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, 1995 to June 30, 1996.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934. For the transition period from N/A to N/A .
----- -----
Commission File Number: 1-4785
DEL WEBB CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 86-0077724
(State 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 July 31, 1996 was 17,537,903 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 $306,900,000.
Documents Incorporated by Reference
Portions of Registrant's definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on November 14, 1996 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, 1996
TABLE OF CONTENTS
PART I
Item 1. PAGE
and
Item 2. Business and Properties
The Company..................................................... 1
Master-Planned Communities...................................... 1
Potential Future Communities.................................... 3
Conventional Homebuilding....................................... 4
Product Design.................................................. 4
Construction.................................................... 4
Sales Activities................................................ 4
Other Real Estate Activity.......................................5
Competition..................................................... 5
Certain Factors Affecting the Company's Operations.............. 6
Executive Officers of the Company............................... 8
Employees.......................................................10
Item 3. Legal Proceedings...............................................10
Item 4. Submission of Matters to a Vote of Security Holders.............10
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters...................................11
Item 6. Selected Consolidated Financial Data............................12
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Certain Consolidated Financial and Operating Data...........14
Results of Operations.......................................16
Liquidity and Financial Condition of the Company............19
Impact of Inflation.........................................20
TABLE OF CONTENTS (continued)
PART II (Continued)
PAGE
Item 8. Financial Statements and Supplementary Data.....................20
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure........................20
PART III
Item 10. Directors and Executive Officers of the Registrant..............21
Item 11. Executive Compensation..........................................21
Item 12. Security Ownership of Certain Beneficial Owners
and Management................................................21
Item 13. Certain Relationships and Related Transactions..................21
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K...........................................22
PART I
Items 1. and 2. Business and Properties
THE COMPANY
Del Webb Corporation develops large-scale, master-planned residential
communities, primarily for active adults age 55 and over, and has significant
conventional subdivision homebuilding operations.
The Company is one of the nation's leading developers of age-restricted active
adult communities. It has extensive experience in the active adult community
business, having built and sold more than 52,000 homes at its nine Sun City
communities over the past 36 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 communities, 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 conducts its conventional subdivision homebuilding operations under
the name "Coventry Homes" in the Phoenix, Tucson and Las Vegas areas, southern
California and north-central Arizona.
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 of future homes,
square feet and number of residents, employees and shareholders are
approximations.
MASTER-PLANNED COMMUNITIES
At June 30, 1996 the Company had nine master-planned communities at which home
closings were taking place. The Company also had one master-planned community in
an earlier stage of development.
Communities Delivering Homes
The following table shows certain information concerning the nine communities at
which the Company was delivering homes at June 30, 1996. Two of these
communities, Sun City Summerlin (formerly known as Sun City Las Vegas) and Sun
City MacDonald Ranch, are reported on a combined basis since they are both
located in the Las Vegas metropolitan area. The table includes information with
respect to land owned by the Company and which it has options to acquire.
Information for Sun City Palm Desert (formerly known as Sun City Palm Springs)
is presented for phase one of that community. The Company also owns 700 acres of
land for a second phase of development at Sun City Palm Desert. If developed,
this second phase is currently planned for 2,300 homes. Development of future
phases at any of the Company's communities will depend on the state of the
economy and prospects for the communities at the time the current phases near
completion.
- ----------------------------------------------------------------------------------------------------------------------
Sun City Sun City Sun Cities Sun City Sun City Sun City Sun City
West Tucson Las Vegas Palm Desert Roseville Hilton Head Georgetown Terravita
---- ------ --------- ----------- --------- ----------- ---------- ---------
First home closing........... 1978 1987 1989 1992 1995 1995 1996 1994
Total acres.................. 7,000 1,000 3,064 906 1,200 5,600 5,300 823
Homes at completion.......... 16,328 2,460 10,140 2,435 3,072 8,000 9,650 1,380
Home closings through
June 30, 1996.............. 15,159 2,356 5,995 1,136 1,024 305 235 850
Future homes to be closed.... 1,169 104 4,145 1,299 2,048 7,695 9,415 530
Future homes to be sold...... 616 59 3,503 1,187 1,671 7,502 9,037 226
Base price range of homes at
June 30, 1996 (in thousands) $90-240 $110-230 $90-280 $100-300 $120-280 $90-260 $100-240 $170-390
- ----------------------------------------------------------------------------------------------------------------------
1
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, a large
indoor theater, 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 29,000 at June 30, 1996. The build-out of this community is being
coordinated with the development of Sun City Grand, a nearby community being
developed by the Company.
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 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
two smaller recreation facilities (including swimming pools, tennis courts and
activity rooms). Sun City Tucson has numerous civic and social organizations and
clubs and had a population of 4,500 at June 30, 1996. This community is
anticipated to be built out in the 1997 fiscal year.
Sun Cities Las Vegas
--------------------
The Sun Cities Las Vegas include Sun City Summerlin and Sun City MacDonald
Ranch.
Sun City Summerlin is located eight miles northwest of downtown Las Vegas,
Nevada. It has two 18-hole championship golf courses and a third, executive
course. Other amenities in this active adult community include extensive
recreational facilities at two large and two 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. Sun City Summerlin
has approximately 65 civic and social organizations and clubs and had a
population of 11,000 at June 30, 1996.
Sun City MacDonald Ranch is located in Henderson, Nevada, near Las Vegas. It is
an active adult community with fewer amenities (an executive golf course and a
smaller recreational facility with an outdoor pool, tennis courts, a fitness and
exercise center, arts and crafts studios and a social hall) and higher density
than the Company's other active adult communities. Home closings at Sun City
MacDonald Ranch began in January 1996. Sun City MacDonald Ranch had a population
of 500 at June 30, 1996.
Sun City Palm Desert
--------------------
Sun City Palm Desert 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 large
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 Palm
Desert had a population of 2,000 at June 30, 1996.
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 and has extensive parks and a large 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 had a population of 2,000
at June 30, 1996.
2
Sun City Hilton Head
--------------------
Sun City Hilton Head is located inland 13 miles from Hilton Head Island, South
Carolina. This community encompasses 5,600 acres, 2,300 of which are already
owned by the Company and the balance of which the Company has options to
purchase. Sun City Hilton Head is a gate-guarded active adult community that has
an 18-hole championship golf course, a clubhouse and restaurant and a large
recreation center with indoor and outdoor swimming pools, tennis courts, a
croquet course, a putting course, bocci ball courts, a fitness and exercise
center, arts and crafts studios and a social hall. Future amenities are
currently planned to include additional golf courses, a nature trail system and
a river club . Home closings at Sun City Hilton Head began in August 1995. Sun
City Hilton Head had a population of 500 at June 30, 1996.
Sun City Georgetown
-------------------
Sun City Georgetown is an active adult community located 30 miles north of
downtown Austin, Texas. This community encompasses 5,300 acres, 3,500 of which
are already owned by the Company and the balance of which the Company has
options to purchase. Sun City Georgetown's amenities are planned to include
several golf courses, a clubhouse and restaurant, a trail system and large
recreation center with indoor and outdoor swimming pools, a fitness and exercise
center, arts and crafts studios and a social hall. Sun City Georgetown began
home closings in February 1996 and had a population of 400 at June 30, 1996.
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 large clubhouse, restaurant and fitness
center, a swimming pool, tennis courts and other recreational amenities.
Terravita had a population of 1,500 at June 30, 1996.
Community in an Earlier Stage of Development
The Company had one community, Sun City Grand, in an earlier stage of
development at June 30, 1996. Sun City Grand is located on 3,775 acres near Sun
City West. It is currently planned as a gate-guarded community to include 9,550
homes and four championship golf courses, each with a spacious golf club and
restaurant facility. The major amenities will be centralized and are planned to
include a large recreation center with indoor and outdoor swimming pools, a
fitness and exercise center, a large social hall, numerous arts and crafts
studios, lighted tennis courts, bocci ball courts and entertainment cabanas.
Future phases are also planned to include a theater and bowling alley.
Development of Sun City Grand began in the Spring of 1995 and is being
coordinated with the build-out of Sun City West. The Company currently
anticipates that home sales and closings will begin at Sun City Grand in fiscal
1997.
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. To the extent the Company has had a successful community in an
area, the Company generally strives to maintain a market presence in that area
through development of a successor community as build-out of the former
community approaches.
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 investigating the acquisition of 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 may acquire such property at
an earlier stage in the development process.
3
In 1992 the Company purchased 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 fiscal 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. In fiscal 1996 the primary zoning
approvals were received; however, development of this property remains subject
to uncertainties and the planning and permitting process is still in an early
stage. At June 30, 1996 the Company's investment in the Villages at Desert Hills
was $17.9 million.
CONVENTIONAL HOMEBUILDING
The Company began its conventional subdivision homebuilding operations in the
Phoenix area in 1991 and expanded these operations to Tucson in fiscal 1994, Las
Vegas and southern California in fiscal 1995 and north-central Arizona in fiscal
1996. At June 30, 1996 the Company had a backlog of home sales orders at 28
subdivisions -- 15 in the Phoenix area, 4 in the Tucson area, 4 in the Las Vegas
area, 4 in southern California and 1 in north-central Arizona. The Company has
no current plans to continue its conventional subdivision homebuilding
operations in southern California after completion of its existing subdivisions.
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, 1996 the Company's conventional homebuilding
operations have generally targeted first-time and move-up buyers, although some
luxury homes are also being sold. The base price of homes offered for sale at
June 30, 1996 ranged from $70,000 to $420,000. The Company currently expects
that community development will continue to be its primary business activity.
For the year ended June 30, 1996, conventional homebuilding operations generated
21.5 percent of the Company's homebuilding 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 home buyer tastes in each market. Homes at the Company's
communities generally range in size from 1,000 square feet to 3,700 square feet.
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 contractors, consultants and suppliers and subject
their work to quality and cost controls. Consulting firms assist in project
planning and independent contractors 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.
4
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 certain 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 home buyers 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 ACTIVITY
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 development. At June 30, 1996, 294
acres of residential and commercial land remained to be sold at The Foothills.
At June 30, 1996 the Company's investment in The Foothills was $17.7 million.
COMPETITION
All of the Company's real estate operations are subject to substantial
competition. The Company competes with numerous national, regional and local
homebuilders and developers, a few of which have greater financial resources
than the Company.
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 52,000 homes over 36 years and providing an
attractive lifestyle for adults age 55 and over, enhances the Company's active
adult community marketing position.
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, as well as with resales of homes
in its own communities. The Company believes there may be significant additional
future competition in active adult community development, including competition
from national homebuilders and conventional community developers. Also, a
national homebuilder is developing an active adult community in Indio,
California, near Sun City Palm Desert, which will cause additional competitive
pressures at that community.
In each of the areas in which the Company has conventional subdivision
homebuilding operations, the Company is subject to a high degree of competition
from new home developers, home resales, rental housing and condominium
development. The Company believes that the major competitive factors in this
part of its business include location, home quality, price, design and mortgage
financing terms.
5
CERTAIN FACTORS AFFECTING THE COMPANY'S OPERATIONS
Set forth below is a brief description of certain matters that may affect the
Company.
FUTURE AND NEWER 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 will incur additional risks to the extent it develops communities in
climates or other geographic areas in which it does not have experience or
develops a different size or style of community, including acquiring the
necessary construction materials and labor in sufficient amounts and on
acceptable terms and adapting the Company's construction methods to different
geographies and climates. 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, and
there may be challenges attracting potential customers from areas and to a
market in which the Company has not had significant experience.
COMPETITION; REAL ESTATE, ECONOMIC AND OTHER CONDITIONS GENERALLY. The Company's
communities and its other real estate operations are subject to substantial
existing and potential competition (including increased competition from a
number of national homebuilders that are entering or expanding their presence in
active adult community development), real estate market conditions (both where
its communities and conventional homebuilding operations 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.
A significant number of purchasers at the Company's active adult communities in
Arizona, Nevada and southern California are from southern California. Those
communities may be affected by the continuing adverse conditions in the southern
California real estate market and the southern California economy generally.
FINANCING AND LEVERAGE. Real estate development is dependent on the availability
and cost of financing. In periods of significant growth, the Company will
require significant additional capital resources, whether from issuances of
equity or by incurring additional indebtedness. No assurance can be given as to
the availability or cost of any future financing. 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 cannot obtain sufficient capital to fund its development and
expansion expenditures, its projects may be significantly delayed, resulting in
cost increases and adverse effects on the Company's results of operations.
The Company's degree of leverage from time to time will affect its interest
incurred and may limit funds available for operations, which could limit its
ability to withstand adverse changes or capitalize on business opportunities. If
the Company is at any time unable to service its debt, refinancing or obtaining
additional financing may be required and may not be available.
INTEREST RATES. The Company's real estate operations depend upon the
availability and cost of mortgage financing. An increase in interest rates,
which may result from governmental policies and other factors outside the
control of the Company, may adversely affect the buying decisions of potential
home buyers and their ability to sell their existing homes.
6
CONSTRUCTION LABOR AND MATERIALS COSTS. 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.
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.
PERIOD-TO-PERIOD FLUCTUATIONS. 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. Revenues and earnings of the Company will also be affected by
period-to-period fluctuations in the mix of product, subdivisions and home
closings among the Company's communities and conventional homebuilding
operations and by sales of commercial land at the Company's communities.
GEOGRAPHIC CONCENTRATION. The Company's primary business operations are
concentrated in a limited number of communities in five states. The Company's
geographic concentration and limited number of projects may create increased
vulnerability to regional economic downturns or other adverse project-specific
matters.
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. Earthquake faults, including the San
Andreas fault, run through the Coachella Valley, which includes Sun City Palm
Desert and the communities of Palm Springs, Indio, Palm Desert, La Quinta,
Rancho Mirage and Indian Wells. A portion of Sun City Palm Desert 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 Desert and has
approved the Company's specific flood control plan for the first phase of this
project. Sun City Hilton Head is located in an area which may be subject to
hurricanes. A major earthquake, flood or hurricane could have a material adverse
impact on the development of and results of operations for the community
affected.
FORWARD LOOKING INFORMATION; CERTAIN CAUTIONARY STATEMENTS. Certain statements
contained in this Annual Report are forward looking statements. These forward
looking statements involve risks and uncertainties including but not limited to
those referred to above. Actual results may differ materially from those
projected or implied in the forward looking statements. Further, certain forward
looking statements are based upon assumptions of future events, which may not
prove to be accurate. Additional information on factors which could affect the
Company's financial results may be included in subsequent reports filed by the
Company with the Securities and Exchange Commission.
7
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, 1996.
Years
Years as an Employed
Executive by the
Name Age Position Officer Company
- ------------------------------------------------------------------------------------------------------------------------
P. J. Dion 51 Chairman of the Board and 14 14
Chief Executive Officer
J. F. Contadino 54 Executive Vice President 4 5
L. C. Hanneman, Jr. 49 Executive Vice President 7 24
J. H. Gleason 54 Senior Vice President, Project Planning 6 8
and Development
A. L. Mariucci 39 Senior Vice President and General 10 12
Manager - Terravita
F. D. Pankratz 46 Senior Vice President and 8 9
General Manager - Sun City
Summerlin and Sun City
MacDonald Ranch
C. T. Roach 49 Senior Vice President and 7 17
General Manager - Sun City West
and Sun City Grand
J. A. Spencer 47 Senior Vice President and Chief 11 17
Financial Officer
J. D. Wilkins 51 Senior Vice President and 7 7
General Manager - Sun City Hilton Head
L. W. Beckner 49 Vice President, Information Services Less than Less than
one year one year
R. C. Jones 51 Vice President and General Counsel 4 4
D. V. Mickus 50 Vice President, Treasurer and Secretary 10 13
J. M. Murray 42 Vice President and General Manager, Less than 7
Sun City Roseville one year
D. E. Rau 39 Vice President and Controller 10 11
D. G. Schreiner 43 Vice President, Marketing 3 5
M. L. Schuttenberg 53 Vice President, Human Resources 3 10
R. R. Wagoner 55 Vice President, Land Development 2 4
- ------------------------------------------------------------------------------------------------------------------------
Mr. Dion has served as Chairman of the Board and Chief Executive Officer since
November 1987.
Mr. Contadino has served as Executive Vice President, overseeing conventional
homebuilding and community development operations, since May 1996. Prior to that
time he served as Senior Vice President from January 1994 to May 1996 and as
Vice President from November 1991 to January 1994. He became President of
Coventry Homes in January 1991.
8
EXECUTIVE OFFICERS OF THE COMPANY (Continued)
Mr. Hanneman has served as Executive Vice President, overseeing active adult
community operations, since May 1996. Prior to that time he served as Senior
Vice President from January 1994 to May 1996 and as Vice President from January
1989 to January 1994. From August 1987 to May 1996 he served as General Manager
of Sun City Summerlin and, subsequently, Sun City MacDonald Ranch.
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 in January 1990.
Ms. Mariucci has served as Senior Vice President since May 1996. Prior to that
time she served as a Vice President from June 1986 (when she began serving as
Vice President, Corporate Planning and Development) to May 1996. She has served
as General Manager of Terravita since December 1992.
Mr. Pankratz has served as General Manager of Sun City Summerlin and Sun City
MacDonald Ranch since May 1996. Prior to that time he served as General Manager
of Sun City Palm Desert from February 1990 to May 1996. Since September 1988 he
has served as Senior Vice President.
Mr. Roach has served as Senior Vice President since January 1994. Prior to that
time he served as Vice President from January 1989 to January 1994. Since August
1987 he has served as General Manager of Sun City West and, subsequently, Sun
City Grand.
Mr. Spencer has served as Chief Financial Officer since April 1993. Since
February 1991 he has served as Senior Vice President.
Mr. Wilkins has served as Senior Vice President and General Manager of Sun City
Hilton Head since January 1994. Prior to that time he served as Vice President
and General Manager of Sun City Tucson from July 1989 to January 1994.
Mr. Beckner has served as Vice President, Information Services, since November
1995. Prior to that time he was employed by AlliedSignal Corporation in Tempe,
Arizona, where he held the position of Director, Strategic Alliances.
Mr. Jones has served as Vice President and General Counsel since January 1992.
From March 1990 to November 1991 he was a partner with the law firm of Gaston &
Snow.
Mr. Mickus has served as Vice President and Treasurer since November 1985 and as
Secretary commencing in June 1991.
Mr. Murray has served as Vice President since September 1995. Since December
1992 he has served as General Manager of Sun City Roseville. Prior to that time
he served in a financial management capacity for a subsidiary of the Company
from July 1989 to December 1992.
Mr. Rau has served as Vice President and Controller since February 1991.
Mr. Schreiner has served as Vice President, Marketing, since 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.
Ms. Schuttenberg has served as Vice President, Human Resources, since 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 has served as Vice President, Land Development, since 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 a principal and stockholder for
32 years at Collar, Williams and White Engineering in Phoenix, where he held
various positions including President.
9
EMPLOYEES
At June 30, 1996 the Company had 2,300 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.
10
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 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, 1996.
Sales Price
- ----------------------------------------------------------------------------------------------------------
Fiscal Year 1996 Fiscal Year 1995
- ----------------------------------------------------------------------------------------------------------
Quarter Ended High Low High Low
- ----------------------------------------------------------------------------------------------------------
September 30 25 17 3/4 17 3/8 13 5/8
December 31 21 1/2 17 3/8 17 5/8 14 1/4
March 31 20 3/4 16 1/4 20 17
June 30 20 16 3/8 23 5/8 16 5/8
- ----------------------------------------------------------------------------------------------------------
As of July 31, 1996 the number of shareholders of record of common stock of the
Company was 3,200.
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, 1996 $9.0 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.
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.
11
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, 1996. 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,
- -----------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------
Statement of operations information:
Revenues:
Home sales - communities $ 794,671 $ 620,012 $ 405,462 $ 324,817 $ 226,014
Home sales - conventional homebuilding 217,158 144,469 79,992 44,456 27,097
Land sales and other 38,904 38,638 24,607 21,313 7,761
- -----------------------------------------------------------------------------------------------------------------
Total revenues $ 1,050,733 $ 803,119 $ 510,061 $ 390,586 $ 260,872
=================================================================================================================
Earnings (loss):
Continuing operations (1), (2) $ (7,751) $ 28,491 $ 17,021 $ 16,863 $ 14,068
Total (3) $ (7,751) $ 28,491 $ 17,021 $ 24,511 $ 17,107
=================================================================================================================
Net earnings (loss) per share:
Continuing operations (1) $ (.44) $ 1.87 $ 1.13 $ 1.05 $ 1.09
Total (.44) 1.87 1.13 1.53 1.33
=================================================================================================================
Cash dividends per share $ .20 $ .20 $ .20 $ .20 $ .20
=================================================================================================================
(1) In fiscal 1996, in connection with the adoption of Statement of Financial
Accounting Standards ("SFAS") No. 121, the Company incurred a non-cash
loss from impairment of southern California real estate inventories in the
amount of $65.0 million pre-tax ($42.3 million after tax) related to the
valuation of its Sun City Palm Desert active adult community. Exclusive of
the non-cash loss, the Company's net earnings for fiscal 1996 were $34.5
million, or $1.96 per share.
(2) Earnings (loss) from continuing operations for fiscal 1996, 1995, 1994 and
1993 reflect a higher income tax rate (a rate more closely approximating
the statutory rate) than for fiscal 1992 as a result of the Company's
adoption of SFAS No. 109 effective July 1, 1992.
(3) Total earnings for fiscal 1993 include a $12.8 million loss from
discontinued operations (primarily additional loss provisions related to
the Company's discontinued land development projects), a $0.5 million
extraordinary gain from the extinguishment of debt on a discounted basis
and a $20.0 million increase in net earnings as a result of a cumulative
effect of an accounting change from the adoption of SFAS No. 109. Total
earnings for fiscal 1992 include a $3.0 million extraordinary gain from
the extinguishment of debt on a discounted basis.
12
Item 6. Selected Consolidated Financial Data (Continued)
(Not covered by report of independent auditors)
Dollars In Thousands
Year Ended June 30,
- -----------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------
Balance sheet information at year-end:
Total assets $ 1,024,795 $ 925,050 $ 758,424 $ 555,586 $ 442,051
Notes payable and senior debt 320,063 284,585 189,657 133,175 159,637
Subordinated debt 194,614 206,673 206,019 108,688 12,622
----------- ----------- ---------- ----------- -----------
Total notes payable, senior and
subordinated debt 514,677 491,258 395,676 241,863 172,259
Shareholders' equity $ 264,776 $ 229,342 $ 201,324 $ 199,446 $ 178,615
Total notes payable, senior and
subordinated debt divided by total
notes payable, senior and subordinated
debt and shareholders' equity 66.0% 68.2% 66.3% 54.8% 49.1%
=================================================================================================================
13
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, 1996.
Year Ended Change Change
June 30, 1996 vs 1995 1995 vs 1994
- ------------------------------------------------------------------- -------------------- --------------------
1996 1995 1994 Amount Percent Amount Percent
- ------------------------------------------------------------------- -------------------- --------------------
OPERATING DATA:
Number of net new orders(1):
Sun City West 963 946 1,156 17 1.8% (210) (18.2%)
Sun City Tucson 160 310 357 (150) (48.4%) (47) (13.2%)
Sun Cities Las Vegas(2) 1,241 770 863 471 61.2% (93) (10.8%)
Sun City Palm Desert 216 267 315 (51) (19.1%) (48) (15.2%)
Sun City Roseville(3) 537 515 349 22 4.3% 166 47.6%
Sun City Hilton Head(3) 349 149 N/A 200 134.2% 149 N/A
Sun City Georgetown(3) 491 122 N/A 369 302.5% 122 N/A
Terravita(3) 431 392 331 39 9.9% 61 18.4%
Coventry Homes 1,462 1,063 774 399 37.5% 289 37.3%
- ------------------------------------------------------------------- -------------------- --------------------
Total 5,850 4,534 4,145 1,316 29.0% 389 9.4%
=================================================================== ==================== ====================
Number of home closings:
Sun City West 912 1,104 1,161 (192) (17.4%) (57) (4.9%)
Sun City Tucson 264 444 342 (180) (40.5%) 102 29.8%
Sun Cities Las Vegas(2) 1,001 847 815 154 18.2% 32 3.9%
Sun City Palm Desert 251 282 278 (31) (11.0%) 4 1.4%
Sun City Roseville(3) 731 293 N/A 438 149.5% 293 N/A
Sun City Hilton Head(3) 305 N/A N/A 305 N/A N/A N/A
Sun City Georgetown(3) 235 N/A N/A 235 N/A N/A N/A
Terravita(3) 425 425 N/A - - 425 N/A
Coventry Homes 1,407 921 587 486 52.8% 334 56.9%
- ------------------------------------------------------------------- -------------------- --------------------
Total 5,531 4,316 3,183 1,215 28.2% 1,133 35.6%
=================================================================== ==================== ====================
BACKLOG DATA:
Homes under contract at June 30:
Sun City West 553 502 660 51 10.2% (158) (23.9%)
Sun City Tucson 45 149 283 (104) (69.8%) (134) (47.3%)
Sun Cities Las Vegas(2) 642 402 479 240 59.7% (77) (16.1%)
Sun City Palm Desert 112 147 162 (35) (23.8%) (15) (9.3%)
Sun City Roseville(3) 377 571 349 (194) (34.0%) 222 63.6%
Sun City Hilton Head(3) 193 149 N/A 44 29.5% 149 N/A
Sun City Georgetown(3) 378 122 N/A 256 209.8% 122 N/A
Terravita(3) 304 298 331 6 2.0% (33) (10.0%)
Coventry Homes 595 540 398 55 10.2% 142 35.7%
- ------------------------------------------------------------------- -------------------- --------------------
Total(4) 3,199 2,880 2,662 319 11.1% 218 8.2%
=================================================================== ==================== ====================
Aggregate contract sales amount
(dollars in millions) $617 $565 $471 $52 9.2% $94 20.0%
Average contract sales amount
per home (dollars in thousands) $193 $196 $177 $(3) (1.5%) $19 10.7%
=================================================================== ==================== ====================
14
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA (Continued)
- -------------------------------------------------------------------
Year Ended Change Change
June 30, 1996 vs 1995 1995 vs 1994
- ---------------------------------------------------------------------- -------------------- --------------------
1996 1995 1994 Amount Percent Amount Percent
- ---------------------------------------------------------------------- -------------------- --------------------
AVERAGE REVENUE PER
HOME CLOSING:
Sun City West $ 160,300 $ 151,100 $ 143,500 $ 9,200 6.1% $ 7,600 5.3%
Sun City Tucson 170,600 164,400 159,700 6,200 3.8% 4,700 2.9%
Sun Cities Las Vegas(2) 171,000 180,700 160,800 (9,700) (5.4%) 19,900 12.4%
Sun City Palm Desert 224,100 214,400 191,400 9,700 4.5% 23,000 12.0%
Sun City Roseville(3) 217,800 201,100 N/A 16,700 8.3% N/A N/A
Sun City Hilton Head(3) 159,200 N/A N/A N/A N/A N/A N/A
Sun City Georgetown(3) 181,500 N/A N/A N/A N/A N/A N/A
Terravita(3) 295,600 253,700 N/A 41,900 16.5% N/A N/A
Coventry Homes 154,300 156,900 136,300 (2,600) (1.7%) 20,600 15.1%
Weighted average $ 182,900 $ 177,100 $ 152,500 $ 5,800 3.3% $ 24,600 16.1%
====================================================================== ==================== ====================
OPERATING STATISTICS:
Costs and expenses as a
percentage of revenues:
Home construction, land and
other 76.9% 76.6% 75.7% 0.3% 0.4% 0.9% 1.2%
Interest 4.0% 3.9% 3.5% 0.1% 2.6% 0.4% 11.4%
Selling, general and
administrative 14.0% 14.1% 15.6% (0.1%) (0.7%) (1.5%) (9.6%)
Ratio of home closings to homes
under contract in backlog at
beginning of year 192.0% 162.1% 187.2% 29.9% 18.4% (25.1%) (13.4%)
====================================================================== ==================== ====================
(1)Net of cancellations. The Company recognizes revenue at close of escrow.
(2)Includes Sun City Summerlin and Sun City MacDonald Ranch. The Company began
taking new home sales orders at Sun City MacDonald Ranch in September 1995.
Home closings began at Sun City MacDonald Ranch in January 1996.
(3)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 began at Sun City
Roseville in February 1995, at Sun City Hilton Head in August 1995, at Sun
City Georgetown in February 1996 and at Terravita in July 1994.
(4)A majority of the backlog at June 30, 1996 is currently anticipated to result
in revenues in the next 12 months. However, a majority of the backlog is
contingent upon the availability of financing for the customer, sale of the
customer's existing residence or other factors. Also, as a practical matter,
the Company's ability to obtain damages for breach of contract by a potential
home buyer is limited to retaining all or a portion of the deposit received.
In the years ended June 30, 1996, 1995 and 1994, cancellations of home sales
orders as a percentage of new home sales orders written during the year were
17.2 percent, 18.3 percent and 15.6 percent, respectively.
15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
RESULTS OF OPERATIONS
- ---------------------
REVENUES. Home closings at Sun City Hilton Head and Sun City Georgetown
accounted for $48.6 million and $42.7 million, respectively, of the increase in
revenues to $1.05 billion for the fiscal year ended June 30, 1996 from $803.1
million for the fiscal year ended June 30, 1995. The Company had not yet begun
delivering homes at these communities in fiscal 1995. Increased home closings at
the Sun Cities Las Vegas (where home closings began at Sun City MacDonald Ranch
in January 1996) and Sun City Roseville (where the Company had home closings for
only a part of fiscal 1995) accounted for $27.8 million and $88.1 million,
respectively, of the increase in revenues.
Decreased home closings at Sun City West (due to a lower backlog at the
beginning of the year), Sun City Tucson (reflecting the approaching build-out of
that community) and Sun City Palm Desert (see "Loss from Impairment of Southern
California Real Estate Inventories") collectively resulted in a $65.2 million
decrease in revenues. Increased home closings at Coventry Homes (which
benefitted from increases in Phoenix, Tucson, Las Vegas and southern California
operations) resulted in increased revenues of $76.3 million.
An increase in the average revenue per home closing (excluding the new
communities of Sun City Hilton Head and Sun City Georgetown) resulted in a $29.1
million increase in revenues. This increase was primarily due to sales price
increases previously implemented by the Company, increases in lot premiums at
certain communities and changes in product mix.
Home closings at Terravita and Sun City Roseville accounted for $107.8 million
and $58.9 million, respectively, of the increase in revenues to $803.1 million
for fiscal 1995 compared to $510.1 million for 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 Sun
City West, Sun City Tucson, Sun City Summerlin and Sun City Palm Desert
collectively accounted for $14.0 million of the increase in revenues. Increased
home closings at Coventry Homes 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 Sun City West, Sun City
Tucson, Sun City Summerlin, Sun City Palm Desert and Coventry Homes collectively
accounted for $52.8 million of the increase in revenues from fiscal 1994 to
fiscal 1995. These increases in average revenues per home closing were partially
due to sales price increases implemented by the Company and partially due to
changes in product mix.
Land sales and other revenues were $14.0 million higher in fiscal 1995 than in
fiscal 1994. Land sales are a normal part of the Company's master-planned
community developments but occur irregularly, complicating period-to-period
comparisons.
HOME CONSTRUCTION, LAND AND OTHER COSTS. The increase in home construction, land
and other costs to $808.0 million for fiscal 1996 compared to $614.8 million for
fiscal 1995 was primarily due to the increase in home closings. As a percentage
of revenues, these costs were 76.9 percent for fiscal 1996 compared to 76.6
percent for fiscal 1995, with the increase primarily attributable to changes in
mix of product, subdivisions and home closings among the Company's communities
and conventional homebuilding operations.
The increase in home construction, land and other costs to $614.8 million in
fiscal 1995 compared to $386.2 million in fiscal 1994 was primarily due to the
increase in home closings. As a percentage of revenues, home construction, land
and other costs increased to 76.6 percent for fiscal 1995 compared to 75.7
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 and decreased base housing margins at Sun City Tucson. Pricing
strategies employed by the Company to facilitate the completion of Sun City
Tucson resulted in the decrease in base housing margins at that community.
On a period-to-period basis, home construction, land and other costs 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 and changes in construction costs.
16
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
INTEREST. As a percentage of revenues, amortization of capitalized interest was
4.0 percent for fiscal 1996 compared to 3.9 percent for fiscal 1995. This
increase was primarily due to higher levels of indebtedness and increases in
land held for longer-term development, with respect to which land the Company
does not allocate capitalized interest. As a result of the non-cash loss from
impairment of southern California real estate inventories recognized by the
Company in fiscal 1996 (see "Loss from Impairment of Southern California Real
Estate Inventories"), management currently anticipates that in the future
greater capitalized interest will be allocated to communities with more expected
home closings than Sun City Palm Desert. If all other factors were constant,
this would result in an increase in amortization of capitalized interest as a
percentage of revenues in future periods.
Increased borrowings and higher interest rates resulted in an increase in the
amortization of capitalized interest to 3.9 percent of revenues for fiscal 1995
compared to 3.5 percent of revenues for fiscal 1994.
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 just began in fiscal 1996, 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 was not reflected in reported earnings for the Company's fiscal
year ended June 30, 1996 and some portion will not be reflected in the 1997
fiscal year. See "Liquidity and Financial Condition of the Company."
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Of the increase in total selling,
general and administrative expenses to $147.3 million for fiscal 1996 from
$113.2 million for fiscal 1995, $12.7 million was attributable to higher sales
and marketing expenses, $6.5 million was due to increased commissions on the
increased revenues and $7.7 million resulted from the recognition of expenses at
Sun City Roseville, Sun City Hilton Head, Sun City MacDonald Ranch and Sun City
Georgetown in fiscal 1996 (which were capitalized prior to the commencement of
home closings, which for each of these communities included part or all of
fiscal 1995). The balance of the increase was due to a variety of 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.
LOSS FROM IMPAIRMENT OF SOUTHERN CALIFORNIA REAL ESTATE INVENTORIES. In fiscal
1996 the Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of. (For a brief description of SFAS No. 121, see Note 1
to the Consolidated Financial Statements.) In connection with its adoption of
SFAS No. 121, the Company incurred a non-cash loss from impairment of southern
California real estate inventories in the amount of $65.0 million pre-tax ($42.3
million after tax) related to the valuation of its Sun City Palm Desert active
adult community. Exclusive of the non-cash loss, the Company's net earnings for
fiscal 1996 were $34.5 million, or $1.96 per share.
17
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
In the first six months of fiscal 1996, net new orders at Sun City Palm Desert
were substantially below both the comparable period of the prior fiscal year and
the Company's expectations. Although the Company was encouraged by net new
orders significantly greater in the first 45 days of the third quarter of fiscal
1996 than in the comparable period in the prior fiscal year, a lower than
anticipated level of net new orders was expected in the remainder of fiscal 1996
and net new orders for all of fiscal 1996 were anticipated to be lower than in
prior fiscal years. Additionally, a national home builder is developing an
active adult community near Sun City Palm Desert which will cause additional
competitive pressures at that community. Based on these and other factors, the
Company reduced its estimate with respect to net new orders and closings in the
fiscal years ending June 30,1997 and beyond to below the levels achieved in the
three fiscal years ended June 30, 1995. This resulted in expected future net
cash flows (undiscounted and without interest charges) at Sun City Palm Desert
being less than the book value of the asset. As required by SFAS No. 121, the
Company therefore recorded in fiscal 1996 a non-cash loss from impairment of
southern California real estate inventories to reflect Sun City Palm Desert at
its estimated fair value. Fair value was estimated based upon an evaluation of
comparable market prices and discounted expected future cash flows.
The Company owns additional land for a second phase of development at Sun City
Palm Desert. Development of subsequent phases of large-scale real estate
projects is always assessed in light of conditions existing when construction of
the phase is to begin, and any decision on the development of the second phase
at this community will depend on the state of the economy and prospects for the
community at the time the current phase is nearing completion.
INCOME TAXES. The change in income tax expense to a $4.2 million benefit for
fiscal 1996 as compared to a $15.3 million expense for fiscal 1995 was due to
the change in earnings (loss) before income taxes. The increase in income tax
expense to $15.3 million in fiscal 1995 as compared to $9.2 million in fiscal
1994 was due to the increase in earnings before income taxes. The effective tax
rate in all three years was 35 percent.
NET NEW ORDER ACTIVITY AND BACKLOG. Net new orders increased 29.0 percent in
fiscal 1996 as compared to fiscal 1995. This increase was largely attributable
to new sales orders at Sun City Georgetown (at which the Company began taking
new sales orders in June 1995) and substantial increases for Coventry Homes (due
to increases in Phoenix, Tucson, Las Vegas and southern California operations)
and Sun City Hilton Head (at which new orders were negatively impacted in fiscal
1995 by adverse weather conditions).
Net new orders at Sun City Tucson decreased 48.4 percent in fiscal 1996 compared
to fiscal 1995, reflecting the approaching build-out of that community. Net new
orders at the Sun Cities Las Vegas increased 61.2 percent, primarily as a result
of the commencement of new order activity at Sun City MacDonald Ranch in
September 1995.
At Sun City Palm Desert, net new orders decreased 19.1 percent in fiscal 1996
compared to fiscal 1995. Management continues to be concerned by adverse
conditions in the southern California economy and real estate market. Future net
new order activity at Sun City Palm Desert will be affected by various factors,
including the condition of the southern California economy and real estate
market and competition. See "Loss from Impairment of Southern California Real
Estate Inventories."
The number of homes under contract at June 30, 1996 was 11.1 percent higher than
at June 30, 1995. This increase was primarily attributable to new sales orders
at Sun City Georgetown and Sun City MacDonald Ranch, partially offset by the
decreased net new order activity at Sun City Tucson and a reduction in the
number of homes under contract at Sun City Roseville as a result of home
closings at that community.
18
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
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 Summerlin, Sun City
Tucson and Sun City Palm Desert, net new orders decreased by 14.8 percent, due
primarily to exceptionally high new order activity at Sun City West and Sun City
Summerlin 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
Desert of continued adverse conditions in the southern California economy.
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.
LIQUIDITY AND FINANCIAL CONDITION OF THE COMPANY
- ------------------------------------------------
At June 30, 1996 the Company had $18.3 million of cash and short-term
investments, $190.0 million outstanding under its $300 million senior unsecured
revolving credit facility and $3.0 million outstanding under its $15 million of
short-term lines of credit.
In August 1995 the Company publicly sold 2,474,900 shares of its common stock.
The net proceeds of $45.3 million were used to repay a portion of the
indebtedness then outstanding under the Company's then $300 million senior
unsecured revolving credit facility. The Company has reborrowed and will
continue to reborrow under the senior unsecured revolving credit agreement from
time to time as necessary to fund development of existing and new projects and
for other general corporate purposes.
Management believes that the Company's current borrowing capacity, when combined
with existing cash and short-term investments and currently anticipated cash
flows from the Company's operations will provide the Company with adequate
capital resources to fund the Company's currently anticipated operating
requirements for the next 12 months. Given the Company's current capital
resources, operating requirements reflect limitations on some of the projects
and activities that the Company might otherwise desire to undertake. In July
1996 the senior unsecured revolving credit facility was amended to increase the
amount of the facility to $350 million. This amendment will provide greater
flexibility in the nature and timing of future development expenditures.
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 initial costs are generally capitalized,
this can result in income reported for financial statement purposes during the
initial years significantly exceeding cash flow. However, after the initial
years of development or expansion, when these expenditures are made, cash flow
can significantly exceed earnings reported for financial statement purposes, as
costs and expenses include amortization charges for substantial amounts of
previously expended costs.
19
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
During fiscal 1996 the Company generated $291.4 million of net cash from
community sales activities, used $169.1 million of cash for land and lot and
amenity development at operating communities, paid $92.7 million for costs
related to communities in the pre-operating stage, generated $8.6 million of net
cash from conventional homebuilding operations and used $83.4 million of cash
for other operating activities. The resulting $45.2 million of net cash used for
operating activities (which was primarily attributable to expenditures for
communities not yet generating home sales revenues) was funded mainly through
borrowings under the Company's senior unsecured revolving credit facility and
proceeds from the sale of common stock.
At June 30, 1996, under the most restrictive of the covenants in the Company's
debt agreements, $9.0 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 contract 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.
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.
20
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.
21
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 24.
3. Exhibits
The Exhibit Index attached to this Report is hereby
incorporated by reference.
(b) In the quarter ended June 30, 1996 the Company filed a report on Form
8-K dated April 24, 1996 stating that, in connection with its adoption
of SFAS No. 121, the Company incurred a non-cash loss from impairment
of southern California real estate inventories in the amount of $65.0
million pre-tax ($42.3 million after tax) related to the valuation of
its Sun City Palm Desert active adult community.
22
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 22nd day of August, 1996.
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 Officer August 22, 1996
- ------------------------------------ (Principal Executive Officer)
(Philip J. Dion)
/s/ John A. Spencer Senior Vice President and Chief August 22, 1996
- ------------------------------------ Financial Officer
(John A. Spencer) (Principal Financial Officer)
/s/ David E. Rau Vice President and Controller August 22, 1996
- ------------------------------------ (Principal Accounting Officer)
(David E. Rau)
/s/ D. Kent Anderson Director August 22, 1996
- ------------------------------------
(D. Kent Anderson)
/s/ Robert Bennett Director August 22, 1996
- ------------------------------------
(Robert Bennett)
/s/ Hugh F. Culverhouse, Jr. Director August 29, 1996
- ------------------------------------
(Hugh F. Culverhouse, Jr.)
/s/ Kenny C. Guinn Director August 22, 1996
- ------------------------------------
(Kenny C. Guinn)
/s/ J. Russell Nelson Director August 22, 1996
- ------------------------------------
(J. Russell Nelson)
/s/ Peter A. Nelson Director August 22, 1996
- ------------------------------------
(Peter A. Nelson)
/s/ Michael E. Rossi Director August 22, 1996
- ------------------------------------
(Michael E. Rossi)
/s/ C. Anthony Wainwright Director August 30, 1996
- ------------------------------------
(C. Anthony Wainwright)
/s/ Sam Yellen Director August 22, 1996
- ------------------------------------
(Sam Yellen)
23
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........................................................................................... 25
Independent Auditors' Report.................................................................................. 26
Consolidated Financial Statements:
Balance Sheets as of June 30, 1996 and 1995....................................................... 27
Statements of Operations for each of the years in the three-year
period ended June 30, 1996...................................................................... 28
Statements of Shareholders' Equity for each of the years in the
three-year period ended June 30, 1996........................................................... 29
Statements of Cash Flows for each of the years in the three-year
period ended June 30, 1996...................................................................... 30
Notes to Consolidated Financial Statements........................................................ 32
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):
PAGE
Consolidated Financial Statement Schedule:
II Valuation and Qualifying Accounts for each of the years in the
three-year period ended June 30, 1996............................................................. 45
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.
24
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, 1996 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, 1996, 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, 1996
25
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, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended June 30, 1996 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 Notes 1 and 12 to the consolidated financial statements, in
fiscal 1996 the Company changed its method of accounting for impairment of
long-lived assets in accordance with the adoption of Statement of Financial
Accounting Standards No. 121.
KPMG Peat Marwick LLP
Phoenix, Arizona
August 16, 1996
26
DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1996 and 1995
In Thousands
- -------------------------------------------------------------------------------------------------------------
1996 1995
- -------------------------------------------------------------------------------------------------------------
Assets
- -------------------------------------------------------------------------------------------------------------
Real estate inventories (Notes 2, 5 and 11) $ 899,815 $ 828,752
Cash and short-term investments 18,340 18,900
Receivables (Note 3) 25,162 21,995
Property and equipment, net (Note 4) 27,599 29,326
Deferred income taxes (Note 6) 12,612 -
Other assets 41,267 26,077
- -------------------------------------------------------------------------------------------------------------
$ 1,024,795 $ 925,050
=============================================================================================================
Liabilities and Shareholders' Equity
- -------------------------------------------------------------------------------------------------------------
Notes payable, senior and subordinated debt (Note 5) $ 514,677 $ 491,258
Contractor and trade accounts payable 82,918 76,421
Accrued liabilities and other payables 68,920 52,046
Home sale deposits 88,304 66,887
Income taxes payable (Note 6) 5,200 3,899
Deferred income taxes (Note 6) - 5,197
- -------------------------------------------------------------------------------------------------------------
Total liabilities 760,019 695,708
- -------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Common stock, $.001 par value. Authorized 30,000,000
shares; issued 17,541,772 shares and 15,798,649 shares
at June 30, 1996 and 1995, respectively (Notes 7 and 8) 18 16
Additional paid-in capital (Note 7) 158,262 121,059
Retained earnings (Note 5) 111,033 122,153
- -------------------------------------------------------------------------------------------------------------
269,313 243,228
Less cost of common stock in treasury, 3,751 shares and
877,728 shares at June 30, 1996 and 1995, respectively (Note 7) (70) (11,058)
Less deferred compensation (Note 8) (4,467) (2,828)
- -------------------------------------------------------------------------------------------------------------
Total shareholders' equity 264,776 229,342
- -------------------------------------------------------------------------------------------------------------
$ 1,024,795 $ 925,050
=============================================================================================================
See accompanying notes to consolidated financial statements.
27
DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended June 30, 1996, 1995 and 1994
In Thousands
Except Per Share Data
- --------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------
Revenues (Note 10) $ 1,050,733 $ 803,119 $ 510,061
- --------------------------------------------------------------------------------------------------------------------
Costs and expenses (Note 10):
Home construction, land and other 807,988 614,847 386,199
Interest (Note 11) 42,354 31,205 18,003
Selling, general and administrative 147,315 113,235 79,673
Loss from impairment of southern California real estate
inventories (Notes 11 and 12) 65,000 - -
- --------------------------------------------------------------------------------------------------------------------
1,062,657 759,287 483,875
- --------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes (11,924) 43,832 26,186
Income taxes (Note 6) 4,173 (15,341) (9,165)
- --------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ (7,751) $ 28,491 $ 17,021
====================================================================================================================
Weighted average shares outstanding 17,425 15,209 15,036
====================================================================================================================
Net earnings (loss) per share $ (0.44) $ 1.87 $ 1.13
====================================================================================================================
See accompanying notes to consolidated financial statements.
28
DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended June 30, 1996, 1995 and 1994
In Thousands
- -------------------------------------------------------------------------------------------------------------------------------
Additional Total
Common Paid-In Retained Treasury Deferred Shareholders'
Stock Capital Earnings Stock Compensation Equity
- -------------------------------------------------------------------------------------------------------------------------------
Balances at July 1, 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
Shares issued and retired for stock option and
restricted stock plans (178,463 shares of
common stock issued, 2,200 shares net
increase in treasury stock and 32,512 shares
of common stock retired), net of amortization 2,992 - (39) (1,639) 1,314
Proceeds from sale of 1,597,172 shares of
common stock and 877,728 shares of
treasury stock, less offering costs of $3.0
million (Note 7) 2 34,211 - 11,058 - 45,271
Treasury stock acquired, 1,551 shares - - - (31) - (31)
Cash dividends ($ .20 per share) - - (3,369) - - (3,369)
Net loss - - (7,751) - - (7,751)
- -------------------------------------------------------------------------------------------------------------------------------
Balances at June 30, 1996 $ 18 $ 158,262 $ 111,033 $ (70) $ (4,467) $ 264,776
===============================================================================================================================
See accompanying notes to consolidated financial statements.
29
DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30, 1996, 1995 and 1994
(In Thousands)
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Cash received from customers related to community home sales $ 792,835 $ 588,526 $ 415,090
Cash received from commercial land sales 7,880 1,599 3,730
Cash paid for costs related to community home construction (509,315) (377,735) (275,079)
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by community sales activities 291,400 212,390 143,741
Cash paid for land acquisitions at operating communities (8,351) (8,046) (5,212)
Cash paid for lot development at operating communities (96,863) (62,612) (46,921)
Cash paid for amenity development at operating communities (63,853) (29,683) (34,292)
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by operating communities 122,333 112,049 57,316
Cash paid for costs related to communities in the pre-operating
stage (92,668) (98,183) (101,469)
Cash received from customers related to conventional
homebuilding 222,513 146,210 79,282
Cash paid for land, development, construction and other costs
related to conventional homebuilding (213,959) (152,696) (102,726)
Cash received from residential land development project 8,834 10,309 3,143
Cash paid for corporate activities (34,280) (29,402) (24,432)
Interest paid (47,444) (44,104) (27,258)
Cash received (paid) for income taxes (10,501) (1,796) 759
- ------------------------------------------------------------------------------------------------------------------
Net cash used for operating activities (45,172) (57,613) (115,385)
- ------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of property and equipment (6,715) (13,256) (13,380)
Investments in life insurance policies (3,554) (1,594) (2,511)
- ------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (10,269) (14,850) (15,891)
- ------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Borrowings 305,122 766,968 315,922
Repayments of debt (292,260) (679,985) (195,706)
Proceeds from sale of common stock 45,271 - -
Purchases of treasury stock (31) (8) (13,326)
Proceeds from exercise of common stock options 148 882 164
Dividends paid (3,369) (2,968) (2,982)
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 54,881 84,889 104,072
- ------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and short-term investments (560) 12,426 (27,204)
Cash and short-term investments at beginning of year 18,900 6,474 33,678
- ------------------------------------------------------------------------------------------------------------------
Cash and short-term investments at end of year $ 18,340 $ 18,900 $ 6,474
==================================================================================================================
See accompanying notes to consolidated financial statements.
30
DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years ended June 30, 1996, 1995 and 1994
(In Thousands)
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------
Reconciliation of net earnings (loss) to net cash used for operating
activities:
Net earnings (loss) $ (7,751) $ 28,491 $ 17,021
Allocation of non-cash common costs to costs and expenses,
excluding interest 247,734 188,081 110,478
Amortization of capitalized interest in costs and expenses 42,354 31,205 18,003
Deferred compensation amortization 1,804 1,598 1,330
Depreciation and other amortization 8,740 5,243 3,698
Deferred income taxes (17,810) 16,801 9,061
Non-cash loss from impairment of southern California real estate
inventories 65,000 - -
Net increase in home construction costs (35,445) (42,566) (34,192)
Land acquisitions (37,176) (39,332) (81,788)
Lot development (190,959) (154,864) (89,983)
Amenity development (103,086) (78,785) (62,621)
Pre-acquisition costs (8,732) (2,770) (5,228)
Net change in other assets and liabilities (9,845) (10,715) (1,164)
- ------------------------------------------------------------------------------------------------------------------
Net cash used for operating activities $ (45,172) $ (57,613) $ (115,385)
==================================================================================================================
See accompanying notes to consolidated financial statements.
31
DEL WEBB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996, 1995 and 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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. Certain financial statement items from prior years have
been reclassified to be consistent with the current year financial
statement presentation.
Operations
----------
The Company's operations include its communities, conventional
homebuilding operations and residential land development project. The
Company's communities are large-scale, master-planned residential
communities at which the Company controls all phases of the master plan
development process from land selection through the construction and
sale of homes. Within its communities, the Company is the exclusive
builder of homes. The Company's conventional homebuilding operations
encompass the construction and sale of homes in subdivisions. The
Company's residential land development project is being completed and
includes the sale of individual land parcels and lots to other builders
and developers for conventional housing and related commercial
development.
The Company's operations are subject to a number of risks and
uncertainties, including, but not limited to, risks associated with the
development of future and newer communities (including development in
new geographic areas), competition, the real estate markets and general
economic conditions of the areas in which the Company competes, the
availability and cost of financing, fluctuations in interest rates,
fluctuations in labor and raw material costs, governmental regulation,
environmental considerations, period-to-period fluctuations during the
long-term operations of the Company's communities, the geographic
concentration of the Company's operations and certain natural risks
that exist in some of the Company's market areas.
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 certain of 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. Home construction, land and other costs and
expenses 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 values its real estate inventories in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, which was issued by the Financial Accounting
Standards Board in March 1995 and which the Company adopted in fiscal
1996. In accordance with SFAS No. 121, prior period financial
statements have not been restated to reflect the change in accounting
principle.
32
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
SFAS No. 121 requires that long-lived assets, such as real estate
inventories, be reviewed for impairment whenever events or changes in
circumstances indicate that the book value of the asset may not be
recoverable. If the sum of the expected future net cash flows
(undiscounted and without interest charges) from an asset to be held
and used is less than the book value of the asset, an impairment loss
must be recognized in the amount of the difference between the book
value and fair value, as opposed to the difference between book value
and net realizable value under the previous accounting standard. For
long-term assets like active adult communities, the determination of
whether there is an impairment loss is dependent primarily on the
Company's estimate of annual home closings over the life of the
community, which involves numerous assumptions and judgements as to
future events over a period of many years. In connection with its
adoption of SFAS No. 121, the Company incurred a non-cash loss from
impairment of southern California real estate inventories in the amount
of $65.0 million pre-tax ($42.3 million after tax) related to the
valuation of its Sun City Palm Desert active adult community (see Note
12).
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.
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.
Income Taxes
------------
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. 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 operations as an adjustment to the effective
income tax rate in the period that includes the enactment date.
Earnings (Loss) Per Share
-------------------------
Earnings (loss) per share is determined by dividing net earnings (loss)
by the weighted average number of common and common equivalent shares
outstanding during the year. Common equivalent shares of 382,000 and
219,000 included in the computation of earnings per share for fiscal
1995 and 1994, respectively, represent the effect of stock options.
Consolidated Statements of Cash Flows
-------------------------------------
In the Consolidated Statements of Cash Flows, the Company defines
operating communities as communities generating revenues from home
closings. Communities in the pre-operating stage are those not yet
generating revenues from home closings.
Warranty Costs
--------------
Estimated future warranty costs are charged to home construction, land
and other costs and expenses when the revenues from home closings are
recognized.
33
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Financial Instruments
---------------------
In the normal course of business, the Company may invest 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, 1996 the
Company had no derivative financial instruments.
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, 1996.
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. For all other financial instruments, the
carrying amounts approximate the fair values because of the short
maturity of these instruments and in some cases because they bear
interest at market rates.
Use of Estimates
----------------
The preparation of the Company's consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions, particularly those
previously discussed for real estate inventories, that affect the
amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ materially from those
estimates.
(2) REAL ESTATE INVENTORIES
The components of real estate inventories are as follows:
In Thousands
at June 30,
---------------------------------------------------------------------------------------------------------
1996 1995
---------------------------------------------------------------------------------------------------------
Home construction costs $ 177,800 $ 142,355
Unamortized improvement and amenity costs 439,679 356,457
Unamortized capitalized interest 43,661 55,793
Land held for housing 168,530 220,297
Land held for future development or sale 70,145 53,850
---------------------------------------------------------------------------------------------------------
$ 899,815 $ 828,752
=========================================================================================================
34
(2) REAL ESTATE INVENTORIES (Continued)
At June 30, 1996, the Company had 252 completed homes and 480 homes
under construction that were not subject to a sales contract. These
homes represented $20.1 million and $15.0 million, respectively, of
home construction costs at June 30, 1996. At June 30, 1995 the Company
had 366 completed homes and 388 homes under construction (representing
$26.3 million and $10.3 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, 1996
were 385 acres of residential land, commercial land and worship sites
that are currently being marketed for sale at the Company's communities
and conventional homebuilding operations. Also included in land held
for future development or sale at June 30, 1996 were 294 acres of
residential land and commercial land at the Company's residential land
development project.
(3) RECEIVABLES
Receivables are summarized as follows:
In Thousands
at June 30,
----------------------------------------------------------------------------------------------------------
1996 1995
----------------------------------------------------------------------------------------------------------
Escrow funds from home sales $ 7,479 $ 7,089
Note from sale of commercial building 2,603 2,665
Mortgages held for sale 9,073 3,617
Notes from sales of land 1,944 1,708
Other 4,063 6,916
----------------------------------------------------------------------------------------------------------
$ 25,162 $ 21,995
==========================================================================================================
(4) PROPERTY AND EQUIPMENT, NET
Property and equipment, stated at cost, and related accumulated
depreciation are summarized as follows:
In Thousands
at June 30,
----------------------------------------------------------------------------------------------------------
1996 1995
----------------------------------------------------------------------------------------------------------
Buildings and improvements $ 9,120 $ 9,422
Equipment 39,133 35,267
Land and improvements 2,839 2,839
----------------------------------------------------------------------------------------------------------
51,092 47,528
Less accumulated depreciation 23,493 18,202
----------------------------------------------------------------------------------------------------------
$ 27,599 $ 29,326
==========================================================================================================
35
(5) NOTES PAYABLE, SENIOR AND SUBORDINATED DEBT
Notes payable, senior and subordinated debt consists of the following:
In Thousands
at June 30,
----------------------------------------------------------------------------------------------------------
1996 1995
----------------------------------------------------------------------------------------------------------
10 7/8% Senior Notes, net $ 97,475 $ 96,787
9 3/4% Senior Subordinated Debentures, net 97,259 96,847
9% Senior Subordinated Debentures, net 97,355 97,081
Subordinated Swiss Franc Bonds, net - 12,745
Notes payable to banks under a revolving credit facility and short-
term lines of credit 193,000 160,200
Real estate and other notes, variable interest rates from prime to
prime plus 1% and fixed rates from 9.0% to 10.2%, interest
payable quarterly, maturities to 2004 29,588 27,598
----------------------------------------------------------------------------------------------------------
$ 514,677 $ 491,258
==========================================================================================================
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 7/8 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 10.2
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. In February 1996 the then
remaining Bonds matured and were paid. The related currency exchange
agreement was fully performed and expired in February 1996.
The Company also had an interest rate swap agreement which called for
an interest rate conversion from a variable rate to a fixed rate on a
notional amount of $20 million. This agreement expired in February
1996. As a result of this agreement, the Company incurred net interest
of $0.6 million, $1.0 million and $1.4 million for the fiscal years
ended June 30, 1996, 1995, and 1994, respectively.
36
(5) NOTES PAYABLE, SENIOR AND SUBORDINATED DEBT (Continued)
In March 1994 the Company established a $125 million senior unsecured
revolving credit facility. The facility was amended to increase the
amount of the facility to $175 million in November 1994, $300 million
in June 1995 and $350 million in July 1996. If the revolving credit
facility is not subsequently amended, its capacity will begin declining
in June 1998 through its maturity in December 2000. Borrowings under
this facility bear interest at the prime rate or, if the Company
selects, at the Eurodollar rate plus 1.95 percent. The effective
interest rate on borrowings outstanding under the senior unsecured
revolving credit facility at June 30, 1996 is 7.5 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, 1996 the Company had $190.0 million outstanding under its
$300 million senior unsecured revolving credit facility and $3.0
million outstanding under its $15 million of short-term lines of
credit.
At June 30, 1996, under the most restrictive of the covenants in the
Company's debt agreements, $9.0 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, 1996 of the Company's Senior
Notes, 9 3/4% Senior Subordinated Debentures and 9% Senior Subordinated
Debentures were $101.5 million, $100.0 million and $92.5 million,
respectively.
The principal payment requirements (in thousands) on debt for the next
five years ended June 30 are as follows:
1997 $ 23,219
1998 $ 2,870
1999 $ 76,825
2000 $ 174,351
2001 $ 38,962
(6) INCOME TAXES
Components of Income Taxes
--------------------------
The components of income taxes are:
In Thousands
Year Ended June 30,
----------------------------------------------------------------------------------------------------------
1996 1995 1994
----------------------------------------------------------------------------------------------------------
Current:
Federal $ 11,333 $ (3,336) $ 49
State 2,304 1,876 55
----------------------------------------------------------------------------------------------------------
13,637 (1,460) 104
----------------------------------------------------------------------------------------------------------
Deferred:
Federal (15,084) 15,953 7,364
State (2,726) 848 1,697
----------------------------------------------------------------------------------------------------------
(17,810) 16,801 9,061
----------------------------------------------------------------------------------------------------------
Income tax expense (benefit) $ (4,173) $ 15,341 $ 9,165
==========================================================================================================
37
(6) INCOME TAXES (Continued)
Components of Deferred Income Taxes
-----------------------------------
The components of deferred income taxes are as follows:
In Thousands
Year Ended June 30,
----------------------------------------------------------------------------------------------------------
1996 1995 1994
----------------------------------------------------------------------------------------------------------
Change in net operating loss carryforwards $ (201) $ 15,164 $ (2,197)
Change in loss provisions for discontinued
operations 1,854 3,556 (2,260)
Change in basis differences of real estate (18,214) 9,721 18,076
Deferred compensation (1,087) (237) (1,356)
Amortization of short period loss 486 76 262
Accelerated depreciation 4,245 (6,037) (2,973)
Change in deferred tax asset valuation allowance - (2,744) (1,115)
Other (4,893) (2,698) 624
----------------------------------------------------------------------------------------------------------
Deferred income tax expense (benefit) $ (17,810) $ 16,801 $ 9,061
==========================================================================================================
The deferred income tax benefit for fiscal 1996, and the related
deferred tax asset at June 30, 1996, resulted from the non-cash loss
from impairment of southern California real estate inventories
recognized by the Company in fiscal 1996 (see Note 12).
Included in deferred income taxes 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.
38
(6) INCOME TAXES (Continued)
Deferred Tax Assets and Liabilities
-----------------------------------
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,
---------------------------------------------------------------------------------------------------------
1996 1995
---------------------------------------------------------------------------------------------------------
Deferred tax assets:
Net operating loss carryforwards $ 201 $ -
Tax credit carryforwards 3,051 4,649
Liabilities of discontinued operations,
principally due to loss provisions 7,579 9,433
Property and equipment, principally due
to differences in depreciation 7,224 11,469
State income taxes 2,886 2,948
Amortization of short period loss - 486
Deferred compensation 5,374 4,287
Other loss provisions 8,903 4,519
Other 766 966
---------------------------------------------------------------------------------------------------------
35,984 38,757
Valuation allowance 3,862 3,862
---------------------------------------------------------------------------------------------------------
32,122 34,895
---------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Real estate, principally due to basis differences 18,285 36,499
Other 1,225 3,593
---------------------------------------------------------------------------------------------------------
19,510 40,092
---------------------------------------------------------------------------------------------------------
Net deferred income taxes $ 12,612 $ (5,197)
=========================================================================================================
Reconciliation of Effective Income Tax Expense (Benefit)
--------------------------------------------------------
Income tax expense (benefit) differs from the amounts computed using
the federal statutory income tax rate as a result of the following:
In Thousands
Year Ended June 30,
----------------------------------------------------------------------------------------------------------
1996 1995 1994
----------------------------------------------------------------------------------------------------------
Expected tax at current federal statutory
income tax rate $ (4,173) $ 15,341 $ 9,165
State income taxes, net of federal benefit (274) 1,771 1,139
Tax credits (2,580) - -
Adjustments due to the settlement of audits and
resolution of issues 2,407 718 -
Change in deferred tax asset valuation allowance - (2,744) (1,115)
Other 447 255 (24)
----------------------------------------------------------------------------------------------------------
Total income tax expense (benefit) $ (4,173) $ 15,341 $ 9,165
==========================================================================================================
39
(6) INCOME TAXES (Continued)
Carryforwards
-------------
For federal income tax purposes, at June 30, 1996 the Company had tax
credit carryforwards and a state net operating loss carryforward of
$3.1 million and $4.0 million, respectively, that expire beginning in
fiscal 2000 and fiscal 2010, respectively.
(7) EQUITY TRANSACTIONS
In August 1995 the Company publicly sold 2,474,900 shares of its common
stock. The net proceeds of $45.3 million were used to repay a portion
of the indebtedness then outstanding under the Company's $300 million
senior unsecured revolving credit facility.
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 five 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 (under
which no grants can be made subsequent to December 31, 1995) and the
1991, 1993 and 1995 Executive Long-Term Incentive Plans (1991 ELTIP,
1993 ELTIP and 1995 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. 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.
Shares authorized for grant under the 1995 ELTIP total 1,200,000, of
which no more than 100,000 may be used for restricted stock grants.
The Company has the 1991 Directors' Stock Plan and the 1995 Director
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 these
plans 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 these
plans total 75,000 per plan.
40
(8) COMMON STOCK RESERVED (Continued)
Activity in the stock option plans for the years ended June 30, 1996,
1995 and 1994 is summarized as follows:
Year Ended June 30,
----------------------------------------------------------------------------------------------------------
1996
Price Range 1996 1995 1994
----------------------------------------------------------------------------------------------------------
Options outstanding, beginning of year $5.63 - $17.69 1,438,470 1,248,019 1,002,218
Granted $14.53 - $20.88 388,201 325,720 276,548
Exercised $8.00 - $16.88 (12,883) (72,785) (14,933)
Canceled $16.06 - $20.88 (12,500) (62,484) (15,814)
----------------------------------------------------------------------------------------------------------
Options outstanding, end of year $5.63 - $20.88 1,801,288 1,438,470 1,248,019
==========================================================================================================
Number of options exercisable at
end of year 1,145,236 924,828 800,129
Number of options at end of year available
for future option or restricted stock grants 1,491,646 755,727 1,175,364
----------------------------------------------------------------------------------------------------------
Shares granted, net of cancellations, under the Company's restricted
stock plans during the years ended June 30, 1996, 1995 and 1994
aggregated 163,380 shares, 148,901 shares and 108,234 shares,
respectively. The Company recognized compensation expense of $1.8
million, $1.6 million and $1.3 million related to shares granted under
the restricted stock plans for the years ended June 30, 1996, 1995 and
1994, 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 $2.0 million, $1.5 million and
$1.2 million for the years ended June 30, 1996, 1995 and 1994,
respectively.
41
(10) REVENUES AND COSTS AND EXPENSES
The components of revenues and costs and expenses:
In Thousands
Year Ended June 30,
---------------------------------------------------------------------------------------------------------
1996 1995 1994
---------------------------------------------------------------------------------------------------------
Revenues:
Homebuilding:
Communities $ 794,671 $ 620,012 $ 405,462
Conventional 217,158 144,469 79,992
---------------------------------------------------------------------------------------------------------
Total homebuilding 1,011,829 764,481 485,454
Land sales 29,525 31,892 17,951
Other 9,379 6,746 6,656
---------------------------------------------------------------------------------------------------------
$ 1,050,733 $ 803,119 $ 510,061
=========================================================================================================
Costs and expenses:
Home construction and land:
Communities $ 597,014 $ 459,258 $ 301,570
Conventional 184,532 121,915 67,292
---------------------------------------------------------------------------------------------------------
Total homebuilding 781,546 581,173 368,862
Interest 42,354 31,205 18,003
Cost of land sales 23,227 28,847 14,197
Other cost of sales 3,215 4,827 3,140
Selling, general and administrative 147,315 113,235 79,673
Loss from impairment of southern California real
estate inventories 65,000 - -
---------------------------------------------------------------------------------------------------------
$ 1,062,657 $ 759,287 $ 483,875
=========================================================================================================
(11) INTEREST
The following table shows the components of interest:
In Thousands
Year Ended June 30,
---------------------------------------------------------------------------------------------------------
1996 1995 1994
---------------------------------------------------------------------------------------------------------
Interest incurred $ 52,022 $ 46,641 $ 33,677
Less capitalized interest 52,022 46,641 33,677
---------------------------------------------------------------------------------------------------------
Interest expense $ - $ - $ -
=========================================================================================================
Amortization of capitalized interest in costs and
expenses $ 42,354 $ 31,205 $ 18,003
=========================================================================================================
Unamortized capitalized interest included in real
estate inventories at year end $ 43,661 $ 55,793 $ 40,357
=========================================================================================================
Interest income $ 1,017 $ 581 $ 1,056
=========================================================================================================
Unamortized capitalized interest included in real estate inventories at
June 30, 1996 has been reduced by $21.8 million, the portion of the
non-cash loss from impairment of southern California real estate
inventories allocated to unamortized capitalized interest (see Note
12).
42
(12) IMPAIRMENT OF SOUTHERN CALIFORNIA REAL ESTATE INVENTORIES
In March 1995 the Financial Accounting Standards Board issued SFAS No.
121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. The Company adopted this new
standard in fiscal 1996. In connection with its adoption of SFAS No.
121, the Company incurred a non-cash loss from impairment of southern
California real estate inventories in the amount of $65.0 million
($42.3 million after tax) related to the valuation of its Sun City Palm
Desert active adult community (see Note 1).
In the first six months of fiscal 1996, net new orders at Sun City Palm
Desert were substantially below both the comparable period of the prior
fiscal year and the Company's expectations. Although the Company was
encouraged by net new orders significantly greater in the first 45 days
of the third quarter of fiscal 1996 than in the comparable period in
the prior fiscal year, a lower than anticipated level of net new orders
was expected in the remainder of fiscal 1996 and net new orders for all
of fiscal 1996 were anticipated to be lower than in prior fiscal years.
Additionally, a national home builder is developing an active adult
community near Sun City Palm Desert, which will cause additional
competitive pressures at that community. Based on these and other
factors, the Company reduced its estimate with respect to net new
orders and closings in the fiscal years ending June 30, 1997 and beyond
to below the levels achieved in the three fiscal years ended June 30,
1995. This resulted in expected future net cash flows (undiscounted and
without interest charges) at Sun City Palm Desert being less than the
book value of the asset. As required by SFAS No. 121, the Company
therefore recorded in fiscal 1996 a non-cash loss from impairment of
southern California real estate inventories to reflect Sun City Palm
Desert at its estimated fair value. Fair value was estimated based upon
an evaluation of comparable market prices and discounted expected
future cash flows.
(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 $139.4 million at June 30, 1996.
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 $6.9 million,
$4.8 million and $3.7 million for the years ended June 30, 1996, 1995
and 1994, respectively.
Minimum lease payments (in thousands) to be made by the Company under
non-cancelable lease agreements are as follows:
1997 $ 5,153
1998 3,702
1999 1,624
2000 1,555
2001 1,644
Later years 5,115
----------------
$ 18,782
===============
43
(14) QUARTERLY FINANCIAL INFORMATION (Unaudited)
Quarterly financial information for the years ended June 30, 1996 and
1995 is presented below. The sum of the individual quarterly data may
not equal the annual data due to rounding and fluctuations in weighted
average shares outstanding on a quarter-to-quarter basis.
In Thousands Except Per Share Data
Three Months Ended
----------------------------------------------------------------------------------------------------------
June 30, March 31, December 31, September 30,
1996 1996 1995 1995
----------------------------------------------------------------------------------------------------------
Revenues $ 348,942 $ 256,014 $ 239,459 $ 206,318
Net earnings (loss) 11,945 (35,385) 9,155 6,534
Net earnings (loss) per share .67 (2.02) .51 .39
----------------------------------------------------------------------------------------------------------
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
----------------------------------------------------------------------------------------------------------
The net loss in the quarter ended March 31, 1996 resulted from the
non-cash loss from impairment of southern California real estate
inventories related to the valuation of the Company's Sun City Palm
Desert active adult community (see Note 12).
44
DEL WEBB CORPORATION AND SUBSIDIARIES SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS -----------
Years ended June 30, 1996, 1995 and 1994
In Thousands
- --------------------------------------------------------------------------------------------------------------------
Additions Additions
Balance at Charged to Charged to
Beginning of Costs and Other Balance at
Classification Year Expenses Accounts Deductions End of Year
- --------------------------------------------------------------------------------------------------------------------
1996
- ----
Reserve for residential land development project $ 8,264 $ - $ - $ 1,138 $ 7,126
Deferred tax asset valuation allowance 3,862 - - - 3,862
Reserves for disposal costs of discontinued
operations 27,855 - - 15,646 12,209
- --------------------------------------------------------------------------------------------------------------------
$ 39,981 $ - $ - $ 16,784 $ 23,197
====================================================================================================================
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
====================================================================================================================
45
DEL WEBB CORPORATION
Report on Form 10-K For The
Year Ended June 30, 1996
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 effective November 1, 1994; as
amended on February 13, 1996.
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 Sample Change of Control Agreement between Registrant and
certain of its officers with schedule setting forth the
differences.
10.2 Employment and Consulting Agreement dated July 10, 1996,
between the Registrant and Philip J. Dion.
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; as amended by the First Amendment to Lease dated
February 29, 1996.
10-K Exhibit Index Page - 2
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; as
amended November 8, 1994.
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; as
amended November 18, 1994.
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 1996
(July 1, 1995 - June 30, 1996).
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, incorporated by
reference to Exhibit 10.13 to Registrant's Report on Form 10-K
for the year ended June 30, 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
10-K Exhibit Index Page - 3
June 27, 1995; as amended by the Second Amendment to the
Amended and Restated Revolving Loan Agreement effective July
22, 1996.
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, incorporated by
reference to Exhibit 10.16 to Registrant's Report on Form 10-K
for the year ended June 30, 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 October 29, 1981; as
amended January 29, 1987, as amended by the Third Amendment to
the Del Webb Corporation 1981 Stock Option Plan dated June 30,
1993.
10.19 1986 Stock Option and SAR Plan of the Del Webb Corporation, as
amended January 27, 1987; as amended by the Second Amendment
to the 1986 Stock Option and SAR Plan dated June 30, 1993.
10.22 Del Webb Corporation Retirement Savings Plan Amended and
Restated effective January 1, 1995, incorporated by reference
to Exhibit 10.22 to Registrant's Report on Form 10-K for the
year ended June 30, 1995; as amended by the First Amendment to
the Retirement Savings Plan for the Employees of Del Webb
Corporation effective as of January 1, 1996.
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, and Amendment Number
Two to Del Webb Corporation Umbrella Trust dated March 14,
1990.
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, incorporated by reference to Exhibit
10.25 to Registrant's
10-K Exhibit Index Page - 4
Report on Form 10-K for the year ended June 30, 1995.
10.26 Del Webb Corporation 1995 Director Stock Plan adopted July 13,
1995, incorporated by reference to Exhibit 10.26 to
Registrant's Report on Form 10-K for the year ended June 20,
1995.
10.27 Del Webb Corporation 1995 Executive Management Incentive Plan
adopted July 13, 1995, incorporated by reference to Exhibit
10.27 to Registrant's Report on Form 10-K for the year ended
June 30, 1995.
10.28 Del Webb Corporation Management Incentive Plan Fiscal 1997
(July 1, 1996 - June 30, 1997).
10.29 Amended and Restated Certificate and Agreement of Limited
Partnership of New Mexico Asset Limited Partnership effective
June 18, 1996.
10.30 Supplemental Executive Retirement Plan No. 1 Participation
Agreement between the Registrant and Philip J. Dion Amended
and Restated effective July 25, 1996.
10.31 1995/96 Executive Management Incentive Plan Award Agreement
between the Registrant and Philip J. Dion dated August 8,
1995.
10.33 Key Executive Life Plan 1995 dated October 5, 1995.
10.34 Group Term Carve-Out Plan dated November 18, 1994.
10.32 Key Executive Life Plan Plus dated August 23, 1995.
21.0 List of Active Subsidiaries and Associated Companies of
Registrant.
23.0 Consent of Experts.
27 Financial Data Schedule.