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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 8/07/12 Ryland Group Inc 10-Q 6/30/12 81:18M Toppan Merrill/FA |
Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report HTML 1.35M
2: EX-12.1 Statement re: Computation of Ratios HTML 63K
3: EX-31.1 Certification -- §302 - SOA'02 HTML 28K
4: EX-31.2 Certification -- §302 - SOA'02 HTML 28K
5: EX-32.1 Certification -- §906 - SOA'02 HTML 24K
6: EX-32.2 Certification -- §906 - SOA'02 HTML 24K
53: R1 Document and Entity Information HTML 44K
41: R2 Consolidated Statements of Earnings HTML 126K
51: R3 Consolidated Balance Sheets HTML 117K
56: R4 Consolidated Balance Sheets (Parenthetical) HTML 40K
75: R5 Consolidated Statements of Cash Flows HTML 143K
43: R6 Consolidated Statements of Cash Flows HTML 24K
(Parenthetical)
50: R7 Consolidated Statement of Stockholders' Equity HTML 47K
37: R8 Consolidated Statement of Stockholders' Equity HTML 24K
(Parenthetical)
27: R9 Consolidated Statements of Other Comprehensive HTML 25K
Income
76: R10 Consolidated Financial Statements HTML 36K
58: R11 Comprehensive Income HTML 29K
57: R12 Cash, Cash Equivalents and Restricted Cash HTML 30K
63: R13 Segment Information HTML 100K
64: R14 Earnings Per Share Reconciliation HTML 114K
61: R15 Marketable Securities, Available-for-sale HTML 136K
65: R16 Housing Inventories HTML 100K
52: R17 Variable Interest Entities ("Vie") HTML 29K
55: R18 Investments in Joint Ventures HTML 64K
60: R19 Debt and Credit Facilities HTML 67K
81: R20 Fair Values of Financial and Nonfinancial HTML 112K
Instruments
71: R21 Postretirement Benefits HTML 35K
47: R22 Income Taxes HTML 32K
59: R23 Stock-Based Compensation HTML 111K
49: R24 Commitments and Contingencies HTML 121K
20: R25 New Accounting Pronouncements HTML 26K
72: R26 Supplemental Guarantor Information HTML 732K
78: R27 Discontinued Operations HTML 51K
32: R28 Subsequent Events HTML 26K
31: R29 Segment Information (Tables) HTML 84K
35: R30 Earnings Per Share Reconciliation (Tables) HTML 98K
36: R31 Marketable Securities, Available-for-sale (Tables) HTML 120K
38: R32 Housing Inventories (Tables) HTML 80K
18: R33 Investments in Joint Ventures (Tables) HTML 54K
69: R34 Debt and Credit Facilities (Tables) HTML 52K
45: R35 Fair Values of Financial and Nonfinancial HTML 101K
Instruments (Tables)
48: R36 Stock-Based Compensation (Tables) HTML 92K
23: R37 Commitments and Contingencies (Tables) HTML 104K
80: R38 Supplemental Guarantor Information (Tables) HTML 679K
13: R39 Discontinued Operations (Tables) HTML 44K
39: R40 Consolidated Financial Statements (Details) HTML 29K
74: R41 Comprehensive Income (Details) HTML 27K
22: R42 Cash, Cash Equivalents and Restricted Cash HTML 36K
(Details)
30: R43 Segment Information (Details) HTML 52K
34: R44 Earnings Per Share Reconciliation (Details) HTML 104K
42: R45 Marketable Securities, Available-for-sale HTML 65K
(Details)
17: R46 Marketable Securities, Available-for-sale (Details HTML 38K
2)
26: R47 Housing Inventories (Details) HTML 60K
15: R48 Variable Interest Entities ("Vie") (Details) HTML 34K
73: R49 Investments in Joint Ventures (Details) HTML 50K
21: R50 Debt and Credit Facilities (Details) HTML 94K
70: R51 Fair Values of Financial and Nonfinancial HTML 64K
Instruments (Details)
24: R52 Fair Values of Financial and Nonfinancial HTML 37K
Instruments (Details 2)
40: R53 Fair Values of Financial and Nonfinancial HTML 31K
Instruments (Details 3)
14: R54 Postretirement Benefits (Details) HTML 52K
16: R55 Income Taxes (Details) HTML 42K
33: R56 Stock-Based Compensation (Details) HTML 108K
19: R57 Stock-Based Compensation (Details 2) HTML 44K
77: R58 Commitments and Contingencies (Details) HTML 54K
44: R59 Commitments and Contingencies (Details 2) HTML 66K
62: R60 Supplemental Guarantor Information (Details) HTML 30K
25: R61 Supplemental Guarantor Information (Details 2) HTML 72K
28: R62 Supplemental Guarantor Information (Details 3) HTML 105K
68: R63 Supplemental Guarantor Information (Details 4) HTML 174K
66: R64 Supplemental Guarantor Information (Details 5) HTML 32K
46: R65 Discontinued Operations (Details) HTML 52K
67: R66 Subsequent Events (Details) HTML 42K
79: XML IDEA XML File -- Filing Summary XML 122K
29: EXCEL IDEA Workbook of Financial Reports (.xls) XLS 3.29M
7: EX-101.INS XBRL Instance -- ryl-20120630 XML 4.19M
9: EX-101.CAL XBRL Calculations -- ryl-20120630_cal XML 209K
12: EX-101.DEF XBRL Definitions -- ryl-20120630_def XML 1.13M
10: EX-101.LAB XBRL Labels -- ryl-20120630_lab XML 3.19M
11: EX-101.PRE XBRL Presentations -- ryl-20120630_pre XML 1.59M
8: EX-101.SCH XBRL Schema -- ryl-20120630 XSD 270K
54: ZIP XBRL Zipped Folder -- 0001104659-12-055141-xbrl Zip 298K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 2012
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to .
Commission File Number: 001-08029
THE RYLAND GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
|
|
Maryland |
|
52-0849948 |
|
|
|
(State or Other Jurisdiction of Incorporation or Organization) |
|
(I.R.S. Employer Identification No.) |
|
3011 Townsgate Road, Suite 200
Westlake Village, California 91361-3027
805-367-3800
(Address and Telephone Number of Principal Executive Offices)
Not Applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
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. þ Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). þ Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one:)
|
Large accelerated filer þ |
Accelerated filer o |
Non-accelerated filer o |
Smaller reporting o company |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No
The number of shares of common stock of The Ryland Group, Inc. outstanding on August 3, 2012, was 44,722,072.
THE RYLAND GROUP, INC.
FORM 10-Q
INDEX
|
|
|
|
|
The Ryland Group, Inc. and Subsidiaries |
|
|
|
THREE MONTHS ENDED |
|
|
SIX MONTHS ENDED |
| ||||||||
|
|
|
JUNE 30, |
|
|
JUNE 30, |
| ||||||||
|
(in thousands, except share data) |
|
2012 |
|
2011 |
|
|
2012 |
|
2011 |
| ||||
|
REVENUES |
|
|
|
|
|
|
|
|
|
| ||||
|
Homebuilding |
|
$ |
284,593 |
|
$ |
204,925 |
|
|
$ |
494,128 |
|
$ |
366,353 |
|
|
Financial services |
|
9,176 |
|
6,923 |
|
|
15,510 |
|
13,167 |
| ||||
|
TOTAL REVENUES |
|
293,769 |
|
211,848 |
|
|
509,638 |
|
379,520 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
EXPENSES |
|
|
|
|
|
|
|
|
|
| ||||
|
Cost of sales |
|
231,130 |
|
176,226 |
|
|
403,820 |
|
318,690 |
| ||||
|
Selling, general and administrative |
|
39,368 |
|
31,349 |
|
|
71,576 |
|
61,893 |
| ||||
|
Financial services |
|
6,232 |
|
4,859 |
|
|
11,921 |
|
9,894 |
| ||||
|
Corporate |
|
7,139 |
|
4,925 |
|
|
12,319 |
|
9,912 |
| ||||
|
Interest |
|
4,180 |
|
4,735 |
|
|
7,749 |
|
10,522 |
| ||||
|
TOTAL EXPENSES |
|
288,049 |
|
222,094 |
|
|
507,385 |
|
410,911 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
OTHER INCOME |
|
|
|
|
|
|
|
|
|
| ||||
|
Gain from marketable securities, net |
|
519 |
|
1,302 |
|
|
965 |
|
2,610 |
| ||||
|
Loss related to early retirement of debt, net |
|
- |
|
(857 |
) |
|
- |
|
(857 |
) | ||||
|
TOTAL OTHER INCOME |
|
519 |
|
445 |
|
|
965 |
|
1,753 |
| ||||
|
Income (loss) from continuing operations before taxes |
|
6,239 |
|
(9,801 |
) |
|
3,218 |
|
(29,638 |
) | ||||
|
Tax expense (benefit) |
|
190 |
|
- |
|
|
190 |
|
(2,398 |
) | ||||
|
NET INCOME (LOSS) FROM CONTINUING OPERATIONS |
|
6,049 |
|
(9,801 |
) |
|
3,028 |
|
(27,240 |
) | ||||
|
Income (loss) from discontinued operations, net of taxes |
|
223 |
|
(912 |
) |
|
(1,864 |
) |
(3,009 |
) | ||||
|
NET INCOME (LOSS) |
|
$ |
6,272 |
|
$ |
(10,713 |
) |
|
$ |
1,164 |
|
$ |
(30,249 |
) |
|
NET INCOME (LOSS) PER COMMON SHARE |
|
|
|
|
|
|
|
|
|
| ||||
|
Basic |
|
|
|
|
|
|
|
|
|
| ||||
|
Continuing operations |
|
$ |
0.14 |
|
$ |
(0.22 |
) |
|
$ |
0.07 |
|
$ |
(0.61 |
) |
|
Discontinued operations |
|
0.00 |
|
(0.02 |
) |
|
(0.04 |
) |
(0.07 |
) | ||||
|
Total |
|
0.14 |
|
(0.24 |
) |
|
0.03 |
|
(0.68 |
) | ||||
|
Diluted |
|
|
|
|
|
|
|
|
|
| ||||
|
Continuing operations |
|
0.14 |
|
(0.22 |
) |
|
0.07 |
|
(0.61 |
) | ||||
|
Discontinued operations |
|
0.00 |
|
(0.02 |
) |
|
(0.04 |
) |
(0.07 |
) | ||||
|
Total |
|
$ |
0.14 |
|
$ |
(0.24 |
) |
|
$ |
0.03 |
|
$ |
(0.68 |
) |
|
AVERAGE COMMON SHARES OUTSTANDING |
|
|
|
|
|
|
|
|
|
| ||||
|
Basic |
|
44,627,548 |
|
44,368,874 |
|
|
44,551,441 |
|
44,303,958 |
| ||||
|
Diluted |
|
48,570,825 |
|
44,368,874 |
|
|
44,938,772 |
|
44,303,958 |
| ||||
|
DIVIDENDS DECLARED PER COMMON SHARE |
|
$ |
0.03 |
|
$ |
0.03 |
|
|
$ |
0.06 |
|
$ |
0.06 |
|
See Notes to Consolidated Financial Statements.
|
|
|
|
|
The Ryland Group, Inc. and Subsidiaries |
|
|
|
JUNE 30, |
|
DECEMBER 31, |
| ||
|
(in thousands, except share data) |
|
2012 |
|
2011 |
| ||
|
ASSETS |
|
(Unaudited) |
|
|
| ||
|
Cash, cash equivalents and marketable securities |
|
|
|
|
| ||
|
Cash and cash equivalents |
|
$ |
355,212 |
|
$ |
159,363 |
|
|
Restricted cash |
|
67,060 |
|
56,799 |
| ||
|
Marketable securities, available-for-sale |
|
310,638 |
|
347,016 |
| ||
|
Total cash, cash equivalents and marketable securities |
|
732,910 |
|
563,178 |
| ||
|
Housing inventories |
|
|
|
|
| ||
|
Homes under construction |
|
419,557 |
|
319,476 |
| ||
|
Land under development and improved lots |
|
412,034 |
|
413,569 |
| ||
|
Inventory held-for-sale |
|
7,750 |
|
11,015 |
| ||
|
Consolidated inventory not owned |
|
47,302 |
|
51,400 |
| ||
|
Total housing inventories |
|
886,643 |
|
795,460 |
| ||
|
Property, plant and equipment |
|
20,012 |
|
19,920 |
| ||
|
Other |
|
153,732 |
|
165,262 |
| ||
|
Assets of discontinued operations |
|
14,624 |
|
35,324 |
| ||
|
TOTAL ASSETS |
|
1,807,921 |
|
1,579,144 |
| ||
|
|
|
|
|
|
| ||
|
LIABILITIES |
|
|
|
|
| ||
|
Accounts payable |
|
86,231 |
|
74,327 |
| ||
|
Accrued and other liabilities |
|
136,026 |
|
140,930 |
| ||
|
Financial services credit facility |
|
50,271 |
|
49,933 |
| ||
|
Debt |
|
1,047,856 |
|
823,827 |
| ||
|
Liabilities of discontinued operations |
|
1,863 |
|
6,217 |
| ||
|
TOTAL LIABILITIES |
|
1,322,247 |
|
1,095,234 |
| ||
|
|
|
|
|
|
| ||
|
EQUITY |
|
|
|
|
| ||
|
STOCKHOLDERS’ EQUITY |
|
|
|
|
| ||
|
Preferred stock, $1.00 par value: |
|
|
|
|
| ||
|
Authorized—10,000 shares Series A Junior |
|
|
|
|
| ||
|
Participating Preferred, none outstanding |
|
- |
|
- |
| ||
|
Common stock, $1.00 par value: |
|
|
|
|
| ||
|
Authorized—199,990,000 shares |
|
|
|
|
| ||
|
Issued—44,660,496 shares at June 30, 2012 |
|
|
|
|
| ||
|
(44,413,594 shares at December 31, 2011) |
|
44,660 |
|
44,414 |
| ||
|
Retained earnings |
|
410,043 |
|
405,109 |
| ||
|
Accumulated other comprehensive income |
|
711 |
|
164 |
| ||
|
TOTAL STOCKHOLDERS’ EQUITY |
|
|
|
|
| ||
|
FOR THE RYLAND GROUP, INC. |
|
455,414 |
|
449,687 |
| ||
|
NONCONTROLLING INTEREST |
|
30,260 |
|
34,223 |
| ||
|
TOTAL EQUITY |
|
485,674 |
|
483,910 |
| ||
|
TOTAL LIABILITIES AND EQUITY |
|
$ |
1,807,921 |
|
$ |
1,579,144 |
|
See Notes to Consolidated Financial Statements.
|
|
|
|
|
The Ryland Group, Inc. and Subsidiaries |
|
|
|
SIX MONTHS ENDED |
| ||||
|
|
|
JUNE 30, |
| ||||
|
(in thousands) |
|
2012 |
|
2011 |
| ||
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
| ||
|
Net income (loss) from continuing operations |
|
$ |
3,028 |
|
$ |
(27,240 |
) |
|
Adjustments to reconcile net income (loss) from continuing operations |
|
|
|
|
| ||
|
to net cash used for operating activities: |
|
|
|
|
| ||
|
Depreciation and amortization |
|
6,433 |
|
5,423 |
| ||
|
Inventory and other asset impairments and write-offs |
|
2,454 |
|
14,922 |
| ||
|
Loss on early extinguishment of debt, net |
|
- |
|
857 |
| ||
|
Gain on sale of marketable securities |
|
(336 |
) |
(1,685 |
) | ||
|
(Decrease) increase in deferred tax valuation allowance |
|
(2,397 |
) |
11,503 |
| ||
|
Stock-based compensation expense |
|
7,219 |
|
5,050 |
| ||
|
Changes in assets and liabilities: |
|
|
|
|
| ||
|
Increase in inventories |
|
(98,847 |
) |
(65,317 |
) | ||
|
Net change in other assets, payables and other liabilities |
|
28,107 |
|
(38,499 |
) | ||
|
Other operating activities, net |
|
(784 |
) |
(371 |
) | ||
|
Net cash used for operating activities from continuing operations |
|
(55,123 |
) |
(95,357 |
) | ||
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
| ||
|
Return of investment in unconsolidated joint ventures, net |
|
1,871 |
|
1,062 |
| ||
|
Additions to property, plant and equipment |
|
(5,434 |
) |
(5,595 |
) | ||
|
Purchases of marketable securities, available-for-sale |
|
(469,690 |
) |
(700,135 |
) | ||
|
Proceeds from sales and maturities of marketable securities, available-for-sale |
|
508,687 |
|
780,594 |
| ||
|
Other investing activities |
|
(10 |
) |
30 |
| ||
|
Net cash provided by investing activities from continuing operations |
|
35,424 |
|
75,956 |
| ||
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
| ||
|
Cash proceeds of long-term debt |
|
225,000 |
|
- |
| ||
|
Retirement of long-term debt |
|
- |
|
(28,222 |
) | ||
|
Increase in borrowings against revolving credit facilities, net |
|
338 |
|
- |
| ||
|
Decrease in short-term borrowings |
|
(1,279 |
) |
(221 |
) | ||
|
Common stock dividends |
|
(2,701 |
) |
(2,701 |
) | ||
|
Issuance of common stock under stock-based compensation |
|
4,451 |
|
3,530 |
| ||
|
(Increase) decrease in restricted cash |
|
(10,261 |
) |
2,691 |
| ||
|
Net cash provided by (used for) financing activities from continuing operations |
|
215,548 |
|
(24,923 |
) | ||
|
Net increase (decrease) in cash and cash equivalents from continuing operations |
|
195,849 |
|
(44,324 |
) | ||
|
Cash flows from operating activities—discontinued operations |
|
363 |
|
341 |
| ||
|
Cash flows from investing activities—discontinued operations |
|
79 |
|
(316 |
) | ||
|
Cash flows from financing activities—discontinued operations |
|
- |
|
- |
| ||
|
Cash and cash equivalents at beginning of period1 |
|
159,419 |
|
226,647 |
| ||
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD2 |
|
$ |
355,710 |
|
$ |
182,348 |
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |
|
|
|
|
| ||
|
Cash paid for income taxes |
|
$ |
(386 |
) |
$ |
(1,307 |
) |
|
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES |
|
|
|
|
| ||
|
Decrease in consolidated inventory not owned related to land options |
|
$ |
3,963 |
|
$ |
20,301 |
|
1 Includes cash and cash equivalents of $56,000 and $39,000 associated with discontinued operations at December 31, 2011 and 2010, respectively.
2 Includes cash and cash equivalents of $498,000 and $64,000 associated with discontinued operations at June 30, 2012 and 2011, respectively.
See Notes to Consolidated Financial Statements.
|
|
|
|
|
Consolidated Statements of Other Comprehensive Income |
|
|
(Unaudited) |
|
|
The Ryland Group, Inc. and Subsidiaries |
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
ACCUMULATED |
|
|
| ||||
|
|
|
|
|
|
|
OTHER |
|
TOTAL |
| ||||
|
|
|
COMMON |
|
RETAINED |
|
COMPREHENSIVE |
|
STOCKHOLDERS’ |
| ||||
|
(in thousands, except per share data) |
|
STOCK |
|
EARNINGS |
|
INCOME |
|
EQUITY |
| ||||
|
STOCKHOLDERS’ EQUITY BALANCE AT JANUARY 1, 2012 |
|
$ |
44,414 |
|
$ |
405,109 |
|
$ |
164 |
|
$ |
449,687 |
|
|
Net income |
|
|
|
1,164 |
|
|
|
1,164 |
| ||||
|
Other comprehensive gain |
|
|
|
|
|
547 |
|
547 |
| ||||
|
Common stock dividends (per share $0.06) |
|
|
|
(2,721 |
) |
|
|
(2,721 |
) | ||||
|
Stock-based compensation |
|
246 |
|
6,491 |
|
|
|
6,737 |
| ||||
|
STOCKHOLDERS’ EQUITY BALANCE AT JUNE 30, 2012 |
|
$ |
44,660 |
|
$ |
410,043 |
|
$ |
711 |
|
$ |
455,414 |
|
|
NONCONTROLLING INTEREST |
|
|
|
|
|
|
|
30,260 |
| ||||
|
TOTAL EQUITY BALANCE AT JUNE 30, 2012 |
|
|
|
|
|
|
|
$ |
485,674 |
| |||
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME
|
|
|
THREE MONTHS ENDED |
|
|
SIX MONTHS ENDED |
| ||||||||
|
|
|
JUNE 30, |
|
|
|
|
JUNE 30, |
| ||||||
|
(in thousands) |
|
2012 |
|
2011 |
|
|
2012 |
|
2011 |
| ||||
|
Comprehensive income (loss) |
|
$ |
6,145 |
|
$ |
(10,813 |
) |
|
$ |
1,711 |
|
$ |
(30,632 |
) |
See Notes to Consolidated Financial Statements.
|
|
|
|
|
The Ryland Group, Inc. and Subsidiaries |
Note 1. Consolidated Financial Statements
The consolidated financial statements include the accounts of The Ryland Group, Inc. and its 100 percent-owned subsidiaries (the “Company”). Noncontrolling interest represents the selling entities’ ownership interests in land and lot option purchase contracts. (See Note 8, “Variable Interest Entities (‘VIE’).”) Intercompany transactions have been eliminated in consolidation. Information is presented on a continuing operations basis unless otherwise noted. The results from continuing and discontinued operations are presented separately in the consolidated financial statements. (See Note 18, “Discontinued Operations.”) Effective January 1, 2012, the Company elected to reclassify its external commissions expense from cost of sales to selling, general and administrative expense in its Consolidated Statements of Earnings in order to not only be consistent with a majority of its peers, but also to combine external and internal commissions. This will have the effect of increasing both housing gross profit and selling, general and administrative expense by the amount of external commissions, which totaled $6.3 million and $4.5 million, or 2.2 percent of housing revenues, for the three months ended June 30, 2012 and 2011, respectively. External commissions totaled $10.9 million and $7.6 million, or 2.2 percent and 2.1 percent of housing revenues, for the six months ended June 30, 2012 and 2011, respectively. All prior period amounts have been reclassified to conform to the 2012 presentation. For a description of the Company’s accounting policies, see Note A, “Summary of Significant Accounting Policies,” in its 2011 Annual Report on Form 10-K.
The Consolidated Balance Sheet at June 30, 2012, the Consolidated Statements of Earnings for the three- and six-month periods ended June 30, 2012 and 2011, the Consolidated Statements of Cash Flows for the six-month periods ended June 30, 2012 and 2011, the Consolidated Statement of Stockholders’ Equity as of and for the six-month period ended June 30, 2012, and the Consolidated Statements of Other Comprehensive Income for the three- and six-month periods ended June 30, 2012 and 2011, have been prepared by the Company without audit. In the opinion of management, all adjustments, including normally recurring adjustments necessary to present fairly the Company’s financial position, results of operations and cash flows at June 30, 2012, and for all periods presented, have been made. Certain information and footnote disclosures normally included in the financial statements have been condensed or omitted. These financial statements should be read in conjunction with the financial statements and related notes included in the Company’s 2011 Annual Report on Form 10-K.
The Company has historically experienced, and expects to continue to experience, variability in quarterly results. Accordingly, the results of operations for the three and six months ended June 30, 2012, are not necessarily indicative of the operating results expected for the year ending December 31, 2012.
Note 2. Comprehensive Income
Comprehensive income consists of net income or loss and the increase or decrease in unrealized gains or losses on the Company’s available-for-sale securities, as well as the decrease in unrealized gains associated with treasury locks, net of applicable taxes. Comprehensive income totaled $6.1 million and $1.7 million for the three- and six-month periods ended June 30, 2012. Comprehensive loss totaled $10.8 million and $30.6 million for the three- and six-month periods ended June 30, 2011.
Note 3. Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents totaled $355.2 million and $159.4 million at June 30, 2012 and December 31, 2011, respectively. The Company considers all highly liquid short-term investments purchased with an original maturity of three months or less and cash held in escrow accounts to be cash equivalents.
|
|
Notes to Consolidated Financial Statements (Unaudited) |
|
|
The Ryland Group, Inc. and Subsidiaries |
At June 30, 2012 and December 31, 2011, the Company had restricted cash of $67.1 million and $56.8 million, respectively. The Company has various secured letter of credit agreements that require it to maintain cash deposits as collateral for outstanding letters of credit. Cash restricted under these agreements totaled $65.8 million and $56.7 million at June 30, 2012 and December 31, 2011, respectively. In addition, Ryland Mortgage Company and its subsidiaries and RMC Mortgage Corporation (collectively referred to as “RMC”) had restricted cash of $1.3 million and $141,000 at June 30, 2012 and December 31, 2011, respectively.
Note 4. Segment Information
The Company is a leading national homebuilder and provider of mortgage-related financial services. As one of the largest single-family on-site homebuilders in the United States, it operates in 13 states across the country. The Company consists of six segments: four geographically-determined homebuilding regions (North, Southeast, Texas and West); financial services; and corporate. The homebuilding segments specialize in the sale and construction of single-family attached and detached housing. The Company’s financial services segment, which includes RMC, RH Insurance Company, Inc. (“RHIC”), LPS Holdings Corporation and its subsidiaries (“LPS”), and Columbia National Risk Retention Group, Inc. (“CNRRG”), provides mortgage-related products and services, as well as title, escrow and insurance services, to its homebuyers. Corporate is a nonoperating business segment with the sole purpose of supporting operations. In order to best reflect the Company’s financial position and results of operations, certain corporate expenses are allocated to the homebuilding and financial services segments, along with certain assets and liabilities relating to employee benefit plans.
The Company evaluates performance and allocates resources based on a number of factors, including segment pretax earnings and risk. The accounting policies of the segments are the same as those described in Note 1, “Consolidated Financial Statements.”
|
|
|
THREE MONTHS ENDED |
|
SIX MONTHS ENDED | ||||||||||
|
|
|
JUNE 30, |
|
JUNE 30, | ||||||||||
|
(in thousands) |
|
2012 |
|
2011 |
|
|
2012 |
|
2011 |
| ||||
|
REVENUES |
|
|
|
|
|
|
|
|
|
| ||||
|
Homebuilding |
|
|
|
|
|
|
|
|
|
| ||||
|
North |
|
$ |
86,010 |
|
$ |
75,092 |
|
|
$ |
148,058 |
|
$ |
130,534 |
|
|
Southeast |
|
78,379 |
|
46,700 |
|
|
135,021 |
|
90,838 |
| ||||
|
Texas |
|
78,754 |
|
68,143 |
|
|
141,873 |
|
114,528 |
| ||||
|
West |
|
41,450 |
|
14,990 |
|
|
69,176 |
|
30,453 |
| ||||
|
Financial services |
|
9,176 |
|
6,923 |
|
|
15,510 |
|
13,167 |
| ||||
|
Total |
|
$ |
293,769 |
|
$ |
211,848 |
|
|
$ |
509,638 |
|
$ |
379,520 |
|
|
EARNINGS (LOSS) BEFORE TAXES |
|
|
|
|
|
|
|
|
|
| ||||
|
Homebuilding |
|
|
|
|
|
|
|
|
|
| ||||
|
North |
|
$ |
1,796 |
|
$ |
(4,737 |
) |
|
$ |
174 |
|
$ |
(10,225 |
) |
|
Southeast |
|
2,497 |
|
(4,215 |
) |
|
3,388 |
|
(12,626 |
) | ||||
|
Texas |
|
4,784 |
|
3,438 |
|
|
8,309 |
|
1,777 |
| ||||
|
West |
|
838 |
|
(1,871 |
) |
|
(888 |
) |
(3,678 |
) | ||||
|
Financial services |
|
2,944 |
|
2,064 |
|
|
3,589 |
|
3,273 |
| ||||
|
Corporate and unallocated |
|
(6,620 |
) |
(4,480 |
) |
|
(11,354 |
) |
(8,159 |
) | ||||
|
Total |
|
$ |
6,239 |
|
$ |
(9,801 |
) |
|
$ |
3,218 |
|
$ |
(29,638 |
) |
|
|
Notes to Consolidated Financial Statements (Unaudited) |
|
|
The Ryland Group, Inc. and Subsidiaries |
Note 5. Earnings Per Share Reconciliation
The following table sets forth the computation of basic and diluted earnings per share:
|
|
|
THREE MONTHS ENDED |
|
SIX MONTHS ENDED | ||||||||||
|
|
|
JUNE 30, |
|
JUNE 30, | ||||||||||
|
(in thousands, except share data) |
|
2012 |
|
2011 |
|
|
2012 |
|
2011 |
| ||||
|
NUMERATOR |
|
|
|
|
|
|
|
|
|
| ||||
|
Net income (loss) from continuing operations |
|
$ |
6,049 |
|
$ |
(9,801 |
) |
|
$ |
3,028 |
|
$ |
(27,240 |
) |
|
Net income (loss) from discontinued operations |
|
223 |
|
(912 |
) |
|
(1,864 |
) |
(3,009 |
) | ||||
|
Net income (loss) |
|
6,272 |
|
(10,713 |
) |
|
1,164 |
|
(30,249 |
) | ||||
|
Interest on 1.6 percent convertible senior notes due 2018 |
|
370 |
|
- |
|
|
- |
|
- |
| ||||
|
Net income (loss) available to common stockholders |
|
$ |
6,642 |
|
$ |
(10,713 |
) |
|
$ |
1,164 |
|
$ |
(30,249 |
) |
|
DENOMINATOR |
|
|
|
|
|
|
|
|
|
| ||||
|
Basic earnings per share—weighted-average shares |
|
44,627,548 |
|
44,368,874 |
|
|
44,551,441 |
|
44,303,958 |
| ||||
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
| ||||
|
Share-based payments |
|
469,979 |
|
- |
|
|
387,331 |
|
- |
| ||||
|
1.6 percent convertible senior notes due 2018 |
|
3,473,298 |
|
- |
|
|
- |
|
- |
| ||||
|
Diluted earnings per share—adjusted |
|
|
|
|
|
|
|
|
|
| ||||
|
weighted-average shares and |
|
|
|
|
|
|
|
|
|
| ||||
|
assumed conversions |
|
48,570,825 |
|
44,368,874 |
|
|
44,938,772 |
|
44,303,958 |
| ||||
|
NET INCOME (LOSS) PER COMMON SHARE |
|
|
|
|
|
|
|
|
|
| ||||
|
Basic |
|
|
|
|
|
|
|
|
|
| ||||
|
Continuing operations |
|
$ |
0.14 |
|
$ |
(0.22 |
) |
|
$ |
0.07 |
|
$ |
(0.61 |
) |
|
Discontinued operations |
|
0.00 |
|
(0.02 |
) |
|
(0.04 |
) |
(0.07 |
) | ||||
|
Total |
|
0.14 |
|
(0.24 |
) |
|
0.03 |
|
(0.68 |
) | ||||
|
Diluted |
|
|
|
|
|
|
|
|
|
| ||||
|
Continuing operations |
|
0.14 |
|
(0.22 |
) |
|
0.07 |
|
(0.61 |
) | ||||
|
Discontinued operations |
|
0.00 |
|
(0.02 |
) |
|
(0.04 |
) |
(0.07 |
) | ||||
|
Total |
|
$ |
0.14 |
|
$ |
(0.24 |
) |
|
$ |
0.03 |
|
$ |
(0.68 |
) |
For the six-month period ended June 30, 2012, the effect of convertible debt was not included in the diluted earnings per share calculations as it would have been antidilutive. For the three- and six-month periods ended June 30, 2011, the effects of outstanding restricted stock units and stock options were not included in the diluted earnings per share calculations as they would have been antidilutive due to the Company’s net loss for the respective periods.
Note 6. Marketable Securities, Available-for-sale
The Company’s investment portfolio includes U.S. Treasury securities; obligations of U.S. government and local government agencies; corporate debt backed by U.S. government/agency programs; corporate debt securities; asset-backed securities of U.S. government agencies and covered bonds; time deposits; and short-term pooled investments. These investments are primarily held in the custody of a single financial institution. Time deposits and short-term pooled investments, which are not considered cash equivalents, have original maturities in excess of 90 days. The Company considers its investment portfolio to be available-for-sale as defined by the Financial Accounting Standards Board (“FASB”) in its Accounting Standards Codification (“ASC”) No. 320 (“ASC 320”), “Investments—Debt and Equity Securities.” Accordingly, these investments are recorded at their fair values. The cost of securities sold is based on an average-cost basis. Unrealized gains and losses on these investments were included in “Accumulated other comprehensive income” within the Consolidated Balance Sheets.
|
|
Notes to Consolidated Financial Statements (Unaudited) |
|
|
The Ryland Group, Inc. and Subsidiaries |
The Company periodically reviews its available-for-sale securities for other-than-temporary declines in fair values that are below their cost bases, as well as whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. At June 30, 2012 and December 31, 2011, the Company believed that the cost bases for its available-for-sale securities were recoverable in all material respects.
For the three-month periods ended June 30, 2012 and 2011, net realized earnings associated with the Company’s investment portfolio, which includes interest, dividends and net realized gains and losses on sales of marketable securities, totaled $519,000 and $1.3 million, respectively. For the six-month periods ended June 30, 2012 and 2011, net realized earnings totaled $965,000 and $2.6 million, respectively. These earnings were included in “Gain from marketable securities, net” within the Consolidated Statements of Earnings.
The following table sets forth the fair values of marketable securities, available-for-sale, by type of security:
|
|
|
|
|
|
|
|
|
||||||
|
(in thousands) |
|
AMORTIZED |
|
GROSS |
|
GROSS |
|
ESTIMATED | |||||
|
Type of security: |
|
|
|
|
|
|
|
|
| ||||
|
U.S. Treasury securities |
|
$ |
7,182 |
|
$ |
- |
|
$ |
(7 |
) |
$ |
7,175 |
|
|
Obligations of U.S. and local government agencies |
|
140,646 |
|
700 |
|
(19 |
) |
141,327 |
| ||||
|
Corporate debt securities issued under |
|
|
|
|
|
|
|
|
| ||||
|
U.S. government/agency-backed programs |
|
1,502 |
|
1 |
|
- |
|
1,503 |
| ||||
|
Corporate debt securities |
|
76,568 |
|
102 |
|
(48 |
) |
76,622 |
| ||||
|
Asset-backed securities |
|
37,570 |
|
72 |
|
(130 |
) |
37,512 |
| ||||
|
Total debt securities |
|
263,468 |
|
875 |
|
(204 |
) |
264,139 |
| ||||
|
Time deposits |
|
45,471 |
|
- |
|
- |
|
45,471 |
| ||||
|
Short-term pooled investments |
|
1,028 |
|
- |
|
- |
|
1,028 |
| ||||
|
Total marketable securities, available-for-sale |
|
$ |
309,967 |
|
$ |
875 |
|
$ |
(204 |
) |
$ |
310,638 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|||||||
|
Type of security: |
|
|
|
|
|
|
|
|
| ||||
|
U.S. Treasury securities |
|
$ |
1,557 |
|
$ |
- |
|
$ |
(2 |
) |
$ |
1,555 |
|
|
Obligations of U.S. and local government agencies |
|
147,557 |
|
123 |
|
(860 |
) |
146,820 |
| ||||
|
Corporate debt securities issued under |
|
|
|
|
|
|
|
|
| ||||
|
U.S. government/agency-backed programs |
|
1,453 |
|
3 |
|
- |
|
1,456 |
| ||||
|
Corporate debt securities |
|
126,088 |
|
101 |
|
(523 |
) |
125,666 |
| ||||
|
Asset-backed securities |
|
46,198 |
|
42 |
|
(496 |
) |
45,744 |
| ||||
|
Total debt securities |
|
322,853 |
|
269 |
|
(1,881 |
) |
321,241 |
| ||||
|
Time deposits |
|
25,500 |
|
- |
|
- |
|
25,500 |
| ||||
|
Short-term pooled investments |
|
275 |
|
- |
|
- |
|
275 |
| ||||
|
Total marketable securities, available-for-sale |
|
$ |
348,628 |
|
$ |
269 |
|
$ |
(1,881 |
) |
$ |
347,016 |
|
The primary objectives of the Company’s investment portfolio are safety of principal and liquidity. Investments are made with the purpose of achieving the highest rate of return consistent with these two objectives. The Company’s investment policy limits investments to debt rated investment grade or better, as well as to bank and money market instruments and to issues by the U.S. government, U.S. government agencies and municipal or other institutions primarily with investment-grade credit ratings. Policy restrictions are placed on maturities, as well as on concentration by type and issuer.
|
|
Notes to Consolidated Financial Statements (Unaudited) |
|
|
The Ryland Group, Inc. and Subsidiaries |
The following table sets forth the fair values of marketable securities, available-for-sale, by contractual maturity:
|
(in thousands) |
|
|
|||||
|
Contractual maturity: |
|
|
|
|
| ||
|
Maturing in one year or less |
|
$ |
72,766 |
|
$ |
167,413 |
|
|
Maturing after one year through three years |
|
167,880 |
|
120,952 |
| ||
|
Maturing after three years |
|
23,493 |
|
32,876 |
| ||
|
Total debt securities |
|
264,139 |
|
321,241 |
| ||
|
Time deposits and short-term pooled investments |
|
46,499 |
|
25,775 |
| ||
|
Total marketable securities, available-for-sale |
|
$ |
310,638 |
|
$ |
347,016 |
|
Note 7. Housing Inventories
Housing inventories consist principally of homes under construction; land under development and improved lots; and inventory held-for-sale. Inventory includes land and development costs; direct construction costs; capitalized indirect construction costs; capitalized interest; and real estate taxes. The costs of acquiring and developing land and constructing certain related amenities are allocated to the parcels to which these costs relate. Interest and taxes are capitalized during active development and construction stages. 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 their fair values. Inventories held-for-sale are stated at the lower of their costs or fair values, less cost to sell.
As required by ASC No. 360 (“ASC 360”), “Property, Plant and Equipment,” inventory is reviewed for potential write-downs on an ongoing basis. ASC 360 requires that, in the event that impairment indicators are present and undiscounted cash flows signify that the carrying amount of an asset is not recoverable, impairment charges must be recorded if the fair value of the asset is less than its carrying amount. The Company reviews all communities on a quarterly basis for changes in events or circumstances indicating signs of impairment. Examples of events or changes in circumstances include, but are not limited to: price declines resulting from sustained competitive pressures; a change in the manner in which the asset is being used; a change in assessments by a regulator or municipality; cost increases; the expectation that, more likely than not, an asset will be sold or disposed of significantly before the end of its previously estimated useful life; or the impact of local economic or macroeconomic conditions, such as employment or housing supply, on the market for a given product. Signs of impairment may include, but are not limited to: very low or negative profit margins, the absence of sales activity in an open community and/or significant price differences for comparable parcels of land held-for-sale.
If it is determined that indicators of impairment exist in a community, undiscounted cash flows are prepared and analyzed at a community level based on expected pricing; sales rates; construction costs; local municipality fees; and warranty, closing, carrying, selling, overhead and other related costs; or on similar assets to determine if the realizable values of the assets held are less than their respective carrying amounts. In order to determine assumed sales prices included in cash flow models, the Company analyzes historical sales prices on homes delivered in the community and in other communities located within the geographic area, as well as sales prices included in its current backlog for such communities. In addition, it analyzes market studies and trends, which generally include statistics on sales prices in neighboring communities and sales prices of similar products in non-neighboring communities in the same geographic area. In order to estimate costs to build and deliver homes, the Company generally assumes cost structures reflecting contracts currently in place with vendors, adjusted for any anticipated cost-reduction initiatives or increases. The Company’s analysis of each community generally assumes current pricing equal to current sales orders for a particular or comparable community. For a minority of communities that the Company does not intend to operate for an extended period of time or where the operating
|
|
Notes to Consolidated Financial Statements (Unaudited) |
|
|
The Ryland Group, Inc. and Subsidiaries |
life extends beyond several years, slight increases over current sales prices are assumed in later years. Once a community is considered to be impaired, the Company’s determinations of fair value and new cost basis are primarily based on discounting estimated cash flows at rates commensurate with inherent risks that are associated with the continuing assets. Discount rates used generally vary from 19.0 percent to 30.0 percent, depending on market risk, the size or life of a community and development risk. Due to the fact that estimates and assumptions included in cash flow models are based on historical results and projected trends, unexpected changes in market conditions that may lead to additional impairment charges in the future cannot be anticipated.
Valuation adjustments are recorded against homes completed or under construction, land under development or improved lots when analyses indicate that the carrying values are greater than the fair values. Write-downs of impaired inventories to their fair values are recorded as adjustments to the cost basis of the respective inventory. At June 30, 2012 and December 31, 2011, valuation reserves related to impaired inventories totaled $250.3 million and $277.2 million, respectively. The net carrying value of the related inventories totaled $195.8 million at June 30, 2012 and December 31, 2011.
Interest and taxes are capitalized during active development and construction stages. Capitalized interest is amortized when the related inventory is delivered to homebuyers. The following table summarizes activity that relates to capitalized interest:
|
(in thousands) |
|
|
|
|
|
|
|
|
|
2012 |
|
2011 |
|
|
Capitalized interest at January 1 |
|
|
|
|
|
|
|
|
|
$ 81,058 |
|
$ 75,094 |
|
|
Interest capitalized |
|
|
|
|
|
|
|
|
|
20,777 |
|
18,198 |
|
|
Interest amortized to cost of sales |
|
|
|
|
|
|
|
|
|
(17,632 |
) |
(13,291 |
) |
|
Capitalized interest at June 30 |
|
|
|
|
|
|
|
|
|
$ 84,203 |
|
$ 80,001 |
|
|
|
|
|
The following table summarizes each reporting segment’s total number of lots owned and lots controlled under option agreements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
| ||||||
|
|
|
LOTS |
|
LOTS |
|
|
|
LOTS |
|
LOTS |
|
|
|
|
|
|
OWNED |
|
OPTIONED |
|
TOTAL |
|
OWNED |
|
OPTIONED |
|
TOTAL |
|
|
North |
|
5,423 |
|
3,708 |
|
9,131 |
|
4,981 |
|
3,405 |
|
8,386 |
|
|
Southeast |
|
5,402 |
|
3,751 |
|
9,153 |
|
4,933 |
|
1,894 |
|
6,827 |
|
|
Texas |
|
2,528 |
|
1,789 |
|
4,317 |
|
2,486 |
|
1,081 |
|
3,567 |
|
|
West |
|
1,891 |
|
957 |
|
2,848 |
|
1,937 |
|
862 |
|
2,799 |
|
|
Total |
|
15,244 |
|
10,205 |
|
25,449 |
|
14,337 |
|
7,242 |
|
21,579 |
|
Additionally, at June 30, 2012, the Company controlled an aggregate of 942 lots associated with discontinued operations, of which 909 lots were owned and 33 lots were under option. At December 31, 2011, the Company controlled an aggregate of 1,386 lots associated with discontinued operations, of which 1,330 lots were owned and 56 lots were under option.
Note 8. Variable Interest Entities (“VIE”)
As required by ASC No. 810 (“ASC 810”), “Consolidation of Variable Interest Entities,” a VIE is to be consolidated by a company if that company has the power to direct the VIE’s activities and the obligation to absorb its losses or the right to receive its benefits, which are potentially significant to the VIE. ASC 810 also requires disclosures about VIEs that the company is not obligated to consolidate, but in which it has a significant, though not primary, variable interest.
|
|
Notes to Consolidated Financial Statements (Unaudited) |
|
|
The Ryland Group, Inc. and Subsidiaries |
The Company enters into joint ventures, from time to time, for the purpose of acquisition and co-development of land parcels and lots. Its investment in these joint ventures may create a variable interest in a VIE, depending on the contractual terms of the arrangement. Additionally, in the ordinary course of business, the Company enters into lot option purchase contracts in order to procure land for the construction of homes. Under such lot option purchase contracts, the Company funds stated deposits in consideration for the right to purchase lots at a future point in time, usually at predetermined prices. The Company’s liability is generally limited to forfeiture of nonrefundable deposits, letters of credit and other nonrefundable amounts incurred. In accordance with the requirements of ASC 810, certain of the Company’s lot option purchase contracts may result in the creation of a variable interest in a VIE.
In compliance with the provisions of ASC 810, the Company consolidated $47.3 million and $51.4 million of inventory not owned related to land and lot option purchase contracts at June 30, 2012 and December 31, 2011, respectively. Although the Company may not have had legal title to the optioned land, under ASC 810, it had the primary variable interest and was required to consolidate the particular VIE’s assets under option at fair value. To reflect the fair value of the inventory consolidated under ASC 810, the Company included $17.0 million and $17.2 million of its related cash deposits for lot option purchase contracts at June 30, 2012 and December 31, 2011, respectively, in “Consolidated inventory not owned” within the Consolidated Balance Sheets. Noncontrolling interest totaled $30.3 million and $34.2 million with respect to the consolidation of these contracts at June 30, 2012 and December 31, 2011, respectively, representing the selling entities’ ownership interests in these VIEs. Additionally, the Company had cash deposits and/or letters of credit totaling $23.8 million and $22.3 million at June 30, 2012 and December 31, 2011, respectively, that were associated with lot option purchase contracts having aggregate purchase prices of $232.6 million and $208.5 million, respectively. As the Company did not have the primary variable interest in these contracts, it was not required to consolidate them.
Note 9. Investments in Joint Ventures
The Company enters into joint ventures, from time to time, for the purpose of acquisition and co-development of land parcels and lots. It participates in a number of joint ventures in which it has less than a controlling interest. As of June 30, 2012, the Company participated in five active homebuilding joint ventures in the Austin, Chicago, Denver and Washington, D.C., markets. The Company recognizes its share of the respective joint ventures’ earnings or losses from the sale of lots to other homebuilders. It does not, however, recognize earnings from lots that it purchases from the joint ventures. Instead, the Company reduces its cost basis in each lot by its share of the earnings from the lot.
The following table summarizes each reporting segment’s total estimated share of lots owned and controlled by the Company under its joint ventures:
|
|
|
|
| ||||||||||
|
|
|
LOTS |
|
LOTS |
|
|
|
LOTS |
|
LOTS |
|
|
|
|
|
|
OWNED |
|
OPTIONED |
|
TOTAL |
|
OWNED |
|
OPTIONED |
|
TOTAL |
|
|
North |
|
150 |
|
- |
|
150 |
|
150 |
|
- |
|
150 |
|
|
Southeast |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
|
Texas |
|
3 |
|
- |
|
3 |
|
20 |
|
- |
|
20 |
|
|
West |
|
172 |
|
- |
|
172 |
|
172 |
|
- |
|
172 |
|
|
Total |
|
325 |
|
- |
|
325 |
|
342 |
|
- |
|
342 |
|
At June 30, 2012 and December 31, 2011, the Company’s investments in its unconsolidated joint ventures totaled $8.9 million and $10.0 million, respectively, and were included in “Other” assets within the Consolidated Balance
|
|
Notes to Consolidated Financial Statements (Unaudited) |
|
|
The Ryland Group, Inc. and Subsidiaries |
Sheets. For the three and six months ended June 30, 2012, the Company’s equity in earnings from its unconsolidated joint ventures totaled $563,000 and $673,000, respectively. For the three and six months ended June 30, 2011, the Company’s equity in losses from its unconsolidated joint ventures totaled $1.7 million.
Note 10. Debt and Credit Facilities
The following table presents the composition of the Company’s homebuilder debt and its financial services credit facility at June 30, 2012 and December 31, 2011:
|
|
|
JUNE 30, |
|
DECEMBER 31, | ||||
|
(in thousands) |
|
2012 |
|
2011 | ||||
|
Senior notes |
|
|
|
|
|
| ||
|
6.9 percent senior notes due June 2013 |
|
$ |
167,182 |
|
|
$ |
167,182 |
|
|
5.4 percent senior notes due January 2015 |
|
126,481 |
|
|
126,481 |
| ||
|
8.4 percent senior notes due May 2017 |
|
230,000 |
|
|
230,000 |
| ||
|
1.6 percent convertible senior notes due May 2018 |
|
225,000 |
|
|
- |
| ||
|
6.6 percent senior notes due May 2020 |
|
300,000 |
|
|
300,000 |
| ||
|
Total senior notes |
|
1,048,663 |
|
|
823,663 |
| ||
|
Debt discount |
|
(3,339 |
) |
|
(3,647 |
) | ||
|
Senior notes, net |
|
1,045,324 |
|
|
820,016 |
| ||
|
Secured notes payable |
|
2,532 |
|
|
3,811 |
| ||
|
Total debt |
|
$ |
1,047,856 |
|
|
$ |
823,827 |
|
|
Financial services credit facility |
|
$ |
50,271 |
|
|
$ |
49,933 |
|
At June 30, 2012, the Company had outstanding (a) $167.2 million of 6.9 percent senior notes due June 2013; (b) $126.5 million of 5.4 percent senior notes due January 2015; (c) $230.0 million of 8.4 percent senior notes due May 2017; (d) $225.0 million of 1.6 percent convertible senior notes due May 2018; and (e) $300.0 million of 6.6 percent senior notes due May 2020. Each of the senior notes pays interest semiannually and may be redeemed at a stated redemption price, in whole or in part, at the option of the Company at any time.
During the second quarter of 2012, the Company had no debt repurchases. During the second quarter of 2011, the Company paid $28.2 million to repurchase $27.5 million of its 5.4 percent senior notes due 2015, resulting in a loss of $857,000. The loss resulting from this debt repurchase was included in “Loss related to early retirement of debt, net” within the Consolidated Statements of Earnings.
During the second quarter of 2012, the Company issued $225.0 million of 1.6 percent convertible senior notes due May 2018. The Company will pay interest on the notes on May 15 and November 15 of each year, commencing on November 15, 2012. The notes, which mature on May 15, 2018, are initially convertible into shares of the Company’s common stock at a conversion rate of 31.2 shares per $1,000 of their principal amount. This corresponds to an initial conversion price of approximately $32.03 per share and represents a conversion premium of approximately 42.5 percent based on the closing price of the Company’s common stock on May 10, 2012, which was $22.48 per share. The conversion rate is subject to adjustment upon the occurrence of certain events. The notes are fully and unconditionally guaranteed, jointly and severally, by substantially all of the Company’s 100 percent-owned homebuilding subsidiaries (the “Guarantor Subsidiaries”). The Company received net proceeds of $218.8 million from this offering prior to offering expenses. In July 2012, the Company redeemed and repurchased $167.2 million of its 6.9 percent senior notes due 2013 for $177.2 million in cash. It recognized a charge of $9.1 million resulting from the redemption, which will be included in “Loss related to
|
|
Notes to Consolidated Financial Statements (Unaudited) |
|
|
The Ryland Group, Inc. and Subsidiaries |
early retirement of debt, net” within the Consolidated Statements of Earnings. (See Note 19, “Subsequent Events.”) The remaining proceeds will be used for general corporate purposes.
To provide letters of credit required in the ordinary course of its business, the Company has various secured letter of credit agreements that require it to maintain restricted cash deposits for outstanding letters of credit. Outstanding letters of credit totaled $37.9 million and $66.0 million under these agreements at June 30, 2012 and December 31, 2011, respectively.
To finance its land purchases, the Company may also use seller-financed nonrecourse secured notes payable. At June 30, 2012 and December 31, 2011, outstanding seller-financed nonrecourse secured notes payable totaled $2.5 million and $3.8 million, respectively.
Senior notes and indenture agreements are subject to certain covenants that include, among other things, restrictions on additional secured debt and the sale of assets. The Company was in compliance with these covenants at June 30, 2012.
In 2011, RMC entered into a $50.0 million repurchase credit facility with JPMorgan Chase Bank, N.A. (“JPM”). This facility is used to fund, and is secured by, mortgages that were originated by RMC and are pending sale. This facility will expire in December 2012. In May 2012, the credit facility was increased to $60.0 million. Under the terms of this facility, RMC is required to maintain various financial and other covenants and to satisfy certain requirements relating to the mortgages securing the facility. At June 30, 2012, the Company was in compliance with these covenants. Outstanding borrowings against this credit facility totaled $50.3 million and $49.9 million at June 30, 2012 and December 31, 2011, respectively.
Note 11. Fair Values of Financial and Nonfinancial Instruments
Financial Instruments
The Company’s financial instruments 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 other valuation techniques. Estimated fair values are significantly affected by the assumptions used. As required by ASC No. 820 (“ASC 820”), “Fair Value Measurements and Disclosures,” fair value measurements of financial instruments are categorized as Level 1, Level 2 or Level 3, based on the types of inputs used in estimating fair values.
Level 1 fair values are those determined using quoted market prices in active markets for identical assets or liabilities with no valuation adjustments applied. Level 2 fair values are those determined using directly or indirectly observable inputs in the marketplace that are other than Level 1 inputs. Level 3 fair values are those determined using unobservable inputs, including the use of internal assumptions, estimates or models. Valuation of these items is, therefore, sensitive to the assumptions used. Fair values represent the Company’s best estimates as of the balance sheet date based on existing conditions and available information at the issuance date of these financial statements. Subsequent changes in conditions or available information may change assumptions and estimates.
|
|
Notes to Consolidated Financial Statements (Unaudited) |
|
|
The Ryland Group, Inc. and Subsidiaries |
The following table sets forth the values and methods used for measuring the fair values of financial instruments on a recurring basis:
|
|
|
FAIR VALUE | ||||||||
|
(in thousands) |
|
HIERARCHY |
|
|
||||||
|
Marketable securities, available-for-sale |
|
|
|
|
|
|
|
| ||
|
U.S. Treasury securities |
|
Level 1 |
|
$ |
7,175 |
|
|
$ |
1,555 |
|
|
Obligations of U.S. and local government agencies |
|
Levels 1 and 2 |
|
141,327 |
|
|
146,820 |
| ||
|
Corporate debt securities issued under |
|
|
|
|
|
|
|
| ||
|
U.S. government/agency-backed programs |
|
Level 2 |
|
1,503 |
|
|
1,456 |
| ||
|
Corporate debt securities |
|
Level 2 |
|
76,622 |
|
|
125,666 |
| ||
|
Asset-backed securities |
|
Level 2 |
|
37,512 |
|
|
45,744 |
| ||
|
Time deposits |
|
Level 2 |
|
45,471 |
|
|
25,500 |
| ||
|
Short-term pooled investments |
|
Levels 1 and 2 |
|
1,028 |
|
|
275 |
| ||
|
Mortgage loans held-for-sale |
|
Level 2 |
|
62,307 |
|
|
82,351 |
| ||
|
Mortgage interest rate lock commitments |
|
Level 3 |
|
5,424 |
|
|
3,359 |
| ||
|
Forward-delivery contracts |
|
Level 2 |
|
(1,049 |
) |
|
(1,235 |
) | ||
Marketable Securities, Available-for-sale
At June 30, 2012 and December 31, 2011, the Company had $310.6 million and $347.0 million, respectively, of marketable securities that were available-for-sale and comprised of U.S. Treasury securities; obligations of U.S. government and local government agencies; corporate debt backed by U.S. government/agency programs; corporate debt securities; asset-backed securities of U.S. government agencies and covered bonds; time deposits; and short-term pooled investments. (See Note 6, “Marketable Securities, Available-for-sale.”)
Other Financial Instruments
Mortgage loans held-for-sale and forward-delivery contracts are based on quoted market prices of similar instruments (Level 2). Interest rate lock commitments (“IRLCs”) are valued at their aggregate market price premium or deficit, plus a servicing premium, multiplied by the projected close ratio (Level 3). The market price premium or deficit is based on quoted market prices of similar instruments; the servicing premium is based on contractual investor guidelines for each product; and the projected close ratio is determined utilizing an external modeling system, widely used within the industry, to estimate customer behavior at an individual loan level. At June 30, 2012, contractual principal amounts of mortgage loans held-for-sale totaled $59.6 million, compared to $79.7 million at December 31, 2011. The fair values of mortgage loans held-for-sale and IRLCs were included in “Other” assets within the Consolidated Balance Sheets, and forward-delivery contracts were included in “Other” assets and “Accrued and other liabilities” within the Consolidated Balance Sheets. Gains realized on the conversion of IRLCs to loans totaled $5.9 million and $3.8 million for the three-month periods ended June 30, 2012 and 2011, respectively, and $9.8 million and $6.5 million for the six-month periods ended June 30, 2012 and 2011, respectively. Increases in the fair value of the locked loan pipeline totaled $1.5 million and $543,000 for the three-month periods ended June 30, 2012 and 2011, respectively, and $2.1 million and $1.8 million for the six-month periods ended June 30, 2012 and 2011, respectively. Offsetting these items, losses from forward-delivery contracts used to hedge IRLCs totaled $3.4 million and $2.0 million for the three-month periods ended June 30, 2012 and 2011, respectively, and $3.9 million and $2.2 million for the six-month periods ended June 30, 2012 and 2011, respectively. Net gains and losses related to forward-delivery contracts and IRLCs were included in “Financial services” revenues within the Consolidated Statements of Earnings.
At June 30, 2012 and December 31, 2011, the excess of the aggregate fair value over the aggregate unpaid principal balance for mortgage loans held-for-sale measured at fair value totaled $2.7 million and was included in “Financial services” revenues within the Consolidated Statements of Earnings. At June 30, 2012, the Company held two repurchased loans with payments 90 days or more past due that had an aggregate carrying value of
|
|
Notes to Consolidated Financial Statements (Unaudited) |
|
|
The Ryland Group, Inc. and Subsidiaries |
$538,000 and an aggregate unpaid principal balance of $619,000. At December 31, 2011, the Company held two repurchased loans with payments 90 days or more past due that had an aggregate carrying value of $542,000 and an aggregate unpaid principal balance of $623,000.
While recorded fair values represent management’s best estimate based on data currently available, future changes in interest rates or in market prices for mortgage loans, among other factors, could materially impact these fair values.
The following table represents a reconciliation of changes in the fair values of Level 3 items (IRLCs) included in “Financial services” revenues within the Consolidated Statements of Earnings:
|
(in thousands) |
|
2012 |
|
2011 |
| ||
|
Fair value at January 1 |
|
$ |
3,359 |
|
$ |
1,496 |
|
|
Additions |
|
12,092 |
|
8,448 |
| ||
|
Gain realized on conversion to loans |
|
(9,812 |
) |
(6,453 |
) | ||
|
Change in valuation of items held |
|
(215 |
) |
(224 |
) | ||
|
Fair value at June 30 |
|
$ |
5,424 |
|
$ |
3,267 |
|
Nonfinancial Instruments
In accordance with ASC 820, the Company measures certain nonfinancial homebuilding assets at their fair values on a nonrecurring basis. (See Note 7, “Housing Inventories.”)
The following table summarizes the fair values of the Company’s nonfinancial assets that represent the fair values for communities and other homebuilding assets for which it recognized noncash impairment charges during the reporting periods:
|
|
|
FAIR VALUE | ||||||||
|
(in thousands) |
|
HIERARCHY |
|
|
||||||
|
Housing inventory and inventory held-for-sale 1 |
|
Level 3 |
|
$ |
2,074 |
|
|
$ |
9,121 |
|
|
Other assets held-for-sale and investments in joint ventures 2 |
|
Level 3 |
|
1,300 |
|
|
2,366 |
| ||
|
Total |
|
|
|
$ |
3,374 |
|
|
$ |
11,487 |
|
|
1 |
In accordance with ASC No. 330, (“ASC 330”), “Inventory,” the fair values of housing inventory and inventory held-for-sale that were impaired during 2012 totaled $2.1 million at June 30, 2012. The impairment charges related to these assets totaled $1.9 million for the six months ended June 30, 2012. At December 31, 2011, the fair values of housing inventory and inventory held-for-sale that were impaired during 2011 totaled $9.1 million. The impairment charges related to these assets totaled $9.5 million for the year ended December 31, 2011. |
|
|
|
|
2 |
In accordance with ASC 330, the fair values of other assets held-for-sale that were impaired during 2011 totaled $973,000 at December 31, 2011. The impairment charges related to these assets totaled $35,000 for the year ended December 31, 2011. In accordance with ASC 330, the fair values of investments in joint ventures that were impaired during 2012 totaled $1.3 million at June 30, 2012. The impairment charges related to these assets totaled $20,000 for the six months ended June 30, 2012. At December 31, 2011, the fair values of investments in joint ventures that were impaired during 2011 totaled $1.4 million. The impairment charges related to these assets totaled $2.0 million for the year ended December 31, 2011. |
Note 12. Postretirement Benefits
The Company has a supplemental nonqualified retirement plan, which generally vests over five-year periods beginning in 2003, pursuant to which it will pay supplemental pension benefits to key employees upon retirement. In connection with this plan, the Company has purchased cost-recovery life insurance on the lives of certain employees. Insurance contracts associated with the plan are held by trusts established as part of the plan to implement and carry out its provisions and finance its related benefits. The trusts are owners and beneficiaries of such contracts. The amount of coverage is designed to provide sufficient revenue to cover all costs of the plan if assumptions made as to employment term, mortality experience, policy earnings and other factors are realized.
|
|
Notes to Consolidated Financial Statements (Unaudited) |
|
|
The Ryland Group, Inc. and Subsidiaries |
At June 30, 2012, the cash surrender value of these contracts was $11.7 million, compared to $11.1 million at December 31, 2011, and was included in “Other” assets within the Consolidated Balance Sheets. The net periodic benefit cost of this plan for the three months ended June 30, 2012, totaled $860,000, which included service costs of $30,000, interest costs of $402,000 and an investment loss of $428,000. The net periodic benefit cost for the three months ended June 30, 2011, totaled $223,000, which included service costs of $28,000, interest costs of $183,000 and an investment loss of $12,000. The net periodic benefit cost of this plan for the six months ended June 30, 2012, totaled $154,000, which included service costs of $60,000 and interest costs of $602,000, offset by an investment gain of $508,000. The net periodic benefit cost for the six months ended June 30, 2011, totaled $367,000, which included service costs of $290,000 and interest costs of $366,000, offset by an investment gain of $289,000. The $12.0 million and $11.3 million projected benefit obligations at June 30, 2012 and December 31, 2011, respectively, were equal to the net liabilities recognized in the Consolidated Balance Sheets at those dates. The weighted-average discount rates used for the plan were 6.6 percent and 7.0 percent for the six-month periods ended June 30, 2012 and 2011, respectively.
Note 13. Income Taxes
Deferred tax assets are recognized for estimated tax effects that are attributable to deductible temporary differences and tax carryforwards related to tax credits and operating losses. They are realized when existing temporary differences are carried back to a profitable year(s) and/or carried forward to a future year(s) having taxable income. Deferred tax assets are reduced by a valuation allowance if an assessment of their components indicates that it is more likely than not that all or some portion of the deferred tax asset will not be realized. This assessment considers, among other things, cumulative losses; forecasts of future profitability; the duration of statutory carryforward periods; the Company’s experience with loss carryforwards not expiring unused; and tax planning alternatives. In light of the unavailability of net operating loss carrybacks and the uncertainty as to the housing downturn’s duration, which limits the Company’s ability to predict future taxable income, the Company determined that an allowance against its deferred tax assets was required. Therefore, in accordance with ASC No. 740 (“ASC 740”), “Income Taxes,” the Company maintains a full valuation allowance against its net deferred tax assets. The balance of the deferred tax valuation allowance totaled $268.1 million and $270.5 million at June 30, 2012 and December 31, 2011, respectively. To the extent that the Company generates sufficient taxable income in the future to utilize the tax benefits of related deferred tax assets, it will experience a reduction in its effective tax rate in the periods in which the valuation allowance is reversed. For federal purposes, net operating losses can be carried forward 20 years; for state purposes, they can generally be carried forward 10 to 20 years, depending on the taxing jurisdiction. The federal net operating loss carryforwards, if not utilized, will begin to expire in 2030. Tax credit carryforwards can be carried forward five years, with expiration dates beginning in 2013.
During the second quarter of 2012, the Company’s deferred tax valuation allowance balance decreased by $4.4 million. This decrease was primarily due to a reversal resulting from net income generated during the period, as well as to the expiration of certain deferred tax assets.
For the three months ended June 30, 2012 and 2011, the Company’s overall effective income tax expense rates were 2.9 percent and 0.0 percent, respectively, primarily due to noncash adjustments for the Company’s deferred tax valuation allowance, which offsets any tax expense or benefits generated during the quarters. For the six months ended June 30, 2012, the Company’s overall effective income tax expense rate was 14.0 percent, compared to an overall effective income tax benefit rate of 7.3 percent for the same period in 2011, primarily due to noncash adjustments to the Company’s deferred tax valuation allowance. During the second quarter of 2012, the Company recorded a minimal amount of state income tax that totaled $190,000.
|
|
Notes to Consolidated Financial Statements (Unaudited) |
|
|
The Ryland Group, Inc. and Subsidiaries |
Note 14. Stock-Based Compensation
The Ryland Group, Inc. 2011 Equity and Incentive Plan (the “Plan”) permits the granting of stock options, restricted stock awards, stock units, cash incentive awards or any combination of the foregoing to employees. At June 30, 2012 and December 31, 2011, stock options or other awards or units available for grant under the Plan or its predecessor plans totaled 2,992,748 and 3,346,508, respectively.
The Ryland Group, Inc. 2011 Non-Employee Director Stock Plan (the “Director Plan”) provides for a stock award of 3,000 shares to each non-employee director on May 1 of each year. New non-employee directors will receive a pro rata stock award 30 days after their date of appointment or election based on the remaining portion of the plan year in which they are appointed or elected. Stock awards are fully vested and nonforfeitable on their applicable award dates. There were 158,000 and 176,000 stock awards available for future grant in accordance with the Director Plan at June 30, 2012 and December 31, 2011, respectively. Previously, The Ryland Group, Inc. 2004 Non-Employee Director Equity Plan and its predecessor plans provided for automatic grants of nonstatutory stock options to directors. These stock options are fully vested and have a maximum term of ten years.
All outstanding stock options, stock awards and restricted stock awards have been granted in accordance with the terms of the applicable Plan, Director Plan and their respective predecessor plans, all of which were approved by the Company’s stockholders. Certain option and share awards provide for accelerated vesting if there is a change in control (as defined in the plans).
The Company recorded stock-based compensation expense of $3.8 million and $2.8 million for the three months ended June 30, 2012 and 2011, respectively. Stock-based compensation expense totaled $7.2 million and $5.0 million for the six months ended June 30, 2012 and 2011, respectively. Stock-based compensation expenses have been allocated to the Company’s business units and included in “Corporate,” “Financial services” and “Selling, general and administrative” expenses within the Consolidated Statements of Earnings.
|
|
Notes to Consolidated Financial Statements (Unaudited) |
|
|
The Ryland Group, Inc. and Subsidiaries |
A summary of stock option activity in accordance with the Company’s equity incentive plans as of June 30, 2012 and 2011, and changes for the six-month periods then ended, follows:
|
|
|
|
|
|
|
WEIGHTED- |
|
| ||
|
|
|
|
|
WEIGHTED- |
|
AVERAGE |
|
AGGREGATE | ||
|
|
|
|
|
AVERAGE |
|
REMAINING |
|
INTRINSIC | ||
|
|
|
|
|
EXERCISE |
|
CONTRACTUAL |
|
VALUE | ||
|
|
|
SHARES |
|
PRICE |
|
LIFE (in years) |
|
(in thousands) | ||
|
Options outstanding at January 1, 2011 |
|
3,722,656 |
|
$ |
33.29 |
|
2.8 |
|
| |
|
Granted |
|
781,000 |
|
16.52 |
|
|
|
| ||
|
Exercised |
|
(44,398) |
|
11.97 |
|
|
|
| ||
|
Forfeited |
|
(322,424) |
|
55.57 |
|
|
|
| ||
|
Options outstanding at June 30, 2011 |
|
4,136,834 |
|
$ |
28.61 |
|
2.9 |
|
$ |
885 |
|
Available for future grant |
|
3,233,548 |
|
|
|
|
|
| ||
|
Total shares reserved at June 30, 2011 |
|
7,370,382 |
|
|
|
|
|
| ||
|
Options exercisable at June 30, 2011 |
|
2,685,545 |
|
$ |
33.83 |
|
2.2 |
|
$ |
577 |
|
Options outstanding at January 1, 2012 |
|
3,948,874 |
|
$ |
28.91 |
|
2.4 |
|
| |
|
Granted |
|
736,000 |
|
18.22 |
|
|
|
| ||
|
Exercised |
|
(53,736) |
|
15.33 |
|
|
|
| ||
|
Forfeited |
|
(600,958) |
|
35.19 |
|
|
|
| ||
|
Options outstanding at June 30, 2012 |
|
4,030,180 |
|
$ |
26.20 |
|
3.0 |
|
$ |
19,230 |
|
Available for future grant |
|
2,992,748 |
|
|
|
|
|
| ||
|
Total shares reserved at June 30, 2012 |
|
7,022,928 |
|
|
|
|
|
| ||
|
Options exercisable at June 30, 2012 |
|
2,590,876 |
|
$ |
30.54 |
|
1.9 |
|
$ |
8,883 |
Stock-based compensation expense related to employee stock options totaled $1.2 million and $1.1 million for the three-month periods ended June 30, 2012 and 2011, respectively. Stock-based compensation expense related to employee stock options totaled $2.3 million and $2.1 million for the six-month periods ended June 30, 2012 and 2011, respectively.
During the three-month periods ended June 30, 2012 and 2011, the total intrinsic values of stock options exercised were $8,000 and $29,000, respectively. During the six-month periods ended June 30, 2012 and 2011, the total intrinsic values of stock options exercised were $340,000 and $284,000, respectively. The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option.
Compensation expense associated with restricted stock unit awards to senior executives totaled $2.5 million and $1.6 million for the three-month periods ended June 30, 2012 and 2011, respectively. For the six-month periods ended June 30, 2012 and 2011, compensation expense associated with restricted stock unit awards to senior executives totaled $4.8 million and $2.7 million, respectively.
The following table summarizes activity that relates to the Company’s restricted stock unit awards:
|
|
|
2012 |
|
2011 |
|
|
Restricted stock units at January 1 |
|
657,825 |
|
727,317 |
|
|
Shares awarded |
|
400,568 |
|
305,000 |
|
|
Shares vested |
|
(350,349 |
) |
(304,492 |
) |
|
Shares forfeited |
|
(6,667 |
) |
(60,000 |
) |
|
Restricted stock units at June 30 |
|
701,377 |
|
667,825 |
|
|
|
Notes to Consolidated Financial Statements (Unaudited) |
|
|
The Ryland Group, Inc. and Subsidiaries |
At June 30, 2012, the outstanding restricted stock units are expected to vest as follows: 2013–344,189; 2014–235,188; and 2015–122,000.
The Company has granted stock awards to its non-employee directors pursuant to the terms of the Director Plan. The Company recorded stock-based compensation expense related to Director Plan stock awards in the amounts of $108,000 and $102,000 for the three-month periods ended June 30, 2012 and 2011, respectively. For the six-month periods ended June 30, 2012 and 2011, stock-based compensation expense related to Director Plan stock awards totaled $189,000 and $210,000, respectively.
Note 15. Commitments and Contingencies
Commitments
In the ordinary course of business, the Company acquires rights under option agreements to purchase land or lots for use in future homebuilding operations. At June 30, 2012 and December 31, 2011, it had cash deposits and letters of credit outstanding that totaled $54.4 million and $51.9 million, respectively, pertaining to land and lot option purchase contracts with aggregate purchase prices of $532.3 million and $407.6 million, respectively. At June 30, 2012 and December 31, 2011, the Company had $765,000 and $1.0 million, respectively, in commitments with respect to option contracts having specific performance provisions.
IRLCs represent loan commitments with customers at market rates generally up to 180 days before settlement. The Company had outstanding IRLCs with notional amounts that totaled $156.8 million and $114.6 million at June 30, 2012 and December 31, 2011, respectively. Hedging instruments, including forward-delivery contracts, are utilized to hedge the risks associated with interest rate fluctuations on IRLCs.
Contingencies
As an on-site housing producer, the Company is often required by some municipalities to obtain development or performance bonds and letters of credit in support of its contractual obligations. At June 30, 2012, development bonds totaled $98.0 million, while performance-related cash deposits and letters of credit totaled $49.1 million. At December 31, 2011, development bonds totaled $93.9 million, while performance-related cash deposits and letters of credit totaled $37.2 million. In the event that any such bonds or letters of credit are called, the Company would be required to reimburse the issuer; however, it does not believe that any currently outstanding bonds or letters of credit will be called.
Substantially all of the loans the Company originates are sold within a short period of time in the secondary mortgage market on a servicing-released basis. After the loans are sold, ownership, credit risk and management, including servicing of the loans, passes to the third-party purchaser. RMC retains no role or interest other than standard industry representations and warranties. The Company retains potential liability for possible claims by loan purchasers that it breached certain limited standard industry representations and warranties in its sale agreements. There has been an increased industrywide effort by loan purchasers to defray losses from mortgages purchased in an unfavorable economic environment by claiming to have found inaccuracies related to sellers’ representations and warranties in particular sale agreements. There is industry debate regarding the extent to which such claims are justified. The significant majority of these claims relate to loans originated in 2005, 2006 and 2007, when underwriting standards were less stringent.
|
|
Notes to Consolidated Financial Statements (Unaudited) |
|
|
The Ryland Group, Inc. and Subsidiaries |
The following table summarizes the composition of the Company’s mortgage loan types originated, its homebuyers’ average credit scores and its loan-to-value ratios:
|
|
|
SIX MONTHS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ENDED JUNE 30, |
|
|
|
TWELVE MONTHS ENDED DECEMBER 31, |
| ||||||
|
|
|
|
2011 |
|
2010 |
|
2009 |
|
2008 |
|
2007 |
| |
|
Prime |
|
45.2 |
% |
42.2 |
% |
34.9 |
% |
32.9 |
% |
51.8 |
% |
72.0 |
% |
|
Government (FHA/VA) |
|
54.8 |
|
57.8 |
|
65.1 |
|
67.1 |
|
48.2 |
|
20.1 |
|
|
Alt A |
|
- |
|
- |
|
- |
|
- |
|
- |
|
7.5 |
|
|
Subprime |
|
- |
|
- |
|
- |
|
- |
|
- |
|
0.4 |
|
|
Total |
|
100.0 |
% |
100.0 |
% |
100.0 |
% |
100.0 |
% |
100.0 |
% |
100.0 |
% |
|
Average FICO credit score |
|
729 |
|
726 |
|
723 |
|
717 |
|
711 |
|
713 |
|
|
Average combined loan-to-value ratio |
|
90.5 |
% |
90.3 |
% |
90.8 |
% |
91.4 |
% |
90.1 |
% |
89.1 |
% |
While the Company’s access to delinquency information is limited subsequent to loan sale, based on a review of information provided voluntarily by certain investors and on government loan reports made available by the U.S. Department of Housing and Urban Development, the Company believes that the average delinquency rates of RMC’s loans are generally in line with industry averages. Delinquency rates for loans originated in 2008 and subsequent years are significantly lower than those originated in 2005 through 2007. The Company primarily attributes this decrease in delinquency rates to the industrywide tightening of credit standards and the elimination of most nontraditional loan products.
The Company’s mortgage operations have established reserves for possible losses associated with mortgage loans previously originated and sold to investors based upon, among other things, actual past repurchases and losses through the disposition of affected loans; an analysis of repurchase requests received and the validity of those requests; and an estimate of potential liability for valid claims not yet received. Although the amount of an ultimate loss cannot be definitively estimated, the Company has accrued $9.9 million for these types of claims as of June 30, 2012, but it may have additional exposure. (See “Part I, Item 3, Legal Proceedings.”)
The following table represents the changes in the Company’s mortgage loan loss and related legal reserves during the six-month periods presented:
|
(in thousands) |
|
2012 |
|
2011 |
| ||
|
Balance at January 1 |
|
$ |
10,141 |
|
$ |
8,934 |
|
|
Provision for losses |
|
71 |
|
(18 |
) | ||
|
Settlements made |
|
(345 |
) |
(140 |
) | ||
|
Balance at June 30 |
|
$ |
9,867 |
|
$ |
8,776 |
|
Subsequent changes in conditions or available information may change assumptions and estimates. Mortgage loan loss reserves and related legal reserves were included in “Accrued and other liabilities” within the Consolidated Balance Sheets, and their associated expenses were included in “Financial services” expense within the Consolidated Statements of Earnings.
The Company provides product warranties covering workmanship and materials for one year, certain mechanical systems for two years and structural systems for ten years. It estimates and records warranty liabilities based upon historical experience and known risks at the time a home closes as a component of cost of sales, as well as upon identification and quantification of the obligations in cases of unexpected claims. Actual future warranty costs could differ from current estimates.
|
|
Notes to Consolidated Financial Statements (Unaudited) |
|
|
The Ryland Group, Inc. and Subsidiaries |
The following table summarizes the changes in the Company’s product liability reserves during the six-month periods presented:
|
(in thousands) |
|
2012 |
|
2011 |
| ||
|
Balance at January 1 |
|
$ |
20,648 |
|
$ |
20,112 |
|
|
Warranties issued |
|
1,283 |
|
1,275 |
| ||
|
Changes in liability for accruals related to pre-existing warranties |
|
1,351 |
|
706 |
| ||
|
Settlements made |
|
(4,184 |
) |
(2,784 |
) | ||
|
Balance at June 30 |
|
$ |
19,098 |
|
$ |
19,309 |
|
The Company requires substantially all of its subcontractors to have workers’ compensation insurance and general liability insurance, including construction defect coverage. RHIC provided insurance services to the homebuilding segments’ subcontractors in certain markets until June 1, 2008. RHIC insurance reserves may have the effect of lowering the Company’s product liability reserves, as collectibility of claims against subcontractors enrolled in the RHIC program is generally higher. At June 30, 2012 and December 31, 2011, RHIC had $17.2 million and $18.2 million, respectively, in subcontractor product liability reserves, which were included in “Accrued and other liabilities” within the Consolidated Balance Sheets. Reserves for loss and loss adjustment expense are based upon industry trends and the Company’s annual actuarial projections of historical loss development.
The following table displays the changes in RHIC’s insurance reserves during the six-month periods presented:
|
(in thousands) |
|
2012 |
|
2011 |
| ||
|
Balance at January 1 |
|
$ |
18,209 |
|
$ |
21,141 |
|
|
Insurance expense provisions or adjustments |
|
- |
|
- |
| ||
|
Loss expenses paid |
|
(1,043 |
) |
(967 |
) | ||
|
Balance at June 30 |
|
$ |
17,166 |
|
$ |
20,174 |
|
Expense provisions or adjustments to RHIC’s insurance reserves were included in “Financial services” expense within the Consolidated Statements of Earnings.
The Company is party to various legal proceedings generally incidental to its business. Litigation reserves have been established based on discussions with counsel and the Company’s analysis of historical claims. The Company has, and requires its subcontractors to have, general liability insurance to protect it against a portion of its risk of loss and to cover it against construction-related claims. The Company establishes reserves to cover its self-insured retentions and deductible amounts under those policies. Due to the high degree of judgment required in determining these estimated reserve amounts and to the inherent variability in predicting future settlements and judicial decisions, actual future litigation costs could differ from the Company’s current estimates. The Company believes that adequate provisions have been made for the resolution of all known claims and pending litigation for probable losses. At June 30, 2012 and December 31, 2011, the Company had legal reserves of $17.2 million and $16.5 million, respectively. (See “Part II, Item 1, Legal Proceedings.”)
Note 16. New Accounting Pronouncements
ASU 2011-11
In December 2011, the FASB issued Accounting Standards Update (“ASU”) No. 2011-11 (“ASU 2011-11”), “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities.” The amendments in ASU 2011-11 will enhance disclosures required by U.S. generally accepted accounting principles (“GAAP”) by requiring improved information about financial and derivative instruments that are either (a) offset in accordance with
|
|
Notes to Consolidated Financial Statements (Unaudited) |
|
|
The Ryland Group, Inc. and Subsidiaries |
Section 210-20-45 or Section 815-10-45 or (b) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with Section 210-20-45 or Section 815-10-45. This information will enable users of an entity’s financial statements to evaluate the effect or potential effect of netting arrangements on an entity’s financial position, including the effect or potential effect of rights of setoff associated with certain financial instruments and derivative instruments in the scope of this update. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and for interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. The Company does not anticipate that the adoption of this guidance will have a material impact on its consolidated financial statements.
Note 17. Supplemental Guarantor Information
The Company’s obligations to pay principal, premium, if any, and interest under its 6.9 percent senior notes due June 2013; 5.4 percent senior notes due January 2015; 8.4 percent senior notes due May 2017; 1.6 percent convertible senior notes due May 2018; and 6.6 percent senior notes due May 2020 are guaranteed on a joint and several basis by substantially all of its 100 percent-owned homebuilding subsidiaries (the “Guarantor Subsidiaries”). Such guarantees are full and unconditional.
In lieu of providing separate financial statements for the Guarantor Subsidiaries, the accompanying condensed consolidating financial statements have been included. Management does not believe that separate financial statements for the Guarantor Subsidiaries are material to investors and are, therefore, not presented.
The following information presents the consolidating statements of earnings, financial position and cash flows for (a) the parent company and issuer, The Ryland Group, Inc. (“TRG, Inc.”); (b) the Guarantor Subsidiaries; (c) the non-Guarantor Subsidiaries; and (d) the consolidation eliminations used to arrive at the consolidated information for The Ryland Group, Inc. and subsidiaries.
|
|
Notes to Consolidated Financial Statements (Unaudited) |
|
|
The Ryland Group, Inc. and Subsidiaries |
CONSOLIDATING STATEMENTS OF EARNINGS
|
|
|
THREE MONTHS ENDED JUNE 30, 2012 | ||||||||||||||
|
|
|
|
|
|
|
NON- |
|
|
|
|
| |||||
|
|
|
|
|
GUARANTOR |
|
GUARANTOR |
|
CONSOLIDATING |
|
CONSOLIDATED |
| |||||
|
(in thousands) |
|
TRG, INC. |
|
|
|
ELIMINATIONS |
|
TOTAL |
| |||||||
|
REVENUES |
|
$ |
156,304 |
|
$ |
128,289 |
|
$ |
9,176 |
|
$ |
- |
|
$ |
293,769 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
EXPENSES |
|
153,859 |
|
127,958 |
|
6,232 |
|
- |
|
288,049 |
| |||||
|
OTHER INCOME |
|
519 |
|
- |
|
- |
|
- |
|
519 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Income from continuing |
|
2,964 |
|
331 |
|
2,944 |
|
- |
|
6,239 |
| |||||
|
Tax expense (benefit) |
|
88 |
|
(110 |
) |
212 |
|
- |
|
190 |
| |||||
|
Equity in net earnings of subsidiaries |
|
3,173 |
|
- |
|
- |
|
(3,173 |
) |
- |
| |||||
|
Net income from continuing |
|
6,049 |
|
441 |
|
2,732 |
|
(3,173 |
) |
6,049 |
| |||||
|
Income from discontinued operations, |
|
223 |
|
135 |
|
- |
|
(135 |
) |
223 |
| |||||
|
NET INCOME |
|
$ |
6,272 |
|
$ |
576 |
|
$ |
2,732 |
|
$ |
(3,308 |
) |
$ |
6,272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
(in thousands) |
|
SIX MONTHS ENDED JUNE 30, 2012 | ||||||||||||||
|
REVENUES |
|
$ |
267,211 |
|
$ |
226,917 |
|
$ |
15,510 |
|
$ |
- |
|
$ |
509,638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
EXPENSES |
|
266,692 |
|
228,772 |
|
11,921 |
|
- |
|
507,385 |
| |||||
|
OTHER INCOME |
|
965 |
|
- |
|
- |
|
- |
|
965 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Income (loss) from continuing |
|
1,484 |
|
(1,855 |
) |
3,589 |
|
- |
|
3,218 |
| |||||
|
Tax expense (benefit) |
|
88 |
|
(110 |
) |
212 |
|
- |
|
190 |
| |||||
|
Equity in net earnings of subsidiaries |
|
1,632 |
|
- |
|
- |
|
(1,632 |
) |
- |
| |||||
|
Net income (loss) from continuing |
|
3,028 |
|
(1,745 |
) |
3,377 |
|
(1,632 |
) |
3,028 |
| |||||
|
Loss from discontinued operations, |
|
(1,864 |
) |
(841 |
) |
- |
|
841 |
|
(1,864 |
) | |||||
|
NET INCOME (LOSS) |
|
$ |
1,164 |
|
$ |
(2,586 |
) |
$ |
3,377 |
|
$ |
(791 |
) |
$ |
1,164 |
|
|
|
Notes to Consolidated Financial Statements (Unaudited) |
|
|
The Ryland Group, Inc. and Subsidiaries |
CONSOLIDATING STATEMENTS OF EARNINGS
|
|
|
THREE MONTHS ENDED JUNE 30, 2011 | ||||||||||||||
|
|
|
|
|
|
|
NON- |
|
|
|
|
| |||||
|
|
|
|
|
GUARANTOR |
|
GUARANTOR |
|
CONSOLIDATING |
|
CONSOLIDATED |
| |||||
|
(in thousands) |
|
TRG, INC. |
|
|
|
ELIMINATIONS |
|
TOTAL |
| |||||||
|
REVENUES |
|
$ |
104,935 |
|
$ |
99,990 |
|
$ |
6,923 |
|
$ |
- |
|
$ |
211,848 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
EXPENSES |
|
117,288 |
|
99,947 |
|
4,859 |
|
- |
|
222,094 |
| |||||
|
OTHER INCOME |
|
445 |
|
- |
|
- |
|
- |
|
445 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
(Loss) income from continuing |
|
(11,908 |
) |
43 |
|
2,064 |
|
- |
|
(9,801 |
) | |||||
|
Tax (benefit) expense |
|
(343 |
) |
235 |
|
108 |
|
- |
|
- |
| |||||
|
Equity in net earnings of subsidiaries |
|
1,764 |
|
- |
|
- |
|
(1,764 |
) |
- |
| |||||
|
Net (loss) income from continuing |
|
(9,801 |
) |
(192 |
) |
1,956 |
|
(1,764 |
) |
(9,801 |
) | |||||
|
Loss from discontinued operations, |
|
(912 |
) |
(427 |
) |
- |
|
427 |
|
(912 |
) | |||||
|
NET (LOSS) INCOME |
|
$ |
(10,713 |
) |
$ |
(619 |
) |
$ |
1,956 |
|
$ |
(1,337 |
) |
$ |
(10,713 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
(in thousands) |
|
SIX MONTHS ENDED JUNE 30, 2011 | ||||||||||||||
|
REVENUES |
|
$ |
195,309 |
|
$ |
171,044 |
|
$ |
13,167 |
|
$ |
- |
|
$ |
379,520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
EXPENSES |
|
224,191 |
|
176,826 |
|
9,894 |
|
- |
|
410,911 |
| |||||
|
OTHER INCOME |
|
1,753 |
|
- |
|
- |
|
- |
|
1,753 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
(Loss) income from continuing |
|
(27,129 |
) |
(5,782 |
) |
3,273 |
|
- |
|
(29,638 |
) | |||||
|
Tax (benefit) expense |
|
(2,072 |
) |
(566 |
) |
240 |
|
- |
|
(2,398 |
) | |||||
|
Equity in net loss of subsidiaries |
|
(2,183 |
) |
- |
|
- |
|
2,183 |
|
- |
| |||||
|
Net (loss) income from continuing |
|
(27,240 |
) |
(5,216 |
) |
3,033 |
|
2,183 |
|
(27,240 |
) | |||||
|
Loss from discontinued operations, |
|
(3,009 |
) |
(1,926 |
) |
- |
|
1,926 |
|
(3,009 |
) | |||||
|
NET (LOSS) INCOME |
|
$ |
(30,249 |
) |
$ |
(7,142 |
) |
$ |
3,033 |
|
$ |
4,109 |
|
$ |
(30,249 |
) |
|
|
Notes to Consolidated Financial Statements (Unaudited) |
|
|
The Ryland Group, Inc. and Subsidiaries |
CONSOLIDATING BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
NON- |
|
|
|
|
| |||||
|
|
|
|
|
GUARANTOR |
|
GUARANTOR |
|
CONSOLIDATING |
|
CONSOLIDATED |
| |||||
|
(in thousands) |
|
TRG, INC. |
|
|
|
ELIMINATIONS |
|
TOTAL |
| |||||||
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Cash and cash equivalents |
|
$ |
19,900 |
|
$ |
314,806 |
|
$ |
20,506 |
|
$ |
- |
|
$ |
355,212 |
|
|
Marketable securities and restricted cash |
|
349,007 |
|
- |
|
28,691 |
|
- |
|
377,698 |
| |||||
|
Consolidated inventory owned |
|
535,381 |
|
303,960 |
|
- |
|
- |
|
839,341 |
| |||||
|
Consolidated inventory not owned |
|
17,042 |
|
- |
|
30,260 |
|
- |
|
47,302 |
| |||||
|
Total housing inventories |
|
552,423 |
|
303,960 |
|
30,260 |
|
- |
|
886,643 |
| |||||
|
Investment in subsidiaries/ |
|
647,199 |
|
- |
|
- |
|
(647,199 |
) |
- |
| |||||
|
Other assets |
|
66,001 |
|
32,824 |
|
74,919 |
|
- |
|
173,744 |
| |||||
|
Assets of discontinued operations |
|
3,942 |
|
10,682 |
|
- |
|
- |
|
14,624 |
| |||||
|
TOTAL ASSETS |
|
1,638,472 |
|
662,272 |
|
154,376 |
|
(647,199 |
) |
1,807,921 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Accounts payable and other |
|
134,589 |
|
55,772 |
|
31,896 |
|
- |
|
222,257 |
| |||||
|
Financial services credit facility |
|
- |
|
- |
|
50,271 |
|
- |
|
50,271 |
| |||||
|
Debt |
|
1,047,856 |
|
- |
|
- |
|
- |
|
1,047,856 |
| |||||
|
Intercompany payables |
|
- |
|
407,196 |
|
13,489 |
|
(420,685 |
) |
- |
| |||||
|
Liabilities of discontinued operations |
|
613 |
|
1,250 |
|
- |
|
- |
|
1,863 |
| |||||
|
TOTAL LIABILITIES |
|
1,183,058 |
|
464,218 |
|
95,656 |
|
(420,685 |
) |
1,322,247 |
| |||||
|
EQUITY |
|
|
|
|
|
|
|
|
|
|
| |||||
|
STOCKHOLDERS’ EQUITY |
|
455,414 |
|
198,054 |
|
28,460 |
|
(226,514 |
) |
455,414 |
| |||||
|
NONCONTROLLING INTEREST |
|
- |
|
- |
|
30,260 |
|
- |
|
30,260 |
| |||||
|
TOTAL LIABILITIES AND EQUITY |
|
$ |
1,638,472 |
|
$ |
662,272 |
|
$ |
154,376 |
|
$ |
(647,199 |
) |
$ |
1,807,921 |
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
(in thousands) |
|
|
|
|
|
|
|
|||||||||
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Cash and cash equivalents |
|
$ |
25,403 |
|
$ |
117,072 |
|
$ |
16,888 |
|
$ |
- |
|
$ |
159,363 |
|
|
Marketable securities and restricted cash |
|
370,975 |
|
- |
|
32,840 |
|
- |
|
403,815 |
| |||||
|
Consolidated inventory owned |
|
470,269 |
|
273,791 |
|
- |
|
- |
|
744,060 |
| |||||
|
Consolidated inventory not owned |
|
17,177 |
|
- |
|
34,223 |
|
- |
|
51,400 |
| |||||
|
Total housing inventories |
|
487,446 |
|
273,791 |
|
34,223 |
|
- |
|
795,460 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Investment in subsidiaries/ |
|
456,953 |
|
- |
|
- |
|
(456,953 |
) |
- |
| |||||
|
Other assets |
|
56,758 |
|
34,045 |
|
94,379 |
|
- |
|
185,182 |
| |||||
|
Assets of discontinued operations |
|
8,853 |
|
26,471 |
|
- |
|
- |
|
35,324 |
| |||||
|
TOTAL ASSETS |
|
1,406,388 |
|
451,379 |
|
178,330 |
|
(456,953 |
) |
1,579,144 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Accounts payable and other |
|
131,879 |
|
48,750 |
|
34,628 |
|
- |
|
215,257 |
| |||||
|
Financial services credit facility |
|
- |
|
- |
|
49,933 |
|
- |
|
49,933 |
| |||||
|
Debt |
|
822,639 |
|
1,188 |
|
- |
|
- |
|
823,827 |
| |||||
|
Intercompany payables |
|
- |
|
196,767 |
|
29,754 |
|
(226,521 |
) |
- |
| |||||
|
Liabilities of discontinued operations |
|
2,183 |
|
4,034 |
|
- |
|
- |
|
6,217 |
| |||||
|
TOTAL LIABILITIES |
|
956,701 |
|
250,739 |
|
114,315 |
|
(226,521 |
) |
1,095,234 |
| |||||
|
EQUITY |
|
|
|
|
|
|
|
|
|
|
| |||||
|
STOCKHOLDERS’ EQUITY |
|
449,687 |
|
200,640 |
|
29,792 |
|
(230,432 |
) |
449,687 |
| |||||
|
NONCONTROLLING INTEREST |
|
- |
|
- |
|
34,223 |
|
- |
|
34,223 |
| |||||
|
TOTAL LIABILITIES AND EQUITY |
|
$ |
1,406,388 |
|
$ |
451,379 |
|
$ |
178,330 |
|
$ |
(456,953 |
) |
$ |
1,579,144 |
|
|
|
Notes to Consolidated Financial Statements (Unaudited) |
|
|
The Ryland Group, Inc. and Subsidiaries |
CONSOLIDATING STATEMENT OF CASH FLOWS
|
|
|
|
|
|
|
SIX MONTHS ENDED JUNE 30, 2012 |
| |||||||||
|
|
|
|
|
GUARANTOR |
|
NON-GUARANTOR |
|
CONSOLIDATING |
|
CONSOLIDATED |
| |||||
|
(in thousands) |
|
TRG, INC. |
|
|
|
ELIMINATIONS |
|
TOTAL |
| |||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Net income (loss) from continuing operations |
|
$ |
3,028 |
|
$ |
(1,745 |
) |
$ |
3,377 |
|
$ |
(1,632 |
) |
$ |
3,028 |
|
|
Adjustments to reconcile net income (loss) from continuing operations to net cash (used for) provided by operating activities |
|
8,687 |
|
4,418 |
|
268 |
|
- |
|
13,373 |
| |||||
|
Changes in assets and liabilities |
|
(70,561 |
) |
(13,597 |
) |
11,786 |
|
1,632 |
|
(70,740 |
) | |||||
|
Other operating activities, net |
|
(784 |
) |
- |
|
- |
|
- |
|
(784 |
) | |||||
|
Net cash (used for) provided by operating activities from continuing operations |
|
(59,630 |
) |
(10,924 |
) |
15,431 |
|
- |
|
(55,123 |
) | |||||
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Return of investment in unconsolidated joint ventures, net |
|
539 |
|
1,332 |
|
- |
|
- |
|
1,871 |
| |||||
|
Additions to property, plant and equipment |
|
(3,503 |
) |
(1,915 |
) |
(16 |
) |
- |
|
(5,434 |
) | |||||
|
Purchases of marketable securities, available-for-sale |
|
(468,012 |
) |
- |
|
(1,678 |
) |
- |
|
(469,690 |
) | |||||
|
Proceeds from sales and maturities of marketable securities, available-for-sale |
|
506,783 |
|
- |
|
1,904 |
|
- |
|
508,687 |
| |||||
|
Other investing activities, net |
|
- |
|
- |
|
(10 |
) |
- |
|
(10 |
) | |||||
|
Net cash provided by (used for) investing activities from continuing operations |
|
35,807 |
|
(583 |
) |
200 |
|
- |
|
35,424 |
| |||||
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Increase (decrease) in debt |
|
224,909 |
|
(1,188 |
) |
- |
|
- |
|
223,721 |
| |||||
|
Increase in borrowings against revolving credit facilities, net |
|
- |
|
- |
|
338 |
|
- |
|
338 |
| |||||
|
Common stock dividends and stock-based compensation |
|
1,750 |
|
- |
|
- |
|
- |
|
1,750 |
| |||||
|
(Increase) decrease in restricted cash |
|
(14,175 |
) |
- |
|
3,914 |
|
- |
|
(10,261 |
) | |||||
|
Intercompany balances |
|
(194,164 |
) |
210,429 |
|
(16,265 |
) |
- |
|
- |
| |||||
|
Net cash provided by (used for) financing activities from continuing operations |
|
18,320 |
|
209,241 |
|
(12,013 |
) |
- |
|
215,548 |
| |||||
|
Net (decrease) increase in cash and cash equivalents from continuing operations |
|
(5,503 |
) |
197,734 |
|
3,618 |
|
- |
|
195,849 |
| |||||
|
Cash flows from operating activities—discontinued operations |
|
436 |
|
(73 |
) |
- |
|
- |
|
363 |
| |||||
|
Cash flows from investing activities—discontinued operations |
|
6 |
|
73 |
|
- |
|
- |
|
79 |
| |||||
|
Cash flows from financing activities—discontinued operations |
|
- |
|
- |
|
- |
|
- |
|
- |
| |||||
|
Cash and cash equivalents at beginning of year |
|
25,430 |
|
117,101 |
|
16,888 |
|
- |
|
159,419 |
| |||||
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
|
$ |
20,369 |
|
$ |
314,835 |
|
$ |
20,506 |
|
$ |
- |
|
$ |
355,710 |
|
|
|
Notes to Consolidated Financial Statements (Unaudited) |
|
|
The Ryland Group, Inc. and Subsidiaries |
CONSOLIDATING STATEMENT OF CASH FLOWS
|
|
|
SIX MONTHS ENDED JUNE 30, 2011 |
| |||||||||||||
|
|
|
|
|
GUARANTOR |
|
NON-GUARANTOR |
|
CONSOLIDATING |
|
CONSOLIDATED |
| |||||
|
(in thousands) |
|
TRG, INC. |
|
|
|
ELIMINATIONS |
|
TOTAL |
| |||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Net (loss) income from continuing operations |
|
$ |
(27,240 |
) |
$ |
(5,216 |
) |
$ |
3,033 |
|
$ |
2,183 |
|
$ |
(27,240 |
) |
|
Adjustments to reconcile net (loss) income from |
|
31,864 |
|
3,882 |
|
324 |
|
- |
|
36,070 |
| |||||
|
Changes in assets and liabilities |
|
(48,919 |
) |
(46,436 |
) |
(6,278 |
) |
(2,183 |
) |
(103,816 |
) | |||||
|
Other operating activities, net |
|
(158 |
) |
(213 |
) |
- |
|
- |
|
(371 |
) | |||||
|
Net cash used for operating activities from |
|
(44,453 |
) |
(47,983 |
) |
(2,921 |
) |
- |
|
(95,357 |
) | |||||
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
| |||||
|
(Contributions to) return of investment in unconsolidated |
|
(453 |
) |
1,515 |
|
- |
|
- |
|
1,062 |
| |||||
|
Additions to property, plant and equipment |
|
(3,483 |
) |
(2,057 |
) |
(55 |
) |
- |
|
(5,595 |
) | |||||
|
Purchases of marketable securities, available-for-sale |
|
(697,208 |
) |
- |
|
(2,927 |
) |
- |
|
(700,135 |
) | |||||
|
Proceeds from sales and maturities of marketable securities, available-for-sale |
|
778,063 |
|
- |
|
2,531 |
|
- |
|
780,594 |
| |||||
|
Other investing activities, net |
|
- |
|
- |
|
30 |
|
- |
|
30 |
| |||||
|
Net cash provided by (used for) investing activities from |
|
76,919 |
|
(542 |
) |
(421 |
) |
- |
|
75,956 |
| |||||
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Decrease in debt |
|
(28,160 |
) |
(283 |
) |
- |
|
- |
|
(28,443 |
) | |||||
|
Common stock dividends and stock-based compensation |
|
829 |
|
- |
|
- |
|
- |
|
829 |
| |||||
|
Decrease (increase) in restricted cash |
|
3,197 |
|
- |
|
(506 |
) |
- |
|
2,691 |
| |||||
|
Intercompany balances |
|
(35,068 |
) |
36,811 |
|
(1,743 |
) |
- |
|
- |
| |||||
|
Net cash (used for) provided by financing activities from |
|
(59,202 |
) |
36,528 |
|
(2,249 |
) |
- |
|
(24,923 |
) | |||||
|
Net decrease in cash and cash equivalents from |
|
(26,736 |
) |
(11,997 |
) |
(5,591 |
) |
- |
|
(44,324 |
) | |||||
|
Cash flows from operating activities—discontinued operations |
|
191 |
|
150 |
|
- |
|
- |
|
341 |
| |||||
|
Cash flows from investing activities—discontinued operations |
|
(166 |
) |
(150 |
) |
- |
|
- |
|
(316 |
) | |||||
|
Cash flows from financing activities—discontinued operations |
|
- |
|
- |
|
- |
|
- |
|
- |
| |||||
|
Cash and cash equivalents at beginning of year |
|
26,711 |
|
177,191 |
|
22,745 |
|
- |
|
226,647 |
| |||||
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
|
$ |
- |
|
$ |
165,194 |
|
$ |
17,154 |
|
$ |
- |
|
$ |
182,348 |
|
|
| ||||||||||||||||
|
CONSOLIDATING STATEMENTS OF OTHER COMPREHENSIVE INCOME | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
THREE MONTHS ENDED JUNE 30, 2012 |
| |||||||||||||
|
|
|
|
|
GUARANTOR |
|
NON-GUARANTOR |
|
CONSOLIDATING |
|
CONSOLIDATED |
| |||||
|
(in thousands) |
|
TRG, INC. |
|
|
|
ELIMINATIONS |
|
TOTAL |
| |||||||
|
COMPREHENSIVE INCOME |
|
$ |
6,145 |
|
$ |
576 |
|
$ |
2,732 |
|
$ |
(3,308 |
) |
$ |
6,145 |
|
|
|
|
|
| |||||||||||||
|
|
|
THREE MONTHS ENDED JUNE 30, 2011 |
| |||||||||||||
|
COMPREHENSIVE (LOSS) INCOME |
|
$ |
(10,813 |
) |
$ |
(619 |
) |
$ |
1,956 |
|
$ |
(1,337 |
) |
$ |
(10,813 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
SIX MONTHS ENDED JUNE 30, 2012 |
| |||||||||||||
|
COMPREHENSIVE INCOME (LOSS) |
|
$ |
1,711 |
|
$ |
(2,586 |
) |
$ |
3,377 |
|
$ |
(791 |
) |
$ |
1,711 |
|
|
|
|
|
| |||||||||||||
|
|
|
SIX MONTHS ENDED JUNE 30, 2011 |
| |||||||||||||
|
COMPREHENSIVE (LOSS) INCOME |
|
$ |
(30,632 |
) |
$ |
(7,142 |
) |
$ |
3,033 |
|
$ |
4,109 |
|
$ |
(30,632 |
) |
|
|
Notes to Consolidated Financial Statements (Unaudited) |
|
|
The Ryland Group, Inc. and Subsidiaries |
Note 18. Discontinued Operations
During 2011, the Company discontinued future homebuilding operations in its Jacksonville and Dallas divisions. The Company intends to complete all homes currently under contract and to sell its remaining available land in these divisions as part of a strategic plan designed to efficiently manage its invested capital. The results of operations and cash flows for Jacksonville and Dallas, which were historically reported in the Company’s Southeast and Texas segments, respectively, have been classified as discontinued operations. Additionally, the assets and liabilities related to these discontinued operations were presented separately in “Assets of discontinued operations” and “Liabilities of discontinued operations” within the Consolidated Balance Sheets. All prior periods have been reclassified to conform to the current period’s presentation.
BALANCE SHEETS
|
|
|
JUNE 30, |
|
DECEMBER 31, |
| ||
|
(in thousands) |
|
2012 |
|
2011 |
| ||
|
Assets |
|
|
|
|
| ||
|
Cash |
|
$ |
498 |
|
$ |
56 |
|
|
Housing inventories |
|
11,372 |
|
30,670 |
| ||
|
Other assets |
|
2,754 |
|
4,598 |
| ||
|
Total assets of discontinued operations |
|
14,624 |
|
35,324 |
| ||
|
Liabilities |
|
|
|
|
| ||
|
Accounts payable and accrued liabilities |
|
1,863 |
|
6,217 |
| ||
|
Total liabilities of discontinued operations |
|
$ |
1,863 |
|
$ |
6,217 |
|
The Company’s net income from discontinued operations totaled $223,000 for the three months ended June 30, 2012, compared to a net loss from discontinued operations that totaled $912,000 for the same period in 2011. For the six-month periods ended June 30, 2012 and 2011, net loss from discontinued operations totaled $1.9 million and $3.0 million, respectively.
Note 19. Subsequent Events
In July 2012, the Company redeemed and repurchased $167.2 million of its 6.9 percent senior notes due 2013 for $177.2 million in cash. It recognized a charge of $9.1 million resulting from the redemption, which will be included in “Loss related to early retirement of debt, net” within the Consolidated Statements of Earnings.
In July 2012, the Company completed its acquisition of Timberstone Homes’ operations and assets in the Charlotte and Raleigh markets. This acquisition provides the Company with approximately 945 additional lots and homes for future sales; 141 homes currently sold and under construction for delivery; and 19 professionally decorated model homes. Existing Timberstone customers will have their customer service and warranty obligations addressed by the Company under a contractual relationship between Ryland and Timberstone.
No other events have occurred, subsequent to June 30, 2012, that have required recognition or disclosure in the Company’s financial statements.
|
|
Management’s Discussion and Analysis of |
|
|
Financial Condition and Results of Operations |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following management’s discussion and analysis is intended to assist the reader in understanding the Company’s business and is provided as a supplement to, and should be read in conjunction with, the Company’s consolidated financial statements and accompanying notes. The Company’s results of operations discussed below are presented in conformity with U.S. GAAP.
Forward-Looking Statements
Note: Certain statements in this quarterly report may be regarded as “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, and may qualify for the safe harbor provided for in Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements represent the Company’s expectations and beliefs concerning future events, and no assurance can be given that the results described in this quarterly report will be achieved. These forward-looking statements can generally be identified by the use of statements that include words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “foresee,” “goal,” “intend,” “likely,” “may,” “plan,” “project,” “should,” “target,” “will” or other similar words or phrases. All forward-looking statements contained herein are based upon information available to the Company on the date of this quarterly report. Except as may be required under applicable law, the Company does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
These forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside of the Company’s control, that could cause actual results to differ materially from the results discussed in the forward-looking statements. The factors and assumptions upon which any forward-looking statements herein are based are subject to risks and uncertainties which include, among others:
· economic changes nationally or in the Company’s local markets, including volatility and increases in interest rates, the impact of, and changes in, governmental stimulus, tax and deficit reduction programs, inflation, changes in consumer demand and confidence levels and the state of the market for homes in general;
· changes and developments in the mortgage lending market, including revisions to underwriting standards for borrowers and lender requirements for originating and holding mortgages, changes in government support of and participation in such market, and delays or changes in terms and conditions for the sale of mortgages originated by the Company;
· the availability and cost of land and the future value of land held or under development;
· increased land development costs on projects under development;
· shortages of skilled labor or raw materials used in the production of homes;
· increased prices for labor, land and materials used in the production of homes;
· increased competition, including continued competition and price pressure from distressed home sales;
· failure to anticipate or react to changing consumer preferences in home design;
· increased costs and delays in land development or home construction resulting from adverse weather conditions or other factors;
· potential delays or increased costs in obtaining necessary permits as a result of changes to laws, regulations or governmental policies (including those that affect zoning, density, building standards, the environment and the residential mortgage industry);
· delays in obtaining approvals from applicable regulatory agencies and others in connection with the Company’s communities and land activities;
· changes in the Company’s effective tax rate and assumptions and valuations related to its tax accounts;
· the risk factors set forth in the Company’s most recent Annual Report on Form 10-K; and
· other factors over which the Company has little or no control.
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|
Management’s Discussion and Analysis of |
|
|
Financial Condition and Results of Operations |
Results of Operations
Overview
The Company consists of six operating business segments: four geographically-determined homebuilding regions; financial services; and corporate. All of the Company’s business is conducted and located in the United States. The Company’s operations span all significant aspects of the homebuying process—from design, construction and sale to mortgage origination, title insurance, escrow and insurance services. The homebuilding operations are, by far, the most substantial part of its business, comprising approximately 97 percent of consolidated revenues for the quarter ended June 30, 2012. The homebuilding segments generate nearly all of their revenues from sales of completed homes, with a lesser amount from sales of land and lots.
During the second quarter of 2012, attractive housing affordability levels, moderate changes in buyer perceptions and increased demand for distressed properties appeared to have led to a decline in national housing inventory and to stabilization in most of the Company’s markets. On average, sales rates and prices continued to increase; required sales incentives and cancellation rates continued to decline; average sales traffic through the Company’s communities continued to improve; and the Company has been able to begin raising prices in selected markets. It reported a 41.6 percent increase in sales volume, a 35.6 percent rise in closing volume and a 47.0 percent increase in backlog for the second quarter of 2012, compared to the same period in 2011. Although an uncertain macroeconomic environment and tight mortgage credit standards continued to negatively impact the homebuilding industry by keeping sales absorptions per community depressed, compared to traditional levels, these trends may be signs that demand for new housing is improving. The Company continues to believe that more meaningful advances in revenue growth and financial performance will primarily come from higher demand in the form of a return to more traditional absorption rates.
The Company believes its strategic goals of increasing profitability, strengthening its balance sheet and cautious expansion will position the Company to take advantage of any housing recovery. In addition to a 38.7 percent increase in revenues, housing gross profit margin rose both sequentially and as compared to the prior year; selling, general and administrative expense ratios continued to decline; and mortgage operations profitability increased. The Company was profitable for both the quarter and the year to date, and achieved its highest operating margins since 2006. The Company increased available capital and lowered carrying costs with the issuance of $225.0 million of 1.6 percent convertible senior notes due May 2018 to replace $167.2 million of 6.9 percent senior notes due June 2013. Strategic and more significant land acquisitions in Charlotte and Raleigh, which closed in July, in addition to ongoing land acquisition activities, should enhance the Company’s ability to establish significant market share and create a platform for future growth in those markets.
The Company’s net income from continuing operations totaled $6.0 million, or $0.14 per diluted share, for the three months ended June 30, 2012, compared to a net loss from continuing operations of $9.8 million, or $0.22 per diluted share, for the same period in 2011. This increase for the second quarter of 2012, compared to the same period in 2011, was primarily due to a rise in closing volume; higher housing gross profit margin, including lower inventory and other valuation adjustments; a decline in interest expense; and a reduced selling, general and administrative expense ratio. Pretax charges related to inventory and other valuation adjustments and write-offs totaled $385,000 and $5.8 million for the quarters ended June 30, 2012 and 2011, respectively. The Company continued its progress toward profitability by raising gross margins through ongoing investments in new, more profitable communities; completing less desirable communities; and lowering expense ratios.
The Company reported a rise in closing volume for the quarter ended June 30, 2012, compared to the same period in 2011, primarily due to increases in sales rates and active communities. The Company’s consolidated revenues increased 38.7 percent to $293.8 million for the three months ended June 30, 2012, from $211.8 million for the same
|
|
Management’s Discussion and Analysis of |
|
|
Financial Condition and Results of Operations |
period in 2011. This increase was primarily attributable to a 35.6 percent rise in closings and to a 2.4 percent increase in average closing price. The increase in average closing price was due to a slightly more stable price environment, as well as to a change in the product and geographic mix of homes delivered during the second quarter of 2012, versus the same period in 2011. Revenues for the homebuilding and financial services segments were $284.6 million and $9.2 million, respectively, for the second quarter of 2012, compared to $204.9 million and $6.9 million, respectively, for the same period in 2011.
New orders rose 41.6 percent to 1,398 units for the second quarter of 2012, from 987 units for the same period in 2011 primarily due to increases in sales rates and active communities. New order dollars increased 52.8 percent for the quarter ended June 30, 2012, compared to the same period in the prior year. The Company’s average monthly sales absorption rate was 2.2 homes per community for the second quarter of 2012, versus 1.6 homes per community for the second quarter of 2011. In order to prepare for a slow recovery and to attain volume levels commensurate with profitability, the Company has increased community counts since the third quarter of 2010. The number of active communities rose 3.5 percent to 209 active communities at June 30, 2012, from 202 active communities at June 30, 2011. Backlog increased 47.0 percent to 2,277 units at June 30, 2012, compared to 1,549 units at June 30, 2011.
The Company’s deferred tax valuation allowance of $268.1 million at June 30, 2012, which was largely the result of inventory impairments taken, reflects uncertainty with regard to the duration of current conditions in the housing market. Should the Company generate significant taxable income in future periods, it expects that it will reverse its valuation allowance.
The Company ended the quarter with $732.9 million in cash, cash equivalents and marketable securities. Investments in new communities increased consolidated inventory owned by $95.1 million, or 12.5 percent, at June 30, 2012, compared to December 31, 2011. The Company’s earliest senior debt maturity is in 2013. Its net debt-to-capital ratio, including marketable securities, was 40.9 percent at June 30, 2012, compared to 36.7 percent at December 31, 2011. Stockholders’ equity per share rose 0.8 percent to $10.20 at June 30, 2012, compared to $10.12 at December 31, 2011.
The net debt-to-capital ratio, including marketable securities, is a non-GAAP financial measure that is calculated as debt, net of cash, cash equivalents and marketable securities, divided by the sum of debt and total stockholders’ equity, net of cash, cash equivalents and marketable securities. The Company believes that the net debt-to-capital ratio, including marketable securities, is useful in understanding the leverage employed in its operations and in comparing it with other homebuilders.
Homebuilding Overview
The Company’s combined homebuilding operations reported pretax earnings from continuing operations of $9.9 million for the second quarter of 2012, compared to a pretax loss of $7.4 million for the same period in 2011.
|
|
Management’s Discussion and Analysis of |
|
|
Financial Condition and Results of Operations |
STATEMENTS OF EARNINGS
|
|
|
THREE MONTHS ENDED |
|
SIX MONTHS ENDED |
|
| ||||||||
|
|
|
|
|
JUNE 30, |
|
|
|
JUNE 30, |
|
| ||||
|
(in thousands, except units) |
|
2012 |
|
2011 |
|
2012 |
|
2011 |
|
| ||||
|
REVENUES |
|
|
|
|
|
|
|
|
|
| ||||
|
Housing |
|
$ |
283,646 |
|
$ |
203,737 |
|
$ |
492,469 |
|
$ |
364,974 |
|
|
|
Land and other |
|
947 |
|
1,188 |
|
1,659 |
|
1,379 |
|
| ||||
|
TOTAL REVENUES |
|
284,593 |
|
204,925 |
|
494,128 |
|
366,353 |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
EXPENSES |
|
|
|
|
|
|
|
|
|
| ||||
|
Cost of sales |
|
|
|
|
|
|
|
|
|
| ||||
|
Housing |
|
|
|
|
|
|
|
|
|
| ||||
|
Cost of sales |
|
230,492 |
|
169,358 |
|
400,879 |
|
302,765 |
|
| ||||
|
Valuation adjustments and write-offs |
|
21 |
|
3,864 |
|
1,911 |
|
7,136 |
|
| ||||
|
Total housing cost of sales |
|
230,513 |
|
173,222 |
|
402,790 |
|
309,901 |
|
| ||||
|
Land and other |
|
|
|
|
|
|
|
|
|
| ||||
|
Cost of sales |
|
617 |
|
1,348 |
|
1,030 |
|
1,523 |
|
| ||||
|
Valuation adjustments and write-offs |
|
- |
|
1,656 |
|
- |
|
7,266 |
|
| ||||
|
Total land and other cost of sales |
|
617 |
|
3,004 |
|
1,030 |
|
8,789 |
|
| ||||
|
Total cost of sales |
|
231,130 |
|
176,226 |
|
403,820 |
|
318,690 |
|
| ||||
|
Selling, general and administrative |
|
39,368 |
|
31,349 |
|
71,576 |
|
61,893 |
|
| ||||
|
Interest |
|
4,180 |
|
4,735 |
|
7,749 |
|
10,522 |
|
| ||||
|
TOTAL EXPENSES |
|
274,678 |
|
212,310 |
|
483,145 |
|
391,105 |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
PRETAX EARNINGS (LOSS) |
|
$ |
9,915 |
|
$ |
(7,385) |
|
$ |
10,983 |
|
$ |
(24,752) |
|
|
|
Closings (units) |
|
1,115 |
|
822 |
|
1,930 |
|
1,472 |
|
| ||||
|
Housing gross profit margin |
|
18.7 |
% |
15.0 |
% |
18.2 |
% |
15.1 |
% |
| ||||
|
Selling, general and administrative ratio |
|
13.8 |
% |
15.3 |
% |
14.5 |
% |
16.9 |
% |
| ||||
The Company’s homes are built on-site and marketed in four major geographic regions, or segments: North, Southeast, Texas and West. Within each of those segments, the Company operated in the following metropolitan areas at June 30, 2012:
|
North |
|
Baltimore, Chicago, Indianapolis, Minneapolis, Northern Virginia and Washington, D.C. |
|
Southeast |
|
Atlanta, Charleston, Charlotte, Orlando and Tampa |
|
Texas |
|
Austin, Houston and San Antonio |
|
West |
|
Denver, Las Vegas and Southern California |
Consolidated inventory owned by the Company, which includes homes under construction; land under development and improved lots; inventory held-for-sale; and cash deposits related to consolidated inventory not owned, rose 12.5 percent to $856.4 million at June 30, 2012, from $761.2 million at December 31, 2011. Homes under construction increased 31.3 percent to $419.6 million at June 30, 2012, from $319.5 million at December 31, 2011, as a result of higher backlog. Land under development and improved lots decreased 0.4 percent to $412.0 million at June 30, 2012, compared to $413.6 million at December 31, 2011. Inventory held-for-sale declined 29.6 percent to $7.8 million at June 30, 2012, compared to $11.0 million at December 31, 2011. Investments in the Company’s unconsolidated joint ventures decreased to $8.9 million at June 30, 2012, from $10.0 million at December 31, 2011, primarily due to a net distribution from its joint ventures. The Company had 276 model homes with inventory values totaling $61.3 million at June 30, 2012, compared to 281 model homes with inventory values totaling $59.9 million at December 31, 2011. In addition, it had 581 started and unsold homes with inventory values totaling $91.5 million at June 30, 2012, compared to 555 started and unsold homes with inventory values totaling $99.2 million at December 31, 2011.
|
|
Management’s Discussion and Analysis of |
|
|
Financial Condition and Results of Operations |
The following table provides certain information with respect to the Company’s number of residential communities and lots controlled at June 30, 2012:
|
|
|
|
|
|
|
|
|
|
|
COMMUNITIES |
|
|
|
|
|
|
|
|
NEW AND |
|
|
|
HELD- |
|
|
|
TOTAL LOTS |
|
|
|
|
ACTIVE |
|
NOT YET OPEN |
|
INACTIVE |
|
FOR-SALE |
|
TOTAL |
|
CONTROLLED |
1 |
|
North |
|
68 |
|
28 |
|
9 |
|
1 |
|
106 |
|
9,281 |
|
|
Southeast |
|
61 |
|
22 |
|
12 |
|
14 |
|
109 |
|
9,153 |
|
|
Texas |
|
56 |
|
13 |
|
2 |
|
3 |
|
74 |
|
4,320 |
|
|
West |
|
24 |
|
8 |
|
4 |
|
2 |
|
38 |
|
3,020 |
|
|
Total |
|
209 |
|
71 |
|
27 |
|
20 |
|
327 |
|
25,774 |
|
1 Includes lots controlled through the Company’s investments in joint ventures.
Inactive communities consist of projects either under development or on hold for future home sales. At June 30, 2012, of the 20 communities that were held-for-sale, 12 communities had fewer than 20 lots remaining.
Low interest rates and home prices have led to more favorable affordability levels and an appearance of stabilization in certain housing submarkets. The Company is primarily focused on reloading inventory and sustaining profitability in anticipation of further improvement in economic conditions, all while balancing those two objectives with cash preservation. Maintaining community count is among the Company’s greatest challenges and highest priorities. The Company secured 4,170 owned or optioned lots, opened 20 communities and closed 20 communities during the quarter ended June 30, 2012. The number of lots controlled was 25,449 lots at June 30, 2012, compared to 21,579 lots at December 31, 2011. Optioned lots, as a percentage of total lots controlled, were 40.1 percent and 33.6 percent at June 30, 2012 and December 31, 2011, respectively. In addition, the Company controlled 325 lots and 342 lots under joint venture agreements at June 30, 2012 and December 31, 2011, respectively.
Three months ended June 30, 2012, compared to three months ended June 30, 2011
The homebuilding segments reported pretax earnings of $9.9 million for the second quarter of 2012, compared to a pretax loss of $7.4 million for the same period in 2011. This improvement in homebuilding results was primarily due to a rise in closing volume; higher housing gross profit margin, including lower inventory and other valuation adjustments; a decline in interest expense; and a reduced selling, general and administrative expense ratio.
Homebuilding revenues increased 38.9 percent to $284.6 million for the second quarter of 2012 from $204.9 million for the same period in 2011 primarily due to a 35.6 percent rise in closings and to a 2.4 percent increase in average closing price. Homebuilding revenues for the second quarter of 2012 included $947,000 from land sales, which resulted in pretax earnings of $330,000, compared to homebuilding revenues for the second quarter of 2011 that included $1.2 million from land sales, which resulted in a pretax loss of $160,000. Gross profit margin from land sales was 34.8 percent for the three months ended June 30, 2012, compared to negative 13.5 percent for the same period in 2011. Fluctuations in revenues and gross profit percentages from land sales resulted from local market conditions and changing land portfolios. The Company generally purchases land and lots with the intent to build homes on those lots and sell them; however, it occasionally sells a portion of its land to other homebuilders or third parties.
Housing gross profit margin for the second quarter of 2012 was 18.7 percent, compared to 15.0 percent for the same period in 2011. This improvement in housing gross profit margin was primarily attributable to a decline in land and direct construction costs; lower inventory and other valuation adjustments; higher leverage of direct
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|
Management’s Discussion and Analysis of |
|
|
Financial Condition and Results of Operations |
overhead expense due to an increase in the number of homes delivered; and reduced sales incentives and price concessions. Inventory and other valuation adjustments affecting housing gross profit margin decreased to $21,000 for the three months ended June 30, 2012, from $3.9 million for the same period in 2011.
The selling, general and administrative expense ratio totaled 13.8 percent of homebuilding revenues for the second quarter of 2012, compared to 15.3 percent for the same period in 2011. This decrease was primarily attributable to higher leverage that resulted from an increase in revenues and to cost-saving initiatives.
Interest, which was incurred principally to finance land acquisitions, land development and home construction, totaled $14.7 million and $14.1 million for the three months ended June 30, 2012 and 2011, respectively. The homebuilding segments recorded $4.2 million of interest expense during the second quarter of 2012, compared to $4.7 million during the same period in 2011. The decrease in interest expense from the second quarter of 2011 was primarily due to the capitalization of a greater amount of interest incurred during the second quarter of 2012, which resulted from a higher level of inventory-under-development, partially offset by $467,000 of interest expense from the issuance of 1.6 percent convertible senior notes in May 2012. (See Note 7, “Housing Inventories.”)
The Company’s net income from discontinued operations totaled $223,000 for the quarter ended June 30, 2012, compared to a net loss of $912,000 for the same period in 2011. There were no pretax charges related to inventory and other valuation adjustments associated with discontinued operations for the quarter ended June 30, 2012. Pretax charges related to inventory and other valuation adjustments associated with discontinued operations totaled $6,000 for the quarter ended June 30, 2011. (See Note 18, “Discontinued Operations.”)
Six months ended June 30, 2012, compared to six months ended June 30, 2011
The homebuilding segments reported pretax earnings of $11.0 million for the first six months of 2012, compared to a pretax loss of $24.8 million for the same period in 2011. This improvement in homebuilding results was primarily due to a rise in closing volume; higher housing gross profit margin, including lower inventory and other valuation adjustments; a decline in interest expense; and a reduced selling, general and administrative expense ratio.
Homebuilding revenues increased 34.9 percent to $494.1 million for the first six months of 2012 from $366.4 million for the same period in 2011 primarily due to a 31.1 percent rise in closings and to a 2.8 percent increase in average closing price. Homebuilding revenues for the first six months of 2012 included $1.7 million from land sales, which resulted in pretax earnings of $629,000, compared to homebuilding revenues for the first six months of 2011 that included $1.4 million from land sales, which resulted in a pretax loss of $144,000. Gross profit margin from land sales was 37.9 percent for the six months ended June 30, 2012, compared to negative 10.4 percent for the same period in 2011. Fluctuations in revenues and gross profit percentages from land sales resulted from local market conditions and changing land portfolios.
Housing gross profit margin for the first six months of 2012 was 18.2 percent, compared to 15.1 percent for the same period in 2011. This improvement in housing gross profit margin was primarily attributable to a decline in land and direct construction costs; lower inventory and other valuation adjustments; higher leverage of direct overhead expense due to an increase in the number of homes delivered; and reduced sales incentives and price concessions. Inventory and other valuation adjustments affecting housing gross profit margin decreased to $1.9 million for the six months ended June 30, 2012, from $7.1 million for the same period in 2011.
|
|
Management’s Discussion and Analysis of |
|
|
Financial Condition and Results of Operations |
The selling, general and administrative expense ratio totaled 14.5 percent of homebuilding revenues for the first six months of 2012, compared to 16.9 percent for the same period in 2011. This decrease was primarily attributable to higher leverage that resulted from an increase in revenues and to cost-saving initiatives.
Interest, which was incurred principally to finance land acquisitions, land development and home construction, totaled $28.5 million and $28.7 million for the six months ended June 30, 2012 and 2011, respectively. The homebuilding segments recorded $7.7 million of interest expense during the first six months of 2012, compared to $10.5 million during the same period in 2011. The decrease in interest expense from the first six months of 2011 was primarily due to the capitalization of a greater amount of interest incurred during the first six months of 2012, which resulted from a higher level of inventory-under-development, partially offset by $467,000 of interest expense from the aforementioned 1.6 percent convertible senior notes issued in May 2012. (See Note 7, “Housing Inventories.”)
The Company’s net loss from discontinued operations totaled $1.9 million, or $0.04 per diluted share, for the six months ended June 30, 2012, compared to a net loss of $3.0 million, or $0.07 per diluted share, for the same period in 2011. Pretax charges related to inventory and other valuation adjustments associated with discontinued operations totaled $1.4 million, or $0.03 per diluted share, and $757,000, or $0.02 per diluted share, for the six months ended June 30, 2012 and 2011, respectively. (See Note 18, “Discontinued Operations.”)
Homebuilding Segment Information
New Orders
New orders increased 41.6 percent to 1,398 units for the second quarter of 2012 from 987 units for the same period in 2011, and new order dollars rose 52.8 percent for the second quarter of 2012, compared to the same period in 2011. New orders for the three months ended June 30, 2012, compared to the three months ended June 30, 2011, increased 22.0 percent in the North, 30.4 percent in the Southeast, 25.5 percent in Texas and 242.3 percent in the West. The rise in new orders was due to a general increase in consumer demand and to a 3.5 percent rise in active communities, although broader market trends and economic conditions that contribute to soft demand for residential housing persist. The Company’s average monthly sales absorption rate was 2.2 homes per community for the second quarter of 2012, versus 1.6 homes per community for the second quarter of 2011.
The following table provides the number of the Company’s active communities at June 30, 2012 and 2011:
|
|
|
2012 |
|
2011 |
|
% CHG |
|
|
North |
|
68 |
|
60 |
|
13.3 |
% |
|
Southeast |
|
61 |
|
56 |
|
8.9 |
|
|
Texas |
|
56 |
|
69 |
|
(18.8) |
|
|
West |
|
24 |
|
17 |
|
41.2 |
|
|
Total |
|
209 |
|
202 |
|
3.5 |
% |
The Company experiences seasonal variations in its quarterly operating results and capital requirements. Historically, new order activity is higher in the spring and summer months. As a result, the Company typically has more homes under construction, closes more homes and has greater revenues and operating income in the third and fourth quarters of its fiscal year. Given recent market conditions, historical results are not necessarily indicative of current or future homebuilding activities.
|
|
Management’s Discussion and Analysis of |
|
|
Financial Condition and Results of Operations |
The following table provides the Company’s new orders (units and aggregate sales values) for the three- and six-month periods presented:
|
|
|
THREE MONTHS ENDED |
|
SIX MONTHS ENDED |
| ||||||||||||
|
|
|
JUNE 30, |
|
| |||||||||||||
|
|
|
|
2011 |
|
% CHG |
|
2012 |
|
2011 |
|
% CHG |
| |||||
|
UNITS |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
North |
|
383 |
|
314 |
|
22.0 |
% |
794 |
|
632 |
|
25.6 |
% | ||||
|
Southeast |
|
437 |
|
335 |
|
30.4 |
|
854 |
|
580 |
|
47.2 |
| ||||
|
Texas |
|
335 |
|
267 |
|
25.5 |
|
708 |
|
538 |
|
31.6 |
| ||||
|
West |
|
243 |
|
71 |
|
242.3 |
|
370 |
|
144 |
|
156.9 |
| ||||
|
Total |
|
1,398 |
|
987 |
|
41.6 |
% |
2,726 |
|
1,894 |
|
43.9 |
% | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
DOLLARS (in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
North |
|
$ |
114 |
|
$ |
84 |
|
36.2 |
% |
$ |
230 |
|
$ |
170 |
|
35.7 |
% |
|
Southeast |
|
107 |
|
69 |
|
55.9 |
|
200 |
|
123 |
|
62.2 |
| ||||
|
Texas |
|
89 |
|
71 |
|
24.6 |
|
184 |
|
138 |
|
33.6 |
| ||||
|
West |
|
70 |
|
25 |
|
179.7 |
|
111 |
|
45 |
|
145.4 |
| ||||
|
Total |
|
$ |
380 |
|
$ |
249 |
|
52.8 |
% |
$ |
725 |
|
$ |
476 |
|
52.4 |
% |
The following table provides the Company’s cancellation rates for the three- and six-month periods presented:
|
|
|
THREE MONTHS ENDED |
|
|
SIX MONTHS ENDED |
| ||||
|
|
|
JUNE 30, |
|
|
| |||||
|
|
|
|
2011 |
|
|
2012 |
|
2011 |
| |
|
North |
|
20.9 |
% |
21.9 |
% |
|
19.2 |
% |
19.4 |
% |
|
Southeast |
|
20.1 |
|
18.3 |
|
|
19.6 |
|
19.0 |
|
|
Texas |
|
23.7 |
|
20.8 |
|
|
21.3 |
|
19.6 |
|
|
West |
|
12.3 |
|
26.0 |
|
|
12.3 |
|
22.2 |
|
|
Total |
|
20.0 |
% |
20.7 |
% |
|
19.0 |
% |
19.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
The following table provides the Company’s sales incentives and price concessions (average dollar value per unit closed and percentage of revenues) for the three- and six-month periods presented:
|
|
|
THREE MONTHS ENDED |
|
SIX MONTHS ENDED |
| ||||||||||||||||
|
|
|
JUNE 30, |
|
| |||||||||||||||||
|
|
|
|
2011 |
|
2012 |
|
2011 |
| |||||||||||||
|
|
|
AVG $ |
|
% OF |
|
AVG $ |
|
% OF |
|
AVG $ |
|
% OF |
|
AVG $ |
|
% OF |
| ||||
|
(in thousands) |
|
PER UNIT |
|
REVENUES |
|
PER UNIT |
|
REVENUES |
|
PER UNIT |
|
REVENUES |
|
PER UNIT |
|
REVENUES |
| ||||
|
North |
|
$ |
25 |
|
8.5 |
% |
$ |
28 |
|
9.4 |
% |
$ |
26 |
|
8.8 |
% |
$ |
30 |
|
10.0 |
% |
|
Southeast |
|
25 |
|
10.2 |
|
28 |
|
11.6 |
|
25 |
|
10.2 |
|
27 |
|
11.1 |
| ||||
|
Texas |
|
41 |
|
14.2 |
|
41 |
|
14.2 |
|
42 |
|
14.2 |
|
40 |
|
14.1 |
| ||||
|
West |
|
24 |
|
7.2 |
|
28 |
|
9.8 |
|
26 |
|
7.5 |
|
33 |
|
10.6 |
| ||||
|
Total |
|
$ |
29 |
|
10.4 |
% |
$ |
32 |
|
11.6 |
% |
$ |
30 |
|
10.6 |
% |
$ |
33 |
|
11.6 |
% |
|
|
Management’s Discussion and Analysis of |
|
|
Financial Condition and Results of Operations |
Closings
The following table provides the Company’s closings and average closing prices for the three- and six-month periods presented:
|
|
|
THREE MONTHS ENDED |
|
SIX MONTHS ENDED |
| ||||||||||||
|
|
|
JUNE 30, |
|
| |||||||||||||
|
|
|
|
2011 |
|
% CHG |
|
2012 |
|
2011 |
|
% CHG |
| |||||
|
UNITS |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
North |
|
316 |
|
277 |
|
14.1 |
% |
540 |
|
487 |
|
10.9 |
% | ||||
|
Southeast |
|
354 |
|
218 |
|
62.4 |
|
619 |
|
413 |
|
49.9 |
| ||||
|
Texas |
|
316 |
|
271 |
|
16.6 |
|
560 |
|
463 |
|
21.0 |
| ||||
|
West |
|
129 |
|
56 |
|
130.4 |
|
211 |
|
109 |
|
93.6 |
| ||||
|
Total |
|
1,115 |
|
822 |
|
35.6 |
% |
1,930 |
|
1,472 |
|
31.1 |
% | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
AVERAGE PRICE (in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
North |
|
$ |
272 |
|
$ |
271 |
|
0.4 |
% |
$ |
274 |
|
$ |
268 |
|
2.2 |
% |
|
Southeast |
|
221 |
|
213 |
|
3.8 |
|
218 |
|
219 |
|
(0.5 |
) | ||||
|
Texas |
|
248 |
|
250 |
|
(0.8 |
) |
253 |
|
247 |
|
2.4 |
| ||||
|
West |
|
317 |
|
259 |
|
22.4 |
|
322 |
|
275 |
|
17.1 |
| ||||
|
Total |
|
$ |
254 |
|
$ |
248 |
|
2.4 |
% |
$ |
255 |
|
$ |
248 |
|
2.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Outstanding Contracts
Outstanding contracts denote the Company’s backlog of homes sold, but not closed, which are generally built and closed, subject to cancellations, over the subsequent two quarters. At June 30, 2012, the Company had outstanding contracts for 2,277 units, representing a 53.7 percent increase from 1,481 units at December 31, 2011, and a 47.0 percent rise from 1,549 units at June 30, 2011. The $614.8 million value of outstanding contracts at June 30, 2012, represented a 55.2 percent increase from the $396.2 million value of outstanding contracts at June 30, 2011.
The following table provides the Company’s outstanding contracts (units, aggregate dollar values and average prices) at June 30, 2012 and 2011:
|
|
|
2012 |
|
2011 |
| ||||||||||||
|
|
|
|
|
|
|
AVERAGE |
|
|
|
|
|
AVERAGE |
| ||||
|
|
|
|
|
DOLLARS |
|
PRICE |
|
|
|
DOLLARS |
|
PRICE |
| ||||
|
|
|
UNITS |
|
(in millions) |
|
(in thousands) |
|
UNITS |
|
(in millions) |
|
(in thousands) |
| ||||
|
North |
|
674 |
|
$ |
203 |
|
$ |
302 |
|
482 |
|
$ |
134 |
|
$ |
279 |
|
|
Southeast |
|
756 |
|
176 |
|
233 |
|
504 |
|
107 |
|
211 |
| ||||
|
Texas |
|
581 |
|
155 |
|
266 |
|
475 |
|
125 |
|
263 |
| ||||
|
West |
|
266 |
|
81 |
|
303 |
|
88 |
|
30 |
|
345 |
| ||||
|
Total |
|
2,277 |
|
$ |
615 |
|
$ |
270 |
|
1,549 |
|
$ |
396 |
|
$ |
256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
At June 30, 2012, the Company projected that approximately 50 percent of its total outstanding contracts will close during the third quarter of 2012, subject to cancellations.
|
|
Management’s Discussion and Analysis of |
|
|
Financial Condition and Results of Operations |
STATEMENTS OF EARNINGS
The following table provides a summary of results for the homebuilding segments for the three- and six-month periods presented:
|
|
|
THREE MONTHS ENDED |
|
SIX MONTHS ENDED |
| ||||||||
|
|
|
JUNE 30, |
|
JUNE 30, |
| ||||||||
|
(in thousands) |
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
|
NORTH |
|
|
|
|
|
|
|
|
| ||||
|
Revenues |
|
$ |
86,010 |
|
$ |
75,092 |
|
$ |
148,058 |
|
$ |
130,534 |
|
|
Expenses |
|
|
|
|
|
|
|
|
| ||||
|
Cost of sales |
|
70,496 |
|
66,540 |
|
122,572 |
|
114,267 |
| ||||
|
Selling, general and administrative |
|
12,197 |
|
11,418 |
|
22,425 |
|
22,333 |
| ||||
|
Interest |
|
1,521 |
|
1,871 |
|
2,887 |
|
4,159 |
| ||||
|
Total expenses |
|
84,214 |
|
79,829 |
|
147,884 |
|
140,759 |
| ||||
|
Pretax earnings (loss) |
|
$ |
1,796 |
|
$ |
(4,737) |
|
$ |
174 |
|
$ |
(10,225) |
|
|
Housing gross profit margin |
|
18.0 |
% |
11.4 |
% |
17.2 |
% |
12.5 |
% | ||||
|
SOUTHEAST |
|
|
|
|
|
|
|
|
| ||||
|
Revenues |
|
$ |
78,379 |
|
$ |
46,700 |
|
$ |
135,021 |
|
$ |
90,838 |
|
|
Expenses |
|
|
|
|
|
|
|
|
| ||||
|
Cost of sales |
|
64,230 |
|
41,458 |
|
110,525 |
|
84,152 |
| ||||
|
Selling, general and administrative |
|
10,641 |
|
8,073 |
|
19,260 |
|
16,222 |
| ||||
|
Interest |
|
1,011 |
|
1,384 |
|
1,848 |
|
3,090 |
| ||||
|
Total expenses |
|
75,882 |
|
50,915 |
|
131,633 |
|
103,464 |
| ||||
|
Pretax earnings (loss) |
|
$ |
2,497 |
|
$ |
(4,215) |
|
$ |
3,388 |
|
$ |
(12,626) |
|
|
Housing gross profit margin |
|
18.1 |
% |
15.8 |
% |
18.1 |
% |
14.1 |
% | ||||
|
TEXAS |
|
|
|
|
|
|
|
|
| ||||
|
Revenues |
|
$ |
78,754 |
|
$ |
68,143 |
|
$ |
141,873 |
|
$ |
114,528 |
|
|
Expenses |
|
|
|
|
|
|
|
|
| ||||
|
Cost of sales |
|
63,033 |
|
55,406 |
|
113,677 |
|
94,500 |
| ||||
|
Selling, general and administrative |
|
10,137 |
|
8,457 |
|
18,464 |
|
16,373 |
| ||||
|
Interest |
|
800 |
|
842 |
|
1,423 |
|
1,878 |
| ||||
|
Total expenses |
|
73,970 |
|
64,705 |
|
133,564 |
|
112,751 |
| ||||
|
Pretax earnings |
|
$ |
4,784 |
|
$ |
3,438 |
|
$ |
8,309 |
|
$ |
1,777 |
|
|
Housing gross profit margin |
|
20.0 |
% |
18.8 |
% |
19.9 |
% |
18.6 |
% | ||||
|
WEST |
|
|
|
|
|
|
|
|
| ||||
|
Revenues |
|
$ |
41,450 |
|
$ |
14,990 |
|
$ |
69,176 |
|
$ |
30,453 |
|
|
Expenses |
|
|
|
|
|
|
|
|
| ||||
|
Cost of sales |
|
33,371 |
|
12,822 |
|
57,046 |
|
25,771 |
| ||||
|
Selling, general and administrative |
|
6,393 |
|
3,401 |
|
11,427 |
|
6,965 |
| ||||
|
Interest |
|
848 |
|
638 |
|
1,591 |
|
1,395 |
| ||||
|
Total expenses |
|
40,612 |
|
16,861 |
|
70,064 |
|
34,131 |
| ||||
|
Pretax earnings (loss) |
|
$ |
838 |
|
$ |
(1,871) |
|
$ |
(888) |
|
$ |
(3,678) |
|
|
Housing gross profit margin |
|
19.1 |
% |
13.3 |
% |
17.0 |
% |
16.1 |
% | ||||
|
TOTAL |
|
|
|
|
|
|
|
|
| ||||
|
Revenues |
|
$ |
284,593 |
|
$ |
204,925 |
|
$ |
494,128 |
|
$ |
366,353 |
|
|
Expenses |
|
|
|
|
|
|
|
|
| ||||
|
Cost of sales |
|
231,130 |
|
176,226 |
|
403,820 |
|
318,690 |
| ||||
|
Selling, general and administrative |
|
39,368 |
|
31,349 |
|
71,576 |
|
61,893 |
| ||||
|
Interest |
|
4,180 |
|
4,735 |
|
7,749 |
|
10,522 |
| ||||
|
Total expenses |
|
274,678 |
|
212,310 |
|
483,145 |
|
391,105 |
| ||||
|
Pretax earnings (loss) |
|
$ |
9,915 |
|
$ |
(7,385) |
|
$ |
10,983 |
|
$ |
(24,752) |
|
|
Housing gross profit margin |
|
18.7 |
% |
15.0 |
% |
18.2 |
% |
15.1 |
% | ||||
|
|
Management’s Discussion and Analysis of |
|
|
Financial Condition and Results of Operations |
Three months ended June 30, 2012, compared to three months ended June 30, 2011
North—Homebuilding revenues increased 14.5 percent to $86.0 million in 2012 from $75.1 million in 2011 primarily due to a 14.1 percent rise in the number of homes delivered and to a 0.4 percent increase in average closing price. Gross profit margin on home sales was 18.0 percent in 2012, compared to 11.4 percent in 2011. This improvement was primarily due to a decline in land costs, fewer inventory, joint venture and other valuation adjustments, higher leverage of direct overhead expense and a decrease in sales incentives and price concessions, partially offset by an increase in direct construction costs. As a result, the North region generated pretax earnings of $1.8 million in 2012, compared to a pretax loss of $4.7 million in 2011.
Southeast—Homebuilding revenues increased 67.8 percent to $78.4 million in 2012 from $46.7 million in 2011 primarily due to a 62.4 percent rise in the number of homes delivered and to a 3.8 percent increase in average closing price. Gross profit margin on home sales was 18.1 percent in 2012, compared to 15.8 percent in 2011. This improvement was primarily due to higher leverage of direct overhead expense, reduced land and direct construction costs, and a decrease in sales incentives and price concessions. As a result, the Southeast region generated pretax earnings of $2.5 million in 2012, compared to a pretax loss of $4.2 million in 2011.
Texas—Homebuilding revenues increased 15.6 percent to $78.8 million in 2012 from $68.1 million in 2011 primarily due to a 16.6 percent rise in the number of homes delivered, partially offset by a 0.8 percent decrease in average closing price. Gross profit margin on home sales was 20.0 percent in 2012, compared to 18.8 percent in 2011. This improvement was primarily due to reduced land and direct construction costs. As a result, the Texas region generated pretax earnings of $4.8 million in 2012, compared to pretax earnings of $3.4 million in 2011.
West—Homebuilding revenues increased 176.5 percent to $41.5 million in 2012 from $15.0 million in 2011 primarily due to a 130.4 percent rise in the number of homes delivered and to a 22.4 percent increase in average closing price. Gross profit margin on home sales was 19.1 percent in 2012, compared to 13.3 percent in 2011. This improvement was primarily due to higher leverage of direct overhead expense, reduced warranty costs, lower land and direct construction costs, and a decline in sales incentives and price concessions. As a result, the West region generated pretax earnings of $838,000 in 2012, compared to a pretax loss of $1.9 million in 2011.
Six months ended June 30, 2012, compared to six months ended June 30, 2011
North—Homebuilding revenues increased 13.4 percent to $148.1 million in 2012 from $130.5 million in 2011 primarily due to a 10.9 percent rise in the number of homes delivered and to a 2.2 percent increase in average closing price. Gross profit margin on home sales was 17.2 percent in 2012, compared to 12.5 percent in 2011. This improvement was primarily due to a decline in land costs, fewer inventory, joint venture and other valuation adjustments, higher leverage of direct overhead expense and a decrease in sales incentives and price concessions, partially offset by an increase in direct construction costs. As a result, the North region generated pretax earnings of $174,000 in 2012, compared to a pretax loss of $10.2 million in 2011.
Southeast—Homebuilding revenues increased 48.6 percent to $135.0 million in 2012 from $90.8 million in 2011 primarily due to a 49.9 percent rise in the number of homes delivered, partially offset by a 0.5 percent decrease in average closing price. Gross profit margin on home sales was 18.1 percent in 2012, compared to 14.1 percent in 2011. This improvement was primarily due to reduced land and direct construction costs, a decline in inventory valuation adjustments, higher leverage of direct overhead expense and a decrease in sales incentives and price concessions. As a result, the Southeast region generated pretax earnings of $3.4 million in 2012, compared to a pretax loss of $12.6 million in 2011.
|
|
Management’s Discussion and Analysis of |
|
|
Financial Condition and Results of Operations |
Texas—Homebuilding revenues increased 23.9 percent to $141.9 million in 2012 from $114.5 million in 2011 primarily due to a 21.0 percent rise in the number of homes delivered and to a 2.4 percent increase in average closing price. Gross profit margin on home sales was 19.9 percent in 2012, compared to 18.6 percent in 2011. This improvement was primarily due to reduced land and direct construction costs, lower inventory valuation adjustments and higher leverage of direct overhead expense, partially offset by a rise in sales incentives and price concessions. As a result, the Texas region generated pretax earnings of $8.3 million in 2012, compared to pretax earnings of $1.8 million in 2011.
West—Homebuilding revenues increased 127.2 percent to $69.2 million in 2012 from $30.5 million in 2011 primarily due to a 93.6 percent rise in the number of homes delivered and to a 17.1 percent increase in average closing price. Gross profit margin on home sales was 17.0 percent in 2012, compared to 16.1 percent in 2011. This improvement was primarily due to reduced direct construction costs, increased leverage of direct overhead expense, lower warranty costs and a decline in sales incentives and price concessions, partially offset by higher inventory valuation adjustments. As a result, the West region incurred a pretax loss of $888,000 in 2012, compared to a pretax loss of $3.7 million in 2011.
Impairments
As required by ASC 360, inventory is reviewed for potential write-downs on an ongoing basis. ASC 360 requires that, in the event that impairment indicators are present and undiscounted cash flows signify that the carrying amount of an asset is not recoverable, impairment charges must be recorded if the fair value of the asset is less than its carrying amount. (See Note 7, “Housing Inventories.”)
The Company did not record any inventory impairment charges during the three months ended June 30, 2012. It recorded inventory impairment charges of $3.6 million during the three months ended June 30, 2011, in order to reduce the carrying values of the impaired communities to their estimated fair values. For the quarters ended June 30, 2012 and 2011, the Company recorded joint venture and other valuation adjustments that totaled $110,000 and $1.9 million, respectively. Should market conditions deteriorate or costs increase, it is possible that the Company’s estimates of undiscounted cash flows from its communities could decline, resulting in additional future impairment charges.
The Company periodically writes off earnest money deposits and feasibility costs related to land and lot option purchase contracts that it no longer plans to pursue. During the quarters ended June 30, 2012 and 2011, earnest money deposit and feasibility cost write-offs totaled $275,000 and $271,000, respectively. Should homebuilding market conditions weaken or the Company be unsuccessful in renegotiating certain land option purchase contracts, it may write off additional earnest money deposits and feasibility costs in future periods.
Financial Services
The Company’s financial services segment provides mortgage-related products and services, as well as title, escrow and insurance services, to its homebuyers. By aligning its operations with the Company’s homebuilding segments, the financial services segment leverages this relationship to offer its lending services to homebuyers. Providing mortgage financing and other services to its customers helps the Company monitor its backlog and closing process. Substantially all of the loans the Company originates are sold within a short period of time in the secondary mortgage market on a servicing-released basis. The third-party purchaser then services and manages the loans. The fair value of the Company’s mortgage loans held-for-sale totaled $62.3 million and $82.4 million at June 30, 2012, and December 31, 2011, respectively. Mortgage loans held-for-sale were included in “Other” assets within the Consolidated Balance Sheets.
|
|
Management’s Discussion and Analysis of |
|
|
Financial Condition and Results of Operations |
STATEMENTS OF EARNINGS
|
|
|
THREE MONTHS ENDED |
|
SIX MONTHS ENDED |
| ||||||||
|
|
|
JUNE 30, |
|
JUNE 30, |
| ||||||||
|
(in thousands, except units) |
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
|
REVENUES |
|
|
|
|
|
|
|
|
| ||||
|
Income from origination and sale of mortgage loans, net |
|
$ |
7,102 |
|
$ |
5,262 |
|
$ |
11,726 |
|
$ |
10,136 |
|
|
Title, escrow and insurance |
|
1,737 |
|
1,483 |
|
3,001 |
|
2,728 |
| ||||
|
Interest and other |
|
337 |
|
178 |
|
783 |
|
303 |
| ||||
|
TOTAL REVENUES |
|
9,176 |
|
6,923 |
|
15,510 |
|
13,167 |
| ||||
|
EXPENSES |
|
6,232 |
|
4,859 |
|
11,921 |
|
9,894 |
| ||||
|
PRETAX EARNINGS |
|
$ |
2,944 |
|
$ |
2,064 |
|
$ |
3,589 |
|
$ |
3,273 |
|
|
Originations (units) |
|
747 |
|
655 |
|
1,299 |
|
1,172 |
| ||||
|
Ryland Homes origination capture rate |
|
69.8 |
% |
78.6 |
% |
70.9 |
% |
79.5 |
% | ||||
Three months ended June 30, 2012, compared to three months ended June 30, 2011
For the three months ended June 30, 2012, the financial services segment reported pretax earnings of $2.9 million, compared to $2.1 million for the same period in 2011. Revenues for the financial services segment increased 32.5 percent to $9.2 million for the three months ended June 30, 2012, compared to $6.9 million for the same period in the prior year. This improvement was primarily attributable to an increase in locked pipeline and origination volumes and to higher title income. For the three months ended June 30, 2012, financial services expense totaled $6.2 million, versus $4.9 million for the same period in 2011. This increase was primarily attributable to higher legal and personnel expenses and to interest related to the financial services credit facility that was entered into during December 2011. For the three months ended June 30, 2012 and 2011, the capture rates of mortgages originated for customers of the Company’s homebuilding operations were 69.8 percent and 78.6 percent, respectively.
Six months ended June 30, 2012, compared to six months ended June 30, 2011
For the six months ended June 30, 2012, the financial services segment reported pretax earnings of $3.6 million, compared to $3.3 million for the same period in 2011. Revenues for the financial services segment increased 17.8 percent to $15.5 million for the six months ended June 30, 2012, compared to $13.2 million for the same period in the prior year. This improvement was primarily attributable to an increase in locked pipeline and origination volumes and to higher title income. For the six months ended June 30, 2012, financial services expense totaled $11.9 million, versus $9.9 million for the same period in 2011. This increase was primarily attributable to higher personnel and legal expenses and to interest related to the financial services credit facility that was entered into during December 2011. For the six months ended June 30, 2012 and 2011, the capture rates of mortgages originated for customers of the Company’s homebuilding operations were 70.9 percent and 79.5 percent, respectively.
Corporate
Three months ended June 30, 2012, compared to three months ended June 30, 2011
Corporate expense totaled $7.1 million for the three months ended June 30, 2012, compared to $4.9 million for the same period in 2011. This increase was due, in part, to fluctuations in the Company’s stock price that impacted compensation expense, partially offset by lower operating expenses.
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Management’s Discussion and Analysis of |
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Financial Condition and Results of Operations |
Six months ended June 30, 2012, compared to six months ended June 30, 2011
Corporate expense totaled $12.3 million for the six months ended June 30, 2012, compared to $9.9 million for the same period in 2011. This increase was due, in part, to fluctuations in the Company’s stock price that impacted compensation expense, partially offset by lower operating expenses.
Income Taxes
The Company evaluates its deferred tax assets on a quarterly basis to determine whether a valuation allowance is required. During the second quarter of 2012, the Company determined that a full valuation allowance was warranted. At June 30, 2012, the balance of the deferred tax valuation allowance was $268.1 million. The decrease of $4.4 million in the deferred tax valuation allowance during the quarter was primarily due to a reversal resulting from net income generated during the period, as well as to the expiration of certain deferred tax assets.
For the three months ended June 30, 2012 and 2011, the Company’s overall effective income tax expense rates were 2.9 percent and 0.0 percent, respectively, primarily due to noncash adjustments for the Company’s deferred tax valuation allowance, which offsets any tax expense or benefits generated during the quarters. For the six months ended June 30, 2012, the Company’s overall effective income tax expense rate was 14.0 percent, compared to an overall effective income tax benefit rate of 7.3 percent for the same period in 2011, primarily due to noncash adjustments to the Company’s deferred tax valuation allowance. During the second quarter of 2012, the Company recorded a minimal amount of state income tax that totaled $190,000.
Discontinued Operations
During 2011, the Company discontinued future homebuilding operations in its Jacksonville and Dallas divisions. The Company intends to complete all homes currently under contract and to sell its remaining available land in these divisions as part of a strategic plan designed to efficiently manage its invested capital. The results of operations and cash flows for Jacksonville and Dallas, which were historically reported in the Company’s Southeast and Texas segments, respectively, have been classified as discontinued operations. Additionally, the assets and liabilities related to these discontinued operations were presented separately in “Assets of discontinued operations” and “Liabilities of discontinued operations” within the Consolidated Balance Sheets. All prior periods have been reclassified to conform to the current period’s presentation.
The Company’s net income from discontinued operations totaled $223,000 for the quarter ended June 30, 2012, compared to a net loss of $912,000 for the same period in 2011. The Company’s net loss from discontinued operations totaled $1.9 million and $3.0 million for the six months ended June 30, 2012 and 2011, respectively.
Financial Condition and Liquidity
The Company has historically funded its homebuilding and financial services operations with cash flows from operating activities; the issuance of new debt securities; borrowings under a repurchase credit facility; and a revolving credit facility that was terminated by the Company in 2009. In light of current market conditions, the Company is focused on maintaining a strong balance sheet by generating cash from existing communities and by extending debt maturities when market conditions are favorable, as well as by investing in new, higher margin communities to facilitate continued profitability. As a result of this strategy, the Company opened 20 new projects during the quarter; increased available capital and lowered carrying costs with the issuance of $225.0 million of 1.6 percent convertible senior notes due May 2018 to replace $167.2 million of 6.9 percent senior notes due June 2013; and ended the second quarter of 2012 with $732.9 million in cash, cash equivalents and marketable securities. The Company’s housing gross profit margin increased to 18.7 percent for the second quarter of 2012 from 15.0 percent for the same period in 2011 primarily due to a decline in land and direct construction costs; lower inventory and other valuation adjustments; higher leverage of direct overhead expense due to an increase in the number of homes delivered; and reduced sales incentives and price concessions.
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Management’s Discussion and Analysis of |
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Financial Condition and Results of Operations |
Consolidated inventory owned by the Company increased 12.5 percent to $856.4 million at June 30, 2012, compared to $761.2 million at December 31, 2011. The Company attempts to maintain a projected three- to four-year supply of land, assuming historically normalized sales rates. At June 30, 2012, it controlled 25,449 lots, with 15,244 lots owned and 10,205 lots, or 40.1 percent, under option. Lots controlled increased 17.9 percent at June 30, 2012, from 21,579 lots controlled at December 31, 2011. The Company also controlled 325 lots and 342 lots under joint venture agreements at June 30, 2012 and December 31, 2011, respectively. (See Note 7, “Housing Inventories,” and Note 9, “Investments in Joint Ventures.”)
At June 30, 2012, the Company’s net debt-to-capital ratio, including marketable securities, increased to 40.9 percent from 36.7 percent at December 31, 2011, primarily as a result of investments in inventory. The Company remains focused on maintaining its liquidity so that it can be flexible in reacting to changing market conditions. The Company had $732.9 million and $563.2 million in cash, cash equivalents and marketable securities at June 30, 2012 and December 31, 2011, respectively.
During the six months ended June 30, 2012, the Company used $55.1 million of cash for operating activities from continuing operations, which included cash outflows related to a $98.8 million increase in inventories and $386,000 for income tax payments, offset by cash inflows of $44.1 million from other operating activities. Investing activities from continuing operations provided $35.4 million, which included cash inflows of $38.9 million related to net investments in marketable securities and $1.9 million related to a net return of investment in unconsolidated joint ventures, offset by cash outflows of $5.4 million related to property, plant and equipment. The Company provided $215.5 million by financing activities from continuing operations, which included cash inflows related to a $223.7 million net increase in senior debt and short-term borrowings, $4.5 million from the issuance of common stock and a $338,000 net increase in borrowings against its financial services credit facility, offset by cash outflows related to an increase of $10.3 million in restricted cash and payments of $2.7 million for dividends. Net cash provided by continuing operations during the six months ended June 30, 2012, was $195.8 million.
Dividends declared totaled $0.03 per share for the three months ended June 30, 2012 and 2011, and $0.06 per share for the six months ended June 30, 2012 and 2011.
For the quarter ended June 30, 2012, borrowing arrangements for the homebuilding segments included senior notes and nonrecourse secured notes payable. Senior notes outstanding, net of discount, totaled $1.0 billion and $820.0 million at June 30, 2012 and December 31, 2011, respectively.
During the second quarter of 2012, the Company had no debt repurchases. During the second quarter of 2011, the Company paid $28.2 million to repurchase $27.5 million of its 5.4 percent senior notes due 2015, resulting in a loss of $857,000. The loss resulting from the debt repurchase was included in “Loss related to early retirement of debt, net” within the Consolidated Statements of Earnings.
During the second quarter of 2012, the Company issued $225.0 million of 1.6 percent convertible senior notes due May 2018. The Company will pay interest on the notes on May 15 and November 15 of each year, commencing on November 15, 2012. The notes, which mature on May 15, 2018, are initially convertible into shares of the Company’s common stock at a conversion rate of 31.2 shares per $1,000 of their principal amount. This corresponds to an initial conversion price of approximately $32.03 per share and represents a conversion premium of approximately 42.5 percent based on the closing price of the Company’s common stock on May 10, 2012, which was $22.48 per share. The conversion rate is subject to adjustment upon the occurrence of certain events. The notes are fully and unconditionally guaranteed, jointly and severally, by substantially all of the Company’s 100 percent-owned homebuilding subsidiaries (the “Guarantor Subsidiaries”). The Company
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Management’s Discussion and Analysis of |
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Financial Condition and Results of Operations |
received net proceeds of $218.8 million from this offering prior to offering expenses. In July 2012, the Company redeemed and repurchased $167.2 million of its 6.9 percent senior notes due 2013 for $177.2 million in cash. It recognized a charge of $9.1 million resulting from the redemption, which will be included in “Loss related to early retirement of debt, net” within the Consolidated Statements of Earnings. (See Note 19, “Subsequent Events.”) The remaining proceeds will be used for general corporate purposes.
Senior notes and indenture agreements are subject to certain covenants that include, among other things, restrictions on additional secured debt and the sale of assets. The Company was in compliance with these covenants at June 30, 2012.
The Company’s obligations to pay principal, premium, if any, and interest under its 6.9 percent senior notes due June 2013; 5.4 percent senior notes due January 2015; 8.4 percent senior notes due May 2017; 1.6 percent convertible senior notes due May 2018; and 6.6 percent senior notes due May 2020 are guaranteed on a joint and several basis by substantially all of its 100 percent-owned homebuilding subsidiaries (the “Guarantor Subsidiaries”). Such guarantees are full and unconditional. (See Note 17, “Supplemental Guarantor Information.”)
In 2011, RMC entered into a $50.0 million repurchase credit facility with JPM. This facility is used to fund, and is secured by, mortgages that were originated by RMC and are pending sale. This facility will expire in December 2012. In May 2012, the credit facility was increased to $60.0 million. Under the terms of this facility, RMC is required to maintain various financial and other covenants and to satisfy certain requirements relating to the mortgages securing the facility. At June 30, 2012, the Company was in compliance with these covenants. Outstanding borrowings against this credit facility totaled $50.3 million and $49.9 million at June 30, 2012 and December 31, 2011, respectively.
To provide letters of credit required in the ordinary course of its business, the Company has various secured letter of credit agreements requiring it to maintain cash deposits for outstanding letters of credit. Outstanding letters of credit totaled $37.9 million and $66.0 million under these agreements at June 30, 2012 and December 31, 2011, respectively.
To finance its land purchases, the Company may also use seller-financed nonrecourse secured notes payable. At June 30, 2012 and December 31, 2011, outstanding seller-financed nonrecourse secured notes payable totaled $2.5 million and $3.8 million, respectively.
The financial services segment uses existing equity and cash generated internally to finance its operations. The Company has an early purchase program with a financial institution and a repurchase credit facility with JPM.
During the first quarter of 2012, the Company filed a shelf registration with the Securities and Exchange Commission (“SEC”). The registration statement provides that securities may be offered, from time to time, in one or more series and in the form of senior, subordinated or convertible debt; preferred stock; preferred stock represented by depository shares; common stock; stock purchase contracts; stock purchase units; and warrants to purchase both debt and equity securities. The Company filed this registration statement to replace the prior registration statement that expired February 6, 2012. In the future, the Company intends to continue to maintain effective shelf registration statements that will facilitate access to the capital markets. The timing and amount of future offerings, if any, will depend on market and general business conditions.
The Company did not repurchase any shares of its outstanding common stock during the second quarter of 2012. The Company had existing authorization of $142.3 million from its Board of Directors to purchase 5.6 million
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Management’s Discussion and Analysis of |
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Financial Condition and Results of Operations |
additional shares, based on its stock price at June 30, 2012. Outstanding shares of common stock at June 30, 2012 and December 31, 2011, totaled 44,660,496 and 44,413,594, respectively.
While the Company expects challenging economic conditions to eventually subside, it is focused on managing overhead expense, land acquisition, development and homebuilding construction activity in order to maintain cash and debt levels commensurate with its business. The Company believes that it will be able to fund its homebuilding and financial services operations through its existing cash resources and issuances of replacement debt.
Off–Balance Sheet Arrangements
In the ordinary course of business, the Company enters into land and lot option purchase contracts in order to procure land or lots for the construction of homes. Land and lot option purchase contracts enable the Company to control significant lot positions with a minimal capital investment, thereby reducing the risks associated with land ownership and development. At June 30, 2012, the Company had $54.4 million in cash deposits and letters of credit outstanding pertaining to land and lot option purchase contracts with an aggregate purchase price of $532.3 million, of which option contracts totaling $765,000 contained specific performance provisions. At December 31, 2011, the Company had $51.9 million in cash deposits and letters of credit outstanding pertaining to land and lot option purchase contracts with an aggregate purchase price of $407.6 million, of which option contracts totaling $1.0 million contained specific performance provisions. Additionally, the Company’s liability is generally limited to forfeiture of nonrefundable deposits, letters of credit and other nonrefundable amounts incurred.
Pursuant to ASC 810, the Company consolidated $47.3 million and $51.4 million of inventory not owned related to land and lot option purchase contracts at June 30, 2012 and December 31, 2011, respectively. (See Note 8, “Variable Interest Entities (‘VIE’).”)
At June 30, 2012 and December 31, 2011, the Company had outstanding letters of credit under secured letter of credit agreements that totaled $37.9 million and $66.0 million, respectively. Additionally, at June 30, 2012, it had development or performance bonds that totaled $98.0 million, issued by third parties, to secure performance under various contracts and obligations related to land or municipal improvements, compared to $93.9 million at December 31, 2011. The Company expects that the obligations secured by these letters of credit and performance bonds will generally be satisfied in the ordinary course of business and in accordance with applicable contractual terms. To the extent that the obligations are fulfilled, the related letters of credit and performance bonds will be released, and the Company will not have any continuing obligations.
The Company has no material third-party guarantees other than those associated with its senior notes. (See Note 17, “Supplemental Guarantor Information.”)
Critical Accounting Policies
Preparation of the Company’s consolidated financial statements requires the use of judgment in the application of accounting policies and estimates of inherently uncertain matters. There were no significant changes to the Company’s critical accounting policies during the three- and six-month periods ended June 30, 2012, compared to those policies disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011.
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Management’s Discussion and Analysis of |
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Outlook
During the second quarter of 2012, overall price levels appeared to stabilize, which, when combined with historically high affordability levels for new homes and a more favorable product mix, has led to increased demand and improved sales traffic through the Company’s communities. On average, sales rates, prices and margins have improved, and the Company has raised prices in selected markets. These developments, combined with reductions in absolute overhead expenditures, have allowed the Company to become profitable for both the quarter and year to date. The Company increased its number of active communities by 3.5 percent as of June 30, 2012, compared to the same period in 2011, and it expects more substantial increases in community count by year end. Sales orders for new homes rose 41.6 percent during the second quarter of 2012, compared to the same period in the prior year. At June 30, 2012, the Company’s backlog of orders for new homes totaled 2,277 units, or a projected dollar value of $614.8 million, reflecting a 61.0 percent increase in projected dollar value from $381.8 million at December 31, 2011. Although the Company believes that these trends may be signs that demand for new housing is improving, an uncertain macroeconomic environment and tight mortgage credit standards continue to negatively impact the homebuilding industry. The pace at which the Company acquires new land and opens additional communities will depend on market and economic conditions and future sales rates. Although the Company’s outlook remains cautious, it believes that it is well positioned to successfully take advantage of any continued improvements in economic trends and in the demand for new homes.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in the Company’s market risk since December 31, 2011. For information regarding the Company’s market risk, refer to “Item 7A, Quantitative and Qualitative Disclosures About Market Risk” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011.
Item 4. Controls and Procedures
The Company has procedures in place for accumulating and evaluating information that enable it to prepare and file reports with the SEC. At the end of the period covered by this report on Form 10-Q, an evaluation was performed by the Company’s management, including the CEO and CFO, of the effectiveness of the Company’s disclosure controls and procedures as defined in Rule 13a-15(e) promulgated under the Exchange Act. Based on that evaluation, the Company’s management, including the CEO and CFO, concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2012.
The Company has a committee consisting of key officers, including its chief accounting officer and general counsel, to ensure that its disclosure controls and procedures are effective at the reasonable assurance level. These disclosure controls and procedures are designed such that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC, as well as accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
The Company’s management summarized its assessment process and documented its conclusions in the Report of Management, which appears in the Company’s 2011 Annual Report on Form 10-K. The Company’s independent registered public accounting firm summarized its review of management’s assessment of internal control over financial reporting in an attestation report, which also appears within the Company’s 2011 Annual Report on Form 10-K.
At December 31, 2011, the Company completed a detailed evaluation of its internal control over financial reporting, including the assessment, documentation and testing of its controls, as required by the Sarbanes-Oxley Act of 2002. No material weaknesses were identified. The Company’s management, including the CEO and CFO, has evaluated any changes in the Company’s internal control over financial reporting that occurred during the quarterly period ended June 30, 2012, and has concluded that there was no change during this period that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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.
On December 23, 2011, Countrywide Home Loans, Inc. filed a lawsuit against RMC in California, which was subsequently amended, alleging breach of contract related to repurchase obligations arising out of the sale of mortgage loans associated with a loan purchase agreement between Countrywide and RMC and breach of contract related to indemnity obligations. The Company intends to vigorously defend itself against the asserted allegations and causes of actions contained within this lawsuit. (See Note 15, “Commitments and Contingencies.”)
The Company is party to various other legal proceedings generally incidental to its business. 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, results of operations and cash flows of the Company.
There were no material changes to the risk factors during the three and six months ended June 30, 2012, compared to the risk factors set forth in the Company’s 2011 Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On December 6, 2006, the Company announced that it had received authorization from its Board of Directors to purchase shares totaling $175.0 million. During 2007, 747,000 shares had been repurchased in accordance with this authorization. At June 30, 2012, there was $142.3 million, or 5.6 million additional shares, available for purchase in accordance with this authorization, based on the Company’s stock price on that date. This authorization does not have an expiration date. The Company did not purchase any of its own equity securities during the three months ended June 30, 2012.
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4.1 |
Seventh Supplemental Indenture dated as of May 16, 2012 (including the form of Note and the form of Guarantee) by and among the Company, the Guarantors and The Bank of New York Mellon Trust Company, N.A., as successor to JPMorgan Chase Bank, N.A., formerly known as The Chase Manhattan Bank, as trustee. |
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(Incorporated by reference from Form 8-K, filed May 16, 2012) |
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12.1 |
Computation of Ratio of Earnings to Fixed Charges |
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31.1 |
Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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31.2 |
Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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32.1 |
Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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(Furnished herewith) |
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32.2 |
Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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(Furnished herewith) |
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101.INS |
XBRL Instance Document |
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101.SCH |
XBRL Taxonomy Extension Schema Document |
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101.CAL |
XBRL Taxonomy Calculation Linkbase Document |
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101.LAB |
XBRL Taxonomy Label Linkbase Document |
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101.PRE |
XBRL Taxonomy Presentation Linkbase Document |
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101.DEF |
XBRL Taxonomy Extension Definition Document |
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(Furnished herewith) |
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Pursuant to the requirements of the Exchange Act, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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THE RYLAND GROUP, INC. |
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Registrant |
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By: /s/ Gordon A. Milne | |
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Executive Vice President and Chief Financial Officer |
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(Principal Financial Officer) |
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By: /s/ David L. Fristoe | |
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Senior Vice President, Controller and Chief Accounting Officer |
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(Principal Accounting Officer) |
Exhibit No.
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4.1 |
Seventh Supplemental Indenture dated as of May 16, 2012 (including the form of Note and the form of Guarantee) by and among the Company, the Guarantors and The Bank of New York Mellon Trust Company, N.A., as successor to JPMorgan Chase Bank, N.A., formerly known as The Chase Manhattan Bank, as trustee. |
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(Incorporated by reference from Form 8-K, filed May 16, 2012) |
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12.1 |
Computation of Ratio of Earnings to Fixed Charges |
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31.1 |
Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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31.2 |
Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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32.2 |
Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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101.INS |
XBRL Instance Document |
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101.SCH |
XBRL Taxonomy Extension Schema Document |
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101.CAL |
XBRL Taxonomy Calculation Linkbase Document |
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101.LAB |
XBRL Taxonomy Label Linkbase Document |
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101.PRE |
XBRL Taxonomy Presentation Linkbase Document |
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101.DEF |
XBRL Taxonomy Extension Definition Document |
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(Furnished herewith) |
| This ‘10-Q’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 5/15/18 | ||||
| 1/1/13 | ||||
| 12/31/12 | 10-K, 11-K | |||
| 11/15/12 | ||||
| Filed on: | 8/7/12 | 4 | ||
| 8/3/12 | 4 | |||
| For Period end: | 6/30/12 | |||
| 5/16/12 | 8-K | |||
| 5/10/12 | 424B5, 8-K | |||
| 2/6/12 | 4/A | |||
| 1/1/12 | ||||
| 12/31/11 | 10-K, 11-K | |||
| 12/23/11 | ||||
| 6/30/11 | 10-Q, 10-Q/A | |||
| 1/1/11 | ||||
| 12/31/10 | 10-K, 11-K, ARS | |||
| 6/1/08 | ||||
| 12/6/06 | 3, 3/A | |||
| List all Filings | ||||