<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
-----------
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1996
--------------
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
-------------- --------------
Commission File Number: 1-8029
THE RYLAND GROUP, INC.
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 52-0849948
--------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
of incorporation or organization) Identification No.)
11000 Broken Land Parkway, Columbia, Maryland 21044
-----------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(410) 715-7000
-----------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
------ ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
The number of shares of common stock of The Ryland Group, Inc., outstanding on
August 2, 1996 was 15,805,585.
<PAGE>
THE RYLAND GROUP, INC.
FORM 10-Q
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at
June 30, 1996 (unaudited) and
December 31, 1995 1-2
Consolidated Statements of Earnings
for the three and six months ended
June 30, 1996 and 1995 (unaudited) 3
Consolidated Statements of Cash Flows
for the six months ended June 30,
1996 and 1995 (unaudited) 4
Notes to Consolidated Financial
Statements (unaudited) 5-7
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial
Condition 8-16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of
Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
INDEX OF EXHIBITS 20
<PAGE>
The Ryland Group, Inc. and subsidiaries
CONSOLIDATED BALANCE SHEETS
(amounts in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---------- ------------
(unaudited)
<S> <C> <C>
ASSETS
HOMEBUILDING:
Cash and cash equivalents $ 34,797 $ 54,518
Housing inventories:
Homes under construction 370,057 332,272
Land under development and improved lots 223,390 205,646
--------- ---------
Total inventories 593,447 537,918
Property, plant and equipment 34,298 34,662
Purchase price in excess of net assets acquired 21,059 21,575
Other assets 40,480 47,903
---------- ---------
724,081 696,576
---------- ---------
FINANCIAL SERVICES:
Cash and cash equivalents 993 1,474
Mortgage loans held for sale, net 196,817 285,001
Mortgage-backed securities and
notes receivable, net 136,404 112,544
Mortgage servicing rights, net 10,022 7,814
Other assets 40,633 42,586
---------- ---------
384,869 449,419
---------- ---------
OTHER ASSETS:
Collateral for bonds payable of
limited-purpose subsidiaries 305,307 375,146
Net deferred taxes 39,997 41,259
Other 12,765 18,389
---------- ---------
TOTAL ASSETS $ 1,467,019 $ 1,580,789
============ ===========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
The Ryland Group, Inc. and subsidiaries
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ ------------
(unaudited)
<S> <C> <C>
LIABILITIES
HOMEBUILDING:
Accounts payable and other liabilities $ 68,287 $ 78,853
Long-term debt 435,162 396,607
------------ -----------
503,449 475,460
------------ -----------
FINANCIAL SERVICES:
Accounts payable and other liabilities 26,817 27,219
Short-term notes payable 296,573 367,469
------------ -----------
323,390 394,688
------------ -----------
OTHER LIABILITIES:
Bonds payable of limited-purpose subsidiaries 297,357 364,672
Other 37,340 44,845
------------ -----------
TOTAL LIABILITIES 1,161,536 1,279,665
STOCKHOLDERS' EQUITY
Convertible preferred stock, $1 par value
Authorized - 1,400,000 shares
Issued - 903,672 shares
(943,097 for 1995) 904 943
Common stock, $1 par value
Authorized - 78,600,000 shares
Issued - 15,726,266 shares
(15,681,891 for 1995) 15,726 15,682
Paid-in capital 116,825 115,611
Retained earnings 180,756 179,937
Net unrealized gain on
mortgage-backed securities 3,050 2,550
Due from RSOP Trust (11,778) (13,599)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 305,483 301,124
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,467,019 $ 1,580,789
=========== ===========
STOCKHOLDERS' EQUITY PER COMMON SHARE $ 18.84 $ 18.69
See notes to consolidated financial statements.
</TABLE>
<PAGE>
The Ryland Group, Inc. and subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
Three months Six months
ended June 30, ended June 30,
1996 1995 1996 1995
-------- -------- -------- -------
<S> <C> <C> <C> <C>
REVENUES:
Homebuilding:
Residential revenues $ 380,832 $ 355,894 $ 675,640 $ 667,686
Other revenues 7,550 315 10,417 832
-------- ----------- ---------- -------
Total homebuilding revenues 388,382 356,209 686,057 668,518
Financial services 18,335 23,472 40,104 46,359
Limited-purpose subsidiaries 7,537 9,547 15,526 19,548
-------- ----------- ---------- - -----
Total revenues 414,254 389,228 741,687 734,425
EXPENSES:
Homebuilding:
Cost of sales 335,117 316,121 592,160 591,839
Interest expense 6,261 6,785 12,055 14,294
Selling, general and
administrative 37,377 37,959 70,874 71,328
-------- ----------- ---------- - -----
Total homebuilding
expenses 378,755 360,865 675,089 677,461
Financial services:
Interest expense 4,834 5,627 10,633 11,167
General and administrative 11,021 11,556 23,763 23,406
-------- ----------- ---------- - -----
Total financial
services expenses 15,855 17,183 34,396 34,573
Limited-purpose subsidiaries
expense 7,537 9,545 15,526 19,539
Corporate expenses 3,062 3,171 6,066 6,851
-------- ----------- ---------- - -----
Total expenses 405,209 390,764 731,077 738,424
Earnings (loss) from continuing
operations before taxes 9,045 (1,536) 10,610 (3,999)
Tax expense (benefit) 3,618 (614) 4,244 (1,600)
-------- ----------- ---------- - -----
Net earnings (loss) from
continuing operations 5,427 (922) 6,366 (2,399)
Discontinued Operations:
Earnings from discontinued
operations (net of taxes
of $778 & $2,212) 0 1,168 0 3,318
Gain on sale of discontinued
operations (net of taxes
of $13,025) 0 19,538 0 19,538
-------- ----------- ---------- - -----
NET EARNINGS $ 5,427 $ 19,784 $ 6,366 $ 20,457
=========== =========== ======== =========
Preferred dividends $ 499 $ 560 $ 1,009 $ 1,139
Net earnings available for
common shareholders $ 4,928 $ 19,224 $ 5,357 $ 19,318
NET EARNINGS PER COMMON SHARE:
Primary:
Net earnings (loss) from
continuing operations $ 0.31 $ (0.09) $ 0.34 $ (0.22)
Discontinued Operations 0.00 1.31 0.00 1.45
-------- ----------- ---------- - -----
Net earnings $ 0.31 $ 1.22 $ 0.34 $ 1.23
========== ========== ======= ========
Fully diluted: (1)
Net earnings (loss) from
continuing operations $ 0.31 $ (0.07) $ 0.34 $ (0.17)
Discontinued Operations 0.00 1.23 0.00 1.36
-------- ----------- ---------- - -----
Net earnings $ 0.31 $ 1.16 $ 0.34 $ 1.19
========= ========== ========= =======
AVERAGE COMMON SHARES OUTSTANDING:
PRIMARY 15,955,000 15,764,000 15,949,000 15,727,000
FULLY DILUTED (1) 16,868,000 16,807,000 15,949,000 16,812,000
========== =========== ========== ==========
<FN>
(1) For the six months ended June 30, 1996, conversion of preferred shares is
not assumed due to an antidilutive effect.
</FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
The Ryland Group, Inc. and subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, amounts in thousands)
<TABLE>
<CAPTION>
Six months ended June 30,
1996 1995
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 6,366 $ 20,457
Adjustments to reconcile net earnings to
net cash provided by (used for)
operating activities:
Depreciation and amortization 15,882 13,563
Gain on sale of mortgage-backed
securities - available-for-sale 0 (3,878)
Gain on sale of discontinued operations 0 (32,563)
(Increase) decrease in inventories (55,529) 19,983
Net change in other assets, payables
and other liabilities (9,864) 9,981
Equity in earnings of/distributions
from unconsolidated joint ventures 1,746 1,125
Decrease (increase) in mortgage
loans held for sale, net 88,184 (54,678)
---------- ---------
Net cash provided by (used for)
operating activities 46,785 (26,010)
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net additions to property, plant and equipment (10,659) (14,661)
Proceeds from sale of discontinued operations 0 47,000
Principal reduction of mortgage collateral 50,667 6,844
Principal reduction of mortgage-backed
securities - available-for-sale 5,843 3,912
Purchases of mortgage-backed securities
- available-for-sale (8,572) 0
Sales of mortgage-backed securities-
available-for-sale 0 56,982
Principle reduction of mortgage-backed
securities-held-to-maturity 11,083 30,554
(Increase) decrease in funds held by trustee (9,930) 5,274
Other investing activities, net (2,963) 678
---------- ---------
Net cash provided by investing activities 35,469 136,583
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in short-term notes payable (70,896) (21,738)
Cash proceeds of long-term debt 58,062 5,108
Reduction of long-term debt (19,508) (42,474)
Bond principal payments (68,155) (42,425)
Common and preferred stock dividends (5,734) (5,808)
Other financing activities, net 3,775 1,281
---------- ---------
Net cash used for financing activities (102,456) (106,056)
---------- ---------
Net (decrease) increase in cash
and cash equivalents (20,202) 4,517
Cash and cash equivalents at beginning of year 55,992 26,826
---------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 35,790 $ 31,343
========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest (net of
capitalized interest) $ 41,845 $ 44,475
Cash paid for income taxes (net of
refund received in 1996 and 1995) $ (2,999) $ 2,887
========== =========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
The Ryland Group, Inc. and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(amounts in thousands, except for share data, in all notes)
Note 1. Segment Information
<TABLE>
<CAPTION>
Three months ended June 30,
1996 1995
------ ------
<S> <C> <C>
Pretax earnings (loss) from continuing operations:
Homebuilding $ 9,627 $ (4,656)
Financial services (1) 2,480 6,289
Corporate and other (2) (3,062) (3,169)
---------- ---------
Total $ 9,045 $ (1,536)
========== =========
<FN>
(1) Excludes pretax operating results of the institutional mortgage securities
administration business for the three months ended June 30, 1995 of $1,946.
(2) The Company's limited-purpose subsidiaries are no longer issuing mortgage-
backed securities and mortgage-participation securities and therefore, are no
longer reported as a separate business segment. Amounts related to the
limited-purpose subsidiaries are combined with corporate expenses and
reflected in the above table as "Corporate and other."
</FN>
</TABLE>
<TABLE>
<CAPTION>
Six months ended June 30,
1996 1995
------ ------
<S> <C> <C>
Pretax earnings (loss) from continuing operations:
Homebuilding $ 10,968 $ (8,943)
Financial services (1) 5,708 11,786
Corporate and other (2) (6,066) (6,842)
---------- ---------
Total $ 10,610 $ (3,999)
========== =========
<FN>
(1) Excludes pretax operating results of the institutional mortgage securities
administration business for the six months ended June 30, 1995 of $5,530.
(2) The Company's limited-purpose subsidiaries are no longer issuing mortgage-
backed securities and mortgage-participation securities and therefore, are no
longer reported as a separate business segment. Amounts related to the
limited-purpose subsidiaries are combined with corporate expenses and
reflected in the above table as "Corporate and other."
</FN>
</TABLE>
<PAGE>
The Ryland Group, Inc. and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(unaudited)
Note 2. Consolidated Financial Statements
The consolidated financial statements include the accounts of The Ryland
Group, Inc. and its wholly owned subsidiaries (the "Company"). Intercompany
transactions have been eliminated in consolidation.
The consolidated balance sheet as of June 30, 1996, the consolidated
statements of earnings for the three and six months ended June 30, 1996 and
1995, and the consolidated statements of cash flows for the six months ended
June 30, 1996 and 1995 have been prepared by the Company, without audit. In
the opinion of management, all adjustments, which include normal recurring
adjustments necessary to present fairly the financial position, results of
operations and cash flows at June 30, 1996, and for all periods presented,
have been made. The consolidated balance sheet at December 31, 1995 is taken
from the audited financial statements as of that date. Certain amounts in the
consolidated statements have been reclassified to conform to the 1996
presentation.
Certain information and footnote disclosures normally included in the
financial statements have been condensed or omitted. These financial
statements should be read in conjunction with the financial statements and
related notes included in the Company's 1995 annual report to shareholders.
The results of operations for the three and six months ended June 30, 1996 are
not necessarily indicative of the operating results for the full year.
Assets presented in the financial statements are net of any valuation
allowances.
Primary net earnings per common share is computed by dividing net earnings,
after considering preferred stock dividend requirements, by the weighted
average number of common shares outstanding considering dilutive common
equivalent shares. Common equivalent shares relating to stock options are
computed using the treasury stock method.
Fully diluted net earnings per common share additionally gives effect to the
assumed conversion of the preferred shares held by The Ryland Group, Inc.
Retirement and Stock Ownership Plan Trust (the "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. However, the effect of the RSOP
Trust was not dilutive for the six months ended June 30, 1996.
<PAGE>
The Ryland Group, Inc. and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(unaudited)
Note 3. Discontinued Operations
On June 30, 1995, the Company completed the sale of its institutional mortgage
securities administration business for a purchase price of $47 million in
cash. The Company's institutional mortgage-securities administration business
included master servicing, securities administration, investor information
services, and tax calculation and reporting. The prior period results for
this business (formerly reported as institutional financial services) have
been reported as discontinued operations in the accompanying consolidated
statements of earnings.
Revenues from operations of the discontinued business were $6.6 million and
$13.7 million for the three and six months ended June 30, 1995, respectively.
Earnings from operations of the discontinued business were $1.2 million, or
$.07 per share, and $3.3 million, or $.21 per share, (net of taxes of $.8
million and $2.2 million, respectively), for the three and six months ended
June 30, 1995, respectively.
The Company reported a net gain from the sale of the institutional mortgage
securities administration business of $19.5 million (net of taxes of $13.0
million), or $1.24 per share, in the second quarter of 1995.
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
RESULTS OF OPERATIONS
CONSOLIDATED
For the second quarter of 1996, the Company reported consolidated net earnings
of $5.4 million, or $.31 per share. This compares with a 1995 second quarter
net loss of $.9 million, or $.09 per share, from continuing operations, and
1995 second quarter consolidated net earnings, including the gain on sale and
operating results of the discontinued institutional mortgage securities
administration business, of $19.8 million, or $1.22 per share.
The Company's homebuilding segment recorded pretax earnings of $9.6 million
for the second quarter of 1996, compared with a pretax loss of $4.7 million
for the same period last year. The improvement was driven by improved gross
profit margins as well as pretax gains of $3.7 million from land sales.
The Company's financial services segment reported pretax earnings of $2.5
million for the second quarter of 1996, compared with $6.3 million for the
same period in 1995. The decline from last year's results was due to a
decrease in retail earnings which was partially offset by an increase in
investment earnings.
In the second quarter of 1995, the Company sold its institutional mortgage-
securities administration business which was consistent with its long-term
strategy to focus on its core homebuilding and retail mortgage-finance
operations and to invest additional capital into its homebuilding operations.
The Company realized a net gain on the sale of $19.5 million. Future results
for the financial services segment will continue to be negatively impacted by
the elimination of this business.
For the first six months of 1996, the Company reported consolidated net
earnings of $6.4 million, or $.34 per share. This compares with a 1995 first
half net loss of $2.4 million, or $.22 per share, from continuing operations,
and 1995 first half consolidated net earnings, including the gain on the sale
and operating results of the discontinued institutional mortgage securities
administration business, of $20.5 million, or $1.23 per share.
For the first six months of 1996, the homebuilding segment reported pretax
earnings of $11.0 million, compared with a pretax loss of $8.9 million for the
same period in 1995. The improvement reflects an increase in gross profit
margins as well as pretax gains of $3.9 million from land sales, the
combination of which more than offset the impact of lower closings. The
financial services segment reported pretax earnings of $5.7 million for the
first six months of 1996, compared with $11.8 million for the same period in
1995. The decline from last year's results is primarily due to lower gains
from the sale of mortgages and mortgage servicing rights, and a lower level of
investment earnings.
<PAGE>
The Company's limited-purpose subsidiaries are no longer issuing mortgage-
backed securities and mortgage-participation securities. They do continue to
hold collateral for previously issued mortgage-backed bonds in which the
Company maintains a residual interest. 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 rights.
Corporate expenses were $3.1 million for the second quarter of 1996 and $6.1
million for the six months ended June 30, 1996, down $.1 million and $.8
million, respectively, from the same period last year primarily due to lower
information system costs and reductions in other operating expenses.
HOMEBUILDING
The Company's homebuilding segment reported pretax earnings of $9.6 million
for the second quarter of 1996, compared with a pretax loss of $4.7 million
for the same period last year. For the six months ended June 30, 1996,
homebuilding reported pretax earnings of $11.0 million compared with a pretax
loss of $8.9 million.
Results of operations of the Company's homebuilding segment are summarized as
follows ($ amounts in thousands, except average closing price):
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues $388,382 $356,209 $686,057 $668,518
Gross profit 53,265 40,088 93,897 76,679
Selling, general and
administrative expenses 37,377 37,959 70,874 71,328
Interest expense 6,261 6,785 12,055 14,294
--------- --------- --------- --------
Pretax earnings (loss) $ 9,627 $ (4,656) $ 10,968 $ (8,943)
========= ========= ========= ========
Operational Unit Data:
(includes joint ventures)
New orders (units) 2,060 2,618 4,463 5,178
Closings (units) 2,195 2,218 3,928 4,216
Outstanding contracts at
June 30,
Units 3,279 3,515
Dollar Value $580,753 $602,882
Average Closing Price
(excludes unconsolidated
joint ventures) $173,000 $162,000 $172,000 $160,000
</TABLE>
<PAGE>
The gross profit margin for the second quarter and first half of 1996 was 13.7
percent, a significant increase from the 11.3 percent and 11.5 percent
reported for the respective 1995 periods. The second quarter of 1996 is the
third consecutive quarter in which gross profit margins have shown significant
improvement over the prior year quarter. Increased closings from newer
communities and gains from land sales contributed to the 1996 margin
improvement while the sale of older inventories in the California and Mid-
Atlantic regions and the Company's focus on reducing unsold homes under
construction negatively impacted gross margins during 1995.
Homebuilding revenues amounted to $388 million for the second quarter of 1996,
an increase of 9.0 percent over the same period last year, primarily due to an
increase in average closing price. The increase in average closing price was
partially offset by a slight decline in closings reflecting slower sales in
the first quarter of this year due in part to inclement weather conditions.
Homebuilding revenues were $686 million for the first six months, an increase
of 2.6 percent over the same period last year, primarily due to a higher
average closing price, which more than offset a 6.8 percent decline in
closings.
Total homebuilding new orders for the second quarter of 1996 decreased by 21.3
percent to 2,060 homes from the second quarter of 1995 and decreased 13.8
percent to 4,463 homes for the first six months of 1996. Higher interest
rates and delays in opening new communities have negatively impacted sales.
Volume in the Mid-Atlantic region was also impacted by the Company's decision
to reallocate capital to other markets.
Outstanding contracts at June 30, 1996 were 3,279 compared with 3,515 at June
30, 1995 and 2,744 at December 31, 1995. Outstanding contracts represent the
Company's backlog of sold, but not closed homes, which generally are built and
closed, subject to cancellations, over the next two quarters. The value of
outstanding contracts at June 30, 1996 was $580.8 million, a decrease of 3.7
percent from June 30, 1995 and an increase of 21.7 percent from December 31,
1995.
Selling, general and administrative expenses as a percent of revenues were 9.6
percent for the second quarter of 1996 compared with 10.7 percent for the same
period of 1995. For the six months ended June 30, 1996, selling, general and
administrative expenses were 10.3 percent compared with 10.7 percent for the
same period of 1995. The declines in the second quarter and first half are
reflective of the Company's ongoing efforts to control costs, including the
efficiencies gained from $2.2 million in reorganization costs incurred during
the second quarter of 1995 to consolidate certain operations.
Interest expense for the second quarter and first half of 1996 decreased $.5
million and $2.2 million, respectively, compared with the same periods of
1995. These decreases were primarily due to a lower average cost of funds.
<PAGE>
FINANCIAL SERVICES
The financial services segment, excluding the results of the discontinued
institutional mortgage securities administration business, reported pretax
earnings of $2.5 million for the second quarter and $5.7 million for the first
six months of 1996, compared with $6.3 million for the second quarter and
$11.8 million for the first six months of 1995.
Pretax earnings by line of business were as follows (amounts in thousands):
<TABLE>
<CAPTION>
Three months Six months
ended June 30, ended June 30,
1996 1995 1996 1995
------- ------- -------- -------
<S> <C> <C> <C> <C>
Retail $ 430 $ 4,702 $ 2,292 $ 5,845
Investments 2,050 1,587 3,416 5,941
------- -------- ------- --------
Total $ 2,480 $ 6,289 $ 5,708 $11,786
======== ======== ======== ========
</TABLE>
The declines in retail pretax earnings for the second quarter and first six
months of 1996 were primarily due to lower gains on sales of mortgages and
mortgage servicing rights.
Pretax investment earnings increased for the three months ended June 30, 1996,
primarily due to a higher interest spread on the portfolio and income related
to the early redemption of certain securities. Pretax investment earnings for
the six months ended June 30, 1996, were down due to gains on sales of
mortgage-backed securities in 1995 which did not recur in 1996.
Revenues and expenses for the financial services segment were as follows:
<TABLE>
<CAPTION>
Three months Six months
ended June 30, ended June 30,
1996 1995 1996 1995
------ ------ ------ -----
<S> <C> <C> <C> <C>
Revenues:
Interest and
net origination fees $ 3,554 $ 3,669 $ 7,752 $ 6,703
Net gains on sales of mortgages
and servicing rights 1,678 6,278 7,229 9,304
Loan servicing 7,461 8,366 14,891 17,059
Title/escrow 1,562 1,308 2,760 2,327
--------- --------- ------- --------
Total retail revenues 14,255 19,621 32,632 35,393
Revenues from investment
operations 4,080 3,851 7,472 10,966
--------- --------- --------- -------
Total revenues 18,335 23,472 40,104 46,359
Expenses:
Interest 4,834 5,627 10,633 11,167
General and administrative 11,021 11,556 23,763 23,406
--------- --------- --------- -------
Total expenses 15,855 17,183 34,396 34,573
--------- --------- --------- -------
Pretax earnings $ 2,480 $ 6,289 $ 5,708 $11,786
========= ========= ======== =======
</TABLE>
<PAGE>
Revenues for the financial services segment decreased 22 percent and 13
percent for the three and six months ended June 30, 1996, respectively, as
compared with the same periods of 1995, primarily due to lower gains from
sales of mortgages and mortgage servicing rights and a decline in servicing
revenues reflecting a lower portfolio balance. The higher revenues reported
in 1995 included a second quarter $2.5 million gain from a bulk sale of
mortgage servicing rights. Investment revenues in the first half of the year
were lower reflecting the absence of gains on the sale of mortgage-backed
securities which favorably impacted 1995 results.
Interest expense declined 14 percent and 5 percent for the three and six
months ended June 30, 1996, respectively, as compared with the same periods of
1995, as a result of lower cost of borrowings. General and administrative
expenses were down 4.6 percent for the second quarter and were up slightly for
the first half of 1996 as compared with the same periods of 1995. The
increase for the first six months reflects costs related to re-engineering the
mortgage origination process in order to improve efficiencies and reduce
future costs.
Retail Operations:
- ------------------
Retail operations include mortgage origination, loan servicing and
title/escrow services for retail customers.
A summary of origination activities is as follows:
<TABLE>
<CAPTION>
Three months Six months
ended June 30, ended June 30,
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Dollar volume of mortgages
originated (in millions) $ 393 $ 469 $ 877 $ 797
Number of mortgages originated 2,933 3,698 6,717 6,360
Percentage of total closings:
Ryland Homes closings 48% 34% 38% 36%
Other closings 52% 66% 62% 64%
------- ------ ------ ------
100% 100% 100% 100%
</TABLE>
Mortgage origination volume decreased by 21 percent in the second quarter
compared with the same period last year. This decrease is primarily
attributable to the sale of the wholesale mortgage operations which was
completed in May 1996. The sale of this business has resulted in a decline in
mortgage originations in 1996, but is not expected to have a significant
impact on future financial results. Wholesale loan originations for the
second quarter of 1996 decreased by 77 percent to 288 compared with 1,279 for
1995. For the first six months of 1996, wholesale loan originations decreased
19 percent to 1,776 compared with 2,189 for the first half of 1995. Retail
loan originations increased nine percent compared with the second quarter of
1995 and eighteen percent compared with the first half of 1995.
<PAGE>
The Company earns interest on mortgages held for sale and pays interest on
borrowings secured by the mortgages. Significant data related to these
activities are as follows:
<TABLE>
<CAPTION>
Three months Six months
ended June 30, ended June 30,
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net interest earned
(in thousands) $1,992 $1,276 $3,543 $2,436
Average balance of
mortgages held for sale
(in millions) $180 $182 $207 $169
Net interest spread 4.4% 2.8% 3.4% 2.9%
</TABLE>
Net interest earned increased for the second quarter compared with 1995 due to
a higher net interest spread. For the first six months of 1996, net interest
earned increased due to a higher net interest spread and an increase in the
average balance of 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 June 30, (in
billions):
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Originated $2.4 $2.5
Acquired 3.2 3.7
Subserviced .2 .3
------ ------
Total portfolio $5.8 $6.5
====== ======
</TABLE>
The decrease in the portfolio balance is primarily attributable to normal
mortgage prepayment activity.
<PAGE>
Investment Operations:
- ----------------------
The assets of the Company's investment operations primarily consist of
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. Revenues and expenses were as follows
(in thousands):
<TABLE>
<CAPTION>
Three months Six months
ended June 30, ended June 30,
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Sale of mortgage-backed securities $ 0 $ 807 $ 0 $ 3,931
Interest and other income 4,080 3,044 7,472 7,035
-------- ------- -------- -------
Total revenues 4,080 3,851 7,472 10,966
Interest and other expenses 2,030 2,264 4,056 5,025
------- ------ ------- ------
Pretax earnings $ 2,050 $ 1,587 $ 3,416 $ 5,941
======== ======= ======== =======
</TABLE>
Interest and other income includes $.7 million and $1.3 million for the three
and six months ended June 30, 1996, respectively, related to the early
redemption of certain securities.
Significant data concerning the Company's investment operations are as
follows:
<TABLE>
<CAPTION>
Three months Six months
ended June 30, ended June 30,
1996 1995 1996 1995
------- ------ ------ ------
<S> <C> <C> <C> <C>
Net interest earned
(in thousands) $ 1,192 $ 1,060 $ 2,218 $ 2,553
Average balance outstanding
(in millions) $ 115 $ 118 $ 113 $ 136
Net interest spread 4.1% 3.7% 3.9% 3.8%
</TABLE>
The Company earns a net interest spread on the investment portfolio reflecting
the difference between the interest rates on the mortgage-backed securities
and the related borrowing rates. An increase in the net interest spread for
the three months ended June 30, 1996 is the primary reason for the improved
net interest earned for that period. A decrease in the average balance
outstanding for the six months ended June 30, 1996 resulted in the decrease in
the net interest earned for that period.
<PAGE>
FINANCIAL CONDITION AND LIQUIDITY
The Company generally provides for the cash requirements of 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 nonrecourse secured
notes payable. The Company uses its unsecured revolving credit facility to
finance increases in its homebuilding inventory and changes in working
capital. This facility was renewed in July 1995 for a three-year period and
total borrowing capacity was increased from $250 million to $400 million. As
of June 30, 1996, the outstanding borrowings under this facility were $192
million, compared with $137 million as of December 31, 1995. In addition, the
Company had letters of credit outstanding under this facility totaling $21.5
million at June 30, 1996 and $22.2 million at December 31, 1995. To finance
land purchases, the Company may also use seller-financed, non-recourse secured
notes payable. At June 30, 1996, such notes payable outstanding amounted to
$3.4 million, compared with $4.5 million at December 31, 1995. Senior notes
amounting to $15 million matured and were paid off in both January and July of
1996. In addition, $5 million in principal of senior notes was prepaid in
July 1996.
On July 8, 1996, the Company successfully completed the issuance of $100
million of 10.5% senior notes due 2006. The Company used the net proceeds of
the offering to repay amounts outstanding under the revolving credit facility.
Housing inventories increased to $593.4 million as of June 30, 1996, from
$537.9 million as of the end of 1995. This represents normal seasonal
increases in sold homes under construction as well as investment in new
markets.
The financial services segment uses cash generated from operations and
borrowing arrangements to finance its operations. In June 1996, the Company
extended the maturity of its bank facility to May 1998. The bank facility
provides up to $325 million for mortgage warehouse funding and $40 million for
working capital advances. Other borrowing arrangements as of June 30, 1996
included repurchase agreement facilities aggregating $925 million, a $100
million revolving credit facility used to finance investment portfolio
securities and a $35 million credit facility to be used for the short-term
financing of optional bond redemptions. At June 30, 1996 and December 31,
1995, the combined borrowings of the financial services segment outstanding
under all agreements were $296.6 million and $367.5 million, respectively.
Mortgage loans, notes receivable, 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 bond payments is cash received
from the mortgage loans, notes receivable and mortgage-backed securities.
The Ryland Group, Inc. has not guaranteed the debt of the financial services
segment or limited-purpose subsidiaries.
<PAGE>
Note: Certain statements in Management's Discussion and Analysis of Results
of Operation and Financial Condition may be "forward-looking statements"
within the meaning of the Private Securities Litigation Act of 1995. Such
statements involve known and unknown risks, uncertainties and other factors
that may cause actual results to differ materially. Such risks, uncertainties
and other factors include, but are not limited to, changes in general economic
conditions, fluctuations in interest rates, increases in raw materials and
labor costs, and general competitive factors.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In 1995, one current and two former officers of Ryland Mortgage Company
("RMC") were notified that they were targets of a federal grand jury
investigation concerning alleged misappropriation of funds from the Resolution
Trust Corporation ("RTC"). The Company has been advised that the
investigation relates to alleged overpayments to RMC of approximately $3.4
million under three mortgage servicing contracts with the RTC. In a related
matter, in July 1996, the RTC (acting through its successor, the FDIC)
requested reimbursement from RMC of the $3.4 million, interest thereon and
additional amounts relating to these and other mortgage-servicing contracts.
The Company is investigating these matters and at this time cannot predict how
they will be resolved, or whether the Company or RMC will be targets of the
investigation, parties to any civil litigation or incur any liability.
The Company is party to various other legal proceedings generally incidental
to its businesses. Based on evaluation of these other matters and discussions
with counsel, management believes that liabilities to the Company arising from
these other matters will not have a material adverse effect on the financial
condition of the Company.
<PAGE>
PART II. OTHER INFORMATION (con't)
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of the Company was held on April 17, 1996.
Proxies were solicited by the Company pursuant to Regulation 14 under the
Securities Exchange Act of 1934 to elect directors of the Company for the
ensuing year and to approve the appointment of Ernst & Young LLP as
independent public accountants for the Company for 1996.
Proxies representing 14,722,919 shares of stock eligible to vote at the
meeting, or 93.8 percent of the outstanding shares, were voted in connection
with the election of directors. The ten incumbent directors nominated by the
Company were elected with a minimum of 14,581,086 votes. The following is a
separate tabulation with respect to the vote for each nominee:
<TABLE>
<CAPTION>
Name Total Votes For Total Votes Withheld
- ----- --------------- --------------------
<S> <C> <C>
R. Chad Dreier 14,611,627 111,292
James A. Flick, Jr. 14,621,886 101,033
Robert J. Gaw 14,621,286 101,633
Leonard M. Harlan 14,621,886 101,033
L.C. Heist 14,621,886 101,033
William L. Jews 14,621,886 101,033
William G. Kagler 14,581,086 141,833
John H. Mullin, III 14,621,886 101,033
Charlotte St. Martin 14,621,771 101,148
John O. Wilson 14,621,886 101,033
</TABLE>
Ernst & Young LLP was approved as the independent public accountants for the
Company for 1996 by 99.3 percent of the shares voting. The following is a
breakdown of the vote on such matter:
<TABLE>
<CAPTION>
For Against Abstain
--- ------ -------
<C> <C> <C>
14,619,083 46,973 56,863
</TABLE>
Page Number
------------
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
11 Statement Re computation of earnings
per share (filed herewith) 21
27 Financial Data Schedule 22
B. Reports on Form 8-K
No reports on Form 8-K were filed with the Securities and Exchange Commission
during the three months ended June 30, 1996.
<PAGE>
SIGNATURES
------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE RYLAND GROUP, INC.
-----------------------
Registrant
August 14, 1996 By: /s/ Michael D. Mangan
- ---------------- --------------------------
Date Michael D. Mangan,
Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
August 14, 1996 By: /s/ Stephen B. Cook
- --------------- ------------------------
Date Stephen B. Cook, Vice President
and Corporate Controller
(Principal Accounting Officer)
<PAGE>
INDEX OF EXHIBITS
A. Exhibits Page of
Sequentially
Exhibit No. Numbered Pages
- ----------- ----------------
11 Statement Re computation of earnings
per share (filed herewith) 21
27 Financial Data Schedule 22
1
<PAGE>
EXHIBIT 11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS:
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
Three months Six months
ended June 30, ended June 30,
1996 1995 1996 1995
------- -------- ------- -------
<S> <C> <C> <C> <C>
PRIMARY:
Net earnings (loss) from
continuing operations $ 5,427 $ (922) $ 6,366 $ (2,399)
Discontinued Operations 0 20,706 0 22,856
-------- --------- --------- --------
Net earnings 5,427 19,784 6,366 20,457
Adjustment for dividends
on convertible
preferred shares (499) (560) (1,009) (1,139)
-------- --------- --------- --------
Adjusted net earnings $ 4,928 $ 19,224 $ 5,357 19,318
======== ========= ========= ========
Weighted average common
shares outstanding 15,787,077 15,557,403 15,757,680 15,527,172
Common stock equivalents:
Stock options 42,288 18,088 43,178 6,084
Employee incentive plans 125,514 188,499 147,965 193,442
---------- ---------- ---------- ----------
Total 15,954,879 15,763,990 15,948,823 15,726,698
========== ========== ========== ==========
Primary earnings (loss)
per common share from
continuing operations $ 0.31 $ (0.09) $ 0.34 $(0.22)
Discontinued Operations 0.00 1.31 0.00 1.45
-------- -------- ------- -------
Primary earnings
per common share $ 0.31 $ 1.22 $ 0.34 $ 1.23
========= ======== ======= =======
FULLY-DILUTED:
Net earnings (loss) from
continuing operations $ 5,427 $ (922) $ 6,366 $ (2,399)
Discontinued Operations 0 20,706 0 22,856
------- -------- ------- -------
Net earnings 5,427 19,784 6,366 20,457
Adjustment for incremental
expense from conversion of
convertible preferred shares (1) (220) (249) 0 (505)
Adjustment for dividends
on convertible
preferred shares 0 0 (1,009) 0
---------- --------- -------- --------
Adjusted net earnings $ 5,207 $ 19,535 $ 5,357 $ 19,952
========== ========= ========= ========
Weighted average common
shares outstanding 15,787,077 15,557,403 15,757,680 15,527,172
Common stock equivalents:
Stock options 42,288 29,974 43,178 45,917
Employee incentive plans 125,514 188,499 147,965 193,442
Convertible preferred stock (1) 913,183 1,030,740 0 1,045,571
----------- ----------- ---------- ----------
Total 16,868,062 16,806,616 15,948,823 16,812,102
=========== =========== ========== ==========
Fully diluted earnings (loss)
per common share from
continuing operations $ 0.31 $ (0.07) $ 0.34 $ (0.17)
Discontinued Operations 0.00 1.23 0.00 1.36
------ ------- ------ ------
Fully diluted earnings
per common share $ 0.31 $ 1.16 $ 0.34 $ 1.19
======= ======= ======= =======
<FN>
(1) For the six months ended June 30, 1996, no adjustment was made to net
earnings for incremental dividends on preferred stock or to common stock
equivalents for convertible preferred stock as these adjustments would be
anti-dilutive.
</FN>
</TABLE>
1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMAYR FINANCIAL INFORMATION EXTRACTED FROM THE
RYLAND GROUP, INC. FORM 10-Q FOR THE PERIOD ENDED 6/30/96 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 35,790
<SECURITIES> 136,404
<RECEIVABLES> 196,817
<ALLOWANCES> 0
<INVENTORY> 593,447
<CURRENT-ASSETS> 0
<PP&E> 34,298
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,467,019
<CURRENT-LIABILITIES> 0
<BONDS> 593,930
<COMMON> 15,726
0
904
<OTHER-SE> 288,853
<TOTAL-LIABILITY-AND-EQUITY> 1,467,019
<SALES> 686,057
<TOTAL-REVENUES> 741,687
<CGS> 592,160
<TOTAL-COSTS> 702,323
<OTHER-EXPENSES> 6,066
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,688
<INCOME-PRETAX> 10,610
<INCOME-TAX> 4,244
<INCOME-CONTINUING> 6,366
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,366
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.34
</TABLE>
