-----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, IG957zgPLZ+pjN9x6b3c6/cbCY9YNPI/pGhqZlDDo7pjJz1zakEde71orhROXAax L1gZlo86a+ADT7qUCw+EpQ== 0000085974-97-000005.txt : 19970520 0000085974-97-000005.hdr.sgml : 19970520 ACCESSION NUMBER: 0000085974-97-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 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: 97607858 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 March 31, 1997 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 May 9, 1997 was 15,911,796. THE RYLAND GROUP, INC. FORM 10-Q INDEX Page Number ----------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets at March 31, 1997 (unaudited) and December 31, 1996 1-2 Consolidated Statements of Earnings for the three months ended March 31, 1997 and 1996 (unaudited) 3 Consolidated Statements of Cash Flows for the three months ended March 31, 1997 and 1996 (unaudited) 4 Notes to Consolidated Financial Statements (unaudited) 5-7 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 8-13 PART II. OTHER INFORMATION Item 1. Legal Proceedings 14 Item 6. Exhibits and Reports on Form 8-K 14 SIGNATURES 15 INDEX OF EXHIBITS 16 CONSOLIDATED BALANCE SHEETS The Ryland Group, Inc. and subsidiaries (amounts in thousands, except share data) March 31, December 31, 1997 1996 --------- ------------ (unaudited) ASSETS Homebuilding: Cash and cash equivalents $ 28,696 $ 27,852 Housing inventories: Homes under construction 350,159 336,782 Land under development and improved lots 221,898 237,808 ------- ------- Total inventories 572,057 574,590 Property, plant and equipment 30,751 31,560 Purchase price in excess of net assets acquired 20,285 20,543 Other assets 43,175 40,739 ------- ------- 694,964 695,284 ======= ======= Financial Services: Cash and cash equivalents 1,299 856 Mortgage loans held for sale 95,961 180,149 Mortgage-backed securities and notes receivable 149,892 143,508 Mortgage servicing rights 9,715 9,903 Other assets 43,356 48,015 ------- ------- 300,223 382,431 ------- ------- Other Assets: Collateral for bonds payable of limited-purpose subsidiaries 192,931 214,443 Net deferred taxes 30,842 31,806 Other 20,586 14,560 ------- ------- Total assets $ 1,239,546 $ 1,338,524 =========== =========== CONSOLIDATED BALANCE SHEETS The Ryland Group, Inc. and subsidiaries (amounts in thousands, except share data) March 31, December 31, 1997 1996 --------- ------------ (unaudited) LIABILTIES Homebuilding: Accounts payable and other liabilties $ 72,900 $ 84,651 Long-term debt 380,939 354,267 ------- ------- 453,839 438,918 ------- ------- Financial Services: Accounts payable and other liabilties 12,683 18,754 Short-term notes payable 241,588 325,650 ------- ------- - - 254,271 344,404 ------- ------- Other Liabilities: Bonds payable of limited purpose subsidiaries 186,229 206,891 Other 34,180 37,862 ------- ------- Total liabilties 928,519 1,028,075 ------- --------- STOCKHOLDERS' EQUITY Convertible preferred stock, $1 par value: Authorzed - 1,400,000 shares Issued - 838,683 shares (861,741 for 1996) 839 862 Common stock, $1 par value: Authorized - 78,600,000 shares Issued - 15,905,499 shares (15,852,729 for 1996) 15,906 15,853 Paid-in capital 115,438 116,652 Retained earnings 183,635 184,678 Net unrealized gain on mortgage-backed securities 2,314 2,758 Due from RSOP Trust (7,105) (10,354) -------- -------- Total stockholders' equity 311,027 310,449 ------- ------- Total liabilities and stockholders' equity $ 1,239,546 $ 1,338,524 ========= ========= Stockholders' equity per common share $ 18.89 $ 19.00 ========= ========= CONSOLIDATED STATEMENTS OF EARNINGS (unaudited) The Ryland Group, Inc. and subsidiaries (amounts in thousands, except share data) Three months ended March 31, 1997 1996 ------------ ----------- - ------- Revenues: Homebuilding: Residential revenue $ 281,778 $ 294,808 Other revenue 23,891 2,867 ------- ------- Total homebuilding revenue 305,669 297,675 Financial services 19,313 21,769 Limited-purpose subsidiaries 4,538 7,989 ------- ------- Total revenues 329,520 327,433 ------- ------- Expenses: Homebuilding: Cost of sales 263,066 257,043 Interest 5,936 5,794 Selling, general and administrative 34,268 33,497 ------- ------- Total homebuilding expenses 303,270 296,334 Financial services: Interest 3,897 5,799 General and administrative 11,846 12,742 ------ ------ Total financial services expenses 15,743 18,541 Limited-purpose subsidiaries expenses 4,538 7,989 Corporate expenses 3,076 3,004 ------- ------ Total expenses 326,627 325,868 Earnings before taxes 2,893 1,565 Tax expense 1,157 626 ------- ------- Net earnings $ 1,736 $ 939 ======= ======= Net earnings per common share: Primary $ 0.08 $ 0.03 Fully diluted (1) $ 0.08 $ 0.03 Average common shares outstanding: Primary 16,001,000 15,924,000 Fully diluted (1) 16,001,000 15,924,000 (1) For the three months March 31, 1997 and 1996 conversion of preferred shares in not assumed due to antidilutive effect. See notes to consolidated financial statements. The Ryland Group, Inc. and subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (amounts in thousands) Three months ended March 31, 1997 1996 ------------ --------- Cash flows from operating activities: Net earnings $ 1,736 $ 939 Adjustments to reconcile net earnings to net cash provided by (used for) operating activities: Depreciation and amortization 5,994 7,820 Decrease (increase) in inventories 2,533 (39,716) Net change in other assets, payables and other liabilities (26,015) (17,614) Equity in earnings of/distributions from unconsolidated joint ventures (1,387) 765 Decrease (increase) in mortgage loans held for sale 84,188 (12,570) Increase in mortgage-backed securities-trading - (7,437) -------- -------- Net cash provided by (used for) operating activities 67,049 (67,813) -------- -------- Cash flows from investing activities: Net additions to property, plant and equipment (3,689) (4,870) Principal reduction of mortgage collateral 13,522 18,685 Principal reduction of mortgage-backed securities -available-for-sale 4,345 13,995 Principal reduction of mortgage-backed securities- held-to-maturity 3,240 5,054 (Increase) decrease in funds held by trustee (5,990) 5,981 Other investing activities, net (266) (1,641) ------- ------- Net cash provided by investing activities 11,162 37,204 ------- ------- Cash flows from financing activities: Cash proceeds of long-term debt 37,500 54,006 Reduction of long-term debt (10,828) (16,938) (Decrease) increase in short-term notes payable (84,063) 11,590 Bond principal payments (20,850) (41,109) Common and preferred stock dividends (2,847) (2,863) Other financing activities, net 4,164 3,788 -------- ------- Net cash (used for) provided by financing activities (76,924) 8,474 -------- ------- Net increase (decrease) in cash and cash equivalents 1,287 (22,135) Cash and cash equivalents at beginning of year 28,708 55,992 -------- -------- Cash and cash equivalents at end of period $ 29,995 $ 33,857 ======== ======== Supplemental disclosures of cash flow information: Cash paid for interest (net of capitalized interest) $ 18,119 $ 21,194 Cash paid for income taxes (net of refunds received) $ 46 $ (2,989) 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 March 31, 1997 1996 ----------- --------- Pretax earnings: Homebuilding $ 2,399 $ 1,341 Financial services 3,570 3,228 Corporate and other (3,076) (3,004) ------- ------- Total $ 2,893 $ 1,565 ======= ======= The Ryland Group, Inc. and subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (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 March 31, 1997, the consolidated statements of earnings for the three months ended March 31, 1997 and 1996, and the consolidated statements of cash flows for the three months ended March 31, 1997 and 1996 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 March 31, 1997, and for all periods presented, have been made. The consolidated balance sheet at December 31, 1996 is taken from the audited financial statements as of that date. Certain amounts in the consolidated statements have been reclassified to conform to the 1997 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 1996 annual report to shareholders. The results of operations for the three months ended March 31, 1997 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 quarters ended March 31, 1997 and 1996. The Ryland Group, Inc. and subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (unaudited) Note 3. New Accounting Pronouncements In June 1996, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 125 (FASB 125), "Accounting for Transfers and Servicing of Financial Assets and Extinquishments of Liabilities." The Company adopted FASB 125 on January 1, 1997. The adoption did not have a significant impact on the Company's financial statements for the first quarter of 1997. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 (FASB 128), "Earnings Per Share," which is required to be adopted for annual financial statement periods ending after December 15, 1997. Earlier application is not permitted. FASB 128 requires companies to change the method currently used to compute earnings per share and to restate all prior periods. Primary earnings per share will be replaced with a new calculation called basic EPS. Basic EPS will be calculated by dividing net income less preferred stock dividends by the weighted average common shares outstanding, thereby excluding the dilutive effect of common stock equivalents. In addition, fully diluted earnings per share will be renamed diluted EPS. Under diluted EPS, the dilutive effect of options will continue to be calculated using the treasury stock method. However, the treasury stock method will be applied using the average market price for the period rather than the higher of the average market price or the ending market price. If the provisions of FASB 128 had been applied to the calculation of primary and fully diluted earnings per share for the quarters ended March 31, 1997 and March 31, 1996, there would have been no impact on the reported EPS amounts for those periods. FASB 128 is also not expected to have a significant impact on earnings per share for the 1997 year. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS CONSOLIDATED For the first quarter of 1997, the Company reported consolidated net earnings of $1.7 million, or $.08 per share, compared with 1996 first quarter consolidated net earnings of $.9 million, or $.03 per share. The Company's homebuilding segment recorded pretax earnings of $2.4 million for the first quarter of 1997, compared with pretax earnings of $1.3 million for the same period last year. The pretax earnings increase of $1.1 million was due to pretax gains of $4.8 million from land sales which more than offset the impact of a lower volume of closings. The Company's financial services segment reported pretax earnings of $3.6 million for the first quarter of 1997, compared with $3.2 million for the same period in 1996. The increase of $.4 million was due to higher investment earnings which were partially offset by a decrease in retail earnings. The Company's limited-purpose subsidiaries no longer issue mortgage-backed securities and mortgage-participation securities, but they continue to hold collateral for previously issued mortgage-backed bonds in which the Company maintains a residual interest. Revenues, expenses and portfolio balances continue to decline as the mortgage collateral pledged to secure the bonds decreases due to scheduled payments, prepayments and exercises of early redemption provisions. HOMEBUILDING SEGMENT The Company's homebuilding segment reported pretax earnings of $2.4 million for the first quarter of 1997, compared with pretax earnings of $1.3 million for the same period last year. Results of operations of the Company's homebuilding segment are summarized as follows ($ amounts in thousands, except average closing price): Three months ended March 31, 1997 1996 ------------ --------- Revenues Residential $281,778 $294,808 Other 23,891 2,867 -------- ------- Total $305,669 $297,675 Gross profit 42,603 40,632 Selling, general and administrative expenses 34,268 33,497 Interest expense 5,936 5,794 -------- -------- Pretax earnings $ 2,399 $ 1,341 ======== ======== Operational Unit Data: New Orders (units) 2,474 2,403 Closings (units) 1,575 1,733 Outstanding contracts at March 31, Units 3,094 3,414 Dollar Value $566,125 $608,990 Average Closing Price $179,000 $170,000 Homebuilding revenues amounted to $306 million for the first quarter of 1997, up 2.7 percent over last year. Residential revenues, which exclude land sales, amounted to $282 million, down 4.4 percent from the same period last year, as the decrease in closings was only partially offset by an increase in the average closing price. The decline in first-quarter closings reflects the lower year-end 1996 backlog due to a decline in new orders last year. The gross profit margin for the first quarter of 1997 was 13.9 percent, up from the 13.6 percent reported for the first quarter of 1996. The improvement is attributable to the aforementioned gains from land sales. Excluding land sales, gross profit margins were 13.1 percent, a decline from last year's first quarter, but improved compared with the 12.7 percent reported for the fourth quarter of 1996. Lower margins in the highly competitive Mid-Atlantic region continued to negatively affect the Company's overall gross margins as did the increased use of sales incentives in certain markets. Total homebuilding new orders for the first quarter of 1997 were 2,474, an increase of 3.0 percent from the first quarter of 1996 with growth in both new and existing markets. New orders increased in the Mid-Atlantic, Southeast and Southwest regions, and excluding 1996 sales in Columbus, Ohio where the Company closed its operations last year, the Midwest region also reported increased new orders for the first quarter. New orders in the West region were down 3 percent due to declines in the Denver and Los Angeles/Pacific Inland markets. Outstanding contracts at March 31, 1997 were 3,094 compared with 3,414 at March 31, 1996 and 2,195 at December 31, 1996. 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 as of March 31, 1997 was $566.1 million, a decrease of 7.0 percent from March 31, 1996 and an increase of 39.7 percent from December 31, 1996. Selling, general and administrative expenses as a percent of revenues were 11.2 percent for the first quarter of 1997 compared with 11.3 percent for the same period of 1996. The increase in expenses of $.8 million was attributable to costs associated with land sales as well as increases in sales and marketing expenses. Interest expense for the first quarter of 1997 increased $.1 million compared with the same period of 1996 due to a higher cost of funds. The increase in the cost of funds was partially offset by a decline in average homebuilding borrowings compared with the quarter ended March 31, 1996. The decrease in borrowings was attributable to a decline in average inventories, primarily due to a decrease in unsold homes under construction. FINANCIAL SERVICES The financial services segment reported pretax earnings of $3.6 million for the first quarter of 1997, compared with $3.2 million for the first quarter of 1996. Pretax earnings by line of business were as follows (amounts in thousands): Three months ended March 31, 1997 1996 ---- ---- Retail $ 1,466 $ 1,862 Investments 2,104 1,366 ------- ------- Total $ 3,570 $ 3,228 ======= ======= The decline in retail earnings was primarily attributable to the impact of lower mortgage originations which was mitigated by a reduction in general and administrative expenses. Investment earnings for the first quarter of 1997 increased $.7 million as a result of income related to the redemption of certain securities and increased income due to a higher average portfolio balance. Revenues and expenses for the financial services segment were as follows: Three months ended March 31, 1997 1996 ---- ----- Revenues: Interest and net origination fees $ 1,635 $ 4,198 Net gains on sales of mortgages and servicing rights 5,143 5,551 Loan servicing 6,668 7,430 Title/escrow 1,253 1,198 -------- -------- Total retail revenues 14,699 18,377 Revenues from investment operations 4,614 3,392 -------- ------- Total revenues 19,313 21,769 Expenses: General and administrative 11,846 12,742 Interest 3,897 5,799 -------- -------- Total expenses 15,743 18,541 -------- -------- Pretax earnings $ 3,570 $ 3,228 ======== ======== Revenues for the financial services segment decreased for the first quarter of 1997 primarily due to decreased origination activity. Revenues from loan servicing declined primarily as a result of lower revenue per loan due to changes in the portfolio product mix. Investment revenues increased primarily due to a higher average portfolio balance. General and administrative expenses were down primarily due to cost savings related to the disposition of the wholesale business in 1996. Interest expense decreased as a result of a lower level of warehouse borrowings required to fund the lower origination volume. 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 ended March 31, 1997 1996 ---- ---- Dollar volume of mortgages originated (in millions) $ 183 $ 484 Number of mortgages originated 1,343 3,784 Percentage of total closings: Ryland Homes closings 62% 30% Other closings 38% 70% ------ ------ 100% 100% Mortgage origination volume decreased by 65 percent in the first quarter compared with the first quarter of last year. This decrease is attributable to the sale of the wholesale mortgage operations which was completed in May 1996 and a general decline in retail origination volume, including lower closing volume from the homebuilding segment and lower refinancing activity. 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 ended March 31, 1997 1996 ---- ---- Net interest earned (in thousands) $1,138 $1,551 Average balance of mortgages held for sale (in millions) $92 $235 Net interest spread 5.0% 2.7% Net interest earned decreased due to a decline in the average balance of mortgages held for sale partially offset by a higher net interest spread. The Company services loans that it originates as well as loans originated by others and subservices loans for others. Loan servicing portfolio balances were as follows at March 31, (in billions): 1997 1996 ---- ---- Originated $1.9 $2.4 Acquired 2.9 3.4 Subserviced 1.1 .2 ---- ---- Total portfolio $5.9 $6.0 ==== ==== The decreases in the originated and acquired portfolio balances are attributable to normal mortgage prepayment activity and servicing sales from the originated portfolio in excess of amounts originated. Investment Operations: - ---------------------- The Company's investment operations hold certain assets, primarily 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. Pretax earnings for the three months ended March 31, were as follows (in thousands): Three months ended March 31, 1997 1996 ---- ---- Interest and other income $ 4,614 $ 3,392 Interest and other expenses 2,510 2,026 ------- ------- Pretax earnings $ 2,104 $ 1,366 ======= ======= Significant data from the investment operations are as follows: Three months ended March 31, 1997 1996 ---- ---- Net interest earned (in thousands) $ 1,508 $ 1,026 Average balance outstanding (in millions) $ 144 $ 111 Net interest spread 4.3% 3.9% Investment earnings for the three months ended March 31, 1997 and 1996 included $.8 million and $.6 million, respectively, in gains related to the redemption of certain securities. 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 increase in the net interest earned between periods is primarily due to an increase in the average investment portfolio balance. 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 requirements. The homebuilding segment borrowings include senior notes, senior subordinated notes, an unsecured revolving credit facility, and nonrecourse secured notes payable. Senior and senior subordinated notes outstanding totaled $308 million as of March 31, 1997 and $318 million as of December 31, 1996. Senior notes amounting to $10 million matured and were paid off in January 1997. The Company uses its unsecured revolving credit facility to finance increases in its homebuilding inventory and changes in working capital. This facility provides for total borrowings of up to $300 million and the outstanding borrowings as of March 31, 1997 were $70 million, compared with $34 million as of December 31, 1996. In addition, the Company had letters of credit outstanding under this facility totaling $16.7 million at March 31, 1997 and $18.3 million at December 31, 1996. To finance land purchases, the Company may also use seller-financed, non-recourse secured notes payable. At March 31, 1997, such notes payable outstanding amounted to $2.3 million, compared with $1.5 million at December 31, 1996. Housing inventories decreased to $572.1 million as of March 31, 1997, from $574.6 million as of the end of 1996. This decrease is primarily attributable to a reduction in unsold homes under construction which was partially offset by an increase in the backlog of homes sold but not closed. The financial services segment uses cash generated from operations and borrowing arrangements to finance its operations. The bank facility provides up to $325 million for mortgage warehouse funding and $40 million for working capital advances. Other borrowing arrangements as of March 31, 1997 included repurchase agreement facilities aggregating $625 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 March 31, 1997 and December 31, 1996, the combined borrowings of the financial services segment outstanding under all agreements were $241.6 million and $325.7 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. On April 30, 1997 the Company's board of directors authorized the repurchase of up to 10 percent of its outstanding common shares and in a related move, approved a reduction in the quarterly dividend from $.15 per share to $.04 per share which will more closely align the Company's dividend yield with that of other public homebuilders. The share repurchase program, which will be funded through a combination of the dividend reduction and internally generated funds, was initiated to enhance shareholder value and is not expected to have a material impact on the Company's leverage or balance sheet. As of May 12, 1997, the Company had repurchased approximately 132,000 shares. Note: Certain statements in Management's Discussion and Analysis of Results of Operations and Financial Condition are "forward-looking statements" within the meaning of the Private Securities Litigation Act of 1995. Forward-looking statements are based on various factors and assumptions that include known and unknown risks and uncertainties, changes in economic conditions and interest rates, increases in raw material and labor costs, and general competitive factors, that may cause actual results to differ materially. PART II. OTHER INFORMATION Item 1. Legal Proceedings The Company was advised in 1995 that one current and two former officers of a subsidiary, Ryland Mortgage Company ("RMC") had been notified that they were targets of a federal grand jury investigation concerning alleged misappropriation of funds from the Resolution Trust Corporation ("RTC"). The company was advised that the investigation related to alleged overpayments to RMC of approximately $3.5 million under three mortgage servicing contracts with the RTC. In July 1996, the RTC (acting through its successor, the FDIC) requested reimbursement from RMC of the alleged overpayments, interest thereon and additional amounts relating to other mortgage servicing contracts. On May 7, 1997, a federal grand jury in Jacksonville, Florida returned an indictment against RMC and the three targeted individuals. The indictment charges that RMC, acting through the three individuals, conspired to defraud approximately $3.5 million from the RTC in connection with the reconciliation of payments and disbursements handled by RMC in its capacity as a servicer for certain mortgage servicing contracts with the RTC. The press release issued by the U.S. Department of Justice in connection with the indictment indicated that if convicted on all counts, RMC could receive fines of up to $1.5 million. RMC intends to vigorously defend the allegations contained in the indictment. No prediction can be made at this time regarding the results of the indictment or whether any civil action against the Company may be initiated by the RTC or its successor. 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. Page Number ----------- Item 6. Exhibits and Reports on Form 8-K A. Exhibits 11 Statement Re computation of earnings per share (filed herewith) 17 27 Financial Data Schedule (filed herewith) 18 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 March 31, 1997. 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 May 15, 1997 By: /s/ Michael D. Mangan - ------------ --------------------- Date Michael D. Mangan, Executive Vice President and Chief Financial Officer (Principal Financial Officer) May 15, 1997 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) 17 27 Financial Data Schedule (filed herewith) 18 EX-11 2 EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (amounts in thousands, except share data) Three months ended March 31, 1997 1996 ----------- --------- Primary: Net earnings $ 1,736 $ 939 Adjustment for dividends on convertible preferred shares (463) (510) ----------- ----------- Adjusted net earnings $ 1,273 $ 429 ============ ============ Weighted average common shares outstanding 15,878,377 15,728,283 Common stock equivalents: Stock Options 1,591 25,364 Employee incentive plans 121,411 170,417 ----------- ---------- Total 16,001,379 15,924,064 =========== =========== Primary earnings per common share $0.08 $0.03 =========== ============= Fully Diluted: (1) Net earnings $ 1,736 $ 939 Adjustment for dividends on convertible preferred shares (463) (510) ------------ ------------ Adjusted net earnings $ 1,273 $ 429 ============ ============= Weighted average common shares outstanding 15,878,377 15,728,283 Common stock equivalents: Stock Options 1,591 25,364 Employee incentive plans 121,411 170,417 ------------ ------------- Total 16,001,379 15,924,064 =========== ============= Fully diluted earnings per common share $ 0.08 $ 0.03 =========== ============= (1) For the three months ended March 31, 1997 and 1996, no adjustments have been made for incremental dividends on preferred stock or to common stock equivalents for convertible preferred stock as these adjustments would be anti-dilutive. EX-27 3
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE RYLAND GROUP INC. FORM 10-Q FOR THE PERIOD ENDED 3/31/97 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 3-MOS DEC-31-1997 MAR-31-1997 29,995 149,892 95,961 0 572,057 0 30,751 0 1,239,546 0 427,817 0 839 15,906 294,282 1,239,546 305,669 329,520 263,066 309,225 3,076 0 14,326 2,893 1,157 1,736 0 0 0 1,736 0.08 0.08
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