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Press release from Business Wire

Ryland Reports Results for the Third Quarter of 2010

Wednesday, October 27, 2010

Ryland Reports Results for the Third Quarter of 201016:15 EDT Wednesday, October 27, 2010 CALABASAS, Calif. (Business Wire) -- The Ryland Group, Inc. (NYSE: RYL), today announced results for its third quarter ended September 30, 2010. Items of note included: Net loss was $0.68 per diluted share for the third quarter ended September 30, 2010, compared to a net loss of $1.20 per diluted share for the same period in 2009. The Company had pretax charges that totaled $16.7 million related to inventory and other valuation adjustments and write-offs; Consolidated revenues totaled $212.7 million for the third quarter ended September 30, 2010, representing a decrease of 35.1 percent from the third quarter ended September 30, 2009; Housing gross profit margins averaged 14.2 percent, excluding inventory and other valuation adjustments, for the third quarter ended September 30, 2010, compared to 10.8 percent for the quarter ended September 30, 2009. Including inventory and other valuation adjustments, housing gross profit margins averaged 8.7 percent for the third quarter of 2010, compared to negative 0.2 percent for the same period in 2009; Selling, general and administrative expense totaled 16.4 percent of homebuilding revenues for the third quarter of 2010, compared to 12.3 percent of homebuilding revenues for the same period in 2009; Cash, cash equivalents and marketable securities totaled $806.9 million at September 30, 2010; Active communities increased to 202 communities at September 30, 2010, from 181 communities and 197 communities at June 30, 2010 and September 30, 2009, respectively; Average closing price increased to $244,000 for the third quarter ended September 30, 2010, from $238,000 for the same period in the prior year; New orders decreased 37.1 percent to 799 units for the third quarter of 2010 from 1,270 units for the third quarter of 2009; and Net debt-to-capital ratio was 11.8 percent at September 30, 2010. (Net debt-to-capital ratio 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.) RESULTS FOR THE THIRD QUARTER OF 2010 For the third quarter ended September 30, 2010, the Company reported a consolidated net loss of $29.9 million, or $0.68 per diluted share, compared to a consolidated net loss of $52.5 million, or $1.20 per diluted share, for the same period in 2009. For the third quarter ended September 30, 2010, the Company had pretax charges for inventory and other valuation adjustments and write-offs that totaled $16.7 million, compared to pretax charges that totaled $39.1 million for the same period in 2009. The homebuilding segments reported a pretax loss of $24.8 million during the third quarter of 2010, compared to a pretax loss of $48.5 million for the same period in 2009. This reduction in loss was primarily due to lower inventory and other valuation adjustments and write-offs and higher gross profit margins, partially offset by increased interest expense, reduced closing volume and a higher selling, general and administrative expense ratio. Homebuilding revenues fell 34.6 percent to $206.5 million for the third quarter of 2010, compared to $315.8 million for the same period in 2009. This decrease was primarily attributable to a 36.0 percent decline in closings that totaled 847 units for the third quarter ended September 30, 2010, compared to 1,323 units for the same period in the prior year. For the third quarter ended September 30, 2010, the average closing price of a home increased by 2.5 percent to $244,000 from $238,000 for the same period in 2009. Homebuilding revenues for the third quarter of 2010 included $85,000 from land sales, which resulted in net pretax earnings of $18,000, compared to homebuilding revenues for the third quarter of 2009 that included $545,000 from land sales, which resulted in a net pretax loss of $42,000. New orders of 799 units for the third quarter ended September 30, 2010, represented a decrease of 37.1 percent, compared to new orders of 1,270 units for the same period in 2009. For the third quarter of 2010, new order dollars declined 35.0 percent to $195.3 million from $300.3 million for the third quarter of 2009. Backlog at the end of the third quarter of 2010 declined 45.7 percent to 1,320 units from 2,429 units at September 30, 2009. At September 30, 2010, the dollar value of the Company's backlog was $331.6 million, reflecting a decrease of 44.0 percent from September 30, 2009. Housing gross profit margins averaged 14.2 percent, excluding inventory and other valuation adjustments, for the third quarter ended September 30, 2010, compared to 10.8 percent for the quarter ended September 30, 2009. Including inventory and other valuation adjustments, housing gross profit margins averaged 8.7 percent for the third quarter of 2010, compared to negative 0.2 percent for the same period in 2009. The increase in average housing gross profit margins for the third quarter ended September 30, 2010, compared to the third quarter ended September 30, 2009, was primarily due to lower inventory and other valuation adjustments, as well as to reduced sales discounts and allowances that related to homes closed during the quarter. Sales incentives and price concessions averaged 11.2 percent for the third quarter ended September 30, 2010, compared to 14.7 percent for the same period in 2009. Selling, general and administrative expense totaled 16.4 percent of homebuilding revenues for the third quarter of 2010, compared to 12.3 percent of homebuilding revenues for the same period in 2009. This increase in the selling, general and administrative expense ratio was primarily attributable to lower leverage resulting from a decline in revenues and a $3.0 million allowance recorded against notes receivable during the third quarter of 2010, partially offset by cost-saving initiatives. Selling, general and administrative expense dollars for the third quarter ended September 30, 2010, decreased $4.9 million from the same period in the prior year. The homebuilding segments recorded $6.7 million of interest expense during the third quarter of 2010, compared to $4.6 million of interest expense during the third quarter of 2009. This increase in interest expense was primarily due to lower inventory-under-development resulting in a higher debt-to-inventory-under-development ratio. Corporate expense was $5.5 million for the third quarter of 2010, compared to $4.5 million for the same period in 2009. This increase was primarily due to a $1.4 million decrease in gain on the market value of retirement plan investments for the third quarter of 2010, versus the same period in 2009, partially offset by lower executive compensation costs. During the third quarter of 2010, the Company used $70.8 million of cash for operating activities, $995,000 of cash for investing activities and $6.0 million of cash for financing activities. For the third quarter ended September 30, 2010, the financial services segment reported a pretax loss of $661,000, compared to a pretax loss of $618,000 for the same period in 2009. This increase in loss was primarily due to a 41.1 percent decline in mortgage originations, which was partially offset by a $5.3 million reduction in loan indemnification expense. RESULTS FOR THE FIRST NINE MONTHS OF 2010 For the nine months ended September 30, 2010, the Company reported a consolidated net loss of $66.0 million, or $1.50 per diluted share, compared to a consolidated net loss of $201.5 million, or $4.65 per diluted share, for the same period in 2009. For the nine months ended September 30, 2010, the Company had pretax charges for inventory and other valuation adjustments and write-offs that totaled $30.2 million, compared to pretax charges that totaled $135.9 million for the same period in 2009. Additionally, the Company had pretax charges that totaled $19.3 million related to debt repurchases during the nine months ended September 30, 2010, compared to a net gain that totaled $10.6 million related to debt reduction for the same period in the prior year. The homebuilding segments reported a pretax loss of $30.0 million during the first nine months of 2010, compared to a pretax loss of $190.3 million for the same period in 2009. This reduction in loss was primarily due to lower inventory and other valuation adjustments and write-offs, higher gross profit margins and a lower selling, general and administrative expense ratio, partially offset by increased interest expense and reduced closing volume. Homebuilding revenues declined 3.1 percent to $810.7 million for the first nine months of 2010, compared to $836.4 million for the same period in 2009. This decrease was primarily attributable to a 3.7 percent decline in closings, partially offset by a rise in average closing price. Closings totaled 3,336 units for the nine months ended September 30, 2010, compared to 3,463 units for the same period in the prior year. For the nine months ended September 30, 2010, the average closing price of a home increased by 0.4 percent to $242,000 from $241,000 for the same period in 2009. Homebuilding revenues for the first nine months of 2010 included $5.0 million from land sales, which resulted in net pretax earnings of $765,000, compared to homebuilding revenues for the first nine months of 2009 that included $958,000 from land sales, which resulted in a net pretax loss of $247,000. Housing gross profit margins averaged 14.9 percent, excluding inventory and other valuation adjustments, for the nine months ended September 30, 2010, compared to 8.4 percent for the nine months ended September 30, 2009. Including inventory and other valuation adjustments, housing gross profit margins averaged 12.3 percent for the first nine months of 2010, compared to negative 7.3 percent for the same period in 2009. The increase in average housing gross profit margins for the nine months ended September 30, 2010, compared to the nine months ended September 30, 2009, was primarily due to lower inventory and other valuation adjustments, as well as to reduced sales discounts and allowances that related to homes closed during the period. Sales incentives and price concessions averaged 11.2 percent for the nine months ended September 30, 2010, compared to 16.8 percent for the same period in the prior year. Selling, general and administrative expense totaled 12.8 percent of homebuilding revenues for the first nine months of 2010, compared to 13.9 percent of homebuilding revenues for the first nine months of 2009. This decrease in the selling, general and administrative expense ratio was primarily attributable to cost-saving initiatives and lower marketing and advertising expenditures per unit, partially offset by a decline in revenues and a $3.3 million allowance recorded against notes receivable. Selling, general and administrative expense dollars for the nine months ended September 30, 2010, decreased $12.9 million from the same period in the prior year. The homebuilding segments recorded $20.3 million of interest expense during the first nine months of 2010, compared to $7.5 million of interest expense during the first nine months of 2009. This increase in interest expense was primarily due to additional senior debt and lower inventory-under-development resulting in a higher debt-to-inventory-under-development ratio. Corporate expense was $19.8 million for the first nine months of 2010, compared to $22.0 million for the same period in 2009. This decrease was primarily due to an expense of $2.0 million related to the retirement of the Company's former CEO in the second quarter of 2009. For the nine months ended September 30, 2010, the financial services segment reported a pretax loss of $823,000, compared to a pretax loss of $1.1 million for the same period in 2009. This decrease in loss was primarily due to a $2.8 million reduction in loan indemnification expense and lower overhead costs, which was partially offset by a 5.5 percent decline in mortgage originations. OVERALL EFFECTIVE TAX RATE For the third quarters ended September 30, 2010 and 2009, the Company's effective tax rates were 1.4 percent and 0.8 percent, respectively. For the third quarters ended September 30, 2010 and 2009, the Company recorded net valuation allowances against its deferred tax assets of $11.0 million and $20.7 million, respectively. As of September 30, 2010, the balance of the Company's deferred tax valuation allowance was $245.3 million. Headquartered in Southern California, Ryland is one of the nation's largest homebuilders and a leading mortgage-finance company. Since its founding in 1967, Ryland has built more than 290,000 homes and financed more than 245,000 mortgages. The Company currently operates in 15 states and 19 homebuilding divisions across the country and is listed on the New York Stock Exchange under the symbol “RYL.” For more information, please visit www.ryland.com. Note: Certain statements in this press release 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. These forward-looking statements represent the Company's expectations and beliefs concerning future events, and no assurance can be given that the future results described in this press release 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 press release. 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 government stimulus and tax programs, inflation, changes in consumer demand and confidence levels and the state of the market for homes in general; instability and uncertainty in the mortgage lending market, including revisions to underwriting standards for borrowers; 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 houses; increased prices for labor, land and raw materials used in the production of houses; increased competition; 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; 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 and the environment); 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.   THE RYLAND GROUP, INC. and SubsidiariesCONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) (in thousands, except share data)                 Three months ended September 30,Nine months ended September 30,   2010       2009     2010       2009     REVENUES Homebuilding $206,453 $ 315,760 $810,670 $ 836,364 Financial services   6,283       12,075     26,107       28,869   TOTAL REVENUES   212,736       327,835     836,777       865,233     EXPENSES Cost of sales 190,680 320,937 716,587 902,535 Selling, general and administrative 33,845 38,698 103,772 116,663 Financial services 6,944 12,693 26,930 29,954 Corporate 5,525 4,457 19,775 22,042 Interest   6,690       4,643     20,283       7,452   TOTAL EXPENSES   243,684       381,428     887,347       1,078,646     OTHER INCOME Gain from marketable securities, net 1,428 1,502 4,298 1,738 (Loss) income related to early retirement of debt, net   -       -     (19,308)     10,573   TOTAL OTHER INCOME (LOSS)   1,428       1,502     (15,010)     12,311   Loss before taxes (29,520) (52,091 ) (65,580) (201,102 ) Tax expense   420       391     420       391   NET LOSS$(29,940)   $ (52,482 ) $(66,000)   $ (201,493 )   NET LOSS PER COMMON SHARE Basic $(0.68) $ (1.20 ) $(1.50) $ (4.65 ) Diluted (0.68) (1.20 ) (1.50) (4.65 )   AVERAGE COMMON SHARES OUTSTANDING Basic 44,095,109 43,808,159 44,016,370 43,341,643 Diluted 44,095,109 43,808,159 44,016,370 43,341,643       THE RYLAND GROUP, INC. and SubsidiariesCONSOLIDATED BALANCE SHEETS (in thousands, except share data)       September 30, December 31, 2010 2009 (Unaudited)   ASSETS Cash, cash equivalents and marketable securities Cash and cash equivalents $254,766 $ 285,199 Restricted cash 70,373 71,853 Marketable securities, available-for-sale   481,810     457,854 Total cash, cash equivalents and marketable securities 806,949 814,906 Housing inventories Homes under construction 302,741 338,909 Land under development and improved lots 353,921 266,286 Inventory held-for-sale 26,812 62,140 Consolidated inventory not owned   89,233     - Total housing inventories 772,707 667,335 Property, plant and equipment 19,689 21,858 Current taxes receivable, net - 93,249 Other   96,532     88,105 TOTAL ASSETS   1,695,877     1,685,453   LIABILITIES Accounts payable 71,088 78,533 Accrued and other liabilities 162,420 168,880 Debt   876,619     856,178 TOTAL LIABILITIES   1,110,127     1,103,591   EQUITYSTOCKHOLDERS' 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—44,113,622 shares at September 30, 2010 (43,845,455 shares at December 31, 2009) 44,114 43,845 Retained earnings 473,135 534,906 Accumulated other comprehensive income   2,839     3,111 TOTAL STOCKHOLDERS' EQUITYFOR THE RYLAND GROUP, INC.   520,088     581,862 NONCONTROLLING INTEREST   65,662     - TOTAL EQUITY   585,750     581,862 TOTAL LIABILITIES AND EQUITY$1,695,877   $ 1,685,453           THE RYLAND GROUP, INC. and SubsidiariesSEGMENT INFORMATION (Unaudited)       Three months ended September 30,Nine months ended September 30,   2010       2009     2010       2009   LOSS BEFORE TAXES (in thousands) Homebuilding North $(8,333) $ (9,924 ) $(13,380) $ (59,648 ) Southeast (7,307) (33,004 ) (13,522) (87,258 ) Texas (6,908) (1,770 ) (1,844) (5,021 ) West (2,214) (3,820 ) (1,226) (38,359 ) Financial services (661) (618 ) (823) (1,085 ) Corporate and unallocated   (4,097)     (2,955 )   (34,785)     (9,731 )       Total   $(29,520)   $ (52,091 )   $(65,580)   $ (201,102 ) NEW ORDERSUnits North 242 341 883 1,316 Southeast 266 376 945 1,164 Texas 217 334 792 1,217 West   74       219     304       636   Total   799       1,270     2,924       4,333   Dollars (in millions) North $66 $ 92 $232 $ 344 Southeast 57 83 200 259 Texas 52 77 195 277 West   20       48     75       141         Total   $195     $ 300     $702     $ 1,021   CLOSINGSUnits North 255 432 963 1,131 Southeast 256 361 1,009 898 Texas 234 349 910 988 West   102       181     454       446   Total   847       1,323     3,336       3,463   Average closing price (in thousands) North $264 $ 263 $266 $ 263 Southeast 220 227 223 238 Texas 255 227 244 224 West   227       226     225       229         Total   $244     $ 238     $242     $ 241   OUTSTANDING CONTRACTSSeptember 30,Units   2010       2009   North 440 759 Southeast 417 665 Texas 393 698 West   70       307   Total   1,320       2,429   Dollars (in millions) North $122 $ 207 Southeast 89 152 Texas 100 167 West   21       67   Total $332     $ 593   Average price (in thousands) North $276 $ 273 Southeast 214 228 Texas 255 239 West   291       218         Total           $251     $ 244             THE RYLAND GROUP, INC. and SubsidiariesFINANCIAL SERVICES SUPPLEMENTAL INFORMATION (Unaudited) (in thousands, except origination data)       Three months ended September 30,Nine months ended September 30,RESULTS OF OPERATIONS   2010       2009     2010       2009   REVENUES Income from origination and sale of mortgage loans, net $4,595 $ 9,609 $19,692 $ 22,525 Title, escrow and insurance 1,567 2,309 6,023 5,966 Interest and other   121       157     392       378   TOTAL REVENUES 6,283 12,075 26,107 28,869 EXPENSES   6,944       12,693     26,930       29,954   PRETAX LOSS $(661)   $ (618 ) $(823)   $ (1,085 )   OPERATIONAL DATA   Retail operations: Originations (units) 628 1,066 2,494 2,640 Ryland Homes originations as a percentage of total originations 100.0% 100.0 % 99.8% 100.0 % Ryland Homes origination capture rate 80.9% 85.8 % 81.1% 82.2 %                           OTHER CONSOLIDATED SUPPLEMENTAL INFORMATION (Unaudited) (in thousands) Three months ended September 30,Nine months ended September 30,   2010       2009     2010       2009   Interest incurred $15,196 $ 14,536 $44,497 $ 39,515 Interest capitalized during the period 8,505 9,820 24,210 31,862 Amortization of capitalized interest included in cost of sales 8,247 14,328 34,835 33,237 Depreciation and amortization     3,546       5,352       13,398       17,787         THE RYLAND GROUP, INC. and SubsidiariesNON-GAAP FINANCIAL DISCLOSURE RECONCILIATION (Unaudited) (in thousands)       Three months ended September 30,Nine months ended September 30,   2010     2009     2010     2009   HOUSING GROSS MARGINS HOUSING REVENUES $206,368 $ 315,215 $805,645 $ 835,406   HOUSING COST OF SALES Cost of sales 177,140 281,223 685,736 765,584 Inventory valuation adjustments and write-offs   11,305     34,748     21,057     130,538   TOTAL HOUSING COST OF SALES 188,445 315,971 706,793 896,122   GROSS MARGINS $17,923 $ (756 ) $98,852 $ (60,716 ) GROSS MARGIN PERCENTAGE 8.7% (0.2 ) % 12.3% (7.3 ) %   GROSS MARGINS,excluding inventory valuation adjustments and write-offs $29,228 $ 33,992 $119,909 $ 69,822 GROSS MARGIN PERCENTAGE, excluding inventory valuation adjustments and write-offs 14.2% 10.8 % 14.9% 8.4 %   Gross margins on home sales, excluding inventory valuation adjustments, is a non-GAAP financial measure and is defined by the Company as revenue from home sales less costs of homes sold, excluding the Company's inventory valuation adjustments recorded during the period. Management finds this to be a useful measure in evaluating the Company's performance because it discloses the profit the Company generates on homes it actually delivered during the period, as the inventory valuation adjustments relate, in part, to inventory that was not delivered during the period. It assists the Company's management in making strategic decisions regarding its construction pace, product mix and product pricing based upon the profitability it generated on homes the Company currently delivers or sells. The Company believes investors will also find gross margins on home sales, excluding inventory valuation adjustments, to be important and useful because it discloses a profitability measure that can be compared to a prior period without regard to the variability of inventory valuation adjustments. In addition, to the extent that the Company's competitors provide similar information, disclosure of its gross margins on home sales, excluding inventory valuation adjustments, helps readers of the Company's financial statements compare profits to its competitors with regard to the homes they deliver in the same period. In addition, because gross margins on home sales is a financial measure that is not calculated in accordance with GAAP, it may not be completely comparable to similarly titled measures of the Company's competitors due to potential differences in methods of calculation and charges being excluded. The Ryland Group, Inc.Drew Mackintosh, Vice PresidentInvestor Relations818-223-7548