<PAGE>
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, 1995
-----------------
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
------------- ---------------
Commission File Number: 1-8029
THE RYLAND GROUP, INC.
----------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 52-0849948
- -------------------------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
of incorporation or organization) Identification No.)
11000 Broken Land Parkway, Columbia, Maryland 21044
---------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(410) 715-7000
---------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
------ -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
The number of shares of common stock of The Ryland Group, Inc., outstanding on
May 4, 1995 was 15,540,705
<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, 1995 (unaudited) and
December 31, 1994 1-2
Consolidated Statements of Earnings
for the three months ended
March 31, 1995 and 1994 (unaudited) 3
Consolidated Statements of Cash Flows
for the three months ended March 31,
1995 and 1994 (unaudited) 4
Notes to Consolidated Financial
Statements (unaudited) 5-7
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial
Condition 8-15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
INDEX OF EXHIBITS 19
<PAGE>
The Ryland Group, Inc. and subsidiaries
CONSOLIDATED BALANCE SHEETS
(amounts in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
HOMEBUILDING:
Cash and cash equivalents $ 34,609 $ 25,963
Homebuilding inventories:
Homes under construction 391,384 399,046
Land under development and improved lots 203,164 193,096
Land held for development or resale 2,320 2,671
------------ ------------
Total inventories 596,868 594,813
Investment in/advances to unconsolidated
joint ventures 11,219 11,500
Property, plant and equipment 25,443 24,001
Purchase price in excess of net assets acquired 22,349 22,607
Other assets 57,953 54,188
------------ ------------
748,441 733,072
------------ ------------
FINANCIAL SERVICES:
Cash and cash equivalents 924 863
Mortgage loans held for sale, net 180,845 214,772
Mortgage-backed securities, net 118,281 171,120
Purchased servicing and administration
rights, net 11,419 12,014
Other assets 50,569 56,251
------------ ------------
362,038 455,020
------------ ------------
LIMITED-PURPOSE SUBSIDIARIES:
Collateral for bonds payable, net 441,252 459,044
Other assets 5,115 5,289
------------ ------------
446,367 464,333
------------ ------------
Net deferred taxes 30,454 27,822
Other assets 14,743 24,241
------------ ------------
TOTAL ASSETS $ 1,602,043 $ 1,704,488
============ ============
See notes to consolidated financial statements.
</TABLE>
<PAGE>
The Ryland Group, Inc. and subsidiaries
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
------------ ------------
(unaudited)
<S> <C> <C>
LIABILITIES
HOMEBUILDING:
Accounts payable and other liabilities $ 72,349 $ 95,551
Long-term debt 456,143 408,744
------------ ------------
528,492 504,295
------------ ------------
FINANCIAL SERVICES:
Accounts payable and other liabilities 30,457 21,040
Short-term notes payable 267,897 377,629
------------ ------------
298,354 398,669
------------ ------------
LIMITED-PURPOSE SUBSIDIARIES:
Accounts payable and other liabilities 13,466 14,369
Bonds payable, net *(1) 429,835 446,752
------------ ------------
443,301 461,121
------------ ------------
Other liabilities 22,246 28,281
------------ ------------
TOTAL LIABILITIES 1,292,393 1,392,366
============ ============
STOCKHOLDERS' EQUITY
Convertible preferred stock, $1 par value
Authorized - 1,400,000 shares
Issued - 1,047,903 shares
(1,072,903 for 1994) 1,048 1,073
Common stock, $1 par value
Authorized - 78,600,000 shares
Issued - 15,528,638 shares
(15,475,242 for 1994) 15,529 15,475
Paid-in capital 115,643 115,863
Retained earnings 191,529 193,635
Net unrealized gain on
mortgage-backed securities 816 1,763
Other (14,915) (15,687)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 309,650 312,122
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,602,043 $ 1,704,488
============ ============
See notes to consolidated financial statements.
<FN>
(1) 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.
</FN>
</TABLE>
<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,
1995 1994
--------- --------
<S> <C> <C>
REVENUES:
Homebuilding:
Residential revenues $ 311,792 $ 274,244
Other revenues 517 770
----------- -----------
Total homebuilding revenues 312,309 275,014
Financial services 29,094 40,773
Limited-purpose subsidiaries 10,001 16,705
----------- -----------
Total revenues 351,404 332,492
EXPENSES:
Homebuilding:
Cost of sales 275,925 239,982
Interest expense 7,509 6,656
Selling, general and administrative 33,369 29,049
----------- -----------
Total homebuilding expenses 316,803 275,687
Financial services:
Interest expense 5,540 7,863
General and administrative 14,473 21,043
----------- -----------
Total financial services expenses 20,013 28,906
Limited-purpose subsidiaries:
Interest expense 9,965 15,583
Other expenses 29 1,111
----------- -----------
Total limited-purpose
subsidiary expenses 9,994 16,694
Corporate expenses 3,680 4,330
----------- -----------
Total expenses 350,490 325,617
Equity in earnings of
unconsolidated joint ventures 207 50
----------- -----------
Earnings before taxes and cumulative effect
of a change in accounting principle 1,121 6,925
Tax expense 448 2,770
----------- -----------
Net earnings before cumulative effect
of a change in accounting principle 673 4,155
Cumulative effect of a change in accounting
principle (net of taxes of $1,384) 0 2,076
----------- -----------
NET EARNINGS $ 673 $ 6,231
=========== ===========
Preferred dividends $ 579 $ 629
Net earnings available for common shareholders $ 94 $ 5,602
NET EARNINGS PER COMMON SHARE:
Primary:
Net earnings before cumulative effect
of a change in accounting principle $ 0.01 $ 0.23
Cumulative effect of a change in
accounting principle 0.00 0.13
----------- -----------
Net earnings per common share $ 0.01 $ 0.36
=========== ===========
Fully diluted:
Net earnings before cumulative effect
of a change in accounting principle $ 0.01 $ 0.23
Cumulative effect of a change in
accounting principle 0.00 0.13
----------- -----------
Net earnings per common share $ 0.01 $ 0.36
=========== ===========
DIVIDENDS PER COMMON SHARE $ 0.15 $ 0.15
DIVIDENDS PER PREFERRED SHARE $ 0.55 $ 0.55
=========== ===========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
The Ryland Group, Inc. and subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
(amounts in thousands)
<TABLE>
<CAPTION>
Three months ended March 31,
1995 1994
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 673 $ 6,231
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 6,103 4,395
Net cumulative effect of a change
in accounting principle 0 (3,460)
Gain on sale of mortgage-backed
securities - available for sale (3,072) 0
Gain on sale of mortgage-backed
securities - held-to-maturity (52) 0
Increase in inventories (2,055) (19,698)
Net change in other assets, payables
and other liabilities (12,599) 3,065
Equity in earnings of
unconsolidated joint ventures (207) (50)
Investment in/advances to and distributions
from unconsolidated joint ventures 380 714
Decrease in mortgage loans held
for sale, net 33,927 219,183
---------- --------
Net cash provided by operating activities 23,098 210,380
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net additions to property, plant and equipment (5,361) (4,908)
Principal reduction of mortgage collateral 5,090 16,314
Principal reduction of mortgage-backed
securities - available for sale 2,641 9,801
Sales of mortgage-backed securities-
available for sale 43,660 0
Principal reduction of mortgage-backed
securities- held to maturity 13,756 87,697
Sales of mortgage-backed securities
-held to maturity 678 0
Decrease in funds held by trustee 6,724 38,544
Other investing activities, net 0 (598)
---------- ---------
Net cash provided by investing activities 67,188 146,850
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in short-term notes payable (109,732) (164,386)
Cash proceeds of long-term debt 51,379 17,513
Reduction of long-term debt (3,980) (7,487)
Bond principal payments (17,151) (193,459)
Common and preferred stock dividends (2,904) (2,989)
Other financing activities, net 809 3,959
---------- ---------
Net cash used for financing activities (81,579) (346,849)
---------- ---------
Net increase in cash 8,707 10,381
Cash at beginning of year 26,826 46,490
---------- ---------
CASH AT END OF PERIOD $ 35,533 $ 56,871
========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest (net of
capitalized interest) $ 22,771 $ 31,162
Cash paid (refund received)
for income taxes $ (7,140) $ 4,414
========== =========
See notes to consolidated financial statements.
</TABLE>
<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,
1995 1994
---------- ---------
<S> <C> <C>
Pretax earnings (loss):
Homebuilding $ (4,287) $ (623)
Financial services 9,081 11,867
Limited-purpose subsidiaries 7 11
Corporate expenses (3,680) (4,330)
---------- ---------
Total $ 1,121 $ 6,925
========== =========
</TABLE>
<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, 1995, the consolidated
statements of earnings for the three months ended March 31, 1995 and 1994, and
the consolidated statements of cash flows for the three months ended March 31,
1995 and 1994 have been prepared by the Company, without audit. In the
opinion of management, all adjustments, which include normal recurring
adjustments necessary to present fairly the financial position, results of
operations and cash flows at March 31, 1995, and for all periods presented,
have been made. The consolidated balance sheet at December 31, 1994 is taken
from the audited financial statements as of that date. Certain amounts in the
consolidated statements have been reclassified to conform to the 1995
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 1994 annual report to
shareholders.
The results of operations for the three months ended March 31, 1995 are not
necessarily indicative of the operating results for the full year.
Assets presented in the financial statements are net of any valuation
allowances.
Primary net earnings per common share are computed by dividing net earnings,
after considering preferred stock dividend requirements, by the weighted
average number of common shares outstanding considering dilutive common
equivalent shares. Common equivalent shares relating to stock options are
computed using the treasury stock method.
Fully diluted net earnings per common share additionally gives effect to the
assumed conversion of the preferred shares held by The Ryland Group, Inc.
Retirement and Stock Ownership Plan Trust (RSOP Trust) into common stock, as
well as the amount of the additional RSOP Trust contribution required to fund
the difference between the RSOP Trust's earnings from preferred share
dividends and the RSOP Trust's potential earnings from common share dividends
after an assumed conversion. The effect of the RSOP Trust was not dilutive
for the first quarter of 1995.
<PAGE>
The Ryland Group, Inc. and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(unaudited)
Note 3. Accounting Changes
In May 1993 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115 (SFAS 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 SFAS 115, prior period financial
statements have not been restated to reflect the change in accounting
principle.
The cumulative effect of adopting SFAS 115 as of January 1, 1994 increased net
income by $2,076 (net of $1,384 in deferred income taxes), or $.13 per share.
This cumulative effect adjustment related to unearned income of discount
points on mortgage-backed securities, which can now be amortized into income
during the period that the mortgage-backed securities are held. 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. At March 31, 1995, the balance of the
net unrealized gain on securities classified as available for sale, which is
reflected as a component of stockholders' equity, was $816. The decline in
this balance since January 1, 1994, is due to a reduction in fair value caused
by the rising interest rate environment and the sale of a portion of this
portfolio.
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
RESULTS OF OPERATIONS
CONSOLIDATED
In the first quarter of 1995, the Company reported consolidated net earnings
of $0.7 million, or $.01 per share. This compares with consolidated net income
of $6.2 million, or $.36 per share, for the same period in 1994, which
included the cumulative impact of an accounting change of $2.1 million, or
$.13 per share. Excluding the accounting change, consolidated net earnings
for the first quarter of 1994 amounted to $4.2 million, or $.23 per share.
The Company's homebuilding segment recorded a pretax loss of $4.3 million for
the first quarter of 1995, compared with a pretax loss of $.6 million for the
same period last year. The decline reflects lower gross profit margins and
higher selling expenses which more than offset the benefits of higher revenues
from an increased volume of closings.
The Company's financial services segment reported pretax earnings for the
first quarter of 1995 of $9.1 million, compared with $11.9 million for the
same period of 1994. The Company's retail mortgage operations experienced a
50 percent decline in loan originations, reflecting the significant industry-
wide decline in mortgage origination business since the Federal Reserve Board
began raising interest rates last February. Lower gains from the sale of
mortgages also contributed to the decline in retail mortgage operating
results. The decline in retail earnings was partially offset by improved
results from institutional operations and by higher earnings from
investments, which included a $3.1 million gain from the sale of
called collateral.
The limited-purpose subsidiaries reported pretax earnings of $7 thousand for
the first quarter of 1995, compared with pretax earnings of $11 thousand for
the same period of 1994 as the portfolio in which the Company has a residual
interest continued to decline.
The Company's 1994 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 $.13 per share, relates to the financial services segment's
investment portfolio. (See Note 3)
<PAGE>
HOMEBUILDING
Results of operations of the Company's homebuilding segment are summarized as
follows ($ amounts in thousands):
<TABLE>
<CAPTION>
Three months ended March 31,
1995 1994
--------- ---------
<S> <C> <C>
Revenues $312,309 $275,014
Gross profit 36,384 35,032
Selling, general and
administrative expenses 33,369 29,049
Interest expense 7,509 6,656
Equity in earnings
of unconsolidated joint ventures 207 50
---------- ---------
Pretax loss $ (4,287) (623)
========== =========
Operational Unit Data:
(includes joint ventures)
Closings (units) 1,998 1,829
New orders (units) 2,560 2,848
Outstanding contracts at
March 31,
Units 3,115 3,738
Dollar Value $518,740 $612,465
Average Closing Price
(excludes unconsolidated
joint ventures) $157,000 $155,000
</TABLE>
The Company's homebuilding segment reported a pretax loss of $4.3 million for
the first quarter of 1995 compared with a pretax loss of $.6 million for the
same period last year.
Revenues increased 13.5 percent in the first quarter of 1995 compared with
1994, due to a 9.2 percent increase in closings and a $2,000 increase in
average closing price. The increased volume was attributable to growth in new
markets as well as the Company's efforts to reduce its inventory of unsold
homes under construction.
The gross margin for the first quarter of 1995 declined to 11.7 percent,
compared with 12.7 percent for the first quarter of 1994 and was the principle
reason for the earnings decline. Increased competitive pressures, the
Company's ongoing efforts to sell older inventories in the California and Mid-
Atlantic regions, and its focus on reducing its inventory of unsold homes
under construction in the majority of the markets in which it conducts
business, negatively impacted gross margins.
<PAGE>
The build-out of inventory in California that was negatively impacted by the
decline in economic and market conditions experienced in that region prior to
1994, continues to negatively impact gross profit margins. During the first
quarter of 1995, the affected California inventories were reduced by the
closing of 94 homes, as compared with 103 homes which were closed in the first
quarter of 1994. At March 31, 1995, the remaining net book value of the
affected California inventory was approximately $76 million and consisted of
approximately 1,304 homebuilding lots and related improvements, of which 143
were sold but not closed. Gross profit margins for the remainder of 1995 and
beyond will continue to be negatively impacted by the build-out and sales of
homes on these lots.
Since the latter part of 1994, the Company has taken actions to close-out
older communities in the Mid-Atlantic region. Closings on houses from these
Mid-Atlantic communities negatively affected gross profit margins in the first
quarter and will negatively impact the second quarter. By the end of the
second quarter of 1995 the Company expects that substantially all of these
houses will have been closed.
Total homebuilding sales for the first quarter of 1995 decreased 10.1 percent
to 2,560 units as compared with the first quarter of 1994. Higher interest
rates and economic uncertainty have impacted sales negatively in many markets.
Specifically, new orders declined in the Mid-Atlantic, Southwest, West and
California regions. As a result of the 10.1 percent decrease in sales
combined with the 9.2 percent increase in closings in the first quarter of
1995 versus the same period of 1994, outstanding contracts at March 31, 1995
decreased 16.7 percent from March 31, 1994. Outstanding contracts represent
the Company's backlog of new homes, which generally are built and closed,
subject to cancellations, over the next two quarters. The $518.7 million
value of outstanding contracts as of March 31, 1995 has increased 22.2 percent
from December 31, 1994 but has decreased 15.3 percent from March 31, 1994.
Further increases in interest rates in 1995 could negatively impact the new
home sales market and the Company's homebuilding segment.
Selling, general and administrative expenses as a percent of revenues were
10.7 percent for the first quarter of 1995 compared with 10.6 percent for
1994's first quarter. Excluding selling expenses, general and administrative
expenses, as a percentage of revenue, declined in 1995 primarily due to the
higher revenue base. Selling expenses as a percentage of revenues increased in
the first quarter of 1995 due to costs associated with expansion into new
markets, the costs associated with implementation of the Company's new
marketing and merchandising initiatives and costs related to the Company's
efforts to reduce unsold inventories.
Interest expense for the first quarter of 1995 increased $.9 million compared
with the same period of 1994 primarily due to an increase in homebuilding debt
related to the financing of higher levels of inventories combined with higher
interest rates charged on the Company's borrowings, which was partially offset
by an increase in capitalized interest.
<PAGE>
FINANCIAL SERVICES
The financial services segment reported pretax earnings of $9.1 million for
the first quarter, compared with $11.9 million for the first quarter of 1994.
Pretax earnings by line of business were as follows (amounts in thousands):
<TABLE>
<CAPTION>
Three months ended March 31,
1995 1994
-------- --------
<S> <C> <C>
Retail $ 1,143 $ 6,298
Institutional 3,584 2,309
Investments 4,354 3,260
--------- --------
Total $ 9,081 $11,867
========= ========
</TABLE>
The decline in pretax earnings for the three months ended March 31, 1995,
compared with the same period in 1994, was primarily related to retail
operations, which reported a decrease of $5.2 million in pretax earnings.
The decline in retail earnings was partially offset by improved results from
institutional operations and by higher earnings from investments.
Revenues for the financial services segment decreased 29 percent for the first
quarter of 1995 as compared to the first quarter of 1994, primarily due to a
significant reduction in mortgage origination activity, lower revenue from
mortgage servicing activities, and lower gains on sales of mortgages and
servicing rights. Interest expense declined 30 percent as a result of the
lower level of borrowings required to fund mortgage loan originations.
General and administrative expenses declined 31 percent as a result of cost
reduction measures implemented in retail operations.
Retail Operations:
Retail operations include mortgage origination, loan servicing and
title/escrow services for retail and wholesale customers.
Results for retail operations were as follows (amounts in thousands):
<TABLE>
<CAPTION>
Three months ended March 31,
1995 1994
-------- --------
Revenues:
<S> <C> <C>
Interest and net origination fees $ 3,034 $ 6,954
Gains on sales of mortgages and
servicing rights 3,026 9,457
Loan servicing 8,693 11,253
Title/escrow 1,019 890
-------- --------
Total retail revenues 15,772 28,554
Expenses 14,629 22,256
-------- --------
Pretax earnings $ 1,143 $ 6,298
======== ========
</TABLE>
<PAGE>
Retail operations recorded a $5.2 million decrease in pretax earnings for the
first quarter of 1995 as compared with the same period last year.
Interest and net origination fees have decreased reflecting the impact on the
Company of the industry-wide decline in mortgage origination activity. The
impact of the Company's 50 percent decline in loan origination activity,
combined with a $6.4 million decrease in gains from the sale of mortgages and
servicing rights, were the principle reasons for the earnings decline. Gains
on the sale of mortgage loans were higher in the first quarter of 1994 due to
more favorable market conditions. Loan servicing revenues declined in the
first quarter of 1995 as a result of a reduction in the Company's loan
servicing portfolio primarily due to 1994 sales of servicing rights. Expenses
have decreased between periods primarily due to the actions the Company has
taken to reduce operating expenses.
A summary of origination activities is as follows:
<TABLE>
<CAPTION>
Three months ended March 31,
1995 1994
-------- ------
<S> <C> <C>
Dollar volume of mortgages
originated (in millions) $ 328 $ 675
Number of mortgages originated 2,662 5,355
Percentage of total closings:
Ryland Homes closings 40% 19%
Other closings 60% 81%
-------- ------
Total closings 100% 100%
</TABLE>
The Company earns interest on mortgages held for sale and pays interest on
borrowings secured by the mortgages. Significant data related to these
activities are as follows:
<TABLE>
<CAPTION>
Three months ended March 31,
1995 1994
-------- ------
<S> <C> <C>
Net interest earned (in thousands) $1,160 $3,349
Average balance of mortgages
held for sale (in millions) $155 $452
Net interest spread 3.0% 3.0%
</TABLE>
Net interest earned decreased in the first quarter of 1995 compared to 1994
due to a lower average balance of mortgages held for sale.
<PAGE>
The Company services loans that it originates as well as loans originated by
others. Loan servicing portfolio balances were as follows at March 31, (in
billions):
<TABLE>
<CAPTION>
1995 1994
-------- ------
<S> <C> <C>
Originated $2.7 $3.4
Acquired 3.9 4.5
Subserviced .1 1.2
-------- ------
Total portfolio $6.7 $9.1
======== ======
</TABLE>
The decrease in the portfolio balance as compared with March 31, 1994 was
attributable to a decline in origination volume combined with increased sales
of servicing rights and normal mortgage prepayment activity. The portfolio
balance for subserviced loans was higher at March 31, 1994 due to loans that
had been sold but were being temporarily subserviced for others.
Institutional Operations:
The institutional operations provide securities issuance and securities
administration services to institutional customers. Within securities
administration, the Company performs a number of functions including master
servicing for a portion of the portfolio. Results for institutional
operations were as follows (amounts in thousands):
<TABLE>
<CAPTION>
Three months ended March 31,
1995 1994
-------- -------
<S> <C> <C>
Revenues $6,207 $5,700
Expenses 2,623 3,391
-------- -------
Pretax earnings $3,584 $2,309
======== =======
</TABLE>
The increase in pretax earnings is due in part to higher revenues and improved
margins per series.
Significant data for institutional operations are as follows at March 31:
<TABLE>
<CAPTION>
1995 1994
-------- ------
<S> <C> <C>
Total securities administration
portfolio (in billions) $42.8 $49.7
Number of series in the
administration portfolio 549 533
</TABLE>
The decline in the portfolio balance since March 31, 1994 was primarily
attributable to mortgage prepayment activity.
On April 11, 1995 the Company announced that it signed a definitive agreement
to sell to Norwest Bank Minnesota the Company's mortgage securities
administration business. Under the terms of the agreement, the purchase price
will be $47 million in cash, subject to certain adjustments. The transaction
is expected to close in the second or third quarter of 1995.
<PAGE>
Investment Operations:
The Company's investment operations hold certain assets, primarily mortgage-
backed securities, which were obtained as a result of the exercise of
redemption rights on various mortgage-backed bonds previously owned by the
Company's limited-purpose subsidiaries. Pretax earnings for the three months
ended March 31, were as follows (amounts in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- -------
<S> <C> <C>
Sale of mortgage-backed securities $3,124 $ 0
Net interest earned and other 1,230 3,260
-------- -------
Pretax earnings $4,354 $3,260
======== =======
</TABLE>
Pretax earnings for the first quarter of 1995 increased compared with the
first quarter of 1994 due to the gains recognized from the sale of mortgage-
backed securities which more than offset the decline in net interest earned.
Significant data from the investment operations are as follows:
<TABLE>
<CAPTION>
Three months ended March 31,
1995 1994
-------- -------
<S> <C> <C>
Net interest earned (in thousands) $1,493 $4,398
Average balance outstanding (in millions) $153 $223
Net interest spread 3.9% 8.0%
</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 decrease in the net interest earned between
periods is primarily due to an increase in borrowing rates combined with a
decline in the average investment portfolio balance outstanding.
<PAGE>
FINANCIAL CONDITION AND LIQUIDITY
The Company generally provides for the cash requirements for the homebuilding
and financial services businesses from outside borrowings and internally
generated funds. The Company believes that its current sources of cash are
sufficient to finance its current requirements.
The homebuilding segment borrowings include an unsecured revolving credit
facility, senior notes, senior subordinated notes and land purchase notes.
The Company primarily uses its unsecured revolving credit facility to finance
its homebuilding inventory. This facility, which was renewed in July 1993,
allows the company to borrow up to $250 million for a three-year period. As
of March 31, 1995, the Company had borrowed $175.0 million under this
facility, compared with $127.5 million as of December 31, 1994. In addition,
the Company had letters of credit outstanding under this facility totaling
$4.2 million at March 31, 1995, compared with $7.4 million at December 31,
1994. To finance land purchases, the Company may use seller-financed, non-
recourse secured notes payable. At March 31, 1995 and 1994, these notes
payable outstanding amounted to $25.7 million and $25.6 million, respectively.
Housing inventories increased slightly to $596.9 million as of March 31, 1995,
from $594.8 million as of the end of 1994. A higher investment in land under
development and improved lots was partially offset by a decrease in homes
under construction as the Company reduced its inventory of unsold homes.
The financial services segment uses cash generated from operations and
borrowing arrangements to finance its operations. Borrowing arrangements as
of March 31, 1995 included a $400 million mortgage warehouse funding
agreement, which includes a working capital component, repurchase agreement
facilities aggregating $800 million and a $35 million credit facility to be
used for the short-term financing of optional bond redemptions. At March 31,
1995 and December 31, 1994, the combined borrowings outstanding under these
agreements were $267.9 million and $377.6 million, respectively. The mortgage
warehouse funding agreement, which expires in May 1995, is in the process of
being renewed for a two-year term. Because of the decline in mortgage
origination activity, the Company has decided to reduce the new agreement to
$350 million which will include a $300 million mortgage warehouse funding
facility combined with a $50 million working capital revolving credit
facility.
Mortgage loans and mortgage-backed securities held by the limited-purpose
subsidiaries are pledged as collateral for the issued bonds, the terms of
which provide for the retirement of all bonds from the proceeds of the
collateral. The source of cash for the segment's bond payments is cash
received from the segment's mortgage loans receivable and mortgage-backed
securities.
The Ryland Group, Inc. has not guaranteed the debt of the financial services
segment or limited-purpose subsidiaries.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is party to various legal proceedings generally incidental to its
businesses. Based on evaluation of the above matters and discussions with
counsel, management believes that liabilities to the Company arising from
these matters will not have a material adverse effect.
<PAGE>
PART II. OTHER INFORMATION - continued
Page Number
-----------
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
11 Statement Re computation of earnings
per share (filed herewith) 20
27 Financial Data Schedule 21
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, 1995.
<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 12, 1995 By: /s/ Michael D. Mangan
- ---------------- ----------------------------------
Date Michael D. Mangan,
Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
May 12, 1995 By: /s/ Stephen B. Cook
- ---------------- --------------------------------
Date Stephen B. Cook, Vice President
and Corporate Controller
(Principal Accounting Officer)
<PAGE>
INDEX OF EXHIBITS
A. Exhibits Page of
Sequentially
Numbered Pages
--------------
11 Statement Re computation of earnings
per share (filed herewith) 20
27 Financial Data Schedule 21
<PAGE>
EXHIBIT 11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS:
<TABLE>
<CAPTION>
Three months ended March 31,
1995 1994
------------ -----------
<S> <C> <C>
Primary:
Net earnings before cumulative effect of a
change in accounting principle ($000's) $ 673 $ 4,155
Cumulative effect of a change in
accounting principle 0 2,076
------------ ------------
Net earnings 673 6,231
Adjustment for dividends on
convertible preferred shares (579) (629)
------------ ------------
Adjusted net earnings $ 94 $ 5,602
============ ============
Weighted average common shares
outstanding 15,497,575 15,358,045
Common stock equivalents:
Stock options 5,004 87,415
Employee incentive plans 197,947 128,875
------------ -----------
Total 15,700,526 15,574,335
============ ===========
Primary earnings per common share
before cumulative effect of a change in
accounting principle $ 0.01 $ 0.23
Cumulative effect of a change in
accounting principle 0.00 0.13
----------- ------------
Primary earnings per common share $ 0.01 $ 0.36
============ ============
Fully-Diluted:
Net earnings before cumulative effect of a
change in accounting principle ($000's) $ 673 $ 4,155
Cumulative effect of a change in
accounting principle 0 2,076
----------- ------------
Net earnings 673 6,231
Adjustment for dividends on
convertible preferred shares (1) (579) 0
Adjustment for incremental expense from
conversion of convertible preferred shares 0 (277)
------------ ------------
Adjusted net earnings $ 94 $ 5,954
============ ============
Weighted average common shares
outstanding 15,497,575 15,358,045
Common stock equivalents:
Stock options 5,465 87,415
Employee incentive plans 197,947 128,875
Convertible preferred stock (1) 0 1,146,383
------------ ------------
Total 15,700,987 16,720,718
------------ -----------
Fully diluted earnings per common share
before cumulative effect of a change in
accounting principle $ 0,01 $ 0.23
Cumulative effect of a change in
accounting principle 0.00 0.13
------------ -----------
Fully diluted earnings per common share $ 0.01 $ 0.36
============ ============
<FN>
(1) - for the three months ended March 31, 1995, no adjustments have been made
to the fully-diluted earnings per common share computation for the conversion
of preferred shares and the related incremental dividends, as the effects
would be anti-dilutive.
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from The Ryland
Group Inc. Form 10-Q for the period ended 3/31/95 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<MULTIPLIER> 1,000
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 35,533
<SECURITIES> 118,281
<RECEIVABLES> 180,845
<ALLOWANCES> 0
<INVENTORY> 596,868
<CURRENT-ASSETS> 0
<PP&E> 25,443
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,602,043
<CURRENT-LIABILITIES> 0
<BONDS> 697,732
<COMMON> 15,529
0
1,048
<OTHER-SE> 293,073
<TOTAL-LIABILITY-AND-EQUITY> 1,602,043
<SALES> 312,309
<TOTAL-REVENUES> 351,404
<CGS> 275,925
<TOTAL-COSTS> 323,767
<OTHER-EXPENSES> 3,502
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,014
<INCOME-PRETAX> 1,121
<INCOME-TAX> 448
<INCOME-CONTINUING> 673
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 673
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
