-----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, GGyI5EnrUGLJm0ar5C+Li2+fsFuRBLIDO+HBjVXpjwpnJwlktNSpHPlkWrxW0RSG csbHSE2KzxPbSEPWb2Pxow== /in/edgar/work/20000814/0000950150-00-000695/0000950150-00-000695.txt : 20000921 0000950150-00-000695.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950150-00-000695 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RYLAND GROUP INC CENTRAL INDEX KEY: 0000085974 STANDARD INDUSTRIAL CLASSIFICATION: [1531 ] IRS NUMBER: 520849948 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08029 FILM NUMBER: 698647 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 e10-q.txt FORM 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, 2000 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 of incorporation) (I.R.S. employer identification no.) 24025 Park Sorrento, Suite 400 Calabasas, California 91302 818.223.7500 (Address and telephone number of principal executive offices) 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. [X] Yes [ ] 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 7, 2000, was 12,951,630. 2 THE RYLAND GROUP, INC. FORM 10-Q INDEX
PAGE NO. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets at June 30, 2000 1-2 (unaudited) and December 31, 1999 Consolidated Statements of Earnings for the 3 Three and Six Months Ended June 30, 2000 and 1999 (unaudited) Consolidated Statements of Cash Flows for the 4 Six Months Ended June 30, 2000 and 1999 (unaudited) Notes to Consolidated Financial Statements (unaudited) 5-7 Item 2. Management's Discussion and Analysis of Financial Condition 8-13 and Results of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings 14 Item 4. Submission of Matters to a Vote of Security Holders 14 Item 6. Exhibits and Reports on Form 8-K 15 SIGNATURES 16 INDEX OF EXHIBITS 17
3 PART I. FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENTS THE RYLAND GROUP, INC. & SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, December 31, 2000 1999 ----------- ------------ (UNAUDITED) ASSETS HOMEBUILDING Cash and cash equivalents $ 54,400 $ 36,297 Housing inventories: Homes under construction 522,833 432,735 Land under development and improved lots 433,630 389,946 ---------- ---------- Total inventories 956,463 822,681 Property, plant and equipment 31,774 26,619 Purchase price in excess of net assets acquired 20,829 21,710 Other assets 51,346 48,064 ---------- ---------- 1,114,812 955,371 ---------- ---------- FINANCIAL SERVICES Cash and cash equivalents 39,122 33,629 Mortgage loans held-for-sale 63,645 40,520 Mortgage-backed securities and notes receivable 95,000 99,249 Other assets 7,453 16,326 ---------- ---------- 205,220 189,724 ---------- ---------- OTHER ASSETS Collateral for bonds payable of limited-purpose subsidiaries 28,071 39,633 Net deferred taxes 29,367 32,134 Other 39,579 31,461 ---------- ---------- TOTAL ASSETS $1,417,049 $1,248,323 ========== ==========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 1 4 THE RYLAND GROUP, INC. & SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, December 31, 2000 1999 ---------- ------------ (UNAUDITED) LIABILITIES HOMEBUILDING Accounts payable and other liabilities $ 208,674 $ 208,133 Long-term debt 533,000 378,000 ---------- ---------- 741,674 586,133 ---------- ---------- FINANCIAL SERVICES Accounts payable and other liabilities 14,644 7,211 Short-term notes payable 180,923 157,458 ---------- ---------- 195,567 164,669 ---------- ---------- OTHER LIABILITIES Bonds payable of limited-purpose subsidiaries 26,271 37,339 Other 58,545 73,645 ---------- ---------- TOTAL LIABILITIES 1,022,057 861,786 ---------- ---------- STOCKHOLDERS' EQUITY Convertible preferred stock, $1 par value: Authorized - 1,400,000 shares Issued - 318,834 shares (350,137 for 1999) 318 350 Common stock, $1 par value: Authorized - 78,600,000 shares Issued - 12,948,151 shares (13,850,819 for 1999) 12,948 13,851 Paid-in capital 55,160 71,730 Retained earnings 326,014 299,547 Accumulated other comprehensive income 552 1,059 ---------- ---------- TOTAL STOCKHOLDERS' EQUITY 394,992 386,537 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,417,049 $1,248,323 ========== ========== STOCKHOLDERS' EQUITY PER COMMON SHARE $ 29.77 $ 27.22 ========== ==========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 2 5 THE RYLAND GROUP, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 2000 1999 2000 1999 ----------- ----------- ----------- ----------- REVENUES Homebuilding: Residential revenue $ 510,390 $ 478,743 $ 921,839 $ 866,003 Other revenue 3,236 10,566 12,105 14,620 ----------- ----------- ----------- ----------- Total homebuilding revenue 513,626 489,309 933,944 880,623 Financial services 10,457 11,143 18,407 21,731 Limited-purpose subsidiaries 667 1,953 1,411 4,090 ----------- ----------- ----------- ----------- Total revenues 524,750 502,405 953,762 906,444 ----------- ----------- ----------- ----------- EXPENSES Homebuilding: Cost of sales 428,854 408,714 781,835 736,204 Selling, general and administrative 49,604 47,303 92,782 89,709 Interest 4,199 3,448 6,745 6,057 ----------- ----------- ----------- ----------- Total homebuilding expenses 482,657 459,465 881,362 831,970 Financial services: General and administrative 5,838 5,695 11,017 11,611 Interest 2,353 2,372 4,406 4,825 ----------- ----------- ----------- ----------- Total financial services expenses 8,191 8,067 15,423 16,436 Limited-purpose subsidiaries 667 1,953 1,411 4,090 Corporate expenses 5,462 4,342 9,879 8,501 ----------- ----------- ----------- ----------- Total expenses 496,977 473,827 908,075 860,997 EARNINGS BEFORE TAXES 27,773 28,578 45,687 45,447 Tax expense 10,832 10,976 17,818 17,724 ----------- ----------- ----------- ----------- NET EARNINGS $ 16,941 $ 17,602 $ 27,869 $ 27,723 =========== =========== =========== =========== NET EARNINGS PER COMMON SHARE: Basic $ 1.29 $ 1.17 $ 2.08 $ 1.84 Diluted $ 1.24 $ 1.12 $ 2.02 $ 1.76 AVERAGE COMMON SHARES OUTSTANDING: Basic 13,026,689 14,851,189 13,238,027 14,830,822 Diluted 13,651,707 15,762,261 13,830,589 15,718,829
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 3 6 THE RYLAND GROUP, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (AMOUNTS IN THOUSANDS)
SIX MONTHS ENDED JUNE 30, 2000 1999 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 27,869 $ 27,723 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 12,704 13,170 Increase in inventories (133,782) (89,538) Net change in other assets, payables and other liabilities (5,395) (1,313) (Increase) decrease in mortgage loans held-for-sale (23,125) 42,561 Other operating activities, net (1,401) (1,263) --------- --------- Net cash used for operating activities (123,130) (8,660) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Net additions to property, plant and equipment (16,244) (13,937) Net principal reduction of mortgage collateral 8,279 18,275 Net principal reduction of mortgage-backed securities, available-for-sale 2,664 6,025 Principal reduction of mortgage-backed securities, held-to-maturity 4,696 10,467 Other investing activities, net (376) 2,869 --------- --------- Net cash (used for) provided by investing activities (981) 23,699 --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Cash proceeds of long-term debt 155,000 61,425 Reduction of long-term debt - (60) Increase (decrease) in short-term notes payable 23,465 (58,792) Bond principal payments (11,234) (16,911) Common and preferred stock dividends (1,466) (1,639) Common stock repurchases (18,041) (1,771) Other financing activities, net (17) 3,980 --------- --------- Net cash provided by (used for) financing activities 147,707 (13,768) --------- --------- Net increase in cash and cash equivalents 23,596 1,271 Cash and cash equivalents at beginning of period 69,926 49,784 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 93,522 $ 51,055 --------- --------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for interest (net of capitalized interest) $ 13,539 $ 13,770 Cash paid for income taxes (net of refunds) $ 19,668 $ 19,224
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 4 7 THE RYLAND GROUP, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (amounts in thousands, except share data, in all notes) Note 1. Consolidated Financial Statements The consolidated financial statements include the accounts of The Ryland Group and its wholly owned subsidiaries ("the Company"). Intercompany transactions have been eliminated in consolidation. The consolidated balance sheet as of June 30, 2000, the consolidated statements of earnings for the three months and six months ended June 30, 2000 and 1999, and the consolidated statements of cash flows for the six months ended June 30, 2000 and 1999, 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, 2000, and for all periods presented, have been made. The consolidated balance sheet at December 31, 1999, is taken from the audited financial statements as of that date. Certain amounts in the consolidated statements have been reclassified to conform to the 2000 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 1999 annual report to shareholders. The results of operations for the six months ended June 30, 2000, 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:
2000 1999 -------- -------- Capitalized interest as of January 1 $ 26,970 $ 21,600 Interest capitalized 17,520 11,688 Interest amortized to cost of sales (10,017) (8,918) -------- -------- Capitalized interest as of June 30 $ 34,473 $ 24,370 ======== ========
Note 2. New Accounting Pronouncements FAS 133 In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 (FAS 133), "Accounting for Derivative Instruments and Hedging Activities," as amended by FAS 137 and FAS 138, which is required to be adopted in fiscal years beginning after June 15, 2000. FAS 133 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 is currently in the process of evaluating the impact of FAS 133 on its earnings and financial position. The Company will adopt FAS 133 on January 1, 2001. 5 8 THE RYLAND GROUP, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (amounts in thousands, except share data, in all notes) Note 3. Segment Information Operations of the Company consist of two business segments: homebuilding and financial services. The Company's homebuilding segment specializes in the sale and construction of single-family attached and detached housing in 21 markets. The financial services segment provides mortgage-related products and services for Ryland Homes' customers and also conducts investment activities. Corporate expenses represent the costs of corporate functions, which support the business segments.
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, ----------------------------- ----------------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Earnings before taxes Homebuilding $ 30,969 $ 29,844 $ 52,582 $ 48,653 Financial services 2,266 3,076 2,984 5,295 Corporate and other (5,462) (4,342) (9,879) (8,501) -------- -------- -------- -------- Total $ 27,773 $ 28,578 $ 45,687 $ 45,447 ======== ======== ======== ========
Note 4. Earnings Per Share Reconciliation The following table sets forth the computation of basic and diluted earnings per share.
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Numerator Net earnings $ 16,941 $ 17,602 $ 27,869 $ 27,723 Preferred stock dividends (176) (213) (361) (436) ------------ ------------ ------------ ------------ Numerator for basic earnings per share - available to common stockholders 16,765 17,389 27,508 27,287 Effect of dilutive securities - preferred stock dividends 176 213 361 436 ------------ ------------ ------------ ------------ Numerator for diluted earnings per share - available to common stockholders $ 16,941 $ 17,602 $ 27,869 $ 27,723 ============ ============ ============ ============ Denominator Denominator for basic earnings per share - weighted-average shares 13,026,689 14,851,189 13,238,027 14,830,822 Effect of dilutive securities: Stock options 223,128 363,398 180,799 340,417 Equity incentive plan 75,000 394,664 77,046 402,553 Conversion of preferred shares 326,890 153,010 334,717 145,037 ------------ ------------ ------------ ------------ Dilutive potential common shares 625,018 911,072 592,562 888,007 Denominator for diluted earnings per share - adjusted weighted-average shares and assumed conversions 13,651,707 15,762,261 13,830,589 15,718,829 BASIC EARNINGS PER SHARE $ 1.29 $ 1.17 $ 2.08 $ 1.84 DILUTED EARNINGS PER SHARE $ 1.24 $ 1.12 $ 2.02 $ 1.76
6 9 THE RYLAND GROUP, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (amounts in thousands, except share data, in all notes) 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, which consists of net income and the increase or decrease in unrealized gains or losses on the Company's available-for-sale securities, totaled $16.6 million and $17.3 million for the three months ended June 30, 2000 and 1999, respectively. For the six months ended June 30, 2000 and 1999, comprehensive income was $27.4 million and $27.3 million, respectively. Note 7. Financial Services Short-term Notes Payable In March 2000, the Company renewed and extended a revolving credit facility used to finance investment securities in the financial services segment. The facility, previously $100 million, was renewed at $35 million. The agreement extends through March 2001, bears interest at market rates, and is collateralized by investment portfolio securities. Borrowings outstanding under this facility were $20.7 million and $19.6 million at June 30, 2000, and December 31, 1999, respectively. Note 8. Long-term Debt In July 2000, the Company increased its unsecured revolving credit facility from $375 million to $400 million. This facility matures in October 2003. The Company had borrowings under this facility of $225 million and $70 million at June 30, 2000, and December 31, 1999, respectively. 7 10 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS CONSOLIDATED For the second quarter of 2000, the Company reported consolidated net earnings from operations of $16.9 million, or $1.29 per share ($1.24 per share diluted). This compared with consolidated net earnings from operations of $17.6 million, or $1.17 per share ($1.12 per share diluted), for the second quarter of 1999. Consolidated net earnings for the six months ended June 30, 2000, were $27.9 million, or $2.08 per share ($2.02 per share diluted), compared to $27.7 million, or $1.84 per share ($1.76 per share diluted), for the same period in the prior year. The homebuilding segment reported pretax earnings of $31 million for the second quarter of 2000, a $1.2 million increase over the $29.8 million reported for the second quarter of 1999. The increase over the prior year was primarily attributable to higher closing volume and homebuilding revenues. For the six months ended June 30, 2000, the homebuilding segment reported pretax earnings of $52.6 million, compared to $48.7 million for the same period in the prior year. Pretax homebuilding margins were 6 percent and 5.6 percent for the three and six months ended June 30, 2000, respectively, and were approximately the same as those reported in the corresponding periods in 1999. The financial services segment reported pretax earnings from operations of $2.3 million and $3.0 million for the three and six months ended June 30, 2000, compared to $3.1 million and $5.3 million for the same periods in 1999. The decrease from the prior year was primarily attributable to a slight reduction in originations as a result of the Company's decision to exit the third-party originations market, as well as reductions in pretax earnings from its investments due to its declining portfolio balance. Corporate expenses represent the cost of corporate functions, which support the business segments. Corporate expenses were $5.5 million for the second quarter of 2000, compared to $4.3 million for the second quarter of 1999, and $9.9 million for the first six months of 2000, versus $8.5 million for the first six months of 1999. Corporate expenses, as a percentage of revenue, were approximately 1 percent for the three-month and six-month periods ended June 30, 2000 and 1999. Although the Company's limited-purpose subsidiaries no longer issue mortgage-backed securities and mortgage-participation securities, they continue to hold collateral for previously issued mortgage-backed bonds in which the Company maintains a residual interest. Revenues, expenses, and portfolio balances continue to decline as the mortgage collateral pledged to secure the bonds decreases due to scheduled payments, prepayments, and exercises of early redemption provisions. Revenues have approximated expenses for the last three years. 8 11 HOMEBUILDING SEGMENT Results of operations from the homebuilding segment are summarized as follows: ($ amounts in thousands, except average closing price)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, ----------------------------- ----------------------------- 2000 1999 2000 1999 ---------- ---------- ---------- ---------- Revenues Residential $ 510,390 $ 478,743 $ 921,839 $ 866,033 Other 3,236 10,566 12,105 14,620 ---------- ---------- ---------- ---------- Total 513,626 489,309 933,944 880,623 Gross profit 84,772 80,595 152,109 144,419 Selling, general and administrative expenses 49,604 47,303 92,782 89,709 Interest expense 4,199 3,448 6,745 6,057 ---------- ---------- ---------- ---------- Homebuilding pretax earnings $ 30,969 $ 29,844 $ 52,582 $ 48,653 ========== ========== ========== ========== Operational unit data New orders (units) 3,234 2,941 6,406 5,921 Closings (units) 2,680 2,558 4,841 4,603 Outstanding contracts at June 30, Units 5,232 4,770 Dollar value $1,015,846 $ 886,237 Average closing price $ 190,000 $ 187,000 $ 190,000 $ 188,000
Homebuilding revenues increased 5 percent for the second quarter of 2000, compared with the same period last year, due to a 4.8 percent increase in closings (2,680 homes closed, compared with 2,558 homes closed in the second quarter of 1999) and a 1.6 percent increase in average closing price. For the six months ended June 30, 2000, homebuilding revenues were $933.9 million, an increase of $53.3 million, or 6.1 percent, compared to the six months ended June 30, 1999. Gross profit margins from home sales averaged 17.3 percent for the second quarter of 2000, an increase from the 16.6 percent for the second quarter of 1999. Gross profit margins from home sales averaged 16.7 percent for the first six months of 2000, versus 16.5 percent for the same period in 1999. New orders for the second quarter of 2000 increased 10 percent from the second quarter of the prior year to 3,234 homes, representing the highest quarterly sales volume in the Company's history. Sales per community were up 5.8 percent with the Company operating in 15 additional active communities than in the second quarter of 1999. At 6,406 homes sold, new orders were up 8.2 percent for the first half of 2000, as compared to the first half of 1999. Outstanding contracts as of June 30, 2000, were 5,232, compared with 4,770 at June 30, 1999, and 3,667 at December 31, 1999. Outstanding contracts represent the Company's backlog of homes sold but not closed, which are generally built and closed, subject to cancellation, over the subsequent two quarters. The value of outstanding contracts at June 30, 2000, was $1 billion, an increase of 14.6 percent from June 30, 1999, and an increase of 47.1 percent from December 31, 1999. 9 12 Selling, general and administrative expenses, as a percentage of revenue, were 9.7 percent and 9.9 percent for the three and six months ended June 30, 2000, respectively, compared to 9.7 percent and 10.2 percent for the same periods in the prior year. Compared with the second quarter of 1999, interest expense increased $.8 million to $4.2 million in the second quarter of 2000 due to an increased level of activity in the homebuilding operations and higher interest rates. For the first half of 2000, interest expense was $6.7 million, an increase of $.7 million from the prior year. FINANCIAL SERVICES Results of operations of the Company's financial services segment are summarized as follows: (amounts in thousands)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 2000 1999 2000 1999 ------- ------- ------- ------- Retail revenues Interest and net origination fees $ 979 $ 1,603 $ 1,597 $ 3,150 Net gains on sales of mortgages and servicing rights 4,635 4,652 7,442 8,586 Loan servicing 269 591 280 1,015 Title/escrow 2,249 1,966 4,298 3,998 ------- ------- ------- ------- Total retail revenue 8,132 8,812 13,617 16,749 Revenue from investment operations 2,325 2,331 4,790 4,982 ------- ------- ------- ------- Total revenues $10,457 $11,143 $18,407 $21,731 Expenses General and administrative 5,838 5,695 11,017 11,611 Interest 2,353 2,372 4,406 4,825 ------- ------- ------- ------- Total expenses 8,191 8,067 15,423 16,436 ------- ------- ------- ------- Pretax earnings $ 2,266 $ 3,076 $ 2,984 $ 5,295 ======= ======= ======= =======
Pretax earnings by line of business were as follows: (amounts in thousands)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 2000 1999 2000 1999 ------ ------ ------ ------ Retail $1,865 $2,466 $1,988 $3,955 Investments 401 610 996 1,340 ------ ------ ------ ------ Total $2,266 $3,076 $2,984 $5,295 ====== ====== ====== ======
10 13 OPERATIONAL DATA
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 2000 1999 2000 1999 ----- ----- ----- ----- Retail operations: Originations 1,774 1,863 3,081 3,415 Percent of Ryland Homes closings 97% 87% 96% 84% Ryland Homes capture rate 70% 72% 67% 70% Investment operations: Portfolio average balance (in millions) $96.8 $94.0 $98.7 $100.8
Revenues for the financial services segment decreased $.7 million, or 6.2 percent, for the quarter ended June 30, 2000, compared to the same period of 1999. For the first six months of 2000, revenues for the financial services segment were $18.4 million, down $3.3 million from the same period in the prior year. The decrease from the prior year was attributable primarily to a decrease in the holding period for loans in the fourth quarter of 1999, a decrease in originations as a result of the Company's 1999 decision to exit the third-party originations market, and reduced gains on the sale of mortgages as a result of the increasing interest rate environment. General and administrative expenses were $5.8 million and $11 million for the three and six months ended June 30, 2000, respectively, compared to $5.7 million and $11.6 million for the three and six months ended June 30, 1999, respectively. The decrease from the first six months of 1999 is attributable to the Company's cost-reduction initiatives. Interest expense was $2.4 million and $4.4 million for the three and six months ended June 30, 2000, respectively, versus $2.4 million and $4.8 million for the same periods in 1999. The decrease, compared with the same periods in the prior year, is attributable to a reduction in origination volume, partially offset by higher costs associated with the increasing interest rate environment. Retail operations include residential mortgage origination; loan servicing; and title, escrow and homeowners insurance services for retail customers. Retail operations reported pretax earnings of $1.9 million and $2 million for the second quarter and first half of 2000, respectively, compared to $2.5 million and $4 million for the same periods in the prior year. Mortgage origination volume decreased by 4.8 percent and 9.8 percent for the three and six months ended June 30, 2000, compared with the same periods of 1999. The decline was primarily due to a decrease in third-party originations as a result of the Company's 1999 decision to exit the third-party originations market. Investment operations hold certain assets, mainly 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 $.4 million and $1 million for the three and six months ended June 30, 2000, respectively, versus $.6 million and $1.3 million for the same periods in 1999. The decrease was essentially the result of decreases in the average portfolio balance and the weighted-average coupon rate of the portfolio, which resulted in a decline in interest and other income. 11 14 FINANCIAL CONDITION AND LIQUIDITY Cash requirements for the Company's homebuilding and financial services segments are generally provided 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's 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 June 30, 2000, and December 31, 1999. The Company uses its unsecured revolving credit facility to finance increases in its homebuilding inventory and working capital. This facility matures in October 2003 and provides for borrowings up to $400 million. Outstanding borrowings under this facility totaled $225 million as of June 30, 2000, and $70 million at December 31, 1999. The Company had letters of credit outstanding under this facility totaling $55.7 million at June 30, 2000, and $48.9 million at December 31, 1999. To finance land purchases, the Company may also use seller-financed, nonrecourse secured notes payable. At June 30, 2000, such notes payable outstanding amounted to $11.6 million, compared with $8.1 million at December 31, 1999. Housing inventories increased to $956.5 million as of June 30, 2000, from $822.7 million at December 31, 1999. This increase reflects a higher sold inventory, related to the significant increase in quarter-end backlog, and an increase in land under development and improved lots commensurate with growth. The increase in inventory was funded with internally generated funds and borrowings under the revolving credit facility. The financial services segment uses cash generated from operations and borrowing arrangements to finance its operations. The financial services segment has borrowing arrangements that include a credit facility which provides up to $200 million for mortgage warehouse funding and matures in May 2002; repurchase agreement facilities aggregating $150 million; and a $35 million revolving credit facility used to finance investment portfolio securities. At June 30, 2000, and December 31, 1999, the combined borrowings of the financial services segment outstanding under all agreements totaled $180.9 million and $157.5 million, respectively. Mortgage loans, notes receivable, and mortgage-backed securities held by the limited-purpose subsidiaries were pledged as collateral for previously issued mortgage-backed bonds, the terms of which provided for the retirement of all bonds from the proceeds of the collateral. The source of cash for the bond payments was cash received from the mortgage loans, notes receivable, and mortgage-backed securities. The Company has not guaranteed the debt of either its financial services segment or limited-purpose subsidiaries. During the six months ended June 30, 2000, the Company repurchased approximately 950,000 shares of its outstanding common stock at a cost of approximately $18 million. In February 2000, the Board of Directors approved the repurchase of up to one million shares of the Company's outstanding common stock. As of June 30, 2000, the Company had Board authorization to repurchase up to an additional 820,000 shares of its common stock. The Company's repurchase program has been funded through internally generated funds. 12 15 Note: Certain statements in Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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, the availability and increases in raw material and labor costs, consumer confidence, government regulations, and general competitive factors, all or each of which may cause actual results to differ materially. Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no other material changes in the Company's market risk from December 31, 1999. For information regarding the Company's market risk, refer to Form 10-K for the fiscal year ended December 31, 1999, of The Ryland Group, Inc. 13 16 PART II. OTHER INFORMATION Item 1. Legal Proceedings The Company is party to various legal proceedings generally incidental to its businesses. Based on evaluation of these matters and discussions with counsel, management believes that liabilities to the Company arising from these matters will not have a material adverse effect on the overall financial condition of the Company. Item 4. Submission of Matters to a Vote of Security Holders The Annual Meeting of Stockholders of the Company was held on April 26, 2000. Proxies were solicited by the Company pursuant to Regulation 14 under the Securities and Exchange Act of 1934 to elect directors of the Company for the ensuing year, and to approve the 2000 Non-Employee Director Equity Plan. Proxies representing 12,495,860 shares of stock eligible to vote at the meeting, or 89.9 percent of the outstanding shares, were voted in connection with the election of directors. The eight incumbent directors nominated by the Company were elected. The following is a separate tabulation with respect to the vote for each nominee:
Name Total Votes For Total Votes Withheld - --------------------- --------------- -------------------- R. Chad Dreier 12,473,470 22,390 Leslie M. Frecon 12,473,079 22,781 William L. Jews 12,473,266 22,594 William G. Kagler 12,471,454 24,406 Robert E. Mellor 12,472,579 23,281 Charlotte St. Martin 12,473,279 22,581 Paul J. Varello 12,468,829 27,031 John O. Wilson 12,471,654 24,206
The 2000 Non-Employee Director Equity Plan was approved by 88.7 percent of the shares voting. The following is a breakdown of the vote on such matter:
For Against Abstain ---------- --------- ------ 11,087,024 1,360,148 48,685
14 17
Page No. -------- Item 6. Exhibits and Reports on Form 8-K A. Exhibits 10.11 Supplement to Revolving Credit Agreement dated as of 18-22 July 31, 2000, between The Ryland Group, Inc. and certain financial institutions 27 Financial Data Schedule 23 (filed herewith) B. Reports on Form 8-K
No reports on Form 8-K were filed during the second quarter of 2000. 15 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE RYLAND GROUP, INC. Registrant August 14, 2000 By: /s/ Gordon A. Milne - --------------- ------------------------------------ Date Gordon A. Milne Senior Vice President and Chief Financial Officer (Principal Financial Officer) August 14, 2000 By: /s/ David L. Fristoe - --------------- ------------------------------------ Date David L. Fristoe Senior Vice President and Corporate Controller (Principal Accounting Officer) 16 19 INDEX OF EXHIBITS A. Exhibits
Exhibit No. Page No. - ----------- -------- 10.11 Supplement to Revolving Credit Agreement dated as of July 31, 18-22 2000, between The Ryland Group, Inc. and certain financial institutions 27 Financial Data Schedule 23 (filed herewith)
17 EX-10.11 2 ex10-11.txt EXHIBIT 10.11 1 EXHIBIT 10.11 SUPPLEMENT TO REVOLVING CREDIT AGREEMENT This Supplement dated July 31, 2000 to the Revolving Credit Agreement (the "Credit Agreement") dated as of October 19, 1999 among The Ryland Group, Inc., certain financial institutions, Bank of America, N.A., as the Administrative Agent, Bank One, NA, as the syndication agent, Guaranty Federal Bank F.S.B. and Bank United, as Co-Agents, Banc of America Securities LLC, Lead Arranger and Lead Book Manager and Banc One Capital Markets, Inc. as the Co-Lead Arranger and Co-Book Manager. W I T N E S S E T H WHEREAS, the Credit Agreement provides for an increase of the Aggregate Commitment; WHEREAS, Bank of America, N.A. ("Bank of America") wishes to increase its Commitment by $25,000,000, causing the Aggregate Commitment to equal $400 million; NOW, THEREFORE, the Company, the Administrative Agent and Bank of America agree as follows: 1. All capitalized terms used in this Supplement shall have the meanings set forth in the Credit Agreement unless otherwise defined or the context otherwise required. 2. The Aggregate Commitment is hereby increased to $400,000,000. 3. Annex I to the Credit Agreement is hereby amended to state as set forth in the attached Annex I. 4. As provided in Section 2.10 of the Credit Agreement, the Company agrees to reimburse each Bank for the amount of any loss or expense arising as a result of the effectiveness of this Supplement during a LIBOR period and the purchase and sale of portions of Loans upon such effectiveness. 5. This Supplement shall be governed by the internal laws of the State of Illinois without regard to the conflicts of law provisions thereof. 6. As hereby supplemented, the Credit Agreement shall remain in full force and effect. 2 IN WITNESS WHEREOF, the parties hereto have executed this Supplement this 31st day of July, 2000. BANK OF AMERICA, N.A., as Administrative Agent and Bank By: /s/ KELLEY PRENTISS ------------------------------------ Title: VICE PRESIDENT --------------------------------- THE RYLAND GROUP, INC. By: /s/ CATHEY S. LOWE ------------------------------------ Title: VICE PRESIDENT AND TREASURER --------------------------------- By: /s/ GORDON MILNE ------------------------------------ Title: SENIOR VP AND CHIEF FINANCIAL OFFICER --------------------------------- 3 ANNEX I COMMITMENTS OF THE BANKS BANK GROUP MEMBERS
BANK AMOUNT % SHARE - ----------------------------- --------------- --------------- Bank of America, N.A $100,000,000.00 25.000000000 % Bank One, NA $ 75,000,000.00 18.750000000 % Guaranty Federal Bank, F.S.B $ 50,000,000.00 12.500000000 % Bank United $ 50,000,000.00 12.500000000 % PNC Bank, National $ 30,000,000.00 7.5000000000 % Association Wachovia Bank, N.A $ 25,000,000.00 6.250000000 % Fifth Third Bank $ 20,000,000.00 5.000000000 % SunTrust Bank, Atlanta $ 20,000,000.00 5.000000000 % Allfirst Bank $ 15,000,000.00 3.750000000 % Comerica Bank $ 15,000,000.00 3.750000000 % --------------- --------------- $400,000,000.00 100%
4 NOTE $100,000,000 July 31, 2000 FOR VALUE RECEIVED, The Ryland Group, Inc., a Maryland corporation (the "Company"), promises to pay to the order of Bank of America, N.A. ("Bank") the principal amount of ONE HUNDRED MILLION AND NO/100 DOLLARS ($100,000,000 ) or such lesser aggregate amount of Loans as may be made pursuant to Bank's Commitment under the Revolving Credit Agreement hereinafter described, payable as hereinafter set forth. Company promises to pay interest on the principal amount hereof remaining unpaid from time to time from the date hereof until the date of payment in full, payable as hereinafter set forth. Reference is made to the Revolving Credit Agreement of even date herewith among Company and the Banks (the "Agreement"). Terms defined in the Agreement and not otherwise defined herein are used herein with the meanings defined for those terms in the Agreement. This is one of the Notes referred to in the Agreement, and any holder hereof is entitled to all of the rights, remedies, benefits and privileges provided for in the Agreement as originally executed or as it may from time to time be supplemented, modified or amended. The Agreement, among other things, contains provisions for acceleration of the maturity hereof upon the happening of certain stated events upon the terms and conditions therein specified. The principal indebtedness evidenced by this Note shall be payable as provided in the Agreement and in any event on the Maturity Date. Interest shall be payable on the outstanding daily unpaid principal amount of each Loan hereunder from the date thereof until payment in full and shall accrue and be payable at the rates and on the dates set forth in the Agreement both before and after default and before and after maturity and judgment. Company hereby promises to pay all costs and expenses of any holder hereof incurred in collecting the undersigned's obligations hereunder or in enforcing or attempting to enforce any of any holder's rights hereunder, including Attorney Costs, whether or not an action is filed in connection therewith. Company hereby waives presentment, demand for payment, dishonor, notice of dishonor, protest, notice of protest and any other notice or formality, to the fullest extent permitted by applicable laws. This note is a replacement for a note dated October 19, 1999 and shall continue to evidence the indebtedness thereunder 5 This Note shall be delivered to and accepted by Bank in the State of Illinois, and shall be governed by, and construed and enforced in accordance with, the internal Laws thereof without regard to the choice of law provisions thereof. THE RYLAND GROUP, INC. By: /s/ CATHEY S. LOWE -------------------------------------- Cathey S. Lowe Vice President & Treasurer ----------------------------------------- [Printed Name and Title] EX-27 3 ex27.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE RYLAND GROUP INC. FORM 10-Q FOR THE PERIOD ENDED 6/30/00 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-2000 JUN-30-2000 93,522 95,000 63,645 0 956,463 0 31,774 0 1,417,049 0 207,194 0 318 12,948 381,726 1,417,049 933,944 953,762 781,835 885,638 9,879 0 12,558 45,687 17,818 27,869 0 0 0 27,869 2.08 2.02
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