-----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, PxbAnMDDMNbzDxYUsc9mpbhYWni6SpD+mD59x4T3oiFsLD5a8WZJmBUCtFQxSlVe baYFfF35z2AKXXT+AkyYMQ== 0000950153-96-000271.txt : 19960514 0000950153-96-000271.hdr.sgml : 19960514 ACCESSION NUMBER: 0000950153-96-000271 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960513 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: 96561516 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 QUARTERLT REPORT FOR THE QUARTER ENDED 3/31/96 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 MARCH 31, 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 April 30, 1996 Registrant had outstanding 17,539,049 shares of common stock. 2 DEL WEBB CORPORATION FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1996 TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE Item 1. Financial Statements: Consolidated Balance Sheets as of March 31, 1996, June 30, 1995 and March 31, 1995............................ 1 Consolidated Statements of Operations for the three and nine months ended March 31, 1996 and 1995........................ 2 Consolidated Statements of Cash Flows for the nine months ended March 31, 1996 and 1995........................ 3 Notes to Consolidated Financial Statements.................... 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......................... 11 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K.............................. 18
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)
MARCH 31, JUNE 30, MARCH 31, 1996 1995 1995 (UNAUDITED) (UNAUDITED) - ------------------------------------------------------------------------------------------------ ASSETS - ------------------------------------------------------------------------------------------------ Real estate inventories (Notes 2, 3 and 6) $ 921,610 $ 828,752 $ 818,255 Cash and short-term investments 14,573 18,900 9,930 Receivables 24,946 21,995 10,583 Property and equipment, net 28,306 29,326 27,391 Deferred income taxes (Note 4) 13,485 -- -- Other assets 38,631 26,077 27,684 - ------------------------------------------------------------------------------------------------ $ 1,041,551 $ 925,050 $ 893,843 ================================================================================================ LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------------------------------------------------------------------ Notes payable, senior and subordinated debt (Note 3) $ 555,081 $ 491,258 $ 493,993 Contractor and trade accounts payable 78,492 76,421 55,893 Accrued liabilities and other payables 64,121 52,046 40,499 Home sale deposits 89,120 66,887 79,749 Income taxes payable (Note 4) 1,488 3,899 3,092 Deferred income taxes (Note 4) -- 5,197 1,096 - ------------------------------------------------------------------------------------------------ Total liabilities 788,302 695,708 674,322 - ------------------------------------------------------------------------------------------------ Shareholders' equity: Common stock, $.001 par value. Authorized 30,000,000 shares; issued 17,542,217 shares at March 31, 1996, 15,798,649 shares at June 30, 1995 and 15,798,884 shares at March 31, 1995 (Note 7) 17 16 16 Additional paid-in capital (Note 7) 158,271 121,059 121,120 Retained earnings 99,965 122,153 113,316 - ------------------------------------------------------------------------------------------------ 258,253 243,228 234,452 Less cost of common stock in treasury, 3,031 shares at March 31, 1996, 877,728 shares at June 30, 1995 and 922,904 shares at March 31, 1995 (Note 7) (57) (11,058) (11,636) Less deferred compensation (4,947) (2,828) (3,295) - ------------------------------------------------------------------------------------------------ Total shareholders' equity 253,249 229,342 219,521 - ------------------------------------------------------------------------------------------------ $ 1,041,551 $ 925,050 $ 893,843 ================================================================================================
See accompanying notes to consolidated financial statements. 1 4 DEL WEBB CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS EXCEPT PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED MARCH 31, MARCH 31, - ---------------------------------------------------------------------------------------------- 1996 1995 1996 1995 - ---------------------------------------------------------------------------------------------- Revenues (Note 5) $ 256,014 $ 195,383 $ 701,791 $ 534,323 - ---------------------------------------------------------------------------------------------- Costs and expenses (Note 5): Home construction, land and other 196,033 148,456 538,153 407,188 Interest (Note 6) 10,569 7,818 28,268 20,386 Selling, general and administrative 38,850 28,348 100,671 77,655 Impairment of southern California real estate inventories (Notes 6 and 8) 65,000 -- 65,000 -- - ---------------------------------------------------------------------------------------------- 310,452 184,622 732,092 505,229 - ---------------------------------------------------------------------------------------------- Earnings (loss) before income taxes (54,438) 10,761 (30,301) 29,094 Income taxes (Note 4) 19,053 (3,766) 10,605 (10,183) - ---------------------------------------------------------------------------------------------- Net earnings (loss) $ (35,385) $ 6,995 $ (19,696) $ 18,911 ============================================================================================== Weighted average shares outstanding 17,958 15,324 17,527 15,130 ============================================================================================== Net earnings (loss) per share $ (1.97) $ .46 $ (1.12) $ 1.25 ==============================================================================================
See accompanying notes to consolidated financial statements. 2 5 DEL WEBB CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
NINE MONTHS ENDED MARCH 31, - ------------------------------------------------------------------------------------------------------- 1996 1995 - ------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from customers related to community home sales $ 525,110 $ 402,806 Cash received from commercial land sales 7,564 1,599 Cash paid for costs related to community home construction (352,099) (272,637) - ------------------------------------------------------------------------------------------------------- Net cash provided by community sales activities 180,575 131,768 Cash paid for land acquisitions at operating communities (5,076) (3,495) Cash paid for lot development at operating communities (71,322) (43,326) Cash paid for amenity development at operating communities (43,889) (21,198) - ------------------------------------------------------------------------------------------------------- Net cash provided by operating communities 60,288 63,749 Cash paid for costs related to communities in the pre-operating stage (77,799) (68,616) Cash received from customers related to conventional homebuilding 149,541 103,205 Cash paid for land, development, construction and other costs related to conventional homebuilding (158,598) (112,142) Cash received from customers related to residential land development project 13,707 14,364 Cash paid for costs related to residential land development project (7,299) (11,365) Cash paid for corporate activities (30,569) (23,722) Interest paid (33,466) (37,971) Cash paid for income taxes (9,014) (1,546) - ------------------------------------------------------------------------------------------------------- NET CASH USED FOR OPERATING ACTIVITIES (93,209) (74,044) - ------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (5,325) (9,914) Investments in life insurance policies (2,313) (1,101) - ------------------------------------------------------------------------------------------------------- NET CASH USED FOR INVESTING ACTIVITIES (7,638) (11,015) - ------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings 229,579 562,000 Repayments of debt (175,956) (471,530) Proceeds from sale of common stock 45,271 -- Proceeds from exercise of common stock options 148 277 Purchases of treasury stock (30) (7) Dividends paid (2,492) (2,225) - ------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 96,520 88,515 - ------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS (4,327) 3,456 CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD 18,900 6,474 - ------------------------------------------------------------------------------------------------------- CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 14,573 $ 9,930 =======================================================================================================
See accompanying notes to consolidated financial statements. 3 6 DEL WEBB CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (IN THOUSANDS) (UNAUDITED)
NINE MONTHS ENDED MARCH 31, - --------------------------------------------------------------------------------------------------------- 1996 1995 - --------------------------------------------------------------------------------------------------------- Reconciliation of net earnings (loss) to net cash used for operating activities: Net earnings (loss) $ (19,696) $ 18,911 Allocation of non-cash common costs to costs and expenses, excluding interest 164,949 120,880 Amortization of capitalized interest in costs and expenses 28,268 20,386 Deferred compensation amortization 1,336 1,212 Depreciation and other amortization 6,266 3,870 Deferred income taxes (18,683) 12,700 Non-cash loss from impairment of southern California real estate inventories 65,000 -- Net increase in home construction costs (47,549) (45,548) Land acquisitions (31,159) (30,563) Lot development (150,425) (112,379) Amenity development (77,354) (49,895) Pre-acquisition costs (6,256) (2,770) Net change in other assets and liabilities (7,906) (10,848) - --------------------------------------------------------------------------------------------------------- Net cash used for operating activities $ (93,209) $ (74,044) =========================================================================================================
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 prior periods have been reclassified to be consistent with the current period 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 operations include 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, 1995, 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 nine months ended March 31, 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 - ------------------------------------------------------------------------------------ March 31, June 30, March 31, 1996 1995 1995 (Unaudited) (Unaudited) - ------------------------------------------------------------------------------------ Home construction costs $189,904 $142,355 $145,337 Unamortized improvement and amenity costs 445,298 356,457 338,930 Unamortized capitalized interest (Note 6) 44,852 55,793 54,079 Land held for housing 191,240 220,297 216,336 Land held for future development or sale 50,316 53,850 63,573 - ------------------------------------------------------------------------------------ $921,610 $828,752 $818,255 ====================================================================================
Unamortized capitalized interest in real estate inventories at March 31, 1996 has been reduced by $21.8 million, the portion of the loss from impairment of southern California real estate inventories allocated to unamortized capitalized interest (see Note 8). At March 31, 1996 the Company had 233 completed homes and 639 homes under construction that were not subject to a sales contract. These homes represented $17.6 million and $19.5 million, respectively, of home construction costs at March 31, 1996. Included in land held for future development or sale at March 31, 1996 were 396 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 held for future development or sale at March 31, 1996 were 336 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 - ------------------------------------------------------------------------------------------ March 31, June 30, March 31, 1996 1995 1995 (Unaudited) (Unaudited) - ------------------------------------------------------------------------------------------ 10 7/8% Senior Notes, net $ 97,303 $ 96,787 $ 96,615 9 3/4% Senior Subordinated Debentures, net 97,156 96,847 96,745 9% Senior Subordinated Debentures, net 97,286 97,081 97,013 Subordinated Swiss Franc Bonds, net -- 12,745 12,735 Notes payable to banks under a revolving credit facility and short-term lines of credit 233,000 160,200 110,600 Real estate and other notes 30,336 27,598 80,285 - ------------------------------------------------------------------------------------------ $555,081 $491,258 $493,993 ==========================================================================================
In February 1996 the Company paid its Subordinated Swiss Franc Bonds. The Company's related currency exchange agreement was fully performed and, together with the interest rate swap agreement (the Company's only derivative financial instruments), expired in February 1996. 6 9 DEL WEBB CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (3) NOTES PAYABLE, SENIOR AND SUBORDINATED DEBT (CONTINUED) At March 31, 1996 the Company had $233.0 million outstanding under its $300 million unsecured revolving credit facility and no amount outstanding under its $5 million short-term line of credit. At March 31, 1996, under the most restrictive of the covenants in the Company's debt agreements, $6.4 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. (4) INCOME TAXES The components of income taxes are:
In Thousands (Unaudited) - -------------------------------------------------------------------------------- Three Months Ended Nine Months Ended March 31, March 31, - -------------------------------------------------------------------------------- 1996 1995 1996 1995 - -------------------------------------------------------------------------------- Current: Federal $ 3,972 $ (3,027) $ 7,298 $ (3,119) State (158) (534) 780 602 - -------------------------------------------------------------------------------- 3,814 (3,561) 8,078 (2,517) - -------------------------------------------------------------------------------- Deferred: Federal (19,672) 6,081 (15,981) 11,400 State (3,195) 1,246 (2,702) 1,300 - -------------------------------------------------------------------------------- (22,867) 7,327 (18,683) 12,700 - -------------------------------------------------------------------------------- $(19,053) $ 3,766 $(10,605) $ 10,183 ================================================================================
The deferred income tax benefit for the three and nine months ended March 31, 1996, and the related deferred tax asset at March 31, 1996, resulted from the non-cash loss from impairment of southern California real estate inventories recognized by the Company as of March 31, 1996 (see Note 8). 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 Nine Months Ended March 31, March 31, - --------------------------------------------------------------------------------------------- 1996 1995 1996 1995 - --------------------------------------------------------------------------------------------- Revenues: Homebuilding: Communities $199,376 $148,408 $525,076 $413,466 Conventional 50,474 36,271 145,481 96,230 - --------------------------------------------------------------------------------------------- Total homebuilding 249,850 184,679 670,557 509,696 Land sales 3,499 8,895 24,848 19,976 Other 2,665 1,809 6,386 4,651 - --------------------------------------------------------------------------------------------- $256,014 $195,383 $701,791 $534,323 ============================================================================================= Costs and expenses: Home construction and land: Communities $150,949 $109,582 $393,816 $306,197 Conventional 41,843 30,650 123,024 80,827 - --------------------------------------------------------------------------------------------- Total homebuilding 192,792 140,232 516,840 387,024 Interest 10,569 7,818 28,268 20,386 Cost of land sales 2,537 7,082 19,046 16,762 Other cost of sales 704 1,142 2,267 3,402 Selling, general and administrative 38,850 28,348 100,671 77,655 Impairment of southern California real estate inventories 65,000 -- 65,000 -- - --------------------------------------------------------------------------------------------- $310,452 $184,622 $732,092 $505,229 =============================================================================================
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 Nine Months Ended March 31, March 31, - ----------------------------------------------------------------------------------------- 1996 1995 1996 1995 - ----------------------------------------------------------------------------------------- Interest incurred $12,885 $12,128 $39,127 $34,108 Less capitalized interest 12,885 12,128 39,127 34,108 - ----------------------------------------------------------------------------------------- Interest expense $ - $ - $ - $ - ========================================================================================= Amortization of capitalized interest in costs and expenses $10,569 $ 7,818 $28,268 $20,386 ========================================================================================= Unamortized capitalized interest in real estate inventories at period end (Notes 2 and 8) $44,852 $54,079 ========================================================================================= Interest income $ 182 $ 115 $ 732 $ 346 =========================================================================================
(7) EQUITY TRANSACTION In August 1995 the Company publicly sold 2,474,900 shares of its common stock. The net proceeds of $45.3 million were used to repay a portion of the indebtedness then outstanding under the Company's $300 million senior unsecured revolving credit facility. (8) IMPAIRMENT OF SOUTHERN CALIFORNIA REAL ESTATE INVENTORIES In March 1995 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The Company adopted this new standard in the third quarter of fiscal 1996. In accordance with SFAS No. 121, prior period financial statements have not been restated to reflect the change in accounting principle. SFAS No. 121 requires that long-lived assets, such as real estate inventories, be reviewed for impairment whenever events or changes in circumstances indicate that the book value of the asset may not be recoverable. If the sum of the expected future net cash flows (undiscounted and without interest charges) from an asset to be held and used is less than the book value of the asset, an impairment loss must be recognized in the amount of the difference between the book value and fair value, as opposed to the difference between book value and net realizable value under the previous accounting standard. For long-term assets like active adult communities, the determination of whether there is an impairment loss is dependent primarily on the Company's estimate of annual home closings over the life of the community, which involves numerous assumptions and judgments as to future events over a period of many years. In connection with its adoption of SFAS No. 121, the Company incurred a special, non-cash charge related to the valuation of its Sun City Palm Desert active adult community in southern California. 9 12 DEL WEBB CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (8) IMPAIRMENT OF SOUTHERN CALIFORNIA REAL ESTATE INVENTORIES (CONTINUED) In the first six months of fiscal 1996, net new orders at Sun City Palm Desert were substantially below both the comparable period of the prior fiscal year and the Company's expectations. Although the Company was encouraged by net new orders significantly greater in the first 45 days of the third quarter of fiscal 1996 than in the comparable period in the prior fiscal year, a lower than anticipated level of net new orders was achieved in the last half of the fiscal quarter. Net new orders decreased for the nine months ended March 31, 1996 compared to the same period a year earlier and net new orders for the fiscal year ending June 30, 1996 are now anticipated to be lower than in prior fiscal years. Additionally, a national home builder is developing an active adult community near Sun City Palm Desert which will cause additional competitive pressures at that community. Based on these and other factors, the Company reduced its estimate with respect to net new orders and closings in the fiscal years ending June 30, 1997 and beyond to below the levels achieved in the three fiscal years ended June 30, 1995. This resulted in expected future net cash flows (undiscounted and without interest charges) at Sun City Palm Desert being less than the current book value of the asset. As required by SFAS No. 121, the Company therefore recorded as of March 31, 1996 a non-cash loss from impairment of southern California real estate inventories in the amount of $65.0 million ($42.3 million or $2.35 per share after tax) to reflect Sun City Palm Desert at its estimated fair value. Fair value was estimated based upon an evaluation of comparable market prices and discounted expected future cash flows. 10 13 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, 1995, filed with the Securities and Exchange Commission. CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA
THREE MONTHS ENDED NINE MONTHS ENDED MARCH 31, CHANGE MARCH 31, CHANGE - --------------------------------------------------------------------------------------------------------- 1996 1995 AMOUNT PERCENT 1996 1995 AMOUNT PERCENT - --------------------------------------------------------------------------------------------------------- OPERATING DATA : Number of net new orders:1 Sun City West 290 283 7 2.5% 694 707 (13) (1.8%) Sun City Tucson 56 81 (25) (30.9%) 127 248 (121) (48.8%) Sun Cities Las Vegas 2 345 187 158 84.5% 855 571 284 49.7% Sun City Palm Desert 3 75 63 12 19.0% 142 184 (42) (22.8%) Sun City Roseville 121 17 104 611.8% 373 297 76 25.6% Sun City Hilton Head 4 124 26 98 376.9% 273 85 188 221.2% Sun City Georgetown 4 151 N/A 151 N/A 326 N/A 326 N/A Terravita 162 125 37 29.6% 309 342 (33) (9.6%) Coventry Homes 464 349 115 33.0% 1,091 719 372 51.7% - ------------------------------------------------------------------------------------------------------- Total 1,788 1,131 657 58.1% 4,190 3,153 1,037 32.9% ======================================================================================================= Number of home closings: Sun City West 207 235 (28) (11.9%) 611 874 (263) (30.1%) Sun City Tucson 71 89 (18) (20.2%) 206 297 (91) (30.6%) Sun Cities Las Vegas 2 265 193 72 37.3% 634 618 16 2.6% Sun City Palm Desert 3 65 70 (5) (7.1%) 158 202 (44) (21.8%) Sun City Roseville 4 206 82 124 151.2% 517 82 435 530.5% Sun City Hilton Head 4 78 N/A 78 N/A 187 N/A 187 N/A Sun City Georgetown 4 70 N/A 70 N/A 70 N/A 70 N/A Terravita 90 108 (18) (16.7%) 321 264 57 21.6% Coventry Homes 336 229 107 46.7% 974 629 345 54.8% - ------------------------------------------------------------------------------------------------------- Total 1,388 1,006 382 38.0% 3,678 2,966 712 24.0% ======================================================================================================= BACKLOG DATA : Homes under contract at March 31: Sun City West 585 49 92 18.7% Sun City Tucson 70 23 (164) (70.1% Sun Cities Las Vegas 2 623 43 191 44.2% Sun City Palm Desert 3 131 14 (13) (9.0% Sun City Roseville 427 56 (137) (24.3% Sun City Hilton Head 4 235 8 150 176.5% Sun City Georgetown 4 378 N/ 378 N/A Terravita 286 40 (123) (30.1% Coventry Homes 657 48 169 34.6% - ------------------------------------------------------------------- Total 5 3,392 2,84 543 19.1% =================================================================== Aggregate contract sales amount (dollars in millions) $ 647 $ 56 $ 87 15.5% =================================================================== Average contract sales amount per home (dollars in thousands) $ 191 $ 19 $ (6) (3.0% ===================================================================
11 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA (CONTINUED)
THREE MONTHS ENDED NINE MONTHS ENDED MARCH 31, CHANGE MARCH 31, CHANGE - -------------------------------------------------------------------------------------------------------------- 1996 1995 AMOUNT PERCENT 1996 1995 AMOUNT PERCENT - -------------------------------------------------------------------------------------------------------------- AVERAGE REVENUE PER HOME CLOSING : Sun City West $164,000 $154,900 $ 9,100 5.9% $160,500 $150,600 $ 9,900 6.6% Sun City Tucson 172,400 164,700 7,700 4.7% 173,000 164,300 8,700 5.3% Sun Cities Las Vegas 2 164,000 181,300 (17,300) (9.5%) 172,100 178,700 (6,600) (3.7%) Sun City Palm Desert 3 212,000 225,100 (13,100) (5.8%) 226,200 211,900 14,300 6.7% Sun City Roseville 4 209,500 219,500 (10,000) (4.6%) 212,900 219,500 (6,600) (3.0%) Sun City Hilton Head 4 165,500 N/A N/A N/A 159,300 N/A N/A N/A Sun City Georgetown 4 184,000 N/A N/A N/A 184,000 N/A N/A N/A Terravita 300,100 264,700 35,400 13.4% 292,200 234,100 58,100 24.8% Coventry Homes 150,200 158,400 (8,200) (5.2%) 149,400 153,000 (3,600) (2.4%) Weighted average 180,000 183,600 (3,600) (2.0%) 182,300 171,800 10,500 6.1% ============================================================================================================== OPERATING STATISTICS: Cost and expenses as a percentage of revenues: Home construction, land and other 76.6% 76.0% 0.6% 0.8% 76.7% 76.2% 0.5% 0.7% Interest 4.1% 4.0% 0.1% 2.5% 4.0% 3.8% 0.2% 5.3% Selling, general and administrative 15.2% 14.5% 0.7% 4.8% 14.3% 14.5% (0.2%) (1.4%) Ratio of home closings to homes under contract in backlog at beginning of period 46.4% 36.9% 9.5% 25.7% 127.7% 111.4% 16.3% 14.6% ==========================================================================================================
1 Net of cancellations. The Company recognizes revenue at close of escrow. 2 Includes Sun City Summerlin (the Company changed the name of its Sun City Las Vegas community to Sun City Summerlin during the first quarter of fiscal 1996) 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 During the first quarter of fiscal 1996 the Company changed the name of its Sun City Palm Springs community to Sun City Palm Desert. 4 The Company began taking new home sales orders at Sun City Hilton Head in November 1994 and at Sun City Georgetown in June 1995. Home closings began at Sun City Roseville in February 1995, at Sun City Hilton Head in August 1995 and at Sun City Georgetown in February 1996. 5 A majority of this backlog is currently anticipated to result in revenues in the next 12 months. However, a majority of the backlog at March 31, 1996 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 nine months ended March 31, 1996 and 1995, cancellations of home sales orders as a percentage of new home sales orders written during the period were 17.7 percent and 18.8 percent, respectively. 12 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1996 AND 1995 REVENUES. Home closings at Sun City Hilton Head and Sun City Georgetown accounted for $12.9 million and $12.9 million, respectively, of the increase in revenues to $256.0 million for the three months ended March 31,1996 from $195.4 million for the three months ended March 31, 1995. The Company had not yet begun delivering homes at these communities in the 1995 quarter. Increased home closings at the Sun Cities Las Vegas (where home closings began at Sun City MacDonald Ranch in January 1996) and Sun City Roseville (where the Company had home closings for only part of the 1995 quarter) accounted for $13.1 million and $27.2 million, respectively, of the increase in revenues. Decreased home closings, resulting from lower backlog at the beginning of the period, at the Company's more mature communities of Sun City West, Sun City Tucson, Sun City Palm Desert and Terravita resulted in a $13.2 million decrease in revenues. Increased home closings for Coventry Homes (the Company's conventional homebuilding operation), which benefitted from increases in Phoenix, Tucson, Las Vegas and southern California operations, resulted in increased revenues of $16.9 million. A decrease in the average revenue per home closing (excluding the new communities of Sun City Hilton Head and Sun City Georgetown) resulted in a $4.6 million decrease in revenues. This decrease in average revenue per home closing was primarily due to market-driven changes in product and subdivision mix and decreases in lot premiums at certain communities. Land sales revenues and other revenues were $5.4 million lower and $0.8 million higher, respectively, in the 1996 quarter than in the 1995 quarter. Sales of commercial land are a normal part of the Company's master-planned community developments, and revenues and pre-tax earnings from such sales normally fluctuate from period to period. HOME CONSTRUCTION, LAND AND OTHER COSTS. The increase in home construction, land and other costs to $196.0 million for the 1996 quarter compared to the $148.5 million for the 1995 quarter was primarily due to the increase in home closings. As a percentage of revenues, these costs were 76.6 percent for the 1996 quarter compared to 76.0 percent for the 1995 quarter, with the increase primarily attributable to changes in mix of product, subdivisions and home closings among the Company's communities and conventional homebuilding operations. INTEREST. As a percentage of revenues, amortization of capitalized interest was 4.1 percent for the 1996 quarter compared to 4.0 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 does not allocate capitalized interest. As a result of the non-cash loss from impairment of southern California real estate inventories recognized by the Company as of March 31, 1996 (see "Impairment of Southern California Real Estate Inventories"), management currently anticipates that in the future greater capitalized interest will be allocated to communities with more home closings than Sun City Palm Desert. This would result in an increase in amortization of capitalized interest as a percentage of revenues in future periods. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Of the increase in selling, general and administrative expenses to $38.8 million for the 1996 quarter from $28.3 million for the 1995 quarter, $4.0 million was attributable to higher sales and marketing expenses, $2.1 million was due to increased commissions on the increased revenues and $2.2 million resulted from the recognition of general and administrative expenses at Sun City Roseville, Sun City Hilton Head, Sun City MacDonald Ranch and Sun City Georgetown in the 1996 quarter (for which pre-operating costs were capitalized prior to the commencement of home closings, which for each of these communities included part or all of the 1995 quarter). The balance of the increase was due to a variety of general and administrative expenses. INCOME TAXES. The change in income taxes to a $19.1 million benefit for the 1996 quarter as compared to a $3.8 million expense for the 1995 quarter was due to the change in earnings (loss) before income taxes. The effective tax rate in both quarters was 35 percent. 13 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) IMPAIRMENT OF SOUTHERN CALIFORNIA REAL ESTATE INVENTORIES. In the third quarter of fiscal 1996 the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. (For a brief description of SFAS No. 121, see Note 8 to the Consolidated Financial Statements.) In connection with its adoption of SFAS No. 121, the Company incurred a special, non-cash charge related to the valuation of its Sun City Palm Desert active adult community in southern California. In the first six months of fiscal 1996, net new orders at Sun City Palm Desert were substantially below both the comparable period of the prior fiscal year and the Company's expectations. Although the Company was encouraged by net new orders significantly greater in the first 45 days of the third quarter of fiscal 1996 than in the comparable period in the prior fiscal year, a lower than anticipated level of net new orders was achieved in the last half of the fiscal quarter. Net new orders decreased for the nine months ended March 31, 1996 compared to the same period a year earlier and net new orders for the fiscal year ending June 30, 1996 are now anticipated to be lower than in prior fiscal years. Additionally, a national home builder is developing an active adult community near Sun City Palm Desert which will cause additional competitive pressures at that community. Based on these and other factors, the Company reduced its estimate with respect to net new orders and closings in the fiscal years ending June 30, 1997 and beyond to below the levels achieved in the three fiscal years ended June 30, 1995. This resulted in expected future net cash flows (undiscounted and without interest charges) at Sun City Palm Desert being less than the current book value of the asset. As required by SFAS No. 121, the Company therefore recorded as of March 31, 1996 a non-cash loss from impairment of southern California real estate inventories in the amount of $65.0 million ($42.3 million or $2.35 per share after tax) to reflect Sun City Palm Desert at its estimated fair value. Fair value was estimated based upon an evaluation of comparable market prices and discounted expected future cash flows. The Company owns additional land for a second phase of development at Sun City Palm Desert. Development of subsequent phases of large-scale real estate projects is always assessed in light of conditions existing when construction of the phase is to begin, and any decision on the development of the second phase at this community will depend on the state of the economy and prospects for the community at the time the current phase is nearing completion. NET NEW ORDER ACTIVITY AND BACKLOG. Net new orders increased 58.1 percent in the 1996 quarter as compared to the 1995 quarter. This increase was largely attributable to new sales orders at Sun City Georgetown (at which the Company began taking new sales orders in June 1995) and substantial increases at Sun City Roseville and Sun City Hilton Head (at which net new orders were negatively impacted in the 1995 quarter by a depleted inventory of available home sites and adverse weather conditions, respectively). Net new orders at Sun City Tucson decreased 30.9 percent in the 1996 quarter compared to the 1995 quarter, reflecting the approaching completion of that community. Net new orders at the Sun Cities Las Vegas increased 84.5 percent, primarily as a result of the commencement of new order activity at Sun City MacDonald Ranch in September 1995. At Sun City Palm Desert, net new orders increased 19.0 percent in the 1996 quarter compared to the 1995 quarter; however, all of this increase was attributable to net new orders received in the first half of the 1996 quarter. Management continues to be concerned by adverse conditions in the southern California economy and real estate market. Future net new order activity at Sun City Palm Desert will be affected by various factors, including the condition of the southern California economy and real estate market and competition. See "Impairment of Southern California Real Estate Inventories." Net new orders at Terravita increased 29.6 percent in the 1996 quarter compared to the 1995 quarter, when they were negatively impacted by restricted lot availability. Net new orders for Coventry Homes were 33.0 percent higher in the 1996 quarter than in the 1995 quarter, due to increases in Phoenix, Tucson, Las Vegas and southern California operations. 14 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The number of homes under contract at March 31, 1996 was 19.1 percent higher than at March 31, 1995. This increase was primarily attributable to new sales orders at Sun City Hilton Head, Sun City Georgetown and Sun City MacDonald Ranch and to the growth of Coventry Homes operations, partially offset by the decreased net new order activity at Sun City Tucson, reductions in the number of homes under contract at Sun City Roseville and Terravita as a result of home closings at those communities and the reduction at Sun City Palm Desert. NINE MONTHS ENDED MARCH 31, 1996 AND 1995 REVENUES. Home closings at Sun City Hilton Head and Sun City Georgetown accounted for $29.8 million and $12.9 million, respectively, of the increase in revenues to $701.8 million for the nine months ended March 31, 1996 from $534.3 million for the nine months ended March 31, 1995. The Company had not yet begun delivering homes at these communities in the 1995 period. Increased home closings at Sun City Roseville, where the Company had home closings for only a small part of the 1995 period, accounted for $95.5 million of the increase in revenues. Decreased home closings, resulting from lower backlog at the beginning of the period, at the Company's more mature active adult communities of Sun City West, Sun City Tucson and Sun City Palm Desert resulted in a $63.9 million decrease in revenues. Increased home closings at Coventry Homes (which benefitted from increases in Phoenix, Tucson, Las Vegas and southern California operations) and Terravita (at which the 1995 period was the initial period of home closings) resulted in increased revenues of $52.8 million and $13.3 million, respectively. An increase in the average revenue per home closing (excluding the new communities of Sun City Hilton Head and Sun City Georgetown) resulted in a $17.6 million increase in revenues. This increase was primarily due to sales price increases previously implemented by the Company, increases in lot premiums at certain communities and market-driven changes in product mix. Land sales revenues and other revenues were $4.9 million higher and $1.7 million higher, respectively, in the 1996 period than in the 1995 period. Sales of commercial land are a normal part of the Company's master-planned community developments, and revenues and pre-tax earnings from such sales normally fluctuate from period to period. HOME CONSTRUCTION, LAND AND OTHER COSTS. The increase in home construction, land and other costs to $538.2 million for the 1996 period compared to $407.2 million for the 1995 period was primarily due to the increase in home closings. As a percentage of revenues, these costs were 76.7 percent for the 1996 period compared to 76.2 percent for the 1995 period, with the increase primarily attributable to changes in mix of product, subdivisions and home closings among the Company's communities and conventional homebuilding operations. INTEREST. As a percentage of revenues, amortization of capitalized interest was 4.0 percent for the 1996 period compared to 3.8 percent for the 1995 period. 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 does not allocate capitalized interest. See "Three Months Ended March 31, 1996 and 1995 -- Interest." SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Since a significant portion of selling, general and administrative expenses is fixed, the increase in revenues for the 1996 period resulted in a decrease in these expenses as a percentage of revenues as compared to the 1995 period. Of the increase in total selling, general and administrative expenses to $100.7 million for the 1996 period from $77.7 million for the 1995 period, $7.8 million was attributable to higher sales and marketing expenses, $5.1 million was due to increased commissions on the increased revenues and $4.8 million resulted from the recognition of general and administrative expenses at Sun City Roseville, Sun City Hilton Head, Sun City MacDonald Ranch and Sun City Georgetown in the 1996 period (for which pre-operating costs were capitalized prior to the commencement of home closings, which for each of these communities included part or all of the 1995 period). The balance of the increase was due to a variety of general and administrative expenses. 15 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) INCOME TAXES. The change in income taxes to a $10.6 million benefit for the 1996 period as compared to a $10.2 million expense for the 1995 period was due to the change in earnings (loss) before income taxes. The effective tax rate in both periods was 35 percent. IMPAIRMENT OF SOUTHERN CALIFORNIA REAL ESTATE INVENTORIES. See "Three Months Ended March 31, 1996 and 1995 -- Impairment of Southern California Real Estate Inventories" and Note 8 to the Consolidated Financial Statements. NET NEW ORDER ACTIVITY AND BACKLOG. Net new orders increased 32.9 percent in the 1996 period as compared to the 1995 period. The number of homes under contract at March 31, 1996 was 19.1 percent higher than at March 31, 1995. These increases were primarily attributable to new sales orders at Sun City Georgetown and Sun City MacDonald Ranch, increased new orders at Sun City Roseville and Sun City Hilton Head and the growth of Coventry Homes operations, partially offset by the decreased net new order activity at Sun City Tucson and Sun City Palm Desert (see "Three Months Ended March 31, 1996 and 1995 -- Net New Order Activity and Backlog") and Terravita. Net new orders at Terravita were 9.6 percent lower in the 1996 period than in the 1995 period, when they were high due to pent-up demand in the local market. Company information indicates that the majority of home buyers at Terravita are now coming from states other than Arizona. As a result, the Company believes that net new orders at Terravita are likely to be more seasonal than they have been in prior periods. LIQUIDITY AND FINANCIAL CONDITION OF THE COMPANY At March 31, 1996 the Company had $14.6 million of cash and short-term investments, $233.0 million outstanding under its $300 million unsecured revolving credit facility and no amount outstanding under its $5 million short-term line of credit. In August 1995 the Company publicly sold 2,474,900 shares of its common stock. The net proceeds of $45.3 million were used to repay a portion of the indebtedness then outstanding under the Company's $300 million senior unsecured revolving credit facility. The Company has reborrowed and will continue to reborrow under the senior unsecured revolving credit agreement from time to time as necessary to fund development of existing and new projects and for other general corporate purposes. 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. Given the Company's current capital resources, operating requirements reflect limitations on some of the projects and activities that the Company might otherwise desire to undertake. 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. As of March 31, 1996, after the effect of the non-cash loss from impairment of southern California real estate inventories, the Company was in compliance with, and had no restriction on the available borrowings under, its senior unsecured revolving credit facility and short-term line of credit. 16 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) 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 initial costs are generally capitalized, this can result in income reported for financial statement purposes during the 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 nine months ended March 31, 1996 the Company generated $180.6 million of net cash from community sales activities, used $120.3 million of cash for land and lot and amenity development at operating communities, paid $77.8 million for costs related to communities in the pre-operating stage, used $9.1 million of net cash for conventional homebuilding operations and used $66.6 million of cash for other operating activities. At March 31, 1996, under the most restrictive of the covenants in the Company's debt agreements, $6.4 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 that are not related to historical results are forward looking statements. Actual results may differ materially from those projected or implied in the forward looking statements. Further, certain forward looking statements are based upon assumptions of future events which may not prove to be accurate. These forward looking statements involve risks and uncertainties including but not limited to those referred to under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Forward Looking Information; Certain Cautionary Statements" in the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1995, filed with the Securities and Exchange Commission. For additional information on factors which could affect the Company's financial results, see the Company's most recently filed Annual Report on Form 10-K, and subsequent periodic reports, filed with the Securities and Exchange Commission. 17 20 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. 18 21 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: May 13, 1996 /s/ Philip J. Dion ------------------- -------------------------------------------------- Philip J. Dion Chairman and Chief Executive Officer Date: May 13, 1996 /s/ John A. Spencer ------------------- -------------------------------------------------- John A. Spencer Senior Vice President and Chief Financial Officer 19 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1996 AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1,000 U.S. DOLLARS 9-MOS JUN-30-1996 JUL-01-1995 MAR-31-1996 1 14,573 0 29,946 0 921,610 0 50,380 22,074 1,041,551 0 555,081 17 0 0 253,232 1,041,551 698,538 701,791 566,347 566,421 165,671 0 0 (30,301) (10,605) (19,696) 0 0 0 (19,696) (1.12) 0
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