UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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\X\ Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1998
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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.
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(Exact name of registrant as specified in its charter)
Maryland 52-0849948
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11000 Broken Land Parkway, Columbia, Maryland 21044
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(Address of principal executive offices) (Zip Code)
(410) 715-7000
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(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 6, 1998 was 14,906,138.
THE RYLAND GROUP, INC.
FORM 10-Q
INDEX
Page
Number
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at
March 31, 1998 (unaudited) and
December 31, 1997 1-2
Consolidated Statements of Earnings
for the three months ended March 31,
1998 and 1997 (unaudited) 3
Consolidated Statements of Cash Flows
for the three months ended March 31,
1998 and 1997 (unaudited) 4
Notes to Consolidated Financial
Statements (unaudited) 5-6
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial
Condition 7-12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
INDEX OF EXHIBITS 16
The Ryland Group, Inc. and subsidiaries
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
March 31, December 31,
1998 1997
------------- -------------
(unaudited)
ASSETS
Hombuilding:
Cash and cash equivalents $ 35,164 $ 33,065
Housing inventories:
Homes under construction 344,817 332,452
Land under development and
improved lots 223,178 222,379
----------- ----------
Total inventories 567,995 554,831
Property, plant and equipment 26,252 26,463
Purchase price in excess of net
assets acquired 19,253 19,511
Other assets 36,399 37,359
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685,063 671,229
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Financial Services:
Cash and cash equivalents 2,100 3,066
Mortgage loans held for sale 182,004 199,857
Mortgage-backed securities and
notes receivable 150,752 153,022
Mortgage servicing rights 2,571 8,242
Other assets 52,881 46,715
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390,308 410,902
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Other Assets:
Collateral for bonds payable of
limited-purpose subsidiaries 123,143 142,303
Net deferred taxes 34,249 35,764
Other 20,735 23,211
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Total assets $ 1,253,498 $ 1,283,409
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1
The Ryland Group, Inc. and subsidiaries
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
March 31, December 31,
1998 1997
------------- -------------
(unaudited)
LIABILITIES
Hombuilding:
Accounts payable and other liabilities $ 98,899 $ 117,326
Long-term debt 318,998 310,221
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417,897 427,547
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Financial Services:
Accounts payable and other liabilities 28,466 17,382
Short-term notes payable 328,366 340,632
------------- ------------
356,832 358,014
------------- ------------
Other Liabilities:
Bonds payable of limited-purpose
subsidiaries 117,487 136,865
Other 43,489 55,860
------------- ------------
Total liabilities 935,705 978,286
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STOCKHOLDERS'EQUITY
Convertible preferred stock, $1 par value:
Authorized - 1,400,000 shares
Issued - 489,972 shares (502,833 for 1997) 490 503
Common stock, $1 par value:
Authorized - 78,600,000 shares
Issued - 14,896,303 shares
(14,521,859 for 1997) 14,896 14,522
Paid-in capital 96,762 88,502
Retained earnings 202,936 199,114
Accumulated other comprehensive income 2,709 2,482
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Total stockholders'equity 317,793 305,123
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Total liabilities and stockholders'equity $ 1,253,498 $ 1,283,409
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------------- -----------
Stockholders'equity per common share $ 20.65 $ 20.31
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See notes to consolidated financial statements.
2
The Ryland Group, Inc. and subsidiaries
CONSOLIDATED STATEMENT OF EARNINGS (unaudited)
(amounts in thousands, except share data)
Three months ended March 31,
1998 1997
------------- -------------
Revenues:
Hombuilding:
Residential revenue $ 308,000 $ 281,778
Other revenue 3,539 23,891
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Total homebuilding revenue 311,539 305,669
Financial services 21,682 19,313
Limited-purpose subsidiaries 3,084 4,538
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Total revenues 336,305 329,520
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Expenses:
Homebuilding:
Cost of sales 269,182 263,066
Selling, general and administrative 33,944 34,268
Interest 4,560 5,936
-------------- -----------
Total homebuilding expenses 307,686 303,270
Financial services:
General and administrative 9,767 11,846
Interest 4,601 3,897
------------- ------------
Total financial services expenses 14,368 15,743
Limited-purpose subsidiaries expenses 3,084 4,538
Corporate expenses 3,350 3,076
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Total expenses 328,488 326,627
Earnings before taxes 7,817 2,893
Tax expense 3,127 1,157
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Net earnings $ 4,690 $ 1,736
------------- ------------
Net earnings per common share:
Basic $ 0.30 $ 0.08
Diluted (1) $ 0.29 $ 0.08
Average common shares outstanding:
Basic 14,713,171 15,878,377
Diluted (1) 15,245,489 16,001,379
(1)For the three months ended March 31, 1998 and 1997, conversion of preferred
shares is not assumed due to an antidilutive affect.
See notes to consolidated financial statements.
3
The Ryland Group, Inc. and subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands) Three months ended March 31,
- -----------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 4,690 $ 1,736
Adjustments to reconcile net earnings
to net cash (used for) provided by
operating activities:
Depreciation and amortization 5,460 5,994
(Increase) decrease in inventories (13,164) 2,533
Net change in other assets, payables
and other liabilities (14,574) (26,361)
Equity in earnings of/distributions
from unconsolidated joint ventures (505) (1,387)
Decrease in mortgage loans held
for sale 17,853 84,188
------------------------
Net cash (used for) provided by
operating activities (240) 66,703
------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net additions to property, plant
and equipment (3,960) (3,689)
Principal reduction of mortgage
collateral 8,551 13,522
Principal reduction of mortgage-backed
securities - available-for-sale 5,153 4,345
Principal reduction of mortgage-backed
securities - held-to-maturity 3,797 3,240
Other investing activities, net 5,008 (5,910)
-----------------------
Net cash provided by investing activities 18,549 11,508
-----------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash proceeds of long-term debt 10,000 37,500
Reduction of long-term debt (1,222) (10,828)
Decrease in short-term notes payable (12,266) (84,063)
Bond principal payments (19,733) (20,850)
Common and preferred stock dividends (859) (2,847)
Other financing activities, net 6,904 4,164
-----------------------
Net cash used for financing activities (17,176) (76,924)
-----------------------
Net increase in cash and cash equivalents 1,133 1,287
Cash and cash equivalents at beginning of year 36,131 28,708
-----------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 37,264 $ 29,995
-----------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest
(net of capitalized interest) $ 12,949 $ 15,669
Cash paid for income taxes $ 5,124 $ 46
See notes to consolidated financial statements.
4
The Ryland Group, Inc. and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(amounts in thousands, except for share data, in all notes)
Note 1. 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, 1998, the consolidated
statements of earnings for the three months ended March 31, 1998 and 1997,
and the consolidated statements of cash flows for the three months ended
March 31, 1998 and 1997 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, 1998, and for all periods presented,
have been made. The consolidated balance sheet at December 31, 1997 is taken
from the audited financial statements as of that date. Certain amounts in the
consolidated statements have been reclassified to conform to the 1998
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 1997 annual report to shareholders.
The results of operations for the three months ended March 31, 1998 are not
necessarily indicative of the operating results for the full year.
Assets presented in the financial statements are net of any valuation
allowances.
Note 2. New Accounting Pronouncements
FASB 128
In 1997, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 128 (FASB 128), "Earnings per Share." FASB
128 replaced the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share. Earnings per share amounts for the
three months ended March 31, 1997 have been restated to conform to the FASB 128
requirements.
FASB 130
As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No.130 (FASB 130), "Reporting Comprehensive Income." FASB 130 defines
comprehensive income and establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this Statement
had no impact on the Company's net income or stockholders' equity. FASB 130
requires unrealized gains or losses on the Company's available-for-sale
securities, which are included in stockholders' equity, to be reported as
other comprehensive income. The net unrealized gains and losses on available-
for-sale securities (net of taxes) amounted to $227 and $(444), for the three
months ended March 31, 1998 and 1997, respectively. Other comprehensive
income is added to net income to arrive at total comprehensive income.
Total comprehensive income was $4,917 for the first quarter of 1998 and $1,292
for the first quarter of 1997.
5
The Ryland Group, Inc. and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(unaudited)
Note 3. Segment Information
Three months ended March 31,
1998 1997
---- ----
Pretax earnings:
Homebuilding $ 3,853 $ 2,399
Financial services 7,314 3,570
Corporate and other (3,350) (3,076)
----- -----
Total $ 7,817 $ 2,893
----- -----
----- -----
Note 4. Earnings Per Share Reconciliation
The following table sets forth the computation of basic and diluted earnings per
share. The assumed conversion of preferred stock was anti-dilutive for all
periods presented.
Three months ended March 31,
1998 1997
Numerator: ---- ----
Net earnings $ 4,690 $ 1,736
Preferred stock dividends (271) (463)
Numerator for basic and
diluted earnings per share - --- ---
income available to common stockholders $ 4,419 $ 1,273
Denominator:
Denominator for basic
earnings per share -
weighted-average shares 14,713,171 15,878,377
Effect of dilutive securities:
Stock options 421,674 1,591
Other equity incentives 110,644 121,411
------- -------
Dilutive potential common shares 532,318 123,002
Denominator for diluted
earnings per share -
adjusted weighted average
shares and
assumed conversions 15,245,489 16,001,379
Basic earnings per share $ 0.30 $ 0.08
Dilutive earnings per share $ 0.29 $ 0.08
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
RESULTS OF OPERATIONS
CONSOLIDATED
For the first quarter of 1998 the Company reported consolidated net earnings
of $4.7 million, or $.30 per share, compared with 1997 first quarter
consolidated net earnings of $1.7 million, or $.08 per share.
The Company's homebuilding segment reported pretax earnings of $3.9 million
for the first quarter of 1998, compared with pretax earnings of $2.4 million
for the same period last year. Excluding last year's gains of $4.8 million
from land sales, pretax earnings for the homebuilding segment improved by $6.3
million over the first quarter of 1997 primarily due to higher gross profit
margins combined with an eight percent increase in closings.
The Company's financial services segment reported pretax earnings of $7.3
million for the first quarter of 1998, which included a $6.1 million pretax
gain from the sale of a majority of its loan servicing portfolio. This
compares with a $3.6 million pretax profit for the first quarter of 1997.
Corporate expenses were $3.3 million for the first quarter of 1998, up $0.3
million from the same period last year primarily due to higher incentive
compensation expenses in conjunction with the higher level of earnings in the
first quarter of 1998.
The Company's limited-purpose subsidiaries no longer issue mortgage-backed
securities and mortgage-participation securities, but they continue to hold
collateral for previously issued mortgage-backed bonds in which the Company
maintains a residual interest. Revenues, expenses and portfolio balances
continue to decline as the mortgage collateral pledged to secure the bonds
decreases due to scheduled payments, prepayments and exercises of early
redemption provisions.
HOMEBUILDING SEGMENT
Results of operations of the Company's homebuilding segment are summarized as
follows ($ amounts in thousands, except average closing price):
Three months ended March 31,
1998 1997
Revenues ---- ----
Residential $ 308,000 $281,778
Other 3,539 23,891
------- -------
Total 311,539 305,669
Gross profit 42,357 42,603
Selling, general and
administrative expenses 33,944 34,268
Interest expense 4,560 5,936
------- ------
Pretax earnings $ 3,853 $ 2,399
------- ------
------- ------
Operational Unit Data:
New Orders (units) 2,631 2,474
Closings (units) 1,694 1,575
Outstanding contracts at
March 31,
Units 3,749 3,094
Dollar Value $ 679,512 $566,125
Average Closing Price $ 182,000 $179,000
7
The Company's homebuilding segment recorded pretax earnings of $3.9 million
for the first quarter of 1998, compared with pretax earnings of $2.4 million,
which included pretax gains of $4.8 million from land sales, for the same
period last year.
Homebuilding revenues amounted to $312 million for the first quarter of 1998,
up 1.9 percent over the first quarter of last year. Residential revenues,
which exclude land sales, amounted to $308 million, a 9.3 percent increase
over the same period last year. This increase is primarily due to a 7.6
percent increase in closings and a higher average closing price.
The overall gross profit margin for the first quarter of 1998 was 13.6
percent, versus 13.9 percent for the first quarter of 1997. Excluding land
sales, gross profit margins were 13.8 percent, a 70 basis point improvement
over the 13.1 percent reported for the first quarter of 1997. This is the
second consecutive quarter in which the Company has reported a significant
increase over prior year gross profit margins from residential revenues.
Increased closings from newer communities continued to drive the Company's
improved performance, despite the continuing pressure on margins in the highly
competitive Mid-Atlantic market.
Total homebuilding new orders for the first quarter of 1998 were 2,631, an
increase of 6.3 percent from the first quarter of 1997. New orders increased
in all regions, with the exception of the Mid-Atlantic. The largest increase
in new orders was in the Southwest where Houston and Austin reflected strong
increases. The Southeast reported significant growth in their newest markets
of Tampa and Greenville, while the Midwest recorded a strong increase in
Indianapolis. The West had growth in excess of 50 percent in Phoenix and
increasing volume from its newest market in Portland.
As a result of higher new order volume, outstanding contracts at March 31,
1998 were 3,749 compared with 3,094 at March 31, 1997 and 2,812 at December
31, 1997. 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, 1998 was $680 million, an increase of 20 percent from March
31, 1997 and an increase of 33 percent from December 31, 1997.
Selling, general and administrative expenses were $33.9 million, or 10.9
percent of revenues, for the first quarter of 1998, compared with $34.3
million, or 11.2 percent of revenues, for the same period of 1997. The
decrease was attributable to lower general and administrative expenses as the
Company continues to focus on effectively controlling all costs and improving
the efficiency of its homebuilding operations. Selling expenses were
comparable to last year's first quarter.
Interest expense for the first quarter of 1998 decreased by $1.4 million
compared with the same period of 1997 primarily due to a decline in average
homebuilding borrowings. The decrease in borrowings was partially
attributable to a decline in average inventory, mainly due to a decrease in
unsold homes under construction.
8
FINANCIAL SERVICES
The Company's financial services segment reported pretax earnings of $7.3
million for the first quarter of 1998 compared with a $3.6 million pretax
profit for the first quarter of 1997.
The Company sold the majority of its loan servicing portfolio in the first
quarter of 1998 and realized a $6.1 million pretax gain, net of expenses and
liabilities related to the sale of servicing. The portfolio had declined in
recent years to the point where it was no longer economically feasible to
maintain a full scale servicing operation. Furthermore, the sale was
consistent with the Company's strategy to reposition its financial services
segment to focus on its core businesses and take maximum advantage of its
strategic relationships with Ryland Homes. Future earnings of the financial
services segment will be negatively impacted by the sale.
Pretax earnings by line of business were as follows (amounts in thousands):
Three months
ended March 31,
1998 1997
---- ----
Retail $ 6,269 $ 1,466
Investments 1,045 2,104
----- -----
Total $ 7,314 $ 3,570
----- -----
----- -----
Retail mortgage operations reported pretax earnings of $6.3 million for the
first quarter of 1998, including the gain from the aforementioned servicing
sale, compared with $1.5 million for the first quarter of 1997. The increase
in earnings reflects higher gains on sales of mortgages and servicing rights
and a 36 percent increase in mortgage originations, partially offset by a
reduction in loan servicing income attributable to the continued contraction
of the Company's loan servicing portfolio. Investment earnings for the first
quarter of 1998 decreased $1.1 million compared with 1997 as a result of
income related to the redemption of certain securities during the first
quarter of 1997.
Revenues and expenses for the financial services segment were as follows:
Three months
ended March 31,
1998 1997
---- ----
Revenues:
Interest and
net origination fees $ 2,106 $ 1,635
Net gains on sales of mortgages
and servicing rights 9,048 5,143
Loan servicing 4,716 6,668
Title/escrow/insurance 1,991 1,253
----- -----
Total retail revenues 17,861 14,699
Revenues from investment
operations 3,821 4,614
----- -----
Total revenues 21,682 19,313
Expenses:
General and administrative 9,767 11,846
Interest 4,601 3,897
----- -----
Total expenses 14,368 15,743
------ ------
Pretax earnings $ 7,314 $ 3,570
----- -----
----- -----
9
Revenues for the financial services segment increased 12 percent for the first
quarter of 1998 compared with the same period of 1997. Higher retail revenues
from the sale of the majority of the Company's loan servicing portfolio, and
from higher mortgage originations and title and escrow settlements were
partially offset by lower loan servicing revenues and lower revenues from
investment operations. Loan servicing revenues decreased due to the decline
in the portfolio balance. The investment revenue decrease was due to income
included in the first quarter of 1997 related to the redemption of certain
securities.
General and administrative expenses decreased 18 percent compared with the
first quarter of 1997, primarily due to a decrease in loan servicing expenses
related to the decline in the loan servicing portfolio.
Interest expense increased 18 percent for the first quarter of 1998 compared
with 1997. The increase resulted from increased warehouse borrowings required
to fund the higher origination volume and an increase in interest expense in
the Company's investment operations due to increased borrowings to finance a
higher average portfolio balance.
Retail Operations:
Retail operations include mortgage origination, loan servicing and title,
escrow and homeowners insurance services for retail customers.
A summary of origination activities is as follows:
Three months
ended March 31,
1998 1997
---- ----
Dollar volume of mortgages
originated (in millions) $ 248 $ 183
Number of mortgages originated 1,833 1,343
Percentage of total closings:
Ryland Homes closings 59% 62%
Other closings 41% 38%
-- --
100% 100%
Mortgage origination volume increased by 36 percent in the first quarter of
1998 compared with the first quarter of last year. This increase is
attributable to higher closing volume from homebuilder loan originations and
higher refinancing activity.
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):
1998 1997
---- ----
Originated $0.3 $1.9
Acquired 0.0 2.9
Subserviced 3.6 1.1
--- ---
Total portfolio $3.9 $5.9
---- ----
---- ----
The decreases in the originated and acquired portfolio balances are
attributable to the first quarter sale of a majority of the Company's loan
servicing portfolio, 1997 servicing sales from the originated portfolio in
excess of amounts originated and normal prepayment activity. The increase in
the subserviced portfolio is directly attributable to the servicing sale in
the first quarter of 1998. The Company will subservice the sold portfolio
until the servicing transfers take place in the second quarter of 1998. In
10
addition, the Company expects to transition out of its remaining subservicing
business.
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):
Three months
ended March 31,
1998 1997
---- ----
Interest and other income $ 3,821 $ 4,614
Interest and other expenses 2,776 2,510
----- -----
Pretax earnings $ 1,045 $ 2,104
----- -----
----- -----
Interest and other income was lower for the three months ended March 31, 1998
compared with the same period for 1997 due to $0.8 million in gains related to
the redemption of certain securities in the first quarter of 1997. Interest
and other expenses increased as compared to 1997 primarily due to the cost to
finance a $10 million increase in the average portfolio balance.
Significant data from the investment operations are as follows:
Three months
ended March 31,
1998 1997
---- ----
Net interest earned
(in thousands) $ 1,382 $ 1,508
Average balance outstanding
(in millions) $ 154 $ 144
Net interest spread 3.6% 4.3%
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 is due
to a higher cost of funds and a lower income rate on the mortgage-backed
securities.
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 requirements.
The homebuilding segment borrowings include senior notes, senior subordinated
notes, an unsecured revolving credit facility, and nonrecourse secured notes
payable. Senior and senior subordinated notes outstanding totaled $308.0
million as of March 31, 1998 and December 31, 1997. On April 13, 1998, the
Company successfully completed the issuance of $100 million of senior
subordinated notes which bear interest at 8.25 percent and mature on April 1,
2008. The Company intends to use the net proceeds from this issuance to
retire the $100 million, 10.5 percent, senior subordinated notes due 2002 on
July 15, 1998, at the stated call price of 103.9375 percent of par. Pending
the aforementioned use of the net proceeds, the Company will use the net
11
proceeds to repay any outstanding amounts under the revolving credit facility
and to repay short-term notes payable.
The Company uses its unsecured revolving credit facility to finance increases
in its homebuilding inventory and changes in working capital. This facility,
which matures in July 2000, provides for total borrowings of up to $300
million. The outstanding borrowings as of March 31, 1998 were $10.0 million,
compared with no outstanding borrowings as of December 31, 1997. In addition,
the Company had letters of credit outstanding under this facility totaling
$29.6 million at March 31, 1998 and $22.3 million at December 31, 1997. To
finance land purchases, the Company may also use seller-financed, non-recourse
secured notes payable. At March 31, 1998, such notes payable outstanding
amounted to $ 1.0 million, compared with $2.2 million at December 31, 1997.
Housing inventories increased to $568.0 million as of March 31, 1998, from
$554.8 million as of the end of 1997. This increase is primarily attributable
to an increase in the backlog of homes sold but not closed, partially offset
by a reduction in unsold homes under construction.
The financial services segment uses cash generated from operations and
borrowing arrangements to finance its operations. A bank credit facility,
which matures on June 1, 2000, provides up to $260 million for mortgage
warehouse funding and $30 million for working capital advances. Other
borrowing arrangements as of March 31, 1998 included repurchase agreement
facilities aggregating $370 million, a $100 million revolving credit facility
used to finance investment portfolio securities and a $35 million credit
facility used for the short-term financing of optional bond redemptions. At
March 31, 1998 and December 31, 1997, the combined borrowings of the financial
services segment outstanding under all agreements were $328.4 million and
$340.6 million, respectively.
Mortgage loans, notes receivable, mortgage-backed securities and other assets
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 Ryland Group, Inc. has not guaranteed the debt of the financial services
segment or limited-purpose subsidiaries.
Note: Certain statements in Management's Discussion and Analysis of Results
of Operations and Financial Condition are "forward-looking statements" within
the meaning of the Private Securities Litigation Act of 1995. Forward-looking
statements are based on various factors and assumptions that include risks and
uncertainties, such as the completion and profitability of sales reported, the
market for homes generally and in areas where the Company operates, the
availability and cost of land, changes in economic conditions and interest
rates, increases in raw material and labor costs, consumer confidence,
government regulation, and general competitive factors, all or each of which
may cause actual results to differ materially.
12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In 1995, one current and two former officers of Ryland Mortgage Company ("RMC")
were notified that they were targets of a federal grand jury investigation
concerning alleged misappropriation of funds from the Resolution Trust
Corporation ("RTC") for activities during 1993. Subsequently, a federal grand
jury in Jacksonville, Florida returned indictments against RMC and the three
individuals. The indictments charge that RMC, acting through the three
individuals, conspired to defraud approximately $3.5 million from the RTC
in connection with the reconciliation of payments and disbursements handled
by RMC in its capacity as a servicer for certain mortgage servicing
contracts with the RTC. The prosecuting assistant United States attorney
indicated that the Company is responsible for restitution of the amount
allegedly defrauded and, if convicted on all counts, RMC could receive fines
of a significant but undetermined amount. RMC intends to vigorously defend
the allegations contained in the indictments. No prediction can be made at
this time regarding the result of the indictments or whether any civil action
against the Company may be initiated by the RTC or its successor.
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.
13
PART II. OTHER INFORMATION (con't)
Page Number
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
27 Financial Data Schedule (filed herewith) 17
B. There were no Reports on Form 8-K filed during the first quarter.
14
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, 1998 By: /s/ Michael D. Mangan
- ----------- ---------------------
Date Michael D. Mangan,
Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
May 14, 1998 By: /s/ Stephen B. Cook
- ----------- -------------------
Date Stephen B. Cook, Vice President
and Corporate Controller
(Principal Accounting Officer)
15
INDEX OF EXHIBITS
-----------------
A. Exhibits Page of
Sequentially
Exhibit No. Numbered Pages
- ---------- --------------
27 Financial Data Schedule
(filed herewith) 17
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Ryland Group Inc. Forn 10-Q for the period ended 3/31/98 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-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 37,264
<SECURITIES> 150,752
<RECEIVABLES> 182,004
<ALLOWANCES> 0
<INVENTORY> 567,995
<CURRENT-ASSETS> 0
<PP&E> 26,252
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,253,498
<CURRENT-LIABILITIES> 0
<BONDS> 445,853
0
490
<COMMON> 14,896
<OTHER-SE> 302,407
<TOTAL-LIABILITY-AND-EQUITY> 1,253,498
<SALES> 311,539
<TOTAL-REVENUES> 336,305
<CGS> 269,182
<TOTAL-COSTS> 312,899
<OTHER-EXPENSES> 3,350
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,239
<INCOME-PRETAX> 7,817
<INCOME-TAX> 3,127
<INCOME-CONTINUING> 4,690
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,690
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.29
</TABLE>
