-----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, Ix82B319iGwe6LXQexsFRk32u6H5Aa5Wc+SSxgHhpo4JKa63fZJgxt4QR4lb8lVX uOeDKDXw0BkNhzOuuzepJQ== 0000950153-96-000796.txt : 19961030 0000950153-96-000796.hdr.sgml : 19961030 ACCESSION NUMBER: 0000950153-96-000796 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961029 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WEBB DEL 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: 1934 Act SEC FILE NUMBER: 001-04785 FILM NUMBER: 96649324 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 FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1996 1 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, 1996. [ ] 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 25, 1996 Registrant had outstanding 17,541,457 shares of common stock. 2 DEL WEBB CORPORATION FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION PAGE Item 1. Financial Statements: Consolidated Balance Sheets as of September 30, 1996, June 30, 1996 and September 30, 1995...................... 1 Consolidated Statements of Earnings for the three months ended September 30, 1996 and 1995.................. 2 Consolidated Statements of Cash Flows for the three months ended September 30, 1996 and 1995.................. 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............................ 15 Separate financial statements of the Company's subsidiaries that are guarantors of the Company's 10 7/8% Senior Notes due 2000 are not included because those subsidiaries are jointly and severally liable as guarantors of the Notes and the aggregate assets, liabilities, earnings and equity of those subsidiaries are substantially equivalent to the assets, liabilities, earnings and equity of the Company and its subsidiaries on a consolidated basis. 3 DEL WEBB CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE DATA)
SEPTEMBER 30, June 30, SEPTEMBER 30, 1996 1996 1995 (UNAUDITED) (UNAUDITED) - ------------------------------------------------------------------------------------------------------- ASSETS . - ------------------------------------------------------------------------------------------------------- Real estate inventories (Notes 2, 3 and 6) $ 922,065 $ 899,815 $868,195 Cash and short-term investments 7,662 18,340 29,934 Receivables 29,248 25,162 18,850 Property and equipment, net 23,800 27,599 29,782 Deferred income taxes (Note 4) 10,331 12,612 - Other assets 53,101 41,267 32,452 - ------------------------------------------------------------------------------------------------------ $1,046,207 $1,024,795 $979,213 ====================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------------------------------------------------------------------------ Notes payable, senior and subordinated debt (Note 3) $ 550,912 $ 514,677 $492,668 Contractor and trade accounts payable 72,416 82,918 62,383 Accrued liabilities and other payables 55,111 68,920 53,504 Home sale deposits 93,357 88,304 78,959 Income taxes payable (Note 4) 3,949 5,200 3,395 Deferred income taxes (Note 4) - - 7,546 - ------------------------------------------------------------------------------------------------------ Total liabilities 775,745 760,019 698,455 - ------------------------------------------------------------------------------------------------------ Shareholders' equity: Common stock, $.001 par value. Authorized 30,000,000 shares; issued 17,548,958 shares at September 30, 1996, 17,541,772 shares at June 30, 1996 and 17,396,551 shares at September 30, 1995 18 18 17 Additional paid-in capital 158,378 158,262 155,269 Retained earnings 116,148 111,033 127,940 - ------------------------------------------------------------------------------------------------------ 274,544 269,313 283,226 Less cost of common stock in treasury, 6,801 shares at September 30, 1996, 3,751 shares at June 30, 1996 and 1,417 shares at September 30, 1995 (105) (70) (18) Less deferred compensation (3,977) (4,467) (2,450) - ------------------------------------------------------------------------------------------------------ Total shareholders' equity 270,462 264,776 280,758 - ------------------------------------------------------------------------------------------------------ $1,046,207 $1,024,795 $979,213 ======================================================================================================
See accompanying notes to consolidated financial statements. 1 4 DEL WEBB CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (IN THOUSANDS EXCEPT PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, - --------------------------------------------------------------------- 1996 1995 - --------------------------------------------------------------------- Revenues (Note 5) $264,295 $206,318 - --------------------------------------------------------------------- Costs and expenses (Note 5): Home construction, land and other 205,164 159,292 Interest (Note 6) 11,584 7,700 Selling, general and administrative 38,184 29,274 - --------------------------------------------------------------------- 254,932 196,266 - --------------------------------------------------------------------- Earnings before income taxes 9,363 10,052 Income taxes (Note 4) 3,371 3,518 - --------------------------------------------------------------------- Net earnings $ 5,992 $ 6,534 ===================================================================== Weighted average shares outstanding 17,897 16,671 ===================================================================== Net earnings per share $ .33 $ .39 =====================================================================
See accompanying notes to consolidated financial statements. 2 5 DEL WEBB CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, - -------------------------------------------------------------------------------------------------------------- 1996 1995 - --------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from customers related to community home sales $ 198,896 $ 156,446 Cash received from commercial land and amenity sales 3,335 1,712 Cash paid for costs related to community home construction (140,333) (101,998) - --------------------------------------------------------------------------------------------------------------- Net cash provided by community sales activities 61,898 56,160 Cash paid for land acquisitions at operating communities (733) (9) Cash paid for lot development at operating communities (26,138) (25,038) Cash paid for amenity development at operating communities (15,313) (12,227) - --------------------------------------------------------------------------------------------------------------- Net cash provided by operating communities 19,714 18,886 Cash paid for costs related to communities in the pre-operating stage (24,851) (27,053) Cash received from customers related to conventional homebuilding 54,584 50,722 Cash paid for land, development, construction and other costs related to conventional homebuilding (57,218) (45,731) Cash received from residential land development project 3,177 3,770 Cash paid for corporate activities (17,833) (18,497) Interest paid (19,247) (11,349) Cash paid for income taxes (1,887) (1,182) - --------------------------------------------------------------------------------------------------------------- NET CASH USED FOR OPERATING ACTIVITIES (43,561) (30,434) - --------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (1,233) (2,188) Investments in life insurance policies (937) (1,055) - --------------------------------------------------------------------------------------------------------------- NET CASH USED FOR INVESTING ACTIVITIES (2,170) (3,243) - --------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings 87,555 93,781 Repayments of debt (51,735) (93,559) Proceeds from sale of common stock -- 45,237 Proceeds from exercise of common stock options 110 -- Purchases of treasury stock -- (2) Dividends paid (877) (746) - --------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 35,053 44,711 - --------------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS (10,678) 11,034 CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD 18,340 18,900 - --------------------------------------------------------------------------------------------------------------- CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 7,662 $ 29,934 ===============================================================================================================
See accompanying notes to consolidated financial statements. 3 6 DEL WEBB CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, - ------------------------------------------------------------------------------------------------------------ 1996 1995 - ------------------------------------------------------------------------------------------------------------ Reconciliation of net earnings to net cash used for operating activities: Net earnings $ 5,992 $ 6,534 Allocation of non-cash common costs in costs and expenses, excluding interest 65,403 48,849 Amortization of capitalized interest in costs and expenses 11,584 7,700 Deferred compensation amortization 455 385 Depreciation and other amortization 1,956 1,999 Deferred income taxes 2,281 2,349 Net increase in home construction costs (18,865) (19) Land acquisitions (12,179) (4,337) Lot development (38,460) (57,647) Amenity development (23,506) (23,264) Pre-acquisition costs (9,032) -- Net change in other assets and liabilities (29,190) (12,983) - ------------------------------------------------------------------------------------------------------------ Net cash used for operating activities $(43,561) $(30,434) ============================================================================================================
See accompanying notes to consolidated financial statements. 4 7 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 ("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's operations include its communities, conventional homebuilding operations and residential land development project. The Company's communities are large-scale, master-planned residential communities at which the Company controls all phases of the master plan development process from land selection through the construction and sale of homes. Within its communities, the Company is the exclusive builder of homes. The Company's conventional homebuilding operations encompass the construction and sale of homes in subdivisions. The Company's residential land development project is being completed and includes the sale of individual land parcels and lots to other builders and developers for conventional housing and related commercial development. These 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, 1996, 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, 1996 are not necessarily indicative of the results to be expected for the full fiscal year. 5 8 DEL WEBB CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (2) REAL ESTATE INVENTORIES The components of real estate inventories are as follows:
In Thousands - ------------------------------------------------------------------------------------------------------- September 30, June 30, September 30, 1996 1996 1995 (Unaudited) (Unaudited) - ------------------------------------------------------------------------------------------------------- Home construction costs $196,665 $ 177,800 $142,374 Unamortized improvement and amenity costs 447,517 439,679 396,513 Unamortized capitalized interest 44,143 43,661 62,290 Land held for housing 168,574 168,530 213,907 Land and amenities held for future development or sale 65,166 70,145 53,111 - ------------------------------------------------------------------------------------------------------ $922,065 $ 899,815 $868,195 ======================================================================================================
At September 30, 1996 the Company had 332 completed homes and 724 homes under construction that were not subject to a sales contract. These homes represented $27.3 million and $14.0 million, respectively, of home construction costs at September 30, 1996. At September 30, 1995 the Company had 341 completed homes and 386 homes under construction (representing $24.4 million and $10.9 million, respectively, of home construction costs) that were not subject to a sales contract. Included in land and amenities held for future development or sale at September 30, 1996 were 344 acres of residential land, commercial land and worship sites that are currently being marketed for sale at the Company's communities and conventional homebuilding operations. Also included in land and amenities held for future development or sale at September 30, 1996 were 179 acres of residential land and commercial land at the Company's residential land development project. (3) NOTES PAYABLE, SENIOR AND SUBORDINATED DEBT Notes payable, senior and subordinated debt consists of the following:
In Thousands - ------------------------------------------------------------------------------------------------------ September 30, June 30, September 30, 1996 1996 1995 (Unaudited) (Unaudited) - ------------------------------------------------------------------------------------------------------ 10 7/8% Senior Notes, net $ 97,647 $ 97,475 $ 96,959 9 3/4% Senior Subordinated Debentures, net 97,362 97,259 96,950 9% Senior Subordinated Debentures, net 97,423 97,355 97,149 Subordinated Swiss Franc Bonds, net -- -- 12,755 Notes payable to banks under a revolving credit facility and short-term lines of credit 229,000 193,000 165,000 Real estate and other notes 29,480 29,588 23,855 - ------------------------------------------------------------------------------------------------------ $ 550,912 $514,677 $492,668 ======================================================================================================
At September 30, 1996 the Company had $220.0 million outstanding under its $350 million senior unsecured revolving credit facility and $9.0 outstanding under its $15 million of short-term lines of credit. At September 30, 1996, under the most restrictive of the covenants in the Company's debt agreements, $10.2 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 9 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, 1996 1995 - ------------------------------------------------------------- Current: Federal $ 1,058 $ 1,092 State 32 77 - ------------------------------------------------------------- 1,090 1,169 - ------------------------------------------------------------- Deferred: Federal 2,328 1,791 State (47) 558 - ------------------------------------------------------------- 2,281 2,349 - ------------------------------------------------------------- $ 3,371 $ 3,518 =============================================================
7 10 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, 1996 1995 - -------------------------------------------------------------------- Revenues: Homebuilding: Communities $196,953 $149,199 Conventional 49,335 45,271 - -------------------------------------------------------------------- Total homebuilding 246,288 194,470 Land and amenity sales 15,628 10,197 Other 2,379 1,651 - -------------------------------------------------------------------- $264,295 $206,318 ==================================================================== Costs and expenses: Home construction and land: Communities $150,344 $111,863 Conventional 41,177 38,709 - -------------------------------------------------------------------- Total homebuilding 191,521 150,572 Interest 11,584 7,700 Cost of land and amenity sales 12,758 7,989 Other cost of sales 885 731 Selling, general and administrative 38,184 29,274 - -------------------------------------------------------------------- $254,932 $196,266 ====================================================================
8 11 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, - ------------------------------------------------------------------------------------- 1996 1995 - -------------------------------------------------------------------------------------- Interest incurred $12,066 $14,197 Less capitalized interest 12,066 14,197 - -------------------------------------------------------------------------------------- Interest expense $ -- $ -- ====================================================================================== Amortization of capitalized interest in costs and expenses $11,584 $ 7,700 ====================================================================================== Unamortized capitalized interest included in real estate inventories at period end $44,143 $62,290 ====================================================================================== Interest income $ 372 $ 327 ======================================================================================
9 12 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 year ended June 30, 1996, filed with the Securities and Exchange Commission. CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA
THREE MONTHS ENDED SEPTEMBER 30, CHANGE - --------------------------------------------------------------------------------------- 1996 1995 AMOUNT PERCENT - --------------------------------------------------------------------------------------- OPERATING DATA : Number of net new orders:(1) Sun City West 274 157 117 74.5% Sun City Tucson 24 41 (17) (41.5%) Sun Cities Las Vegas (2) 209 227 (18) (7.9%) Sun City Palm Desert 14 30 (16) (53.3%) Sun City Roseville 98 150 (52) (34.7%) Sun City Hilton Head (3) 76 60 16 26.7% Sun City Georgetown (3) 101 131 (30) (22.9%) Terravita 28 56 (28) (50.0%) Coventry Homes 307 312 (5) (1.6%) - -------------------------------------------------------------------------------------- Total 1,131 1,164 (33) (2.8%) ====================================================================================== Number of home closings: Sun City West 232 196 36 18.4% Sun City Tucson 55 66 (11) (16.7%) Sun Cities Las Vegas (2) 253 197 56 28.4% Sun City Palm Desert 43 43 -- -- Sun City Roseville 173 144 29 20.1% Sun City Hilton Head (3) 75 22 53 240.9% Sun City Georgetown (3) 143 N/A 143 N/A Terravita 84 109 (25) (22.9%) Coventry Homes 324 306 18 5.9% - -------------------------------------------------------------------------------------- Total 1,382 1,083 299 27.6% ====================================================================================== BACKLOG DATA : Homes under contract at September 30: Sun City West 595 463 132 28.5% Sun City Tucson 14 124 (110) (88.7%) Sun Cities Las Vegas (2) 598 432 166 38.4% Sun City Palm Desert 83 134 (51) (38.1%) Sun City Roseville 302 577 (275) (47.7%) Sun City Hilton Head (3) 194 187 7 3.7% Sun City Georgetown (3) 336 253 83 32.8% Terravita 248 245 3 1.2% Coventry Homes 578 546 32 5.9% - -------------------------------------------------------------------------------------- Total (4) 2,948 2,961 (13) (0.4%) ====================================================================================== Aggregate contract sales amount (dollars in millions) $ 575 $ 571 $ 4 0.7% ====================================================================================== Average contract sales amount per home (dollars in thousands) $ 195 $ 193 $ 2 1.0% ======================================================================================
10 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 - -------------------------------------------------------------------------------------------------------- 1996 1995 AMOUNT PERCENT - -------------------------------------------------------------------------------------------------------- AVERAGE REVENUE PER HOME CLOSING : Sun City West $154,200 $157,200 $ (3,000) (1.9%) Sun City Tucson 168,100 167,700 400 0.2% Sun Cities Las Vegas (2) 179,600 178,400 1,200 0.7% Sun City Palm Desert 239,700 232,100 7,600 3.3% Sun City Roseville 200,700 202,300 (1,600) (0.8%) Sun City Hilton Head (3) 158,000 127,800 30,200 23.6% Sun City Georgetown (3) 180,300 N/A N/A N/A Terravita 283,600 277,400 6,200 2.2% Coventry Homes 152,300 147,900 4,400 3.0% Weighted average 178,200 179,600 (1,400) (0.8%) ======================================================================================================= OPERATING STATISTICS: Cost and expenses as a percentage of revenues: Home construction, land and other 77.6% 77.2% 0.4% 0.5% Interest 4.4% 3.7% 0.7% 18.9% Selling, general and administrative 14.4% 14.2% 0.2% 1.4% Ratio of home closings to homes under contract in backlog at beginning of period 43.2% 37.6% 5.6% 14.9% =======================================================================================================
(1) Net of cancellations. The Company recognizes revenue at close of escrow. (2) Includes Sun City Summerlin and Sun City MacDonald Ranch. The Company began taking new home sales orders at Sun City MacDonald Ranch in September 1995. Home closings began at Sun City MacDonald Ranch in January 1996. (3) Home closings began at Sun City Hilton Head in August 1995 and at Sun City Georgetown in February 1996. (4) A majority of the backlog at September 30, 1996 is currently anticipated to result in revenues in the next 12 months. However, a majority of the backlog is contingent upon the availability of financing for the customer, 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, 1996 and 1995, cancellations of home sales orders as a percentage of new home sales orders written during the period were 20.8 percent and 19.1 percent, respectively. 11 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATIONS REVENUES. Home closings at Sun City Georgetown (where the Company had not yet begun delivering homes in the three months ended September 30, 1995) and Sun City Hilton Head (where the Company did not begin delivering homes until August 1995) accounted for $25.8 million and $6.8 million, respectively, of the increase in revenues to $264.3 million for the three months ended September 30, 1996 from $206.3 million for the 1995 quarter. Increased home closings at the Sun Cities Las Vegas (where home closings did not begin at Sun City MacDonald Ranch until January 1996) accounted for $10.0 million of the increase in revenues. Increased home closings (resulting from higher backlogs at the beginning of the period) at Sun City West and Coventry Homes resulted in increased revenues of $5.7 million and $2.7 million, respectively. Increased home closings at Sun City Roseville accounted for $5.9 million of the increase in revenues. Decreased home closings at Sun City Tucson and Terravita (reflecting the approaching completion of those communities) resulted in decreased revenues of $1.9 million and $6.9 million, respectively. A change in the average revenue per home closing resulted in the remaining change in revenues from the 1995 quarter. This change was primarily due to a change in mix of home closings among the Company's communities. Land and amenity sales and other revenues were $6.2 million higher in the 1996 quarter than in the 1995 quarter. Land sales are a normal part of the Company's master-planned community developments but occur irregularly, complicating period-to-period comparisons. HOME CONSTRUCTION, LAND AND OTHER COSTS. The increase in home construction, land and other costs to $205.2 million for the 1996 quarter compared to $159.3 million for the 1995 quarter was primarily due to the increase in home closings. As a percentage of revenues, these costs were 77.6 percent for the 1996 quarter compared to 77.2 percent for the 1995 quarter, with the increase primarily due to changes in mix of product, subdivisions and home closings among the Company's communities and conventional homebuilding operations and to increased discounts at certain communities. INTEREST. As a percentage of revenues, amortization of capitalized interest was 4.4 percent for the 1996 quarter compared to 3.7 percent for the 1995 quarter. This increase was primarily due to higher levels of indebtedness and increases in land held for longer-term development (with respect to which land the Company cannot allocate capitalized interest). Also, as a result of the non-cash loss from impairment of the Company's Sun City Palm Desert community incurred in connection with the adoption in fiscal 1996 of Statement of Financial Accounting Standards No. 121, more capitalized interest was allocated to communities with greater home closings than Sun City Palm Desert, resulting in an increase in amortization of capitalized interest as a percentage of revenues for the quarter ended September 30, 1996. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. As a percentage of revenues, selling, general and administrative expenses increased to 14.4 percent for the 1996 quarter as compared to 14.2 percent for the 1995 quarter. This increase occurred, despite an increase in total revenues, primarily because of increased sales and marketing expenses at certain communities and because relatively fixed general and administrative expenses were incurred at certain other communities that had lower revenues in the 1996 quarter than in the 1995 quarter. Of the increase in total selling, general and administrative expenses to $38.2 million for the 1996 quarter as compared to $29.3 million for the 1995 quarter, $3.3 million was attributable to higher sales and marketing expenses, $2.0 million was due to increased commissions on the increased revenues and $1.9 million resulted from the recognition of expenses at Sun City Hilton Head, Sun City MacDonald Ranch and Sun City Georgetown in the 1996 quarter (pre-operating costs were capitalized for part or all of the 1995 quarter since home closings had not yet begun at these communities). The balance of the increase was due to a variety of general and administrative expenses. INCOME TAXES. The decrease in income taxes to $3.4 million in the 1996 quarter as compared to $3.5 million in the 1995 quarter was due to the decrease in earnings before income taxes, partially offset by an increase in the effective tax rate from 35 percent to 36 percent. 12 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) NET EARNINGS. Net earnings decreased to $6.0 million in the 1996 quarter from $6.5 million in the 1995 quarter despite a 299-unit increase in home closings and a $58.0 million increase in revenues. This decrease in net earnings was primarily attributable to two factors: (1) a substantial increase in amortization of capitalized interest (see "Interest") and (2) a shift in the mix of communities generating home sales revenues. The newer communities of Sun City MacDonald Ranch, Sun City Hilton Head and Sun City Georgetown had operating margins in the 1996 quarter below the average community operating margin for the 1995 quarter. At the same time, as a result of the increased revenues from the Company's newer communities, the more mature, higher-margin communities of Sun City West, Sun City Summerlin and Terravita all showed a decline from the 1995 quarter to the 1996 quarter in the percentage of consolidated revenues they generated. Generally, the Company's newer communities have lower initial operating margins as a result of a variety of factors, primarily pricing strategies and unit volume levels. Management currently anticipates that these factors will continue to affect the Company's results of operations for the second quarter of fiscal 1997 but that these newer communities will be more efficient in the second half of fiscal 1997 as product pricing normalizes. In addition, home closings are currently anticipated to begin in the second half of fiscal 1997 at Sun City Grand (the successor community to Sun City West at which the Company began taking new home sales orders on October 1, 1996). Management does not currently anticipate that Sun City Grand will have the initially lower operating margins usually associated with other new market communities. NET NEW ORDER ACTIVITY AND BACKLOG. Net new orders in the 1996 quarter were substantially the same as in the 1995 quarter, decreasing 2.8 percent. A significant increase was realized at Sun City West, where the availability of desirable home sites in a particularly well-located area of the community (which area is now sold out) stimulated sales in the 1996 quarter. Net new orders at Sun City Hilton Head increased 26.7 percent, reflecting this community's on-going marketing activities. Net new orders at the Company's other operations were down from the 1995 quarter, which is consistent with the results of many other homebuilders and is indicative of the challenges offered by a variety of local market factors and higher mortgage interest rates. Both Sun City Palm Desert and Terravita had decreased net new order activity in the 1996 quarter as compared to the 1995 quarter, although traditionally slow seasonal sales activity in the summer months makes it difficult to accurately assess local market conditions. At Sun City Palm Desert, net new orders continued to be affected by adverse conditions in the southern California economy and real estate market. At Terravita, net new orders were impacted by a higher than normal cancellation rate and the fact that the community is nearing completion, which has restricted the availability of more desirable home sites. This community, which had 431 net new orders in fiscal 1996 and had only 198 homes remaining to be sold as of September 30, 1996, generally experiences its peak selling season in the November through May time period. Net new orders at Sun City Tucson declined 41.5 percent from the 1995 quarter, reflecting the approaching completion of that community. Net new orders at Sun City Roseville declined 34.7 percent, and the Company has recently introduced programs designed to enhance traffic and focus marketing efforts on the San Francisco Bay area. Net new orders at Sun City Georgetown declined 22.9 percent against a particularly strong first quarter one year ago, when the community benefitted from early pent-up demand. Net new orders for Coventry Homes were down modestly in its Phoenix and Tucson operations and up slightly in its Las Vegas and southern California markets. The number of homes under contract at September 30, 1996 was substantially the same as at September 30, 1995, decreasing 0.4 percent. Backlog increases were realized from new sales orders at Sun City Georgetown and Sun City MacDonald Ranch (at which the Company had only been taking new home sales orders for four months and one month, respectively, at September 30, 1995). Sun City West also experienced a significant increase in backlog as a result of the increased net new order activity discussed above. These backlog increases were offset by decreases at Sun City Tucson (reflecting the approaching build-out of that community) and Sun City Roseville (as a result of the decline in net new orders and a high level of home closings in the past 12 months at that community). 13 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) LIQUIDITY AND FINANCIAL CONDITION OF THE COMPANY At September 30, 1996 the Company had $7.7 million of cash and short-term investments, $220.0 million outstanding under its $350 million senior unsecured revolving credit facility and $ 9.0 million outstanding under its $15 million of short-term lines of credit. 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, conventional homebuilding activities and residential land development project, will provide the Company with adequate capital resources to fund the Company's currently anticipated operating requirements for the next 12 months. The Company's senior unsecured revolving credit facility and the indentures for the Company's publicly-held debt contain restrictions which could, depending on the circumstances, affect the Company's ability to borrow in the future. If the Company at any time is not successful in obtaining sufficient capital to fund its then planned development and expansion expenditures, some or all of its projects may be significantly delayed. Any such delay could result in cost increases and may adversely affect the Company's results of operations. 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 1996 quarter the Company generated $61.9 million of net cash from community sales activities, used $42.2 million of cash for land and lot and amenity development at operating communities, paid $24.9 million for costs related to communities in the pre-operating stage, used $2.6 million of net cash for conventional homebuilding operations and used $35.8 million of cash for other operating activities. The resulting $43.6 million of net cash used for operating activities (which was primarily attributable to expenditures for communities not yet generating home sales revenues and for corporate activities) was funded mainly through borrowings under the Company's senior unsecured revolving credit facility and utilization of cash and short-term investments existing at the beginning of the period. At September 30, 1996 under the most restrictive of the covenants in the Company's debt agreements, $10.2 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. FORWARD LOOKING INFORMATION; CERTAIN CAUTIONARY STATEMENTS Certain statements contained in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" section are forward looking statements. Such statements involve risks and uncertainties and actual results may differ materially from those projected or implied. Further, certain forward looking statements are based on assumptions of future events which may not prove to be accurate. Risks and uncertainties include risks associated with new and future communities, competition, financing availability, fluctuations in interest rates or labor and material costs, government regulation, geographic concentration, natural risks and other matters set forth in the Company's Form 10-K for the year ended June 30, 1996. 14 17 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. 15 18 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: October 28, 1996 /s/ Philip J. Dion ------------------ ------------------------------------ Philip J. Dion Chairman and Chief Executive Officer Date: October 28, 1996 /s/ John A. Spencer ------------------ ------------------------------------ John A. Spencer Senior Vice President and Chief Financial Officer 16 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1996 AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 U.S. DOLLARS 3-MOS JUN-30-1997 JUL-01-1996 SEP-30-1996 1 7,662 0 24,248 0 922,065 0 46,432 22,632 1,046,207 0 550,912 0 0 18 270,444 1,046,207 263,023 264,295 216,676 216,748 38,184 0 0 9,363 3,371 5,992 0 0 0 5,992 0.33 0
-----END PRIVACY-ENHANCED MESSAGE-----