UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the period ended December 31, 1996.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the transition period from N/A to N/A .
--- ---
Commission File Number: 1-4785
DEL WEBB CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 86-0077724
(State or other jurisdiction (IRS Employer Identification Number)
of incorporation or organization)
6001 North 24th Street, Phoenix, Arizona 85016
(Address of principal executive offices) (Zip Code)
(602) 808-8000
(Registrant's phone number, including area code)
NONE
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
As of January 31, 1997 Registrant had outstanding 17,673,116 shares of common
stock.
DEL WEBB CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED
DECEMBER 31, 1996
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements:
Consolidated Balance Sheets as of December 31, 1996,
June 30, 1996 and December 31, 1995........................1
Consolidated Statements of Earnings for the three and six
months ended December 31, 1996 and 1995....................2
Consolidated Statements of Cash Flows for the six
months ended December 31, 1996 and 1995....................3
Notes to Consolidated Financial Statements...................5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................10
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.........17
Item 6. Exhibits and Reports on Form 8-K............................17
Separate financial statements of the Company's subsidiaries that are guarantors
of the Company's 10 7/8% Senior Notes due 2000 are not included because those
subsidiaries are jointly and severally liable as guarantors of the Notes and the
aggregate assets, liabilities, earnings and equity of those subsidiaries are
substantially equivalent to the assets, liabilities, earnings and equity of the
Company and its subsidiaries on a consolidated basis.
DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands Except Share Data)
December 31, June 30, December 31,
1996 1996 1995
(Unaudited) (Unaudited)
- -------------------------------------------------------------------------------------------------------------
Assets
- -------------------------------------------------------------------------------------------------------------
Real estate inventories (Notes 2, 3 and 6) $ 930,250 $ 899,815 $ 927,938
Cash and short-term investments 1,876 18,340 7,116
Receivables 25,174 25,162 19,488
Property and equipment, net 22,109 27,599 29,574
Deferred income taxes (Note 4) 9,894 12,612 -
Other assets 55,306 41,267 36,532
- -------------------------------------------------------------------------------------------------------------
$ 1,044,609 $1,024,795 $ 1,020,648
=============================================================================================================
Liabilities and Shareholders' Equity
- -------------------------------------------------------------------------------------------------------------
Notes payable, senior and subordinated debt (Note 3) $ 536,036 $ 514,677 $ 509,407
Contractor and trade accounts payable 74,080 82,918 68,264
Accrued liabilities and other payables 64,341 68,920 54,603
Home sale deposits 83,179 88,304 88,399
Income taxes payable (Note 4) 6,706 5,200 1,580
Deferred income taxes (Note 4) - - 9,382
- -------------------------------------------------------------------------------------------------------------
Total liabilities 764,342 760,019 731,635
- -------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Common stock, $.001 par value. Authorized
30,000,000 shares; issued 17,643,757 shares at
December 31, 1996, 17,541,772 shares at
June 30, 1996 and 17,537,901 shares at
December 31, 1995 18 18 17
Additional paid-in capital 159,929 158,262 158,243
Retained earnings 126,071 111,033 136,227
- -------------------------------------------------------------------------------------------------------------
286,018 269,313 294,487
Less cost of common stock in treasury, 16,971
shares at December 31, 1996, 3,751 shares
at June 30, 1996 and 1,494 shares at
December 31, 1995 (287) (70) (29)
Less deferred compensation (5,464) (4,467) (5,445)
- -------------------------------------------------------------------------------------------------------------
Total shareholders' equity 280,267 264,776 289,013
- -------------------------------------------------------------------------------------------------------------
$ 1,044,609 $1,024,795 $ 1,020,648
=============================================================================================================
See accompanying notes to consolidated financial statements.
1
DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In Thousands Except Per Share Data)
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
- -------------------------------------------------------------------------------------------------------------
1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------------
Revenues (Note 5) $ 293,682 $ 239,459 $ 557,977 $ 445,777
- -------------------------------------------------------------------------------------------------------------
Costs and expenses (Note 5):
Home construction, land and other 225,675 182,828 430,839 342,120
Interest (Note 6) 11,698 9,999 23,282 17,699
Selling, general and administrative 39,436 32,547 77,620 61,821
- -------------------------------------------------------------------------------------------------------------
276,809 225,374 531,741 421,640
- -------------------------------------------------------------------------------------------------------------
Earnings before income taxes 16,873 14,085 26,236 24,137
Income taxes (Note 4) 6,074 4,930 9,445 8,448
- -------------------------------------------------------------------------------------------------------------
Net earnings $ 10,799 $ 9,155 $ 16,791 $ 15,689
=============================================================================================================
Weighted average shares outstanding 17,876 17,950 17,890 17,310
=============================================================================================================
Net earnings per share $ .60 $ .51 $ .94 $ .91
=============================================================================================================
See accompanying notes to consolidated financial statements.
2
DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Six Months Ended
December 31,
- ------------------------------------------------------------------------------------------------------------------
1996 1995
- ------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers related to community home sales $ 404,331 $ 329,422
Cash received from commercial land and amenity sales 7,192 6,604
Cash paid for costs related to community home construction (286,229) (217,729)
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by community sales activities 125,294 118,297
Cash paid for land acquisitions at operating communities (1,888) (1,275)
Cash paid for lot development at operating communities (51,779) (44,853)
Cash paid for amenity development at operating communities (29,257) (24,229)
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by operating communities 42,370 47,940
Cash paid for costs related to communities in the pre-operating stage (44,883) (59,009)
Cash received from customers related to conventional homebuilding 120,387 102,313
Cash paid for land, development, construction and other costs related
to conventional homebuilding (107,802) (102,491)
Cash received from residential land development project 5,641 5,940
Cash paid for corporate activities (19,187) (29,348)
Interest paid (24,264) (20,299)
Cash paid for income taxes (4,090) (5,600)
- ------------------------------------------------------------------------------------------------------------------
NET CASH USED FOR OPERATING ACTIVITIES (31,828) (60,554)
- ------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,720) (3,893)
Investments in life insurance policies (1,303) (1,352)
- ------------------------------------------------------------------------------------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES (3,023) (5,245)
- ------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings 140,480 144,276
Repayments of debt (120,490) (133,967)
Proceeds from sale of common stock - 45,271
Proceeds from exercise of common stock options 150 80
Purchases of treasury stock - (30)
Dividends paid (1,753) (1,615)
- ------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 18,387 54,015
- ------------------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH AND SHORT-TERM INVESTMENTS (16,464) (11,784)
CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD 18,340 18,900
- ------------------------------------------------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 1,876 $ 7,116
==================================================================================================================
See accompanying notes to consolidated financial statements.
3
DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In Thousands)
(Unaudited)
Six Months Ended
December 31,
- -------------------------------------------------------------------------------------------------------------------
1996 1995
- -------------------------------------------------------------------------------------------------------------------
Reconciliation of net earnings to net cash used for operating activities:
Net earnings $ 16,791 $ 15,689
Allocation of non-cash common costs in costs and expenses,
excluding interest 130,404 107,014
Amortization of capitalized interest in costs and expenses 23,282 17,699
Deferred compensation amortization 893 865
Depreciation and other amortization 4,208 4,181
Deferred income taxes 2,718 4,184
Net increase in home construction costs (17,818) (21,867)
Land acquisitions (14,535) (13,925)
Lot development (81,973) (109,023)
Amenity development (53,791) (49,942)
Pre-acquisition costs (11,173) -
Net change in other assets and liabilities (30,834) (15,429)
- ------------------------------------------------------------------------------------------------------------------
Net cash used for operating activities $ (31,828) $ (60,554)
===================================================================================================================
See accompanying notes to consolidated financial statements.
4
DEL WEBB CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Basis of Presentation
The consolidated financial statements include the accounts of Del Webb
Corporation and its subsidiaries (the "Company"). In the opinion of
management, the accompanying unaudited consolidated financial statements
contain all adjustments (consisting of only normal recurring adjustments,
primarily elimination of all significant intercompany transactions and
accounts) necessary to present fairly the financial position, results of
operations and cash flows for the periods presented. Certain financial
statement items from prior periods have been reclassified to be consistent
with the current period financial statement presentation.
The Company's operations include its communities, conventional homebuilding
operations and residential land development project. The Company's
communities are large-scale, master-planned residential communities at
which the Company controls all phases of the master plan development
process from land selection through the construction and sale of homes.
Within its communities, the Company is the exclusive builder of homes. The
Company's conventional homebuilding operations encompass the construction
and sale of homes in subdivisions. The Company's residential land
development project 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.
These consolidated financial statements should be read in conjunction with
the consolidated financial statements and the related disclosures contained
in the Company's Annual Report on Form 10-K for the year ended June 30,
1996, filed with the Securities and Exchange Commission.
In the Consolidated Statements of Cash Flows, the Company defines operating
communities as communities generating revenues from home closings.
Communities in the pre-operating stage are those not yet generating
revenues from home closings.
The results of operations for the six months ended December 31, 1996 are
not necessarily indicative of the results to be expected for the full
fiscal year.
5
DEL WEBB CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(2) Real Estate Inventories
The components of real estate inventories are as follows:
In Thousands
-------------------------------------------------------------------------------------------
December 31, June 30, December 31,
1996 1996 1995
(Unaudited) (Unaudited)
-------------------------------------------------------------------------------------------
Home construction costs $ 195,618 $ 177,800 $ 164,222
Unamortized improvement and amenity costs 474,110 439,679 435,781
Unamortized capitalized interest 45,366 43,661 64,336
Land held for housing 158,050 168,530 212,411
Land and facilities held for future development
or sale 57,106 70,145 51,188
-------------------------------------------------------------------------------------------
$ 930,250 $ 899,815 $ 927,938
===========================================================================================
At December 31, 1996 the Company had 345 completed homes and 809 homes
under construction that were not subject to a sales contract. These homes
represented $27.3 million and $22.3 million, respectively, of home
construction costs at December 31, 1996. At December 31, 1995 the Company
had 339 completed homes and 587 homes under construction (representing
$25.3 million and $14.4 million, respectively, of home construction costs)
that were not subject to a sales contract.
Included in land and facilities held for future development or sale at
December 31, 1996 were 307 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
and facilities held for future development or sale at December 31, 1996
were 162 acres of residential and commercial land at the Company's
residential land development project.
(3) Notes Payable, Senior and Subordinated Debt
Notes payable, senior and subordinated debt consists of the following:
In Thousands
------------------------------------------------------------------------------------------
December 31, June 30, December 31,
1996 1996 1995
(Unaudited) (Unaudited)
------------------------------------------------------------------------------------------
10 7/8% Senior Notes due 2000, net $ 97,820 $ 97,475 $ 97,131
9 3/4% Senior Subordinated Debentures due 2003,
net 97,464 97,259 97,053
9% Senior Subordinated Debentures due 2006,
net 97,491 97,355 97,218
Subordinated Swiss Franc Bonds, net - - 12,765
Notes payable to banks under a revolving credit
facility and short-term lines of credit 213,150 193,000 180,000
Real estate and other notes 30,111 29,588 25,240
------------------------------------------------------------------------------------------
$ 536,036 $ 514,677 $ 509,407
==========================================================================================
At December 31, 1996 the Company had $207.0 million outstanding under its
$350 million senior unsecured revolving credit facility and $6.2 million
outstanding under its $15 million of short-term lines of credit.
6
DEL WEBB CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(3) Notes Payable, Senior and Subordinated Debt (Continued)
In January 1997 the Company completed a public offering of $150 million in
principal amount of 9 3/4% Senior Subordinated Debentures due 2008. The
Debentures were issued at a 0.5 percent discount to yield 9.8 percent. The
$145 million of net proceeds from the offering were used to repay a portion
of the amounts outstanding under the Company's $350 million senior
unsecured revolving credit facility. The Company currently intends to
reborrow under that facility to fund land acquisitions, development of new
projects or the purchase or redemption of its $100 million of outstanding
10 7/8% Senior Notes, which are redeemable at par on or after March 31,
1997, or for other general corporate purposes.
At December 31, 1996, under the most restrictive of the covenants in the
Company's debt agreements, $11.9 million of the Company's retained earnings
was available for payment of cash dividends and for the acquisition by the
Company of its common stock.
(4) Income Taxes
The components of income taxes are:
In Thousands
(Unaudited)
-------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
December 31, December 31,
-------------------------------------------------------------------------------------------------
1996 1995 1996 1995
-------------------------------------------------------------------------------------------------
Current:
Federal $ 4,345 $ 2,234 $ 5,403 $ 3,326
State 1,292 861 1,324 938
-------------------------------------------------------------------------------------------------
5,637 3,095 6,727 4,264
-------------------------------------------------------------------------------------------------
Deferred:
Federal 35 1,900 2,363 3,691
State 402 (65) 355 493
-------------------------------------------------------------------------------------------------
437 1,835 2,718 4,184
-------------------------------------------------------------------------------------------------
$ 6,074 $ 4,930 $ 9,445 $ 8,448
=================================================================================================
7
DEL WEBB CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(5) Revenues and Costs and Expenses
The components of revenues and costs and expenses are:
In Thousands
(Unaudited)
---------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
December 31, December 31,
---------------------------------------------------------------------------------------------------
1996 1995 1996 1995
---------------------------------------------------------------------------------------------------
Revenues:
Homebuilding:
Communities $ 216,032 $ 176,501 $ 412,985 $ 325,700
Conventional 63,389 49,736 112,724 95,007
---------------------------------------------------------------------------------------------------
Total homebuilding 279,421 226,237 525,709 420,707
Land and facility sales 10,606 11,152 26,234 21,349
Other 3,655 2,070 6,034 3,721
---------------------------------------------------------------------------------------------------
$ 293,682 $ 239,459 $ 557,977 $ 445,777
===================================================================================================
Costs and expenses:
Home construction and land:
Communities $ 161,832 $ 131,004 $ 312,176 $ 242,867
Conventional 53,570 42,472 94,747 81,181
---------------------------------------------------------------------------------------------------
Total homebuilding 215,402 173,476 406,923 324,048
Interest 11,698 9,999 23,282 17,699
Cost of land and facility sales 9,303 8,520 22,061 16,509
Other cost of sales 970 832 1,855 1,563
Selling, general and administrative 39,436 32,547 77,620 61,821
---------------------------------------------------------------------------------------------------
$ 276,809 $ 225,374 $ 531,741 $ 421,640
===================================================================================================
8
DEL WEBB CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(6) Interest
The following table shows the components of interest:
In Thousands
(Unaudited)
---------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
December 31, December 31,
---------------------------------------------------------------------------------------------------
1996 1995 1996 1995
---------------------------------------------------------------------------------------------------
Interest incurred $ 12,921 $ 12,045 $ 24,987 $ 26,242
Less capitalized interest 12,921 12,045 24,987 26,242
---------------------------------------------------------------------------------------------------
Interest expense $ - $ - $ - $ -
===================================================================================================
Amortization of capitalized interest
in costs and expenses $ 11,698 $ 9,999 $ 23,282 $ 17,699
===================================================================================================
Unamortized capitalized interest in real
estate inventories at period end $ 45,366 $ 64,336
===================================================================================================
Interest income $ 425 $ 223 $ 797 $ 550
===================================================================================================
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the results of operations and financial condition
should be read in conjunction with the accompanying consolidated financial
statements and notes thereto and the Company's Annual Report on Form 10-K for
the year ended June 30, 1996, filed with the Securities and Exchange Commission.
CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA
- --------------------------------------------------
Three Months Ended Six Months Ended
December 31, Change December 31, Change
- -------------------------------------------------------------------------------------------------------------------
1996 1995 Amount Percent 1996 1995 Amount Percent
- -------------------------------------------------------------------------------------------------------------------
OPERATING DATA :
- ----------------
Number of net new orders:(1)
Sun Cities Phoenix(2) 348 247 101 40.9% 622 404 218 54.0%
Sun City Tucson 14 30 (16) (53.3%) 38 71 (33) (46.5%)
Sun Cities Las Vegas(3) 270 283 (13) (4.6%) 479 510 (31) (6.1%)
Sun City Palm Desert 51 37 14 37.8% 65 67 (2) (3.0%)
Sun City Roseville 96 102 (6) (5.9%) 194 252 (58) (23.0%)
Sun City Hilton Head(4) 60 89 (29) (32.6%) 136 149 (13) (8.7%)
Sun City Georgetown(4) 92 44 48 109.1% 193 175 18 10.3%
Terravita 75 91 (16) (17.6%) 103 147 (44) (29.9%)
Coventry Homes 304 315 (11) (3.5%) 611 627 (16) (2.6%)
- -------------------------------------------------------------------------------------------------------------------
Total 1,310 1,238 72 5.8% 2,441 2,402 39 1.6%
===================================================================================================================
Number of home closings:
Sun Cities Phoenix(2) 266 208 58 27.9% 498 404 94 23.3%
Sun City Tucson 24 69 (45) (65.2%) 79 135 (56) (41.5%)
Sun Cities Las Vegas(3) 278 172 106 61.6% 531 369 162 43.9%
Sun City Palm Desert 50 50 - - 93 93 - -
Sun City Roseville 155 167 (12) (7.2%) 328 311 17 5.5%
Sun City Hilton Head(4) 110 87 23 26.4% 185 109 76 69.7%
Sun City Georgetown(4) 144 N/A 144 N/A 287 N/A 287 N/A
Terravita 103 122 (19) (15.6%) 187 231 (44) (19.0%)
Coventry Homes 383 332 51 15.4% 707 638 69 10.8%
- -------------------------------------------------------------------------------------------------------------------
Total 1,513 1,207 306 25.4% 2,895 2,290 605 26.4%
===================================================================================================================
BACKLOG DATA :
- --------------
Homes under contract at
December 31:
Sun Cities Phoenix(2) 677 502 175 34.9%
Sun City Tucson 4 85 (81) (95.3%)
Sun Cities Las Vegas(3) 590 543 47 8.7%
Sun City Palm Desert 84 121 (37) (30.6%)
Sun City Roseville 243 512 (269) (52.5%)
Sun City Hilton Head(4) 144 189 (45) (23.8%)
Sun City Georgetown(4) 284 297 (13) (4.4%)
Terravita 220 214 6 2.8%
Coventry Homes 499 529 (30) (5.7%)
- --------------------------------------------------------------------------
Total(5) 2,745 2,992 (247) (8.3%)
==========================================================================
Aggregate contract sales amount
(dollars in millions) $ 537 $ 569 $ (32) (5.6%)
==========================================================================
Average contract sales amount per
home (dollars in thousands) $ 196 $ 190 $ 6 3.2%
==========================================================================
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA (Continued)
- -------------------------------------------------------------
Three Months Ended Six Months Ended
December 31, Change December 31, Change
- -------------------------------------------------------------------------------------------------------------------
1996 1995 Amount Percent 1996 1995 Amount Percent
- -------------------------------------------------------------------------------------------------------------------
AVERAGE REVENUE PER HOME
- ------------------------
CLOSING :
- ---------
Sun Cities Phoenix(2) $ 166,900 $ 160,100 $ 6,800 4.2% $161,000 $158,700 $ 2,300 1.4%
Sun City Tucson 167,600 178,800 (11,200) (6.3%) 168,000 173,400 (5,400) (3.1%)
Sun Cities Las Vegas(3) 174,800 177,400 (2,600) (1.5%) 177,100 177,900 (800) (0.4%)
Sun City Palm Desert 203,900 239,600 (35,700) (14.9%) 220,500 236,100 (15,600) (6.6%)
Sun City Roseville 213,200 226,200 (13,000) (5.7%) 206,600 215,100 (8,500) (4.0%)
Sun City Hilton Head(4) 163,100 161,600 1,500 0.9% 161,100 154,800 6,300 4.1%
Sun City Georgetown(4) 184,100 N/A N/A N/A 182,200 N/A N/A N/A
Terravita 304,100 299,600 4,500 1.5% 294,900 289,200 5,700 2.0%
Coventry Homes 165,500 149,800 15,700 10.5% 159,400 148,900 10,500 7.1%
Weighted average 184,700 187,400 (2,700) (1.4%) 181,600 183,700 (2,100) (1.1%)
====================================================================================================================
OPERATING STATISTICS:
- ----------------------
Cost and expenses as a percentage
of revenues:
Home construction, land and other 76.8% 76.4% 0.4% 0.5% 77.2% 76.7% 0.5% 0.7%
Interest 4.0% 4.2% (0.2%) (4.8%) 4.2% 4.0% 0.2% 5.0%
Selling, general and administrative 13.4% 13.6% (0.2%) (1.5%) 13.9% 13.9% -- --
Ratio of home closings to homes
under contract in backlog at
beginning of period 51.3% 40.8% 10.5% 25.7% 90.5% 79.5% 11.0% 13.8%
====================================================================================================================
(1) Net of cancellations. The Company recognizes revenue at close of escrow.
(2) Includes Sun City West and Sun City Grand. The Company began taking new
home sales orders at Sun City Grand in October 1996.
(3) 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.
(4) Home closings began at Sun City Hilton Head in August 1995 and at Sun City
Georgetown in February 1996.
(5) A majority of the backlog at December 31, 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 six months ended December 31, 1996 and
1995, cancellations of home sales orders as a percentage of new home sales
orders written during the period were 19.8 percent and 19.1 percent,
respectively.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS
- ---------------------
Three Months Ended December 31, 1996 and 1995
REVENUES. Home closings at Sun City Georgetown (where the Company had not yet
begun delivering homes in the three months ended December 31, 1995) accounted
for $26.5 million of the increase in revenues to $293.7 million for the three
months ended December 31, 1996 from $239.5 million for the 1995 quarter.
Increased home closings at the Sun Cities Las Vegas (where home closings did not
begin at Sun City MacDonald Ranch until January 1996) accounted for $18.8
million of the increase in revenues. Decreased home closings at Sun City Tucson
and Terravita (reflecting the approaching completion of those communities)
resulted in decreased revenues of $8.0 million and $5.7 million, respectively.
HOME CONSTRUCTION, LAND AND OTHER COSTS. The increase in home construction, land
and other costs to $225.7 million for the 1996 quarter compared to $182.8
million for the 1995 quarter was primarily due to the increase in home closings.
As a percentage of revenues, these costs were 76.8 percent for the 1996 quarter
compared to 76.4 percent for the 1995 quarter, with the increase primarily due
to changes in mix of product, subdivisions and home closings among the Company's
communities and conventional homebuilding operations and to increased discounts
and decreased lot premiums at certain communities.
INTEREST. As a percentage of revenues, amortization of capitalized interest was
4.0 percent for the 1996 quarter compared to 4.2 percent for the 1995 quarter.
The change was due primarily to a change in mix of home closings among the
Company's communities and conventional homebuilding operations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. As a percentage of revenues,
selling, general and administrative expenses decreased to 13.4 percent for the
1996 quarter as compared to 13.6 percent for the 1995 quarter. This decrease
resulted from the spreading of relatively fixed corporate overhead over greater
revenues.
INCOME TAXES. The increase in income taxes to $6.1 million in the 1996 quarter
as compared to $4.9 million in the 1995 quarter was due to the increase in
earnings before income taxes. The effective tax rate also increased from 35
percent to 36 percent.
NET EARNINGS. Net earnings increased to $10.8 million in the 1996 quarter from
$9.2 million in the 1995 quarter, primarily due to a 306-unit (25.4 percent)
increase in home closings, which resulted in a $53.2 million (23.5 percent)
increase in homebuilding revenues and an $11.3 million (21.3 percent) increase
in homebuilding gross margin.
NET NEW ORDER ACTIVITY AND BACKLOG. Net new orders in the 1996 quarter were 5.8
percent higher than in the 1995 quarter. A significant increase was realized at
the Sun Cities Phoenix as a result of new order activity at Sun City Grand,
which began taking new orders in October 1996. Sun City Georgetown, whose major
amenities all opened in the 1996 quarter, also experienced an increase in net
new orders. Net new orders at Sun City Tucson and Terravita declined 53.3
percent and 17.6 percent, respectively, from the 1995 quarter, reflecting the
approaching completion of those communities.
The number of homes under contract at December 31, 1996 was 8.3 percent lower
than at December 31, 1995. This backlog decrease was due primarily to a decrease
at Sun City Roseville as a result of a decline in net new orders and a high
level of home closings in the past 12 months at that community. A significant
backlog increase was experienced at the Sun Cities Phoenix as a result of the
commencement of new order activity at Sun City Grand in October 1996.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Six Months Ended December 31, 1996 and 1995
REVENUES. Home closings at Sun City Georgetown (where the Company had not yet
begun delivering homes in the six months ended December 31, 1995) and increased
home closings at Sun City Hilton Head (where the Company did not begin
delivering homes until August 1995) accounted for $52.3 million and $11.8
million, respectively, of the increase in revenues to $558.0 million for the six
months ended December 31, 1996 from $445.8 million for the 1995 period.
Increased home closings at the Sun Cities Las Vegas (where home closings did not
begin at Sun City MacDonald Ranch until January 1996) accounted for $28.8
million of the increase in revenues. Decreased home closings at Sun City Tucson
and Terravita (reflecting the approaching completion of those communities)
resulted in decreased revenues of $9.7 million and $12.7 million, respectively.
Land and facility sales and other revenues were $7.2 million higher in the 1996
period than in the 1995 period. In general, land and facility 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 $430.8 million for the 1996 period compared to $342.1 million
for the 1995 period was primarily due to the increase in home closings. As a
percentage of revenues, these costs were 77.2 percent for the 1996 period
compared to 76.7 percent for the 1995 period, with the increase primarily due to
changes in mix of product, subdivisions and home closings among the Company's
communities and conventional homebuilding operations and to increased discounts
and decreased lot premiums at certain communities.
INTEREST. As a percentage of revenues, amortization of capitalized interest was
4.2 percent for the 1996 period compared to 4.0 percent for the 1995 period.
This increase was primarily due to higher levels of indebtedness and increases
in land held for longer-term development (with respect to which land the Company
cannot allocate capitalized interest). Also, the fiscal 1996 adoption of SFAS
No. 121 resulted in the allocation of more capitalized interest to communities
with greater home closings than Sun City Palm Desert, resulting in an increase
in amortization of capitalized interest as a percentage of revenues for the
period ended December 31, 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. As a percentage of revenues,
selling, general and administrative expenses were 13.9 percent for both the 1996
and 1995 periods. Of the increase in absolute selling, general and
administrative expenses to $77.6 million for the 1996 period as compared to
$61.8 million for the 1995 period, $6.0 million was attributable to higher sales
and marketing expenses, $3.6 million was due to increased commissions on the
increased revenues and $3.3 million resulted from the recognition of expenses at
Sun City Hilton Head, Sun City MacDonald Ranch and Sun City Georgetown in the
1996 period (pre-operating costs were capitalized for part or all of the 1995
period since home closings had not then begun at these communities).
INCOME TAXES. The increase in income taxes to $9.4 million in the 1996 period as
compared to $8.4 million in the 1995 period was due to the increase in earnings
before income taxes. The effective tax rate also increased from 35 percent to 36
percent.
NET EARNINGS. Net earnings increased to $16.8 million in the 1996 period from
$15.7 million in the 1995 period with a 605-unit increase in home closings and a
$112.2 million increase in revenues. The overall less-than- proportionate
increase in net earnings was primarily attributable to: a decline in operating
margins at certain of the Company's more established communities as a result of
lower lot premiums and increased discounts; operating margins in the 1996 period
below the average community operating margin for the 1995 period at the newer
communities of Sun City Hilton Head, Sun City MacDonald Ranch and Sun City
Georgetown; and an increase in amortization of capitalized interest (see
"Interest").
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
NET NEW ORDER ACTIVITY AND BACKLOG. Net new orders in the 1996 period were 1.6
percent higher than in the 1995 period. A significant increase was realized at
the Sun Cities Phoenix as a result of new order activity at Sun City Grand,
which began taking new orders in October 1996. Net new orders at Sun City Tucson
and Terravita declined 46.5 percent and 29.9 percent, respectively, from the
1995 period, reflecting the approaching completion of those communities. Net new
orders at Sun City Roseville declined 23.0 percent in the 1996 period, but only
slightly in the quarter ended December 31, 1996.
The number of homes under contract at December 31, 1996 was 8.3 percent lower
than at December 31, 1995. See "Three Months Ended December 31, 1996 and 1995 --
Net New Order Activity and Backlog."
LIQUIDITY AND FINANCIAL CONDITION OF THE COMPANY
- ------------------------------------------------
At December 31, 1996 the Company had $1.9 million of cash and short-term
investments, $207.0 million outstanding under its $350 million senior unsecured
revolving credit facility and $6.2 million outstanding under its $15 million of
short-term lines of credit.
In January 1997 the Company completed a public offering of $150 million in
principal amount of 9 3/4% Senior Subordinated Debentures due 2008. The
Debentures were issued at a 0.5 percent discount to yield 9.8 percent and may be
redeemed by the Company on or after January 15, 2002 at 104.875 percent,
declining by January 15, 2005 to 100 percent, of the principal amount of the
Debentures redeemed, plus accrued and unpaid interest to the redemption date.
The $145 million of net proceeds from the offering were used to repay a portion
of the amounts outstanding under the Company's $350 million senior unsecured
revolving credit facility. The Company currently intends to reborrow under that
facility to fund land acquisitions, development of new projects or the purchase
or redemption of its $100 million of outstanding 10 7/8% Senior Notes, which are
redeemable at par on or after March 31, 1997, or for other general corporate
purposes.
Management believes that the Company's current borrowing capacity, when combined
with existing cash and short-term investments and currently anticipated cash
flows from the Company's operating communities, conventional homebuilding
activities and residential land development project, will provide the Company
with adequate capital resources to fund the Company's currently anticipated
operating requirements for the next 12 months.
The Company's senior unsecured revolving credit facility and the indentures for
the Company's publicly-held debt contain restrictions which could, depending on
the circumstances, affect the Company's ability to borrow in the future. If the
Company at any time is not successful in obtaining sufficient capital to fund
its then planned development and expansion expenditures, some or all of its
projects may be significantly delayed. Any such delay could result in cost
increases and may adversely affect the Company's results of operations.
The cash flow for each of the Company's communities can differ substantially
from reported earnings, depending on the status of the development cycle. The
initial years of development or expansion require significant cash outlays for,
among other things, land acquisition, obtaining master plan and other approvals,
construction of amenities (including golf courses and recreation centers), model
homes, sales and administration facilities, major roads, utilities, general
landscaping and interest. Since these costs are capitalized, this can result in
income reported for financial statement purposes during those initial years
significantly exceeding cash flow. However, after the initial years of
development or expansion, when these expenditures are made, cash flow can
significantly exceed earnings reported for financial statement purposes, as
costs and expenses include amortization charges for substantial amounts of
previously expended costs.
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
During the six months ended December 31, 1996 the Company generated $125.3
million of net cash from community sales activities, used $82.9 million of cash
for land and lot and amenity development at operating communities, paid $44.9
million for costs related to communities in the pre-operating stage, generated
$12.6 million of net cash from conventional homebuilding operations and used
$41.9 million of cash for other operating activities. The resulting $31.8
million of net cash used for operating activities (which was primarily
attributable to expenditures for communities not yet generating home sales
revenues and for corporate activities, including payment of interest and income
taxes) was funded mainly through borrowings under the Company's senior unsecured
revolving credit facility and utilization of cash and short-term investments
existing at the beginning of the period.
At December 31, 1996, under the most restrictive of the covenants in the
Company's debt agreements, $11.9 million of the Company's retained earnings was
available for payment of cash dividends and for the acquisition by the Company
of its common stock.
FORWARD LOOKING INFORMATION; CERTAIN CAUTIONARY STATEMENTS
- ----------------------------------------------------------
Certain statements contained in this "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section that are not historical
results are forward-looking statements. These forward-looking statements involve
risks and uncertainties including, but not limited to, risks associated with new
and future communities, competition, financing availability, fluctuations in
interest rates or labor and material costs, government regulation, geographic
concentration, natural risks and other matters set forth in the Company's Annual
Report on Form 10-K for the year ended June 30, 1996. Actual results may differ
materially from those projected or implied. Further, certain forward-looking
statements are based on assumptions of future events which may not prove to be
accurate.
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PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Annual Meeting of the shareholders of the Company was held on November 14,
1996. The shareholders voted on the election of three directors for three-year
terms. The shareholders voted to elect all three nominees, voting as follows:
Votes For Votes Withheld
--------- --------------
Philip J. Dion 15,784,836 71,681
J. Russell Nelson 15,779,341 77,176
Peter A. Nelson 15,775,916 80,601
Other directors whose terms of office as directors continued after the Annual
Meeting were Robert Bennett, Hugh F. Culverhouse, Jr., C. Anthony Wainwright, D.
Kent Anderson, Kenny C. Guinn, Michael E. Rossi and Sam Yellen.
The shareholders also voted to ratify the appointment of KPMG Peat Marwick LLP
as the principal independent public accounting firm of the Company for the year
ending June 30, 1997, voting as follows:
Votes For Votes Against Shares Not Voted
--------- ------------- ----------------
15,801,950 19,756 35,411
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibit 27 Financial Data Schedule
(b) The Company did not file any reports on Form 8-K during the period
covered by this report.
16
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, who are duly authorized to do so.
DEL WEBB CORPORATION
(Registrant)
Date: February 7, 1997 /s/ Philip J. Dion
----------------------- -------------------------------------------------
Philip J. Dion
Chairman and Chief Executive Officer
Date: February 7, 1997 /s/ John A. Spencer
----------------------- -------------------------------------------------
John A. Spencer
Senior Vice President and Chief Financial Officer
17