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Press release from Business Wire

Ryland Reports Results for the Fourth Quarter of 2010

Wednesday, January 26, 2011

Ryland Reports Results for the Fourth Quarter of 201016:15 EST Wednesday, January 26, 2011 CALABASAS, Calif. (Business Wire) -- The Ryland Group, Inc. (NYSE: RYL), today announced results for its quarter ended December 31, 2010. Items of note included: Net loss was $19.1 million, or $0.43 per diluted share, for the quarter ended December 31, 2010, compared to net earnings of $39.0 million, or $0.88 per diluted share, for the same period in 2009. The Company had pretax charges that totaled $15.4 million, or $0.35 per share, related to inventory and other valuation adjustments, write-offs and loan loss reserves for the quarter ended December 31, 2010. In 2009, the Company had an income tax benefit of $97.6 million; Cash, cash equivalents and marketable securities totaled $739.2 million at December 31, 2010; Active communities increased to 207 communities at December 31, 2010, from 202 communities and 182 communities at September 30, 2010 and December 31, 2009, respectively; Consolidated revenues totaled $227.1 million for the quarter ended December 31, 2010, representing a decrease of 45.7 percent from the quarter ended December 31, 2009; Housing gross profit margins averaged 14.3 percent, excluding inventory and other valuation adjustments, for the quarter ended December 31, 2010, compared to 14.2 percent for the quarter ended December 31, 2009. Including inventory and other valuation adjustments, housing gross profit margins averaged 8.3 percent for the fourth quarter of 2010, compared to negative 1.6 percent for the same period in 2009; Selling, general and administrative expense totaled 13.2 percent of homebuilding revenues for the fourth quarter of 2010, compared to 16.4 percent for the third quarter of 2010 and 9.3 percent for the fourth quarter of 2009. Selling, general and administrative expense dollars for the quarter ended December 31, 2010, decreased $8.3 million from the same period in the prior year; Average closing price increased to $243,000 for the quarter ended December 31, 2010, from $237,000 for the same period in the prior year; New orders decreased 19.9 percent to 776 units for the fourth quarter of 2010 from 969 units for the fourth quarter of 2009; and Net debt-to-capital ratio was 22.0 percent at December 31, 2010, compared to 6.6 percent at December 31, 2009. (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 FOURTH QUARTER OF 2010 For the quarter ended December 31, 2010, the Company reported a consolidated net loss of $19.1 million, or $0.43 per diluted share, compared to consolidated net earnings of $39.0 million, or $0.88 per diluted share, for the same period in 2009. For the quarter ended December 31, 2010, the Company had pretax charges that totaled $15.4 million related to inventory and other valuation adjustments, write-offs and loan loss reserves, compared to pretax charges that totaled $73.8 million for the same period in 2009. In 2009, the Company had an income tax benefit of $97.6 million. The homebuilding segments reported a pretax loss of $17.2 million during the fourth quarter of 2010, compared to a pretax loss of $55.1 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 a decrease in interest expense, partially offset by reduced closing volume and a higher selling, general and administrative expense ratio. Homebuilding revenues fell 45.5 percent to $221.1 million for the fourth quarter of 2010, compared to $405.3 million for the same period in 2009. This decrease was primarily attributable to a 45.4 percent decline in closings that totaled 909 units for the quarter ended December 31, 2010, compared to 1,666 units for the same period in the prior year. For the quarter ended December 31, 2010, the average closing price of a home increased by 2.5 percent to $243,000 from $237,000 for the same period in 2009. Homebuilding revenues for the fourth quarter of 2010 included $412,000 from land sales, which resulted in net pretax earnings of $120,000, compared to homebuilding revenues for the fourth quarter of 2009 that included $10.1 million from land sales, which resulted in a net pretax loss of $736,000. New orders of 776 units for the quarter ended December 31, 2010, represented a decrease of 19.9 percent, compared to new orders of 969 units for the same period in 2009. For the fourth quarter of 2010, new order dollars declined 21.5 percent to $186.5 million from $237.6 million for the fourth quarter of 2009. At December 31, 2010, backlog decreased 31.5 percent to 1,187 units from 1,732 units at December 31, 2009. At December 31, 2010, the dollar value of the Company's backlog was $297.4 million, reflecting a decline of 31.6 percent from December 31, 2009. Housing gross profit margins averaged 14.3 percent, excluding inventory and other valuation adjustments, for the quarter ended December 31, 2010, compared to 14.2 percent for the quarter ended December 31, 2009. Including inventory and other valuation adjustments, housing gross profit margins averaged 8.3 percent for the fourth quarter of 2010, compared to negative 1.6 percent for the same period in 2009. The increase in average housing gross profit margins for the quarter ended December 31, 2010, compared to the quarter ended December 31, 2009, was primarily due to lower inventory and other valuation adjustments and reduced direct construction costs that related to homes closed during the quarter. Sales incentives and price concessions averaged 11.6 percent for the fourth quarter of 2010, compared to 12.1 percent for the same period in 2009. Selling, general and administrative expense totaled 13.2 percent of homebuilding revenues for the fourth quarter of 2010, compared to 16.4 percent for the third quarter of 2010 and 9.3 percent for the fourth quarter of 2009. The increase in the selling, general and administrative expense ratio for the fourth quarter of 2010, compared to the fourth quarter of 2009, was primarily attributable to lower leverage resulting from a decline in revenues, partially offset by cost-saving initiatives. Selling, general and administrative expense dollars for the quarter ended December 31, 2010, decreased $8.3 million from the same period in the prior year. The homebuilding segments recorded $6.2 million of interest expense during the fourth quarter of 2010, compared to $6.9 million of interest expense during the fourth quarter of 2009. This decrease in interest expense was primarily due to higher inventory-under-development resulting in a lower debt-to-inventory-under-development ratio. Corporate expense was $5.4 million for the quarter ended December 31, 2010, compared to $6.3 million for the same period in 2009. This decrease was primarily due to lower executive compensation costs for the fourth quarter of 2010, versus the fourth quarter of 2009. During the fourth quarter of 2010, the Company used $66.2 million of cash for operating activities, provided $40.6 million of cash from investing activities and used $2.5 million of cash for financing activities. For the quarter ended December 31, 2010, the financial services segment reported pretax earnings of $1.7 million, compared to pretax earnings of $776,000 for the same period in 2009. This improvement was primarily due to reductions in loan indemnification expense, reserves related to the Company's insurance captive and overhead costs, partially offset by lower origination income due to a 49.4 percent decline in volume. ANNUAL RESULTS FOR 2010 For the year ended December 31, 2010, the Company reported a consolidated net loss of $85.1 million, or $1.93 per diluted share, compared to a consolidated net loss of $162.5 million, or $3.74 per diluted share, for the year ended December 31, 2009. For the twelve months of 2010, the Company had pretax charges that totaled $54.6 million related to inventory and other valuation adjustments, write-offs and loan loss reserves, compared to pretax charges that totaled $224.6 million for the same period in 2009. Additionally, the Company had pretax charges that totaled $19.3 million related to debt reduction for the year ended December 31, 2010, compared to a net gain that totaled $10.6 million related to debt reduction for the year ended December 31, 2009. The homebuilding segments reported a pretax loss of $47.1 million for the twelve months of 2010, compared to a pretax loss of $245.3 million for the twelve months of 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 declined 16.9 percent to $1.0 billion for the twelve months of 2010, compared to $1.2 billion for the twelve months of 2009. This decrease was primarily attributable to a 17.2 percent decline in closings, partially offset by a rise in average closing price. Closings totaled 4,245 units for the twelve months of 2010, compared to 5,129 units for the same period in the prior year. For the year ended December 31, 2010, the average closing price of a home increased to $242,000 from $240,000 for the year ended December 31, 2009. Homebuilding revenues for the twelve months of 2010 included $5.4 million from land sales, which resulted in net pretax earnings of $885,000, compared to homebuilding revenues for the twelve months of 2009 that included $11.0 million from land sales, which resulted in a net pretax loss of $983,000. Housing gross profit margins averaged 14.8 percent, excluding inventory and other valuation adjustments, for the year ended December 31, 2010, compared to 10.2 percent for the year ended December 31, 2009. Including inventory and other valuation adjustments, housing gross profit margins averaged 11.4 percent for the twelve months of 2010, compared to negative 5.5 percent for the twelve months of 2009. The increase in average housing gross profit margins for the year ended December 31, 2010, compared to the year ended December 31, 2009, was primarily due to lower inventory and other valuation adjustments, reduced sales discounts and allowances and lower direct construction costs that related to homes closed during the period. Sales incentives and price concessions averaged 11.3 percent for the year ended December 31, 2010, compared to 15.4 percent for the year ended December 31, 2009. Selling, general and administrative expense totaled 12.9 percent of homebuilding revenues for the twelve months of 2010, compared to 12.4 percent of homebuilding revenues for the twelve months of 2009. This increase in the selling, general and administrative expense ratio was primarily attributable to lower leverage resulting from a decline in revenues and allowances that totaled $3.3 million recorded against notes receivable, partially offset by cost-saving initiatives. Selling, general and administrative expense dollars for the year ended December 31, 2010, decreased $21.2 million from the year ended December 31, 2009. The homebuilding segments recorded $26.5 million of interest expense during the twelve months of 2010, compared to $14.4 million of interest expense during the twelve months of 2009. This increase in interest expense was primarily due to additional senior debt and lower average inventory-under-development resulting in a higher average debt-to-inventory-under-development ratio. Corporate expense was $25.1 million for the twelve months of 2010, compared to $28.3 million for the twelve months of 2009. This decrease was primarily due to a $2.0 million expense related to the retirement of the Company's former CEO in 2009, as well as to lower executive compensation costs. For the year ended December 31, 2010, the financial services segment reported pretax earnings of $845,000, compared to a pretax loss of $309,000 for the year ended December 31, 2009. This improvement was primarily due to reductions in loan indemnification expense and overhead costs, partially offset by lower origination income due to a 21.3 percent decline in volume. OVERALL EFFECTIVE TAX RATE The Company's effective income tax rate for the year ended December 31, 2010, was 0.2 percent, compared to an effective tax benefit rate of 37.4 percent for the year ended December 31, 2009. For the years ended December 31, 2010 and 2009, the Company recorded net valuation allowances against its deferred tax assets of $32.7 million and $2.1 million, respectively. As of December 31, 2010, the balance of the Company's deferred tax valuation allowance was $253.8 million. SUBSEQUENT EVENT—CORPORATE REORGANIZATION The Company has been a leader in the homebuilding industry with respect to the efficiency of its organization. However, its current volume levels require the Company to look at even more efficient ways of managing its business. After reviewing a variety of options, the decision was made to replace the Company's current two-region operating structure with a single homebuilding management team. This reorganization, coupled with additional downsizing completed within both the corporate and mortgage organizations, should result in substantial annual savings and improved operational efficiency in 2011 and beyond. This streamlined and decentralized structure allows the Company to efficiently address the needs of its divisions, which are the front line of the Company's business. As the Company begins to grow its business, this new structure has the flexibility to address growth for the foreseeable future. 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; changes and developments 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 homes; increased prices for labor, land and raw 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; 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; failure or inability of the Company to realize the expected savings from the corporate reorganization; 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 (in thousands, except share data)               Three months ended December 31,Twelve months ended December 31,   2010       2009     2010       2009     REVENUES Homebuilding $221,088 $ 405,347 $1,031,758 $ 1,241,711 Financial services   6,027       13,033     32,134       41,902   TOTAL REVENUES   227,115       418,380     1,063,892       1,283,613     EXPENSES Cost of sales 198,893 416,082 915,723 1,318,847 Loss (earnings) from unconsolidated joint ventures 3,914 (103 ) 3,671 (333 ) Selling, general and administrative 29,196 37,523 132,968 154,186 Financial services 4,359 12,257 31,289 42,211 Corporate 5,350 6,279 25,125 28,321 Interest   6,243       6,898     26,526       14,350   TOTAL EXPENSES   247,955       478,936     1,135,302       1,557,582     OTHER INCOME (LOSS) Gain from marketable securities, net 1,476 1,987 5,774 3,725 (Loss) income related to early retirement of debt, net   -       -     (19,308)     10,573   TOTAL OTHER INCOME (LOSS)   1,476       1,987     (13,534)     14,298   Loss before taxes (19,364) (58,569 ) (84,944) (259,671 ) Tax (benefit) expense   (225)     (97,588 )   195       (97,197 ) NET (LOSS) EARNINGS$(19,139)   $ 39,019   $(85,139)   $ (162,474 )   NET (LOSS) EARNINGS PER COMMON SHARE Basic $(0.43) $ 0.89 $(1.93) $ (3.74 ) Diluted (0.43) 0.88 (1.93) (3.74 )   AVERAGE COMMON SHARESOUTSTANDING Basic 44,150,493 43,831,135 44,050,013 43,464,955 Diluted 44,150,493 44,473,301 44,050,013 43,464,955 THE RYLAND GROUP, INC. and SubsidiariesCONSOLIDATED BALANCE SHEETS (in thousands, except share data)           December 31,   2010   2009   ASSETS Cash, cash equivalents and marketable securities Cash and cash equivalents $226,647 $ 285,199 Restricted cash 74,788 71,853 Marketable securities, available-for-sale   437,795     457,854 Total cash, cash equivalents and marketable securities 739,230 814,906 Housing inventories Homes under construction 275,487 338,909 Land under development and improved lots 401,466 266,286 Inventory held-for-sale 34,159 62,140 Consolidated inventory not owned   88,289     - Total housing inventories 799,401 667,335 Property, plant and equipment 19,506 21,858 Current taxes receivable, net - 99,043 Other   94,566     91,245 TOTAL ASSETS   1,652,703     1,694,387   LIABILITIES Accounts payable 63,384 78,533 Accrued and other liabilities 147,779 177,814 Debt   879,878     856,178 TOTAL LIABILITIES   1,091,041     1,112,525   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—44,187,956 shares at December 31, 2010 (43,845,455 shares at December 31, 2009) 44,188 43,845 Retained earnings 453,801 534,906 Accumulated other comprehensive income   1,867     3,111 TOTAL STOCKHOLDERS' EQUITYFOR THE RYLAND GROUP, INC.   499,856     581,862 NONCONTROLLING INTEREST   61,806     - TOTAL EQUITY   561,662     581,862 TOTAL LIABILITIES AND EQUITY$1,652,703   $ 1,694,387 THE RYLAND GROUP, INC. and SubsidiariesSEGMENT INFORMATION             Three months ended December 31,Twelve months ended December 31,   2010       2009     2010       2009   (LOSS) EARNINGS BEFORE TAXES (in thousands) Homebuilding North $(3,517) $ (41,872 ) $(16,897) $ (101,520 ) Southeast (8,755) (12,104 ) (22,277) (99,362 ) Texas 230 (1,973 ) (1,614) (6,994 ) West (5,116) 896 (6,342) (37,463 ) Financial services 1,668 776 845 (309 ) Corporate and unallocated   (3,874)     (4,292 )   (38,659)     (14,023 )       Total   $(19,364)   $ (58,569 )   $(84,944)   $ (259,671 ) NEW ORDERSUnits North 214 265 1,097 1,581 Southeast 211 267 1,156 1,431 Texas 291 286 1,083 1,503 West   60       151     364       787   Total   776       969     3,700       5,302   Dollars (in millions) North $57 $ 72 $289 $ 416 Southeast 45 62 246 322 Texas 68 70 263 346 West   16       34     91       175         Total   $186     $ 238     $889     $ 1,259   CLOSINGSUnits North 317 504 1,280 1,635 Southeast 272 451 1,281 1,349 Texas 243 473 1,153 1,461 West   77       238     531       684   Total   909       1,666     4,245       5,129   Average closing price (in thousands) North $263 $ 264 $266 $ 263 Southeast 211 222 221 233 Texas 243 230 244 226 West   270       224     231       228         Total   $243     $ 237     $242     $ 240   OUTSTANDING CONTRACTSDecember 31,Units   2010       2009   North 337 520 Southeast 356 481 Texas 441 511 West   53       220   Total   1,187       1,732   Dollars (in millions) North $95 $ 146 Southeast 77 114 Texas 110 127 West   15       48   Total $297     $ 435   Average price (in thousands) North $283 $ 281 Southeast 217 237 Texas 249 249 West   285       216         Total           $251     $ 251   THE RYLAND GROUP, INC. and SubsidiariesFINANCIAL SERVICES SUPPLEMENTAL INFORMATION (in thousands, except origination data)               Three months ended December 31,Twelve months ended December 31,RESULTS OF OPERATIONS   2010       2009     2010       2009   REVENUES Income from origination and sale of mortgage loans, net $4,241 $ 9,924 $23,933 $ 32,449 Title, escrow and insurance 1,677 2,961 7,700 8,927 Interest and other   109       148     501       526   TOTAL REVENUES 6,027 13,033 32,134 41,902 EXPENSES   4,359       12,257     31,289       42,211   PRETAX EARNINGS (LOSS) $1,668     $ 776   $845     $ (309 )   OPERATIONAL DATA   Retail operations: Originations (units) 689 1,368 3,183 4,008 Ryland Homes originations as a percentage of total originations 100.0% 99.6 % 99.9% 99.8 % Ryland Homes origination capture rate 81.4% 86.0 % 81.2% 83.5 %                           OTHER CONSOLIDATED SUPPLEMENTAL INFORMATION (in thousands) Three months ended December 31,Twelve months ended December 31,   2010       2009     2010       2009   Interest incurred $15,355 $ 14,213 $59,852 $ 53,728 Interest capitalized during the period 9,111 7,265 33,321 39,127 Amortization of capitalized interest included in cost of sales 8,403 21,072 43,238 54,309 Depreciation and amortization     3,939       7,281       17,337       25,068   THE RYLAND GROUP, INC. and Subsidiaries       NON-GAAP FINANCIAL DISCLOSURE RECONCILIATION (in thousands)       Three months ended December 31,Twelve months ended December 31,   2010     2009     2010     2009   HOUSING GROSS MARGINS HOUSING REVENUES $220,676 $ 395,285 $1,026,321 $ 1,230,691   HOUSING COST OF SALES Cost of sales 189,124 339,130 874,860 1,104,714 Inventory valuation adjustments and write-offs   13,336     62,575     34,393     193,113   TOTAL HOUSING COST OF SALES 202,460 401,705 909,253 1,297,827   GROSS MARGINS $18,216 $ (6,420 ) $117,068 $ (67,136 ) GROSS MARGIN PERCENTAGE 8.3% (1.6 )% 11.4% (5.5 )%   GROSS MARGINS, excluding inventory valuation adjustments and write-offs$31,552 $ 56,155 $151,461 $ 125,977 GROSS MARGIN PERCENTAGE, excluding inventory valuation adjustments and write-offs 14.3% 14.2 % 14.8% 10.2 %                                   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 President Investor Relations(818) 223-7548