<PAGE>
Prospectus Supplement (To Prospectus Dated June 10, 1996)
$100,000,000
RYLAND
10 1/2% Senior Notes due 2006
Interest on the Senior Notes (the "Notes") is payable on January 1 and
July 1 of each year commencing, January 1, 1997. The Notes are not redeemable
prior to July 1, 2001. On and after that date, the Notes are redeemable at
any time at the option of the Company, in whole or in part, at the redemption
prices set forth herein plus accrued and unpaid interest, if any, to the date
of redemption.
Upon a Change of Control (as defined herein) of the Company, holders of
the Notes will have the right to require the Company to purchase the Notes at
a purchase price of 101% of the aggregate principal amount thereof, plus
accrued and unpaid interest, if any, to the date of purchase.
The Notes will be unsecured and unsubordinated obligations of the Company
and will rank equally and ratably with all other unsecured and unsubordinated
indebtedness of the Company which is not guaranteed by or otherwise an
obligation of a subsidiary of the Company. As of March 31, 1996, the Company
had $426 million of unsecured indebtedness, $218 million of which has been
guaranteed by the Company's homebuilding segment subsidiaries and $200 million
of which is subordinate to the Notes. In addition, as of March 31, 1996, there
was $379 million of financial services segment subsidiary debt and $324
million of non-recourse limited-purpose segment debt, none of which has been
guaranteed by the Company. At March 31, 1996, after giving effect to the
issuance of the Notes offered hereby and the application of the net proceeds
therefrom, $121 million represents indebtedness of the Company guaranteed by
the Company's homebuilding subsidiaries, all of which is structurally senior
to the Notes to the extent of homebuilding assets contained in the
homebuilding subsidiaries. See ''Risk Factors_Leverage and Liquidity,''
''Capitalization'' and ''Description of the Notes.''
See ''Risk Factors'' beginning on page S-9 for a discussion of certain
factors which should be considered by prospective purchasers of the Notes.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public(F1) Commissions(F2) Company (F3)
---------- ---------------- ------------
<S> <C> <C> <C>
Per Note 99.237% 1.875% 97.362%
Total $99,237,000 $1,875,000 $97,362,000
<FN>
(F1) Plus accrued interest, if any, from the date of issuance.
(F2) The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(F3) Before deducting expenses, payable by the Company, estimated at
$350,000.
</TABLE>
The Notes are being offered by the Underwriter as set forth in
''Underwriting'' herein. It is expected that delivery thereof will be made
through the book-entry facilities of The Depository Trust Company on or about
July 8, 1996 against payment therefor in immediately available funds. The
Underwriter is:
Dillon, Read & Co. Inc.
The date of this Prospectus Supplement is July 2,1996.
Information contained in this Prospectus Supplement is subject to completion
or amendment. This Prospectus Supplement and the accompanying Prospectus shall
not constitute an offer to sell or the solicitation of an offer to buy nor
shall there be any sale of these securities in any State in
which such offer, solicitation or sale would be unlawful prior to registration
or qualification under the securities laws of any such State.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including Management's Discussion and Analysis of Results of
Operations and Financial Condition, appearing elsewhere in this Prospectus
Supplement and the financial statements and notes thereto incorporated by
reference in this Prospectus Supplement. See ''Risk Factors'' for a discussion
of certain factors which should be considered by prospective purchasers of the
Notes.
The Company
The Ryland Group, Inc. (the ''Company'') is a leading national
homebuilder and mortgage-related financial services firm. The Company designs,
markets and constructs single family homes generally targeted to entry level,
first and second time move-up home buyers. As of March 31, 1996, the Company
offered homes for sale in approximately 300 communities and operated in 26
metropolitan markets located in 20 states. With homebuilding revenues of $1.46
billion in 1995, the Company is the nation's third largest homebuilder based
on 1995 revenues. The Company's financial services segment, conducted through
Ryland Mortgage Company and its subsidiaries (''RMC''), complements the
Company's homebuilding activities by providing a full range of competitive
mortgage finance programs, as well as title, escrow and settlement services.
Under the direction of a new Chief Executive Officer appointed in
November 1993, the Company implemented an extensive operating improvement plan
(the ''Operating Plan'') designed to focus on and substantially improve the
profitability of its homebuilding operations. The Company believes that the
strategies inherent in the Operating Plan are now beginning to positively
impact the financial results of its homebuilding operations. Homebuilding
gross margins increased for the third consecutive quarter to 13.6% for the
three months ended March 31, 1996, a nearly 200 basis point increase over the
comparable 1995 period. The Company believes that the average gross margin
performance for those communities whose first closings occurred after January
1, 1995 (''New Communities'') is a key measure of the success of the Operating
Plan. For the first quarter of 1996, gross margins in New Communities averaged
15.0%, compared to 11.4% in the Company's other communities. Closings from New
Communities represented 54% of total closings in the first quarter of 1996.
The Company expects that the proportion of closings from New Communities will
increase during the balance of 1996, which should contribute to continued
improvement in homebuilding profitability.
The major components of the Operating Plan include:
Organizational and Management Changes. The Company has largely
completed an organizational and management restructuring in order to implement
the Operating Plan and to support the Company's long-term growth. Over the
past two years, the Company has replaced a significant portion of the
leadership positions in each of its five operating regions with individuals
who possess both substantial homebuilding experience and local market
knowledge. In addition, corporate staff functions have been refocused to more
effectively support the activities of the Company's homebuilding and financial
services operations and have been reduced from 217 positions as of December
31, 1993 to 129 positions as of March 31, 1996.
New Product Offerings and Improved Marketing Strategies. The Company
has significantly updated its product offerings over the past two years by
introducing over 300 new home designs. The Company's new product designs,
which are based on local market research, emphasize volume, natural light and
flexible floor plans. The Company has increased its ability to respond quickly
to market changes through the use of outside architects and flexible supply
arrangements which have significantly reduced the time-to-market for new
product offerings. The Company's new product portfolio is supported by a
revitalized sales and marketing effort and an improved retail presentation,
which includes an expanded model home program, high caliber sales
representatives and targeted merchandising techniques. The Company believes
that its new products and improved marketing strategies have contributed to
increased sales per community.
<PAGE>
Disciplined Approach to Land Acquisition. The Company, which utilized a
strategy of acquiring control of land primarily through the use of option
contracts prior to the implementation of the Operating Plan, now employs a
balanced approach to land acquisition including both direct acquisition and
option contracts. The Company believes that, in many instances, direct
acquisition and development of building lots enables it to gain greater access
to prime locations, increase margins and improve the positioning of its
housing inventory in its communities. The Company's land acquisition objective
is to control a two- to three-year supply of building lots. The Company
conducts a thorough land acquisition due diligence process at multiple levels
throughout the organization, including a review by a senior management land
committee of each prospective land purchase or option contract. At March 31,
1996, the Company controlled 21,605 building lots, 51% of which were owned by
the Company and the remainder of which were controlled through option
contracts. The percentage of building lots owned by the Company at March 31,
1996 represented an increase from 42% at December 31, 1994. At March 31, 1996,
77% of the Company's total building lots were in New Communities.
Return-Oriented Capital Allocation. In order to improve the return on
capital invested in its homebuilding segment, the Company has initiated
various inventory control procedures, including the imposition of inventory
targets for each of its five regions and the establishment of aggregate
homebuilding inventory levels. The Company has reallocated capital among its
existing markets and expanded to certain new markets where the Company expects
that it can achieve higher returns. The Company believes that the resulting
increased geographic diversity reduces the impact on the Company of
unfavorable changes in homebuilding market conditions in any single
metropolitan market. In addition, the Company significantly altered the
composition of its inventory position in 1995 by reducing its unsold homes
under construction from $141.5 million at December 31, 1994 to $82.2 million
at March 31, 1996.
Repositioning of Financial Services Activities. The Company is
repositioning its financial services segment through a strategy which includes
(i) focusing on retail mortgage loan origination and servicing activities,
(ii) divesting non-core assets and lines of business, (iii) increasing
origination volume by leveraging its affiliation with the Company's
homebuilding segment and (iv) reaching mortgage customers directly at the
point of sale through the use of technology. Pursuant to this strategy, the
Company sold its institutional mortgage securities administration business in
June of 1995 and its wholesale loan origination business in February of 1996.
The percentage of the homebuilding segment's customers who obtain financing
for their home purchases through RMC has increased from 60% for the year ended
December 31, 1994 to 67% for the quarter ended March 31, 1996.
The Company believes that the strategies and disciplines inherent in the
Operating Plan are now beginning to positively impact the financial results of
its homebuilding operations. The Company's near-term business strategy is to
continue to implement the Operating Plan with emphasis on margin improvement
and increased return on capital in order to position the Company for
profitable long-term growth. The Company periodically reviews new markets for
future expansion and expects that it will pursue opportunities in selected
domestic homebuilding markets which are characterized by growing employment
and favorable demographic trends.
<PAGE>
The Offering
Securities Offered $100 million principal amount of 10 1/2% Senior
Notes due 2006 (the ''Notes'').
Interest Payment Dates January 1 and July 1, commencing January 1, 1997.
Maturity Date . July 1, 2006.
Optional Redemption Redeemable at the option of the Company, in whole
or in part, at any time on or after July 1, 2001 at
the redemption prices set forth herein plus accrued
and unpaid interest, if any, to the date of
redemption. See "Description of the Notes-General-
Optional Redemption."
Rank . The Notes will be unsecured and unsubordinated
obligations of the Company and will rank equally
and ratably with all other unsecured and
unsubordinated indebtedness of the Company which is
not guaranteed by or otherwise an obligation of a
subsidiary of the Company. As of March 31, 1996,
the Company had $426 million of unsecured
indebtedness, $218 million of which has been
guaranteed by the Company's homebuilding segment
subsidiaries and $200 million of which is
subordinate to the Notes. In addition, as of March
31, 1996, there was $379 million of financial
services segment subsidiary debt and $324 million
of non-recourse limited-purpose segment debt, none
of which has been guaranteed by the Company. At
March 31, 1996, after giving effect to the issuance
of the Notes offered hereby and the application of
the net proceeds therefrom, $121 million represents
indebtedness of the Company guaranteed by the
Company's homebuilding subsidiaries, all of which
is structurally senior to the Notes to the extent
of homebuilding assets contained in the
homebuilding subsidiaries.
Change of Control In the event of a Change of Control (as defined
herein), each holder of Notes may require the
Company to repurchase such holder's Notes at 101%
of their principal amount, plus accrued and unpaid
interest, if any, to the date of purchase.
Offer to Purchase The Company will be required to make an offer to
repurchase 10% of the original outstanding
principal amount of the Notes at 100% of their
principal amount, plus accrued and unpaid interest,
if the Company's Adjusted Consolidated Net Worth
(as defined herein) is less than $200 million at
the end of each of two consecutive fiscal quarters.
As of March 31, 1996, the Company's Adjusted
Consolidated Net Worth was $301.3 million.
Certain Covenants The Indenture will contain certain covenants which,
among other things, limit the incurrence of
additional indebtedness, the incurrence of liens,
the making of certain distributions or other
restricted payments, and the ability to enter into
certain transactions with affiliates or merge,
consolidate or transfer substantially all of the
Company's assets. Although the Indenture contains
limitations concerning the amount of indebtedness
the Company and its Restricted Subsidiaries (as
defined herein) may incur, the Company and its
Restricted Subsidiaries will retain the ability to
incur significant additional indebtedness. The
limitations on incurrence of indebtedness do not
restrict borrowings of the financial services
segment. See "Description of the Notes."
Use of Proceeds Reduction of bank debt outstanding under the
Company's unsecured revolving credit facility (the
"Revolving Credit Facility") and other general
corporate purposes. See "Use of Proceeds."
<PAGE>
SUPPLEMENTARY FINANCIAL INFORMATION AND STATISTICAL DATA
The following supplementary financial information for the fiscal years
ended December 31, 1991, 1992, 1993, 1994 and 1995 and the three months ended
March 31, 1995 and 1996 has been derived from the consolidated financial
statements of the Company. The summary should be read in conjunction with the
consolidated financial statements and the notes thereto incorporated by
reference herein and ''Management's Discussion and Analysis of Results of
Operations and Financial Condition.''
<TABLE>
<CAPTION>
Year ended December 31
--------------------------------------------
1991 1992 1993
------ ------ -------
(dollars in millions, except average closing price)
<S> <C> <C> <C>
CONSOLIDATED OPERATING DATA:
Revenues
Homebuilding $ 859 $ 1,077 $ 1,204
Financial services and
limited-purpose
subsidiaries 334 347 247
------- ------- -------
Total revenues 1,193 1,424 1,451
Cost of sales-homebuilding 744 940 1,059
Interest expense(1) 302 249 162
Selling, general &
administrative 126 200 201
Impairment of inventories
and joint venture
investments(2) 13 -- 45
------- ------- ------
Earnings (loss) from continuing operations before
taxes(3)(4) 8 35 (16)
Tax expense (benefit) 3 12 (6)
----- ----- ------
Net earnings (loss) from
continuing operations 5 23 (10)
Discontinued operations and
cumulative effect of
accounting change, net of taxes 4 5 7
----- ------ ------
Net earnings (loss) $ 9 $ 28 $ (3)
SELECTED CONSOLIDATED BALANCE SHEET DATA (AT PERIOD END):
Homebuilding inventories $ 355 $ 485 $ 492
Homebuilding assets 469 607 647
Financial services assets 394 700 821
Total assets 3,559 2,897 2,316
Debt:
Homebuilding long-term debt $ 219 $ 318 $ 381
Financial services short-term
notes payable(5) 348 588 717
Bonds payable of limited-
purpose subsidiaries(5) 2,617 1,533 778
------- ------- -------
Total debt $ 3,184 $ 2,439 $ 1,876
Stockholders' equity 219 306 293
------- ------- -------
Total capitalization $ 3,403 $ 2,745 $ 2,169
HOMEBUILDING OPERATING DATA:
Gross profit $ 115 $ 138 $ 145
Gross margin 13.4% 12.8% 12.0%
Average closing price
($ in thousands) $ 134 $ 141 $ 148
Outstanding contracts (units) 2,357 2,429 2,719
Dollar value of outstanding
contracts $ 371 $ 373 $ 441
OTHER FINANCIAL INFORMATION:
Adjusted EBIT(6)(7) $ 53 $ 86 $ 90
Adjusted EBITDA(6)(8) 74 117 116
Interest incurred(9) 37 56 62
Adjusted EBIT/Interest
incurred 1.45x 1.55x 1.46x
Adjusted EBITDA/Interest
incurred 2.01x 2.10x 1.88x
<FN>
(1) Interest expense includes interest of the limited-purpose subsidiaries
and excludes the amortization of previously capitalized interest which is
included in cost of sales.
(2) 1995 and 1993 reflect $45 million pretax charges related to
homebuilding inventories and investments in unconsolidated joint ventures,
and 1991 reflects a $13 million pretax charge related to investments in
unconsolidated joint ventures.
(3) In 1994, the Company adopted Statement of Financial Accounting
Standards No. 115_''Accounting for Certain Investments in Debt and Equity
Securities.'' The cumulative effect of adopting this statement as of
January 1, 1994 increased net income by $2,076 (net of $1,384 in deferred
income taxes), or $.13 per share. Earnings (loss) from continuing
operations exclude the cumulative effect of this accounting change in
1994.
(4) The Company sold its institutional mortgage-securities administration
business in the second quarter of 1995. Earnings (loss) from continuing
operations exclude net operating earnings as well as the gain on the sale
of this business.
(5) Limited-purpose subsidiaries indebtedness represents obligations
solely of the limited-purpose subsidiaries, is non-recourse and is not
guaranteed or insured by the Company or any of its subsidiaries. In
addition, the Company has not guaranteed any of the debt of the Company's
financial services subsidiaries.
(6) The Company has included information concerning Adjusted EBIT and
Adjusted EBITDA as it is relevant for debt covenant analysis and because
it is used by certain investors as a measure of the Company's ability to
service its debt. Neither Adjusted EBIT or Adjusted EBITDA should be used
as an alternative to, or be construed as more meaningful than, operating
income or cash flow from operations as an indicator of the operating
performance of the Company.
(7) "Adjusted EBIT" means earnings (loss) before taxes, cumulative effect
of change in accounting principle in 1994 and discontinued operations and
before (i) interest expensed, (ii) amortization of capitalized interest
included in cost of sales, (iii) equity in earnings (losses) of
unconsolidated joint ventures and (iv) impairment charges of $45 million
for 1995 and 1993 related to homebuilding inventories and investments in
joint ventures and an impairment charge of $13 million for 1991 related to
investments in joint ventures.
(8) "Adjusted EBITDA" means earnings (loss) before taxes, cumulative
effect of change in accounting principle in 1994 and discontinued
operations and before (i) interest expensed, (ii) amortization of
capitalized interest included in cost of sales, (iii) equity in earnings
(losses) of unconsolidated joint ventures, (iv) depreciation and
amortization and (v) impairment charges of $45 million for 1995 and 1993
related to homebuilding inventories and investments in joint ventures and
an impairment charge of $13 million for 1991 related to investments in
joint ventures.
(9) Interest incurred represents interest expensed and interest
capitalized for the applicable periods and excludes interest attributable
to the limited-purpose subsidiaries.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31
-------------------------
1994 1995
------ -------
(dollars in millions, except average closing price)
<S> <C> <C>
CONSOLIDATED OPERATING DATA:
Revenues
Homebuilding $ 1,443 $ 1,458
Financial services and
limited-purpose
subsidiaries 176 127
------- -------
Total revenues 1,619 1,585
Cost of sales_homebuilding 1,262 1,280
Interest expense(1) 105 91
Selling, general &
administrative 225 211
Impairment of inventories
and joint venture
investments(2) _ 45
------- ------
Earnings (loss) from continuing operations before
taxes(3)(4) 27 (42)
Tax expense (benefit) 11 (17)
----- ------
Net earnings (loss) from
continuing operations 16 (25)
Discontinued operations and
cumulative effect of
accounting change, net of taxes 8 22
------ ------
Net earnings (loss) $ 24 $ (3)
SELECTED CONSOLIDATED BALANCE SHEET DATA (AT PERIOD END):
Homebuilding inventories $ 600 $ 538
Homebuilding assets 740 697
Financial services assets 455 449
Total assets 1,704 1,581
Debt:
Homebuilding long-term debt $ 409 $ 397
Financial services short-term
notes payable(5) 378 367
Bonds payable of limited-
purpose subsidiaries(5) 447 365
------- -------
Total debt $ 1,234 $ 1,129
Stockholders' equity 312 301
------- -------
Total capitalization $ 1,546 $ 1,430
HOMEBUILDING OPERATING DATA:
Gross profit $ 181 $ 178
Gross margin 12.6% 12.2%
Average closing price
($ in thousands) $ 160 $ 164
Outstanding contracts (units) 2,553 2,744
Dollar value of outstanding
contracts $ 425 $ 477
OTHER FINANCIAL INFORMATION:
Adjusted EBIT(6)(7) $ 94 $ 68
Adjusted EBITDA(6)(8) 120 103
Interest incurred(9) 67 71
Adjusted EBIT/Interest
incurred 1.40x 0.96x
Adjusted EBITDA/Interest
incurred 1.79x 1.45x
<FN>
(1) Interest expense includes interest of the limited-purpose subsidiaries
and excludes the amortization of previously capitalized interest which is
included in cost of sales.
(2) 1995 and 1993 reflect $45 million pretax charges related to
homebuilding inventories and investments in unconsolidated joint ventures,
and 1991 reflects a $13 million pretax charge related to investments in
unconsolidated joint ventures.
(3) In 1994, the Company adopted Statement of Financial Accounting
Standards No. 115_''Accounting for Certain Investments in Debt and Equity
Securities.'' The cumulative effect of adopting this statement as of
January 1, 1994 increased net income by $2,076 (net of $1,384 in deferred
income taxes), or $.13 per share. Earnings (loss) from continuing
operations exclude the cumulative effect of this accounting change in
1994.
(4) The Company sold its institutional mortgage-securities administration
business in the second quarter of 1995. Earnings (loss) from continuing
operations exclude net operating earnings as well as the gain on the sale
of this business.
(5) Limited-purpose subsidiaries indebtedness represents obligations
solely of the limited-purpose subsidiaries, is non-recourse and is not
guaranteed or insured by the Company or any of its subsidiaries. In
addition, the Company has not guaranteed any of the debt of the Company's
financial services subsidiaries.
(6) The Company has included information concerning Adjusted EBIT and
Adjusted EBITDA as it is relevant for debt covenant analysis and because
it is used by certain investors as a measure of the Company's ability to
service its debt. Neither Adjusted EBIT or Adjusted EBITDA should be used
as an alternative to, or be construed as more meaningful than, operating
income or cash flow from operations as an indicator of the operating
performance of the Company.
(7) "Adjusted EBIT" means earnings (loss) before taxes, cumulative effect
of change in accounting principle in 1994 and discontinued operations and
before (i) interest expensed, (ii) amortization of capitalized interest
included in cost of sales, (iii) equity in earnings (losses) of
unconsolidated joint ventures and (iv) impairment charges of $45 million
for 1995 and 1993 related to homebuilding inventories and investments in
joint ventures and an impairment charge of $13 million for 1991 related to
investments in joint ventures.
(8) "Adjusted EBITDA" means earnings (loss) before taxes, cumulative
effect of change in accounting principle in 1994 and discontinued
operations and before (i) interest expensed, (ii) amortization of
capitalized interest included in cost of sales, (iii) equity in earnings
(losses) of unconsolidated joint ventures, (iv) depreciation and
amortization and (v) impairment charges of $45 million for 1995 and 1993
related to homebuilding inventories and investments in joint ventures and
an impairment charge of $13 million for 1991 related to investments in
joint ventures.
(9) Interest incurred represents interest expensed and interest
capitalized for the applicable periods and excludes interest attributable
to the limited-purpose subsidiaries.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Three months
ended
March 31
-------------------------
1995 1996
------ -------
(dollars in millions, except average closing price)
<S> <C> <C>
CONSOLIDATED OPERATING DATA:
Revenues
Homebuilding $ 312 $ 298
Financial services and
limited-purpose
subsidiaries 33 30
------- -------
Total revenues 345 328
Cost of sales_homebuilding 276 257
Interest expense(1) 23 20
Selling, general &
administrative 48 49
Impairment of inventories
and joint venture
investments(2) -- --
------- ------
Earnings (loss) from continuing operations before
taxes(3)(4) (2) 2
Tax expense (benefit) (1) 1
----- ------
Net earnings (loss) from
continuing operations (1) 1
Discontinued operations and
cumulative effect of
accounting change, net of taxes 2 --
------ ------
Net earnings (loss) $ 1 $ 1
SELECTED CONSOLIDATED BALANCE SHEET DATA (AT PERIOD END):
Homebuilding inventories $ 602 $ 578
Homebuilding assets 755 708
Financial services assets 362 468
Total assets 1,602 1,565
Debt:
Homebuilding long-term debt $ 456 $ 434
Financial services short-term
notes payable(5) 268 379
Bonds payable of limited-
purpose subsidiaries(5) 430 324
------- -------
Total debt $ 1,154 $ 1,137
Stockholders' equity 310 303
------- -------
Total capitalization $ 1,464 $ 1,440
HOMEBUILDING OPERATING DATA:
Gross profit $ 37 $ 41
Gross margin 11.7% 13.6%
Average closing price
($ in thousands) $ 157 $ 170
Outstanding contracts (units) 3,115 3,414
Dollar value of outstanding
contracts $ 519 $ 609
OTHER FINANCIAL INFORMATION:
Adjusted EBIT(6)(7) $ 13 $ 16
Adjusted EBITDA(6)(8) 19 24
Interest incurred(9) 17 16
Adjusted EBIT/Interest
incurred 0.77x 1.00x
Adjusted EBITDA/Interest
incurred 1.13x 1.49x
<FN>
(1) Interest expense includes interest of the limited-purpose subsidiaries
and excludes the amortization of previously capitalized interest which is
included in cost of sales.
(2) 1995 and 1993 reflect $45 million pretax charges related to
homebuilding inventories and investments in unconsolidated joint ventures,
and 1991 reflects a $13 million pretax charge related to investments in
unconsolidated joint ventures.
(3) In 1994, the Company adopted Statement of Financial Accounting
Standards No. 115_''Accounting for Certain Investments in Debt and Equity
Securities.'' The cumulative effect of adopting this statement as of
January 1, 1994 increased net income by $2,076 (net of $1,384 in deferred
income taxes), or $.13 per share. Earnings (loss) from continuing
operations exclude the cumulative effect of this accounting change in
1994.
(4) The Company sold its institutional mortgage-securities administration
business in the second quarter of 1995. Earnings (loss) from continuing
operations exclude net operating earnings as well as the gain on the sale
of this business.
(5) Limited-purpose subsidiaries indebtedness represents obligations
solely of the limited-purpose subsidiaries, is non-recourse and is not
guaranteed or insured by the Company or any of its subsidiaries. In
addition, the Company has not guaranteed any of the debt of the Company's
financial services subsidiaries.
(6) The Company has included information concerning Adjusted EBIT and
Adjusted EBITDA as it is relevant for debt covenant analysis and because
it is used by certain investors as a measure of the Company's ability to
service its debt. Neither Adjusted EBIT or Adjusted EBITDA should be used
as an alternative to, or be construed as more meaningful than, operating
income or cash flow from operations as an indicator of the operating
performance of the Company.
(7) "Adjusted EBIT" means earnings (loss) before taxes, cumulative effect
of change in accounting principle in 1994 and discontinued operations and
before (i) interest expensed, (ii) amortization of capitalized interest
included in cost of sales, (iii) equity in earnings (losses) of
unconsolidated joint ventures and (iv) impairment charges of $45 million
for 1995 and 1993 related to homebuilding inventories and investments in
joint ventures and an impairment charge of $13 million for 1991 related to
investments in joint ventures.
(8) "Adjusted EBITDA" means earnings (loss) before taxes, cumulative
effect of change in accounting principle in 1994 and discontinued
operations and before (i) interest expensed, (ii) amortization of
capitalized interest included in cost of sales, (iii) equity in earnings
(losses) of unconsolidated joint ventures, (iv) depreciation and
amortization and (v) impairment charges of $45 million for 1995 and 1993
related to homebuilding inventories and investments in joint ventures and
an impairment charge of $13 million for 1991 related to investments in
joint ventures.
(9) Interest incurred represents interest expensed and interest
capitalized for the applicable periods and excludes interest attributable
to the limited-purpose subsidiaries.
</FN>
</TABLE>
<PAGE>
Homebuilding Data
The following tables set forth certain unaudited information with respect
to revenues, new orders, closings and outstanding contracts for the Company's
homebuilding segment for the periods indicated.
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------
1993 1994 1995
-------------------------------------------
<S> <C> <C> <C>
Revenues (in thousands)
Mid-Atlantic $ 434,489 $ 392,239 $ 397,539
Midwest 122,924 160,246 169,921
Southeast 183,865 173,702 193,719
Southwest 203,815 271,554 271,379
West 258,470 445,471 425,616
-------------------------------------------------
Total $ 1,203,563 $ 1,443,212 $ 1,458,174
=================================================
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------
1993 1994 1995
-------------------------------------------
<S> <C> <C> <C>
New Orders (in units)
Mid-Atlantic 2,815 2,492 2,011
Midwest 999 1,001 1,307
Southeast 1,365 1,161 1,399
Southwest 1,414 1,829 1,923
West 1,840 2,472 2,501
-------------------------------------------------
Total 8,433 8,955 9,141
=================================================
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------
1993 1994 1995
-------------------------------------------
<S> <C> <C> <C>
Closings (in units)
Mid-Atlantic 2,888 2,546 2,385
Midwest 899 1,054 1,112
Southeast 1,426 1,221 1,260
Southwest 1,428 1,776 1,794
West 1,678 2,524 2,399
-------------------------------------------
Total 8,319 9,121 8,950
===========================================
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------
1993 1994 1995
-------------------------------------------
<S> <C> <C> <C>
Outstanding Contracts (in units)
Mid-Atlantic 1,074 1,020 646
Midwest 352 299 494
Southeast 370 310 449
Southwest 380 433 562
West 543 491 593
------------------------------------------
Total 2,719 2,553 2,744
==========================================
</TABLE>
<TABLE>
<CAPTION>
Three months
ended March 31
-------------------------
1995 1996
-------------------------
<S> <C> <C>
Revenues (in thousands)
Mid-Atlantic $ 102,789 $ 65,726
Midwest 32,877 41,736
Southeast 40,978 46,701
Southwest 58,003 57,324
West 77,662 86,188
---------------------------------
Total $ 312,309 $ 297,675
=================================
</TABLE>
<TABLE>
<CAPTION>
Three months
ended March 31
-------------------------
1995 1996
------ ----
<S> <C> <C>
New Orders (in units)
Mid-Atlantic 687 408
Midwest 334 447
Southeast 393 418
Southwest 497 477
West 649 653
--------------------------------
Total 2,560 2,403
===============================
</TABLE>
<TABLE>
<CAPTION>
Three months
ended March 31
-------------------------
1995 1996
<S> <C> <C>
Closings (in units)
Mid-Atlantic 660 359
Midwest 211 244
Southeast 276 292
Southwest 386 370
West 465 468
--------------------------------
Total 1,998 1,733
===============================
</TABLE>
<TABLE>
<CAPTION>
Three months
ended March 31
-------------------------
1995 1996
<S> <C> <C>
Outstanding Contracts (in units)
Mid-Atlantic 1,047 695
Midwest 422 697
Southeast 427 575
Southwest 544 669
West 675 778
------------------------------
Total 3,115 3,414
==============================
</TABLE>
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
Certain statements contained and incorporated by reference in this
Prospectus Supplement and the accompanying Prospectus regarding matters that
are not historical facts, including, among others, statements regarding the
Company's and management's belief or expectation with respect to matters such
as operating margins, closings from New Communities, land acquisitions,
housing inventories, return on invested capital, homebuilding results and
market conditions, are forward looking statements (as such term is defined in
the Securities Act of 1933, as amended). Because such statements involve risks
and uncertainties, actual results may differ materially from those expressed
or implied by such forward looking statements. Factors that could cause actual
results to differ materially include, but are not limited to, those discussed
herein under ''Risk Factors.''
RISK FACTORS
Prospective investors should carefully consider the specific factors set
forth below as well as the other information included or incorporated by
reference in this Prospectus Supplement or the accompanying Prospectus before
deciding to invest in the Notes offered hereby.
Real Estate, Economic and Certain Other Conditions
The Company is significantly affected by the cyclical nature of the
homebuilding industry, which is sensitive to fluctuations in economic
activity, interest rates and levels of consumer confidence, the effects of
which differ among the various geographic markets in which the Company
operates. Sales of new homes are also affected by market conditions for resale
homes and rental properties. Certain of the markets in which the Company
operates have at times in the past experienced significant declines in housing
demand. There can be no assurance that such declines will not occur in the
future.
Inventory risk can be substantial for homebuilders. The market value of
land, building lots and housing inventories can fluctuate significantly as a
result of changing market and economic conditions. In addition, inventory
carrying costs can be significant and can result in losses in poorly
performing projects or markets. The Company's results for 1995 include an
after-tax impairment charge of $27 million (pretax $45 million), primarily
related to the Company's early adoption of Statement of Financial Accounting
Standards No. 121, ''Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets To Be Disposed Of'' that resulted in a reduction in the
carrying value of certain inventories and joint venture investments to fair
value. The charge related principally to certain California inventories, where
in response to competitive market conditions, the Company determined that some
product repositioning, increased homebuyer incentives and reduced selling
prices would be necessary. The Company also decided to dispose of certain
joint venture investments in the Washington, D.C. metropolitan area and
certain other subdivision inventories because the Company believes that it can
achieve higher returns on alternative uses of capital. In the event of
significant changes in economic or market conditions, there can be no
assurance that the Company will not make further provisions relating to its
inventory. The Company must, in the ordinary course of its business,
continuously seek and make acquisitions of land for expansion into new markets
as well as for replacement and expansion of land inventory within its current
markets. Although the Company employs various measures designed to manage
inventory risks, there can be no assurance that such measures will be
successful. See ''Management's Discussion and Analysis of Results of
Operations and Financial Condition_Homebuilding.''
Contribution of Financial Services Segment
The financial services segment has been a significant source of profits
for the Company in recent years. Profits from the Company's financial services
segment have been lower in recent periods due to the sale of its institutional
mortgage securities administration business, declines in earnings from the
Company's investment operations and reductions in the Company's loan servicing
portfolio. The Company does not expect operating performance of this segment
to return to prior levels.
<PAGE>
Success of Operating Plan
The Operating Plan represents a change in the strategic direction of the
Company. Although the Company believes that it has begun to experience
benefits from the Operating Plan, achievement of continued improvements is
dependent upon a number of factors, including the Company's success in
managing and implementing the Operating Plan, general and local economic and
market conditions, changes in materials costs and competition. There can be no
assurance that the benefits realized to date under the Operating Plan will
continue or that the Company will realize additional improvements in its
operating results in the future.
Leverage and Liquidity
At March 31, 1996, after giving effect to the issuance of the Notes
offered hereby and the application of the net proceeds therefrom, the Company
would have had total consolidated homebuilding debt of approximately $436.7
million and a ratio of total consolidated homebuilding debt to stockholders'
equity of approximately 1.4 to 1.0. Of this amount, $121 million represents
indebtedness of the Company guaranteed by the Company's homebuilding
subsidiaries, all of which is structurally senior to the Notes to the extent
of homebuilding assets contained in the homebuilding subsidiaries, which
amount will increase in the event of additional borrowings under the Company's
Revolving Credit Facility. In addition, the financial services subsidiaries
had outstanding debt at March 31, 1996 of $379.0 million and the limited-
purpose subsidiaries segment had outstanding non-recourse debt of $323.9
million, none of which has been guaranteed by the Company.
The ability of the Company to meet its debt service obligations will be
dependent upon the future performance of the Company, which, in turn, will be
subject to general economic conditions and to financial, competitive, business
and other factors, including factors beyond the Company's control. The level
of the Company's leverage could restrict its flexibility in responding to
changing business and economic conditions. If the Company is at any time
unable to generate sufficient cash flow from operations to service its debt,
it may be required to seek refinancing for all or a portion of that debt or to
obtain additional financing. There can be no assurance that any such
refinancing would be possible or that any additional financing could be
obtained on terms that are favorable or acceptable to the Company. See
''Management's Discussion and Analysis of Results of Operations and Financial
Condition_Financial Condition and Liquidity.''
The Company's Revolving Credit Facility and senior debt and senior
subordinated debt instruments contain financial covenants with which the
Company currently is in compliance. Significant losses in the Company's
homebuilding segment could result in the violation of one or more of these
covenants which could result in the unavailability of the liquidity provided
by the Revolving Credit Facility. The Company's Revolving Credit Facility is
guaranteed by its homebuilding subsidiaries.
A significant portion of the homebuilding operations and all of the
financial services business are conducted through subsidiaries. Accordingly,
the Company derives a significant portion of its operating income and cash
flows from its homebuilding and financial services subsidiaries, and relies on
these subsidiaries to generate the funds necessary to meet its obligations,
including the payment of principal and interest on the Notes. The ability of
the Company's subsidiaries to pay dividends or otherwise make payments to the
Company will be subject to, among other things, applicable state laws. In
addition, the ability of the financial services segment to provide funds to
the Company is subject to certain restrictions in its debt instruments. There
can be no assurance that the Company will be able to realize from these
subsidiaries any funds required to meet its principal or interest obligations
on the Notes.
Interest Rate Risk
The Company's lines of business can be significantly affected by interest
rates. The level and expected direction of interest rates can adversely affect
the sales of new homes, the profitability of such sales, the level of mortgage
originations and refinancings, the value of the financial services segment's
servicing portfolio and the value of and interest spread earned on mortgage-
backed securities held for sale, any of which could have an adverse impact on
results of operations or financial position.
<PAGE>
Competition
The residential housing industry is highly competitive, and the Company
competes in each of its markets with a large number of national, regional and
local homebuilding companies. Some of these companies are larger than the
Company and have greater financial resources. In addition, the general
increase in the availability of capital and financing in recent years has made
it easier for both large and small homebuilders to expand and enter new
markets and has increased competition. Such competition could result in
difficulty in acquiring suitable land at acceptable prices, increased selling
incentives or lower sales per community, any of which could have an adverse
impact on results of operations.
Regulatory and Environmental Matters
The Company and its competitors are subject to various local, state and
federal statutes, ordinances, rules and regulations concerning zoning,
building design, construction and similar matters, including local regulation
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 area. The Company may also be subject to periodic delays in its
homebuilding projects due to building moratoria in any of the areas in which
it operates.
The Company and its competitors are subject to a variety of local, state
and federal statutes, ordinances, rules and regulations concerning the
protection of health and the environment. The Company is also subject to a
variety of environmental conditions that can affect its business and its
homebuilding projects. The particular environmental laws which apply to any
given homebuilding site vary greatly according to the site's location, the
site's environmental condition and the present and former uses of the site, as
well as adjoining properties. 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 regions or areas.
Natural Disasters
The climate and geology of many of the states in which the Company
operates present increased risks of natural disasters. To the extent that
hurricanes, severe storms, earthquakes, droughts, floods, wildfires or other
natural disasters or similar events occur, the Company's business in such
states may be adversely affected.
Change of Control
Upon a Change of Control (as defined herein), the Company will be
required to offer to repurchase all of the outstanding Notes at 101% of the
principal amount thereof, plus accrued and unpaid interest to the date of
repurchase. There can be no assurance that the Company will have sufficient
funds available or will be permitted by its other debt agreements to
repurchase the Notes upon the occurrence of a Change of Control. In addition,
a Change of Control may require the Company to offer to repurchase other
outstanding indebtedness and may cause a default under the Company's Revolving
Credit Facility. The inability to repurchase all of the tendered Notes would
constitute an Event of Default (as defined herein) under the Indenture. See
''Description of the Notes_Certain Covenants_Change of Control.''
No Prior Market for the Notes
The Notes are a new issue of securities, have no established trading
market and may not be widely distributed. The Underwriters have notified the
Company that they intend to make a market in the Notes; however, they are not
obligated to do so and any market making may be discontinued at any time
without notice. No application will be made to list the Notes on any stock
exchange. Accordingly, no assurance can be given as to the liquidity of,
trading market for or secondary market prices for the Notes.
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the Notes are estimated to be
approximately $97.0 million. The Company expects to apply such net proceeds
initially to the repayment of the bank debt outstanding under its Revolving
Credit Facility which had an outstanding balance of $188.0 million as of March
31, 1996. The Company's Revolving Credit Facility bears interest at a floating
rate (approximately 7% at March 31, 1996), permits borrowing subject to
certain financial covenants of up to $400 million and matures in July 1998.
The Company may reborrow amounts repaid under the Revolving Credit Facility
for general corporate purposes and expects to reborrow $30 million for senior
notes maturing in 1996 and 1997. See "Management's Discussion and Analysis of
Results of Operations and Financial Condition-Financial Condition and
Liquidity."
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at March 31, 1996 and as adjusted to give effect to the sale of the
Notes and the application of the net proceeds therefrom.
<TABLE>
<CAPTION>
March 31, 1996
Actual As Adjusted
(unaudited)
(dollars in thousands)
<S> <C> <C>
Debt:
Homebuilding:
Long-term debt
(including current portion (1)):
Revolving Credit Facility (2) $ 188,000 $ 90,982
Industrial revenue bonds 1,909 1,909
Secured notes payable 5,766 5,766
10.50% Senior Notes due 1996-1997(2) 30,000 30,000
9.45% Senior Notes due 2000 8,000 8,000
10 1/2% Senior Notes due 2006 -- 100,000
10 1/2% Senior Subordinated Notes due 2002 100,000 100,000
9 5/8% Senior Subordinated Notes due 2004 100,000 100,000
--------- --------
Total long-term debt_homebuilding 433,675 436,657
Financial Services (3):
Short-term notes payable 379,059 379,059
Limited-Purpose Subsidiaries (3):
Bonds payable, net 323,944 323,944
---------- ---------
Total debt 1,136,678 1,139,660
Total stockholders' equity 303,046 303,046
----------- ----------
Total capitalization $1,439,724 $1,442,706
========== ==========
<FN>
(1) Scheduled principal amortization through 2000 of the Company's long-
term debt (excluding amounts under the Company's Revolving Credit
Facility) as adjusted for the sale of the Notes and the application of the
net proceeds therefrom, are as follows: $19.3 million in 1996, $15.6
million in 1997, $2.5 million in 1998, $0.3 million in 1999 and $8.0
million in 2000. On July 1, 1996, the Company made a $15 million
scheduled principal payment on the 10.5% Senior Notes due 1996-1997 and
prepaid $5 million in principal on these notes.
(2) Represents Company indebtedness guaranteed by the Company's
homebuilding segment subsidiaries.
(3) Limited-purpose subsidiaries' indebtedness represents obligations
solely of the limited-purpose subsidiaries, is non-recourse and is not
guaranteed or insured by the Company or any of its subsidiaries. In
addition, the Company has not guaranteed any of the debt of its financial
services subsidiaries.
</FN>
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Operations of the Company consist of two business segments: homebuilding
and financial services. The Company's homebuilding segment constructs and
sells single-family attached and detached homes and operates in 26
metropolitan markets in 20 states throughout the United States. The financial
services segment provides various mortgage-related products and services for
retail customers and conducts investment activities. See ''Cautionary
Statements Regarding Forward Looking Information'' and ''Risk Factors.''
Results of Operations
Consolidated
Three Months ended March 31, 1996 Compared to Three Months ended March
31, 1995. For the first quarter of 1996, the Company reported consolidated
net earnings of $.9 million, or $.03 per share. This compares with 1995 first
quarter consolidated net earnings of $.7 million, or $.01 per share, and a
1995 first quarter net loss from continuing operations of $1.5 million, or
$.13 per share. The Company's results from continuing operations for the first
quarter of 1995 excluded net earnings of $2.2 million, or $.14 per share, from
the discontinued institutional mortgage securities administrations business.
The Company's homebuilding segment recorded pretax earnings of $1.3 million
for the first quarter of 1996, compared with a pretax loss of $4.3 million for
the same period last year. The improvement reflects an increase in gross
profit margins from 11.7 percent in 1995 to 13.6 percent in 1996, which more
than offset the impact of lower closing volume. The Company's financial
services segment reported pretax earnings of $3.2 million for the first
quarter of 1996, compared with $5.5 million for the same period in 1995. The
decline from last year's results is primarily due to a first quarter 1995 gain
of $3.1 million from the sale of mortgage-backed securities.
1995 Compared to 1994. In 1995, the Company reported a consolidated net
loss of $2.6 million, or $.31 per share, compared with consolidated net
earnings of $24.5 million, or $1.42 per share, for 1994. The Company's results
for 1995 include an after-tax impairment charge of $27 million (pretax $45
million), primarily related to the Company's early adoption of Statement of
Financial Accounting Standards No. 121, ''Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of'' (''FASB 121'')
that resulted in a reduction in the carrying value of certain inventories and
joint venture investments to fair value. The Company's 1995 results also
include a net after-tax gain of $19.5 million related to the second-quarter
sale of the Company's institutional mortgage-securities administration
business. The sale of this business is consistent with the Company's long-term
strategy to focus on its core homebuilding and retail mortgage-finance
operations. The 1994 results 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.
The Company's continuing operations, which exclude the gain on the sale
and the results of the institutional mortgage-securities administration
business, reported a consolidated net loss of $25.5 million, or $1.78 per
share, for 1995 compared with consolidated net earnings of $16.4 million, or
$.90 per share, for 1994. The homebuilding segment recorded a pretax loss of
$47.5 million for 1995, primarily due to the $45 million FASB 121 impairment
charge, compared with pretax earnings of $10.9 million for 1994. Homebuilding
results in 1995, excluding the impairment charge, declined from 1994 primarily
due to lower closing volume and gross profit margins. The financial services
segment reported pretax earnings of $17.9 million in 1995, compared with
pretax earnings of $33.5 million for 1994. The decline from 1994 is primarily
attributable to lower gains from sales of mortgages and mortgage servicing
rights and a lower level of investment earnings. Corporate expenses represent
the costs of corporate functions which support the business segments.
Corporate expenses totaling $12.9 million for 1995 were down $4.3 million from
1994 primarily as a result of staff reductions which occurred in the latter
part of 1994 and lower payouts under the Company's performance-based incentive
plans.
<PAGE>
1994 Compared to 1993. 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. The net earnings for
1994 reflected improved performance compared with 1993, when the Company
recorded a pretax impairment charge of $45 million caused by a decline in
economic and market conditions that resulted in reducing the carrying value of
certain inventories and joint venture investments to net realizable value
based on accounting rules in effect prior to the adoption of FASB 121.
Homebuilding results for 1994, as compared with 1993 excluding the impairment
charge, improved primarily due to higher closing volume and improved gross
profit margins. The financial services segment's results reflect the impact of
a 40 percent decline in loan originations and lower gains from the sale of
mortgage-backed securities which were partially offset by higher gains from
the sale of mortgage servicing rights. The 1993 results for the financial
services segment included a non-recurring gain of $5.3 million from the sale
of the Company's remaining interest in a real estate investment trust.
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.
Homebuilding
Results of operations of the Company's homebuilding segment are
summarized as follows:
<TABLE>
<CAPTION>
Year ended December 31,
1993 1994 1995
------ ------ ------
(dollars in thousands, except average closing price)
<S> <C> <C> <C>
Revenues . $1,203,563 $1,443,212 $1,458,174
Gross profit 144,734 181,391 178,428
Impairment of inventories
and joint venture
investments 45,000 0 45,000
Selling, general
and administrative expenses 119,546 142,254 151,087
Interest expense 26,118 28,209 29,807
----------- ---------- ----------
Homebuilding pretax
earnings (loss) $ (45,930) $ 10,928 $ (47,466)
Operational Unit Data:
(includes joint ventures)
Average closing price $ 148,000 $ 160,000 $ 164,000
Closings (units) 8,319 9,121 8,950
New orders (units) 8,433 8,955 9,141
Outstanding contracts
(units) 2,719 2,553 2,744
</TABLE>
<TABLE>
<CAPTION>
Three months ended March 31,
1995 1996
-------- ---------
(dollars in thousands, except average closing price)
<S> <C> <C>
Revenues . $312,309 $297,675
Gross profit 36,591 40,632
Impairment of inventories
and joint venture
investments 0 0
Selling, general and
administrative expenses 33,369 33,497
Interest expense 7,509 5,794
---------- --------
Homebuilding pretax
earnings (loss) $ (4,287) $ 1,341
Operational Unit Data:
(includes joint ventures)
Average closing price $ 157,000 $170,000
Closings (units) 1,998 1,733
New orders (units) 2,560 2,403
Outstanding contracts (units) 3,115 3,414
</TABLE>
Three Months ended March 31, 1996 Compared to Three Months ended March
31, 1995. The Company's homebuilding segment reported pretax earnings of
$1.3 million for the first quarter of 1996, compared with a pretax loss of
$4.3 million for the same period last year. An increase in gross profit
margins more than offset the impact of lower closing volume. For the three
months ended March 31, 1996 revenues decreased 4.7 percent compared with the
same period in 1995. The decline in revenue was due to lower closings for the
quarter which were partially offset by an increase in the average closing
price. Closings were down in the first quarter in part due to adverse weather
conditions in several markets.
Gross profit as a percentage of revenue for the three months ended March
31, 1996 was 13.6 percent, a significant improvement from the 11.7 percent
reported for the first quarter of 1995. This represents the third consecutive
quarter in which gross profit margins have increased compared with the
immediately preceding quarter. The improvement is primarily attributable to a
greater volume of closings from new, higher-margin communities with new
product and better land positions. 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,
particularly in the first half of the year.
<PAGE>
New orders for the first quarter of 1996 decreased by 6.1 percent from
the first quarter of 1995 as growth in new markets was more than offset by the
lower sales in the Mid-Atlantic region. Sales in several markets were affected
by adverse weather conditions, and volume in the Mid-Atlantic region was also
impacted by the Company's decision to reallocate capital to other markets.
Outstanding contracts at March 31, 1996 were 3,414 compared with 3,115 at
March 31, 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 as of March 31, 1996 was $609.0 million, an increase of
17.3 percent from March 31, 1995 and 27.6 percent from December 31, 1995.
Selling, general and administrative expenses as a percent of revenues
were 11.3 percent for the first quarter of 1996 compared with 10.7 percent for
the same period of 1995. The overall increase as a percentage of revenues was
in part due to the decline in the revenue base. General and administrative
expenses, excluding selling expenses, increased as a percentage of revenues
compared with the same period last year. This increase is primarily due to the
costs of entering new markets, some of which are nonrecurring. Selling
expenses declined as a percentage of revenues compared with the first quarter
of 1995. This decrease is primarily related to reduced sales and marketing
expenses, which were higher in the first quarter of 1995 due to new
merchandising programs and marketing initiatives directed at reducing unsold
inventories.
Interest expense for the first quarter of 1996 decreased $1.7 million
compared with the same period of 1995. This decrease was due to a decline in
average homebuilding borrowings compared with the quarter ended March 31,
1995, combined with a lower average cost of funds and an increase in the
amount of interest capitalized due to an increase in land under development.
1995 Compared to 1994. The Company's homebuilding segment reported a
pretax loss of $47.5 million in 1995 compared with pretax earnings of $10.9
million in 1994.
The pretax loss reported for the homebuilding segment in 1995 was
primarily related to a pretax impairment charge of $45 million. The impairment
charge was primarily related to the Company's early adoption of FASB 121,
which affected its valuation of homebuilding inventories and investments in
joint ventures. Of the $45 million pretax impairment charge taken in 1995, $31
million related to California inventories and $14 million related to assets to
be disposed of, including certain joint venture investments and subdivision
lots.
FASB 121 provides that when events or changes in circumstances indicate
that the carrying amount of assets might not be recoverable, companies should
evaluate the need for an impairment writedown. In the fourth quarter of 1995,
in response to competitive market pressures in California, the Company
determined that some product repositioning, increased home buyer incentives
and reduced selling prices would be necessary in certain of its California
subdivisions. The land inventory in most of these subdivisions was acquired in
1988 and 1989 and had a cost basis substantially in excess of current market
values. Accordingly, the Company evaluated the affected California
subdivisions and determined that certain subdivision inventories were
impaired. Under FASB 121, a writedown of $31 million was required to state the
impaired inventories at their fair value. Fair value was based upon an
evaluation of comparable market prices, discounted cash flow analysis and
expected returns for comparable properties.
In addition, the Company decided in the fourth quarter of 1995 to dispose
of certain joint venture investments and certain other subdivision inventories
because the Company believes that it can achieve higher returns on alternative
uses of capital. As a result, the Company recorded a reserve of $14 million in
the fourth quarter of 1995 to reduce the carrying value of these assets to
their fair value less cost to sell. Of the total reserve, $7 million pertained
to joint venture investments in the Washington, D.C. metropolitan area which
the Company plans to dispose of in 1996. The remaining $7 million reserve
primarily pertained to certain subdivision lots that the Company plans to
dispose of during 1996, including lots in the Columbus, Dallas, and
Washington, D.C. metropolitan areas.
<PAGE>
In 1995, homebuilding revenues increased 1.0 percent compared with 1994
primarily due to a $4,000 increase in average closing price. The positive
impact of the increase in closing price was partially offset by a .9 percent
decline in wholly-owned closings. Closing volume was down in 1995, primarily
due to slower sales earlier in the year, particularly in the Mid-Atlantic
region. Earlier in 1995 due to economic uncertainties and competitive
pressures in the Mid-Atlantic, the Company began redistributing capital to
other regions where the Company believes it can achieve higher returns.
Gross profit margins, excluding the impairment charge, decreased to 12.2
percent for the year 1995, down from 12.6 percent for 1994. However, for the
fourth quarter of 1995, gross margins improved to 13.1 percent compared with
12.2 percent for the fourth quarter of 1994. 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,
particularly in the first half of the year. The Company's gross profit margins
during 1995 and 1994 were negatively impacted by the build-out of inventory in
California. In conjunction with the implementation of FASB 121 and the
resultant impairment charge taken in 1995, the affected California lots are
now carried at fair value. As a result, the Company does not expect that gross
profit margins for 1996 and beyond will be negatively impacted by the build-
out and sale of homes on these lots.
Selling, general and administrative expenses, as a percent of revenues,
were 10.4 percent for 1995 compared with 9.9 percent for 1994. Included in
general and administrative expenses for 1995 were $2.2 million of
reorganization costs associated with the Company's initiatives to restructure
its Mid-Atlantic and Southwest divisional operations. Selling expenses as a
percentage of revenues increased in 1995 primarily due to costs associated
with expansion into new markets and higher costs associated with the Company's
new marketing and merchandising programs initiated in 1994.
Interest expense increased in 1995 and 1994 due to increases in the
average homebuilding debt outstanding required to fund higher average
inventories and increases in the average cost of funds. Increases in interest
expense were mitigated by an increase in the amount of interest capitalized
due to an increase in land under development.
1994 Compared to 1993. The homebuilding segment recorded pretax
earnings of $10.9 million in 1994 versus a pretax loss of $45.9 million in
1993. The 1993 loss was due to a pretax impairment charge of $45 million which
was caused by a decline in economic and market conditions in California and
the Mid-Atlantic and resulted in the reduction of the carrying value of
certain inventories and joint venture investments to net realizable value. Of
the total charge taken in 1993, $40 million related to properties in
California and $5 million primarily related to inventories and joint venture
investments in the Washington, D.C. metropolitan area.
Homebuilding revenues increased 19.9 percent in 1994 compared with 1993,
due to a 11.7 percent increase in wholly-owned closings and a $12,000 increase
in average closing price. The increased volume in 1994 was in large part due
to growth in new markets and higher sales in California. Also contributing to
the increase was the impact of a full-year's sales from Scott Felder Homes in
Texas, which was acquired in March 1993.
Gross profit margins increased to 12.6 percent in 1994 from 12.0 percent
in 1993, excluding the 1993 impairment charge. The improvement in gross profit
margins during 1994 was primarily attributable to a greater volume of closings
from new, higher-margin communities, which more than offset the impact of
higher closings from low-margin California communities which were negatively
impacted by a decline in economic and market conditions.
Selling, general and administrative expenses, as a percent of revenues,
were 9.9 percent for 1994 and 1993. General and administrative expenses as a
percentage of revenue, declined in 1994, as compared with 1993, due to the
higher revenue base. Selling expenses as a percentage of revenues increased in
1994 primarily due to costs associated with expansion into new markets and
higher costs associated with the Company's new marketing and merchandising
programs initiated in 1994.
<PAGE>
Financial Services
The Company's financial services segment, which excludes the results of
the discontinued institutional mortgage-securities administration business,
reported pretax earnings by line of business as follows:
<TABLE>
<CAPTION>
Year ended December 31,
1993 1994 1995
------ ------ ------
(dollars in thousands)
<S> <C> <C> <C>
Retail $20,642 $21,484 $ 9,672
Investments 23,109 12,042 8,198
------- ------- --------
Total . $43,751 $33,526 $ 17,870
======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
Three months ended March 31,
1995 1996
------ -----
(dollars in thousands)
<S> <C> <C>
Retail $1,143 $1,862
Investments 4,354 1,366
------- -------
Total . $5,497 $3,228
====== ======
</TABLE>
Three Months ended March 31, 1996 Compared to Three Months ended March 31,
1995. For the three months ended March 31, 1996 pretax earnings were $3.2
million compared with $5.5 million for the same period of 1995. The increase
in retail pretax earnings in the first quarter of 1996 was more than offset by
a lower level of investment earnings. Results of investment operations in the
first quarter of 1995 included a $3.1 million gain from the sale of mortgage-
backed securities. There were no sales of mortgage-backed securities in the
first quarter of 1996. The decline in investment earnings will likely continue
as the Company's investment portfolio declines.
1995 Compared to 1994 and 1994 Compared to 1993. The Company's
financial services segment recorded pretax earnings of $17.9 million in 1995,
compared with $33.5 million in 1994 and $43.8 million in 1993. The decline in
pretax earnings in 1995 was primarily related to lower gains from sales of
mortgages and mortgage servicing rights and a lower level of investment
earnings. In 1994, the financial services segment recorded lower earnings as
compared with 1993 primarily due to the decline in earnings from investment
operations. Results of investment operations in 1993 included a nonrecurring
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.
Revenues and expenses for the financial services segment were as follows:
<TABLE>
<CAPTION>
Year ended December 31,
1993 1994 1995
------ ------ ------
(dollars in thousands)
<S> <C> <C> <C>
Retail Revenues
Interest and
net origination fees $ 28,335 $ 19,468 $16,727
Gains on sales of mortgages
and servicing rights 28,308 37,191 17,362
Loan servicing 43,635 37,578 32,650
Title/escrow 3,610 4,597 5,246
-------- ------- -------
Total retail revenues 103,888 98,834 71,985
Revenues from
investment operations 32,641 24,797 17,626
------- -------- --------
Total revenues $136,529 $123,631 $89,611
Expenses:
Interest 30,631 26,694 23,750
General and administrative 62,147 63,411 47,991
------- ------- ------
Total expenses 92,778 90,105 71,741
--------- --------- -------
Pretax earnings $ 43,751 $ 33,526 $17,870
========= ========= ========
</TABLE>
<TABLE>
<CAPTION>
Three months ended March 31,
1995 1996
------ ------
(dollars in thousands)
<S> <C> <C>
Retail Revenues
Interest and net origination fees $ 3,034 $ 4,198
Gains on sales of mortgages
and servicing rights 3,026 5,551
Loan servicing 8,693 7,430
Title/escrow 1,019 1,198
------- ------
Total retail revenues . 15,772 18,377
Revenues from investment operations 7,115 3,392
-------- ---------
Total revenues $22,887 $21,769
Expenses:
Interest 5,540 5,799
General and administrative 11,850 12,742
------- ------
Total expenses 17,390 18,541
-------- ---------
Pretax earnings $ 5,497 $ 3,228
======== =========
</TABLE>
<PAGE>
Three Months ended March 31, 1996 Compared to Three Months ended March
31, 1995. Revenues for the financial services segment decreased for the
first quarter of 1996 as higher retail revenues from increased origination
activity and higher gains on sales of mortgage servicing rights were more than
offset by lower investment revenues and a decrease in loan servicing revenues
due to a decline in the Company's loan servicing portfolio. Investment
revenues declined because there were no sales of mortgage-backed securities in
1996. Interest expense increased as a result of a higher level of warehouse
borrowings required to fund the increased volume of originations. General and
administrative expenses were up in part as a result of costs associated with
the Company's 1996 process reengineering initiatives.
In February 1996, the Company announced the sale of its wholesale
mortgage operations. The sale of this business, which was part of the retail
operations of the financial services segment, could result in a decline in
mortgage originations in 1996. However, the sale of this business is not
expected to have a significant impact on the future operating results of the
financial services segment.
1995 Compared to 1994 and 1994 Compared to 1993. Revenues for the
financial services segment decreased 27.5 percent in 1995 primarily due to
lower gains from sales of mortgages and mortgage servicing rights and lower
revenues from investment operations due to a decline in the investment
portfolio. Revenues for the financial services segment decreased 9.4 percent
in 1994 as compared with 1993 in large part due to an industry-wide decline in
mortgage originations resulting from rising interest rates. During 1993,
interest rates were at historically low levels, resulting in a high level of
refinancing activity. In addition, investment revenues declined in 1994
primarily due to a nonrecurring 1993 gain on the sale of the Company's
interest in a real estate investment trust. Retail loan servicing revenue
declined in both 1995 and 1994 due to reductions in the Company's loan
servicing portfolio. Declines in interest expense for 1995, 1994, and 1993
were directly related to the level of borrowings required to fund mortgage
loan originations and investment portfolio balances in those periods. General
and administrative expenses for the financial services segment declined 24
percent in 1995 as a result of cost reduction measures in retail operations
initiated in the latter part of 1994. General and administrative expenses for
the financial services segment increased slightly in 1994, as the cost
reduction measures implemented in response to the decline in loan origination
activity during the year were offset by the costs of downsizing.
Retail Operations. Retail operations include mortgage origination, loan
servicing and title/escrow services for retail customers.
A summary of mortgage origination activities is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
1993 1994 1995
------ ------ -----
<S> <C> <C> <C>
Dollar volume of mortgages
originated (in millions) $ 3,596 $ 2,055 $ 1,952
Number of mortgages originated 27,872 16,740 15,330
Percentages
Ryland home closings 20% 28% 35%
Other closings 80% 72% 65%
---- ---- -----
Total closings 100% 100% 100%
</TABLE>
<TABLE>
<CAPTION>
Three months ended March 31,
1995 1996
------- ------
<S> <C> <C>
Dollar volume of mortgages
originated (in millions) $ 328 $ 484
Number of mortgages originated 2,662 3,784
Percentages
Ryland home closings 40% 30%
Other closings 60% 70%
---- -----
Total closings 100% 100%
</TABLE>
Three Months ended March 31, 1996 Compared to Three Months ended March
31, 1995. Mortgage origination volume increased by 42 percent in the first
quarter compared with the first quarter of last year reflecting the favorable
interest rate environment in the early part of the first quarter.
1995 Compared to 1994 and 1994 Compared to 1993. Mortgage origination
volume in 1995 was down as compared with 1994, although declines early in the
year were offset by increases later in the year. The more favorable interest
rate environment in the latter part of 1995 resulted in a 34 percent increase
in originations in the fourth quarter as compared with the fourth quarter of
1994. The 40 percent decline in mortgage origination volume in 1994 as
compared with 1993 was due to an industry-wide decline in mortgage
originations caused by rising interest rates.
<PAGE>
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>
Year ended December 31,
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Net interest earned (in thousands) $12,159 $9,598 $5,766
Average balance of mortgages
held for sale (in millions) $ 418 $ 293 $ 211
Net interest spread 2.9% 3.3% 2.7%
</TABLE>
<TABLE>
<CAPTION>
Three months ended March 31,
1995 1996
------ ------
<S> <C> <C>
Net interest earned (in thousands) $1,160 $1,551
Average balance of mortgages
held for sale (in millions) $ 155 $ 235
Net interest spread 3.0% 2.7%
</TABLE>
Three Months ended March 31, 1996 Compared to Three Months ended March
31, 1995. Net interest earned increased in the first quarter of 1996 due to
an increase in the average balance of mortgages held for sale partially offset
by a lower net interest spread.
1995 Compared to 1994 and 1994 Compared to 1993. Net interest earned
decreased in 1995 due to a lower average balance of mortgages held for sale
combined with a lower net interest spread. Net interest earned decreased in
1994 primarily due to the lower 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:
<TABLE>
<CAPTION>
December 31,
1993 1994 1995
------ ------ ------
(dollars in billions)
<S> <C> <C> <C>
Originated $ 4.0 $ 2.8 $ 2.4
Acquired 4.6 4.0 3.5
Subserviced . 1.2 .1 .3
------- ------ ------
Total serviced $ 9.8 $ 6.9 $ 6.2
======= ======= ======
</TABLE>
<TABLE>
<CAPTION>
March 31,
1995 1996
------ ------
(dollars in billions)
<S> <C> <C>
Originated $ 2.7 $ 2.4
Acquired 3.9 3.4
Subserviced .1 .2
------ ------
Total serviced $ 6.7 $ 6.0
====== ======
</TABLE>
Three Months ended March 31, 1996 Compared to Three Months ended March
31, 1995. The decrease in the portfolio balance in the first quarter of 1996
is primarily attributable to normal mortgage prepayment activity.
1995 Compared to 1994 and 1994 Compared to 1993. The decrease in the
portfolio balance in 1995 as compared with 1994 was primarily attributable to
normal mortgage prepayment activity. The decrease in the portfolio balance in
1994 is primarily attributable to the decline in origination volume combined
with higher sales of servicing rights.
Investment Operations. The Company's investment operations hold certain
assets, primarily mortgage-backed securities and notes receivable, which were
obtained as a result of the exercise of redemption rights on various mortgage-
backed bonds previously owned by the Company's limited-purpose subsidiaries.
Pretax earnings were comprised of the following:
<TABLE>
<CAPTION>
Year ended December 31,
1993 1994 1995
------ ------ ------
(dollars in thousands)
<S> <C> <C> <C>
Sale of interest in
real estate investment trust $ 5,322 $ 0 $ 0
Sale of mortgage-backed securities . 5,635 2,349 4,839
Net interest earned and other . 12,152 9,693 3,359
-------- ------- -------
Pretax earnings $23,109 $12,042 $8,198
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Three months ended March 31,
1995 1996
------ -----
(dollars in thousands)
<S> <C> <C>
Sale of interest in
real estate investment trust $ 0 $ 0
Sale of mortgage-backed securities 3,124 0
Net interest earned and other 1,230 1,366
--------- --------
Pretax earnings $ 4,354 $ 1,366
======== ========
</TABLE>
Three Months ended March 31, 1996 Compared to Three Months ended March 31,
1995. Pretax earnings for the first quarter of 1996 decreased compared with
the same period last year because results for the first quarter
of 1995 included a $3.1 million gain from the sale of mortgage-backed
securities.
<PAGE>
1995 Compared to 1994 and 1994 Compared to 1993. Pretax earnings for
1995 decreased as compared with 1994 due to decreases in the net interest
earned on mortgage-backed securities and notes receivable. These decreases are
attributable to lower average investment balances along with lower net
interest spread. Partially offsetting the lower net interest earned in 1995
were higher gains from sales of mortgage-backed securities. Pretax earnings in
1994 declined substantially as compared with 1993 primarily due to lower gains
on the sale of mortgage-backed securities and the nonrecurring gains on the
1993 sale of the Company's remaining interest in a real estate investment
trust.
Significant data from investment operations are as follows:
<TABLE>
<CAPTION>
Year ended December 31,
1993 1994 1995
------ ------- -----
<S> <C> <C> <C>
Net interest earned (in thousands) $13,413 $12,989 $4,433
Average balance outstanding (in millions) $ 207 $ 205 $ 122
Net interest spread 6.5% 6.3% 3.6%
</TABLE>
<TABLE>
<CAPTION>
Three months ended March 31,
1995 1996
----- -----
<S> <C> <C>
Net interest earned (in thousands) $1,493 $1,026
Average balance outstanding (in millions) $ 153 $ 111
Net interest spread 3.9% 3.9%
</TABLE>
The Company earns a net interest spread on the investment portfolio from
the difference between the interest rates on the mortgage-backed securities
and notes receivable and the related borrowing rates.
Three Months ended March 31, 1996 Compared to Three Months ended March
31, 1995. The decrease in the net interest earned between the first quarter
of 1996 and the first quarter of 1995 is primarily due to a decline in the
average investment portfolio balance outstanding.
1995 Compared to 1994 and 1994 Compared to 1993. The 1995 decrease in
the net interest earned is primarily due to a decline in the average
investment portfolio balance outstanding combined with a lower net interest
spread resulting from an increase in borrowing rates. The decrease in the net
interest earned in 1994 as compared with 1993 primarily reflects the lower net
interest spread.
Discontinued Institutional Operations. In the second quarter of 1995,
the Company sold its institutional mortgage securities administration business
which included master servicing, securities administration, investor
information services, and tax calculation and reporting. The results for this
business (formerly reported as institutional financial services) as well as
the gain on the sale of the business, have been reported as discontinued
operations in the accompanying consolidated statements of earnings. Revenues
from operations of the discontinued business were $24.0 million, $23.6 million
and $11.4 million, for 1993, 1994 and 1995, respectively. Net earnings from
operations of the discontinued business were $6.9 million (net of taxes of
$4.6 million) for 1993, $6.0 million (net of taxes of $4.0 million) for 1994
and $3.3 million (net of taxes of $2.2 million) for 1995.
The Company reported a net gain from the sale of the institutional
mortgage securities administration business of $19.5 million in the second
quarter of 1995. Proceeds from the sale were used to repay long-term debt of
the homebuilding segment and short-term notes payable of the financial
services segment. The Company's future earnings will no longer benefit from
the results of these operations.
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.
<PAGE>
The homebuilding segment borrowings include the Revolving Credit
Facility, senior notes, senior subordinated notes and non-recourse secured
notes payable. The Company uses its 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. The facility is
guaranteed by the Company's homebuilding subsidiaries. As of March 31, 1996,
the outstanding borrowings under this facility were $188 million, compared
with $137 million as of December 31, 1995. In addition, the Company had
letters of credit outstanding under this facility totaling $20.9 million at
March 31, 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 March 31, 1996, such notes payable outstanding amounted to
$5.8 million, compared with $4.5 million at December 31, 1995. Senior notes
amounting to $15 million matured and were paid off in January 1996.
Housing inventories increased to $577.6 million as of March 31, 1996,
from $537.9 million as of the end of 1995. This primarily represents normal
seasonal increases in sold homes under construction.
The financial services segment uses cash generated from operations and
borrowing arrangements to finance its operations. In May 1996, the Company
renewed its bank facility which provides up to $325 million for mortgage
warehouse funding and $40 million for working capital advances, and extended
the maturity of the facility to May 1998. Other borrowing arrangements as of
March 31, 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 March 31, 1996 and
December 31, 1995, the combined borrowings of the financial services segment
outstanding under all agreements were $379.1 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 Company has not guaranteed the debt of the financial services segment
or limited-purpose subsidiaries.
<PAGE>
BUSINESS
The Company
The Company is a leading national homebuilder and mortgage-related
financial services firm. The Company designs, markets and constructs single
family homes generally targeted to entry level, first and second time move-up
home buyers. As of March 31, 1996, the Company offered homes for sale in
approximately 300 communities and operated in 26 metropolitan markets located
in 20 states. With homebuilding revenues of $1.46 billion in 1995, the Company
is the nation's third largest homebuilder based on 1995 revenues. RMC, the
Company's financial services segment, complements the Company's homebuilding
activities by providing a full range of competitive mortgage-finance programs,
as well as title, escrow and settlement services.
Operating Strategy
Under the direction of a new Chief Executive Officer appointed in
November 1993, the Company implemented the Operating Plan which is designed to
focus on and substantially improve the profitability of its homebuilding
operations. The Company believes that the strategies inherent in the Operating
Plan are now beginning to positively impact the financial results of its
homebuilding operations. Homebuilding gross margins increased for the third
consecutive quarter to 13.6% for the three months ended March 31, 1996, a
nearly 200 basis point increase over the comparable 1995 period. The Company
believes that the average gross margin performance for New Communities is a
key measure of the success of the Operating Plan. For the first quarter of
1996, gross margins in New Communities averaged 15.0%, compared to 11.4% in
the Company's other communities. Closings from New Communities represented 54%
of total closings in the first quarter of 1996. The Company expects that the
proportion of closings from New Communities will increase during the balance
of 1996, which should contribute to continued improvement in homebuilding
profitability.
The major components of the Operating Plan include:
Organizational and Management Changes. The Company has largely
completed an organizational and management restructuring in order to implement
the Operating Plan and to support the Company's long-term growth. Over the
past two years, the Company has replaced a significant portion of the
leadership positions in each of its five operating regions with individuals
who possess both substantial homebuilding experience and local market
knowledge. In addition, corporate staff functions have been reduced from 217
positions as of December 31, 1993 to 129 positions as of March 31, 1996 and
have been refocused to more effectively support the activities of the
Company's homebuilding and financial services operations.
New Product Offerings and Improved Marketing Strategies. The Company
has significantly updated its product offerings over the past two years by
introducing over 300 new home designs. The Company's new product designs,
which are based on local market research, emphasize volume, natural light and
flexible floor plans. The Company has increased its ability to respond quickly
to market changes through the use of outside architects and flexible supply
arrangements which have significantly reduced the time-to-market for new
product offerings. The Company's new product portfolio is supported by a
revitalized sales and marketing effort and an improved retail presentation,
which includes an expanded model home program, high caliber sales
representatives and targeted merchandising techniques. The Company believes
that its new products and improved marketing strategies have contributed to
increased sales per community.
Disciplined Approach to Land Acquisition. The Company, which utilized a
strategy of acquiring control of land primarily through the use of option
contracts prior to the implementation of the Operating Plan, now employs a
balanced approach to land acquisition including both direct acquisition and
option contracts. The Company believes that, in many instances, direct
acquisition and development of building lots enables it to gain greater access
to prime locations, increase margins and improve the positioning of its
housing inventory in its communities. The Company's land acquisition objective
is to control a two- to three-year supply of building lots. The Company
conducts a thorough land acquisition due diligence process at multiple levels
throughout the organization, including a review by a senior management land
committee of each prospective land purchase or option contract. At March 31,
1996, the Company controlled 21,605 building lots, 51% of which were owned by
the Company and the remainder of which were controlled through option
contracts. The percentage of building lots owned by the Company at March 31,
1996 represents an increase from 42% at December 31, 1994. At March 31, 1996,
77% of the Company's total building lots were in New Communities.
<PAGE>
Return-Oriented Capital Allocation. In order to improve the return on
capital invested in its homebuilding segment, the Company has initiated
various inventory control procedures, including the imposition of inventory
targets for each of its five regions and the establishment of aggregate
homebuilding inventory levels. The Company has reallocated capital among its
existing markets and expanded to certain new markets where the Company expects
that it can achieve higher returns. The Company believes that the resulting
increased geographic diversity reduces the impact on the Company of
unfavorable changes in homebuilding market conditions in any single market. In
addition, the Company significantly altered the composition of its inventory
position in 1995 by reducing its unsold homes under construction from $141.5
million at December 31, 1994 to $82.2 million at March 31, 1996.
Repositioning of Financial Services Activities. The Company is
repositioning its financial services segment through a strategy which includes
(i) focusing on retail mortgage loan origination and servicing activities,
(ii) divesting non-core assets and lines of business, (iii) increasing
origination volume by leveraging its affiliation with the Company's
homebuilding segment and (iv) reaching mortgage customers directly at the
point of sale through the use of technology. Pursuant to this strategy, the
Company sold its institutional mortgage securities administration business in
June of 1995 and its wholesale loan origination business in February of 1996.
The percentage of the homebuilding segment's customers who obtain financing
for their home purchases
through RMC has increased from 60% for the year ended December 31, 1994 to
67% for the quarter ended March 31, 1996.
Markets
The homebuilding segment markets and builds homes that are constructed
on-site in five regions comprised of 26 metropolitan markets throughout the
nation. As of June 1, 1996, the Company operated in the following markets:
Region Market
------ ------
Mid-Atlantic Baltimore, Washington, D.C., Philadelphia
Midwest Chicago, Cincinnati, Columbus, Indianapolis,
Minneapolis/St. Paul
Southeast Atlanta, Charlotte, Orlando, Tampa, Greenville,
Columbia
Southwest Houston, Dallas, Austin, San Antonio
West San Francisco Bay Area, Los Angeles, San Diego,
Denver, Phoenix, Salt Lake City, Sacramento,
Portland
<PAGE>
The following map identifies the Company's principal regions and markets:
Region Market
------ ------
Mid-Atlantic Baltimore (1), Washington, D.C.(1), Philadelphia(2)
Midwest Chicago(2), Cincinnati(1), Columbus(1),
Indianapolis(1), Minneapolis/St. Paul(2)
Southeast Atlanta(1), Charlotte(1), Orlando(1), Tampa(2),
Greenville(2), Columbia(2)
Southwest Houston(1), Dallas(1), Austin(2), San Antonio(2)
West San Francisco Bay Area(2), Los Angeles(1),
San Diego(1), Denver(1), Phoenix(1),
Salt Lake City(2), Sacramento(1), Portland(2)
(1) Existing Market
(2) New Market
The Company evaluates its homebuilding inventories in each region and
allocates capital to new markets and among existing markets in order to be in
a position to take advantage of favorable housing market conditions. Over the
past three years, the Company entered a number of new markets where it expects
to generate a higher return on capital. These new markets are Philadelphia,
Chicago, Minneapolis/St. Paul, Austin, San Antonio, Greenville and Columbia,
South Carolina, Tampa, the San Francisco Bay Area, Salt Lake City and
Portland, Oregon. The Company entered the Austin and San Antonio markets
through the acquisition of Scott Felder Homes and entered the remaining new
markets through start-up operations. Gross profit margins on closings in new
markets for the first quarter of 1996 were approximately 280 basis points
higher than gross profit margins on closings in existing markets.
In December 1995, the Company announced its decision to exit homebuilding
operations in the Columbus, Ohio market by the end of 1996. The Company's
decision was based on its relatively weak market position in Columbus and on
the opportunities available to the Company to employ its capital in more
attractive markets in the Midwest. In 1995, due to economic uncertainties and
competitive pressures in the Mid-Atlantic region, the Company began
reallocating capital to other regions where the Company believes it can
achieve higher returns.
<PAGE>
The following table summarizes the Company's sales by units, by region,
for the periods indicated.
<TABLE>
<CAPTION>
Year ended December 31,
New Orders (in units) 1993 1994 1995
- --------------------- ------ ----- -----
<S> <C> <C> <C>
Mid-Atlantic 2,815 2,492 2,011
Midwest 999 1,001 1,307
Southeast 1,365 1,161 1,399
Southwest 1,414 1,829 1,923
West 1,840 2,472 2,501
----- ----- -----
Total 8,433 8,955 9,141
====== ====== =====
</TABLE>
<TABLE>
<CAPTION>
Three months ended March 31,
New Orders (in units) 1995 1996
- --------------------- ------ ------
<S> <C> <C>
Mid-Atlantic 687 408
Midwest 334 447
Southeast 393 418
Southwest 497 477
West 649 653
------ ------
Total 2,560 2,403
====== ======
</TABLE>
The Company's sales activities for the first three months of 1996 reflect
regional economic conditions as well as the Company's efforts to allocate its
capital to those markets where it believes higher returns can be obtained.
Outstanding contracts at March 31, 1996 were 3,414 compared with 3,115 at
March 31, 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 as of March 31, 1996 was $609.0 million, an increase of
17.3% from March 31, 1995 and 27.6% from December 31, 1995. The value of
outstanding contracts as of March 31, 1996, excluding the Mid-Atlantic region,
was $473.0 million, an increase of 41.4% from March 31, 1995 and 34.3% from
December 31, 1995.
Product Lines
The Company markets detached and attached single family homes generally
targeted to the entry level, first and second time move-up home buyer through
a diverse product line tailored to the local styles and preferences in each of
its geographic markets. The product line constructed in a particular
community, which is determined in conjunction with the land acquisition
feasibility process, is dependent upon a number of factors, including consumer
preferences, competitive product offerings and the cost of building lots in
the community. In 1995, the Company's average closing price was $164,000.
The Company has significantly updated its product line in conjunction
with the Operating Plan by introducing over 300 new home designs. The Company
has adopted a strategy of outsourcing architectural services to a network of
respected architects in order to increase creativity and to ensure that its
home designs are consistent with local market preferences. In addition,
through flexible supply arrangements and construction methods, including
reduced use of pre-constructed panels and trim packages, the Company has
significantly improved its ability to quickly bring new home designs to market
and modify existing products.
Production Management
Substantially all on-site construction is performed for a fixed price by
independent subcontractors selected on a competitive bid basis. The Company
generally requires a minimum of three competitive bids for each phase of
construction. All construction activities are supervised by the Company's
production supervisors who schedule and coordinate all subcontractor work,
monitor quality and ensure compliance with local zoning and building codes.
The Company recently completed the implementation of an integrated financial
and homebuilding management information system which assists in scheduling
production and controlling costs. Through this system, the Company monitors
the construction status and job costs incurred for each home for each phase of
construction. The system provides for detailed budgeting and allows the
Company to monitor and control actual costs versus construction bids for each
subcontractor.
The Company generally does not commence the construction of a home until
a contract of sale has been fully executed and the customer has received
preliminary mortgage approval. However, in certain cases it may be necessary
to begin the construction of an unsold home in order to achieve construction
efficiencies, meet consumer demand for expedited delivery or to commence the
construction of sold attached single family homes.
<PAGE>
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 and may procure such products
through national supply contracts. In those cases where products and services
are procured locally, the Company controls costs through competitive bidding
practices among qualified subcontractors and suppliers.
Land Acquisition and Development
As of June 1, 1996, the Company operated in approximately 300 communities
in 26 metropolitan markets in 20 states. The following table summarizes the
Company's available lot inventory, by region, as of March 31, 1996.
<TABLE>
<CAPTION>
Total Inventory Lot Inventory
Controlled
-------------- -------------
Region Sold Unsold (F1) Owned Optioned
------ --------- ------- --------
(dollars in thousands) (in units)
<S> <C> <C> <C> <C>
Mid-Atlantic .$ 45,949 $ 91,004 1,724 1,682
Midwest 32,401 40,941 1,890 1,833
Southeast 29,744 43,560 1,105 3,230
Southwest 33,264 78,299 3,202 1,684
West 49,211 130,027 3,152 2,103
--------- --------- ------ ------
Total . $ 190,569 $ 383,831 11,073 10,532
========= ========= ====== ======
<FN>
(F1) Includes land, model homes and unsold homes under construction.
</FN>
</TABLE>
At March 31, 1996, 77% of the Company's total of 21,605 of building lots
were in New Communities.
The Company's objective is to maintain a portfolio of building lots to
meet anticipated homebuilding requirements for a period of two to three years.
Based on 1995 closing volume, the Company's lot inventory at March 31, 1996 is
sufficient to meet approximately 29 months of homebuilding deliveries. The
Company utilizes both direct acquisition and option contracts to control
building lots. The Company's direct land acquisition activities include the
bulk purchase of finished building lots from land developers and the purchase
of undeveloped, entitled land from various third parties. Option contract
agreements are generally limited to finished building lots.
Although control of lot inventory through the use of option contracts
minimizes the Company's investment, such a strategy is not viable in certain
markets due to the absence of third party land developers. In other markets,
competitive conditions may preclude the Company from controlling quality
building lots solely through the use of option contracts. In order to improve
its land positions, the Company acquires both finished lots on a bulk basis
and undeveloped, entitled land. The Company utilizes selective development of
entitled land in order to gain access to prime locations, increase margins and
position the Company as a leader in the community through its influence over
the community's character, layout and amenities.
The Company believes that the flexibility afforded by its strong balance
sheet provides it with a competitive advantage over other local and regional
homebuilders that may not have comparable resources when competing for certain
land positions. The Company's land acquisition policies seek to avoid
transactions that involve entitlement risk and are designed to mitigate
substantial real estate price risk inherent in a lengthy holding, development
or build-out period.
As of December 31, 1995, the Company had deposits and letters of credit
totaling $29.8 million securing options and other commitments to purchase land
having a total value of $334 million.
<PAGE>
Marketing and Customer Service
The Company generally markets its homes to entry level, first and second-
time move-up buyers through targeted product offerings in each of the
communities in which it operates. The Company's marketing strategy is
determined during the land acquisition and feasibility stage of a community's
development. The Company's homes are sold by employees, generally by showing
furnished model homes.
Over the past two years, the Company has significantly improved its
retail presentation. The Company's merchandising strategy includes increased
utilization of furnished model homes supported by high caliber sales and
marketing personnel. The Company is augmenting traditional print advertising
with marketing efforts directed to potential customers actively seeking to
purchase a new home.
The Company's sales representatives are supported by a recently
implemented sales and marketing management information system. This system
provides the Company with an integrated sales contact management system for
potential buyers and allows the Company's sales representatives to quickly
capture buyer data, qualify potential buyers and easily price various model,
lot and option packages.
The Company provides each homeowner with a comprehensive one-year
warranty at the time of sale and a ten-year warranty covering loss related to
structural defects. The Company believes its warranty program meets or exceeds
terms customarily offered in the homebuilding industry.
Financial Services
The Company has repositioned its financial services segment through a
strategy consisting of (i) a focus on retail mortgage loan origination and
servicing activities, (ii) the divestiture of non-core assets and lines of
business, (iii) increasing origination volume by leveraging its affiliation
with the Company's homebuilding segment and (iv) reaching mortgage customers
directly at the point of sale through the use of technology. RMC's operations
include retail loan production, loan servicing, related title, escrow and
closing services and investment activities.
Loan Production: RMC's retail loan production activities includes both
builder loans, which originate in connection with the sale of the Company's
homes, and spot loans, which are unrelated to the financing of homes built by
the Company. During 1995, RMC originated 9,573 retail mortgage loans totaling
approximately $1.2 billion (excluding the wholesale operations which were sold
in the first quarter of 1996). RMC's origination volume included 5,360 loans
for customers of the Company's homebuilding segment and 4,213 loans for buyers
of homes other than those built by the Company and for customers seeking
refinancing of existing mortgage loans.
During 1995, RMC increased its focus on builder loan production by
deploying RMC loan officers directly in the Company's homebuilding communities
and by utilizing traffic and prospect information generated by the Company's
homebuilding sales and marketing staff. RMC's capture rate of the Company's
homebuilding segment customers increased from 60 percent in 1994 to 67 percent
during the first quarter of 1996.
The Company arranges various types of mortgage financing including
conventional, Federal Housing Administration and Veterans Administration
mortgages with various fixed and adjustable rate structures. The Company's
mortgage operations are approved by Federal Home Loan Mortgage Corporation,
Federal National Mortgage Association and Government National Mortgage
Association. RMC's mortgage origination operations have loan production
offices, generally co-located with the Company's homebuilding operations.
Loan Servicing. The Company services loans that it originates as well
as loans originated by others. As of March 31, 1996, RMC serviced loans in all
50 states with a servicing portfolio totaling $6.0 billion. RMC continually
evaluates the economics of selling versus retaining the rights to service
loans it originates. The Company expects that it will sell substantially all
of the servicing rights related to loans it originates during 1996 due to the
attractive economies currently available in this market.
<PAGE>
Title & Escrow Services. As of June 1, 1996, the Company had 16 offices
in nine states and captured more than 90% of the title and escrow business
related to settlement of the Company's homes in those markets in which it
operates.
Management and Employees of the Company
The following identifies the principal executive officers of the Company
and its business segments.
Name Age Position (date elected to position);
Prior Business Experience
------- ------ ------------------------------------
Corporate
- ---------
R. Chad Dreier 48 Chairman of the Board of the Company (1994),
President and Chief Executive Officer of the
Company (1993). Executive Vice President and
Chief Financial Officer of Kaufman and Broad
Home Corporation and Chairman of Kaufman and
Broad Mortgage Company (1986-1993).
Michael D. Mangan 39 Executive Vice President and Chief Financial
Officer of the Company (1994). Executive Vice
President and Group Chief Financial Officer of
GMAC Mortgage Corporation (1991-1994).
David Lesser 40 Executive Vice President, General Counsel and
Secretary of the Company (1995). Executive Vice
President and General Counsel of Riggs National
Corporation (1987-1995).
Homebuilding
- -----------
Timothy R. Doyle 45 Senior Vice President of the Company (1991) and
President of Mid-Atlantic Region (1994).
President of Midwest Region (1991).
John M Garrity 49 Senior Vice President of the Company and
President of Southeast Region (1994). Division
General Manager of Arvida Homes (1992-1994).
William R. Rollo 37 Senior Vice President of the Company and
President of Southwest Region (1994). Executive
Vice President of Scott Felder L.P. (1990-1994).
Frank J. Scardina 47 Senior Vice President of the Company (1994),
President of West Region (1996) and President of
California Region (1994-1996).
Kipling W. Scott 41 Senior Vice President of the Company and
President of Midwest Region (1994). Midwest
Region Director of Land Resources & Planning
(1993-1994).
Financial Services
- ------------------
Michael C. Brown 38 Senior Vice President of the Company and
President of Ryland Mortgage Company (1996).
Chief Operating Officer of Ryland Mortgage
Company (1995). Senior Vice President of Ryland
Mortgage Company (1987-1995).
J. Sidney Davenport 54 Vice President of the Company (1984) and
Executive Vice President of Ryland Mortgage
Company (1993). Senior Vice President of Ryland
Mortgage Company (1990-1993).
James R. Fratangelo 37 Senior Vice President of Marketing of Ryland
Mortgage Company (1993). Marketing
Representative of Ryland Mortgage Company
(1983-1993).
At March 31, 1996, the Company employed approximately 2,448 persons, five
percent of whom were employed in corporate staff functions and twenty-five
percent in the financial services segment. The Company has substantially
completed a management restructuring and organizational redesign which has
resulted in significant change in the Company's corporate and homebuilding
organizations.
<PAGE>
Over the past two years, the Company has replaced a significant portion
of the leadership positions in its local regions and divisions. The Company
has been successful in recruiting management teams with both substantial
homebuilding experience and local market knowledge. The Company's region and
division vice presidents average 18 and 12 years of homebuilding experience,
respectively. Corporate staff functions have been refocused to more
effectively support the activities of the Company's homebuilding and financial
services operations and have been reduced from 217 positions as of December
31, 1993 to 129 positions as of March 31, 1996.
<PAGE>
DESCRIPTION OF THE NOTES
The following description of the particular terms of the Notes offered
hereby supplements, and to the extent is inconsistent therewith, replaces the
descriptions of the general terms and provisions of the Debt Securities set
forth in the accompanying Prospectus, to which description reference is hereby
made. Capitalized terms used but not defined herein have the meanings set
forth in the accompanying Prospectus.
General
The Notes will constitute a series of Senior Debt Securities. The Notes
will be limited to $100 million aggregate principal amount and will mature on
July 1, 2006. The Notes will be general unsecured obligations of the Company
and will be issued in fully registered form in denominations of $1,000 or any
amount in excess thereof that is an integral multiple of $1,000.
The Notes are being issued under an indenture dated as of June 28, 1996
between the Company and Chemical Bank, as trustee (the ''Senior Trustee''), as
supplemented by resolutions setting forth the terms of the Notes duly adopted
by the Finance Committee of the Board of Directors of the Company (as so
supplemented, the ''Senior Indenture''). The Notes are subject to all such
terms and prospective purchasers are referred to the Senior Indenture for a
statement thereof.
The following statements relating to the Notes and the Senior Indenture
are summaries and do not purport to be complete. Such summaries are qualified
in their entirety by express reference to the Senior Indenture. A copy of the
Senior Indenture is filed with the Commission.
Interest
The Notes will bear interest from July 8, 1996 at the rate shown on the
cover page of this Prospectus Supplement, payable semi-annually on January 1
and July 1 (each, an ''Interest Payment Date'') of each year, commencing on
January 1, 1997, to Holders of record at the close of business on the December
15 and June 15 immediately preceding each Interest Payment Date. The Notes
will mature on July 1, 2006.
Optional Redemption
The Notes may be redeemed at any time on or after July 1, 2001 and prior
to maturity at the option of the Company, in whole or in part, on not less
than 30 nor more than 60 days' prior notice, mailed by first-class mail to the
Holders' last addresses as they shall appear upon the register, at the
following redemption prices (expressed as percentages of the principal amount)
plus accrued and unpaid interest, if any, to the date fixed for redemption:
If redeemed during the 12-month period beginning July 1, in the year
indicated, the redemption price shall be:
Year Percentage
---- ----------
2001 105.250%
2002 103.500
2003 101.750
2004 and thereafter 100.000
If less than all of the Notes are to be redeemed, the Trustee will select
the Notes to be redeemed on a pro rata basis. The Trustee will mail a notice
of redemption to each Holder of Notes, which notice will specify the portion
of the principal amount of such Notes to be redeemed.
The Notes will not be subject to the operation of any mandatory sinking
fund.
<PAGE>
Global Securities
The Notes will be represented by one or more global registered securities
(the "Global Securities"), registered in the name of a nominee of The
Depository Trust Company, as Depository. The provisions set forth under
"Description of Debt Securities - Global Securities" in the accompanying
Prospectus will be applicable to the Notes. Accordingly, ownership of
interests in such Global Sccurities will be shown on, and the transfer thereof
will be effected only through, records maintained by the Depository or its
nominee for the Notes and on the records of participants. Except as otherwise
described under "Description of Debt Securities-Global Securities": in the
accompanying Prospectus, owners of beneficial interests in hte Global
Securities will not be entitled to receive Notes in definitive form and will
not be considered the holders of Notes.
The Depository has advised the Company and the Underwriters as follows:
the Depository is a limited-purpose trust company organized under New York
Banking Law, a "banking corporation" within the meaning of the New York
Banking Law, a memeber of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered under the Securities Exchange Act of 1934. The Depository
was created to hold securities of its participants and to facilitate the
clearance and settlement of securities transactions among its participants in
such securities through elecronic book-entry changes in accounts of the
participants, therby eliminating the need for physical movement of securities
certificates. The Depository's participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations, some of whom (and/or their representatives) own the Depository.
Access to the Depository's book-entry system is also available to others such
as securities brokers and dealers, banks and trust companies that clear
through or maintain a custodial relationship with a participant, either
directly or indirectly.
Under the terms of the Senior Indenture, the Company and the Trustee will
treat the persons in whose names the Notes are registered as the owners of
such Notes for the pupose of receiving payment of the principal and interest
on such Notes and for all other purposes whatsoever. Therefore, neither the
Company, the Trustee nor any paying agent has any direct responsibility or
liability for the payment of principal of, or interest on, the Notes to owners
of beneficial interests in the Global Securities. The Depository has advised
the Company and the Trustee that its current practice is, upon receipt of any
payment of principal or interest, to credit the accounts of the participants
with such payment in amounts proportionate to their respective holdings in
principal amount of beneficial interest in the Global Securities as shown in
the records of the Depository. Payments by participants and indirect
participants to owners of beneficial interest in the Global Securities will be
goverened by standing instructions and customary practices, as is now the case
with securities held for the accounts of customers registered in "street
name," and will be the responsibility of the participants or indirect
participants.
Certain Covenants
Disposition of Proceeds of Asset Sales
The Notes will provide, subject to the provisions of the Indenture
described under the caption ''Limitations on Mergers and Consolidations'',
that the Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, make any Asset Sale unless (i) the Company or the
Restricted Subsidiary, as the case may be, receives consideration at the time
of such Asset Sales at least equal to the fair market value for the shares or
assets sold or otherwise disposed of (as determined by the Board of Directors
of the Company whose determination shall be conclusive and evidenced by a
resolution of such Board of Directors filed with the Senior Trustee);
provided, that the aggregate fair market value of the consideration received
from any Asset Sale that is not in the form of cash or cash equivalents will
not, when aggregated with the fair market value of all other noncash
consideration received by the Company and its Restricted Subsidiaries from all
previous Asset Sales since the date of the issuance of the Notes that has not
been converted into cash or cash equivalents, exceed 5% of the Consolidated
Tangible Net Assets of the Company at the time of the Asset Sale under
consideration and (ii) the Company will apply the aggregate Net Proceeds
received by the Company or any Restricted Subsidiary from all Asset Sales
occurring subsequent to the date of the issuance of the Notes as follows: (A)
to repay any outstanding Indebtedness of the Company that is not subordinated
to the Notes or other Indebtedness of the Company, or to the payment of any
Indebtedness of any Restricted Subsidiary, in each case, within one year after
such Asset Sale or (B) to acquire or improve properties and assets that will
be used in the businesses of the Company and its Restricted Subsidiaries
existing on the date of the issuance of the Notes or any business related
thereto within one year after such Asset Sale. The amount of such Net Proceeds
neither used to repay the Indebtedness described above nor used or invested as
set forth in the preceding sentence constitutes ''Excess Proceeds.''
The Notes will also provide that, notwithstanding the foregoing, to the
extent the Company or any of its Restricted Subsidiaries receives securities
or other noncash property or assets as proceeds of an Asset Sale, the Company
will not be required to make any application of such noncash proceeds required
by the provisions of the Notes described in the preceding paragraph until it
receives cash or cash equivalent proceeds from a sale, repayment, exchange,
redemption or retirement of or extraordinary dividend or return of capital on
such noncash property. Any amounts deferred pursuant to the preceding sentence
will be applied in accordance with the provisions of the Notes described in
the preceding paragraph when cash proceeds are thereafter received from a
sale, repayment, exchange, redemption or retirement of an extraordinary
dividend or return of capital on such noncash property.
The Notes will also provide that, when the aggregate amount of Excess
Proceeds equals $5,000,000 or more, the Company will so notify the Trustee in
writing by delivery of an Officers' Certificate and will offer to purchase
from all Holders (an ''Excess Proceeds Offer''), and will purchase from
Holders accepting such Excess Proceeds Offer on the date fixed for the closing
of such Excess Proceeds Offer (the ''Asset Sale Offer Date''), the maximum
principal amount (expressed as a multiple of $1,000) of Notes that may be
purchased out of the Excess Proceeds, at an offer price (the ''Asset Sale
Offer Price'') in cash in an amount equal to 100% of the principal amount
thereof plus accrued and unpaid interest, if any, to the Asset Sale Offer
Date, in accordance with the procedures set forth below. To the extent that
the aggregate amount of Notes tendered pursuant to an Excess Proceeds Offer is
less than the Excess Proceeds relating thereto, then the Company may use the
Excess Proceeds which exceed the aggregate amount of the Notes tendered
pursuant to such Excess Proceeds Offer for general corporate purposes. Upon
completion of an Excess Proceeds Offer, the amount of Excess Proceeds will be
reset at zero.
Within 30 days after the date on which the amount of Excess Proceeds
equals $5,000,000 or more, the Company, or the Trustee at the Company's
request, will mail or cause to be mailed to all Holders of Notes of record on
the date such Excess Proceeds equals $5,000,000, a notice of such occurrence
and of such Holders' rights arising as a result thereof. Such notice will
contain instructions and materials necessary to enable Holders of Notes to
tender their Notes to the Company.
<PAGE>
The Notes will also provide that:
(a) In the event the aggregate principal amount of Notes surrendered by
Holders exceeds the amount of Excess Proceeds, the Company will select the
Notes to be purchased on a pro rata basis from all Notes so surrendered, with
such adjustments as may be deemed appropriate by the Company so that only
Notes in denominations of $1,000, or integral multiples thereof, will be
purchased. To the extent that the Excess Proceeds remaining are less than
$1,000, the Company may use such Excess Proceeds for general corporate
purposes. Holders whose Notes are purchased only in part will be issued new
Notes equal in principal amount to the unpurchased portion of the Notes
surrendered.
(b) The Company will not, and will not permit any Restricted Subsidiary
to, create or permit to exist or become effective any restriction (other than
any restriction set forth in any agreement, indenture, document or instrument
relating to any Existing Indebtedness or Refinancing Indebtedness with respect
thereto or entered into in connection with refinancing of the Company's
unsecured Revolving Credit Facility (the "Revolving Credit Facility") or any
successor bank credit facility) that would materially impair the ability of
the Company to make an Excess Proceeds Offer. Notwithstanding the foregoing,
if an Excess Proceeds Offer is made, the Company will pay for Notes tendered
for purchase in accordance with the provisions set forth below.
(c) Not later than one Business Day prior to the Asset Sale Offer Date in
connection with which the Excess Proceeds Offer is being made, the Company
will (i) accept for payment Notes or portions thereof tendered pursuant to the
Excess Proceeds Offer (on a pro rata basis if required pursuant to the
provisions of the Notes described in paragraph (a) above), (ii) deposit with
the Paying Agent money sufficient, in immediately available funds, to pay the
purchase price of all Notes or portions thereof so accepted and (iii) deliver
to the Paying Agent an Officers' Certificate identifying the Notes or portions
thereof accepted for payment by the Company. The Paying Agent will promptly
after acceptance mail or deliver to Holders of Notes so accepted payment in an
amount equal to the Asset Sale Offer Price of the Notes purchased from each
such Holder, and the Company will execute and upon receipt of an Officers'
Certificate of the Company the Trustee will promptly authenticate and mail or
deliver to such Holder a new Note equal in principal amount to any unpurchased
portion of the Note surrendered. Any Notes not so accepted will be promptly
mailed or delivered by the Paying Agent at the Company's expense to the Holder
thereof. The Company will publicly announce the results of the Excess Proceeds
Offer on the Asset Sale Offer Date. For purposes of the provisions of the
Notes described above, the Company will choose a Paying Agent which will not
be the Company or a Subsidiary thereof.
(d) Any Excess Proceeds Offer will be conducted by the Company in
compliance with applicable tender offer rules, including Section 14(e) of the
Exchange Act and Rule 14e-1 thereunder.
(e) Whenever Excess Proceeds are received by the Company, and prior to
the allocation of such Excess Proceeds pursuant to the provisions set forth
above, such Excess Proceeds will be set aside by the Company in a separate
account to be held in trust for the benefit of the Holders; provided however,
that in the event the Company will be unable to set aside such Excess Proceeds
in a separate account because of provisions of applicable law or any
agreement, indenture, document or instrument relating to Existing Indebtedness
or Refinancing Indebtedness with respect thereto or the Revolving Credit
Agreement or any successor bank credit facility, the Company will not be
required to set aside such Excess Proceeds.
There can be no assurance that sufficient funds will be available at the
time of an Excess Proceeds Offer to make any required repurchases or that such
repurchases will not be prohibited by another debt agreement of the Company.
The Company's failure to make any required repurchases in the event of an
Excess Proceeds Offer will create an Event of Default under the Senior
Indenture.
<PAGE>
Limitation on Restricted Payments
The Notes will provide that neither the Company nor its Restricted
Subsidiaries shall make any Restricted Payment if, at the time of such
Restricted Payment, or after giving effect thereto, (i) an Event of Default
shall have occurred and be continuing; or (ii) the aggregate amount of
Restricted Payments subsequent to the date of the Senior Indenture would
exceed the sum of: (a) 50% of the Consolidated Net Income (or, in case such
Consolidated Net Income shall be a deficit, minus 100% of such deficit) of the
Company (excluding cash dividends and distributions from Unrestricted
Subsidiaries) accrued on a cumulative basis subsequent to March 31, 1996, (b)
the aggregate net cash proceeds, including the fair market value of property
other than cash (as determined by the Board of Directors of the Company whose
determination shall be conclusive and evidenced by a resolution of such Board
of Directors filed with the Senior Trustee), received by the Company from the
issue or sale after March 31, 1996, of Capital Stock of the Company, including
Capital Stock of the Company issued upon the conversion of indebtedness of the
Company, but excluding Disqualified Stock, (c) cash dividends and
distributions received from Unrestricted Subsidiaries after March 31, 1996 up
to, but not to exceed, the sum of the Company's and its Restricted
Subsidiaries' previous Investments in the respective Unrestricted Subsidiary
on the date of the Indenture plus any Investments thereafter made, plus 50% of
any cash dividends received in excess thereof, (d) the amount of any guarantee
of Indebtedness or other obligation of any Person that was initially treated
as a Restricted Payment under this covenant and which has subsequently
terminated or expired, net of any amounts paid by the Company or a Restricted
Subsidiary in respect of such guarantee and (e) $50 million; or (iii) the
Company would be unable to incur an additional $1.00 of Indebtedness pursuant
to the covenant described in ''Limitation on Incurrence of Indebtedness'';n
provided however, that the foregoing provisions shall not prevent (a) the
payment of any dividend or distribution within 60 days after the date of
declaration thereof, if the payment would have complied with the foregoing
provisions on the date of such declaration, or (b) the retirement of any
shares of the Company's Capital Stock in exchange for, upon conversion of or
out of the proceeds of a substantially concurrent sale (other than to a
Subsidiary of the Company) of other shares of such Capital Stock of the
Company (other than Disqualified Stock).
Limitation on Payment Restrictions Affecting Subsidiaries
The Notes will provide that the Company shall not, and shall not permit
any Non-Financial Services Restricted Subsidiary to, make any Investment in
any Financial Services Subsidiary, if, at the time of such Investment, such
Financial Services Subsidiary would not be permitted to pay, by dividend,
distribution, loan payment or otherwise, to the Company or such Non-Financial
Services Restricted Subsidiary the amount of the Aggregate Net Investment of
the Company and the Non-Financial Services Restricted Subsidiaries in such
Financial Services Subsidiary after giving effect to such additional
Investment. In addition, if at any time the Financial Services Subsidiaries
are not permitted to, or would by virtue of incurring additional Indebtedness
become not permitted to, pay, by dividend, distribution, loan payment or
otherwise, to the Company or its Non-Financial Services Restricted
Subsidiaries, the amount of the Aggregate Net Investment of the Company and
the Non-Financial Services Restricted Subsidiaries in the Financial Services
Subsidiaries, the Financial Services Subsidiaries may not incur any
<PAGE>
Indebtedness. Notwithstanding the foregoing, the Financial Services
Subsidiaries may incur Indebtedness during any period in which the Financial
Services Subsidiaries are not permitted to pay, by dividend, distribution,
loan payment or otherwise, to the Company and any Non-Financial Services
Restricted Subsidiary, the amount of the Aggregate Net Investment, if after
giving effect to such incurrence the total amount of Indebtedness of the
Financial Services Subsidiaries would be an amount less than or equal to the
Indebtedness of the Financial Services Subsidiaries on the date the Financial
Services Subsidiaries first were prohibited from paying to the Company and its
Non-Financial Services Restricted Subsidiaries the amount of the Aggregate Net
Investment. For purposes of the foregoing, ''Aggregate Net Investment'' shall
mean the cumulative amount of any Investment by the Company and its Non-
Financial Services Restricted Subsidiaries in any such Financial Services
Subsidiary after July 15, 1992, the date of the Company's Subordinated
Indenture relating to its outstanding Subordinated Notes, less the cumulative
amount of any cash dividends or distributions in respect of, or purchases,
redemptions or retirements of, Capital Stock, or repayment or release of any
other form of Investment, paid by such Financial Services Subsidiary to the
Company or its Non-Financial Services Restricted Subsidiaries after July 15,
1992. As of March 31, 1996, the Aggregate Net Investment based on this
definition was a negative $93.1 million, reflecting the net dividends and
distributions paid by the Financial Services Subsidiaries to the Company and
the Non-Financial Services Restricted Subsidiaries after July 15, 1992.
Accordingly, the Company and its Non-Financial Services Restricted
Subsidiaries would be entitled to make an investment of $93.1 million in the
Financial Services Subsidiaries without restriction. The Notes will further
provide that the Financial Services Subsidiaries shall not amend, modify or
change, or consent or agree to any amendment, modification or change to any of
the terms of, or suffer to exist, any debt instrument to which any of the
Financial Services Subsidiaries is a party, the effect of which would be to
impose restrictions on the payment of dividends, directly or indirectly, to or
for the benefit of the Company which would limit such dividends to an
aggregate amount for all Financial Services Subsidiaries which are Restricted
Subsidiaries in any fiscal year which is less than the combined Net Income for
the then-current fiscal year, determined on a combined basis in accordance
with GAAP, of the Financial Services Subsidiaries; provided, that provisions
which by their terms would impose such restrictions only in the event of a
default under any such debt instrument and solely as a result of such default
shall not be deemed to be included in this restriction. In addition, the Notes
will provide that the Restricted Subsidiaries other than the Financial
Services Subsidiaries shall not amend, modify or change, or consent or agree
to any amendment, modification or change to any of the terms of, or suffer to
exist, any debt instrument to which any of such Restricted Subsidiaries is a
party, the effect of which would be to impose restrictions on the payment of
dividends, directly or indirectly, to or for the benefit of the Company,
except for restrictions arising in connection with Refinancing Indebtedness
which are not more restrictive than those under the agreement creating or
evidencing the Indebtedness being refunded, refinanced or extended; provided,
that provisions which by their terms would impose such restrictions only in
the event of a default under any such debt instrument and solely as a result
of such default shall not be deemed to be included in the foregoing
restriction. Notwithstanding the foregoing, any Restricted Subsidiary which is
acquired by the Company or by any Subsidiary of the Company after the date of
the issuance of the Notes will not be subject to the restrictions contained in
the preceding two sentences, so long as that Restricted Subsidiary and any
other Restricted Subsidiaries acquired after the date of the issuance of the
Notes which are not subject to such restrictions do not in the aggregate
contribute greater than 10% of the Company's consolidated EBITDA for any one
year period consisting of the last four fiscal quarters of the Company and its
Restricted Subsidiaries for which financial statements are available, measured
(a) as of the time the Company's quarterly or year end financial statements,
as applicable, are filed with the Securities and Exchange Commission and (b)
as of the date of each acquisition (and measured on a pro forma basis giving
effect to any acquisition of a Restricted Subsidiary not owned for the entire
period); provided, however, if after any such measurement date identified in
subparagraph (a), all Restricted Subsidiaries not subject to such restrictions
shall constitute more than 10% of the Company's consolidated EBITDA as so
measured on that date, the Company will not be in default of this provision so
long as the Company is in compliance on the measurement date for the next
succeeding fiscal quarter, after giving effect to any refinancing, repayment
or modification of indebtedness of any such Restricted Subsidiaries.
Maintenance of Consolidated Net Worth
If the Company's Adjusted Consolidated Net Worth at the end of each of
two consecutive fiscal quarters (the last day of such second fiscal quarter
being referred to as the ''Trigger Date'') is less than $200 million, then the
Company shall make an offer to acquire (a ''Net Worth Offer'') on a pro rata
basis on or before the last day of the next following fiscal quarter (the
''Trigger Payment Date'') Notes in an aggregate principal amount equal to 10%
of the initial outstanding principal amount of the Notes at a purchase price
of 100% of principal amount, plus accrued interest to the Trigger Payment
Date. The Company may credit against its obligation to purchase the Notes
under these provisions the principal amount of Notes acquired by the Company
and surrendered for cancellation through purchase, optional redemption or
exchange subsequent to the Trigger Date. In no event shall the failure to meet
the minimum Adjusted Consolidated Net Worth requirement set forth above at the
end of any fiscal quarter be counted toward the making of more than one such
offer.
Limitation on Transactions with Affiliates
The Company may not, and may not permit any Restricted Subsidiary to,
directly or indirectly, knowingly (other than pursuant to contractual
arrangements in effect on the date of the issuance of the Notes) conduct any
business or enter into any transaction or series of related transactions with
any officer or director or any beneficial owner of 10% or more of any class of
Capital Stock of the Company or with any Affiliate of any such owner known to
the Company or its Restricted Subsidiaries (other than the Company or a
Restricted Subsidiary) unless (i) the terms of such business, transaction or
series of transactions are as favorable to the Company or such Restricted
Subsidiary as terms that would be obtainable at the time for a comparable
transaction or series of related transactions in arm's-length dealings with an
unrelated third person and (ii) if the business or transaction or series of
related transactions is in an aggregate amount greater than $10 million, (A)
the terms thereof are set forth in writing and (B) the Board of Directors has,
by resolution, determined that such business or transaction or series of
transactions meets the criterion set forth in (i) above. Notwithstanding the
foregoing, this provision will not apply to any transaction with an officer or
director of the Company or of any Subsidiary in their capacity as officer or
director entered into in the ordinary course of business (including
compensation and employee benefit arrangements with any officer or director of
the Company or of any Subsidiary).
<PAGE>
Limitation on Liens
The Notes will provide that the Company will not, and will not permit any
of its Restricted Subsidiaries to, Incur or suffer to exist any Liens, other
than Permitted Liens, on any of its or their assets, property, income or
profits therefrom unless contemporaneously therewith or prior thereto all
payments due under the Senior Indenture and the Notes are secured on an equal
and ratable basis with the obligation or liability so secured until such time
as such obligation or liability is no longer secured by a Lien.
Limitation on Guarantees
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, guarantee any payments of or on the
Indebtedness of any Financial Services Subsidiary or any Unrestricted
Subsidiary. Notwithstanding the foregoing, any Financial Services Subsidiary
may, directly or indirectly, guarantee any payments of or on the Indebtedness
of any other Financial Services Subsidiary.
Limitation on Incurrence of Indebtedness
The Company will not, and will not permit any of its Restricted
Subsidiaries to, Incur any Indebtedness; provided, that the Company may Incur
Indebtedness if, after giving effect to the incurrence and the receipt and
application of the proceeds thereof, either (i) the Fixed Charge Coverage
Ratio for the Company and its Restricted Subsidiaries (determined on a pro
forma basis for the last four fiscal quarters of the Company and its
Restricted Subsidiaries for which financial statements are available at the
date of determination) is greater than 2 to 1 or (ii) the ratio of
Indebtedness of the Company and the Restricted Subsidiaries (excluding, for
purposes of this calculation, Indebtedness of the Financial Services
Subsidiaries) to Adjusted Consolidated Net Worth of the Company is less than
2.5 to 1. Notwithstanding the foregoing, the Company and its Restricted
Subsidiaries may Incur: (i) Existing Indebtedness; (ii) Non-Recourse
Indebtedness, (iii) Indebtedness of the Financial Services Subsidiaries; (iv)
Refinancing Indebtedness (provided, that for purposes of this clause (iv),
application of the proceeds from the sale of assets of the Company or its
Restricted Subsidiaries in the ordinary course of business to reduce
Indebtedness and the subsequent reborrowing within six months to purchase
assets in the ordinary course of business shall be deemed to be Refinancing
Indebtedness), (v) outstanding Indebtedness of a Restricted Subsidiary
acquired by the Company after the date of the issuance of the Notes which,
when taken together with all other outstanding Indebtedness of a Restricted
Subsidiary Incurred pursuant to this clause (v) and not subsequently repaid or
replaced by the Company, is not in excess of 10% of Homebuilding Assets and is
Incurred and outstanding on or prior to the date on which such Restricted
Subsidiary was acquired by the Company (other than Indebtedness Incurred as
consideration in, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a Subsidiary
or was otherwise acquired by the Company); provided, however, that at the time
such Restricted Subsidiary is acquired by the Company, the Company would have
been able to Incur at least $1 of additional Indebtedness under the Fixed
Charge Coverage Ratio described under the caption ''Limitation on Incurrence
of Indebtedness'' after giving effect to the Incurrence of such Indebtedness
pursuant to this clause (v) and (vi) Indebtedness to the Company or to
Restricted Subsidiaries.
Change of Control
Upon the occurrence of a Change of Control, the Company shall offer (a
''Change of Control Offer'') to purchase all outstanding Notes at a purchase
price equal to 101% of the aggregate principal amount of the outstanding
Notes, plus accrued and unpaid interest to the date of purchase.
Within 30 days after any Change of Control, the Company, or the Trustee
at the Company's request, will mail or cause to be mailed to all Holders of
Notes of record on the date of the Change of Control a notice of the
occurrence of such Change of Control and of the Holders' rights arising as a
result thereof. Such notice will contain instructions and materials necessary
to enable Holders of Notes to tender their Notes to the Company. Any Change of
Control Offer will be conducted in compliance with applicable tender offer
rules, including Section 14(e) of the Exchange Act and Rule 14e-1 thereunder.
<PAGE>
Limitations on Mergers and Consolidations
The Notes will provide that the Company will not consolidate with or
merge into any other corporation or convey, transfer or lease its properties
and assets substantially as an entirety to any Person (other than a transfer
of properties and assets to one or more wholly-owned Subsidiaries of the
Company), and the Company shall not permit any Person to consolidate with or
merge into the Company or convey, transfer or lease its properties and assets
substantially as an entirety to the Company, unless: (i) in case the Company
shall consolidate with or merge into another corporation or convey, transfer
or lease its properties and assets substantially as an entirety to any Person
(other than a transfer of properties and assets to one or more wholly-owned
Subsidiaries of the Company), the corporation formed by such consolidation or
into which the Company is merged or the Person which acquires by conveyance or
transfer, or which leases, the properties and assets of the Company
substantially as an entirety (the ''Successor'') shall be a corporation
organized and existing under the laws of the United States of America, any
State thereof or the District of Columbia and shall expressly assume, by an
indenture supplemental hereto, executed and delivered to the Senior Trustee,
in form satisfactory to the Senior Trustee, the due and punctual payment of
the principal of (and premium, if any) and interest on all the Notes and the
performance of every covenant of the Senior Indenture on the part of the
Company to be performed or observed; (ii) immediately after giving effect to
such transaction and treating any Indebtedness which becomes an obligation of
the Company or a Subsidiary as a result of such transaction as having been
incurred by the Company or such Subsidiary at the time of such transaction, no
Event of Default, and no event which, after notice or lapse of time or both,
would become an Event of Default, shall have occurred and be continuing; (iii)
immediately after giving effect to such transaction and the use of any net
proceeds therefrom on a pro forma basis, the Consolidated Net Worth of the
Company or the Successor, as the case may be, would be at least equal to the
Consolidated Net Worth of the Company immediately prior to such transaction;
(iv) the Fixed Charge Coverage Ratio for the Company and its Restricted
Subsidiaries (determined on a pro forma basis for the last four fiscal
quarters of the Company and its Restricted Subsidiaries for which financial
statements are available at the date of determination) of the Company or the
Successor, as the case may be, immediately after giving effect to such
transaction, would be such that the Company or the Successor, as the case may
be, would be entitled to Incur at least $1 of additional Indebtedness under
the Fixed Change Coverage Ratio test described under the caption ''_Limitation
on Incurrence of Indebtedness''; and (v) in case the Company shall consolidate
with or merge into any other corporation or convey, transfer or lease its
properties and assets substantially as an entirety to any Person (other than a
transfer of properties and assets to one or more wholly-owned Subsidiaries of
the Company), the Company has delivered to the Senior Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger, conveyance, transfer or lease and such supplemental indenture comply
with the applicable provisions of the Senior Indenture and that all conditions
precedent provided for in the Senior Indenture relating to such transaction
have been complied with.
Events of Default
The following shall constitute events of default with respect to the
Notes: (i) default for a period of 30 days in payment of any interest on any
Note when due; (ii) default in payment of principal of (or premium, if any,
on) any Note when due (including any default in payment pursuant to a Change
of Control Offer, a Net Worth Offer or an Excess Proceeds Offer); (iii)
default in performance of any other covenant in the Senior Indenture with
respect to the Notes or in the Notes which continues for 60 days after written
notice to the Company by the Trustee or by the Holders of at least 25% in
principal amount of the Notes; (iv) the occurrence of any event that results
in the acceleration of any Indebtedness (other than Non-Recourse Indebtedness)
of the Company or any of its Restricted Subsidiaries that has an outstanding
principal amount of $10 million or more in the aggregate; (v) default in the
payment of any principal or interest in respect of any Indebtedness of the
Company or any of its Restricted Subsidiaries (other than Non-Recourse
Indebtedness) that has an outstanding principal amount of $10 million or more
and the continuation of such default for ten business days from the date such
principal or interest payment became due and payable (after giving effect to
any applicable grace period set forth in the documents governing such
Indebtedness); and (vi) certain events of bankruptcy, insolvency or
reorganization.
<PAGE>
Certain Definitions
''Adjusted Consolidated Net Worth'' of the Company means the Consolidated
Net Worth of the Company less (i) the pro rata Company owned portion of the
Consolidated Net Worth of each of the Unrestricted Subsidiaries, and (ii) any
Investment (other than Investments in Capital Stock) of the Company in each of
the Unrestricted Subsidiaries.
''Affiliate'' of any Person means (i) any Person who, directly or
indirectly, is in control of, is controlled by or is under common control with
such Person or (ii) any Person who is a director or officer of such Person.
For purposes of this definition, control of a Person means the power, direct
or indirect, to direct or cause the direction of the management and policies
of such Person whether by contract or otherwise; and the terms ''controlling''
and ''controlled'' have meanings correlative to the foregoing. Notwithstanding
the foregoing, the term ''Affiliate'' shall not include, with respect to the
Company or any Restricted Subsidiary, any Subsidiary of the Company.
''Asset Sale'' for any Person means the sale, lease, conveyance or other
disposition (including, without limitation, by merger, consolidation or sale
and leaseback transaction, and whether by operation of law or otherwise) of
any of that Person's assets (including, without limitation, the sale or other
disposition of Capital Stock of any Subsidiary of such Person, whether by such
Person or such Subsidiary), whether owned on the date of the issuance of the
Notes or subsequently acquired in one transaction or a series of related
transactions, in which such Person and/or Subsidiaries receive cash and/or
other consideration (including, without limitation, the unconditional
assumption of Indebtedness of such Person and/or its Subsidiaries) having an
aggregate fair market value of $5,000,000 or more as to such transaction or
series of related transactions; provided however, (i) sales of homes and sales
of mortgages on homes in the ordinary course of business consistent with past
practices will not constitute Asset Sales, (ii) sales, leases, conveyances or
other dispositions, including, without limitation, exchanges or swaps, of real
estate or other assets in the ordinary course of business consistent with past
practices will not constitute Asset Sales, (iii) sales, leases, sale-
leasebacks or other dispositions of model homes, amenities and other
improvements at the Company's or its Subsidiaries' communities in the ordinary
course of business will not constitute Asset Sales and (iv) transactions
between the Company and any of its Restricted Subsidiaries which are wholly-
owned Subsidiaries, or among such Restricted Subsidiaries which are wholly-
owned Subsidiaries of the Company, will not constitute Asset Sales.
''Capital Stock'' of any Person means any and all shares, interests,
participations or other equivalents of interests in (however designated) the
equity (which includes, but is not limited to, common stock, preferred stock
and partnership and joint venture interests) of such Person.
''Capitalized Lease Obligations'' of any Person means any obligation of
such Person to pay rent or other amounts under a lease that is required to be
capitalized for financial reporting purposes in accordance with GAAP, and the
amount of such obligation will be the capitalized amount thereof determined in
accordance with GAAP.
A ''Change of Control'' of the Company will be deemed to have occurred
upon the occurrence of any of the following: (i) whether or not approved by
the Board of Directors of the Company, any Person or ''group'' within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934
is or becomes the beneficial owner, directly or indirectly, of securities
having 30% or more of the voting power of the Common Stock or (ii) there shall
occur any consolidation of the Company with, or merger of the Company into,
any other entity, any merger of another entity into the Company, or any sale
or transfer of all or substantially all of the assets of the Company (other
than any such sale or transfer to one or more Restricted Subsidiaries of the
Company), in one transaction or a series of related transactions, to one or
more Persons (other than (w) a merger which does not result in any
reclassification, conversion, exchange or cancellation of outstanding shares
of Common Stock of the Company, (x) a merger which is effected solely to
change the jurisdiction of incorporation of the Company, (y) the sale or
transfer of any of the stock or assets of the Limited-Purpose Subsidiaries, or
(z) a merger pursuant to which the holders of Common Stock of the Company
prior to the effective date of such merger hold immediately after such
effective date 70% or more of the class of stock of the surviving entity or
its parent corporation that is entitled to vote generally for the election of
directors).
<PAGE>
''Common Stock'' of any Person means all Capital Stock of such Person
that is generally entitled to (i) vote in the election of directors of such
Person or (ii) if such Person is not a corporation, vote or otherwise
participate in the selection of the governing body, partners, managers or
others that will control the management and policies of such Person.
''Consolidated Interest Expense'' of the Company means, for any period,
the aggregate amount of interest which, in conformity with GAAP, would be set
forth opposite the caption ''interest expense'' or any like caption on an
income statement for the Company and its Restricted Subsidiaries on a
consolidated basis (including, but not limited to, imputed interest included
on capitalized lease obligations, all commissions, discounts and other fees
and charges owed with respect to letters of credit and bankers' acceptance
financing, the net costs associated with hedging obligations, amortization of
other financing fees and expenses, the interest portion of any deferred
payment obligation, amortization of discount or premium, if any, and all other
non-cash interest expense (other than interest amortized to cost of sales))
plus without duplication, all capitalized interest for such period and all
interest incurred or paid under any guarantee of Indebtedness (including a
guarantee of principal, interest or any combination thereof) of any Person. In
making such calculation on a pro forma basis, interest attributable to
Indebtedness bearing a floating interest rate shall be computed as if the rate
in effect on the date of computation had been the applicable rate for the
entire period.
''Consolidated Net Income'' of the Company means, for any period, the
aggregate of the Net Income of the Company and its Restricted Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP,
provided that (i) the Net Income of any Person which is not a Restricted
Subsidiary or is accounted for by such Person by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid to the Company or a Restricted Subsidiary by such Person,
(ii) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded and (iii) the Net Income of any Subsidiary (other than a Financial
Services Subsidiary) that is subject to restrictions, direct or indirect, on
the payment of dividends or the making of distributions to such Person shall
be excluded, except to the extent dividends are actually received by the
Company or a Restricted Subsidiary from such Subsidiary.
''Consolidated Net Worth'' means, with respect to any Person, the
consolidated net worth of such Person determined in accordance with GAAP.
''Consolidated Tangible Net Assets'' of the Company as of any date means
the total amount of assets of the Company and its Restricted Subsidiaries
(less applicable reserves) on a consolidated basis at the end of the fiscal
quarter immediately preceding such date, as determined in accordance with
GAAP, less: (i) Intangible Assets and (ii) appropriate adjustments on account
of minority interests of other Persons holding equity investments in
Restricted Subsidiaries, in the case of each of clauses (i) and (ii) above as
reflected on the consolidated balance sheet of the Company and its Restricted
Subsidiaries as of the end of the fiscal quarter immediately preceding such
date.
''Consolidated Tax Expense'' of the Company means, for any period, the
aggregate of the federal, state, local and foreign tax expense of the Company
and its Restricted Subsidiaries for such period, determined on a consolidated
basis in accordance with GAAP.
''Disqualified Stock'' means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is
redeemable at the option of the holder thereof, in whole or in part, on or
prior to the final maturity date of the Notes.
<PAGE>
''EBITDA'' means earnings (loss) before (i) taxes, (ii) interest
expensed, (iii) amortization of capitalized interest included in cost of
sales, (iv) equity in earnings (losses) of unconsolidated joint ventures and
(v) depreciation and amortization.
''ESOP Stock'' means the Company's class of Convertible Preferred Stock
outstanding on the date of the Senior Indenture.
''Existing Indebtedness'' means all of the Indebtedness of the Company
and its Subsidiaries that is outstanding on the date of the Indenture.
''Financial Services Subsidiaries'' means the Subsidiaries of the Company
engaged in the mortgage banking (including mortgage origination, loan
servicing, mortgage brokerage and title and escrow businesses), master
servicing and related activities, which as of the date of Indenture included
RMC but excluded the Limited-Purpose Subsidiaries.
''Fixed Charge Coverage Ratio'' means, for any period, the ratio of (i)
the sum of Consolidated Net Income, Consolidated Interest Expense and
Consolidated Tax Expense, plus all depreciation, and without duplication, all
amortization which includes the allocation of non-cash costs to cost of sales,
in each case, for such period, of the Company and its Restricted Subsidiaries,
to (ii) Consolidated Interest Expense of the Company and its Restricted
Subsidiaries for such period, provided however, that in making such
computation, the Consolidated Interest Expense attributable to interest on any
Indebtedness computed on a pro forma basis and bearing a floating interest
rate shall be computed as if the rate in effect on the date of computation had
been the applicable rate for the entire period.
''GAAP'' means generally accepted accounting principles as in effect and
implemented by the Company.
A ''guarantee'' by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Indebtedness
of any other Person including, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of
such Person to purchase or pay principal of, or interest on (or advance or
supply funds or pledge assets for the purchase or payment of or payment of
interest on), such Indebtedness of such other Person (whether by agreement to
provide additional capital or to maintain financial condition or other similar
agreement).
''Homebuilding Assets'' means the total assets of the Company's
homebuilding business segment as reported in its consolidated financial
statements prepared in accordance with GAAP.
''Incur'' means to, directly or indirectly, create, incur, assume,
guaranty, extend the maturity of, or otherwise become liable with respect to
any Indebtedness.
''Indebtedness'' means (i) any liability of any Person (a) for borrowed
money or for the deferred purchase price of property or services (other than
current liabilities, including trade payables, arising in the ordinary course
of business) or which is evidenced by a note, bond, debenture or similar
instrument, and which would appear as a liability upon a balance sheet of such
Person prepared on a consolidated basis in accordance with GAAP, or (b) for
the payment of money relating to a Capitalized Lease Obligation; (ii) any
liability of any Person under any obligation incurred under letters of credit
not in the ordinary course of business; and (iii) any liability of others
described in clause (i) or (ii) with respect to which such Person had made a
guarantee or similar arrangement, directly or indirectly (to the extent of
such guarantee or arrangement), but does not include obligations in respect of
performance bonds, banker's acceptances, escrow agreements, letters of credit
and surety bonds provided in the ordinary course of business. The amount of
Indebtedness of any Person at any date shall be the outstanding balance at
such date of all unconditional obligations described above and the maximum
liability of such Person for any such contingent obligations at such date. To
the extent such Person guarantees the obligation of another Person to pay
interest on indebtedness owed by such other Person, then a designated
percentage of the interest guaranteed or the principal amount of the
underlying indebtedness, as the case may be, shall be deemed indebtedness of
the referent Person. For purposes of this definition, the amount of such
deemed indebtedness of the referent Person shall be equal to the lesser of:
(a) the aggregate principal amount of the underlying indebtedness relating to
such interest guarantee or (b) the aggregate amount of interest due and
payable over the term of such indebtedness (or the term of the Notes, if
shorter) determined based upon the rate of interest in effect as of the date
of such determination, together with the maximum prepayment premium or penalty
which could become due or payable with respect to such indebtedness if such
indebtedness was prepaid prior to the maturity of the Notes.
<PAGE>
''Intangible Assets'' of the Company means all unamortized debt discount
and expense, unamortized deferred charges, goodwill, patents, trademarks,
service marks, trade names, copyrights, write-ups of assets over their
carrying value at the end of the last fiscal quarter ended prior to the date
of the issuance of the Notes or the date of acquisition, if acquired
subsequent thereto, and all other items which would be treated as intangibles
on the consolidated balance sheet of the Company and its Restricted
Subsidiaries prepared in accordance with GAAP.
''Investments'' means, with respect to any Person, (i) all investments by
such Person in any other Person in the form of loans, advances, capital
contributions, (ii) all guarantees of Indebtedness or other obligations of any
other Person by such Person and (iii) all purchases (or other acquisitions for
consideration) by such Person of Indebtedness, Capital Stock or other
securities of any other Person and purchases of assets outside the ordinary
course of business.
''Lien'' means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or other similar encumbrance of any kind upon or in
respect of such asset, whether or not filed, recorded or otherwise perfected
under applicable law (including, without limitation, any conditional sale or
other title retention agreement, and any lease in the nature thereof, any
option or other agreement to sell, and any filing of, or agreement to give,
any financing statement under the Uniform Commercial Code (or equivalent
statutes) of any jurisdiction).
''Limited-Purpose Subsidiaries'' means the Subsidiaries of the Company
which facilitate the financing of mortgage loans and mortgage-backed
securities and the securitization of mortgage-backed bonds and other related
activities.
''Net Income'' means, with respect to any Person, the net income (loss)
of such Person, determined in accordance with GAAP, excluding, however, (i)
any gain (but not loss) realized upon the sale or other disposition
(including, without limitation, dispositions pursuant to sale and leaseback
transactions) of any real property or equipment of such Person which is not
sold or otherwise disposed of in the ordinary course of business, and (ii) any
non-cash gain (but not loss) realized upon the sale or other disposition by
such Person of any Capital Stock or marketable securities.
''Net Proceeds'' means cash (in U.S. dollars or freely convertible into
U.S. dollars) received by the Company or any Restricted Subsidiary from an
Asset Sale net of (i)(a) all brokerage commissions, investment banking fees
and all other fees and expenses (including, without limitation, fees and
expenses of counsel and investment bankers) related to such Asset Sale, (b)
provisions for all income and other taxes measured by or resulting from such
Asset Sale, (c) payments made to retire Indebtedness where payment of such
Indebtedness is required in connection with such Asset Sale, (d) amounts
required to be paid to any Person (other than the Company or a Restricted
Subsidiary) owning a beneficial interest in the assets subject to the Asset
Sale and (e) appropriate amounts to be provided by the Company or any
Restricted Subsidiary thereof, as the case may be, as a reserve, in accordance
with GAAP, against any liabilities associated with such Asset Sale and
retained by the Company or any Restricted Subsidiary thereof, as the case may
be, after such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as reflected in an Officers' Certificate delivered to the
Trustee and (ii) all noncash consideration received by the Company or any of
its Restricted Subsidiaries from such Asset Sale upon the liquidation or
conversion of such consideration received from an Asset Sale into cash,
without duplication, net of all items enumerated in subclauses (a) through (e)
of clause (i) hereof.
<PAGE>
''Non-Financial Services Restricted Subsidiary'' means any Restricted
Subsidiary which is not a Financial Services Subsidiary.
''Non-Recourse Indebtedness'' means Indebtedness or other obligations
secured by a lien on property to the extent that the liability for such
Indebtedness or other obligations is limited to the security of the property
without liability on the part of the Company or any Subsidiary for any
deficiency, including liability by reason of any agreement by the Company or
any Subsidiary to provide additional capital or maintain the financial
condition of or otherwise support the credit of the Subsidiary incurring such
Indebtedness.
''Permitted Liens'' means (i) Liens for taxes, assessments or
governmental charges or claims that either (a) are not yet delinquent or (b)
are being contested in good faith by appropriate proceedings and as to which
appropriate reserves have been established or other provisions have been made
in accordance with GAAP, (ii) statutory Liens of landlords and carriers',
warehousemen's, mechanics', suppliers', materialmen's, repairmen's or other
Liens imposed by law and arising in the ordinary course of business and with
respect to amounts that, to the extent applicable, either (a) are not yet
delinquent or (b) are being contested in good faith by appropriate proceedings
and as to which appropriate reserves have been established or other provisions
have been made in accordance with GAAP, (iii) Liens (other than any Lien
imposed by the Employee Retirement Income Security Act of 1974, as amended)
incurred or deposits made in the ordinary course of business in connection
with workers' compensation, unemployment insurance and other types of social
security and deposits securing liability to insurance carriers under insurance
or self-insurance arrangements, (iv) Liens incurred or deposits made to secure
the performance of tenders, trade contracts, bids, leases, statutory
obligations, surety and appeal bonds, progress payments, government contracts
and other obligations of like nature (exclusive of obligations for the payment
of borrowed money), in each case incurred in the ordinary course of business
of the Company and its Subsidiaries, (v) attachment or judgment Liens not
giving rise to an Event of Default and which are being contested in good faith
by appropriate proceedings, (vi) easements, rights-of-way, restrictions and
other similar charges or encumbrances which, in the aggregate, are not
substantial in amount and which do not materially detract from the value of
the property subject thereto or are not materially interfering with the
ordinary course of business of the Company and its Subsidiaries, (vii) zoning
restrictions, licenses, restrictions on the use of real property or minor
irregularities in title thereto, which do not materially impair the use of
such real property in the ordinary course of business of the Company and its
Subsidiaries or the value of such real property for the purpose of such
business, (viii) leases or subleases granted to others not materially
interfering with the ordinary course of business of the Company and its
Subsidiaries, (ix) purchase money mortgages (including, without limitation,
Capitalized Lease Obligations and purchase money security interests), (x)
Liens securing Refinancing Indebtedness; provided, that such Liens only extend
to assets which are similar to the type of assets securing the Indebtedness
being refinanced and such refinanced Indebtedness was previously secured by
such similar assets, (xi) Liens securing Indebtedness of the Company and its
Restricted Subsidiaries permitted to be incurred under the Senior Indenture;
provided, that the aggregate amount of Indebtedness secured by Liens (other
than Non-Recourse Indebtedness secured by Liens) will not exceed 40% of
Homebuilding Assets, (xii) any interest in or title of a lessor to property
subject to any Capitalized Lease Obligations incurred in compliance with the
provisions of the Senior Indenture, (xiii) Liens existing on the date of the
issuance of the Notes, including, without limitation, Liens securing Existing
Indebtedness, (xiv) any option, contract or other agreement to sell an asset,
provided , that such sale is not otherwise prohibited under the Senior
Indenture, (xv) Liens securing Non-Recourse Indebtedness of the Company or a
Restricted Subsidiary thereof, (xvi) Liens on property or assets of any
Restricted Subsidiary securing Indebtedness of such Restricted Subsidiary
owing to the Company or one or more Restricted Subsidiaries, (xvii) Liens
securing Indebtedness of an Unrestricted Subsidiary, Financial Services
Subsidiary or Affiliate, (xviii) any right of a lender or lenders to which the
Company or a Restricted Subsidiary may be indebted to offset against, or
appropriate and apply to the payment of, such Indebtedness any and all
balances, credits, deposits, accounts or monies of the Company or a Restricted
Subsidiary with or held by such lender or lenders and (xix) any pledge or
deposit of cash or property in conjunction with obtaining surety and
performance bonds and letters of credit required to engage in constructing on-
site and off-site improvements required by municipalities or other
governmental authorities in the ordinary course of business by the Company or
any Restricted Subsidiary.
<PAGE>
''Person'' means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
''Refinancing Indebtedness'' means Indebtedness that solely refunds,
refinances or extends, within six months of the repayment of, any Notes,
Existing Indebtedness or other Indebtedness incurred by the Company or its
Subsidiaries in accordance with the terms of the Senior Indenture, but only to
the extent that (i) the Refinancing Indebtedness is subordinated to the Notes
to the same extent as the Indebtedness being refunded, refinanced or extended,
if at all, (ii) the Refinancing Indebtedness is scheduled to mature either (a)
no earlier than the Indebtedness being refunded, refinanced or extended, or
(b) after the maturity date of the Notes, (iii) the portion, if any, of the
Refinancing Indebtedness that is scheduled to mature on or prior to the
maturity date of the Notes has a Weighted Average Life to Maturity at the time
such Refinancing Indebtedness is incurred that is equal to or greater than the
Weighted Average Life to Maturity of the portion of the Indebtedness being
refunded, refinanced or extended that is scheduled to mature on or prior to
the maturity date of the Notes, (iv) such Refinancing Indebtedness is in an
aggregate principal amount that is equal to or less than the aggregate
principal amount then outstanding under the Indebtedness being refunded,
refinanced or extended and (v) such Refinancing Indebtedness is incurred by
the same Person that initially incurred the Indebtedness being refunded,
refinanced or extended except that (a) the Company may incur Refinancing
Indebtedness to refund, refinance or extend Indebtedness of any Restricted
Subsidiary, other than the Financial Services Subsidiaries and (b) any
Restricted Subsidiary may incur Refinancing Indebtedness to refund, refinance
or extend Indebtedness of any Restricted Subsidiary, except that Indebtedness
of any Financial Services Subsidiaries may be refinanced only by that
Subsidiary or another Financial Services Subsidiary.
''Restricted Investment'' means Investments in any Unrestricted
Subsidiary or any Affiliate of the Company.
''Restricted Payment'' means (i) with respect to the Company, any
Restricted Investment made after the date of the Senior Indenture, any
dividend, either in cash or in property (except dividends payable in Capital
Stock (other than Disqualified Stock) of the Company), on, or the making by
the Company of any other distribution in respect of, its Capital Stock, now or
hereafter outstanding, or the redemption, repurchase, retirement or other
acquisition for value by the Company or any Subsidiary, directly or
indirectly, of the Company's Capital Stock or any warrants, rights (other than
exchangeable or convertible indebtedness of the Company), or options to
purchase or acquire shares of any class of the Company's Capital Stock, now or
hereafter outstanding, and (ii) with respect to any Restricted Subsidiary, any
Restricted Investment made after the date of the Indenture, any dividend,
either in cash or property (except (x) dividends payable in Capital Stock,
other than Disqualified Stock, of such Subsidiary and (y) dividends or
distributions payable to the Company or to a Restricted Subsidiary of the
Company) on, or the making by any Restricted Subsidiary of any other
distribution in respect of, its Capital Stock, now or hereafter outstanding,
or the redemption, repurchase, retirement or other acquisition for value,
directly or indirectly, of such Restricted Subsidiary's Capital Stock or any
warrants, rights (other than exchangeable or convertible indebtedness of any
Restricted Subsidiary), or options to purchase or acquire shares of any class
of such Restricted Subsidiary's Capital Stock now or hereafter outstanding
(except with respect to such Capital Stock or such warrants, rights or options
owned by the Company or a Restricted Subsidiary). Notwithstanding the
foregoing, Restricted Payments shall not include dividends on or distributions
in respect of, or any redemption, repurchase, retirement or acquisition for
value of the ESOP Stock.
''Restricted Subsidiaries'' means each of the Subsidiaries of the Company
which is not, as of a determination date, an Unrestricted Subsidiary of the
Company.
<PAGE>
''Senior Debt of the Company'' includes (a) all indebtedness of the
Company (i) for money borrowed, (ii) evidenced by a note or similar instrument
given in connection with the acquisition of any business, properties or
assets, including securities, (iii) evidenced by notes, debentures, bonds or
other instruments of indebtedness for the payment of which the Company is
responsible or liable, by guarantees or otherwise, whether outstanding on the
date of execution of the Indenture or thereafter created, incurred or assumed,
(iv) with respect to an obligation under a swap agreement to exchange payments
of a differing rate or rates or in differing currency or currencies, or (v)
with respect to any other obligation of the Company which by agreement of the
Company with or for the benefit of the holder of such obligation is expressly
made superior in right of payment to the Notes, and (b) amendments, renewals,
modifications, extensions and refundings of any such indebtedness,
liabilities, obligations or guarantees; unless in any instrument or
instruments evidencing or securing the same or pursuant to which the same is
outstanding, or in any such amendment, renewal, extension or refunding, it is
provided that such indebtedness, liabilities, obligations or guarantees are
not superior in right of payment to the Notes or that such indebtedness,
liabilities, obligations or guarantees are pari passu with or junior in right
of payment to the Notes. Senior Debt does not include (a) any indebtedness,
liability, guarantee or obligation of the Company to any Subsidiary or to an
Affiliate of the Company or any Subsidiary of the Affiliate or (b) any
indebtedness, liability, guarantee or obligation of the Company, which
provides by its terms that such indebtedness, liability, guarantee or
obligation is subordinated in right of payment to any other indebtedness,
liability, guarantee or obligation of the Company.
''Subsidiary'' means (i) a corporation, the majority of the Common Stock
of which is owned, directly or indirectly through other subsidiaries, by the
Company or a subsidiary of the Company, and (ii) any entity other than a
corporation, the majority of the Common Stock of which is owned, directly or
indirectly through other subsidiaries, by the Company or a subsidiary of the
Company.
''Unrestricted Subsidiaries'' means (a) the Limited-Purpose Subsidiaries,
(b) each of the Subsidiaries so designated by a resolution adopted by the
Company's Board of Directors and whose creditors have no direct or indirect
recourse (including, but not limited to, recourse with respect to the payment
of principal or interest on Indebtedness of such Subsidiary) to the Company or
a Restricted Subsidiary and (c) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors of the Company may designate an Unrestricted Subsidiary
to be a Restricted Subsidiary, provided that any such redesignation shall be
deemed to be an incurrence by the Company and its Restricted Subsidiaries of
the Indebtedness (if any) of such redesignated Subsidiary for purposes of the
Limitation of Incurrence of Indebtedness covenant in the Senior Indenture as
of the date of such redesignation. Subject to the foregoing, the Board of
Directors of the Company also may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary, provided that (i) all previous Investments by the
Company and its Restricted Subsidiaries in such Restricted Subsidiary shall be
deemed to be Restricted Payments at the time of such designation and shall
reduce the amount available for Restricted Payments under the Limitation on
Restricted Payments covenant in the Senior Indenture and (ii) immediately
after giving effect to such designation and reduction of amounts available for
Restricted Payments under the Limitation on Restricted Payments covenant in
the Senior Indenture, the Company and its Restricted Subsidiaries could make
$1 of additional Restricted Payments pursuant to the Limitation on Restricted
Payments covenant in the Senior Indenture. Any such designation or
redesignation by the Board of Directors shall be evidenced to the Trustee by
the filing with the Trustee of a certified copy of the Board Resolution of the
Company giving effect to such designation or redesignation and officer's
certificate certifying that such designation or redesignation complied with
the foregoing conditions and setting forth the underlying calculations of such
certificate. As of the date of the Senior Indenture, the only Unrestricted
Subsidiaries are Limited-Purpose Subsidiaries.
''Weighted Average Life to Maturity'' means, when applied to any
Indebtedness or portion thereof (if applicable) at any date, the number of
years obtained by dividing (i) the then outstanding principal amount of such
indebtedness or portion thereof (if applicable) into (ii) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment.
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting
agreement (the ''Underwriting Agreement''), the Company has agreed to sell to
Dillon, Read & Co. Inc. (''Underwriter''), and the Underwriter has agreed to
purchase all of the Notes offerred hereby. The Underwriting Agreement
provides that the Underwriter is obligated to purchase all the Notes, if any
are purchased.
The Underwriter proposes to offer the Notes directly to the public at the
initial public offering price set forth on the cover page of this Prospectus
Supplement and to certain dealers at such price less a concession not in
excess of 1.125% of the principal amount. The Underwriter may allow, and such
dealers may reallow, a concession not in excess of 0.25% of the principal
amount on sales to certain other dealers. The offering of the Notes is made
for delivery when, as and if accepted by the Underwriter and subject to prior
sale and to withdrawal, cancellation or modification of the offer without
notice. The Underwriter reserves the right to reject any offer for the
purchase of the Notes. After the initial public offering, the public offering
price and other selling terms may be changed by the Underwriter.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended, or to contribute to payments the Underwriter may be required to make
in respect thereof.
The Underwriter has in the past engaged, and may in the future engage, in
investment banking business and various financing transactions with the
Company in the ordinary course of its business. In addition, a director of
the Underwriter serves as a director of the Company.
VALIDITY OF THE NOTES
The validity of the Notes will be passed upon for the Company by Piper &
Marbury, L.L.P., Baltimore, Maryland, and for the Underwriter by Simpson
Thacher & Bartlett (a partnership which includes professional corporations),
New York, New York. Attorneys at Piper & Marbury, L.L.P beneficially own an
aggregate of approximately 98,200 shares of Common Stock of the Company.
<PAGE>
This page Intentionally Left Blank
<PAGE>
$200,000,000
THE RYLAND GROUP, INC.
DEBT SECURITIES
The Ryland Group, Inc. (the ''Corporation'') may from time to time offer
up to $200,000,000 aggregate principal amount of its unsecured debt securities
(the ''Debt Securities'') consisting of debentures, notes and/or other
unsecured evidences of indebtedness in one or more series. The Debt Securities
may be offered as separate series in amounts, at prices and on terms to be
determined in light of market conditions at the time of offering and set forth
in a Prospectus Supplement or Prospectus Supplements. The Corporation may sell
Debt Securities to or through underwriters, or to dealers, acting as
principals for their own accounts, and reserves the right to sell Debt
Securities directly to other purchasers or through agents on its own behalf.
This Prospectus will be supplemented and accompanied by a Prospectus
Supplement which shall set forth with regard to the Debt Securities to be
offered hereunder, where applicable and relevant, the title, aggregate
principal amount, denominations, maturity, interest rate (which may be fixed
or variable) and time of payment of interest, if any, terms for redemption, if
any, at the option of the Corporation or the holder, any terms for sinking or
purchase fund payments, any terms for optional or mandatory redemption, any
listing on a securities exchange, the initial public offering price, the names
of any underwriters or agents involved in the sale of the Debt Securities, the
principal amounts, if any, to be purchased by underwriters or agents, the
compensation, if any, of such underwriters or agents and any other terms in
connection with the offering and sale of the Debt Securities in respect of
which this Prospectus is being delivered.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION
TO THE CONTRARY IS UNLAWFUL.
The date of this Prospectus is June 10, 1996.
<PAGE>
AVAILABLE INFORMATION
The Corporation is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the ''Exchange Act''), and, in
accordance therewith, files reports, proxy or information statements and other
information with the Securities and Exchange Commission (the ''Commission'').
This Prospectus contains information concerning the Corporation but does not
contain all of the information set forth in the Registration Statement and
exhibits thereto which the Corporation has filed with the Commission under the
Securities Act of 1933, as amended (the ''Securities Act''). Such reports and
other information filed by the Corporation with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth St., N.W., Washington, D.C. 20549, and at
the Regional Offices of the Commission at 7 World Trade Center, New York, New
York 10048; and Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material can be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Such materials can also be
inspected at the offices of the New York Stock Exchange, Inc., 20 Broad
Street, New York, New York 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Corporation hereby incorporates by reference in this Prospectus its
(i) Annual Report on Form 10-K for the year ended December 31, 1995 and (ii)
its Quarterly Report on Form 10-Q for the three months ended March 31, 1996.
All documents filed by the Corporation pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering of the Securities shall be deemed to
be incorporated by reference in this Prospectus and made a part hereof from
the date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent
that a statement contained herein or in any other document subsequently filed
with the Commission which also is or is deemed to be incorporated by reference
herein modifies or supersedes such statement. Any such statement so modified
or superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Corporation will provide without charge to each person to whom this
Prospectus is delivered, upon the written or oral request of such person, a
copy of any or all of the documents incorporated by reference herein (not
including the exhibits to such documents, unless such exhibits are
specifically incorporated by reference in such documents). Requests for such
copies should be directed to: Lawrence P. Cates, Director, Investor Relations,
The Ryland Group, Inc., 11000 Broken Land Parkway, Columbia, Maryland 21044
(telephone number: (410) 715-7000).
THE CORPORATION
Ryland is a leading national homebuilder and a mortgage-related financial
services firm. The Corporation was incorporated in the State of Maryland in
1967. Its principal executive office is located at 11000 Broken Land Parkway,
Columbia, Maryland 21044, telephone number (410) 715-7000.
RATIO OF EARNINGS TO FIXED CHARGES
The ratios of earnings to fixed charges set forth below are computed on a
consolidated basis. On a consolidated basis, the ratios of earnings to fixed
charges include the earnings and fixed charges of Ryland Mortgage Company and
subsidiaries, and the Corporation's limited-purpose subsidiaries.
<TABLE>
<CAPTION>
Year ended December 31, Three Months
Ended
March 31,
-------------------------------------- -----------
1991 1992 1993 1994 1995 1996
----- ---- ----- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings
to Fixed Charges 1.00 1.11 -(F1) 1.26 -(F1) 1.00
<FN>
(F1) For 1993, earnings were insufficient to cover fixed charges by $14.4
million, primarily due to a provision of $45 million for homebuilding
inventories and joint venture investments. For 1995, earnings were
insufficient to cover fixed charges by $47.5 million, primarily due to a $45
million impairment charge relating to homebuilding inventories and joint
venture investments.
</FN>
</TABLE>
<PAGE>
Earnings available for fixed charges represent earnings before income
taxes and fixed charges (excluding interest capitalized, net of amortization).
Fixed charges represent interest incurred, amortization of debt expense, plus
that portion of rental expense deemed to be the equivalent of interest.
USE OF PROCEEDS
Except as otherwise stated in a Prospectus Supplement, the net proceeds
from the sale of the Debt Securities will be added to the general funds of the
Corporation and will be available for general corporate purposes, including
the refinancing of existing indebtedness.
DESCRIPTION OF DEBT SECURITIES
The following description of the terms of the Debt Securities sets forth
certain general terms and provisions of the Debt Securities to which any
Prospectus Supplement may relate. The particular terms of the Debt Securities
offered by any Prospectus Supplement (the ''Offered Debt Securities''),
including the nature of any variations from the following general provisions
applicable to such Offered Debt Securities, will be described in the
Prospectus Supplement relating to such Offered Debt Securities.
Any Senior Debt Securities (the ''Senior Debt Securities'') are to be
issued under an Indenture (the ''Senior Indenture'') between the Corporation
and the trustee identified in the applicable Prospectus Supplement (the
''Senior Trustee''). Any Subordinated Debt Securities (the ''Subordinated Debt
Securities'') are to be issued under an Indenture dated as of July 15, 1992
(the ''Subordinated Indenture'') between the Corporation and First Union
National Bank of Virginia, as trustee. The Senior Indenture and Subordinated
Indenture are sometimes referred to collectively as the ''Indenture.'' Each of
First Union National Bank of Virginia and the Senior Trustee is hereinafter
referred to as a ''Trustee'' and they are collectively referred to as
''Trustees.'' Copies of the Indentures are filed as exhibits to the
Registration Statement of which this Prospectus is a part. The following
summaries of certain provisions of the Debt Securities and Indentures do not
purport to be complete and are subject to, and qualified in their entirety by
reference to, all the provisions of the Indentures, applicable to a particular
series of Debt Securities, including the definitions therein of certain terms.
Wherever reference is made to particular sections, articles or defined terms
of the Indentures, such sections or defined terms are incorporated herein by
reference. Certain defined terms in the Indentures are capitalized herein and
have the same meaning as in the Indenture.
General
The Indentures do not limit the amount of debentures, notes or other
evidences of indebtedness which may be issued thereunder. The Indentures
provide that Debt Securities may be issued from time to time in one or more
series up to the aggregate principal amount authorized by the Corporation for
each series. Unless otherwise specified in the Prospectus Supplement, the
Senior Debt Securities when issued will be unsecured and unsubordinated
obligations of the Corporation and will rank equally and ratably with all
other unsecured and unsubordinated indebtedness of the Corporation. The
Subordinated Debt Securities when issued will be subordinated in right of
payment to the prior payment in full of all Senior Debt (as defined below) of
the Corporation, as described under ''Subordination of Subordinated Debt
Securities'' and in the Prospectus Supplement applicable to an offering of
Subordinated Debt Securities.
<PAGE>
The Corporation's financial services and some of its homebuilding
operations are conducted through subsidiaries and any right of the Corporation
to receive assets of these subsidiaries upon the liquidation or
recapitalization of any such subsidiaries (and the consequent right of holders
of the Debt Securities to participate in those assets) will be subject to the
claims of such subsidiary's creditors, except to the extent that the
Corporation is itself recognized as a creditor of such subsidiary. Even in the
event the Corporation is recognized as a creditor of a subsidiary, the
Corporation's claims would still be subject to any security interests in the
assets of such subsidiary and any indebtedness of such subsidiary senior to
that of the Corporation. Accordingly, the Debt Securities will in effect be
subordinated to the claims of indebtedness of such subsidiaries against the
assets of such subsidiaries. As of March 31, 1996, $834,247,000 of the
Corporation's consolidated liabilities represents liabilities of such
subsidiaries.
The Prospectus Supplement relating to the Offered Debt Securities offered
thereby will describe the following terms, where applicable, of the Offered
Debt Securities: (1) the title of the Offered Debt Securities and the series
of which the Offered Debt Securities shall be a part; (2) any limit on the
aggregate principal amount of the Offered Debt Securities; (3) the price
(expressed as a percentage of the aggregate principal amount thereof) at which
the Offered Debt Securities will be issued; (4) the date or dates (or manner
of determining the same) on which the principal of the Offered Debt Securities
is payable; (5) the rate or rates (which may be fixed or variable) per annum
(or a manner of determining the same) at which the Offered Debt Securities
will bear interest, if any, and whether the interest rate on the Offered Debt
Securities may be reset upon certain designated events; (6) the date from
which such interest, if any, on the Offered Debt Securities will accrue, the
dates on which such interest, if any, will be payable, the date on which
payment of such interest, if any, will commence and the record dates for such
interest payment dates, if any, and the extent to which, or the manner in
which, any interest payable on a Global Security on an Interest Payment Date
will be paid; (7) the place or places where principal of (and premium, if any)
and interest on the Offered Debt Securities will be payable; (8) the period or
periods within which, the price or prices at which, and the terms and
conditions upon which the Offered Debt Securities may be redeemed, in whole or
in part, at the option of the Corporation; (9) the obligation, if any, of the
Corporation to redeem or purchase the Offered Debt Securities at the option of
a Holder thereof, and the period or periods within which, the price or prices
at which, and the terms and conditions upon which the Offered Debt Securities
will be redeemed or purchased, in whole or in part, pursuant to such
obligation; (10) the dates, if any, on which and the price or prices at which
the Offered Debt Securities will, pursuant to any mandatory sinking fund
provisions, or may, pursuant to any optional sinking fund provisions or
pursuant to any purchase fund provisions, be redeemed by the Corporation, and
the other detailed terms and provisions of such sinking and/or purchase fund;
(11) the denominations in which the Offered Debt Securities are authorized to
be issued; (12) if other than the full principal amount thereof, the portion
of the principal amount of the Offered Debt Securities which will be payable
upon declaration of acceleration of the maturity thereof; (13) if other than
the currency of the United States of America, the currency or currencies,
including composite currencies, in which payment of the principal of (and
premium, if any) and interest on the Offered Debt Securities will be payable;
(14) if the amount of payments of principal of (and premium, if any) or
interest on the Offered Debt Securities may be determined with reference to an
index, the manner in which such amounts will be determined; (15) whether the
Offered Debt Securities are to be issued with original issue discount within
the meaning of Section 1273(a) of the Internal Revenue Code of 1986, as
amended; (16) whether the Offered Debt Securities are to be issued in whole or
in part in the form of one or more Global Securities and, if so, the identity
of the depositary, if any, for such Global Security or Securities; (17) any
addition to, or modification or deletion of, any Events of Default or
covenants provided for with respect to the Offered Debt Securities; and (18)
any other terms of the Offered Debt Securities.
Debt Securities may be issued under the Indentures at an original issue
discount, that is sold at a discount from their principal amount. Certain
federal income tax and other considerations applicable thereto will be
described in the Prospectus Supplement relating to any such Debt Securities.
<PAGE>
Denominations, Registration and Transfer
Unless otherwise provided in an applicable Prospectus Supplement with
respect to a series of Offered Debt Securities, the Debt Securities will be
issuable in fully registered form and in denominations of $1,000 or any
integral multiple thereof. Offered Debt Securities of a series may be issuable
in whole or in part in certificate form or in the form of one or more Global
Securities, as described below under ''Global Securities.''
Offered Debt Securities of any series (other than a Global Security) will
be exchangeable for other Debt Securities of the same series and of a like
aggregate principal amount and tenor of different authorized denominations.
Debt Securities may be presented for exchange as provided below, and Debt
Securities (other than a Global Security) may be presented for registration of
transfer (with the form of transfer endorsed thereon duly executed) at the
Corporate Trust Office of the applicable Trustee, without service charge and
upon payment of any taxes and other governmental charges payable in connection
therewith. Such transfer or exchange will be effected upon the Trustee (as
Security Registrar) being satisfied with the documents of title and identity
of the person making the request.
Payment and Paying Agents
Unless otherwise indicated in the applicable Prospectus Supplement,
payment of principal of, and premium, if any, and any interest on Debt
Securities will be made at the office of such Paying Agent or Paying Agents as
the Corporation may designate from time to time except that at the option of
the Corporation payment of any interest may be made (i) by check mailed to the
address of the Person entitled thereto as such address shall appear in the
Security Register or (ii) by wire transfer to an account maintained by the
Person entitled thereto. Unless otherwise indicated in the applicable
Prospectus Supplement, payment of any installment of interest on Debt
Securities will be made to the Person in whose name such Debt Security is
registered at the close of business on the Regular Record Date for such
interest.
Unless otherwise indicated in an applicable Prospectus Supplement, the
applicable Trustee will act as the Corporation's sole Paying Agent through its
principal office with respect to the Debt Securities. Any Paying Agents
outside the United States and other Paying Agents in the United States
initially designated by the Corporation for the Offered Debt Securities will
be named in an applicable Prospectus Supplement. The Corporation may at any
time designate additional Paying Agents or rescind the designation of any
Paying Agent or approve a change in the office through which any Paying Agent
acts; provided, however, the Corporation will be required to maintain a Paying
Agent in each Place of Payment for such series.
All moneys paid by the Corporation to the applicable Trustee or a Paying
Agent for the payment of principal of, and premium, if any, and any interest
on any Debt Security which remains unclaimed at the end of two years after
such principal, premium or interest shall have become due and payable will be
repaid to the Corporation and the Holder of such Debt Security will thereafter
look only to the Corporation for payment thereof.
Global Securities
The Debt Securities of a series may be issued in whole or in part in the
form of one or more Global Securities that will be deposited with or on behalf
of a depository (a ''Depository'') identified in the Prospectus Supplement
relating to such series. Unless otherwise indicated in an applicable
Prospectus Supplement, Global Securities will be issued in registered form and
may be issued in either temporary or permanent form.
The specific terms of the depository arrangement with respect to any Debt
Securities of a series will be described in the Prospectus Supplement relating
to such series. The Corporation anticipates that the following provisions will
apply to all depository arrangements.
<PAGE>
Debt Securities which are to be represented by a Global Security to be
deposited with or on behalf of a Depository will be registered in the name of
such Depository or its nominee. Upon the issuance of a Global Security, the
Depository for such Global Security will credit the respective principal
amounts of the Debt Securities represented by such Global Security to the
accounts of institutions that have accounts with such depository or its
nominee (''participants''). The accounts to be credited shall be designated by
the underwriters or agents of such Debt Securities or by the Corporation, if
such Debt Securities are offered and sold directly by the Corporation.
Ownership of beneficial interests in such Global Securities will be limited to
participants or persons that may hold interests through participants.
Ownership of beneficial interests by participants in such Global Securities
will be shown on, and the transfer of that ownership interest will be effected
only through, records maintained by the Depository or its nominee for such
Global Security. Ownership of beneficial interest in Global Securities by
persons that hold through participants will be shown on, and the transfer of
that ownership interest within such participant will be effected only through,
records maintained by such participant. The laws of some jurisdictions require
that certain purchasers of securities take physical delivery of such
securities in definitive form. Such limits and such laws may impair the
ability to transfer beneficial interests in a Global Security.
So long as the Depository for a Global Security, or its nominee, is the
registered owner of such Global Security, such depository or such nominee, as
the case may be, will be considered the sole owner or holder of the Debt
Securities represented by such Global Security for all purposes under the
applicable Indenture. Except as set forth below, owners of beneficial
interests in such Global Securities will not be entitled to have Debt
Securities of the series represented by such Global Security registered in
their names, will not receive or be entitled to receive physical delivery of
Debt Securities of such series in definitive form and will not be considered
the owners or holders thereof under the applicable Indenture.
Payment of principal of, premium, if any, and any interest on Debt
Securities registered in the name of or held by a Depository or its nominee
will be made to the Depository or its nominee, as the case may be, as the
registered owner or the holder of the Global Security. None of the
Corporation, the Trustee, any Paying Agent or the Security Registrar for such
Debt Securities will have any responsibility or liability for any aspect of
the records relating to or payments made on account of beneficial ownership
interests in a Global Security or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interests.
The Corporation expects that the Depository for a permanent Global
Security, upon receipt of any payment of principal, premium or interest in
respect of a permanent Global Security, will credit immediately participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of such Global Security as shown on the
records of such Depository. The Corporation also expects that payments by
participants to owners of beneficial interests in such Global Security held
through such participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts
of customers in bearer form or registered in ''street name,'' and will be the
responsibility of such participants.
A Global Security may not be transferred except as a whole by the
Depository for such Global Security to a nominee of such depository or by a
nominee of such depository to such depository or another nominee of such
depository or by such depository or any such nominee to a successor of such
depository or a nominee of such successor. If a Depository for a permanent
Global Security is at any time unwilling or unable to continue as depository
and a successor depository is not appointed by the Corporation with 90 days,
the Corporation will issue Debt Securities in definitive form in exchange for
all of the Global Securities representing such Debt Securities. In addition,
the Corporation may at any time and in its sole discretion determine not to
have any Debt Securities represented by one or more Global Securities and, in
such event, will issue Debt Securities in definitive form in exchange for all
of the Global Securities representing such Debt Securities. Further, if the
Corporation so specifies with respect to the Debt Securities of a series, an
owner of a beneficial interest in a Global Security representing Debt
Securities of a series may, on terms acceptable to the Corporation and the
Depository for such Global Security, receive Debt Securities of such series in
definitive form. In any such instance, an owner of a beneficial interest in a
Global Security will be entitled to physical delivery in definitive form of
Debt Securities of the Series represented by such Global Security equal in
principal amount to such beneficial interest and to have such Debt Securities
registered in its name.
<PAGE>
Events of Default
The following shall constitute events of default with respect to Debt
Securities of any series then Outstanding: (i) default for a period of 30 days
in payment of any interest on the Debt Securities of such series when due;
(ii) default in payment of principal of (or premium, if any, on) the Debt
Securities of such series when due; (iii) default on the deposit of any
sinking fund payment, when and as due by the terms of a Debt Security of that
series; (iv) default in performance of any other covenant in the applicable
Indenture with respect to a series of Debt Securities which continues for 60
days after written notice to the Corporation by the applicable Trustee or by
the Holders of at least 25% in principal amount of the Outstanding Debt
Securities of that series; (v) certain events of bankruptcy, insolvency or
reorganization; and (vi) such other events as may be established for the Debt
Securities of a particular series as set forth in the related Prospectus
Supplement.
If an event of default with respect to Debt Securities of any series
shall occur and be continuing, the applicable Trustee or the Holders of at
least 25% in principal amount of the Outstanding Debt Securities of such
series may declare the principal (or, if the Debt Securities of that series
are Original Issue Discount Securities, such portion of the principal amount
as may be specified in the terms of that series) of all of the Debt Securities
of that series to be due and payable immediately. At any time after a
declaration of acceleration with respect to Debt Securities of any series has
been made, but before a judgment or decree based on acceleration has been
obtained, the Holders of a majority in principal amount of the Outstanding
Debt Securities of that series may, under certain circumstances, rescind and
annul such acceleration.
The Indentures provide that the applicable Trustee will, within 90 days
after the occurrence of a default, give to Holders of the series of Debt
Securities with respect to which a default has occurred notice of all uncured
defaults known to it; but, except in the case of a default in the payment of
principal (including any sinking fund payment) or interest on a series of Debt
Securities with respect to which such default has occurred, the Trustee shall
be protected in withholding such notice if it in good faith determines that
the withholding of such notice is in the interest of such Holders.
The Indentures provide that the applicable Trustee will be under no
obligation, subject to the duty of the Trustee during default to act with the
required standard of care, to exercise any of its rights or powers under the
applicable Indenture at the request or direction of any of the Holders, unless
such Holders shall have offered to the Trustee reasonable security or
indemnity. Subject to such right of indemnification, the Indentures provide
that the Holders of a majority in principal amount of the Outstanding Debt
Securities of any series will have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred upon the Trustee with respect to the
Debt Securities of that series.
The Corporation will be required to furnish to the Trustees annually a
statement as to the performance by the Corporation of its obligations under
the Indentures and as to any default in such performance.
Subordination of Subordinated Debt Securities
Unless indicated in the Prospectus Supplement, the following provisions
will apply to the Subordinated Debt Securities.
<PAGE>
The indebtedness evidenced by the Subordinated Debt Securities will be
subordinated in right of payment to the extent set forth in the Subordinated
Indenture to the prior payment in full of all Senior Debt of the Corporation.
Senior Debt is defined in the Subordinated Indenture to include (a) all
indebtedness of the Corporation (i) for money borrowed, (ii) evidenced by a
note or similar instrument given in connection with the acquisition of any
business, properties or assets, including securities, (iii) evidenced by
notes, debentures, bonds or other instruments of indebtedness for the payment
of which the Corporation is responsible or liable, by guarantees or otherwise,
whether outstanding on the date of execution of the Indenture or thereafter
created, incurred or assumed, (iv) with respect to an obligation under a swap
agreement to exchange payments of a differing rate or rates or in differing
currency or currencies, or (v) with respect to any other obligation of the
Corporation which by agreement of the Corporation with or for the benefit of
the holder of such obligation is expressly made superior in right of payment
to the Subordinated Debt Securities, and (b) amendments, renewals,
modifications, extensions and refundings of any such indebtedness,
liabilities, obligations or guarantees; unless in any instrument or
instruments evidencing or securing the same or pursuant to which the same is
outstanding, or in any such amendment, renewal, extension or refunding, it is
provided that such indebtedness, liabilities, obligations or guarantees are
not superior in right of payment to the Subordinated Debt Securities or that
such indebtedness, liabilities, obligations or guarantees are pari passu with
or junior in right of payment to the Subordinated Debt Securities. Senior Debt
does not include (a) the Corporation's 101/2% Senior Subordinated Notes due
July 15, 2002; (b) the Corporation's 95/8% Senior Subordinated Notes due June
1, 2004; (c) any indebtedness, liability or obligation of the Corporation to
any Subsidiary or to an Affiliate of the Corporation or any Subsidiary; or (d)
any indebtedness, liability, guaranty or obligation of the Corporation, which
provides by its terms that such indebtedness, liability, guaranty or
obligation is subordinated in right of payment to any other indebtedness,
liability, guaranty or obligation of the Corporation. At March 31, 1996, the
Corporation had outstanding indebtedness in principal amount totaling
$234,406,000 which would have constituted Senior Debt. The Indentures do not
limit the amount of Senior Debt which the Corporation may incur.
In the event of any voluntary or involuntary insolvency or bankruptcy
proceedings or any receivership, liquidation, reorganization, dissolution or
other winding-up of the Corporation (whether or not involving insolvency or
bankruptcy) or similar proceeding relating to the Corporation, its property or
its creditors as such, the holders of all Senior Debt then outstanding will be
entitled to receive payment in full of the Senior Debt before the holders of
the Subordinated Debt Securities are entitled to receive any payment on
account of the principal of, premium, if any, or interest on the Subordinated
Debt Securities. In addition, if (a) the principal on any Senior Debt is not
paid when due or any other default on Senior Debt occurs and is continuing
which permits the holders of Senior Debt to accelerate its maturity, and (b)
such non-payment of principal or other default is the subject of a judicial
proceeding or the Corporation receives notice of such a default, then the
Corporation may not pay principal or interest on any Subordinated Debt
Securities or acquire any Subordinated Debt Securities for cash or property
other than capital stock of the Corporation or other securities that are
subordinate to the Senior Debt at least to the same extent as the Subordinated
Debt Securities. If any such notice of default is provided, a similar notice
of default on any issue of Senior Debt given within nine months thereafter
shall not be effective. The Corporation may resume payments on and acquire the
Subordinated Debt Securities upon (a) the cure or waiver of the subject
default, or (b) the passage of 120 days after the notice of default is given
if such default has not become the subject of a judicial proceeding and
payments are otherwise permitted under the Indenture. By reason of the
foregoing subordination, in the event of insolvency, creditors of the
Corporation who are not holders of the Subordinated Debt Securities may
recover more ratably than holders of the Subordinated Debt Securities.
Defeasance and Discharge
The Indentures provide if such provision is made applicable to the Debt
Securities of any series, that the Corporation will be discharged from any and
all obligations in respect of the Debt Securities of such series (except for
certain obligations to register the transfer or exchange of Debt Securities of
such series, to replace stolen, lost or mutilated Debt Securities of such
series, to maintain paying agencies and to hold monies for payment in trust)
upon the deposit with the applicable Trustee, or another qualified corporate
trustee, in trust, of money and/or U.S. Government Obligations which through
the payment of interest and principal in respect of such U.S. Government
Obligations in accordance with their terms will provide money in an amount
sufficient to pay the principal of (and premium, if any), and each installment
of principal of (and premium, if any) and interest, if any, on the Debt
Securities of such series on the Stated Maturity of such payments and any
mandatory sinking fund payments or analogous payments applicable to the Debt
Securities of such series on the day on which such payments are due and
payable in accordance with the terms of the applicable Indenture and the Debt
Securities of such series. Such a trust may only be established if, among
other things, (i) the Corporation has received from, or there has been
published by, the Internal Revenue Service a ruling to the effect that Holders
of the Debt Securities of such series will not recognize income, gain or loss
for federal income tax purposes as a result of such deposit, defeasance and
discharge and will be subject to federal income tax on the same amounts and in
the same manner and at the same times, as would have been the case if such
deposit, defeasance and discharge had not occurred, and (ii) the Corporation
has delivered to the Trustee an Opinion of Counsel to the effect that the Debt
Securities of such series, if then listed on The New York Stock Exchange, will
not be delisted as a result of such deposit, defeasance and discharge.
<PAGE>
Modification and Waiver
The Corporation is permitted, with the consent of the Holders of not less
than a majority in principal amount of the Outstanding Debt Securities of each
series affected by the modification or amendment, to supplement the applicable
Indenture to modify or amend the rights of the Holders of the Debt Securities;
provided that no such modification or amendment shall, without the consent of
the Holder of each Outstanding Debt Security affected thereby, (i) change the
Stated Maturity of the principal of any Outstanding Debt Security or change
the Redemption Price; (ii) reduce the principal amount of or the rate of
interest on or any premium payable on redemption of any Outstanding Debt
Security; (iii) modify the manner of determination of the rate of interest so
as to affect adversely the interest of a Holder or reduce the amount of the
principal of an Original Issue Discount Debt Security; (iv) change the place
or currency of payment of principal of or interest, if any, on any Debt
Security; (v) impair the right to institute suit for the enforcement of any
payment on or with respect to any Debt Security; or (vi) reduce the percentage
in principal amount of Outstanding Debt Securities of any series, the consent
of whose Holders is necessary to modify or amend the applicable Indenture or
to waive compliance with, or defaults of, certain restrictive provisions of
the applicable Indenture.
The Holders of a majority in principal amount of an outstanding series of
Debt Securities may, on behalf of all the Holders of such series, waive any
past default except (i) a default in payment of the principal of (or premium,
if any) or interest, if any, on any Debt Security of such series, or (ii) a
default in respect of a covenant or provision of the applicable Indenture
which cannot be amended or modified without the consent of the Holder of each
Outstanding Debt Security of such series affected.
Consolidation, Merger and Sale of Assets
The Corporation may, without the consent of any Holders of Outstanding
Debt Securities, consolidate or merge with or into, or transfer or lease its
assets substantially as an entirety to any Person (other than a transfer of
assets to one or more wholly-owned subsidiaries of the Corporation) and any
other Person may consolidate or merge with or into, or transfer or lease its
assets substantially as an entirety to, the Corporation, provided that (i) the
Person formed by such consolidation or into which the Corporation is merged,
or the Person which acquires or leases the assets of the Corporation
substantially as an entirety, is organized under the laws of any United States
jurisdiction and assumes the Corporation's obligations on the Debt Securities
and under the applicable Indenture, (ii) after giving effect to the
transaction, no Event of Default, and no event related to such transaction
which, after notice or lapse of time or both, would become an Event of
Default, shall have happened and be continuing, and (iii) certain other
conditions are met.
Concerning The Trustees
The applicable Trustees will act under the Indentures as Security
Registrar, Authenticating Agent and Paying Agent unless otherwise designated
by the Corporation.
Notices
Notices to Holders will be transmitted by mail to the addresses of such
Holders as they appear in the Security Register.
Governing Law
The Indentures and the Debt Securities will be governed by, and construed
in accordance with, the laws of the State in which the principal office of the
Trustee is located.
<PAGE>
PLAN OF DISTRIBUTION
The Corporation may sell Debt Securities to or through underwriters, or
to dealers, acting as principals for their own accounts, and reserves the
right to sell Debt Securities directly to other purchasers or through agents
on its own behalf. The distribution of the Debt Securities may be effected
from time to time in one or more transactions at a fixed price or prices which
may be changed from time to time, at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at negotiated
prices. Each Prospectus Supplement will describe the method of distribution of
the offered Debt Securities.
In connection with the sale of Debt Securities, underwriters and dealers
may receive compensation from the Corporation or from purchasers of Debt
Securities for whom they may act as agents, in the form of discounts,
concessions or commissions. Underwriters may sell Debt Securities to or
through dealers, and such dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters and/or commissions
from the purchasers for whom they may act as agents. Underwriters, dealers and
agents who participate in the distribution of Debt Securities may be deemed to
be underwriters under the Securities Act and any discounts or commissions
received by them and any profit on the resale of Debt Securities by them may
be deemed to be underwriting discounts and commissions under the Securities
Act. Any such underwriter or agent will be identified and any such
compensation will be described in the Prospectus Supplement.
Under agreements which may be entered into by the Corporation,
underwriters and agents who participate in the distribution of Debt Securities
are expected to be entitled to indemnification by the Corporation against
certain liabilities, including liabilities under the Securities Act.
If so indicated in the Prospectus Supplement, the Corporation will
authorize underwriters or other persons acting as the Corporation's agents to
solicit offers by certain institutions to purchase Offered Debt Securities
from the Corporation pursuant to contracts providing for payment and delivery
on a future date. Institutions with which such contracts may be made include
commercial and savings banks, insurance companies, pension funds, investment
companies, educational and charitable institutions and others, but in all
cases such institutions must be approved by the Corporation. The obligations
of any purchaser under any such contract will be subject to the condition that
the purchase of the Offered Debt Securities shall not at the time of delivery
be prohibited under the laws of the jurisdiction to which such purchaser is
subject. The underwriters and such other agents will not have any
responsibility in respect of the validity or performance of such contracts.
VALIDITY OF SECURITIES
The legal validity of the Securities offered hereby will be passed upon
for the Corporation by Piper & Marbury, L.L.P., Charles Center South, 36 South
Charles Street, Baltimore, Maryland 21201.
EXPERTS
The consolidated financial statements and schedule of the Corporation at
December 31, 1995 and 1994, and for the three years in the period ended
December 31, 1995, appearing in the Corporation's Annual Report (Form 10-K)
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their reports thereon included therein and incorporated herein by reference.
Such consolidated financial statements are incorporated herein by reference in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
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<PAGE>
No person is authorized to give any information or to make any representation
not contained or incorporated by reference in this Prospectus Supplement or
the Prospectus, and any information or representations other than those
contained or incorporated by reference herein must not be relied upon as
having been authorized by the Company or any Underwriter. This Prospectus
Supplement and the Prospectus do not constitute any offer of any securities
other than the registered securities to which they relate or an offer to any
person in any jurisdiction where such an offer would be unlawful. Neither the
delivery of this Prospectus Supplement or the Prospectus, nor any sales made
hereunder, shall under any circumstances create any implication that there has
been no change in the affairs of the Company since the date hereof.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Page
Prospectus Supplement Summary S-3
Cautionary Statement Regarding Forward
Looking Statements S-9
Risk Factors S-9
Use of Proceeds S-12
Capitalization S-12
Management's Discussion and Analysis of
Results of Operations and Financial
Condition S-13
Business S-22
Description of the Notes S-30
Underwriting S-45
Validity of the Notes S-45
PROSPECTUS
Available Information 2
Incorporation of Certain Documents by
Reference 2
The Corporation 2
Ratio of Earnings to Fixed Charges 2
Use of Proceeds 3
Description of Debt Securities 3
Plan of Distribution 10
Validity of Securities 10
Experts 10
RYLAND
THE RYLAND GROUP
$100,000,000
10 1/2% Senior Notes due 2006
PROSPECTUS SUPPLEMENT
Dillon, Read & Co. Inc.
