-----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, GMY7i6BgYKhvSUW+yIenkf28qwe58Su8/6qfb/nnsruCByeiV5rix3fFn0e+Efzk vqqe9NtOI5eZdfDFOLVRvw== 0000085974-99-000014.txt : 19990517 0000085974-99-000014.hdr.sgml : 19990517 ACCESSION NUMBER: 0000085974-99-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 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: SEC FILE NUMBER: 001-08029 FILM NUMBER: 99622633 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 QUARTERLY FILING 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, 1999 -------------- 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 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 6,1999 was 14,812,322. THE RYLAND GROUP, INC. FORM 10-Q INDEX Page Number(s) -------------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets at March 31, 1999 (unaudited) and December 31, 1998 1-2 Consolidated Statements of Earnings for the three months ended March 31,1999 and 1998 (unaudited) 3 Consolidated Statements of Cash Flows for the three months ended March 31, 1999 and 1998 (unaudited) 4 Notes to Consolidated Financial Statements (unaudited) 5-7 Item 2. Management's Discussion and Analysis of Results of Operation and Financial Condition 8-12 Item 3. Quantitative and Qualitative Disclosures about Market Risk 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 PART I. FINANCIAL INFORMATION Item 1. Financial Statements The Ryland Group, Inc. and subsidiaries CONSOLIDATED BALANCE SHEETS (amounts in thousands) March 31, December 31, 1999 1998 ----------- ----------- (unaudited) ASSETS Homebuilding: Cash and cash equivalents $ 49,114 $ 48,100 Housing inventories: Homes under construction 403,402 373,012 Land under development and improved lots 281,706 268,750 ---------- ---------- Total inventories 685,108 641,762 Property, plant and equipment 28,711 26,818 Purchase price in excess of net assets acquired 23,032 23,473 Other assets 43,606 38,515 ---------- ---------- 829,571 778,668 ---------- ---------- Financial Services: Cash and cash equivalents 658 1,684 Mortgage loans held-for-sale 112,891 158,611 Mortgage-backed securities and notes receivable 102,447 111,654 Other assets 12,704 14,734 ---------- ---------- 228,700 286,683 ---------- ---------- Other Assets: Collateral for bonds payable of limited-purpose subsidiaries 86,509 92,403 Net deferred taxes 30,732 31,384 Other 30,406 26,260 ---------- ---------- Total assets $1,205,918 $1,215,398 ---------- ---------- See notes to consolidated financial statements. 1 The Ryland Group, Inc. and subsidiaries CONSOLIDATED BALANCE SHEETS (amounts in thousands, except share data) March 31, December 31, 1999 1998 ----------- ------------ (unaudited) LIABILITIES Homebuilding: Accounts payable and other liabilities $ 152,675 $ 173,370 Long-term debt 367,591 308,152 ---------- ---------- 520,266 481,522 ---------- ---------- Financial Services: Accounts payable and other liabilities 14,418 16,473 Short-term notes payable 174,815 223,058 ---------- ---------- 189,233 239,531 ---------- ---------- Other Liabilities: Bonds payable of limited-purpose subsidiaries 82,526 87,980 Other 56,189 60,082 ---------- ---------- Total liabilities 848,214 869,115 ---------- ---------- STOCKHOLDERS' EQUITY Convertible preferred stock, $1 par value: Authorized - 1,400,000 shares Issued - 404,141 shares (416,744 for 1998) 404 417 Common stock, $1 par value: Authorized - 78,600,000 shares Issued - 14,878,586 shares (14,751,753 for 1998) 14,879 14,752 Paid-in capital 95,443 93,193 Retained earnings 245,215 236,011 Accumulated other comprehensive income 1,763 1,910 ---------- ---------- Total stockholders' equity 357,704 346,283 ---------- ---------- Total liabilities and stockholders' equity $1,205,918 $1,215,398 ---------- ---------- Stockholders' equity per common share $ 23.41 $ 22.83 ---------- ---------- See notes to consolidated financial statements. 2 The Ryland Group, Inc. and subsidiaries CONSOLIDATED STATEMENTS OF EARNINGS (unaudited) (amounts in thousands, except share data) Three months ended March 31, 1999 1998 ---------- ---------- Revenues: Homebuilding: Residential revenue $ 387,260 $ 308,000 Other revenue 4,054 3,539 ----------- ----------- Total homebuilding revenue 391,314 311,539 Financial services 10,588 21,682 Limited-purpose subsidiaries 2,137 3,084 ----------- ----------- Total revenue 404,039 336,305 ----------- ----------- Expenses: Homebuilding: Cost of sales 327,490 269,182 Selling, general and administrative 42,406 33,944 Interest 2,609 4,560 ----------- ----------- Total homebuilding expenses 372,505 307,686 Financial services: General and administrative 5,916 9,767 Interest 2,453 4,601 ----------- ----------- Total financial services expenses 8,369 14,368 Limited-purpose subsidiaries expenses 2,137 3,084 Corporate expenses 4,159 3,350 ----------- ----------- Total expenses 387,170 328,488 Earnings before taxes 16,869 7,817 Tax expense 6,748 3,127 ----------- ----------- Net earnings $ 10,121 $ 4,690 ----------- ----------- Net earnings per common share: Basic $ 0.67 $ 0.30 Diluted $ 0.65 $ 0.29 Average common shares outstanding: Basic 14,810,457 14,713,171 Diluted 15,669,174 15,245,489 See notes to consolidated financial statements. 3 The Ryland Group, Inc. and subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (amounts in thousands) Three months ended March 31, 1999 1998 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 10,121 $ 4,690 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 6,232 5,460 (Increase) in inventories (43,346) (13,164) Net change in other assets, payables and other liabilities (29,698) (14,574) Equity in losses of / distributions from unconsolidated joint ventures (1,185) (505) Decrease in mortgage loans held-for-sale 45,720 17,853 -------- -------- Net cash (used for) operating activities (12,156) (240) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Net additions to property, plant and equipment (9,412) (3,960) Principal reduction of mortgage collateral 9,188 8,551 Principal reduction of mortgage-backed securities - available-for-sale 3,757 5,153 Principal reduction of mortgage-backed securities - held-to-maturity 4,551 3,797 Other investing activities, net (2,962) 5,008 -------- -------- Net cash provided by investing activities 5,122 18,549 -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Cash proceeds of long-term debt 59,498 10,000 Reduction of long-term debt (60) (1,222) (Decrease) in short-term notes payable (48,243) (12,266) Bond principal payments (5,765) (19,733) Common and preferred stock dividends (820) (859) Other financing activities, net 2,412 6,904 -------- -------- Net cash provided by (used for) financing activities 7,022 (17,176) -------- -------- Net (decrease) increase in cash and cash equivalents (12) 1,133 Cash and cash equivalents at beginning of period 49,784 36,131 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 49,772 $ 37,264 -------- -------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest (net of capitalized interest) $ 5,618 $ 12,949 Cash paid for income taxes (net of refunds) $ 7,404 $ 5,124 See notes to consolidated financial statements. 4 The Ryland Group, Inc. and subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (amounts in thousands, except for share data, in all notes) Note 1. 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, 1999, the consolidated statements of earnings for the three months ended March 31, 1999 and 1998, and the consolidated statements of cash flows for the three months ended March 31, 1999 and 1998 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, 1999, and for all periods presented, have been made. The consolidated balance sheet at December 31, 1998 is taken from the audited financial statements as of that date. Certain amounts in the consolidated statements have been reclassified to conform to the 1999 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 1998 annual report to shareholders. The results of operations for the three months ended March 31, 1999 are not necessarily indicative of the operating results for the full year. Assets presented in the financial statements are net of any valuation allowances. The following table is a summary of capitalized interest: 1999 1998 -------- -------- Capitalized interest as of January 1, $ 21,600 $ 23,644 Interest capitalized 6,029 4,350 Interest amortized to cost of sales (3,999) (4,148) -------- -------- Capitalized interest as of March 31, $ 23,630 $ 23,846 5 The Ryland Group, Inc. and subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (unaudited) Note 2. New Accounting Pronouncements FASB 133 In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," which is required to be adopted in years beginning after June 15, 1999. The Statement requires all derivatives to be recorded on the balance sheet at fair value and establishes new accounting procedures for hedges that will effect the timing of recognition and the manner in which hedging gains and losses are recognized in the Company's financial statements. The Company has not completed its evaluation of this new Statement; however, management does not anticipate that the adoption of the Statement will have a material impact on the Company's earnings or financial position. The Company currently expects to adopt this Statement beginning on January 1, 2000. Note 3. Segment Information Operations of the Company consist of two business segments: homebuilding and financial services. The Company's homebuilding segment constructs and sells single-family attached and detached homes in 21 markets. The financial services segment provides mortgage-related products and services for retail customers and conducts investment activities. Corporate expenses represent the costs of corporate functions, which support the business segments. Three months ended March 31, 1999 1998 -------- -------- Pretax earnings: Homebuilding $ 18,809 $ 3,853 Financial services 2,219 7,314 Corporate and other (4,159) (3,350) -------- -------- Total $ 16,869 $ 7,817 ======== ======== 6 The Ryland Group, Inc. and subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (unaudited) Note 4. Earnings Per Share Reconciliation The following table sets forth the computation of basic and diluted earnings per share. The assumed conversion of preferred stock was dilutive for the three months ended March 31, 1999. For the three month ended March 31, 1998, the conversion of preferred stock was not assumed due to an anti-dilutive effect. Three months ended March 31, 1999 1998 -------- -------- Numerator: Net earnings $ 10,121 $ 4,690 Preferred stock dividends (223) (271) -------- -------- Numerator for basic earnings per share - income available to common stockholders $ 9,898 $ 4,419 Effect of dilutive securities: Preferred stock dividends 223 0 Numerator for diluted earnings per share - income available to common stockholders after assumed conversion $ 10,121 $ 4,419 Denominator: Denominator for basic earnings per share - weighted-average shares 14,810,457 14,713,171 Effect of dilutive securities: Stock options 311,226 421,674 Conversion of Preferred Shares 410,443 0 Other equity incentives 137,048 110,644 -------- -------- Dilutive potential common share 858,717 532,318 Denominator for diluted earnings per share - adjusted weighted average shares and assumed conversions 15,669,174 15,245,489 Basic earnings per share $ 0.67 $ 0.30 Dilutive earnings per share $ 0.65 $ 0.29 Note 5. Commitments and Contingencies Refer to Part II, Other Information, Item 1, Legal Proceedings of this document for updated information regarding the Company's Commitments and Contingencies. Note 6. Comprehensive Income Comprehensive income consists of net income and the increase or decrease in unrealized gains or losses on the Company's available-for-sale securities and totaled $10.3 million and $4.5 million for the three months ended March 31, 1999 and 1998, respectively. 7 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS CONSOLIDATED For the first quarter of 1999, the Company reported consolidated net earnings from operations of $10.1 million, or $.67 per share ($.65 per share diluted). This compares with consolidated net earnings of $4.7 million, or $.30 per share ($.29 per share diluted)for the first quarter 1998. The homebuilding segment reported pretax earnings of $18.8 million for the first quarter of 1999, compared with pretax earnings of $3.9 million for the first quarter 1998. Homebuilding results in the first quarter increased over last year primarily due to improved gross profit margins and higher closing volume, combined with lower interest expense. Pretax homebuilding margins reached 4.8 percent in the first quarter versus 1.2 percent for the first quarter of 1998. The financial services segment reported operating pretax earnings of $2.2 million for the first quarter of 1999, compared with $1.2 million for the same period in 1998. For the first quarter of 1998, the financial services segment reported total pretax earnings of $7.3 million which included a $6.1 gain on the bulk sale of servicing rights. The increase over the prior year was attributable to higher capture rates of the mortgages from the Company's homebuilding segment, increased profitability per loan and overhead reduction initiatives. Corporate expenses represent the cost of corporate functions, which support the business segments. Corporate expenses of $4.2 million for the first quarter of 1999, were up $.8 million from the prior year levels primarily due to increases in incentive compensation attributable to the higher earnings levels. 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. Revenues have approximated expenses for the last three years. HOMEBUILDING SEGMENT Results of operations of the homebuilding segment are summarized as follows (amounts in thousands, except average closing price): Three months ended March 31, 1999 1998 ---- ---- Revenues: Home sales $387,260 $308,000 Land sales 4,054 3,539 -------- -------- Total 391,314 311,539 Gross profit 63,824 42,357 Selling, general and administrative expenses 42,406 33,944 Interest expense 2,609 4,560 -------- -------- Homebuilding pretax earnings $ 18,809 $ 3,853 ======== ======== 8 Operational Unit Data: New orders (units) 2,980 2,631 Closings (units) 2,045 1,694 Outstanding contracts at March 31: Units 4,387 3,749 Dollar value $809,812 $679,512 Average closing price $189,000 $182,000 Homebuilding revenues increased 25 percent for the first quarter of 1999, compared with the same period last year, due to a 21 percent increase in closings and a 4 percent increase in average closing price. Gross profit margins from home sales averaged 16.5 percent for the first quarter of 1999, a 270 basis point increase from the 13.8 percent for the first quarter of 1998. The improvement was primarily due to increased closings in new communities, where the Company's strategic initiatives have resulted in substantially improved gross profit margins. New orders increased 13 percent from the first quarter of last year to 2,980 homes. Sales per community were up 18 percent reflecting fewer active communities compared to first quarter of 1998. Outstanding contracts as of March 31, 1999 were 4,387 compared with 3,749 at March 31, 1998 and 3,452 at December 31, 1998. Outstanding contracts represent the Company's backlog of sold, but not closed homes, which generally are built and closed, subject to cancellation, over the next two quarters. The value of outstanding contracts at March 31, 1999 was $810 million, an increase of 19 percent from March 31, 1998 and an increase of 24 percent from December 31, 1998. Selling, general and administrative expenses as a percentage of revenues decreased slightly to 10.8 percent for the first quarter of 1999 compared with 10.9 percent for the same period of 1998. Interest expense declined by $2 million in the first quarter versus 1998 due to a lower cost of funds and an increase in the amount of interest capitalized due to an increase in land under development. FINANCIAL SERVICES Results of operations of the Company's financial services segment are summarized as follows (amounts in thousands): Three months ended March 31, 1999 1998 ---- ---- Retail revenues: Interest and net origination fees $ 1,547 $ 2,106 Gains on sales of mortgages and servicing rights 3,934 9,048 Loan servicing 424 4,716 Title/escrow 2,032 1,991 ------- ------- Total retail revenues 7,937 17,861 Revenues from investment operations 2,651 3,821 ------- ------- Total revenues $10,588 $21,682 9 Expenses: General and administrative 5,916 9,767 Interest 2,453 4,601 ------- ------- Total expenses 8,369 14,368 ------- ------- Pretax earnings $ 2,219 $ 7,314 ======= ======= Pretax earnings by line of business were as follows (amounts in thousands): Three months ended March 31, 1999 1998 ---- ---- Retail $1,489 $6,269 Investments 730 1,045 ------ ------ Total $2,219 $7,314 ====== ====== OPERATIONAL DATA: Three months ended March 31, 1999 1998 ---- ---- Retail operations: Originations 1,552 1,833 Percent of Ryland Homes closings 81% 59% Ryland Homes capture rate 68% 65% Investment operations: Portfolio average balance (in millions) $107.7 $153.9 Revenues and general and administrative expenses for the financial services segment decreased significantly for the three month period ended March 31, 1999, compared with the same period of 1998. The decreases were primarily due to the decline in the loan servicing operations related to the sale of a majority of the loan servicing portfolio in the first quarter of 1998, and overhead reduction initiatives. Interest expense decreased 47 percent for the three month ended March 31, 1999, compared with 1998, due in part to a decrease in the warehouse holding period for mortgage loans before they were sold in the secondary market. Retail operations include residential mortgage origination, loan servicing, title, escrow and homeowners insurance services for retail customers. Retail operations reported pretax earnings of $1.5 million for the first quarter of 1999, compared with $6.3 million for the same period last year. The Company sold the majority of its loan servicing portfolio in the first quarter of 1998 and realized a $6.1 million pretax gain, net of expenses and liabilities related to the sale of servicing. Mortgage origination volume decreased by 15 percent for the three month period ended March 31, 1999, compared with the same period last year primarily due to a decrease in refinancing activity partially offset by higher closing volume from homebuilder loan originations. 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 from investment operations were $.7 million for the first quarter, compared with $1 million in the prior year. The decrease was primarily due to a lower average portfolio balance which resulted in a decline in interest and other income. 10 YEAR 2000 The Company's Year 2000 remediation efforts have focused on its key business computer applications representing those systems that the Company is dependent upon for the conduct of day-to-day business operations. Starting in 1997, the Company initiated a comprehensive review of its business applications to determine their Year 2000 readiness and the adequacy of these systems to meet future business requirements. Out of this effort, a number of systems were identified that were not Year 2000 compliant. In most cases these systems were already in the process of being replaced or upgraded. As of March 1999, the Company believes that its key homebuilding business systems are Year 2000 compliant. However, certain data, voice communication and financial service's systems are in the process of being replaced or upgraded. Some implementation and testing procedures were completed in 1998 and the remainder are scheduled for completion in mid-1999. The costs of achieving Year 2000 compliance could aggregate between $1 to $2 million. The Company is currently assessing other potential Year 2000 issues, including non-information technology systems. The Company's relationships with vendors, financial institutions and other third parties are being reviewed to determine the status of their Year 2000 compliance and the impact their potential noncompliance could have on the Company. The Company has no means of ensuring that its third party service providers will be Year 2000 ready. In the event that they are not ready on a timely basis, the Company will seek alternative sources for goods and services, where practicable. The Company is in the process of developing a Year 2000 contingency plan. Although the Company will continue to monitor the situation, it is possible that the Company or the third parties with whom it has significant relationships will not successfully complete all of their Year 2000 remediation efforts. If this were to occur, the Company could encounter disruptions to its business, but, currently believes it unlikely that such disruptions will have a material adverse effect on its financial results or results of operations. The Company could also be impacted by financial market disruption or by Year 2000 computer system failures at government agencies on which the Company is dependent for zoning, building permits and related matters. 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 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, 1999 and December 31, 1998. The Company uses its unsecured revolving credit facility to finance increases in its homebuilding inventory and working capital. This facility, which matures in July 2000, provides for total borrowings of up to $300 million. There were $58 million in outstanding borrowings under this facility as of March 31, 1999 and no outstanding borrowings at December 31, 1998. The Company had letters of credit outstanding under this facility totaling $32 million at March 31, 1999 and $34 million at December 31, 1998. To finance land purchases, the Company may also use seller-financed, non-recourse secured notes payable. At March 31, 1999, such notes payable outstanding amounted to $1.6 million, compared with no outstanding notes payable at December 31, 1998. 11 Housing inventories increased to $685 million as of March 31, 1999, from $642 million as of December 31, 1998. The increase reflects higher sold inventory related to the significant increase in backlog. The increase in inventory was funded with internally generated funds and borrowing under the revolving credit facility. The financial services segment uses cash generated from operations and borrowing arrangements to finance its operations. A bank credit facility, which matures on June 1, 2000, provides up to $260 million for mortgage warehouse funding and $30 million for working capital advances. Currently, the financial services segment is in the process of negotiating a renewal of its three year bank credit facility which will provide up to $200 million for mortgage warehouse funding. This facility will replace the bank credit facility which matures on June 1, 2000. Other borrowing arrangements as of March 31, 1999 included repurchase agreement facilities aggregating $370 million, and a $100 million revolving credit facility used to finance investment portfolio securities. At March 31, 1999 and December 31, 1998, the combined borrowings of the financial services segment outstanding under all agreements were $175 million and $223 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 Company has not guaranteed the debt of the financial services segment or limited-purpose subsidiaries. As of December 31, 1998, the Company had Board authorization to repurchase up to 958,400 shares of its common stock. During 1999 to date the Company repurchased approximately 77,000 shares of its outstanding common stock at a cost of approximately $1.8 million. The Company repurchase program has been funded through internally generated funds. 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. Forward-looking statements are based on various factors and assumptions that include risks and uncertainties, such as the costs of Year 2000 compliance, the completion and profitability of sales reported, the market for homes generally and in areas where the Company operates, the availability and cost of land, changes in economic conditions and interest rates, increases in raw material and labor costs, consumer confidence, government regulation, and general competitive factors, all or each of which may cause actual results to differ materially. 12 Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes in the Company's market risk from December 31, 1998. For information regarding the Company's market risk, refer to Form 10-K for the fiscal year ended December 31, 1998 of The Ryland Group, Inc. 13 PART II. OTHER INFORMATION Item 1. 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 overall financial position of the Company. With regard to the previously disclosed potential sanctions by the U.S. Department of Housing and Urban Development ("HUD") against Ryland Mortgage Corporation, this matter was resolved without further action being taken. Page Number ----------- Item 6. Exhibits and Reports on Form 8-K A. Exhibits 27 Financial Data Schedule (filed herewith) 17 B. Reports on Form 8-K. No reports on Form 8-K were filed during the first quarter of 1999. 14 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 13, 1999 By: /s/ Michael D. Mangan Date --------------------- Michael D. Mangan, Executive Vice President and Chief Financial Officer (Principal Financial Officer) May 13, 1999 By: /s/ David L. Fristoe Date -------------------- David L. Fristoe, Vice President and Corporate Controller (Principal Accounting Officer) 15 INDEX OF EXHIBITS A. Exhibits Page of Sequentially Exhibit No. Numbered Pages - ----------- -------------- 27 Financial Data Schedule (filed herewith) 17 16 EX-27 2 FDS FOR QUARTER ENDED MARCH 31, 1999 FORM 10-Q
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE RYLAND GROUP INC. FORM 10-Q FOR THE PERIOD ENDED 3/31/99 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1,000 3-MOS DEC-31-1999 MAR-31-1999 49,772 102,447 112,891 0 685,108 0 28,711 0 1,205,918 0 257,341 0 404 14,879 342,421 1,205,918 391,314 404,039 327,490 375,812 4,159 0 7,188 16,869 6,748 10,121 0 0 0 10,121 0.67 0.65
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