-----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, IP/oQXOetkbQ1Q7WuRl5lIIb2uNxD3UWjMpLq/QLmzIPWt5ZpfWL6QgOsM2RTeJC 3zNOzRb4CbOrFE/RuE9smQ== 0000950153-99-000082.txt : 19990202 0000950153-99-000082.hdr.sgml : 19990202 ACCESSION NUMBER: 0000950153-99-000082 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990201 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: 99517756 BUSINESS ADDRESS: STREET 1: 2231 EAST CAMELBACK ROAD CITY: PHOENIX STATE: AZ ZIP: 85016 BUSINESS PHONE: 6028088000 MAIL ADDRESS: STREET 1: 6001 NORTH 24 STREET CITY: PHOENIX STATE: AZ ZIP: 85016 FORMER COMPANY: FORMER CONFORMED NAME: WEBB DEL E CORP DATE OF NAME CHANGE: 19880728 10-Q 1 10-Q 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 DECEMBER 31, 1998. [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from N/A to N/A . Commission File Number: 1-4785 DEL WEBB CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 86-0077724 (State or other jurisdiction (IRS Employer Identification Number) of incorporation or organization) 6001 NORTH 24TH STREET, PHOENIX, ARIZONA 85016 (Address of principal executive offices) (Zip Code) (602) 808-8000 (Registrant's phone number, including area code) NONE Former name, former address and former fiscal year, if changed since last report Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No___ As of January 25, 1999 Registrant had outstanding 18,205,085 shares of common stock. 2 DEL WEBB CORPORATION FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 1998 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION PAGE Item 1. Financial Statements: Consolidated Balance Sheets as of December 31, 1998, June 30, 1998 and December 31, 1997............................ 1 Consolidated Statements of Earnings for the three and six months ended December 31, 1998 and 1997........................ 2 Consolidated Statements of Cash Flows for the six months ended December 31, 1998 and 1997........................ 3 Notes to Consolidated Financial Statements...................... 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................10 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K................................20 3 DEL WEBB CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE DATA)
DECEMBER 31, JUNE 30, DECEMBER 31, 1998 1998 1997 (UNAUDITED) (UNAUDITED) - ------------------------------------------------------------------------------------------------------------------ ASSETS . - ------------------------------------------------------------------------------------------------------------------ Real estate inventories (Notes 2, 3 and 6) $ 1,390,293 $ 1,113,297 $ 1,018,692 Cash and short-term investments 17,241 14,362 1,222 Receivables 31,979 41,498 26,897 Property and equipment, net 54,476 33,333 18,415 Deferred income taxes (Note 4) -- -- 4,996 Other assets 109,785 107,972 88,226 - ------------------------------------------------------------------------------------------------------------------ $ 1,603,774 $ 1,310,462 $ 1,158,448 ================================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------------------------------------------------------------------------------------ Notes payable, senior and subordinated debt (Note 3) $ 908,773 $ 703,938 $ 621,519 Contractor and trade accounts payable 103,780 78,114 61,766 Accrued liabilities and other payables 104,538 98,066 82,716 Home sale deposits 102,409 80,332 68,515 Deferred income taxes (Note 4) 8,648 4,245 -- Income taxes payable (Note 4) 8,635 -- 6,083 - ------------------------------------------------------------------------------------------------------------------ Total liabilities 1,236,783 964,695 840,599 - ------------------------------------------------------------------------------------------------------------------ Shareholders' equity: Common stock, $.001 par value. Authorized 30,000,000 shares; issued 18,205,085 shares at December 31, 1998, 18,107,606 shares at June 30, 1998 and 17,839,710 shares at December 31, 1997 18 18 18 Additional paid-in capital 168,827 166,328 162,841 Retained earnings 205,882 184,890 161,545 - ------------------------------------------------------------------------------------------------------------------ 374,727 351,236 324,404 Less deferred compensation (7,736) (5,469) (6,555) - ------------------------------------------------------------------------------------------------------------------ Total shareholders' equity 366,991 345,767 317,849 - ------------------------------------------------------------------------------------------------------------------ $ 1,603,774 $ 1,310,462 $ 1,158,448 ==================================================================================================================
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 SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, - --------------------------------------------------------------------------------------- 1998 1997 1998 1997 - --------------------------------------------------------------------------------------- Revenues (Note 5) $354,248 $278,935 $622,895 $526,978 - --------------------------------------------------------------------------------------- Costs and expenses (Note 5): Home construction, land and other 270,621 211,037 474,474 401,981 Selling, general and administrative 47,523 39,364 88,675 75,825 Interest (Note 6) 15,037 10,932 25,532 21,999 - --------------------------------------------------------------------------------------- 333,181 261,333 588,681 499,805 - --------------------------------------------------------------------------------------- Earnings before income taxes 21,067 17,602 34,214 27,173 Income taxes (Note 4) 7,584 6,336 12,317 9,782 - --------------------------------------------------------------------------------------- Net earnings $ 13,483 $ 11,266 $ 21,897 $ 17,391 ======================================================================================= Weighted average shares outstanding 18,156 17,741 18,132 17,665 ======================================================================================= Weighted average shares outstanding - assuming dilution 18,732 18,298 18,700 18,119 ======================================================================================= Net earnings per share $ .74 $ .64 $ 1.21 $ .98 ======================================================================================= Net earnings per share - assuming dilution $ .72 $ .62 $ 1.17 $ .96 =======================================================================================
See accompanying notes to consolidated financial statements. 2 5 DEL WEBB CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED DECEMBER 31, - ----------------------------------------------------------------------------------------------------------- 1998 1997 - ----------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from customers related to community home sales $ 595,029 $ 499,960 Cash received from commercial land and facility sales at operating communities 26,619 21,178 Cash paid for costs related to home construction at operating communities (377,994) (320,089) - ----------------------------------------------------------------------------------------------------------- Net cash provided by operating community sales activities 243,654 201,049 Cash paid for land acquisitions at operating communities (14,549) (16,558) Cash paid for lot development at operating communities (72,834) (68,661) Cash paid for amenity development at operating communities (36,133) (23,597) - ----------------------------------------------------------------------------------------------------------- Net cash provided by operating communities 120,138 92,233 Cash paid for costs related to communities in the pre-operating stage (252,196) (61,274) Cash received from (used for) mortgage operations 6,221 (1,831) Cash received from residential land development project 1,191 2,762 Cash paid for corporate activities (20,826) (18,423) Interest paid (34,381) (24,307) Cash received (paid) for income taxes 1,502 (4,789) - ----------------------------------------------------------------------------------------------------------- NET CASH USED FOR OPERATING ACTIVITIES (178,351) (15,629) - ----------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (17,559) (1,188) Investments in life insurance policies (1,156) (2,228) - ----------------------------------------------------------------------------------------------------------- NET CASH USED FOR INVESTING ACTIVITIES (18,715) (3,416) - ----------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings 332,873 134,266 Repayments of debt (131,744) (139,080) Stock purchases (433) (4) Proceeds from exercise of common stock options 154 2,137 Dividends paid (905) (1,767) - ----------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 199,945 (4,448) - ----------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS 2,879 (23,493) CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD 14,362 24,715 - ----------------------------------------------------------------------------------------------------------- CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 17,241 $ 1,222 ===========================================================================================================
See accompanying notes to consolidated financial statements. 3 6 DEL WEBB CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED DECEMBER 31, - ------------------------------------------------------------------------------------------------------------ 1998 1997 - ------------------------------------------------------------------------------------------------------------ Reconciliation of net earnings to net cash used for operating activities: Net earnings $ 21,897 $ 17,391 Allocation of non-cash common costs in costs and expenses, excluding interest 156,703 115,499 Amortization of capitalized interest in costs and expenses 25,532 21,999 Deferred compensation amortization 997 886 Depreciation and other amortization 3,729 3,122 Deferred income taxes 4,403 1,527 Net (increase) decrease in home construction costs (36,987) 18,045 Land acquisitions (16,377) (35,963) Lot development (215,105) (81,068) Amenity development (142,084) (38,001) Pre-acquisition costs -- (13,926) Net change in other assets and liabilities 18,941 (25,140) - ------------------------------------------------------------------------------------------------------------ Net cash used for operating activities $(178,351) $ (15,629) ============================================================================================================
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. The Company develops residential communities ranging from smaller-scale, non-amenitized communities within its conventional homebuilding operations to large-scale, master-planned communities with extensive amenities. The Company currently conducts its operations in Arizona, California, Florida, Illinois, Nevada, South Carolina and Texas. The Company's communities are generally 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 usually the exclusive builder of homes. The Company's conventional homebuilding operations encompass the construction and sale of homes in various locations in Arizona and Nevada. 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, 1998, filed with the Securities and Exchange Commission. In the Consolidated Statements of Cash Flows, the Company defines operating communities as communities generating revenues from home closings. Communities in the pre-operating stage are those not yet generating revenues from home closings. The results of operations for the six months ended December 31, 1998 are not necessarily indicative of the results to be expected for the full fiscal year. (2) REAL ESTATE INVENTORIES The components of real estate inventories are as follows:
In Thousands - -------------------------------------------------------------------------------------------- December 31, June 30, December 31, 1998 1998 1997 (Unaudited) (Unaudited) - -------------------------------------------------------------------------------------------- Home construction costs $ 219,157 $ 182,170 $ 163,973 Unamortized improvement and amenity costs 839,853 603,390 537,745 Unamortized capitalized interest 71,516 61,455 50,125 Land held for housing 220,855 220,441 226,258 Land and facilities held for future development or sale 38,912 45,841 40,591 - -------------------------------------------------------------------------------------------- $1,390,293 $1,113,297 $1,018,692 ============================================================================================
At December 31, 1998 the Company had 240 completed homes and 870 homes under construction that were not subject to a sales contract. These homes represented $47.9 million of home construction costs at December 31, 1998. At December 31, 1997 the Company had 383 completed homes and 822 homes under construction, representing $48.1 million of home construction costs, that were not subject to a sales contract. 5 8 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 December 31, 1998 were 327 acres of residential land, commercial land and worship sites that are currently being marketed for sale at the Company's communities. (3) NOTES PAYABLE, SENIOR AND SUBORDINATED DEBT Notes payable, senior and subordinated debt consists of the following:
In Thousands - ------------------------------------------------------------------------------------------ December 31, June 30, December 31, 1998 1998 1997 (Unaudited) (Unaudited) - ------------------------------------------------------------------------------------------ 9 3/4% Senior Subordinated Debentures due 2003, net, unsecured $ 98,287 $ 98,081 $ 97,876 9% Senior Subordinated Debentures due 2006, net, unsecured 98,039 97,902 97,765 9 3/4% Senior Subordinated Debentures due 2008, net, unsecured 145,612 145,370 145,128 9 3/8% Senior Subordinated Debentures due 2009, net, unsecured 195,180 194,977 -- Notes payable to banks under a revolving credit facility and short-term lines of credit, unsecured 328,030 111,209 196,373 Real estate and other notes, primarily secured 43,625 56,399 84,377 - ------------------------------------------------------------------------------------------ $908,773 $703,938 $621,519 ==========================================================================================
At December 31, 1998 the Company had $307.0 million outstanding under its $450 million senior unsecured revolving credit facility and $21.0 outstanding under its $25 million of short-term lines of credit. At December 31, 1998, under the most restrictive of the covenants in the Company's debt agreements, $39.7 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 The components of income taxes are:
In Thousands (Unaudited) - -------------------------------------------------------------------------------- Three Months Ended Six Months Ended December 31, December 31, - -------------------------------------------------------------------------------- 1998 1997 1998 1997 - -------------------------------------------------------------------------------- Current: Federal $ 6,131 $ 6,349 $ 7,376 $ 7,575 State 402 607 538 680 - -------------------------------------------------------------------------------- 6,533 6,956 7,914 8,255 - -------------------------------------------------------------------------------- Deferred: Federal 677 (502) 3,868 1,313 State 374 (118) 535 214 - -------------------------------------------------------------------------------- 1,051 (620) 4,403 1,527 - -------------------------------------------------------------------------------- $ 7,584 $ 6,336 $ 12,317 $ 9,782 ================================================================================
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 Six Months Ended December 31, December 31, - --------------------------------------------------------------------------------------------------- 1998 1997 1998 1997 - --------------------------------------------------------------------------------------------------- Revenues: Homebuilding: Active adult communities $258,290 $205,595 $465,776 $361,739 Country club communities -- 11,287 -- 33,945 Conventional subdivision communities 68,794 50,700 121,149 102,226 - --------------------------------------------------------------------------------------------------- Total homebuilding 327,084 267,582 586,925 497,910 Land and facility sales 23,747 8,613 29,678 24,131 Other 3,417 2,740 6,292 4,937 - --------------------------------------------------------------------------------------------------- $354,248 $278,935 $622,895 $526,978 =================================================================================================== Costs and expenses: Home construction and land: Active adult communities $191,546 $155,917 $346,196 $274,389 Country club communities -- 7,953 -- 24,664 Conventional subdivision communities 56,329 41,866 99,022 85,901 - --------------------------------------------------------------------------------------------------- Total homebuilding 247,875 205,736 445,218 384,954 Cost of land and facility sales 20,697 4,835 25,544 15,788 Other cost of sales 2,049 466 3,712 1,239 - --------------------------------------------------------------------------------------------------- Total home construction, land and other 270,621 211,037 474,474 401,981 Selling, general and administrative 47,523 39,364 88,675 75,825 Interest 15,037 10,932 25,532 21,999 - --------------------------------------------------------------------------------------------------- $333,181 $261,333 $588,681 $499,805 ===================================================================================================
8 11 DEL WEBB CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (6) INTEREST The components of interest are:
In Thousands (Unaudited) - ------------------------------------------------------------------------------------ Three Months Ended Six Months Ended December 31, December 31, - ------------------------------------------------------------------------------------ 1998 1997 1998 1997 - ------------------------------------------------------------------------------------ Interest incurred and capitalized $19,455 $12,989 $35,593 $26,003 ==================================================================================== Amortization of capitalized interest in costs and expenses $15,037 $10,932 $25,532 $21,999 ==================================================================================== Unamortized capitalized interest in real estate inventories at period end $71,516 $50,125 ==================================================================================== Interest income $ 346 $ 302 $ 637 $ 555 ====================================================================================
Interest income is included in other revenues. 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 fiscal year ended June 30, 1998, filed with the Securities and Exchange Commission. CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA
THREE MONTHS SIX MONTHS ENDED ENDED DECEMBER 31, CHANGE DECEMBER 31, CHANGE - ------------------------------------------------------------------------------------------- -------------------------------------- 1998 1997 AMOUNT PERCENT 1998 1997 AMOUNT PERCENT - ------------------------------------------------------------------------------------------- -------------------------------------- OPERATING DATA : Number of net new orders: Active adult communities: Sun Cities Phoenix 274 272 2 0.7% 546 534 12 2.2% Sun Cities Las Vegas 231 240 (9) (3.8%) 532 518 14 2.7% Sun City Palm Desert 96 91 5 5.5% 230 153 77 50.3% Sun City Roseville 124 137 (13) (9.5%) 324 313 11 3.5% Sun City Hilton Head 91 75 16 21.3% 191 170 21 12.4% Sun City Georgetown 82 108 (26) (24.1%) 133 193 (60) (31.1%) Sun City at Huntley 167 N/A 167 N/A 375 N/A 375 N/A Florida communities 76 N/A 76 N/A 160 N/A 160 N/A Other communities 49 34 15 44.1% 101 34 67 197.1% - ------------------------------------------------------------------------------------------- -------------------------------------- Total active adult communities 1,190 957 233 24.3% 2,592 1,915 677 35.4% - ------------------------------------------------------------------------------------------- -------------------------------------- Country club communities: Arizona N/A (1) 1 N/A N/A (1) 1 N/A Nevada 38 N/A 38 N/A 104 N/A 104 N/A - ------------------------------------------------------------------------------------------- -------------------------------------- Total country club communities 38 (1) 39 N/A 104 (1) 105 N/A - ------------------------------------------------------------------------------------------- -------------------------------------- Conventional subdivision communities: Arizona 181 203 (22) (10.8%) 411 477 (66) (13.8%) Nevada 166 71 95 133.8% 258 113 145 128.3% California N/A N/A N/A N/A N/A N/A N/A N/A - ------------------------------------------------------------------------------------------- -------------------------------------- Total conventinal subdivision communities 347 274 73 26.6% 669 590 79 13.4% - ------------------------------------------------------------------------------------------- -------------------------------------- Total 1,575 1,230 345 28.0% 3,365 2,504 861 34.4% =========================================================================================== ======================================
10 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA (CONTINUED)
THREE MONTHS SIX MONTHS ENDED ENDED DECEMBER 31, CHANGE DECEMBER 31, CHANGE - --------------------------------------------------------------------------------------------------------------------- 1998 1997 AMOUNT PERCENT 1998 1997 AMOUNT PERCENT - --------------------------------------------------------------------------------------------------------------------- Number of home closings: Active adult communities: Sun Cities Phoenix 332 362 (30) (8.3%) 606 621 (15) (2.4%) Sun Cities Las Vegas 274 289 (15) (5.2%) 510 531 (21) (4.0%) Sun City Palm Desert 113 77 36 46.8% 235 118 117 99.2% Sun City Roseville 184 155 29 18.7% 353 273 80 29.3% Sun City Hilton Head 94 96 (2) (2.1%) 167 180 (13) (7.2%) Sun City Georgetown 105 112 (7) (6.3%) 184 223 (39) (17.5%) Sun City at Huntley N/A N/A N/A N/A N/A N/A N/A N/A Florida communities 139 N/A 139 N/A 245 N/A 245 N/A Other communities 55 N/A 55 N/A 100 N/A 100 N/A - --------------------------------------------------------------------------------------------------------------------- Total active adult communities 1,296 1,091 205 18.8% 2,400 1,946 454 23.3% - --------------------------------------------------------------------------------------------------------------------- Country club communities: Arizona N/A 30 (30) (100.0%) N/A 112 (112) (100.0%) Nevada N/A N/A N/A N/A N/A N/A N/A N/A - --------------------------------------------------------------------------------------------------------------------- Total country club communities N/A 30 (30) (100.0%) N/A 112 (112) (100.0%) - --------------------------------------------------------------------------------------------------------------------- Conventional subdivision communities: Arizona 282 236 46 19.5% 504 442 62 14.0% Nevada 71 51 20 39.2% 113 124 (11) (8.9%) California N/A N/A N/A N/A N/A 20 (20) (100.0%) - --------------------------------------------------------------------------------------------------------------------- Total conventional subdivision communities 353 287 66 23.0% 617 586 31 5.3% - --------------------------------------------------------------------------------------------------------------------- Total 1,649 1,408 241 17.1% 3,017 2,644 373 14.1% =====================================================================================================================
11 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA (CONTINUED)
AT DECEMBER 31, CHANGE - --------------------------------------------------------------------------------------------------- 1998 1997 AMOUNT PERCENT - --------------------------------------------------------------------------------------------------- BACKLOG DATA : Homes under contract: Active adult communities: Sun Cities Phoenix 609 605 4 0.7% Sun Cities Las Vegas 570 520 50 9.6% Sun City Palm Desert 260 161 99 61.5% Sun City Roseville 353 320 33 10.3% Sun City Hilton Head 193 149 44 29.5% Sun City Georgetown 140 172 (32) (18.6%) Sun City at Huntley 375 N/A 375 N/A Florida communities 190 N/A 190 N/A Other communities 103 34 69 202.9% - --------------------------------------------------------------------------------------------------- Total active adult communities 2,793 1,961 832 42.4% - --------------------------------------------------------------------------------------------------- Country club communities: Arizona N/A 7 (7) (100.0%) Nevada 104 N/A 104 N/A - --------------------------------------------------------------------------------------------------- Total country club communities 104 7 97 1,385.7% - --------------------------------------------------------------------------------------------------- Conventional subdivision communities: Arizona 392 402 (10) (2.5%) Nevada 229 80 149 186.3% California N/A N/A N/A N/A - --------------------------------------------------------------------------------------------------- Total conventional subdiviision communities 621 482 139 28.8% - --------------------------------------------------------------------------------------------------- Total 3,518 2,450 1,068 43.6% =================================================================================================== Aggregate contract sales amount (dollars in millions) $ 770 $ 506 $ 264 52.2% =================================================================================================== Average contract sales amount per home (dollars in thousands) $ 219 $ 207 $ 12 5.8% ===================================================================================================
12 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA (CONTINUED)
THREE MONTHS SIX MONTHS ENDED ENDED DECEMBER 31, CHANGE DECEMBER 31, CHANGE - --------------------------------------------------------------------------------------- ------------------------------------------- 1998 1997 AMOUNT PERCENT 1998 1997 AMOUNT PERCENT - --------------------------------------------------------------------------------------- ------------------------------------------- AVERAGE REVENUE PER HOME CLOSING: Active adult communities: Sun Cities Phoenix $184,100 $160,400 $ 23,700 14.8% $176,200 $157,500 $ 18,700 11.9% Sun Cities Las Vegas 213,000 205,000 8,000 3.9% 203,700 197,900 5,800 2.9% Sun City Palm Desert 248,400 227,700 20,700 9.1% 239,900 228,800 11,100 4.9% Sun City Roseville 236,600 208,400 28,200 13.5% 231,800 209,400 22,400 10.7% Sun City Hilton Head 193,700 165,900 27,800 16.8% 189,400 167,400 22,000 13.1% Sun City Georgetown 220,700 201,200 19,500 9.7% 219,800 199,700 20,100 10.1% Sun City at Huntley N/A N/A N/A N/A N/A N/A N/A N/A Florida communities 110,500 N/A N/A N/A 107,900 N/A N/A N/A Other communites 190,000 N/A N/A N/A 184,600 N/A N/A N/A Average active adult communities 199,300 188,400 10,900 5.8% 194,100 185,900 8,200 4.4% Country club communities: Arizona N/A 376,200 N/A N/A N/A 303,100 N/A N/A Nevada N/A N/A N/A N/A N/A N/A N/A N/A Average country club communities N/A 376,200 N/A N/A N/A 303,100 N/A N/A Conventional subdivision communities: Arizona 195,300 181,300 14,000 7.7% 197,100 180,900 16,200 9.0% Nevada 193,200 155,200 38,000 24.5% 193,000 149,500 43,500 29.1% California N/A N/A N/A N/A N/A 186,600 N/A N/A Average conventional subdivision communities 194,900 176,700 18,200 10.3% 196,400 174,400 22,000 12.6% Total 198,400 190,000 8,400 4.4% 194,500 188,300 6,200 3.3% ======================================================================================= =========================================== OPERATING STATISTICS: Costs and expenses as a percentage of revenues: Home construction, land and other 76.4% 75.7% 0.7% 0.9% 76.2% 76.3% (0.1%) (0.1%) Selling, general and administrative 13.4% 14.1% (0.7%) (5.0%) 14.2% 14.4% (0.2%) (1.4%) Interest 4.2% 3.9% 0.3% 7.7% 4.1% 4.2% (0.1%) (2.4%) Ratio of home closings to homes under contract in backlog at beginning of period 45.9% 53.6% (7.7%) (14.4%) 95.2% 102.1% (6.9%) (6.8%) ======================================================================================= ===========================================
13 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA (CONTINUED) NOTES: New orders are net of cancellations. The Company recognizes revenue at close of escrow. The Sun Cities Phoenix include 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 late December 1998. The Company began taking new home sales orders at Sun City at Huntley in September 1998. In January 1998 the Company acquired certain assets and assumed certain liabilities at two operating active adult communities in central Florida. Other communities represent two smaller-scale communities in Arizona and California at which new order activity began in October and November 1997, respectively. Home closings began at these communities in March and May 1998, respectively. The Company completed new order activity at Terravita (an Arizona country club community) in April 1997. Home closings at Terravita were completed in May 1998. The Company began taking new home sales orders at Anthem Country Club (a Nevada country club community near Las Vegas) in July 1998. The Company completed new order activity for its Coventry Homes southern California operations in June 1997. Home closings for these operations were completed in August 1997. A majority of the backlog at December 31, 1998 is currently anticipated to result in revenues in the next 12 months. However, a majority of the backlog is contingent primarily upon the availability of financing for the customer and, in certain cases, sale of the customer's existing residence or other factors. Also, as a practical matter, the Company's ability to obtain damages for breach of contract by a potential home buyer is limited to retaining all or a portion of the deposit received. Cancellations of home sales orders as a percentage of new home sales orders written during the six months ended December 31, 1998 and 1997 were 14.7 percent for both periods. 14 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATIONS THREE MONTHS ENDED DECEMBER 31, 1998 AND 1997 REVENUES. Revenues increased to $354.2 million for the three months ended December 31, 1998 from $278.9 million for the three months ended December 31, 1997. This increase was largely due to Sun City Palm Desert and Sun City Roseville, which respectively closed 36 and 29 more homes in the 1998 quarter than in the 1997 quarter. Management believes that these increases are largely attributable to improvement in California's real estate economy and its economy generally. The Company's Florida communities and smaller-scale communities in Arizona and California, none of which had home closings in the 1997 quarter, also contributed to the increase in revenues. An increase in the average revenue per home closing resulted in $13.9 million of the increase in revenues. An increase in land and facility sales (including the sale of all of the Company's unsold conventional subdivision lots in the Tucson area) resulted in $15.1 million of the increase in revenues. HOME CONSTRUCTION, LAND AND OTHER COSTS. The increase in home construction, land and other costs to $270.6 million for the 1998 quarter compared to $211.0 million for the 1997 quarter was largely due to the increase in home closings. As a percentage of revenues these costs also increased, to 76.4 percent for the 1998 quarter compared to 75.7 percent for the 1997 quarter. The percentage increase was attributable to low-margin land sales in the Company's conventional subdivision community operations. Homebuilding margins improved, primarily as a result of increased revenue per home closing at virtually all of the Company's communities. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. As a percentage of revenues, selling, general and administrative expenses decreased to 13.4 percent for the 1998 quarter compared to 14.1 percent for the 1997 quarter. This decrease resulted from the spreading of corporate overhead over significantly greater revenues. INTEREST. As a percentage of revenues, amortization of capitalized interest was 4.2 percent for the 1998 quarter compared to 3.9 percent for the 1997 quarter. This increase was primarily due to an increase in debt levels (see "Liquidity and Financial Condition of the Company"). INCOME TAXES. The increase in income taxes to $7.6 million for the 1998 quarter compared to $6.3 million for the 1997 quarter was due to the increase in earnings before income taxes. The effective tax rate in both quarters was 36 percent. NET EARNINGS. The increase in net earnings to $13.5 million for the 1998 quarter compared to $11.3 million for the 1997 quarter was primarily attributable to the increases in home closings and homebuilding gross margins, partially offset by the increased interest amortization. NET NEW ORDER ACTIVITY AND BACKLOG. Net new orders in the 1998 quarter were 28.0 percent higher than in the 1997 quarter. The number of homes under contract at December 31, 1998 was 43.6 percent higher than at December 31, 1997. Both of these increases were primarily attributable Sun City at Huntley, conventional subdivision communities at Anthem near Las Vegas, the Florida communities and Anthem Country Club near Las Vegas. These communities had new order activity for all of the 1998 quarter but had not yet commenced new order activity in the 1997 quarter. The Company experienced decreases in both net new orders and backlog at Sun City Georgetown. Management believes that a contributing factor to these decreases was the fact that an entirely new set of model homes was under construction during the six months ended December 31, 1998. These models are scheduled to open in February 1999. 15 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997 REVENUES. Revenues increased to $622.9 million for the six months ended December 31, 1998 from $527.0 million for the six months ended December 31, 1997. This increase was largely due to Sun City Palm Desert and Sun City Roseville, which respectively closed 117 and 80 more homes in the 1998 period than in the 1997 period. Management believes that these increases are largely attributable to improvement in California's real estate economy and its economy generally. The Company's Florida communities and smaller-scale communities in Arizona and California, none of which had home closings in the 1997 period, also contributed to the increase in revenues. An increase in the average revenue per home closing resulted in $18.7 million of the increase in revenues. HOME CONSTRUCTION, LAND AND OTHER COSTS. The increase in home construction, land and other costs to $474.5 million for the 1998 period compared to $402.0 million for the 1997 period was largely due to the increase in home closings. As a percentage of revenues, these costs decreased slightly to 76.2 percent for the 1998 period compared to 76.3 percent for the 1997 period. Homebuilding margins improved, primarily as a result of increased revenue per home closing at virtually all of the Company's communities. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. As a percentage of revenues, selling, general and administrative expenses decreased to 14.2 percent for the 1998 period compared to 14.4 percent for the 1997 period. This decrease resulted from the spreading of corporate overhead over significantly greater revenues. INTEREST. As a percentage of revenues, amortization of capitalized interest was 4.1 percent for the 1998 period compared to 4.2 percent for the 1997 period. INCOME TAXES. The increase in income taxes to $12.3 million for the 1998 period compared to $9.8 million for the 1997 period was due to the increase in earnings before income taxes. The effective tax rate in both periods was 36 percent. NET EARNINGS. The increase in net earnings to $21.9 million for the 1998 period compared to $17.4 million for the 1997 period was primarily attributable to the increase in home closings and homebuilding gross margins. NET NEW ORDER ACTIVITY. Net new orders in the 1998 period were 34.4 percent higher than in the 1997 period. This increase was primarily attributable to the same factors that produced the increase in net new orders for the three months ended December 31, 1998 as compared to the three months ended December 31, 1997. LIQUIDITY AND FINANCIAL CONDITION OF THE COMPANY The cash flow for each of the Company's communities can differ substantially from reported earnings, depending on the status of the development cycle. The initial years of development or expansion require significant cash outlays for, among other things, land acquisition, obtaining master plan and other approvals, land and lot development, construction of amenities (including golf courses and recreation centers), model homes, sales and administration facilities, major roads, utilities and 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. 16 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) During the 1998 period the Company generated $243.6 million of net cash from operating community sales activities, used $123.5 million for land and lot and amenity development at operating communities, paid $252.2 million for costs related to communities in the pre-operating stage and used $46.3 million for other operating activities. The resulting $178.4 million of net cash used for operating activities was funded mainly through borrowings under the Company's $450 million senior unsecured revolving credit facility (the "Credit Facility") and $25 million short-term lines of credit (together with the Credit Facility, the "Facilities"). Increase home sale deposits (resulting from the increase in net new orders and backlog) were also a significant source of funding in the 1998 period. The Company is currently engaged in substantial development. It has under development, among other projects: (i) Sun City Lincoln Hills, planned as the successor to Sun City Roseville; (ii) Anthem Las Vegas, which includes Sun City Anthem, Anthem Country Club and a conventional subdivision community; (iii) Anthem Phoenix, which is planned to include a country club community and conventional subdivision communities and (iv) Sun City at Huntley. 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 over the next 12 months. In order to provide adequate capital to meet the Company's operating requirements for the next 12 months, the Company is seeking to increase the Credit Facility by $50 million and to sell $200 million of Senior Subordinated Debentures in a public offering (the "Offering"). The proceeds from the Offering would be used to repay borrowings under the Credit Facility, which would then be redrawn to fund development expenditures. Following completion of the Offering, not all of the unused portion of the Facilities would be available to the Company for borrowing as a result of limitations imposed by existing debt covenants under the Credit Facility. The limitations on borrowing on the Credit Facility involve the "Total Debt to Tangible Net Worth" covenant. To the extent the Company can reduce its leverage ratio, by increasing shareholders' equity or repaying debt, more of the unused portion of the Facilities will become available for borrowing. At December 31, 1998 the Company had $17.2 million of cash and short-term investments and $328.0 million outstanding under the Facilities and $147.0 million of unused and available borrowing capacity under the Facilities. Assuming the Offering was completed and the net proceeds applied at December 31, 1998, the Company would have had outstanding $133.5 million of the $335.2 million then available under the Facilities. The Company has continued to borrow additional net amounts under the Facilities ($383.0 million was outstanding at January 31,1999) and, subject to availability, expects to do so in the future to fund its development expenditures. If the Offering is completed or the amount of the Credit Facility is increased, the Company expects to have adequate capital resources to meet its needs for the next 12 months. If the Company is unable to successfully increase the Credit Facility by $50 million or complete the Offering, or if it does so but there is a significant downturn in the Company's anticipated operations and other capital resources are not obtained, the Company will need to 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. Such actions, if implemented, could have a material adverse effect on operations. The Company's degree of leverage from time to time will affect its interest incurred and capital resources, which could limit its ability to capitalize on business opportunities or withstand adverse changes. If the Company cannot at any time obtain sufficient capital resources to fund its development and expansion expenditures, its projects may be delayed, resulting in cost increases, adverse effects on the Company's results of operations and possible material adverse effects 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 December 31, 1998, under the most restrictive of the covenants in the Company's debt agreements, $39.7 million of the Company's retained earnings was available for payment of cash dividends or the acquisition by the Company of its common stock. 17 20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) YEAR 2000 ISSUE The Year 2000 issue is the result of computer programs being written using two digits (rather than four) to define the applicable year. Computer programs that have time-sensitive software may not recognize dates beginning in the year 2000, which could result in miscalculations or system failures. To date, the Company's Year 2000 remediation efforts have focused primarily on its core business computer applications (i.e., those systems that the Company is dependent upon for the conduct of day-to-day business operations). Starting over two years ago, the Company initiated a comprehensive review of its core business applications to determine the adequacy of these systems to meet future business requirements. Year 2000 readiness was only one of many factors considered in this assessment. Out of this effort, a number of systems were identified for upgrade or replacement. In no case is a system being replaced solely because of Year 2000 issues, although in some cases the timing of system replacements is being accelerated. Thus, the Company does not believe the costs of these system replacements are specifically Year 2000 related. Additionally, while the Company may have incurred an opportunity cost for addressing the Year 2000 issue, it does not believe that any specific information technology projects have been deferred to date as a result of its Year 2000 efforts. As of February 1999, the Company believes all of its core business systems are adequately Year 2000 capable for its purposes, except for its lead tracking and mortgage processing systems and some of its document imaging systems. Projects are currently underway to replace each of these systems, with implementations and testing scheduled for completion by June 1999, with the exception of the lead tracking system, which is anticipated to be implemented in phases beginning in February 1999 and continuing through September 1999. As with systems that have already been replaced, the Company does not believe the costs of these replacements, which are anticipated to aggregate approximately $1 million, are specifically Year 2000 related. The Company has also purchased at a cost of approximately $100,000 a software product that, it believes, can identify personal computers and related equipment with imbedded software that is not adequately Year 2000 capable for the Company's purposes. The Company expects to incur costs to replace or repair such equipment, but it has not at this time determined the amount of these costs. Since some of the equipment would otherwise be replaced through normal attrition, lease expirations and scheduled upgrades in the ordinary course of business, it is possible that much of these costs would not be solely related to Year 2000 readiness. The Company is also assessing other potential Year 2000 issues, including non-information technology systems. A broad-based Year 2000 Task Force has been formed and is meeting monthly to identify areas of concern and develop action plans. The Company currently anticipates that testing of non-information technology systems will be completed by mid-1999. As part of the Task Force effort, the Company's relationships with vendors, contractors, financial institutions and other third parties are being 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 Year 2000-related costs through the end of 1999 but does not at present anticipate that these costs will be material. The Company believes that the most reasonably likely worst-case scenario for the Year 2000 issue would be that the Company or the third parties with whom it has relationships were to be unsuccessful in their Year 2000 remediation efforts. If this were to occur, the Company would encounter disruptions to its business that could have a material adverse effect on it. The Company could 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. The Company has not at this time established a formal Year 2000 contingency plan but will consider and, if necessary, address doing so as part of its Year 2000 Task Force activities. The Company maintains and deploys contingency plans designed to address various other potential business interruptions. These plans may be applicable to address the interruption of support provided by third parties resulting from their failure to be Year 2000 ready. 18 21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) FORWARD LOOKING INFORMATION; CERTAIN CAUTIONARY STATEMENTS Certain statements contained in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" section that are not historical results are forward looking statements. These forward looking statements involve risks and uncertainties including, but not limited to, risks associated with financing and leverage, the development of future communities and new geographic markets, governmental regulation, including land exchanges with governmental entities, environmental considerations, competition, the geographic concentration of the Company's operations, the cyclical nature of real estate operations and other conditions generally, fluctuations in labor and material costs, natural risks that exist in certain of the Company's market areas, risks associated with the Year 2000 issue and other matters set forth in the Company's Form 10-K for the year ended June 30, 1998. Certain forward looking statements are based upon assumptions of future events, which may not prove to be accurate. Actual results may differ materially from those projected or implied. 19 22 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 23 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: February 1, 1999 /s/ Philip J. Dion ------------------------------------------------- Philip J. Dion Chairman and Chief Executive Officer Date: February 1, 1999 /s/ John A. Spencer ------------------------------------------------- John A. Spencer Senior Vice President and Chief Financial Officer 21 24 Index to Exhibits ----------------- Exhibit No. Description - ----------- ----------- 27 Financial Data Schedule EX-27 2 EX-27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1998 AND THE CONSOLIDATED STATEMENT OF EARNINGS FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS 6-MOS JUN-30-1999 JUL-01-1998 DEC-31-1998 1 17,241 0 31,979 0 1,390,293 0 54,476 0 0 0 908,773 0 0 18 366,973 0 0 622,895 0 500,006 88,675 0 0 34,214 12,317 21,897 0 0 0 21,897 1.21 1.17
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