Ryland Reports Results for the Fourth Quarter of 2012

  Ryland Reports Results for the Fourth Quarter of 2012

Business Wire

WESTLAKE VILLAGE, Calif. -- January 29, 2013

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
    Form10-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 Subsidiaries
CONSOLIDATED 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         12,612        6,533          37,619        26,927     
  services
       TOTAL        440,135       261,445        1,308,466     889,531    
       REVENUES
                                                                      
EXPENSES
  Cost of sales      341,691          209,127          1,027,472        726,956
  Selling,
  general and        57,324           41,852           189,500          158,045
  administrative
  Financial          6,445            6,096            24,477           21,188
  services
  Interest          5,133         3,874          16,118        18,348     
       TOTAL        410,593       260,949        1,257,567     924,537    
       EXPENSES
                                                                      
OTHER INCOME
(LOSS)
  Gain from
  marketable         777              592              2,214            3,882
  securities,
  net
  Loss related
  to early          -             (274       )    (9,146     )   (1,608     )
  retirement of
  debt, net
       TOTAL
       OTHER        777           318            (6,932     )   2,274      
       INCOME
       (LOSS)
Income (loss)
from continuing      30,319           814              43,967           (32,732    )
operations
before taxes
Tax expense         1,372         (449       )    1,585         (2,865     )
(benefit)
NET INCOME
(LOSS) FROM         28,947        1,263          42,382        (29,867    )
CONTINUING
OPERATIONS
                                                                      
Loss from
discontinued        (374       )   (451       )    (2,000     )   (20,883    )
operations, net
of taxes
                                                                      
NET INCOME         $ 28,573       $ 812           $ 40,382       $ (50,750    )
(LOSS)
                                                                      
NET INCOME
(LOSS) PER
COMMON SHARE
  Basic
    Continuing     $ 0.64           $ 0.03           $ 0.93           $ (0.67      )
    operations
    Discontinued    (0.01      )   (0.01      )    (0.04      )   (0.47      )
    operations
    Total            0.63             0.02             0.89             (1.14      )
  Diluted
    Continuing       0.56             0.03             0.88             (0.67      )
    operations
    Discontinued    (0.01      )   (0.01      )    (0.04      )   (0.47      )
    operations
    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 Subsidiaries
CONSOLIDATED 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,                       388,020         347,016
    available-for-sale
    Total cash, cash equivalents and              614,605           563,178
    marketable securities
  Housing inventories
    Homes under construction                      459,269           319,476
    Land under development and improved           573,975           413,569
    lots
    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
                                                                 
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—45,175,053 shares at
        December 31, 2012
        (44,413,594 shares at December 31,        45,175            44,414
        2011)
    Retained earnings                             458,669           405,109
    Accumulated other comprehensive income       92              164
    TOTAL STOCKHOLDERS' EQUITY
        FOR 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 Subsidiaries
SEGMENT INFORMATION
                                                           
                       Three months ended December   Twelve months ended
                       31,                           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              6,167           437          13,142        5,739
   services
   Corporate and          (7,922  )       (6,652 )     (33,059 )     (21,658 )
   unallocated
   Discontinued          (374    )     (451   )    (2,000  )   (20,883 )
   operations
          Total    $  29,945      $ 363      $ 41,967    $ (53,615 )
NEW ORDERS
   Units
       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      9            5          62         187     
       operations
             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      2            2          14         39      
       operations
          Total    $  428         $ 236      $ 1,559     $ 993     
CLOSINGS
   Units
       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      11           54         88         214     
       operations
             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      220          229        223        208     
       operations
          Total    $  270         $ 254      $ 262       $ 249     
OUTSTANDING                                          December 31,
CONTRACTS
   Units                                              2012       2011    
       North                                           619           420
       Southeast                                       881           521
       Texas                                           477           433
       West                                            414           107
       Discontinued                                   7          33      
       operations
             Total                                    2,398      1,514   
   Dollars (in
   millions)
       North                                         $ 188         $ 121
       Southeast                                       211           111
       Texas                                           135           112
       West                                            129           38
       Discontinued                                   3          7       
       operations
             Total                                   $ 666       $ 389     
   Average price (in
   thousands)
       North                                         $ 305         $ 288
       Southeast                                       239           214
       Texas                                           283           258
       West                                            311           353
       Discontinued                                   334        220     
       operations
          Total                              $ 278       $ 257     
                                                                             
                                                                             

THE RYLAND GROUP, INC. and Subsidiaries
FINANCIAL SERVICES SUPPLEMENTAL INFORMATION
(in thousands, except origination data)
                     
                          Three months ended         Twelve months ended
                          December 31,               December 31,
RESULTS OF OPERATIONS       2012        2011        2012        2011
   REVENUES
      Income from
      origination and     $  9,723      $  4,287     $  28,634     $  19,873
      sale of mortgage
      loans, net
      Title, escrow and      2,281         1,575        7,199         5,895
      insurance
      Interest and          608         671         1,786       1,159
      other
         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           962           711          3,039         2,556
      (units)
      Ryland Homes
      originations as a
         percentage of
         total               99.9    %     99.9    %    99.9    %     100.0  %
         originations
      Ryland Homes
      origination            67.5    %     73.0    %    68.1    %     75.7   %
      capture rate
                                                        
OTHER CONSOLIDATED
SUPPLEMENTAL
INFORMATION
(in thousands)            Three months ended         Twelve months ended
                          December 31,               December 31,
                            2012        2011        2012        2011
Interest incurred         $  16,829     $  14,066    $  59,503     $  56,635
Interest capitalized         11,462        9,940        42,327        38,032
during the period
Amortization of
capitalized interest         12,845        10,010       40,612        32,068
included in cost of
sales
Depreciation and           4,903       2,833      15,399      11,312
amortization

Contact:

The Ryland Group, Inc.
Drew Mackintosh, VP, Investor Relations and Corporate Communications
805-367-3722
 
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