<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
-----------
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1996
--------------
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
-------------- --------------
Commission File Number: 1-8029
THE RYLAND GROUP, INC.
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 52-0849948
--------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
of incorporation or organization) Identification No.)
11000 Broken Land Parkway, Columbia, Maryland 21044
-----------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(410) 715-7000
-----------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
------ ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
The number of shares of common stock of The Ryland Group, Inc., outstanding on
May 3, 1996 was 15,784,691.
<PAGE>
THE RYLAND GROUP, INC.
FORM 10-Q
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at
March 31, 1996 (unaudited) and
December 31, 1995 1-2
Consolidated Statements of Earnings
for the three months ended
March 31, 1996 and 1995 (unaudited) 3
Consolidated Statements of Cash Flows
for the three months ended March 31,
1996 and 1995 (unaudited) 4
Notes to Consolidated Financial
Statements (unaudited) 5-7
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial
Condition 8-14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
INDEX OF EXHIBITS 17
<PAGE>
The Ryland Group, Inc. and subsidiaries
CONSOLIDATED BALANCE SHEETS
(amounts in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---------- ------------
(unaudited)
<S> <C> <C>
ASSETS
HOMEBUILDING:
Cash and cash equivalents $ 32,641 $ 54,518
Housing inventories:
Homes under construction 360,245 332,272
Land under development and improved lots 217,389 205,646
--------- ---------
Total inventories 577,634 537,918
Property, plant and equipment 34,086 34,662
Purchase price in excess of net assets acquired 21,317 21,575
Other assets 42,363 47,903
---------- ---------
708,041 696,576
---------- ---------
FINANCIAL SERVICES:
Cash and cash equivalents 1,216 1,474
Mortgage loans held for sale, net 297,571 285,001
Mortgage-backed securities and
notes receivable, net 120,346 112,544
Mortgage servicing rights, net 9,056 7,814
Other assets 39,777 42,586
---------- ---------
467,966 449,419
---------- ---------
OTHER ASSETS:
Collateral for bonds payable of
limited-purpose subsidiaries 332,905 375,146
Net deferred taxes 40,021 41,259
Other 16,036 18.389
---------- ---------
TOTAL ASSETS $ 1,564,969 $ 1,580,789
============ ===========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
The Ryland Group, Inc. and subsidiaries
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
March 31 December 31,
1996 1995
------------ ------------
(unaudited)
<S> <C> <C>
LIABILITIES
HOMEBUILDING:
Accounts payable and other liabilities $ 60,163 $ 78,853
Long-term debt 433,675 396,607
------------ -----------
493,838 475,460
------------ -----------
FINANCIAL SERVICES:
Accounts payable and other liabilities 29,717 27,219
Short-term notes payable 379,059 367,469
------------ -----------
408,776 394,688
------------ -----------
OTHER LIABILITIES:
Bonds payable of limited-purpose subsidiaries 323,944 364,672
Other 35,365 44,845
------------ -----------
TOTAL LIABILITIES 1,261,923 1,279,665
STOCKHOLDERS' EQUITY
Convertible preferred stock, $1 par value
Authorized - 1,400,000 shares
Issued - 922,693 shares
(943,097 for 1995) 923 943
Common stock, $1 par value
Authorized - 78,600,000 shares
Issued - 15,774,667 shares
(15,681,891 for 1994) 15,775 15,682
Paid-in capital 117,136 115,611
Retained earnings 178,110 179,937
Net unrealized gain on
mortgage-backed securities 3,220 2,550
Due from RSOP Trust (12,118) (13,599)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 303,046 301,124
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,564,969 $ 1,580,789
=========== ===========
STOCKHOLDERS' EQUITY PER COMMON SHARE $ 18.64 $ 18.69
See notes to consolidated financial statements.
</TABLE>
<PAGE>
The Ryland Group, Inc. and subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
Three months ended March 31,
1996 1995
--------- --------
<S> <C> <C>
REVENUES:
Homebuilding:
Residential revenue $ 294,808 $ 311,792
Other revenue 2,867 517
---------- ----------
Total homebuilding revenue 297,675 312,309
Financial services 21,769 22,887
Limited-purpose subsidiaries 7,989 10,001
---------- ----------
Total revenues 327,433 345,197
EXPENSES:
Homebuilding:
Cost of sales 257,043 275,718
Interest expense 5,794 7,509
Selling, general and administrative 33,497 33,369
---------- ----------
Total homebuilding expenses 296,334 316,596
Financial services:
Interest expense 5,799 5,540
General and administrative 12,742 11,850
---------- ----------
Total financial services expenses 18,541 17,390
Limited-purpose subsidiaries expenses 7,989 9,994
Corporate expenses 3,004 3,680
---------- ----------
Total expenses 325,868 347,660
Earnings (loss) from continuing operations
before taxes 1,565 (2,463)
Tax expense (benefit) 626 (985)
---------- ----------
Net earnings (loss) from continuing operations 939 (1,478)
Discontinued Operations:
Earnings from discontinued operations
(net of taxes - $1,433) 0 2,151
---------- ----------
NET EARNINGS $ 939 $ 673
========== ==========
Preferred dividends $ 510 $ 579
Net earnings available to common shareholders $ 429 $ 94
NET EARNINGS PER COMMON SHARE:
Primary:
Net earnings (loss) from continuing
operations $ 0.03 $ (0.13)
Discontinued operations 0.00 0.14
----------- -----------
Net earnings $ 0.03 $ 0.01
=========== ===========
Fully diluted: (1)
Net earnings (loss) from continuing
operations $ 0.03 $ (0.13)
Discontinued operations 0.00 0.14
----------- -----------
Net earnings $ 0.03 $ 0.01
=========== ===========
Dividends per common share $ 0.15 $ 0.15
Dividends per preferred share $ 0.55 $ 0.55
<FN>
(F1) In 1996 and 1995 conversion of preferred shares is not assumed due to an
anti-dilutive effect.
</FN>
</TABLE>
<PAGE>
The Ryland Group, Inc. and subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, amounts in thousands)
<TABLE>
<CAPTION>
Three months ended March 31
1996 1995
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 939 $ 673
Adjustments to reconcile net earnings to
net cash provided by (used for)
operating activities:
Depreciation and amortization 7,820 6,103
Gain on sale of mortgage-backed
securities - available-for-sale 0 (3,072)
Increase in inventories (39,716) (2,055)
Net change in other assets, payables
and other liabilities (17,614) (12,651)
Equity in losses of/distributions
from unconsolidated joint ventures 765 173
(Increase) decrease in mortgage
loans held for sale, net (12,570) 33,927
Increase in mortgage-backed
securities - trading (7,437) 0
---------- ---------
Net cash (used for) provided by
operating activities (67,813) 23,098
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net additions to property, plant and equipment (4,870) (5,361)
Principal reduction of mortgage collateral 27,976 12,848
Principal reduction of mortgage-backed
securities - available-for-sale 4,704 2,641
Sales of mortgage-backed securities-
available-for-sale 0 43,660
Principle reduction of mortgage-backed
securities-held-to-maturity 5,054 5,998
Decrease in funds held by trustee 5,981 6,724
Other investing activities, net (1,641) 0
---------- ---------
Net cash provided by investing activities 37,204 67,188
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term notes payable 11,590 (109,732)
Cash proceeds of long-term debt 54,006 51,379
Reduction of long-term debt (16,938) (3,980)
Bond principal payments (41,109) (17,151)
Common and preferred stock dividends (2,863) (2,904)
Other financing activities, net 3,788 809
---------- ---------
Net cash provided by (used for)
financing activities 8,474 (81,579)
---------- ---------
Net (decrease) increase in cash
and cash equivalents (22,135) 8,707
Cash and cash equivalents at beginning of year 55,992 26,826
---------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 33,857 $ 35,533
========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest (net of
capitalized interest) $ 21,194 $ 22,771
Cash paid for income taxes (net of
refund received in 1996 and 1995) $ (2,989) $ (7,140)
========== =========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
The Ryland Group, Inc. and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(amounts in thousands, except for share data, in all notes)
Note 1. Segment Information
<TABLE>
<CAPTION>
Three months ended March 31,
1996 1995
------ ------
<S> <C> <C>
Pretax earnings (loss) from continuing operations:
Homebuilding $ 1,341 $ (4,287)
Financial services (1) 3,228 5,497
Corporate and other (2) (3,004) (3,673)
---------- ---------
Total $ 1,565 $ (2,463)
========== =========
<FN>
(F1) Excludes pretax operating results of the institutional mortgage
securities administration business for the three months ended March 31, 1995
of $3,584.
(F2) The Company is no longer in the securities issuance business and,
therefore, the limited-purpose subsidiaries are no longer reported as a
separate business segment. Amounts related to the limited-purpose
subsidiaries are combined with corporate expenses and reflected in the above
table as "Corporate and other."
</FN>
</TABLE>
<PAGE>
The Ryland Group, Inc. and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(unaudited)
Note 2. Consolidated Financial Statements
The consolidated financial statements include the accounts of The Ryland
Group, Inc. and its wholly owned subsidiaries (the "Company"). Intercompany
transactions have been eliminated in consolidation.
The consolidated balance sheet as of March 31, 1996, the consolidated
statements of earnings for the three months ended March 31, 1996 and 1995, and
the consolidated statements of cash flows for the three months ended March 31,
1996 and 1995 have been prepared by the Company, without audit. In the
opinion of management, all adjustments, which include normal recurring
adjustments necessary to present fairly the financial position, results of
operations and cash flows at March 31, 1996, and for all periods presented,
have been made. The consolidated balance sheet at December 31, 1995 is taken
from the audited financial statements as of that date. Certain amounts in the
consolidated statements have been reclassified to conform to the 1996
presentation.
Certain information and footnote disclosures normally included in the
financial statements have been condensed or omitted. These financial
statements should be read in conjunction with the financial statements and
related notes included in the Company's 1995 annual report to shareholders.
The results of operations for the three months ended March 31, 1996 are not
necessarily indicative of the operating results for the full year.
Assets presented in the financial statements are net of any valuation
allowances.
Primary net earnings per common share is computed by dividing net earnings,
after considering preferred stock dividend requirements, by the weighted
average number of common shares outstanding considering dilutive common
equivalent shares. Common equivalent shares relating to stock options are
computed using the treasury stock method.
Fully diluted net earnings per common share additionally gives effect to the
assumed conversion of the preferred shares held by The Ryland Group, Inc.
Retirement and Stock Ownership Plan Trust (the "RSOP Trust") into common
stock, as well as the amount of the additional RSOP Trust contribution
required to fund the difference between the RSOP Trust's earnings from
preferred share dividends and the RSOP Trust's potential earnings from common
share dividends after an assumed conversion. However, the effect of the RSOP
Trust was not dilutive for the first quarters ending March 31, 1996 and 1995.
<PAGE>
The Ryland Group, Inc. and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(unaudited)
Note 3. Discontinued Operations
On June 30, 1995, pursuant to an Asset Purchase Agreement dated April 10,
1995, the Company completed the sale of its institutional mortgage securities
administration business for a purchase price of $47 million in cash. The
Company's institutional mortgage-securities administration business included
master servicing, securities administration, investor information services,
and tax calculation and reporting. The prior period results for this business
(formerly reported as institutional financial services) have been reported as
discontinued operations in the accompanying consolidated statements of
earnings.
There were no operating results from the discontinued business for the first
quarter of 1996 as the sale occurred in the second quarter of 1995. Revenues
from operations of the discontinued business were $6.2 million for the three
months ended March 31, 1995. Earnings from operations of the discontinued
business were $2.2 million (net of taxes of $1.4 million), or $.14 per share,
for the three months ended March 31, 1995.
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
RESULTS OF OPERATIONS
CONSOLIDATED
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.
In the second quarter of 1995, the Company sold its institutional mortgage-
securities administration business consistent with its long-term strategy to
focus on its core homebuilding and retail mortgage-finance operations. Future
results for the financial services segment will continue to be negatively
impacted by the elimination of this business. For financial reporting
purposes, net operating earnings of the institutional mortgage-securities
administration business, amounting to $2.2 million for the three months ended
March 31, 1995, have been reported as discontinued operations.
The Company's limited-purpose subsidiaries are no longer issuing mortgage-
backed securities and mortgage-participation securities. They do continue to
hold collateral for previously issued mortgage-backed bonds in which the
Company maintains a residual interest. Revenues, expenses, and portfolio
balances for the limited-purpose subsidiaries continue to decline as the
mortgage collateral pledged to secure the bonds decreases due to scheduled
principal payments, prepayments and exercises of early redemption rights.
Corporate expenses were $3.0 million for the first quarter of 1996, down $.7
million from the same period last year due to lower information system costs
and reductions in other operating expenses.
<PAGE>
HOMEBUILDING
The Company's homebuilding segment reported pretax earnings of $1.3 million
for the first quarter of 1996, compared with a pretax loss of $4.3 million for
the same period last year.
Results of operations of the Company's homebuilding segment are summarized as
follows ($ amounts in thousands, except average closing price):
<TABLE>
<CAPTION>
Three months ended March 31,
1996 1995
------ ------
<S> <C> <C>
Revenues $297,675 $312,309
Gross profit 40,632 36,591
Selling, general and
administrative expenses 33,497 33,369
Interest expense 5,794 7,509
--------- ---------
Pretax earnings (loss) $ 1,341 $(4,287)
========= =========
Operational Unit Data:
(includes joint ventures)
New Orders (units) 2,403 2,560
Closings (units) 1,733 1,998
Outstanding contracts at
March 31,
Units 3,414 3,115
Dollar Value $608,990 $518,740
Average Closing Price
(excludes unconsolidated
joint ventures) $170,000 $157,000
</TABLE>
The gross profit margin for the first quarter of 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.
Homebuilding revenues amounted to $298 million for the first quarter of 1996,
down 4.7 percent from $312 million for the same period last year. 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.
<PAGE>
Total homebuilding 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.
FINANCIAL SERVICES
The financial services segment, which excludes the results of the discontinued
institutional mortgage securities administration business, reported pretax
earnings of $3.2 million for the first quarter of 1996, compared with $5.5
million for the first quarter of 1995.
Pretax earnings by line of business were as follows (amounts in thousands):
<TABLE>
<CAPTION>
Three months
ended March 31,
1996 1995
------ ------
<S> <C> <C>
Retail $ 1,862 $ 1,143
Investments 1,366 4,354
-------- --------
Total $ 3,228 $ 5,497
======= ========
</TABLE>
<PAGE>
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.
Revenues and expenses for the financial services segment were as follows:
<TABLE>
<CAPTION>
Three months
ended March 31,
1996 1995
------ ------
<S> <C> <C>
Revenues:
Interest and
net origination fees $ 4,198 $ 3,034
Net gains on sales of mortgages
and servicing rights 5,551 3,026
Loan servicing 7,430 8,693
Title/escrow 1,198 1,019
--------- ---------
Total retail revenues 18,377 15,772
Revenues from investment
operations 3,392 7,115
--------- ---------
Total revenues 21,769 22,887
Expenses:
Interest 5,799 5,540
General and administrative 12,742 11,850
--------- ---------
Total expenses 18,541 17,390
--------- ---------
Pretax earnings $ 3,228 $ 5,497
========= =========
</TABLE>
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.
<PAGE>
Retail Operations:
- ------------------
Retail operations include mortgage origination, loan servicing and
title/escrow services for retail customers.
A summary of origination activities is as follows:
<TABLE>
<CAPTION>
Three months
ended March 31,
1996 1995
------ ------
<S> <C> <C>
Dollar volume of mortgages
originated (in millions) $ 484 $ 328
Number of mortgages originated 3,784 2,662
Percentage of total closings:
Ryland Homes closings 30% 40%
Other closings 70% 60%
------- ------
100% 100%
======= ======
</TABLE>
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.
The Company earns interest on mortgages held for sale and pays interest on
borrowings secured by the mortgages. Significant data related to these
activities are as follows:
<TABLE>
<CAPTION>
Three months
ended March 31,
1996 1995
------ ------
<S> <C> <C>
Net interest earned
(in thousands) $1,551 $1,160
Average balance of
mortgages held for sale
(in millions) $235 $155
Net interest spread 2.7% 3.0%
</TABLE>
Net interest earned increased due to an increase in the average balance of
mortgages held for sale partially offset by a lower net interest spread.
The Company services loans that it originates as well as loans originated by
others. Loan servicing portfolio balances were as follows at March 31, (in
billions):
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Originated $2.4 $2.7
Acquired 3.4 3.9
Subserviced .2 .1
------ ------
Total portfolio $6.0 $6.7
====== ======
</TABLE>
The decrease in the portfolio balance is primarily attributable to normal
mortgage prepayment activity.
<PAGE>
Investment Operations:
- ----------------------
The Company's investment operations hold certain assets, primarily mortgage-
backed securities, which were obtained as a result of the exercise of
redemption rights on various mortgage-backed bonds previously owned by the
Company's limited-purpose subsidiaries. Pretax earnings for the three months
ended March 31, were as follows (in thousands):
<TABLE>
<CAPTION>
Three months
ended March 31,
1996 1995
------ ------
<S> <C> <C>
Sale of mortgage-backed securities $ 0 $ 3,124
Interest and other income 3,392 3,991
-------- -------
Total revenues 3,392 7,115
Interest and other expenses 2,026 2,761
------- ------
Pretax earnings $ 1,366 $ 4,354
======== =======
</TABLE>
Significant data from the investment operations are as follows:
<TABLE>
<CAPTION>
Three months
ended March 31,
1996 1995
------ ------
<S> <C> <C>
Net interest earned
(in thousands) $ 1,026 $ 1,493
Average balance outstanding
(in millions) $ 111 $ 153
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
the related borrowing rates. The decrease in the net interest earned between
periods is primarily due to a decline in the average investment portfolio
balance outstanding.
<PAGE>
FINANCIAL CONDITION AND LIQUIDITY
The Company generally provides for the cash requirements of the homebuilding
and financial services businesses from outside borrowings and internally
generated funds. The Company believes that its current sources of cash are
sufficient to finance its current requirements.
The homebuilding segment borrowings include an unsecured revolving credit
facility, senior notes, senior subordinated notes and nonrecourse secured
notes payable. The Company uses its unsecured revolving credit facility to
finance increases in its homebuilding inventory and changes in working
capital. This facility was renewed in July 1995 for a three-year period and
total borrowing capacity was increased from $250 million to $400 million. As
of 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 $22.1
million at March 31, 1996 and $23.0 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 June 1995, 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 1997. 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 Ryland Group, Inc. has not guaranteed the debt of the financial services
segment or limited-purpose subsidiaries.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
One current and two former officers of Ryland Mortgage Company ("RMC") have
been notified that they are targets of a federal grand jury investigation
concerning alleged misappropriation of funds from the Resolution Trust
Corporation ("RTC"). The Company has been advised that the investigation
relates to alleged overpayments to RMC of approximately $3 million under three
mortgage servicing contracts with the RTC. The Company is investigating this
matter, and at this time cannot predict how it will be resolved or whether the
Company or RMC will be targets of the investigation or will incur any
liability.
The Company is party to various other legal proceedings generally incidental
to its businesses. Based on evaluation of these other matters and discussions
with counsel, management believes that liabilities to the Company arising from
these other matters will not have a material adverse effect on the financial
condition of the Company.
Page Number
------------
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
11 Statement Re computation of earnings
per share (filed herewith) 20
27 Financial Data Schedule 21
B. Reports on Form 8-K
No reports on Form 8-K were filed with the Securities and Exchange Commission
during the three months ended March 31, 1996.
<PAGE>
SIGNATURES
------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE RYLAND GROUP, INC.
-----------------------
Registrant
May 14, 1996 By: /s/ Michael D. Mangan
- ------------ --------------------------
Date Michael D. Mangan,
Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
May 14, 1996 By: /s/ Stephen B. Cook
- ------------ ------------------------
Date Stephen B. Cook, Vice President
and Corporate Controller
(Principal Accounting Officer)
<PAGE>
INDEX OF EXHIBITS
A. Exhibits Page of
Sequentially
Exhibit No. Numbered Pages
- ----------- ----------------
11 Statement Re computation of earnings
per share (filed herewith) 20
27 Financial Data Schedule 21
<PAGE>
EXHIBIT 11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS:
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
Three months ended March 31,
1996 1995
------------ -----------
<S> <C> <C>
PRIMARY:
Net earnings (loss) from
continuing operations $ 939 $ (1,478)
Discontinued operations 0 2,151
------------ ------------
Net earnings 939 673
Adjustment for dividends on
convertible preferred shares (510) (579)
------------ ------------
Adjusted net earnings $ 429 $ 94
============ ============
Weighted average common shares
outstanding 15,728,283 15,497,575
Common stock equivalents:
Stock options 25,364 5,004
Employee incentive plans 170,417 197,947
------------ -----------
Total 15,924,064 15,700,526
============ ===========
Primary earnings (loss) per common share
from continuing operations $ 0.03 $ (0.13)
Discontinued operations 0.00 0.14
----------- ------------
Primary earnings per common share $ 0.03 $ 0.01
============ ============
FULLY DILUTED: (1)
Net earnings (loss) from
continuing operations $ 939 $ (1,478)
Discontinued operations 0 2,151
------------ ------------
Net earnings 939 673
Adjustment for dividends on
convertible preferred shares (510) (579)
------------ ------------
Adjusted net earnings $ 429 $ 94
============ ============
Weighted average common shares
outstanding 15,728,283 15,497,575
Common stock equivalents:
Stock options 25,364 5,004
Employee incentive plans 170,417 197,947
------------ -----------
Total 15,924,064 15,700,526
============ ===========
Fully diluted (loss) per common share
from continuing operations $ 0.03 $ (0.13)
Discontinued operations 0.00 0.14
----------- ------------
Fully diluted earnings per common share $ 0.03 $ 0.01
============ ============
<FN>
(F1) For the three months ended March 31, 1996 and 1995, no adjustments have
been made for incremental dividends on preferred stock or to common stock
equivalents for convertible preferred stock as these adjustments would be
anti-dilutive.
</FN>
</TABLE>
<PAGE>
EXHIBIT 11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS:
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
Three months ended March 31,
1996 1995
------------ -----------
<S> <C> <C>
PRIMARY:
Net earnings (loss) from
continuing operations $ 939 $ (1,478)
Discontinued operations 0 2,151
------------ ------------
Net earnings 939 673
Adjustment for dividends on
convertible preferred shares (510) (579)
------------ ------------
Adjusted net earnings $ 429 $ 94
============ ============
Weighted average common shares
outstanding 15,728,283 15,497,575
Common stock equivalents:
Stock options 25,364 5,004
Employee incentive plans 170,417 197,947
------------ -----------
Total 15,924,064 15,700,526
============ ===========
Primary earnings (loss) per common share
from continuing operations $ 0.03 $ (0.13)
Discontinued operations 0.00 0.14
----------- ------------
Primary earnings per common share $ 0.03 $ 0.01
============ ============
FULLY DILUTED: (1)
Net earnings (loss) from
continuing operations $ 939 $ (1,478)
Discontinued operations 0 2,151
------------ ------------
Net earnings 939 673
Adjustment for dividends on
convertible preferred shares (510) (579)
------------ ------------
Adjusted net earnings $ 429 $ 94
============ ============
Weighted average common shares
outstanding 15,728,283 15,497,575
Common stock equivalents:
Stock options 25,364 5,004
Employee incentive plans 170,417 197,947
------------ -----------
Total 15,924,064 15,700,526
============ ===========
Fully diluted earnings (loss) per common share
from continuing operations $ 0.03 $ (0.13)
Discontinued operations 0.00 0.14
----------- ------------
Fully diluted earnings per common share $ 0.03 $ 0.01
============ ============
<FN>
(F1) For the three months ended March 31, 1996 and 1995, no adjustments have
been made for incremental dividends on preferred stock or to common stock
equivalents for convertible preferred stock as these adjustments would be
anti-dilutive.
</FN>
</TABLE>
2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
RYLAND GROUP INC. FORM 10-Q FOR THE PERIOD ENDED 3/31/96 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 33,857
<SECURITIES> 120,346
<RECEIVABLES> 297,571
<ALLOWANCES> 0
<INVENTORY> 577,634
<CURRENT-ASSETS> 0
<PP&E> 34,086
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,564,969
<CURRENT-LIABILITIES> 0
<BONDS> 703,003
<COMMON> 15,775
0
923
<OTHER-SE> 286,348
<TOTAL-LIABILITY-AND-EQUITY> 1,564,969
<SALES> 297,675
<TOTAL-REVENUES> 327,433
<CGS> 257,043
<TOTAL-COSTS> 311,271
<OTHER-EXPENSES> 3,004
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,593
<INCOME-PRETAX> 1,565
<INCOME-TAX> 626
<INCOME-CONTINUING> 939
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 939
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
