<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 2000
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 of incorporation) (I.R.S. employer identification no.)
24025 Park Sorrento, Suite 400
Calabasas, California 91302
818.223.7500
(Address and telephone number of principal executive offices)
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.
[X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
The number of shares of common stock of The Ryland Group, Inc., outstanding on
August 7, 2000, was 12,951,630.
<PAGE> 2
THE RYLAND GROUP, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 2000 1-2
(unaudited) and December 31, 1999
Consolidated Statements of Earnings for the 3
Three and Six Months Ended June 30, 2000
and 1999 (unaudited)
Consolidated Statements of Cash Flows for the 4
Six Months Ended June 30, 2000 and 1999
(unaudited)
Notes to Consolidated Financial Statements (unaudited) 5-7
Item 2. Management's Discussion and Analysis of Financial Condition 8-13
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
INDEX OF EXHIBITS 17
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
THE RYLAND GROUP, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, December 31,
2000 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
HOMEBUILDING
Cash and cash equivalents $ 54,400 $ 36,297
Housing inventories:
Homes under construction 522,833 432,735
Land under development and improved lots 433,630 389,946
---------- ----------
Total inventories 956,463 822,681
Property, plant and equipment 31,774 26,619
Purchase price in excess of net assets acquired 20,829 21,710
Other assets 51,346 48,064
---------- ----------
1,114,812 955,371
---------- ----------
FINANCIAL SERVICES
Cash and cash equivalents 39,122 33,629
Mortgage loans held-for-sale 63,645 40,520
Mortgage-backed securities and notes receivable 95,000 99,249
Other assets 7,453 16,326
---------- ----------
205,220 189,724
---------- ----------
OTHER ASSETS
Collateral for bonds payable of limited-purpose subsidiaries 28,071 39,633
Net deferred taxes 29,367 32,134
Other 39,579 31,461
---------- ----------
TOTAL ASSETS $1,417,049 $1,248,323
========== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
1
<PAGE> 4
THE RYLAND GROUP, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, December 31,
2000 1999
---------- ------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES
HOMEBUILDING
Accounts payable and other liabilities $ 208,674 $ 208,133
Long-term debt 533,000 378,000
---------- ----------
741,674 586,133
---------- ----------
FINANCIAL SERVICES
Accounts payable and other liabilities 14,644 7,211
Short-term notes payable 180,923 157,458
---------- ----------
195,567 164,669
---------- ----------
OTHER LIABILITIES
Bonds payable of limited-purpose subsidiaries 26,271 37,339
Other 58,545 73,645
---------- ----------
TOTAL LIABILITIES 1,022,057 861,786
---------- ----------
STOCKHOLDERS' EQUITY
Convertible preferred stock, $1 par value:
Authorized - 1,400,000 shares
Issued - 318,834 shares (350,137 for 1999) 318 350
Common stock, $1 par value:
Authorized - 78,600,000 shares
Issued - 12,948,151 shares (13,850,819 for 1999) 12,948 13,851
Paid-in capital 55,160 71,730
Retained earnings 326,014 299,547
Accumulated other comprehensive income 552 1,059
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 394,992 386,537
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,417,049 $1,248,323
========== ==========
STOCKHOLDERS' EQUITY PER COMMON SHARE $ 29.77 $ 27.22
========== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE> 5
THE RYLAND GROUP, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES
Homebuilding:
Residential revenue $ 510,390 $ 478,743 $ 921,839 $ 866,003
Other revenue 3,236 10,566 12,105 14,620
----------- ----------- ----------- -----------
Total homebuilding revenue 513,626 489,309 933,944 880,623
Financial services 10,457 11,143 18,407 21,731
Limited-purpose subsidiaries 667 1,953 1,411 4,090
----------- ----------- ----------- -----------
Total revenues 524,750 502,405 953,762 906,444
----------- ----------- ----------- -----------
EXPENSES
Homebuilding:
Cost of sales 428,854 408,714 781,835 736,204
Selling, general and administrative 49,604 47,303 92,782 89,709
Interest 4,199 3,448 6,745 6,057
----------- ----------- ----------- -----------
Total homebuilding expenses 482,657 459,465 881,362 831,970
Financial services:
General and administrative 5,838 5,695 11,017 11,611
Interest 2,353 2,372 4,406 4,825
----------- ----------- ----------- -----------
Total financial services expenses 8,191 8,067 15,423 16,436
Limited-purpose subsidiaries 667 1,953 1,411 4,090
Corporate expenses 5,462 4,342 9,879 8,501
----------- ----------- ----------- -----------
Total expenses 496,977 473,827 908,075 860,997
EARNINGS BEFORE TAXES 27,773 28,578 45,687 45,447
Tax expense 10,832 10,976 17,818 17,724
----------- ----------- ----------- -----------
NET EARNINGS $ 16,941 $ 17,602 $ 27,869 $ 27,723
=========== =========== =========== ===========
NET EARNINGS PER COMMON SHARE:
Basic $ 1.29 $ 1.17 $ 2.08 $ 1.84
Diluted $ 1.24 $ 1.12 $ 2.02 $ 1.76
AVERAGE COMMON SHARES OUTSTANDING:
Basic 13,026,689 14,851,189 13,238,027 14,830,822
Diluted 13,651,707 15,762,261 13,830,589 15,718,829
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE> 6
THE RYLAND GROUP, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 27,869 $ 27,723
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 12,704 13,170
Increase in inventories (133,782) (89,538)
Net change in other assets, payables
and other liabilities (5,395) (1,313)
(Increase) decrease in mortgage loans held-for-sale (23,125) 42,561
Other operating activities, net (1,401) (1,263)
--------- ---------
Net cash used for operating activities (123,130) (8,660)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Net additions to property, plant and equipment (16,244) (13,937)
Net principal reduction of mortgage collateral 8,279 18,275
Net principal reduction of mortgage-backed securities,
available-for-sale 2,664 6,025
Principal reduction of mortgage-backed securities,
held-to-maturity 4,696 10,467
Other investing activities, net (376) 2,869
--------- ---------
Net cash (used for) provided by investing activities (981) 23,699
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash proceeds of long-term debt 155,000 61,425
Reduction of long-term debt - (60)
Increase (decrease) in short-term notes payable 23,465 (58,792)
Bond principal payments (11,234) (16,911)
Common and preferred stock dividends (1,466) (1,639)
Common stock repurchases (18,041) (1,771)
Other financing activities, net (17) 3,980
--------- ---------
Net cash provided by (used for) financing activities 147,707 (13,768)
--------- ---------
Net increase in cash and cash equivalents 23,596 1,271
Cash and cash equivalents at beginning of period 69,926 49,784
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 93,522 $ 51,055
--------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest (net of capitalized interest) $ 13,539 $ 13,770
Cash paid for income taxes (net of refunds) $ 19,668 $ 19,224
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE> 7
THE RYLAND GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(amounts in thousands, except share data, in all notes)
Note 1. Consolidated Financial Statements
The consolidated financial statements include the accounts of The Ryland Group
and its wholly owned subsidiaries ("the Company"). Intercompany transactions
have been eliminated in consolidation.
The consolidated balance sheet as of June 30, 2000, the consolidated statements
of earnings for the three months and six months ended June 30, 2000 and 1999,
and the consolidated statements of cash flows for the six months ended June 30,
2000 and 1999, have been prepared by the Company without audit. In the opinion
of management, all adjustments, which include normal recurring adjustments
necessary to present fairly the financial position, results of operations and
cash flows at June 30, 2000, and for all periods presented, have been made. The
consolidated balance sheet at December 31, 1999, is taken from the audited
financial statements as of that date. Certain amounts in the consolidated
statements have been reclassified to conform to the 2000 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 1999 annual report to shareholders.
The results of operations for the six months ended June 30, 2000, are not
necessarily indicative of the operating results for the full year.
Assets presented in the financial statements are net of any valuation
allowances.
The following table is a summary of capitalized interest:
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Capitalized interest as of January 1 $ 26,970 $ 21,600
Interest capitalized 17,520 11,688
Interest amortized to cost of sales (10,017) (8,918)
-------- --------
Capitalized interest as of June 30 $ 34,473 $ 24,370
======== ========
</TABLE>
Note 2. New Accounting Pronouncements
FAS 133
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (FAS 133), "Accounting for Derivative
Instruments and Hedging Activities," as amended by FAS 137 and FAS 138, which is
required to be adopted in fiscal years beginning after June 15, 2000. FAS 133
requires all derivatives to be recorded on the balance sheet at fair value and
establishes new accounting procedures for hedges that will effect the timing of
recognition and the manner in which hedging gains and losses are recognized in
the Company's financial statements. The Company is currently in the process of
evaluating the impact of FAS 133 on its earnings and financial position. The
Company will adopt FAS 133 on January 1, 2001.
5
<PAGE> 8
THE RYLAND GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(amounts in thousands, except share data, in all notes)
Note 3. Segment Information
Operations of the Company consist of two business segments: homebuilding and
financial services. The Company's homebuilding segment specializes in the sale
and construction of single-family attached and detached housing in 21 markets.
The financial services segment provides mortgage-related products and services
for Ryland Homes' customers and also conducts investment activities. Corporate
expenses represent the costs of corporate functions, which support the business
segments.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------------- -----------------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Earnings before taxes
Homebuilding $ 30,969 $ 29,844 $ 52,582 $ 48,653
Financial services 2,266 3,076 2,984 5,295
Corporate and other (5,462) (4,342) (9,879) (8,501)
-------- -------- -------- --------
Total $ 27,773 $ 28,578 $ 45,687 $ 45,447
======== ======== ======== ========
</TABLE>
Note 4. Earnings Per Share Reconciliation
The following table sets forth the computation of basic and diluted earnings per
share.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Numerator
Net earnings $ 16,941 $ 17,602 $ 27,869 $ 27,723
Preferred stock dividends (176) (213) (361) (436)
------------ ------------ ------------ ------------
Numerator for basic earnings per share -
available to common stockholders 16,765 17,389 27,508 27,287
Effect of dilutive securities -
preferred stock dividends 176 213 361 436
------------ ------------ ------------ ------------
Numerator for diluted earnings per share -
available to common stockholders $ 16,941 $ 17,602 $ 27,869 $ 27,723
============ ============ ============ ============
Denominator
Denominator for basic earnings per share -
weighted-average shares 13,026,689 14,851,189 13,238,027 14,830,822
Effect of dilutive securities:
Stock options 223,128 363,398 180,799 340,417
Equity incentive plan 75,000 394,664 77,046 402,553
Conversion of preferred shares 326,890 153,010 334,717 145,037
------------ ------------ ------------ ------------
Dilutive potential common shares 625,018 911,072 592,562 888,007
Denominator for diluted earnings per share -
adjusted weighted-average shares and
assumed conversions 13,651,707 15,762,261 13,830,589 15,718,829
BASIC EARNINGS PER SHARE $ 1.29 $ 1.17 $ 2.08 $ 1.84
DILUTED EARNINGS PER SHARE $ 1.24 $ 1.12 $ 2.02 $ 1.76
</TABLE>
6
<PAGE> 9
THE RYLAND GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(amounts in thousands, except share data, in all notes)
Note 5. Commitments and Contingencies
Refer to Part II, Other Information, Item 1, Legal Proceedings, of this document
for updated information regarding the Company's commitments and contingencies.
Note 6. Comprehensive Income
Comprehensive income, which consists of net income and the increase or decrease
in unrealized gains or losses on the Company's available-for-sale securities,
totaled $16.6 million and $17.3 million for the three months ended June 30, 2000
and 1999, respectively. For the six months ended June 30, 2000 and 1999,
comprehensive income was $27.4 million and $27.3 million, respectively.
Note 7. Financial Services Short-term Notes Payable
In March 2000, the Company renewed and extended a revolving credit facility used
to finance investment securities in the financial services segment. The
facility, previously $100 million, was renewed at $35 million. The agreement
extends through March 2001, bears interest at market rates, and is
collateralized by investment portfolio securities. Borrowings outstanding under
this facility were $20.7 million and $19.6 million at June 30, 2000, and
December 31, 1999, respectively.
Note 8. Long-term Debt
In July 2000, the Company increased its unsecured revolving credit facility from
$375 million to $400 million. This facility matures in October 2003. The Company
had borrowings under this facility of $225 million and $70 million at June 30,
2000, and December 31, 1999, respectively.
7
<PAGE> 10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
CONSOLIDATED
For the second quarter of 2000, the Company reported consolidated net earnings
from operations of $16.9 million, or $1.29 per share ($1.24 per share diluted).
This compared with consolidated net earnings from operations of $17.6 million,
or $1.17 per share ($1.12 per share diluted), for the second quarter of 1999.
Consolidated net earnings for the six months ended June 30, 2000, were $27.9
million, or $2.08 per share ($2.02 per share diluted), compared to $27.7
million, or $1.84 per share ($1.76 per share diluted), for the same period in
the prior year.
The homebuilding segment reported pretax earnings of $31 million for the second
quarter of 2000, a $1.2 million increase over the $29.8 million reported for the
second quarter of 1999. The increase over the prior year was primarily
attributable to higher closing volume and homebuilding revenues. For the six
months ended June 30, 2000, the homebuilding segment reported pretax earnings of
$52.6 million, compared to $48.7 million for the same period in the prior year.
Pretax homebuilding margins were 6 percent and 5.6 percent for the three and six
months ended June 30, 2000, respectively, and were approximately the same as
those reported in the corresponding periods in 1999.
The financial services segment reported pretax earnings from operations of $2.3
million and $3.0 million for the three and six months ended June 30, 2000,
compared to $3.1 million and $5.3 million for the same periods in 1999. The
decrease from the prior year was primarily attributable to a slight reduction in
originations as a result of the Company's decision to exit the third-party
originations market, as well as reductions in pretax earnings from its
investments due to its declining portfolio balance.
Corporate expenses represent the cost of corporate functions, which support the
business segments. Corporate expenses were $5.5 million for the second quarter
of 2000, compared to $4.3 million for the second quarter of 1999, and $9.9
million for the first six months of 2000, versus $8.5 million for the first six
months of 1999. Corporate expenses, as a percentage of revenue, were
approximately 1 percent for the three-month and six-month periods ended June 30,
2000 and 1999.
Although the Company's limited-purpose subsidiaries no longer issue
mortgage-backed securities and mortgage-participation securities, they continue
to hold collateral for previously issued mortgage-backed bonds in which the
Company maintains a residual interest. Revenues, expenses, and portfolio
balances continue to decline as the mortgage collateral pledged to secure the
bonds decreases due to scheduled payments, prepayments, and exercises of early
redemption provisions. Revenues have approximated expenses for the last three
years.
8
<PAGE> 11
HOMEBUILDING SEGMENT
Results of operations from the homebuilding segment are summarized as follows:
($ amounts in thousands, except average closing price)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------------- -----------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues
Residential $ 510,390 $ 478,743 $ 921,839 $ 866,033
Other 3,236 10,566 12,105 14,620
---------- ---------- ---------- ----------
Total 513,626 489,309 933,944 880,623
Gross profit 84,772 80,595 152,109 144,419
Selling, general and
administrative expenses 49,604 47,303 92,782 89,709
Interest expense 4,199 3,448 6,745 6,057
---------- ---------- ---------- ----------
Homebuilding pretax earnings $ 30,969 $ 29,844 $ 52,582 $ 48,653
========== ========== ========== ==========
Operational unit data
New orders (units) 3,234 2,941 6,406 5,921
Closings (units) 2,680 2,558 4,841 4,603
Outstanding contracts at
June 30,
Units 5,232 4,770
Dollar value $1,015,846 $ 886,237
Average closing price $ 190,000 $ 187,000 $ 190,000 $ 188,000
</TABLE>
Homebuilding revenues increased 5 percent for the second quarter of 2000,
compared with the same period last year, due to a 4.8 percent increase in
closings (2,680 homes closed, compared with 2,558 homes closed in the second
quarter of 1999) and a 1.6 percent increase in average closing price. For the
six months ended June 30, 2000, homebuilding revenues were $933.9 million, an
increase of $53.3 million, or 6.1 percent, compared to the six months ended June
30, 1999.
Gross profit margins from home sales averaged 17.3 percent for the second
quarter of 2000, an increase from the 16.6 percent for the second quarter of
1999. Gross profit margins from home sales averaged 16.7 percent for the first
six months of 2000, versus 16.5 percent for the same period in 1999.
New orders for the second quarter of 2000 increased 10 percent from the second
quarter of the prior year to 3,234 homes, representing the highest quarterly
sales volume in the Company's history. Sales per community were up 5.8 percent
with the Company operating in 15 additional active communities than in the
second quarter of 1999. At 6,406 homes sold, new orders were up 8.2 percent for
the first half of 2000, as compared to the first half of 1999.
Outstanding contracts as of June 30, 2000, were 5,232, compared with 4,770 at
June 30, 1999, and 3,667 at December 31, 1999. Outstanding contracts represent
the Company's backlog of homes sold but not closed, which are generally built
and closed, subject to cancellation, over the subsequent two quarters. The value
of outstanding contracts at June 30, 2000, was $1 billion, an increase of 14.6
percent from June 30, 1999, and an increase of 47.1 percent from December 31,
1999.
9
<PAGE> 12
Selling, general and administrative expenses, as a percentage of revenue, were
9.7 percent and 9.9 percent for the three and six months ended June 30, 2000,
respectively, compared to 9.7 percent and 10.2 percent for the same periods in
the prior year. Compared with the second quarter of 1999, interest expense
increased $.8 million to $4.2 million in the second quarter of 2000 due to an
increased level of activity in the homebuilding operations and higher interest
rates. For the first half of 2000, interest expense was $6.7 million, an
increase of $.7 million from the prior year.
FINANCIAL SERVICES
Results of operations of the Company's financial services segment are summarized
as follows: (amounts in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Retail revenues
Interest and
net origination fees $ 979 $ 1,603 $ 1,597 $ 3,150
Net gains on sales of mortgages
and servicing rights 4,635 4,652 7,442 8,586
Loan servicing 269 591 280 1,015
Title/escrow 2,249 1,966 4,298 3,998
------- ------- ------- -------
Total retail revenue 8,132 8,812 13,617 16,749
Revenue from investment
operations 2,325 2,331 4,790 4,982
------- ------- ------- -------
Total revenues $10,457 $11,143 $18,407 $21,731
Expenses
General and administrative 5,838 5,695 11,017 11,611
Interest 2,353 2,372 4,406 4,825
------- ------- ------- -------
Total expenses 8,191 8,067 15,423 16,436
------- ------- ------- -------
Pretax earnings $ 2,266 $ 3,076 $ 2,984 $ 5,295
======= ======= ======= =======
</TABLE>
Pretax earnings by line of business were as follows:
(amounts in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Retail $1,865 $2,466 $1,988 $3,955
Investments 401 610 996 1,340
------ ------ ------ ------
Total $2,266 $3,076 $2,984 $5,295
====== ====== ====== ======
</TABLE>
10
<PAGE> 13
OPERATIONAL DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
2000 1999 2000 1999
----- ----- ----- -----
<S> <C> <C> <C> <C>
Retail operations:
Originations 1,774 1,863 3,081 3,415
Percent of Ryland Homes
closings 97% 87% 96% 84%
Ryland Homes capture rate 70% 72% 67% 70%
Investment operations:
Portfolio average
balance (in millions) $96.8 $94.0 $98.7 $100.8
</TABLE>
Revenues for the financial services segment decreased $.7 million, or 6.2
percent, for the quarter ended June 30, 2000, compared to the same period of
1999. For the first six months of 2000, revenues for the financial services
segment were $18.4 million, down $3.3 million from the same period in the prior
year. The decrease from the prior year was attributable primarily to a decrease
in the holding period for loans in the fourth quarter of 1999, a decrease in
originations as a result of the Company's 1999 decision to exit the third-party
originations market, and reduced gains on the sale of mortgages as a result of
the increasing interest rate environment.
General and administrative expenses were $5.8 million and $11 million for the
three and six months ended June 30, 2000, respectively, compared to $5.7 million
and $11.6 million for the three and six months ended June 30, 1999,
respectively. The decrease from the first six months of 1999 is attributable to
the Company's cost-reduction initiatives. Interest expense was $2.4 million and
$4.4 million for the three and six months ended June 30, 2000, respectively,
versus $2.4 million and $4.8 million for the same periods in 1999. The decrease,
compared with the same periods in the prior year, is attributable to a reduction
in origination volume, partially offset by higher costs associated with the
increasing interest rate environment.
Retail operations include residential mortgage origination; loan servicing; and
title, escrow and homeowners insurance services for retail customers. Retail
operations reported pretax earnings of $1.9 million and $2 million for the
second quarter and first half of 2000, respectively, compared to $2.5 million
and $4 million for the same periods in the prior year.
Mortgage origination volume decreased by 4.8 percent and 9.8 percent for the
three and six months ended June 30, 2000, compared with the same periods of
1999. The decline was primarily due to a decrease in third-party originations as
a result of the Company's 1999 decision to exit the third-party originations
market.
Investment operations hold certain assets, mainly 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 from investment operations were $.4 million and $1
million for the three and six months ended June 30, 2000, respectively, versus
$.6 million and $1.3 million for the same periods in 1999. The decrease was
essentially the result of decreases in the average portfolio balance and the
weighted-average coupon rate of the portfolio, which resulted in a decline in
interest and other income.
11
<PAGE> 14
FINANCIAL CONDITION AND LIQUIDITY
Cash requirements for the Company's homebuilding and financial services segments
are generally provided 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's 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 million
as of June 30, 2000, and December 31, 1999.
The Company uses its unsecured revolving credit facility to finance increases in
its homebuilding inventory and working capital. This facility matures in October
2003 and provides for borrowings up to $400 million. Outstanding borrowings
under this facility totaled $225 million as of June 30, 2000, and $70 million at
December 31, 1999. The Company had letters of credit outstanding under this
facility totaling $55.7 million at June 30, 2000, and $48.9 million at December
31, 1999. To finance land purchases, the Company may also use seller-financed,
nonrecourse secured notes payable. At June 30, 2000, such notes payable
outstanding amounted to $11.6 million, compared with $8.1 million at December
31, 1999.
Housing inventories increased to $956.5 million as of June 30, 2000, from $822.7
million at December 31, 1999. This increase reflects a higher sold inventory,
related to the significant increase in quarter-end backlog, and an increase in
land under development and improved lots commensurate with growth. The increase
in inventory was funded with internally generated funds and borrowings under the
revolving credit facility.
The financial services segment uses cash generated from operations and borrowing
arrangements to finance its operations. The financial services segment has
borrowing arrangements that include a credit facility which provides up to $200
million for mortgage warehouse funding and matures in May 2002; repurchase
agreement facilities aggregating $150 million; and a $35 million revolving
credit facility used to finance investment portfolio securities. At June 30,
2000, and December 31, 1999, the combined borrowings of the financial services
segment outstanding under all agreements totaled $180.9 million and $157.5
million, respectively.
Mortgage loans, notes receivable, and mortgage-backed securities held by the
limited-purpose subsidiaries were pledged as collateral for previously issued
mortgage-backed bonds, the terms of which provided for the retirement of all
bonds from the proceeds of the collateral. The source of cash for the bond
payments was cash received from the mortgage loans, notes receivable, and
mortgage-backed securities.
The Company has not guaranteed the debt of either its financial services segment
or limited-purpose subsidiaries.
During the six months ended June 30, 2000, the Company repurchased approximately
950,000 shares of its outstanding common stock at a cost of approximately $18
million. In February 2000, the Board of Directors approved the repurchase of up
to one million shares of the Company's outstanding common stock. As of June 30,
2000, the Company had Board authorization to repurchase up to an additional
820,000 shares of its common stock. The Company's repurchase program has been
funded through internally generated funds.
12
<PAGE> 15
Note: Certain statements in Management's Discussion and Analysis of Financial
Condition and Results of Operations may be "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, the availability and increases in raw material and labor costs, consumer
confidence, government regulations, and general competitive factors, all or each
of which may cause actual results to differ materially.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no other material changes in the Company's market risk from
December 31, 1999. For information regarding the Company's market risk, refer to
Form 10-K for the fiscal year ended December 31, 1999, of The Ryland Group, Inc.
13
<PAGE> 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is party to various legal proceedings generally incidental to its
businesses. Based on evaluation of these matters and discussions with counsel,
management believes that liabilities to the Company arising from these matters
will not have a material adverse effect on the overall financial condition of
the Company.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of the Company was held on April 26, 2000.
Proxies were solicited by the Company pursuant to Regulation 14 under the
Securities and Exchange Act of 1934 to elect directors of the Company for the
ensuing year, and to approve the 2000 Non-Employee Director Equity Plan.
Proxies representing 12,495,860 shares of stock eligible to vote at the meeting,
or 89.9 percent of the outstanding shares, were voted in connection with the
election of directors. The eight incumbent directors nominated by the Company
were elected. The following is a separate tabulation with respect to the vote
for each nominee:
<TABLE>
<CAPTION>
Name Total Votes For Total Votes Withheld
--------------------- --------------- --------------------
<S> <C> <C>
R. Chad Dreier 12,473,470 22,390
Leslie M. Frecon 12,473,079 22,781
William L. Jews 12,473,266 22,594
William G. Kagler 12,471,454 24,406
Robert E. Mellor 12,472,579 23,281
Charlotte St. Martin 12,473,279 22,581
Paul J. Varello 12,468,829 27,031
John O. Wilson 12,471,654 24,206
</TABLE>
The 2000 Non-Employee Director Equity Plan was approved by 88.7 percent of the
shares voting. The following is a breakdown of the vote on such matter:
<TABLE>
<CAPTION>
For Against Abstain
---------- --------- ------
<S> <C> <C>
11,087,024 1,360,148 48,685
</TABLE>
14
<PAGE> 17
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
10.11 Supplement to Revolving Credit Agreement dated as of 18-22
July 31, 2000, between The Ryland Group, Inc. and
certain financial institutions
27 Financial Data Schedule 23
(filed herewith)
B. Reports on Form 8-K
</TABLE>
No reports on Form 8-K were filed during the second quarter of 2000.
15
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE RYLAND GROUP, INC.
Registrant
August 14, 2000 By: /s/ Gordon A. Milne
--------------- ------------------------------------
Date Gordon A. Milne
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
August 14, 2000 By: /s/ David L. Fristoe
--------------- ------------------------------------
Date David L. Fristoe
Senior Vice President and
Corporate Controller
(Principal Accounting Officer)
16
<PAGE> 19
INDEX OF EXHIBITS
A. Exhibits
<TABLE>
<CAPTION>
Exhibit No. Page No.
----------- --------
<S> <C> <C>
10.11 Supplement to Revolving Credit Agreement dated as of July 31, 18-22
2000, between The Ryland Group, Inc. and certain financial
institutions
27 Financial Data Schedule 23
(filed herewith)
</TABLE>
17
