<PAGE>
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, 1994
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
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
11000 Broken Land Parkway
Columbia, Maryland 21044
(Address of principal executive offices)
Registrant's telephone number, including area code: (410) 715-7000
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. X
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The aggregate market value of the Common Stock of The Ryland Group, Inc. held
by non-affiliates of the registrant (15,323,130 shares) as of March 10, 1995
was $220,269,994. The number of shares of common stock of The Ryland Group,
Inc., outstanding on March 10, 1995 was 15,503,602.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
NAME OF DOCUMENT LOCATION IN REPORT
---------------- ------------------
Proxy Statement for 1995 Annual Meeting of Stockholders Parts I, III
Annual Report to Shareholders for the year ended
December 31, 1994 Parts II, IV
Form 10-Q for the quarter ended June 30, 1990 Part IV
Form 8 filed October 25, 1990 Part IV
Form 8-K filed September 12, 1989 Part IV
Registration Statement on Form S-3, Registration 33-28692 Part IV
Form 8-K filed December 31, 1990 Part IV
Form 8-K filed August 6, 1992 Part IV
Form 10-K for the year ended December 31, 1990 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
Form 8-K filed October 28, 1993 Part IV
<PAGE>
THE RYLAND GROUP, INC.
FORM 10-K
INDEX
Page
PART I. Number
------
Item 1. Business 4
Item 2. Properties 10
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
PART II.
Item 5. Market for the Company's Common Stock and Related
Stockholder Matters 13
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 8. Financial Statements and Supplementary Data 13
Item 9. Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure 13
PART III.
Item 10. Directors and Executive Officers of the Registrant 14
Item 11. Executive Compensation 14
Item 12. Security Ownership of Certain Beneficial Owners
and Management 14
Item 13. Certain Relationships and Related Transactions 14
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 15
SIGNATURES 20
INDEX OF EXHIBITS 21
<PAGE>
PART I
Item 1. BUSINESS.
The Ryland Group, Inc. (the "company") is a leading national homebuilder and a
mortgage-related financial services firm. Established in 1967, the company
builds homes and provides mortgage services in 51 markets in 18 states. The
company was the third largest single-family on-site homebuilder in the United
States in 1994 based upon homes delivered. The company's homebuilding segment
specializes in the sale and construction of single-family attached and
detached housing and condominiums. The financial services segment provides
mortgage-related products and services for retail and institutional customers
and conducts investment activities. The company facilitates the issuance of
mortgage-backed securities and mortgage-participation securities through its
limited-purpose subsidiaries.
HOMEBUILDING
MARKETS The homebuilding segment builds and sells homes that are constructed
on-site in six regions which comprise the following areas at December 31,
1994:
Region Major Markets Served
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Mid-Atlantic Baltimore, Delaware Valley, Philadelphia,
Washington, D.C.
Midwest Chicago, Cincinnati, Columbus, Indianapolis
Southeast Atlanta, Charlotte, Columbia, Greenville, Orlando
Southwest Austin, Dallas, Houston, San Antonio
West Denver, Phoenix, Salt Lake City
California Los Angeles, Sacramento, San Diego
The homebuilding segment sells under the name of Larchmont Homes in Northern
California, Brock Homes in Southern California, Scott Felder Homes in certain
Texas markets and Ryland Homes in all other areas.
<PAGE>
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 builders of new
homes and home resale activity. The company considers each of these factors
when entering into new markets or determining the extent of its operations in
existing markets. During 1994, the company expanded its geographic presence
by entering the markets of Greenville and Columbia, South Carolina; and Salt
Lake City, Utah. The company also completed its first full year of operation
in Chicago, and in Austin and San Antonio, Texas, two markets that were
entered through the acquisition of Scott Felder Homes. The company exited the
Charleston, South Carolina market during 1994.
The company offers a range of different home styles in each of its geographic
regions which are tailored to the styles and consumer tastes of the particular
region. The company's homes vary in size and price range, but are generally
marketed to customers purchasing their first home or their first move-up home.
The company's average settlement price was $160,000 in 1994.
LAND PURCHASES In the ordinary course of its homebuilding business, the
company acquires land for use in the sale and construction of homes. The
company purchases land in various stages of development; however, the company
generally does not purchase unentitled or unzoned land. The acquisition of
land may be under agreements to purchase or through the exercise of options to
purchase, depending on which vehicle is deemed most advantageous given the
company's profit objectives and capital constraints as well as local market
conditions. The land acquisition process is controlled through a formal land
approval policy to help ensure that transactions will meet the company's
standards for financial performance and risk. As of December 31, 1994, the
company had deposits and letters of credit outstanding of $24.5 million for
options and commitments to purchase land. These options and commitments
expire at various dates through 2001.
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 uses
standardized building materials and products in its homes. In addition, the
company operates plants in Maryland, North Carolina, and Texas that produce
and ship rough lumber packages and trim materials to building sites in many of
its markets in the Mid-Atlantic, Southwest, and Southeast regions. Subsequent
to year end the company sold its plant in Ohio, which supplies materials to
the Midwest region and was in operation for the full year.
SUPPLIERS AND SUBCONTRACTORS Substantially all on-site construction work is
performed by subcontractors monitored by the company's production supervisors.
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.
<PAGE>
MARKETING Homes are sold by employees and independent real estate brokers.
The company reports a sale when a customer's sales contract is approved, and
records revenue from a sale upon settlement. The company normally commences
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 a sale to satisfy market demand for completed homes and to
facilitate construction scheduling.
FINANCIAL SERVICES
Through its financial services segment, the company provides various mortgage-
related products and services for retail and institutional customers and
conducts investment activities.
RETAIL OPERATIONS
The retail operations provide loan origination, loan servicing and title and
escrow services for retail customers.
LOAN ORIGINATION The company's mortgage origination operations have retail
and wholesale loan offices which together process the company's builder,
spot, and wholesale loans. Builder loans are loans that the company originates
in connection with sales by its homebuilding segment. Spot loans are mortgage
loans that are originated primarily by loan officers through contacts with
realtors and homeowners and are not related to the financing of homes built by
the company. Wholesale loans are originated by outside brokers but
underwritten and closed by the company. The wholesale offices work with a
network of loan brokers and lenders to source loans.
For the twelve months ended December 31, 1994, the company originated 16,740
mortgage loans totaling $2.1 billion, of which 72 percent were for buyers of
homes other than those built by the company or for those seeking refinancing
of existing mortgage loans.
<PAGE>
The company arranges various types of mortgage financing including
conventional, Federal Housing Administration and Veterans Administration
mortgages with various fixed- and adjustable-rate features. The company's
mortgage operations are approved by Federal Home Loan Mortgage Corporation,
Federal National Mortgage Association and Government National Mortgage
Association. The mortgage origination operation has loan production offices
in Arizona, California, Colorado, Florida, Georgia, Illinois, Indiana,
Maryland, New Jersey, North Carolina, Ohio, Pennsylvania, South Carolina,
Texas, Utah, and Virginia.
LOAN SERVICING The company services loans that it originates as well as loans
originated by others. As of December 31, 1994, the company's loan servicing
portfolio was $6.9 billion. The company services loans originated in all 50
states, with the highest concentrations in Alabama, Arizona, California,
Florida, Georgia, Louisiana, Maryland, North Carolina, Texas, and Virginia.
TITLE AND ESCROW SERVICES The company entered the title business in 1989
through the formation of Cornerstone Title Company for the purpose of
providing title services to the company's customers. As of December 31, 1994
Cornerstone had two offices in Maryland and one office each in Florida,
Indiana, and Delaware. The company also operates an escrow company in
California that performs escrow and loan closing functions primarily on homes
built by the company.
INSTITUTIONAL OPERATIONS
Institutional financial services provide securities issuance and securities
administration services to institutional customers. The company began issuing
and administering securities in 1982 through wholly-owned subsidiaries. These
services expanded to include builder and multi-builder bonds, multi-class CMO
and REMIC structures and pass-through securities.
SECURITIES ISSUANCE In 1982, the company began to provide access to capital
markets for itself and other homebuilders, mortgage bankers and thrifts to
support loan production. Through various limited-purpose subsidiaries and
shelf registration statements, the company has the ability to issue securities
in either debt or pass-through form. The company's expertise includes
structures utilizing subordination, mezzanine classes, pool insurance,
modified pool insurance, reserve funds, limited guarantees and full guarantees
from third-party bond guarantors as well as various combinations of these
features. Eligible collateral includes single-family and multi-family
mortgage loans, manufactured housing contracts, agency certificates and
private label mortgage securities.
SECURITIES ADMINISTRATION The securities administration business includes
trustee monitoring and reporting, financial and compliance reporting, tax
administration and master servicing. At December 31, 1994, the company
provided administration services for over 50 different issuers. The portfolio
at December 31, 1994 was comprised of 550 series with an outstanding balance
of $44.1 billion and an original issuance amount of $119 billion.
In October 1994, the company announced that it is exploring the sale of the
institutional operations business as part of the company's continued focus on
its core homebuilding and related mortgage businesses. If the sale is
consummated, the company expects to realize a gain on the transaction. The
company's future earnings, however, would no longer benefit from the results
of these operations.
<PAGE>
INVESTMENT OPERATIONS
The company's investment operations hold certain assets, primarily mortgage-
backed securities, which were obtained as a result of the early redemption of
various mortgage-backed bonds previously issued by the limited-purpose
subsidiaries of the company. The company earns an interest spread on the
portfolio equal to the difference between the interest rate on the mortgage-
backed securities and the related borrowing rate. The company may
periodically realize gains from the sale of mortgage-backed securities from
the portfolio.
LIMITED-PURPOSE SUBSIDIARIES
The company's limited-purpose subsidiaries facilitate the financing of
mortgage loans and securities through the issuance of mortgage-backed bonds.
These bond series represent obligations solely of the limited-purpose
subsidiaries and are not guaranteed or insured by The Ryland Group, Inc.
Under the provisions of applicable trust indentures, the bonds are fully
collateralized by mortgage loans, mortgage-backed securities, notes receivable
and certain funds held by trustees.
The company's limited-purpose subsidiaries were established to provide
conduits for the issuance and sale of mortgage-backed securities and mortgage
participation certificates in the secondary market. Although the limited-
purpose subsidiaries may continue to issue securities on behalf of others, due
to changes in the tax laws, the company has not retained any residual
interests in new securities since 1991. As a result, issuances of the
limited-purpose subsidiaries since 1991 are not reflected in the company's
financial statements.
ECONOMIC CONDITIONS
The company's business is affected by general economic conditions in the
United States and by the level of interest rates and the level of consumer
confidence. Higher interest rates may effect the ability of buyers to qualify
for mortgage financing and decrease demand for new homes. As a result, the
company's home sales and mortgage originations generally will be negatively
impacted by rising interest rates. In addition, the company's business is
affected by local economic conditions, such as unemployment rates and housing
demand in the markets in which it builds homes.
Movements in interest rates may also affect the company's mortgage-backed
security issuance activity, and the market value of the company's investment
portfolio. Prepayments, which are higher in a falling interest rate
environment, reduce the value of loan servicing rights and securities
administration rights in the company's servicing portfolios.
<PAGE>
COMPETITION
The homebuilding segment competes with other homebuilders in its markets.
Competition ranges from local builders who may build only a few homes each
year to other large national homebuilding companies. In addition, the company
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, availability and
location of lots and availability of customer financing.
The financial services segment competes with other mortgage bankers to arrange
financing for home buying and refinancing customers. Principal competitive
factors include interest rates and various other features of mortgage loan
products available to the consumer. The loan servicing operations of the
financial services segment competes with other loan servicers for loan
servicing rights. This segment also competes in the securities markets with
investment bankers, issuers and servicers for the business of issuing,
administering and managing mortgage-backed bonds and other securities.
REGULATORY AND ENVIRONMENTAL MATTERS
The homebuilding segment is subject to various local, state and federal
statutes, ordinances, rules and regulations concerning zoning, building
design, construction and similar matters, including local regulations which
impose restrictive zoning and density requirements in order to limit the
number of homes that can eventually be built within the boundaries of a
particular locality. The homebuilding segment may also be subject to periodic
delays in homebuilding projects due to building moratoria in any of the states
in which it operates. Generally, such moratoria relate to insufficient water
or sewage facilities, or inadequate roads or local services.
The company is also subject to various local, state and federal statutes,
ordinances, rules and regulations concerning the protection of health and the
environment. The homebuilding segment is also subject to a variety of
environmental conditions that can affect its business and its homebuilding
projects. Environmental laws and conditions may result in delays, may cause
the company to incur substantial compliance and other costs, and can prohibit
or severely restrict homebuilding activity in certain environmentally
sensitive areas.
<PAGE>
The company's financial services segment is subject to the rules and
regulations of FHA, VA, FNMA, FHLMC, and GNMA ("regulatory agencies") with
respect to originating, processing, selling and servicing mortgage loans. In
addition, there are other federal and state statutes and regulations affecting
such activities. These rules and regulations, among other things, prohibit
discrimination and establish underwriting guidelines which include provisions
for inspections and appraisals, require credit reports on prospective
borrowers and fix maximum loan amounts. Moreover, the company is required
annually to submit to FNMA, FHLMC, GNMA, FHA, and VA audited financial
statements, and each regulatory entity has its own financial requirements.
The company's affairs are also subject to examination by FNMA, FHLMC, GNMA,
FHA, and VA at all times to assure compliance with the applicable regulations,
policies and procedures. Mortgage origination activities are subject to the
Equal Credit Opportunity Act, Federal Truth-in-Lending Act and the Real
Estate Settlement Procedures Act and the regulations promulgated thereunder
which prohibit discrimination and require the disclosure of certain
information to mortgagors concerning credit and settlement costs.
EMPLOYEES
At December 31, 1994 the company employed 3,259 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 Columbia,
Maryland. In addition, the company leases office space in the various markets
in which it operates. The company operates building component plants in
Houston, Texas; New Windsor, Maryland; and Shelby, North Carolina.
ITEM 3. LEGAL PROCEEDINGS
Contingent liabilities may arise from the obligations incurred in the ordinary
course of business. The company is also 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
on the of the company.
ITEM 4. SUBMISSION 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, 1994.
<PAGE>
SEPARATE ITEM: EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Position (date elected to position)
------------------------------------------------------------------------------
R. Chad Dreier 47 Chairman of the Board (1994), President and
Chief Executive Officer (1993).
J. Sidney Davenport 53 Vice President of the Company(1984) and
Executive Vice President of Ryland Mortgage
Company (1993). Senior Vice President of Ryland
Mortgage Company (1990 - 1992). Senior
Operations Vice President (1981 - 1990).
Timothy R. Doyle 44 Senior Vice President of the Company (1991) and
President of Mid-Atlantic Region (1994).
President of Midwest Region (1991 - 1994).
Vice President-Operations of the Maryland
Region (1976 - 1991).
John M. Garrity 48 Senior Vice President of the Company (1994) and
President of Southeast Region (1994).
Robert J. Gaw 61 Executive Vice President of the Company and
President of Ryland Mortgage Company (1979).
David Lesser 39 Executive Vice President, General Counsel,
Secretary (1995).
Michael D. Mangan 38 Executive Vice President, Chief Financial
Officer (1994).
John D. Napolitan 50 Senior Vice President of the Company (1984) and
President of West Region (1991). Senior Vice
President, Ryland Homes (1988 - 1991).
Robert M. Paul 52 Senior Vice President (1995). Vice President
(1987 - 1995).
William R. Rollo 36 Senior Vice President of the Company (1994) and
President of Southwest Region (1994).
Frank J. Scardina 46 Senior Vice President of the Company (1994) and
President of California Region (1994). Vice
President, Ryland Homes (1993 - 1994).
Kipling W. Scott 40 Senior Vice President of the Company (1994) and
President of Midwest Region (1994). Midwest
Region Director of Land Resources & Planning
(1993 - 1994).
All officers are elected by the board of directors.
There are no family relationships, arrangements or understandings pursuant to
which any of the officers listed were elected. For a description of
employment and severance arrangements with certain executive officers of the
company, see page 12 of the Proxy Statement for the 1995 Annual Meeting of
Stockholders.
<PAGE>
BUSINESS EXPERIENCE
All of the executive officers listed above have served in various capacities
with The Ryland Group, Inc. over the past five years, with the exception of
Messrs. R. Chad Dreier; Michael D. Mangan; David Lesser; John M. Garrity;
William R. Rollo; Frank J. Scardina and Kipling W. Scott.
Prior to joining the company in 1993, Mr. Dreier was executive vice president
and chief financial officer of Kaufman and Broad Home Corporation and chairman
of Kaufman and Broad Mortgage Company. Prior to joining the company in 1994,
Mr. Mangan was group chief financial officer of GMAC Mortgage Corporation.
Prior to joining the company in 1995, Mr. Lesser was executive vice president
and general counsel of Riggs National Corporation. Prior to joining the
company in 1994, Mr. Garrity was division general manager of Arvida Homes.
Prior to joining the company in 1994, Mr. Rollo was executive vice president
of Scott Felder L.P. Prior to joining the company in 1993, Mr. Scardina was
president of Birtcher Real Estate Ltd. Prior to joining the company in 1993,
Mr. Scott was president of Development Management Services, Inc.
<PAGE>
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" appearing on page 48 of
the Annual Report to Shareholders for the year ended December 31, 1994.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this item is incorporated by reference from the
section entitled "Selected Financial Data" appearing on pages 20 and 21 of the
Annual Report to Shareholders for the year ended December 31, 1994.
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" appearing on pages 22 through 28 of the
Annual Report to Shareholders for the year ended December 31, 1994.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item is incorporated by reference from the
information appearing on pages 29 through 45 and from the section entitled
"Quarterly Financial Data" appearing on page 47 of the Annual Report to
Shareholders for the year ended December 31, 1994.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
During the fiscal years ended December 31, 1994 and 1993, there have been no
disagreements between the company and its accountants on any matter of
accounting principle or financial statement disclosure.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information as to the company's Directors is incorporated by reference from
pages 3-4 and 6-7 of the company's Proxy Statement for its 1995 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
7-13 of the company's Proxy Statement for its 1995 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 pages
5 and 6 of the company's Proxy Statement for its 1995 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.
<PAGE>
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, 1994, are
incorporated by reference in Item 8:
Consolidated Statements of Earnings - years ended December 31,
1994, 1993, and 1992.
Consolidated Balance Sheets - December 31, 1994 and 1993.
Consolidated Statements of Stockholders' Equity - years ended
December 31, 1994, 1993 and 1992.
Consolidated Statements of Cash Flows - years ended December 31,
1994, 1993 and 1992.
Notes to Consolidated Financial Statements.
(a) 2. Financial Statement Schedules. (Filed Herewith) Page No.
--------
Schedule II - Valuation and Qualifying Accounts 19
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.
<PAGE>
(a) 3. Exhibits
Exhibit No.
-----------
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.
(Filed Herewith)
4.1 Rights Agreement dated as of December 17, 1986 between
The Ryland Group, Inc. and Maryland National Bank as amended
by The First Amendment of Rights Agreement dated as of
October 17, 1990.
(Incorporated by reference from Form 8 filed October 25,1990)
4.2 Articles Supplementary dated as of August 31, 1989.
(Incorporated by reference from Form 8-K filed
September 12, 1989)
4.3 Indenture dated as of November 2, 1989 between
The Ryland Group, Inc. and Manufacturers Hanover Trust
Company, as Trustee.
(Incorporated by reference from Exhibits to Registration
Statement on Form S-3, Registration No. 33-28692)
4.4 First Supplemental Indenture dated as of December 28, 1990
between The Ryland Group, Inc. and Manufacturers Hanover
Trust Company, as Trustee.
(Incorporated by reference from Form 8-K filed
December 31, 1990)
4.5 Indenture dated as of July 15, 1992 between The Ryland
Group, Inc. and Security Trust Company, N.A., as Trustee.
(Incorporated by reference from Form 8-K filed August 6, 1992)
4.6 Senior Subordinated Notes dated as of July 23, 1992.
(Incorporated by reference from Form 8-K filed August 6, 1992)
4.7 Senior Subordinated Notes dated as of November 4, 1993.
(Incorporated by reference from Registration Statement on
Form S-3, Registration No. 33-48071)
10.1 Form of Senior Executive Severance Agreement between The Ryland
Group, Inc., and certain of its executive officers.
(Incorporated by reference from Form 10-K for the year ended
December 31, 1989)
<PAGE>
(a) 3. Exhibits, continued
Exhibit No.
-----------
10.2 Lease Agreement between Seventy Corporate Center Limited
Partnership and The Ryland Group, Inc. dated April 17, 1990.
(Incorporated by reference from Form 10-K for the year ended
December 31, 1990)
10.3 1992 Equity Incentive Plan of The Ryland Group, Inc.
(Incorporated by reference from Form 10-Q for the quarter
ended June 30, 1992)
10.4 Employment Agreement dated as of September 30, 1993
between Alan P. Hoblitzell, Jr. and The Ryland Group, Inc.
(Incorporated by reference from Form 10-K for the year
ended December 31, 1993)
10.5 1992 Non-Employee Director Equity Plan of The Ryland Group,
Inc., as amended.
(Incorporated by reference from Form 10-Q for the Quarter
ended June 30, 1994)
10.6 Credit Agreement dated as of July 29, 1993 between The Ryland
Group, Inc. and certain banks.
(Incorporated by reference from Form 10-K for the year ended
December 31, 1993)
10.7 Restated Loan Agreement dated as of May 28, 1993, between
Ryland Mortgage Company, Associates Mortgage Funding
Corporation, BankOne, Texas, N.A., and certain lenders.
(Incorporated by reference from Form 10-K for the year ended
December 31, 1993)
10.8 Employment Agreement dated as of December 31, 1994 between
R. Chad Dreier and The Ryland Group, Inc.
(Filed Herewith)
11. Statement Re Computation of Per Share Earnings.
(Filed Herewith)
13. Annual Report to Shareholders for the year ended
December 31,1994.
(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)
27. Financial Data Schedule.
(Filed Herewith)
<PAGE>
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS:
10.1 Form of Senior Executive Severance Agreement between
The Ryland Group, Inc., and certain of its executive officers.
(Incorporated by reference from Form 10-K for the year ended
December 31, 1989)
10.3 1992 Equity Incentive Plan of The Ryland Group, Inc.
(Incorporated by reference from Form 10-Q for the quarter ended
June 30, 1992)
10.4 Employment Agreement dated as of September 30, 1993
between Alan P. Hoblitzell, Jr. and The Ryland Group, Inc.
(Incorporated by reference from Form 10-K for the year ended
December 31, 1993)
10.5 1992 Non-Employee Director Equity Plan of The Ryland Group, Inc.
(Incorporated by reference from Form 10-Q for the Quarter ended
June 30, 1992)
10.8 Employment Agreement dated as of December 31,1994 between
R. Chad Dreier and The Ryland Group, Inc.
(Filed Herewith)
(b) Reports on Form 8-K filed in the fourth quarter of 1994:
There were no reports on Form 8-K filed in the fourth quarter of 1994.
<PAGE>
THE RYLAND GROUP, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(dollar amounts in thousands)
<TABLE>
<CAPTION>
Balance at Charged to Charged
Beginning Costs and to Other Deductions and Balance at
Description of Period Expenses Accounts Transfers (1) end of Period
------------------------------------------------------------------------------------
Valuation allowance:
Homebuilding inventory
<S> <C> <C> <C> <C> <C>
1994 $ 53,333 $ 0 $ 0 $ (21,480) $ 31,853
1993 20,422 43,000 0 (10,089) 53,333
1992 3,650 3,191 0 13,581 20,422
Valuation allowance:
Investment and advances
to joint ventures
1994 $ 1,669 $ 0 $ 0 $ (96) $ 1,573
1993 1,180 2,680 0 (2,191) 1,669
1992 14,400 902 0 (14,122) 1,180
<FN>
(1) Deductions for homebuilding inventory are generally the result of
normal inventory turnover or land sales. In 1992, there was a transfer
from investment in and advances to joint ventures to homebuilding
inventory as the result of the acquisition of joint ventures which were
previously unconsolidated.
</FN>
</TABLE>
<PAGE>
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/ Michael D. Mangan March 28, 1995
----------------------------
Michael D. Mangan
Executive Vice President and
Chief Financial 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 28, 1995
----------------------------
R. Chad Dreier
Chief Executive Officer
PRINCIPAL FINANCIAL OFFICER:
/s/ Michael D. Mangan March 28, 1995
----------------------------
Michael D. Mangan
Chief Financial Officer
PRINCIPAL ACCOUNTING OFFICER:
/s/ Stephen B. Cook March 28, 1995
---------------------------
Stephen B. Cook
Corporate Controller
The Board of Directors: Andre W. Brewster, James A. Flick, Jr.,
R. Chad Dreier, Robert J. Gaw, Leonard M. Harlan, L. C. Heist,
William L. Jews, William G. Kagler, John H. Mullin, III
By: /s/ R. Chad Dreier March 28, 1995
----------------------------
R. Chad Dreier
For Himself and as Attorney-in-Fact
<PAGE>
Page Of
Sequentially
Numbered Pages
INDEX OF EXHIBITS
3.2 Amended By-Laws of The Ryland Group, Inc. 22-32
10.8 Employment Agreement dated as of
December 31, 1994 between R. Chad Dreier and
The Ryland Group, Inc. 33-46
11 Statement Re Computation of Per Share Earnings 47
13 Annual Report to Shareholders for the
year ended December 31, 1994 48-76
21 Subsidiaries of the Registrant 77
23 Consent of Ernst & Young LLP, Independent Auditors 78
24 Power of Attorney 79
27 Financial Data Schedule 80
<PAGE>
Exhibit 3.2 THE RYLAND GROUP, INC.
BYLAWS
ARTICLE I
STOCKHOLDERS
SECTION 1.01. Annual Meeting. The Corporation shall hold an annual
meeting of its stockholders to elect directors and transact any other
businesswithin its powers, either at 10:00 a.m. on the third Wednesday of
April in each year, if not a legal holiday, or at such other time on such
other day falling on or before the 30th day thereafter as shall be set by the
Board of Directors. Except as the Charter or statute provides otherwise, any
business may be considered at an annual meeting without the purpose of the
meeting having been specified in the notice. Failure to hold an annual
meeting does not invalidate the Corporation's existence or affect any
otherwise valid corporate acts.
SECTION 1.02. Special Meeting. At any time in the interval between
annual meetings, a special meeting of the stockholders may be called by the
Chairman of the Board or the President or by a majority of the Board of
Directors by vote at a meeting or in writing (addressed to the Secretary of
the Corporation) with or without a meeting.
SECTION 1.03. Place of Meetings. Meetings of stockholders shall be held
at such place in the United States as is set, from time to time, by the Board
of Directors.
SECTION 1.04. Notice of Meetings; Waiver of Notice. Not less than 10
nor more than 90 days before each stockholders' meeting, the Secretary shall
give written notice of the meeting to each stockholder entitled to vote at the
meeting and each other stockholder entitled to notice of the meeting. The
notice shall state the time and place of the meeting and, if the meeting is a
special meeting or notice of the purpose is required by statute, the purpose
of the meeting. Notice is given to a stockholder when it is personally
delivered to him, left at his residence or usual place of business, or mailed
to him at his address as it appears on the records of the Corporation.
Notwithstanding the foregoing provisions, each person who is entitled to
notice waives notice if he, before or after the meeting, signs a waiver of the
notice, which is filed with the records of stockholders' meetings, or is
present at the meeting in person or by proxy. A meeting of stockholders
convened on the date for which it was called may be adjourned, from time to
time, without further notice to a date not more than 120 days after the
original record date.
SECTION 1.05. Quorum; Voting. Unless statute or the Charter provides
otherwise, at a meeting of stockholders the presence in person or by proxy of
stockholders entitled to cast a majority of all the votes entitled to be cast
at the meeting constitutes a quorum, and a majority of all the votes cast at a
meeting at which a quorum is present is sufficient to approve any matter which
properly comes before the meeting. In the absence of a quorum, the
stockholders present, in person or by proxy, by majority vote and without
notice other than by announcement, may adjourn the meeting, from time to
time,until a quorum shall attend. At any such adjourned meeting at which a
quorum shall be present, any business may be transacted which might have been
transacted at the meeting as originally notified. In the event that at any
meeting a quorum exists for the transaction of some business but does not
exist for the transaction of other business, the business as to which a quorum
is present may be transacted by the holders of stock present in person or by
proxy who are entitled to vote thereon.
SECTION 1.06. General Right to Vote; Proxies. Unless the Charter
provides for a greater or lesser number of votes per share or limits or denies
voting rights, each outstanding share of stock, regardless of class, is
entitled to one vote on each matter submitted to a vote at a meeting of
stockholders. In all elections for directors, each share of stock may be
voted for as many individuals as there are directors to be elected and for
whose election the share is entitled to be voted. A stockholder may vote the
stock he owns of record either in person or by written proxy signed by the
stockholder or by his duly authorized attorney in fact. Unless a proxy
provides otherwise, it is not valid more than 11 months after its date.
SECTION 1.07. List of Stockholders. At each meeting of stockholders, a
full, true and complete list of all stockholders entitled to vote at such
meeting, showing the number and class of shares held by each and certified by
the transfer agent for such class or by the Secretary, shall be furnished by
the Secretary.
SECTION 1.08. Conduct of Voting. At all meetings of stockholders,
unless the voting is conducted by judges, the proxies and ballots shall be
received, and all questions touching the qualification of voters and the
validity of proxies and the acceptance or rejection of votes shall be decided,
by the chairman of the meeting. If demanded by stockholders, present in
person or by proxy, entitled to cast 10 percent of the number of votes
entitleto be cast, or if ordered by the chairman, the vote upon any election
or question shall be taken by ballot and, upon like demand or order, the
voting shall be conducted by two inspectors, in which event the proxies and
ballots shall be received, and all questions touching the qualification of
voters and the validity of proxies and the acceptance or rejection of votes,
shall be decided by the inspectors. Unless so demanded or ordered, no vote
<PAGE>
need be by ballot, and voting need not be conducted by inspectors. The
stockholders at any meeting may choose an inspector or inspectors to act at
such meeting and, in default of such election, the chairman of the meeting may
appoint an inspector or inspectors. No candidate for election as a director
at a meeting shall serve as an inspector thereat.
SECTION 1.09. Informal Action by Stockholders. Any action required or
permitted to be taken at a meeting of stockholders may be taken without a
meeting if there is filed with the records of stockholders' meetings a
unanimous written consent which sets forth the action and is signed by each
stockholder entitled to vote on the matter and a written waiver of any right
to dissent signed by each stockholder entitled to notice of the meeting but
not entitled to vote at it.
ARTICLE II
BOARD OF DIRECTORS
SECTION 2.01. Function of Directors. The business and affairs of the
Corporation shall be managed under the direction of its Board of Directors.
All powers of the Corporation may be exercised by or under authority of the
Board of Directors, except as conferred on or reserved to the stockholders by
statute or by the Charter or Bylaws.
SECTION 2.02. Number of Directors. The Corporation shall have at least
three directors; provided that, if there is no stock outstanding, the number
of directors may be less than three but not less than one; and, if there is
stock outstanding and so long as there are less than three stockholders, the
number of directors may be less than three but not less than the number of
stockholders. The Corporation shall have the number of directors provided in
the Charter until changed as herein provided. A majority of the entire Board
of Directors may alter the number of directors set by the Charter to not
exceeding 25 nor less than the minimum number then permitted herein, but the
action may not affect the tenure of office of any director.
SECTION 2.03. Election and Tenure of Directors. At each annual meeting,
the stockholders shall elect directors to hold office until the next annual
meeting and until their successors are elected and qualify. No director shall
stand for election upon reaching the age of 70.
SECTION 2.04. Removal of Director. The stockholders may remove any
director, with or without cause, by the affirmative vote of a majority of all
the votes entitled to be cast for the election of directors.
SECTION 2.05. Vacancy on Board. The stockholders may elect a successor
to fill a vacancy on the Board of Directors which results from the removal of
a director. A majority of the remaining directors, whether or not sufficient
to constitute a quorum, may fill a vacancy on the Board of Directors which
results from any cause except an increase in the number of directors, and a
majority of the entire Board of Directors may fill a vacancy which results
from an increase in the number of directors. A director elected by the Board
of Directors to fill a vacancy serves until the next annual meeting of
stockholders and until his successor is elected and qualifies. A director
elected by the stockholders to fill a vacancy which results form the removal
of a director serves for the balance of the term of the removed director.
SECTION 2.06. Regular Meetings. After each meeting of stockholders at
which a Board of Directors shall have been elected, the Board of Directors so
elected shall meet as soon as practicable for the purpose of organization and
the transaction of other business; and in the event that no other time is
designated by the stockholders, the Board of Directors shall meet one hour
after the time for such stockholders' meeting or immediately following the
close of such meeting, whichever is later, on the day of such meeting. Such
first regular meeting shall be held at any place as may be designated by the
stockholders, or in default of such designation, at the place designated by
the Board of Directors for such first regular meeting, or in default of such
designation, at the place of the holding of the immediately preceding meeting
of stockholders. No notice of such first meeting shall be necessary if held
as hereinabove provided. Any other regular meeting of the Board of Directors
shall be held on such date and at any place as may be designated, from time to
time, by the Board of Directors.
SECTION 2.07. Special Meetings. Special meetings of the Board of
Directors may be called at any time by the Chairman of the Board, the
President or by a majority of the Board of Directors by vote at a meeting, or
in writing with or without a meeting. A special meeting of the Board of
Directors shall be held on such date and at any place in or out of the state
of Maryland as may be designated, from time to time, by the Board of
Directors. In the absence of designation, such meeting shall be held at such
place as may be designated in the call.
SECTION 2.08. Notice of Meeting. Except as provided in Section 2.06,
the Secretary shall give notice to each director of each regular and special
meeting of the Board of Directors. The notice shall state the time and place
of the meeting. Notice is given to a director when it is delivered personally
to him, left at his residence or usual place of business, or sent by telegraph
or telephone at least 24 hours before the time of the meeting or, in the
alternative, by mail to his address as it shall appear on the records of the
Corporation at least 72 hours before the time of the meeting. Unless the
Bylaws or a resolution of the Board of Directors provides otherwise, the
<PAGE>
notice need not state the business to be transacted at or the purposes of any
regular or special meeting of the Board of Directors. No notice of any
meeting of the Board of Directors need be given to any director who attends or
to any director who, in writing executed and filed with the records of the
meeting either before or after the holding thereof, waives such notice. Any
meeting of the Board of Directors, regular or special, may adjourn, from time
to time, to reconvene at the same or some other place, and no notice need be
given of any such adjourned meeting other than by announcement.
SECTION 2.09. Action by Directors. Unless statute or the Charter or
Bylaws require a greater proportion, the action of a majority of the directors
present at a meeting at which a quorum is present is action of the Board of
Directors. A majority of the entire Board of Directors shall constitute a
quorum for the transaction of business. In the absence of a quorum, the
directors present, by majority vote and without notice other than by
announcement, may adjourn the meeting, from time to time, until a quorum shall
attend. At any such adjourned meeting at which a quorum shall be present, any
business may be transacted which might have been transacted at the meeting as
originally notified. Any action required or permitted to be taken at a
meeting of the Board of Directors may be taken without a meeting, if a
unanimous written consent which sets forth the action is signed by each member
of the Board and filed with the minutes of proceedings of the Board.
SECTION 2.10. Meeting by Conference Telephone. Members of the Board of
Directors may participate in a meeting by means of a conference telephone or
similar communications equipment if all persons participating in the meeting
can hear each other at the same time. Participation in a meeting by these
means constitutes presence in person at a meeting.
SECTION 2.11. Compensation. By resolution of the Board of Directors, a
fixed sum and expenses, if any, for attendance at each regular or special
meeting of the Board of Directors or of committees thereof, and other
compensation for their services as such on committees of the Board of
Directors, may be paid to directors. A director who serves the Corporation in
any other capacity also may receive compensation for such other services,
pursuant to a resolution of the directors.
ARTICLE III
COMMITTEES
SECTION 3.01. Committees. The Board of Directors may appoint, from
among its members, an Executive Committee and other committees composed of two
or more directors and delegate to these committees any of the powers of the
Board of Directors, except the power to declare dividends or other
distributions on stock; elect directors; issue stock, other than as provided
in the next sentence; recommend to the stockholders any action which requires
stockholder approval; amend the Bylaws; or approve any merger or share
exchange which does not require stockholder approval. If the Board of
Directors has given general authorization for the issuance of stock, a
committee of the Board, in accordance with a general formula or method
specified by the Board by resolution or by adoption of a stock option or other
plan, may fix the terms of stock subject to classification or reclassification
and the terms on which any stock may be issued, including all terms and
conditions required or permitted to be established or authorized by the Board
of Directors.
SECTION 3.02. Committee Procedure. Each committee may fix rules of
procedure for its business. A majority of the members of a committee shall
constitute a quorum for the transaction of business, and the act of a majority
of those present at a meeting at which a quorum is present shall be the act of
the committee. The members of a committee present at any meeting, whether or
not they constitute a quorum, may appoint a director to act in the place of an
absent member. Any action required or permitted to be taken at a meeting of a
committee may be taken without a meeting, if a unanimous written consent,
which sets forth the action, is signed by each member of the committee and
filed with the minutes of the committee. The members of a committee may
conduct any meeting thereof by conference telephone in accordance with the
provisions of Section 2.10.
SECTION 3.03. Emergency. In the event of a state of disaster of
sufficient severity to prevent the conduct and management of the affairs and
business of the Corporation by its directors and officers, as contemplated by
the Charter and the Bylaws, any two or more available members of the then
incumbent Executive Committee shall constitute a quorum of that Committee for
the full conduct and management of the affairs and business of the Corporation
in accordance with the provisions of Section 3.01. In the event of the
unavailability, at such time, of a minimum of two members of the then
incumbent Executive Committee, the available directors shall elect an
Executive Committee consisting of any two members of the Board of Directors,
whether or not they be officers of the Corporation, which two members shall
constitute the Executive Committee for the full conduct and management of the
affairs of the Corporation in accordance with the aforegoing provisions of
this Section. This Section shall be subject to implementation by resolution
of the Board of Directors passed, from time to time, for that purpose; and any
provisions of the Bylaws (other than this Section) and any resolutions which
are contrary to the provisions of this Section or to the provisions of any
such implementary resolutions shall be suspended until it shall be determined
by any interim Executive Committee acting under this Section that it shall be
to the advantage of the Corporation to resume the conduct and management of
its affairs and business under all the other provisions of the Bylaws.
<PAGE>
ARTICLE IV
OFFICERS
SECTION 4.01. Executive Officers. The Board of Directors may choose a
Chairman of the Board from among the directors. The Board of Directors shall
choose a President, a Secretary and a Treasurer who need not be directors.
The Board of Directors may choose one or more Senior Vice Presidents, Vice
Presidents, and a Controller, none of whom need be a director. Any two or
more of the above-mentioned offices, except those of President and Vice
Presidents, may be held by the same person; but no officer shall execute,
acknowledge or verify any instrument in more than one capacity if such
instrument be required by statute, by charter, by the Bylaws or by resolution
of the Board of Directors to be executed, acknowledged or verified by any two
or more officers. Each such officer shall hold office until the first meeting
of the Board of Directors after the annual meeting of stockholders next
succeeding his election, and until his successor shall have been duly chosen
and qualified, or until he shall have resigned or shall have been removed.
Any vacancy in any of the above offices may be filled for the unexpired
portion of the term by the Board of Directors at any regular or special
meeting.
The Board of Directors may designate such persons as appointed officers
as they deem necessary or desirable, from time to time.
SECTION 4.02. Chairman of the Board. The Chairman of the Board, if one
be elected, shall preside at all meetings of the Board of Directors and of the
stockholders at which he shall be present. He shall have and may exercise
such powers as are, from time to time, assigned to him by the Board of
Directors.
SECTION 4.03. President. In the absence of the Chairman of the Board,
the President shall preside at all meetings of the stockholders and the Board
of Directors at which he shall be present; he shall have general charge and
supervision of the business of the Corporation; and he may sign and execute,
in the name of the Corporation, all authorized deeds, mortgages, bonds,
contracts or other instruments, except in cases in which the signing and
execution thereof shall have been expressly delegated to some other officer or
agent of the Corporation; and, in general, he shall perform all duties as,
from time to time, may be assigned to him by the Board of Directors.
SECTION 4.04. Vice Presidents. The Corporation shall have four (4)
classes of Vice President; namely, Executive Vice Presidents, Senior Vice
Presidents, Vice Presidents and Operational Vice Presidents. Each class of
Vice President shall have such powers and duties as, from time to time, may be
assigned to them by the Board of Directors or the Chairman. Executive Vice
Presidents, Senior Vice Presidents and Vice Presidents shall be executive
officers of the Corporation. They shall have the power and authority, in the
ordinary course of business of the Corporation, to acquire and dispose of real
and personal property of the Corporation and interests therein and to execute
and deliver all such documents as may be necessary or desirable in connection
with any such acquisition or disposition. Operational Vice Presidents shall
be deemed appointed officers of the Corporation. They shall have the power
and authority, in the ordinary course of business of the Corporation, to make
conveyances of real property developed by the Corporation and related personal
property and to execute and deliver all such documents as any be necessary or
desirable in connection with any such conveyance.
SECTION 4.05. Secretary. The Secretary shall keep the minutes of the
meetings of the stockholders, of the Board of Directors and of any committees
in books provided for this purpose; he shall see that all notices are duly
given in accordance with the provisions of the Bylaws or as required by law;
he shall be custodian of the records of the Corporation; he shall see that the
corporate seal is affixed to all documents, the execution of which, on behalf
of the Corporation, under its seal, is duly authorized and when so affixed,
may attest the same; and, in general, he shall perform all duties incident to
the office of a secretary of a corporation, and such other duties as, from
time to time, may be assigned to him by the Board of Directors or the
President.
SECTION 4.06. Treasurer. The Treasurer shall have charge of and be
responsible for all funds, securities, and receipts and disbursements of the
Corporation, and shall deposit, or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in such banks, trust
companies or other depositories as shall, from time to time, be selected by
the Board of Directors; he shall render to the President and to the Board of
Directors, whenever requested, an account of the financial condition of the
Corporation; and, in general, he shall perform all the duties incident to the
office of treasurer of a corporation and such other duties as may be assigned
to him by the Board of Directors or the President.
SECTION 4.07. Appointed Officers. Operational Vice Presidents,
Controllers, Assistant Vice Presidents, Assistant Secretaries or Treasurers,
and such additional officers as may be deemed necessary or desirable to
management of the Corporation, shall be deemed appointed officers and shall
not be considered executive officers of the Corporation. Appointed officers
may be appointed by the Board of Directors or the President.
<PAGE>
SECTION 4.08. Compensation. The Board of Directors shall have the power
to fix the compensation of all executive and appointed officers of the
Corporation. The President shall have the power to fix the compensation of
appointed officers in the absence of action thereon by the Board of Directors.
SECTION 4.09. Removal. Any officer, employee or agent of the
Corporation may be removed by the Board of Directors whenever, in its
judgment, the best interests of the Corporation will be served thereby; but
such removal shall be without prejudice to the contractual rights, if any, of
the person removed. Any appointed officer, employee or agent of the
Corporation may be removed by the President whenever, in his judgment, the
best interests of the Corporation will be served thereby; but such removal
shall be without prejudice to the contractual rights,
if any, of the person so removed.
ARTICLE V
STOCK
SECTION 5.01. Certificates for Stock. Each stockholder is entitled to
certificates which represent and certify the shares of stock he holds in the
Corporation. Each stock certificate shall include on its face the name of the
corporation that issues it, the name of the stockholder or other person to
whom it is issued, and the class of stock and number of shares it represents.
It shall be in such form, not inconsistent with law or with the Charter, as
shall be approved by the Board of Directors or any officer or officers
designated for such purpose by resolution of the Board of Directors. Each
stock certificate shall be signed by the Chairman of the Board, the
President,or a Vice President and countersigned by the Secretary, an Assistant
Secretary, the Treasurer or an Assistant Treasurer. Each certificate may be
sealed with the actual corporate seal or a facsimile of it in any other form,
and the signatures may be either manual or facsimile signatures. A
certificate is valid and may be issued whether or not an officer who signed it
is still an officer when it is issued.
SECTION 5.02. Transfers. The Board of Directors shall have the power
and authority to make such rules and regulations as it may deem expedient
concerning the issue, transfer and registration of certificates of stock; and
may appoint transfer agents and registrars thereof. The duties of the
transfer agent and registrar may be combined.
SECTION 5.03. Record Date and Closing of Transfer Books. The Board of
Directors may set a record date or direct that the stock transfer books be
closed for a stated period for the purpose of making any proper determination
with respect to stockholders, including which stockholders are entitled to
notice of a meeting, vote at a meeting, receive a dividend, or be allotted
other rights. The record date may not be more than 90 days before the date on
which the action requiring the determination will be taken; the transfer books
may not be closed for a period longer than 20 days; and, in the case of a
meeting of stockholders, the record date or the closing of the transfer books
shall be at least 10 days before the date of the meeting.
SECTION 5.04. Stock Ledger. The Corporation shall maintain a stock
ledger which contains the name and address of each stockholder and the number
of shares of stock of each class which the stockholder holds. The stock
ledger may be in written form or in any other form which can be converted
within a reasonable time into written form for visual inspection. The
original or a duplicate of the stock ledger shall be kept at the offices of a
transfer agent for the particular class of stock, within or without the state
of Maryland, or, if none, at the principal office or the principal executive
offices of the Corporation in the state of Maryland.
SECTION 5.05. Certification of Beneficial Owners. The Board of
Directors may adopt by resolution a procedure by which a stockholder of the
Corporation may certify in writing to the Corporation that any shares of stock
registered in the name of the stock-holder are held for the account of a
specified person other than the stockholder. The resolution shall set forth
the class of stockholders who may certify; the purpose for which the
certification may be made; the form of certification and the information to be
contained in it; the time after the record date or closing of the stock
transfer books within which the certification must be received by the
Corporation, if the certification is with respect to a record date or closing
of the stock transfer books; and any other provisions with respect to the
procedure which the Board considers necessary or desirable. Upon receipt of a
certification which complies with the procedure adopted by the Board in
accordance with this Section, the person specified in the certification is,
for the purpose set forth in the certification, the holder of record of the
specified stock in place of the stockholder who makes the certification.
SECTION 5.06. Lost Stock Certificates. The Board of Directors of the
Corporation may determine the conditions for issuing a new stock certificate
in place of one which is alleged to have been lost, stolen, or destroyed, or
the Board of Directors may delegate such power to any officer or officers of
the Corporation. In their discretion, the Board of Directors, or such officer
or officers, may refuse to issue such new certificate save upon the order of
some court having jurisdiction in the premises.
<PAGE>
ARTICLE VI
FINANCE
SECTION 6.01. Checks, Drafts, Etc. All checks, drafts and orders for
the payment of money, notes and other evidences of indebtedness, issued in the
name of the Corporation, shall, unless otherwise provided by resolution of the
Board of Directors, be signed by the President, a Vice President or an
Assistant Vice President and countersigned by the Treasurer, an Assistant
Treasurer, the Secretary or an Assistant Secretary.
SECTION 6.02. Annual Statement of Affairs. There shall be prepared
annually a full and correct statement of the affairs of the Corporation, to
include a balance sheet and a financial statement of operations for the
preceding fiscal year. The statement of affairs shall be submitted at the
annual meeting of the stockholders and, within 20 days after the meeting,
placed on file at the Corporation's principal office.
SECTION 6.03. Fiscal Year. The fiscal year of the Corporation shall be
the 12-month period ending December 31 in each year, unless otherwise provided
by the Board of Directors.
ARTICLE VII
SUNDRY PROVISIONS
SECTION 7.01. Books and Records. The Corporation shall keep correct and
complete books and records of its accounts and transactions and minutes of the
proceedings of its stockholders, Board of Directors and of any executive or
other committee when exercising any of the powers of the Board of Directors.
The books and records of a Corporation may be in written form or in any form
which can be converted within a reasonable time into written form for visual
inspection. Minutes shall be recorded in written form but may be maintained
in the form of a reproduction.
SECTION 7.02. Corporate Seal. The Board of Directors shall provide a
suitable seal, bearing the name of the Corporation, which shall be in the
charge of the Secretary. The Board of Directors may authorize one or more
duplicate seals and provide for the custody thereof.
SECTION 7.03. Bonds. The Board of Directors may require any officer,
agent or employee of the Corporation to give a bond to the Corporation,
conditioned upon the faithful discharge of his duties, with one or more
sureties and in such amount as may be satisfactory to the Board of Directors.
SECTIONS 7.04. Voting Upon Shares in Other Corporations. Stock of other
corporation or associations, registered in the name of the Corporation, may be
voted by the President, a Vice President or a proxy appointed by either of
them. The Board of Directors, however, may by resolution appoint some other
person to vote such shares, in which case such person shall be entitled to
vote such shares upon the production of a certified copy of such resolution.
SECTION 7.05. Mail. Any notice or other document which is required by
these Bylaws to be mailed shall be deposited in the United States mails,
postage prepaid.
SECTION 7.06. Execution of Documents. A person who holds more than one
office in the Corporation may not act in more than one capacity to execute,
acknowledge or verify an instrument required by law to be executed,
acknowledged or verified by more than one officer.
SECTION 7.07. Amendments. Subject to the special provisions of Section
2.02, (a) any and all provisions of these Bylaws may be altered or repealed,
and new bylaws may be adopted at any annual meeting of the stockholders, or at
any special meeting called for that purpose; and (b) the Board of Directors
shall have the power, at any regular or special meeting thereof, to make and
adopt new bylaws or to amend, alter or repeal any of the Bylaws of the
Corporation.
<PAGE>
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of the 31st day of December 1994, by and
between The Ryland Group, Inc., a Maryland corporation (the "Company"), and
R. Chad Dreier (the "Executive").
W I T N E S S E T H:
The Executive is presently employed by the Company in the capacity of its
Chairman of the Board, President and Chief Executive Officer and possesses
considerable experience and an intimate knowledge of the business and affairs
of the Company, its policies, methods, personnel and operations. The Company
recognizes that the Executive's contributions have been substantial and
meritorious and that the Executive has demonstrated unique qualifications to
act in an executive capacity for the Company. The Company is desirous of
assuring the continued employment of the Executive and the Executive is
desirous of having such assurance.
NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements of the parties set forth in this Agreement, and of
other good and valuable consideration the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound, agree
as follows:
1. TERM OF EMPLOYMENT. The Company hereby agrees to employ the Executive
and the Executive hereby agrees to continue to serve the Company, in
accordance with the terms and conditions set forth herein, for an initial
period of three (3) years, commencing as of January 1, 1995 (the "Effective
Date"); subject, however, to earlier termination as expressly provided herein.
The initial three (3) year period of employment automatically shall be
extended for one (1) additional year at the end of the initial three (3) year
term, and then again after each successive year thereafter. However, either
party may terminate this Agreement at the end of the initial three (3) year
period, or at the end of any successive one (1) year term thereafter, by
giving the other party written notice of intent not to renew, delivered at
least one hundred eighty (180) days prior to the end of such initial period or
successive term. In the event such notice of intent not to renew is properly
delivered, this Agreement, along with all corresponding rights, duties and
covenants, automatically shall expire at the end of the initialperiod or
successive term then in progress (except as otherwise provided in Section 6
and 9 hereof).
Regardless of the above, if at any time during the initial period of
employment, or successive term, a Change in Control of the Company occurs (as
defined in Section 7 hereof), then the term of this Agreement thereafter shall
be the longer of: (a) two (2) years beyond the month in which the effective
date of such Change in Control occurs; or (b) the term as otherwise provided
by this Section 1.
2. POSITION AND RESPONSIBILITIES. During the term of this Agreement, the
Executive shall serve as the President and Chief Executive Officer of the
Company and, if so elected, as a member of the Company's Board of Directors
and Chairman of the Board. In his capacity as President and Chief Executive
Officer of the Company, the Executive shall be the Company's highest ranking
executive officer and shall have full authority and responsibility, subject to
the control of the Board of Directors of the Company, for formulating and
administering the plans and policies of the Company. The Executive shall have
the same status, privileges and responsibilities normally inherent in such
capacities in corporations of similar size and character.
3. PERFORMANCE OF DUTIES. During the term of this Agreement, the Executive
agrees to devote substantially his full time, attention and energies
to the Company's business and will not engage in consulting work or any
trade or business for his own account or for or on behalf of any other
person, firm or corporation which competes or, in a material way,
conflicts or interferes with the performance of his duties hereunder.
Subject to Section 9.1 herein, the Executive may serve as a director of
other companies so long as such service does not interfere with the per-
formance of his duties to the Company.
4. COMPENSATION. As remuneration for all services to be rendered by the
Executive during the term of this Agreement, and as consideration for
complying with the covenants herein, the Company shall pay and provide to the
Executive the following:
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4.1 BASE SALARY. The Company shall pay the Executive a Base Salary in an
amount which shall be established from time to time by the Board of Directors
of the Company, provided that such Base Salary shall not be less than six
hundred thousand dollars ($600,000) per year. This Base Salary shall be paid
to the Executive in installments throughout the year consistent with the
normal payroll practices of the Company. The annual Base Salary shall be
reviewed at least annually following the Effective Date of this Agreement to
ascertain whether, in the judgment of the Board of Directors, such Base Salary
should be increased, based on the performance of the Executive during the
year, inflation and other factors deemed appropriate by the Board of
Directors. If so increased, the Base Salary as stated above shall, likewise,
be increased for all purposes of this Agreement.
4.2 ANNUAL BONUS. In addition to his Base Salary, the Executive shall be
eligible to receive an annual cash bonus (the "Bonus") in respect of each
fiscal year during the term of this Agreement equal to three-quarters of one
percent (0.75%) of the Ordinary Course Pre-Tax Income. For purposes of this
Agreement, "Ordinary Course Pre-Tax Income" shall mean the consolidated pre-
tax income of the Company and its subsidiaries as reflected in the audited
consolidated financial statements of the Company, as adjusted in good faith by
the Compensation Committee to eliminate the effect of nonrecurring gains and
losses and other items not reflective of the ongoing ordinary course of
business operating performance of the Company and its subsidiaries.
The Bonus shall be payable to the Executive in cash within sixty (60) days
after the end of each fiscal year during the term of the Agreement, commencing
with the fiscal year ending December 31, 1995.
4.3 INCENTIVE PLANS. The Executive shall be eligible to participate in such
profit-sharing, stock option, Bonus, incentive and performance award programs
as are made available generally to executive officers of the Company, such
participation to be on a basis which is commensurate with the Executive's
position with the Company (and in any event a level of participation at least
as favorable as that provided to executives with junior authority or duties).
4.4 OTHER BENEFITS. The Executive shall be entitled to receive employee
benefits, including, without limitation, pension, disability, group life,
sickness, accident and health insurance programs and split-dollar life
insurance programs, and perquisites as are made available generally to
executive officers of the Company, such participation to be on a basis which
is commensurate with the Executive's position within the Company (and in any
event a level of participation at least as favorable as that provided to
executives with junior authority or duties).
4.5 RIGHT TO CHANGE PLANS. By reason of Sections 4.3 and 4.4 herein, the
Company shall not be obligated to institute, maintain, or refrain from
changing, amending, or discontinuing any benefit plan, program, or perquisite,
so long as such changes are similarly applicable to executive employees
generally.
5. EXPENSES. The Company shall pay, or reimburse the Executive, for all
ordinary and necessary expenses, in a reasonable amount, which the Executive
incurs in performing his duties under this Agreement, including, but not
limited to, travel, entertainment, professional dues and subscriptions, and
all dues, fees, and expenses associated with membership in various
professional, business, and civic associations and societies of which the
xecutive's participation is in the best interest of the Company.
6. EMPLOYMENT TERMINATIONS.
6.1 TERMINATION DUE TO RETIREMENT OR DEATH. In the event the Executive's
employment is terminated while this Agreement is in force by reason of
Retirement (as defined under the then established rules of the Company's
retirement plans), or death, the Executive's benefits shall be determined in
accordance with the Company's retirement, survivor's benefits, insurance, and
other applicable programs of the Company then in effect. Upon the effective
date of such termination, the Company's obligation under this Agreement to pay
and provide to the Executive the elements of pay described in Sections 4.1,
4.2, 4.3 and 4.4 shall immediately expire, except to the extent that the
benefits described in Section 4.4 continue after Retirement under the terms of
the benefit plans and programs which apply generally to the Company's
executives and except that the Executive shall receive all other rights and
benefits that he is vested in pursuant to other plans and programs of the
Company. In addition, the Company shall pay to the Executive (or the
Executive's beneficiaries, or estate, as applicable), a pro rata share of his
Bonus for the fiscal year in which employment termination occurs, based on the
results of the Company for such fiscal year. This pro rata Bonus amount shall
be determined by multiplying the Bonus which otherwise would apply or such
full fiscal year by a fraction, the numerator of which is the number of days
in such fiscal year prior to the date of employment termination and the
denominator of which is the total number of days in such fiscal year. The pro
rata Bonus shall be paid within sixty (60) days of the end of such fiscal
year.
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6.2 TERMINATION DUE TO DISABILITY. In the event that the Executive becomes
Disabled (as defined below) during the term of this Agreement and is,
therefore, unable to perform his duties herein for more than one hundred
twenty (120) total calendar days during any period of twelve (12) consecutive
months, or in the event of the Board's reasonable expectation that the
Executive's Disability will exist for more than a period of one hundred twenty
(120) calendar days, the Company shall have the right to terminate the
Executive's active employment as provided in this Agreement. However, the
Board shall deliver written notice to the Executive of the Company's intent to
terminate for Disability at least thirty (30) calendar days prior to the
effective date of such termination. A termination for Disability shall become
effective upon the end of the thirty (30) day notice period. Upon such
effective date, the Company's obligation to pay and provide to the Executive
the elements of pay described in Sections 4.1, 4.2, 4.3 and 4.4 shall
immediately expire, except to the extent that the benefits described in
Section 4.4 continue after Disability or Retirement under the terms of the
benefit plans and programs which apply generally to the Company's executives
and except that the Executive shall receive all rights and benefits that he is
vested in pursuant to other plans and programs of the Company. In addition,
the Company shall pay to the Executive a pro rata share of his Bonus for the
fiscal year in which employment termination occurs, based on the results for
such fiscal year, determined as provided in Section 6.1. The pro rata Bonus
shall be paid within sixty (60) days of the end of such fiscal year.
The term "Disability" shall mean, for all purposes of this Agreement, the
incapacity of the Executive, due to injury, illness, disease, or bodily or
mental infirmity, to engage in the performance of substantially all of the
usual duties of employment with the Company as contemplated by Section 2
herein, such Disability to be determined by the Board of Directors of the
Company upon receipt and in reliance on competent medical advice from one (1)
or more individuals, selected by the Board, who are qualified to give such
professional medical advice.It is expressly understood that the Disability of
the Executive for a period of one hundred twenty (120) calendar days or less
in the aggregate during any period of twelve (12) consecutive months, in the
absence of any reasonable expectation that his Disability will exist for more
than such a period of time, shall not constitute a failure by him to perform
his duties hereunder and shall not be deemed a breach or default and the
Executive shall receive full compensation for any such period of Disability or
for any other temporary illness or incapacity during the term of this
Agreement.
6.3 VOLUNTARY TERMINATION BY THE EXECUTIVE. The Executive may terminate this
Agreement at any time by giving the Board of Directors of the Company written
notice of intent to terminate, delivered at least ninety (90) days prior to
the effective date of such termination.Upon the expiration of the ninety (90)
day notice period, the termination by the Executive shall become effective.
The Company shall pay the Executive his Base Salary, at the rate then in
effect as provided in Section 4.1 herein, through the effective date of
termination, plus all other benefits to which the Executive has a vested right
to at that time (for this purpose, the Executive shall not be paid any Bonus
with respect to the fiscal year in which voluntary termination under this
Section 6.3 occurs). The Company and the Executive shall have no further
obligations under this Agreement after the effective date of such termination,
except as set forth in Sections 9 or 10 hereof.
6.4 INVOLUNTARY TERMINATION BY THE COMPANY WITHOUT CAUSE. The Board may
terminate the Executive's employment, as provided under this Agreement, at any
time, for reasons other than death, Disability, Retirement, or for Cause (as
defined in Section 6.5 hereof), by notifying the Executive in writing of the
Company's intent to terminate, at least thirty (30) calendar days prior the
effective date of such termination.Upon the expiration of the thirty (30) day
notice period the termination by the Company shall become effective, and the
Company shall pay and provide to the Executive the benefits set forth in this
Section 6.4 (plus, in the event of termination by the Company during a Change
of Control Period, any additional benefits required by Section 7.1 hereof).
Upon a termination of the Executive's employment by the Company pursuant to
this Section 6.4 at any time other than during a Change of Control Period, the
Company shall pay to the Executive, within thirty (30) days after the
effective date of such termination, a lump sum cash payment equal to the
greater of: (a) the Base Salary then in effect for the remaining term of this
Agreement (assuming no additional extensions of this Agreement's term beyond
that in effect as of the effective date of termination); or (b) eighteen (18)
full months of his Base Salary in effect as of the effective date of
termination, and shall thereafter provide to the Executive a continuation of
his health and welfare benefits for a period equal to the greater of such
remaining term or eighteen (18) months, as applicable. If for any reason the
Company is unable to continue health and welfare benefits as required by the
preceding sentence, the Company shall either provide equivalent benefits to
the Executive or pay to the Executive a lump sum cash payment equal to the
value of the benefits which the Company is unable to provide. Continuation of
health benefits under this Section 6.4 will count against, and will not
extend, the period during which benefits are required to be continued under
COBRA.
<PAGE>
In addition, the Company shall make a prorated payment of the Executive's
Bonus for the fiscal year in which termination occurs, calculated based upon
the performance of the Company through the end of the month immediately
preceding the effective date of the termination. Payment of the Bonus shall
be made in cash, in one lump sum, at the same time payment of Base Salary is
made pursuant to this Section 6.4. Further, the Company shall pay the
Executive all other benefits to which the Executive has a vested right at the
time, according to the provisions of each governing plan or program. The
Company and the Executive thereafter shall have no further obligations under
this Agreement after the effective date of termination, except as set forth in
Sections 7, 9 or 10 hereof.
6.5 TERMINATION FOR CAUSE. Nothing in this Agreement shall be construed to
prevent the Board from terminating the Executive's employment under this
Agreement for "Cause."
"Cause" shall be determined by the Board in the exercise of good faith and
reasonable judgment, and shall be defined as fraud, embezzlement, theft, or
other criminal act constituting a felony under U.S. laws, or the failure of
the Executive to perform any material covenants under this Agreement, for
reasons other than the Executive's death, Disability or Retirement. In the
event this Agreement is terminated by the Board for Cause, the Company shall
pay the Executive his Base Salary through the effective date of the employment
termination and the Executive shall immediately thereafter forfeit all rights
and benefits (other than vested benefits) he would otherwise have been
entitled to receive under this Agreement, including any right to a Bonus for
the fiscal year in which the termination occurs. The Company and the
Executive thereafter shall have no further obligations under this Agreement,
except as set forth in Sections 9 or 10 hereof.
6.6 TERMINATION FOR GOOD REASON. At any time during the term of this
Agreement, the Executive may terminate this Agreement for Good Reason (as
defined below) by giving the Board of Directors of the Company thirty (30)
calendar days written notice of intent to terminate, which notice sets forth
in reasonable detail the facts and circumstances claimed to provide a basis
for such termination. Upon the expiration of the thirty (30) day notice
period, the Good Reason termination shall become effective, and the Company
shall pay and provide to the Executive the benefits set forth in this
Section 6.6 (plus in the event of termination for Good Reason during a Change
of Control Period, any additional benefits required by Section 7.1 hereof).
Good Reason shall mean, without the Executive's express written consent, the
occurrence of any one or more of the following:
(a) The assignment of the Executive to duties materially inconsistent with
the Executive's authorities, duties, responsibilities and status (including
offices, titles, and reporting requirements) as an officer of the Company, or
a reduction or alteration in the nature or status of the Executive's
authorities, duties, or responsibilities from those in effect during the
immediately preceding fiscal year, other than an insubstantial and inadvertent
act that is remedied by the Company promptly after receipt of notice thereof
given by the Executive;
(b) Without the Executive's consent, the Company's requiring the Executive to
be based at a location which is at least fifty (50) miles further from the
Executive's current primary residence than is such residence from the
Company's current headquarters, except for required travel on the Company's
business;
(c) A reduction by the Company in the Executive's Base Salary as in effect on
the Effective Date, as provided in Section 4.1 herein, or as the same shall be
increased from time to time;
(d) The failure of the Company to obtain a satisfactory agreement from any
successor to the Company to assume and agree to perform this Agreement, as
contemplated in Section 11.1 herein.
Upon a termination of the Executive's employment for Good Reason at any time
other than during a Change of Control Period, the Executive shall be entitled
to receive the same payments and benefits as he is entitled to receive
following an involuntary termination of his employment by the Company without
Cause, as specified in Section 6.4 herein. The payment of Base Salary and pro
rata Bonus shall be made to the Executive within thirty (30) calendar days
following the effective date of employment termination. Upon a termination for
Good Reason during a Change of Control Period the Executive shall be entitled
to receive the payments and benefits set forth in Section 7.1 herein in lieu
of those set forth in this Section 6.6.
The Executive's right to terminate employment for Good Reason shall not be
affected by the Executive's incapacity due to physical or mental illness. The
Executive's continued employment shall not constitute consent to, or a waiver
of rights with respect to, any circumstance constituting Good Reason herein.
6.7 NON-RENEWAL BY COMPANY. Upon any termination of this Agreement as a
result of a notice of non-renewal by the Company pursuant to Section 1 hereof,
upon the effective date of such termination, the Company shall pay to the
Executive a lump sum cash payment equal to twelve (12) full months Base Salary
then in effect and shall continue the Executive's health and welfare benefits
for twelve (12) full months. If for any reason the Company is unable to
continue health and welfare benefits as required by the preceding sentence,
the Company shall either provide equivalent benefits to the Executive or pay
to the Executive a lump sum cash payment equal to the value of the benefits
<PAGE>
the Company is unable to provide. Continuation of health benefits under this
Section 6.4 will count against, and will not extend, the period during which
benefits are required to be continued under COBRA.In addition, the Company
shall pay the Executive's Bonus for the finalyear within sixty (60) days after
the effective date of the termination of this Agreement in accordance with the
provisions of Section 4.2 hereof.
7. CHANGE IN CONTROL.
7.1 Employment Terminations in Connection with a Change in Control. In the
event of a Qualifying Termination (as defined below) during a Change of
Control Period, the Company shall pay to the Executive and provide him with
benefits in lieu of the benefits which otherwise would have been payable under
this Agreement such that the total benefits payable to the Executive shall be
as follows:
(a) A lump sum amount equal to three (3) times the highest rate of the
Executive's annualized Base Salary rate in effect at any time up to and
including the effective date of termination;
(b) A lump sum amount equal to three (3) times the higher of the Executive's
Bonus for the last fiscal year prior to the Change in Control or the average
annual Bonus paid to the Executive for the last three (3) fiscal years prior
to the Change in Control;
(c) An amount equal to the Executive's unpaid Base Salary and pro rata Bonus
through the effective date of termination, determined as provided in Section
6.4; and (d) A continuation of health and welfare benefits for three (3) full
years from the effective date of termination. If for any reason the Company
is unable to continue health and welfare benefits as required by the preceding
sentence, the Company shall either provide equivalent benefits to the
Executive or pay to the Executive a lump sum cash payment equal to the value
of the benefits which the Company is unable to provide. Continuation of
health benefits under this Section 6.4 will count against, and will not
extend, the period during which benefits are required to be continued under
COBRA. The continuation of these welfare benefits may be discontinued by the
Company prior to the end of the three (3) year period in the event the
Executive has available substantially similar benefits from a subsequent
employer, as determined by the Company's Board of Directors.
For purposes of this Section 7, a Qualifying Termination shall mean any
termination of the Executive's employment other than:(1) by the Company for
Cause; (2) by reason of death, Disability or Retirement; or (3) by the
Executive without Good Reason. Payment of any lump sum amounts pursuant to
this Section 7.1 will be made within sixty (60) days after the effective date
of the termination of the Executive's Employment
7.2 DEFINITION OF "CHANGE IN CONTROL". A Change in Control of the Company
shall be deemed to have occurred as of the first day any one or more of the
following conditions shall have been satisfied:
(a) Any Person (as defined in Section 3(a)(9) of the Securities Exchange Act
of 1934) (other than those Persons in control of the Company as of the
Effective Date, and other than a trustee or other fiduciary holding securities
under an employee benefit plan of the Company, or a corporation owned directly
or indirectly by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company), becomes the
Beneficial Owner (as defined in Rule 13d-3 of the General Rules and
Regulations under the Securities Exchange Act of 1934), directly or
indirectly, of securities of the Company representing over thirty percent
(30%) of the combined voting power of the Company's common stock then
outstanding; or
(b) During any period of two (2) consecutive years (not including any period
prior to the Effective Date), individuals who at the beginning of such period
constitute the Board of Directors (and any new Director, whose election was
approved or recommended by a vote of at least two-thirds (2/3) of the
Directors then still in office who either were Directors at the beginning of
the period or whose election or nomination for election was so approved),
cease for any reason to constitute a majority thereof; or
(c) The stockholders of the Company approve: (i) a plan of complete
liquidation of the Company; or (ii) an agreement for the sale or disposition
of all or substantially all the Company's assets (except as provided in
(iii)); or (iii) a merger, consolidation, share exchange or reorganization of
the Company with or involving any other corporation, other than a merger,
consolidation, share exchange or reorganization that would result in the
owners of common stock having more than fifty percent (50%) of the combined
voting power of the common stock of the Company outstanding immediately prior
thereto, continuing to have (either by such stock remaining outstanding or by
being converted into common stock of another entity or entities), more than
fifty percent (50%) of the combined voting power of the common stock which is
outstanding immediately after such merger, consolidation, share exchange or
reorganization.
<PAGE>
However, in no event shall a Change in Control be deemed to have occurred,
with respect to the Executive, if the Executive is part of a purchasing group
which consummates the Change in Control transaction. The Executive shall be
deemed "part of a purchasing group" for purposes of the preceding sentence if
the Executive is an equity participant in the purchasing company or group
(except for: (i) passive ownership of less than two percent (2%) of the stock
of the purchasing company; or (ii) ownership of equity participation in the
purchasing company or group which is otherwise not significant, as determined
prior to the Change in Control by a majority of the nonemployee continuing
Directors).
7.3 CHANGE OF CONTROL PERIOD. "Change in Control Period" shall mean the
period of time commencing with the date on which the Company becomes aware of
the Change in Control or becomes aware of a proposed transaction which
reasonably could be expected to result in a change in control and ending on
the first to occur of two (2) years after the effective date of the Change in
Control or the date on which the proposed transaction no longer is reasonably
expected to occur.
7.4 LIMITATION ON CHANGE IN CONTROL BENEFITS. In the event that any of the
amounts payable to the Executive by the Company pursuant to the provisions of
Section 7.1 of this Agreement or otherwise would, if made, be nondeductible
for Federal income tax purposes under Section 280G of the Internal Revenue
Code of 1986, as amended (after application of Section 280G(b)(4)), the amount
payable by the Company shall be reduced by the minimum amount necessary to
cause the Executive to receive no payments which would be nondeductible by the
Company for Federal income tax purposes under Section 280G of the Code. For
purposes of determining whether or not payments under Section 7.1 or otherwise
would in fact be nondeductible to the Company under Code Section 280G, the
following principles and guidelines are agreed to, and, absent contrary mutual
agreement, shall be followed: (i) all payments under or in respect of
supplemental retirement plans, and stock option, bonus and other incentive
compensation plans are intended to represent reasonable compensation for
personal services performed by the Executive through the date of termination
of the Executive's employment, (ii) if there is an issue as to whether any
payments being made to the Executive constitute "parachute payments" under
Section 280G of the Code,and the Company and the Executive cannot agree upon
the amount thereof within thirty (30) days after the effective date of the
termination of the Executive's employment, the Executive and the Company
shall, within forty-five (45) days after the effective date of the termination
of Executive's employment, mutually agree upon and appoint a third party
arbitrator who shall analyze the issue giving recognition to the foregoing
intentions and shall issue a report within thirty (30) days of the appointment
stating the arbitrator's best estimate of the amount of "parachute payments"
under Code Section 280G, if any, and the report of such arbitrator shall be
conclusive and binding on the parties,(iii) the third party arbitrator
selected shall be a nationally recognized accounting firm or a management
consulting firm specializing in the area of executive compensation, who shall
be entitled to engage independent legal counsel for advice with respect to
legal matters in connection with the report, (iv) if the parties cannot agree
upon a third party arbitrator within the specified forty-five (45) day time
period, an arbitrator shall be selected and appointed by the Chief Judge of
the United States District Court for the District of Maryland and (v) the
costs and expenses of the arbitrator, including counsel's fees, shall be borne
by the Company.The Executive and the Company agree that each will in all cases
file tax returns on a basis consistent with any conclusions reached with
respect to the deductibility of amounts under Code Section 280G, and will
defend such position to the extent practicable in the event a contrary
position is taken by the Internal Revenue Service. The Executive shall be
entitled to reimbursement of counsel fees in connection with any such defense
as provided in Section 12.1 hereof.
In the event of any reduction of payments made or to be made to the Executive
pursuant to Section 7.1 or otherwise as a result of this Section 7.4, the
Executive shall be entitled to select the amount and form of compensation to
be reduced or eliminated.
7.5 SUBSEQUENT IMPOSITION OF EXCISE TAX. If, notwithstanding compliance with
the provisions of Section 7.4 herein, it is ultimately determined by a court
or pursuant to a final determination by the Internal Revenue Service that any
portion of the payments to the Executive is considered to be an "excess
parachute payment," subject to the excise tax under Section 4999 of the Code,
which was not contemplated to be an "excess parachute payment" at the time of
payment (so as to accurately determine whether a limitation should have been
applied to the payments to maximize the net benefit to the Executive, as
provided in Section 7.4 hereof), the Executive shall be entitled to receive a
lump sum cash payment sufficient to place the Executive in the same net after-
tax position, computed by using the "Special Tax Rate" as such term is defined
below, that the Executive would have been in had such payment not been subject
to such excise tax, and had the Executive not incurred any interest charges or
penalties with respect to the imposition of such excise tax. For purposes of
this Agreement, the "Special Tax Rate" shall be the highest effective Federal
and state marginal tax rates applicable to the Executive in the year in which
the payment contemplated under this Section 7.5 is made.
8. Outplacement Assistance. Following a Qualifying Termination (as defined
in Section 7.1 herein) the Executive shall be reimbursed by the Company for
the costs of all outplacement services obtained by the Executive within the
two (2) year period after the effective date of termination; provided,
however, that the total reimbursement shall be limited to an amount equal to
fifteen percent (15%) of the Executive's Base Salary as of the effective date
of termination.
<PAGE>
9. NONCOMPETITION
9.1 PROHIBITION ON COMPETITION. Without the prior written consent of the
Company, during the term of this Agreement, and for twenty-four (24) months
following termination of this Agreement by the Company for Cause or expiration
or termination of this Agreement as a result of notice of the Executive to the
Company pursuant to Section 1 or Section 6.3 hereof (the "Restrictive Period")
of this Agreement, the Executive shall not, as a stockholder, partner,
employee or an officer, engage directly or indirectly in any business or
enterprise which is "in competition" with the Company or its successors or
assigns. For purposes of this Agreement, a business or enterprise will be
deemed to be "in competition" if it is engaged in any significant business
activity of the Company or its subsidiaries within the continental United
States.
However, the Executive shall be allowed to purchase and hold for investment
less than two percent (2%) of the shares of any corporation whose shares are
regularly traded on a national securities exchange or in the over-the-counter
market.
9.2 DISCLOSURE OF INFORMATION. The Executive recognizes that he has access
to and knowledge of certain confidential and proprietary information of the
Company which is essential to the performance of his duties under this
Agreement. The Executive will not, during or after the term of his employment
by the Company, in whole or in part, disclose such information to any person,
firm, corporation, association, or other entity for any reason or purpose
whatsoever, nor shall he make use of any such information for his own
purposes.
9.3 COVENANTS REGARDING OTHER EMPLOYEES. During the term of this Agreement,
and during the Restrictive Period, the Executive agrees not to attempt to
induce any employee of the Company to terminate his or her employment with the
Company, accept employment with any competitor of the Company, or to interfere
in a similar manner with the business of the Company.
9.4 SPECIFIC PERFORMANCE. The parties recognize that the Company will have
no adequate remedy at law for breach by the Executive of the requirements of
this Section 9 and, in the event of such breach, the Company and the Executive
hereby agree that, in addition to the right to seek monetary damages, the
Company will be entitled to a decree of specific performance, mandamus, or
other appropriate remedy to enforce performance of such requirements.
10. INDEMNIFICATION. The Company hereby covenants and agrees to indemnify
and hold harmless the Executive fully, completely, and absolutely against and
in respect to any and all actions, suits, proceedings, claims, demands,
judgments, costs, expenses (including attorney's fees), losses, and damages
resulting from the Executive's good faith performance of his duties and
obligations under the terms of this agreement, subject to compliance with any
applicable requirements and limitations improved by the Company's Articles of
Incorporation and By-Laws as in effect on the date hereof and applicable law.
SECTION II. ASSIGNMENT
11.1 ASSIGNMENT BY COMPANY. This Agreement may and shall be assigned or
transferred to, and shall be binding upon and shall inure to the benefit of,
any successor of the Company, and any such successor shall be deemed
substituted for all purposes of the "Company" under the terms of this
Agreement. As used in this Agreement, the term "successor" shall mean any
person, firm, corporation, or business entity which at any time, whether by
merger, purchase, or otherwise,acquires all or substantially all of the assets
or the business of the Company. Notwithstanding such assignment, the Company
shall remain, with such successor, jointly and severally liable for all its
obligations hereunder.
Failure of the Company to obtain the agreement of any successor to be bound by
the terms of this Agreement prior to the effectiveness of any such succession
shall be a breach of this Agreement, and shall immediately entitle the
Executive to compensation from the Company in the same amount and on the same
terms as the Executive would be entitled in the event of a termination of
employment for Good Reason during a Change in Control Period, as provided in
Section 7 herein.Except as herein provided, this Agreement may not otherwise
be assigned by the Company.
11.2 ASSIGNMENT BY EXECUTIVE. The services to be provided by the Executive to
the Company hereunder are personal to the Executive, and the Executive's
duties may not be assigned by the Executive; provided, however that this
Agreement shall inure to the benefit of and be enforceable by the Executive's
personal or legal representatives, executors, and administrators, successors,
heirs, distributees, devisees, and legatees. If the Executive dies while any
amounts payable to the Executive hereunder remain outstanding, all such
amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the Executive's devisee, legatee, or other
designee or, in the absence of such designee, to the Executive's estate.
<PAGE>
12. DISPUTE RESOLUTION AND NOTICE.
12.1 Dispute Resolution. Either the Executive or the Company may elect to
have any good faith dispute or controversy arising under or in connection with
this Agreement settled by arbitration, by providing written notice of such
election to the other party hereto, specifying the nature of the dispute to be
arbitrated, provided that if the other party objects to the use of arbitration
within thirty (30) days of the receipt of such notice, the dispute may only be
settled by litigation unless otherwise agreed.
If arbitration is selected, such proceeding shall be conducted before a panel
of three (3) arbitrators sitting in a location agreed to by the Company and
the Executive within fifty (50) miles from the location of the Executive's
principal place of employment, in accordance with the rules of the American
Arbitration Association/then in effect. Judgment may be entered on the award
of the arbitrators in any court having competent jurisdiction.To the extent
that the Executive prevails in any litigation or arbitration seeking to
enforce the provisions of this Agreement, the Executive shall be entitled to
reimbursement by the Company of all expenses of such litigation or
arbitration, including the reasonabl fees and expenses of the legal
representative for the Executive, and necessary costs and disbursements
incurred as a result of such dispute or legal proceeding, .
12.2 NOTICE. Any notices, requests, demands, or other communications provided
for by this Agreement shall be sufficient if in writing and if sent by
registered or certified mail to the Executive at the last address he has filed
in writing with the Company or, in the case of the Company, at its principal
offices.
13. MISCELLANEOUS
13.1 ENTIRE AGREEMENT. This Agreement supersedes any prior agreements or
understandings, oral or written, between the parties hereto, or between the
Executive and the Company, with respect to the subject matter hereof, and
constitutes the entire agreement of the parties with respect thereto.
13.2 MODIFICATION. This Agreement shall not be varied, altered, modified,
canceled, changed, or in any way amended except by mutual agreement of the
parties in a written instrument executed by the parties hereto or their legal
representatives.
13.3 SEVERABILITY. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason,
the remaining provisions of this Agreement shall be unaffected thereby and
shall remain in full force and effect.
13.4 TAX WITHHOLDING. The Company may withhold from any benefits payable
under this Agreement all Federal, state, city, or other taxes as may be
required pursuant to any law or governmental regulation or ruling.
13.5 BENEFICIARIES. The Executive may designate one or more persons or
entities as the primary and/or contingent beneficiaries of any amounts to be
received under this Agreement. Such designation must be in the form of a
signed writing acceptable to the Board or the Board's designee. The Executive
may make or change such designation at any time.
13.6 BOARD COMMITTEE. Any action to be taken, or determination to be made, by
the Board of Directors under this Agreement may be taken or made by the
Compensation Committee or any other Committee authorized by the Board of
Directors to act on its behalf.
13.7 GOVERNING LAW. To the extent not preempted by Federal law, the
provisions of this Agreement shall be construed and enforced in accordance
with the laws of the State of Maryland.
IN WITNESS WHEREOF, the Executive and the Company have executed this Agreement
as of the date first above written.
The Ryland Group, Inc. Executive:
By: \s\ R.Chad Dreier
-------------------- --------------------
R. Chad Dreier
Attest:--------------------
<PAGE>
EXHIBIT 11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
December 31, December 31, December 31,
Primary: 1994 1993 1992
---------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings (loss)
(000's) $24,467 $(2,656) $27,520
Adjustment for
dividends on con-
vertible preferred
shares (2,441) (2,589) (2,677)
Adjusted net earnings
(loss) $22,026 $(5,245) $24,843
--------------------------------------------------------------------
Weighted average
common shares
outstanding 15,404,994 15,326,748 14,687,003
Common stock
equivalents (1):
Stock Options 39,313 0 129,104
Employee incentive
plans 116,739 0 126,497
Restricted stock 0 0 23,154
Total 15,561,046 15,326,748 14,965,758
Primary earnings (loss)
per share $1.42 $(0.34) $1.66
--------------------------------------------------------------------
Fully-Diluted:
Net earnings (loss)
(000's) $24,467 $(2,656) $27,520
Adjustment for
dividends on
convertible preferred
shares (2) 0 $(2,589) 0
Adjustment for incre-
mental dividends
on convertible
preferred shares (1,076) 0 (2,210)
Adjusted net earnings $23,391 $(5,245) $25,310
--------------------------------------------------------------------
Weighted average
common shares
outstanding 15,404,994 15,326,748 14,687,003
Common Stock
equivalents (1):
Stock options 39,313 0 129,104
Compensation unit
plan 116,739 0 126,497
Restricted stock 0 0 35,997
Convertible
preferred stock 1,114,757 0 1,216,482
Total 16,675,803 15,326,748 16,195,083
Fully diluted
earnings (loss)
per share $1.40 $(0.34) $1.56
--------------------------------------------------------------------
<PAGE>
<FN>
(1) For 1993, average shares outstanding have not been increased by the
common stock equivalents relating to the employee stock option and employee
incentive plans as the effect would be anti-dilutive.
(2) For 1993, the net loss was adjusted for dividends on convertible
preferred shares as the adjustment for incremental dividends on convertible
preferred shares would be anti-dilutive.
</FN>
</TABLE>
<PAGE>
SELECTED FINANCIAL DATA
THE RYLAND GROUP, INC. AND SUBSIDIARIES
(DOLLAR AMOUNTS IN MILLIONS, EXCEPT UNIT AND PER SHARE DATA) UNAUDITED
<TABLE>
<CAPTION>
1994 1993 1992
--------------------------------------------
<S> <C> <C> <C>
ANNUAL RESULTS:
Revenues
Homebuilding $ 1,443 $ 1,204 $ 1,077
Financial services 147 160 142
Limited-purpose subsidiaries 52 110 223
---------------------------------------------
Total $ 1,642 1,474 1,442
Cost of sales - Homebuilding 1,262 1,102 938
Interest expense 105 162 249
Selling, general & admini-
strative expenses 238 213 211
Equity in (losses) earnings
of joint ventures 0 (2) (2)
---------------------------------------------
Earnings (loss) before taxes
and cumulative effect of
accounting change 37 (5) 42
Tax expense (benefit) 15 (2) 14
Net earnings (loss) before
cumulative effect of
accounting change (1)* 22 (3) 28
Cumulative effect of accounting
change, net of taxes (1)* 2 - -
---------------------------------------------
Net earnings (loss) $ 24 $ (3) $ 28
============================================
YEAR-END POSITION:
Assets
Housing inventories $ 595 $ 490 $ 485
Mortgage loans held for
sale and mortgage-backed
securities, net 386 728 634
Other assets 260 290 197
--------------------------------------------
Assets excluding limited-
purpose subsidiaries 1,241 1,508 1,316
Assets of limited-purpose
subsidiaries 464 808 1,581
--------------------------------------------
Total assets $ 1,705 $ 2,316 $ 2,897
============================================
Long-term debt $ 409 $ 381 $ 318
Short-term notes payable $ 378 $ 717 $ 588
Bonds payable, net $ 447 $ 778 $ 1,533
Stockholders' equity $ 312 $ 293 $ 306
FINANCIAL SERVICES PORTFOLIOS:
Number of mortgage loans
originated (in units) 16,740 27,872 20,184
Dollar amount of mortgage
loans originated $ 2,055 $ 3,596 $ 2,624
Loan servicing portfolio
balance $ 6,900 $ 9,800 $ 9,100
Securities administration
portfolio balance $44,100 $ 52,700 $63,300
PER COMMON SHARE DATA (2)*:
Primary net earnings (loss)
before cumulative effect
of accounting change $ 1.29 $ (0.34) $ 1.66
Primary net earnings (loss) $ 1.42 $ (0.34) $ 1.66
Dividends declared $ 0.60 $ 0.60 $ 0.60
Stockholders' equity $ 19.56 $ 18.61 $ 19.43
=============================================================================
<FN>
(1) The company adopted Statement of Financial Accounting Standards No. 115 -
"Accounting for Certain Investments in Debt and Equity Securities," in
1994. The company adopted Statement of Financial Accounting Standards
No. 96 - "Accounting for Income Taxes," in 1989.
(2) Adjusted for stock split in 1986.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1991 1990 1989 1988 1987 1986 1985
----------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
$ 859 $ 951 $ 1,016 $ 890 $ 854 $ 662 $ 497
74 48 43 42 38 25 16
277 311 340 345 384 280 101
----------------------------------------------------------------
1,210 1,310 1,399 1,277 1,276 967 614
741 804 848 743 710 560 419
302 334 362 357 391 268 114
137 147 137 127 123 90 46
(16) 9 19 17 5 0 0
----------------------------------------------------------------
14 34 71 67 57 49 35
5 12 27 26 25 23 19
9 22 44 41 32 26 16
- - 14 - - - -
----------------------------------------------------------------
$ 9 $ 22 $ 58 $ 41 $ 32 $ 26 $ 16
================================================================
$ 355 $ 328 $ 362 $ 303 $ 207 $ 225 $ 107
352 186 218 136 124 200 43
161 168 168 148 154 122 54
----------------------------------------------------------------
868 682 748 587 485 547 204
2,691 3,178 3,464 3,659 4,265 3,894 1,535
----------------------------------------------------------------
$ 3,559 $ 3,860 $ 4,212 $ 4,246 $ 4,750 $ 4,441 $ 1,739
================================================================
$ 219 $ 198 $ 117 $ 122 $ 105 $ 137 $ 15
$ 348 $ 190 $ 208 $ 140 $ 121 $ 152 $ 25
$ 2,617 $ 3,082 $ 3,363 $ 3,544 $ 4,116 $ 3,754 $ 1,486
$ 219 $ 212 $ 207 $ 169 $ 133 $ 104 $ 81
6,851 5,958 6,094 5,277 5,023 6,301 4,145
$ 806 $ 653 $ 622 $ 455 $ 440 $ 519 $ 329
$ 7,190 $ 3,201 $ 2,047 $ 1,664 $ 1,491 $ 1,004 $ 635
$69,500 $55,900 $38,075 $20,585 $ 7,752 $ 3,752 $ 1,496
$ 0.53 $ 1.53 $ 3.25 $ 3.10 $ 2.46 $ 2.02 $ 1.27
$ 0.53 $ 1.53 $ 4.30 $ 3.10 $ 2.46 $ 2.02 $ 1.27
$ 0.60 $ 0.60 $ 0.60 $ 0.53 $ 0.40 $ 0.38 $ 0.32
$ 17.34 $ 17.28 $ 16.62 $ 13.16 $ 10.50 $ 8.30 $ 6.42
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
THE RYLAND GROUP, INC. AND SUBSIDIARIES
THE COMPANY
Operations of The Ryland Group, Inc. and subsidiaries (the company) consist of
three business segments: homebuilding, financial services and limited-purpose
subsidiaries. The company's homebuilding segment constructs and sells single-
family attached and detached homes. The financial services segment provides
various mortgage-related products and services for retail and institutional
customers and conducts investment activities. The company's limited-purpose
subsidiaries facilitate the issuance of mortgage-backed securities and
mortgage-participation securities. Corporate expenses represent the costs of
corporate functions which provide support services to the business segments.
RESULTS OF OPERATIONS
CONSOLIDATED
The company reported consolidated net earnings of $24.5 million, or $1.42 per
share, for 1994, compared with a consolidated net loss of $2.7 million, or
$.34 per share, for 1993, and consolidated net earnings of $27.5 million, or
$1.66 per share, for 1992. The company's results for 1994 include $2.1
million, or $.13 per share, for 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.
Homebuilding operations recorded pretax earnings of $10.9 million for
1994 compared with a pretax loss of $45.9 million for 1993, when the company
recorded a pretax provision of $45 million related to its homebuilding
inventories and investment in unconsolidated joint ventures. Homebuilding
results in 1994, as compared with 1993 excluding the provision, improved
primarily due to higher settlement volumes and improved gross profit margins
The financial services segment reported pretax earnings of $43.5 million,
compared with pretax earnings of $55.3 million for 1993, which included a
nonrecurring gain of $5.3 million from the sale of the company's remaining
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
THE RYLAND GROUP, INC. AND SUBSIDIARIES
interest in a real estate investment trust. The impact of a 40 percent
decline in loan originations and lower gains from the sale of mortgage-backed
securities was mitigated by higher gains from the sale of mortgage servicing
rights. The limited-purpose subsidiaries reported pretax earnings of $96
thousand for 1994 versus $158 thousand for 1993 as the portfolio in which the
company has a residual interest continued to decline.
Corporate expenses totaling $17.2 million for 1994 were up $2.9 million over
1993 primarily as a result of increases in systems costs and higher employee
related costs associated with severance agreements and performance-based
incentive plans.
The decline in consolidated net earnings for 1993 compared with 1992 was
primarily due to the 1993 pretax provision of $45 million for homebuilding
inventories and investments in unconsolidated joint ventures. For 1993,
homebuilding operations recorded a pretax loss of $45.9 million compared with
pretax earnings of $11.0 million for 1992. The financial services segment
reported a pretax earnings increase of 25.8 percent to $55.3 million for 1993
compared with $43.9 million a year earlier. The record earnings for the
financial services segment in 1993 resulted from improvements in retail,
institutional and investment operations. The continued decline in the
operations of the limited-purpose subsidiaries resulted in 1993 pretax
earnings of $158 thousand compared with $3.9 million for 1992. Corporate
expenses totaling $14.2 million for 1993 were down $2.3 million from 1992
primarily as a result of decreases in the costs of performance-based incentive
plans.
HOMEBUILDING SEGMENT
Results of operations for the homebuilding segment are summarized as follows
(amounts in thousands except average settlement price):
<TABLE>
<CAPTION>
1994 1993 1992
------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 1,443,212 $1,203,563 $ 1,077,475
Gross profit 181,428 101,674 139,410
Selling, general and
administrative expenses 142,254 119,546 109,374
Interest expense 28,209 26,118 17,157
Equity in losses
of unconsolidated
joint ventures (37) (1,940) (1,831)
-------------------------------------
Homebuilding pretax
earnings (loss) $ 10,928 $ (45,930) $ 11,048
------------------------------------------------------------------
Average settlement price $160,000 $ 148,000 $ 141,000
-------------------------------------------------------------------
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
THE RYLAND GROUP, INC. AND SUBSIDIARIES
The company's homebuilding segment reported pretax earnings of $10.9 million
in 1994 compared with a pretax loss of $45.9 million in 1993 and pretax
earnings of $11.0 million for 1992. Homebuilding earnings improved in 1994
due to an increase in settlements and higher gross profit margins. The 1993
loss was primarily due to the third quarter pretax provision of $45 million,
of which $43 million directly related to inventories and was charged to cost
of sales, and $2 million was charged to equity in losses of unconsolidated
joint ventures. Lower gross profit margins in 1993 versus 1992 also
contributed to the 1993 loss from operations.
Homebuilding revenues increased 19.9 percent in 1994 compared with 1993 due to
a 11.7 percent increase in wholly-owned settlements and a $12,000 increase in
average settlement price. The increased volume was in large part due to
growth in new markets and the company's strong sales in its California region.
Also contributing to the increase was the full year impact of the acquisition
of Scott Felder Homes in Texas, which was acquired in March 1993.
Homebuilding revenues increased 11.7 percent in 1993 compared with 1992, due
to a 6.2 percent increase in wholly-owned settlements and a $7,000 increase in
average settlement price. The increased volume was in large part due to the
company's acquisition of Scott Felder Homes.
Gross profit margins increased to 12.6 percent in 1994 from 12.0 percent for
1993, excluding the 1993 inventory provision. Including the inventory
provision, gross margins for 1993 were 8.4 percent. The improvement in gross
profit margins during 1994 was primarily attributable to a greater volume of
settlements from higher margin communities, which more than offset the impact
of higher settlements from low margin California communities.
The company's gross profit margins continue to be negatively impacted by the
build out of inventory in California that was impacted by the decline in
economic and market conditions. Of the total provision taken in the third
quarter of 1993, $40 million related to properties in the California region.
During 1994, the affected California inventories were reduced by the
settlement of 660 homes. At December 31, 1994 the remaining net book value of
the California inventory that was impacted by this provision was approximately
$78 million and consisted of approximately 1,400 homebuilding lots and related
improvements, of which 93 were sold but not settled. Gross profit margins for
1995 and beyond will continue to be negatively impacted by the build-out and
settlement of homes on these lots.
In the Mid-Atlantic region, the company has taken actions to close-out older
communities with high-cost land positions. Settlements on houses from these
Mid-Atlantic close-out communities negatively affected margins in the latter
part of 1994 and will continue to impact gross profit margins in the first
half of 1995.
Gross profit margins for 1993, excluding the provision, were 12.0 percent,
compared with 12.9 percent in 1992. Margins were lower in 1993 primarily due
to higher construction costs and high-cost land positions combined with
pricing concessions in the Southern California and Mid-Atlantic markets in
response to competitive pressures.
Selling, general and administrative expenses, as a percent of revenues, were
9.9 percent for 1994 and 1993 and 10.2 percent for 1992. Excluding selling
expenses, the percentage of general and administrative expenses declined in
1994 primarily due to the higher revenue base. Selling expenses as a
percentage of revenues increased in 1994 due to costs associated with
expansion into new markets and the costs associated with implementation of the
company's new marketing and merchandising initiatives. Selling, general and
administrative costs in 1993 were favorably impacted by the cost reduction
measures and restructuring of homebuilding operations which occurred in 1992.
Interest expense increased from 1993 to 1994 and from 1992 to 1993 due to an
increase in the average homebuilding debt outstanding to support higher
average levels of inventory. In addition, the company's senior subordinated
debt issuances in July 1992 and in December 1993 increased the company's cost
of funds and the company capitalized less interest in the 1993 period.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
THE RYLAND GROUP, INC. AND SUBSIDIARIES
HOMEBUILDING OPERATIONAL DATA
<TABLE>
<CAPTION>
Three months ended
December 31,
--------------------------------
New
Settlements % Orders %
(Units) Change (Units) Change
-----------------------------------------------------
<S> <C> <C> <C> <C>
1994
Mid-Atlantic 719 (15) 466 (25)
Midwest 290 21 156 (10)
Southeast 293 (23) 223 (25)
Southwest 474 8 336 0
West 362 47 194 (37)
California 348 93 194 29
---------------------------------
Total
Wholly-owned 2,486 7 1,569 (17)
Unconsolidated
Joint Ventures 15 (79) 22 (50)
-----------------------------------
Total 2,501 4 1,591 (17)
------------------------------------------------------
1993
Mid-Atlantic 843 619
Midwest 240 174
Southeast 383 296
Southwest 440 335
West 246 307
California 180 150
----------------------------------
Total
Wholly-owned 2,332 1,881
Unconsolidated
Joint Ventures 72 44
-----------------------------------
Total 2,404 1,925
------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Year ended
December 31,
------------------------------------
New
Settlements % Orders %
(Units) Change (Units) Change
------------------------------------------------------
<S> <C> <C> <C> <C>
1994
Mid-Atlantic 2,520 (11) 2,472 (11)
Midwest 1,054 17 1,001 0
Southeast 1,221 (14) 1,161 (15)
Southwest 1,776 24 1,829 29
West 1,212 23 1,186 9
California 1,206 145 1,190 115
--------------------------------
Total
Wholly-owned 8,989 12 8,839 8
Unconsolidated
Joint Ventures 132 (51) 116 (50)
--------------------------------
Total 9,121 10 8,955 6
----------------------------------------------------
1993
Mid-Atlantic 2,816 2,777
Midwest 899 999
Southeast 1,426 1,365
Southwest 1,428 1,414
West 988 1,091
California 493 553
--------------------------------
Total
Wholly-owned 8,050 8,199
Unconsolidated
Joint Ventures 269 234
------------------------------
Total 8,319 8,433
----------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Outstanding Contracts as of
December 31,
-----------------------------------
Dollars
% in Average
(Units) Change Millions Price
------------------------------------------------------
<S> <C> <C> <C> <C>
1994
Mid-Atlantic 1,014 (5) $171 $168,691
Midwest 299 (15) 46 153,288
Southeast 310 (16) 48 156,345
Southwest 433 14 66 151,284
West 295 (8) 50 170,786
California 176 (6) 33 184,710
----------------------------------
Total
Wholly-owned 2,527 (5) 414 163,732
Unconsolidated
Joint Ventures 26 (45) 11 412,077
---------------------------------
Total 2,553 (6) $425 $166,261
------------------------------------------------------
1993
Mid-Atlantic 1,062 $177 $166,264
Midwest 352 54 152,414
Southeast 370 49 133,422
Southwest 380 58 153,571
West 321 54 168,660
California 187 39 206,834
----------------------------------
Total
Wholly-owned 2,672 431 $161,214
Unconsolidated
Joint Ventures 47 10 217,255
----------------------------------
Total 2,719 $441 $162,182
------------------------------------------------------
</TABLE>
During 1994 new orders increased 6.2 percent compared with 1993, with
gains in the California, Southwest, and West regions offsetting lower sales
in the Southeast and Mid-Atlantic regions. The California region showed a
substantial increase in sales compared with 1993, due in large part to the
change in strategy to accelerate the sale of older inventories, implemented in
the latter part of 1993. The increase in new orders in the Southwest region
is attributable to improved sales in the Houston and Dallas divisions and
expansion into San Antonio. The increase in the West region was due to strong
homebuilding markets in Denver and Phoenix; however, these markets showed
signs of slowdown in the fourth quarter. The decline in the Southeast region
was primarily due to the company's withdrawal from the Jacksonville, Florida;
and Charleston, South Carolina markets, while the decline in new orders in the
Mid-Atlantic region reflected the weak economic conditions in that region.
Fourth quarter sales in all markets were negatively impacted by rising
interest rates. As a result, outstanding contracts for the homebuilding
operations at December 31, 1994 were down 6.1 percent from year-end 1993.
Outstanding contracts represent the company's backlog of new homes which
generally are built and settled, subject to cancellations, over the next two
quarters. The $424.5 million value of outstanding contracts decreased 3.9
percent from year-end 1993. Further increases in interest rates in 1995 could
negatively impact the sale of homes and the company's homebuilding segment.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
THE RYLAND GROUP, INC. AND SUBSIDIARIES
FINANCIAL SERVICES SEGMENT
The company's financial services segment recorded pretax earnings of $43.5
million in 1994, compared with $55.3 million in 1993 and $43.9 million in
1992.
Pretax earnings by line of business were as follows (amounts in thousands):
<TABLE>
<CAPTION> 1994 1993 1992
-----------------------------------------------------------------
<S> <C> <C> <C>
Retail $21,484 $20,642 $14,784
Institutional 9,956 11,518 7,031
Investments 12,042 23,109 22,115
-------------------------------------
Total $43,482 $55,269 $43,930
------------------------------------------------------------------
</TABLE>
The decline in pretax earnings in 1994, was primarily related to the
investment operations which reported a decrease of $11.1 million in pretax
earnings. Results of investment operations in 1993 included a non-recurring
gain of $5.3 million from the sale of the company's remaining interest in a
real estate investment trust and higher gains from sales of mortgage-backed
securities. The company's retail operations were adversely affected by rising
interest rates in 1994 as loan originations declined by 40 percent. The impact
of this decline was offset by higher gains from the sale of mortgage servicing
rights. In 1993, the financial services segment recorded higher earnings, as
compared with 1992, primarily due to improved results in retail operations
which benefited from a favorable interest rate environment and a high level of
refinancing activity.
Revenues for the financial services segment decreased 8.3 percent in 1994
as compared with 1993 in large part due to an industry-wide decline in
mortgage originations resulting from rising interest rates, whereas revenues
increased 13.1 percent in 1993 over 1992 due to a significant increase in
mortgage originations. During 1993, interest rates were at historically low
levels, resulting in a high level of refinancing activity. General and
administrative expenses for the financial services segment increased in 1994;
however, in response to the decline in loan origination activity during 1994,
the company took measures in 1994 to reduce costs and experienced a 15.4
percent decline in these costs for the fourth quarter. General and
administrative costs increased in 1993 versus 1992 due to the rapid growth in
the volume of originations during that period and the expansion of retail
operations. Fluctuations in interest expense for 1994, 1993, and 1992 were
directly related to the level of borrowings required to fund mortgage loan
originations and investment portfolio balances in those periods.
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>
1994 1993 1992
-----------------------------------------------------------------
<S> <C> <C> <C>
Interest and
net origination fees $19,468 $28,335 $28,244
Gains on sales of mortgages
and servicing rights 37,191 28,308 11,937
Loan servicing 37,578 43,635 38,061
Title/escrow 4,597 3,610 2,700
---------------------------------
Total retail revenue 98,834 103,888 80,942
Expenses 77,350 83,246 66,158
--------------------------------
Pretax earnings $21,484 $20,642 $14,784
-----------------------------------------------------------------
</TABLE>
Retail operations recorded an increase in pretax earnings for 1994 as
compared with 1993. Interest and net origination fees for 1994 decreased as a
result of the industry-wide decline in mortgage origination activity. The
impact of the company's 40 percent decline in loan origination activity in
1994 was offset by higher gains from the sale of servicing rights. Loan
servicing revenues declined in 1994 as a result of a reduction in the
company's loan servicing portfolio primarily due to sales of servicing rights.
Lower expenses in 1994 are due to reduced interest costs resulting from lower
origination volumes.
The increase in retail pretax earnings for 1993 as compared with 1992 was
the result of growth in mortgage origination activity and related sales of
mortgages and servicing rights combined with higher fees earned on the loan
servicing portfolio. The increase in mortgage origination activity in 1993
was attributable to a favorable interest rate environment, coupled with the
company's expansion of spot loan and wholesale mortgage origination
activities.
A summary of origination activities is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------------------------------------------------------------
<S> <C> <C> <C>
Dollar volume of mortgages
originated (in millions) $ 2,055 $ 3,596 $ 2,624
Number of mortgages
originated 16,740 27,872 20,184
Percentage
Ryland Home settlements 28% 20% 29%
Other settlements 72% 80% 71%
-----------------------------
Total settlements 100% 100% 100%
---------------------------------------------------------------
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
THE RYLAND GROUP, INC. AND SUBSIDIARIES
The company earns interest on mortgages held for sale and pays interest
on borrowings secured by mortgages. Significant data related to these
activities are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---------------------------------------------------------------
<S> <C> <C> <C>
Net interest earned
(in thousands) $9,598 $12,159 $ 12,932
Average balance of
mortgages held for sale
(in millions) $ 293 $ 418 $ 341
Net interest spread 3.3% 2.9% 3.8%
</TABLE>
Net interest earned decreased in 1994 primarily due to the lower average
balance of mortgages held for sale. Net interest earned decreased from 1992
to 1993 primarily due to a lower earning rate on mortgages held for sale.
The company services loans that it originates as well as loans originated
by others. Loan servicing portfolio balances were as follows at December 31
(amounts in billions):
<TABLE>
<CAPTION>
1994 1993 1992
--------------------------------
<S> <C> <C> <C>
Originated $ 2.8 $ 4.0 $ 3.5
Acquired 4.0 4.6 5.2
Subserviced .1 1.2 .4
--------------------------------
Total serviced $6.9 $ 9.8 $ 9.1
--------------------------------
</TABLE>
The decrease in the portfolio balance in 1994 is primarily attributable
to the decline in origination volume combined with higher sales of servicing
rights. The 1993 increase in loans subserviced as compared with 1992
principally relates to interim servicing of loans for which the servicing had
been sold in the fourth quarter of 1993.
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>
1994 1993 1992
----------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 23,556 $ 23,945 $ 18,364
Expenses 13,600 12,427 11,333
----------------------------------
Pretax earnings $ 9,956 $ 11,518 $ 7,031
---------------------------------
</TABLE>
Pretax earnings for 1994 decreased as compared with 1993 due to fewer
security issuances and an increase in expenses. Despite a decline in the
overall portfolio balance in 1993, pretax earnings increased due to a more
profitable mix of business in the administration portfolio. Significant data
for institutional operations are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------------------------------------
<S> <C> <C> <C>
Total securities administra-
tion portfolio (in billions) $ 44.1 $ 52.7 $ 63.3
Number of series in the
administration portfolio 550 526 490
</TABLE>
The decline in the portfolio balance is attributable to significant
mortgage prepayment activity during 1994 and 1993.
The company announced that it is exploring the sale of the institutional
operations business as part of the company's continued focus on its core
homebuilding and related mortgage businesses. If the sale is consummated, the
company expects to realize a gain on the transaction. The company's future
earnings, however, would no longer benefit from the results of these
operations.
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 were comprised of the
following (amounts in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
-------------------------------------------------------------------------
<S> <C> <C> <C>
Sale of interest in real estate
investment trust $ 0 $ 5,322 $ 4,668
Sale of mortgage-backed securities 2,349 5,635 5,344
Net interest earned and other 9,693 12,152 12,103
--------------------------------
Pretax earnings $ 12,042 $ 23,109 $ 22,115
-----------------------------------------------------------------------
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
THE RYLAND GROUP, INC. AND SUBSIDIARIES
Pretax earnings in 1994 declined substantially as compared with the two
prior years primarily due to lower gains on the sale of mortgage-backed
securities and the non-recurring gains on sales in 1993 and 1992 of the
company's remaining interests in a real estate investment trust.
Included in the investment operations pretax earnings for 1993 and 1992
are investment advisory and administrative fees of $.9 million and $8.1
million, respectively. The decline in advisory and administrative fee income
in 1993 was attributable to the 1992 termination of an advisory agreement with
Resource Mortgage Capital, Inc. and the sale of Ryland Capital Management in
1993 which previously provided investment advisory services.
Significant data from the investment operations are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------------------------------------------------------------
<S> <C> <C> <C>
Net interest earned
(in thousands) $12,989 $13,413 $8,441
Average balance outstanding
(in millions) $ 205 $ 207 $ 154
Net interest spread 6.3% 6.5% 5.5%
</TABLE>
The decrease in the net interest earned in 1994 as compared with 1993
primarily reflects the lower net interest spread. The net interest earned in
1993 increased as compared with 1992 reflecting a higher average balance, as
well as a higher net interest spread.
LIMITED-PURPOSE SUBSIDIARIES
The limited-purpose subsidiaries reported pretax earnings for 1994 of $96
thousand compared with $158 thousand in 1993 and $3.9 million in 1992. The
lower level of earnings for this segment as compared with prior years is
expected to continue in the future.
Revenues of the limited-purpose subsidiaries consist primarily of
interest on mortgage collateral subject to bond indebtedness. Expenses
consist primarily of interest on the outstanding bonds and amortization of
deferred costs. Revenues, expenses and portfolio balances for the limited-
purpose subsidiaries continue to decline as the mortgage collateral pledged to
secure the bonds decreases due to scheduled principal payments, prepayments
and exercises of early redemption provisions.
The limited-purpose subsidiaries may continue to issue securities on
behalf of others; however, due to changes in the tax laws, the company has not
retained any residual interests in new securities since 1991. As a result,
current issuances of the limited-purpose subsidiaries are not reflected in the
company's financial statements.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
THE RYLAND GROUP, INC. AND SUBSIDIARIES
FINANCIAL CONDITION AND LIQUIDITY
The company provides for its 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. In
December 1993, the company completed an offering of $100 million in 9.625
percent senior subordinated notes, due 2004. The proceeds were used to reduce
bank debt outstanding under the company's revolving credit facility.
The company primarily uses its unsecured revolving credit facility to
finance its 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
December 31, 1994, the company had borrowed $127.5 million under this
facility, compared with $90 million as of December 31, 1993. In addition,
the company had letters of credit outstanding under this facility totaling
$7.4 million at December 31, 1994 and 1993, respectively. To finance land
purchases, the company may use seller-financed, non-recourse secured notes
payable. At December 31, 1994 and 1993, these notes payable outstanding
amounted to $25.6 million and $30.9 million, respectively.
Housing inventories increased to $595 million as of December 31, 1994, up
from $490 million as of the end of 1993. The increased investment in
inventories reflects the company's expansion in existing markets and entry
into new markets, a higher investment in improved lots and land under
development, and an overall increase in the volume of home settlements and
related construction activity.
The financial services segment uses cash generated from operations and
borrowing arrangements to finance its operations. Borrowing arrangements as of
year-end 1994 included a $400 million mortgage warehouse funding agreement,
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 December 31, 1994 and 1993, the combined borrowings
outstanding under these agreements were $377.6 million and $716.9 million,
respectively.
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 or the limited-purpose subsidiary segments.
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS
THE RYLAND GROUP, INC. AND SUBSIDIARIES
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994 1993 1992
--------------------------------------
<S> <C> <C> <C>
REVENUES:
Homebuilding:
Residential revenues $ 1,439,292 $ 1,194,796 $ 1,075,791
Other revenues 3,920 8,767 1,684
-------------------------------------
Total homebuilding revenues 1,443,212 1,203,563 1,077,475
Financial services 147,187 160,474 141,934
Limited-purpose subsidiaries 52,293 110,392 222,912
-------------------------------------
Total revenues 1,642,692 1,474,429 1,442,321
-------------------------------------
EXPENSES:
Homebuilding:
Cost of sales 1,261,784 1,101,889 938,065
Interest expense 28,209 26,118 17,157
Selling, general and administrative 142,254 119,546 109,374
-------------------------------------
Total homebuilding expenses 1,432,247 1,247,553 1,064,596
Financial services:
Interest expense 26,694 30,750 28,211
General and administrative 77,011 74,455 69,793
-------------------------------------
Total financial services
expenses 103,705 105,205 98,004
Limited-purpose subsidiaries :
Interest expense 50,069 104,851 203,336
Other expenses 2,128 5,383 15,720
-------------------------------------
Total limited-purpose subsidiaries
expenses 52,197 110,234 219,056
Corporate expenses 17,187 14,240 16,496
-------------------------------------
Total expenses 1,605,336 1,477,232 1,398,152
-------------------------------------
Equity in (losses) of unconsolidated
joint ventures (37) (1,940) (1,831)
-------------------------------------
Earnings (loss) before taxes and
cumulative effect of a change
in accounting principle 37,319 (4,743) 42,338
Tax expense (benefit) 14,928 (2,087) 14,818
-------------------------------------
Net earnings (loss) before cumulative
effect of a change in accounting
principle 22,391 (2,656) 27,520
Cumulative effect of a change in
accounting principle (net of
taxes of $1,384) 2,076 - -
-------------------------------------
Net earnings (loss) $ 24,467 $ (2,656) $ 27,520
-------------------------------------
Preferred dividends $ 2,441 $ 2,589 $ 2,677
Net earnings (loss) applicable to
common stockholders $ 22,026 $ (5,245) $ 24,843
Net earnings (loss) per common share:
Primary:
Net earnings (loss) before
cumulative effect of a change
in accounting principle $ 1.29 $ (0.34) $ 1.66
Cumulative effect of a change
in accounting principle 0.13 - -
-------------------------------------
Net earnings (loss) per
common share $ 1.42 $ (0.34) $ 1.66
Fully diluted:
Net earnings (loss) before
cumulative effect of a change
in accounting principle $ 1.28 $ (0.34) $ 1.56
Cumulative effect of a change
in accounting principle 0.12 - -
--------------------------------------
Net earnings (loss) per
common share $ 1.40 $ (0.34) $ 1.56
Average common shares outstanding:
Primary 15,561,000 15,327,000 14,966,000
Fully diluted 16,676,000 15,327,000 16,195,000
See notes to consolidated financial statements.
</TABLE>
<PAGE>
CONSOLIDATED BALANCE SHEETS
THE RYLAND GROUP, INC. AND SUBSIDIARIES
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, 1994 1993
----------------------------
<S> <C> <C>
ASSETS
HOMEBUILDING:
Cash and cash equivalents $ 25,963 $ 44,251
Housing inventories:
Homes under construction 399,046 318,266
Land under development and improved lots 193,096 163,459
Land held for future development or resale 2,671 7,821
---------------------------
Total inventories 594,813 489,546
Investment in/advances to
unconsolidated joint ventures 11,500 23,066
Property, plant and equipment 24,001 13,999
Purchase price in excess of
net assets acquired 22,607 23,639
Other assets 54,188 43,976
---------------------------
733,072 638,477
---------------------------
FINANCIAL SERVICES:
Cash and cash equivalents 863 2,239
Mortgage loans held for sale, net 214,772 535,679
Mortgage-backed securities, net 171,120 192,417
Purchased servicing and
administration rights, net 12,014 14,446
Other assets 56,251 76,150
---------------------------
455,020 820,931
---------------------------
LIMITED - PURPOSE SUBSIDIARIES:
Collateral for bonds payable, net 459,044 798,074
Other assets 5,289 9,882
---------------------------
464,333 807,956
---------------------------
Net deferred taxes 27,822 32,010
Other assets 24,241 16,319
---------------------------
TOTAL ASSETS $ 1,704,488 $ 2,315,693
===========================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
CONSOLIDATED BALANCE SHEETS
THE RYLAND GROUP, INC. AND SUBSIDIARIES
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, 1994 1993
----------------------------
<S> <C> <C>
LIABILITIES
HOMEBUILDING:
Accounts payable and other liabilities $ 95,551 $ 65,622
Long-term debt 408,744 381,040
---------------------------
504,295 446,662
---------------------------
FINANCIAL SERVICES:
Accounts payable and other liabilities 21,040 34,453
Short-term notes payable 377,629 716,933
---------------------------
398,669 751,386
---------------------------
LIMITED - PURPOSE SUBSIDIARIES:
Accounts payable and other liabilities 14,369 22,591
Bonds payable, net 446,752 778,428
---------------------------
461,121 801,019
---------------------------
Other liabilities 28,281 23,379
---------------------------
TOTAL LIABILITIES 1,392,366 2,022,446
---------------------------
STOCKHOLDERS' EQUITY
Convertible preferred stock, $1 par value:
Authorized - 1,400,000 shares
Issued - 1,072,903 shares (1,153,652
for 1993) 1,073 1,154
Common stock, $1 par value:
Authorized - 78,600,000 shares
Issued - 15,475,242 shares (15,342,624
for 1993) 15,475 15,343
Paid-in capital 115,863 116,386
Retained earnings 193,635 180,351
Net unrealized gain on mortgage-backed
securities 1,763 0
Other (15,687) (19,987)
---------------------------
TOTAL STOCKHOLDERS' EQUITY 312,122 293,247
---------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,704,488 $ 2,315,693
===========================
See notes to consolidated financial statements.
</TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THE RYLAND GROUP, INC. AND SUBSIDIARIES
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Preferred Common Paid-In Retained
Stock Stock Capital Earnings
==============================================================================
<S> <C> <C> <C> <C>
BALANCE AT
AT JANUARY
1, 1992 $ 1,237 $ 12,344 $ 52,221 $ 183,021
Net earnings 27,520
Preferred stock
dividends (per
share $2.21) (2,677)
Common stock
dividends (per
share $0.60) (9,253)
Common stock
repurchased
and retired (119) (2,408)
Common stock
issuance 2,875 63,981
Conversion of
preferred stock (38) 38 (206)
Reclassification
of preferred
paid-in-capital
and proportionate
amount of RSOP
receivable (1,583)
RSOP debt
repayments
Restricted stock
Employee stock
plans (252,064
shares) 252 4,687
------------------------------------------------------------------------
BALANCE AT DECEMBER
31, 1992 1,199 15,390 119,100 196,203
-------------------------------------------------------------------------
Net loss (2,656)
Preferred stock
dividends (per
share $2.21) (2,589)
Common stock
dividends (per
share $0.60) (9,196)
Common stock
repurchased
and retired (99) (2,115)
<PAGE>
Conversion of
preferred stock (45) 45 (415)
Reclassification
of preferred
paid-in-capital
and proportionate
amount of RSOP
receivable (1,987)
RSOP debt repayments
Restricted stock (110) (2,145)
Employee stock plans
(116,529 shares) 117 1,833 704
----------------------------------------------------------------------------
BALANCE DECEMBER
31, 1993 1,154 15,343 116,386 180,351
----------------------------------------------------------------------------
Adjustment to
beginning balance
for change in
accounting principle,
net of taxes of
$5,063 24,467
Net Earnings
Preferred stock
dividends
(per share $2.21) (2,441)
Common stock
dividends
(per share $0.60) (9,262)
Conversion of
preferred stock (81) 81 (814)
Reclassification
of preferred
paid-in-capital
and proportionate
amount of RSOP
receivable (470)
RSOP debt repayments
Change in net
unrealized gain
on mortgage-backed
securities, net of
taxes of $3,888
Employee stock plans
(51,869 shares) 51 761 520
----------------------------------------------------------------------------
BALANCE AT DECEMBER
31, 1994 $1,073 15,475 $ 115,863 $ 193,635
=============================================================================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THE RYLAND GROUP, INC. AND SUBSIDIARIES
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Net Unrealized Other Total
Gain on Mortgage- Due from Deferred Stockholders'
Backed Securities RSOP Trust Compensation Equity
=============================================================================
<S> <C> <C> <C> <C>
BALANCE AT
JANUARY 1992
$ 0 $ (27,688) $ (2,535) $ 218,600
Net earnings 27,520
Preferred stock
dividends (per
share $2.21) ( 2,677)
Common stock
dividends (per
share $0.60) (9,253)
Common stock
repurchased
and retired (2,527)
Common stock
issuance 66,856
Conversion of
preferred stock (206)
Reclassification
of preferred
paid-in-capital
and proportionate
amount of RSOP
receivable 1,010 (573)
RSOP debt
repayments 2,620 2,620
Restricted stock 390 390
Employee stock
plans (252,064
shares) 4,939
---------------------------------------------------------------------------
BALANCE AT DECEMBER
31, 1992 0 (24,058) (2,145) 305,689
----------------------------------------------------------------------------
Net loss (2,656)
Preferred stock
dividends (per
share $2.21) (2,589)
Common stock
dividends (per
share $0.60) (9,196)
Common stock
repurchased
and retired (2,214)
Conversion of
preferred stock (415)
Reclassification
of preferred
paid-in-capital
and proportionate
amount of RSOP
receivable 1,114 (873)
RSOP debt repayments 2,957 2,957
Restricted stock 2,145 (110)
Employee stock plans
(116,529 shares) 2,654
---------------------------------------------------------------------------
BALANCE DECEMBER
31, 1993 0 (19,987) 0 293,247
----------------------------------------------------------------------------
Adjustment to
beginning balance
for change in
accounting principle,
net of taxes of
$5,063 7,594 7,594
Net Earnings 24,467
Preferred stock
dividends
(per share $2.21) (2,441)
Common stock
dividends
(per share $0.60) (9,262)
Conversion of
preferred stock (814)
Reclassification
of preferred
paid-in-capital
and proportionate
amount of RSOP
receivable (584) (1,054)
RSOP debt repayments 4,884 4,884
Change in net
unrealized gain
on mortgage-backed
securities, net of
taxes of $3,888 (5,831) (5,831)
Employee stock plans
(51,869 shares) 1,332
----------------------------------------------------------------------------
BALANCE AT DECEMBER
31, 1994 $ 1,763 $(15,687) $ 0 $ 312,122
=============================================================================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
THE RYLAND GROUP, INC. AND SUBSIDIARIES
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Year ended December 31, 1994 1993 1992
------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 24,467 $ (2,656) $ 27,520
Adjustments to reconcile net earnings
(loss) to net cash provided by
(used for) operating activities:
Depreciation and amortization 25,640 26,091 30,617
Cumulative effect of a change in
accounting principle (3,460) 0 0
Gain on sale of investment 0 (5,322) (4,668)
Gain on sale of mortgage-backed
securities - available for sale (2,349) 0 0
Increase in inventories (105,267) (4,362) (129,955)
Net change in other assets, payables
and other liabilities 6,387 (77,572) (23,681)
Equity in losses of unconsolidated
joint ventures 37 1,940 1,831
Investment in/advances to and
distributions from unconsolidated
joint ventures 11,282 9,683 1,202
Decrease (increase) in mortgage
loans held for sale, net 320,907 (143,146) (214,956)
Decrease (increase) in
mortgage-backed securities, net 0 48,685 (66,614)
------------------------------------
Net cash provided by (used for)
operating activities 277,644 (146,659) (378,704)
------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net additions to property,
plant and equipment (19,019) (12,641) (13,967)
Principal reduction of mortgage
collateral 36,788 694,789 1,167,050
Principal reduction of
mortgage-backed securities-
available for sale 36,887 0 0
Sales of mortgage-backed
securities-available for sale 33,066 0 0
Principal reduction of
mortgage-backed securities-
held-to-maturity 201,647 0 0
Decrease (increase) in funds held
by trustee 79,530 73,914 (68,767)
Other investing activities, net (909) 6,710 (2,862)
------------------------------------
Net cash provided by investing
activities 367,990 762,772 1,081,454
------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) increase in short-term
notes payable (339,304) 129,061 239,469
Cash proceeds of long-term debt 55,074 114,858 165,463
Reduction of long-term debt (27,370) (51,384) (67,751)
Bond principal payments (348,047) (763,357) (1,093,602)
Common stock issuance 0 0 66,856
Common and preferred stock dividends (11,703) (11,785) (11,930)
Other financing activities, net 6,052 2,571 6,157
------------------------------------
Net cash used for financing activities (665,298) (580,036) (695,338)
------------------------------------
Net (decrease) increase in cash (19,664) 36,077 7,412
Cash at beginning of year 46,490 10,413 3,001
------------------------------------
CASH AT END OF YEAR $ 26,826 $ 46,490 $ 10,413
====================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 117,305 $ 168,761 $ 303,613
Cash paid for income taxes $ 26,555 $ 26,540 $ 26,081
See notes to consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE RYLAND GROUP, INC. AND SUBSIDIARIES
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA, IN ALL NOTES)
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 (see Note C) are accounted for by the equity method. Certain
amounts in the consolidated statements of prior years have been reclassified
to conform to the 1994 presentation.
PER SHARE DATA
Primary net earnings (loss) per common share are computed by dividing net
earnings (loss), 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. Common equivalent shares were
not dilutive for the year ended December 31, 1993.
Fully diluted net earnings (loss) per common share additionally gives
effect to the assumed conversion of the preferred shares held by the 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 year ended December 31, 1993.
INCOME TAXES
The company files a consolidated federal income tax return. The company
adopted Statement of Financial Accounting Standards No. 109 (SFAS No. 109),
"Accounting for Income Taxes", effective January 1, 1993. Prior to the
adoption of SFAS 109, the company accounted for its income taxes under SFAS
No. 96. The impact of the adoption of SFAS No. 109 was not material. 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 the enacted tax rates and are subsequently
adjusted for changes in the tax rates. A change in the deferred tax assets or
liabilities result in a charge or credit to deferred tax expense.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is carried at cost, less accumulated
depreciation. Depreciation is provided for, principally, by the straight-line
method over the estimated useful lives of the assets.
HOMEBUILDING REVENUES
Homebuilding revenues are recognized when home sales are completed and title
passes to the customer at settlement.
SERVICE LIABILITIES
Service and warranty costs are estimated and accrued for at the time of
settlement of a home.
HOUSING INVENTORIES
Housing inventories consist principally of homes under construction, land
under development, improved lots and land held for future development or
resale. Inventories are stated at the lower of cost or net realizable value
for each parcel or subdivision and are reported net of valuation reserves.
Net realizable value is the estimated selling price in the ordinary course of
business less estimated costs of completion, holding and disposal. Inventory
valuation reserves were $31.8 and $53.3 million at December 31, 1994 and 1993,
respectively. Estimates of net realizable value are reviewed periodically and
valuation reserve adjustments, if appropriate, are reflected in results of
operations in the period in which such estimates change. The decrease in the
reserve during 1994 is primarily attributable to the sale of inventories
primarily in California that were negatively impacted by a decline in economic
and market conditions and for which a provision was taken in the third quarter
of 1993.
Costs of inventory include direct costs of land, material acquisition,
home construction and related direct overhead expenses. Real estate taxes,
insurance and interest 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:
<TABLE>
<CAPTION>
1994 1993
---------------------------------------------------------------------
<S> <C> <C>
Capitalized interest as of January 1, $ 25,539 $ 25,097
Interest capitalized 12,282 5,327
Interest amortized 15,578 4,885
---------------------------------------------------------------------
Capitalized interest as of December 31, $ 22,243 $ 25,539
---------------------------------------------------------------------
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE RYLAND GROUP, INC. AND SUBSIDIARIES
PURCHASE PRICE IN EXCESS OF NET ASSETS ACQUIRED
Cost in excess of net assets of acquired businesses (goodwill) is being
amortized on a straight-line basis over 30 years.
LOAN ORIGINATION FEES, COSTS, AND MORTGAGE DISCOUNTS
Loan origination fees, net of the related direct origination costs, and loan
discount points, are deferred as an adjustment to the carrying value of the
related mortgage loans held for sale and are recognized into income upon the
sale of the mortgage loans.
Discounts on mortgage collateral for the bonds of the limited-purpose
subsidiaries primarily represent loan origination discount points and purchase
price discounts. These discounts are deferred as an adjustment to the
recorded book value of the related mortgage loans. They are amortized into
interest income over their respective lives using the interest method, which
is adjusted for the effect of prepayments.
HEDGING CONTRACTS
The company enters into forward delivery contracts, options on forward
delivery contracts, futures contracts and options on futures contracts,
(collectively referred to as hedging 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 hedging 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 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 market value of hedging contracts are deferred and included in
mortgage loans held for sale. Changes in market value are recognized in
income as an adjustment to gains on sales of mortgages when the loans and
securities are sold.
DEFERRED FINANCING COSTS
Financing costs incurred in connection with the issuance of bonds are
capitalized and amortized over the respective lives of the bonds using the
interest method. These costs are included in other assets of the limited-
purpose subsidiaries in the accompanying financial statements.
PURCHASED SERVICING AND ADMINISTRATION RIGHTS
Purchased servicing and administration rights are capitalized and amortized in
proportion to and over the period of estimated net servicing and net
administration revenue.
MORTGAGE LOANS HELD FOR SALE
Mortgage loans are held for sale and are valued at the lower of cost or market
determined on an aggregate basis. The gain or loss on the sale of the loans
is recognized at the time of the sale.
MORTGAGE-BACKED SECURITIES
The company has classified its mortgage-backed securities into three
categories: held to maturity, available for sale, and trading. 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 that are classified as held to maturity are stated at amortized
cost. Those securities meeting the held-to-maturity criteria are primarily
those currently held in a limited-purpose subsidiary whose bond indentures
prohibit liquidation of the collateral unless the corresponding bonds are
redeemed, or those which were previously held in a limited-purpose subsidiary
and redeemed. The bonds payable in this category generally cannot be redeemed
until the principal balance of the bonds payable is less than 15 percent of
the original balance. Prepayment risk is the only significant risk associated
with the mortgage-backed securities classified as held-to-maturity.
Securities that are classified as available-for-sale are measured at fair
value with the unrealized gains and losses, net of tax, reflected as a
component of stockholders' equity. At December 31, 1994, these securities are
primarily mortgage-backed securities that had previously been held as
collateral for bonds payable in a limited purpose subsidiary, but had call
rights that allowed for redemption prior to the principal balance being paid
down to 15 percent of the original balance. Lastly, securities classified as
trading are measured at fair value with gains and losses, both realized and
unrealized, recognized in the statement of earnings. At December 31, 1994
there were no securities classified as trading.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE RYLAND GROUP, INC. AND SUBSIDIARIES
ACCOUNTING CHANGE
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.In addition to the cumulative effect adjustment, amortization of
unearned income of discount points on mortgage-backed securitites was $1,527
for 1994. Prior to adopting SFAS 115, discount points were recognized as
income only when the investment 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. At December 31, 1994, the balance of the net unrealized gain
on securities classified as available for sale, which is reflected as a
component of stockholders' equity, was $1,763, net of $1,175 in deferred
income taxes.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.
NOTE B: SEGMENT INFORMATION
<TABLE>
<CAPTION>
1994 1993 1992
----------------------------------------
<S> <C> <C> <C>
REVENUES:
Homebuilding $ 1,443,212 $ 1,203,563 $ 1,077,475
Financial services 147,187 160,474 141,934
Limited-purpose subsidiaries 52,293 110,392 222,912
----------------------------------------
Total $ 1,642,692 $ 1,474,429 $ 1,442,321
========================================
PRETAX EARNINGS (LOSS):
Homebuilding $ 10,928 $ (45,930) $ 11,048
Financial services 43,482 55,269 43,930
Limited-purpose subsidiaries 96 158 3,856
Corporate expenses (17,187) (14,240) (16,496)
----------------------------------------
Total $ 37,319 $ (4,743) $ 42,338
========================================
DEPRECIATION AND AMORTIZATION:
Homebuilding $ 17,911 $ 8,743 $ 7,356
Financial services 4,250 7,132 7,018
Limited-purpose subsidiaries 1,386 7,535 14,351
Corporate 2,093 2,681 1,892
----------------------------------------
Total $ 25,640 $ 26,091 $ 30,617
========================================
IDENTIFIABLE ASSETS:
Homebuilding $ 733,072 $ 638,477 $ 601,289
Financial services 455,020 820,931 699,714
Limited-purpose subsidiaries 464,333 807,956 1,580,642
Corporate 52,063 48,329 15,036
----------------------------------------
Total $ 1,704,488 $ 2,315,693 $ 2,896,681
========================================
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE RYLAND GROUP, INC. AND SUBSIDIARIES
NOTE C: INVESTMENT IN AND ADVANCES TO UNCONSOLIDATED JOINT VENTURES
The company participates in homebuilding joint ventures primarily in its
California and the Mid-Atlantic Regions. Summarized financial information for
all joint venture entities accounted for under the equity method is as
follows:
STATEMENTS OF (LOSSES) EARNINGS
<TABLE>
<CAPTION>
Year ended December 31, 1994 1993 1992
----------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 38,900 $ 72,527 $ 112,453
Cost of sales 36,718 67,912 120,063
Expenses 2,544 3,930 8,829
----------------------------------------------------------------
Pretax (losses) earnings $ (362) $ 685 $ (16,439)
----------------------------------------------------------------
The company's share of
pretax (losses) earnings $ (37) $ (1,940) $ (1,831)
----------------------------------------------------------------
</TABLE>
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1994 1993
----------------------------------------------------------------
<S> <C> <C>
Assets:
Housing inventories $ 31,698 $ 52,058
Other assets 9,636 13,544
----------------------------------------------------------------
Total assets $ 41,334 $ 65,602
----------------------------------------------------------------
Liabilities and Partners' Equity:
Debt $ 14,219 $ 19,100
Other liabilities 9,286 7,999
Due to the company 8,195 12,407
----------------------------------------------------------------
Total liabilities 31,700 39,506
----------------------------------------------------------------
The company's equity 3,305 10,659
Other partners' equity 6,329 15,437
Total equity 9,634 26,096
----------------------------------------------------------------
Total liabilities and equity $41,334 $ 65,602
----------------------------------------------------------------
</TABLE>
The company generally has a 50 percent interest in these joint ventures
and records its interest in their operating results using the equity method.
The company's share of operating results is not always in proportion to its
ownership interest. The company's share of pretax earnings (losses) included
charges to earnings of $2,400 in 1993, due to joint venture developments in
the Mid-Atlantic region. The company's 1991 loss from unconsolidated joint
ventures included a $13,000 provision for losses due to joint venture
developments in Southern California. These losses were reflected in the
pretax losses of the joint ventures in 1992.
Some joint ventures issue performance or development bonds to
municipalities to insure completion of public facilities such as
roads and sewers. Performance and development bonds were $5,464 and
$9,977 at December 31, 1994 and 1993, respectively. The joint
ventures primarily use non-recourse financing arrangements
collateralized by joint venture land and improvements. The company
had guaranteed $2,535 and $3,301 of joint venture debt at December
31, 1994 and 1993, respectively.
Note D: ASSETS OF THE FINANCIAL SERVICES AND LIMITED-PURPOSE
SUBSIDIARIES SEGMENTS
FINANCIAL SERVICES SEGMENT
Mortgage loans held for sale consist of loans collateralized by first
mortgages or first deeds of trust on single family attached or detached
houses. Mortgage-backed securities, net, consist of GNMA certificates, FNMA
mortgage pass-through certificates, FHLMC participation certificates, and
notes receivable secured by mortgage-backed securities. The notes receivable
have been obtained from various participants upon an early redemption of
certain bond series issued by the limited-purpose subsidiaries. Principal
payments received on the underlying mortgage securities are applied to the
outstanding balance of the note.
Mortgage loans held for sale and mortgage-backed securities, net, were
reported net of mortgage discounts of $4,175 and $9,048 at December 31, 1994
and 1993, respectively. These mortgage loans held for sale and mortgage-
backed securities, net, are pledged as collateral for certain short-term notes
payable (see Note E).
The financial services segment serviced 81,000 and 106,000 loans with
principal balances totaling $6.9 billion and $9.8 billion at December 31, 1994
and 1993, respectively. As a mortgage servicer, the company may incur risk
with respect to mortgages that are delinquent or in foreclosure to the extent
that losses are not covered by a mortgage insurer or guarantor. At December
31, 1994 and 1993, $2,201 and $1,540, respectively, was reserved for potential
losses on the servicing portfolio. These reserves are established based on
the current economic environment and historical experience for foreclosures
and delinquencies.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE RYLAND GROUP, INC. AND SUBSIDIARIES
LIMITED-PURPOSE SUBSIDIARIES SEGMENT
Collateral for bonds payable consists of fixed-rate mortgage loans and
mortgage-backed securities secured by first liens on single family residential
housing. Mortgage-backed securities consist of GNMA certificates, FNMA
mortgage pass-through certificates, FHLMC participation certificates, and
notes receivable secured by mortgage-backed securities. All principal and
interest on the 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:
<TABLE>
<CAPTION>
1994 1993
-------------------------------------------------------------------
<S> <C> <C>
Mortgage loans $ 86,255 $ 110,128
Mortgage-backed securities 358,325 599,180
Funds held by trustee 25,378 104,908
Mortgage discounts (10,914) (16,142)
-------------------------------------------------------------------
Total $ 459,044 $ 798,074
-------------------------------------------------------------------
</TABLE>
Cash reserves totaling $1,701 and $2,247 as of December 31, 1994 and
1993, respectively, provide additional security for the bonds and will be
available for payment on the bonds in the event of certain circumstances as
described in the trust indentures. Neither The Ryland Group, Inc. 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
The following is a summary of mortgage-backed securities relating to the
financial services segment and limited-purpose subsidiaries as of December 31,
1994:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available-for-sale:
Financial Services Segment $ 60,709 $ 3,082 $ 144 $ 63,647
Held-to-Maturity:
Financial Services Segment 107,473 3,853 815 110,511
Limited-purpose subsidiaries 349,759 11,358 4,615 356,502
-----------------------------------------------
Total $ 517,941 $ 18,293 $ 5,574 $ 530,660
------------------------------------------------------------------------------
</TABLE>
NOTE E: FINANCIAL SERVICES SEGMENT SHORT-TERM NOTES PAYABLE
The financial services segment had outstanding borrowings at December 31 as
follows:
<TABLE>
<CAPTION>
1994 1993
---------------------------------------------------------------------
<S> <C> <C>
Mortgage warehouse agreement $ 199,500 $291,558
Repurchase agreements 178,129 375,375
Revolving credit agreement - 50,000
---------------------------------------------------------------------
Total outstanding borrowings $ 377,629 $716,933
----------------------------------------------------------------------
</TABLE>
During 1994, the financial services segment combined its mortgage
warehouse agreement with the previous revolving credit agreement into a new
mortgage warehouse agreement with commitments of $400,000 including a working
capital component. The working capital advances are secured by the common
stock of one of the company's subsidiaries within the financial services
segment, certain loan servicing rights and the related loan servicing
advances. Borrowings outstanding under this agreement totaling $199,500 at
December 31, 1994, were collateralized by mortgage loans held for sale with
outstanding principal balances of $197,366 and loan servicing advances of
$17,600. The outstanding warehouse borrowings totaling $291,558 at December
31, 1993, were collateralized by mortgage loans held for sale with outstanding
principal balances of $327,524. The current agreement expires in May 1995.
Historically, the mortgage warehouse agreement has been renewed on an annual
basis. The effective interest rates on these borrowings were 2.1 percent, 2.4
percent, and 2.4 percent, for 1994, 1993 and 1992, respectively. The mortgage
warehouse agreement contains certain financial covenants, which the company
met at December 31, 1994.
The repurchase agreements represent short-term borrowings. The
collateral for these borrowings consists of mortgage loans held for sale and
mortgage-backed securities, net, with outstanding balances on December 31,
1994 and 1993 of $183,260 and $385,366, respectively. The effective interest
rates were 4.6 percent, 3.7 percent, and 4.0 percent for 1994, 1993 and 1992,
respectively.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE RYLAND GROUP, INC. AND SUBSIDIARIES
The following table provides additional information relating to the
mortgage loans and mortgage-backed securities collateralizing the repurchase
agreements at December 31, 1994:
<TABLE>
<CAPTION>
ASSETS
-------------------------
Carrying Accrued Fair Repurchase Interest
Maturity Value Interest Value Liability Rate
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Up to 30 days $ 19,359 $ 142 $ 19,400 $ 18,705 6.6%
31 to 90 days 81,922 679 82,718 78,622 6.4%
Demand 81,979 676 84,107 80,802 5.8%
--------------------------------------------------------
Total $183,260 1,497 $186,225 $178,129
--------------------------------------------------------------------
</TABLE>
At December 31, 1993 the financial services segment had borrowed $50,000
under a $50,000 revolving credit agreement that expired in May 1994. The
common stock of one of the company's subsidiaries within the financial
services segment was pledged as collateral for the revolving credit agreement.
The effective interest rates for borrowings under the revolving credit
agreement were 2.3 percent and 3.1 percent for 1993 and 1992, respectively.
This facility was replaced with the aforementioned mortgage warehouse
agreement.
The company also had a secured $35 million credit agreement to be used
for the short-term financing of optional bond redemptions, which was renewed
in January 1995. The agreement carries a one year term and bears interest at
market rates. The effective interest rate for this credit agreement during
1994 was 1.25 percent. There were no amounts outstanding under this facility
at December 31, 1994.
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 customer 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 are as follows:
<TABLE>
<CAPTION>
1994 1993
--------------------------------------------------------------------
<S> <C> <C>
Financial Services Segment
Commitments to originate mortgage loans $ 85,466 $ 242,944
Hedging contracts:
Forward delivery contracts 146,900 411,650
Options on forward delivery contracts 5,000 55,000
Futures contracts - 1,000
</TABLE>
In addition, to protect against exposure to interest rate fluctuations on
adjustable-rate mortgage-loan commitments, at December 31, 1994 and 1993, the
company contracted with various parities to deliver $205,466 and $372,635,
respectively, in adjustable-rate mortgage loans for a specified price on a
primarily best efforts basis.
Commitments to originate mortgage loans represent loan commitments with
customers at current market rates up to 120 days before settlement. Loan
commitments have no carrying value on the balance sheet. These commitments
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 is mitigated by fees collected
from the customer and by the company's hedging activities. Loan commitments
had interest rates ranging from 5.3 percent to 11.9 percent as of December
31,1994, and 4.4 percent to 8.9 percent as of December 31, 1993.
Hedging contracts are regularly entered into by the company for the
purpose of mitigating its exposure to movements in interest rates on mortgage
commitments and mortgage loans held for sale. The selection of these hedging
contracts is based upon the company's marketing strategy, which establishes a
risk tolerance level. The major factors influencing the use of the various
hedging contracts include general market conditions, interest rate, 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 the mortgage loan
commitments and mortgage loans held for sale. Exposure to credit risk in the
event of nonperformance by the other parties to the hedging contracts would be
limited to the difference between the contract price and current market value
of the hedged item, which would be a small percentage of the outstanding
commitments and would be limited to those instances where the company was in a
net unrealized gain position. The company manages this credit risk by
entering into agreements with counterparties meeting the credit standards of
the company and monitoring position limits. Net deferred hedging gains
included with mortgage loans held for sale on the company's balance sheet at
December 31, 1994 and 1993, amounted to $423 and $226, respectively.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE RYLAND GROUP, INC. AND SUBSIDIARIES
NOTE G: FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments" ( FAS 107), requires disclosure of fair value
financial information about financial instruments, whether or not recognized
in the balance sheet. In cases where quoted market prices are not available,
fair values are based on estimates using present value or other valuation
techniques. Those fair values are significantly affected by the assumptions
used, including the discount rate and estimates of cash flow. In that regard,
the derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate
settlement of the instrument.
SFAS 107 excludes certain financial instruments and all non-financial
instruments from its disclosure requirements. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of the company.
The table below sets forth the carrying values and fair values of the
company's financial instruments, except for those financial instruments noted
below for which the carrying values approximate fair values at the end of the
year.
<TABLE>
<CAPTION>
1994 1993
----------------------------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Homebuilding
Liabilities:
Secured notes payable 25,560 25,527 30,881 30,881
Senior notes 53,000 51,869 56,000 61,419
Senior subordinated notes 200,000 171,220 200,000 211,510
Financial Services
Assets:
Mortgage loans held
for sale, net 214,772 215,876 535,679 542,272
Mortgage-backed
securities, net - - 192,417 215,327
Mortgage-backed securities,
held-to-maturity, net 107,473 110,511 - -
Mortgage-backed securities,
available-for-sale, net 63,647 63,647 - -
Off-balance sheet
financial instruments:
Forward delivery contracts - (453) - (874)
Futures contracts - - - 9
Options on forward delivery
contracts - 13 - -
Commitments to originate
mortgage loans - (61) - (45)
Call right options - 2,547 - 9,000
Limited-purpose subsidiaries
Assets:
Collateral for bonds payable 459,044 468,179 798,074 866,669
Liabilities:
Bonds payable, net 446,752 466,714 778,428 850,153
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE RYLAND GROUP, INC. AND SUBSIDIARIES
The company used the following methods and assumptions in estimating fair
values:
Cash and cash equivalents, industrial revenue bonds, bank credit
agreement, loan servicing receivables and short-term notes payable: The
carrying amounts reported in the balance sheet approximate fair values.
Secured notes payable and senior notes: The fair values of the company's
secured notes payable and senior notes are estimated using discounted cash
flow analyses, based on the company's current incremental borrowing rates for
similar types of borrowing arrangements.
Senior subordinated notes, mortgage loans held for sale, mortgage-backed
securities, the various hedging contracts if settled on December 31, 1994, and
mortgage loan commitments: The fair values of these financial instruments are
estimated based on quoted market prices for similar financial instruments.
Call right options: In estimating the fair value, current mortgage
prepayment speeds and mortgage collateral balances were used to estimate when
the call rights would be exercisable. Based on year-end 1994 and 1993
collateral prices, the implied net gains that could be realized on exercise of
the options and sale of the mortgage collateral were estimated. These net
gains were then discounted using a current long-term market interest rate.
NOTE H: LIMITED-PURPOSE SUBSIDIARIES BONDS PAYABLE
Mortgage-backed bonds are issued by the limited-purpose subsidiaries.
Payments are made on the bonds on a periodic basis as a result of, and in
amounts related 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:
<TABLE>
<CAPTION>
1994 1993
----------------------------------------------------------------------
<S> <C> <C>
Bonds payable, net of
discounts: 1994-$7,862
1993-$11,459 $ 446,752 $ 778,428
Range of interest rates 7.25-12.625% 7.25%-12.625%
Stated maturities 2006-2021 2004 - 2021
</TABLE>
The limited-purpose subsidiaries have issued on behalf of other
companies, securities with initial principal amounts of $1.5 billion in 1994
and $5.7 billion in 1993. The limited-purpose subsidiaries have relinquished
all risks and rewards relating to these series and the associated mortgage
collateral. As a result, they are excluded from the company's consolidated
balance sheets in accordance with generally accepted accounting principles.
NOTE I: LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, 1994 1993
---------------------------------------------------------------
<S> <C> <C>
Industrial revenue bonds $ 2,684 $ 4,159
Secured notes payable 25,560 30,881
Bank credit agreement 127,500 90,000
Senior notes 53,000 56,000
Senior subordinated notes 200,000 200,000
------------------------------------------------------------
408,744 381,040
Less current portion (18,062) (29,316)
------------------------------------------------------------
$ 390,682 $ 351,724
------------------------------------------------------------
</TABLE>
Industrial revenue bonds (IRBs) due in 1999 were issued in connection
with the construction of manufacturing plants and bear interest at rates
approximating short-term, tax-exempt rates. The combined effective interest
rates for 1994,1993 and 1992 were 3.3 percent, 3.1 percent and 3.1 percent,
respectively.
The IRBs are collateralized with a first lien on all real and personal
property at the respective sites, having a net carrying value on December 31,
1994 and 1993 of $5,143 and $7,841, respectively.
The company's secured notes payable bear interest at 6.4 to 10 percent
and are secured by land included in inventories with a carrying value of
approximately $38,037 and $47,000 as of December 31, 1994 and 1993,
respectively. The note maturities range from 1995 to 1999.
The company has an unsecured credit agreement with a group of banks which
allows the company to borrow up to $250,000 for a three-year period. This
agreement matures in July 1996. Borrowings under the agreement bear interest
at variable short-term rates. The effective interest rates for 1994, 1993 and
1992 were 6.6 percent, 5.0 percent and 4.4 percent, respectively.
At December 31, 1994, the company had $53,000 of senior notes
outstanding. The notes bear a fixed interest rate of 10.5 percent and mature
in the years 1996 through 2000.
In December 1993, the company completed an offering of $100,000 of 9.625
percent senior subordinated notes, due 2004, with interest payable
semi-annually. The notes are subordinated to all existing and future senior
debt of the company and 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 also has
$100,000 of 10.5 percent senior subordinated notes outstanding, due July 15,
2002, with interest payable semi-annually. The notes are subordinated to all
existing and future senior debt of the company and may be redeemed at the
option of the company, in whole or in part, at any time on or after July 15,
1997.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE RYLAND GROUP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Maturities of long-term debt for each of the next five years are as
follows:
<S> <C>
1995 $ 18,062
1996 164,203
1997 16,078
1998 836
1999 1,565
</TABLE>
The IRB loan agreements, the bank credit agreement, senior note
agreements and senior subordinated indenture agreements contain certain
financial covenants. Under the loan covenants the company has $24,889 of
retained earnings available for dividends at December 31, 1994. At December
31, 1994, the company is in compliance with its covenants.
NOTE J: INCOME TAXES
The company's expense (benefit) for income taxes for the years ended December
31 is summarized as follows:
<TABLE>>
<CAPTION>
1994 1993 1992
---------------------------------------------------------------------
<S> <C. <C> <C>
Current:
Federal $ 9,806 $ 21,938 $ 20,428
State 2,109 4,718 4,177
---------------------------------------------------------------------
Total current 11,915 26,656 24,605
--------------------------------------------------------------------
Deferred:
Federal 2,480 (23,656) (8,125)
State 533 (5,087) (1,662)
---------------------------------------------------------------------
Total deferred 3,013 (28,743) (9,787)
---------------------------------------------------------------------
Total expense (benefit) $ 14,928 $(2,087) $ 14,818
---------------------------------------------------------------------
</TABLE>
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.
A reconciliation between the total income tax expense (benefit) and the
income tax expense (benefit) computed by applying the statutory Federal income
tax rate to earnings before income taxes is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----------------------------------------------------------------------
<S> <C> <C> <C>
Computed income taxes at
statutory rate (35% for 1994
and 1993 and 34% for 1992) $ 13,062 $(1,660) $ 14,395
Applicable state taxes 1,698 (215) 1,816
Goodwill amortization 408 408 395
RSOP dividend (401) (328) (1,025)
Other, net 161 (292) (763)
---------------------------------------------------------------------
Total actual income
tax expense (benefit) $ 14,928 $(2,087) $ 14,818
---------------------------------------------------------------------
</TABLE>
Significant components of the company's deferred tax liabilities and assets as
of December 31 were as follows:
<TABLE>
<CAPTION>
1994 1993
-----------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Operational reserves $ 22,519 $ 28,972
Employee benefit plans 4,479 3,916
Capitalization of costs to inventory 6,756 3,761
Recognition of joint venture income 2,474 4,076
Other 4,227 4,218
-----------------------------------------------------------------------------
Total deferred tax assets $ 40,455 $ 44,943
-----------------------------------------------------------------------------
Deferred tax liabilities:
Gross profit from sales reported
on the installment method $ (6,082) $ (8,097)
Amortization of servicing and administration rights - (620)
Preconstruction interest (3,039) (3,504)
Unrealized market gain (1,690) -
Other (1,822) (712)
-----------------------------------------------------------------------------
Total deferred tax liabilities $(12,633) $(12,933)
-----------------------------------------------------------------------------
Net deferred tax asset $ 27,822 $ 32,010
-----------------------------------------------------------------------------
</TABLE>
The company has determined that no valuation allowance for the deferred
tax asset is required. The company had a current tax asset of $11,614 as of
December 31, 1994, and a current tax liability of $1,413 as of December 31,
1993.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE RYLAND GROUP, INC. AND SUBSIDIARIES
NOTE K: STOCKHOLDERS' EQUITY
PREFERRED STOCK
On August 31, 1989, the company sold 1,267,327 shares of non-transferable
convertible preferred stock, par value $1.00, to the RSOP Trust for $31.5625
per share, or an aggregate purchase price of approximately $40,000 (see Note
L).
Each share of preferred stock pays an annual cumulative dividend of
$2.21. During 1994, 1993 and 1992, the company paid $2,441, $2,589, and
$2,677, respectively, in dividends on the preferred stock. Each share of
preferred stock is entitled to a number of votes equal to the shares into
which it is convertible, and the holders of the preferred stock generally vote
together with the 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
or investment elections of 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, 1994 and
1993, the maximum cash obligation for such redemptions was shown outside of
stockholders' equity, as part of other liabilities. This obligation is
calculated assuming that all preferred shares outstanding were submitted for
redemption.
Based upon the appraised value of each share of preferred stock ($25.25,
$29.125, and $27.875), and the market value of each share of common stock
($15.00, $20.00, and $20.75), at December 31, 1994, 1993 and 1992,
respectively, and the application of a proportionate amount of the note due
from the RSOP Trust, the net amount of this obligation at December 31, 1994,
1993 and 1992 is $3,453, $2,398, and $1,525, respectively. During 1994 and
1993, 80,749 and 44,881 shares of preferred stock were converted into shares
of common stock.
COMMON STOCK OFFERING
During the first quarter of 1992, the company completed an offering of
2,875,000 shares of common stock. The proceeds of $66,900 were intended for
the expansion of business.
COMMON SHARE PURCHASE RIGHTS
On December 17, 1986, the company declared a dividend of one common share
purchase right for each share of common stock outstanding on February 9, 1987.
Each right entitles the holder to purchase one share of common stock at an
exercise price of $70. The rights become exercisable 20 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 11, 1997, and are
redeemable at $0.05 per right at any time before 20 business days following
the time that any party acquires 20 percent or more of the company's common
stock.
In the event 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 rights provide that 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
The company's employee incentive and stock plans are as follows:
RETIREMENT AND STOCK OWNERSHIP PLAN
On August 16, 1989, the company established an employee stock ownership plan,
known as the RSOP Trust.
The RSOP Trust's purchase of shares of preferred stock was financed by a
loan to the RSOP Trust by the company in an amount of $40,000. The loan bears
interest at the rate of 9.99 percent and is expected to be repaid by the RSOP
Trust through dividends received on the preferred stock and company
contributions. The RSOP Trust incurred interest on this loan in 1994, 1993
and 1992 of $2,637, $3,045, and $3,322, respectively. Preferred shares are
collateral for the loan and are released to the RSOP Trust as debt payments
are made. As of December 31, 1994, 486,256 shares under the RSOP Trust have
been allocated to participants and 586,647 shares remain unallocated.
There are two components within the RSOP, a 401(k) plan and a profit
sharing plan. All full-time employees are eligible to participate in the RSOP.
Pursuant to Section 401(k) of the Internal Revenue Code, the plan permits
deferral of a portion of participant's income into trustee investments in
stock, bonds or mutual funds. Compensation expense reflects the company's
matching contributions of the employee 401(K) contributions and the
discretionary profit sharing contribution. Total compensation expense
amounted to $4,986, $5,042, and $4,255 in 1994, 1993 and 1992, respectively.
EQUITY INCENTIVE PLAN AND OTHER RELATED PLANS
The company's 1992 Equity Incentive Plan permits the company to provide equity
incentives in the form of stock options, stock appreciation rights,
performance shares, restricted stock and other stock-based awards to
employees. Under the company's 1992 Equity Incentive Plan, options are
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE RYLAND GROUP, INC. AND SUBSIDIARIES
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
datesover one to ten year periods. In 1994, the plan was amended to change
the vesting period from five to three years from the date of grant.
Pursuant to the Equity Incentive Plan, the Board of Directors adopted a
long term incentive plan for officers and key employees. After each fiscal
year, shares of the company's common stock and cash are credited to the
accounts of the participants according to a prescribed formula. Total
compensation expense relating to this plan amounted to $2,504 in 1994 and
$2,987 in 1992. Due to a net loss in 1993, there was no compensation expense
relating to this plan in that year.
Under the company's Non-employee 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. In 1994, the plan was
amended to change vesting from five years to three years from the date of
grant. A maximum of 100,000 shares of common stock has been reserved for
issuance under this plan.
On November 29, 1993 the company entered into a Stock Unit Agreement with
an officer, pursuant to the Equity Incentive Plan. The company granted to the
officer 75,000 stock units. Each stock unit is payable in one share of the
company's common stock. The units vest in increments of 15,000 units for five
years beginning November 1, 1994. For 1994, the company recognized
compensation expense of $315 under this plan
The following is a summary of the transactions relating to all stock option
plans for each year ended December 31:
<TABLE>
<CAPTION>
1994 1993 1992
---------------------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding
Beginning of year 1,040,530 1,034,792 1,199,002
Granted 507,600 240,800 90,100
Exercised (45,030) (94,622) (195,250)
Canceled (240,501) (140,440) ( 59,060)
---------------------------------------------------------------------------
Options outstanding
end of year 1,262,599 1,040,530 1,034,792
Available for future grant 708,157 737,351 703,963
--------------------------------------------------------------------------
Total shares reserved 1,970,756 1,777,881 1,738,755
--------------------------------------------------------------------------
Options exercisable at
December 31 656,827 600,500 506,452
--------------------------------------------------------------------------
Prices related to
options exercised
during the year $10.13-20.75 $10.13-$23.25 $2.81-$26.00
</TABLE>
Prices related to options outstanding on December 31, 1994 ranged from
$10.94 to $26.00.
RESTRICTED STOCK
The company terminated a restricted stock agreement with an officer upon the
officer's resignation on August 1, 1993. The company had previously released
40,000 of the 150,000 shares of restricted stock sold to the officer in
consideration of the officer's employment.
NOTE M: COMMITMENTS AND CONTINGENCIES
In order to assure the future availability of land for homebuilding, the
company had deposits and letters of credit outstanding on option contracts and
land purchase commitments of $24,498 and $26,049, as of December 31, 1994 and
1993, respectively. These commitments expire at various dates through 2001.
Some municipalities require the company to issue development bonds to
assure completion of public facilities within a project. Total development
bonds at December 31, 1994 and 1993 were $75,327 and $66,659, respectively.
Total rent expense, primarily relating to office facilities, model home
furniture and equipment, was $15,373, $11,893, and $10,325 for the years ended
December 31, 1994, 1993 and 1992, respectively. Future minimum rental
commitments under non-cancelable leases with remaining terms in excess of one
year are as follows:
<TABLE>
<CAPTION>
<S> <C>
1995 $9,025
1996 8,209
1997 6,694
1998 4,173
1999 3,106
After 1999 5,495
-------
Total lease commitments $36,702
=======
</TABLE>
In addition, the financial services segment uses bank letters of credit
and cash to provide for additional security under certain of its securities
administration agreements. At December 31, 1994 and 1993, $5,120 and $8,782,
was outstanding under these arrangements, respectively.
Contingent liabilities may arise from the obligations incurred in the
ordinary course of business, or from the usual obligations of on-site housing
producers or the completion of contracts. The company is also party to various
legal proceedings generally incidental to its businesses. Based on evaluation
of these matters and discussions with counsel, management believes that
liabilities to the company arising from these matters will not have a material
adverse effect on the financial condition of the company.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
THE RYLAND GROUP, INC. AND SUBSIDIARIES
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, 1994 and 1993, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based
onour audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
ofmaterial 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, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994 in conformity with generally
accepted accounting principles.
As discussed in Note A to the financial statements, effective January 1,
1994,the company changed its method of accounting for investments in debt
securities in accordance with the adoption of FAS No. 115.
\s\ Ernst & Young LLP
Baltimore, Maryland
February 1, 1994
<PAGE>
REPORT OF MANAGEMENT
THE RYLAND GROUP, INC. AND SUBSIDIARIES
Management of the company is responsible for the integrity and accuracy of
thefinancial 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, which are 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. The 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 the internal auditors and
the external auditors have unrestricted access to the Audit Committee.
/s/ Michael D. Mangan
----------------------
Michael D. Mangan
Executive Vice President
Chief Financial Officer
/s/ Stephen B. Cook
---------------------
Stephen B. Cook
Vice President
Corporate Controller
<TABLE>
<CAPTION>
1994
=============================================================================
Quarter Ended Dec. 31 Sept. 30 June 30 March 31
=============================================================================
<S> <C> <C> <C> <C>
CONSOLIDATED RESULTS:
Revenues $ 445,659 $ 447,832 $ 416,709 $ 332,492
Pretax earnings
(loss) before
cumulative effect
of a change in
accounting
principle 3,776 13,982 12,636 6,925
Income tax expense
(benefit) 1,511 5,593 5,054 2,770
---------- --------- --------- ---------
Net earnings (loss)
before cumulative
effect of a change
in accounting
principle 2,265 8,389 7,582 4,155
Cumulative effect
of a change in
accounting principle
(net of taxes of
$1,384) -- -- -- 2,076
------- -------- ------- --------
Net earnings (loss) $ 2,265 $ 8,389 $ 7,582 $ 6,231
Net earnings (loss)
per common share
(primary) $ 0.11 $ 0.50 $ 0.45 $ 0.36 (1)
Weighted average
common shares
outstanding 15,572 15,554 15,553 15,574
=============================================================================
<FN>
(1) Includes the effect of a change in accounting principle of $0.13 per
share.
(2) Reflects a $45 million pretax provision related to homebuilding
inventories and investments in unconsolidated joint ventures.
</FN>
</TABLE>
<TABLE>
<CAPTION>
1993
Quarter Ended Dec. 31 Sept. 30 (2) June 30 March 31
=============================================================================
<S> <C> <C> <C> <C>
CONSOLIDATED RESULTS:
Revenues $ 430,225 $ 376,659 $ 371,993 $ 295,552
Pretax earnings
(loss) before
cumulative effect
of a change in
accounting
principle 11,676 (36,570) 9,408 10,743
Income tax expense
(benefit) 4,069 (14,014) 3,668 4,190
--------- ---------- --------- ---------
Net earnings (loss)
before cumulative
effect of a change
in accounting
principle 7,607 (22,556) 5,740 6,553
Cumulative effect
of a change in
accounting principle
(net of taxes of
$1,384) -- -- -- --
--------- ---------- --------- -------
Net earnings (loss) $7,607 $ (22,556) $ 5,740 $ 6,553
Net earnings (loss)
per common share
(primary) $ 0.45 $ (1.52) $ 0.33 $ 0.38
Weighted average
common shares
outstanding 15,480 15,310 15,555 15,575
=============================================================================
<FN>
(1) Includes the effect of a change in accounting principle of $0.13 per
share.
(2) Reflects a $45 million pretax provision related to homebuilding
inventories and investments in unconsolidated joint ventures.
</FN>
</TABLE>
<PAGE>
QUARTERLY FINANCIAL DATA
THE RYLAND GROUP INC., AND SUBSIDIARIES
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) UNAUDITED
COMMON STOCK PRICES AND DIVIDENDS
THE RYLAND GROUP, INC. AND SUBSIDIARIES
The Ryland Group, Inc. lists its common shares on the New York Stock Exchange,
trading under the symbol RYL. The table below presents the high and low market
prices and dividend information for the company. The number of common
stockholders of record as of February 20, 1995 was approximately 3,500. (See
Note I for dividend restrictions)
<TABLE>
<CAPTION>
Dividends
Declared
1994 High Low Per Share
=============================================================================
<S> <C> <C> <C>
First quarter $25 5/8 $19 3/4 $0.15
Second quarter 21 17 3/8 0.15
Third quarter 19 1/8 15 7/8 0.15
Fourth quarter 16 3/8 12 7/8 0.15
Dividends
Declared
1993 High Low Per Share
=============================================================================
First quarter $24 1/2 $18 $0.15
Second quarter 21 7/8 18 1/4 0.15
Third quarter 19 3/4 15 7/8 0.15
Fourth quarter 20 5/8 18 1/2 0.15
</TABLE>
<PAGE>
EXHIBIT 21 LIST OF SUBSIDIARIES OF REGISTRANT
Ryland Mortgage Company (an Ohio Corporation)
M.J. Brock & Sons, Inc. (a Delaware Corporation)
LPS Holdings Corporation (a Maryland Corporation)
<PAGE>
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 February 1, 1995, included in
the 1994 Annual Report to the Shareholders of the Ryland Group, Inc.
Our audit 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, presents fairly in all material respects the information set forth
therein.
We also consent to the incorporation by reference in the Registration
Statements (Form S-8 No. 33-16774, Form S-3 No. 33-28692, Form S-8 No. 33 -
32431, Form S-3 No. 33-48071, Form S-3 No. 33-50933, Form S-8 No. 33-56905,
Form S-8 No. 33-56917) of the Ryland Group, Inc. and in the related
Prospectuses of our report dated February 1, 1995, with respect to the
consolidated financial statements incorporated herein by reference, and our
report included in the preceding paragraph with respect to the financial
statement schedule included in this Annual Report (form 10-K) of The Ryland
Group, Inc.
/s/Ernst & Young LLP
Baltimore, Maryland
March 27, 1995
<PAGE>
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 R. Chad
Dreier and Michael D. Mangan and either of them, the true and lawful agents
and attorneys-in-fact of the undersigned with full power and authority in said
agents and attorneys-in-fact, and in either of them, 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, 1994, to be filed with the Securities and
Exchange Commission under the Securities Exchange Act of 1934. We hereby
confirm all acts taken by such agents and attorneys-in-fact, or either of
them, as herein authorized.
DATED: February 15, 1995
/s/ R. Chad Dreier
-----------------------------
R. Chad Dreier, Chairman of
the Board,
President, and Chief
Executive Officer
(Principal Executive Officer)
/s/ Andre W. Brewster
-----------------------------
Andre W. Brewster, Director
/s/ James A. Flick, Jr.
-----------------------------
James A. Flick, Jr., Director
/s/ Robert J. Gaw
-----------------------------
Robert J. Gaw, Director
/s/ Leonard M. Harlan
-----------------------------
Leonard M. Harlan, Director
/s/ L.C. Heist
-----------------------------
L.C. Heist, Director
/s/ William L. Jews
-----------------------------
William L. Jews, Director
/s/ William G. Kagler
-----------------------------
William G. Kagler, Director
/s/ Michael D. Mangan
-----------------------------
Michael D. Mangan
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/ John H. Mullin, III
-----------------------------
John H. Mullin, III, Director
/s/ John O. Wilson
-----------------------------
John O. Wilson, Director
/s/ Stephen B. Cook
-----------------------------
Stephen B. Cook
(Principal Accounting
Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from The Ryland
Group Inc. Form 10-K for the period ended 12/31/94 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 26,826
<SECURITIES> 171,120
<RECEIVABLES> 214,772
<ALLOWANCES> 0
<INVENTORY> 594,813
<CURRENT-ASSETS> 0
<PP&E> 22,607
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,704,488
<CURRENT-LIABILITIES> 0
<BONDS> 824,381
<COMMON> 15,475
0
1,073
<OTHER-SE> 295,574
<TOTAL-LIABILITY-AND-EQUITY> 1,704,488
<SALES> 1,443,212
<TOTAL-REVENUES> 1,642,692
<CGS> 1,261,784
<TOTAL-COSTS> 1,481,049
<OTHER-EXPENSES> 19,352
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 104,972
<INCOME-PRETAX> 37,319
<INCOME-TAX> 14,928
<INCOME-CONTINUING> 22,391
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 2,076
<NET-INCOME> 24,467
<EPS-PRIMARY> 1.42
<EPS-DILUTED> 1.40
</TABLE>
