<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 September 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 Number)
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
November 7, 2000, was 13,235,063.
<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 September 30, 2000,
(unaudited) and December 31, 1999 1-2
Consolidated Statements of Earnings for the
Three and Nine Months Ended September 30, 2000
and 1999 (unaudited) 3
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2000 and 1999
(unaudited) 4
Notes to Consolidated Financial Statements (unaudited) 5-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-13
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 14
SIGNATURES 15
INDEX OF EXHIBITS 16
</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>
SEPTEMBER 30, December 31,
2000 1999
---------- ----------
(UNAUDITED)
<S> <C> <C>
ASSETS
HOMEBUILDING
Cash and cash equivalents $ 57,189 $ 36,297
Housing inventories:
Homes under construction 553,719 432,735
Land under development and improved lots 404,919 389,946
---------- ----------
Total inventories 958,638 822,681
Property, plant and equipment 33,467 26,619
Purchase price in excess of net assets acquired 20,388 21,710
Other assets 58,960 48,064
---------- ----------
1,128,642 955,371
---------- ----------
FINANCIAL SERVICES
Cash and cash equivalents 32,210 33,629
Mortgage loans, held-for-sale 59,677 40,520
Mortgage-backed securities and notes receivable 87,035 99,249
Other assets 7,340 16,326
---------- ----------
186,262 189,724
---------- ----------
OTHER ASSETS
Collateral for bonds payable of limited-purpose subsidiaries 24,140 39,633
Net deferred taxes 30,001 32,134
Other 39,058 31,461
---------- ----------
TOTAL ASSETS $1,408,103 $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>
SEPTEMBER 30, December 31,
2000 1999
---------- ----------
(UNAUDITED)
<S> <C> <C>
LIABILITIES
HOMEBUILDING
Accounts payable and other liabilities $ 227,430 $ 208,133
Long-term debt 508,341 378,000
---------- ----------
735,771 586,133
---------- ----------
FINANCIAL SERVICES
Accounts payable and other liabilities 10,353 7,211
Short-term notes payable 153,606 157,458
---------- ----------
163,959 164,669
---------- ----------
OTHER LIABILITIES
Bonds payable of limited-purpose subsidiaries 22,469 37,339
Other 64,872 73,645
---------- ----------
TOTAL LIABILITIES 987,071 861,786
---------- ----------
STOCKHOLDERS' EQUITY
Convertible preferred stock, $1 par value:
Authorized - 1,400,000 shares
Issued - 308,139 shares (350,137 for 1999) 308 350
Common stock, $1 par value:
Authorized - 78,600,000 shares
Issued - 13,115,899 shares (13,850,819 for 1999) 13,116 13,851
Paid-in capital 58,909 71,730
Retained earnings 348,158 299,547
Accumulated other comprehensive income 541 1,059
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 421,032 386,537
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,408,103 $1,248,323
---------- ----------
STOCKHOLDERS' EQUITY PER COMMON SHARE $ 31.36 $ 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 SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
2000 1999 2000 1999
------------ -------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES
Homebuilding:
Residential revenue $ 574,335 $ 494,283 $ 1,496,174 $ 1,360,286
Other revenue 42,124 1,583 54,229 16,203
----------- ----------- ----------- -----------
Total homebuilding revenue 616,459 495,866 1,550,403 1,376,489
Financial services 11,868 11,309 31,686 37,130
----------- ----------- ----------- -----------
Total revenues 628,327 507,175 1,582,089 1,413,619
----------- ----------- ----------- -----------
EXPENSES
Homebuilding:
Cost of sales 516,101 411,908 1,297,936 1,148,112
Selling, general and administrative 55,145 45,757 147,927 135,466
Interest 4,834 2,757 11,579 8,814
----------- ----------- ----------- -----------
Total homebuilding expenses 576,080 460,422 1,457,442 1,292,392
Financial services:
General and administrative 4,302 4,843 15,323 16,480
Interest 2,991 4,343 8,804 13,232
----------- ----------- ----------- -----------
Total financial services expenses 7,293 9,186 24,127 29,712
Corporate expenses 7,513 7,831 17,392 16,332
----------- ----------- ----------- -----------
Total expenses 590,886 477,439 1,498,961 1,338,436
EARNINGS BEFORE TAXES 37,441 29,736 83,128 75,183
Tax expense 14,602 11,597 32,420 29,321
----------- ----------- ----------- -----------
NET EARNINGS $ 22,839 $ 18,139 $ 50,708 $ 45,862
=========== =========== =========== ===========
NET EARNINGS PER COMMON SHARE
Basic $ 1.74 $ 1.21 $ 3.81 $ 3.05
Diluted $ 1.67 $ 1.15 $ 3.68 $ 2.92
AVERAGE COMMON SHARES OUTSTANDING
Basic 12,992,492 14,855,799 13,156,245 14,839,146
Diluted 13,691,616 15,741,410 13,785,868 15,723,099
</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>
NINE MONTHS ENDED SEPTEMBER 30,
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 50,708 $ 45,862
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 20,036 19,763
Increase in inventories (135,957) (141,622)
Net change in other assets, payables
and other liabilities 11,907 18,815
(Increase) decrease in mortgage loans held-for-sale (19,157) 66,547
Other operating activities, net 2,339 (2,224)
--------- ---------
Net cash (used for) provided by operating activities (70,124) 7,141
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Net additions to property, plant and equipment (24,964) (18,947)
Net principal reduction of mortgage collateral 11,948 24,594
Net principal reduction (increase) of mortgage-backed securities,
available-for-sale 7,958 (3,154)
Principal reduction of mortgage-backed securities,
held-to-maturity 7,414 27,113
Other investing activities, net 1,236 (4,743)
--------- ---------
Net cash provided by investing activities 3,592 24,863
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash proceeds of long-term debt 150,000 61,425
Reduction of long-term debt (28,000) (1,628)
Decrease in short-term notes payable (3,852) (16,748)
Bond principal payments (15,127) (32,581)
Common and preferred stock dividends (2,161) (2,449)
Common stock repurchases (18,021) (8,983)
Other financing activities, net 3,166 2,373
--------- ---------
Net cash provided by financing activities 86,005 1,409
--------- ---------
Net increase in cash and cash equivalents 19,473 33,413
Cash and cash equivalents at beginning of period 69,926 49,784
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 89,399 $ 83,197
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest (net of capitalized interest) $ 17,997 $ 20,131
Cash paid for income taxes (net of refunds) $ 32,263 $ 30,464
</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)
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 September 30, 2000, the consolidated
statements of earnings for the three months and nine months ended September 30,
2000 and 1999, and the consolidated statements of cash flows for the nine months
ended September 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 Company's financial
position, results of operations and cash flows at September 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 its shareholders.
The results of operations for the nine months ended September 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 25,972 17,870
Interest amortized to cost of sales (19,037) (13,343)
-------- --------
Capitalized interest as of September 30 $ 33,905 $ 26,127
======== ========
</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 affect 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
completing its evaluation of the impact of FAS 133 on its earnings and financial
position and does not expect that impact to be material. 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)
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 19 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 SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Earnings before taxes
Homebuilding $ 40,379 $ 35,444 $ 92,961 $ 84,097
Financial services 4,575 2,123 7,559 7,418
Corporate and other (7,513) (7,831) (17,392) (16,332)
-------- -------- -------- --------
Total $ 37,441 $ 29,736 $ 83,128 $ 75,183
======== ======== ======== ========
</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 SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Numerator
Net earnings $ 22,839 $ 18,139 $ 50,708 $ 45,862
Preferred stock dividends (170) (201) (531) (637)
------------ ------------ ------------ ------------
Numerator for basic earnings per share,
available to common stockholders 22,669 17,938 50,177 45,225
Effect of dilutive securities,
preferred stock dividends 170 201 531 637
------------ ------------ ------------ ------------
Numerator for diluted earnings per share,
available to common stockholders $ 22,839 $ 18,139 $ 50,708 $ 45,862
============ ============ ============ ============
Denominator
Denominator for basic earnings per share,
weighted-average shares 12,992,492 14,855,799 13,156,245 14,839,146
Effect of dilutive securities,
Stock options 305,741 350,970 223,598 340,679
Equity incentive plan 79,891 374,721 78,384 393,275
Conversion of preferred shares 313,492 159,920 327,641 149,999
------------ ------------ ------------ ------------
Dilutive potential of common shares 699,124 885,611 629,623 883,953
Denominator for diluted earnings per share,
adjusted weighted-average shares and
assumed conversions 13,691,616 15,741,410 13,785,868 15,723,099
BASIC EARNINGS PER SHARE $ 1.74 $ 1.21 $ 3.81 $ 3.05
DILUTED EARNINGS PER SHARE $ 1.67 $ 1.15 $ 3.68 $ 2.92
</TABLE>
6
<PAGE> 9
THE RYLAND GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(amounts in thousands, except share data)
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 $22.8 million and $17.9 million for the three months ended September 30,
2000 and 1999, respectively. For the nine months ended September 30, 2000 and
1999, comprehensive income was $50.2 million and $45.2 million, respectively.
Note 7. Financial Services Short-term Notes Payable
In September 2000, the Company amended a revolving credit facility used to
finance investment securities in the financial services segment. The facility,
previously $100 million, was renewed at $45 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
$28.8 million and $19.6 million at September 30, 2000, and December 31, 1999,
respectively.
Note 8. Long-term Debt
In August 2000, the Company issued $150 million of 9.75 percent senior notes,
which mature on September 1, 2010. The net proceeds from this issuance were used
to repay amounts outstanding under the revolving credit facility.
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 $50 million and $70 million at September
30, 2000, and December 31, 1999, respectively.
Note 9. Financial Services Long-term Debt
In August 2000, the financial services segment decreased its warehouse credit
facility from $200 million to $150 million. This facility matures in May 2002.
The Company had borrowings under this facility of $67.4 million and $60.2
million at September 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 third quarter of 2000, the Company reported consolidated net earnings
from operations of $22.8 million, or $1.74 per share ($1.67 per share diluted).
This compared with consolidated net earnings from operations of $18.1 million,
or $1.21 per share ($1.15 per share diluted), for the third quarter of 1999.
Consolidated net earnings for the nine months ended September 30, 2000, were
$50.7 million, or $3.81 per share ($3.68 per share diluted), compared to $45.9
million, or $3.05 per share ($2.92 per share diluted), for the same period in
the prior year.
The homebuilding segment reported pretax earnings of $40.4 million for the third
quarter of 2000, a $5 million increase over the $35.4 million reported for the
third quarter of 1999. The increase over the prior year was primarily
attributable to higher closing volume and homebuilding revenues. For the nine
months ended September 30, 2000, the homebuilding segment reported pretax
earnings of $93 million, compared with $84.1 million for the same period in the
prior year. Pretax homebuilding margins were 6.6 percent and 6 percent for the
three and nine months ended September 30, 2000, compared to 7.1 percent and 6.1
percent for the corresponding periods in 1999.
The financial services segment reported pretax earnings from operations of $4.6
million and $7.6 million for the three and nine months ended September 30, 2000,
compared to $2.1 million and $7.4 million for the same periods in 1999. The
increase from the prior year was primarily attributable to increased gains from
the sale of mortgages and mortgage servicing rights; a 6.5 percent increase in
loan originations; operating cost reductions; and increased earnings from title
and escrow operations.
Corporate expenses represent the cost of corporate functions which support the
business segments. Corporate expenses were $7.5 million for the third quarter of
2000, compared to $7.8 million for the third quarter of 1999, and $17.4 million
for the first nine months of 2000, versus $16.3 million for the first nine
months of 1999. Corporate expenses included non-recurring charges associated
with the relocation of the Company's corporate headquarters of $.2 million and
$1.3 million for the three-month and nine-month periods ended September 30,
2000, respectively, compared with $2.8 million for the same periods in 1999. No
further charges associated with the relocation of the Company's headquarters are
anticipated. Excluding these charges, corporate expenses increased by $2.3
million and $2.6 million for the three-month and nine-month periods ended
September 30, 2000, respectively. The increases are primarily related to
increased incentive compensation expense.
Although the Company's limited-purpose subsidiaries no longer issue
mortgage-backed securities and mortgage-participation securities, they continue
to hold collateral for previously issued mortgage-backed bonds in which the
Company maintains a residual interest. Revenues, expenses, and portfolio
balances continue to decline as the mortgage collateral pledged to secure the
bonds decreases due to scheduled payments, prepayments, and exercises of early
redemption provisions. Revenues have approximated expenses for the last three
years.
8
<PAGE> 11
HOMEBUILDING SEGMENT
Results of operations from the homebuilding segment are summarized as follows:
($ amounts in thousands, except average closing price)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues
Residential $ 574,335 $ 494,283 $1,496,174 $1,360,286
Other 42,124 1,583 54,229 16,203
---------- ---------- ---------- ----------
Total 616,459 495,866 1,550,403 1,376,489
Gross profit 100,358 83,958 252,467 228,377
Selling, general and
administrative expenses 55,145 45,757 147,927 135,466
Interest expense 4,834 2,757 11,579 8,814
---------- ---------- ---------- ----------
Homebuilding pretax earnings $ 40,379 $ 35,444 $ 92,961 $ 84,097
========== ========== ========== ==========
Operational unit data
New orders (units) 2,912 2,250 9,318 8,171
Closings (units) 3,017 2,624 7,858 7,227
Outstanding contracts at
September 30,
Units 5,127 4,396
Dollar value $1,052,024 $ 841,887
Average closing price $ 190,000 $ 188,000 $ 190,000 $ 188,000
</TABLE>
Homebuilding revenues increased 24.3 percent for the third quarter of 2000,
compared with the same period last year, due to a 15 percent increase in
closings (3,017 homes closed, compared with 2,624 homes closed in the third
quarter of 1999) and a 1.1 percent increase in average closing price. For the
nine months ended September 30, 2000, homebuilding revenues were $1,550.4
million, an increase of $173.9 million, or 12.6 percent, compared to the nine
months ended September 30, 1999.
Gross profit margins from home sales averaged 17.6 percent for the third quarter
of 2000, an increase from 17.1 percent for the third quarter of 1999. Gross
profit margins from home sales averaged 17.1 percent for the first nine months
of 2000, versus 16.7 percent for the same period in 1999.
New orders for the third quarter of 2000 increased 29.4 percent from the third
quarter of the prior year to 2,912 homes. Sales per community were up 21.7
percent from the third quarter of 1999, with the Company operating in 16
additional active communities. At 9,318 homes sold, new orders were up 14
percent for the first nine months of 2000, as compared to the first nine months
of 1999.
Outstanding contracts as of September 30, 2000, were 5,127, versus 4,396 at
September 30, 1999, and 3,667 at December 31, 1999. Outstanding contracts
represent the Company's backlog of homes sold but not yet closed, which are
generally built and closed, subject to cancellation, over the subsequent two
quarters. The value of outstanding contracts at September 30, 2000, was $1.1
billion, an increase of 25 percent from September 30, 1999, and an increase of
52.4 percent from December 31, 1999.
9
<PAGE> 12
Selling, general and administrative expenses, as a percentage of revenue, were
8.9 percent and 9.5 percent for the three and nine months ended September 30,
2000, respectively, compared to 9.2 percent and 9.8 percent for the same periods
in the prior year. Compared with the third quarter of 1999, interest expense
increased $2.1 million to $4.8 million in the third quarter of 2000 due to
increased activity in the Company's homebuilding operations and higher interest
rates. For the first nine months of 2000, interest expense was $11.6 million, an
increase of $2.8 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 SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Retail revenues
Interest and
net origination fees $ 1,067 $ 1,546 $ 2,664 $ 4,696
Net gains on sales of mortgages
and servicing rights 5,216 3,115 12,658 11,701
Loan servicing 80 377 360 1,392
Title/escrow 2,473 2,140 6,771 6,138
------- ------- ------- -------
Total retail revenue 8,836 7,178 22,453 23,927
Revenue from investment operations
and limited-purpose subsidiaries 3,032 4,131 9,233 13,203
------- ------- ------- -------
Total revenues $11,868 $11,309 $31,686 $37,130
Expenses
General and administrative 4,302 4,843 15,323 16,480
Interest 2,991 4,343 8,804 13,232
------- ------- ------- -------
Total expenses 7,293 9,186 24,127 29,712
------- ------- ------- -------
Pretax earnings $ 4,575 $ 2,123 $ 7,559 $ 7,418
======= ======= ======= =======
</TABLE>
Pretax earnings by line of business were as follows:
(amounts in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Retail $4,010 $1,401 $5,998 $5,356
Investments 565 722 1,561 2,062
------ ------ ------ ------
Total $4,575 $2,123 $7,559 $7,418
====== ====== ====== ======
</TABLE>
10
<PAGE> 13
OPERATIONAL DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Retail operations:
Originations 1,920 1,803 5,001 5,218
Percent of Ryland Homes
closings 97% 89% 96% 86%
Ryland Homes capture rate 71% 67% 69% 69%
Investment operations:
Portfolio average balance
(in millions) $89.2 $89.1 $95.5 $96.8
</TABLE>
Revenues for the financial services segment increased $.6 million, or 4.9
percent, for the quarter ended September 30, 2000. For the first nine months of
2000, revenues for the financial services segment were $31.7 million, down $5.4
million from the same period in the prior year.
Revenues from retail operations increased by $1.6 million to $8.8 million for
the three months ended September 30, 2000, compared with the same period in
1999. For the nine months ended September 30, 2000, revenues from retail
operations decreased by $1.5 million to $22.4 million, compared with the nine
months ended September 30, 1999. The fluctuations from the prior year were
attributable to increased gains from the sale of mortgages and mortgage
servicing rights, and increased revenues from title and escrow operations due to
increased settlement volume, offset by decreased financing income resulting from
a reduction in the number of days loans were held for sale, and a decrease in
loan servicing fee income as a result of exiting this line of business.
Revenues from investment operations and limited-purpose subsidiaries decreased
by $1.1 million and $4 million for the three-month and nine-month periods ended
September 30, 2000, respectively, compared with the same periods in 1999. The
decrease from the prior year was primarily attributable to reduced interest
income from the declining mortgage collateral and investment portfolio balances.
General and administrative expenses were $4.3 million and $15.3 million for the
three and nine months ended September 30, 2000, respectively, compared with $4.8
million and $16.5 million for the periods ended September 30, 1999. These
decreases were primarily attributable to cost reductions made at the mortgage
branch level.
Interest expense was $3 million and $8.8 million for the three and nine months
ended September 30, 2000, respectively, compared with $4.3 million and $13.2
million for the same periods in 1999. These decreases were primarily
attributable to declining mortgage collateral and investment portfolio balances,
and a reduction in the number of days loans were held for sale.
Retail operations include residential mortgage origination; loan servicing; and
title, escrow and homeowners insurance services for retail customers. Retail
operations reported pretax earnings of $4 million and $6 million for the third
quarter and first nine months of 2000, respectively, compared to $1.4 million
and $5.4 million for the same periods in the prior year.
Mortgage origination volume increased by 6.5 percent for the three months ended
September 30, 2000, and decreased by 4.2 percent for the nine months ended
September 30, 2000, compared with the same periods in 1999. The decline from the
nine-month levels reported in 1999 was primarily due to a decrease in
third-party originations, resulting from the Company's 1999 decision to exit the
third-party originations market, offset by increased closings from homebuilding
operations that were financed by the Company.
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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 $.6 million and
$1.6 million for the three and nine months ended September 30, 2000,
respectively, versus $.7 million and $2.1 million for the same periods in 1999.
The decrease was essentially the result of decreases in the investment
portfolio's average balance and its weighted-average coupon rate, which resulted
in a decline in interest and other income.
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 $450 million
as of September 30, 2000, and $308 million as of 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 $50 million as of September 30, 2000, and $70
million at December 31, 1999. The Company had letters of credit outstanding
under this facility totaling $59.7 million at September 30, 2000, and $48.9
million at December 31, 1999. To finance land purchases, the Company also uses
seller-financed, nonrecourse secured notes payable. At September 30, 2000, such
notes payable outstanding amounted to $1.1 million, compared with $8.1 million
at December 31, 1999.
Housing inventories increased to $958.6 million as of September 30, 2000, from
$822.7 million at December 31, 1999. This increase reflects higher sold
inventory levels, related to a 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 $150
million for mortgage warehouse funding and matures in May 2002; repurchase
agreement facilities aggregating $80 million; and a $45 million revolving credit
facility which is used to finance investment portfolio securities. At September
30, 2000, and December 31, 1999, the combined borrowings of the financial
services segment outstanding under all agreements totaled $153.6 million and
$157.5 million, respectively.
Mortgage loans, notes receivable, and mortgage-backed securities held by the
financial services 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 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 nine months ended September 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 September 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.
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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.
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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
There were no matters submitted to a vote of security holders during the third
quarter of 2000.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
<TABLE>
<S> <C> <C>
10.7 Amended and restated Employment Agreement, dated 17-33
as of September 20, 2000, between R. Chad Dreier
and The Ryland Group, Inc. (filed herewith)
10.8 Senior Executive Severance Agreement, between 34-41
the executive officers of the Company and
The Ryland Group, Inc. (filed herewith)
10.12 Amendment to the Restated Loan and Security 42
Agreement (Warehouse Agreement), dated as of
February 18, 2000, between The Ryland Group, Inc.
and certain financial institutions
(filed herewith)
10.13 Amended Credit Agreement dated as of 43-52
September 1, 2000, between Ryland Mortgage
Company; Associates Funding Corporation; Chase
Manhattan Bank; and certain lenders.
(filed herewith)
27 Financial Data Schedule 53
(filed herewith)
</TABLE>
B. Reports on Form 8-K
The Company filed one current report on Form 8-K, dated August 24, 2000,
regarding the completion of the sale of $150 million aggregate principal
Senior Notes at 9.75 percent, which are due September 2010.
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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
November 14, 2000 By: /s/ Gordon A. Milne
----------------- -------------------
Date Gordon A. Milne
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
November 14, 2000 By: /s/ David L. Fristoe
----------------- --------------------
Date David L. Fristoe
Senior Vice President and Corporate Controller
(Principal Accounting Officer)
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<PAGE> 18
INDEX OF EXHIBITS
A. Exhibits
<TABLE>
<CAPTION>
Exhibit No. Page
----------- ----
<S> <C> <C>
10.7 Amended and restated Employment Agreement, dated 17-33
as of September 20, 2000, between R. Chad Dreier
and The Ryland Group, Inc. (filed herewith)
10.8 Senior Executive Severance Agreement, between 34-41
the executive officers of the Company and
The Ryland Group, Inc. (filed herewith)
10.12 Amendment to the Restated Loan and Security 42
Agreement (Warehouse Agreement), dated as of
February 18, 2000, between The Ryland Group, Inc.
and certain financial institutions
(filed herewith)
10.13 Amended Credit Agreement dated as of 43-52
September 1, 2000, between Ryland Mortgage
Company; Associates Funding Corporation; Chase
Manhattan Bank; and certain lenders.
(filed herewith)
27 Financial Data Schedule 53
(filed herewith)
</TABLE>
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