-----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, Bne+oxPopipetZxsfOmeKa7+yzrt5sAcPdCikXalJoyCSciCXMRi8Nm2vB2MHWUj 6EamErpMUep9iseBOEe1fA== 0000950150-01-000087.txt : 20010321 0000950150-01-000087.hdr.sgml : 20010321 ACCESSION NUMBER: 0000950150-01-000087 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010320 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-K SEC ACT: SEC FILE NUMBER: 001-08029 FILM NUMBER: 1572599 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-K 1 a70604e10-k.txt FORM 10-K FOR PERIOD ENDED 12/31/2001 1 - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------- FORM 10-K ----------------- [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 2000 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] 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 Identification No.) incorporation or organization) 24025 Park Sorrento, Suite 400 Calabasas, California 91302 (Address of principal executive offices) Registrant's telephone number, including area code: (818) 223-7500 Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- Common Stock, (Par Value $1.00) New York Stock Exchange Common Share Purchase Rights New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the Common Stock of The Ryland Group, Inc., held by non-affiliates of the registrant (13,256,164 shares) as of February 15, 2001, was $647,165,926. The number of shares of common stock of The Ryland Group, Inc., outstanding on February 15, 2001 was 13,390,673. - -------------------------------------------------------------------------------- 1 2 DOCUMENTS INCORPORATED BY REFERENCE
NAME OF DOCUMENT LOCATION IN REPORT - ---------------- ------------------ Proxy Statement for the 2001 Annual Meeting of Stockholders Parts I, III Annual Report to Shareholders for the Year Ended December 31, 2000 Parts II, IV Registration Statement on Form S-8, Registration 33-32431 Part IV Form 8-K Filed September 12, 1989 Part IV Form 10-K for the Year Ended December 31, 1989 Part IV Form 10-K for the Year Ended December 31, 1990 Part IV Registration Statement on Form S-8, Registration 33-56905 Part IV Form 10-Q for the Quarter Ended June 30, 1992 Part IV Registration Statement on Form S-3, Registration 33-48071 Part IV Registration Statement on Form S-8, Registration 33-56917 Part IV Form 10-Q for the Quarter Ended June 30, 1994 Part IV Form 8-K Filed October 24, 1996 Part IV Registration Statement on Form S-3, Registration 333-03791 Part IV Form 8-K Filed July 2, 1996 Part IV Form 10-K for the Year Ended December 31, 1996 Part IV Form 10-K for the Year Ended December 31, 1997 Part IV Registration Statement on Form S-3, Registration 33-50933 Part IV Registration Statement on Form S-8, Registration 333-68397 Part IV Form 10-Q for the Quarter Ended September 30, 1999 Part IV Registration Statement on Form S-3, Registration 333-31034 Part IV Form 8-K Filed August 24, 2000 Part IV Form 10-Q for the Year Ended March 31, 2000 Part IV Form 10-Q for the Quarter Ended June 30, 2000 Part IV Form 10-Q for the Quarter Ended September 30, 2000 Part IV
2 3 THE RYLAND GROUP, INC. FORM 10-K INDEX
ITEM NO. - -------- PART I Item 1. Business...................................................................4 Item 2. Properties.................................................................9 Item 3. Legal Proceedings..........................................................9 Item 4. Submission of Matters to a Vote of Security Holders........................9 PART II Item 5. Market for the Company's Common Stock and Related Stockholder Matters.....11 Item 6. Selected Financial Data...................................................11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.....................................................11 Item 7A. Quantitative and Qualitative Disclosures about Market Risk................11 Item 8. Financial Statements and Supplementary Data...............................11 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure......................................................11 PART III Item 10. Directors and Executive Officers of the Registrant........................12 Item 11. Executive Compensation....................................................12 Item 12. Security Ownership of Certain Beneficial Owners and Management............12 Item 13. Certain Relationships and Related Transactions............................12 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...........13 SIGNATURES.................................................................................17 INDEX OF EXHIBITS..........................................................................18
3 4 PART I ITEM 1. BUSINESS With headquarters in Southern California, The Ryland Group, Inc. ("Ryland") is one of the nation's largest homebuilders and mortgage-finance companies. Founded in 1967, the Company has built more than 175,000 homes during its 33-year history. In addition, the Ryland Mortgage Company ("RMC"), founded in 1978, has provided mortgage financing and related services for more than 155,000 homebuyers. Today, Ryland homes are available in more than 260 communities in 21 markets across the country. The Company's home prices range from $72,000 to over $500,000. The current average price of a Ryland home is $194,000. The Company's operations span all the significant aspects of the home-buying process -- from design, construction and sale to mortgage financing, title insurance, settlement, escrow and homeowners insurance services. As used herein, the term "Company" refers to The Ryland Group, Inc. and its subsidiaries, unless the context indicates otherwise. HOMEBUILDING MARKETS Ryland markets and builds homes that are constructed on-site in three regions which include 21 of the nation's strongest housing markets. The three regions are the North, South and West. As of December 31, 2000, the Company operated in the following metropolitan markets:
Region Major Markets Served ------ -------------------- North: Baltimore, Chicago, Cincinnati, Indianapolis, Minneapolis and Washington, D.C./Northern Virginia South: Atlanta, Austin, Charlotte, Dallas, Greenville, Houston, Orlando, San Antonio and West Florida West: Bay Area, Denver, Los Angeles, Phoenix, Sacramento and San Diego
Ryland markets detached and attached single-family homes which are generally targeted to entry-level and move-up buyers, as well as active adults seeking retirement housing. The Company markets through a diverse product line which is tailored to the local styles and preferences found in each of its geographic markets. The product line offered in a particular community is determined in conjunction with the land acquisition process and is dependent upon a number of factors, including consumer preferences, competitive product offerings and the cost of developing lots in a community. The Company developed 400 new home designs in 2000 -- bringing the number of new floor plans which the Company has introduced since 1993 to more than 1,600. The Company generally outsources architectural services to increase creativity and to ensure that its home designs are consistent with local market preferences. 4 5 The Company's operations in each of its homebuilding markets may differ based on a number of market-specific factors. These factors include regional economic conditions and job growth; land availability and the local land development process; consumer tastes; competition from other homebuilders; and home resale activity. The Company considers each of these factors upon entering into new markets or determining the extent of its operations and capital allocation in existing markets. LAND ACQUISITION AND DEVELOPMENT As of December 31, 2000, the Company operated in 268 communities in 21 markets across the country. The Company's objective is to control a portfolio of building lots sufficient to meet anticipated homebuilding requirements for a period of three to four years. The land acquisition process is controlled through a corporate land approval committee to help ensure that transactions meet the Company's standards for financial performance and risk. In the ordinary course of its homebuilding business, the Company utilizes both direct acquisition and option contracts to control building lots for use in the sale and construction of homes. The Company's direct land acquisition activities include the bulk purchase of finished building lots from land developers and the purchase of undeveloped, entitled land from third parties. The Company generally does not purchase unentitled or unzoned land. Although control of lot inventory through the use of option contracts minimizes the Company's investment, such a strategy is not viable in certain markets due to the absence of third-party land developers. In other markets, competitive conditions may prevent the Company from controlling quality building lots solely through the use of option contracts. In such situations, the Company may acquire undeveloped, entitled land and/or finished lots on a bulk basis. The Company utilizes the selective development of land to gain access to prime locations, increase margins and position itself as a leader in the community through its influence over the community's character, layout and amenities. As of December 31, 2000, the Company had deposits and letters of credit outstanding of $40.2 million in connection with option and land purchase contracts having a total purchase price of $749.8 million. These options and commitments expire at various dates through 2002. MATERIALS COSTS Substantially all materials used in the construction of homes are available from a number of sources, but may fluctuate in price due to various factors. To increase purchasing efficiencies, the Company standardizes certain building materials and products in its homes and may acquire such products through national supply contracts. The Company has, on occasion, experienced shortages of certain materials. If shortages were to occur in the future, such shortages could result in longer construction times and higher costs than those experienced in the past. PRODUCTION MANAGEMENT AND SUBCONTRACTORS Substantially all on-site construction is performed for a fixed price by independent subcontractors selected on a competitive bid basis. The Company generally requires a minimum of three competitive bids for each phase of construction. Construction activities are supervised by the Company's production team who schedule and coordinate subcontractor work, monitor quality and ensure compliance with local zoning and building codes. The Company has an integrated financial and homebuilding management information system which assists in scheduling production and controlling costs. Through this system, the Company monitors the construction status and job costs incurred for each home during each phase of construction. The system provides for detailed budgeting and allows the Company to monitor and control actual costs versus construction bids for each subcontractor. The Company has, on occasion, experienced shortages of skilled labor in certain markets. If shortages were to occur in the future, such shortages could result in longer construction times and higher costs than those experienced in the past. 5 6 MARKETING AND CUSTOMER SERVICE The Company generally markets its homes to entry-level and move-up buyers, as well as to active adults seeking retirement housing, through targeted product offerings in each of the communities in which it operates. The Company's marketing strategy is determined during the land acquisition and feasibility stage of a community's development. Employees and independent real estate brokers sell the Company's homes, generally by showing furnished models. The Company reports a new order when a customer's sales contract is approved and records revenue from a sale at closing. The Company normally starts construction of homes when a customer has selected a lot and floor plan and has received preliminary mortgage approval. However, construction of homes may begin prior to sales to satisfy market demand for completed homes and to facilitate construction scheduling. The Company provides each homeowner with a comprehensive one-year warranty at the time of sale and a ten-year warranty covering loss related to structural defects. The Company believes its warranty program meets or exceeds terms customarily offered in the homebuilding industry. FINANCIAL SERVICES RMC primarily provides mortgage-related products and services for the Company's homebuilding customers. In recent years, the Company has repositioned RMC to align its operations with the homebuilding divisions by: - leveraging its relationship with the Company's homebuilding segment to increase its capture rate for its homebuyers' loans; - focusing on retail mortgage loan originations and improving the efficiency of these activities through cost-reduction initiatives and improved profitability per loan; - divesting noncore assets and business lines, including the sale of loan servicing rights; and - creating value for Ryland home buyers through innovative and competitive mortgage programs and related services. RETAIL OPERATIONS LOAN ORIGINATION In 2000, RMC's mortgage origination operations consisted primarily of the Company's homebuilder loans, which were originated in connection with the sale of the Company's homes. During 2000, mortgage operations originated 7,500 loans which totaled approximately $1.2 billion, of which 97 percent were for purchases of homes built by the Company and three percent were for purchases of homes built by others, purchases of existing homes, and for the refinancing of existing mortgage loans. In an effort to increase its focus on production of the Company's homebuilder loans, RMC made the strategic decision to reduce its third-party originations business by exiting certain markets during 1999. The Company has increased its focus by deploying loan officers directly to its homebuilding communities and by utilizing traffic and prospect information generated by its homebuilding sales and marketing staff. RMC's capture rate of Ryland's home-buying customers was 71 percent in 2000. The Company arranges various types of mortgage financing, including conventional, Federal Housing Administration (FHA) and Veterans Administration (VA) mortgages with various fixed- and adjustable-rate features. Federal Home Loan Mortgage Corporation (FHLMC), Federal National Mortgage Association (FNMA) and Government National Mortgage Association (GNMA) approve the Company's mortgage operations. 6 7 LOAN SERVICING The repositioning of RMC in recent years led to the sale of a majority of its loan servicing portfolio in the first quarter of 1998 and to the sale of its remaining portfolio during 1999. As a result, the Company no longer services loans. TITLE AND ESCROW SERVICES Cornerstone Title Company, a wholly owned subsidiary, doing business as Ryland Title Company, provides title services primarily to the Company's home buyers. As of December 31, 2000, Cornerstone Title had offices in Colorado, Florida, Illinois, Maryland, Minnesota, Ohio, Texas and Virginia. The Company also operates an escrow company in California which performs escrow and loan closing functions primarily on homes built by the Company. During 2000, Cornerstone Title captured 98 percent of the title and escrow business which related to settlement of the Company's homes in the markets in which it operates. INVESTMENT OPERATIONS RMC's investment operations hold certain assets, primarily mortgage-backed securities and notes receivable, 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. The Company earns a net interest spread on the investment portfolio and may periodically realize gains from the sale of the portfolio's mortgage-backed securities. REAL ESTATE AND ECONOMIC CONDITIONS The Company is significantly affected by the cyclical nature of the homebuilding industry. The industry is sensitive to fluctuations in economic activity, interest rates and levels of consumer confidence. The effects of these fluctuations differ among the various geographic markets in which the Company operates. Higher interest rates may affect the ability of buyers to qualify for mortgage financing and decrease demand for new homes. As a result, rising interest rates generally will decrease the Company's home sales and mortgage originations. The Company's business is also affected by local economic conditions, such as employment rates and housing demand, in the markets in which it builds homes. Some of the markets in which the Company operates have, at times, experienced a significant decline in housing demand. Inventory risk can be substantial for homebuilders. The market value of land, building lots and housing inventories fluctuates significantly as a result of changing market and economic conditions. In addition, carrying costs for inventory can be significant and can result in losses from poorly performing projects or markets. The Company must continuously seek out and acquire land not only for expansion into new markets, but also for replacement and expansion of land inventory within its current markets. The Company employs various measures, including the land approval process and continuous review by senior management, designed to control inventory risks. The Company, however, cannot assure that these measures will avoid or eliminate inventory risk. COMPETITION The residential housing industry is highly competitive, and the Company competes in each of its markets with a large number of national, regional and local homebuilding companies. Some of these companies are larger than the Company and have greater financial resources. In addition, the increase in the availability of capital and financing in recent years has made it easier for both large and small 7 8 homebuilders to expand and enter new markets thereby increasing competition. This competition could make it more difficult to acquire suitable land at acceptable prices, force an increase in selling incentives or lower sales as dictated by local market conditions. Any of these could have an adverse impact on the Company's financial performance or results of operations. The Company also competes with other housing alternatives, including existing homes and rental housing. Principal competitive factors in homebuilding are home price, design, quality, reputation, relationship with developers, accessibility of subcontractors, availability and location of lots, and availability of customer financing. REGULATORY AND ENVIRONMENTAL MATTERS The homebuilding segment is subject to various local, state and federal laws, ordinances, rules and regulations concerning zoning, building design, construction and similar matters. These include local regulations which impose restrictive zoning and density requirements to limit the number of homes that can be built within the boundaries of a particular area. The Company may also experience periodic delays in homebuilding projects due to building moratoria in any of the areas in which it operates. The Company is also subject to a variety of local, state and federal laws, ordinances, rules and regulations concerning the protection of health and the environment. The Company is also subject to a variety of environmental conditions that can affect its business and its homebuilding projects. The particular environmental laws which apply to any given homebuilding site vary greatly according to the site's location; environmental condition and the present and former uses of the site; and adjoining properties. Environmental laws and conditions may result in delays, cause the Company to incur substantial compliance and other costs, and prohibit or severely restrict homebuilding activity in certain environmentally sensitive regions or areas. RMC is subject to the rules and regulations of HUD, FHA, VA, FNMA, FHLMC and GNMA with respect to originating, processing, selling and servicing mortgage loans. In addition, there are other federal and state laws and regulations which also affect these activities. These rules and regulations prohibit discrimination and establish underwriting guidelines which include provisions for inspections and appraisals, require credit reports on prospective borrowers and fix maximum loan amounts. The Company is required to submit audited financial statements annually, and each regulatory entity has its own financial requirements. The Company's affairs are also subject to examination by these regulatory agencies and by state agencies, at all times, to assure compliance with applicable regulations, policies and procedures. Mortgage origination activities are subject to the Equal Credit Opportunity Act, Federal Truth-in-Lending Act and Real Estate Settlement Procedures Act, as well as those associated regulations which prohibit discrimination and require the disclosure of certain information to mortgagors concerning credit and settlement costs. 8 9 EMPLOYEES At December 31, 2000, the Company employed 2,198 people. The Company considers its employee relations to be good. No employees are represented by a collective bargaining agreement. ITEM 2. PROPERTIES The Company leases office space for its corporate headquarters in Calabasas, California. In addition, the Company leases office space in the various markets in which it operates. ITEM 3. LEGAL PROCEEDINGS Contingent liabilities may arise from obligations incurred in the ordinary course of business or from the usual obligations of on-site housing producers for the completion of contracts. RMC received information from the Federal Deposit Insurance Corporation (FDIC) regarding outstanding claims related to mortgage servicing contracts which it entered into with the Resolution Trust Company during 1991 and 1992. RMC is investigating these claims. No prediction can be made, at this time, regarding the results of this investigation or whether the FDIC will initiate a civil action against RMC in connection with these claims. The Company is party to various 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. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the year ended December 31, 2000. 9 10 EXECUTIVE OFFICERS OF THE COMPANY The following sets forth certain information regarding the executive officers of the Company:
POSITION (DATE ELECTED TO POSITION) NAME AGE OR BUSINESS EXPERIENCE - ----------------------------------------------------------------------------------------------- R. Chad Dreier 53 Chairman of the Board of Directors; President and Chief Executive Officer of the Company Mark L. Beisswanger 40 President of the West Region of Ryland Homes (2000); Vice President of the West Region of Ryland Homes (1999); President and CEO of Alpine Capital, L.L.C. (1996-1999) Robert J. Cunnion III 45 Senior Vice President, Human Resources of the Company (1999); Vice President, Human Resources -- West Region (1993-1999) Eric E. Elder 44 Senior Vice President, Marketing of the Company (2000); Vice President, Marketing -- West Region (1995-1999) David L. Fristoe 44 Senior Vice President, Controller, Chief Accounting Officer and Chief Information Officer of the Company (2000); Vice President, Controller and Chief Accounting Officer of the Company (1999); Vice President, Financial Operations -- West Region (1995-1999) John M. Garrity 54 Senior Vice President of the Company (1995); President of the South Region of Ryland Homes (1996); President of the Southeast Region of Ryland Homes (1994-1996) Timothy J. Geckle 48 Senior Vice President, General Counsel and Secretary of the Company (1997); Vice President, Deputy General Counsel (1995-1996) Gordon A. Milne 49 Senior Vice President and Chief Financial Officer of the Company (2000); Senior Vice President of Finance and Chief Financial Officer of Agrium, Inc. (1996-1999); Division President of Occidental Petroleum Ltd. (1994-1996) Daniel G. Schreiner 43 Senior Vice President of the Company (1999); President of Ryland Mortgage Company (1998); President of Kaufman and Broad Mortgage Company (1991-1998) Kipling W. Scott 46 Senior Vice President of the Company (1995); President of the North Region of Ryland Homes (1997); President of the Midwest Region of Ryland Homes (1994-1997)
The Board of Directors elects all officers. There are no family relationships, arrangements or understandings pursuant to which any of the officers listed were elected. For a description of the Company's employment and severance arrangements with certain of its executive officers, see page 10 of the Proxy Statement for the 2001 Annual Meeting of Stockholders. 10 11 PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The information required by this item is incorporated by reference from the section entitled "Common Stock Prices and Dividends" which appears on page 50 of the Annual Report to Shareholders for the year ended December 31, 2000. ITEM 6. SELECTED FINANCIAL DATA The information required by this item is incorporated by reference from the section entitled "Selected Financial Data" which appears on page 25 of the Annual Report to Shareholders for the year ended December 31, 2000. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this item is incorporated by reference from the section entitled "Management's Discussion and Analysis of Results of Operations and Financial Condition" which appears on pages 26 through 31 of the Annual Report to Shareholders for the year ended December 31, 2000. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information required by this item is incorporated by reference from the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations, Market Risk Summary", which appears on pages 30 through 31 of the Annual Report to Shareholders for the year ended December 31, 2000. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this item is incorporated by reference from the information which appears on pages 32 through 45 and from the section entitled "Quarterly Financial Data and Common Stock Prices and Dividends" which appears on page 50 of the Annual Report to Shareholders for the year ended December 31, 2000. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE During the fiscal years ended December 31, 2000 and 1999, there were no disagreements between the Company and its accountants on any matter of accounting principle or financial statement disclosure. 11 12 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information as to the Company's directors is incorporated by reference from pages 2 and 4 of the Company's Proxy Statement for the 2001 Annual Meeting of Stockholders. Information as to the Company's executive officers is shown under Part I as a separate item. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated by reference from pages 6 through 11 of the Company's Proxy Statement for the 2001 Annual Meeting of Stockholders. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated by reference from page 3 of the Company's Proxy Statement for the 2001 Annual Meeting of Stockholders. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS There are no transactions, business relationships or indebtedness required to be reported by the Company pursuant to this item. 12 13 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial Statements The following consolidated financial statements of The Ryland Group, Inc. and subsidiaries, included in the Annual Report to Shareholders for the year ended December 31, 2000, are incorporated by reference in Item 8: Consolidated Statements of Earnings -- years ended December 31, 2000, 1999 and 1998 Consolidated Balance Sheets -- December 31, 2000 and 1999 Consolidated Statements of Stockholders' Equity -- years ended December 31, 2000, 1999 and 1998 Consolidated Statements of Cash Flows -- years ended December 31, 2000, 1999 and 1998 Notes to Consolidated Financial Statements
(a) 2. Financial Statement Schedule (filed herewith) Page No. -------- Schedule II -- Valuation and Qualifying Accounts...........16
Schedules not listed above have been omitted because they are either inapplicable or the required information has been given in the financial statements or notes thereto. 13 14 (a) 3. Exhibits The following exhibits are included with this report or incorporated herein by reference as indicated below: 3.1 Charter of The Ryland Group, Inc., as amended (Incorporated by reference from Form 10-K for the year ended December 31, 1989) 3.2 By-laws of The Ryland Group, Inc., as amended (Incorporated by reference from Form 10-K for the year ended December 31, 1996) 4.1 Rights Agreement, dated as of October 18, 1996, between The Ryland Group, Inc. and ChaseMellon Shareholder Services, L.L.C. (Incorporated by reference from Form 8-K filed October 24, 1996) 4.2 Articles Supplementary, dated as of August 31, 1989 (Incorporated by reference from Form 8-K filed September 12, 1989) 4.3 Senior Subordinated Notes, dated as of November 4, 1993 (Incorporated by reference from Registration Statement on Form S-3, Registration No. 33-48071) 4.4 Indenture, dated as of June 28, 1996, between The Ryland Group, Inc. and Chemical Bank, as trustee (Incorporated by reference from Form 8-K filed July 2, 1996) 4.5 Senior Notes, dated as of June 10, 1996 (Incorporated by reference from Registration Statement on Form S-3, Registration No. 333-03791) 4.6 Senior Subordinated Notes, dated as of April 13, 1998 (Incorporated by reference from Registration Statement on Form S-3, Registration Nos. 33-50933 and 333-03791) 4.7 Senior Notes, dated as of August 29, 2000 (Incorporated by reference from Registration Statement on Form S-3, Registration No. 333-31034) 10.1 Lease Agreement between Kilroy Realty Group and The Ryland Group, Inc. dated December 29, 1999 (Incorporated by reference from Form 10-K for the year ended December 31, 1999) 10.2 *1992 Equity Incentive Plan of The Ryland Group, Inc. (Incorporated by reference from Form 10-Q for the quarter ended June 30, 1992) 10.3 *2000 Non-Employee Director Equity Plan of The Ryland Group, Inc., as amended (Filed herewith) 10.4 Restated Credit Agreement, dated as of October 19, 1999, between The Ryland Group, Inc. and certain banks (Incorporated by reference from Form 10-Q for the quarter ended September 30, 1999) 10.5 Restated Credit Agreement, dated March 31, 2000, between Ryland Mortgage Company, Associates Mortgage Funding Corporation, Chase Bank of Texas, N.A. and certain lenders (Incorporated by reference from Form 10-Q for the quarter ended March 31, 2000)
14 15 (a) 3. Exhibits, continued 10.6 *Amended and restated Employment Agreement, dated as of September 20, 2000, between R. Chad Dreier and The Ryland Group, Inc. (Incorporated by reference from Form 10-Q for the quarter ended September 30, 2000) 10.7 *Senior Executive Severance Agreement between the executive officers of the Company and The Ryland Group, Inc. (Incorporated by reference from Form 10-Q for the quarter ended September 30, 2000) 10.8 *Amendment and Restatement of the Executive and Director Deferred Compensation Plan effective March 1, 1998 (Incorporated by reference from Form 10-K for the year ended December 31, 1999) 10.9 *Non-Employee Directors' Stock Unit Plan between The Ryland Group, Inc. and the Board of Directors effective January 1, 1998 (Incorporated by reference from Form 10-K for the year ended December 31, 1997) 10.10 Supplement to Revolving Credit Agreement, dated as of July 31, 2000, between The Ryland Group, Inc. and certain financial institutions (Incorporated by reference from Form 10-Q for the quarter ended June 30, 2000) 10.11 Amendment to the Restated Loan and Security Agreement (Warehouse Agreement), dated as of February 18, 2000, between Ryland Mortgage Company and certain financial institutions (Incorporated by reference from Form 10-Q for the quarter ended September 30, 2000) 10.12 Amended Credit Agreement, dated as of September 1, 2000, between Ryland Mortgage Company, Associates Funding Corporation, Chase Manhattan Bank and certain lenders (Incorporated by reference from Form 10-Q for the quarter ended September 31, 2000) 11 Computation of Per Share Earnings (Filed herewith) 13 Annual Report to Shareholders for the year ended December 31, 2000 (Filed herewith) 21 Subsidiaries of the Registrant (Filed herewith) 23 Consent of Ernst & Young LLP, Independent Auditors (Filed herewith) 24 Power of Attorney (Filed herewith)
* Executive Compensation Plan or Arrangement (b) There were no reports on Form 8-K filed in the fourth quarter of 2000. 15 16 THE RYLAND GROUP, INC. AND SUBSIDIARIES SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS (DOLLAR AMOUNTS IN THOUSANDS)
BALANCE CHARGED TO CHARGED DEDUCTIONS BALANCE AT AT BEGINNING COSTS AND TO OTHER AND END OF DESCRIPTION OF PERIOD EXPENSES ACCOUNTS TRANSFERS PERIOD (1) - ----------- ------------ ----------- -------- ---------- ----------- Valuation allowance: Homebuilding inventories 2000 $ 3,600 $ 11,809 $ -- $ (4,875) $ 10,534 1999 6,233 2,952 -- (5,585) 3,600 1998 2,967 4,188 -- (922) 6,233 Valuation allowance: Investment in and advances to joint ventures 2000 $ 1,000 $ 1,000 $ -- $ -- $ 2,000 1999 1,000 -- -- -- 1,000 1998 -- 1,000 -- -- 1,000
(1) Balances as of December 31, 2000, 1999 and 1998, represent valuation allowances for assets to be disposed of. 16 17 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. By: /s/ R. Chad Dreier March 20, 2001 - -------------------------------------- R. Chad Dreier, Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. PRINCIPAL EXECUTIVE OFFICER: /s/ R. Chad Dreier March 20, 2001 - -------------------------------------- R. Chad Dreier Chief Executive Officer PRINCIPAL FINANCIAL OFFICER: /s/ Gordon A. Milne March 20, 2001 - -------------------------------------- Gordon A. Milne Chief Financial Officer PRINCIPAL ACCOUNTING OFFICER: /s/ David L. Fristoe March 20, 2001 - -------------------------------------- David L. Fristoe Chief Accounting Officer All members of the Board of Directors: R. Chad Dreier, Leslie M. Frecon, William L. Jews, William G. Kagler, Ned Mansour, Robert E. Mellor, Norman J. Metcalfe, Charlotte St. Martin, Paul J. Varello; and John O. Wilson By: /s/ Timothy J. Geckle March 20, 2001 ----------------------------- Timothy J. Geckle As Attorney-in-Fact 17 18
Page of Sequentially Numbered Pages -------------- INDEX OF EXHIBITS 10.3 2000 Non-Employee Director Equity Plan of The Ryland Group, Inc., 19-23 as amended 11 Computation of Per Share Earnings 24 13 Annual Report to Shareholders for the Year Ended December 31, 2000 25-60 21 Subsidiaries of the Registrant 61 23 Consent of Independent Auditors 62 24 Power of Attorney 63
18 EX-10.3 2 a70604ex10-3.txt EXHIBIT 10.3 1 EXHIBIT 10.3 THE RYLAND GROUP, INC. 2000 NON-EMPLOYEE DIRECTOR EQUITY PLAN Section 1. PURPOSE The purpose of The Ryland Group, Inc., 2000 Non-Employee Director Equity Plan (the "Plan") is to advance the interests of the Corporation and its stockholders by encouraging increased Common Stock ownership by members of the Board of Directors. Section 2. DEFINITIONS "Board" means the Board of Directors of the Corporation. "Committee" means the Compensation Committee of the Board or such other committee of the Board that is designated by the Compensation Committee or the Board from time to time to administer the Plan. "Common Stock" means the Common Stock, $1.00 par value, of the Corporation. "Corporation" means The Ryland Group, Inc. "Employee" means any officer or employee of the Corporation or of its subsidiaries. "Market Price" means the last reported sale price of the Common Stock on the New York Stock Exchange; or, if the Common Stock is not listed on the New York Stock Exchange, the closing price on such other exchange on which the Common Stock is traded; or, if quoted on the Nasdaq National Market System or other over-the-counter market, the last reported sales price on the Nasdaq National Market System or other over-the-counter market; or, if the Common Stock is not publicly traded, such price as shall be determined by the Committee to be the fair market value. "Non-Employee Director" or "Participant" means a member of the Board who is not at the time also an Employee. "Stock Options" mean stock options granted under the Plan which are nonstatutory stock options not intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended. Section 3. SHARES OF COMMON STOCK SUBJECT TO THE PLAN (a) Subject to adjustment as provided in Section 3(b) below, the maximum aggregate number of shares of Common Stock that may be issued under the Plan shall be equal to the 19 2 sum of: (i) 275,000 shares, plus (ii) any shares of Common Stock available for future awards under the 1992 Non-Employee Director Equity Plan as of the date on which the Plan is approved by the stockholders of the Corporation. The Common Stock issued under the Plan will come from authorized but unissued shares of Common Stock, and the Corporation will set aside and reserve for issuance under the Plan said number of shares. (b) In the event of any stock dividend, extraordinary cash dividend, creation of a class of equity securities, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, exchange of shares, warrants or rights offering to purchase Common Stock at a price below Market Price or similar change affecting the Common Stock, appropriate adjustment shall be made in the maximum number and kind of shares subject to the Plan, outstanding Stock Options and subsequent grants of Stock Options and in the exercise price of outstanding Stock Options. Section 4. ADMINISTRATION OF THE PLAN Stock Option grants under the Plan are automatic as provided in Section 6. The Plan is administered by the Committee. The Committee shall have the powers vested in it by the terms of the Plan. The Committee shall, subject to the provisions of the Plan, have the power to construe the Plan, to determine all questions arising thereunder and to adopt and amend rules and regulations for the administration of the Plan. Notwithstanding the foregoing, the Committee shall have no discretion with respect to the eligibility or selection of Participants, and the timing or exercise price of Stock Options. Any decisions of the Committee on the administration of the Plan shall be final and conclusive. Section 5. PARTICIPATION IN THE PLAN All Non-Employee Directors shall participate in the Plan. Section 6. DETERMINATION OF STOCK OPTIONS Each Stock Option granted under the Plan shall be evidenced by a written instrument in such form as the Committee may approve and shall be subject to the following terms and conditions: (a) On December 31, 2000, and on each December 31 thereafter during the term of the Plan, each Non-Employee Director first elected to the Board during the calendar year that includes such date shall receive an option to purchase 10,000 shares of Common Stock and each other Non-Employee Director on such date shall receive an option to purchase 5,000 shares of Common Stock. (b) The purchase price for the Common Stock subject to Stock Options shall be the Market Price of the Common Stock on the date of grant. 20 3 (c) Stock Options shall fully vest and become exercisable six months from the date of grant. Vested Stock Options shall be exercisable at any time prior to the expiration of 10 years from the date of grant, subject to Section 6(d) of the Plan. (d) In the event service on the Board by a Participant terminates for any reason, all of the Participant's Stock Options shall fully vest and become immediately exercisable and will expire three years after the date of termination regardless of their stated expiration dates. The rights of a Participant in a Stock Option may be exercised by the Participant's guardian or legal representative in the case of disability and by the Participant's estate or a beneficiary designated by the Participant in the case of death. (e) The purchase price for the Common Stock subject to a Stock Option may be paid (i) in cash or by check, (ii) in shares of Common Stock of the Corporation including shares issued upon exercise of the Stock Option, (iii) by a broker-assisted cashless exercise in accordance with Regulation T of the Board of Governors of the Federal Reserve System through a brokerage firm approved by the Committee, or (iv) by any combination of the foregoing methods. The value of shares of Common Stock delivered in payment of the purchase price shall be their Market Price as of the date of exercise. (f) Each Participant shall pay to the Corporation, or make arrangements satisfactory to the Committee for the payment of, any federal, state or local taxes of any kind required by law to be withheld with respect to the receipt of shares of Common Stock pursuant to the exercise of a Stock Option. Such tax obligations may be paid in whole or in part, but in no event in excess of the amount necessary to satisfy the statutory minimum withholding amount due, in shares of Common Stock, including shares issued upon exercise of the Stock Option, valued at Market Price on the date of delivery. Section 7. STOCKHOLDER RIGHTS Non-Employee Directors shall not be deemed for any purpose to be or have rights as stockholders of the Corporation with respect to any shares of Common Stock except as and when such shares are issued and then only from the date of the certificate thereof. No adjustment shall be made for dividends, distributions or other rights for which the record date precedes the date of such stock certificate. Section 8. CONTINUATION OF DIRECTOR OR OTHER STATUS Nothing in the Plan or in any instrument executed pursuant to the Plan or any action taken pursuant to the Plan shall be construed as creating or constituting evidence of any agreement or understanding, express or implied, that the Corporation will retain a Non-Employee Director as a Director or in any other capacity for any period of time or at a particular retainer or other rate of compensation, as conferring upon any Participant any legal or other right to continue as a Director or in any other capacity, or as limiting, interfering with or otherwise affecting the provisions of the Corporation's charter, bylaws or the Maryland General Corporation Law relating to the removal of Directors. 21 4 Section 9. COMPLIANCE WITH GOVERNMENT REGULATIONS Neither the Plan nor the Corporation shall be obligated to issue any shares of Common Stock pursuant to the Plan at any time unless and until all applicable requirements imposed by any federal and state securities and other laws, rules, and regulations, by any regulatory agencies, or by any stock exchanges upon which the Common Stock may be listed have been fully met. As a condition precedent to any issuance of shares of Common Stock and delivery of certificates evidencing such shares pursuant to the Plan, the Committee may require a Participant to take any such action and to make any such covenants, agreements and representations as the Committee, in its discretion deems necessary or advisable to ensure compliance with such requirements. The Corporation shall in no event be obligated to register the shares of Common Stock issued or issuable under the Plan pursuant to the Securities Act of 1933, as now or hereafter amended, or to qualify or register such shares under any securities laws of any state upon their issuance under the Plan or at any time thereafter, or to take any other action in order to cause the issuance and delivery of such shares under the Plan or any subsequent offer, sale or other transfer of such shares to comply with any such law, regulation or requirement. Participants are responsible for complying with all applicable federal and state securities and other laws, rules and regulations in connection with any offer, sale or other transfer of the shares of Common Stock issued under the Plan or any interest therein including, without limitation, compliance with the registration requirements of the Securities Act of 1933 (unless an exemption therefrom is available), or with the provisions of Rule 144 promulgated thereunder, if available, or any successor provisions. Section 10. TRANSFERABILITY OF RIGHTS Except as otherwise determined by the Committee, no Participant shall have the right to assign any Stock Option or any other right or interest under the Plan, contingent or otherwise, or to cause or permit any encumbrance, pledge or charge of any nature to be imposed on any such Stock Option or any such right or interest, other than by will or the laws of descent and distribution. Unless otherwise determined by the Committee in accord with the provisions of the immediately preceding sentence, Stock Options shall be exercisable during the Participant's lifetime only by the Participant or the Participant's guardian or legal representative. Section 11. EFFECTIVE DATE OF PLAN The Plan is effective as of the date on which the Plan is approved by the stockholders of the Corporation. Prior to such approval, Awards may be made under the Plan expressly subject to such approval but any such Awards shall be void and ineffective if the Plan is not approved by the stockholders. Section 12. APPLICABILITY TO OTHER PLANS After and subject to stockholder approval of this Plan, no further awards shall be granted under the Corporation's 1992 Non-Employee Director Equity Plan. Outstanding awards under 22 5 the 1992 Non-Employee Director Equity Plan shall remain in effect pursuant to the terms of the agreements governing such awards and shall continue to be governed by the 1992 Non-Employee Director Equity Plan to the extent applicable. Section 13. AMENDMENT AND TERMINATION OF THE PLAN The Committee may amend, suspend or terminate the Plan or any portion thereof at any time as it determines appropriate, without further action by the Corporation's stockholders except to the extent required by applicable law or by any stock exchanges upon which the Common Stock may be listed. If not sooner terminated by the Committee, the Plan shall terminate on January 1, 2010. Termination of the Plan will not affect the rights and obligations arising under Stock Options theretofore granted and then in effect. Section 14. GOVERNING LAW The validity, construction and effect of the Plan, of written instruments entered into pursuant to the Plan, and of any rules, regulations, determinations or decisions made by the Committee relating to the Plan or such written instruments, and the rights of any and all persons having or claiming to have any interest therein or thereunder, shall be determined exclusively in accordance with applicable federal laws and the laws of the State of Maryland, without regard to its conflict of laws principles. 23 EX-11 3 a70604ex11.txt EXHIBIT 11 1 EXHIBIT 11 COMPUTATION OF PER SHARE EARNINGS
Year Ended December 31, 2000 1999 1998 - -------------------------------------------------------------------------------------------------- BASIC Net earnings before extraordinary item $ 82,252 $ 66,695 $ 43,592 Extraordinary item, net of tax -- -- (3,326) ------------ ------------ ------------ Net earnings 82,252 66,695 40,266 Adjustment for dividends on convertible preferred shares (694) (831) (1,000) ------------ ------------ ------------ Net earnings applicable to common stockholders $ 81,558 $ 65,864 $ 39,266 Weighted-average common shares outstanding 13,172,793 14,678,925 14,709,404 Net earnings per share before extraordinary item $ 6.19 $ 4.49 $ 2.90 Extraordinary item -- -- (0.23) ------------ ------------ ------------ Net earnings per share $ 6.19 $ 4.49 $ 2.67 ============ ============ ============ DILUTED Net earnings before extraordinary item $ 82,252 $ 66,695 $ 43,592 Extraordinary item, net of tax -- -- (3,326) ------------ ------------ ------------ Net earnings 82,252 66,695 40,266 Adjustment for dividends on convertible preferred shares -- -- -- ------------ ------------ ------------ Net earnings applicable to common stockholders 82,252 66,695 40,266 ============ ============ ============ Weighted-average common shares outstanding 13,172,793 14,678,925 14,709,404 Common stock equivalents: Stock options 315,560 292,580 316,640 Equity incentive plan 83,883 149,622 113,894 Conversion of preferred shares (1) 321,126 384,255 463,374 ------------ ------------ ------------ Total 13,893,362 15,505,382 15,603,312 ============ ============ ============ Net earnings per share before extraordinary item $ 5.92 $ 4.30 $ 2.79 Extraordinary item -- -- (0.21) ------------ ------------ ------------ Net earnings per share $ 5.92 $ 4.30 $ 2.58 ============ ============ ============
(1) The assumed conversion of preferred shares was dilutive for the years ended December 31, 2000, 1999 and 1998. 24 EX-13 4 a70604ex13.txt EXHIBIT 13 1 EXHIBIT 13 THE RYLAND GROUP, INC. & SUBSIDIARIES Selected Financial Data
(amounts in millions, except share data) unaudited 2000 1999 1998 1997 1996 - ----------------------------------------------------------------------------------------------------------------------- ANNUAL RESULTS Revenues Homebuilding $ 2,286 $ 1,959 $ 1,695 $ 1,557 $ 1,473 Financial services 46 50 70 93 107 ---------------------------------------------------- Total 2,332 2,009 1,765 1,650 1,580 Cost of sales - homebuilding 1,901 1,633 1,429 1,346 1,277 Selling, general and administrative expenses 268 239 216 211 203 Interest expense 28 28 45 57 74 ---------------------------------------------------- Earnings before taxes 135 109 75 36 26 Tax expense 53 42 32 14 10 ---------------------------------------------------- Net earnings before extraordinary item 82 67 43 22 16 Extraordinary item, extinguishment of debt (1) -- -- (3) -- -- ---------------------------------------------------- Net earnings $ 82 $ 67 $ 40 $ 22 $ 16 - ----------------------------------------------------------------------------------------------------------------------- YEAR-END POSITION Assets Housing inventories $ 888 $ 823 $ 642 $ 555 $ 575 Mortgage loans, held-for-sale 11 40 159 200 180 Mortgage-backed securities and notes receivable 85 99 112 153 144 Collateral for bonds payable of limited-purpose subsidiaries 23 40 92 142 214 Other assets 354 246 210 233 226 ---------------------------------------------------- Total assets $ 1,361 $ 1,248 $ 1,215 $ 1,283 $ 1,339 - ----------------------------------------------------------------------------------------------------------------------- Liabilities Long-term debt $ 450 $ 378 $ 308 $ 310 $ 354 Short-term notes payable 83 157 223 341 326 Bonds payable of limited-purpose subsidiaries 21 37 88 137 207 Other liabilities 354 290 250 190 142 ---------------------------------------------------- Total liabilities $ 908 $ 862 $ 869 $ 978 $ 1,029 - ----------------------------------------------------------------------------------------------------------------------- Stockholders' equity $ 453 $ 386 $ 346 $ 305 $ 310 - ----------------------------------------------------------------------------------------------------------------------- PER COMMON SHARE DATA BASIC Net earnings before extraordinary item $ 6.19 $ 4.49 $ 2.90 $ 1.33 $ 0.88 Net earnings $ 6.19 $ 4.49 $ 2.67 $ 1.33 $ 0.88 DILUTED Net earnings before extraordinary item $ 5.92 $ 4.30 $ 2.79 $ 1.32 $ 0.87 Net earnings $ 5.92 $ 4.30 $ 2.58 $ 1.32 $ 0.87 Dividends declared $ 0.16 $ 0.16 $ 0.16 $ 0.27 $ 0.60 Stockholders' equity $ 33.49 $ 27.22 $ 22.83 $ 20.31 $ 19.00 - -----------------------------------------------------------------------------------------------------------------------
(1) The Company reported an extraordinary after-tax charge of $3.3 million in 1998 which was related to a loss on the early extinguishment of debt. 25 2 THE RYLAND GROUP, INC. & SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION THE COMPANY Operations of The Ryland Group and its subsidiaries ("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 the Company's homebuilding customers and also conducts investment activities. RESULTS OF OPERATIONS CONSOLIDATED The Company reported record consolidated net earnings from operations of $82.3 million, or $6.19 per share ($5.92 per share diluted), for 2000, compared to consolidated net earnings of $66.7 million, or $4.49 per share ($4.30 per share diluted), for 1999 and consolidated net earnings before extraordinary item of $43.6 million, or $2.90 per share ($2.79 per share diluted), for 1998. The homebuilding segment reported pretax earnings of $151.3 million for 2000, compared to $120.8 million for 1999 and $80.1 million for 1998. Homebuilding results in 2000 increased from 1999 primarily due to higher average closing prices, gross profit margins and closing volume. Homebuilding results in 1999 increased from 1998 primarily due to higher gross profit margins, increased closing volume and lower interest expense. The financial services segment reported pretax earnings of $11.5 million for 2000, compared to $11.8 million for 1999 and $5.7 million (excluding a $6.1 million gain on the bulk sale of servicing rights) for 1998. The decrease in 2000 from 1999 is attributable to increases in general and administrative expenses, partially offset by increased gains from the sales of mortgages and mortgage servicing rights; an increase in loan originations; and increased earnings from title and escrow operations. The increase in 1999 from 1998, excluding the $6.1 million gain, was due to cost-reduction initiatives and lower interest expense. Corporate expenses represent the costs of corporate functions which support the business segments. Corporate expenses of $28 million for 2000 and $23.3 million for 1999 increased $4.7 million and $6.6 million, respectively, from prior year levels, primarily as a result of increases in incentive compensation attributable to higher earnings levels in 2000 and 1999 and charges totaling $1 million and $3.4 million in 2000 and 1999, respectively, relating to the relocation of corporate headquarters to California. 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 26 3 THE RYLAND GROUP, INC. & SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION in which the Company maintains a residual interest. Revenues, expenses and portfolio balances continue to decline as 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 for the homebuilding segment are summarized as follows (amounts in thousands, except average closing price):
2000 1999 1998 - ------------------------------------------------------------------------ Revenues $2,285,540 $1,958,832 $1,694,505 Gross profit 384,889 325,738 265,742 Selling, general and administrative expenses 216,660 193,193 168,004 Interest expense 16,886 11,715 17,681 ---------------------------------------- Homebuilding pretax earnings $ 151,343 $ 120,830 $ 80,057 ---------------------------------------- Average closing price $ 194,000 $ 190,000 $ 185,000 - ------------------------------------------------------------------------
Homebuilding revenues increased 17 percent in 2000, compared to 1999, due to a 12 percent increase in closings and an increase in the average closing price. The increase in closings in 2000 was due to a higher backlog at the beginning of the year and a 15 percent increase in new home orders during the year. Homebuilding revenues increased 16 percent in 1999, compared to 1998, due to a 13 percent increase in closings and an increase in the average closing price. The increase in closings in 1999 was due to a higher backlog at the beginning of the year and a 10 percent increase in new home orders during the year. Homebuilding results included a pretax loss of $0.9 million from land sales in 2000, compared to pretax gains of $0.7 million and $1.2 million in 1999 and 1998, respectively. Gross profit margins from home sales averaged 17.4 percent for 2000, an increase from 16.8 percent for 1999 and 15.9 percent for 1998. The improvement was primarily due to increased closings from newer communities which had more profitable land positions and a more cost-effective product. Sales price increases and Company initiatives to reduce direct construction costs also contributed to improved margins. Selling, general and administrative expenses, as a percent of revenues, were 9.5 percent for 2000 and 9.9 percent for both 1999 and 1998. This significant decrease was primarily due to 27 4 THE RYLAND GROUP, INC. & SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION divisional and regional cost savings which were partially offset by higher incentive compensation expense resulting from improved earnings. Interest expense increased $5.2 million, or 44 percent, in 2000, compared to 1999, primarily due to a higher long-term debt balance which resulted from increased activity in the Company's homebuilding operations and higher interest rates. Interest expense decreased $6 million, or 34 percent, in 1999, compared to 1998, due to lower effective rates paid on borrowings and an increase in the amount of interest capitalized on land under development. HOMEBUILDING OPERATIONAL DATA New orders increased 15 percent in 2000, compared to 1999. As of December 31, 2000, the Company had outstanding contracts for 4,168 units, an increase of 14 percent from year-end 1999, due to the increase in new orders during the year. Outstanding contracts represent the Company's backlog of sold but not closed homes, which are generally built and closed, subject to cancellation, over the subsequent two quarters. The $867 million value of outstanding contracts increased 26 percent from year-end 1999.
- ----------------------------------------------------------------------------------------------------------------------------- New Orders (Units) Closings (Units) % % 2000 1999 Change 2000 1999 Change - ----------------------------------------------------------------------------------------------------------------------------- North 3,511 2,917 20 3,242 2,801 16 South 6,018 5,235 15 5,988 4,981 20 West 2,390 2,256 6 2,188 2,411 (9) --------------------------------------------------------------------------------------------------- Total 11,919 10,408 15 11,418 10,193 12 - -----------------------------------------------------------------------------------------------------------------------------
Outstanding Contracts Outstanding Contracts December 31, 2000 December 31, 1999 - ----------------------------------------------------------------------------------------------------------------------------- DOLLARS Dollars % IN AVERAGE in Average UNITS CHANGE MILLIONS PRICE Units Millions Price - ----------------------------------------------------------------------------------------------------------------------------- North 1,480 22 $ 305 $ 206,000 1,211 $ 227 $ 187,000 South 2,098 1 383 182,000 2,068 361 174,000 West 590 52 179 304,000 388 103 266,000 --------------------------------------------------------------------------------------------------- Total 4,168 14 $ 867 $ 208,000 3,667 $ 691 $ 188,000 - -----------------------------------------------------------------------------------------------------------------------------
28 5 THE RYLAND GROUP, INC. & SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FINANCIAL SERVICES SEGMENT Revenues and expenses of the Company's financial services segment are summarized as follows (amounts in thousands):
2000 1999 1998 - ----------------------------------------------------------------------------------- Retail revenues: Interest and net origination fees $ 3,647 $ 5,595 $ 7,524 Gains on sales of mortgages and mortgage servicing rights 20,283 17,598 22,667 Loan servicing 383 1,581 7,675 Title/escrow 9,823 9,036 8,723 ------------------------------------ Total retail revenues 34,136 33,810 46,589 Revenues from investment operations 11,969 16,624 24,394 ------------------------------------ Total revenues $ 46,105 $ 50,434 $ 70,983 Expenses: General and administrative 22,991 21,944 32,066 Interest 11,619 16,652 27,129 ------------------------------------ Total expenses 34,610 38,596 59,195 ------------------------------------ Pretax earnings $ 11,495 $ 11,838 $ 11,788 - -----------------------------------------------------------------------------------
Pretax earnings by line of business were as follows (amounts in thousands):
2000 1999 1998 - -------------------------------------------------------------------------------- Retail $ 9,648 $ 9,180 $ 7,915 Investments 1,847 2,658 3,873 ---------------------------------------- Total $ 11,495 $ 11,838 $ 11,788 - --------------------------------------------------------------------------------
FINANCIAL SERVICES OPERATIONAL DATA
2000 1999 1998 - ------------------------------------------------------------------------------- Retail operations Number of mortgage originations 7,500 7,106 8,412 Dollars (in millions) $1,200 $1,100 $1,200 Percent of total originations from Ryland Homes 71% 68% 70% Investment operations Portfolio average balance (in millions) $ 93 $ 98 $ 139 - -------------------------------------------------------------------------------
29 6 THE RYLAND GROUP, INC. & SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION In 2000, revenues for the financial services segment decreased from 1999 levels due to declining mortgage collateral and investment balances, partially offset by an increase in originations and higher earnings from title and escrow operations. General and administrative expenses increased for the year ended December 31, 2000, compared with 1999, primarily as a result of provisions for contingent claims relating to loan servicing activities in prior years (see Note M). Revenues and general and administrative expenses for the financial services segment decreased for the year ended December 31, 1999, compared with 1998. The decreases were primarily due to a decline in loan servicing operations, which were related to loan servicing portfolio sales in the first quarter of 1998, and a decrease in originations. An increase in profitability per loan more than offset the effect of lower originations and reduced servicing income. Interest expense decreased 30 percent for the year ended December 31, 2000, compared with 1999, primarily due to declining mortgage collateral and investment balances, as well as a decrease in the holding period for mortgage loans prior to being sold in the secondary market. Interest expense decreased 39 percent for the year ended December 31, 1999, compared with 1998, primarily due to a decrease in the warehouse holding period for mortgage loans before they were sold in the secondary market, as well as a lower investment portfolio balance. Retail operations include residential mortgage origination, loan servicing, title, escrow and homeowners insurance services for retail customers. Retail operations reported pretax earnings of $9.7 million for 2000, compared with $9.2 million for 1999 and $7.9 million for 1998. 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 originations increased in 2000 by six percent from 1999 primarily due to an increased closing volume of 71 percent, compared to 68 percent in 1999, from Company-financed homebuilder originations. Mortgage originations decreased in 1999 by 16 percent from 1998 primarily due to a decrease in third-party originations, resulting from the Company's decision to exit the third-party originations market, and offset by a higher closing volume from homebuilder originations that were financed by the Company. 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 30 7 THE RYLAND GROUP, INC. & SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION investment operations were $1.8 million for 2000, compared with $2.7 million for 1999 and $3.9 million for 1998. Pretax earnings decreased $0.9 million in 2000, compared to 1999, primarily due to a decline in interest and other income which resulted from a lower average portfolio balance. 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 meet 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 $450 million and $308 million as of December 31, 2000 and 1999, respectively. The Company uses its unsecured revolving credit facility to finance increases in its homebuilding inventory and working capital. In July 2000, the Company increased its bank revolving credit agreement from $375 million to $400 million. This amended facility will mature in October 2003. There were no outstanding borrowings under this facility as of December 31, 2000, and $70 million in outstanding borrowings as of December 31, 1999. The Company had letters of credit outstanding under this facility which totaled $55.7 million at December 31, 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 December 31, 2000 and 1999, outstanding seller-financed nonrecourse secured notes payable were $1.9 million and $8.1 million, respectively. Housing inventories increased to $888.4 million as of December 31, 2000, from $822.7 million as of December 31, 1999. This increase reflects a higher sold inventory balance, which was related to an increase in year-end backlog, as well as an increase in land under development and improved lots, all commensurate with planned growth. The increase in inventory was funded with internally generated funds and proceeds from the new debt issue. The financial services segment uses cash generated from operations and borrowing arrangements to finance its operations. In August 2000, the financial services segment decreased its mortgage credit facility from $200 million to $150 million. This borrowing arrangement provides for mortgage warehouse funding and matures in May 2002. Other borrowing arrangements as of December 31, 2000, include repurchase agreement facilities aggregating $80 million and a $45 million revolving credit facility used to finance investment portfolio 31 8 THE RYLAND GROUP, INC. & SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION securities. At December 31, 2000 and 1999, combined borrowings of the financial services segment, outstanding under all agreements, were $82.6 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 Ryland Group has not guaranteed the debt of either the financial services segment or the limited-purpose subsidiaries. During 2000, the Company repurchased approximately 1.1 million shares of its outstanding common stock at a cost of approximately $25.4 million. As of December 31, 2000, the Company had Board authorization to repurchase up to an additional 624,000 shares of its outstanding common stock. The Company's stock repurchase program has been internally funded. MARKET RISK SUMMARY The following table provides information about the Company's significant financial instruments that are sensitive to changes in interest rates. For debt obligations, the table presents principal cash flows and related weighted-average interest rates by expected maturity dates. Weighted-average variable rates are based on implied forward rates as of the reporting date. 32 9 THE RYLAND GROUP, INC. & SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION INTEREST RATE SENSITIVITY Principal Amount by Expected Maturity
FAIR VALUE (dollars in thousands) 2001 2002 2003 2004 2005 THEREAFTER TOTAL 12/31/00 - -------------------------------------------------------------------------------------------------------------------------------- HOMEBUILDING Liabilities Long-term debt (fixed rate) $ 100,000 $ 350,000 $ 450,000 $ 439,939 Average interest rate 9.6% 9.5% 9.6% FINANCIAL SERVICES Assets Mortgage loans, held-for-sale (fixed rate) $ 10,241 $ 10,241 $ 10,473 Average interest rate 7.7% 7.7% Mortgage loans, held-for-sale (variable rate) $ 976 $ 976 $ 997 Average interest rate 8.6% 8.6% Mortgage-backed securities, available-for-sale $ 4,740 $ 3,759 $ 2,986 $ 2,368 $ 1,879 $ 7,273 $ 23,005 $ 23,900 Average interest rate 9.7% 9.7% 9.6% 9.6% 9.7% 9.6% 9.6% Mortgage-backed securities, held-to-maturity $ 3,378 $ 2,669 $ 2,109 $ 1,667 $ 1,318 $ 5,027 $ 16,168 $ 16,673 Average interest rate 8.8% 8.8% 8.7% 8.7% 8.7% 8.7% 8.7% Notes receivable, whole loans and funds held by trustee $ 12,186 $ 6,768 $ 5,343 $ 4,221 $ 3,335 $ 12,679 $ 44,532 $ 46,057 Average interest rate 9.3% 9.4% 9.4% 9.3% 9.3% 9.3% 9.3% Liabilities Short-term notes payable (variable rate) $ 82,563 $ 82,563 $ 82,563 Average interest rate Various (1) Various (1) Off - balance sheet financial instruments Forward-delivery contracts: Notional amount $ 51,000 $ 51,000 $ (165) Average interest rate 7.5% 7.5% Commitments to originate mortgage loans: Notional amount $ 23,578 $ 23,578 $ 292 Average interest rate 7.6% 7.6% - --------------------------------------------------------------------------------------------------------------------------------
1. Variable interest rate available to the Company is based upon LIBOR, Federal Funds or Prime Rate plus the specified margin over LIBOR, Federal Funds or Prime Rate. 33 10 THE RYLAND GROUP, INC. & SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Interest rate risk is the primary market risk facing the Company. Interest rate risk not only arises principally in the Company's financial services segment, but also in respect to the homebuilding segment's revolving bank facility. The Company enters into forward-delivery contracts and may, at times, use other hedging contracts to mitigate its exposure to movements in interest rates on mortgage loan commitments and mortgage loans held-for-sale. The selection of these hedging contracts is based upon a marketing strategy that establishes a risk-tolerance level. The major factors influencing the use of hedging contracts include general market conditions, interest rates, types of mortgages originated and the percentage of mortgage loan commitments expected to be funded. The market risk assumed while holding the hedging contracts generally mitigates the market risk associated with mortgage loan commitments and mortgage loans held-for-sale. In managing interest rate risk, the Company does not speculate on the direction of interest rates. Although collateral for bonds payable and bonds payable of the limited-purpose subsidiaries are subject to interest rate risk, the Company has not guaranteed, nor is it otherwise obligated with respect to, these bond issues and, therefore, has no risk of loss. 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 that will affect the timing and manner in which hedging gains and losses are recognized in the Company's financial statements. Upon adoption, the Company was required to adjust its hedging contracts to fair value in the balance sheet and recognize the offsetting gains or losses as adjustments to net income. These adjustments did not have a material effect on its earnings or financial position. Note: Certain statements in this annual report 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 such risks and uncertainties 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; availability and increases in raw material and labor costs; consumer confidence; government regulations; and general economic, business and competitive factors, all or each of which may cause actual results to differ materially. 34 11 THE RYLAND GROUP, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS
Year ended December 31, (amounts in thousands, except share data) 2000 1999 1998 - ------------------------------------------------------------------------------------------------- REVENUES Homebuilding $ 2,285,540 $ 1,958,832 $ 1,694,505 Financial services 46,105 50,434 70,983 -------------------------------------------- Total revenues 2,331,645 2,009,266 1,765,488 -------------------------------------------- EXPENSES Homebuilding Cost of sales 1,900,651 1,633,094 1,428,763 Selling, general and administrative 216,660 193,193 168,004 Interest 16,886 11,715 17,681 -------------------------------------------- Total homebuilding expenses 2,134,197 1,838,002 1,614,448 Financial services General and administrative 22,991 21,944 32,066 Interest 11,619 16,652 27,129 -------------------------------------------- Total financial services expenses 34,610 38,596 59,195 Corporate 27,998 23,332 16,687 -------------------------------------------- Total expenses 2,196,805 1,899,930 1,690,330 -------------------------------------------- Earnings before taxes and extraordinary item 134,840 109,336 75,158 Tax expense 52,588 42,641 31,566 -------------------------------------------- NET EARNINGS BEFORE EXTRAORDINARY ITEM 82,252 66,695 43,592 Extraordinary item - loss on early extinguishment of debt (net of taxes of $2,217) -- -- (3,326) -------------------------------------------- NET EARNINGS $ 82,252 $ 66,695 $ 40,266 - ------------------------------------------------------------------------------------------------- Preferred dividends $ 694 $ 831 $ 1,000 Net earnings applicable to common stockholders $ 81,558 $ 65,864 $ 39,266 NET EARNINGS PER COMMON SHARE Basic Net earnings before extraordinary item $ 6.19 $ 4.49 $ 2.90 Extraordinary item -- -- (0.23) -------------------------------------------- Net earnings per common share $ 6.19 $ 4.49 $ 2.67 Diluted Net earnings before extraordinary item $ 5.92 $ 4.30 $ 2.79 Extraordinary item -- -- (0.21) -------------------------------------------- Net earnings per common share $ 5.92 $ 4.30 $ 2.58 Average common shares outstanding Basic 13,172,793 14,678,925 14,709,404 Diluted 13,893,362 15,505,382 15,603,312 - -------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements. 35 12 THE RYLAND GROUP, INC. & SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31, (amounts in thousands, except share data) 2000 1999 - -------------------------------------------------------------------------------------------- ASSETS Homebuilding Cash and cash equivalents $ 135,371 $ 36,297 Housing inventories: Homes under construction 451,723 432,735 Land under development and improved lots 436,682 389,946 ------------------------ Total inventories 888,405 822,681 Property, plant and equipment 35,577 26,619 Purchase price in excess of net assets acquired 19,947 21,710 Other assets 71,932 48,064 ------------------------ 1,151,232 955,371 ------------------------ Financial Services Cash and cash equivalents 6,830 33,629 Mortgage loans, held-for-sale 11,217 40,520 Mortgage-backed securities and notes receivable 84,600 99,249 Other assets 11,843 16,326 ------------------------ 114,490 189,724 ------------------------ Other Assets Collateral for bonds payable of limited-purpose subsidiaries 23,005 39,633 Net deferred taxes 34,858 32,134 Other 37,756 31,461 ------------------------ TOTAL ASSETS $1,361,341 $1,248,323 LIABILITIES Homebuilding Accounts payable and other liabilities $ 254,949 $ 208,133 Long-term debt 450,000 378,000 ------------------------ 704,949 586,133 ------------------------ Financial Services Accounts payable and other liabilities 22,600 7,211 Short-term notes payable 82,563 157,458 ------------------------ 105,163 164,669 ------------------------ Other Liabilities Bonds payable of limited-purpose subsidiaries 21,250 37,339 Other 76,350 73,645 ------------------------ TOTAL LIABILITIES $ 907,712 $ 861,786 ------------------------ STOCKHOLDERS' EQUITY Convertible preferred stock, $1 par value: Authorized - 1,400,000 shares Issued - 295,018 shares (350,137 for 1999) 295 350 Common stock, $1 par value: Authorized - 78,600,000 shares Issued - 13,248,948 shares (13,850,819 for 1999) 13,249 13,851 Paid-in capital 60,535 71,730 Retained earnings 379,006 299,547 Accumulated other comprehensive income 544 1,059 ------------------------ TOTAL STOCKHOLDERS' EQUITY $ 453,629 $ 386,537 ------------------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,361,341 $1,248,323 - --------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements. 36 13 THE RYLAND GROUP, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
ACCUMULATED OTHER TOTAL PREFERRED COMMON PAID-IN RETAINED COMPREHENSIVE STOCKHOLDERS' (amounts in thousands, except share data) STOCK STOCK CAPITAL EARNINGS INCOME EQUITY - ---------------------------------------------------------------------------------------------------------------------------------- BALANCE AT JANUARY 1, 1998 $ 503 $ 14,522 $ 88,502 $ 199,114 $ 2,482 $ 305,123 Comprehensive income Net earnings 40,266 40,266 Other comprehensive income, net of tax: Unrealized losses on mortgage-backed securities, net of taxes of $(381) (572) (572) --------- Total comprehensive income 39,694 Preferred stock dividends (per share $2.21) (1,000) (1,000) Common stock dividends (per share $0.16) (2,369) (2,369) Repurchase of common stock (353) (6,676) (7,029) Conversions and retirements of preferred stock (86) 73 (1,446) (1,459) Reclassification of preferred paid-in capital 3,242 3,242 Employee stock plans (509,580 shares) 510 9,571 10,081 -------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1998 417 14,752 93,193 236,011 1,910 346,283 - ------------------------------------------------------------------------------------------------------------------------------ Comprehensive income Net earnings 66,695 66,695 Other comprehensive income, net of tax: Unrealized losses on mortgage-backed securities, net of taxes of $(543) (851) (851) --------- Total comprehensive income 65,844 Preferred stock dividends (per share $2.21) (831) (831) Common stock dividends (per share $0.16) (2,328) (2,328) Repurchase of common stock (1,188) (25,938) (27,126) Conversions and retirements of preferred stock (67) 63 (896) (900) Reclassification of preferred paid-in capital 612 612 Employee stock plans (223,800 shares) 224 4,759 4,983 -------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1999 350 13,851 71,730 299,547 1,059 386,537 - ------------------------------------------------------------------------------------------------------------------------------ Comprehensive income Net earnings 82,252 82,252 Other comprehensive income, net of tax: Unrealized losses on mortgage-backed securities, net of taxes of $(329) (515) (515) --------- Total comprehensive income 81,737 Preferred stock dividends (per share $2.21) (694) (694) Common stock dividends (per share $0.16) (2,099) (2,099) Repurchase of common stock (1,147) (24,262) (25,409) Conversions and retirements of preferred stock (55) 54 (585) (586) Reclassification of preferred paid-in capital 3,179 3,179 Employee stock plans (491,051 shares) 491 10,473 10,964 -------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 2000 $ 295 $ 13,249 $ 60,535 $ 379,006 $ 544 $ 453,629 - ------------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements. 37 14 THE RYLAND GROUP, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31, (amounts in thousands) 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 82,252 $ 66,695 $ 40,266 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 28,489 28,010 25,586 Loss on early extinguishment of debt -- -- 5,543 Changes in assets and liabilities, net of effects from acquisition: Increase in inventories (65,724) (178,590) (67,828) Net change in other assets, payables and other liabilities 40,600 34,971 95,272 Decrease in mortgage loans, held-for-sale 29,303 118,091 41,246 Other operating activities, net (3,695) (10,039) 354 --------------------------------------- Net cash provided by operating activities 111,225 59,138 140,439 --------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Net additions to property, plant and equipment (34,326) (29,026) (22,734) Principal reduction of mortgage collateral 17,756 28,940 39,887 Principal (increase in) reduction of mortgage-backed securities, available-for-sale (925) 11,629 10,899 Sales of mortgage-backed securities, available-for-sale 3,756 -- 10,935 Principal reduction of mortgage-backed securities, held-to-maturity 8,843 15,689 19,942 (Increase) decrease in funds held by trustee (1,668) 7,843 8,796 Acquisition of Regency Homes -- -- (17,885) Other investing activities, net 522 (232) 767 --------------------------------------- Net cash (used for) provided by investing activities (6,042) 34,843 50,607 --------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Cash proceeds of long-term debt 150,000 70,000 98,955 Reduction of long-term debt (78,000) (152) (106,836) Decrease in short-term notes payable (74,895) (65,600) (117,574) Bond principal payments (12,927) (51,883) (50,162) Common and preferred stock dividends (2,859) (3,249) (3,399) Common stock repurchases (25,409) (27,126) (7,028) Other financing activities, net 11,182 4,171 8,651 --------------------------------------- Net cash used for financing activities (32,908) (73,839) (177,393) --------------------------------------- Net increase in cash and cash equivalents 72,275 20,142 13,653 Cash and cash equivalents at beginning of year 69,926 49,784 36,131 --------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 142,201 $ 69,926 $ 49,784 - ------------------------------------------------------------------------------------------------------------------ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for interest (net of capitalized interest) $ 23,661 $ 29,145 $ 50,866 Cash paid for income taxes (net of refunds) $ 51,509 $ 40,683 $ 19,143 - ------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements. 38 15 THE RYLAND GROUP, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands, except share data, unless otherwise noted) NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation 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. Certain amounts in the consolidated statements of prior years have been reclassified to conform to the 2000 presentation. Use of Estimates The preparation of financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. Per Share Data Basic 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. Additionally, diluted net earnings per common share gives effect to dilutive common stock equivalent shares, including the assumed conversion of preferred shares held by The Ryland Group Retirement Savings Opportunity Plan Trust ("RSOP Trust") into common stock. The effect of the RSOP Trust was dilutive for the years ended December 31, 2000, 1999 and 1998. Income Taxes The Company files a consolidated federal income tax return. Certain items of income and expense are included in one period for financial reporting purposes and another for income tax purposes. Deferred income taxes are provided in recognition of these differences. Deferred tax assets and liabilities are determined based on enacted tax rates and are subsequently adjusted for changes in these rates. A change in deferred tax assets or liabilities results in a charge or credit to deferred tax expense. Homebuilding Revenues Homebuilding revenues are recognized when home sales are closed and title passes to the customer. 39 16 THE RYLAND GROUP, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands, except share data, unless otherwise noted) Service Liabilities Service and warranty costs are estimated and accrued at the time a home closes. Housing Inventories Housing inventories consist principally of homes under construction, land under development and improved lots. Inventories to be held and used are stated at cost, unless a community is determined to be impaired, in which case the impaired inventories are written down to fair value. Write-downs of impaired inventories to fair value are recorded as adjustments to the cost basis of the respective inventory. Inventories to be disposed of are stated at the lower of cost or fair value less cost to sell and are reported net of valuation reserves. Valuation reserves related to inventories to be disposed of amounted to $10.5 million at December 31, 2000, and $3.6 million at December 31, 1999. The net carrying values of the related inventories amounted to $35 million and $6 million at December 31, 2000 and 1999, respectively. Costs of inventory include direct costs of land, material acquisition, home construction and related direct overhead expenses. Interest and taxes are capitalized during the land development stage. The costs of acquiring and developing land and constructing certain related amenities are allocated to the parcels to which these costs relate. The following table is a summary of capitalized interest:
2000 1999 - ------------------------------------------------------------------------------- Capitalized interest as of January 1 $ 26,970 $ 21,600 Interest capitalized 34,105 24,397 Interest amortized to cost of sales (27,581) (19,027) ------------------------ Capitalized interest as of December 31 $ 33,494 $ 26,970 - -------------------------------------------------------------------------------
Property, Plant and Equipment Property, plant and equipment, which include model home furnishings, are carried at cost less accumulated depreciation and amortization. Depreciation is provided for, principally, by the straight-line method over the estimated useful lives of the assets. Model home furnishings are amortized over the life of the community as homes are closed. 40 17 THE RYLAND GROUP, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands, except share data, unless otherwise noted) Purchase Price in Excess of Net Assets Acquired Costs in excess of net assets of acquired businesses (goodwill) are amortized on a straight-line basis over their estimated useful lives for periods of up to 30 years. The Company periodically evaluates the businesses to which goodwill relates, on an undiscounted cash flow method, in order to assess whether the carrying value of goodwill has been impaired. Mortgage Loans, Held-For-Sale Mortgage loans, held-for-sale are reported net of discounts and are valued at the lower of cost or market determined on an aggregate basis. Any gain or loss on the sale of the loans is recognized at the time of sale. Mortgage-Backed Securities The Company classifies its mortgage-backed securities into two categories: held-to-maturity and available-for-sale. Management determines the appropriate classification of these securities at the time of purchase and re-evaluates such designations as of each balance sheet date. Mortgage-backed securities are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Securities classified as held-to-maturity are stated at amortized cost. Securities classified as available-for-sale are measured at fair value, with unrealized gains and losses, net of tax, reflected as accumulated other comprehensive income in stockholders' equity. Loan Origination Fees, Costs and Mortgage Discounts Loan origination fees, net of related direct origination costs and loan discount points, are deferred as an adjustment to the carrying value of related mortgage loans held-for-sale and are recognized in income upon the sale of the mortgage loans. Hedging Contracts The Company enters into forward-delivery contracts, options on forward-delivery contracts, futures contracts and options on futures contracts, as an end user, for the purpose of minimizing its exposure to movements in interest rates on mortgage loan commitments and mortgage loans held-for-sale. These contracts primarily represent commitments or options to purchase or sell mortgages or securities, generally within 90 days and at a specified price or yield. Forward-delivery contracts and futures are commitments only and, as such, are not recorded on the Company's balance sheet or statement of earnings. Option premiums are 41 18 THE RYLAND GROUP, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands, except share data, unless otherwise noted) deferred when paid and recognized as an adjustment to gains on sales of mortgages over the lives of the options on a straight-line basis. Changes in the fair value of contracts are deferred and included in mortgage loans held-for-sale. Changes in fair value are recognized in income as an adjustment to gains on sales of mortgages when the mortgages and securities are sold. Stock-Based Compensation The Company has elected to follow the intrinsic value method to account for compensation expense, which is related to the award of stock options, and to furnish the pro forma disclosures required under Statement of Financial Accounting Standards No. 123 (FAS 123), "Accounting for Stock-based Compensation." Since stock option awards are granted at prices no less than the fair market value of the shares at the date of grant, no compensation expense is recognized. 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 that will affect the timing and manner in which hedging gains and losses are recognized in the Company's financial statements. The Company adopted FAS 133 on January 1, 2001. This adoption did not have a material effect on the Company's earnings or financial position. 42 19 THE RYLAND GROUP, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands, except share data, unless otherwise noted) NOTE B: EARNINGS PER SHARE RECONCILIATION The following table sets forth the computation of basic and diluted earnings per share before extraordinary item:
Year ended December 31, 2000 1999 1998 - ----------------------------------------------------------------------------------------------------------------- Numerator Net earnings before extraordinary item $ 82,252 $ 66,695 $ 43,592 Preferred stock dividends (694) (831) (1,000) ------------------------------------------------ Numerator for basic earnings per share - earnings before extraordinary item available to common stockholders 81,558 65,864 42,592 Effect of dilutive securities - preferred stock dividends 694 831 1,000 ------------------------------------------------ Numerator for diluted earnings per share - earnings before extraordinary item available to common stockholders $ 82,252 $ 66,695 $ 43,592 DENOMINATOR Denominator for basic earnings per share - weighted-average shares 13,172,793 14,678,925 14,709,404 Effect of dilutive securities: Stock options 315,560 292,580 316,640 Conversion of preferred shares 321,126 384,255 463,374 Equity incentive plan 83,883 149,622 113,894 ------------------------------------------------ Dilutive potential of common shares 720,569 826,457 893,908 Denominator for diluted earnings per share - adjusted weighted-average shares and assumed conversions 13,893,362 15,505,382 15,603,312 BASIC EARNINGS PER COMMON SHARE Net earnings per share before extraordinary item $ 6.19 $ 4.49 $ 2.90 DILUTED EARNINGS PER COMMON SHARE Net earnings per share before extraordinary item $ 5.92 $ 4.30 $ 2.79 - -----------------------------------------------------------------------------------------------------------------
The assumed conversion of preferred shares was dilutive for the years ended December 31, 2000, 1999 and 1998. NOTE C: SEGMENT INFORMATION The Company is a leading, national homebuilder and mortgage-related financial services firm. As one of the largest single-family, on-site homebuilders in the United States, the Company builds homes in 21 markets. The Company's homebuilding segment specializes in the sale and construction of single-family attached and detached housing. The Company's financial services segment not only provides such mortgage-related products and services as loan 43 20 THE RYLAND GROUP, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands, except share data, unless otherwise noted) origination, title, escrow and homeowners insurance, but also conducts investment activities. The Company evaluates performance and allocates resources based on a number of factors, including segment pretax earnings. The accounting policies of the segments are the same as those described in the Summary of Significant Accounting Policies (see Note A). Certain corporate expenses are allocated to the homebuilding and financial services segments. In addition, amounts related to the limited-purpose subsidiaries are combined with corporate expenses and corporate assets in the following table as "other."
Year Ended December 31, 2000 1999 1998 - ------------------------------------------------------------------------------- REVENUES Homebuilding $ 2,285,540 $ 1,958,832 $ 1,694,505 Financial services 46,105 50,434 70,983 --------------------------------------------- Total $ 2,331,645 $ 2,009,266 $ 1,765,488 - ------------------------------------------------------------------------------- PRETAX EARNINGS Homebuilding $ 151,343 $ 120,830 $ 80,057 Financial services 11,495 11,838 11,788 Corporate and other (27,998) (23,332) (16,687) --------------------------------------------- Total $ 134,840 $ 109,336 $ 75,158 - ------------------------------------------------------------------------------- DEPRECIATION AND AMORTIZATION Homebuilding $ 24,063 $ 23,398 $ 23,166 Financial services 708 810 895 Corporate and other 3,718 3,802 1,525 --------------------------------------------- Total $ 28,489 $ 28,010 $ 25,586 - ------------------------------------------------------------------------------- IDENTIFIABLE ASSETS Homebuilding $ 1,151,232 $ 955,371 $ 778,668 Financial services 114,490 189,724 286,683 Corporate and other 95,619 103,228 150,047 --------------------------------------------- Total $ 1,361,341 $ 1,248,323 $ 1,215,398 - -------------------------------------------------------------------------------
NOTE D: ASSETS OF FINANCIAL SERVICES AND LIMITED-PURPOSE SUBSIDIARIES Financial Services Mortgage loans held-for-sale consist of loans collateralized by first mortgages or first deeds of trust on single-family attached or detached homes. Mortgage-backed securities and notes receivable consist of GNMA certificates, FNMA mortgage pass-through certificates, FHLMC participation certificates, notes receivable secured by mortgage-backed securities, whole loans and funds held by trustee. 44 21 THE RYLAND GROUP, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands, except share data, unless otherwise noted) Limited-Purpose Subsidiaries Collateral for bonds payable consists of mortgage-backed securities; notes receivable secured by mortgage-backed securities and mortgage loans; fixed-rate mortgage loans; and funds held by trustee. Mortgage-backed securities consist of GNMA certificates, FNMA mortgage pass-through certificates and FHLMC participation certificates. All principal and interest on collateral is remitted directly to a trustee and is available for payment on the bonds. The components of collateral for bonds payable at December 31 are summarized as follows:
2000 1999 - ------------------------------------------------------------------------------- Mortgage-backed securities $ 16,417 $ 27,092 Notes receivable 1,419 4,019 Mortgage loans 1,460 2,893 Funds held by trustee 3,916 5,838 Mortgage discounts (207) (209) --------------------------- Total $ 23,005 $ 39,633 - -------------------------------------------------------------------------------
Neither the Company nor its homebuilding and financial services subsidiaries have guaranteed, or are otherwise obligated with respect to, these bond issues. Mortgage-Backed Securities: Unrealized Gains and Losses Mortgage-backed securities are held by the financial services segment and reported in the balance sheet as "Mortgage-backed securities and notes receivable." They are also held by the limited-purpose subsidiaries and reported in the balance sheet as "Collateral for bonds payable." The following is a consolidated summary of mortgage-backed securities classified as available-for-sale and held-to-maturity as of:
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE - -------------------------------------------------------------------------------- December 31, 2000 Available-for-sale $23,078 $ 894 $ -- $23,972 Held-to-maturity 32,436 1,079 2 33,513 ---------------------------------------------- Total $55,514 $ 1,973 $ 2 $57,485 December 31, 1999 Available-for-sale $28,962 $ 1,953 $ 215 $30,700 Held-to-maturity 41,331 2,352 -- 43,683 ---------------------------------------------- Total $70,293 $ 4,305 $ 215 $74,383 - --------------------------------------------------------------------------------
45 22 THE RYLAND GROUP, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands, except share data, unless otherwise noted) NOTE E: FINANCIAL SERVICES SHORT-TERM NOTES PAYABLE Financial services had outstanding borrowings at December 31 as follows:
2000 1999 - -------------------------------------------------------------------------------- Mortgage warehouse facility $ -- $ 60,224 Repurchase agreements 37,664 77,619 Revolving credit agreement 44,899 19,615 ------------------------- Total outstanding borrowings $ 82,563 $157,458 - --------------------------------------------------------------------------------
In August 2000, the financial services segment decreased its bank credit facility from $200 million to $150 million. This borrowing arrangement provides for mortgage warehouse funding and matures in May 2002. There were no borrowings outstanding under this bank facility at December 31, 2000. Borrowings under this facility are collateralized by mortgage loans held-for-sale and cash proceeds from loan sales, which totaled $7,724 at December 31, 2000. Borrowings outstanding under this bank facility totaling $60,224 at December 31, 1999, were collateralized by mortgage loans held-for-sale and cash proceeds from loan sales totaling $72,876. The effective interest rates on these borrowings were 5.8 percent, 3.4 percent and 4.1 percent for 2000, 1999 and 1998, respectively. The agreement contains certain financial covenants, which the Company met at December 31, 2000. The repurchase agreements represented short-term borrowings of $37,664 and $77,619 in 2000 and 1999, respectively, that were collateralized by mortgage loans, mortgage-backed securities and investments in securities issued by one of the Company's limited-purpose subsidiaries. The outstanding collateral balances at December 31, 2000 and 1999, were $37,111 and $78,554, with related fair values of $37,843 and $79,913, respectively. During 2000, the Company renewed and extended a revolving credit facility used to finance investment securities in the financial services segment. The facility was increased by $10 million to a base of $45 million as of December 31, 2000. The agreement extends through March 2001, bears interest at market rates and is collateralized by investment portfolio securities. Borrowings outstanding under this facility, totaling $44,899 and $19,615, were collateralized by investment portfolio securities with principal balances of $47,192 and $20,025 at December 31, 2000 and 1999, respectively. Weighted-average interest rates at the end of the period on all short-term borrowings were 7.3 percent and 5.6 percent for 2000 and 1999, respectively. Weighted-average interest rates during the period on all short-term borrowings were 5.3 percent, 3.6 percent and 5.2 percent 46 23 THE RYLAND GROUP, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands, except share data, unless otherwise noted) for 2000, 1999 and 1998, respectively. NOTE F: OFF-BALANCE SHEET FINANCIAL INSTRUMENTS RELATED TO MORTGAGE LOAN ORIGINATIONS The Company is a party to financial instruments in the normal course of business. The financial services segment uses financial instruments to meet the financing needs of its customers and reduce its exposure to fluctuations in interest rates. These instruments involve, to varying degrees, elements of credit and market risk not recognized in the consolidated balance sheets. The Company has no derivative financial instruments that are held for trading purposes. The contract or notional amounts of these financial instruments as of December 31 were as follows:
2000 1999 ------- ------- Commitments to originate mortgage loans $23,578 $18,880 Hedging contracts: Forward-delivery contracts $51,000 $30,000 Others 10,000 5,000
Commitments to originate mortgage loans represent loan commitments with customers at market rates up to 120 days before settlement. Loan commitments have no carrying value on the balance sheet and expose the Company to market risk as a result of increases in mortgage interest rates. The amount of risk is limited to the difference between the contract price and current market value, and it is mitigated by fees collected from the customer and by the Company's hedging activities. Loan commitments had interest rates ranging from 6.5 percent to 13.6 percent as of December 31, 2000, and 6.5 percent to 12.1 percent as of December 31, 1999. Hedging contracts are regularly entered into by the Company for the purpose of mitigating its exposure to movements in interest rates on mortgage loan commitments and mortgage loans held-for-sale. The selection of these hedging contracts is based upon the Company's secondary marketing strategy, which establishes a risk-tolerance level. Major factors influencing the use of various hedging contracts include general market conditions, interest rates, types of mortgages originated and the percentage of mortgage loan commitments expected to be funded. The market risk assumed while holding the hedging contracts generally mitigates the market risk associated with mortgage loan commitments and mortgage loans held-for-sale. 47 24 THE RYLAND GROUP, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands, except share data, unless otherwise noted) The Company is exposed to credit-related losses in the event of nonperformance by counterparties to certain hedging contracts. Credit risk is limited to those instances where the Company is in a net unrealized gain position. The Company manages this credit risk by entering into agreements with counterparties meeting its credit standards and by monitoring position limits. NOTE G: FAIR VALUES OF FINANCIAL INSTRUMENTS The Company's financial instruments, both on and off the balance sheet, are held for purposes other than trading. The fair values of these financial instruments are based on quoted market prices, where available, or are estimated using present value or other valuation techniques. Estimated fair values are significantly affected by the assumptions used, including discount rates and estimates of cash flows. In that regard, derived fair-value estimates cannot be substantiated by comparison to independent markets and, in many cases, cannot be realized in immediate settlement of the instruments. The table below sets forth the carrying values and fair values of the Company's financial instruments, except for those noted financial instruments for which carrying values approximate fair values at the end of the year. It excludes nonfinancial instruments, and, accordingly, the aggregate fair-value amounts presented do not represent the underlying value of the Company. 48 25 THE RYLAND GROUP, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands, except share data, unless otherwise noted)
2000 1999 ---------------------------------------------------- CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE - ---------------------------------------------------------------------------------------------------------------------------- HOMEBUILDING Liabilities Senior notes $ 250,000 $ 253,251 $ 108,000 $ 111,080 Senior subordinated notes 200,000 186,688 200,000 184,000 FINANCIAL SERVICES Assets Mortgage loans, held-for-sale $ 11,217 $ 11,470 $ 40,520 $ 41,156 Mortgage-backed securities, available-for-sale 23,900 23,900 29,823 29,823 Mortgage-backed securities, held-to-maturity 16,168 16,673 15,134 15,911 Notes receivable, whole loans and funds held by trustee 44,532 46,057 54,292 57,433 Off-balance sheet financial instruments Commitments to originate mortgage loans -- 292 -- 3,292 Forward-delivery contracts -- (165) -- 298 Other hedging contracts -- (17) -- (45) OTHER ASSETS Collateral for bonds payable of the limited-purpose subsidiaries $ 23,005 $ 23,680 $ 39,633 $ 41,605 OTHER LIABILITIES Bonds payable of the limited-purpose subsidiaries $ 21,250 $ 22,775 $ 37,339 $ 41,045 - ----------------------------------------------------------------------------------------------------------------------------
The Company used the following methods and assumptions in estimating fair values: - - Cash and cash equivalents; secured notes payable; loan servicing receivables; funds held by trustee; revolving credit agreements and short-term notes payable: The carrying amounts reported in the balance sheet approximate fair values. - - Senior notes; senior subordinated notes; mortgage loans held-for-sale; mortgage-backed securities; notes receivable and whole loans; various hedging contracts if settled on December 31, 2000 and 1999; and mortgage loan commitments: The fair values of these financial instruments are based on quoted market prices for similar financial instruments. NOTE H: LIMITED-PURPOSE SUBSIDIARIES' BONDS PAYABLE The Company's limited-purpose subsidiaries no longer issue mortgage-backed bonds and mortgage-participation securities. Payments made on the bonds are on a scheduled basis in amounts relating to corresponding payments received on the underlying mortgage collateral. The following table sets forth information with respect to the limited-purpose subsidiaries' bonds payable outstanding at December 31:
2000 1999 - ----------------------------------------------------------------------------- Bonds payable, net of discounts: 2000 - $847; 1999 - $1,276 $21,250 $37,339 Range of interest rates 7.25% - 11.65% 7.25% - 12.625% Stated maturities 2009-2019 2009-2019 - -----------------------------------------------------------------------------
49 26 THE RYLAND GROUP, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands, except share data, unless otherwise noted) NOTE I: LONG-TERM DEBT Long-term debt consists of the following:
December 31, 2000 1999 - -------------------------------------------------------------------------------- Senior subordinated notes $200,000 $200,000 Senior notes 250,000 108,000 Revolving credit facility and other -- 70,000 ------------------------- $450,000 $378,000 - --------------------------------------------------------------------------------
In July 2000, the Company increased its unsecured revolving credit facility from $375 million to $400 million. This facility will mature in October 2003. Borrowings under this agreement bear interest at variable short-term rates. The effective interest rate was 8.1 percent for 2000 and 6.8 percent for 1999 and 1998. There were no amounts outstanding under this agreement at December 31, 2000. At December 31, 1999, the Company had $70 million of borrowings under this credit agreement at an average rate of 7.7 percent. The Company has $100 million of 9.625 percent senior subordinated notes outstanding due June 2004, with interest payable semiannually, which may be redeemed at the option of the Company, in whole or in part, at any time on or after December 1, 2000. The Company has $100 million of 8.25 percent senior subordinated notes due April 2008, with interest payable semiannually, which may be redeemed at the option of the Company, in whole or in part, at any time on or after April 1, 2003. In July 1998, the Company redeemed $100 million of 10.5 percent senior subordinated notes due 2002 at the stated call price of 103.94 percent of par. As a result, the Company recognized an extraordinary loss on early extinguishment of debt in 1998 of $3.3 million (net of a $2.2 million income tax benefit). Senior subordinated notes are subordinated to all existing and future senior debt of the Company. The Company has $100 million of 10.5 percent senior notes due July 2006, with interest payable semiannually, which may be redeemed at the option of the Company, in whole or in part, at any time on or after July 1, 2001. At December 31, 2000, the Company also had $150 million of 9.75 percent senior notes due September 2010, with interest payable semiannually, which may be redeemed at the option of the Company, in whole or in part, at any time on or after September 1, 2005. Maturities of long-term debt for the next five years are as follows: 2001 through 2003 - $0; 2004 - $100,000; 2005 - $0; thereafter - $350,000. 50 27 THE RYLAND GROUP, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands, except share data, unless otherwise noted) The bank credit agreement, senior subordinated indenture agreements and senior note agreements contain certain financial covenants. Under the loan covenants, the Company had $99.3 million of retained earnings available for dividends at December 31, 2000. The Company was in compliance with these covenants at December 31, 2000. NOTE J: INCOME TAXES The Company's expense for income taxes is summarized as follows:
Year ended December 31, 2000 1999 1998 - -------------------------------------------------------------------------------- CURRENT Federal $ 46,988 $ 36,633 $ 22,453 State 8,126 6,335 4,491 ------------------------------------------ Total current 55,114 42,968 26,944 ------------------------------------------ DEFERRED Federal (2,154) (279) 3,852 State (372) (48) 770 ------------------------------------------ Total deferred (2,526) (327) 4,622 ------------------------------------------ Total expense $ 52,588 $ 42,641 $ 31,566 - --------------------------------------------------------------------------------
The following table reconciles the statutory federal income tax rate to the Company's effective income tax rate:
Year ended December 31, 2000 1999 1998 - ------------------------------------------------------------------------------- Income taxes at federal statutory rate 35.0% 35.0% 35.0% State income taxes, net of federal tax 4.0 4.0 4.5 Other, net -- -- 2.5 -------------------------------- Effective rate 39.0% 39.0% 42.0% - -------------------------------------------------------------------------------
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. 51 28 THE RYLAND GROUP, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands, except share data, unless otherwise noted) Significant components of the Company's deferred tax assets and liabilities as of December 31 were as follows:
2000 1999 - ------------------------------------------------------------------------------- DEFERRED TAX ASSETS Inventory valuation differences, operating reserves and accruals $ 38,009 $ 34,297 Other 1,298 1,693 ------------------------- Total deferred tax assets 39,307 35,990 ------------------------- DEFERRED TAX LIABILITIES Installment sales method and deferred gains (2,438) (2,100) Other (2,011) (1,756) ------------------------- Total deferred tax liabilities (4,449) (3,856) ------------------------- Net deferred tax asset $ 34,858 $ 32,134 - -------------------------------------------------------------------------------
The Company has determined that no valuation allowance for the deferred tax asset is required. The Company had a current tax liability of $12,321 and $11,104 as of December 31, 2000 and 1999, respectively. NOTE K: STOCKHOLDERS' EQUITY Preferred Stock On August 31, 1989, the Company sold 1,267,327 shares of nontransferable, convertible preferred stock, par value $1.00, to the RSOP Trust, of which 295,018 shares were outstanding as of December 31, 2000. Each share of preferred stock receives an annual dividend of $2.21. During 2000, 1999 and 1998, the Company paid $694, $831 and $1,000, respectively, in dividends on its preferred stock. Each share of preferred stock entitles the holder to a number of votes equal to the shares into which the stock is convertible, and preferred stockholders vote together with common stockholders on all matters. Under the RSOP Trust, at the option of the trustee, the Company may be obligated to redeem the preferred stock to satisfy distribution obligations to its participants. For purposes of these redemptions, the value of each share of preferred stock is determined monthly by an independent appraiser, with a minimum guaranteed value of $25.25 per share. The Company may issue common stock to satisfy this redemption obligation, with any excess redemption price to be paid in cash. At December 31, 2000 and 1999, the maximum cash obligation for such 52 29 THE RYLAND GROUP, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands, except share data, unless otherwise noted) redemptions was shown outside of stockholders' equity as part of other liabilities. This obligation was calculated assuming that all preferred shares outstanding were submitted for redemption. Based upon the appraised value of each share of preferred stock ($43.38 and $33.81) and the market value of each share of common stock ($40.75 and $23.06) at December 31, 2000 and 1999, respectively, the redemption obligation was $774 and $3,764 at December 31, 2000 and 1999, respectively. During 2000 and 1999, 55,119 and 66,607 shares of preferred stock, respectively, were retired (see Note L). Common Share Purchase Rights In 1996, the Company adopted a revised shareholder rights plan under which it distributed one common share purchase right for each share of common stock outstanding on January 13, 1997. Each right entitles the holder to purchase one share of common stock at an exercise price of $70. The rights become exercisable 10 business days after any party acquires, or announces an offer to acquire, 20 percent or more of the Company's common stock. The rights expire January 13, 2007, and are redeemable at $0.01 per right at any time before 10 business days following the time that any party acquires 20 percent or more of the Company's common stock. In the event that the Company enters into a merger or other business combination, or if a substantial amount of its assets are sold after the time that the rights become exercisable, the holder will receive, upon exercise, shares of the common stock of the surviving or acquiring company having a market value of twice the exercise price. Until the earlier of the time that the rights become exercisable, are redeemed or expire, the Company will issue one right with each new share of common stock issued. NOTE L: EMPLOYEE INCENTIVE AND STOCK PLANS Retirement Savings Opportunity Plan (RSOP) All full-time employees are eligible to participate in the RSOP beginning the first pay period of the quarter, following 30 days of employment. Pursuant to Section 401(k) of the Internal Revenue Code, the plan permits deferral of a portion of a participant's income into a variety of investment options. Compensation expense reflects the Company's matching contributions to its employees' 401(k) contributions. Total compensation expense related to this plan amounted to $5,726, $5,068 and $3,549 in 2000, 1999 and 1998, respectively. As of December 31, 2000, 295,018 shares of preferred stock were allocated to participants' accounts. Previously, the Company issued its preferred stock in connection with its matching contributions to those accounts. 53 30 THE RYLAND GROUP, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands, except share data, unless otherwise noted) Equity Incentive Plan and Other Related Plans The Company's 1992 Equity Incentive Plan permits it to provide equity incentives to employees in the form of stock options, stock appreciation rights, performance shares, restricted stock and other stock-based awards. Under this plan, options are granted to purchase shares at prices not less than the fair market value of the shares at the date of grant. The options are exercisable at various dates over one- to 10-year periods. Stock options granted during 2000 generally have a maximum term of 10 years and vest over three years. At the beginning of each year, 2.5 percent of the number of common shares outstanding are authorized for grants of options and other equity instruments. Under the Company's Nonemployee Director Equity Plan, stock options are granted to directors to purchase shares at prices not less than the fair market value of the shares at the date of grant. A maximum of 275,000 shares of common stock has been reserved for issuance under this plan. The following is a summary of transactions relating to all stock option plans for each year ended December 31:
2000 1999 1998 ------------------------------------------------------------------------------ Weighted- Weighted- Weighted- Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price - ----------------------------------------------------------------------------------------------------------------------------------- Options outstanding at beginning of year 2,238,630 $20.02 1,840,400 $18.17 1,932,560 $15.71 Granted 546,500 19.96 690,250 24.51 637,000 23.88 Exercised (468,551) 17.32 (183,725) 17.08 (540,350) 16.13 Forfeited (116,643) 21.13 (108,295) 22.13 (188,810) 18.07 ---------------------------------------------------------------------------- Options outstanding at end of year 2,199,936 20.53 2,238,630 20.02 1,840,400 18.02 Available for future grant 286,027 71,794 320,143 ---------------------------------------------------------------------------- Total shares reserved 2,485,963 2,310,424 2,160,543 ---------------------------------------------------------------------------- Options exercisable at December 31 1,121,064 18.90 1,130,805 17.18 864,795 16.61 Prices related to options exercised during the year $13.50 - $28.88 $11.50 - $24.13 $12.88 - $24.13 - ---------------------------------------------------------------------------------------------------------------------------------
A summary of stock options outstanding and exercisable as of December 31, 2000, follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE - ------------------------------------------------------------------------------------------------------ Weighted - Weighted - Weighted - Range of Average Average Average Exercise Number Remaining Exercise Number Exercise Prices Outstanding Life (Years) Price Exercisable Price - ------------------------------------------------------------------------------------------------------ $12.75 to $16.44 881,985 7.23 $15.00 485,735 $13.87 $17.13 to $24.13 884,998 6.91 $22.60 458,319 $21.63 $24.25 to $40.75 432,953 8.35 $27.56 177,010 $25.66 - ------------------------------------------------------------------------------------------------------
54 31 THE RYLAND GROUP, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands, except share data, unless otherwise noted) The Company has adopted the disclosure-only provisions of FAS 123. Accordingly, no compensation expense has been recognized for stock option plans. Had compensation expense for these plans been determined based on fair value at the grant date for awards, consistent with the provisions of FAS 123, in 2000, 1999 and 1998, the Company's net earnings and net earnings per share would have been reduced to the pro forma amounts indicated in the following table:
2000 1999 1998 - -------------------------------------------------------------------------------- Net earnings - as reported $ 82,252 $ 66,695 $ 40,266 Net earnings - pro forma $ 80,137 $ 64,471 $ 38,761 Basic net earnings per share - as reported $ 6.19 $ 4.49 $ 2.67 Basic net earnings per share - pro forma $ 6.03 $ 4.34 $ 2.57 Diluted net earnings per share - as reported $ 5.92 $ 4.30 $ 2.58 Diluted net earnings per share - pro forma $ 5.77 $ 4.20 $ 2.48 - --------------------------------------------------------------------------------
The fair value of each option grant is estimated on the grant date by using the Black-Scholes option-pricing model. The following weighted-average assumptions were used for grants in 2000, 1999 and 1998, respectively: a risk-free interest rate of 6.4 percent, 5.2 percent and 5.4 percent; an expected volatility factor for the market price of the Company's common stock of 35 percent, 34 percent and 35 percent; a dividend yield of 0.9 percent, 0.7 percent and 0.7 percent; and an expected life of three years, four years and five years. The weighted-average fair value as of the grant date for options granted in 2000, 1999 and 1998 was $5.97, $7.95 and $9.11, respectively. NOTE M: COMMITMENTS AND CONTINGENCIES Commitments In the normal course of business, the Company acquires rights under option agreements to purchase land for use in future homebuilding operations. As of December 31, 2000, the Company had deposits and letters of credit outstanding of $40,208 for options and land purchase contracts having a total purchase price of $749,757. 55 32 THE RYLAND GROUP, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands, except share data, unless otherwise noted) Rent expense primarily relates to office facilities, model homes, and furniture and equipment. The increase in rent expense for 2000 from 1999 is primarily due to an increase in model home lease activity.
Year ended December 31, 2000 1999 1998 - ------------------------------------------------------------------------------- Total rent expense $ 18,212 $ 13,581 $ 14,142 Less income from subleases (2,416) (2,149) (1,447) ---------------------------------------- Net rental expense $ 15,796 $ 11,432 $ 12,695 - -------------------------------------------------------------------------------
Future minimum rental commitments under noncancelable leases with remaining terms in excess of one year are as follows: - -------------------------------------------------------------- 2001 $11,778 2002 9,216 2003 5,694 2004 3,813 2005 1,697 After 2005 890 ------- Subtotal $33,088 Less sublease income (3,400) ------- Total lease commitments $29,688 - --------------------------------------------------------------
Contingencies Contingent liabilities may arise from obligations incurred in the ordinary course of business or from the usual obligations of on-site housing producers for the completion of contracts. Some municipalities require the Company to issue development bonds or maintain letters of credit to assure completion of public facilities within a project. Total development bonds at December 31, 2000, were $251,723 and total deposits and letters of credit at December 31, 2000, were $37,185. Ryland Mortgage Company (RMC) received information from the Federal Deposit Insurance Corporation (FDIC) regarding outstanding claims related to mortgage servicing contracts entered into with the Resolution Trust Company during 1991 and 1992. RMC is investigating these claims. No prediction can be made, at this time, regarding the results of this investigation or whether the FDIC will initiate a civil action against RMC in connection with these claims. 56 33 THE RYLAND GROUP, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands, except share data, unless otherwise noted) 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 arising from these matters will not have a material adverse effect on the financial condition of the Company. 57 34 THE RYLAND GROUP, INC. & SUBSIDIARIES Report of Independent Auditors BOARD OF DIRECTORS AND STOCKHOLDERS THE RYLAND GROUP, INC. We have audited the accompanying consolidated balance sheets of The Ryland Group, Inc. and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Ryland Group, Inc. and subsidiaries at December 31, 2000 and 1999, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. /s/ ERNST & YOUNG LLP Los Angeles, California January 24, 2001 58 35 THE RYLAND GROUP, INC. & SUBSIDIARIES Report of Management Management of the Company is responsible for the integrity and accuracy of the financial statements and all other annual report information. The financial statements are prepared in conformity with generally accepted accounting principles and include amounts based on management's judgments and estimates. The accounting systems, which record, summarize and report financial information, are supported by internal control systems designed to provide reasonable assurance, at an appropriate cost, that the assets are safeguarded and that transactions are recorded in accordance with Company policies and procedures. Proper selection, training and development of personnel also contribute to the effectiveness of the internal control systems. These systems are the responsibility of management and are regularly tested by the Company's internal auditors. External auditors also review and test the effectiveness of these systems to the extent they deem necessary to express an opinion on the consolidated financial statements. The Audit Committee of the Board of Directors periodically meets with management, the internal auditors and the external auditors to review accounting, auditing and financial matters. Both internal auditors and external auditors have unrestricted access to the Audit Committee. /s/ GORDON A. MILNE Gordon A. Milne, Senior Vice President and Chief Financial Officer /s/ DAVID L. FRISTOE David L. Fristoe, Senior Vice President, CIO, Controller and Chief Accounting Officer 59 36 THE RYLAND GROUP, INC. & SUBSIDIARIES QUARTERLY FINANCIAL DATA AND COMMON STOCK PRICES AND DIVIDENDS
(amounts in thousands, 2000 1999 except share data) unaudited Dec. 31 Sept. 30 June 30 March 31 Dec. 31 Sept. 30 June 30 March 31 - ---------------------------------------------------------------------------------------------------------------------------- CONSOLIDATED RESULTS Revenues $749,556 $628,327 $524,750 $429,012 $595,647 $507,175 $502,405 $404,039 Earnings before taxes 51,712 37,441 27,773 17,914 34,153 29,736 28,578 16,869 Income tax expense 20,168 14,602 10,832 6,986 13,320 11,597 10,976 6,748 -------------------------------------------------------------------------------------------- Net earnings $ 31,544 $ 22,839 $ 16,941 $ 10,928 $ 20,833 $ 18,139 $ 17,602 $ 10,121 Basic net earnings per common share $ 2.37 $ 1.74 $ 1.29 $ 0.80 $ 1.45 $ 1.21 $ 1.17 $ 0.67 Diluted net earnings per common share $ 2.22 $ 1.67 $ 1.24 $ 0.78 $ 1.40 $ 1.15 $ 1.12 $ 0.65 Weighted - average common shares outstanding: Basic 13,222 12,992 13,027 13,449 14,198 14,856 14,851 14,810 Diluted 14,219 13,692 13,652 14,010 14,901 15,741 15,762 15,669 - ----------------------------------------------------------------------------------------------------------------------------
COMMON STOCK PRICES AND DIVIDENDS The Ryland Group lists its common shares on the New York Stock Exchange, trading under the symbol RYL. The table below presents high and low market prices and dividend information for the Company. The number of common stockholders of record as of February 15, 2001, was 13,390,673. (See Note I for dividend restrictions.)
Dividends Dividends Declared Declared 2000 High Low Per Share 1999 High Low Per Share - ------------------------------------------------------------------------------------------------------------------------------ First quarter $22 1/4 $15 1/4 $0.04 First quarter $28 5/16 $22 5/8 $0.04 Second quarter 22 7/8 18 7/16 0.04 Second quarter 30 22 7/8 0.04 Third quarter 31 20 0.04 Third quarter 30 7/16 22 1/4 0.04 Fourth quarter 41 9/16 27 1/2 0.04 Fourth quarter 24 1/16 19 15/16 0.04 - ------------------------------------------------------------------------------------------------------------------------------
60 EX-21 5 a70604ex21.txt EXHIBIT 21 1 EXHIBIT 21 LIST OF SUBSIDIARIES OF REGISTRANT Ryland Mortgage Company (an Ohio Corporation) Ryland Homes of California (a Delaware Corporation) RH of Texas LP RH of Indiana LP Ryland Homes of Arizona, Inc. (an Arizona Corporation) Ryland Homes of Florida, Inc. (a Florida Corporation) 61 EX-23 6 a70604ex23.txt EXHIBIT 23 1 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of The Ryland Group, Inc. of our report dated January 24, 2001, included in the 2000 Annual Report to the Shareholders of The Ryland Group, Inc. Our audits also included the financial statement schedule of The Ryland Group, Inc. listed in Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the Registration Statements (Form S-3 No. 33-48071, Form S-3 No. 33-50933, Form S-3 No. 333-03791, Form S-3 No. 333-31034) of The Ryland Group, Inc. and in the related Prospectuses of our report dated January 24, 2001, with respect to the consolidated financial statements and schedule of The Ryland Group, Inc. incorporated by reference in this Annual Report (Form 10-K) for the year ended December 31, 2000. We also consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-32431), the Registration Statement (Form S-8 No. 33-56905) pertaining to The Ryland Group, Inc. 1992 Equity Incentive Plan, the Registration Statement (Form S-8 No. 33-56917) pertaining to The Ryland Group, Inc. 1992 Non-Employee Director Equity Plan and Registration Statement (Form S-8 No. 333-68397) pertaining to The Ryland Group, Inc. Executive and Director Deferred Compensation Plan and The Ryland Group, Inc. Non-Employee Directors' Stock Unit Plan of The Ryland Group, Inc. of our report dated January 24, 2001, with respect to the consolidated financial statements and schedule of The Ryland Group, Inc. incorporated by reference in this Annual Report (Form 10-K) for the year ended December 31, 2000. /s/ Ernst & Young LLP Los Angeles, California March 20, 2001 62 EX-24 7 a70604ex24.txt EXHIBIT 24 1 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned directors and officers of The Ryland Group, Inc., a Maryland corporation, constitute and appoint Timothy J. Geckle the true and lawful agent and attorney-in-fact of the undersigned with full power and authority in said agent and attorney-in-fact to sign for the undersigned in their respective names as directors and officers of The Ryland Group, Inc., the Annual Report on Form 10-K of The Ryland Group, Inc., for the fiscal year ended December 31, 2000 to be filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934. We hereby confirm all acts taken by such agent and attorney-in-fact as herein authorized. DATED: March 20, 2001 /s/ Chad Dreier ---------------------------------------- Chad Dreier, Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer) /s/ Leslie M. Frecon ---------------------------------------- Leslie M. Frecon, Director /s/ William L. Jews ---------------------------------------- William L. Jews, Director /s/ William G. Kagler ---------------------------------------- William G. Kagler, Director /s/ Ned Mansour ---------------------------------------- Ned Mansour, Director /s/ Robert E. Mellor ---------------------------------------- Robert E. Mellor, Director /s/ Norman J. Metcalfe ---------------------------------------- Norman J. Metcalfe, Director /s/ Charlotte St. Martin ---------------------------------------- Charlotte St. Martin, Director /s/ Paul J. Varello ---------------------------------------- Paul J. Varello, Director /s/ John O. Wilson ---------------------------------------- John O. Wilson, Director 63 -----END PRIVACY-ENHANCED MESSAGE-----