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, 1995.
[ ] 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, 1995 Registrant had outstanding 14,875,843 shares of common
stock.
DEL WEBB CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED
March 31, 1995
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31, 1995,
June 30, 1994 and March 31, 1994............................... 1
Consolidated Statements of Earnings for the three and nine
months ended March 31, 1995 and 1994........................... 2
Consolidated Statements of Cash Flows for the nine
months ended March 31, 1995 and 1994........................... 3
Notes to Consolidated Financial Statements....................... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................ 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................ 16
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.
DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands Except Share Data)
March 31, June 30, March 31,
1995 1994 1994
(Unaudited) (Unaudited)
- -------------------------------------------------------------------------------
Assets
- -------------------------------------------------------------------------------
Real estate inventories
(Notes 2, 3 and 6) ........... $ 818,255 $ 662,613 $ 598,989
Cash and short-term investments 9,930 6,474 9,594
Receivables .................... 10,583 10,385 19,146
Property and equipment, net
(Note 1) ..................... 27,391 36,773 12,968
Deferred income taxes .......... -- 11,604 15,255
Other assets ................... 27,684 30,575 29,968
- -------------------------------------------------------------------------------
$ 893,843 $ 758,424 $ 685,920
===============================================================================
Liabilities and Shareholders' Equity
- -------------------------------------------------------------------------------
Notes payable, senior and
subordinated debt (Note 3) ... $ 493,993 $ 395,676 $ 363,984
Subcontractor and trade
accounts payable ............. 55,893 45,443 33,280
Accrued liabilities and
other payables ............... 36,349 39,905 26,605
Home sale deposits ............. 79,749 62,797 53,478
Income taxes payable ........... 3,092 7,155 6,626
Deferred income taxes .......... 1,096 -- --
Net liabilities of
discontinued operations ...... 4,150 6,124 6,664
- -------------------------------------------------------------------------------
Total liabilities ........ 674,322 557,100 490,637
- -------------------------------------------------------------------------------
Shareholders' equity:
Common stock, $.001 par value at
March 31, 1995, without par
value at June 30, 1994 and
March 31, 1994. Authorized
30,000,000 shares; issued
15,798,884 shares at March 31,
1995,
15,828,940 shares at June 30, 1994
and 15,829,077 shares at
March 31, 1994 (Note 7) 16 112,944 112,947
Additional paid-in capital
(Note 7) .................... 121,120 8,333 8,351
Retained earnings ............. 113,316 96,630 90,980
- -------------------------------------------------------------------------------
234,452 217,907 212,278
Less cost of common stock
in treasury, 922,904 shares
at March 31, 1995,
1,132,065 shares at June 30,
1994 and 1,137,160 shares at
March 31, 1994 ............. (11,636) (14,600) (14,678)
Less deferred compensation ... (3,295) (1,983) (2,317)
- -------------------------------------------------------------------------------
Total shareholders' equity 219,521 201,324 195,283
- -------------------------------------------------------------------------------
$ 893,843 $ 758,424 $ 685,920
===============================================================================
See accompanying notes to consolidated financial statements.
DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In Thousands Except Per Share Data)
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
- --------------------------------------------------------------------------------
1995 1994 1995 1994
- --------------------------------------------------------------------------------
Revenues (Note 5) .............. $195,383 $136,259 $534,323 $349,356
Cost of sales (Note 5) ......... 156,274 107,862 427,574 277,713
Selling, general and
administrative expenses ...... 28,348 21,340 77,655 55,280
- --------------------------------------------------------------------------------
Operating earnings ......... 10,761 7,057 29,094 16,363
Income tax expense
(Note 4) ..................... 3,766 2,470 10,183 5,727
- --------------------------------------------------------------------------------
Net earnings ............... $ 6,995 $ 4,587 $ 18,911 $ 10,636
================================================================================
Weighted average
shares outstanding ........... 15,324 15,001 15,130 15,059
================================================================================
Net earnings per share ......... $ .46 $ .31 $ 1.25 $ .71
================================================================================
See accompanying notes to consolidated financial statements.
DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Nine Months Ended
March 31,
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Cash received from customers
related to community home sales ................ $ 402,806 $ 280,035
Cash received from commercial
land sales ..................................... 1,599 2,762
Cash paid for costs related
to community home construction ................. (272,637) (199,567)
- --------------------------------------------------------------------------------
Net cash provided by community
sales activities ............................. 131,768 83,230
Cash paid for land acquisitions
at operating communities ....................... (3,495) (5,212)
Cash paid for lot development at
operating communities .......................... (43,326) (30,358)
Cash paid for amenity development
at operating communities ....................... (21,198) (25,789)
- --------------------------------------------------------------------------------
Net cash provided by operating communities ..... 63,749 21,871
Cash paid for costs related to communities
in the pre-operating stage ..................... (68,616) (61,075)
Cash received from customers related to
conventional homebuilding ...................... 103,205 52,248
Cash paid for land, development,
construction and other costs related
to conventional homebuilding ................... (112,142) (72,345)
Cash received from customers related
to residential land development project ........ 14,364 11,493
Cash paid for costs related to residential
land development project ....................... (11,365) (7,540)
Cash paid for corporate activities ............... (23,248) (20,782)
Interest paid .................................... (37,971) (26,373)
Cash received (paid) for income taxes ............ (1,546) 17
Net operating activities of discontinued
operations ..................................... (474) (1,837)
- --------------------------------------------------------------------------------
NET CASH USED FOR OPERATING ACTIVITIES ......... (74,044) (104,323)
- --------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment .............. (9,914) (5,040)
Investments in life insurance policies ........... (1,101) (1,799)
- --------------------------------------------------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES ......... (11,015) (6,839)
- --------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings ....................................... 562,000 262,714
Repayments of debt ............................... (470,030) (156,682)
Purchases of treasury stock ...................... (7) (13,326)
Proceeds from exercise of stock
options ........................................ 277 119
Dividends paid ................................... (2,225) (2,247)
Net financing activities of
discontinued operations ........................ (1,500) (3,500)
- --------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES ...... 88,515 87,078
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH
AND SHORT-TERM INVESTMENTS ....................... 3,456 (24,084)
CASH AND SHORT-TERM INVESTMENTS
AT BEGINNING OF PERIOD ........................... 6,474 33,678
- --------------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS
AT END OF PERIOD ................................. $ 9,930 $ 9,594
================================================================================
See accompanying notes to consolidated financial statements.
DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In Thousands)
(Unaudited)
Nine Months Ended
March 31,
- -------------------------------------------------------------------------------
1995 1994
- -------------------------------------------------------------------------------
Reconciliation of net earnings to net
cash used for operating activities:
Net earnings ................................... $ 18,911 $ 10,636
Allocation of non-cash costs to
cost of sales, excluding interest ............ 120,880 76,306
Amortization of capitalized interest
included in cost of sales .................... 20,386 12,228
Deferred compensation amortization ............. 1,212 981
Depreciation and other amortization ............ 3,870 2,699
Deferred income tax expense .................... 12,700 5,410
Net change in home construction costs .......... (45,548) (36,049)
Land acquisitions .............................. (30,563) (52,773)
Lot development ................................ (112,379) (55,901)
Amenity development ............................ (49,895) (39,827)
Pre-acquisition costs .......................... (2,770) (4,219)
Net change in other assets and liabilities ..... (10,374) (21,977)
Net operating activities of discontinued
operations ................................... (474) (1,837)
- --------------------------------------------------------------------------------
Net cash used for operating activities ...... $ (74,044) $(104,323)
================================================================================
See accompanying notes to consolidated financial statements.
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.
At June 30, 1994 the Company classified the unamortized cost of its
vacation apartments (aggregating $16.6 million) as property and equipment
as a result of its intent to operate the apartments. At October 1, 1994 the
Company decided to return to marketing the apartments for sale as
individual units. Accordingly, the apartments were reclassified from
property and equipment to real estate inventories.
The Company's continuing 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 developer 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. The Company's commercial land
development projects are accounted for as discontinued operations.
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,
1994, filed with the Securities and Exchange Commission.
In the Consolidated Statements of Cash Flows, the Company defines operating
communities as communities generating revenue through home closings.
Communities in the pre-operating stage are those not currently generating
home sales revenues.
The results of operations for the nine months ended March 31, 1995 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
---------------------------------------------------------------------------
March 31, June 30, March 31,
1995 1994 1994
(Unaudited) (Unaudited)
---------------------------------------------------------------------------
Home construction costs ........... $145,337 $ 99,789 $101,646
Unamortized improvement
and amenity costs ............... 338,930 246,536 221,411
Unamortized capitalized
interest ........................ 54,079 40,357 36,245
Land held for housing ............. 216,336 210,700 149,567
Land held for future
development or sale ............. 63,573 65,231 90,120
---------------------------------------------------------------------------
$818,255 $662,613 $598,989
===========================================================================
At March 31, 1995 the Company had 341 completed homes (excluding models and
vacation apartments) and 482 homes under construction that were not subject
to a sales contract. These homes represented $24.1 million and $12.2
million, respectively, of home construction costs at March 31, 1995. At
March 31, 1994 the Company had 228 completed homes and 364 homes under
construction (representing $14.6 million and $10.1 million, respectively,
of home construction costs) that were not subject to a sales contract.
Included in land held for future development or sale at March 31, 1995 were
228 acres of residential land, 392 acres of commercial land and 44 acres of
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, 1995 were 549 acres of
residential land and 40 acres of 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,
1995 1994 1994
(Unaudited) (Unaudited)
---------------------------------------------------------------------------
Senior Notes, net .................... $ 96,615 $ 96,098 $ 95,926
9 3/4% Senior Subordinated
Debentures, net .................... 96,745 96,436 96,334
9% Senior Subordinated
Debentures, net .................... 97,013 96,879 97,010
Subordinated Swiss
Franc Bonds, net ................... 12,735 12,704 12,694
Notes payable to banks
under a revolving
credit agreement and
short-term lines of
credit.............................. 110,600 18,000 14,500
Real estate and other notes .......... 80,285 75,559 47,520
---------------------------------------------------------------------------
$493,993 $395,676 $363,984
===========================================================================
At March 31, 1995 the Company had $74.0 million and $10.4 million of unused
borrowing capacity under a $175 million unsecured revolving credit facility
and $20 million of short-term lines of credit, respectively. In November
1994 the Company negotiated an amendment to its unsecured revolving credit
facility to increase the amount of the facility from $125 million to $175
million.
At March 31, 1995, under the most restrictive of the covenants in the
Company's debt agreements, $20.9 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.
The Company does not trade in derivative financial instruments. It has two
derivative financial instruments for purposes other than trading.
The Company has a currency exchange agreement entered into with a major
bank in 1986 simultaneously with the issuance outside of the United States
of 50 million Subordinated Swiss Franc Bonds ($24 million) due February
1996. The agreement was entered into to eliminate the Company's exposure to
foreign currency fluctuations. As of March 31, 1995 the outstanding Bonds
and the currency exchange agreement have been reduced to 26.7 million Swiss
Francs ($12.8 million). The estimated fair value at March 31, 1995 of the
foreign currency exchange agreement reflects an unrealized gain of $14.2
million, although this is mostly offset by a $10.5 million increase in the
fair value over the book value of the subordinated Swiss Franc bonds.
The Company also has an interest rate swap agreement which calls for an
interest rate conversion with a notional amount of $20 million. This swap
agreement was entered into to manage the Company's interest rate risk. It
requires fixed interest payments on the notional amount at a rate of 10.5
percent annually until February 1996. The Company receives semi-annual
interest payments based on the six-month London interbank offered rate
(LIBOR) until February 1996. As a result of this agreement, the Company
incurred net interest of $776,000 for the nine months ended March 31, 1995.
A one percent decrease (increase) in the LIBOR would have resulted in a
$150,000 increase (decrease) in interest for the nine-month period. The
estimated fair value at March 31, 1995 of the interest rate swap agreement
reflects an unrealized loss of $687,000.
(4) Income Taxes
Components of Income Tax Expense
The components of income tax expense attributable to operating earnings
are:
In Thousands
(Unaudited)
---------------------------------------------------------------------------
Three Months Ended Nine Months Ended
March 31, March 31,
---------------------------------------------------------------------------
1995 1994 1995 1994
---------------------------------------------------------------------------
Current:
Federal ........... $ (3,027) $ (191) $ (3,119) $ 56
State ............. (534) (44) 602 261
---------------------------------------------------------------------------
(3,561) (235) (2,517) 317
---------------------------------------------------------------------------
Deferred:
Federal ........... 6,081 2,188 11,400 4,576
State ............. 1,246 517 1,300 834
---------------------------------------------------------------------------
7,327 2,705 12,700 5,410
---------------------------------------------------------------------------
Total ............... $ 3,766 $ 2,470 $ 10,183 $ 5,727
===========================================================================
(5) Revenues and Cost of Sales
The components of revenues and cost of sales are:
In Thousands
(Unaudited)
---------------------------------------------------------------------------
Three Months Ended Nine Months Ended
March 31, March 31,
---------------------------------------------------------------------------
1995 1994 1995 1994
---------------------------------------------------------------------------
Revenues:
Home sales -
communities ........ $148,408 $100,890 $413,466 $279,152
Home sales -
conventional
homebuilding ....... 36,271 27,025 96,230 51,387
Land sales and
other .............. 10,704 8,344 24,627 18,817
---------------------------------------------------------------------------
$195,383 $136,259 $534,323 $349,356
===========================================================================
Cost of Sales:
Home sales -
communities ........ $116,515 $ 79,269 $324,837 $219,757
Home sales -
conventional
homebuilding ....... 31,314 23,138 82,238 44,235
Land sales and
other .............. 8,445 5,455 20,499 13,721
---------------------------------------------------------------------------
$156,274 $107,862 $427,574 $277,713
===========================================================================
(6) Interest
The following table shows the components of interest:
In Thousands
(Unaudited)
---------------------------------------------------------------------------
Three Months Ended Nine Months Ended
March 31, March 31,
---------------------------------------------------------------------------
1995 1994 1995 1994
---------------------------------------------------------------------------
Interest incurred ............... $12,128 $ 8,841 $34,108 $23,790
Less capitalized
interest ...................... 12,128 8,841 34,108 23,790
---------------------------------------------------------------------------
Interest expense ............ -- -- -- --
===========================================================================
Amortization of capitalized
interest included in cost
of sales ...................... $ 7,818 $ 4,770 $20,386 $12,228
===========================================================================
Unamortized capitalized
interest included in real
estate inventories at
period end .................... $54,079 $36,245
===========================================================================
Interest income ................. $ 115 $ 341 $ 346 $ 926
===========================================================================
(7) Reincorporation
On November 3, 1994 the Company changed its state of incorporation from
Arizona to Delaware. In connection with this reincorporation, the common
stock changed from common stock without par value to common stock with a
par value of $.001 per share, which resulted in a consolidated balance
sheet reclassification within shareholders' equity from common stock to
additional paid-in capital. There was no impact on total shareholders'
equity as a result of the reincorporation.
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 financial statements and
notes thereto and the Company's Annual Report on Form 10-K for the year ended
June 30, 1994, filed with the Securities and Exchange Commission.
CONSOLIDATED FINANCIAL AND OPERATING DATA
Three Months Ended Nine Months Ended
March 31, Change March 31, Change
- ---------------------------------------------------------------------------------------------------------------------------
1995 1994 Amount Percent 1995 1994 Amount Percent
- ---------------------------------------------------------------------------------------------------------------------------
OPERATING DATA :
Number of net new orders: 1
Sun City West 283 385 (102) (26.5%) 707 897 (190) (21.2%)
Sun City Tucson 81 102 (21) (20.6%) 248 260 (12) (4.6%)
Sun City Las Vegas 187 212 (25) (11.8%) 571 617 (46) (7.5%)
Sun City Palm Springs 63 94 (31) (33.0%) 184 215 (31) (14.4%)
Sun City Roseville 2 17 N/A 17 N/A 297 N/A 297 N/A
Sun City Hilton Head 3 26 N/A 26 N/A 85 N/A 85 N/A
Terravita 4 125 208 (83) (39.9%) 342 300 42 14.0%
Coventry Homes 349 234 115 49.1% 719 565 154 27.3%
- ---------------------------------------------------------------------------------------------------------------------------
Total 1,131 1,235 (104) (8.4%) 3,153 2,854 299 10.5%
===========================================================================================================================
Number of home closings:
Sun City West 235 284 (49) (17.3%) 874 855 19 2.2%
Sun City Tucson 89 68 21 30.9% 297 223 74 33.2%
Sun City Las Vegas 193 209 (16) (7.7%) 618 565 53 9.4%
Sun City Palm Springs 70 77 (7) (9.1%) 202 190 12 6.3%
Sun City Roseville 2 82 N/A 82 N/A 82 N/A 82 N/A
Terravita 4 108 N/A 108 N/A 264 N/A 264 N/A
Coventry Homes 229 196 33 16.8% 629 398 231 58.0%
- ---------------------------------------------------------------------------------------------------------------------------
Total 1,006 834 172 20.6% 2,966 2,231 735 32.9%
===========================================================================================================================
BACKLOG DATA :
Homes Under Contract
at March 31, Change
- ---------------------------------------------------------------------------------------------------------------------------
1995 1994 Amount Percent
- ---------------------------------------------------------------------------------------------------------------------------
Sun City West 493 707 (214) (30.3%)
Sun City Tucson 234 305 (71) (23.3%)
Sun City Las Vegas 432 483 (51) (10.6%)
Sun City Palm Springs 144 150 (6) (4.0%)
Sun City Roseville 2 564 N/A 564 N/A
Sun City Hilton Head 3 85 N/A 85 N/A
Terravita 4 409 300 109 36.3%
Coventry Homes 5 488 378 110 29.1%
- ------------------------------------------------------------------------------
Total 2,849 6 2,323 526 22.6%
==============================================================================
Aggregate contract sales amount
(dollars in millions) $ 560 6 $ 396 $ 164 41.4%
==============================================================================
Average contract sales amount per
home (dollars in thousands) $ 197 $ 170 $ 27 15.9%
==============================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
CONSOLIDATED FINANCIAL AND OPERATING DATA(Continued)
Three Months Ended Nine Months Ended
March 31, Change March 31, Change
- -------------------------------------------------------------------------------------------------------------------------------
1995 1994 Amount Percent 1995 1994 Amount Percent
- -------------------------------------------------------------------------------------------------------------------------------
AVERAGE REVENUE PER HOME
CLOSING:
Sun City West $ 154,900 $ 147,000 $ 7,900 5.4% $ 150,600 $ 140,400 $ 10,200 7.3%
Sun City Tucson 164,700 155,000 9,700 6.3% 164,300 155,900 8,400 5.4%
Sun City Las Vegas 181,300 161,100 20,200 12.5% 178,700 157,200 21,500 13.7%
Sun City Palm Springs 225,100 193,900 31,200 16.1% 211,900 187,000 24,900 13.3%
Sun City Roseville 2 219,500 N/A N/A N/A 219,500 N/A N/A N/A
Terravita 4 264,700 N/A N/A N/A 234,100 N/A N/A N/A
Coventry Homes 158,400 137,900 20,500 14.9% 153,000 129,100 23,900 18.5%
Total weighted average 183,600 153,400 30,200 19.7% 171,800 148,200 23,600 15.9%
===============================================================================================================================
OPERATING STATISTICS:
Cost of sales as a
percentage of revenues 80.0% 79.2% 0.8% 1.0% 80.0% 79.5% 0.5% 0.6%
Selling, general and
administrative expenses as
a percentage of
revenues 14.5% 15.7% (1.2%) (7.6%) 14.5% 15.8% (1.3%) (8.2%)
Operating earnings as a
percentage of revenues 5.5% 5.2% 0.3% 5.8% 5.4% 4.7% 0.7% 14.9%
Ratio of home closings to
homes under contract in
backlog at
beginning of period 36.9% 43.4% (6.5%) (15.0%) 111.4% 131.2% (19.8%) (15.1%)
===============================================================================================================================
<FN>
1 Net of cancellations. The Company recognizes revenue at close of escrow.
2 The Company began taking new home sales orders at Sun City Roseville in May
1994. Home closings at Sun City Roseville began in February 1995.
3 The Company began taking new home sales orders at Sun City Hilton Head in
November 1994.
4 The Company began taking new home sales orders at Terravita in November
1993. Home closings at Terravita began in July 1994.
5 The Coventry Homes backlog at March 31, 1995 was generated by 17
subdivisions in the Phoenix area, 3 subdivisions in Tucson, 1 subdivision in
Las Vegas and 2 subdivisions in Southern California.
6 A majority of this backlog is currently anticipated to result in revenues in
the next 12 months. However, a majority of the home sales orders reflected
in backlog at March 31, 1995 are 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, 1995 and 1994, cancellations of home sales orders as a percentage
of new home sales orders written during the period were 18.8 percent and
15.4 percent, respectively.
</FN>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1995 AND 1994
REVENUES.
(Dollars in Millions)
- -------------------------------------------------------------------------------
Three Months Ended
March 31, Change
- -------------------------------------------------------------------------------
1995 1994 Amount Percent
- -------------------------------------------------------------------------------
$195.4 $136.3 $59.1 43.4%
Home closings at Terravita and Sun City Roseville accounted for $28.6 million
and $18.0 million, respectively, of the increase in revenues for the three
months ended March 31, 1995 compared to the three months ended March 31, 1994.
The Company had not yet begun delivering homes at these communities in the 1994
quarter. Decreased home closings (resulting from the decreased net new order
activity for the nine months ended March 31, 1995 as compared to the nine months
ended March 31, 1994) at the Company's more mature active adult communities (Sun
City West, Sun City Tucson, Sun City Las Vegas and Sun City Palm Springs)
resulted in a $7.9 million decrease in revenues. Increased home closings
(resulting from the expansion of operations in Tucson, Las Vegas and Southern
California) for Coventry Homes, the Company's conventional homebuilding
operation, resulted in a $4.5 million increase in revenues. Increases in the
average revenue per home closing at the Company's more mature active adult
communities and Coventry Homes accounted for $8.8 million and $4.7 million,
respectively, of the increase in revenues. These increases in average revenues
per home closing were partially due to sales price increases implemented by the
Company and partially due to market-driven changes in product mix. Land sales
and other revenues were $2.4 million higher in the 1995 quarter than in the 1994
quarter.
COST OF SALES. The increase in cost of sales to $156.3 million in the 1995
quarter compared to $107.9 million in the 1994 quarter was primarily due to the
increase in home closings. As a percentage of revenues, cost of sales increased
to 80.0 percent for the 1995 quarter compared to 79.2 percent for the 1994
quarter. This increase was primarily due to (i) increased amortization of
capitalized interest to cost of sales and (ii) decreased base housing margins at
Sun City Tucson. Increased borrowings and higher interest rates resulted in an
increase in amortization of capitalized interest to 5.0 percent of total cost of
sales for the 1995 quarter compared to 4.4 percent for the 1994 quarter. Pricing
strategies employed by the Company to facilitate the completion of Sun City
Tucson resulted in a decrease in base housing margins at that community. On a
period-to-period basis, cost of sales as a percentage of revenues will vary due
to, among other things, changes in product mix, differences between individual
communities, lot premiums, upgrades and extras, price increases, changes in
construction costs and changes in the amortization of capitalized interest and
other common costs. Management currently anticipates that continued increases in
the amortization of capitalized interest to cost of sales, and changes in
estimates on which the amortization of other common costs is based, will result
in a greater percentage of common costs being amortized to cost of sales in the
future.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Of the increase in selling,
general and administrative expenses to $28.3 million in the 1995 quarter as
compared to $21.3 million for the 1994 quarter, $2.5 million was attributable to
higher sales and marketing expenses and $1.3 million was attributable to
increased commissions on the increased revenues. The balance of the increase was
attributable to a variety of general and administrative expenses. Since a
significant portion of selling, general and administrative expenses are fixed,
the increase in revenues for the 1995 quarter resulted in a decrease in these
expenses as a percentage of revenues as compared to the 1994 quarter.
INCOME TAX EXPENSE. The increase in income tax expense to $3.8 million in the
1995 quarter as compared to $2.5 million in the 1994 quarter was due to the
increase in operating earnings. The effective tax rate in both quarters was 35
percent.
NET NEW ORDER ACTIVITY AND BACKLOG. Net new orders decreased 8.4 percent in the
1995 quarter as compared to the 1994 quarter. This decrease was primarily
attributable to the Company's more mature active adult communities, which had a
22.6 percent decline in net new orders in the 1995 quarter compared to the 1994
quarter. Management believes that increased interest rates, a slower national
home resale market and price increases implemented by the Company have generally
softened demand at these communities from the comparable period one year ago
(the results for which were positively impacted by low interest rates and
generally favorable economic conditions), and may continue to do so in the
future. Management also believes that net new orders at Sun City Palm Springs
continue to be adversely affected by the current Southern California real estate
market and the Southern California economy generally.
Net new orders at Terravita were 39.9 percent lower in the 1995 quarter than in
the 1994 quarter. Management believes that decreased lot availability negatively
impacted net new order activity in the 1995 quarter compared to the 1994 quarter
and is expected to continue to cause fluctuations in net new orders on a
quarter-to-quarter basis in the future. Net new orders for Coventry Homes were
49.1 percent higher in the 1995 quarter than in the 1994 quarter, due both to an
increase in Phoenix-area operations and to the expansion of operations in
Tucson, Las Vegas and Southern California.
The Company had 26 and 17 net new orders at Sun City Hilton Head and Sun City
Roseville, respectively, in the 1995 quarter. The Company had not yet begun
taking new sales orders at these communities in the 1994 quarter. New orders at
Sun City Hilton Head were impacted by earlier heavy rains, which delayed
development activity and limited the ability of prospective buyers to visit home
sites. At Sun City Roseville, heavy rains created lot inaccessibility and
delayed infrastructure development, resulting in minimal new orders for the 1995
quarter. At both communities, the heavy rains delayed construction activity for
homes under contract.
The number of homes under contract at March 31, 1995 was 22.6 percent higher
than at March 31, 1994. This increase was primarily attributable to the new
sales orders at Sun City Roseville and the expansion of Coventry Homes
operations, partially offset by the decreased new order activity at the
Company's more mature active adult communitites.
NINE MONTHS ENDED MARCH 31, 1995 AND 1994
REVENUES.
(Dollars in Millions)
- --------------------------------------------------------------------------------
Nine Months Ended
March 31, Change
- -------------------------------------------------------------------------------
1995 1994 Amount Percent
- -------------------------------------------------------------------------------
$534.3 $349.4 $184.9 52.9%
Home closings at Terravita and Sun City Roseville accounted for $61.8 million
and $18.0 million, respectively, of the increase in revenues for the nine months
ended March 31, 1995 compared to the nine months ended March 31, 1994. The
Company had not yet begun delivering homes at these communities in the 1994
period. Increased home closings (due to a higher beginning backlog) at the
Company's more mature active adult communities and Coventry Homes accounted for
$24.8 million and $29.8 million, respectively, of the increase in revenues for
the 1995 period compared to the 1994 period. Increases in the average revenue
per home closing at the Company's more mature active adult communities and
Coventry Homes accounted for $29.7 million and $15.0 million, respectively, of
the increase in revenues. These increases in average revenues per home closing
were partially due to sales price increases implemented by the Company and
partially due to market-driven changes in product mix. Land sales and other
revenues were $5.8 million higher in the 1995 period than in the 1994 period.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
COST OF SALES. The increase in cost of sales to $427.6 million in the 1995
period compared to $277.7 million in the 1994 period was primarily due to
increased home closings at all locations. The Company also experienced an
increase in its cost of sales as a percentage of revenues from the 1994 period
to the 1995 period, primarily reflecting the impact of (i) increased
amortization of capitalized interest to cost of sales and (ii) decreased base
housing margins at Sun City Tucson. See "Three Months Ended March 31, 1995 and
1994 -- Cost of Sales."
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Of the increase in selling,
general and administrative expenses to $77.7 million in the 1995 period as
compared to $55.3 million for the 1994 period, $6.6 million was attributable to
higher sales and marketing expenses and $4.5 million was attributable to
increased commissions on the increased revenues. The balance of the increase was
attributable to a variety of general and administrative expenses. Since a
significant portion of selling, general and administrative expenses are fixed,
the increase in revenues for the 1995 period resulted in a decrease in these
expenses as a percentage of revenues as compared to the 1994 period.
INCOME TAX EXPENSE. The increase in income tax expense to $10.2 million in the
1995 period as compared to $5.7 million in the 1994 period was due to the
increase in operating earnings. The effective tax rate in both periods was 35
percent.
NET NEW ORDER ACTIVITY AND BACKLOG. Net new orders increased 10.5 percent in the
1995 period as compared to the 1994 period. The number of homes under contract
at March 31, 1995 was 22.6 percent higher than at March 31, 1994. These
increases were primarily attributable to new sales orders at Sun City Roseville
and the growth and expansion of Coventry Homes operations, partially offset by
the decreased new order activity at the Company's more mature active adult
communities. See "Three Months Ended March 31, 1995 and 1994 -- Net New Order
Activity and Backlog."
Cancellations of home sales orders as a percentage of new home sales orders
written increased to 18.8 percent for the 1995 period compared to 15.4 percent
for the 1994 period. The increase is primarily attributable to Sun City
Roseville and Terravita, which experienced strong new order activity but higher
cancellation percentages than the Company's more mature active adult
communities. Management believes that cancellations at these new communities may
have been negatively impacted by extended home delivery periods resulting from
new orders taken prior to site and amenity development.
LIQUIDITY AND FINANCIAL CONDITION OF THE COMPANY
At March 31, 1995 the Company had $9.9 million of cash and short-term
investments and $74.0 million and $10.4 of unused borrowing capacity under its
$175 million unsecured revolving credit facility and $20 million of short-term
lines of credit, respectively.
In November 1994 the Company negotiated an amendment to its unsecured revolving
credit facility to increase the amount of the facility from $125 million to $175
million. The Company is currently negotiating an additional amendment to its
unsecured revolving credit facility to increase the amount of the facility to
$300 million. This amendment, if effected, will require the Company to repay its
separate Coventry Homes project debt ($55.6 million at March 31, 1995) and will
provide greater flexibility in the nature and timing of future development
expenditures.
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. However, cash flows from the
Company's operating communities are expected to be negatively impacted by the
decline in net new order activity and backlog at the Company's more mature
active adult communities
The Company's unsecured revolving credit facility and the indentures for the
Company's publicly held debt contain restrictions which could, depending on the
circumstances, affect the Company's ability to borrow in the future. If the
Company at any time is not successful in obtaining sufficient capital to fund
its then planned development and expansion expenditures, some or all of its
projects may be significantly delayed. Any such delay could result in cost
increases and may adversely affect the Company's results of operations.
The cash flow for each of the Company's communities can differ substantially
from reported earnings, depending on the status of the development cycle. The
initial years of development or expansion require significant cash outlays for,
among other things, land acquisition, obtaining master plan and other approvals,
construction of amenities (including golf courses and recreation centers), model
homes, sales and administration facilities, major roads, utilities, general
landscaping and interest. Since these costs are capitalized, this can result in
income reported for financial statement purposes during those initial years
significantly exceeding cash flow. However, after the initial years of
development or expansion, when these expenditures are made, cash flow can
significantly exceed income reported for financial statement purposes, as costs
of sales includes amortization of charges for substantial amounts of previously
expended costs.
During the nine months ended March 31, 1995 the Company generated $131.8 million
of net cash from community sales activities, used $68.0 million of cash for land
and lot and amenity development at operating communities, paid $68.6 million for
costs related to communities in the pre-operating stage, used $8.9 million of
net cash for conventional homebuilding operations and used $60.3 million of cash
for other operating activities.
The Company believes that, of the $596.0 million of cash spent by the Company
during the nine months ended March 31, 1995 for land acquisitions, lot and
amenity development, home construction and other operating activities,
approximately $93.3 million was to some extent discretionary as to timing and
precedes the actual construction of homes from which cash can be generated upon
closing of home sale contracts. This $93.3 million was comprised of $68.6
million related to projects in the pre-operating stage and $24.7 million for
land acquisitions and amenity development at operating communities.
At March 31, 1995, under the most restrictive of the covenants in the Company's
debt agreements, $20.9 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.
ACCOUNTING STANDARD NOT YET ADOPTED BY THE COMPANY
In March 1995 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which will be
effective for the Company in its fiscal year ending June 30, 1997. Management is
currently assessing the impact, if any, that this new accounting standard, when
adopted, will have on the Company's financial position and results of
operations.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 10.0 Sample Directors and Officers Indemnification Agreement between
the Company and those directors and officers set forth in
Exhibit 10.0, dated as of February 1, 1995
Exhibit 27.0 Financial Data Schedule
(b) The Company did not file any reports on Form 8-K during the period covered
by this report.
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 thereunto duly authorized.
DEL WEBB CORPORATION
(Registrant)
Date: May 8, 1995 /s/ Philip J. Dion
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Philip J. Dion
Chairman and Chief Executive Officer
Date: May 8, 1995 /s/ John A. Spencer
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John A. Spencer
Senior Vice President and
Chief Financial Officer