ITEM 1. BUSINESS.
The Ryland Group, Inc. (the "company") is a leading national homebuilder and a mortgage-related financial services firm. Established in 1967, the company currently builds homes and provides mortgage services in 48 markets in 18 states. The company was the third largest single-family on-site homebuilder in the United States in 1993 based upon homes delivered. The company's homebuilding segment specializes in the sale and construction of single-family attached and detached housing and condominiums. The financial services segment provides mortgage-related products and services for retail and institutional customers and conducts investment activities. The company facilitates the issuance of mortgage-backed securities and mortgage-participation securities through its limited-purpose subsidiaries.
HOMEBUILDING
MARKETS The homebuilding segment builds and sells homes that are constructed on-site in five regions which comprise the following areas at December 31, 1993:
In January 1994, to address the distinct characteristics of the California market and the opportunities available there, management elected to form a California Region, comprised of the Los Angeles, Sacramento and San Diego markets. Furthermore, the Denver and Phoenix markets were combined to create a newly-defined West Region.
The homebuilding segment sells under the name of Larchmont Homes in Northern California, Brock Homes in Southern California, Scott Felder Homes in certain Texas markets and Ryland Homes in all other areas.
The company's operations in each of its homebuilding markets differ based on a number of market-specific factors. These factors include regional economic conditions and job growth, land availability and the local land development process, consumer tastes, competition from other builders of new homes and home resale activity. The company considers each of these factors when entering into new markets or determining the extent of its operations in existing markets. In 1993, the company entered into the Austin and San Antonio, Texas markets through its acquisition of an interest in a joint venture with Scott Felder Homes. Furthermore, the Company entered into the Chicago market during the year.
The company offers a range of different home styles in each of its geographic regions which are tailored to the styles and consumer tastes of the particular region. Optional interior and exterior features allow the customer to enhance the basic styles. The company's homes vary in size and price range, but are generally marketed to customers purchasing their first home or their first move- up home. The company's average settlement price was $148,400 in 1993.
LAND PURCHASES. The company must, in the ordinary course of its business, continuously seek and make acquisitions of land for replacement and expansion of land inventory within its current markets and for expansion into new markets. Where possible, options or contracts with cash deposit requirements are used to acquire rights to developed lots that the company intends to use for the sale and construction of homes. Generally, the company will complete the purchase of the lots under such option agreements as sales contracts are executed by home buyers; however, under certain circumstances, developed lots are acquired before sales contracts are executed by home buyers. The company also purchases developed land and land for development into finished lots. As of December 31, 1993, the company had deposits and letters of credit outstanding of $26.0 million for options and commitments to purchase land. These options and commitments expire at various dates through 1997.
MATERIALS COSTS Substantially all materials used in the construction of homes are available from a number of sources, but may fluctuate in price due to various factors. To increase purchasing efficiencies, the company uses standardized building materials and products in its homes. In addition, the company operates plants in Maryland, North Carolina, Ohio, and Texas that produce and ship rough lumber packages and trim materials to building sites. The company utilizes these plants to control production, improve on-site building times and control the cost and quality of materials.
SUPPLIERS AND SUBCONTRACTORS Substantially all on-site construction work is performed by subcontractors monitored by the company's production supervisors. The company has, on occasion, experienced shortages of building materials and of skilled labor in certain markets. Such shortages in the future could result in longer construction times and higher costs than those experienced in the past.
MARKETING Homes are sold by employees and independent real estate brokers showing furnished model homes. The company reports a sale when a customer's sales contract is approved, and records revenue from a sale upon settlement of the new home. The company normally commences construction of homes when a customer has selected a lot and model and has received preliminary mortgage approval. However, construction of homes may begin prior to a sale to satisfy market demand for completed homes and to ease construction scheduling.
FINANCIAL SERVICES
Through its financial services segment, the company provides various mortgage- related products and services for retail and institutional customers and conducts investment activities. Retail operations include mortgage origination and settlement of residential loans for approximately 72% of the customers of the company's homebuilding segment. The company's financial services segment also has a growing spot and wholesale loan business and is engaged in loan administration, title and escrow services. Institutional operations include securities administration and securities issuance activities. The investment operation holds certain assets related to the company's operations, primarily mortgage-backed securities held for sale that were previously issued by the company's limited-purpose subsidiaries.
RETAIL OPERATIONS
The retail operations provide loan production, loan servicing and title and escrow services for retail customers.
LOAN PRODUCTION. The company's mortgage origination operations have a centralized management structure, with 31 retail loan processing offices which process the company's builder and spot loans, and eight wholesale offices. For the twelve months ended December 31, 1993, the company originated 27,872 mortgage loans totaling $3.6 billion, of which 80 percent were for buyers of homes other than those built by the company and those seeking refinancing of existing mortgage loans.
The company's mortgage loan originations can be split into three segments: builder loans, spot loans (together, retail loans), and wholesale loans. Builder loans are loans that the company originates in connection with its home sales. Spot loans are mortgage loans that are originated primarily by loan officers through contacts with realtors and home owners. Spot loans are not related to the financing of homes built by the company. Wholesale loans are originated by outside brokers but underwritten and closed by the company. The wholesale offices work with a network of loan brokers and lenders to source loans.
The company arranges various types of mortgage financing including conventional, Federal Housing Administration and Veterans Administration mortgages with various fixed- and adjustable-rate structures. The company's mortgage operations are approved by Federal Home Loan Mortgage Corporation, Federal National Mortgage Association and Government National Mortgage Association. The mortgage origination operation has loan production offices in Arizona, California, Colorado, Florida, Georgia, Illinois, Indiana, Maryland, New Jersey, North Carolina, Ohio, Pennsylvania, South Carolina, Texas, Virginia and Washington.
LOAN SERVICING The company services loans that it originates as well as loans originated by others. As of December 31, 1993, the company's loan servicing portfolio was $9.8 billion. The company services loans in all 50 states, with the highest concentrations in Alabama, Arizona, California, Florida, Georgia, Maryland, North Carolina, Texas, Virginia and Washington.
TITLE AND ESCROW SERVICES The company entered the title business in 1989 through the formation of Cornerstone Title Company for the initial purpose of providing title services to the company's customers. As of December 31, 1993 Cornerstone had two offices in Maryland and one office each in Florida, Indiana, Texas and Delaware. The company also operates two escrow companies in California that perform the escrow and loan closing functions primarily on homes built by the company.
INSTITUTIONAL OPERATIONS
Institutional financial services consist of securities issuance and securities administration. The company began issuing and administering securities in 1982 through wholly-owned subsidiaries. These services have expanded to include builder and multi-builder bonds, multi-class CMO and REMIC structures and pass- through securities.
SECURITIES ISSUANCE. In 1982, the company began to provide access to capital markets for itself and other homebuilders, mortgage bankers and thrifts to support loan production. Through various limited-purpose subsidiaries and shelf registration statements, the company has the ability to issue securities in either debt or pass-through form. The company's expertise includes structures utilizing subordination, mezzanine classes, pool insurance, modified pool insurance, reserve funds, limited guarantees and full guarantees from third-party bond guarantors as well as various combinations of these features. Eligible collateral includes single-family and multi-family mortgage loans, manufactured housing contracts, agency certificates and private label mortgage securities.
SECURITIES ADMINISTRATION. The securities administration business includes trustee monitoring and reporting, financial and compliance reporting, tax administration and master servicing. The company has been able to capitalize on the growth in the securities industry by the establishment of the administration business for third party issuers. At December 31, 1993, the company provided administration services for nearly 50 different issuers which have created approximately 500 series of securities aggregating over $123 billion in issuance balances.
INVESTMENT OPERATIONS
The company's investment operations hold certain assets, primarily mortgage- backed securities held for sale, which were obtained as a result of the early redemption of various mortgage-backed bonds previously issued by the limited- purpose subsidiaries of the company. The limited-purpose subsidiaries were formed to facilitate the long-term financing of mortgage loans through the issuance and sale of mortgage-backed bonds.
The company earns an interest spread on the portfolio equal to the difference between the interest rate on the called mortgage collateral and the related borrowing rate. The company may periodically realize gains from the sale of mortgage-backed securities from the portfolio.
LIMITED-PURPOSE SUBSIDIARIES
The company's limited-purpose subsidiaries facilitate the financing of long-term mortgage loans and securities through the issuance of mortgage-backed bonds. These bond series represent obligations solely of the limited-purpose subsidiaries and are not guaranteed or insured by The Ryland Group, Inc. Under the provisions of applicable trust indentures, the bonds are fully collateralized by mortgage loans, mortgage-backed securities, notes receivable and certain funds held by trustees.
The company's limited-purpose subsidiaries were established to provide conduits for the issuance and sale of mortgage-backed securities and mortgage participation certificates in the secondary market. Although the limited-purpose subsidiaries may continue to issue securities on behalf of others, due to changes in the tax laws the number of new securities in which the company has retained a residual interest has decreased substantially in recent years, and since 1991 no residual interests have been retained by the company.
ECONOMIC CONDITIONS
The company's business is affected by general economic conditions in the United States and by the level of interest rates and consumer confidence in the economy. The company cannot predict whether interest rates will be at levels attractive to prospective home buyers. In addition, the company's business is affected by local economic conditions, such as unemployment rates and housing demand in the markets in which it builds homes.
The company's financial services operations are affected by changes in interest rates which may affect the level of origination activity, mortgage-backed security issuance activity, and prepayments. Prepayments reduce the value of loan servicing rights and securities administration rights.
COMPETITION
The company competes with other homebuilders in its markets. Competition ranges from local custom builders who may build only a few homes each year to other large national homebuilding companies. In addition, the company competes with consumer alternatives such as existing homes and rental housing. Principal competitive factors in homebuilding are design, quality, reputation, relationship with developers, availability and location of lots, and price and availability of customer financing.
The financial services segment competes with other mortgage bankers to arrange financing for home buying customers. Principal competitive factors include interest rates and various other features of mortgage loan products available to the home buyer. The loan servicing operations of the financial services segment competes with other national loan servicers for loan servicing rights. This segment also competes in the securities markets with investment bankers, issuers and servicers for the business of issuing, administering and managing mortgage- backed bonds and other securities.
REGULATORY AND ENVIRONMENTAL MATTERS
The company is subject to various local, state and federal statutes, ordinances, rules and regulations concerning zoning, building design, construction and similar matters, including local regulations which impose restrictive zoning and density requirements in order to limit the number of homes that can eventually be built within the boundaries of a particular locality. The company may also be subject to periodic delays in homebuilding projects due to building moratoria in any of the states in which it operates. Generally, such moratoria relate to insufficient water or sewage facilities, or inadequate roads, or local services.
The company is subject to various local, state and federal statutes, ordinances, rules and regulations concerning the protection of health and the environment. The company is also subject to a variety of environmental conditions that can affect its business and its homebuilding projects. The particular environmental laws which apply to any given homebuilding site vary greatly according to the site's location, its environmental condition and the present and former uses of the site. Environmental laws and conditions may result in delays, may cause the company to incur substantial compliance and other costs, and can prohibit or severely restrict homebuilding activity in certain environmentally sensitive areas.
The company's financial services segment is subject to the rules and regulations of FHA, VA, FNMA, FHLMC, and GNMA ("regulatory agencies") with respect to originating, processing, selling and servicing mortgage loans. As a FHA lender, the company is required to file its audited financial statements with these various regulatory agencies. Additionally, the company is required to maintain a minimum net worth level as specified by HUD, GNMA, and FNMA. Mortgage origination activities are subject to the Equal Credit Opportunity Act, Federal Truth-in-Lending Act and the Real Estate Settlement Procedures Act and the regulations promulgated thereunder which prohibit discrimination and require the disclosure of certain information to mortgagors concerning credit and settlement costs.
EMPLOYEES
At December 31, 1993 the company employed 3,326 people. The company considers its employee relations to be good. No employees are represented by a collective bargaining agent.
ITEM 2.


ITEM 2. PROPERTIES
The company leases office space for its corporate headquarters in Columbia, Maryland, and for various operating offices. The company operates building component plants in Houston, Texas, New Windsor, Maryland, and Harrison, Ohio, and leases a building component plant in Shelby, North Carolina.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The company believes that approximately 6,400 townhomes and condominiums constructed from the mid-1970s through 1988 contain fire-retardant treated plywood used as roof sheathing that has been observed to fail over a relatively short period of time after installation. The company is in the process of inspecting and repairing the roofs of these homes. The cost of repairing these roofs, net of settlements from third parties, has been provided for by the company. As a result, it is the opinion of management that the costs to repair the remaining roofs will not adversely impact results of operations in future periods.
Contingent liabilities may arise from the obligations incurred in the ordinary course of business. The company is also party to various legal proceedings generally incidental to its businesses. Based on evaluation of the above matters and discussions with counsel, management believes that liabilities to the company arising from these matters will not have a material adverse effect on the financial condition of the company.
ITEM 4.
ITEM 4. SUBMISSION TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth quarter of the year ended December 31, 1993.
SEPARATE ITEM: EXECUTIVE OFFICERS OF THE REGISTRANT
All officers are elected by the board of directors.
There are no family relationships nor arrangements or understandings pursuant to which any of the officers listed were elected. For a description of employment and severance arrangements with certain executive officers of the company, see page 18 of the Proxy Statement for the 1994 Annual Meeting of Stockholders.
BUSINESS EXPERIENCE
All of the executive officers listed above have served in various capacities with The Ryland Group, Inc. over the past five years, with the exception of Messrs. R. Chad Dreier, Alan P. Hoblitzell, Jr., Frank J. Scardina, Arthur L. Titus and Stephen B. Cook.
Prior to joining the company in 1993, Mr. Dreier was executive vice president and chief financial officer of Kaufman and Broad Home Corporation and chairman of Kaufman and Broad Mortgage Company. Prior to joining the company in 1991, Mr. Hoblitzell was chairman and chief executive officer of MNC Financial, Inc. Prior to joining the Company in 1993, Mr. Scardina was president of Birtcher Real Estate Ltd. Prior to joining the company in 1990, Mr. Titus was a region president of NVR L.P. Prior to joining the company in 1992, Mr. Cook was vice president and controller of United States Fidelity and Guaranty Company.
PART II
Item 5.
Item 5. Market for the Company's Common Stock and Related Stockholder Matters.
The information required by this item is incorporated by reference from the section entitled "Common Stock Prices and Dividends" appearing on page 46 of the Annual Report to Shareholders for the year ended December 31, 1993.
Item 6.
Item 6. Selected Financial Data.
The information required by this item is incorporated by reference from the sections entitled "Financial Highlights" appearing on page 1 and "Selected Financial Data" appearing on pages 18 and 19 of the Annual Report to Shareholders for the year ended December 31, 1993.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The information required by this item is incorporated by reference from the section entitled "Management's Discussion and Analysis of Results of Operations and Financial Condition" appearing on pages 20 through 26 of the Annual Report to Shareholders for the year ended December 31, 1993.
Item 8.

Item 8. Financial Statements and Supplementary Data.
The information required by this item is incorporated by reference from the information appearing on pages 27 through 43 and from the section entitled "Quarterly Financial Data (unaudited)" appearing on page 45 of the Annual Report to Shareholders for the year ended December 31, 1993.
Item 9.
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.
During the fiscal years ended December 31, 1993 and 1992, there have been no disagreements between the company and its accountants on any matter of accounting principle or financial statement disclosure.
PART III
Item 10.


Item 10. Directors and Executive Officers of the Registrant.
Information as to the company's Directors is incorporated by reference from pages 3, 4, 9 and 10 of the company's Proxy Statement for its 1994 Annual Meeting of Stockholders. Information as to the company's executive officers is shown under Part I as a separate item.
Item 11.
Item 11. Executive Compensation.
The information required by this item is incorporated by reference from pages 10-18 of the company's Proxy Statement for its 1994 Annual Meeting of Stockholders.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this item is incorporated by reference from pages 8 and 9 of the company's Proxy Statement for its 1994 Annual Meeting of Stockholders.
Item 13.
Item 13. Certain Relationships and Related Transactions.
There are no transactions, business relationships, or indebtedness required to be reported by the company pursuant to this Item.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) 1. Financial Statements.
The following consolidated financial statements of The Ryland Group, Inc. and Subsidiaries, included in the Annual Report to Shareholders for the year ended December 31, 1993, are incorporated by reference in Item 8:
Consolidated Statements of Earnings - years ended December 31, 1993, 1992, and 1991.
Consolidated Balance Sheets - December 31, 1993 and 1992.
Consolidated Statements of Stockholders' Equity - years ended December 31, 1993, 1992 and 1991.
Consolidated Statements of Cash Flows - years ended December 31, 1993, 1992 and 1991.
Notes to Consolidated Financial Statements.
(a) 2. Financial Statement Schedules. (filed herewith) PAGE NO.
Schedule VIII - Valuation and Qualifying Accounts. 19
Schedule IX - Short-Term Borrowings. 20
Schedule X - Supplementary Income Statement Information. 21
Schedules not listed above have been omitted because they areeither inapplicable or the required information has been given in the financial statements or notes thereto.
(a) 3. Exhibits
EXHIBIT NO.
3.1 Charter of The Ryland Group, Inc., as amended. (Incorporated by reference from Form 10-K for the year ended December 31, 1989)
3.2 By-Laws of The Ryland Group, Inc., as amended. (Incorporated by reference from Form 10-Q for the quarter ended June 30, 1990)
4.1 Rights Agreement dated as of December 17, 1986 between The Ryland Group, Inc. and Maryland National Bank as amended by The First Amendment of Rights Agreement dated as of October 17, 1990. (Incorporated by reference from Form 8 filed October 25,1990)
4.2 Articles Supplementary dated as of August 31, 1989. (Incorporated by reference from Form 8-K filed September 12, 1989)
4.3 Indenture dated as of November 2, 1989 between The Ryland Group, Inc. and Manufacturers Hanover Trust Company, as Trustee. (Incorporated by reference from Exhibits to Registration Statement on Form S-3, Registration No. 33-28692)
4.4 First Supplemental Indenture dated as of December 28, 1990 between The Ryland Group, Inc. and Manufacturers Hanover Trust company, as Trustee. (Incorporated by reference from Form 8-K filed December 31, 1990)
4.5 Senior Subordinated Notes dated as of July 23, 1992. (Incorporated by reference from Form 8-K filed August 6, 1992)
4.6 Senior Subordinated Notes dated as of November 4, 1993. (Incorporated by reference from Registration Statement on Form S-3, Registration No. 33-48071)
4.7 Indenture dated as of July 15, 1992 between The Ryland Group, Inc. and Security Trust Company, N.A., as Trustee. (Incorporated by reference from Form 8-K filed August 6, 1992)
10.1 Form of Senior Executive Severance Agreement between The Ryland Group, Inc., and certain of its executive officers. (Incorporated by reference from Form 10-K for the year ended December 31, 1989)
(a) 3. Exhibits, continued
EXHIBIT NO.
10.2 Lease Agreement between Seventy Corporate Center Limited Partnership and The Ryland Group, Inc. dated April 17, 1990. (Incorporated by reference from Form 10-K for the year ended December 31, 1990)
10.3 1992 Equity Incentive Plan of The Ryland Group, Inc. (Incorporated by reference from Form 10-Q for the quarter ended June 30, 1992)
10.4 Alan P. Hoblitzell, Jr. Employment Agreement dated as of September 30, 1993 between Alan P. Hoblitzell, Jr. and The Ryland Group, Inc. (Filed Herewith)
10.5 1992 Non-Employee Director Equity Plan of The Ryland Group, Inc. (Incorporated by reference from Form 10-Q for the quarter ended June 30, 1992)
10.6 Credit Agreement dated as of July 29, 1993 between The Ryland Group, Inc. and certain banks a party thereto. (Filed Herewith)
10.7 Restated Loan Agreement dated as of May 28, 1993, between Ryland Mortgage Company, Associates Mortgage Funding Corporation, BankOne, Texas, N.A., and certain lenders a party thereto. (Filed Herewith)
11. Statement Re Computation of Per Share Earnings. (Filed Herewith)
13. Annual Report to Shareholders for the year ended December 31,1993. (Filed Herewith)
22. Subsidiaries of the Company. (Filed Herewith)
24. Consent of Ernst & Young. (Filed Herewith)
25. Power of Attorney. (Filed Herewith)
Executive Compensation Plans and Arrangements:
10.1 Form of Senior Executive Severance Agreement between The Ryland Group, Inc., and certain of its executive officers. (Incorporated by reference from Form 10-K for the year ended December 31, 1989)
10.3 1992 Equity Incentive Plan of The Ryland Group, Inc. (Incorporated by reference from Form 10-Q for the quarter ended June 30, 1992)
10.4 Alan P. Hoblitzell, Jr. Employment Agreement dated as of September 30, 1993 between Alan P. Hoblitzell, Jr. and The Ryland Group, Inc. (Filed Herewith)
10.5 1992 Non-Employee Director Equity Plan of The Ryland Group, Inc. (Incorporated by reference from Form 10-Q for the quarter ended June 30, 1992)
(b) Reports on Form 8-K filed in the fourth quarter of 1993:
Form 8-K dated October 28, 1993 Item 5. Other Events - Third Quarter Inventory Provision
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
THE RYLAND GROUP, INC.
By: /s/ Alan P. Hoblitzell, Jr. March 25,1994 ----------------------------------- Alan P. Hoblitzell, Jr. Director, Executive Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Principal Executive Officer:
/s/ R. Chad Dreier March 25, 1994 - --------------------------------------------- R. Chad Dreier Chief Executive Officer
Principal Financial Officer:
/s/ Alan P. Hoblitzell, Jr. March 25, 1994 - --------------------------------------------- Alan P. Hoblitzell, Jr. Chief Financial Officer
Principal Accounting Officer:
/s/ Stephen B. Cook March 25, 1994 - --------------------------------------------- Stephen B. Cook Vice President and Corporate Controller
A Majority of the Board of Directors: Andre W. Brewster, James A. Flick, Jr., R. Chad Dreier, Robert J. Gaw, Leonard M. Harlan, L. C. Heist, William G. Kagler, John H. Mullin, III
By: /s/ Alan P. Holbitzell, Jr. March 25,1994 ------------------------------------- Alan P. Hoblitzell, Jr. For Himself and as Attorney-in-Fact
Page Of Sequentially Numbered Pages -------------- INDEX OF EXHIBITS:
10.4 Alan P. Hoblitzell, Jr. Employment Agreement 24 - 30 dated as of September 30, 1993 between Alan P. Hoblitzell, Jr. and The Ryland Group, Inc.
10.6 Credit Agreement dated as of July 29, 1993 31 - 131 between The Ryland Group, Inc. and certain banks a party thereto.
10.7 Restated Loan Agreement dated as of May 28, 132 - 198 1993 between Ryland Mortgage Company, Associates Mortgage Funding Corporation, BankOne, Texas, N.A., and certain lenders a party thereto.
11 Statement Re Computation of Per Share Earnings 199
13 Annual Report to Shareholders for the year ended 200 - 228 December 31, 1993
22 Subsidiaries of the Company 229
24 Consent of Ernst & Young, Independent Auditors 230
25 Power of Attorney 231