-----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, VO73DIh5bJEjRXn0sUo6R/+y26wnOGxr5DnYsGtGnnrv6UkHtyuu5eqVXqoliAtx iI5/d5r70ZEnXwsE6E1RVw== 0000950147-99-001196.txt : 19991108 0000950147-99-001196.hdr.sgml : 19991108 ACCESSION NUMBER: 0000950147-99-001196 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991105 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: 99742072 BUSINESS ADDRESS: STREET 1: 6001 NORTH 24TH STREET 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 FOR QUARTER ENDING 9/30/99 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, 1999. [ ] 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, 1999 Registrant had outstanding 18,223,163 shares of common stock. DEL WEBB CORPORATION FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1999 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION PAGE ---- Item 1. Financial Statements: Consolidated Balance Sheets as of September 30, 1999, June 30, 1999 and September 30, 1998..................... 1 Consolidated Statements of Earnings for the three months ended September 30, 1999 and 1998............... 2 Consolidated Statements of Cash Flows for the three months ended September 30, 1999 and 1998............... 3 Notes to Consolidated Financial Statements............... 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................... 11 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K......................... 20 DEL WEBB CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE DATA)
SEPTEMBER 30, JUNE 30, SEPTEMBER 30, 1999 1999 1998 (UNAUDITED) (UNAUDITED) - ------------------------------------------------------------------------------------------------------- ASSETS - ------------------------------------------------------------------------------------------------------- Real estate inventories (Notes 2, 3 and 6) $ 1,728,900 $ 1,622,581 $ 1,230,381 Cash and short-term investments 14,613 22,669 5,665 Receivables 43,002 33,529 34,104 Property and equipment, net 74,157 72,423 44,957 Other assets 121,363 115,595 109,845 - ------------------------------------------------------------------------------------------------------- $ 1,982,035 $ 1,866,797 $ 1,424,952 ======================================================================================================= LIABILITIES AND SHAREHOLDERS EQUITY - ------------------------------------------------------------------------------------------------------- Notes payable, senior and subordinated debt (Note 3) $ 1,107,582 $ 1,040,613 $ 784,874 Contractor and trade accounts payable 114,485 115,456 87,744 Accrued liabilities and other payables 118,320 127,980 86,771 Home sale deposits 185,505 145,362 101,606 Deferred income taxes (Note 4) 24,662 22,510 7,597 Income taxes payable (Note 4) 11,925 10,082 2,580 - ------------------------------------------------------------------------------------------------------- Total liabilities 1,562,479 1,462,003 1,071,172 - ------------------------------------------------------------------------------------------------------- Shareholders' equity: Common stock, $.001 par value. Authorized 30,000,000 shares; issued 18,225,643 shares at September 30, 1999, 18,221,385 shares at June 30, 1999 and 18,109,182 shares at September 30, 1998 18 18 18 Additional paid-in capital 169,081 168,865 166,331 Retained earnings 255,859 242,075 192,400 - ------------------------------------------------------------------------------------------------------- 424,958 410,958 358,749 Less deferred compensation (5,402) (6,164) (4,969) - ------------------------------------------------------------------------------------------------------- Total shareholders' equity 419,556 404,794 353,780 - ------------------------------------------------------------------------------------------------------- $ 1,982,035 $ 1,866,797 $ 1,424,952 =======================================================================================================
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, - -------------------------------------------------------------------------------- 1999 1998 - -------------------------------------------------------------------------------- Revenues (Note 5) $409,562 $268,647 - -------------------------------------------------------------------------------- Costs and expenses (Note 5): Home construction, land and other 313,829 203,853 Selling, general and administrative 56,939 41,152 Interest (Note 6) 17,257 10,495 - -------------------------------------------------------------------------------- 388,025 255,500 - -------------------------------------------------------------------------------- Earnings before income taxes 21,537 13,147 Income taxes (Note 4) 7,753 4,733 - -------------------------------------------------------------------------------- Net earnings $ 13,784 $ 8,414 ================================================================================ Weighted average shares outstanding - basic 18,223 18,107 ================================================================================ Weighted average shares outstanding - assuming dilution 18,628 18,668 ================================================================================ Net earnings per share - basic $ .76 $ .46 ================================================================================ Net earning per share - assuming dilution $ .74 $ .45 ================================================================================ 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, - --------------------------------------------------------------------------------------------------------- 1999 1998 - --------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from customers related to operating community home sales $ 427,026 $ 283,427 Cash received from commercial land and facility sales at operating communities 6,344 5,301 Cash paid for costs related to home construction at operating communities (275,205) (181,518) - --------------------------------------------------------------------------------------------------------- Net cash provided by operating community sales activities 158,165 107,210 Cash paid for land acquisitions at operating communities (7,534) (10,143) Cash paid for lot development at operating communities (73,488) (33,380) Cash paid for amenity development at operating communities (55,919) (14,143) - --------------------------------------------------------------------------------------------------------- Net cash provided by operating communities 21,224 49,544 Cash paid for costs related to communities in the pre-operating stage (14,716) (100,706) Cash received from mortgage operations 1,684 7,729 Cash received from (paid for) residential land development project (2,514) 631 Cash paid for corporate activities (26,870) (10,507) Interest paid (30,869) (19,559) Cash received (paid) for income taxes (3,507) 1,603 - --------------------------------------------------------------------------------------------------------- NET CASH USED FOR OPERATING ACTIVITIES (55,568) (71,265) - --------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (4,006) (13,324) Investments in life insurance policies (1,538) (843) - --------------------------------------------------------------------------------------------------------- NET CASH USED FOR INVESTING ACTIVITIES (5,544) (14,167) - --------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings 121,820 139,435 Repayments of debt (68,979) (61,795) Stock repurchases (3) -- Proceeds from exercise of common stock options 218 -- Dividends paid -- (905) - --------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 53,056 76,735 - --------------------------------------------------------------------------------------------------------- NET DECREASE IN CASH AND SHORT-TERM INVESTMENTS (8,056) (8,697) CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD 22,669 14,362 - --------------------------------------------------------------------------------------------------------- CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 14,613 $ 5,665 =========================================================================================================
See accompanying notes to consolidated financial statements. 3 DEL WEBB CORPORATION AND SUBIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (IN THOUSANDS) (UNAUDITED) THREE MONTHS ENDED SEPTEMBER 30, - -------------------------------------------------------------------------------- 1999 1998 - -------------------------------------------------------------------------------- Reconciliation of net earnings to net cash used for operating activities: Net earnings $ 13,784 $ 8,414 Amortization of non-cash common costs in costs and expenses, excluding interest 90,998 62,470 Amortization of capitalized interest in costs and expenses 17,257 10,495 Deferred compensation amortization 763 484 Depreciation and other amortization 2,800 1,701 Deferred income taxes 2,152 3,352 Net increase in home construction costs (40,254) (8,163) Land acquisitions (7,534) (11,852) Lot development (77,434) (88,167) Amenity development (67,198) (58,139) Net change in other assets and liabilities 9,098 8,140 - -------------------------------------------------------------------------------- Net cash used for operating activities $(55,568) $(71,265) ================================================================================ See accompanying notes to consolidated financial statements. 4 DEL WEBB CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (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 conducts its operations in Arizona, California, Florida, Illinois, Nevada, South Carolina and Texas. The Company's active adult communities (primarily its Sun City communities) are generally large-scale, master planned communities with extensive amenities for people age 55 and over. The Company's family and country club communities are open to people of all ages and are generally developed in metropolitan or market areas in which the Company is developing active adult communities. Within all of its communities, the Company is usually the exclusive builder of homes. 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, 1999, 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, 1999 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 30, June 30, September 30, 1999 1999 1998 (Unaudited) (Unaudited) - ----------------------------------------------------------------------------------------- Home construction costs $ 305,622 $ 265,368 $ 190,333 Unamortized improvement and amenity costs 1,074,115 977,867 704,170 Unamortized capitalized interest 92,819 85,007 67,098 Land held for housing 191,306 191,624 230,453 Land and facilities held for future development or sale 65,038 102,715 38,327 - ----------------------------------------------------------------------------------------- $1,728,900 $1,622,581 $1,230,381 =========================================================================================
At September 30, 1999 the Company had 347 completed homes and 497 homes under construction that were not subject to a sales contract. These homes represented $45.0 million of home construction costs at September 30, 1999. At September 30, 1998 the Company had 297 completed homes and 647 homes under construction (representing $34.7 million of home construction costs) that were not subject to a sales contract. 5 DEL WEBB CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (2) REAL ESTATE INVENTORIES (CONTINUED) Included in land and facilities held for future development or sale at September 30, 1999 were 201 acres of commercial land that are currently being marketed for sale at the Company's active adult communities and 398 acres of commercial land that are currently being marketed for sale at the Company's Anthem Arizona project. Also included in land and facilities held for future development or sale at September 30, 1999 were 533 lots on selected residential land parcels in the Company's Arizona family community operations and 927 lots in the Company's Nevada family communities. (3) NOTES PAYABLE, SENIOR AND SUBORDINATED DEBT Notes payable, senior and subordinated debt consists of:
In Thousands - --------------------------------------------------------------------------------------------- September 30, June 30, September 30, 1999 1999 1998 (Unaudited) (Unaudited) - --------------------------------------------------------------------------------------------- 9 3/4% Senior Subordinated Debentures due 2003, net, unsecured $ 98,595 $ 98,492 $ 98,184 9% Senior Subordinated Debentures due 2006, net, unsecured 98,244 98,176 97,970 9 3/4% Senior Subordinated Debentures due 2008, net, unsecured 145,975 145,854 145,491 9 3/8% Senior Subordinated Debentures due 2009, net, unsecured 195,530 195,413 195,063 10 1/4% Senior Subordinated Debentures due 2010, net, unsecured 143,772 143,622 -- Notes payable to banks under a revolving credit facility and short-term lines of credit, unsecured 353,304 301,000 197,830 Real estate and other notes, primarily secured 72,162 58,056 50,336 - --------------------------------------------------------------------------------------------- $1,107,582 $1,040,613 $784,874 =============================================================================================
At September 30, 1999 the Company had $350.0 million outstanding under its $500 million senior unsecured revolving credit facility and $3.3 million outstanding under its $20 million of short-term lines of credit. At September 30, 1999, under the most restrictive of the covenants in the Company's debt agreements, $55.3 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 (4) INCOME TAXES The components of income taxes are: In Thousands (Unaudited) --------------------------------------------------------------------------- Three Months Ended September 30, --------------------------------------------------------------------------- 1999 1998 --------------------------------------------------------------------------- Current: Federal $5,276 $1,245 State 325 136 --------------------------------------------------------------------------- 5,601 1,381 --------------------------------------------------------------------------- Deferred: Federal 1,857 3,191 State 295 161 --------------------------------------------------------------------------- 2,152 3,352 --------------------------------------------------------------------------- $7,753 $4,733 =========================================================================== (5) REVENUES AND COSTS AND EXPENSES The components of revenues and costs and expenses are: In Thousands (Unaudited) --------------------------------------------------------------------------- Three Months Ended September 30, --------------------------------------------------------------------------- 1999 1998 --------------------------------------------------------------------------- Revenues: Homebuilding: Active adult communities $292,619 $207,486 Family and country club communities 96,736 52,355 --------------------------------------------------------------------------- 389,355 259,841 Models/vacation getaway homes with long-term leaseback 9,725 -- --------------------------------------------------------------------------- Total homebuilding 399,080 259,841 Land and facility sales 6,415 5,931 Other 4,067 2,875 --------------------------------------------------------------------------- $409,562 $268,647 =========================================================================== 7 (5) REVENUES AND COSTS AND EXPENSES (CONTINUED) In Thousands (Unaudited) --------------------------------------------------------------------------- Three Months Ended September 30, --------------------------------------------------------------------------- 1999 1998 --------------------------------------------------------------------------- Costs and expenses: Home construction and land: Active adult communities $220,413 $154,650 Family and country club communities 77,616 42,693 --------------------------------------------------------------------------- 298,029 197,343 Models/vacation getaway homes with long-term leaseback 9,725 -- --------------------------------------------------------------------------- Total homebuilding 307,754 197,343 Cost of land and facility sales 3,294 4,847 Other cost of sales 2,781 1,663 --------------------------------------------------------------------------- Total home construction, land and other 313,829 203,853 Selling, general and administrative 56,939 41,152 Interest 17,257 10,495 --------------------------------------------------------------------------- $388,025 $255,500 =========================================================================== (6) INTEREST The following table shows the components of interest: In Thousands (Unaudited) --------------------------------------------------------------------------- Three Months Ended September 30, --------------------------------------------------------------------------- 1999 1998 --------------------------------------------------------------------------- Interest incurred and capitalized $25,069 $16,138 =========================================================================== Amortization of capitalized interest in costs and expenses $17,257 $10,495 =========================================================================== Unamortized capitalized interest included in real estate inventories at period end $92,819 $67,098 =========================================================================== Interest income $ 251 $ 291 =========================================================================== Interest income is included in other revenues. 8 (7) SEGMENT INFORMATION The Company conducts its operations in two primary segments in Arizona, California, Florida, Illinois, Nevada, South Carolina and Texas. The Company's active adult communities (primarily its Sun City communities) are generally large-scale, master planned communities with extensive amenities for people age 55 and over. The Company's family and country club communities are open to people of all ages and are generally developed in metropolitan or market areas in which the Company is developing active adult communities. Within all of its communities, the Company is usually the exclusive builder of homes. Both of the Company's primary segments generate their revenues through the sale of homes (and, to a much lesser extent, land and facilities) to external customers in the United States. The Company is not dependent on any major customer. Information as to the operations of the Company in different business segments is set forth below based on the nature of the Company's communities and their customers. Certain information has not been included by segment due to the immateriality of the amount to the segments or in total. The Company evaluates segment performance based on several factors, of which the primary financial measure is earnings before interest and taxes ("EBIT"). The accounting policies of the business segments are the same as those for the Company. There are no significant intersegment transactions. 9 In Thousands (Unaudited) --------------------------------------------------------------------------- Three Months Ended September 30, --------------------------------------------------------------------------- 1999 1998 --------------------------------------------------------------------------- Revenues: Active adult communities $ 304,016 $ 209,610 Family and country club communities 104,430 56,945 Corporate and other 1,116 2,092 --------------------------------------------------------------------------- $ 409,562 $ 268,647 =========================================================================== EBIT: Active adult communities $ 43,269 $ 30,167 Family and country club communities 12,084 6,208 Corporate and other (16,559) (12,733) --------------------------------------------------------------------------- $ 38,794 $ 23,642 =========================================================================== Amortization of Capitalized Interest: Active adult communities $ 13,030 $ 8,426 Family and country club communities 4,227 2,069 Corporate and other -- -- --------------------------------------------------------------------------- $ 17,257 $ 10,495 =========================================================================== Assets at Period End: Active adult communities $ 1,294,132 $ 958,366 Family and country club communities 488,788 311,622 Corporate and other 199,115 154,964 --------------------------------------------------------------------------- $ 1,982,035 $ 1,424,952 =========================================================================== Expenditures for Real Estate Inventories: Active adult communities $ 259,218 $ 216,747 Family and country club communities 114,524 84,596 Corporate and other 2,112 123 --------------------------------------------------------------------------- $ 375,854 $ 301,466 =========================================================================== Purchases of Property and Equipment: Active adult communities $ 1,590 $ 2,390 Family and country club communities 204 82 Corporate and other 2,212 10,852 --------------------------------------------------------------------------- $ 4,006 $ 13,324 =========================================================================== Depreciation and Other Amortization: Active adult communities $ 1,187 $ 674 Family and country club communities 127 52 Corporate and other 1,486 975 --------------------------------------------------------------------------- $ 2,800 $ 1,701 =========================================================================== 10 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, 1999, filed with the Securities and Exchange Commission. CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA THREE MONTHS ENDED SEPTEMBER 30, CHANGE - -------------------------------------------------------------------------------- 1999 1998 AMOUNT PERCENT - -------------------------------------------------------------------------------- OPERATING DATA: Number of net new orders: Active adult communities: Sun Cities Phoenix 318 272 46 16.9% Sun Cities Las Vegas 254 301 (47) (15.6%) Sun City Palm Desert 81 134 (53) (39.6%) Sun Cities Northern California 138 200 (62) (31.0%) Sun City Hilton Head 97 100 (3) (3.0%) Sun City Georgetown 85 51 34 66.7% Sun City at Huntley 117 208 (91) (43.8%) Florida communities 86 84 2 2.4% Other communities 128 52 76 146.2% - -------------------------------------------------------------------------------- Total active adult communities 1,304 1,402 (98) (7.0%) - -------------------------------------------------------------------------------- Family and country club communities: Arizona country club communities 43 N/A 43 N/A Nevada country club communities 57 66 (9) (13.6%) Arizona family communities 234 230 4 1.7% Nevada family communities 54 92 (38) (41.3%) - -------------------------------------------------------------------------------- Total family and country club communities 388 388 -- -- - -------------------------------------------------------------------------------- Total 1,692 1,790 (98) (5.5%) ================================================================================ 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 - -------------------------------------------------------------------------------- 1999 1998 AMOUNT PERCENT - -------------------------------------------------------------------------------- OPERATING DATA: Number of home closings: Active adult communities: Sun Cities Phoenix 337 274 63 23.0% Sun Cities Las Vegas 251 236 15 6.4% Sun City Palm Desert 135 122 13 10.7% Sun Cities Northern California 129 169 (40) 23.7% Sun City Hilton Head 95 73 22 30.1% Sun City Georgetown 59 79 (20) (25.3%) Sun City at Huntley 226 N/A 226 N/A Florida communities 66 106 (40) (37.7%) Other communities 78 45 33 73.3% - -------------------------------------------------------------------------------- Total active adult communities 1,376 1,104 272 24.6% - -------------------------------------------------------------------------------- Family and country club communities: Arizona country club communities 17 N/A 17 N/A Nevada country club communities 55 N/A 55 N/A Arizona family communities 224 222 2 0.9% Nevada family communities 136 42 94 223.8% - -------------------------------------------------------------------------------- Total family and country club communities 432 264 168 63.6% - -------------------------------------------------------------------------------- Total 1,808 1,368 440 32.2% ================================================================================ 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 - -------------------------------------------------------------------------------- 1999 1998 AMOUNT PERCENT - -------------------------------------------------------------------------------- BACKLOG DATA: Homes under contract at September 30: Active adult communities: Sun Cities Phoenix 715 667 48 7.2% Sun Cities Las Vegas 548 613 (65) (10.6%) Sun City Palm Desert 230 277 (47) (17.0%) Sun Cities Northern California 417 413 4 1.0% Sun City Hilton Head 196 196 -- -- Sun City Georgetown 184 163 21 12.9% Sun City at Huntley 396 208 188 90.4% Florida communities 153 253 (100) (39.5%) Other communities 218 109 109 100.0% - -------------------------------------------------------------------------------- Total active adult communities 3,057 2,899 158 5.5% - -------------------------------------------------------------------------------- Family and country club communities: Arizona country club communities 270 N/A 270 N/A Nevada country club communities 137 66 71 107.6% Arizona family communities 737 493 244 49.5% Nevada family communities 167 134 33 24.6% - -------------------------------------------------------------------------------- Total family and country club communities 1,311 693 618 89.2% - -------------------------------------------------------------------------------- Total 4,368 3,592 776 21.6% ================================================================================ Aggregate contract sales amount (dollars in millions) $ 1,040 $ 762 $ 278 36.5% ================================================================================ Average contract sales amount per home (dollars in thousands) $ 238 $ 212 $ 26 12.3% ================================================================================ 13 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 - ------------------------------------------------------------------------------------------ 1999 1998 AMOUNT PERCENT - ------------------------------------------------------------------------------------------ AVERAGE REVENUE PER HOME CLOSING: Active adult communities: Sun Cities Phoenix $ 180,600 $ 166,500 $ 14,100 8.5% Sun Cities Las Vegas 219,000 192,900 26,100 13.5% Sun City Palm Desert 275,500 232,000 43,500 18.8% Sun Cities Northern California 277,900 226,500 51,400 22.7% Sun City Hilton Head 212,200 183,800 28,400 15.5% Sun City Georgetown 223,600 218,700 4,900 2.2% Sun City at Huntley 233,700 N/A N/A N/A Florida communities 133,800 104,500 29,300 28.0% Other communities 192,700 178,000 14,700 8.3% Average active adult communities 217,200 187,900 29,300 15.6% Family and country club communities: Arizona country club communities 217,900 N/A N/A N/A Nevada country club communities 430,400 N/A N/A N/A Arizona family communities 207,600 199,400 8,200 4.1% Nevada family communities 193,200 192,500 700 0.4% Average family and country club communities 231,900 198,300 33,600 16.9% Total average $ 220,700 $ 189,900 $ 30,800 16.2% OPERATING STATISTICS: Costs and expenses as a percentage of revenues: Home construction, land and other 76.6% 75.9% 0.7% 0.9% Selling, general and administrative 13.9% 15.3% (1.4%) (9.2%) Interest 4.2% 3.9% 0.3% 7.7% Ratio of home closings to homes under contract in backlog at beginning of period 40.3% 43.2% (2.9%) (6.7%) ==========================================================================================
NOTES: New orders are net of cancellations. The Company recognizes revenue at close of escrow. The Sun Cities Phoenix includes Sun City West, which is built out, 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. Home closings began at Sun City Anthem in December 1998. The Sun Cities Northern California include Sun City Roseville and Sun City Lincoln Hills. The Company began taking new home sales orders at Sun City Lincoln Hills in February 1999. Home closings began at Sun City Lincoln Hills in July 1999. The Company began taking new home sales orders at Sun City at Huntley in September 1998. Home closings began at Sun City at Huntley in April 1999. 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) NOTES (CONTINUED): Other active adult communities represent two smaller-scale communities in Arizona and California. The Company began taking new home sales orders at Anthem Country Club (an Arizona country club community near Phoenix) in February 1999. Home closings began at Anthem Arizona Country Club in September 1999. The Company began taking new home sales orders at Anthem Country Club (a Nevada country club community near Las Vegas) in July 1998. Home closings began at Anthem Las Vegas Country Club in February 1999. A substantial majority of the backlog at September 30, 1999 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, 1999 and 1998, cancellations of home sales orders as a percentage of new home sales orders written during the period were 15.1 percent and 13.6 percent, respectively. RESULTS OF OPERATIONS REVENUES. Total revenues increased to $409.6 million for the three months ended September 30, 1999 from $268.6 million for the three months ended September 30, 1998. Active adult community homebuilding revenues, exclusive of $6.3 million of revenues from models and vacation getaway homes sold with a long-term leaseback, increased to $292.6 million for the 1999 quarter from $207.5 million for the 1998 quarter. The Company's Sun City at Huntley community near Chicago, which had not yet begun home closings in the 1998 quarter, accounted for a $52.8 million increase in total active adult community homebuilding revenues. The Sun Cities Phoenix, Sun Cities Las Vegas and Sun City Palm Desert, each of which closed more homes in the 1999 quarter than in the 1998 quarter, accounted for a $21.9 million increase in total active adult community homebuilding revenues. These increases in home closings were primarily due to increased beginning backlogs. An increase in the average revenue per home closing resulted in a $17.9 million increase in total active adult community homebuilding revenues. Family and country club community homebuilding revenues, exclusive of $3.4 million of revenues from models and vacation getaway homes sold with a long-term leaseback, increased to $96.7 million for the 1999 quarter from $52.4 million for the 1998 quarter. The Company's family and country club communities at Anthem Las Vegas and Anthem Arizona, which had not yet begun home closings in the 1998 quarter, accounted for a $50.3 million increase in total family and country club community homebuilding revenues. HOME CONSTRUCTION, LAND AND OTHER COSTS. The increase in home construction, land and other costs to $313.8 million for the 1999 quarter from $203.9 million for the 1998 quarter was largely due to the increase in home closings. As a percentage of revenues, these costs increased to 76.6 percent for the 1999 quarter from 75.9 percent for the 1998 quarter, due to a decline in homebuilding gross margin from 24.1 percent for the 1998 quarter to 22.9 percent for the 1999 quarter. Half of this decline in homebuilding gross margin was attributable to deferred profit recognition in the 1999 quarter on the sale and long-term leaseback of 58 model homes and vacation getaway homes at three of the Company's communities. The balance of the decline in homebuilding gross margin was largely attributable to increased discounts at a number of the Company's active adult communities, including Sun City Summerlin and Sun City Roseville which are nearing completion. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. As a percentage of revenues, selling, general and administrative expenses decreased to 13.9 percent for the 1999 quarter from 15.3 percent for the 1998 quarter. This decrease resulted from the spreading of corporate overhead over significantly greater revenues. 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) INTEREST. As a percentage of revenues, amortization of capitalized interest was 4.2 percent for the 1999 quarter compared to 3.9 percent for the 1998 quarter. This increase was primarily due to an increase in debt levels (see "Liquidity and Financial Condition of the Company"). Increased interest rates also contributed to this increased interest amortization. INCOME TAXES. The increase in income taxes to $7.8 million for the 1999 quarter from $4.7 million in the 1998 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 $13.8 million for the 1999 quarter from $8.4 million for the 1998 quarter was primarily attributable to the increase in home closings and homebuilding revenues and the decrease in selling, general and administrative expenses as a percentage of revenues. NET NEW ORDER ACTIVITY AND BACKLOG. Net new orders in the 1999 quarter were 5.5 percent lower than in the 1998 quarter. This decrease was primarily due to Sun City at Huntley (which, the Company believes, experienced significant pent-up demand, which may no longer exist, when it began taking new orders in the 1998 quarter), the Sun Cities Las Vegas (at which Sun City Summerlin is now sold out and contributed only 23 net new orders in the 1999 quarter), the Sun Cities Northern California (at which Sun City Roseville is now sold out and contributed no net new orders in the 1999 quarter) and Sun City Palm Desert (which last year experienced its best first quarter of sales since inception, with this year's first quarter of sales being the second best since inception). The Company is preparing to open new recreational amenities at many of its communities, which may help increase sales activity at these communities. An increase in the cancellation percentage from 13.6 percent for the 1998 quarter to 15.1 percent for the 1999 quarter also contributed to the decline in net new orders. The increased cancellation percentage was attributable to the new communities that began home sales activity in fiscal 1999. These communities experienced a very low cancellation percentage during their initial period of pent-up demand, but they may now be experiencing more normal rates of cancellations. Based on the factors mentioned above, the sale of family community land parcels on which homes will not be built and sold by the Company (see "Liquidity and Financial Condition of the Company"), increases in mortgage interest rates and decreases in home resales nationally, the Company currently anticipates that its level of net new orders for fiscal 2000 will be slightly below the level of fiscal 1999. The number of homes under contract at September 30, 1999 was 21.6 percent higher than at September 30, 1998. This increase was primarily attributable to Sun City at Huntley and the family and country club communities at Anthem Arizona and Anthem Las Vegas. These communities had not yet commenced or had only recently commenced new order activity at September 30, 1998. Backlog decreases at the Sun Cities Las Vegas and Sun City Palm Desert were attributable to the declines in net new orders discussed above. The backlog decrease at the Florida communities was due to decreases in net new orders over the past 12 months. The Company believes the level of net new orders at the Florida communities may have been negatively affected by significant product changes and increases in home sales prices effected by the Company over that time period. 16 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, acquiring large tracts of land, obtaining development approvals, developing land and lots and constructing project infrastructure (such as roads and utilities), large recreation centers, golf courses, model homes and sales facilities. 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 1999 quarter the Company generated $158.2 million of net cash from operating community sales activities, used $137.0 million for land and lot and amenity development at operating communities, paid $14.7 million for costs related to communities in the pre-operating stage and used $62.1 million for other operating activities. The resulting $55.6 million of net cash used for operating activities was funded mainly through borrowings under the Company's $500 million senior unsecured revolving credit facility (the "Credit Facility") and $20 million short-term lines of credit (together with the Credit Facility, the "Credit Facilities"). Real estate development is dependent on, among other things, the availability and cost of financing. In periods of significant growth, the Company requires significant additional capital resources, whether from issuances of equity or by increasing its indebtedness. In the fiscal year ended June 30, 1999, the Company had under development, among other projects: (i) Sun City Lincoln Hills, the successor community to Sun City Roseville; (ii) Anthem Las Vegas, which includes Sun City Anthem, country club and family communities; (iii) Anthem Arizona, which includes country club and family communities and (iv) Sun City at Huntley. Given its assessment of market conditions and appropriate timing for these new communities, the Company decided to engage in substantial development at these communities and permit its indebtedness and leverage to increase substantially. To date, material cash expenditures have been made for these communities. The Company anticipates that it will make material additional development and housing construction expenditures at these communities through at least December 31, 1999. In order to provide adequate capital to meet the Company's operating requirements for the next 12 months, the Company in February 1999 completed a $150 million public debt offering and negotiated an increase in the amount of its Credit Facility from $450 million to $500 million. At September 30, 1999 the Company had $353.3 million outstanding under the Credit Facilities. As a result of public debt offerings and borrowings to fund development expenditures, described above, the Company has considerably more indebtedness and is considerably more highly leveraged at September 30, 1999 than it has been in recent years. The Company expects to continue to borrow additional amounts under the Credit Facilities to fund continuing development at these communities. The Company expects to have adequate capital resources to meet its needs for the next 12 months. In addition, the Company is offering for sale to other home builders certain land parcels in its Arizona family community operations and most of the remaining lots in its Nevada family communities and is planning to otherwise manage its expenditures to meet its needs and available resources over this time period. If there is a significant downturn in the Company's anticipated operations, however, the Company will need to further modify its business plan to operate with lower capital resources. Modifications of the business plan could include, among other things, delaying development expenditures at its communities. 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The Company's indebtedness and 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. Additionally, the availability and cost of debt financing depends on governmental policies and other factors outside the Company's control. 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 on 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. At September 30, 1999, under the most restrictive of the covenants in the Company's debt agreements, $55.3 million of the Company's retained earnings was available for payment of cash dividends and the acquisition by the Company of its common stock. 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. Through September 30, 1999, the majority of the Company's Year 2000 remediation efforts have addressed 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 more than three 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 was a system replaced solely because of Year 2000 issues, although in some cases the timing of system replacements was accelerated. Thus, the Company does not believe the costs of these system replacements, which aggregated approximately $2 million (the majority of which related to software acquisitions and were thus capitalized), were 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 significant information technology projects have been deferred to date as a result of its Year 2000 efforts. As of October 1999, the Company has tested all of its core business systems and believes they are adequately Year 2000 capable for its purposes, with the exception of its sales lead tracking system, replacement of which is scheduled to be completed by December 1999. The replacement lead tracking system has been in use within the Company since early 1999, with implementation occurring sequentially across the Company's various business units. The Company also purchased at a cost of approximately $100,000 a software product that identifies personal computers and related equipment with imbedded software that is not adequately Year 2000 capable for the Company's purposes. The Company incurred costs to replace or repair that equipment. Since the majority of that equipment would otherwise have been replaced through normal attrition, lease expirations and scheduled upgrades in the ordinary course of business, the Company believes that these equipment costs are not solely related to Year 2000 readiness. 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The Company also assessed other potential Year 2000 issues, including non-information technology systems. A broad-based Year 2000 Task Force was formed and continues to meet regularly to identify areas of concern and develop action plans. The Company also completed testing of non-information technology systems and determined that they are Year 2000 capable for its purposes. As part of the Year 2000 Task Force effort, the Company's relationships with vendors, contractors, financial institutions and other third parties were also considered 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 additional Year 2000-related costs in fiscal 2000 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 material relationships were to be unsuccessful in their Year 2000 remediation efforts. In that event, the Company may encounter disruptions to its business that could have a material adverse effect on it. The Company would also be materially adversely affected 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. With its Year 2000 remediation and testing substantially complete, the Company is establishing Year 2000 emergency preparedness procedures and contingency plans to supplement existing contingency plans that are designed to address various other potential business interruptions. 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 statements involve risks and uncertainties. Actual results will differ from those set forth or implied in the forward looking statements and the variances may be material. Further, certain forward looking statements are based on assumptions as to future events. Some of these assumptions will prove inaccurate. Risks and uncertainties include risks associated with: financing and leverage; the development of future communities, including in new geographic markets; governmental regulation, including growth management; environmental considerations; competition; the geographic concentration of the Company's operations; the cyclical nature of real estate operations; interest rate increases; fluctuations in labor and material costs; natural risks that exist in certain of the Company's market areas; Year 2000 disruptions; and other matters set forth in the Company's Annual Report on Form 10-K for the year ended June 30, 1999. 19 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit 27 Financial Data Schedule (b) The Company did not file any reports on Form 8-K during the period covered by this report. 20 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 5, 1999 /s/ Philip J. Dion ----------------- ---------------------------------------------------- Philip J. Dion Chairman and Chief Executive Officer Date: November 5, 1999 /s/ John A. Spencer ----------------- ---------------------------------------------------- John A. Spencer Executive Vice President and Chief Financial Officer EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1999 AND THE CONSOLIDATED STATEMENT OF EARNINGS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 U.S. DOLLARS 3-MOS JUN-30-2000 JUL-01-1999 SEP-30-1999 1 14,613 0 43,002 0 1,728,900 0 74,157 0 1,982,035 0 1,107,582 0 0 18 419,538 1,982,035 0 409,562 0 331,086 56,939 0 0 21,537 7,753 13,784 0 0 0 13,784 0.76 0.74
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