-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ID0fiiQ/97FwcJyM9FQtNVAjFEHuPvVIMTEXz0DwfOworAUumcZBGHNrvXCmhM+1 vc3KLMscFj3nWyROof+mFg== 0000950147-98-000899.txt : 19981111 0000950147-98-000899.hdr.sgml : 19981111 ACCESSION NUMBER: 0000950147-98-000899 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981110 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DEL WEBB CORP CENTRAL INDEX KEY: 0000105189 STANDARD INDUSTRIAL CLASSIFICATION: OPERATIVE BUILDERS [1531] IRS NUMBER: 860077724 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-04785 FILM NUMBER: 98742732 BUSINESS ADDRESS: STREET 1: 2231 EAST CAMELBACK ROAD CITY: PHOENIX STATE: AZ ZIP: 85016 BUSINESS PHONE: 6028088000 MAIL ADDRESS: STREET 1: 6001 NORTH 24 STREET CITY: PHOENIX STATE: AZ ZIP: 85016 FORMER COMPANY: FORMER CONFORMED NAME: WEBB DEL E CORP DATE OF NAME CHANGE: 19880728 10-Q 1 QUARTERLY REPORT F.T.Q.E. 9/30/98 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the period ended SEPTEMBER 30, 1998. [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from N/A to N/A . Commission File Number: 1-4785 DEL WEBB CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 86-0077724 (State or other jurisdiction (IRS Employer Identification Number) of incorporation or organization) 6001 NORTH 24TH STREET, PHOENIX, ARIZONA 85016 (Address of principal executive offices) (Zip Code) (602) 808-8000 (Registrant's phone number, including area code) NONE - -------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of October 31, 1998 Registrant had outstanding 18,074,228 shares of common stock. DEL WEBB CORPORATION FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION PAGE ---- Item 1. Financial Statements: Consolidated Balance Sheets as of September 30, 1998, June 30, 1998 and September 30, 1997........................ 1 Consolidated Statements of Earnings for the three months ended September 30, 1998 and 1997.................... 2 Consolidated Statements of Cash Flows for the three months ended September 30, 1998 and 1997.................... 3 Notes to Consolidated Financial Statements.................... 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......................... 10 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K.............................. 19 DEL WEBB CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE DATA)
SEPTEMBER 30, JUNE 30, SEPTEMBER 30, 1998 1998 1997 (UNAUDITED) (UNAUDITED) - --------------------------------------------------------------------------------- ASSETS - --------------------------------------------------------------------------------- Real estate inventories (Notes 2, 3 and 6) $1,230,381 $1,113,297 $ 965,887 Cash and short-term investments 5,665 14,362 4,921 Receivables 34,104 41,498 22,294 Property and equipment, net 44,957 33,333 19,330 Deferred income taxes (Note 4) -- -- 4,378 Other assets 109,845 107,972 49,861 - -------------------------------------------------------------------------------- $1,424,952 $1,310,462 $1,066,671 ================================================================================ LIABILITIES AND SHAREHOLDERS' EQUITY Notes payable, senior and subordinated debt (Note 3) $ 784,874 $ 703,938 $ 548,716 Contractor and trade accounts payable 87,744 78,114 64,114 Accrued liabilities and other payables 86,771 98,066 66,997 Home sale deposits 101,606 80,332 76,416 Deferred income taxes (Note 4) 7,597 4,245 -- Income taxes payable (Note 4) 2,580 -- 4,189 - -------------------------------------------------------------------------------- Total liabilities 1,071,172 964,695 760,432 - -------------------------------------------------------------------------------- Shareholders' equity: Common stock, $.001 par value. Authorized 30,000,000 shares; issued 18,109,182 shares at September 30, 1998, 18,107,606 shares at June 30, 1998 and 17,679,783 shares at September 30, 1997 18 18 18 Additional paid-in capital 166,331 166,328 159,814 Retained earnings 192,400 184,890 151,168 - -------------------------------------------------------------------------------- 358,749 351,236 311,000 Less cost of common stock in treasury, 49,950 shares at September 30, 1997 -- -- (762) Less deferred compensation (4,969) (5,469) (3,999) - -------------------------------------------------------------------------------- Total shareholders' equity 353,780 345,767 306,239 - -------------------------------------------------------------------------------- $1,424,952 $1,310,462 $1,066,671 ================================================================================
See accompanying notes to consolidated financial statements. 1 DEL WEBB CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (IN THOUSANDS EXCEPT PER SHARE DATA) (UNAUDITED) THREE MONTHS ENDED SEPTEMBER 30, - -------------------------------------------------------------------------------- 1998 1997 - -------------------------------------------------------------------------------- Revenues (Note 5) $268,647 $248,043 - -------------------------------------------------------------------------------- Costs and expenses (Note 5): Home construction, land and other 203,853 190,944 Selling, general and administrative 41,152 36,461 Interest (Note 6) 10,495 11,067 - -------------------------------------------------------------------------------- 255,500 238,472 - -------------------------------------------------------------------------------- Earnings before income taxes 13,147 9,571 Income taxes (Note 4) 4,733 3,446 - -------------------------------------------------------------------------------- Net earnings $ 8,414 $ 6,125 ================================================================================ Weighted average shares outstanding 18,107 17,588 ================================================================================ Weighted average shares outstanding - assuming dilution 18,668 17,938 ================================================================================ Net earnings per share $ .46 $ .35 ================================================================================ Net earnings per share - assuming dilution $ .45 $ .34 ================================================================================ See accompanying notes to consolidated financial statements. 2 DEL WEBB CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED) THREE MONTHS ENDED SEPTEMBER 30, - -------------------------------------------------------------------------------- 1998 1997 - -------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from customers related to operating community home sales $ 283,427 $ 241,122 Cash received from commercial land and facility sales at operating communities 5,301 15,174 Cash paid for costs related to home construction at operating communities (181,518) (160,216) - -------------------------------------------------------------------------------- Net cash provided by operating community sales activities 107,210 96,080 Cash paid for land acquisitions at operating communities (10,143) (7,911) Cash paid for lot development at operating communities (33,380) (34,965) Cash paid for amenity development at operating communities (14,143) (9,343) - -------------------------------------------------------------------------------- Net cash provided by operating communities 49,544 43,861 Cash paid for costs related to communities in the pre-operating stage (100,706) (13,718) Cash received from mortgage operations 7,729 2,691 Cash received from residential land development project 631 918 Cash paid for corporate activities (10,507) (15,367) Interest paid (19,559) (20,205) Cash received (paid) for income taxes 1,603 (558) - -------------------------------------------------------------------------------- NET CASH USED FOR OPERATING ACTIVITIES (71,265) (2,378) - -------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (13,324) (206) Investments in life insurance policies (843) (2,036) - -------------------------------------------------------------------------------- NET CASH USED FOR INVESTING ACTIVITIES (14,167) (2,242) - -------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings 139,435 63,149 Repayments of debt (61,795) (78,150) Stock purchases -- (3) Proceeds from exercise of common stock options -- 709 Dividends paid (905) (879) - -------------------------------------------------------------------------------- NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 76,735 (15,174) - -------------------------------------------------------------------------------- NET DECREASE IN CASH AND SHORT-TERM INVESTMENTS (8,697) (19,794) CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD 14,362 24,715 - -------------------------------------------------------------------------------- CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 5,665 $ 4,921 ================================================================================ See accompanying notes to consolidated financial statements. 3 DEL WEBB CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (IN THOUSANDS) (UNAUDITED) THREE MONTHS ENDED SEPTEMBER 30, - -------------------------------------------------------------------------------- 1998 1997 - -------------------------------------------------------------------------------- Reconciliation of net earnings to net cash used for operating activities: Net earnings $ 8,414 $ 6,125 Allocation of non-cash common costs in costs and expenses, excluding interest 62,470 53,274 Amortization of capitalized interest in costs and expenses 10,495 11,067 Deferred compensation amortization 484 420 Depreciation and other amortization 1,701 1,566 Deferred income taxes 3,352 2,147 Net (increase) decrease in home construction costs (8,163) 11,074 Land acquisitions (11,852) (11,295) Lot development (88,167) (40,349) Amenity development (58,139) (14,310) Pre-acquisition costs -- (2,412) Net change in other assets and liabilities 8,140 (19,685) - -------------------------------------------------------------------------------- Net cash used for operating activities $(71,265) $ (2,378) ================================================================================ See accompanying notes to consolidated financial statements. 4 (1) BASIS OF PRESENTATION The consolidated financial statements include the accounts of Del Webb Corporation and its subsidiaries (the "Company"). In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments, primarily eliminations of all significant intercompany transactions and accounts) necessary to present fairly the financial position, results of operations and cash flows for the periods presented. Certain financial statement items from the prior year have been reclassified to be consistent with the current year financial statement presentation. The Company operates in Arizona, California, Florida, Illinois, Nevada, South Carolina and Texas. Its operations encompass communities that are age-qualified (for people age 55 and over) and those that are not. The Company's age-qualified, active adult communities (primarily its Sun City communities) are generally large-scale, master-planned communities with extensive amenities. The Company's non-age-qualified communities include its country club communities and its conventional subdivision communities. The country club communities are large-scale, master-planned communities with golf courses and other amenities. The conventional subdivision communities are smaller-scale subdivisions built in metropolitan or market areas in which the Company is developing age-qualified communities. The consolidated financial statements should be read in conjunction with the consolidated financial statements and the related disclosures contained in the Company's Annual Report on Form 10-K for the year ended June 30, 1998, filed with the Securities and Exchange Commission. In the Consolidated Statements of Cash Flows, the Company defines operating communities as communities generating revenues from home closings. Communities in the pre-operating stage are those not yet generating revenues from home closings. The results of operations for the three months ended September 30, 1998 are not necessarily indicative of the results to be expected for the full fiscal year. (2) REAL ESTATE INVENTORIES The components of real estate inventories are: In Thousands -------------------------------------------------------------------------- September June 30, September 30, 1998 30, 1998 1997 (Unaudited) (Unaudited) -------------------------------------------------------------------------- Home construction costs $ 190,333 $ 182,170 $170,944 Unamortized improvement and amenity costs 704,170 603,390 503,730 Unamortized capitalized interest 67,098 61,455 48,068 Land held for housing 230,453 220,441 199,750 Land and facilities held for future development or sale 38,327 45,841 43,395 -------------------------------------------------------------------------- $1,230,381 $1,113,297 $965,887 ========================================================================== At September 30, 1998 the Company had 297 completed homes and 647 homes under construction that were not subject to a sales contract. These homes represented $34.7 million of home construction costs at September 30, 1998. At September 30, 1997 the Company had 437 completed homes and 382 homes under construction (representing $42.2 million of home construction costs) that were not subject to a sales contract. 5 (2) REAL ESTATE INVENTORIES (CONTINUED) Included in land and facilities held for future development or sale at September 30, 1998 were 272 acres of residential land, commercial land and worship sites that are currently being marketed for sale at the Company's communities. (3) NOTES PAYABLE, SENIOR AND SUBORDINATED DEBT Notes payable, senior and subordinated debt consists of:
In Thousands ----------------------------------------------------------------------------- September 30, June 30, September 30, 1998 1998 1997 (Unaudited) (Unaudited) ----------------------------------------------------------------------------- 9 3/4% Senior Subordinated Debentures due 2003, net, unsecured $ 98,184 $ 98,081 $ 97,773 9% Senior Subordinated Debentures due 2006, net, unsecured 97,970 97,902 97,697 9 3/4% Senior Subordinated Debentures due 2008, net, unsecured 145,491 145,370 145,007 9 3/8% Senior Subordinated Debentures due 2009, net, unsecured 195,063 194,977 -- Notes payable to banks under a revolving credit facility and short-term lines of credit, unsecured 197,830 111,209 186,000 Real estate and other notes, primarily secured 50,336 56,399 22,239 ----------------------------------------------------------------------------- $784,874 $703,938 $548,716 =============================================================================
At September 30, 1998 the Company had $192.0 million outstanding under its $450 million senior unsecured revolving credit facility and $5.8 outstanding under its $25 million of short-term lines of credit. At September 30, 1998, under the most restrictive of the covenants in the Company's debt agreements, $36.5 million of the Company's retained earnings was available for payment of cash dividends and for the acquisition by the Company of its common stock. 6 DEL WEBB CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (4) INCOME TAXES COMPONENTS OF INCOME TAXES The components of income taxes are: In Thousands (Unaudited) ----------------------------------------------------------- Three Months Ended September 30, ----------------------------------------------------------- 1998 1997 ----------------------------------------------------------- Current: Federal $ 1,245 $ 1,226 State 136 73 ----------------------------------------------------------- 1,381 1,299 ----------------------------------------------------------- Deferred: Federal 3,191 1,815 State 161 332 ----------------------------------------------------------- 3,352 2,147 ----------------------------------------------------------- $ 4,733 $ 3,446 =========================================================== 7 DEL WEBB CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (5) REVENUES AND COSTS AND EXPENSES The components of revenues and costs and expenses are: In Thousands (Unaudited) -------------------------------------------------------------------------- Three Months Ended September 30, -------------------------------------------------------------------------- 1998 1997 -------------------------------------------------------------------------- Revenues: Homebuilding: Active adult communities $207,486 $156,144 Country club communities -- 22,658 Conventional subdivision communities 52,355 51,526 -------------------------------------------------------------------------- Total homebuilding 259,841 230,328 Land and facility sales 5,931 15,518 Other 2,875 2,197 -------------------------------------------------------------------------- $268,647 $248,043 ========================================================================== Costs and expenses: Home construction and land: Active adult communities $154,650 $118,472 Country club communities -- 16,711 Conventional subdivision communities 42,693 44,035 -------------------------------------------------------------------------- Total homebuilding 197,343 179,218 Cost of land and facility sales 4,847 10,953 Other cost of sales 1,663 773 -------------------------------------------------------------------------- Total home construction, land and other 203,853 190,944 Selling, general and administrative 41,152 36,461 Interest 10,495 11,067 -------------------------------------------------------------------------- $255,500 $238,472 ========================================================================== 8 DEL WEBB CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (6) INTEREST The following table shows the components of interest: In Thousands (Unaudited) ---------------------------------------------------------------------- Three Months Ended September 30, ---------------------------------------------------------------------- 1998 1997 ---------------------------------------------------------------------- Interest incurred and capitalized $16,138 $13,014 ====================================================================== Amortization of capitalized interest in costs and expenses $10,495 $11,067 ====================================================================== Unamortized capitalized interest included in real estate inventories at period end $67,098 $48,068 ====================================================================== Interest income $ 291 $ 253 ====================================================================== Interest income is included in other revenues. 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the results of operations and financial condition should be read in conjunction with the accompanying consolidated financial statements and notes thereto and the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1998, filed with the Securities and Exchange Commission. CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA THREE MONTHS ENDED SEPTEMBER 30, CHANGE - -------------------------------------------------------------------------------- 1998 1997 AMOUNT PERCENT - ------------------------------------------------------------------------------- OPERATING DATA : Number of net new orders: Active adult communities: Sun Cities Phoenix 272 262 10 3.8% Sun Cities Las Vegas 301 278 23 8.3% Sun City Palm Desert 134 62 72 116.1% Sun City Roseville 200 176 24 13.6% Sun City Hilton Head 100 95 5 5.3% Sun City Georgetown 51 85 (34) (40.0%) Sun City at Huntley 208 N/A 208 N/A Florida communities 84 N/A 84 N/A Other communities 52 N/A 52 N/A - -------------------------------------------------------------------------------- Total active adult communities 1,402 958 444 46.3% - -------------------------------------------------------------------------------- Country club communities: Arizona N/A N/A N/A N/A Nevada 66 N/A 66 N/A - -------------------------------------------------------------------------------- Total country club communities 66 N/A 66 N/A - -------------------------------------------------------------------------------- Conventional subdivision communities: Arizona 230 274 (44) (16.1%) Nevada 92 42 50 119.0% California N/A N/A N/A N/A - -------------------------------------------------------------------------------- Total conventional subdivision communities 322 316 6 1.9% - -------------------------------------------------------------------------------- Total 1,790 1,274 516 40.5% ================================================================================ 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA (CONTINUED) THREE MONTHS ENDED SEPTEMBER 30, CHANGE - -------------------------------------------------------------------------------- 1998 1997 AMOUNT PERCENT - -------------------------------------------------------------------------------- Number of home closings: Active adult communities: Sun Cities Phoenix 274 259 15 5.8% Sun Cities Las Vegas 236 242 (6) (2.5%) Sun City Palm Desert 122 41 81 197.6% Sun City Roseville 169 118 51 43.2% Sun City Hilton Head 73 84 (11) (13.1%) Sun City Georgetown 79 111 (32) (28.8%) Sun City at Huntley N/A N/A N/A N/A Florida communities 106 N/A 106 N/A Other communities 45 N/A 45 N/A - -------------------------------------------------------------------------------- Total active adult communities 1,104 855 249 29.1% - -------------------------------------------------------------------------------- Country club communities: Arizona N/A 82 (82) (100.0%) Nevada N/A N/A N/A N/A - -------------------------------------------------------------------------------- Total country club communities N/A 82 (82) (100.0%) - -------------------------------------------------------------------------------- Conventional subdivision communities: Arizona 222 206 16 7.8% Nevada 42 73 (31) (42.5%) California N/A 20 (20) (100.0%) - -------------------------------------------------------------------------------- Total conventional subdivision communities 264 299 (35) (11.7%) - -------------------------------------------------------------------------------- Total 1,368 1,236 132 10.7% ================================================================================ 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA (CONTINUED) THREE MONTHS ENDED SEPTEMBER 30, CHANGE - -------------------------------------------------------------------------------- 1998 1997 AMOUNT PERCENT - -------------------------------------------------------------------------------- BACKLOG DATA : Homes under contract at September 30: Active adult communities: Sun Cities Phoenix 667 695 (28) (4.0%) Sun Cities Las Vegas 613 569 44 7.7% Sun City Palm Desert 277 147 130 88.4% Sun City Roseville 413 338 75 22.2% Sun City Hilton Head 196 170 26 15.3% Sun City Georgetown 163 176 (13) (7.4%) Sun City at Huntley 208 N/A 208 N/A Florida communities 253 N/A 253 N/A Other communities 109 N/A 109 N/A - -------------------------------------------------------------------------------- Total active adult communities 2,899 2,095 804 38.4% - -------------------------------------------------------------------------------- Country club communities: Arizona N/A 38 (38) (100.0%) Nevada 66 N/A 66 N/A - -------------------------------------------------------------------------------- Total country club communities 66 38 28 73.7% - -------------------------------------------------------------------------------- Conventional subdivision communities: Arizona 493 435 58 13.3% Nevada 134 60 74 123.3% California N/A N/A N/A N/A - -------------------------------------------------------------------------------- Total conventional subdivision communities 627 495 132 26.7% - -------------------------------------------------------------------------------- Total 3,592 2,628 964 36.7% ================================================================================ Aggregate contract sales amount (dollars in millions) $ 762 $ 527 $ 235 44.6% ================================================================================ Average contract sales amount per home (dollars in thousands) $ 212 $ 201 $ 11 5.5% ================================================================================ 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA (CONTINUED)
THREE MONTHS ENDED SEPTEMBER 30, CHANGE - ------------------------------------------------------------------------------------------ 1998 1997 AMOUNT PERCENT - ------------------------------------------------------------------------------------------ AVERAGE REVENUE PER HOME CLOSING : Active adult communities: Sun Cities Phoenix $166,500 $153,500 $ 13,000 8.5% Sun Cities Las Vegas 192,900 189,500 3,400 1.8% Sun City Palm Desert 232,000 230,800 1,200 0.5% Sun City Roseville 226,500 210,700 15,800 7.5% Sun City Hilton Head 183,800 169,200 14,600 8.6% Sun City Georgetown 218,700 198,200 20,500 10.3% Sun City at Huntley N/A N/A N/A N/A Florida communities 104,500 N/A N/A N/A Other communities 178,000 N/A N/A N/A Average active adult communities 187,900 182,600 5,300 2.9% Country club communities: Arizona N/A 276,300 N/A N/A Nevada N/A N/A N/A N/A Average country club communities N/A 276,300 N/A N/A Conventional subdivision communities: Arizona 199,400 180,400 19,000 10.5% Nevada 192,500 145,500 47,000 32.3% California N/A 186,600 N/A Average conventional subdivision communities 198,300 172,300 26,000 15.1% Total average 189,900 186,300 3,600 1.9% ========================================================================================= OPERATING STATISTICS : Costs and expenses as a percentage of revenues: Home construction, land and other 75.9% 77.0% (1.1%) (1.4%) Selling, general and administrative 15.3% 14.7% 0.6% 4.1% Interest 3.9% 4.5% (0.6%) (13.3%) Ratio of home closings to homes under contract in backlog at beginning of period 43.2% 47.7% (4.5%) (9.4%) =========================================================================================
NOTES: New orders are net of cancellations. The Company recognizes revenue at close of escrow. The Sun Cities Phoenix include Sun City West and Sun City Grand. The Sun Cities Las Vegas include Sun City Summerlin, Sun City MacDonald Ranch and Sun City Anthem. The Company began taking new home sales orders at Sun City Anthem in July 1998. The Company began taking new home sales orders at Sun City at Huntley in September 1998. In January 1998 the Company acquired certain assets and assumed certain liabilities at two operating active adult communities in central Florida. 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA (CONTINUED) NOTES (CONTINUED): Other communities represent two smaller-scale communities in Arizona and California at which new order activity began in October and November 1997, respectively. Home closings began at these communities in March and May 1998, respectively. The Company completed new order activity at Terravita (an Arizona country club community) in April 1997. Home closings at Terravita were completed in May 1998. The Company began taking new home sales orders at Anthem Country Club (a Nevada county club community near Las Vegas) in July 1998. The Company completed new order activity for its Coventry Homes southern California operations in June 1997. Home closings for these operations were completed in August 1997. A majority of the backlog at September 30, 1998 is currently anticipated to result in revenues in the next 12 months. However, a majority of the backlog is contingent primarily upon the availability of financing for the customer and, in certain cases, sale of the customer's existing residence or other factors. Also, as a practical matter, the Company's ability to obtain damages for breach of contract by a potential home buyer is limited to retaining all or a portion of the deposit received. In the three months ended September 30, 1998 and 1997, cancellations of home sales orders as a percentage of new home sales orders written during the period were 13.6 percent and 14.0 percent, respectively. 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATIONS REVENUES. Revenues increased to $268.6 million for the three months ended September 30, 1998 from $248.0 million for the three months ended September 30, 1997. This increase was largely due to Sun City Palm Desert and Sun City Roseville, which respectively closed 81 and 51 more homes in the 1998 quarter than in the 1997 quarter. Management believes that these increases may be attributable to continued improvement in the California real estate economy and its economy generally, as well as to the introduction of new models. The Company's Florida communities and smaller-scale communities in Arizona and California, none of which had home closings in the 1997 quarter, also contributed to the increase in revenues. HOME CONSTRUCTION, LAND AND OTHER COSTS. The increase in home construction, land and other costs to $203.9 million for the 1998 quarter compared to $190.9 million for the 1997 quarter was due to the increase in home closings. These costs as a percentage of revenues decreased to 75.9 percent for the 1998 quarter compared to 77.0 percent for the 1997 quarter. This decrease was primarily a result of increased revenue per home closing at virtually all of the Company's active adult and conventional subdivision communities. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. As a percentage of revenues, selling, general and administrative expenses increased to 15.3 percent for the 1998 quarter compared to 14.7 percent for the 1997 quarter. This increase was due primarily to increased corporate overhead to support an increased number of pre-operating communities that are not yet generating revenues. INTEREST. As a percentage of revenues, amortization of capitalized interest was 3.9 percent for the 1998 quarter compared to 4.5 percent for the 1997 quarter. This decrease was primarily due to an increase in pre-operating communities, for which interest is capitalized on qualified assets and interest amortization on home closings has not yet begun. INCOME TAXES. The increase in income taxes to $4.7 million for the 1998 quarter compared to $3.4 million for the 1997 quarter was due to the increase in earnings before income taxes. The effective tax rate in both quarters was 36 percent. NET EARNINGS. The increase in net earnings to $8.4 million for the 1998 quarter compared to $6.1 million for the 1997 quarter was primarily attributable to the 132-unit increase in home closings and a nearly 1.9 percent increase in homebuilding gross margins. NET NEW ORDER ACTIVITY AND BACKLOG. Net new orders in the 1998 quarter were 40.5 percent higher than in the 1997 quarter. The number of homes under contract at September 30, 1998 was 36.7 percent higher than at September 30, 1997. Both of these increases were primarily attributable to the new communities of Anthem Country Club near Las Vegas, Sun City at Huntley, the Florida communities and two smaller-scale active adult communities in Arizona and California. These communities had new order activity for all or part of the 1998 quarter but had not yet commenced new order activity in the 1997 quarter. Management believes that new order activity in the 1998 quarter at Sun City at Huntley was favorably impacted by a level of pent-up demand that may not exist in future periods. Management currently anticipates that developed lot availability and weather conditions may also impact new order activity at this community from time to time in the future. 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) LIQUIDITY AND FINANCIAL CONDITION OF THE COMPANY The cash flow for each of the Company's communities can differ substantially from reported earnings, depending on the status of the development cycle. The initial years of development or expansion require significant cash outlays for, among other things, land acquisition, obtaining master plan and other approvals, construction of amenities (including golf courses and recreation centers), model homes, sales and administration facilities, major roads, utilities, general landscaping and interest. Since these costs are capitalized, this can result in income reported for financial statement purposes during those initial years significantly exceeding cash flow. However, after the initial years of development or expansion, when these expenditures are made, cash flow can significantly exceed earnings reported for financial statement purposes, as costs and expenses include amortization charges for substantial amounts of previously expended costs. During the 1998 quarter the Company generated $107.2 million of net cash from operating community sales activities, used $57.7 million of cash for land and lot and amenity development at operating communities, paid $100.7 million for costs related to communities in the pre-operating stage and used $20.1 million of cash for other operating activities. The resulting $71.3 million of net cash used for operating activities was funded mainly through borrowings under the Company's $450 million senior unsecured revolving credit facility (the "Credit Facility"). Increased home sale deposits (resulting from the increase in net new orders and backlog) were also a significant source of funding in the 1998 quarter. At September 30, 1998 the Company had $5.7 million of cash and short-term investments, $192.0 million outstanding under the Credit Facility and $5.8 million outstanding under its $25 million of short-term lines of credit. The Company is currently experiencing a period of substantial development. It has under development, among other projects: (i) Sun City Lincoln Hills, planned as the successor to Sun City Roseville; (ii) Anthem Las Vegas, which includes Sun City Anthem (the successor to Sun City Summerlin), Anthem Country Club (a non-age-qualified golf course community) and a conventional subdivision homebuilding component (Coventry Anthem); (iii) Anthem Phoenix, which is planned to include a non-age-qualified country club community and a conventional subdivision homebuilding component; and (iv) Sun City at Huntley, located in Huntley, Illinois (near Chicago). The Company currently anticipates that it will incur material additional debt for development expenditures at these pre-operating communities prior to their initial home closings. As a result, the Company expects to be more leveraged than it has been in recent years. The Company's degree of leverage from time to time will affect its interest incurred and capital resources, which could limit its ability to capitalize on business opportunities or withstand adverse changes. If the Company cannot at any time obtain sufficient capital resources to fund its development and expansion expenditures, its projects may be delayed, resulting in cost increases, adverse effects on the Company's results of operations and possible material adverse effects to the Company. No assurance can be given as to the terms, availability or cost of any future financing the Company may need. If the Company is at any time unable to service its debt, refinancing or obtaining additional financing may be required and may not be available or available on terms acceptable to the Company. Management believes that the company's current borrowing capacity, when combined with existing cash and short-term investments and currently anticipated cash flows from the Company's operating communities and conventional homebuilding activities, will provide the Company with adequate capital resources to fund the Company's currently anticipated operating requirements for the next 12 months. However, these operating requirements reflect some limitations on the timing and extent of new projects and activities that the Company may otherwise desire to undertake. At September 30, 1998, under the most restrictive of the covenants in the Company's debt agreements, $36.5 million of the Company's retained earnings was available for payment of cash dividends or the acquisition by the Company of its common stock. 16 YEAR 2000 ISSUE The Year 2000 issue is the result of computer programs being written using two digits (rather than four) to define the applicable year. Computer programs that have time-sensitive software may not recognize dates beginning in the year 2000, which could result in miscalculations or system failures. To date, the Company's Year 2000 remediation efforts have focused on its core business computer applications (i.e., those systems that the Company is dependent upon for the conduct of day-to-day business operations). Starting over two years ago, the Company initiated a comprehensive review of its core business applications to determine the adequacy of these systems to meet future business requirements. Year 2000 readiness was only one of many factors considered in this assessment. Out of this effort, a number of systems were identified for upgrade or replacement. In no case is a system being replaced solely because of Year 2000 issues, although in some cases the timing of system replacements is being accelerated. Thus, the Company does not believe the costs of these system replacements are specifically Year 2000 related. Additionally, while the Company may have incurred an opportunity cost for addressing the Year 2000 issue, it does not believe that any specific information technology projects have been deferred as a result of its Year 2000 efforts. As of October 1998, the Company believes all of its core business systems are adequately Year 2000 capable for its purposes, except for its lead tracking and mortgage processing systems and some of its document imaging systems. Projects are currently underway to replace each of these systems, with implementations and testing scheduled for the remainder of calendar year 1998 and early 1999. As with systems that have already been replaced, the Company does not believe the costs of these replacements, which aggregate approximately $1 million, are specifically Year 2000 related. The Company has also purchased at a cost of approximately $100,000 a software product that, it believes, can identify personal computers and related equipment with imbedded software that is not adequately Year 2000 capable for the Company's purposes. The Company expects to incur costs to replace or repair such equipment, but it has not at this time determined the amount of these costs. Since some of the equipment would otherwise be replaced through normal attrition, lease expirations and scheduled upgrades in the ordinary course of business, it is possible that much of these costs would not be solely related to Year 2000 readiness. The Company is currently assessing other potential Year 2000 issues, including non-information technology systems. A broad-based Year 2000 Task Force has been formed and began meeting in August 1998 to identify areas of concern and develop action plans. The Company currently anticipates that testing of non-information technology systems will be completed by mid-1999. Also as part of the Task Force effort, the Company's relationships with vendors, contractors, financial institutions and other third parties will be examined to determine the status of the Year 2000 issue efforts on the part of the other parties to material relationships. The Year 2000 Task Force includes both internal and Company-external representation. The Company expects to incur Year 2000-specific costs in the future but does not at present anticipate that these costs will be material. The Company believes that the most reasonably likely worst-case scenario for the Year 2000 issue would be that the Company or the third parties with whom it has relationships were to cease or not successfully complete their Year 2000 remediation efforts. If this were to occur, the Company would encounter disruptions to its business that could have a material adverse effect on its results of operations. The Company could be materially impacted by widespread economic or financial market disruption or by Year 2000 computer system failures at government agencies on which the Company is dependent for zoning, building permits and related matters. The Company has not at this time established a formal Year 2000 contingency plan but will consider and, if necessary, address doing so as part of its Year 2000 Task Force activities. The Company maintains and deploys contingency plans designed to address various other potential business interruptions. These plans may be applicable to address the interruption of support provided by third parties resulting from their failure to be Year 2000 ready. 17 FORWARD LOOKING INFORMATION; CERTAIN CAUTIONARY STATEMENTS Certain statements contained in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" section that are not historical results are forward looking statements. These forward looking statements involve risks and uncertainties including, but not limited to, risks associated with financing and leverage, the development of future communities and new geographic markets, governmental regulation, including land exchanges with governmental entities, environmental considerations, competition, the geographic concentration of the Company's operations, the cyclical nature of real estate operations and other conditions generally, fluctuations in labor and material costs, natural risks that exist in certain of the Company's market areas, risks associated with the Year 2000 issue and other matters set forth in the Company's Form 10-K for the year ended June 30, 1998. Actual results may differ materially from those projected or implied. Further, certain forward looking statements are based upon assumptions of future events, which may not prove to be accurate. 18 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit 27 Financial Data Schedule Exhibit 27.1 Restated September 30, 1997 Financial Data Schedule (b) The Company did not file any reports on Form 8-K during the period covered by this report. 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, who are duly authorized to do so. DEL WEBB CORPORATION (REGISTRANT) Date: November 10, 1998 /s/ Philip J. Dion ------------------------- ----------------------------------------- Philip J. Dion Chairman and Chief Executive Officer Date: November 10, 1998 /s/ John A. Spencer ------------------------- ----------------------------------------- John A. Spencer Senior Vice President and Chief Financial Officer 20 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1998 AND THE CONSOLIDATED STATEMENT OF EARNINGS FOR THE FISCAL YEAR ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 U.S. DOLLARS 3-MOS JUN-30-1999 JUL-01-1998 SEP-30-1998 1 5,665 0 34,104 0 1,230,381 0 44,957 0 0 0 784,874 0 0 18 353,762 0 0 268,647 0 214,348 41,152 0 0 13,147 4,733 8,414 0 0 0 8,414 0.46 0.45
EX-27.1 3 RESTATED 9/30/97 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE IS A RESTATEMENT OF A PREVIOUSLY FILED SCHEDULE TO DISCLOSE BASIC AND DILUTED EARNINGS PER SHARE AS NOW REQUIRED BY STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128. THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1997 AND THE CONSOLIDATED STATEMENT OF EARNINGS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL 1000 U.S. DOLLARS 3-MOS JUN-30-1998 JUL-01-1997 SEP-30-1997 1 4,921 0 22,294 0 965,887 0 19,330 0 1,066,671 0 548,716 0 0 18 306,221 1,066,671 0 248,043 0 202,011 36,461 0 0 9,571 3,446 6,125 0 0 0 6,125 0.35 0.34
-----END PRIVACY-ENHANCED MESSAGE-----