807,000 15,949,000 16,812,000 ========== =========== ========== ========== (1) For the six months ended June 30, 1996, conversion of preferred shares is not assumed due to an antidilutive effect. See notes to consolidated financial statements.
The Ryland Group, Inc. and subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, amounts in thousands)
Six months ended June 30, 1996 1995 ---------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 6,366 $ 20,457 Adjustments to reconcile net earnings to net cash provided by (used for) operating activities: Depreciation and amortization 15,882 13,563 Gain on sale of mortgage-backed securities - available-for-sale 0 (3,878) Gain on sale of discontinued operations 0 (32,563) (Increase) decrease in inventories (55,529) 19,983 Net change in other assets, payables and other liabilities (9,864) 9,981 Equity in earnings of/distributions from unconsolidated joint ventures 1,746 1,125 Decrease (increase) in mortgage loans held for sale, net 88,184 (54,678) ---------- --------- Net cash provided by (used for) operating activities 46,785 (26,010) ---------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Net additions to property, plant and equipment (10,659) (14,661) Proceeds from sale of discontinued operations 0 47,000 Principal reduction of mortgage collateral 50,667 6,844 Principal reduction of mortgage-backed securities - available-for-sale 5,843 3,912 Purchases of mortgage-backed securities - available-for-sale (8,572) 0 Sales of mortgage-backed securities- available-for-sale 0 56,982 Principle reduction of mortgage-backed securities-held-to-maturity 11,083 30,554 (Increase) decrease in funds held by trustee (9,930) 5,274 Other investing activities, net (2,963) 678 ---------- --------- Net cash provided by investing activities 35,469 136,583 ---------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Decrease in short-term notes payable (70,896) (21,738) Cash proceeds of long-term debt 58,062 5,108 Reduction of long-term debt (19,508) (42,474) Bond principal payments (68,155) (42,425) Common and preferred stock dividends (5,734) (5,808) Other financing activities, net 3,775 1,281 ---------- --------- Net cash used for financing activities (102,456) (106,056) ---------- --------- Net (decrease) increase in cash and cash equivalents (20,202) 4,517 Cash and cash equivalents at beginning of year 55,992 26,826 ---------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 35,790 $ 31,343 ========== ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest (net of capitalized interest) $ 41,845 $ 44,475 Cash paid for income taxes (net of refund received in 1996 and 1995) $ (2,999) $ 2,887 ========== ========= See notes to consolidated financial statements.
The Ryland Group, Inc. and subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (amounts in thousands, except for share data, in all notes) Note 1. Segment Information
Three months ended June 30, 1996 1995 ------ ------ Pretax earnings (loss) from continuing operations: Homebuilding $ 9,627 $ (4,656) Financial services (1) 2,480 6,289 Corporate and other (2) (3,062) (3,169) ---------- --------- Total $ 9,045 $ (1,536) ========== ========= (1) Excludes pretax operating results of the institutional mortgage securities administration business for the three months ended June 30, 1995 of $1,946. (2) The Company's limited-purpose subsidiaries are no longer issuing mortgage- backed securities and mortgage-participation securities and therefore, are no longer reported as a separate business segment. Amounts related to the limited-purpose subsidiaries are combined with corporate expenses and reflected in the above table as "Corporate and other."
Six months ended June 30, 1996 1995 ------ ------ Pretax earnings (loss) from continuing operations: Homebuilding $ 10,968 $ (8,943) Financial services (1) 5,708 11,786 Corporate and other (2) (6,066) (6,842) ---------- --------- Total $ 10,610 $ (3,999) ========== ========= (1) Excludes pretax operating results of the institutional mortgage securities administration business for the six months ended June 30, 1995 of $5,530. (2) The Company's limited-purpose subsidiaries are no longer issuing mortgage- backed securities and mortgage-participation securities and therefore, are no longer reported as a separate business segment. Amounts related to the limited-purpose subsidiaries are combined with corporate expenses and reflected in the above table as "Corporate and other."
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. The consolidated balance sheet as of June 30, 1996, the consolidated statements of earnings for the three and six months ended June 30, 1996 and 1995, and the consolidated statements of cash flows for the six months ended June 30, 1996 and 1995 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, 1996, and for all periods presented, have been made. The consolidated balance sheet at December 31, 1995 is taken from the audited financial statements as of that date. Certain amounts in the consolidated statements have been reclassified to conform to the 1996 presentation. Certain information and footnote disclosures normally included in the financial statements have been condensed or omitted. These financial statements should be read in conjunction with the financial statements and related notes included in the Company's 1995 annual report to shareholders. The results of operations for the three and six months ended June 30, 1996 are not necessarily indicative of the operating results for the full year. Assets presented in the financial statements are net of any valuation allowances. Primary net earnings per common share is computed by dividing net earnings, after considering preferred stock dividend requirements, by the weighted average number of common shares outstanding considering dilutive common equivalent shares. Common equivalent shares relating to stock options are computed using the treasury stock method. Fully diluted net earnings per common share additionally gives effect to the assumed conversion of the preferred shares held by The Ryland Group, Inc. Retirement and Stock Ownership Plan Trust (the "RSOP Trust") into common stock, as well as the amount of the additional RSOP Trust contribution required to fund the difference between the RSOP Trust's earnings from preferred share dividends and the RSOP Trust's potential earnings from common share dividends after an assumed conversion. However, the effect of the RSOP Trust was not dilutive for the six months ended June 30, 1996. The Ryland Group, Inc. and subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (unaudited) Note 3. Discontinued Operations On June 30, 1995, the Company completed the sale of its institutional mortgage securities administration business for a purchase price of $47 million in cash. The Company's institutional mortgage-securities administration business included master servicing, securities administration, investor information services, and tax calculation and reporting. The prior period results for this business (formerly reported as institutional financial services) have been reported as discontinued operations in the accompanying consolidated statements of earnings. Revenues from operations of the discontinued business were $6.6 million and $13.7 million for the three and six months ended June 30, 1995, respectively. Earnings from operations of the discontinued business were $1.2 million, or $.07 per share, and $3.3 million, or $.21 per share, (net of taxes of $.8 million and $2.2 million, respectively), for the three and six months ended June 30, 1995, respectively. The Company reported a net gain from the sale of the institutional mortgage securities administration business of $19.5 million (net of taxes of $13.0 million), or $1.24 per share, in the second quarter of 1995. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS CONSOLIDATED For the second quarter of 1996, the Company reported consolidated net earnings of $5.4 million, or $.31 per share. This compares with a 1995 second quarter net loss of $.9 million, or $.09 per share, from continuing operations, and 1995 second quarter consolidated net earnings, including the gain on sale and operating results of the discontinued institutional mortgage securities administration business, of $19.8 million, or $1.22 per share. The Company's homebuilding segment recorded pretax earnings of $9.6 million for the second quarter of 1996, compared with a pretax loss of $4.7 million for the same period last year. The improvement was driven by improved gross profit margins as well as pretax gains of $3.7 million from land sales. The Company's financial services segment reported pretax earnings of $2.5 million for the second quarter of 1996, compared with $6.3 million for the same period in 1995. The decline from last year's results was due to a decrease in retail earnings which was partially offset by an increase in investment earnings. In the second quarter of 1995, the Company sold its institutional mortgage- securities administration business which was consistent with its long-term strategy to focus on its core homebuilding and retail mortgage-finance operations and to invest additional capital into its homebuilding operations. The Company realized a net gain on the sale of $19.5 million. Future results for the financial services segment will continue to be negatively impacted by the elimination of this business. For the first six months of 1996, the Company reported consolidated net earnings of $6.4 million, or $.34 per share. This compares with a 1995 first half net loss of $2.4 million, or $.22 per share, from continuing operations, and 1995 first half consolidated net earnings, including the gain on the sale and operating results of the discontinued institutional mortgage securities administration business, of $20.5 million, or $1.23 per share. For the first six months of 1996, the homebuilding segment reported pretax earnings of $11.0 million, compared with a pretax loss of $8.9 million for the same period in 1995. The improvement reflects an increase in gross profit margins as well as pretax gains of $3.9 million from land sales, the combination of which more than offset the impact of lower closings. The financial services segment reported pretax earnings of $5.7 million for the first six months of 1996, compared with $11.8 million for the same period in 1995. The decline from last year's results is primarily due to lower gains from the sale of mortgages and mortgage servicing rights, and a lower level of investment earnings. The Company's limited-purpose subsidiaries are no longer issuing mortgage- backed securities and mortgage-participation securities. They do continue to hold collateral for previously issued mortgage-backed bonds in which the Company maintains a residual interest. Revenues, expenses, and portfolio balances for the limited-purpose subsidiaries continue to decline as the mortgage collateral pledged to secure the bonds decreases due to scheduled principal payments, prepayments and exercises of early redemption rights. Corporate expenses were $3.1 million for the second quarter of 1996 and $6.1 million for the six months ended June 30, 1996, down $.1 million and $.8 million, respectively, from the same period last year primarily due to lower information system costs and reductions in other operating expenses. HOMEBUILDING The Company's homebuilding segment reported pretax earnings of $9.6 million for the second quarter of 1996, compared with a pretax loss of $4.7 million for the same period last year. For the six months ended June 30, 1996, homebuilding reported pretax earnings of $11.0 million compared with a pretax loss of $8.9 million. Results of operations of the Company's homebuilding segment are summarized as follows ($ amounts in thousands, except average closing price):
Three months ended Six months ended June 30, June 30, 1996 1995 1996 1995 ------ ------ ------ ------ Revenues $388,382 $356,209 $686,057 $668,518 Gross profit 53,265 40,088 93,897 76,679 Selling, general and administrative expenses 37,377 37,959 70,874 71,328 Interest expense 6,261 6,785 12,055 14,294 --------- --------- --------- -------- Pretax earnings (loss) $ 9,627 $ (4,656) $ 10,968 $ (8,943) ========= ========= ========= ======== Operational Unit Data: (includes joint ventures) New orders (units) 2,060 2,618 4,463 5,178 Closings (units) 2,195 2,218 3,928 4,216 Outstanding contracts at June 30, Units 3,279 3,515 Dollar Value $580,753 $602,882 Average Closing Price (excludes unconsolidated joint ventures) $173,000 $162,000 $172,000 $160,000
The gross profit margin for the second quarter and first half of 1996 was 13.7 percent, a significant increase from the 11.3 percent and 11.5 percent reported for the respective 1995 periods. The second quarter of 1996 is the third consecutive quarter in which gross profit margins have shown significant improvement over the prior year quarter. Increased closings from newer communities and gains from land sales contributed to the 1996 margin improvement while the sale of older inventories in the California and Mid- Atlantic regions and the Company's focus on reducing unsold homes under construction negatively impacted gross margins during 1995. Homebuilding revenues amounted to $388 million for the second quarter of 1996, an increase of 9.0 percent over the same period last year, primarily due to an increase in average closing price. The increase in average closing price was partially offset by a slight decline in closings reflecting slower sales in the first quarter of this year due in part to inclement weather conditions. Homebuilding revenues were $686 million for the first six months, an increase of 2.6 percent over the same period last year, primarily due to a higher average closing price, which more than offset a 6.8 percent decline in closings. Total homebuilding new orders for the second quarter of 1996 decreased by 21.3 percent to 2,060 homes from the second quarter of 1995 and decreased 13.8 percent to 4,463 homes for the first six months of 1996. Higher interest rates and delays in opening new communities have negatively impacted sales. Volume in the Mid-Atlantic region was also impacted by the Company's decision to reallocate capital to other markets. Outstanding contracts at June 30, 1996 were 3,279 compared with 3,515 at June 30, 1995 and 2,744 at December 31, 1995. Outstanding contracts represent the Company's backlog of sold, but not closed homes, which generally are built and closed, subject to cancellations, over the next two quarters. The value of outstanding contracts at June 30, 1996 was $580.8 million, a decrease of 3.7 percent from June 30, 1995 and an increase of 21.7 percent from December 31, 1995. Selling, general and administrative expenses as a percent of revenues were 9.6 percent for the second quarter of 1996 compared with 10.7 percent for the same period of 1995. For the six months ended June 30, 1996, selling, general and administrative expenses were 10.3 percent compared with 10.7 percent for the same period of 1995. The declines in the second quarter and first half are reflective of the Company's ongoing efforts to control costs, including the efficiencies gained from $2.2 million in reorganization costs incurred during the second quarter of 1995 to consolidate certain operations. Interest expense for the second quarter and first half of 1996 decreased $.5 million and $2.2 million, respectively, compared with the same periods of 1995. These decreases were primarily due to a lower average cost of funds. FINANCIAL SERVICES The financial services segment, excluding the results of the discontinued institutional mortgage securities administration business, reported pretax earnings of $2.5 million for the second quarter and $5.7 million for the first six months of 1996, compared with $6.3 million for the second quarter and $11.8 million for the first six months of 1995. Pretax earnings by line of business were as follows (amounts in thousands):
Three months Six months ended June 30, ended June 30, 1996 1995 1996 1995 ------- ------- -------- ------- Retail $ 430 $ 4,702 $ 2,292 $ 5,845 Investments 2,050 1,587 3,416 5,941 ------- -------- ------- -------- Total $ 2,480 $ 6,289 $ 5,708 $11,786 ======== ======== ======== ========
The declines in retail pretax earnings for the second quarter and first six months of 1996 were primarily due to lower gains on sales of mortgages and mortgage servicing rights. Pretax investment earnings increased for the three months ended June 30, 1996, primarily due to a higher interest spread on the portfolio and income related to the early redemption of certain securities. Pretax investment earnings for the six months ended June 30, 1996, were down due to gains on sales of mortgage-backed securities in 1995 which did not recur in 1996. Revenues and expenses for the financial services segment were as follows:
Three months Six months ended June 30, ended June 30, 1996 1995 1996 1995 ------ ------ ------ ----- Revenues: Interest and net origination fees $ 3,554 $ 3,669 $ 7,752 $ 6,703 Net gains on sales of mortgages and servicing rights 1,678 6,278 7,229 9,304 Loan servicing 7,461 8,366 14,891 17,059 Title/escrow 1,562 1,308 2,760 2,327 --------- --------- ------- -------- Total retail revenues 14,255 19,621 32,632 35,393 Revenues from investment operations 4,080 3,851 7,472 10,966 --------- --------- --------- ------- Total revenues 18,335 23,472 40,104 46,359 Expenses: Interest 4,834 5,627 10,633 11,167 General and administrative 11,021 11,556 23,763 23,406 --------- --------- --------- ------- Total expenses 15,855 17,183 34,396 34,573 --------- --------- --------- ------- Pretax earnings $ 2,480 $ 6,289 $ 5,708 $11,786 ========= ========= ======== =======
Revenues for the financial services segment decreased 22 percent and 13 percent for the three and six months ended June 30, 1996, respectively, as compared with the same periods of 1995, primarily due to lower gains from sales of mortgages and mortgage servicing rights and a decline in servicing revenues reflecting a lower portfolio balance. The higher revenues reported in 1995 included a second quarter $2.5 million gain from a bulk sale of mortgage servicing rights. Investment revenues in the first half of the year were lower reflecting the absence of gains on the sale of mortgage-backed securities which favorably impacted 1995 results. Interest expense declined 14 percent and 5 percent for the three and six months ended June 30, 1996, respectively, as compared with the same periods of 1995, as a result of lower cost of borrowings. General and administrative expenses were down 4.6 percent for the second quarter and were up slightly for the first half of 1996 as compared with the same periods of 1995. The increase for the first six months reflects costs related to re-engineering the mortgage origination process in order to improve efficiencies and reduce future costs. Retail Operations: - ------------------ Retail operations include mortgage origination, loan servicing and title/escrow services for retail customers. A summary of origination activities is as follows:
Three months Six months ended June 30, ended June 30, 1996 1995 1996 1995 ------ ------ ------ ------ Dollar volume of mortgages originated (in millions) $ 393 $ 469 $ 877 $ 797 Number of mortgages originated 2,933 3,698 6,717 6,360 Percentage of total closings: Ryland Homes closings 48% 34% 38% 36% Other closings 52% 66% 62% 64% ------- ------ ------ ------ 100% 100% 100% 100%
Mortgage origination volume decreased by 21 percent in the second quarter compared with the same period last year. This decrease is primarily attributable to the sale of the wholesale mortgage operations which was completed in May 1996. The sale of this business has resulted in a decline in mortgage originations in 1996, but is not expected to have a significant impact on future financial results. Wholesale loan originations for the second quarter of 1996 decreased by 77 percent to 288 compared with 1,279 for 1995. For the first six months of 1996, wholesale loan originations decreased 19 percent to 1,776 compared with 2,189 for the first half of 1995. Retail loan originations increased nine percent compared with the second quarter of 1995 and eighteen percent compared with the first half of 1995. The Company earns interest on mortgages held for sale and pays interest on borrowings secured by the mortgages. Significant data related to these activities are as follows:
Three months Six months ended June 30, ended June 30, 1996 1995 1996 1995 ------ ------ ------ ------ Net interest earned (in thousands) $1,992 $1,276 $3,543 $2,436 Average balance of mortgages held for sale (in millions) $180 $182 $207 $169 Net interest spread 4.4% 2.8% 3.4% 2.9%
Net interest earned increased for the second quarter compared with 1995 due to a higher net interest spread. For the first six months of 1996, net interest earned increased due to a higher net interest spread and an increase in the average balance of mortgages held for sale. The Company services loans that it originates as well as loans originated by others. Loan servicing portfolio balances were as follows at June 30, (in billions):
1996 1995 ------ ------ Originated $2.4 $2.5 Acquired 3.2 3.7 Subserviced .2 .3 ------ ------ Total portfolio $5.8 $6.5 ====== ======
The decrease in the portfolio balance is primarily attributable to normal mortgage prepayment activity. Investment Operations: - ---------------------- The assets of the Company's investment operations primarily consist of mortgage-backed securities which were obtained as a result of the exercise of redemption rights on various mortgage-backed bonds previously owned by the Company's limited-purpose subsidiaries. Revenues and expenses were as follows (in thousands):
Three months Six months ended June 30, ended June 30, 1996 1995 1996 1995 ------ ------ ------ ------ Sale of mortgage-backed securities $ 0 $ 807 $ 0 $ 3,931 Interest and other income 4,080 3,044 7,472 7,035 -------- ------- -------- ------- Total revenues 4,080 3,851 7,472 10,966 Interest and other expenses 2,030 2,264 4,056 5,025 ------- ------ ------- ------ Pretax earnings $ 2,050 $ 1,587 $ 3,416 $ 5,941 ======== ======= ======== =======
Interest and other income includes $.7 million and $1.3 million for the three and six months ended June 30, 1996, respectively, related to the early redemption of certain securities. Significant data concerning the Company's investment operations are as follows:
Three months Six months ended June 30, ended June 30, 1996 1995 1996 1995 ------- ------ ------ ------ Net interest earned (in thousands) $ 1,192 $ 1,060 $ 2,218 $ 2,553 Average balance outstanding (in millions) $ 115 $ 118 $ 113 $ 136 Net interest spread 4.1% 3.7% 3.9% 3.8%
The Company earns a net interest spread on the investment portfolio reflecting the difference between the interest rates on the mortgage-backed securities and the related borrowing rates. An increase in the net interest spread for the three months ended June 30, 1996 is the primary reason for the improved net interest earned for that period. A decrease in the average balance outstanding for the six months ended June 30, 1996 resulted in the decrease in the net interest earned for that period. FINANCIAL CONDITION AND LIQUIDITY The Company generally provides for the cash requirements of the homebuilding and financial services businesses from outside borrowings and internally generated funds. The Company believes that its current sources of cash are sufficient to finance its current requirements. The homebuilding segment borrowings include an unsecured revolving credit facility, senior notes, senior subordinated notes and nonrecourse secured notes payable. The Company uses its unsecured revolving credit facility to finance increases in its homebuilding inventory and changes in working capital. This facility was renewed in July 1995 for a three-year period and total borrowing capacity was increased from $250 million to $400 million. As of June 30, 1996, the outstanding borrowings under this facility were $192 million, compared with $137 million as of December 31, 1995. In addition, the Company had letters of credit outstanding under this facility totaling $21.5 million at June 30, 1996 and $22.2 million at December 31, 1995. To finance land purchases, the Company may also use seller-financed, non-recourse secured notes payable. At June 30, 1996, such notes payable outstanding amounted to $3.4 million, compared with $4.5 million at December 31, 1995. Senior notes amounting to $15 million matured and were paid off in both January and July of 1996. In addition, $5 million in principal of senior notes was prepaid in July 1996. On July 8, 1996, the Company successfully completed the issuance of $100 million of 10.5% senior notes due 2006. The Company used the net proceeds of the offering to repay amounts outstanding under the revolving credit facility. Housing inventories increased to $593.4 million as of June 30, 1996, from $537.9 million as of the end of 1995. This represents normal seasonal increases in sold homes under construction as well as investment in new markets. The financial services segment uses cash generated from operations and borrowing arrangements to finance its operations. In June 1996, the Company extended the maturity of its bank facility to May 1998. The bank facility provides up to $325 million for mortgage warehouse funding and $40 million for working capital advances. Other borrowing arrangements as of June 30, 1996 included repurchase agreement facilities aggregating $925 million, a $100 million revolving credit facility used to finance investment portfolio securities and a $35 million credit facility to be used for the short-term financing of optional bond redemptions. At June 30, 1996 and December 31, 1995, the combined borrowings of the financial services segment outstanding under all agreements were $296.6 million and $367.5 million, respectively. Mortgage loans, notes receivable, and mortgage-backed securities held by the limited-purpose subsidiaries are pledged as collateral for the issued bonds, the terms of which provide for the retirement of all bonds from the proceeds of the collateral. The source of cash for the bond payments is cash received from the mortgage loans, notes receivable and mortgage-backed securities. The Ryland Group, Inc. has not guaranteed the debt of the financial services segment or limited-purpose subsidiaries. Note: Certain statements in Management's Discussion and Analysis of Results of Operation and Financial Condition may be "forward-looking statements" within the meaning of the Private Securities Litigation Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially. Such risks, uncertainties and other factors include, but are not limited to, changes in general economic conditions, fluctuations in interest rates, increases in raw materials and labor costs, and general competitive factors. PART II. OTHER INFORMATION Item 1. Legal Proceedings In 1995, one current and two former officers of Ryland Mortgage Company ("RMC") were notified that they were targets of a federal grand jury investigation concerning alleged misappropriation of funds from the Resolution Trust Corporation ("RTC"). The Company has been advised that the investigation relates to alleged overpayments to RMC of approximately $3.4 million under three mortgage servicing contracts with the RTC. In a related matter, in July 1996, the RTC (acting through its successor, the FDIC) requested reimbursement from RMC of the $3.4 million, interest thereon and additional amounts relating to these and other mortgage-servicing contracts. The Company is investigating these matters and at this time cannot predict how they will be resolved, or whether the Company or RMC will be targets of the investigation, parties to any civil litigation or incur any liability. The Company is party to various other legal proceedings generally incidental to its businesses. Based on evaluation of these other matters and discussions with counsel, management believes that liabilities to the Company arising from these other matters will not have a material adverse effect on the financial condition of the Company. PART II. OTHER INFORMATION (con't) Item 4. Submission of Matters to a Vote of Security Holders The Annual Meeting of Stockholders of the Company was held on April 17, 1996. 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 and to approve the appointment of Ernst & Young LLP as independent public accountants for the Company for 1996. Proxies representing 14,722,919 shares of stock eligible to vote at the meeting, or 93.8 percent of the outstanding shares, were voted in connection with the election of directors. The ten incumbent directors nominated by the Company were elected with a minimum of 14,581,086 votes. The following is a separate tabulation with respect to the vote for each nominee:
Name Total Votes For Total Votes Withheld - ----- --------------- -------------------- R. Chad Dreier 14,611,627 111,292 James A. Flick, Jr. 14,621,886 101,033 Robert J. Gaw 14,621,286 101,633 Leonard M. Harlan 14,621,886 101,033 L.C. Heist 14,621,886 101,033 William L. Jews 14,621,886 101,033 William G. Kagler 14,581,086 141,833 John H. Mullin, III 14,621,886 101,033 Charlotte St. Martin 14,621,771 101,148 John O. Wilson 14,621,886 101,033
Ernst & Young LLP was approved as the independent public accountants for the Company for 1996 by 99.3 percent of the shares voting. The following is a breakdown of the vote on such matter:
For Against Abstain --- ------ ------- 14,619,083 46,973 56,863
Page Number ------------ Item 6. Exhibits and Reports on Form 8-K A. Exhibits 11 Statement Re computation of earnings per share (filed herewith) 21 27 Financial Data Schedule 22 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, 1996. 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 14, 1996 By: /s/ Michael D. Mangan - ---------------- -------------------------- Date Michael D. Mangan, Executive Vice President and Chief Financial Officer (Principal Financial Officer) August 14, 1996 By: /s/ Stephen B. Cook - --------------- ------------------------ Date Stephen B. Cook, Vice President and Corporate Controller (Principal Accounting Officer) INDEX OF EXHIBITS A. Exhibits Page of Sequentially Exhibit No. Numbered Pages - ----------- ---------------- 11 Statement Re computation of earnings per share (filed herewith) 21 27 Financial Data Schedule 22 1 EX-11 2 EXHIBIT 11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS: (amounts in thousands, except share data)
Three months Six months ended June 30, ended June 30, 1996 1995 1996 1995 ------- -------- ------- ------- PRIMARY: Net earnings (loss) from continuing operations $ 5,427 $ (922) $ 6,366 $ (2,399) Discontinued Operations 0 20,706 0 22,856 -------- --------- --------- -------- Net earnings 5,427 19,784 6,366 20,457 Adjustment for dividends on convertible preferred shares (499) (560) (1,009) (1,139) -------- --------- --------- -------- Adjusted net earnings $ 4,928 $ 19,224 $ 5,357 19,318 ======== ========= ========= ======== Weighted average common shares outstanding 15,787,077 15,557,403 15,757,680 15,527,172 Common stock equivalents: Stock options 42,288 18,088 43,178 6,084 Employee incentive plans 125,514 188,499 147,965 193,442 ---------- ---------- ---------- ---------- Total 15,954,879 15,763,990 15,948,823 15,726,698 ========== ========== ========== ========== Primary earnings (loss) per common share from continuing operations $ 0.31 $ (0.09) $ 0.34 $(0.22) Discontinued Operations 0.00 1.31 0.00 1.45 -------- -------- ------- ------- Primary earnings per common share $ 0.31 $ 1.22 $ 0.34 $ 1.23 ========= ======== ======= ======= FULLY-DILUTED: Net earnings (loss) from continuing operations $ 5,427 $ (922) $ 6,366 $ (2,399) Discontinued Operations 0 20,706 0 22,856 ------- -------- ------- ------- Net earnings 5,427 19,784 6,366 20,457 Adjustment for incremental expense from conversion of convertible preferred shares (1) (220) (249) 0 (505) Adjustment for dividends on convertible preferred shares 0 0 (1,009) 0 ---------- --------- -------- -------- Adjusted net earnings $ 5,207 $ 19,535 $ 5,357 $ 19,952 ========== ========= ========= ======== Weighted average common shares outstanding 15,787,077 15,557,403 15,757,680 15,527,172 Common stock equivalents: Stock options 42,288 29,974 43,178 45,917 Employee incentive plans 125,514 188,499 147,965 193,442 Convertible preferred stock (1) 913,183 1,030,740 0 1,045,571 ----------- ----------- ---------- ---------- Total 16,868,062 16,806,616 15,948,823 16,812,102 =========== =========== ========== ========== Fully diluted earnings (loss) per common share from continuing operations $ 0.31 $ (0.07) $ 0.34 $ (0.17) Discontinued Operations 0.00 1.23 0.00 1.36 ------ ------- ------ ------ Fully diluted earnings per common share $ 0.31 $ 1.16 $ 0.34 $ 1.19 ======= ======= ======= ======= (1) For the six months ended June 30, 1996, no adjustment was made to net earnings for incremental dividends on preferred stock or to common stock equivalents for convertible preferred stock as these adjustments would be anti-dilutive.
1 EX-27 3
5 THIS SCHEDULE CONTAINS SUMMAYR FINANCIAL INFORMATION EXTRACTED FROM THE RYLAND GROUP, INC. FORM 10-Q FOR THE PERIOD ENDED 6/30/96 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-1996 JUN-30-1996 35,790 136,404 196,817 0 593,447 0 34,298 0 1,467,019 0 593,930 15,726 0 904 288,853 1,467,019 686,057 741,687 592,160 702,323 6,066 0 22,688 10,610 4,244 6,366 0 0 0 6,366 0.34 0.34
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