UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
---- Act of 1934. For the fiscal year July 1, 1994 to June 30, 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 of Incorporation) (IRS Employer Identification Number)
6001 North 24th Street, Phoenix, Arizona 85016
(Address of principal executive offices) (Zip Code)
(602) 808-8000
(Registrant's phone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
New York Stock Exchange
Common Stock (par value $.001 per share) Pacific Stock Exchange
10 7/8% Senior Notes due 2000 New York Stock Exchange
9 3/4% Senior Subordinated Debentures due 2003 New York Stock Exchange
9% Senior Subordinated Debentures due 2006 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
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 .
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
Registrant's Common Stock outstanding at August 21, 1995 was 17,396,007 shares.
At that date, the aggregate market value of Registrant's Common shares held by
non-affiliates, based upon the closing price of the Common Stock on the New York
Stock Exchange on that date, was approximately $339,200,000.
Documents Incorporated by Reference
Portions of Registrant's definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on November 8, 1995 are incorporated herein as set forth
in Part III of this Annual Report.
DEL WEBB CORPORATION
FORM 10-K ANNUAL REPORT
For the Fiscal Year Ended
June 30, 1995
TABLE OF CONTENTS
PART I
Item 1. PAGE
and
Item 2. Business and Properties
The Company..................................................... 1
Master-Planned Communities...................................... 1
Potential Future Communities.................................... 4
Conventional Homebuilding....................................... 4
Product Design.................................................. 5
Construction.................................................... 5
Sales Activities................................................ 5
Other Real Estate Activities.................................... 6
Competition..................................................... 6
Certain Factors Affecting the Company's Operations.............. 6
Executive Officers of the Company............................... 9
Employees.......................................................11
Item 3. Legal Proceedings...............................................11
Item 4. Submission of Matters to a Vote of Security Holders.............11
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters...................................12
Item 6. Selected Consolidated Financial Data............................13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Certain Consolidated Financial and Operating Data...........15
Results of Operations.......................................17
Liquidity and Financial Condition of the Company............19
Impact of Inflation.........................................20
Accounting Standard Not Yet Adopted by the Company..........20
Item 8. Financial Statements and Supplementary Data.....................21
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure........................21
PART III
Item 10. Directors and Executive Officers of the Registrant..............22
Item 11. Executive Compensation..........................................22
Item 12. Security Ownership of Certain Beneficial Owners
and Management................................................22
Item 13. Certain Relationships and Related Transactions..................22
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K...........................................23
PART I
Items 1 and 2. Business and Properties
THE COMPANY
Del Webb Corporation is one of the nation's leading developers of age-restricted
active adult communities. The Company has extensive experience in the active
adult community business, having built and sold more than 50,000 homes at its
Sun City communities over the past 35 years. The Company is also delivering
homes at Terravita, a gate-guarded, amenity-rich, master-planned residential
community in north Scottsdale, Arizona, that is not age-restricted. The Company
designs, develops and markets these large-scale, master-planned residential
communities, primarily for active adults age 55 and over, controlling 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 also has significant conventional
subdivision homebuilding operations, which it conducts under the name "Coventry
Homes," in the Phoenix, Tucson and Las Vegas areas and southern California.
The Company was incorporated in 1946 under the laws of the State of Arizona and
reincorporated in 1994 under the laws of the State of Delaware. The Company's
principal executive offices are located at 6001 North 24th Street, Phoenix,
Arizona 85016 and its telephone number is (602) 808-8000. The Company conducts
substantially all of its activities through subsidiaries and, as used in this
Annual Report, the term "Company" includes Del Webb Corporation and its
subsidiaries unless the context indicates otherwise.
Statements in this Annual Report as to acreage, mileage, number and years supply
of future home sites, square feet and number of present and future residents,
employees and shareholders are approximations.
MASTER-PLANNED COMMUNITIES
At June 30, 1995 the Company had six master-planned communities at which home
closings were taking place, two master-planned communities at which it was
taking home sales orders, but at which closings had not yet commenced, and two
master-planned communities in earlier stages of development.
Communities Delivering Homes
The following table shows certain information concerning the six communities at
which the Company was delivering homes at June 30, 1995.
Sun City Sun City Sun City Sun City Sun City
West Tucson Las Vegas Palm Springs Terravita Roseville
-------- -------- --------- ------------ --------- ---------
First home closing....................... 1978 1987 1989 1992 1994 1995
Total acres.............................. 7,000 1,000 2,500 1,600 800 1,200
Homes at completion...................... 16,500 2,500 7,700 4,800 1,400 3,000
Home closings through June 30, 1995...... 14,247 2,092 4,994 885 425 293
Future home sites (including backlog).... 2,253 408 2,706 3,915 975 2,707
Years supply of future homes based on
current or estimated absorption........ 2-3 1-2 3-4 9-15 2-3 3-5
Base price range of homes
at June 30, 1995 (in thousands)........ $93-240 $91-224 $95-271 $105-291 $170-380 $126-272
Sun City West
-------------
Sun City West is a self-contained active adult community located 25 miles
northwest of downtown Phoenix, Arizona. The focal point of Sun City West is its
central activities area, including a very large recreation center, the Sundome
(a 7,000-seat indoor theater owned by Arizona State University), a library, a
bowling alley, tennis courts, lawn bowling greens and a Company-owned 18-hole
championship golf course. Sun City West also has eight other 18-hole golf
courses (seven of which are owned by the residents' community association and
one of which is owned by a private club owned by residents) and three smaller
recreation centers. In addition, Sun City West has over 200 civic and social
organizations and clubs. Sun City West had a population of 27,000 at June 30,
1995.
Sun City Tucson
---------------
Sun City Tucson is located 20 miles north of downtown Tucson, Arizona. It is
developed around an 18-hole championship golf course. This active adult
community's 45,000-square foot primary recreation center includes a social hall,
arts and crafts rooms, a large kitchen and a sports and exercise facility. Its
outdoor recreational facilities include tennis courts, a swimming pool,
shuffleboard courts, bocci ball courts and a miniature golf course. Sun City
Tucson also has a smaller recreation facility (including a swimming pool, tennis
courts and activity rooms). Another smaller recreation center is under
construction. Sun City Tucson has numerous civic and social organizations and
clubs and had a population of 4,000 at June 30, 1995. This community will be
built out in the near future and the Company has no current plans to build
another community in the Tucson area.
Sun City Las Vegas
------------------
Sun City Las Vegas is located eight miles northwest of downtown Las Vegas,
Nevada. It has two 18-hole championship golf courses, with a third, executive
course scheduled to become operational in late 1995. Other amenities in this
active adult community include 100,000 total square feet of recreational
facilities at two large and one smaller recreation centers. Together, these
facilities include meeting halls, arts and crafts rooms and tennis,
shuffleboard, bocci ball and horseshoe courts, as well as sports and exercise
complexes that include indoor and outdoor swimming pools, saunas, weight
training and exercise rooms and a racquetball court. An additional 40,000 square
feet of similar facilities are being designed and are currently anticipated to
become operational in the Summer of 1996. Sun City Las Vegas has approximately
65 civic and social organizations and clubs and had a population of 9,000 at
June 30, 1995.
Sun City Palm Springs
---------------------
Sun City Palm Springs is located in the Coachella Valley 20 miles east of Palm
Springs and 130 miles east of downtown Los Angeles. It is a gate-guarded active
adult community that has an 18-hole championship golf course and a 62,000-square
foot recreation center with indoor and outdoor swimming pools and therapy spas,
tennis courts, bocci ball courts, a fitness and exercise center, arts and crafts
studios, a 6,300-square foot ballroom and a full service restaurant and lounge.
Sun City Palm Springs had a population of 1,600 at June 30, 1995.
Terravita
---------
Terravita is a gate-guarded, amenity-rich, master-planned residential community
located in north Scottsdale, Arizona, that is not age-restricted. It has an
18-hole championship golf course, a 32,000-square foot clubhouse and fitness
center, a swimming pool, tennis courts and other recreational amenities. The
Company began delivering homes at Terravita in July 1994. Terravita had a
population of 1,000 at June 30, 1995.
Sun City Roseville
------------------
Sun City Roseville is located 20 miles northeast of downtown Sacramento,
California. This active adult community is planned to include 27 holes of
championship golf, nine holes of which are open and nine holes of which are
currently under construction, 40 acres of parks and a 52,000-square foot
recreation center with indoor and outdoor swimming pools and therapy spas,
tennis courts, bocci ball courts, a fitness and exercise center, arts and crafts
studios, a ballroom and a full-service restaurant and lounge. Sun City Roseville
began home closings in February 1995 and had a population of 500 at June 30,
1995.
New Communities Taking Home Sales Orders
The following table shows certain information concerning the two communities at
which the Company was taking home sale orders at June 30, 1995, but at which
home deliveries had not then commenced.
Sun City Sun City
Hilton Head Georgetown
----------- ----------
Total acres................................. 5,600 5,300
Homes at completion......................... 8,000 9,500
New orders first taken...................... November 1994 June 1995
Net new orders through June 30, 1995........ 149 122
Anticipated
First home closing.......................... August 1995 Spring 1996
Base price range of homes at June 30, 1995
(in thousands)............................ $96-245 $101-235
Sun City Hilton Head
--------------------
Sun City Hilton Head is located inland 13 miles from Hilton Head Island, South
Carolina. It is a gate-guarded active adult community that is currently planned
for 8,000 homes, several golf courses, a complex of recreational buildings and
other amenities on 5,600 acres, of which 1,920 acres are owned by the Company
and 3,680 acres are subject to options expiring in various years through 2000.
The Company broke ground at Sun City Hilton Head in May 1994 and began taking
new home sales orders in November 1994. In part because Sun City Hilton Head is
located on the East Coast, distant from the Company's other communities, and
because of the location of Sun City Hilton Head in relation to major
metropolitan areas, there is not the same local pent-up demand for initial home
sales orders at this community as has existed with certain of the Company's
other communities. In addition, rains and flooding severely hampered development
and marketing at this community in fiscal 1995. At June 30, 1995 the Company had
a backlog of 149 home sale contracts at Sun City Hilton Head. Home closings at
Sun City Hilton Head began in August 1995. See "Sales Activities."
Sun City Georgetown
-------------------
Sun City Georgetown is an active adult community being developed 30 miles north
of downtown Austin, Texas. It is currently planned for 9,500 homes on 5,300
acres, of which 1,850 acres are owned by the Company and 3,450 acres are subject
to options expiring in various years through 1999. The Company broke ground at
Sun City Georgetown in the Spring of 1995 and began taking new home sales orders
at this community on June 15, 1995. At June 30, 1995 the Company had a backlog
of 122 home sale contracts at Sun City Georgetown. The Company believes that
this level of initial home sales activity is attributable to local pent-up
demand and will not continue in the future. Delivery of the first homes at this
community is currently anticipated in the Spring of 1996.
Communities in Earlier Stages of Development
The following table shows certain information concerning the two communities in
earlier stages of development at June 30, 1995.
Sun City
MacDonald Ranch Sun City Grand
--------------- --------------
Total acres................... 600 4,000
Homes at completion........... 2,300 9,500
Sun City MacDonald Ranch
------------------------
Sun City MacDonald Ranch is located in Henderson, Nevada, near Las Vegas. It is
being developed as an active adult community with fewer amenities (for example,
an executive golf course instead of a championship golf course) and higher
density than the Company's other active adult communities. This community is
currently planned for 2,300 homes on 600 acres. The Company broke ground at Sun
City MacDonald Ranch in the Spring of 1995 and plans to begin to take new home
sales orders at this community in the Fall of 1995. Home closings at Sun City
MacDonald Ranch are not currently anticipated to begin before the Spring of
1996.
Sun City Grand
--------------
Sun City Grand is located on 4,000 acres adjacent to Sun City West. It is
currently planned for 9,500 homes, several golf courses and amenities similar to
those in other Sun Cities. Development began in the Spring of 1995 and is being
coordinated with the build-out of Sun City West. The Company does not currently
anticipate that home sales activity will begin at Sun City Grand in fiscal 1996.
POTENTIAL FUTURE COMMUNITIES
The Company believes that the demographic attributes of its active adult target
market segment of people age 55 and over present significant opportunities for
carefully selected future active adult communities. The Company's plan is to
capitalize on those opportunities and its experience, expertise and reputation
by developing active adult communities in strategically selected locations. The
current business strategy of the Company includes conducting extensive market
research on prospective areas, including consumer surveys and supply and demand
analyses, in connection with its evaluation of sites for future active adult
communities. At any given time, the Company may have a number of land
acquisitions for potential communities under study and in various stages of
investigation or negotiation. The Company is currently considering acquiring the
land for communities to be located both in areas of the Country where the
Company has active adult communities and in other areas, including full
four-season areas (i.e., areas which experience cold winters), where it does not
have experience in developing communities.
In making significant land acquisitions, the Company generally endeavors to
acquire options on the land to mitigate the risk of holding the land during the
detailed feasibility and entitlement process. However, under certain
circumstances, the Company acquires such property directly.
In 1992 the Company purchased for $11 million, 5,600 acres of land north of
Phoenix (currently known as the Villages at Desert Hills) as the site for a
possible master-planned community. In April 1995 the Company received a general
plan amendment and development master plan approval (the initial governmental
planning approvals required) for 16,500 homes on this property. However,
development of this property remains subject to a number of uncertainties and
the planning, entitlement and permitting process is still in a relatively early
stage.
CONVENTIONAL HOMEBUILDING
The Company began its conventional subdivision homebuilding operations in the
Phoenix area in 1991. The Company expanded its conventional homebuilding
operations to Tucson in fiscal 1994 and to Las Vegas and southern California in
fiscal 1995. At June 30, 1995 the Company had a backlog of home sales orders at
26 subdivisions -- 18 in the Phoenix area, three in the Tucson area, two in the
Las Vegas area and three in southern California.
In order to capitalize on its market knowledge and organizational structure, the
Company's conventional homebuilding activities are primarily conducted in those
metropolitan or market areas in which the Company is developing an active adult
community. Through June 30, 1995 the Company's conventional homebuilding
operations have generally targeted first-time and move-up buyers, with the base
price of homes offered for sale at June 30, 1995 ranging from $80,000 to
$316,000. The Company expects homes in this price range to be its main target
segment in the future, but it intends to remain flexible when reviewing
potential sites in order to pursue attractive opportunities.
The Company currently expects that community development will continue to be its
primary business activity. For the year ended June 30, 1995, conventional
homebuilding operations generated 18 percent of the Company's revenues.
PRODUCT DESIGN
The Company designs homes to suit its market and endeavors to conform to the
popular home design characteristics in the particular geographic market
involved. Home designs are periodically reviewed and refined or changed to
reflect changing homebuyer tastes in each market.
Homes at the Company's communities generally range in size from 1,000 square
feet to 3,900 square feet and include two to five (predominantly two and three)
bedrooms, two or more baths, kitchen, living/dining area, family room or nook,
two-car garages and golf cart space. Built-in appliances are included. The
Company offers a program of interior and exterior upgrades, including different
styles of cabinetry and floor coverings and, at its communities, a program for
architectural changes to allow home buyers to further modify their homes.
CONSTRUCTION
The Company generally functions as its own general contractor. At all stages of
production, the Company's management personnel and on-site superintendents
coordinate the activities of subcontractors, consultants and suppliers and
subject their work to quality and cost controls. Consulting firms assist in
project planning and independent subcontractors are employed to perform almost
all of the site development and construction work. Within its active adult
communities and, generally, its conventional subdivisions, the Company is the
exclusive developer of homes and does not sell vacant lots to others for
residential construction purposes. The time required for construction of the
Company's homes depends on the weather, time of year, local labor situations,
availability of materials and supplies and other factors. The Company strives to
coordinate the construction of homes with home sales orders to control the costs
and risks associated with completed but unsold inventory. An inventory of unsold
homes under construction is maintained for immediate sale to customers.
SALES ACTIVITIES
At each of its communities the Company establishes a large and well-appointed
sales pavilion and an extensive complex of furnished model homes. These models
include a wide variety of single family homes, each of which is generally
available in several exterior styles.
The Company's homes are sold by its commissioned sales personnel, who are
available to provide prospective home buyers with floor plans, price
information, option selections and tours of models and lots. All communities
have co-brokerage programs with independent real estate brokers. Homes are sold
through sales contracts, some of which allow customers to purchase homes for
delivery up to one year or more in the future. The sales contracts generally
require an initial deposit and an additional deposit prior to commencement of
construction. The Company provides to all home buyers standardized warranties
subject to specified limitations.
While more than one factor may contribute to a given home sale, the Company's
experience indicates that a substantial portion of the home sales at its
communities are attributable to follow-ups on referrals from residents of its
communities and, at active adult communities, to the Company's "Vacation
Getaway" program. This program enables prospective purchasers to visit an active
adult community and stay (for a modest charge) in vacation homes for up to one
week to experience the Sun City lifestyle prior to deciding whether to purchase
a home.
The Company's information is that most homebuyers at its active adult
communities generally visit the community in which they purchase on more than
one occasion before buying. This may affect the success or initial success of
the sales effort at those communities at which a higher proportion of the
potential customers do not live within a several-hour driving distance from the
community.
The Company also markets its communities through billboards, television and
radio commercials, local and national print advertising, direct mailings and
telemarketing.
The Company offers mortgage financing for the purchasers of homes at its
communities and conventional subdivisions. The Company sells the mortgages it
generates to third parties.
OTHER REAL ESTATE ACTIVITIES
The Company is completing the development of The Foothills, a 4,140-acre
master-planned residential land development project located in Phoenix in which
individual land parcels and lots are being sold to other builder/developers for
conventional housing and related commercial developments. At June 30, 1995, 424
acres remained to be sold at The Foothills. Of these acres, 401 are zoned for
conventional housing and 23 are zoned for commercial development. At June 30,
1995 the Company's investment in The Foothills, net of a valuation allowance
recorded in fiscal 1991, was $25.9 million.
COMPETITION
The Company believes that it maintains a leading position within the active
adult community market in each of the metropolitan areas in which it has a
community that is currently generating revenues. The Company believes the major
competitive factors in active adult community home purchases include location,
lifestyle, price, value, recreational facilities and other amenities and
builder/developer reputation. The Company believes its reputation, established
by building and selling more than 50,000 homes over 35 years and providing an
attractive lifestyle for adults age 55 and over, enhances the Company's active
adult community marketing position.
All of the Company's real estate operations are subject to direct and indirect
competition. The Company competes with numerous homebuilders and developers,
certain of which have greater financial resources than the Company. The Company
also competes generally with most homebuilders and residential developers in its
geographic markets and with resales of homes in the general resale market for
such housing, including in its own communities.
For the Company's active adult communities, there are varying degrees of direct
and increasing competition from businesses engaged exclusively or primarily in
the sale of homes to buyers age 55 and older and from non-age-restricted,
master-planned communities in these areas. The Company competes with new home
sales and resales at these other communities. Sun City Hilton Head competes with
numerous homebuilders and community developers in the eastern seaboard,
including in the Hilton Head area and Florida. A large homebuilder recently
commenced developing a 1,300-home, age-restricted community in Indio,
California, which is near Sun City Palm Springs.
The Company believes there may be significant additional future competition in
active adult community development, including competition from conventional
community developers.
CERTAIN FACTORS AFFECTING THE COMPANY'S OPERATIONS
FUTURE COMMUNITIES. The Company's communities will be built out over time.
Therefore, the medium- and long-term future of the Company will be dependent on
the Company's ability to develop and market future communities successfully.
Acquiring land and committing the financial and managerial resources to develop
a community on that land involve significant risks. Before these communities
generate any revenues, they require material expenditures for, among other
things, acquiring land, obtaining development approvals and constructing project
infrastructure (such as roads and utilities), recreation centers, model homes
and sales facilities. It generally takes several years for communities to
achieve cumulative positive cash flow.
The Company believes that the development of Sun City Hilton Head presents
significant new development and marketing challenges, including acquiring the
necessary construction materials and labor in sufficient amounts and on
acceptable terms, adapting the Company's construction methods to a different
geography and climate, and attracting potential customers from areas and to a
market in which the Company has not had significant experience.
The Company will incur additional risks to the extent it develops communities in
climates or other geographic areas in which it does not have experience
developing communities or develops a different size or style of community. Among
other things, the Company believes that a significant portion of the home sales
at its active adult communities is attributable to referrals from, or sales to,
residents of those communities. The extent of such referrals or sales at new
communities, including communities developed in other areas of the Country, may
be less than the Company has enjoyed at the active adult communities where it
currently sells homes.
The Company currently is managing the development of a greater number of
projects in a wider geographical area than it has previously developed at any
given time.
LONG-TERM NATURE OF PROJECTS; REAL ESTATE, ECONOMIC AND OTHER CONDITIONS;
GEOGRAPHIC CONCENTRATION. The Company's communities are long-term projects.
Sales activity at the Company's communities varies from period to period, and
the ultimate success of any community cannot necessarily be judged by results in
any particular period or periods. A community may generate significantly higher
sales levels at inception (whether because of local pent-up demand in the area
or other reasons) than it does during later periods over the life of the
community.
The Company's communities and its other real estate operations are subject to
substantial existing and potential competition, real estate market conditions
(both where its communities, conventional homebuilding operations and other
projects are located and in areas where its potential customers reside), the
cyclical nature of the real estate business, general national economic
conditions and changing demographic conditions.
Company data indicate that, for the past several years, a significant number of
the home purchasers at its active adult communities in Arizona, Nevada and
southern California, particularly Sun City Palm Springs, were from southern
California. Four of the Company's conventional homebuilding subdivisions are
located in California, including two in Orange County. Any of those communities,
particularly Sun City Palm Springs, as well as the Company's southern California
conventional homebuilding subdivisions, may be affected by the continuing
adverse conditions in the southern California real estate market and the
southern California economy generally, including the financial difficulties of
certain southern California municipalities.
Most of the Company's primary business operations are concentrated in a limited
number of metropolitan areas in Arizona, California and Nevada. The Company's
geographic concentration and limited number of projects may create increased
vulnerability to regional economic downturns or other adverse project-specific
matters.
GOVERNMENTAL REGULATION AND ENVIRONMENTAL CONSIDERATIONS. The Company's business
is subject to extensive federal, state and local regulatory requirements, the
broad discretion that governmental agencies have in administering those
requirements and "no growth" or "slow growth" political policies, all of which
can prevent, delay, make uneconomic or significantly increase the cost of its
developments. In addition, environmental concerns and related governmental
requirements have affected and will continue to affect all of the Company's
community development operations.
In connection with the development of the Company's communities and other real
estate projects, particularly those located in California, numerous governmental
approvals and permits are required throughout the development process, and no
assurance can be given as to the receipt (or timing of receipt) of these
approvals or permits. In addition, third parties can file lawsuits challenging
approvals or permits received, which could cause substantial uncertainties and
material delays for the project and, if successful, could result in approvals or
permits being voided.
FINANCING; LEVERAGE. Real estate development is dependent on the availability
and cost of financing. It generally takes several years for new communities to
achieve positive cumulative cash flow. In periods of significant growth,
therefore, the Company will require significant additional capital resources,
whether from issuances of equity or by incurring additional indebtedness. The
Company's principal credit facility and the indentures for its publicly-held
debt restrict the indebtedness the Company may incur. The availability of debt
financing is also dependent on governmental policies and other factors outside
the control of the Company. If the Company is at any time not successful in
obtaining sufficient capital to fund its development and expansion expenditures,
some or all of its projects may be significantly delayed, resulting in cost
increases and adverse effects on the Company's results of operations. No
assurance can be given as to the availability or cost of any future financing.
In addition, the Company's degree of leverage from time to time will affect its
interest incurred and may limit funds available for operations. As a result, the
Company may be more vulnerable to economic downturns, which could limit its
ability to withstand adverse changes or capitalize on business opportunities. If
the Company is at any time unable to generate sufficient cash flow from
operations to service its debt, refinancing of all or a portion of that debt or
obtaining additional financing may be required to avoid defaults (including
cross defaults) on some or all of its indebtedness. There can be no assurance
that any such refinancing would be possible or that any additional financing
could be obtained, or obtained on terms that are favorable or acceptable to the
Company.
The Company's real estate operations are also dependent upon the availability
and cost of mortgage financing for potential customers, to the extent they
finance their purchase, and for buyers of the potential customers' existing
homes.
CONSTRUCTION. The Company has from time to time experienced shortages of
materials or qualified tradespeople or volatile increases in the cost of certain
materials (particularly increases in the price of lumber and framing, which are
significant components of home construction costs), resulting in longer than
normal construction periods and increased costs not reflected in the prices of
homes for which home sale contracts had been entered into up to one year in
advance of scheduled closing. Generally, the Company's home sale contracts do
not contain, or contain limited, provisions for price increases if the Company's
costs of construction increase.
The Company relies heavily on local contractors, who may be inadequately
capitalized or understaffed. The inability or failure of one or more local
contractors to perform may result in construction delays, increased costs and
loss of some home sale contracts.
NATURAL RISKS. Sun City Roseville and Sun City Hilton Head are subject to
significant seasonal rainfall that can cause delays in construction and
development or that can increase costs. Both of these communities were adversely
affected by significantly higher than normal rainfall in fiscal 1995.
Earthquake faults, including the San Andreas fault, run through the Coachella
Valley, which includes Sun City Palm Springs and the communities of Palm
Springs, Indio, Palm Desert, La Quinta, Rancho Mirage and Indian Wells. A
portion of Sun City Palm Springs is also located in a flood plain. The Coachella
Valley Water District has approved the Company's conceptual flood control plan
for Sun City Palm Springs and has approved the Company's specific flood control
plan for the first phase of this project. A major earthquake or flood could have
a material adverse impact on the development of and results of operations for
Sun City Palm Springs. Sun City Hilton Head is located in an area which may be
subject to hurricanes. A major hurricane could have a material adverse impact on
the development of and results of operations for Sun City Hilton Head.
EXECUTIVE OFFICERS OF THE COMPANY
Set forth below are the names and ages of all executive officers of the Company
and the offices held with the Company at July 31, 1995.
Years
Years as an Employed
Executive by the
Name Age Position Officer Company
--------------------------------------------------------------------------------
P. J. Dion 50 Chairman of the Board and 13 13
Chief Executive Officer
J. F. Contadino 53 Senior Vice President 3 4
and President of Coventry Homes
J. H. Gleason 53 Senior Vice President, 5 7
Project Planning and
Development
L. C. Hanneman, Jr. 48 Senior Vice President 6 23
and General Manager - Sun City
Las Vegas
F. D. Pankratz 45 Senior Vice President and 7 8
General Manager - Sun City Palm
Springs
C. T. Roach 48 Senior Vice President 6 16
and General Manager - Sun City
West
J. A. Spencer 46 Senior Vice President and 10 16
Chief Financial Officer
J. D. Wilkins 50 Senior Vice President 6 6
and General Manager - Sun City
Hilton Head
R. C. Jones 50 Vice President and General Counsel 3 3
A. L. Mariucci 38 Vice President and General 9 11
Manager - Terravita
D. V. Mickus 49 Vice President, Treasurer 9 12
and Secretary
D. E. Rau 38 Vice President and Controller 9 10
D. G. Schreiner 42 Vice President, Marketing 2 4
M. L. Schuttenberg 52 Vice President, Human Resources 2 9
R. R. Wagoner 54 Vice President, Land Development 1 3
--------------------------------------------------------------------------------
EXECUTIVE OFFICERS OF THE COMPANY (Continued)
Mr. Dion has been Chairman of the Board and Chief Executive Officer of the
Company since November 1987.
Mr. Contadino has served as Senior Vice President since January 1994. Prior to
that time he served as Vice President from November 1991 to January 1994. He
became President of Coventry Homes in January 1991. From 1981 to January 1991,
Mr. Contadino was the owner, Chief Executive Officer and President of Coventry
Financial, Inc. ("CFI"), a Phoenix-based homebuilder. In January 1991 the
Company purchased certain assets from CFI.
Mr. Gleason has served as Senior Vice President, Project Planning and
Development, since January 1994. Prior to that time he served as Vice President,
Project Planning and Development, from June 1993 to January 1994. He became a
Vice President of the Company in January 1990.
Mr. Hanneman has served as a Senior Vice President of the Company since January
1994. Prior to that time he served as Vice President of the Company from January
1989 to January 1994. Since August 1987 he has served as General Manager of Sun
City Las Vegas.
Mr. Pankratz became General Manager of Sun City Palm Springs in February 1990.
Since September 1988 he has served as Senior Vice President of the Company.
Mr. Roach has served as a Senior Vice President of the Company since January
1994. Prior to that time he served as Vice President of the Company from January
1989 to January 1994. Since August 1987 he has served as General Manager of Sun
City West.
Mr. Spencer became Chief Financial Officer of the Company in April 1993. Since
February 1991 he has served as Senior Vice President of the Company. Prior to
that time he served as Vice President and Controller of the Company from January
1985 to February 1991.
Mr. Wilkins has served as a Senior Vice President of the Company and General
Manager of Sun City Hilton Head since January 1994. Prior to that time he served
as a Vice President of the Company and General Manager of Sun City Tucson from
July 1989 to January 1994.
Mr. Jones became Vice President and General Counsel of the Company in January
1992. From March 1990 to November 1991 he was a partner with the law firm of
Gaston & Snow.
Ms. Mariucci has served as Vice President of the Company since June 1986, when
she began serving as Vice President, Corporate Planning and Development. She
became General Manager of Terravita in December 1992.
Mr. Mickus has served as Vice President and Treasurer since November 1985 and as
Secretary commencing in June 1991.
Mr. Rau became Vice President and Controller in February 1991. Prior to that
time he served as Vice President, Taxes and Human Resources from May 1990 to
February 1991.
Mr. Schreiner became Vice President, Marketing in December 1992. Prior to that
time he served as Senior Vice President, Marketing and Operations, of Coventry
Homes from October 1992 to December 1992 and Vice President, Marketing and
Operations, of Coventry Homes from January 1991 to October 1992. Mr. Schreiner
was employed by CFI from April 1987 to January 1991.
Ms. Schuttenberg became Vice President, Human Resources, in April 1993. Prior to
that time she served as Director of Human Resources from March 1992 to April
1993 and as Director of Taxes from April 1989 to March 1992.
Mr. Wagoner became Vice President, Land Development, in January 1994. Prior to
that time he served as Director of Land Development from January 1992 to January
1994. Prior to 1992 Mr. Wagoner was employed by Collar, Williams and White
Engineering in Phoenix, where he held various positions, including President.
EMPLOYEES
At June 30, 1995 the Company had 1,800 employees. The Company currently has no
unionized employees. The Company believes that its employee relations are
generally satisfactory.
Item 3. Legal Proceedings
The Company is a party to various legal proceedings arising in the ordinary
course of business. While it is not feasible to predict the ultimate disposition
of these matters, it is the opinion of management that their outcome will not
have a material adverse effect on the financial condition of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The Company's common stock is listed on the New York Stock Exchange NYSE and
Pacific Stock Exchange under the trading symbol (WBB). The following table sets
forth the high and low sales prices of the Company's common stock on the New
York Stock Exchange for the two fiscal years ended June 30, 1995.
Sales Price
--------------------------------------------------------------------------------
Fiscal Year 1995 Fiscal Year 1994
--------------------------------------------------------------------------------
Quarter Ended High Low High Low
--------------------------------------------------------------------------------
September 30 17 3/8 13 5/8 16 11 3/4
December 31 17 5/8 14 1/4 16 1/2 11 5/8
March 31 20 17 18 3/8 14 1/2
June 30 23 5/8 16 5/8 17 1/2 14 1/2
--------------------------------------------------------------------------------
As of July 31, 1995 the number of shareholders of record of common stock of the
Company was 3,329.
The Company has paid regular quarterly dividends of $.05 per share for each
quarter in the last five fiscal years. The amount and timing of any future
dividends is subject to the discretion of the Board of Directors. Among the
factors which the Board of Directors may consider in determining the amount and
timing of dividends are the earnings, cash needs and capital resources of the
Company. In addition, the Company is party to a loan agreement and various
indentures that contain covenants restricting the Company's ability to pay
dividends and acquire its common stock. Under the most restrictive of these
covenants, at June 30, 1995 approximately $16.9 million of the Company's
retained earnings were available for payment of cash dividends and for the
acquisition by the Company of its common stock.
The Company repurchased 1,046,751 shares of its common stock in fiscal 1994 (for
an aggregate cost of $13.3 million) and 444 shares of its common stock in fiscal
1995 (for an aggregate cost of $8,000).
In August 1995 the Company publicly sold 2,474,900 shares of its common stock at
a price to the public of $19.50 per share.
Item 6. Selected Consolidated Financial Data (Not covered by report of
independent auditors)
The following tables set forth selected consolidated financial data of the
Company as of and for each of the five fiscal years ended June 30, 1995. They
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Dollars In Thousands Except Per Share Data
Year Ended June 30,
---------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
---------------------------------------------------------------------------------------------------------------------
Statement of earnings information:
Revenues:
Home sales - communities $ 620,012 $ 405,462 $ 324,817 $ 226,014 $ 220,294
Home sales - conventional homebuilding 144,469 79,992 44,456 27,097 4,795
Land sales and other 38,638 24,607 21,313 7,761 2,973
---------------------------------------------------------------------------------------------------------------------
Total revenues $ 803,119 $ 510,061 $ 390,586 $ 260,872 $ 228,062
=====================================================================================================================
Earnings (loss):
Continuing operations (1) $ 28,491 $ 17,021 $ 16,863 $ 14,068 $ 7,111
Discontinued operations (2) - - (12,810) - -
Extraordinary gain (3) - - 458 3,039 5,006
Cumulative effect of accounting change (1) - - 20,000 - -
---------------------------------------------------------------------------------------------------------------------
Net earnings $ 28,491 $ 17,021 $ 24,511 $ 17,107 $ 12,117
=====================================================================================================================
Net earnings per share:
Continuing operations $ 1.87 $ 1.13 $ 1.05 $ 1.09 $ .75
Total 1.87 1.13 1.53 1.33 1.28
=====================================================================================================================
Cash dividends per share $ .20 $ .20 $ .20 $ .20 $ .20
=====================================================================================================================
(1) Earnings from continuing operations for fiscal 1995, 1994 and 1993 reflect
a higher income tax rate (a rate more closely approximating the statutory
rate) than for previous years as a result of the Company's adoption of
Statement of Financial Accounting Standards ("SFAS") No. 109 effective
July 1, 1992. In fiscal 1993 the Company recognized a $20 million increase
in net earnings as a result of a cumulative effect of an accounting change
from the adoption of SFAS No. 109. Earnings from continuing operations and
net earnings for fiscal 1991 were reduced by a $5 million pre-tax
valuation allowance related to the Company's residential land development
project.
(2) The loss from discontinued operations for fiscal 1993 primarily consisted
of additional loss provisions related to the Company's discontinued land
development projects.
(3) The extraordinary gains recognized by the Company in fiscal 1993, 1992 and
1991 resulted from the extinguishment of debt on discounted bases.
Dollars In Thousands
Year Ended June 30,
----------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
----------------------------------------------------------------------------------------------------------------------
Balance sheet information at year-end:
Total assets $ 925,050 $ 758,424 $ 555,586 $ 442,051 $ 261,939
Notes payable and senior debt $ 284,585 $ 189,657 $ 133,175 $ 159,637 $ 28,272
Subordinated debt 206,673 206,019 108,688 12,622 59,233
--------- --------- ---------- ---------- ----------
Total notes payable, senior and subordinated
debt $ 491,258 $ 395,676 $ 241,863 $ 172,259 $ 87,505
Shareholders' equity $ 229,342 $ 201,324 $ 199,446 $ 178,615 $ 112,350
Total notes payable, senior and subordinated
debt divided by total notes payable, senior and
subordinated debt and shareholders' equity 68.2% 66.3% 54.8% 49.1% 43.8%
======================================================================================================================
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion of results of operations and financial condition should
be read in conjunction with the Selected Consolidated Financial Data and the
Consolidated Financial Statements and Notes thereto.
CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA
-------------------------------------------------
Set forth below is certain consolidated financial and operating data of the
Company as of and for each of the three fiscal years ended June 30, 1995.
Year Ended Change Change
June 30, 1995 vs 1994 1994 vs 1993
------------------------------------------------------------ ------------------- -------------------
1995 1994 1993 Amount Percent Amount Percent
------------------------------------------------------------ ------------------- -------------------
OPERATING DATA:
Number of net new orders: (1)
Sun City West 946 1,156 1,031 (210) (18.2%) 125 12.1%
Sun City Tucson 310 357 305 (47) (13.2%) 52 17.0%
Sun City Las Vegas 770 863 801 (93) (10.8%) 62 7.7%
Sun City Palm Springs (2) 267 315 450 (48) (15.2%) (135) (30.0%)
Sun City Roseville (3) 515 349 N/A 166 47.6% 349 N/A
Sun City Hilton Head (3) 149 N/A N/A 149 N/A N/A N/A
Sun City Georgetown (3) 122 N/A N/A 122 N/A N/A N/A
Terravita (3) 392 331 N/A 61 18.4% 331 N/A
Coventry Homes 1,063 774 414 289 37.3% 360 87.0%
----------------------------------------------------------- ------------------ -------------------
Total 4,534 4,145 3,001 389 9.4% 1,144 38.1%
=========================================================== ================== ===================
Number of home closings:
Sun City West 1,104 1,161 850 (57) (4.9%) 311 36.6%
Sun City Tucson 444 342 263 102 29.8% 79 30.0%
Sun City Las Vegas 847 815 710 32 3.9% 105 14.8%
Sun City Palm Springs (2) 282 278 325 4 1.4% (47) (14.5%)
Sun City Roseville (3) 293 N/A N/A 293 N/A N/A N/A
Terravita (3) 425 N/A N/A 425 N/A N/A N/A
Coventry Homes 921 587 416 334 56.9% 171 41.1%
----------------------------------------------------------- ------------------ -------------------
Total 4,316 3,183 2,564 1,133 35.6% 619 24.1%
=========================================================== ================== ===================
BACKLOG DATA:
Homes under contract at June 30:
Sun City West 502 660 665 (158) (23.9%) (5) (0.8%)
Sun City Tucson 149 283 268 (134) (47.3%) 15 5.6%
Sun City Las Vegas 402 479 431 (77) (16.1%) 48 11.1%
Sun City Palm Springs (2) 147 162 125 (15) (9.3%) 37 29.6%
Sun City Roseville (3) 571 349 N/A 222 63.6% 349 N/A
Sun City Hilton Head (3) 149 N/A N/A 149 N/A N/A N/A
Sun City Georgetown (3) 122 N/A N/A 122 N/A N/A N/A
Terravita (3) 298 331 N/A (33) (10.0%) 331 N/A
Coventry Homes 540 398 211 142 35.7% 187 88.6%
----------------------------------------------------------- ------------------ -------------------
Total (4) 2,880 2,662 1,700 218 8.2% 962 56.6%
=========================================================== ================== ===================
Aggregate contract sales amount
(dollars in millions) $565 $471 $260 $94 20.0% $211 81.2%
Average contract sales amount
per home (dollars in thousands) $196 $177 $153 $19 10.7% $24 15.7%
=========================================================== ================== ===================
AVERAGE REVENUE PER
HOME CLOSING:
Sun City West $151,100 143,500 134,800 $ 7,600 5.3% $ 8,700 6.5%
Sun City Tucson 164,400 159,700 147,900 4,700 2.9% 11,800 8.0%
Sun City Las Vegas 180,700 160,800 151,800 19,900 12.4% 9,000 5.9%
Sun City Palm Springs 214,400 191,400 195,600 23,000 12.0% (4,200) (2.1%)
Sun City Roseville 201,100 N/A N/A N/A N/A N/A N/A
Terravita 253,700 N/A N/A N/A N/A N/A N/A
Coventry Homes 156,900 136,300 106,900 20,600 15.1% 29,400 27.5%
Weighted average $177,100 $152,400 $144,000 $24,600 16.1% $ 8,500 5.9%
=========================================================== ================== ===================
OPERATING STATISTICS:
Cost of sales as a percentage of
revenues 80.4% 79.2% 77.4% 1.2% 1.5% 1.8% 2.3%
Selling, general and
administrative expenses
as a percentage of revenues 14.1% 15.6% 16.0% (1.5%) (9.6%) (0.4%) (2.5%)
Earnings from continuing
operations before income taxes
as a percentage of revenues 5.5% 5.1% 6.3% 0.4% 7.8% (1.2%) (19.0%)
Ratio of home closings to homes
under contract in backlog
at beginning of year 162.1% 187.2% 203.0% (25.1%) (13.4%) (15.8%) (7.8%)
=========================================================== ================ ================
(1) Net of cancellations. The Company recognizes revenue at close of escrow.
(2) The Company began taking new home sales orders at Sun City Palm Springs in
July 1992. Of the 450 new orders taken in fiscal 1993 at Sun City Palm
Springs, 235 were to customers who had made non-binding reservations prior
to July 1, 1992. Home closings at Sun City Palm Springs began in October
1992.
(3) The Company began taking new home sales orders at Sun City Roseville in May
1994, at Sun City Hilton Head in November 1994, at Sun City Georgetown in
June 1995 and at Terravita in November 1993. Home closings at Sun City
Roseville began in February 1995 and at Terravita in July 1994.
(4) A majority of the backlog at June 30, 1995 is currently anticipated to
result in revenues in the next 12 months. However, a majority of the
backlog at June 30, 1995 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 are limited to
retaining all or a portion of the deposit received. In the years ended June
30, 1995, 1994 and 1993 cancellations of home sales orders as a percentage
of new home sales orders written during the year were 18.3 percent, 15.6
percent and 14.1 percent, respectively.
RESULTS OF OPERATIONS
---------------------
REVENUES.
(Dollars in Millions)
--------------------------------------------------------------------------------
Fiscal Fiscal Fiscal
1995 Change 1994 Change 1993
--------------------------------------------------------------------------------
$803.1 57.5% $510.1 30.6% $390.6
Home closings at Terravita and Sun City Roseville accounted for $107.8 million
and $58.9 million, respectively, of the increase in revenues for the fiscal year
ended June 30, 1995 compared to the fiscal year ended June 30, 1994. The Company
had not yet begun delivering homes at these communities in fiscal 1994.
Increased home closings (due to a higher beginning backlog) at the Company's
more mature active adult communities (Sun City West, Sun City Tucson, Sun City
Las Vegas and Sun City Palm Springs) accounted for $14.0 million of the increase
in revenues. Increased home closings at Coventry Homes, the Company's
conventional homebuilding operation, accounted for $45.5 million of the increase
in revenues. Coventry Homes' increased home closings were due both to an
increase in Phoenix-area operations and to the expansion of operations in
the Tucson and Las Vegas areas and southern California.
Increases in the average revenue per home closing at the Company's more mature
active adult communities and Coventry Homes accounted for $33.8 million and
$19.0 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 $14.0 million higher in fiscal 1995 than in
fiscal 1994.
Increased home closings at the Company's active adult communities and Coventry
Homes accounted for $60.3 million and $18.3 million, respectively, of the
increase in revenues for fiscal 1994 compared to the fiscal year ended June 30,
1993. Increases in the average revenue per home closing at the Company's active
adult communities and Coventry Homes accounted for $20.2 million and $17.3
million, respectively, of the increase in revenues. These increases in average
revenue per home closing were partially due to sales price increases implemented
by the Company and partially due to a greater percentage of sales of larger
active adult community homes or at more expensive conventional homebuilding
subdivisions. The Company experienced decreased home closings and average
revenue per home closing at Sun City Palm Springs for fiscal 1994 compared to
fiscal 1993, primarily due to a decrease in net new orders and a greater
percentage of sales of smaller homes.
COST OF SALES. The increase in cost of sales to $646.1 million in fiscal 1995
compared to $404.2 million in fiscal 1994 was primarily due to the increase in
home closings. As a percentage of revenues, cost of sales increased to 80.4
percent for fiscal 1995 compared to 79.2 percent for fiscal 1994. This increase
was the result of a variety of factors, including changes in the mix of
contributions by various communities and Coventry Homes, increased amortization
of capitalized interest to cost of sales and decreased base housing margins at
Sun City Tucson. Increased borrowings and higher interest rates resulted in an
increase in amortization of capitalized interest to 4.8 percent of total cost of
sales for fiscal 1995 compared to 4.5 percent for fiscal 1994. 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 anticipates that (i) continued increases in the
amortization of capitalized interest to cost of sales resulting from higher
levels of indebtedness and increases in land held for longer-term development
(with respect to which land the Company cannot allocate capitalized interest)
and (ii) changes in estimates on which the amortization of other common costs is
based will result in a greater percentage of capitalized interest and other
common costs being amortized to cost of sales in the next fiscal year than in
prior years.
Because the Company capitalizes interest and amortizes capitalized interest as
home closings occur over the lives of its projects and the Company has several
communities at which closings have not yet begun, a significant portion of the
reduction in interest costs resulting from the use of proceeds of the August
1995 public offering of 2,474,900 shares of common stock to repay indebtedness
will not be reflected in reported earnings for the Company's fiscal year ended
June 30, 1996 and some portion will not be reflected in the following year. See
"Liquidity and Financial Condition of the Company."
The increase in cost of sales in fiscal 1994 compared to fiscal 1993 was
primarily due to increased home closings at all locations other than Sun City
Palm Springs. The Company also experienced an increase in its cost of sales as a
percentage of revenues from 77.4 percent in fiscal 1993 to 79.2 percent in
fiscal 1994, primarily reflecting the impact of higher lumber costs. Average
framing lumber composite prices were 22 percent higher for the 12 months ended
June 30, 1994 than for the 12 months ended June 30, 1993. For the Company,
framing costs represented 14.8 percent of total cost of sales for fiscal 1994
compared to 12.1 percent for fiscal 1993. These lumber cost increases adversely
impacted the Company because homes with fixed sales prices established in sales
contracts entered into up to a year earlier were constructed and delivered at
higher than anticipated costs. In an effort to reduce the effects of rising
costs, the Company implemented sales price increases and entered into
fixed-price framing contracts for a significant portion of its homes constructed
through December 1994.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Of the increase in selling,
general and administrative expenses to $113.2 million in fiscal 1995 as compared
to $79.7 million in fiscal 1994, $9.2 million was attributable to higher sales
and marketing expenses and $7.9 million was attributable to increased
commissions on the higher 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 is fixed, the increase in
revenues for fiscal 1995 resulted in a decrease in these expenses as a
percentage of revenues as compared to fiscal 1994.
Of the increase in selling, general and administrative expenses to $79.7 million
in fiscal 1994 as compared to $62.6 million in fiscal 1993, $3.0 million was
attributable to increased sales and marketing expenses and $3.8 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. The increase in revenues from fiscal 1993 to fiscal 1994 also resulted
in a decrease in these expenses as a percentage of revenues.
OTHER EXPENSE, NET. Included in other expense, net in fiscal 1993 was $2.0
million of previously capitalized costs related to an option the Company had to
purchase land near Austin, Texas as the site of a potential active adult
community, partially offset by $1.1 million of other income.
INCOME TAXES. The increase in income taxes to $15.3 million in fiscal 1995 as
compared to $9.2 million in fiscal 1994 was due to the increase in earnings from
continuing operations before income taxes. The effective tax rate in both years
was 35 percent. The increase in income taxes to $9.2 million in fiscal 1994 as
compared to $7.9 million in fiscal 1993 was due to the increase in earnings from
continuing operations before income taxes and an increase in the effective tax
rate from 32 percent to 35 percent.
For financial reporting and cash flow purposes, a recent state tax law change
and, possibly, certain other matters are currently anticipated to result in the
Company's effective tax rate being less in future periods than it would
otherwise have been.
LOSS FROM DISCONTINUED OPERATIONS. The non-cash provision for discontinued
operations recorded by the Company in fiscal 1993 was attributable to the change
in carrying values of the Company's two commercial land development projects
from net realizable values to market values, net of anticipated holding and
disposal costs, and to the settlement of other matters.
EXTRAORDINARY GAIN. The extraordinary gain recognized by the Company in fiscal
1993 resulted from the extinguishment of a portion of notes payable on a
discounted basis.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE. The $20 million cumulative effect of
accounting change in fiscal 1993 resulted from the Company's adoption of
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes, effective July 1, 1992.
NET NEW ORDER ACTIVITY AND BACKLOG. Net new orders increased 9.4 percent in
fiscal 1995 compared to fiscal 1994. This increase was attributable to new sales
orders at Sun City Roseville, Sun City Hilton Head, Sun City Georgetown and the
expansion of Coventry Homes' conventional subdivision homebuilding operations.
The Company did not have a full year of sales activity at Sun City Roseville in
fiscal 1994 and began home sales activity at Sun City Hilton Head and Sun City
Georgetown in fiscal 1995. At the more mature communities of Sun City West, Sun
City Las Vegas, Sun City Tucson and Sun City Palm Springs, net new orders
decreased by 14.8 percent, due primarily to exceptionally high new order
activity at Sun City West and Sun City Las Vegas in the prior year, the winding
down of new order activity at Sun City Tucson as build-out of that community
approaches and the effect on Sun City Palm Springs of continued adverse
conditions in the southern California economy.
Cancellations of home sales orders as a percentage of new home sales orders
written increased to 18.3 percent for fiscal 1995 compared to 15.6 percent for
fiscal 1994 and 14.1 percent for fiscal 1993. The increases were 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 higher than they would otherwise have been as a
result of extended home delivery periods resulting from new orders taken prior
to site and amenity development.
The number of homes in backlog at June 30, 1995 was 8.2 percent higher than at
June 30, 1994. This increase was primarily attributable to the inclusion of
homes under contract at Sun City Hilton Head and Sun City Georgetown and
increases in backlog at Sun City Roseville and Coventry Homes, partially offset
by declines in homes under contract at the Company's more mature communities.
Net new orders increased 38.1 percent in fiscal 1994 compared to fiscal 1993,
primarily reflecting increased sales orders for Coventry Homes (resulting from a
larger number of subdivisions than in fiscal 1993), new sales orders at Sun City
Roseville (at which the Company began taking new sales orders in May 1994) and
new sales orders at Terravita (at which the Company began taking new sales
orders in November 1993). The Company also experienced increased sales orders
atall operating active adult communities except Sun City Palm Springs, where net
new orders were affected by continued adverse conditions in the southern
California economy. The number of homes under contract at June 30, 1994 was 56.6
percent higher than at June 30, 1993. This increase was primarily attributable
to the initial sales orders at Sun City Roseville and Terravita and to an 88.6
percent increase for Coventry Homes.
LIQUIDITY AND FINANCIAL CONDITION OF THE COMPANY
------------------------------------------------
In November 1994 the Company negotiated an amendment to its senior unsecured
revolving credit facility to increase the amount of the facility from $125
million to $175 million. In June 1995 the senior unsecured revolving credit
facility was further amended to increase the amount of the facility to $300
million, which will provide greater flexibility in the nature and timing of
future development expenditures. In connection with this amendment, the Company
repaid its secured Coventry Homes bank debt and reduced the amount of its
short-term lines of credit from $20 million to $10 million. At June 30, 1995 the
Company had $18.9 million of cash and short-term investments and $141.5 million
and $8.3 million of unused borrowing capacity under its $300 million unsecured
revolving credit facility and $10 million of short-term lines of credit,
respectively.
In August 1995 the Company publicly sold 2,474,900 shares of its common stock.
The net proceeds of approximately $45 million were used to repay a portion of
the indebtedness outstanding under the Company's $300 million senior unsecured
revolving credit facility. The Company intends 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. Cash flows from the Company's
operating communities, however, 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 senior unsecured revolving credit facility and the indentures for
the Company's publicly-held debt contain restrictions which could, depending on
the circumstances, affect the Company's ability to borrow in the future. If the
Company at any time is not successful in obtaining sufficient capital to fund
its then planned development and expansion expenditures, some or all of its
projects may be significantly delayed. Any such delay could result in cost
increases and may adversely affect the Company's results of operations.
The cash flow for each of the Company's communities can differ substantially
from reported earnings, depending on the status of the development cycle. The
initial years of development or expansion require significant cash outlays for,
among other things, land acquisition, obtaining master plan and other approvals,
construction of amenities (including golf courses and recreation centers), model
homes, sales and administration facilities, major roads, utilities, general
landscaping and interest. Since these costs are capitalized, this can result in
income reported for financial statement purposes during those initial years
significantly exceeding cash flow. However, after the initial years of
development or expansion, when these expenditures are made, cash flow can
significantly exceed income reported for financial statement purposes, as costs
of sales includes amortization charges for substantial amounts of previously
expended costs.
During fiscal 1995 the Company generated $212.4 million of net cash from
community sales activities, used $100.3 million of cash for land and lot and
amenity development at operating communities, paid $98.2 million for costs
related to communities in the pre-operating stage, used $6.5 million of net cash
for conventional homebuilding operations and used $65.0 million of cash for
other operating activities.
The Company believes that, of the $820.4 million of cash spent by the Company
during fiscal 1995 for land acquisitions, lot and amenity development, home
construction and other operating activities, approximately $135.9 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
$135.9 million was comprised of $98.2 million related to projects in the
pre-operating stage and $37.7 million for land acquisitions and amenity
development at operating communities.
At June 30, 1995, under the most restrictive of the covenants in the Company's
debt agreements, $16.9 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.
IMPACT OF INFLATION
-------------------
Operations of the Company can be impacted by inflation. Home and land sales
prices can increase, but inflation can also cause increases in interest costs
and the costs of land, raw materials and subcontracted labor. Unless such
increased costs are recovered through higher sales prices, operating margins
will decrease. High mortgage interest rates may also make it more difficult for
the Company's potential customers to sell their existing homes in order to move
to one of the Company's communities or to finance the purchases of their new
homes.
ACCOUNTING STANDARD NOT YET ADOPTED BY THE COMPANY
--------------------------------------------------
The Financial Accounting Standards Board recently issued SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, which the Company will be required to implement effective for
the fiscal year ending June 30, 1997.
This statement requires that long-lived assets must be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
the asset may not be recoverable. If the sum of the expected future cash flows
(undiscounted and without interest charges) from an asset to be held and used is
less than the carrying value of the asset, an impairment loss must be recognized
in the amount of the difference between the carrying value and fair value.
Assets to be disposed of must be valued at the lower of carrying value or fair
value less costs to sell.
Management believes that if this standard were to be implemented currently,
there would not be an impairment loss; however, until it is implemented,
management will periodically reassess the Company's situation in relation to
SFAS No. 121.
Item 8. Financial Statements and Supplementary Data
The response to this item is submitted as a separate section of this report
below.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
For information with respect to the Executive Officers of the Registrant, see
"Item 1 -- Executive Officers of the Company" at the end of Part I of this
report. Information with respect to the Directors of the Registrant is
incorporated herein by reference to the Registrant's definitive proxy statement
to be filed pursuant to Regulation 14A within 120 days after the end of the most
recent fiscal year covered by this Form 10-K.
Item 11. Executive Compensation
Information in response to this Item is incorporated herein by reference to the
Registrant's definitive proxy statement to be filed pursuant to Regulation 14A
within 120 days after the end of the most recent fiscal year covered by this
Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information in response to this Item is incorporated herein by reference to the
Registrant's definitive proxy statement to be filed pursuant to Regulation 14A
within 120 days after the end of the most recent fiscal year covered by this
Form 10-K.
Item 13. Certain Relationships and Related Transactions
Information in response to this Item is incorporated herein by reference to the
Registrant's definitive proxy statement to be filed pursuant to Regulation 14A
within 120 days after the end of the most recent fiscal year covered by this
Form 10-K.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. and 2. The response to this portion of Item 14 is submitted as a
separate section of this report beginning on page 25.
3. Exhibits
The Exhibit Index attached to this Report is hereby incorporated
by reference.
(b) The Company did not file any reports on Form 8-K during the fourth quarter
of fiscal 1995.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, who is duly authorized to do so, in Phoenix, Arizona
on the 30th day of August, 1995.
DEL WEBB CORPORATION
(Registrant)
By: /s/ Philip J. Dion
------------------------------------
Philip J. Dion
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant in
the capacities and on the dates indicated.
Signature Title Date
--------------------------------------------------------------------------------
/s/ Philip J. Dion Chairman and Chief Executive August 30, 1995
---------------------------- Officer
(Philip J. Dion) (Principal Executive Officer)
/s/ John A. Spencer Senior Vice President and Chief August 30, 1995
---------------------------- Financial Officer
(John A. Spencer) (Principal Financial Officer)
/s/ David E. Rau Vice President and Controller August 30, 1995
---------------------------- (Principal Accounting Officer)
(David E. Rau)
/s/ D. Kent Anderson Director August 30, 1995
----------------------------
(D. Kent Anderson)
/s/ Robert Bennett Director August 30, 1995
----------------------------
(Robert Bennett)
/s/ Hugh F. Culverhouse, Jr. Director August 30, 1995
----------------------------
(Hugh F. Culverhouse, Jr.)
/s/ Kenny C. Guinn Director August 30, 1995
----------------------------
(Kenny C. Guinn)
/s/ J. Russell Nelson Director August 30, 1995
----------------------------
(J. Russell Nelson)
/s/ Peter A. Nelson Director August 30, 1995
----------------------------
(Peter A. Nelson)
/s/ Michael E. Rossi Director August 30, 1995
----------------------------
(Michael E. Rossi)
/s/ C. Anthony Wainwright Director August 30, 1995
----------------------------
(C. Anthony Wainwright)
/s/ Sam Yellen Director August 30, 1995
----------------------------
(Sam Yellen)
DEL WEBB CORPORATION
FORM 10-K
Item 8, Item 14(a) (1) and (2)
Index of Consolidated Financial Statements and Schedule
The following financial statements required to be included in Item 8 and other
disclosures by the Registrant are listed below:
PAGE
Management's Report.......................................................... 26
Independent Auditors' Report................................................. 27
Consolidated Financial Statements:
Balance Sheets as of June 30, 1995 and 1994........................... 28
Statements of Earnings for each of the years in the three-year
period ended June 30, 1995.......................................... 29
Statements of Shareholders' Equity for each of the years in the
three-year period ended June 30, 1995............................... 30
Statements of Cash Flows for each of the years in the three-year
period ended June 30, 1995.......................................... 31
Notes to Consolidated Financial Statements............................ 33
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.
The following financial statement schedule of the Registrant and its
subsidiaries is included in Item 14(a) (2):
consolidated Financial Statement Schedule: PAGE
II Valuation and Qualifying Accounts for each of the years in the
three-year period ended June 30, 1995............................. 46
Schedules other than the one listed above are omitted because the conditions
requiring their filing do not exist or because the required information is given
in the financial statements, including the notes thereto.
MANAGEMENT'S REPORT
Financial Statements
Del Webb Corporation is responsible for the preparation, integrity and fair
presentation of its published financial statements. The financial statements
that follow have been prepared in accordance with generally accepted accounting
principles and, as such, include amounts based on judgements and estimates made
by management. The Company also prepared the other information included in the
annual report and is responsible for its accuracy and consistency with the
financial statements.
The financial statements have been audited by the independent accounting firm,
KPMG Peat Marwick LLP, which was given access to all financial records and
related data, including minutes of all meetings of shareholders, the board of
directors and committees of the board. The Company believes that all
representations made to the independent auditors during their audit were valid
and appropriate. KPMG Peat Marwick LLP's audit report is presented on the
following page.
Internal Control System
The Company maintains a system of internal control over financial reporting and
over safeguarding of assets against unauthorized acquisition, use or disposition
which is designed to provide reasonable assurance to the Company's management
and board of directors regarding the preparation of reliable published financial
statements and such asset safeguarding. The system includes a documented
organizational structure and division of responsibility, established policies
and procedures (including a code of conduct) which are communicated throughout
the Company, and the selection, training and development of employees. Internal
auditors monitor the operation of the internal control system and report
findings and recommendations to management and the board of directors, and
corrective actions are taken to correct deficiencies if and as they are
identified. The board, operating through its audit committee which is composed
of directors who are not officers or employees of the Company, provides
oversight to the financial reporting and asset safeguarding process.
Even an effective internal control system, no matter how well designed, has
inherent limitations -- including the possibility of the circumvention or
overriding of controls -- and therefore can provide only reasonable assurance
with respect to financial statement preparation and asset safeguarding. Further,
because of changes in conditions, internal control system effectiveness may vary
over time.
The Company assessed its internal control system as of June 30, 1995 in relation
to criteria for effective internal control over financial reporting described in
"Internal Control -- Integrated Framework" issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on its assessment, the Company
believes that, as of June 30, 1995, its system of internal control over
financial reporting and over safeguarding of assets against unauthorized
acquisition, use or disposition met those criteria.
/s/ Philip J. Dion
-------------------------------------
Philip J. Dion
Chairman and Chief Executive Officer
/s/ John A. Spencer
-------------------------------------
John A. Spencer
Senior Vice President and Chief Financial Officer
June 30, 1995
Independent Auditors' Report
The Board of Directors and Shareholders
Del Webb Corporation:
We have audited the consolidated financial statements of Del Webb Corporation
and subsidiaries as listed in the accompanying index. In connection with our
audits of the consolidated financial statements, we also have audited the
financial statement schedule listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Del Webb Corporation
and subsidiaries as of June 30, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in the three-year period
ended June 30, 1995 in conformity with generally accepted accounting principles.
Also in our opinion, the related financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for income taxes effective July 1, 1992.
KPMG Peat Marwick LLP
Phoenix, Arizona
August 18, 1995
DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1995 and 1994
In Thousands
--------------------------------------------------------------------------------
1995 1994
--------------------------------------------------------------------------------
Assets
--------------------------------------------------------------------------------
Real estate inventories (Notes 2, 5 and 11) $ 828,752 $ 662,613
Cash and short-term investments 18,900 6,474
Receivables (Note 3) 21,995 10,385
Property and equipment, net (Note 4) 29,326 36,773
Deferred income taxes (Note 6) -- 11,604
Other assets 26,077 30,575
--------------------------------------------------------------------------------
$ 925,050 $ 758,424
================================================================================
Liabilities and Shareholders' Equity
--------------------------------------------------------------------------------
Notes payable, senior and subordinated debt (Note 5) $ 491,258 $ 395,676
Subcontractor and trade accounts payable 76,421 45,443
Accrued liabilities and other payables 48,121 39,905
Home sale deposits 66,887 62,797
Income taxes payable (Note 6) 3,899 7,155
Deferred income taxes (Note 6) 5,197 --
Net liabilities of discontinued operations (Note 12) 3,925 6,124
--------------------------------------------------------------------------------
Total liabilities 695,708 557,100
--------------------------------------------------------------------------------
Shareholders' equity:
Common stock, $.001 par value at June 30, 1995,
without par value at June 30, 1994. Authorized
30,000,000 shares; issued 15,798,649 shares and
15,828,940 shares at June 30, 1995 and 1994,
respectively (Notes 7, 8 and 14) 16 112,944
Additional paid-in capital (Notes 7 and 14) 121,059 8,333
Retained earnings (Note 5) 122,153 96,630
--------------------------------------------------------------------------------
243,228 217,907
Less cost of common stock in treasury, 877,728
shares and 1,132,065 shares at June 30, 1995
and 1994, respectively (Note 14) (11,058) (14,600)
Less deferred compensation (Note 8) (2,828) (1,983)
--------------------------------------------------------------------------------
Total shareholders' equity 229,342 201,324
--------------------------------------------------------------------------------
$ 925,050 $ 758,424
================================================================================
See accompanying notes to consolidated financial statements.
DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Years ended June 30, 1995, 1994 and 1993
In Thousands
Except Per Share Data
-------------------------------------------------------------------------------
1995 1994 1993
-------------------------------------------------------------------------------
Revenues (Note 10) $ 803,119 $ 510,061 $ 390,586
-------------------------------------------------------------------------------
Cost of sales (Note 10) 646,052 404,202 302,300
Selling, general and administrative
expenses 113,235 79,673 62,566
Other expense, net -- -- 922
-------------------------------------------------------------------------------
Earnings from continuing operations
before income taxes 43,832 26,186 24,798
Income taxes (Note 6) 15,341 9,165 7,935
-------------------------------------------------------------------------------
Earnings from continuing operations 28,491 17,021 16,863
Loss from discontinued operations
(net of tax) (Notes 6 and 12) -- -- (12,810)
Extraordinary gain from extinguishment
of debt (net of tax) (Note 6) -- -- 458
Cumulative effect of accounting change
(Note 6) -- -- 20,000
-------------------------------------------------------------------------------
Net earnings $ 28,491 $ 17,021 $ 24,511
===============================================================================
Weighted average shares outstanding 15,209 15,036 16,049
===============================================================================
Earnings (loss) per share:
Continuing operations $ 1.87 $ 1.13 $ 1.05
Discontinued operations -- -- (.80)
Extraordinary gain -- -- .03
Cumulative effect of accounting change -- -- 1.25
-------------------------------------------------------------------------------
Net earnings per share $ 1.87 $ 1.13 $ 1.53
===============================================================================
See accompanying notes to consolidated financial statements.
DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended June 30, 1995, 1994 and 1993
In Thousands
------------------------------------------------------------------------------------------------------------------------
Additional Total
Common Paid-In Retained Treasury Deferred Shareholders'
Stock Capital Earnings Stock Compensation Equity
------------------------------------------------------------------------------------------------------------------------
Balances at July 1, 1992 $ 112,059 $ 7,483 $ 61,230 $ (572) $ (1,585) $ 178,615
Shares issued for stock option and
restricted stock plans (68,600
shares of common stock and 45,600
shares of treasury stock), net of
amortization 1,230 536 - 248 (272) 1,742
Treasury stock acquired, 150,084
shares - - - (2,272) - (2,272)
Cash dividends ($ .20 per share) - - (3,150) - - (3,150)
Net earnings - - 24,511 - - 24,511
------------------------------------------------------------------------------------------------------------------------
Balances at June 30, 1993 113,289 8,019 82,591 (2,596) (1,857) 199,446
Shares issued and retired for stock
option and restricted stock plans
(123,167 shares of treasury stock
issued and 23,453 shares of common
stock retired), net of amortization (345) 314 - 1,322 (126) 1,165
Treasury stock acquired, 1,046,751
shares - - - (13,326) - (13,326)
Cash dividends ($ .20 per share) - - (2,982) - - (2,982)
Net earnings - - 17,021 - - 17,021
------------------------------------------------------------------------------------------------------------------------
Balances at June 30, 1994 112,944 8,333 96,630 (14,600) (1,983) 201,324
Shares issued and retired for stock
option, restricted stock and
retirement savings plans (254,781
shares of treasury stock issued and
30,291 shares of common stock
retired), net of amortization (202) - - 3,550 (845) 2,503
Treasury stock acquired, 444 shares - - - (8) - (8)
Change from common stock without
par value to $.001 par value common
stock (Note 7) (112,726) 112,726 - - - -
Cash dividends ($ .20 per share) - - (2,968) - - (2,968)
Net earnings - - 28,491 - - 28,491
------------------------------------------------------------------------------------------------------------------------
Balances at June 30, 1995 $ 16 $ 121,059 $ 122,153 $(11,058) $ (2,828) $ 229,342
========================================================================================================================
See accompanying notes to consolidated financial statements.
DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30, 1995, 1994 and 1993
(In Thousands)
1995 1994 1993
-------------------------------------------------------------------------------
Cash flows from operating activities:
Cash received from customers related to
community home sales $ 588,526 $ 415,090 $ 324,986
Cash received from commercial land
sales, net 1,599 3,730 945
Cash paid for costs related to community
home construction (377,735) (275,079) (218,773)
-------------------------------------------------------------------------------
Net cash provided by community
sales activities 212,390 143,741 107,158
Cash paid for land acquisitions at
operating communities (8,046) (5,212) (3,626)
Cash paid for lot development at
operating communities (62,612) (46,921) (34,563)
Cash paid for amenity development at
operating communities (29,683) (34,292) (28,389)
-------------------------------------------------------------------------------
Net cash provided by operating
communities 112,049 57,316 40,580
Cash paid for costs related to communities
in the pre-operating stage (98,183) (101,469) (32,260)
Cash received from customers related to
conventional homebuilding 146,210 79,282 44,070
Cash paid for land, development,
construction and other costs related
to conventional homebuilding (152,696) (102,726) (53,483)
Cash received from customers related
to residential land development
project 26,438 14,803 17,318
Cash paid for costs related to residential
land development project (16,129) (11,660) (6,746)
Cash paid for corporate activities (28,703) (22,056) (13,208)
Interest paid (44,104) (27,258) (20,760)
Cash received (paid) for income taxes (1,796) 759 (300)
Net operating activities of discontinued
operations (699) (2,376) (3,383)
-------------------------------------------------------------------------------
Net cash used for operating activities (57,613) (115,385) (28,172)
-------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of property and equipment (13,256) (13,380) (4,033)
Investments in life insurance policies (1,594) (2,511) (2,428)
-------------------------------------------------------------------------------
Net cash used for investing activities (14,850) (15,891) (6,461)
-------------------------------------------------------------------------------
Cash flows from financing activities:
Borrowings 766,968 315,922 195,534
Repayments of debt (678,485) (192,206) (136,698)
Purchases of treasury stock (8) (13,326) (2,272)
Proceeds from exercise of common stock
options 882 164 465
Dividends paid (2,968) (2,982) (3,150)
Net financing activities of discontinued
operations (1,500) (3,500) (1,400)
-------------------------------------------------------------------------------
Net cash provided by financing
activities 84,889 104,072 52,479
-------------------------------------------------------------------------------
Net increase (decrease) in cash and
short-term investments 12,426 (27,204) 17,846
Cash and short-term investments at
beginning of year 6,474 33,678 15,832
-------------------------------------------------------------------------------
Cash and short-term investments at
end of year $ 18,900 $ 6,474 $ 33,678
===============================================================================
See accompanying notes to consolidated financial statements.
DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years ended June 30, 1995, 1994 and 1993
(In Thousands)
1995 1994 1993
-------------------------------------------------------------------------------
Reconciliation of net earnings to net
cash used for operating activities:
Net earnings $ 28,491 $ 17,021 $ 24,511
Amortization of common costs in
cost of sales, excluding interest 188,081 110,478 90,911
Amortization of capitalized interest
in cost of sales 31,205 18,003 14,513
Deferred compensation amortization 1,598 1,330 1,014
Depreciation and other amortization 5,243 3,698 2,528
Deferred income tax expense
attributable to operating earnings 16,801 9,061 7,160
Loss from discontinued operations
(net of tax) -- -- 12,810
Extraordinary gain from extinguishment
of debt (net of tax) -- -- (458)
Cumulative effect of accounting change -- -- (20,000)
Net increase in home construction costs (42,566) (34,192) (19,980)
Land acquisitions (39,332) (81,788) (25,721)
Lot development (154,864) (89,983) (55,103)
Amenity development (78,785) (62,621) (40,164)
Pre-acquisition costs (2,770) (5,228) (1,933)
Net change in other assets and
liabilities (10,016) 1,212 (14,877)
Net operating activities of discontinued
operations (699) (2,376) (3,383)
-------------------------------------------------------------------------------
Net cash used for operating activities $ (57,613) $(115,385) $ (28,172)
===============================================================================
See accompanying notes to consolidated financial statements.
DEL WEBB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995, 1994 and 1993
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of Del Webb
Corporation and its Subsidiaries ("Company"). All significant
intercompany transactions and accounts have been eliminated in
consolidation.
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.
(b) Real Estate Inventories
-----------------------
Real estate inventories include undeveloped land, partially improved
land, amenities and homes on finished lots, in various stages of
completion. These assets include direct construction costs for homes
and common costs. Common costs include land, general and subdivision
land development costs, model and vacation home costs in excess of
normal direct construction costs, costs of community sales centers,
costs of assets (such as golf courses and recreation centers)
contributed to the community associations, costs of subsidizing the
community associations, other costs (such as property taxes and
pre-operating costs) and development period interest, all of which are
capitalized. The capitalized costs and estimated future common costs
are allocated, on a community by community basis, to residential and
commercial lots based upon the estimated relative sales value that
each lot has to the estimated aggregate sales value of all lots in the
community. Cost of sales includes the direct construction costs of the
home and an allocation of common costs. Sales commissions, advertising
and other marketing expenses are included in selling, general and
administrative expenses. The Company recognizes revenue at close of
escrow.
The Company reviews the valuation of its real estate inventories on a
continual basis. For financial reporting purposes, real estate
inventories not held for bulk sale must be carried at the lower of
historical cost or estimated net realizable value. Real estate held
for bulk sale must be carried at the lower of historical cost or
estimated market value. Net realizable value differs from market value
in that, among other things, market value is based on the price
obtainable in a bulk cash sale at the present time, considers a
potential purchaser's requirement for future profit and discounts the
timing of expected cash receipts at a market rate of interest, whereas
net realizable value is the price obtainable in the future for
individual parcels as improved, net of disposal and holding costs
(including interest at an estimated cost of funds rate), without
provision for future profit and without discounting future cash
receipts to present value.
(c) Cash and Short-Term Investments
-------------------------------
The Company's policy is to invest its cash in high-grade,
income-producing short-term investments. Accordingly, uninvested cash
balances are generally kept at minimum levels. Short-term investments
are valued at the lower of cost or market and principally include
overnight repurchase agreements, certificates of deposit and
commercial paper with an original maturity of less than 90 days.
(d) Depreciation
------------
Depreciation is computed using principally the straight-line method
for financial statement purposes and accelerated methods for tax
purposes, over the estimated useful lives of the assets.
(e) Income Taxes
------------
Prior to July 1, 1992 the Company accounted for income taxes in
accordance with Statement of Financial Accounting Standards ("SFAS")
No. 96, Accounting for Income Taxes. In fiscal 1993 the Company
adopted SFAS No. 109, Accounting for Income Taxes. The cumulative
effect of this change in accounting for income taxes of $20 million is
reported in the consolidated statement of earnings for fiscal 1993.
Under the asset and liability method of SFAS No. 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in future years in which
those temporary differences are expected to be recovered or settled.
Under SFAS No. 109, the effect on deferred tax assets and liabilities
of a change in tax rates is recognized in the consolidated statement
of earnings as an adjustment to the effective income tax rate in the
period that includes the enactment date.
(f) Earnings per Share
------------------
Earnings per share is determined by dividing net earnings by the
weighted average number of common and common equivalent shares
outstanding during the year. Common equivalent shares of 382,000,
219,000 and 292,000 included in the computation of earnings per share
for fiscal 1995, 1994 and 1993, respectively, represent the effect of
stock options.
(g) Statements of Cash Flows
------------------------
In the 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 yet generating
home sales revenues.
(h) Warranty Costs
--------------
Estimated future warranty costs are charged to cost of sales when the
revenues from home closings are recognized.
(i) Financial Instruments
---------------------
In the normal course of business, the Company invests in various
financial assets and incurs various financial liabilities. The Company
does not trade in derivative financial instruments, although it
occasionally enters into agreements involving derivative financial
instruments for purposes other than trading. At June 30, 1995 the
Company had two financial instruments that are included within the
definition of derivative financial instruments. These financial
instruments are described below.
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 June 30, 1995 the outstanding Bonds and the currency exchange
agreement have been reduced to 26.7 million Swiss Fancs ($12.8
million).
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 $1.0, $1.4
million and $1.4 million for the fiscal years ended June 30, 1995,
1994 and 1993, respectively. A one percent decrease (increase) in the
LIBOR would have resulted in a $200,000 increase (decrease) in
interest per year.
The fair value estimates of financial instruments presented in note 5
have been determined by the Company using available market information
and valuation methodologies deemed appropriate by the Company.
Considerable judgement is required in interpreting market data to
develop the estimates of fair value. Accordingly, these fair value
estimates are not necessarily indicative of the amounts the Company
might pay or receive in actual market transactions. Potential taxes
and other transaction costs have not been considered in estimating
fair value. As substantially all of the Company's assets (including
real estate inventories, property and equipment and deferred income
taxes) are not financial instruments, the disclosures in note 5 do not
reflect the value of the Company as a whole.
The fair values of the Company's publicly held debt are estimated
based on the quoted bid prices for these debt instruments on June 30,
1995. The carrying amounts of the Company's remaining debt approximate
the estimated fair values because they are at interest rates
comparable to rates currently available to the Company for debt with
similar terms and remaining maturities. The fair values of the
Company's interest rate swap agreement and foreign currency exchange
agreement are the amounts at which these off-balance sheet instruments
could be settled, based on estimates obtainedfrom financial
institutions. For all other financial instruments, the carrying
amounts approximate the fair values because of the short maturity of
these instruments.
(2) REAL ESTATE INVENTORIES
The components of real estate inventories are as follows:
In Thousands
at June 30,
--------------------------------------------------------------------------------
1995 1994
--------------------------------------------------------------------------------
Home construction costs $142,355 $ 99,789
Unamortized improvement and amenity costs 356,457 246,536
Unamortized capitalized interest 55,793 40,357
Land held for housing 220,297 210,700
Land held for future development or sale 53,850 65,231
--------------------------------------------------------------------------------
$828,752 $662,613
================================================================================
At June 30, 1995, the Company had 366 completed homes (excluding models and
vacation homes) and 388 homes under construction that were not subject to a
sales contract. These completed homes and homes under construction
represented $26.3 million and $10.3 million, respectively, of home
construction costs at June 30, 1995. At June 30, 1994 the Company had 257
completed homes and 221 homes under construction (representing $16.9
million and $9.1 million, respectively, of home construction costs) that
were not subject to a sales contract. Included in land held for future
development or sale at June 30, 1995 were 184 acres of residential land,
325 acres of commercial land and 28 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 June 30, 1995 were 401 acres of residential land and
23 acres of commercial land at the Company's residential land development
project.
(3) RECEIVABLES
Receivables are summarized as follows:
In Thousands
at June 30,
--------------------------------------------------------------------------------
1995 1994
--------------------------------------------------------------------------------
Escrow funds from home sales $ 7,089 $ 4,148
Note from sale of commercial building 2,665 2,739
Mortgages held for sale 3,617 1,456
Notes from sales Of land 1,708 244
Other 6,916 1,798
--------------------------------------------------------------------------------
$ 21,995 $ 10,385
================================================================================
(4) PROPERTY AND EQUIPMENT, NET
Property and equipment, stated at cost, and related accumulated
depreciation are summarized as follows:
In Thousands
at June 30,
--------------------------------------------------------------------------------
1995 1994
--------------------------------------------------------------------------------
Buildings and improvements $ 9,422 $ 13,337
Equipment 35,267 28,602
Land and improvements 2,839 8,157
--------------------------------------------------------------------------------
47,528 50,096
Less accumulated depreciation 18,202 13,323
--------------------------------------------------------------------------------
$ 29,326 $ 36,773
================================================================================
At June 30, 1994 the Company classified the unamortized cost of its
vacation homes (aggregating $16.6 million) as property and equipment as a
result of its intent to operate the homes. In fiscal 1995 the Company
decided to return to marketing the homes for sale as individual units.
Accordingly, the homes were reclassified from property and equipment to
real estate inventories.
(5) NOTES PAYABLE, SENIOR AND SUBORDINATED DEBT
Notes payable, senior and subordinated debt consists of the following:
In Thousands
at June 30,
--------------------------------------------------------------------------------
1995 1994
--------------------------------------------------------------------------------
10 7/8% Senior Notes, net $ 96,787 $ 96,098
9 3/4% Senior Subordinated Debentures, net 96,847 96,436
9% Senior Subordinated Debentures, net 97,081 96,879
Subordinated Swiss Franc Bonds, net 12,745 12,704
Notes payable to banks under a revolving
credit facility and short-term lines of credit 160,200 18,000
Real estate and other notes, variable interest
rates from prime to prime plus 1% and fixed
rates from 7% to 10.2%, interest payable
quarterly, maturities to 2004 27,598 75,559
--------------------------------------------------------------------------------
$491,258 $395,676
================================================================================
In April 1992 the Company completed a public offering of $100 million of
Senior Notes, which are shown net of unamortized deferred financing costs
and discount. The Notes are due on March 31, 2000 and have a stated
interest rate of 10 percent per year. Interest is payable semi-annually on
March 31 and September 30. The annual effective interest rate of the Notes,
after giving effect to the amortization of deferred financing costs and
discount, is 11.6 percent. The Notes may be redeemed by the Company after
March 31, 1997 at 100 percent of the principal amount of the Notes
redeemed, plus accrued and unpaid interest to the redemption date.
In March 1993 the Company completed a public offering of $100 million of
Senior Subordinated Debentures, which are shown net of unamortized deferred
financing costs and discount. These Debentures are due on March 1, 2003 and
have a stated interest rate of 9 3/4 percent per year. Interest is payable
semi-annually on March 1 and September 1. The annual effective interest
rate of the Debentures, after giving effect to the amortization of deferred
financing costs and discount, is 10.3 percent. The Debentures may be
redeemed by the Company on or after March 1, 1998, 1999 and 2000 at 104.875
percent, 102.4375 percent and 100 percent, respectively, of the principal
amount of the Debentures redeemed, plus accrued and unpaid interest to the
redemption date.
In February 1994 the Company completed a public offering of $100 million of
Senior Subordinated Debentures, which are shown net of unamortized deferred
financing costs. These Debentures are due on February 15, 2006 and have a
stated interest rate of 9 percent per year. Interest is payable
semi-annually on February 15 and August 15. The annual effective interest
rate of the Debentures, after giving effect to the amortization of deferred
financing costs, is 9.3 percent. The Debentures may be redeemed by the
Company on or after February 15, 1999, 2000, 2001, 2002 and 2003 at
104.500, 103.375, 102.250, 101.125 and 100 percent, respectively, of the
principal amount of the Debentures redeemed, plus accrued and unpaid
interest to the redemption date.
In February 1986 the Company issued 50 million Subordinated Swiss Franc
Bonds ($24 million) outside of the United States and simultaneously entered
into a currency exchange agreement. The Bonds are due in February 1996 and
are shown net of unamortized deferred financing costs. The annual effective
interest rate of the Bonds, after giving effect to the amortization of
deferred financing costs and the cost of the currency exchange agreement,
is 12.5 percent.
In March 1994 the Company established a $125 million senior unsecured
revolving credit facility to replace a $50 million senior unsecured credit
agreement and a $28 million revolving credit agreement for the development
of one of the Company's active adult communities and to increase its
borrowing capacity under credit facilities. At the same time, the Company
also paid an $8.9 million term loan. In November 1994 the Company
negotiated an amendment to the senior unsecured revolving credit facility
to increase the amount of the facility from $125 million to $175 million.
In June 1995 the facility was futher amended to increase the amount of the
facility to $300 million. In connection with this amendment, the Company
repaid the secured bank debt of its conventional homebuilding operations
and reduced the amount of its short-term lines of credit from $20 million
to $10 million. If the revolving credit facility is not subsequently
amended, its capacity will begin declining in June 1997 through its
maturity in December 1999. Borrowings under this facility bear interest at
the prime rate or, if the Company selects, at the Eurodollar rate plus 1.95
percent.
The senior unsecured revolving credit facility and the indentures for the
Company's publicly-held debt contain covenants which, taken together and
among other things, limit investments in unentitled land and unsold homes
under construction, conventional homebuilding assets, dividends, stock
repurchases, incurrence of indebtedness and certain acquisitions, and which
could, depending on the circumstances, affect the Company's ability to
borrow in the future.
At June 30, 1995 the Company had $141.5 million and $8.3 million of unused
borrowing capacity under the $300 million unsecured revolving credit
facility and $10 million of short-term lines of credit, respectively.
At June 30, 1995, under the most restrictive of the covenants in the
Company's debt agreements, $16.9 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 estimated fair values at June 30, 1995 of the Company's Senior Notes, 9
3/4% Senior Subordinated Debentures, 9% Senior Subordinated Debentures and
Subordinated Swiss Franc Bonds were $103.1 million, $96.6 million, $91.0
million and $23.2 million, respectively. The estimated fair value at June
30, 1995 of the interest rate swap agreement represented an unrealized loss
of $0.8 million. The estimated fair value at June 30, 1995 of the foreign
currency exchange agreement reflected an unrealized gain of $10.4 million,
although this was offset by the increase in the fair value over the book
value of the Subordinated Swiss Franc Bonds.
The principal payment requirements on debt for the next five years ended
June 30 are as follows:
1996 $ 28,323,000
1997 $ 9,205,000
1998 $ 566,000
1999 $ 99,018,000
2000 $ 157,355,000
(6) INCOME TAXES
Total Income Tax Expense
------------------------
Total income tax expense was allocated as follows:
In Thousands
Years Ended June 30,
-------------------------------------------------------------------------------
1995 1994 1993
-------------------------------------------------------------------------------
Operating earnings $15,341 $ 9,165 $ 7,935
Discontinued operations -- -- (8,190)
Extraordinary item -- -- 292
-------------------------------------------------------------------------------
Total income tax expense $15,341 $ 9,165 $ 37
===============================================================================
Components of Deferred Income Tax Expense Related to Operating Earnings
-----------------------------------------------------------------------
The components of income tax expense related to operating earnings consist
of:
In Thousands
Years Ended June 30,
--------------------------------------------------------------------------------
1995 1994 1993
--------------------------------------------------------------------------------
Current:
Federal $ (3,336) $ 49 $ 167
State 1,876 55 608
--------------------------------------------------------------------------------
(1,460) 104 775
--------------------------------------------------------------------------------
Deferred:
Federal 15,953 7,364 6,441
State 848 1,697 719
--------------------------------------------------------------------------------
16,801 9,061 7,160
--------------------------------------------------------------------------------
Income tax expense $ 15,341 $ 9,165 $ 7,935
================================================================================
Components of Deferred Income Tax Expense
-----------------------------------------
The components of deferred income tax expense are as follows:
In Thousands
Years Ended June 30,
-------------------------------------------------------------------------------
1995 1994 1993
-------------------------------------------------------------------------------
Change in net operating loss
carryforwards $ 15,164 $ (2,197) $ 3,446
Change in loss provisions for
discontinued operations 3,556 (2,260) (3,597)
Change in basis differences of
real estate 9,721 18,076 (1,129)
Deferred compensation (237) (1,356) (659)
Amortization of short period loss 76 262 274
Accelerated depreciation (6,037) (2,973) 273
Change in deferred tax asset
valuation allowance (2,744) (1,115) --
Other (2,698) 624 654
-------------------------------------------------------------------------------
Deferred income tax expense $ 16,801 $ 9,061 $ (738)
===============================================================================
Included in deferred income tax expense for fiscal 1995 and 1994 are
reductions in the deferred tax asset valuation allowance of $2.7 million
and $1.1 million, respectively. These reductions resulted from additional
years of operating earnings generated by the Company, which increased the
portion of the gross deferred tax asset that the Company believed would
more likely than not be realized.
Deferred Income Taxes
----------------------
Deferred tax assets and liabilities have been recognized in the
consolidated balance sheets due to temporary difference and carryforwards
as follows:
In Thousands
at June 30,
--------------------------------------------------------------------------------
1995 1994
--------------------------------------------------------------------------------
Deferred tax assets:
Net operating loss carryforwards $ -- $15,164
Tax credit carryforwards 4,649 3,158
Liabilities of discontinued operations,
principally due to loss provisions 9,433 12,989
Property and equipment, principally due
to differences in depreciation 11,469 5,432
State income taxes 2,948 1,789
Amortization of short period loss 486 562
Deferred compensation 4,287 4,050
Other loss provisions 4,519 1,544
Other 966 1,278
--------------------------------------------------------------------------------
38,757 45,966
Valuation allowance 3,862 6,606
--------------------------------------------------------------------------------
34,895 39,360
--------------------------------------------------------------------------------
Deferred tax liabilities:
Real estate, principally due to basis differences 36,499 26,778
Receivables, principally due to valuation
allowances -- 266
Other 3,593 712
--------------------------------------------------------------------------------
40,092 27,756
--------------------------------------------------------------------------------
Net deferred income taxes $(5,197) $11,604
================================================================================
Reconciliation of Operating Earnings Effective Income Tax Expense
-----------------------------------------------------------------
Income tax expense attributable to operating earnings differs from the
amounts computed using the federal statutory income tax rate as a result of
the following:
In Thousands
Year Ended June 30,
-------------------------------------------------------------------------------
1995 1994 1993
-------------------------------------------------------------------------------
Expected tax at current federal
statutory income tax rate $ 15,341 $ 9,165 $ 8,431
State income taxes, net of federal
benefit 1,771 1,139 876
Changes in prior years' provisions
due to the settlement of audits
and resolution of issues 718 -- (1,043)
Change in deferred tax asset
valuation allowance (2,744) (1,115) --
Other 255 (24) (329)
-------------------------------------------------------------------------------
Total income tax expense $ 15,341 $ 9,165 $ 7,935
===============================================================================
Carryforwards
-------------
For federal income tax purposes, at June 30, 1995 the Company had tax
credit carryforwards of $4.6 million that expire beginning in the year
ending June 30, 1997.
(7) REINCORPORATION
In November 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.
(8) COMMON STOCK RESERVED
The Company has four stock option plans: the 1981 Stock Option Plan (under
which no grants can be made subsequent to December 31, 1991), the 1986
Stock Option and Stock Appreciation Rights (SAR) Plan and the 1991 and 1993
Executive Long-Term Incentive Plans (1991 ELTIP and 1993 ELTIP, which cover
both options and restricted stock grants). Options under each of these
plans are granted to key employees to purchase shares of the Company's
common stock at a price not less than the current market price at the date
of the grant. The options are exercisable over a ten-year period from the
date of the grant. In July 1991 the SAR component of the 1986 Stock Option
Plan was eliminated and all outstanding stand alone SARs were converted
into non-qualified stock options. For the 1981 and 1986 plans, 600,000
shares are authorized for grant. Shares authorized for grant under the 1991
ELTIP total 750,000. Shares authorized for grant under the 1993 ELTIP total
1,200,000, of which no more than 450,000 may be used for restricted stock
grants.
The Company has the 1991 Directors' Stock Plan, under which options may be
granted to the Directors of the Company to purchase shares of the Company's
common stock at a price not less than the current market price at the date
of grant. Under this plan the Directors may elect to defer some or all of
their annual retainers and receive restricted stock or stock options at
prices that, when combined with the amounts of deferred retainers, equal
the current market price at the date of the grant. Shares authorized under
this plan total 75,000.
The Company also has two restricted stock plans (the 1986 Restricted Stock
Plan and the 1989 Restricted stock Plan) under which the Company's common
stock is granted to key personnel under certain restrictions. For each
plan, 175,000 shares are authorized for grant. Grants are issued at no cost
to the employee.
Activity in the stock option plans for the years ended June 30, 1995, 1994
and 1993 is summarized as follows:
Year Ended June 30,
--------------------------------------------------------------------------------------------------------
Price Range 1995 1994 1993
--------------------------------------------------------------------------------------------------------
Options outstanding, beginning of year $5.63 - $17.69 1,248,019 1,002,218 862,400
Granted $9.89 - $17.69 325,720 276,548 181,352
Exercised $8.00 - $17.69 (72,785) (14,933) (41,534)
Cancelled $8.00 - $17.69 (60,384) (15,814) -
--------------------------------------------------------------------------------------------------------
Options outstanding, end of year $5.63 - $17.69 1,440,570 1,248,019 1,002,218
========================================================================================================
Number of options exercisable at
end of year 925,528 800,129 631,380
Number of options at end of year available
for future option or restricted stock grants 753,627 1,175,364 344,332
--------------------------------------------------------------------------------------------------------
Shares granted, net of cancellations, under the 1986 and 1989 Restricted
Stock Plans, the 1991 and 1993 ELTIPs and the Directors' Stock Plan during
the years ended June 30, 1995, 1994 and 1993 aggregated 148,901 shares,
108,234 shares and 72,666 shares, respectively. At June 30, 1995 no shares
were available for future grants under the 1986 Restricted Stock Plan or
the 1989 Restricted Stock Plan.
The Company recognized compensation expense of $1.6 million, $1.3 million
and $1.0 million related to shares granted under the restricted stock plans
for the years ended June 30, 1995, 1994 and 1993, respectively.
(9) DEFINED CONTRIBUTION PLAN
The Company sponsors a defined contribution retirement savings plan that
covers substantially all employees of the Company after completion of six
months of service. Company contributions to this plan, which include
amounts based on a percentage of employee contributions as well as
discretionary contributions, were $1.5 million, $1.2 million and $0.9
million for the years ended June 30, 1995, 1994 and 1993, respectively.
(10) REVENUES AND COST OF SALES
The components of revenues and cost of sales are:
In Thousands
Year Ended June 30,
--------------------------------------------------------------------------------
1995 1994 1993
--------------------------------------------------------------------------------
Revenues:
Home sales - communities $620,012 $405,462 $324,817
Home sales - conventional homebuilding 144,469 79,992 44,456
Land sales and other 38,638 24,607 21,313
--------------------------------------------------------------------------------
$803,119 $510,061 $390,586
================================================================================
Cost of sales:
Home sales - communities $487,641 $317,844 $248,573
Home sales - conventional homebuilding 124,380 68,513 37,049
Land sales and other 34,031 17,845 16,678
--------------------------------------------------------------------------------
$646,052 $404,202 $302,300
================================================================================
(11) INTEREST
The following table shows the components of interest:
In Thousands
Year Ended June 30,
--------------------------------------------------------------------------------
1995 1994 1993
--------------------------------------------------------------------------------
Interest incurred $46,641 $33,677 $23,653
Less capitalized interest 46,641 33,677 23,653
--------------------------------------------------------------------------------
Interest expense -- -- --
================================================================================
Amortization of capitalized interest
included in cost of sales $31,205 $18,003 $14,513
================================================================================
Unamortized capitalized interest included
in real estate inventories at year end $55,793 $40,357 $24,683
================================================================================
Interest income $ 581 $ 1,056 $ 987
================================================================================
(12) DISCONTINUED OPERATIONS
At June 30, 1995 the Company's discontinued operations consisted of two
commercial land development projects in Arizona and Colorado. The
components of net liabilities of discontinued operations are as follows:
In Thousands
at June 30,
-------------------------------------------------------------------------------
1995 1994
-------------------------------------------------------------------------------
Assets, primarily real estate $ 28,045 $ 28,826
Valuation allowances (27,855) (29,155)
Real estate notes payable and other liabilities (4,115) (5,795)
-------------------------------------------------------------------------------
Net liabilities of discontinued operations $ (3,925) $ (6,124)
===============================================================================
In fiscal 1993 the Company recorded a non-cash loss provision for
discontinued operations of $12.8 million, net of a tax benefit of $8.2
million, to reflect the change in carrying values of its two commercial
land development projects from net realizable values to market values, net
of holding and disposal costs, and to provide for the settlement of other
matters.
The principal payment requirements on real estate notes payable of
discontinued operations are $1.1 million per year for each of the three
years ending June 30, 1998 and $0.8 million for the year ending June 30,
1999.
(13) CONTINGENT LIABILITIES AND COMMITMENTS
The Company is a party to various legal proceedings arising in the ordinary
course of business. While it is not feasible to predict the ultimate
disposition of these matters, it is the opinion of management that their
outcome will not have a material adverse effect on the financial condition
of the Company.
The Company has issued surety bonds, guarantees and standby letters of
credit aggregating $154.9 million at June 30, 1995.
The Company leases from third parties, under operating leases, office
space, apartment units which it rents to prospective customers at its
active adult communities, automobiles and certain other equipment. The
leases are generally renewable at the Company's option for additional
periods. Total rent expense incurred by the Company was $4.8 million, $3.7
million and $3.3 million for the years ended June 30, 1995, 1994 and 1993,
respectively.
Minimum lease payments to be made by the Company under non-cancellable
lease agreements are as follows:
1996 $ 3,967,000
1997 3,513,000
1998 2,384,000
1999 1,393,000
2000 1,545,000
Later years 6,568,000
------------
$ 19,370,000
============
(14) SUBSEQUENT EVENT
In August 1995 the Company publicly sold 2,474,900 shares of its treasury
and authorized but unissued common stock. The net proceeds of approximately
$45 million were used to repay a portion of the indebtedness outstanding
under the Company's $300 million senior unsecured revolving credit
facility.
(15) QUARTERLY FINANCIAL INFORMATION (Unaudited)
Quarterly financial information for the years ended June 30, 1995 and 1994
is presented below. The sum of the individual quarterly data may not equal
the annual data due to rounding.
In Thousands Except Per Share Data
Three Months Ended
--------------------------------------------------------------------------------
June 30, March 31, December 31, September 30,
1995 1995 1994 1994
--------------------------------------------------------------------------------
Revenues $ 268,796 $ 195,383 $ 176,058 $ 162,882
Net earnings 9,580 6,995 6,609 5,307
Net earnings per share .62 .46 .44 .35
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
June 30, March 31, December 31, September 30,
1994 1994 1993 1993
--------------------------------------------------------------------------------
Revenues $ 160,705 $ 136,259 $ 125,563 $ 87,534
Net earnings 6,385 4,587 4,215 1,834
Net earnings per share .43 .31 .28 .12
--------------------------------------------------------------------------------
DEL WEBB CORPORATION AND SUBSIDIARIES SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Years ended June 30, 1995, 1994 and 1993
In Thousands
-------------------------------------------------------------------------------------------------------------------------
Additions Additions
Balance at Charged to Charged to
Beginning of Costs and Other Accounts Balance at
Classification Year Expenses Deductions End of Year
-------------------------------------------------------------------------------------------------------------------------
1995
----
Reserve for residential land development project $ 6,738 $ 1,526 $ - $ - $ 8,264
Deferred tax asset valuation allowance 6,606 - - 2,744 3,862
Reserves for disposal costs of discontinued
operations 29,155 - - 1,300 27,855
------------------------------------------------------------------------------------------------------------------------
$ 42,499 $ 1,526 $ - $ 4,044 $ 39,981
========================================================================================================================
1994
----
Reserve for residential land development project $ 7,710 $ - $ - $ 972 $ 6,738
Deferred tax asset valuation allowance 7,721 - - 1,115 6,606
Reserves for disposal costs of discontinued
operations 32,314 - - 3,159 29,155
------------------------------------------------------------------------------------------------------------------------
$ 47,745 $ - $ - $ 5,246 $ 42,499
========================================================================================================================
1993
----
Reserve for residential land development project $ 8,840 $ - $ - $ 1,130 $ 7,710
Deferred tax asset valuation allowance - - 7,721 - 7,721
Reserves for disposal costs of discontinued
operations 16,847 12,810 8,190 5,533 32,314
------------------------------------------------------------------------------------------------------------------------
$ 25,687 $ 12,810 $ 15,911 $ 6,663 $ 47,745
========================================================================================================================
DEL WEBB CORPORATION
Report on Form 10-K For The
Year Ended June 30, 1995
10-K EXHIBIT INDEX
------------------
NON-FINANCIAL STATEMENT EXHIBITS
--------------------------------
Exhibit
Number
-------
3.0 Amended and Restated Certificate of Incorporation of the Registrant,
incorporated by reference to Exhibit 99.0 to Registrant's Report on
Form 10-Q for the quarter ended September 30, 1994.
3.1 The Bylaws of the Registrant, incorporated by reference to Exhibit
99.1 to Registrant's Report on Form 10-Q for the quarter ended June
30, 1994.
4.1 Indenture dated as of April 15, 1992 between Registrant and United
States Trust Company of New York, as Trustee, defining the rights of
holders of the 10 7/8% Senior Notes due 2000, incorporated by
reference to Registration Statement No. 33-45703.
4.2 Indenture dated as of March 8, 1993 between Registrant and Fidelity
Trust Company, New York, as Trustee, defining the rights of the
holders of the 9 3/4% Senior Subordinated Debentures due 2003,
incorporated by reference to Registration Statement No. 33-56898.
4.3 Indenture dated as of February 4, 1994, between Registrant and The
Bank of New York, as Trustee, defining the rights of the holders of
the 9% Senior Subordinated Debentures due 2006 incorporated by
reference to Registration Statement No. 33-68732.
10.1 Compensation Agreement dated May 20, 1988, as amended January 12,
1989, between the Registrant and Frank D. Pankratz, incorporated by
reference to Exhibit 10.4.6 to Registrant's Report on Form 10-K
dated December 31, 1988, as amended by a letter dated December 18,
1991, incorporated by reference to Exhibit 10.1 to Registrant's
Report on Form 10-K for the year ended June 30, 1992.
10.2 Employment Agreement dated May 18, 1988, as amended by a Letter
Agreement dated January 20, 1989, and an Amendment Number Two dated
May 17, 1989, between the Registrant and Philip J. Dion,
incorporated by reference to Exhibit 10.2 to Registrant's Report on
Form 10-K dated December 31, 1989; and Amendment Number Three dated
August 17, 1993, incorporated by reference to Exhibit 10.2 to
Registrant's Report on Form 10-K for the year ended June 30, 1993.
10.3 Compensation Agreement dated July 1, 1989 between the Registrant and
J. Dennis Wilkins, as amended by a letter dated December 18, 1991,
incorporated by reference to Exhibit 10.3 to Registrant's Report on
Form 10-K for the year ended June 30, 1992.
10.4 Compensation Agreement dated May 17, 1989, between the Registrant
and Charles T. Roach, and a Letter Amendment to the Compensation
Agreement dated December 18, 1991, incorporated by reference to
Exhibit 10.4 to Registrant's Report on Form 10-K for the year ended
June 30, 1993.
10.5 Compensation Agreement dated October 20, 1992, between the
Registrant and Joseph F. Contadino, incorporated by reference to
Exhibit 10.5 to Registrant's Report on Form 10-K for the year ended
June 30, 1993.
10.6 Office Lease Agreement between Western Plaza Investors, L.P. and
Registrant dated April 20, 1994 incorporated by reference to
Registrant's Report on Form 10-K for the year ended June 30, 1994.
10.7 Del Webb Corporation Deferred Compensation Plan effective June 1,
1993, incorporated by reference to Exhibit 10.7 to Registrant's
Report on Form 10-K for the year ended June 30, 1993.
10.8 Key Executive Life Insurance Plan II dated April 1, 1992,
incorporated by reference to Exhibit 10.8 to Registrant's Report on
Form 10-K for the year ended June 30, 1992.
10.9 Key Executive Life Insurance Plan dated May 15, 1991, incorporated
by reference to Exhibit 10.10 to Registrant's Report on Form 10-K
for the year ended June 30, 1991.
10.10 Del Webb Corporation Executive Long-Term Incentive Plan adopted
November 20, 1991, incorporated by reference to Registrant's Report
on Form 10-K for the year ended June 30, 1992; and First Amendment
to the Executive Long-Term Incentive Plan dated June 30, 1993,
incorporated by reference to Exhibit 10.10 to Registrant's Report on
Form 10-K for the year ended June 30, 1993.
10.11 Del Webb Corporation 1993 Executive Long Term Incentive Plan dated
March 17, 1994, incorporated by reference to Exhibit 10.11 to
Registrant's Report on Form 10- K for the year ended June 30, 1994.
10.12 Del Webb Corporation Management Incentive Plan Fiscal 1994 (July 1,
1993 - June 30, 1994), incorporated by reference to Exhibit 10.11 to
Registrant's Report on Form 10-K for the year ended June 30, 1993.
10.13 Del Webb Corporation Supplemental Executive Retirement Plan No. 1,
as amended and restated April 20, 1993, incorporated by reference to
Exhibit 10.12 to Registrant's Report on Form 10-K for the year ended
June 30, 1993; as amended by First Amendment to the Del Webb
Corporation Supplemental Executive Retirement Plan No. 1 effective
July 1, 1995.
10.14 Del Webb Corporation Director Stock Plan dated November 20, 1991,
incorporated by reference to Exhibit 10.13 to Registrant's Report on
Form 10-K for the year ended June 30, 1993.
10.15 Amended and Restated Revolving Loan Agreement by and among Del Webb
Corporation and Bank of America National Trust and Savings
Association as Agent, and Bank One Arizona, NA, as Co-Agent, dated
June 27, 1995.
10.16 Del Webb Corporation Supplemental Executive Retirement Plan No. 2,
as amended and restated April 20, 1993, incorporated by reference to
Exhibit 10.16 to Registrant's Report on Form 10-K for the year ended
June 30, 1993; as amended by First Amendment to the Del Webb
Corporation Supplemental Executive Retirement Plan No. 2 effective
July 1, 1995.
10.17 Senior Officer Medical and Dental Reimbursement Plan, as amended and
restated November 16, 1992, incorporated by reference to Exhibit
10.17 to Registrant's Report on Form 10-K for the year ended June
30, 1993.
10.18 1981 Stock Option Plan, as amended January 29, 1987, incorporated by
reference to Exhibit 10.18 of the Registrant's Report on Form 10-K
for the year ended June 30, 1990; and the Third Amendment to the Del
Webb Corporation 1981 Stock Option Plan dated June 30, 1993,
incorporated by reference to Exhibit 10.18 to Registrant's Report on
Form 10-K for the year ended June 30, 1993.
10.19 1986 Stock Option and SAR Plan of the Del Webb Corporation, as
amended January 27, 1987, incorporated by reference to Exhibit 10.19
of the Registrant's Report on Form 10-K for the year ended June 30,
1990; and the Second Amendment to the 1986 Stock Option and SAR Plan
dated June 30, 1993, incorporated by reference to Exhibit 10.19 to
Registrant's Report on Form 10-K for the year ended June 30, 1993.
10.20 1986 Restricted Stock Plan of the Del Webb Corporation, incorporated
by reference to Exhibit 10.20 of the Registrant's Report on Form
10-K for the year ended June 30, 1990; as amended by the First
Amendment to the 1986 Restricted Stock Plan dated June 30, 1993,
incorporated by reference to Exhibit 10.20 to Registrant's Report on
Form 10-K for the year ended June 30, 1993.
10.21 1989 Restricted Stock Plan of the Del Webb Corporation, incorporated
by reference to Exhibit 10.21 of the Registrant's Report on Form
10-K for the year ended June 30, 1990; as amended by the First
Amendment to the 1989 Restricted Stock Plan dated June 30, 1993,
incorporated by reference to Exhibit 10.21 to Registrant's Report on
Form 10-K for the year ended June 30, 1993.
10.22 Del Webb Corporation Retirement Savings Plan Amended and Restated
effective January 1, 1995.
10.23 Del E. Webb Corporation Umbrella Trust dated June 11, 1987, as
amended by Amendment Number One to the Del Webb Corporation Umbrella
Trust dated February 8,1989, incorporated by reference to Exhibit
10.26 of the Registrant's Report on Form 10-K for the year ended
June 30, 1990, and Amendment Number Two to Del Webb Corporation
Umbrella Trust dated March 14, 1990, incorporated by reference to
Exhibit 10.23 to Registrant's Report on Form 10-K for the year ended
June 30, 1992.
10.24 Sample Directors and Officers Indemnification Agreement between
Registrant and its directors and officers dated February 1, 1995
incorporated by reference to the Registrant's Report on Form 10-Q
for the quarter ended March 31, 1995.
10.25 Del Webb Corporation 1995 Executive Long-Term Incentive Plan adopted
July 13, 1995, subject to shareholder approval.
10.26 Del Webb Corporation 1995 Director Stock Plan adopted July 13, 1995,
subject to shareholder approval.
10.27 Del Webb Corporation 1995 Executive Management Incentive Plan
adopted July 13, 1995, subject to shareholder approval.
21.0 List of Active Subsidiaries and Associated Companies of Registrant.
23.0 Consent of Experts.
27.0 Financial Data Schedule.