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Press release from Business Wire

Ryland Reports Results for the Fourth Quarter of 2012

Tuesday, January 29, 2013

Ryland Reports Results for the Fourth Quarter of 201216:15 EST Tuesday, January 29, 2013 WESTLAKE VILLAGE, Calif. (Business Wire) -- The Ryland Group, Inc. (NYSE: RYL), today announced results for its quarter ended December 31, 2012. Items of note included: Net income from continuing operations totaled $28.9 million, or $0.56 per diluted share, for the quarter ended December 31, 2012; New orders increased 64.1 percent to 1,493 units for the fourth quarter of 2012 from 910 units for the fourth quarter of 2011. New order dollars rose 82.0 percent to $425.9 million for the fourth quarter of 2012 from $234.0 million for the same period in 2011; Closings increased 58.9 percent to 1,567 units for the quarter ended December 31, 2012, compared to 986 units for the same period in the prior year; Backlog rose 61.4 percent to 2,391 units at December 31, 2012, from 1,481 units at December 31, 2011; Active communities increased 12.8 percent to 238 communities at December 31, 2012, from 211 communities at December 31, 2011; Revenues totaled $440.1 million for the quarter ended December 31, 2012, representing a 68.3 percent increase from $261.4 million for the quarter ended December 31, 2011; Average closing price increased 5.9 percent to $270,000 for the quarter ended December 31, 2012, from $255,000 for the same period in 2011; Housing gross profit margin was 20.0 percent for the fourth quarter of 2012, compared to 18.1 percent for the fourth quarter of 2011; Selling, general and administrative expense (including corporate) totaled 13.4 percent of homebuilding revenues for the fourth quarter of 2012, compared to 16.4 percent for the fourth quarter of 2011; Cash, cash equivalents and marketable securities totaled $614.6 million at December 31, 2012, with no outstanding borrowings against the Company's $75.0 million financial services credit facility; and Net debt-to-capital ratio was 50.8 percent at December 31, 2012, compared to 36.7 percent at December 31, 2011. RESULTS FOR THE FOURTH QUARTER OF 2012 For the quarter ended December 31, 2012, the Company reported net income from continuing operations of $28.9 million, or $0.56 per diluted share, compared to net income of $1.3 million, or $0.03 per diluted share, for the same period in 2011. There were no pretax charges related to early retirement of debt for the quarter ended December 31, 2012, compared to $274,000 for the quarter ended December 31, 2011. The Company had pretax charges related to feasibility cost write-offs that totaled $300,000 for the quarter ended December 31, 2012, compared to $1.1 million of inventory and other valuation adjustments and write-offs for the same period in 2011. The homebuilding segments reported pretax earnings of $32.1 million for the fourth quarter of 2012, compared to pretax earnings of $7.0 million for the same period in 2011. This increase was primarily due to a rise in closing volume; higher housing gross profit margin, including lower inventory and other valuation adjustments and write-offs; and a reduced selling, general and administrative expense ratio, partially offset by higher interest expense. Homebuilding revenues increased 67.7 percent to $427.5 million for the fourth quarter of 2012, compared to $254.9 million for the same period in 2011. This rise in homebuilding revenues was primarily attributable to a 58.9 percent increase in closings that totaled 1,567 units for the quarter ended December 31, 2012, compared to 986 units for the same period in the prior year, as well as to a 5.9 percent increase in average closing price, which was $270,000 for the fourth quarter of 2012, versus $255,000 for the same period in 2011. Homebuilding revenues for the fourth quarter of 2012 included $3.8 million from land sales, which resulted in pretax earnings of $981,000, compared to homebuilding revenues for the fourth quarter of 2011 that included $3.1 million from land sales, which resulted in pretax earnings of $228,000. New orders increased 64.1 percent to 1,493 units for the quarter ended December 31, 2012, compared to new orders of 910 units for the same period in 2011. The Company had an average monthly sales absorption rate of 2.1 homes per community for the quarter ended December 31, 2012, versus 1.4 homes per community for the quarter ended December 31, 2011, and an average cancellation rate of 17.9 percent for the quarter ended December 31, 2012, versus 21.4 percent for the same period in 2011. For the fourth quarter of 2012, new order dollars increased 82.0 percent to $425.9 million from $234.0 million for the fourth quarter of 2011. At December 31, 2012, backlog increased 61.4 percent to 2,391 units from 1,481 units at December 31, 2011. At the end of the fourth quarter of 2012, the dollar value of the Company's backlog was $663.4 million, reflecting a 73.8 percent rise from the end of the prior year. Housing gross profit margin was 20.0 percent for the quarter ended December 31, 2012, compared to 18.1 percent for the quarter ended December 31, 2011. This improvement in housing gross profit margin was primarily attributable to a decline in direct construction and land costs; higher leverage of direct overhead expense due to an increase in the number of homes delivered; lower inventory and other valuation adjustments and write-offs; and reduced sales incentives and price concessions. For the fourth quarter of 2012, sales incentives and price concessions totaled 8.7 percent, compared to 10.7 percent for the same period in 2011. Selling, general and administrative expense, including corporate, totaled 13.4 percent of homebuilding revenues for the fourth quarter of 2012, compared to 16.4 percent for the fourth quarter of 2011. This decrease in the selling, general and administrative expense ratio was primarily attributable to higher leverage resulting from increased revenues and to the impact of cost-saving initiatives, partially offset by higher compensation expense primarily due to the impact of fluctuations in the Company's stock price. The homebuilding segments recorded $5.1 million of interest expense during the fourth quarter of 2012, compared to $3.9 million during the fourth quarter of 2011. This increase in interest expense from the fourth quarter of 2011 was primarily due to interest incurred on additional senior notes issued in 2012, partially offset by the capitalization of a greater amount of interest incurred during the fourth quarter of 2012, which resulted from a higher level of inventory under development. During the fourth quarter of 2012, the Company used $129.8 million of cash for operating activities, provided $117.6 million of cash from investing activities and used $56.4 million of cash for financing activities. For the quarter ended December 31, 2012, the financial services segment reported pretax earnings of $6.2 million, compared to $437,000 for the same period in 2011. This improvement was primarily attributable to increases in locked loan pipeline and origination volumes, higher title income and lower indemnification expense, partially offset by a rise in personnel and legal expenses and by interest related to the financial services credit facility that was entered into during December 2011. The Company's net loss from discontinued operations totaled $374,000, or $0.01 per diluted share, for the quarter ended December 31, 2012, compared to a net loss of $451,000, or $0.01 per diluted share, for the same period in 2011. ANNUAL RESULTS FOR 2012 For the year ended December 31, 2012, the Company reported net income from continuing operations of $42.4 million, or $0.88 per diluted share, compared to a net loss of $29.9 million, or $0.67 per diluted share, for the same period in 2011. Pretax charges related to early retirement of debt totaled $9.1 million and $1.6 million for the years ended December 31, 2012 and 2011, respectively. The Company had pretax charges related to inventory and other valuation adjustments and write-offs that totaled $6.3 million and $17.3 million for the years ended December 31, 2012 and 2011, respectively. The homebuilding segments reported pretax earnings of $63.9 million for the year ended December 31, 2012, compared to a pretax loss of $16.8 million for the same period in 2011. This increase was primarily due to a rise in closing volume; higher housing gross profit margin, including lower inventory and other valuation adjustments and write-offs; a decline in interest expense; and a reduced selling, general and administrative expense ratio. Homebuilding revenues increased 47.3 percent to $1.3 billion for the year ended December 31, 2012, compared to $862.6 million for the same period in 2011. This rise in homebuilding revenues was primarily attributable to a 40.9 percent increase in closings that totaled 4,809 units for the year ended December 31, 2012, compared to 3,413 units for the same period in 2011, as well as to a 4.8 percent increase in average closing price, which was $263,000 for the year ended December 31, 2012, versus $251,000 for the same period in 2011. Homebuilding revenues for the year ended December 31, 2012, included $7.7 million from land sales, which resulted in pretax earnings of $2.5 million, compared to homebuilding revenues for the same period in 2011 that included $5.4 million from land sales, which resulted in pretax earnings of $426,000. New orders increased 51.8 percent to 5,719 units for the year ended December 31, 2012, compared to new orders of 3,767 units for the same period in 2011. The Company had an average monthly sales absorption rate of 2.2 homes per community for the year ended December 31, 2012, versus 1.5 homes per community for the year ended December 31, 2011, and an average cancellation rate of 19.0 percent for the year ended December 31, 2012, versus 20.2 percent for the same period in 2011. For the year ended December 31, 2012, new order dollars increased 61.9 percent to $1.5 billion from $954.0 million for the same period in 2011. Housing gross profit margin was 19.1 percent for the year ended December 31, 2012, compared to 16.7 percent for the same period in 2011. This improvement in housing gross profit margin was primarily attributable to a decline in direct construction and land costs; higher leverage of direct overhead expense due to an increase in the number of homes delivered; lower inventory and other valuation adjustments and write-offs; and reduced sales incentives and price concessions. For the year ended December 31, 2012, sales incentives and price concessions totaled 9.6 percent, compared to 11.2 percent for the same period in 2011. Selling, general and administrative expense, including corporate, totaled 14.9 percent of homebuilding revenues for the year ended December 31, 2012, compared to 18.3 percent for the same period in 2011. This decrease in the selling, general and administrative expense ratio was primarily attributable to higher leverage resulting from increased revenues and to the impact of cost-saving initiatives, partially offset by higher compensation expense primarily due to the impact of fluctuations in the Company's stock price. The homebuilding segments recorded $16.1 million of interest expense for the year ended December 31, 2012, compared to $18.3 million for the same period in 2011. This decrease in interest expense from 2011 was primarily due to the capitalization of a greater amount of interest incurred during 2012, which resulted from a higher level of inventory under development, partially offset by interest incurred on additional senior notes issued in 2012. For the year ended December 31, 2012, the financial services segment reported pretax earnings of $13.1 million, compared to $5.7 million for the same period in 2011. This improvement was primarily attributable to increases in locked loan pipeline and origination volumes and to higher title income, partially offset by a rise in personnel and legal expenses and by interest related to the financial services credit facility that was entered into during December 2011. The Company's net loss from discontinued operations totaled $2.0 million, or $0.04 per diluted share, for the year ended December 31, 2012, compared to a net loss of $20.9 million, or $0.47 per diluted share, for the same period in 2011. OVERALL EFFECTIVE TAX RATE The Company had an overall effective income tax expense rate of 3.8 percent for the year ended December 31, 2012, compared to an overall effective income tax benefit rate of 5.3 percent for the year ended December 31, 2011. For the years ended December 31, 2012 and 2011, the Company recorded a net valuation allowance decrease of $11.6 million and an increase of $16.6 million, respectively, against its deferred tax assets. As of December 31, 2012, the balance of the Company's deferred tax valuation allowance was $258.9 million. FINANCIAL SERVICES CREDIT FACILITY In December 2012, Ryland Mortgage Company and its subsidiaries and RMC Mortgage Corporation (collectively referred to as “RMC”) renewed its $75.0 million repurchase credit facility with JPMorgan Chase Bank, N.A. This facility is used to fund, and is secured by, mortgages originated by RMC, pending the sale of those mortgages by RMC. This facility will expire in December 2013. At December 31, 2012, the Company had no outstanding borrowings against this credit facility. TREND HOMES ACQUISITION In December 2012, the Company acquired the Phoenix, Arizona, operations and assets of Trend Homes. This acquisition has provided the Company with an ongoing successful operation in that market and 1,020 additional lots and homes. For the quarter and year ended December 31, 2012, there were 113 new orders and 21 closings related to this acquisition. 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 300,000 homes and financed more than 250,000 mortgages. The Company currently operates in 13 states 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, 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 any subsequent Quarterly Report on Form 10-Q; 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,   2012       2011     2012       2011   REVENUES Homebuilding $427,523 $ 254,912 $1,270,847 $ 862,604 Financial services   12,612       6,533     37,619       26,927   TOTAL REVENUES   440,135       261,445     1,308,466       889,531     EXPENSES Cost of sales 341,691 209,127 1,027,472 726,956 Selling, general and administrative 57,324 41,852 189,500 158,045 Financial services 6,445 6,096 24,477 21,188 Interest   5,133       3,874     16,118       18,348   TOTAL EXPENSES   410,593       260,949     1,257,567       924,537     OTHER INCOME (LOSS) Gain from marketable securities, net 777 592 2,214 3,882 Loss related to early retirement of debt, net   -       (274 )   (9,146)     (1,608 ) TOTAL OTHER INCOME (LOSS)   777       318     (6,932)     2,274   Income (loss) from continuing operations before taxes 30,319 814 43,967 (32,732 ) Tax expense (benefit)   1,372       (449 )   1,585       (2,865 ) NET INCOME (LOSS) FROM CONTINUING OPERATIONS   28,947       1,263     42,382       (29,867 )   Loss from discontinued operations, net of taxes   (374)     (451 )   (2,000)     (20,883 )   NET INCOME (LOSS)$28,573     $ 812   $40,382     $ (50,750 )   NET INCOME (LOSS) PER COMMON SHARE Basic Continuing operations $0.64 $ 0.03 $0.93 $ (0.67 ) Discontinued operations   (0.01)     (0.01 )   (0.04)     (0.47 ) Total 0.63 0.02 0.89 (1.14 ) Diluted Continuing operations 0.56 0.03 0.88 (0.67 ) Discontinued operations   (0.01)     (0.01 )   (0.04)     (0.47 ) Total $0.55 $ 0.02 $0.84 $ (1.14 )   AVERAGE COMMON SHARES OUTSTANDING Basic 45,115,000 44,410,279 44,761,178 44,357,470 Diluted 53,052,803 45,074,734 49,655,321 44,357,470     THE RYLAND GROUP, INC. and SubsidiariesCONSOLIDATED BALANCE SHEETS (in thousands, except share data)           December 31, 2012 December 31, 2011     ASSETS Cash, cash equivalents and marketable securities Cash and cash equivalents $155,692 $ 159,113 Restricted cash 70,893 57,049 Marketable securities, available-for-sale   388,020     347,016 Total cash, cash equivalents and marketable securities 614,605 563,178 Housing inventories Homes under construction 459,269 319,476 Land under development and improved lots 573,975 413,569 Inventory held-for-sale 4,684 11,015 Consolidated inventory not owned   39,490     51,400 Total housing inventories 1,077,418 795,460 Property, plant and equipment 20,409 19,920 Mortgage loans held-for-sale 107,950 82,351 Other 111,057 82,911 Assets of discontinued operations   2,480     35,324 TOTAL ASSETS   1,933,919     1,579,144   LIABILITIES Accounts payable 124,797 74,327 Accrued and other liabilities 147,358 140,930 Financial services credit facility - 49,933 Debt 1,134,468 823,827 Liabilities of discontinued operations   1,536     6,217 TOTAL LIABILITIES   1,408,159     1,095,234   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—45,175,053 shares at December 31, 2012 (44,413,594 shares at December 31, 2011) 45,175 44,414 Retained earnings 458,669 405,109 Accumulated other comprehensive income   92     164 TOTAL STOCKHOLDERS' EQUITYFOR THE RYLAND GROUP, INC.   503,936     449,687 NONCONTROLLING INTEREST   21,824     34,223 TOTAL EQUITY   525,760     483,910 TOTAL LIABILITIES AND EQUITY$1,933,919   $ 1,579,144     THE RYLAND GROUP, INC. and SubsidiariesSEGMENT INFORMATION               Three months ended December 31, Twelve months ended December 31,   2012       2011       2012       2011   EARNINGS (LOSS) BEFORE TAXES (in thousands) Homebuilding North $7,472 $ 557 $11,602 $ (9,054 ) Southeast 9,274 1,874 18,566 (11,676 ) Texas 7,436 3,987 22,984 9,243 West 7,892 611 10,732 (5,326 ) Financial services 6,167 437 13,142 5,739 Corporate and unallocated (7,922) (6,652 ) (33,059) (21,658 ) Discontinued operations   (374)     (451 )   (2,000)     (20,883 )       Total   $29,945     $ 363     $41,967     $ (53,615 ) NEW ORDERSUnits North 410 254 1,571 1,190 Southeast 498 299 1,936 1,172 Texas 282 275 1,286 1,077 West 303 82 926 328 Discontinued operations   9       5     62       187   Total   1,502       915       5,781       3,954   Dollars (in millions) North $125 $ 73 $461 $ 326 Southeast 120 66 454 253 Texas 78 68 345 272 West 103 27 285 103 Discontinued operations   2       2     14       39         Total   $428     $ 236     $1,559     $ 993   CLOSINGSUnits North 424 306 1,372 1,107 Southeast 531 298 1,576 988 Texas 348 289 1,242 1,044 West 264 93 619 274 Discontinued operations   11       54     88       214   Total   1,578       1,040       4,897       3,627   Average closing price (in thousands) North $298 $ 274 $286 $ 271 Southeast 234 220 225 218 Texas 264 257 259 251 West 308 304 314 293 Discontinued operations   220       229     223       208         Total   $270     $ 254     $262     $ 249   OUTSTANDING CONTRACTSDecember 31,Units   2012       2011   North 619 420 Southeast 881 521 Texas 477 433 West 414 107 Discontinued operations   7       33   Total   2,398       1,514   Dollars (in millions) North $188 $ 121 Southeast 211 111 Texas 135 112 West 129 38 Discontinued operations   3       7   Total $666     $ 389   Average price (in thousands) North $305 $ 288 Southeast 239 214 Texas 283 258 West 311 353 Discontinued operations   334       220         Total           $278     $ 257       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   2012     2011   2012     2011 REVENUES Income from origination and sale of mortgage loans, net $9,723 $ 4,287 $28,634 $ 19,873 Title, escrow and insurance 2,281 1,575 7,199 5,895 Interest and other   608     671   1,786     1,159 TOTAL REVENUES 12,612 6,533 37,619 26,927 EXPENSES   6,445     6,096   24,477     21,188 PRETAX EARNINGS $6,167   $ 437 $13,142   $ 5,739   OPERATIONAL DATA   Retail operations: Originations (units) 962 711 3,039 2,556 Ryland Homes originations as a percentage of total originations 99.9% 99.9 % 99.9% 100.0 % Ryland Homes origination capture rate 67.5% 73.0 % 68.1% 75.7 %                         OTHER CONSOLIDATED SUPPLEMENTAL INFORMATION (in thousands) Three months ended December 31, Twelve months ended December 31,   2012     2011   2012     2011 Interest incurred $16,829 $ 14,066 $59,503 $ 56,635 Interest capitalized during the period 11,462 9,940 42,327 38,032 Amortization of capitalized interest included in cost of sales 12,845 10,010 40,612 32,068 Depreciation and amortization     4,903     2,833     15,399     11,312 The Ryland Group, Inc.Drew Mackintosh, VP, Investor Relations and Corporate Communications805-367-3722