UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
(Mark One):
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from________to________
Commission file number 1-8029
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A. The Ryland Group, Inc. Retirement Savings Opportunity Plan
B. The Ryland Group, Inc.
21800 Burbank Blvd, Suite 300
Woodland Hills, CA 91367
1
THE RYLAND GROUP, INC. RETIREMENT SAVINGS OPPORTUNITY PLAN
Information Required by Form 11-K
INDEX
Page Number(s)
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Report of Independent Auditors 1
Item 4. Audited Financial Statements
and Schedules prepared in
accordance with ERISA 2-11
Signatures 12
Index of Exhibits 13
2
REPORT OF INDEPENDENT AUDITORS
Employee Benefits Committee
The Ryland Group, Inc.
We have audited the accompanying statements of net assets available for plan
benefits of The Ryland Group, Inc. Retirement Savings Opportunity Plan ("the
plan") as of December 31, 1999 and 1998, and the related statements of changes
in net assets available for plan benefits for the years then ended. These
financial statements are the responsibility of the plan's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for plan benefits of the plan at
December 31, 1999 and 1998, and the changes in its net assets available for plan
benefits for the years then ended, in conformity with accounting principles
generally accepted in the United States.
Our audits were performed for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying supplemental schedules of assets
held for investment purposes as of December 31, 1999 and reportable transactions
for the year then ended are presented for purpose of additional analysis and are
not a required part of the financial statements but are supplementary
information required by the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974. The supplemental schedules are the responsibility of the Plan's
management. The supplemental schedules have been subjected to the auditing
procedures applied in our audits of the financial statements and, in our
opinion, are fairly stated in all material respects in relation to the financial
statements taken as a whole.
/s/ Ernst and Young LLP
Baltimore, Maryland
May 18, 2000
1
3
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
The Ryland Group, Inc.
Retirement Savings Opportunity Plan
December 31, December 31,
1999 1998
----------- -----------
Accrued interest and dividends $ 193,398 $ 230,187
Investments at fair value:
Short-term investments 5,000,686 4,428,850
Preferred stock of
The Ryland Group, Inc. 11,838,132 16,409,295
Mutual funds 57,557,757 45,615,599
Loans to participants 1,234,345 1,235,512
----------- -----------
Total investments 75,630,920 67,689,256
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NET ASSETS AVAILABLE FOR
PLAN BENEFITS $75,824,318 $67,919,443
----------- -----------
See Notes to Financial Statements.
2
4
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
The Ryland Group, Inc.
Retirement Savings Opportunity Plan
Year Ended Year Ended
December 31, December 31,
1999 1998
----------- -----------
ADDITIONS
Contributions:
Employer $ 4,390,323 $ 4,136,096
Participants 6,100,759 5,277,234
Rollovers 744,131 517,813
----------- -----------
Total contributions 11,235,213 9,931,143
Interest:
Short-term investments 0 282,544
Participant loans 110,591 129,800
----------- -----------
Total interest 110,591 412,344
Dividends:
The Ryland Group, Inc.
Preferred stock 830,565 1,007,106
Mutual funds 3,917,807 2,493,080
----------- -----------
Total dividends 4,748,372 3,500,186
----------- -----------
Total Additions 16,094,176 13,843,673
DEDUCTIONS
Benefit payments to participants 10,202,875 11,419,065
----------- -----------
Total Deductions 10,202,875 11,419,065
Net realized and unrealized appreciation
in fair value of investments 2,013,574 4,190,503
----------- -----------
Increase in net assets
available for plan benefits 7,904,875 6,615,111
Net assets available for plan benefits at
beginning of year 67,919,443 61,304,332
----------- -----------
NET ASSETS AVAILABLE FOR PLAN BENEFITS
AT END OF YEAR $75,824,318 $67,919,443
----------- -----------
See Notes to Financial Statements.
3
5
NOTES TO FINANCIAL STATEMENTS
THE RYLAND GROUP, INC.
RETIREMENT SAVINGS OPPORTUNITY PLAN
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
The financial statements of The Ryland Group, Inc. Retirement Savings
Opportunity Plan ("the plan" or "the RSOP", previously known as "The Ryland
Group, Inc. Retirement and Stock Ownership Plan") are prepared on the accrual
basis of accounting.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
The plan's investments are stated at fair value. Shares of registered investment
companies are valued at quoted market prices which represents the net asset
value of shares held by the plan at year-end. The preferred stock of The Ryland
Group, Inc. (the "Company"), is valued monthly by an independent appraiser, with
a minimum value of $25.25.. Units of the Vanguard Savings Trust are valued at
net asset value at year-end. Participant loans are valued at their outstanding
balance, which approximates fair value.
The change in the difference between current fair value and the cost of
investments is reflected in the statement of changes in net assets available for
plan benefits as net realized and unrealized appreciation or depreciation in
fair value of investments.
Purchases and sales of investments are recorded on a trade-date basis. The net
realized gain or loss on sale of investments reflects the difference between the
proceeds received and the cost of the specific investment shares sold (see also
Note D) and is reflected in the statement of changes in net assets available for
plan benefits in net realized and unrealized appreciation in fair value of
investments. Expenses relating to the purchase or sale of investments are added
to their cost or deducted from their proceeds.
The Company pays all administrative expenses incurred by the plan. The plan
accounts for benefits due but unpaid as a component of net assets available for
plan benefits. There were no material benefits due but unpaid at December 31,
1999 and 1998.
NOTE B: DESCRIPTION OF THE PLAN
General
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The RSOP was established on August 16, 1989. The plan was originally designed to
be an employee stock ownership plan with a deferred compensation and profit
sharing arrangement. The current plan permits deferral of a portion of
participants' pretax income pursuant to Section 401(k) of the Internal Revenue
Code. Participant contributions into the plan are combined with Company
contributions, which are allocated to participants as a match of their pretax
deferrals, with matches limited to the first six percent (6%) of the eligible
participants compensation that is deferred. The plan is subject to the Employee
Retirement Income Security Act of 1974.
Employee Eligibility
--------------------
All full-time employees are eligible to participate in the plan the first pay
period of the quarter following 30 days of employment. Effective November 15,
1999, part-time employees scheduled to work 20 hours or more per week are
eligible to participate in the plan following 30 days of employment.
Each eligible participant could elect to contribute on a pretax basis, through a
system of payroll deductions, any whole number percentage, from one percent (1%)
to twelve percent (12%), of the eligible participant's compensation. Beginning
on January 1, 1999, each eligible participant could elect to contribute from one
percent (1%) to nineteen percent (19%), of the eligible participant's
compensation. In accordance with IRS regulations, no employee could contribute
more than $10,000 to the plan for the 1999 calendar year. The RSOP offers the
participants several investment options for their contributions.
4
6
NOTES TO FINANCIAL STATEMENTS-CONTINUED
THE RYLAND GROUP, INC.
RETIREMENT SAVINGS OPPORTUNITY PLAN
NOTE B: DESCRIPTION OF THE PLAN-CONTINUED
Employee Contributions and Investment Options
---------------------------------------------
Effective January 1, 1998, the plan established new participant investment fund
options available from the Vanguard Funds and changed its trustee from Wachovia
Bank to The Vanguard Fiduciary Trust Company (the "Trustee").
The following are descriptions of the participant investment options available
during 1999:
Vanguard 500 Index Fund - Seeks to provide long-term growth of capital and
income from dividends by holding all of the 500 stocks that make up the
unmanaged Standard and Poor's 500 Composite Stock Price Index, a widely
recognized benchmark of U.S. stock market performance. At December 31, 1999,
1,081 employees were participating in this option.
Vanguard Explorer Fund - Seeks to provide long-term growth of capital by
investing in a diversified group of small company stocks with prospects for
above-average growth. At December 31, 1999, 847 employees were participating in
this option.
Vanguard Extended Market Index Fund - Seeks to provide long-term growth of
capital by attempting to match the performance of the Wilshire 4500 Equity
Index, an unmanaged index made mostly of mid- and small-capitalization
companies. This fund was available as of November 1999. At December 31, 1999, 20
employees were participating in this option.
Vanguard International Growth Fund - Seeks to provide long-term growth of
capital by investing in stocks of high-quality, seasoned companies based outside
the United States. Stocks are selected from more than 15 countries. At December
31, 1999, 274 employees were participating in this option.
Vanguard Total Bond Market Index Fund - Seeks to provide a high level of
interest income by attempting to match the performance of the unmanaged Lehman
Brothers Aggregate Bond Index, which is widely recognized measure of the entire
taxable U.S. bond market. At December 31, 1999, 514 employees were participating
in this option.
Vanguard U.S. Growth Fund - Seeks to provide long-term growth of capital by
investing in large, high-quality, seasoned U.S. companies with records of
exceptional growth and above-average prospects for future growth. At December
31, 1999, 1,339 employees were participating in this option.
Vanguard Wellington Fund - Seeks to provide income and long-term growth of
capital without undue risk to capital by investing about 65% of its assets in
stocks and the remaining 35% bonds. At December 31, 1999, 926 employees were
participating in this option.
Vanguard Windsor II Fund - Seeks to provide long-term growth of capital and
income from dividends by investing in a diversified group of out-of-favor stocks
of large-capitalization companies. The stocks generally sell at prices below the
overall market average compared to their dividend income and future return
potential. At December 31, 1999, 529 employees were participating in this
option.
Vanguard Retirement Savings Trust - Seeks stability of principal and a high
level of current income consistent with a two- to three-year average maturity.
The trust is a tax-exempt collective trust invested primarily in investment
contracts issued by insurance companies and commercial banks, and similar types
of fixed-principal investments. The trust intends to maintain a constant net
asset value of $1.00 per share. At December 31, 1999, 513 employees were
participating in this option.
5
7
NOTES TO FINANCIAL STATEMENTS-CONTINUED
THE RYLAND GROUP, INC.
RETIREMENT SAVINGS OPPORTUNITY PLAN
NOTE B: DESCRIPTION OF THE PLAN-CONTINUED
Company Contributions
---------------------
As of January 1, 1994, the RSOP was amended to allow the Company to make both
matching and discretionary contributions in the form of preferred shares, cash
or a combination of both. In instances where cash was all or part of the
Company's contribution, it was divided among the current investment funds based
on each participant's current investment fund option selections. In instances
where both preferred shares and cash were contributed to participant accounts,
all participants received a prorata portion of each. Beginning January 1, 1998,
participants no longer received preferred stock in connection with Company
matching contributions to their accounts. The Company made no discretionary
contributions for the years ended December 31, 1999 and 1998.
Vesting
-------
Participants' contributions are fully vested at all times. The plan provides for
vesting of Company contributions of 20% after one year of service and 20%
additional vesting for each year thereafter until the fifth year, at which time
the participants are 100% vested. Participants are automatically vested upon
death, disability or retirement as defined in the plan.
Participant Loans
-----------------
Participants may borrow from their fund accounts a minimum of $1,000 up to a
maximum equal to the lesser of $50,000 or 50% of their vested account balance.
Loan terms range from 1-5 years or up to 15 years for the purchase of a primary
residence. The loans are secured by the balance in the participant's account and
bear interest at a rate of prime plus one percent. Principal and interest is
paid ratably through payroll deductions.
Other
-----
The Company expects and intends to continue the plan but reserves the right to
amend, suspend or terminate the plan at any time. If the Company terminates the
plan, each participant will become fully vested in all of his or her accounts
under the plan and will be entitled to a distribution of such accounts in
accordance with the terms of the plan.
Earnings on investments, net gains or losses on sales of investments and
unrealized appreciation or depreciation in fair value of investments are
allocated to individual participant accounts based on a ratio of the
individual's account balance to the total fund balance.
Additional information about the plan agreement is contained in the pamphlet The
Ryland Retirement Savings Opportunity Plan. Copies of this pamphlet are
available from the Company's Employee Benefits Department.
NOTE C: PREFERRED STOCK AND THE LOAN PAYABLE TO RYLAND
On August 31, 1989, the Company sold 1,267,327 shares of non-transferable
convertible preferred stock, par value $1.00, to the plan for $31.5625 per
share, or an aggregate purchase price of approximately $40,000,000. Each share
of preferred stock pays an annual cumulative dividend of $2.2094. During 1999
and 1998, the Company paid $831,000 and $1,007,000, respectively, in dividends
on the preferred stock. Each share of preferred stock entitles the holder to a
number of votes equal to the shares into which the stock is convertible, and
preferred stockholders generally vote together with common stockholders on all
matters. The conversion and voting rights of the preferred stock are subject to
anti-dilution adjustments.
6
8
NOTES TO FINANCIAL STATEMENTS-CONTINUED
THE RYLAND GROUP, INC.
RETIREMENT SAVINGS OPPORTUNITY PLAN
The plan's purchase of the preferred stock was financed by a $40,000,000 loan
from the Company. The interest rate on the loan was 9.99 percent and through
September 1997, the loan was being repaid by the plan through dividends received
on the preferred stock and Company contributions. On October 1, 1997, the plan
paid off the remaining outstanding loan balance. As of December 31, 1999,
350,137 shares of preferred stock were allocated to participants' accounts.
Beginning January 1, 1998, participants receive cash and no longer receive
preferred stock in connection with Company matching contributions to their
account.
NOTE D: DISTRIBUTIONS
A participant who terminates employment with the Company by reason of a
separation from service, death, disability or retirement will be paid the
current value of his/her contributions to the plan, plus the vested portion of
his/her account, if any, attributable to Company contributions. Distributions
from a participant's vested portion of his/her convertible preferred stock
account will be made at the participant's election either in cash or whole
shares of common stock of the Company. If the participant elects to receive
common stock, the Trustee will convert each share of preferred stock held in the
participant's convertible preferred stock account into one share of common stock
and will receive from the Company an additional cash contribution to cover any
differential between the current common stock price and the appraised value of
the preferred stock. The Trustee will use the cash to acquire (on the open
market) additional shares of common stock and then distribute to the participant
the total number of shares of common stock that were acquired. If the
participant elects to receive cash, the Trustee will convert each share of
preferred stock into the number of shares of common stock into which such
preferred stock is convertible, and will receive in cash from the Company any
differential between the current common stock price and the appraised value of
the preferred stock. The Trustee will then sell the shares of common stock on
the open market and distribute to the participant the cash proceeds plus the
differential contribution made by the Company. The non-vested portion of the
Company's contributions credited to the terminating participant is forfeited
immediately. All forfeitures are used to reduce future matching contributions
required from the Company.
The cash received by the Trustee from the Company to fund any differential
between the current market price of the Company's common stock and the appraised
value of the preferred shares is recorded as an employer contribution in the
Statement of Changes in Net Assets Available for Plan Benefits. This cash is not
included in the computation of the realized gain or loss from the converted
preferred shares.
7
9
NOTES TO FINANCIAL STATEMENTS-CONTINUED
THE RYLAND GROUP, INC.
RETIREMENT SAVINGS OPPORTUNITY PLAN
NOTE E: INVESTMENTS
During 1999 and 1998, the plan's investments (including investments bought and
sold, as well as held during the year) appreciated in fair value by $2,013,574
and $4,190,503, respectively. Investments that represent five percent or more of
the plan's net are separately identified.
Net Appreciation
(Depreciation)
For the Year Ended in Fair Value Fair Value at
December 31, 1999 During Year End of Year
-------------------------------------- ----------- -----------
Vanguard 500 Index Fund $ 1,512,000 $10,972,812
Vanguard Explorer Fund 1,885,533 11,226,406
Vanguard Extended Market Index Fund 3,737 82,160
Vanguard International Growth Fund 136,159 1,018,597
Vanguard Total Bond Market Index Fund (281,455) 3,704,106
Vanguard U.S. Growth Fund 2,479,708 18,975,290
Vanguard Wellington Fund (386,439) 8,771,702
Vanguard Windsor II Fund (478,266) 2,806,684
Vanguard Retirement Savings Trust 0 5,000,686
Preferred Stock -
The Ryland Group, Inc. (2,857,403) 11,838,132
Loans to Participants 0 1,234,345
----------- -----------
Total $ 2,013,574 $75,630,920
----------- -----------
8
10
NOTES TO FINANCIAL STATEMENTS-CONTINUED
THE RYLAND GROUP, INC.
RETIREMENT SAVINGS OPPORTUNITY PLAN
NOTE E: INVESTMENTS-CONTINUED
Net Appreciation
(Depreciation)
For the Year Ended in Fair Value Fair Value at
December 31, 1998 During Year End of Year
-------------------------------------- ----------- -----------
Vanguard 500 Index Fund $ 1,007,964 $ 6,241,789
Vanguard Explorer Fund 308,142 8,886,015
Vanguard International Growth Fund 19,064 420,059
Vanguard Total Bond Market Index Fund 43,923 4,039,540
Vanguard U.S. Growth Fund 3,197,238 14,748,261
Vanguard Wellington Fund (19,347) 8,681,703
Vanguard Windsor II Fund (92,928) 2,598,232
Vanguard Retirement Savings Trust 0 4,428,850
Preferred Stock -
The Ryland Group, Inc. (273,553) 16,409,295
Loans to Participants 0 1,235,512
----------- -----------
Total $ 4,190,503 $67,689,256
----------- -----------
The maximum accounting loss the plan would incur if parties to the financial
instruments failed to perform would be the current value of the investments as
stated on the statement of net assets available for plan benefits. None of the
investments are secured by collateral.
NOTE F: INCOME TAX STATUS
The Internal Revenue Service ruled (August 13, 1996) that the plan qualifies
under Section 401(a) of the Internal Revenue Code (IRC) and is, therefore, not
subject to tax under present income tax law. Once qualified, the plan is
required to operate in conformity with the IRC to maintain its qualification.
The plan sponsor has indicated that it will take the necessary steps, if any, to
maintain the plan's qualified status.
9
11
THE RYLAND GROUP, INC.
RETIREMENT SAVINGS OPPORTUNITY PLAN
EIN: 52-0849948 PLAN: 003
Schedule H, Line 4i
Schedule of Assets Held For Investment Purposes at End of Year
DECEMBER 31, 1999
Description of Investment,
Including Maturity Date,
Identity of Issue, Borrower, Rate of Interest, Par or Current
Lessor or Similar Party Maturity Value Cost Value
--------------------------- ------------------------ ----------- -----------
Vanguard 500 Index Fund Registered Investment Co $ 8,771,779 $10,972,812
Vanguard Explorer Fund Registered Investment Co $ 9,198,897 $11,226,406
Vanguard Ext Mkt Idx Fund Registered Investment Co $ 78,954 $ 82,160
Vanguard Int'l Growth Fund Registered Investment Co $ 872,839 $ 1,018,597
Vanguard Ttl Bond Mkt Idx Registered Investment Co $ 3,914,932 $ 3,704,106
Vanguard U.S. Growth Registered Investment Co $14,414,440 $18,975,290
Vanguard Wellington Fund Registered Investment Co $ 9,294,559 $ 8,771,702
Vanguard Windsor II Fund Registered Investment Co $ 3,384,026 $ 2,806,684
Vanguard Retire Svs Trust Common/Collective Trust $ 5,000,686 $ 5,000,686
* The Ryland Group, Inc. Preferred Stock $11,051,199 $11,838,132
Participant Loans High - 9.50% $ 1,234,345 $ 1,234,345
Low - 8.75%
* Indicates party in-interest to the Plan.
10
12
THE RYLAND GROUP, INC.
RETIREMENT SAVINGS OPPORTUNITY PLAN
EIN: 52-0849948 PLAN: 003
Schedule H, Line 4j
Schedule of Reportable Transactions
YEAR ENDED DECEMBER 31, 1999
(a) (b) (c) (d) (g) (h) (i)
Description Current Value
of Assets of Asset
(including interest rate and Purchase Selling Cost of on Transaction Net Gain
Identity of Party Involved maturity in case of a loan) Price Price Asset Date or (Loss)
-------------------------- ---------------------------- ------------ ------------- ----------- ------------ ----------
Category (iii) - series of transactions in excess of 5 percent of plan assets at beginning of the year.
The Vanguard Group Vanguard 500 Index Fund $4,889,025 $4,889,025
The Vanguard Group Vanguard 500 Index Fund $1,670,002 $1,409,031 1,670,002 $260,971
The Vanguard Group Vanguard Explorer Fund 3,046,437 3,046,437 -
The Vanguard Group Vanguard Explorer Fund 2,591,579 2,435,704 2,591,579 155,875
The Vanguard Group Vanguard U.S. Growth 5,345,957 5,345,957 -
The Vanguard Group Vanguard U.S. Growth 3,598,638 2,960,229 3,598,638 638,409
The Vanguard Group Vanguard Wellington Fund 2,572,169 2,572,169 -
The Vanguard Group Vanguard Wellington Fund 2,095,731 2,086,317 2,095,731 9,413
The Vanguard Group Vanguard Retire Savings Trst 3,432,272 3,432,272 -
The Vanguard Group Vanguard Retire Savings Trst 2,860,436 2,860,436 2,860,436 -
There were no category (i), (ii) or (iv) reportable transactions during 1999
* Commissions and fees related to purchases and sales of investments are included in the cost of the investment or the proceeds
from the sale and are not separately identified by the Trustee.
11
13
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
trustees (or other persons who administer the plan) have duly caused this Annual
Report to be signed by the undersigned thereunto duly authorized.
THE RYLAND GROUP, INC.
RETIREMENT SAVINGS OPPORTUNITY PLAN
Date: May 30, 2000 By: /s/ David L. Fristoe
---------------------------
David L. Fristoe
Senior Vice President, Controller
and Chief Accounting Officer
The Ryland Group, Inc.
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Page Of
Sequentially
Numbered Pages
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INDEX OF EXHIBITS
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23 Consent of Ernst and Young, LLP, Independent Auditors 14
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