<PAGE>
5/12 9 am
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
---------
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1994
-----------------
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
------------- ---------------
Commission File Number: 1-8029
THE RYLAND GROUP, INC.
----------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 52-0849948
- - -------------------------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
of incorporation or organization) Identification No.)
11000 Broken Land Parkway, Columbia, Maryland 21044
---------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(410) 715-7000
---------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
------ -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
The number of shares of common stock of The Ryland Group, Inc.,
outstanding on April 29, 1994 was 15,374,267
<PAGE>
THE RYLAND GROUP, INC.
FORM 10-Q
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at
March 31, 1994 (unaudited) and
December 31, 1993 1-2
Consolidated Statements of Earnings
for the three months ended
March 31, 1994 and 1993 (unaudited) 3
Consolidated Statements of Cash Flows
for the three months ended March 31
1994 and 1993 (unaudited) 4
Notes to Consolidated Financial
Statements (unaudited) 5-8
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial
Condition 9-15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
INDEX OF EXHIBITS 18
<PAGE>
The Ryland Group, Inc. and subsidiaries
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
HOMEBUILDING:
Cash and cash equivalents $ 47,855 $ 44,251
Homebuilding inventories:
Homes under construction 357,816 318,266
Land under development and improved lots 144,145 163,459
Land held for development or resale 7,283 7,821
------------ ------------
Total inventories 509,244 489,546
Investment in/advances to unconsolidated
joint ventures 22,321 23,066
Property, plant and equipment 15,932 13,999
Purchase price in excess of net assets acquired 23,381 23,639
Other assets 42,175 43,976
------------ ------------
660,908 638,477
============ ============
FINANCIAL SERVICES:
Cash and cash equivalents 9,016 2,239
Mortgage loans held for sale, net 316,496 535,679
Mortgage-backed securities, net 250,256 192,417
Purchased servicing and administration
rights, net 14,013 14,446
Other assets 66,250 76,150
------------ ------------
656,031 820,931
============ ============
LIMITED-PURPOSE SUBSIDIARIES:
Collateral for bonds payable, net 602,493 798,074
Other assets 7,682 9,882
------------ ------------
610,175 807,956
============ ============
Other assets 47,460 48,329
------------ ------------
TOTAL ASSETS $ 1,974,574 $ 2,315,693
============ ============
See notes to consolidated financial statements.
</TABLE>
1
<PAGE>
The Ryland Group, Inc. and subsidiaries
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
------------ ------------
(unaudited)
<S> <C> <C>
LIABILITIES
HOMEBUILDING:
Accounts payable and other liabilities $ 75,276 $ 59,082
Long-term debt 391,066 381,040
------------ ------------
466,342 440,122
============ ============
FINANCIAL SERVICES:
Accounts payable and other liabilities 14,773 34,453
Short-term notes payable 552,547 716,933
------------ ------------
567,320 751,386
============ ============
LIMITED-PURPOSE SUBSIDIARIES:
Accounts payable and other liabilities 18,737 22,591
Bonds payable, net * 586,577 778,428
------------ ------------
605,314 801,019
============ ============
Other liabilities 32,096 29,919
------------ ------------
TOTAL LIABILITIES 1,671,072 2,022,446
============ ============
STOCKHOLDERS' EQUITY
Convertible preferred stock, $1 par value
Authorized - 1,400,000 shares
Issued - 1,139,113 shares
(1,153,652 for 1993) 1,139 1,154
Common stock, $1 par value
Authorized - 78,600,000 shares
Issued - 15,372,387 shares
(15,342,624 for 1993) 15,372 15,343
Paid-in capital 116,510 116,386
Retained earnings 183,744 180,351
Net unrealized gain on securities 5,356
Other (18,619) (19,987)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 303,502 293,247
============ ============
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,974,574 $ 2,315,693
============ ============
See notes to consolidated financial statements.
* The 'bonds payable, net' shown in the financial statements represent
obligations solely of the limited-purpose subsidiaries, which are
secured by the assets of the limited-purpose subsidiaries.
The bonds are not guaranteed or insured by The Ryland Group, Inc.
or any of its subsidiaries.
</TABLE>
2
<PAGE>
The Ryland Group, Inc. and subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
Three months ended March 31,
1994 1993
----------- -----------
<S> <C> <C>
REVENUES:
Homebuilding:
Residential revenues $ 274,244 $ 216,722
Other revenues 770 1,472
----------- -----------
Total homebuilding revenues 275,014 218,194
Financial services 40,773 42,893
Limited-purpose subsidiaries 16,705 34,465
----------- -----------
Total revenues 332,492 295,552
EXPENSES:
Homebuilding:
Cost of sales 239,982 193,107
Interest expense 6,656 5,644
Selling, general and
administrative expenses 29,049 23,993
----------- -----------
Total 275,687 222,744
Financial services:
Interest expense 7,863 7,021
General and administrative expenses 21,043 16,700
----------- -----------
Total 28,906 23,721
Limited-purpose subsidiaries:
Interest expense 15,583 32,361
Other expenses 1,111 2,072
----------- -----------
Total 16,694 34,433
Corporate expenses 4,330 3,638
----------- -----------
Total expenses 325,617 284,536
Equity in earnings (losses) of
unconsolidated joint ventures 50 (273)
----------- -----------
Earnings before taxes and cumulative effect
of a change in accounting principle 6,925 10,743
Tax expense 2,770 4,190
----------- -----------
Net earnings before cumulative effect
of a change in accounting principle 4,155 6,553
Cumulative effect of a change in accounting
principle (net of taxes of $1,384) 2,076
----------- -----------
NET EARNINGS $ 6,231 $ 6,553
=========== ===========
Preferred dividends $ 629 $ 659
Net earnings available for common
shareholders $ 5,602 $ 5,894
NET EARNINGS PER COMMON SHARE:
Primary:
Net earnings before cumulative effect
of a change in accounting principle $ 0.23 $ 0.38
Cumulative effect of a change in
accounting principle 0.13
----------- -----------
Net earnings per common share $ 0.36 $ 0.38
=========== ===========
Fully diluted:
Net earnings before cumulative effect
of a change in accounting principle $ 0.23 $ 0.37
Cumulative effect of a change in
accounting principle 0.13
----------- -----------
Net earnings per common share $ 0.36 $ 0.37
=========== ===========
DIVIDENDS PER COMMON SHARE $ 0.15 $ 0.15
DIVIDENDS PER PREFERRED SHARE $ 0.55 $ 0.55
=========== ===========
See notes to consolidated financial statements.
</TABLE>
3
<PAGE>
The Ryland Group, Inc. and subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
(amounts in thousands)
<TABLE>
<CAPTION>
Three months ended March 31,
1993 1992
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 6,231 $ 6,553
Adjustments to reconcile net earnings
to net cash provided by (used for)
operating activities:
Depreciation and amortization 4,395 5,343
Net cumulative effect of a change
in accounting principle (3,460)
Gain on sale of investment (5,322)
Increase in inventories (19,698) (38,080)
Net change in other assets, payables
and other liabilities 3,065 (7,642)
Equity in (earnings) losses of
unconsolidated joint ventures (50) 273
Decrease (increase) in investment in/advances
to unconsolidated joint ventures 714 (1,286)
Decrease in mortgage loans held
for sale, net 219,183 45,069
Decrease in mortgage-backed
securities, net 21,470
---------- ---------
Net cash provided by operating activities 210,380 26,378
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net additions to property, plant and equipment (4,908) (2,024)
Principal reduction of mortgage collateral 199,010
Principal reduction of mortgage-backed
securities-available-for-sale 9,801
Principal reduction of mortgage-backed
securities-held-to-maturity 104,011
Other investing activities, net 37,946 93,436
---------- ---------
Net cash provided by investing activities 146,850 290,422
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in short-term notes payable (164,386) (71,713)
Cash proceeds of long-term debt 17,513 62,426
Reduction of long-term debt (7,487) (8,492)
Bond principal payments (193,459) (282,755)
Common and preferred stock dividends (2,989) (2,941)
Other financing activities, net 3,959 (49)
---------- ---------
Net cash used for financing activities (346,849) (303,524)
---------- ---------
Net increase in cash 10,381 13,276
Cash at beginning of year 46,490 10,413
---------- ---------
CASH AT END OF PERIOD $ 56,871 $ 23,689
========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 33,951 $ 54,975
Cash paid for income taxes $ 4,414 $ 5,245
========== =========
See notes to consolidated financial statements.
</TABLE>
4
<PAGE>
The Ryland Group, Inc. and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(amounts in thousands, except for share data, in all notes)
Note 1. Segment Information
<TABLE>
<CAPTION>
Three months ended March 31,
1994 1993
---------- ---------
<S> <C> <C>
Pretax earnings (loss):
Homebuilding $ (623) $ (4,823)
Financial services 11,867 19,172
Limited-purpose subsidiaries 11 32
Corporate expenses (4,330) (3,638)
---------- ---------
Total $ 6,925 $ 10,743
========== =========
</TABLE>
5
<PAGE>
The Ryland Group, Inc. and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(unaudited)
Note 2. Consolidated Financial Statements
The consolidated financial statements include the accounts of The Ryland
Group, Inc. and its wholly owned subsidiaries (the Company). Intercompany
transactions have been eliminated in consolidation. Certain investments in
joint ventures are accounted for by the equity method.
The consolidated balance sheet as of March 31, 1994, the consolidated
statements of earnings for the three months ended March 31, 1994 and 1993, and
the consolidated statements of cash flows for the three months ended March 31,
1994 and 1993 have been prepared by the Company, without audit. In the
opinion of management, all adjustments, which include normal recurring
adjustments necessary to present fairly the financial position, results of
operations and cash flows as of March 31, 1994, and for all periods presented,
have been made. The consolidated balance sheet at December 31, 1993 is taken
from the audited financial statements as of that date. Certain amounts in the
consolidated statements have been reclassified to conform to the 1994
presentation.
Certain information and footnote disclosures normally included in the
financial statements have been condensed or omitted. It is suggested that
these financial statements be read in conjunction with the financial
statements and related notes included in the Company's December 31, 1993
annual report to shareholders.
The results of operations for the three months ended March 31, 1994 are not
necessarily indicative of the operating results for the full year.
Assets presented in the financial statements are net of any valuation
allowances.
In calculating primary earnings per common share, the dividend requirements of
the preferred shares held by the Ryland Retirement and Stock Ownership Plan
Trust (the RSOP Trust) have been deducted from net earnings. For the three
months ended March 31, 1994 and 1993, the average shares outstanding have been
increased by the common stock equivalents relating to the employee stock
option and employee incentive plans.
Net earnings used in calculating fully diluted earnings per common share, for
the three months ended March 31, 1994 and 1993, were decreased by the amount
of the additional RSOP contribution required to fund the difference between
the RSOP's earnings from preferred stock dividends and the RSOP's potential
earnings from common stock dividends after an assumed conversion.
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(unaudited)
The Ryland Group, Inc. and subsidiaries
Note 2. Consolidated Financial Statements - continued
Fully diluted earnings per common share for the three months ended March 31,
1994 and 1993, gives effect to the common stock equivalents and the assumed
conversion of the preferred stock into 1,146,383 shares and 1,202,801 shares,
respectively, of common stock, in accordance with the RSOP Trust Agreement.
Note 3. Accounting Changes
In May 1993 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115 ("FAS 115"), "Accounting for Certain
Investments in Debt and Equity Securities." The Company adopted the
provisions of the new standard for investments held as of or acquired after
January 1, 1994. In accordance with FAS 115, prior period financial
statements have not been restated to reflect the change in accounting
principle. In compliance with the new standard, the Company has classified
its investments into one of three categories: Held-to-maturity, available-for-
sale or trading, based on management's intent and ability to hold such
securities. At March 31, 1994, there were no securities designated as trading
account assets. Management determines the appropriate classification of
investment securities at the time of purchase and reevaluates such
designations as of each balance sheet date. Investment securities are
classified as held-to-maturity when the Company has the positive intent and
ability to hold the securities to maturity. Securities which are classified as
available-for-sale will be measured at fair value with the unrealized gains and
losses, net of tax, reflected as a component of stockholders' equity. Lastly,
securities classified as trading will be measured at fair value with gains and
losses, both realized and unrealized, flowing through the income statement.
The cumulative effect of adopting FAS 115 as of January 1, 1994
increased net income by $2,076 (net of $1,384 in deferred income taxes), or
$.13 per share. The cumulative effect adjustment relates to unearned income
or discount points on investment securities, which can now be amortized into
7
<PAGE>
The Ryland Group Inc. and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(unaudited)
Note 3. Accounting Changes - continued
income during the period that the investments are held. Prior to adopting FAS
115, discount points were recognized into income only when the related
investment security was sold. The January 1, 1994 balance of stockholders'
equity was increased by $7,594 (net of $5,063 in deferred income taxes) to
reflect the net unrealized holding gains on securities classified as
available-for-sale, which were previously carried at the lower of amortized
cost or market. Subsequent to January 1, 1994, the fair value of the
mortgage-backed securities in the available-for-sale portfolio declined $2,238,
resulting in a net unrealized gain adjustment to stockholders' equity as of
March 31, 1994 of $5,356.
Note 4. Investments
The following is a summary of mortgage-backed securities relating to the
financial services segment and limited-purpose subsidiaries as of March 31,
1994:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------------------------------------------
<S> <C> <C> <C> <C>
Available-for-Sale $ 129,948 $ 8,959 $ 32 $138,875
Held-to-Maturity 245,093 17,516 221 262,388
-----------------------------------------------
Totals $ 375,041 $26,475 $ 253 $401,263
================================================
</TABLE>
During the three months ended March 31, 1994, there were no sales of mortgage-
backed securities.
Because mortgage-backed securities are not due at a single maturity date,
contractual maturities are not shown.
8
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
RESULTS OF OPERATIONS
CONSOLIDATED
In the first quarter of 1994, the Company reported consolidated net earnings
of $6.2 million, or $.36 per share, which included the cumulative impact of an
accounting change of $.13 per share. This compares with consolidated net income
of $6.6 million, or $.38 per share, for the same period in 1993, which included
a non-recurring gain of $.21 per share. Excluding these non-recurring items,
consolidated net earnings for the first quarter of 1994 amounted to $4.2
million, or $.23 per share, compared with $3.3 million, or $.17 per share, for
the same period of 1993.
The improvement in the Company's results, excluding non-recurring items, was
primarily attributable to improved performance in the homebuilding segment
which reported a pretax loss of $623 thousand for the first quarter of 1994,
compared with a $4.8 million pretax loss in the first quarter of 1993.
The financial services segment reported pretax earnings for the first quarter
of 1994 of $11.9 million, compared with $19.2 million for the same period of
1993, when a non-recurring pretax gain of $5.3 million, or $.21 per share, was
realized from the final sale of the Company's interest in a real estate
investment trust.
The Company's first quarter results include the cumulative impact of an
accounting change to adopt Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities," as of
January 1, 1994. The impact of this accounting rule change, which amounted to
$2.1 million, or $.13 per share, relates to the financial services segment's
investment portfolio.
The limited-purpose subsidiaries, whose operations continue to decline as the
mortgage collateral and related bonds payable decrease, reported pretax
earnings of $11 thousand, compared with pretax earnings of $32 thousand for
the first quarter of 1993.
9
<PAGE>
HOMEBUILDING
Operations of the Company's homebuilding segment are summarized as follows ($
amounts in thousands):
<TABLE>
<CAPTION>
Three months ended March 31,
1994 1993
--------- ---------
<S> <C> <C>
Revenues $275,014 $218,194
Gross profit 35,032 25,087
Selling, general and
administrative expenses 29,049 23,993
Interest expense 6,656 5,644
Equity in earnings
(losses) of unconsolidated joint ventures 50 (273)
--------- ---------
Pretax loss $ (623) $ (4,823)
========== =========
Operational Unit Data:
(includes joint ventures)
Settlement units 1,829 1,608
New order units 2,848 2,247
Outstanding contracts at
March 31,
Units 3,738 3,068
Dollar Value $612,465 $478,685
Average Settlement Price
(excludes unconsolidated
joint ventures) $155,000 $140,000
</TABLE>
In the first quarter of 1994, revenues increased 26.0 percent compared with
1993 due to an overall increase in settlements and higher average settlement
prices. Settlements increased 13.7 percent from the same period a year ago,
and the average settlement price increased 10.7 percent from the first quarter
of 1993.
The gross margin for the first quarter of 1994 was 12.7 percent, compared with
11.5 percent in the first quarter of 1993. All regions, with the exception of
California, showed improvement over the gross margins for the first quarter of
1993. The California region's gross margin will continue to be
negatively impacted by the build out of low margin inventory, for which
reserves were provided in the third quarter of 1993. The improvement in the
overall gross margin during the first quarter of 1994 is attributable to
continued strong demand resulting in higher volume and increased sales prices.
Reduced volume from older lower margin projects, in comparison to the first
quarter of 1993, also contributed to the improvement in gross margins.
10
<PAGE>
During the first quarter of 1994, total homebuilding new orders increased 26.7
percent to 2,848 units as compared with the first quarter of 1993. The growth
in new orders is attributable to gains in the California, Southwest, and West
regions, offset by lower sales in the Mid-Atlantic and Southeast regions,
and a decline in the operations of unconsolidated joint ventures.The increase
in new orders in the Southwest region is attributable to improved sales in the
Houston and Dallas divisions and the Company's acquisition, in March 1993,
of an interest in a joint venture with Scott Felder Homes which has
operations in Austin, Dallas and San Antonio. Continued strong sales in the
Phoenix and Denver divisions provided increases in new orders in the West
region. The California region showed improvement in sales compared to the
first quarter a year ago, due in part to the changes in strategy implemented in
the latter part of 1993. The decline in the Southeast region
was due to the Company's withdrawal from the Jacksonville, Florida market.
The decline in new orders in the Mid-Atlantic region was primarily
weather-related.
For the homebuilding segment, outstanding contracts as of March
31, 1994 were up 21.8 percent from March 31, 1993. The $612.5 million value of
outstanding contracts, which increased 28 percent over first quarter 1993, is
the highest first-quarter backlog in the Company's history.
Selling, general and administrative expenses as a percent of revenues
decreased in the first quarter to 10.6 percent, compared with 11.0 percent for
the same period of 1993. This decline reflects the higher revenue base over
which these costs were spread in 1994.
Interest expense for the first quarter of 1994 increased $1.0 million compared
with the same period of 1993 due to an increase in homebuilding debt combined
with an increase in the overall borrowing costs of the Company.
FINANCIAL SERVICES
The financial services segment reported pretax earnings of $11.9 million for
the first quarter, compared with $19.2 million in the first quarter of 1993.
The decrease in earnings was primarily due to a non-recurring pretax gain of
$5.3 million from the final sale of the Company's interest in a real estate
investment trust in the first quarter of 1993.
11
<PAGE>
Retail Operations:
Pretax earnings for retail operations were as follows (amounts in thousands):
<TABLE>
<CAPTION>
Three months ended March 31,
1994 1993
-------- --------
Revenues:
<S> <C> <C>
Interest and net origination fees $ 6,954 $ 5,899
Gains on sales of mortgages and
servicing rights 9,457 6,158
-------- --------
Mortgage production revenue 16,411 12,057
Loan servicing 11,253 10,517
Title/escrow 890 595
-------- --------
Total retail revenues 28,554 23,169
Expenses 22,256 18,084
-------- --------
Pretax earnings $ 6,298 $ 5,085
======== ========
</TABLE>
The increase in total revenues for the three months ended March 31, 1994,
compared with the same period in 1993, is the result of higher gains on the
sales of mortgages and servicing rights and higher interest revenues earned on
mortgages due to increased origination activity. Expenses have increased 23.1
percent between periods due to the growth in mortgage origination activity and
overall expansion of the Company's origination operations.
The financial services segment seeks to manage the net interest spread and the
sales of mortgages and servicing rights to offset the costs of origination and
marketing, while continuing to build the Company's originated loan servicing
portfolio.
Mortgage origination activities were as follows:
<TABLE>
<CAPTION>
Three months ended March 31,
1994 1993
-------- ------
<S> <C> <C>
Dollar volume of mortgages
originated (in millions) $675 $541
Number of mortgages originated 5,355 4,266
Percentage Ryland Homes settlements 19% 28%
Percentage other settlements 81% 72%
-------- ------
Total settlements 100% 100%
</TABLE>
12
<PAGE>
The Company earns interest on mortgages held for sale and pays interest on
borrowings secured by the mortgages. Significant data from these operations
were:
<TABLE>
<CAPTION>
Three months ended March 31,
1994 1993
-------- ------
<S> <C> <C>
Interest spread (in thousands) $3,349 $3,049
Average balance of mortgages
held for sale (in millions) $452 $358
Interest spread rate 3.0% 3.4%
</TABLE>
The interest spread increased in the first quarter of 1994 compared to 1993
due to a higher average balance of mortgages held for sale partially offset by
a lower interest spread rate. The lower interest spread rate is attributable
to a decrease in mortgage rates since last year without a corresponding
decrease in borrowing costs.
The loan servicing portfolio balances were as follows at March 31, (in
billions):
<TABLE>
<CAPTION>
1994 1993
-------- ------
<S> <C> <C>
Originated $3.4 $3.8
Acquired 4.5 5.4
Subserviced for others 1.2 .4
-------- ------
Total portfolio $9.1 $9.6
======== ======
</TABLE>
The decrease in the portfolio balance as compared to 1993 is primarily
attributable to the decline in the acquired portfolio segment, resulting
from prepayments. The 1994 increase in loans subserviced for others
principally relates to interim servicing of loans for which the servicing was
sold in the first quarter of 1994. The gain on the sale of servicing can not be
recognized for accounting purposes until the second quarter.
Institutional Operations:
The institutional operations encompass securities issuance and securities
administration services. Pretax earnings for the three months ended March 31,
1994 increased 25.5 percent as compared to the same period in 1993. This
increase in pretax earnings, despite a decline in the overall portfolio
balance, is attributable to higher revenues and improved margins per series.
<TABLE>
<CAPTION>
1994 1993
-------- ------
<S> <C> <C>
Revenues $5,700 $4,923
Expenses 3,391 3,083
-------- ------
Pretax earnings $2,309 $1,840
======== ======
</TABLE>
13
<PAGE>
Significant data on the securities administration portfolio as of March 31,
was as follows:
<TABLE>
<CAPTION>
1994 1993
-------- ------
<S> <C> <C>
Total securities administration
portfolio (in billions) $49.7 $60.5
Number of series in the
administration portfolio 533 497
</TABLE>
Investment Operations:
The Company's investment operations hold certain assets, primarily mortgage-
backed securities, which were obtained as a result of the redemption of
mortgage-backed bonds issued by the Company's limited-purpose subsidiaries.
As shown in the table below, pretax earnings for the three months ended March
31, 1994 decreased 73.4 percent as compared to the first quarter of 1993. The
$5.3 million gain in the first quarter of 1993 was the result of the
final sale of the Company's interest in a real estate investment trust (REIT)
and is a non-recurring item. The Company also realized net revenues of $4.0
million from the sale of mortgage-backed securities in the first quarter of
1993.
Pretax earnings for the three months ended March 31, were comprised of the
following:
<TABLE>
<CAPTION>
1994 1993
-------- -------
<S> <C> <C>
Sale of REIT stock $ 0 $5,322
Sale of mortgage-backed securities 0 4,040
Interest spread and other 3,260 2,885
-------- -------
Pretax earnings $3,260 $12,247
======== =======
</TABLE>
The Company earns a net interest spread on the investment portfolio from the
difference between the interest rates on the mortgage-backed securities and
the related borrowing rates. The increase in the interest spread rate between
periods is partially due to a higher yield earned on the mortgage-backed
securities as a result of adopting FAS 115 as of January 1, 1994. Prior to FAS
115 unearned income or discount points were deferred and recognized upon sale of
the related investment security. Under FAS 115, this unearned income is
14
<PAGE>
amortized into income as an adjustment to the interest yield over the remaining
term of the investment security. Significant data from the investment
operations was as follows:
<TABLE>
<CAPTION>
Three months ended March 31,
1994 1993
-------- -------
<S> <C> <C>
Interest spread earned (in thousands) $4,398 $3,007
Average balance outstanding at
March 31 (in millions) $223 $218
Interest spread rate 8.0% 5.5%
</TABLE>
FINANCIAL CONDITION AND LIQUIDITY
The Company generally provides for the cash requirements of the homebuilding
segment and financial services segment from internally generated funds and
outside borrowings. The Company believes that its sources of cash are
sufficient to finance its expected requirements.
Housing inventories increased to $509.2 million as of March 31, 1994, from
$489.5 million as of December 31, 1993, primarily due to normal seasonal
increases in homes under construction and expansion into new and existing
markets.
The Company primarily uses its unsecured revolving credit agreement to finance
its homes under construction. This agreement, which was renewed in July 1993,
allows the Company to borrow up to $215 million for a three-year period. As
of March 31, 1994, the Company had borrowed $107.5 million under this
agreement, compared with $90 million as of December 31, 1993. The increase is
primarily attributable to the aforementioned increases in homebuilding
inventories. In addition, the Company had letters of credit outstanding under
this credit facility totaling $7.4 million at March 31, 1994.
The financial services segment uses cash generated from operations and
borrowing arrangements to finance operations. Borrowing arrangements include
a $325 million mortgage warehouse funding agreement, repurchase agreement
facilities aggregating $800 million, and a $50 million revolving credit
agreement. In January 1994, the Company entered into a secured $35 million
credit agreement to be used for the short-term financing of optional bond
redemptions. As of March 31, 1994 and December 31, 1993, the balance of
mortgage loans and mortgage-backed securities net, were $566.8 million and
$728.1 million, respectively. At March 31, 1994 and December 31, 1993, the
combined borrowings under the mortgage warehouse funding agreement, the
repurchase agreements, and the revolving credit agreement, were $552.5 million
and $716.9 million, respectively.
The Ryland Group, Inc. has not guaranteed the debt of the financial services
and limited-purpose subsidiaries segments.
15
<PAGE>
PART II. OTHER INFORMATION
Page Number
-----------
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
11 Statement Re computation of earnings
per share (filed herewith) 19
B. Reports on Form 8-K
No reports on Form 8-K were filed with the
Securities and Exchange Commission during
the three months ended March 31, 1994.
16
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE RYLAND GROUP, INC.
----------------------
Registrant
May 16, 1994 By: /s/ Alan P. Hoblitzell, Jr.
- - ---------------- ----------------------------------
Date Alan P. Hoblitzell, Jr.,
Director, Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
May 16, 1994 By: /s/ Stephen B. Cook
- - ---------------- --------------------------------
Date Stephen B. Cook, Vice President
and Corporate Controller
(Principal Accounting Officer)
17
<PAGE>
INDEX OF EXHIBITS
A. Exhibits Page of
Sequentially
Numbered Pages
--------------
11 Statement Re computation of earnings
per share (filed herewith) 19
18
<PAGE>
EXHIBIT 11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS:
<TABLE>
<CAPTION>
Three months ended March 31,
1994 1993
------------ ------------
<S> <C> <C>
Primary:
Net earnings before cumulative effect of a
change in accounting principle ($000's) $ 4,155 $ 6,553
Cumulative effect of a change in
accounting principle 2,076
------------ ------------
Net earnings 6,231 6,553
Adjustment for dividends on
convertible preferred shares (629) (659)
------------ ------------
Adjusted net earnings $ 5,602 $ 5,894
============ ============
Weighted average common shares
outstanding $15,358,045 15,335,138
Common stock equivalents:
Stock options 87,415 76,893
Employee incentive plans 128,875 150,846
Restricted stock 0 11,770
------------ ------------
Total 15,574,335 15,574,647
============ ============
Primary earnings per common share
before cumulative effect of a change in
accounting principle $ 0.23 $ 0.38
Cumulative effect of a change in
accounting principle 0.13
------------ ------------
Primary earnings per common share $ 0.36 $ 0.38
============ ============
Fully-Diluted:
Net earnings before cumulative effect of a
change in accounting principle ($000's) $ 4,155 $ 6,553
Cumulative effect of a change in
accounting principle 2,076
------------ ------------
Net earnings 6,231 6,553
Adjustment for incremental expense from
conversion of convertible preferred shares (277) (295)
------------ ------------
Adjusted net earnings $ 5,954 $ 6,258
============ ============
Weighted average common shares
outstanding 15,358,045 15,335,138
Common stock equivalents:
Stock options 87,415 76,893
Employee incentive plans 128,875 150,846
Restricted stock 0 13,302
Convertible preferred stock 1,146,383 1,202,801
------------ ------------
Total 16,720,718 16,778,980
------------ -----------
Fully diluted earnings per common share
before cumulative effect of a change in
accounting principle $ 0.23 $ 0.37
Cumulative effect of a change in
accounting principle .13
------------ -----------
Fully diluted earnings per common share $ .36 $ .37
============ ============
See notes to the consolidated financial statements.
</TABLE>
19
