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<SEC-DOCUMENT>0000950150-01-000087.txt : 20010321
<SEC-HEADER>0000950150-01-000087.hdr.sgml : 20010321
ACCESSION NUMBER: 0000950150-01-000087
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 7
CONFORMED PERIOD OF REPORT: 20001231
FILED AS OF DATE: 20010320
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: RYLAND GROUP INC
CENTRAL INDEX KEY: 0000085974
STANDARD INDUSTRIAL CLASSIFICATION: OPERATIVE BUILDERS [1531]
IRS NUMBER: 520849948
STATE OF INCORPORATION: MD
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K
SEC ACT:
SEC FILE NUMBER: 001-08029
FILM NUMBER: 1572599
BUSINESS ADDRESS:
STREET 1: 11000 BROKEN LAND PARKWAY
CITY: COLUMBIA
STATE: MD
ZIP: 21044
BUSINESS PHONE: 4107157000
FORMER COMPANY:
FORMER CONFORMED NAME: RYAN JAMES P CO
DATE OF NAME CHANGE: 19720414
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>a70604e10-k.txt
<DESCRIPTION>FORM 10-K FOR PERIOD ENDED 12/31/2001
<TEXT>
<PAGE> 1
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-K
-----------------
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission File Number 1-8029
THE RYLAND GROUP, INC.
(Exact name of registrant as specified in its charter)
Maryland 52-0849948
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
24025 Park Sorrento, Suite 400
Calabasas, California 91302
(Address of principal executive offices)
Registrant's telephone number, including area code: (818) 223-7500
Securities Registered Pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
<S> <C>
Common Stock, (Par Value $1.00) New York Stock Exchange
Common Share Purchase Rights New York Stock Exchange
</TABLE>
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the Common Stock of The Ryland Group, Inc., held
by non-affiliates of the registrant (13,256,164 shares) as of February 15, 2001,
was $647,165,926. The number of shares of common stock of The Ryland Group,
Inc., outstanding on February 15, 2001 was 13,390,673.
- --------------------------------------------------------------------------------
1
<PAGE> 2
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
NAME OF DOCUMENT LOCATION IN REPORT
- ---------------- ------------------
<S> <C>
Proxy Statement for the 2001 Annual Meeting of Stockholders Parts I, III
Annual Report to Shareholders for the Year Ended December 31, 2000 Parts II, IV
Registration Statement on Form S-8, Registration 33-32431 Part IV
Form 8-K Filed September 12, 1989 Part IV
Form 10-K for the Year Ended December 31, 1989 Part IV
Form 10-K for the Year Ended December 31, 1990 Part IV
Registration Statement on Form S-8, Registration 33-56905 Part IV
Form 10-Q for the Quarter Ended June 30, 1992 Part IV
Registration Statement on Form S-3, Registration 33-48071 Part IV
Registration Statement on Form S-8, Registration 33-56917 Part IV
Form 10-Q for the Quarter Ended June 30, 1994 Part IV
Form 8-K Filed October 24, 1996 Part IV
Registration Statement on Form S-3, Registration 333-03791 Part IV
Form 8-K Filed July 2, 1996 Part IV
Form 10-K for the Year Ended December 31, 1996 Part IV
Form 10-K for the Year Ended December 31, 1997 Part IV
Registration Statement on Form S-3, Registration 33-50933 Part IV
Registration Statement on Form S-8, Registration 333-68397 Part IV
Form 10-Q for the Quarter Ended September 30, 1999 Part IV
Registration Statement on Form S-3, Registration 333-31034 Part IV
Form 8-K Filed August 24, 2000 Part IV
Form 10-Q for the Year Ended March 31, 2000 Part IV
Form 10-Q for the Quarter Ended June 30, 2000 Part IV
Form 10-Q for the Quarter Ended September 30, 2000 Part IV
</TABLE>
2
<PAGE> 3
THE RYLAND GROUP, INC.
FORM 10-K
INDEX
<TABLE>
<CAPTION>
ITEM NO.
- --------
<S> <C> <C>
PART I
Item 1. Business...................................................................4
Item 2. Properties.................................................................9
Item 3. Legal Proceedings..........................................................9
Item 4. Submission of Matters to a Vote of Security Holders........................9
PART II
Item 5. Market for the Company's Common Stock and Related Stockholder Matters.....11
Item 6. Selected Financial Data...................................................11
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.....................................................11
Item 7A. Quantitative and Qualitative Disclosures about Market Risk................11
Item 8. Financial Statements and Supplementary Data...............................11
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure......................................................11
PART III
Item 10. Directors and Executive Officers of the Registrant........................12
Item 11. Executive Compensation....................................................12
Item 12. Security Ownership of Certain Beneficial Owners and Management............12
Item 13. Certain Relationships and Related Transactions............................12
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...........13
SIGNATURES.................................................................................17
INDEX OF EXHIBITS..........................................................................18
</TABLE>
3
<PAGE> 4
PART I
ITEM 1. BUSINESS
With headquarters in Southern California, The Ryland Group, Inc. ("Ryland") is
one of the nation's largest homebuilders and mortgage-finance companies. Founded
in 1967, the Company has built more than 175,000 homes during its 33-year
history. In addition, the Ryland Mortgage Company ("RMC"), founded in 1978, has
provided mortgage financing and related services for more than 155,000
homebuyers.
Today, Ryland homes are available in more than 260 communities in 21 markets
across the country. The Company's home prices range from $72,000 to over
$500,000. The current average price of a Ryland home is $194,000.
The Company's operations span all the significant aspects of the home-buying
process -- from design, construction and sale to mortgage financing, title
insurance, settlement, escrow and homeowners insurance services.
As used herein, the term "Company" refers to The Ryland Group, Inc. and its
subsidiaries, unless the context indicates otherwise.
HOMEBUILDING
MARKETS Ryland markets and builds homes that are constructed on-site in three
regions which include 21 of the nation's strongest housing markets. The three
regions are the North, South and West. As of December 31, 2000, the Company
operated in the following metropolitan markets:
<TABLE>
<CAPTION>
Region Major Markets Served
------ --------------------
<S> <C>
North: Baltimore, Chicago, Cincinnati, Indianapolis, Minneapolis
and Washington, D.C./Northern Virginia
South: Atlanta, Austin, Charlotte, Dallas, Greenville, Houston,
Orlando, San Antonio and West Florida
West: Bay Area, Denver, Los Angeles, Phoenix, Sacramento and San
Diego
</TABLE>
Ryland markets detached and attached single-family homes which are generally
targeted to entry-level and move-up buyers, as well as active adults seeking
retirement housing. The Company markets through a diverse product line which is
tailored to the local styles and preferences found in each of its geographic
markets. The product line offered in a particular community is determined in
conjunction with the land acquisition process and is dependent upon a number of
factors, including consumer preferences, competitive product offerings and the
cost of developing lots in a community.
The Company developed 400 new home designs in 2000 -- bringing the number of new
floor plans which the Company has introduced since 1993 to more than 1,600. The
Company generally outsources architectural services to increase creativity and
to ensure that its home designs are consistent with local market preferences.
4
<PAGE> 5
The Company's operations in each of its homebuilding markets may differ based on
a number of market-specific factors. These factors include regional economic
conditions and job growth; land availability and the local land development
process; consumer tastes; competition from other homebuilders; and home resale
activity. The Company considers each of these factors upon entering into new
markets or determining the extent of its operations and capital allocation in
existing markets.
LAND ACQUISITION AND DEVELOPMENT As of December 31, 2000, the Company operated
in 268 communities in 21 markets across the country. The Company's objective is
to control a portfolio of building lots sufficient to meet anticipated
homebuilding requirements for a period of three to four years. The land
acquisition process is controlled through a corporate land approval committee to
help ensure that transactions meet the Company's standards for financial
performance and risk. In the ordinary course of its homebuilding business, the
Company utilizes both direct acquisition and option contracts to control
building lots for use in the sale and construction of homes. The Company's
direct land acquisition activities include the bulk purchase of finished
building lots from land developers and the purchase of undeveloped, entitled
land from third parties. The Company generally does not purchase unentitled or
unzoned land.
Although control of lot inventory through the use of option contracts minimizes
the Company's investment, such a strategy is not viable in certain markets due
to the absence of third-party land developers. In other markets, competitive
conditions may prevent the Company from controlling quality building lots solely
through the use of option contracts. In such situations, the Company may acquire
undeveloped, entitled land and/or finished lots on a bulk basis. The Company
utilizes the selective development of land to gain access to prime locations,
increase margins and position itself as a leader in the community through its
influence over the community's character, layout and amenities.
As of December 31, 2000, the Company had deposits and letters of credit
outstanding of $40.2 million in connection with option and land purchase
contracts having a total purchase price of $749.8 million. These options and
commitments expire at various dates through 2002.
MATERIALS COSTS Substantially all materials used in the construction of homes
are available from a number of sources, but may fluctuate in price due to
various factors. To increase purchasing efficiencies, the Company standardizes
certain building materials and products in its homes and may acquire such
products through national supply contracts. The Company has, on occasion,
experienced shortages of certain materials. If shortages were to occur in the
future, such shortages could result in longer construction times and higher
costs than those experienced in the past.
PRODUCTION MANAGEMENT AND SUBCONTRACTORS Substantially all on-site construction
is performed for a fixed price by independent subcontractors selected on a
competitive bid basis. The Company generally requires a minimum of three
competitive bids for each phase of construction. Construction activities are
supervised by the Company's production team who schedule and coordinate
subcontractor work, monitor quality and ensure compliance with local zoning and
building codes. The Company has an integrated financial and homebuilding
management information system which assists in scheduling production and
controlling costs. Through this system, the Company monitors the construction
status and job costs incurred for each home during each phase of construction.
The system provides for detailed budgeting and allows the Company to monitor and
control actual costs versus construction bids for each subcontractor. The
Company has, on occasion, experienced shortages of skilled labor in certain
markets. If shortages were to occur in the future, such shortages could result
in longer construction times and higher costs than those experienced in the
past.
5
<PAGE> 6
MARKETING AND CUSTOMER SERVICE The Company generally markets its homes to
entry-level and move-up buyers, as well as to active adults seeking retirement
housing, through targeted product offerings in each of the communities in which
it operates. The Company's marketing strategy is determined during the land
acquisition and feasibility stage of a community's development. Employees and
independent real estate brokers sell the Company's homes, generally by showing
furnished models. The Company reports a new order when a customer's sales
contract is approved and records revenue from a sale at closing. The Company
normally starts construction of homes when a customer has selected a lot and
floor plan and has received preliminary mortgage approval. However, construction
of homes may begin prior to sales to satisfy market demand for completed homes
and to facilitate construction scheduling.
The Company provides each homeowner with a comprehensive one-year warranty at
the time of sale and a ten-year warranty covering loss related to structural
defects. The Company believes its warranty program meets or exceeds terms
customarily offered in the homebuilding industry.
FINANCIAL SERVICES
RMC primarily provides mortgage-related products and services for the Company's
homebuilding customers. In recent years, the Company has repositioned RMC to
align its operations with the homebuilding divisions by:
- leveraging its relationship with the Company's homebuilding segment
to increase its capture rate for its homebuyers' loans;
- focusing on retail mortgage loan originations and improving the
efficiency of these activities through cost-reduction initiatives and
improved profitability per loan;
- divesting noncore assets and business lines, including the sale of
loan servicing rights; and
- creating value for Ryland home buyers through innovative and
competitive mortgage programs and related services.
RETAIL OPERATIONS
LOAN ORIGINATION In 2000, RMC's mortgage origination operations consisted
primarily of the Company's homebuilder loans, which were originated in
connection with the sale of the Company's homes. During 2000, mortgage
operations originated 7,500 loans which totaled approximately $1.2 billion, of
which 97 percent were for purchases of homes built by the Company and three
percent were for purchases of homes built by others, purchases of existing
homes, and for the refinancing of existing mortgage loans. In an effort to
increase its focus on production of the Company's homebuilder loans, RMC made
the strategic decision to reduce its third-party originations business by
exiting certain markets during 1999. The Company has increased its focus by
deploying loan officers directly to its homebuilding communities and by
utilizing traffic and prospect information generated by its homebuilding sales
and marketing staff. RMC's capture rate of Ryland's home-buying customers was 71
percent in 2000.
The Company arranges various types of mortgage financing, including
conventional, Federal Housing Administration (FHA) and Veterans Administration
(VA) mortgages with various fixed- and adjustable-rate features. Federal Home
Loan Mortgage Corporation (FHLMC), Federal National Mortgage Association (FNMA)
and Government National Mortgage Association (GNMA) approve the Company's
mortgage operations.
6
<PAGE> 7
LOAN SERVICING The repositioning of RMC in recent years led to the sale of a
majority of its loan servicing portfolio in the first quarter of 1998 and to the
sale of its remaining portfolio during 1999. As a result, the Company no longer
services loans.
TITLE AND ESCROW SERVICES Cornerstone Title Company, a wholly owned subsidiary,
doing business as Ryland Title Company, provides title services primarily to the
Company's home buyers. As of December 31, 2000, Cornerstone Title had offices in
Colorado, Florida, Illinois, Maryland, Minnesota, Ohio, Texas and Virginia. The
Company also operates an escrow company in California which performs escrow and
loan closing functions primarily on homes built by the Company. During 2000,
Cornerstone Title captured 98 percent of the title and escrow business which
related to settlement of the Company's homes in the markets in which it
operates.
INVESTMENT OPERATIONS
RMC's investment operations hold certain assets, primarily mortgage-backed
securities and notes receivable, 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. The Company earns a net interest spread
on the investment portfolio and may periodically realize gains from the sale of
the portfolio's mortgage-backed securities.
REAL ESTATE AND ECONOMIC CONDITIONS
The Company is significantly affected by the cyclical nature of the homebuilding
industry. The industry is sensitive to fluctuations in economic activity,
interest rates and levels of consumer confidence. The effects of these
fluctuations differ among the various geographic markets in which the Company
operates. Higher interest rates may affect the ability of buyers to qualify for
mortgage financing and decrease demand for new homes. As a result, rising
interest rates generally will decrease the Company's home sales and mortgage
originations. The Company's business is also affected by local economic
conditions, such as employment rates and housing demand, in the markets in which
it builds homes. Some of the markets in which the Company operates have, at
times, experienced a significant decline in housing demand.
Inventory risk can be substantial for homebuilders. The market value of land,
building lots and housing inventories fluctuates significantly as a result of
changing market and economic conditions. In addition, carrying costs for
inventory can be significant and can result in losses from poorly performing
projects or markets. The Company must continuously seek out and acquire land not
only for expansion into new markets, but also for replacement and expansion of
land inventory within its current markets. The Company employs various measures,
including the land approval process and continuous review by senior management,
designed to control inventory risks. The Company, however, cannot assure that
these measures will avoid or eliminate inventory risk.
COMPETITION
The residential housing industry is highly competitive, and the Company competes
in each of its markets with a large number of national, regional and local
homebuilding companies. Some of these companies are larger than the Company and
have greater financial resources. In addition, the increase in the availability
of capital and financing in recent years has made it easier for both large and
small
7
<PAGE> 8
homebuilders to expand and enter new markets thereby increasing competition.
This competition could make it more difficult to acquire suitable land at
acceptable prices, force an increase in selling incentives or lower sales as
dictated by local market conditions. Any of these could have an adverse impact
on the Company's financial performance or results of operations. The Company
also competes with other housing alternatives, including existing homes and
rental housing. Principal competitive factors in homebuilding are home price,
design, quality, reputation, relationship with developers, accessibility of
subcontractors, availability and location of lots, and availability of customer
financing.
REGULATORY AND ENVIRONMENTAL MATTERS
The homebuilding segment is subject to various local, state and federal laws,
ordinances, rules and regulations concerning zoning, building design,
construction and similar matters. These include local regulations which impose
restrictive zoning and density requirements to limit the number of homes that
can be built within the boundaries of a particular area. The Company may also
experience periodic delays in homebuilding projects due to building moratoria in
any of the areas in which it operates.
The Company is also subject to a variety of local, state and federal laws,
ordinances, rules and regulations concerning the protection of health and the
environment. The Company is also subject to a variety of environmental
conditions that can affect its business and its homebuilding projects. The
particular environmental laws which apply to any given homebuilding site vary
greatly according to the site's location; environmental condition and the
present and former uses of the site; and adjoining properties. Environmental
laws and conditions may result in delays, cause the Company to incur substantial
compliance and other costs, and prohibit or severely restrict homebuilding
activity in certain environmentally sensitive regions or areas.
RMC is subject to the rules and regulations of HUD, FHA, VA, FNMA, FHLMC and
GNMA with respect to originating, processing, selling and servicing mortgage
loans. In addition, there are other federal and state laws and regulations which
also affect these activities. These rules and regulations prohibit
discrimination and establish underwriting guidelines which include provisions
for inspections and appraisals, require credit reports on prospective borrowers
and fix maximum loan amounts. The Company is required to submit audited
financial statements annually, and each regulatory entity has its own financial
requirements. The Company's affairs are also subject to examination by these
regulatory agencies and by state agencies, at all times, to assure compliance
with applicable regulations, policies and procedures. Mortgage origination
activities are subject to the Equal Credit Opportunity Act, Federal
Truth-in-Lending Act and Real Estate Settlement Procedures Act, as well as those
associated regulations which prohibit discrimination and require the disclosure
of certain information to mortgagors concerning credit and settlement costs.
8
<PAGE> 9
EMPLOYEES
At December 31, 2000, the Company employed 2,198 people. The Company considers
its employee relations to be good. No employees are represented by a collective
bargaining agreement.
ITEM 2. PROPERTIES
The Company leases office space for its corporate headquarters in Calabasas,
California. In addition, the Company leases office space in the various markets
in which it operates.
ITEM 3. LEGAL PROCEEDINGS
Contingent liabilities may arise from obligations incurred in the ordinary
course of business or from the usual obligations of on-site housing producers
for the completion of contracts.
RMC received information from the Federal Deposit Insurance Corporation (FDIC)
regarding outstanding claims related to mortgage servicing contracts which it
entered into with the Resolution Trust Company during 1991 and 1992. RMC is
investigating these claims. No prediction can be made, at this time, regarding
the results of this investigation or whether the FDIC will initiate a civil
action against RMC in connection with these claims.
The Company is party to various legal proceedings generally incidental to its
businesses. Based on evaluation of these other matters and discussions with
counsel, management believes that liabilities to the Company arising from these
other matters will not have a material adverse effect on the financial condition
of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the year ended December 31, 2000.
9
<PAGE> 10
EXECUTIVE OFFICERS OF THE COMPANY
The following sets forth certain information regarding the executive officers of
the Company:
<TABLE>
<CAPTION>
POSITION (DATE ELECTED TO POSITION)
NAME AGE OR BUSINESS EXPERIENCE
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
R. Chad Dreier 53 Chairman of the Board of Directors; President and
Chief Executive Officer of the Company
Mark L. Beisswanger 40 President of the West Region of Ryland Homes (2000);
Vice President of the West Region of Ryland
Homes (1999); President and CEO of Alpine
Capital, L.L.C. (1996-1999)
Robert J. Cunnion III 45 Senior Vice President, Human Resources of the Company (1999);
Vice President, Human Resources -- West Region (1993-1999)
Eric E. Elder 44 Senior Vice President, Marketing of the Company (2000);
Vice President, Marketing -- West Region (1995-1999)
David L. Fristoe 44 Senior Vice President, Controller, Chief Accounting
Officer and Chief Information Officer of the Company
(2000); Vice President, Controller and Chief Accounting
Officer of the Company (1999); Vice President, Financial
Operations -- West Region (1995-1999)
John M. Garrity 54 Senior Vice President of the Company (1995);
President of the South Region of Ryland Homes (1996);
President of the Southeast Region of Ryland Homes (1994-1996)
Timothy J. Geckle 48 Senior Vice President, General Counsel and Secretary of the
Company (1997); Vice President, Deputy General Counsel
(1995-1996)
Gordon A. Milne 49 Senior Vice President and Chief Financial Officer of the
Company (2000); Senior Vice President of Finance and
Chief Financial Officer of Agrium, Inc. (1996-1999);
Division President of Occidental Petroleum Ltd.
(1994-1996)
Daniel G. Schreiner 43 Senior Vice President of the Company (1999); President of Ryland
Mortgage Company (1998); President of Kaufman and Broad
Mortgage Company (1991-1998)
Kipling W. Scott 46 Senior Vice President of the Company (1995); President of the
North Region of Ryland Homes (1997); President of the Midwest
Region of Ryland Homes (1994-1997)
</TABLE>
The Board of Directors elects all officers.
There are no family relationships, arrangements or understandings pursuant to
which any of the officers listed were elected. For a description of the
Company's employment and severance arrangements with certain of its executive
officers, see page 10 of the Proxy Statement for the 2001 Annual Meeting of
Stockholders.
10
<PAGE> 11
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The information required by this item is incorporated by reference from the
section entitled "Common Stock Prices and Dividends" which appears on page 50 of
the Annual Report to Shareholders for the year ended December 31, 2000.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated by reference from the
section entitled "Selected Financial Data" which appears on page 25 of the
Annual Report to Shareholders for the year ended December 31, 2000.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this item is incorporated by reference from the
section entitled "Management's Discussion and Analysis of Results of Operations
and Financial Condition" which appears on pages 26 through 31 of the Annual
Report to Shareholders for the year ended December 31, 2000.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is incorporated by reference from the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations, Market Risk Summary", which appears on pages 30
through 31 of the Annual Report to Shareholders for the year ended December 31,
2000.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated by reference from the
information which appears on pages 32 through 45 and from the section entitled
"Quarterly Financial Data and Common Stock Prices and Dividends" which appears
on page 50 of the Annual Report to Shareholders for the year ended December 31,
2000.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
During the fiscal years ended December 31, 2000 and 1999, there were no
disagreements between the Company and its accountants on any matter of
accounting principle or financial statement disclosure.
11
<PAGE> 12
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information as to the Company's directors is incorporated by reference from
pages 2 and 4 of the Company's Proxy Statement for the 2001 Annual Meeting of
Stockholders. Information as to the Company's executive officers is shown under
Part I as a separate item.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from pages 6
through 11 of the Company's Proxy Statement for the 2001 Annual Meeting of
Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from page 3
of the Company's Proxy Statement for the 2001 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There are no transactions, business relationships or indebtedness required to be
reported by the Company pursuant to this item.
12
<PAGE> 13
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following consolidated financial statements of The Ryland
Group, Inc. and subsidiaries, included in the Annual Report to
Shareholders for the year ended December 31, 2000, are incorporated
by reference in Item 8:
Consolidated Statements of Earnings -- years ended December 31,
2000, 1999 and 1998
Consolidated Balance Sheets -- December 31, 2000 and 1999
Consolidated Statements of Stockholders' Equity -- years ended
December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows -- years ended December 31,
2000, 1999 and 1998
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
(a) 2. Financial Statement Schedule (filed herewith) Page No.
--------
<S> <C>
Schedule II -- Valuation and Qualifying Accounts...........16
</TABLE>
Schedules not listed above have been omitted because they are
either inapplicable or the required information has been given in
the financial statements or notes thereto.
13
<PAGE> 14
(a) 3. Exhibits
The following exhibits are included with this report or
incorporated herein by reference as indicated below:
<TABLE>
<S> <C>
3.1 Charter of The Ryland Group, Inc., as amended
(Incorporated by reference from Form 10-K for the year ended
December 31, 1989)
3.2 By-laws of The Ryland Group, Inc., as amended
(Incorporated by reference from Form 10-K for the year ended
December 31, 1996)
4.1 Rights Agreement, dated as of October 18, 1996, between The
Ryland Group, Inc. and ChaseMellon Shareholder Services,
L.L.C.
(Incorporated by reference from Form 8-K filed October 24,
1996)
4.2 Articles Supplementary, dated as of August 31, 1989
(Incorporated by reference from Form 8-K filed September 12,
1989)
4.3 Senior Subordinated Notes, dated as of November 4, 1993
(Incorporated by reference from Registration Statement on Form
S-3, Registration No. 33-48071)
4.4 Indenture, dated as of June 28, 1996, between The Ryland
Group, Inc. and Chemical Bank, as trustee
(Incorporated by reference from Form 8-K filed July 2, 1996)
4.5 Senior Notes, dated as of June 10, 1996
(Incorporated by reference from Registration Statement on Form
S-3, Registration No. 333-03791)
4.6 Senior Subordinated Notes, dated as of April 13, 1998
(Incorporated by reference from Registration Statement on Form
S-3, Registration Nos. 33-50933 and 333-03791)
4.7 Senior Notes, dated as of August 29, 2000
(Incorporated by reference from Registration Statement on Form
S-3, Registration No. 333-31034)
10.1 Lease Agreement between Kilroy Realty Group and The Ryland
Group, Inc. dated December 29, 1999
(Incorporated by reference from Form 10-K for the year ended
December 31, 1999)
10.2 *1992 Equity Incentive Plan of The Ryland Group, Inc.
(Incorporated by reference from Form 10-Q for the quarter
ended June 30, 1992)
10.3 *2000 Non-Employee Director Equity Plan of The Ryland Group,
Inc., as amended
(Filed herewith)
10.4 Restated Credit Agreement, dated as of October 19, 1999,
between The Ryland Group, Inc. and certain banks
(Incorporated by reference from Form 10-Q for the quarter
ended September 30, 1999)
10.5 Restated Credit Agreement, dated March 31, 2000, between
Ryland Mortgage Company, Associates Mortgage Funding
Corporation, Chase Bank of Texas, N.A. and certain lenders
(Incorporated by reference from Form 10-Q for the quarter
ended March 31, 2000)
</TABLE>
14
<PAGE> 15
(a) 3. Exhibits, continued
<TABLE>
<S> <C>
10.6 *Amended and restated Employment Agreement, dated as of
September 20, 2000, between R. Chad Dreier and The Ryland
Group, Inc.
(Incorporated by reference from Form 10-Q for the quarter
ended September 30, 2000)
10.7 *Senior Executive Severance Agreement between the executive
officers of the Company and The Ryland Group, Inc.
(Incorporated by reference from Form 10-Q for the quarter
ended September 30, 2000)
10.8 *Amendment and Restatement of the Executive and Director
Deferred Compensation Plan effective March 1, 1998
(Incorporated by reference from Form 10-K for the year ended
December 31, 1999)
10.9 *Non-Employee Directors' Stock Unit Plan between The Ryland
Group, Inc. and the Board of Directors effective January 1,
1998
(Incorporated by reference from Form 10-K for the year ended
December 31, 1997)
10.10 Supplement to Revolving Credit Agreement, dated as of July 31,
2000, between The Ryland Group, Inc. and certain financial
institutions
(Incorporated by reference from Form 10-Q for the quarter
ended June 30, 2000)
10.11 Amendment to the Restated Loan and Security Agreement
(Warehouse Agreement), dated as of February 18, 2000, between
Ryland Mortgage Company and certain financial institutions
(Incorporated by reference from Form 10-Q for the quarter
ended September 30, 2000)
10.12 Amended Credit Agreement, dated as of September 1, 2000,
between Ryland Mortgage Company, Associates Funding
Corporation, Chase Manhattan Bank and certain lenders
(Incorporated by reference from Form 10-Q for the quarter
ended September 31, 2000)
11 Computation of Per Share Earnings
(Filed herewith)
13 Annual Report to Shareholders for the year ended December 31,
2000
(Filed herewith)
21 Subsidiaries of the Registrant
(Filed herewith)
23 Consent of Ernst & Young LLP, Independent Auditors
(Filed herewith)
24 Power of Attorney
(Filed herewith)
</TABLE>
* Executive Compensation Plan or Arrangement
(b) There were no reports on Form 8-K filed in the fourth quarter of 2000.
15
<PAGE> 16
THE RYLAND GROUP, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE CHARGED TO CHARGED DEDUCTIONS BALANCE AT
AT BEGINNING COSTS AND TO OTHER AND END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS TRANSFERS PERIOD (1)
- ----------- ------------ ----------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Valuation allowance:
Homebuilding inventories
2000 $ 3,600 $ 11,809 $ -- $ (4,875) $ 10,534
1999 6,233 2,952 -- (5,585) 3,600
1998 2,967 4,188 -- (922) 6,233
Valuation allowance:
Investment in and advances
to joint ventures
2000 $ 1,000 $ 1,000 $ -- $ -- $ 2,000
1999 1,000 -- -- -- 1,000
1998 -- 1,000 -- -- 1,000
</TABLE>
(1) Balances as of December 31, 2000, 1999 and 1998, represent valuation
allowances for assets to be disposed of.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By:
/s/ R. Chad Dreier March 20, 2001
- --------------------------------------
R. Chad Dreier, Chairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
PRINCIPAL EXECUTIVE OFFICER:
/s/ R. Chad Dreier March 20, 2001
- --------------------------------------
R. Chad Dreier
Chief Executive Officer
PRINCIPAL FINANCIAL OFFICER:
/s/ Gordon A. Milne March 20, 2001
- --------------------------------------
Gordon A. Milne
Chief Financial Officer
PRINCIPAL ACCOUNTING OFFICER:
/s/ David L. Fristoe March 20, 2001
- --------------------------------------
David L. Fristoe
Chief Accounting Officer
All members of the Board of Directors: R. Chad Dreier, Leslie M. Frecon, William
L. Jews, William G. Kagler, Ned Mansour, Robert E. Mellor, Norman J. Metcalfe,
Charlotte St. Martin, Paul J. Varello; and John O. Wilson
By: /s/ Timothy J. Geckle March 20, 2001
-----------------------------
Timothy J. Geckle
As Attorney-in-Fact
17
<PAGE> 18
<TABLE>
<CAPTION>
Page of
Sequentially
Numbered Pages
--------------
<S> <C> <C>
INDEX OF EXHIBITS
10.3 2000 Non-Employee Director Equity Plan of The Ryland Group, Inc., 19-23
as amended
11 Computation of Per Share Earnings 24
13 Annual Report to Shareholders for the Year Ended December 31, 2000 25-60
21 Subsidiaries of the Registrant 61
23 Consent of Independent Auditors 62
24 Power of Attorney 63
</TABLE>
18
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.3
<SEQUENCE>2
<FILENAME>a70604ex10-3.txt
<DESCRIPTION>EXHIBIT 10.3
<TEXT>
<PAGE> 1
EXHIBIT 10.3
THE RYLAND GROUP, INC.
2000 NON-EMPLOYEE DIRECTOR EQUITY PLAN
Section 1. PURPOSE
The purpose of The Ryland Group, Inc., 2000 Non-Employee Director Equity
Plan (the "Plan") is to advance the interests of the Corporation and its
stockholders by encouraging increased Common Stock ownership by members of the
Board of Directors.
Section 2. DEFINITIONS
"Board" means the Board of Directors of the Corporation.
"Committee" means the Compensation Committee of the Board or such other
committee of the Board that is designated by the Compensation Committee or the
Board from time to time to administer the Plan.
"Common Stock" means the Common Stock, $1.00 par value, of the
Corporation.
"Corporation" means The Ryland Group, Inc.
"Employee" means any officer or employee of the Corporation or of its
subsidiaries.
"Market Price" means the last reported sale price of the Common Stock on
the New York Stock Exchange; or, if the Common Stock is not listed on the New
York Stock Exchange, the closing price on such other exchange on which the
Common Stock is traded; or, if quoted on the Nasdaq National Market System or
other over-the-counter market, the last reported sales price on the Nasdaq
National Market System or other over-the-counter market; or, if the Common Stock
is not publicly traded, such price as shall be determined by the Committee to be
the fair market value.
"Non-Employee Director" or "Participant" means a member of the Board who
is not at the time also an Employee.
"Stock Options" mean stock options granted under the Plan which are
nonstatutory stock options not intended to qualify under Section 422 of the
Internal Revenue Code of 1986, as amended.
Section 3. SHARES OF COMMON STOCK SUBJECT TO THE PLAN
(a) Subject to adjustment as provided in Section 3(b) below, the maximum
aggregate number of shares of Common Stock that may be issued under the Plan
shall be equal to the
19
<PAGE> 2
sum of: (i) 275,000 shares, plus (ii) any shares of Common Stock available for
future awards under the 1992 Non-Employee Director Equity Plan as of the date on
which the Plan is approved by the stockholders of the Corporation. The Common
Stock issued under the Plan will come from authorized but unissued shares of
Common Stock, and the Corporation will set aside and reserve for issuance under
the Plan said number of shares.
(b) In the event of any stock dividend, extraordinary cash dividend,
creation of a class of equity securities, recapitalization, reorganization,
merger, consolidation, split-up, spin-off, combination, exchange of shares,
warrants or rights offering to purchase Common Stock at a price below Market
Price or similar change affecting the Common Stock, appropriate adjustment shall
be made in the maximum number and kind of shares subject to the Plan,
outstanding Stock Options and subsequent grants of Stock Options and in the
exercise price of outstanding Stock Options.
Section 4. ADMINISTRATION OF THE PLAN
Stock Option grants under the Plan are automatic as provided in Section 6.
The Plan is administered by the Committee. The Committee shall have the powers
vested in it by the terms of the Plan. The Committee shall, subject to the
provisions of the Plan, have the power to construe the Plan, to determine all
questions arising thereunder and to adopt and amend rules and regulations for
the administration of the Plan. Notwithstanding the foregoing, the Committee
shall have no discretion with respect to the eligibility or selection of
Participants, and the timing or exercise price of Stock Options. Any decisions
of the Committee on the administration of the Plan shall be final and
conclusive.
Section 5. PARTICIPATION IN THE PLAN
All Non-Employee Directors shall participate in the Plan.
Section 6. DETERMINATION OF STOCK OPTIONS
Each Stock Option granted under the Plan shall be evidenced by a written
instrument in such form as the Committee may approve and shall be subject to the
following terms and conditions:
(a) On December 31, 2000, and on each December 31 thereafter during the
term of the Plan, each Non-Employee Director first elected to the Board during
the calendar year that includes such date shall receive an option to purchase
10,000 shares of Common Stock and each other Non-Employee Director on such date
shall receive an option to purchase 5,000 shares of Common Stock.
(b) The purchase price for the Common Stock subject to Stock Options shall
be the Market Price of the Common Stock on the date of grant.
20
<PAGE> 3
(c) Stock Options shall fully vest and become exercisable six months from
the date of grant. Vested Stock Options shall be exercisable at any time prior
to the expiration of 10 years from the date of grant, subject to Section 6(d) of
the Plan.
(d) In the event service on the Board by a Participant terminates for any
reason, all of the Participant's Stock Options shall fully vest and become
immediately exercisable and will expire three years after the date of
termination regardless of their stated expiration dates. The rights of a
Participant in a Stock Option may be exercised by the Participant's guardian or
legal representative in the case of disability and by the Participant's estate
or a beneficiary designated by the Participant in the case of death.
(e) The purchase price for the Common Stock subject to a Stock Option may
be paid (i) in cash or by check, (ii) in shares of Common Stock of the
Corporation including shares issued upon exercise of the Stock Option, (iii) by
a broker-assisted cashless exercise in accordance with Regulation T of the Board
of Governors of the Federal Reserve System through a brokerage firm approved by
the Committee, or (iv) by any combination of the foregoing methods. The value of
shares of Common Stock delivered in payment of the purchase price shall be their
Market Price as of the date of exercise.
(f) Each Participant shall pay to the Corporation, or make arrangements
satisfactory to the Committee for the payment of, any federal, state or local
taxes of any kind required by law to be withheld with respect to the receipt of
shares of Common Stock pursuant to the exercise of a Stock Option. Such tax
obligations may be paid in whole or in part, but in no event in excess of the
amount necessary to satisfy the statutory minimum withholding amount due, in
shares of Common Stock, including shares issued upon exercise of the Stock
Option, valued at Market Price on the date of delivery.
Section 7. STOCKHOLDER RIGHTS
Non-Employee Directors shall not be deemed for any purpose to be or have
rights as stockholders of the Corporation with respect to any shares of Common
Stock except as and when such shares are issued and then only from the date of
the certificate thereof. No adjustment shall be made for dividends,
distributions or other rights for which the record date precedes the date of
such stock certificate.
Section 8. CONTINUATION OF DIRECTOR OR OTHER STATUS
Nothing in the Plan or in any instrument executed pursuant to the Plan or
any action taken pursuant to the Plan shall be construed as creating or
constituting evidence of any agreement or understanding, express or implied,
that the Corporation will retain a Non-Employee Director as a Director or in any
other capacity for any period of time or at a particular retainer or other rate
of compensation, as conferring upon any Participant any legal or other right to
continue as a Director or in any other capacity, or as limiting, interfering
with or otherwise affecting the provisions of the Corporation's charter, bylaws
or the Maryland General Corporation Law relating to the removal of Directors.
21
<PAGE> 4
Section 9. COMPLIANCE WITH GOVERNMENT REGULATIONS
Neither the Plan nor the Corporation shall be obligated to issue any
shares of Common Stock pursuant to the Plan at any time unless and until all
applicable requirements imposed by any federal and state securities and other
laws, rules, and regulations, by any regulatory agencies, or by any stock
exchanges upon which the Common Stock may be listed have been fully met. As a
condition precedent to any issuance of shares of Common Stock and delivery of
certificates evidencing such shares pursuant to the Plan, the Committee may
require a Participant to take any such action and to make any such covenants,
agreements and representations as the Committee, in its discretion deems
necessary or advisable to ensure compliance with such requirements. The
Corporation shall in no event be obligated to register the shares of Common
Stock issued or issuable under the Plan pursuant to the Securities Act of 1933,
as now or hereafter amended, or to qualify or register such shares under any
securities laws of any state upon their issuance under the Plan or at any time
thereafter, or to take any other action in order to cause the issuance and
delivery of such shares under the Plan or any subsequent offer, sale or other
transfer of such shares to comply with any such law, regulation or requirement.
Participants are responsible for complying with all applicable federal and state
securities and other laws, rules and regulations in connection with any offer,
sale or other transfer of the shares of Common Stock issued under the Plan or
any interest therein including, without limitation, compliance with the
registration requirements of the Securities Act of 1933 (unless an exemption
therefrom is available), or with the provisions of Rule 144 promulgated
thereunder, if available, or any successor provisions.
Section 10. TRANSFERABILITY OF RIGHTS
Except as otherwise determined by the Committee, no Participant shall have
the right to assign any Stock Option or any other right or interest under the
Plan, contingent or otherwise, or to cause or permit any encumbrance, pledge or
charge of any nature to be imposed on any such Stock Option or any such right or
interest, other than by will or the laws of descent and distribution. Unless
otherwise determined by the Committee in accord with the provisions of the
immediately preceding sentence, Stock Options shall be exercisable during the
Participant's lifetime only by the Participant or the Participant's guardian or
legal representative.
Section 11. EFFECTIVE DATE OF PLAN
The Plan is effective as of the date on which the Plan is approved by the
stockholders of the Corporation. Prior to such approval, Awards may be made
under the Plan expressly subject to such approval but any such Awards shall be
void and ineffective if the Plan is not approved by the stockholders.
Section 12. APPLICABILITY TO OTHER PLANS
After and subject to stockholder approval of this Plan, no further awards
shall be granted under the Corporation's 1992 Non-Employee Director Equity Plan.
Outstanding awards under
22
<PAGE> 5
the 1992 Non-Employee Director Equity Plan shall remain in effect pursuant to
the terms of the agreements governing such awards and shall continue to be
governed by the 1992 Non-Employee Director Equity Plan to the extent applicable.
Section 13. AMENDMENT AND TERMINATION OF THE PLAN
The Committee may amend, suspend or terminate the Plan or any portion
thereof at any time as it determines appropriate, without further action by the
Corporation's stockholders except to the extent required by applicable law or by
any stock exchanges upon which the Common Stock may be listed. If not sooner
terminated by the Committee, the Plan shall terminate on January 1, 2010.
Termination of the Plan will not affect the rights and obligations arising under
Stock Options theretofore granted and then in effect.
Section 14. GOVERNING LAW
The validity, construction and effect of the Plan, of written instruments
entered into pursuant to the Plan, and of any rules, regulations, determinations
or decisions made by the Committee relating to the Plan or such written
instruments, and the rights of any and all persons having or claiming to have
any interest therein or thereunder, shall be determined exclusively in
accordance with applicable federal laws and the laws of the State of Maryland,
without regard to its conflict of laws principles.
23
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-11
<SEQUENCE>3
<FILENAME>a70604ex11.txt
<DESCRIPTION>EXHIBIT 11
<TEXT>
<PAGE> 1
EXHIBIT 11 COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Year Ended December 31,
2000 1999 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BASIC
Net earnings before extraordinary item $ 82,252 $ 66,695 $ 43,592
Extraordinary item, net of tax -- -- (3,326)
------------ ------------ ------------
Net earnings 82,252 66,695 40,266
Adjustment for dividends on convertible
preferred shares (694) (831) (1,000)
------------ ------------ ------------
Net earnings applicable to common stockholders $ 81,558 $ 65,864 $ 39,266
Weighted-average common shares outstanding 13,172,793 14,678,925 14,709,404
Net earnings per share before extraordinary item $ 6.19 $ 4.49 $ 2.90
Extraordinary item -- -- (0.23)
------------ ------------ ------------
Net earnings per share $ 6.19 $ 4.49 $ 2.67
============ ============ ============
DILUTED
Net earnings before extraordinary item $ 82,252 $ 66,695 $ 43,592
Extraordinary item, net of tax -- -- (3,326)
------------ ------------ ------------
Net earnings 82,252 66,695 40,266
Adjustment for dividends on convertible
preferred shares -- -- --
------------ ------------ ------------
Net earnings applicable to common stockholders 82,252 66,695 40,266
============ ============ ============
Weighted-average common shares outstanding 13,172,793 14,678,925 14,709,404
Common stock equivalents:
Stock options 315,560 292,580 316,640
Equity incentive plan 83,883 149,622 113,894
Conversion of preferred shares (1) 321,126 384,255 463,374
------------ ------------ ------------
Total 13,893,362 15,505,382 15,603,312
============ ============ ============
Net earnings per share before extraordinary item $ 5.92 $ 4.30 $ 2.79
Extraordinary item -- -- (0.21)
------------ ------------ ------------
Net earnings per share $ 5.92 $ 4.30 $ 2.58
============ ============ ============
</TABLE>
(1) The assumed conversion of preferred shares was dilutive for the years ended
December 31, 2000, 1999 and 1998.
24
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>4
<FILENAME>a70604ex13.txt
<DESCRIPTION>EXHIBIT 13
<TEXT>
<PAGE> 1
EXHIBIT 13
THE RYLAND GROUP, INC. & SUBSIDIARIES
Selected Financial Data
<TABLE>
<CAPTION>
(amounts in millions, except share data) unaudited 2000 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ANNUAL RESULTS
Revenues
Homebuilding $ 2,286 $ 1,959 $ 1,695 $ 1,557 $ 1,473
Financial services 46 50 70 93 107
----------------------------------------------------
Total 2,332 2,009 1,765 1,650 1,580
Cost of sales - homebuilding 1,901 1,633 1,429 1,346 1,277
Selling, general and administrative expenses 268 239 216 211 203
Interest expense 28 28 45 57 74
----------------------------------------------------
Earnings before taxes 135 109 75 36 26
Tax expense 53 42 32 14 10
----------------------------------------------------
Net earnings before extraordinary item 82 67 43 22 16
Extraordinary item, extinguishment of debt (1) -- -- (3) -- --
----------------------------------------------------
Net earnings $ 82 $ 67 $ 40 $ 22 $ 16
- -----------------------------------------------------------------------------------------------------------------------
YEAR-END POSITION
Assets
Housing inventories $ 888 $ 823 $ 642 $ 555 $ 575
Mortgage loans, held-for-sale 11 40 159 200 180
Mortgage-backed securities and notes receivable 85 99 112 153 144
Collateral for bonds payable of limited-purpose subsidiaries 23 40 92 142 214
Other assets 354 246 210 233 226
----------------------------------------------------
Total assets $ 1,361 $ 1,248 $ 1,215 $ 1,283 $ 1,339
- -----------------------------------------------------------------------------------------------------------------------
Liabilities
Long-term debt $ 450 $ 378 $ 308 $ 310 $ 354
Short-term notes payable 83 157 223 341 326
Bonds payable of limited-purpose subsidiaries 21 37 88 137 207
Other liabilities 354 290 250 190 142
----------------------------------------------------
Total liabilities $ 908 $ 862 $ 869 $ 978 $ 1,029
- -----------------------------------------------------------------------------------------------------------------------
Stockholders' equity $ 453 $ 386 $ 346 $ 305 $ 310
- -----------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE DATA
BASIC
Net earnings before extraordinary item $ 6.19 $ 4.49 $ 2.90 $ 1.33 $ 0.88
Net earnings $ 6.19 $ 4.49 $ 2.67 $ 1.33 $ 0.88
DILUTED
Net earnings before extraordinary item $ 5.92 $ 4.30 $ 2.79 $ 1.32 $ 0.87
Net earnings $ 5.92 $ 4.30 $ 2.58 $ 1.32 $ 0.87
Dividends declared $ 0.16 $ 0.16 $ 0.16 $ 0.27 $ 0.60
Stockholders' equity $ 33.49 $ 27.22 $ 22.83 $ 20.31 $ 19.00
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company reported an extraordinary after-tax charge of $3.3 million in
1998 which was related to a loss on the early extinguishment of debt.
25
<PAGE> 2
THE RYLAND GROUP, INC. & SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
THE COMPANY
Operations of The Ryland Group and its subsidiaries ("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 the Company's homebuilding
customers and also conducts investment activities.
RESULTS OF OPERATIONS
CONSOLIDATED
The Company reported record consolidated net earnings from operations of $82.3
million, or $6.19 per share ($5.92 per share diluted), for 2000, compared to
consolidated net earnings of $66.7 million, or $4.49 per share ($4.30 per share
diluted), for 1999 and consolidated net earnings before extraordinary item of
$43.6 million, or $2.90 per share ($2.79 per share diluted), for 1998.
The homebuilding segment reported pretax earnings of $151.3 million for 2000,
compared to $120.8 million for 1999 and $80.1 million for 1998. Homebuilding
results in 2000 increased from 1999 primarily due to higher average closing
prices, gross profit margins and closing volume. Homebuilding results in 1999
increased from 1998 primarily due to higher gross profit margins, increased
closing volume and lower interest expense.
The financial services segment reported pretax earnings of $11.5 million for
2000, compared to $11.8 million for 1999 and $5.7 million (excluding a $6.1
million gain on the bulk sale of servicing rights) for 1998. The decrease in
2000 from 1999 is attributable to increases in general and administrative
expenses, partially offset by increased gains from the sales of mortgages and
mortgage servicing rights; an increase in loan originations; and increased
earnings from title and escrow operations. The increase in 1999 from 1998,
excluding the $6.1 million gain, was due to cost-reduction initiatives and lower
interest expense.
Corporate expenses represent the costs of corporate functions which support the
business segments. Corporate expenses of $28 million for 2000 and $23.3 million
for 1999 increased $4.7 million and $6.6 million, respectively, from prior year
levels, primarily as a result of increases in incentive compensation
attributable to higher earnings levels in 2000 and 1999 and charges totaling $1
million and $3.4 million in 2000 and 1999, respectively, relating to the
relocation of corporate headquarters to California.
The Company's limited-purpose subsidiaries no longer issue mortgage-backed
securities and mortgage-participation securities, but they continue to hold
collateral for previously issued mortgage-backed bonds
26
<PAGE> 3
THE RYLAND GROUP, INC. & SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
in which the Company maintains a residual interest. Revenues, expenses and
portfolio balances continue to decline as 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.
HOMEBUILDING SEGMENT
Results of operations for the homebuilding segment are summarized as follows
(amounts in thousands, except average closing price):
<TABLE>
<CAPTION>
2000 1999 1998
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $2,285,540 $1,958,832 $1,694,505
Gross profit 384,889 325,738 265,742
Selling, general and
administrative expenses 216,660 193,193 168,004
Interest expense 16,886 11,715 17,681
----------------------------------------
Homebuilding pretax
earnings $ 151,343 $ 120,830 $ 80,057
----------------------------------------
Average closing price $ 194,000 $ 190,000 $ 185,000
- ------------------------------------------------------------------------
</TABLE>
Homebuilding revenues increased 17 percent in 2000, compared to 1999, due to a
12 percent increase in closings and an increase in the average closing price.
The increase in closings in 2000 was due to a higher backlog at the beginning of
the year and a 15 percent increase in new home orders during the year.
Homebuilding revenues increased 16 percent in 1999, compared to 1998, due to a
13 percent increase in closings and an increase in the average closing price.
The increase in closings in 1999 was due to a higher backlog at the beginning of
the year and a 10 percent increase in new home orders during the year.
Homebuilding results included a pretax loss of $0.9 million from land sales in
2000, compared to pretax gains of $0.7 million and $1.2 million in 1999 and
1998, respectively.
Gross profit margins from home sales averaged 17.4 percent for 2000, an increase
from 16.8 percent for 1999 and 15.9 percent for 1998. The improvement was
primarily due to increased closings from newer communities which had more
profitable land positions and a more cost-effective product. Sales price
increases and Company initiatives to reduce direct construction costs also
contributed to improved margins.
Selling, general and administrative expenses, as a percent of revenues, were 9.5
percent for 2000 and 9.9 percent for both 1999 and 1998. This significant
decrease was primarily due to
27
<PAGE> 4
THE RYLAND GROUP, INC. & SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
divisional and regional cost savings which were partially offset by higher
incentive compensation expense resulting from improved earnings.
Interest expense increased $5.2 million, or 44 percent, in 2000, compared to
1999, primarily due to a higher long-term debt balance which resulted from
increased activity in the Company's homebuilding operations and higher interest
rates. Interest expense decreased $6 million, or 34 percent, in 1999, compared
to 1998, due to lower effective rates paid on borrowings and an increase in the
amount of interest capitalized on land under development.
HOMEBUILDING OPERATIONAL DATA
New orders increased 15 percent in 2000, compared to 1999. As of December 31,
2000, the Company had outstanding contracts for 4,168 units, an increase of 14
percent from year-end 1999, due to the increase in new orders during the year.
Outstanding contracts represent the Company's backlog of sold but not closed
homes, which are generally built and closed, subject to cancellation, over the
subsequent two quarters. The $867 million value of outstanding contracts
increased 26 percent from year-end 1999.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
New Orders (Units) Closings (Units)
% %
2000 1999 Change 2000 1999 Change
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
North 3,511 2,917 20 3,242 2,801 16
South 6,018 5,235 15 5,988 4,981 20
West 2,390 2,256 6 2,188 2,411 (9)
---------------------------------------------------------------------------------------------------
Total 11,919 10,408 15 11,418 10,193 12
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Outstanding Contracts Outstanding Contracts
December 31, 2000 December 31, 1999
- -----------------------------------------------------------------------------------------------------------------------------
DOLLARS Dollars
% IN AVERAGE in Average
UNITS CHANGE MILLIONS PRICE Units Millions Price
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
North 1,480 22 $ 305 $ 206,000 1,211 $ 227 $ 187,000
South 2,098 1 383 182,000 2,068 361 174,000
West 590 52 179 304,000 388 103 266,000
---------------------------------------------------------------------------------------------------
Total 4,168 14 $ 867 $ 208,000 3,667 $ 691 $ 188,000
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE> 5
THE RYLAND GROUP, INC. & SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
FINANCIAL SERVICES SEGMENT
Revenues and expenses of the Company's financial services segment are summarized
as follows (amounts in thousands):
<TABLE>
<CAPTION>
2000 1999 1998
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail revenues:
Interest and
net origination fees $ 3,647 $ 5,595 $ 7,524
Gains on sales of mortgages
and mortgage servicing rights 20,283 17,598 22,667
Loan servicing 383 1,581 7,675
Title/escrow 9,823 9,036 8,723
------------------------------------
Total retail revenues 34,136 33,810 46,589
Revenues from investment
operations 11,969 16,624 24,394
------------------------------------
Total revenues $ 46,105 $ 50,434 $ 70,983
Expenses:
General and administrative 22,991 21,944 32,066
Interest 11,619 16,652 27,129
------------------------------------
Total expenses 34,610 38,596 59,195
------------------------------------
Pretax earnings $ 11,495 $ 11,838 $ 11,788
- -----------------------------------------------------------------------------------
</TABLE>
Pretax earnings by line of business were as follows (amounts in thousands):
<TABLE>
<CAPTION>
2000 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail $ 9,648 $ 9,180 $ 7,915
Investments 1,847 2,658 3,873
----------------------------------------
Total $ 11,495 $ 11,838 $ 11,788
- --------------------------------------------------------------------------------
</TABLE>
FINANCIAL SERVICES OPERATIONAL DATA
<TABLE>
<CAPTION>
2000 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail operations
Number of mortgage
originations 7,500 7,106 8,412
Dollars (in millions) $1,200 $1,100 $1,200
Percent of total originations
from Ryland Homes 71% 68% 70%
Investment operations
Portfolio average
balance (in millions) $ 93 $ 98 $ 139
- -------------------------------------------------------------------------------
</TABLE>
29
<PAGE> 6
THE RYLAND GROUP, INC. & SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
In 2000, revenues for the financial services segment decreased from 1999 levels
due to declining mortgage collateral and investment balances, partially offset
by an increase in originations and higher earnings from title and escrow
operations. General and administrative expenses increased for the year ended
December 31, 2000, compared with 1999, primarily as a result of provisions for
contingent claims relating to loan servicing activities in prior years (see Note
M). Revenues and general and administrative expenses for the financial services
segment decreased for the year ended December 31, 1999, compared with 1998. The
decreases were primarily due to a decline in loan servicing operations, which
were related to loan servicing portfolio sales in the first quarter of 1998, and
a decrease in originations. An increase in profitability per loan more than
offset the effect of lower originations and reduced servicing income.
Interest expense decreased 30 percent for the year ended December 31, 2000,
compared with 1999, primarily due to declining mortgage collateral and
investment balances, as well as a decrease in the holding period for mortgage
loans prior to being sold in the secondary market. Interest expense decreased 39
percent for the year ended December 31, 1999, compared with 1998, primarily due
to a decrease in the warehouse holding period for mortgage loans before they
were sold in the secondary market, as well as a lower investment portfolio
balance.
Retail operations include residential mortgage origination, loan servicing,
title, escrow and homeowners insurance services for retail customers. Retail
operations reported pretax earnings of $9.7 million for 2000, compared with $9.2
million for 1999 and $7.9 million for 1998. The Company sold the majority of its
loan servicing portfolio in the first quarter of 1998 and realized a $6.1
million pretax gain, net of expenses and liabilities related to the sale of
servicing.
Mortgage originations increased in 2000 by six percent from 1999 primarily due
to an increased closing volume of 71 percent, compared to 68 percent in 1999,
from Company-financed homebuilder originations. Mortgage originations decreased
in 1999 by 16 percent from 1998 primarily due to a decrease in third-party
originations, resulting from the Company's decision to exit the third-party
originations market, and offset by a higher closing volume from homebuilder
originations that were financed by the Company.
Investment operations hold certain assets, primarily mortgage-backed securities,
which were obtained as a result of the exercise of redemption rights on various
mortgage-backed bonds previously owned by the Company's limited-purpose
subsidiaries. Pretax earnings from
30
<PAGE> 7
THE RYLAND GROUP, INC. & SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
investment operations were $1.8 million for 2000, compared with $2.7 million for
1999 and $3.9 million for 1998. Pretax earnings decreased $0.9 million in 2000,
compared to 1999, primarily due to a decline in interest and other income which
resulted from a lower average portfolio balance.
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 meet 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
and $308 million as of December 31, 2000 and 1999, respectively.
The Company uses its unsecured revolving credit facility to finance increases in
its homebuilding inventory and working capital. In July 2000, the Company
increased its bank revolving credit agreement from $375 million to $400 million.
This amended facility will mature in October 2003. There were no outstanding
borrowings under this facility as of December 31, 2000, and $70 million in
outstanding borrowings as of December 31, 1999. The Company had letters of
credit outstanding under this facility which totaled $55.7 million at December
31, 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
December 31, 2000 and 1999, outstanding seller-financed nonrecourse secured
notes payable were $1.9 million and $8.1 million, respectively.
Housing inventories increased to $888.4 million as of December 31, 2000, from
$822.7 million as of December 31, 1999. This increase reflects a higher sold
inventory balance, which was related to an increase in year-end backlog, as well
as an increase in land under development and improved lots, all commensurate
with planned growth. The increase in inventory was funded with internally
generated funds and proceeds from the new debt issue.
The financial services segment uses cash generated from operations and borrowing
arrangements to finance its operations. In August 2000, the financial services
segment decreased its mortgage credit facility from $200 million to $150
million. This borrowing arrangement provides for mortgage warehouse funding and
matures in May 2002. Other borrowing arrangements as of December 31, 2000,
include repurchase agreement facilities aggregating $80 million and a $45
million revolving credit facility used to finance investment portfolio
31
<PAGE> 8
THE RYLAND GROUP, INC. & SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
securities. At December 31, 2000 and 1999, combined borrowings of the financial
services segment, outstanding under all agreements, were $82.6 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 Ryland Group has not guaranteed the debt of either the financial services
segment or the limited-purpose subsidiaries.
During 2000, the Company repurchased approximately 1.1 million shares of its
outstanding common stock at a cost of approximately $25.4 million. As of
December 31, 2000, the Company had Board authorization to repurchase up to an
additional 624,000 shares of its outstanding common stock. The Company's stock
repurchase program has been internally funded.
MARKET RISK SUMMARY
The following table provides information about the Company's significant
financial instruments that are sensitive to changes in interest rates. For debt
obligations, the table presents principal cash flows and related
weighted-average interest rates by expected maturity dates. Weighted-average
variable rates are based on implied forward rates as of the reporting date.
32
<PAGE> 9
THE RYLAND GROUP, INC. & SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
INTEREST RATE SENSITIVITY
Principal Amount by Expected Maturity
<TABLE>
<CAPTION>
FAIR VALUE
(dollars in thousands) 2001 2002 2003 2004 2005 THEREAFTER TOTAL 12/31/00
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HOMEBUILDING
Liabilities
Long-term debt (fixed rate) $ 100,000 $ 350,000 $ 450,000 $ 439,939
Average interest rate 9.6% 9.5% 9.6%
FINANCIAL SERVICES
Assets
Mortgage loans, held-for-sale
(fixed rate) $ 10,241 $ 10,241 $ 10,473
Average interest rate 7.7% 7.7%
Mortgage loans, held-for-sale
(variable rate) $ 976 $ 976 $ 997
Average interest rate 8.6% 8.6%
Mortgage-backed securities,
available-for-sale $ 4,740 $ 3,759 $ 2,986 $ 2,368 $ 1,879 $ 7,273 $ 23,005 $ 23,900
Average interest rate 9.7% 9.7% 9.6% 9.6% 9.7% 9.6% 9.6%
Mortgage-backed securities,
held-to-maturity $ 3,378 $ 2,669 $ 2,109 $ 1,667 $ 1,318 $ 5,027 $ 16,168 $ 16,673
Average interest rate 8.8% 8.8% 8.7% 8.7% 8.7% 8.7% 8.7%
Notes receivable, whole loans
and funds held by trustee $ 12,186 $ 6,768 $ 5,343 $ 4,221 $ 3,335 $ 12,679 $ 44,532 $ 46,057
Average interest rate 9.3% 9.4% 9.4% 9.3% 9.3% 9.3% 9.3%
Liabilities
Short-term notes payable
(variable rate) $ 82,563 $ 82,563 $ 82,563
Average interest rate Various (1) Various (1)
Off - balance sheet financial
instruments
Forward-delivery contracts:
Notional amount $ 51,000 $ 51,000 $ (165)
Average interest rate 7.5% 7.5%
Commitments to originate
mortgage loans:
Notional amount $ 23,578 $ 23,578 $ 292
Average interest rate 7.6% 7.6%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1. Variable interest rate available to the Company is based upon LIBOR,
Federal Funds or Prime Rate plus the specified margin over LIBOR,
Federal Funds or Prime Rate.
33
<PAGE> 10
THE RYLAND GROUP, INC. & SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Interest rate risk is the primary market risk facing the Company. Interest rate
risk not only arises principally in the Company's financial services segment,
but also in respect to the homebuilding segment's revolving bank facility. The
Company enters into forward-delivery contracts and may, at times, use other
hedging contracts to mitigate its exposure to movements in interest rates on
mortgage loan commitments and mortgage loans held-for-sale. The selection of
these hedging contracts is based upon a marketing strategy that establishes a
risk-tolerance level. The major factors influencing the use of hedging contracts
include general market conditions, interest rates, types of mortgages originated
and the percentage of mortgage loan commitments expected to be funded. The
market risk assumed while holding the hedging contracts generally mitigates the
market risk associated with mortgage loan commitments and mortgage loans
held-for-sale. In managing interest rate risk, the Company does not speculate on
the direction of interest rates. Although collateral for bonds payable and bonds
payable of the limited-purpose subsidiaries are subject to interest rate risk,
the Company has not guaranteed, nor is it otherwise obligated with respect to,
these bond issues and, therefore, has no risk of loss.
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 that will affect the timing and manner in
which hedging gains and losses are recognized in the Company's financial
statements. Upon adoption, the Company was required to adjust its hedging
contracts to fair value in the balance sheet and recognize the offsetting gains
or losses as adjustments to net income. These adjustments did not have a
material effect on its earnings or financial position.
Note:
Certain statements in this annual report 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 such risks and uncertainties 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; availability and increases in raw material and labor costs;
consumer confidence; government regulations; and general economic, business and
competitive factors, all or each of which may cause actual results to differ
materially.
34
<PAGE> 11
THE RYLAND GROUP, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Year ended December 31,
(amounts in thousands, except share data) 2000 1999 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Homebuilding $ 2,285,540 $ 1,958,832 $ 1,694,505
Financial services 46,105 50,434 70,983
--------------------------------------------
Total revenues 2,331,645 2,009,266 1,765,488
--------------------------------------------
EXPENSES
Homebuilding
Cost of sales 1,900,651 1,633,094 1,428,763
Selling, general and administrative 216,660 193,193 168,004
Interest 16,886 11,715 17,681
--------------------------------------------
Total homebuilding expenses 2,134,197 1,838,002 1,614,448
Financial services
General and administrative 22,991 21,944 32,066
Interest 11,619 16,652 27,129
--------------------------------------------
Total financial services expenses 34,610 38,596 59,195
Corporate 27,998 23,332 16,687
--------------------------------------------
Total expenses 2,196,805 1,899,930 1,690,330
--------------------------------------------
Earnings before taxes and extraordinary item 134,840 109,336 75,158
Tax expense 52,588 42,641 31,566
--------------------------------------------
NET EARNINGS BEFORE EXTRAORDINARY ITEM 82,252 66,695 43,592
Extraordinary item - loss on early extinguishment
of debt (net of taxes of $2,217) -- -- (3,326)
--------------------------------------------
NET EARNINGS $ 82,252 $ 66,695 $ 40,266
- -------------------------------------------------------------------------------------------------
Preferred dividends $ 694 $ 831 $ 1,000
Net earnings applicable to common stockholders $ 81,558 $ 65,864 $ 39,266
NET EARNINGS PER COMMON SHARE
Basic
Net earnings before extraordinary item $ 6.19 $ 4.49 $ 2.90
Extraordinary item -- -- (0.23)
--------------------------------------------
Net earnings per common share $ 6.19 $ 4.49 $ 2.67
Diluted
Net earnings before extraordinary item $ 5.92 $ 4.30 $ 2.79
Extraordinary item -- -- (0.21)
--------------------------------------------
Net earnings per common share $ 5.92 $ 4.30 $ 2.58
Average common shares outstanding
Basic 13,172,793 14,678,925 14,709,404
Diluted 13,893,362 15,505,382 15,603,312
- -------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
35
<PAGE> 12
THE RYLAND GROUP, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
(amounts in thousands, except share data) 2000 1999
- --------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Homebuilding
Cash and cash equivalents $ 135,371 $ 36,297
Housing inventories:
Homes under construction 451,723 432,735
Land under development and improved lots 436,682 389,946
------------------------
Total inventories 888,405 822,681
Property, plant and equipment 35,577 26,619
Purchase price in excess of net assets acquired 19,947 21,710
Other assets 71,932 48,064
------------------------
1,151,232 955,371
------------------------
Financial Services
Cash and cash equivalents 6,830 33,629
Mortgage loans, held-for-sale 11,217 40,520
Mortgage-backed securities and notes receivable 84,600 99,249
Other assets 11,843 16,326
------------------------
114,490 189,724
------------------------
Other Assets
Collateral for bonds payable of limited-purpose subsidiaries 23,005 39,633
Net deferred taxes 34,858 32,134
Other 37,756 31,461
------------------------
TOTAL ASSETS $1,361,341 $1,248,323
LIABILITIES
Homebuilding
Accounts payable and other liabilities $ 254,949 $ 208,133
Long-term debt 450,000 378,000
------------------------
704,949 586,133
------------------------
Financial Services
Accounts payable and other liabilities 22,600 7,211
Short-term notes payable 82,563 157,458
------------------------
105,163 164,669
------------------------
Other Liabilities
Bonds payable of limited-purpose subsidiaries 21,250 37,339
Other 76,350 73,645
------------------------
TOTAL LIABILITIES $ 907,712 $ 861,786
------------------------
STOCKHOLDERS' EQUITY
Convertible preferred stock, $1 par value:
Authorized - 1,400,000 shares
Issued - 295,018 shares (350,137 for 1999) 295 350
Common stock, $1 par value:
Authorized - 78,600,000 shares
Issued - 13,248,948 shares (13,850,819 for 1999) 13,249 13,851
Paid-in capital 60,535 71,730
Retained earnings 379,006 299,547
Accumulated other comprehensive income 544 1,059
------------------------
TOTAL STOCKHOLDERS' EQUITY $ 453,629 $ 386,537
------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,361,341 $1,248,323
- --------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
36
<PAGE> 13
THE RYLAND GROUP, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
PREFERRED COMMON PAID-IN RETAINED COMPREHENSIVE STOCKHOLDERS'
(amounts in thousands, except share data) STOCK STOCK CAPITAL EARNINGS INCOME EQUITY
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1998 $ 503 $ 14,522 $ 88,502 $ 199,114 $ 2,482 $ 305,123
Comprehensive income
Net earnings 40,266 40,266
Other comprehensive income, net of tax:
Unrealized losses on mortgage-backed
securities, net of taxes of $(381) (572) (572)
---------
Total comprehensive income 39,694
Preferred stock dividends (per share $2.21) (1,000) (1,000)
Common stock dividends (per share $0.16) (2,369) (2,369)
Repurchase of common stock (353) (6,676) (7,029)
Conversions and retirements of preferred stock (86) 73 (1,446) (1,459)
Reclassification of preferred paid-in capital 3,242 3,242
Employee stock plans (509,580 shares) 510 9,571 10,081
--------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 417 14,752 93,193 236,011 1,910 346,283
- ------------------------------------------------------------------------------------------------------------------------------
Comprehensive income
Net earnings 66,695 66,695
Other comprehensive income, net of tax:
Unrealized losses on mortgage-backed
securities, net of taxes of $(543) (851) (851)
---------
Total comprehensive income 65,844
Preferred stock dividends (per share $2.21) (831) (831)
Common stock dividends (per share $0.16) (2,328) (2,328)
Repurchase of common stock (1,188) (25,938) (27,126)
Conversions and retirements of preferred stock (67) 63 (896) (900)
Reclassification of preferred paid-in capital 612 612
Employee stock plans (223,800 shares) 224 4,759 4,983
--------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999 350 13,851 71,730 299,547 1,059 386,537
- ------------------------------------------------------------------------------------------------------------------------------
Comprehensive income
Net earnings 82,252 82,252
Other comprehensive income, net of tax:
Unrealized losses on mortgage-backed
securities, net of taxes of $(329) (515) (515)
---------
Total comprehensive income 81,737
Preferred stock dividends (per share $2.21) (694) (694)
Common stock dividends (per share $0.16) (2,099) (2,099)
Repurchase of common stock (1,147) (24,262) (25,409)
Conversions and retirements of preferred stock (55) 54 (585) (586)
Reclassification of preferred paid-in capital 3,179 3,179
Employee stock plans (491,051 shares) 491 10,473 10,964
--------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2000 $ 295 $ 13,249 $ 60,535 $ 379,006 $ 544 $ 453,629
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
37
<PAGE> 14
THE RYLAND GROUP, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
(amounts in thousands) 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 82,252 $ 66,695 $ 40,266
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 28,489 28,010 25,586
Loss on early extinguishment of debt -- -- 5,543
Changes in assets and liabilities, net of effects from acquisition:
Increase in inventories (65,724) (178,590) (67,828)
Net change in other assets, payables and other liabilities 40,600 34,971 95,272
Decrease in mortgage loans, held-for-sale 29,303 118,091 41,246
Other operating activities, net (3,695) (10,039) 354
---------------------------------------
Net cash provided by operating activities 111,225 59,138 140,439
---------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net additions to property, plant and equipment (34,326) (29,026) (22,734)
Principal reduction of mortgage collateral 17,756 28,940 39,887
Principal (increase in) reduction of mortgage-backed
securities, available-for-sale (925) 11,629 10,899
Sales of mortgage-backed securities, available-for-sale 3,756 -- 10,935
Principal reduction of mortgage-backed securities, held-to-maturity 8,843 15,689 19,942
(Increase) decrease in funds held by trustee (1,668) 7,843 8,796
Acquisition of Regency Homes -- -- (17,885)
Other investing activities, net 522 (232) 767
---------------------------------------
Net cash (used for) provided by investing activities (6,042) 34,843 50,607
---------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash proceeds of long-term debt 150,000 70,000 98,955
Reduction of long-term debt (78,000) (152) (106,836)
Decrease in short-term notes payable (74,895) (65,600) (117,574)
Bond principal payments (12,927) (51,883) (50,162)
Common and preferred stock dividends (2,859) (3,249) (3,399)
Common stock repurchases (25,409) (27,126) (7,028)
Other financing activities, net 11,182 4,171 8,651
---------------------------------------
Net cash used for financing activities (32,908) (73,839) (177,393)
---------------------------------------
Net increase in cash and cash equivalents 72,275 20,142 13,653
Cash and cash equivalents at beginning of year 69,926 49,784 36,131
---------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 142,201 $ 69,926 $ 49,784
- ------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest (net of capitalized interest) $ 23,661 $ 29,145 $ 50,866
Cash paid for income taxes (net of refunds) $ 51,509 $ 40,683 $ 19,143
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
38
<PAGE> 15
THE RYLAND GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data, unless otherwise noted)
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
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. Certain amounts in the consolidated
statements of prior years have been reclassified to conform to the 2000
presentation.
Use of Estimates
The preparation of financial statements, in conformity 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 these estimates.
Per Share Data
Basic net earnings per common share is computed by dividing net earnings, after
considering preferred stock dividend requirements, by the weighted-average
number of common shares outstanding.
Additionally, diluted net earnings per common share gives effect to dilutive
common stock equivalent shares, including the assumed conversion of preferred
shares held by The Ryland Group Retirement Savings Opportunity Plan Trust ("RSOP
Trust") into common stock. The effect of the RSOP Trust was dilutive for the
years ended December 31, 2000, 1999 and 1998.
Income Taxes
The Company files a consolidated federal income tax return. Certain items of
income and expense are included in one period for financial reporting purposes
and another for income tax purposes. Deferred income taxes are provided in
recognition of these differences. Deferred tax assets and liabilities are
determined based on enacted tax rates and are subsequently adjusted for changes
in these rates. A change in deferred tax assets or liabilities results in a
charge or credit to deferred tax expense.
Homebuilding Revenues
Homebuilding revenues are recognized when home sales are closed and title passes
to the customer.
39
<PAGE> 16
THE RYLAND GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data, unless otherwise noted)
Service Liabilities
Service and warranty costs are estimated and accrued at the time a home closes.
Housing Inventories
Housing inventories consist principally of homes under construction, land under
development and improved lots.
Inventories to be held and used are stated at cost, unless a community is
determined to be impaired, in which case the impaired inventories are written
down to fair value. Write-downs of impaired inventories to fair value are
recorded as adjustments to the cost basis of the respective inventory.
Inventories to be disposed of are stated at the lower of cost or fair value less
cost to sell and are reported net of valuation reserves. Valuation reserves
related to inventories to be disposed of amounted to $10.5 million at December
31, 2000, and $3.6 million at December 31, 1999. The net carrying values of the
related inventories amounted to $35 million and $6 million at December 31, 2000
and 1999, respectively.
Costs of inventory include direct costs of land, material acquisition, home
construction and related direct overhead expenses. Interest and taxes are
capitalized during the land development stage. The costs of acquiring and
developing land and constructing certain related amenities are allocated to the
parcels to which these costs relate.
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 34,105 24,397
Interest amortized to cost of sales (27,581) (19,027)
------------------------
Capitalized interest as of December 31 $ 33,494 $ 26,970
- -------------------------------------------------------------------------------
</TABLE>
Property, Plant and Equipment
Property, plant and equipment, which include model home furnishings, are carried
at cost less accumulated depreciation and amortization. Depreciation is provided
for, principally, by the straight-line method over the estimated useful lives of
the assets. Model home furnishings are amortized over the life of the community
as homes are closed.
40
<PAGE> 17
THE RYLAND GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data, unless otherwise noted)
Purchase Price in Excess of Net Assets Acquired
Costs in excess of net assets of acquired businesses (goodwill) are amortized on
a straight-line basis over their estimated useful lives for periods of up to 30
years. The Company periodically evaluates the businesses to which goodwill
relates, on an undiscounted cash flow method, in order to assess whether the
carrying value of goodwill has been impaired.
Mortgage Loans, Held-For-Sale
Mortgage loans, held-for-sale are reported net of discounts and are valued at
the lower of cost or market determined on an aggregate basis. Any gain or loss
on the sale of the loans is recognized at the time of sale.
Mortgage-Backed Securities
The Company classifies its mortgage-backed securities into two categories:
held-to-maturity and available-for-sale. Management determines the appropriate
classification of these securities at the time of purchase and re-evaluates such
designations as of each balance sheet date.
Mortgage-backed securities are classified as held-to-maturity when the Company
has the positive intent and ability to hold the securities to maturity.
Securities classified as held-to-maturity are stated at amortized cost.
Securities classified as available-for-sale are measured at fair value, with
unrealized gains and losses, net of tax, reflected as accumulated other
comprehensive income in stockholders' equity.
Loan Origination Fees, Costs and Mortgage Discounts
Loan origination fees, net of related direct origination costs and loan discount
points, are deferred as an adjustment to the carrying value of related mortgage
loans held-for-sale and are recognized in income upon the sale of the mortgage
loans.
Hedging Contracts
The Company enters into forward-delivery contracts, options on forward-delivery
contracts, futures contracts and options on futures contracts, as an end user,
for the purpose of minimizing its exposure to movements in interest rates on
mortgage loan commitments and mortgage loans held-for-sale. These contracts
primarily represent commitments or options to purchase or sell mortgages or
securities, generally within 90 days and at a specified price or yield.
Forward-delivery contracts and futures are commitments only and, as such, are
not recorded on the Company's balance sheet or statement of earnings. Option
premiums are
41
<PAGE> 18
THE RYLAND GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data, unless otherwise noted)
deferred when paid and recognized as an adjustment to gains on sales of
mortgages over the lives of the options on a straight-line basis. Changes in the
fair value of contracts are deferred and included in mortgage loans
held-for-sale. Changes in fair value are recognized in income as an adjustment
to gains on sales of mortgages when the mortgages and securities are sold.
Stock-Based Compensation
The Company has elected to follow the intrinsic value method to account for
compensation expense, which is related to the award of stock options, and to
furnish the pro forma disclosures required under Statement of Financial
Accounting Standards No. 123 (FAS 123), "Accounting for Stock-based
Compensation." Since stock option awards are granted at prices no less than the
fair market value of the shares at the date of grant, no compensation expense is
recognized.
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 that will affect the timing and manner in
which hedging gains and losses are recognized in the Company's financial
statements. The Company adopted FAS 133 on January 1, 2001. This adoption did
not have a material effect on the Company's earnings or financial position.
42
<PAGE> 19
THE RYLAND GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data, unless otherwise noted)
NOTE B: EARNINGS PER SHARE RECONCILIATION
The following table sets forth the computation of basic and diluted earnings per
share before extraordinary item:
<TABLE>
<CAPTION>
Year ended December 31,
2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator
Net earnings before extraordinary item $ 82,252 $ 66,695 $ 43,592
Preferred stock dividends (694) (831) (1,000)
------------------------------------------------
Numerator for basic earnings per share - earnings
before extraordinary item available to
common stockholders 81,558 65,864 42,592
Effect of dilutive securities - preferred stock dividends 694 831 1,000
------------------------------------------------
Numerator for diluted earnings per share - earnings
before extraordinary item available to
common stockholders $ 82,252 $ 66,695 $ 43,592
DENOMINATOR
Denominator for basic earnings per share -
weighted-average shares 13,172,793 14,678,925 14,709,404
Effect of dilutive securities:
Stock options 315,560 292,580 316,640
Conversion of preferred shares 321,126 384,255 463,374
Equity incentive plan 83,883 149,622 113,894
------------------------------------------------
Dilutive potential of common shares 720,569 826,457 893,908
Denominator for diluted earnings per share -
adjusted weighted-average shares and
assumed conversions 13,893,362 15,505,382 15,603,312
BASIC EARNINGS PER COMMON SHARE
Net earnings per share before extraordinary item $ 6.19 $ 4.49 $ 2.90
DILUTED EARNINGS PER COMMON SHARE
Net earnings per share before extraordinary item $ 5.92 $ 4.30 $ 2.79
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The assumed conversion of preferred shares was dilutive for the years ended
December 31, 2000, 1999 and 1998.
NOTE C: SEGMENT INFORMATION
The Company is a leading, national homebuilder and mortgage-related financial
services firm. As one of the largest single-family, on-site homebuilders in the
United States, the Company builds homes in 21 markets. The Company's
homebuilding segment specializes in the sale and construction of single-family
attached and detached housing. The Company's financial services segment not only
provides such mortgage-related products and services as loan
43
<PAGE> 20
THE RYLAND GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data, unless otherwise noted)
origination, title, escrow and homeowners insurance, but also conducts
investment activities.
The Company evaluates performance and allocates resources based on a number of
factors, including segment pretax earnings. The accounting policies of the
segments are the same as those described in the Summary of Significant
Accounting Policies (see Note A). Certain corporate expenses are allocated to
the homebuilding and financial services segments. In addition, amounts related
to the limited-purpose subsidiaries are combined with corporate expenses and
corporate assets in the following table as "other."
<TABLE>
<CAPTION>
Year Ended December 31,
2000 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Homebuilding $ 2,285,540 $ 1,958,832 $ 1,694,505
Financial services 46,105 50,434 70,983
---------------------------------------------
Total $ 2,331,645 $ 2,009,266 $ 1,765,488
- -------------------------------------------------------------------------------
PRETAX EARNINGS
Homebuilding $ 151,343 $ 120,830 $ 80,057
Financial services 11,495 11,838 11,788
Corporate and other (27,998) (23,332) (16,687)
---------------------------------------------
Total $ 134,840 $ 109,336 $ 75,158
- -------------------------------------------------------------------------------
DEPRECIATION AND
AMORTIZATION
Homebuilding $ 24,063 $ 23,398 $ 23,166
Financial services 708 810 895
Corporate and other 3,718 3,802 1,525
---------------------------------------------
Total $ 28,489 $ 28,010 $ 25,586
- -------------------------------------------------------------------------------
IDENTIFIABLE ASSETS
Homebuilding $ 1,151,232 $ 955,371 $ 778,668
Financial services 114,490 189,724 286,683
Corporate and other 95,619 103,228 150,047
---------------------------------------------
Total $ 1,361,341 $ 1,248,323 $ 1,215,398
- -------------------------------------------------------------------------------
</TABLE>
NOTE D: ASSETS OF FINANCIAL SERVICES AND LIMITED-PURPOSE SUBSIDIARIES
Financial Services
Mortgage loans held-for-sale consist of loans collateralized by first mortgages
or first deeds of trust on single-family attached or detached homes.
Mortgage-backed securities and notes receivable consist of GNMA certificates,
FNMA mortgage pass-through certificates, FHLMC participation certificates, notes
receivable secured by mortgage-backed securities, whole loans and funds held by
trustee.
44
<PAGE> 21
THE RYLAND GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data, unless otherwise noted)
Limited-Purpose Subsidiaries
Collateral for bonds payable consists of mortgage-backed securities; notes
receivable secured by mortgage-backed securities and mortgage loans; fixed-rate
mortgage loans; and funds held by trustee. Mortgage-backed securities consist of
GNMA certificates, FNMA mortgage pass-through certificates and FHLMC
participation certificates. All principal and interest on collateral is remitted
directly to a trustee and is available for payment on the bonds.
The components of collateral for bonds payable at December 31 are summarized as
follows:
<TABLE>
<CAPTION>
2000 1999
- -------------------------------------------------------------------------------
<S> <C> <C>
Mortgage-backed securities $ 16,417 $ 27,092
Notes receivable 1,419 4,019
Mortgage loans 1,460 2,893
Funds held by trustee 3,916 5,838
Mortgage discounts (207) (209)
---------------------------
Total $ 23,005 $ 39,633
- -------------------------------------------------------------------------------
</TABLE>
Neither the Company nor its homebuilding and financial services subsidiaries
have guaranteed, or are otherwise obligated with respect to, these bond issues.
Mortgage-Backed Securities: Unrealized Gains and Losses
Mortgage-backed securities are held by the financial services segment and
reported in the balance sheet as "Mortgage-backed securities and notes
receivable." They are also held by the limited-purpose subsidiaries and reported
in the balance sheet as "Collateral for bonds payable."
The following is a consolidated summary of mortgage-backed securities classified
as available-for-sale and held-to-maturity as of:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 2000
Available-for-sale $23,078 $ 894 $ -- $23,972
Held-to-maturity 32,436 1,079 2 33,513
----------------------------------------------
Total $55,514 $ 1,973 $ 2 $57,485
December 31, 1999
Available-for-sale $28,962 $ 1,953 $ 215 $30,700
Held-to-maturity 41,331 2,352 -- 43,683
----------------------------------------------
Total $70,293 $ 4,305 $ 215 $74,383
- --------------------------------------------------------------------------------
</TABLE>
45
<PAGE> 22
THE RYLAND GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data, unless otherwise noted)
NOTE E: FINANCIAL SERVICES SHORT-TERM NOTES PAYABLE
Financial services had outstanding borrowings at December 31 as follows:
<TABLE>
<CAPTION>
2000 1999
- --------------------------------------------------------------------------------
<S> <C> <C>
Mortgage warehouse facility $ -- $ 60,224
Repurchase agreements 37,664 77,619
Revolving credit agreement 44,899 19,615
-------------------------
Total outstanding borrowings $ 82,563 $157,458
- --------------------------------------------------------------------------------
</TABLE>
In August 2000, the financial services segment decreased its bank credit
facility from $200 million to $150 million. This borrowing arrangement provides
for mortgage warehouse funding and matures in May 2002. There were no borrowings
outstanding under this bank facility at December 31, 2000. Borrowings under this
facility are collateralized by mortgage loans held-for-sale and cash proceeds
from loan sales, which totaled $7,724 at December 31, 2000. Borrowings
outstanding under this bank facility totaling $60,224 at December 31, 1999, were
collateralized by mortgage loans held-for-sale and cash proceeds from loan sales
totaling $72,876. The effective interest rates on these borrowings were 5.8
percent, 3.4 percent and 4.1 percent for 2000, 1999 and 1998, respectively. The
agreement contains certain financial covenants, which the Company met at
December 31, 2000.
The repurchase agreements represented short-term borrowings of $37,664 and
$77,619 in 2000 and 1999, respectively, that were collateralized by mortgage
loans, mortgage-backed securities and investments in securities issued by one of
the Company's limited-purpose subsidiaries. The outstanding collateral balances
at December 31, 2000 and 1999, were $37,111 and $78,554, with related fair
values of $37,843 and $79,913, respectively.
During 2000, the Company renewed and extended a revolving credit facility used
to finance investment securities in the financial services segment. The facility
was increased by $10 million to a base of $45 million as of December 31, 2000.
The agreement extends through March 2001, bears interest at market rates and is
collateralized by investment portfolio securities. Borrowings outstanding under
this facility, totaling $44,899 and $19,615, were collateralized by investment
portfolio securities with principal balances of $47,192 and $20,025 at December
31, 2000 and 1999, respectively.
Weighted-average interest rates at the end of the period on all short-term
borrowings were 7.3 percent and 5.6 percent for 2000 and 1999, respectively.
Weighted-average interest rates during the period on all short-term borrowings
were 5.3 percent, 3.6 percent and 5.2 percent
46
<PAGE> 23
THE RYLAND GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data, unless otherwise noted)
for 2000, 1999 and 1998, respectively.
NOTE F: OFF-BALANCE SHEET FINANCIAL INSTRUMENTS RELATED TO MORTGAGE LOAN
ORIGINATIONS
The Company is a party to financial instruments in the normal course of
business. The financial services segment uses financial instruments to meet the
financing needs of its customers and reduce its exposure to fluctuations in
interest rates. These instruments involve, to varying degrees, elements of
credit and market risk not recognized in the consolidated balance sheets. The
Company has no derivative financial instruments that are held for trading
purposes.
The contract or notional amounts of these financial instruments as of December
31 were as follows:
<TABLE>
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
Commitments to originate
mortgage loans $23,578 $18,880
Hedging contracts:
Forward-delivery contracts $51,000 $30,000
Others 10,000 5,000
</TABLE>
Commitments to originate mortgage loans represent loan commitments with
customers at market rates up to 120 days before settlement. Loan commitments
have no carrying value on the balance sheet and expose the Company to market
risk as a result of increases in mortgage interest rates. The amount of risk is
limited to the difference between the contract price and current market value,
and it is mitigated by fees collected from the customer and by the Company's
hedging activities. Loan commitments had interest rates ranging from 6.5 percent
to 13.6 percent as of December 31, 2000, and 6.5 percent to 12.1 percent as of
December 31, 1999.
Hedging contracts are regularly entered into by the Company for the purpose of
mitigating its exposure to movements in interest rates on mortgage loan
commitments and mortgage loans held-for-sale. The selection of these hedging
contracts is based upon the Company's secondary marketing strategy, which
establishes a risk-tolerance level. Major factors influencing the use of various
hedging contracts include general market conditions, interest rates, types of
mortgages originated and the percentage of mortgage loan commitments expected to
be funded. The market risk assumed while holding the hedging contracts generally
mitigates the market risk associated with mortgage loan commitments and mortgage
loans held-for-sale.
47
<PAGE> 24
THE RYLAND GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data, unless otherwise noted)
The Company is exposed to credit-related losses in the event of nonperformance
by counterparties to certain hedging contracts. Credit risk is limited to those
instances where the Company is in a net unrealized gain position. The Company
manages this credit risk by entering into agreements with counterparties meeting
its credit standards and by monitoring position limits.
NOTE G: FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company's financial instruments, both on and off the balance sheet, are held
for purposes other than trading. The fair values of these financial instruments
are based on quoted market prices, where available, or are estimated using
present value or other valuation techniques. Estimated fair values are
significantly affected by the assumptions used, including discount rates and
estimates of cash flows. In that regard, derived fair-value estimates cannot be
substantiated by comparison to independent markets and, in many cases, cannot be
realized in immediate settlement of the instruments.
The table below sets forth the carrying values and fair values of the Company's
financial instruments, except for those noted financial instruments for which
carrying values approximate fair values at the end of the year. It excludes
nonfinancial instruments, and, accordingly, the aggregate fair-value amounts
presented do not represent the underlying value of the Company.
48
<PAGE> 25
THE RYLAND GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data, unless otherwise noted)
<TABLE>
<CAPTION>
2000 1999
----------------------------------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HOMEBUILDING
Liabilities
Senior notes $ 250,000 $ 253,251 $ 108,000 $ 111,080
Senior subordinated notes 200,000 186,688 200,000 184,000
FINANCIAL SERVICES
Assets
Mortgage loans, held-for-sale $ 11,217 $ 11,470 $ 40,520 $ 41,156
Mortgage-backed securities, available-for-sale 23,900 23,900 29,823 29,823
Mortgage-backed securities, held-to-maturity 16,168 16,673 15,134 15,911
Notes receivable, whole loans and funds held by trustee 44,532 46,057 54,292 57,433
Off-balance sheet financial instruments
Commitments to originate mortgage loans -- 292 -- 3,292
Forward-delivery contracts -- (165) -- 298
Other hedging contracts -- (17) -- (45)
OTHER ASSETS
Collateral for bonds payable of the limited-purpose subsidiaries $ 23,005 $ 23,680 $ 39,633 $ 41,605
OTHER LIABILITIES
Bonds payable of the limited-purpose subsidiaries $ 21,250 $ 22,775 $ 37,339 $ 41,045
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company used the following methods and assumptions in estimating fair
values:
- - Cash and cash equivalents; secured notes payable; loan servicing receivables;
funds held by trustee; revolving credit agreements and short-term notes
payable: The carrying amounts reported in the balance sheet approximate fair
values.
- - Senior notes; senior subordinated notes; mortgage loans held-for-sale;
mortgage-backed securities; notes receivable and whole loans; various hedging
contracts if settled on December 31, 2000 and 1999; and mortgage loan
commitments: The fair values of these financial instruments are based on
quoted market prices for similar financial instruments.
NOTE H: LIMITED-PURPOSE SUBSIDIARIES' BONDS PAYABLE
The Company's limited-purpose subsidiaries no longer issue mortgage-backed bonds
and mortgage-participation securities. Payments made on the bonds are on a
scheduled basis in amounts relating to corresponding payments received on the
underlying mortgage collateral.
The following table sets forth information with respect to the limited-purpose
subsidiaries' bonds payable outstanding at December 31:
<TABLE>
<CAPTION>
2000 1999
- -----------------------------------------------------------------------------
<S> <C> <C>
Bonds payable, net of discounts:
2000 - $847; 1999 - $1,276 $21,250 $37,339
Range of interest rates 7.25% - 11.65% 7.25% - 12.625%
Stated maturities 2009-2019 2009-2019
- -----------------------------------------------------------------------------
</TABLE>
49
<PAGE> 26
THE RYLAND GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data, unless otherwise noted)
NOTE I: LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
2000 1999
- --------------------------------------------------------------------------------
<S> <C> <C>
Senior subordinated notes $200,000 $200,000
Senior notes 250,000 108,000
Revolving credit facility and other -- 70,000
-------------------------
$450,000 $378,000
- --------------------------------------------------------------------------------
</TABLE>
In July 2000, the Company increased its unsecured revolving credit facility from
$375 million to $400 million. This facility will mature in October 2003.
Borrowings under this agreement bear interest at variable short-term rates. The
effective interest rate was 8.1 percent for 2000 and 6.8 percent for 1999 and
1998. There were no amounts outstanding under this agreement at December 31,
2000. At December 31, 1999, the Company had $70 million of borrowings under this
credit agreement at an average rate of 7.7 percent.
The Company has $100 million of 9.625 percent senior subordinated notes
outstanding due June 2004, with interest payable semiannually, which may be
redeemed at the option of the Company, in whole or in part, at any time on or
after December 1, 2000. The Company has $100 million of 8.25 percent senior
subordinated notes due April 2008, with interest payable semiannually, which may
be redeemed at the option of the Company, in whole or in part, at any time on or
after April 1, 2003. In July 1998, the Company redeemed $100 million of 10.5
percent senior subordinated notes due 2002 at the stated call price of 103.94
percent of par. As a result, the Company recognized an extraordinary loss on
early extinguishment of debt in 1998 of $3.3 million (net of a $2.2 million
income tax benefit). Senior subordinated notes are subordinated to all existing
and future senior debt of the Company.
The Company has $100 million of 10.5 percent senior notes due July 2006, with
interest payable semiannually, which may be redeemed at the option of the
Company, in whole or in part, at any time on or after July 1, 2001. At December
31, 2000, the Company also had $150 million of 9.75 percent senior notes due
September 2010, with interest payable semiannually, which may be redeemed at the
option of the Company, in whole or in part, at any time on or after September 1,
2005.
Maturities of long-term debt for the next five years are as follows: 2001
through 2003 - $0; 2004 - $100,000; 2005 - $0; thereafter - $350,000.
50
<PAGE> 27
THE RYLAND GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data, unless otherwise noted)
The bank credit agreement, senior subordinated indenture agreements and senior
note agreements contain certain financial covenants. Under the loan covenants,
the Company had $99.3 million of retained earnings available for dividends at
December 31, 2000. The Company was in compliance with these covenants at
December 31, 2000.
NOTE J: INCOME TAXES
The Company's expense for income taxes is summarized as follows:
<TABLE>
<CAPTION>
Year ended December 31,
2000 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
CURRENT
Federal $ 46,988 $ 36,633 $ 22,453
State 8,126 6,335 4,491
------------------------------------------
Total current 55,114 42,968 26,944
------------------------------------------
DEFERRED
Federal (2,154) (279) 3,852
State (372) (48) 770
------------------------------------------
Total deferred (2,526) (327) 4,622
------------------------------------------
Total expense $ 52,588 $ 42,641 $ 31,566
- --------------------------------------------------------------------------------
</TABLE>
The following table reconciles the statutory federal income tax rate to the
Company's effective income tax rate:
<TABLE>
<CAPTION>
Year ended December 31,
2000 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Income taxes at federal
statutory rate 35.0% 35.0% 35.0%
State income taxes, net of
federal tax 4.0 4.0 4.5
Other, net -- -- 2.5
--------------------------------
Effective rate 39.0% 39.0% 42.0%
- -------------------------------------------------------------------------------
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
51
<PAGE> 28
THE RYLAND GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data, unless otherwise noted)
Significant components of the Company's deferred tax assets and liabilities as
of December 31 were as follows:
<TABLE>
<CAPTION>
2000 1999
- -------------------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS
Inventory valuation differences,
operating reserves and accruals $ 38,009 $ 34,297
Other 1,298 1,693
-------------------------
Total deferred tax assets 39,307 35,990
-------------------------
DEFERRED TAX LIABILITIES
Installment sales method and
deferred gains (2,438) (2,100)
Other (2,011) (1,756)
-------------------------
Total deferred tax liabilities (4,449) (3,856)
-------------------------
Net deferred tax asset $ 34,858 $ 32,134
- -------------------------------------------------------------------------------
</TABLE>
The Company has determined that no valuation allowance for the deferred tax
asset is required. The Company had a current tax liability of $12,321 and
$11,104 as of December 31, 2000 and 1999, respectively.
NOTE K: STOCKHOLDERS' EQUITY
Preferred Stock
On August 31, 1989, the Company sold 1,267,327 shares of nontransferable,
convertible preferred stock, par value $1.00, to the RSOP Trust, of which
295,018 shares were outstanding as of December 31, 2000.
Each share of preferred stock receives an annual dividend of $2.21. During 2000,
1999 and 1998, the Company paid $694, $831 and $1,000, respectively, in
dividends on its 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 vote together with common stockholders
on all matters.
Under the RSOP Trust, at the option of the trustee, the Company may be obligated
to redeem the preferred stock to satisfy distribution obligations to its
participants. For purposes of these redemptions, the value of each share of
preferred stock is determined monthly by an independent appraiser, with a
minimum guaranteed value of $25.25 per share. The Company may issue common stock
to satisfy this redemption obligation, with any excess redemption price to be
paid in cash. At December 31, 2000 and 1999, the maximum cash obligation for
such
52
<PAGE> 29
THE RYLAND GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data, unless otherwise noted)
redemptions was shown outside of stockholders' equity as part of other
liabilities. This obligation was calculated assuming that all preferred shares
outstanding were submitted for redemption. Based upon the appraised value of
each share of preferred stock ($43.38 and $33.81) and the market value of each
share of common stock ($40.75 and $23.06) at December 31, 2000 and 1999,
respectively, the redemption obligation was $774 and $3,764 at December 31, 2000
and 1999, respectively. During 2000 and 1999, 55,119 and 66,607 shares of
preferred stock, respectively, were retired (see Note L).
Common Share Purchase Rights
In 1996, the Company adopted a revised shareholder rights plan under which it
distributed one common share purchase right for each share of common stock
outstanding on January 13, 1997. Each right entitles the holder to purchase one
share of common stock at an exercise price of $70. The rights become exercisable
10 business days after any party acquires, or announces an offer to acquire, 20
percent or more of the Company's common stock. The rights expire January 13,
2007, and are redeemable at $0.01 per right at any time before 10 business days
following the time that any party acquires 20 percent or more of the Company's
common stock.
In the event that the Company enters into a merger or other business
combination, or if a substantial amount of its assets are sold after the time
that the rights become exercisable, the holder will receive, upon exercise,
shares of the common stock of the surviving or acquiring company having a market
value of twice the exercise price. Until the earlier of the time that the rights
become exercisable, are redeemed or expire, the Company will issue one right
with each new share of common stock issued.
NOTE L: EMPLOYEE INCENTIVE AND STOCK PLANS
Retirement Savings Opportunity Plan (RSOP)
All full-time employees are eligible to participate in the RSOP beginning the
first pay period of the quarter, following 30 days of employment. Pursuant to
Section 401(k) of the Internal Revenue Code, the plan permits deferral of a
portion of a participant's income into a variety of investment options.
Compensation expense reflects the Company's matching contributions to its
employees' 401(k) contributions. Total compensation expense related to this plan
amounted to $5,726, $5,068 and $3,549 in 2000, 1999 and 1998, respectively.
As of December 31, 2000, 295,018 shares of preferred stock were allocated to
participants' accounts. Previously, the Company issued its preferred stock in
connection with its matching contributions to those accounts.
53
<PAGE> 30
THE RYLAND GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data, unless otherwise noted)
Equity Incentive Plan and Other Related Plans
The Company's 1992 Equity Incentive Plan permits it to provide equity incentives
to employees in the form of stock options, stock appreciation rights,
performance shares, restricted stock and other stock-based awards. Under this
plan, options are granted to purchase shares at prices not less than the fair
market value of the shares at the date of grant. The options are exercisable at
various dates over one- to 10-year periods. Stock options granted during 2000
generally have a maximum term of 10 years and vest over three years. At the
beginning of each year, 2.5 percent of the number of common shares outstanding
are authorized for grants of options and other equity instruments.
Under the Company's Nonemployee Director Equity Plan, stock options are granted
to directors to purchase shares at prices not less than the fair market value of
the shares at the date of grant. A maximum of 275,000 shares of common stock has
been reserved for issuance under this plan.
The following is a summary of transactions relating to all stock option plans
for each year ended December 31:
<TABLE>
<CAPTION>
2000 1999 1998
------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning of year 2,238,630 $20.02 1,840,400 $18.17 1,932,560 $15.71
Granted 546,500 19.96 690,250 24.51 637,000 23.88
Exercised (468,551) 17.32 (183,725) 17.08 (540,350) 16.13
Forfeited (116,643) 21.13 (108,295) 22.13 (188,810) 18.07
----------------------------------------------------------------------------
Options outstanding at end of year 2,199,936 20.53 2,238,630 20.02 1,840,400 18.02
Available for future grant 286,027 71,794 320,143
----------------------------------------------------------------------------
Total shares reserved 2,485,963 2,310,424 2,160,543
----------------------------------------------------------------------------
Options exercisable at December 31 1,121,064 18.90 1,130,805 17.18 864,795 16.61
Prices related to options exercised during the year $13.50 - $28.88 $11.50 - $24.13 $12.88 - $24.13
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A summary of stock options outstanding and exercisable as of December 31, 2000,
follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------------------------------------------------
Weighted - Weighted - Weighted -
Range of Average Average Average
Exercise Number Remaining Exercise Number Exercise
Prices Outstanding Life (Years) Price Exercisable Price
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$12.75 to $16.44 881,985 7.23 $15.00 485,735 $13.87
$17.13 to $24.13 884,998 6.91 $22.60 458,319 $21.63
$24.25 to $40.75 432,953 8.35 $27.56 177,010 $25.66
- ------------------------------------------------------------------------------------------------------
</TABLE>
54
<PAGE> 31
THE RYLAND GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data, unless otherwise noted)
The Company has adopted the disclosure-only provisions of FAS 123. Accordingly,
no compensation expense has been recognized for stock option plans. Had
compensation expense for these plans been determined based on fair value at the
grant date for awards, consistent with the provisions of FAS 123, in 2000, 1999
and 1998, the Company's net earnings and net earnings per share would have been
reduced to the pro forma amounts indicated in the following table:
<TABLE>
<CAPTION>
2000 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings - as reported $ 82,252 $ 66,695 $ 40,266
Net earnings - pro forma $ 80,137 $ 64,471 $ 38,761
Basic net earnings per
share - as reported $ 6.19 $ 4.49 $ 2.67
Basic net earnings per
share - pro forma $ 6.03 $ 4.34 $ 2.57
Diluted net earnings per
share - as reported $ 5.92 $ 4.30 $ 2.58
Diluted net earnings per
share - pro forma $ 5.77 $ 4.20 $ 2.48
- --------------------------------------------------------------------------------
</TABLE>
The fair value of each option grant is estimated on the grant date by using the
Black-Scholes option-pricing model. The following weighted-average assumptions
were used for grants in 2000, 1999 and 1998, respectively: a risk-free interest
rate of 6.4 percent, 5.2 percent and 5.4 percent; an expected volatility factor
for the market price of the Company's common stock of 35 percent, 34 percent and
35 percent; a dividend yield of 0.9 percent, 0.7 percent and 0.7 percent; and an
expected life of three years, four years and five years. The weighted-average
fair value as of the grant date for options granted in 2000, 1999 and 1998 was
$5.97, $7.95 and $9.11, respectively.
NOTE M: COMMITMENTS AND CONTINGENCIES
Commitments
In the normal course of business, the Company acquires rights under option
agreements to purchase land for use in future homebuilding operations. As of
December 31, 2000, the Company had deposits and letters of credit outstanding of
$40,208 for options and land purchase contracts having a total purchase price of
$749,757.
55
<PAGE> 32
THE RYLAND GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data, unless otherwise noted)
Rent expense primarily relates to office facilities, model homes, and furniture
and equipment. The increase in rent expense for 2000 from 1999 is primarily due
to an increase in model home lease activity.
<TABLE>
<CAPTION>
Year ended December 31,
2000 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Total rent expense $ 18,212 $ 13,581 $ 14,142
Less income from subleases (2,416) (2,149) (1,447)
----------------------------------------
Net rental expense $ 15,796 $ 11,432 $ 12,695
- -------------------------------------------------------------------------------
</TABLE>
Future minimum rental commitments under noncancelable leases with remaining
terms in excess of one year are as follows:
<TABLE>
<S> <C>
- --------------------------------------------------------------
2001 $11,778
2002 9,216
2003 5,694
2004 3,813
2005 1,697
After 2005 890
-------
Subtotal $33,088
Less sublease income (3,400)
-------
Total lease commitments $29,688
- --------------------------------------------------------------
</TABLE>
Contingencies
Contingent liabilities may arise from obligations incurred in the ordinary
course of business or from the usual obligations of on-site housing producers
for the completion of contracts. Some municipalities require the Company to
issue development bonds or maintain letters of credit to assure completion of
public facilities within a project. Total development bonds at December 31,
2000, were $251,723 and total deposits and letters of credit at December 31,
2000, were $37,185.
Ryland Mortgage Company (RMC) received information from the Federal Deposit
Insurance Corporation (FDIC) regarding outstanding claims related to mortgage
servicing contracts entered into with the Resolution Trust Company during 1991
and 1992. RMC is investigating these claims. No prediction can be made, at this
time, regarding the results of this investigation or whether the FDIC will
initiate a civil action against RMC in connection with these claims.
56
<PAGE> 33
THE RYLAND GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data, unless otherwise noted)
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 arising from these matters will not have a
material adverse effect on the financial condition of the Company.
57
<PAGE> 34
THE RYLAND GROUP, INC. & SUBSIDIARIES
Report of Independent Auditors
BOARD OF DIRECTORS AND STOCKHOLDERS
THE RYLAND GROUP, INC.
We have audited the accompanying consolidated balance sheets of The Ryland
Group, Inc. and subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 2000. These financial
statements are the responsibility of the Company'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. These 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 consolidated financial position of The Ryland Group,
Inc. and subsidiaries at December 31, 2000 and 1999, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Los Angeles, California
January 24, 2001
58
<PAGE> 35
THE RYLAND GROUP, INC. & SUBSIDIARIES
Report of Management
Management of the Company is responsible for the integrity and accuracy of the
financial statements and all other annual report information. The financial
statements are prepared in conformity with generally accepted accounting
principles and include amounts based on management's judgments and estimates.
The accounting systems, which record, summarize and report financial
information, are supported by internal control systems designed to provide
reasonable assurance, at an appropriate cost, that the assets are safeguarded
and that transactions are recorded in accordance with Company policies and
procedures. Proper selection, training and development of personnel also
contribute to the effectiveness of the internal control systems. These systems
are the responsibility of management and are regularly tested by the Company's
internal auditors. External auditors also review and test the effectiveness of
these systems to the extent they deem necessary to express an opinion on the
consolidated financial statements.
The Audit Committee of the Board of Directors periodically meets with
management, the internal auditors and the external auditors to review
accounting, auditing and financial matters. Both internal auditors and external
auditors have unrestricted access to the Audit Committee.
/s/ GORDON A. MILNE
Gordon A. Milne, Senior Vice President and Chief Financial Officer
/s/ DAVID L. FRISTOE
David L. Fristoe, Senior Vice President, CIO, Controller and Chief Accounting
Officer
59
<PAGE> 36
THE RYLAND GROUP, INC. & SUBSIDIARIES
QUARTERLY FINANCIAL DATA AND COMMON STOCK PRICES AND DIVIDENDS
<TABLE>
<CAPTION>
(amounts in thousands, 2000 1999
except share data) unaudited Dec. 31 Sept. 30 June 30 March 31 Dec. 31 Sept. 30 June 30 March 31
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED RESULTS
Revenues $749,556 $628,327 $524,750 $429,012 $595,647 $507,175 $502,405 $404,039
Earnings before taxes 51,712 37,441 27,773 17,914 34,153 29,736 28,578 16,869
Income tax expense 20,168 14,602 10,832 6,986 13,320 11,597 10,976 6,748
--------------------------------------------------------------------------------------------
Net earnings $ 31,544 $ 22,839 $ 16,941 $ 10,928 $ 20,833 $ 18,139 $ 17,602 $ 10,121
Basic net earnings per
common share $ 2.37 $ 1.74 $ 1.29 $ 0.80 $ 1.45 $ 1.21 $ 1.17 $ 0.67
Diluted net earnings per
common share $ 2.22 $ 1.67 $ 1.24 $ 0.78 $ 1.40 $ 1.15 $ 1.12 $ 0.65
Weighted - average common
shares outstanding:
Basic 13,222 12,992 13,027 13,449 14,198 14,856 14,851 14,810
Diluted 14,219 13,692 13,652 14,010 14,901 15,741 15,762 15,669
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
COMMON STOCK PRICES AND DIVIDENDS
The Ryland Group lists its common shares on the New York Stock Exchange, trading
under the symbol RYL.
The table below presents high and low market prices and dividend information for
the Company. The number of common stockholders of record as of February 15,
2001, was 13,390,673.
(See Note I for dividend restrictions.)
<TABLE>
<CAPTION>
Dividends Dividends
Declared Declared
2000 High Low Per Share 1999 High Low Per Share
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
First quarter $22 1/4 $15 1/4 $0.04 First quarter $28 5/16 $22 5/8 $0.04
Second quarter 22 7/8 18 7/16 0.04 Second quarter 30 22 7/8 0.04
Third quarter 31 20 0.04 Third quarter 30 7/16 22 1/4 0.04
Fourth quarter 41 9/16 27 1/2 0.04 Fourth quarter 24 1/16 19 15/16 0.04
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
60
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>5
<FILENAME>a70604ex21.txt
<DESCRIPTION>EXHIBIT 21
<TEXT>
<PAGE> 1
EXHIBIT 21 LIST OF SUBSIDIARIES OF REGISTRANT
Ryland Mortgage Company (an Ohio Corporation)
Ryland Homes of California (a Delaware Corporation)
RH of Texas LP
RH of Indiana LP
Ryland Homes of Arizona, Inc. (an Arizona Corporation)
Ryland Homes of Florida, Inc. (a Florida Corporation)
61
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>6
<FILENAME>a70604ex23.txt
<DESCRIPTION>EXHIBIT 23
<TEXT>
<PAGE> 1
EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of The Ryland Group, Inc. of our report dated January 24, 2001, included in the
2000 Annual Report to the Shareholders of The Ryland Group, Inc.
Our audits also included the financial statement schedule of The Ryland Group,
Inc. listed in Item 14(a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole, present fairly
in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration Statements
(Form S-3 No. 33-48071, Form S-3 No. 33-50933, Form S-3 No. 333-03791, Form S-3
No. 333-31034) of The Ryland Group, Inc. and in the related Prospectuses of our
report dated January 24, 2001, with respect to the consolidated financial
statements and schedule of The Ryland Group, Inc. incorporated by reference in
this Annual Report (Form 10-K) for the year ended December 31, 2000.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-32431), the Registration Statement (Form S-8 No. 33-56905)
pertaining to The Ryland Group, Inc. 1992 Equity Incentive Plan, the
Registration Statement (Form S-8 No. 33-56917) pertaining to The Ryland Group,
Inc. 1992 Non-Employee Director Equity Plan and Registration Statement (Form S-8
No. 333-68397) pertaining to The Ryland Group, Inc. Executive and Director
Deferred Compensation Plan and The Ryland Group, Inc. Non-Employee Directors'
Stock Unit Plan of The Ryland Group, Inc. of our report dated January 24, 2001,
with respect to the consolidated financial statements and schedule of The Ryland
Group, Inc. incorporated by reference in this Annual Report (Form 10-K) for the
year ended December 31, 2000.
/s/ Ernst & Young LLP
Los Angeles, California
March 20, 2001
62
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-24
<SEQUENCE>7
<FILENAME>a70604ex24.txt
<DESCRIPTION>EXHIBIT 24
<TEXT>
<PAGE> 1
EXHIBIT 24 POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned directors and officers of
The Ryland Group, Inc., a Maryland corporation, constitute and appoint Timothy
J. Geckle the true and lawful agent and attorney-in-fact of the undersigned with
full power and authority in said agent and attorney-in-fact to sign for the
undersigned in their respective names as directors and officers of The Ryland
Group, Inc., the Annual Report on Form 10-K of The Ryland Group, Inc., for the
fiscal year ended December 31, 2000 to be filed with the Securities and Exchange
Commission under the Securities Exchange Act of 1934. We hereby confirm all acts
taken by such agent and attorney-in-fact as herein authorized.
DATED: March 20, 2001
/s/ Chad Dreier
----------------------------------------
Chad Dreier, Chairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Leslie M. Frecon
----------------------------------------
Leslie M. Frecon, Director
/s/ William L. Jews
----------------------------------------
William L. Jews, Director
/s/ William G. Kagler
----------------------------------------
William G. Kagler, Director
/s/ Ned Mansour
----------------------------------------
Ned Mansour, Director
/s/ Robert E. Mellor
----------------------------------------
Robert E. Mellor, Director
/s/ Norman J. Metcalfe
----------------------------------------
Norman J. Metcalfe, Director
/s/ Charlotte St. Martin
----------------------------------------
Charlotte St. Martin, Director
/s/ Paul J. Varello
----------------------------------------
Paul J. Varello, Director
/s/ John O. Wilson
----------------------------------------
John O. Wilson, Director
63
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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