UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the period ended March 31, 1997. [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from N/A to N/A . ----- ----- Commission File Number: 1-4785 DEL WEBB CORPORATION (Exact name of registrant as specified in its charter) Delaware 86-0077724 (State or other jurisdiction (IRS Employer Identification Number) of incorporation or organization) 6001 North 24th Street, Phoenix, Arizona 85016 (Address of principal executive offices) (Zip Code) (602) 808-8000 (Registrant's phone number, including area code) NONE - -------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- As of April 30, 1997 Registrant had outstanding 17,562,673 shares of common stock. DEL WEBB CORPORATION FORM 10-Q FOR THE QUARTER ENDED March 31, 1997 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Page Item 1. Financial Statements: Consolidated Balance Sheets as of March 31, 1997, June 30, 1996 and March 31, 1996............................... 1 Consolidated Statements of Operations for the three and nine months ended March 31, 1997 and 1996........................... 2 Consolidated Statements of Cash Flows for the nine months ended March 31, 1997 and 1996........................... 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 6. Exhibits and Reports on Form 8-K................................. 17 DEL WEBB CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands Except Share Data) March 31, June 30, March 31, 1997 1996 1996 (Unaudited) (Unaudited) - ---------------------------------------------------------------------------------------------------------------- Assets - ---------------------------------------------------------------------------------------------------------------- Real estate inventories (Notes 2, 3 and 6) $ 948,151 $ 899,815 $ 921,610 Cash and short-term investments 15,387 18,340 14,573 Receivables 26,052 25,162 24,946 Property and equipment, net 21,073 27,599 28,306 Deferred income taxes (Note 4) 8,916 12,612 13,485 Other assets 62,126 41,267 38,631 - ---------------------------------------------------------------------------------------------------------------- $ 1,081,705 $ 1,024,795 $ 1,041,551 ================================================================================================================ Liabilities and Shareholders' Equity - ---------------------------------------------------------------------------------------------------------------- Notes payable, senior and subordinated debt (Note 3) $ 573,951 $ 514,677 $ 555,081 Contractor and trade accounts payable 70,429 82,918 78,492 Accrued liabilities and other payables 65,901 68,920 64,121 Home sale deposits 78,752 88,304 89,120 Income taxes payable (Note 4) 5,355 5,200 1,488 - ---------------------------------------------------------------------------------------------------------------- Total liabilities 794,388 760,019 788,302 - ---------------------------------------------------------------------------------------------------------------- Shareholders' equity: Common stock, $.001 par value. Authorized 30,000,000 shares; issued 17,692,632 shares at March 31, 1997, 17,541,772 shares at June 30, 1996 and 17,542,217 shares at March 31, 1996 18 18 17 Additional paid-in capital 160,351 158,262 158,271 Retained earnings 133,480 111,033 99,965 - ---------------------------------------------------------------------------------------------------------------- 293,849 269,313 258,253 Less cost of common stock in treasury, 102,499 shares at March 31, 1997, 3,751 shares at June 30, 1996 and 3,031 shares at March 31, 1996 (1,580) (70) (57) Less deferred compensation (4,952) (4,467) (4,947) - ---------------------------------------------------------------------------------------------------------------- Total shareholders' equity 287,317 264,776 253,249 - ---------------------------------------------------------------------------------------------------------------- $ 1,081,705 $ 1,024,795 $ 1,041,551 ================================================================================================================ See accompanying notes to consolidated financial statements. 1 DEL WEBB CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands Except Per Share Data) (Unaudited) Three Months Ended Nine Months Ended March 31, March 31, - --------------------------------------------------------------------------------------------------------------- 1997 1996 1997 1996 - --------------------------------------------------------------------------------------------------------------- Revenues (Note 5) $ 280,317 $ 256,014 $ 838,294 $ 701,791 - --------------------------------------------------------------------------------------------------------------- Costs and expenses (Note 5): Home construction, land and other 213,373 196,033 644,212 538,153 Interest (Note 6) 12,398 10,569 35,680 28,268 Selling, general and administrative 39,584 38,850 117,204 100,671 Loss from impairment of southern California real estate inventories - 65,000 - 65,000 - --------------------------------------------------------------------------------------------------------------- 265,355 310,452 797,096 732,092 - --------------------------------------------------------------------------------------------------------------- Earnings (loss) before income taxes and extraordinary item 14,962 (54,438) 41,198 (30,301) Income taxes (Note 4) (5,386) 19,053 (14,831) 10,605 - --------------------------------------------------------------------------------------------------------------- Earnings (loss) before extraordinary item 9,576 (35,385) 26,367 (19,696) Extraordinary item: Loss from extinguishment of debt (net of tax) (Note 3) 1,285 - 1,285 - - --------------------------------------------------------------------------------------------------------------- Net earnings (loss) $ 8,291 $ (35,385) $ 25,082 $ (19,696) =============================================================================================================== Weighted average shares outstanding 17,884 17,958 17,888 17,527 =============================================================================================================== Earnings (loss) per share: Earnings (loss) before extraordinary item $ .54 $ (1.97) $ 1.47 $ (1.12) Extraordinary item (.07) - (.07) - - --------------------------------------------------------------------------------------------------------------- Net earnings (loss) $ .46 $ (1.97) $ 1.40 $ (1.12) =============================================================================================================== See accompanying notes to consolidated financial statements. 2 DEL WEBB CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited) Nine Months Ended March 31, - ------------------------------------------------------------------------------------------------------------------- 1997 1996 - ------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from customers related to community home sales $ 613,483 $ 525,110 Cash received from commercial land and facility sales 8,217 7,564 Cash paid for costs related to community home construction (429,777) (352,099) - ------------------------------------------------------------------------------------------------------------------- Net cash provided by community sales activities 191,923 180,575 Cash paid for land acquisitions at operating communities (6,334) (5,076) Cash paid for lot development at operating communities (70,288) (71,322) Cash paid for amenity development at operating communities (41,915) (43,889) - ------------------------------------------------------------------------------------------------------------------- Net cash provided by operating communities 73,386 60,288 Cash paid for costs related to communities in the pre-operating stage (63,090) (77,799) Cash received from customers related to conventional homebuilding 178,092 149,541 Cash paid for land, development, construction and other costs related to conventional homebuilding (163,097) (158,598) Cash received from residential land development project 5,717 6,408 Cash paid for corporate activities (33,465) (30,569) Interest paid (42,199) (33,466) Cash paid for income taxes (8,672) (9,014) - ------------------------------------------------------------------------------------------------------------------- NET CASH USED FOR OPERATING ACTIVITIES (53,328) (93,209) - ------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (2,396) (5,325) Investments in life insurance policies (1,505) (2,313) - ------------------------------------------------------------------------------------------------------------------- NET CASH USED FOR INVESTING ACTIVITIES (3,901) (7,638) - ------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings 478,865 229,579 Repayments of debt (421,324) (175,956) Proceeds from sale of common stock - 45,271 Proceeds from exercise of common stock options 1,077 148 Purchases of treasury stock (1,708) (30) Dividends paid (2,634) (2,492) - ------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 54,276 96,520 - ------------------------------------------------------------------------------------------------------------------- NET DECREASE IN CASH AND SHORT-TERM INVESTMENTS (2,953) (4,327) CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD 18,340 18,900 - ------------------------------------------------------------------------------------------------------------------- CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 15,387 $ 14,573 =================================================================================================================== See accompanying notes to consolidated financial statements. 3 DEL WEBB CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (In Thousands) (Unaudited) Nine Months Ended March 31, - ------------------------------------------------------------------------------------------------------------------- 1997 1996 - ------------------------------------------------------------------------------------------------------------------- Reconciliation of net earnings (loss) to net cash used for operating activities: Net earnings (loss) $ 25,082 $ (19,696) Allocation of non-cash common costs in costs and expenses, excluding interest 190,215 164,949 Amortization of capitalized interest in costs and expenses 35,680 28,268 Deferred compensation amortization 1,321 1,336 Depreciation and other amortization 4,736 6,266 Deferred income taxes on earnings before extraordinary item 3,696 (18,683) Non-cash loss from impairment of southern California real estate inventories - 65,000 Extraordinary loss from extinguishment of debt (net of tax) 1,285 - Net increase in home construction costs (33,475) (47,549) Land acquisitions (27,198) (31,159) Lot development (111,400) (150,425) Amenity development (72,048) (77,354) Pre-acquisition costs (17,694) (6,256) Net change in other assets and liabilities (53,528) (7,906) - ------------------------------------------------------------------------------------------------------------------- Net cash used for operating activities $ (53,328) $ (93,209) =================================================================================================================== 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 nine months ended March 31, 1997 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 - ----------------------------------------------------------------------------------------------- March 31, June 30, March 31, 1997 1996 1996 (Unaudited) (Unaudited) - ----------------------------------------------------------------------------------------------- Home construction costs $ 211,275 $ 177,800 $ 189,904 Unamortized improvement and amenity costs 487,905 439,679 445,298 Unamortized capitalized interest 46,054 43,661 44,852 Land held for housing 155,430 168,530 191,240 Land and facilities held for future development or sale 47,487 70,145 50,316 - ----------------------------------------------------------------------------------------------- $ 948,151 $ 899,815 $ 921,610 =============================================================================================== At March 31, 1997 the Company had 352 completed homes and 730 homes under construction that were not subject to a sales contract. These homes represented $27.8 million and $19.2 million, respectively, of home construction costs at March 31, 1997. At March 31, 1996 the Company had 233 completed homes and 639 homes under construction (representing $17.6 million and $19.5 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 March 31, 1997 were 318 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 March 31, 1997 were 74 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 - ------------------------------------------------------------------------------------------------- March 31, June 30, March 31, 1997 1996 1996 (Unaudited) (Unaudited) - ------------------------------------------------------------------------------------------------- 10 7/8% Senior Notes, net $ - $ 97,475 $ 97,303 9 3/4% Senior Subordinated Debentures due 2003, net 97,567 97,259 97,156 9% Senior Subordinated Debentures due 2006, net 97,560 97,355 97,286 9 3/4% Senior Subordinated Debentures due 2008, net 144,855 - - Notes payable to banks under a revolving credit facility and short-term lines of credit 205,000 193,000 233,000 Real estate and other notes 28,969 29,588 30,336 - ------------------------------------------------------------------------------------------------- $ 573,951 $ 514,677 $ 555,081 ================================================================================================= 6 DEL WEBB CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (3) Notes Payable, Senior and Subordinated Debt (Continued) At March 31, 1997 the Company had $205 million outstanding under its $350 million senior unsecured revolving credit facility and no amount 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 to the public 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 subsequently reborrowed under that facility to redeem all of its $100 million of outstanding 10 7/8% Senior Notes at par on March 31, 1997. In connection with the early redemption of the 10 7/8% Senior Notes, the Company recognized an extraordinary loss of $1.3 million (which represented the unamortized discount and debt issue costs for the Senior Notes, net of a $0.7 million tax benefit). The balance of the reborrowings have been or will be used to fund land acquisitions and develop new projects or for other general corporate purposes. At March 31, 1997, under the most restrictive of the covenants in the Company's debt agreements, $12.7 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 on earnings (loss) before the extraordinary loss from extinguishment of debt are: In Thousands (Unaudited) - -------------------------------------------------------------------------------------------------- Three Months Ended Nine Months Ended March 31, March 31, 1997 1996 1997 1996 - -------------------------------------------------------------------------------------------------- Current: Federal $ 3,954 $ 3,972 $ 9,357 $ 7,298 State 454 (158) 1,778 780 - -------------------------------------------------------------------------------------------------- 4,408 3,814 11,135 8,078 - -------------------------------------------------------------------------------------------------- Deferred: Federal 1,593 (19,672) 3,956 (15,981) State (615) (3,195) (260) (2,702) - -------------------------------------------------------------------------------------------------- 978 (22,867) 3,696 (18,683) - -------------------------------------------------------------------------------------------------- Total income tax expense (benefit) $ 5,386 $ (19,053) $ 14,831 $ (10,605) ================================================================================================== In the three and nine months ended March 31, 1997, the Company also recognized a $0.7 million income tax benefit related to the extraordinary loss from extinguishment of debt. 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 Nine Months Ended March 31, March 31, 1997 1996 1997 1996 - -------------------------------------------------------------------------------------------------------- Revenues: Homebuilding: Communities $ 220,728 $ 199,376 $ 633,713 $ 525,076 Conventional 53,289 50,474 166,013 145,481 - -------------------------------------------------------------------------------------------------------- Total homebuilding 274,017 249,850 799,726 670,557 Land and facility sales 3,827 3,499 30,061 24,848 Other 2,473 2,665 8,507 6,386 - -------------------------------------------------------------------------------------------------------- $ 280,317 $ 256,014 $ 838,294 $ 701,791 ======================================================================================================== Costs and expenses: Home construction and land: Communities $ 164,449 $ 150,949 $ 476,625 $ 393,816 Conventional 45,694 41,843 140,441 123,024 - -------------------------------------------------------------------------------------------------------- Total homebuilding 210,143 192,792 617,066 516,840 Cost of land and facility sales 2,690 2,537 24,751 19,046 Other cost of sales 540 704 2,395 2,267 - -------------------------------------------------------------------------------------------------------- Total home construction, land and other 213,373 196,033 644,212 538,153 Interest 12,398 10,569 35,680 28,268 Selling, general and administrative 39,584 38,850 117,204 100,671 Loss from impairment of southern California real estate inventories - 65,000 - 65,000 - -------------------------------------------------------------------------------------------------------- $ 265,355 $ 310,452 $ 797,096 $ 732,092 ======================================================================================================== 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 Nine Months Ended March 31, March 31, 1997 1996 1997 1996 - -------------------------------------------------------------------------------------------------------- Interest incurred and capitalized $ 13,086 $ 12,885 $ 38,073 $ 39,127 ======================================================================================================== Amortization of capitalized interest in costs and expenses $ 12,398 $ 10,569 $ 35,680 $ 28,268 ======================================================================================================== Unamortized capitalized interest in real estate inventories at period end $ 46,054 $ 44,852 ======================================================================================================== Interest income $ 369 $ 182 $ 1,166 $ 732 ======================================================================================================== 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 Nine Months Ended March 31, Change March 31, Change - ------------------------------------------------------------------------------------------------------------------ 1997 1996 Amount Percent 1997 1996 Amount Percent - ------------------------------------------------------------------------------------------------------------------ OPERATING DATA : - ---------------- Number of net new orders: (1) Sun Cities Phoenix(2) 372 290 82 28.3% 994 694 300 43.2% Sun City Tucson 20 56 (36) (64.3%) 58 127 (69) (54.3%) Sun Cities Las Vegas(3) 272 345 (73) (21.2%) 751 855 (104) (12.2%) Sun City Palm Desert 118 75 43 57.3% 183 142 41 28.9% Sun City Roseville 153 121 32 26.4% 347 373 (26) (7.0%) Sun City Hilton Head(4) 92 124 (32) (25.8%) 228 273 (45) (16.5%) Sun City Georgetown(4) 132 151 (19) (12.6%) 325 326 (1) (0.3%) Terravita 89 162 (73) (45.1%) 192 309 (117) (37.9%) Coventry Homes 390 464 (74) (15.9%) 1,001 1,091 (90) (8.2%) - ----------------------------------------------------------------------------------------------------------------- Total 1,638 1,788 (150) (8.4%) 4,079 4,190 (111) (2.6%) ================================================================================================================= Number of home closings: Sun Cities Phoenix(2) 271 207 64 30.9% 769 611 158 25.9% Sun City Tucson 23 71 (48) (67.6%) 102 206 (104) (50.5%) Sun Cities Las Vegas(3) 277 265 12 4.5% 808 634 174 27.4% Sun City Palm Desert 69 65 4 6.2% 162 158 4 2.5% Sun City Roseville 118 206 (88) (42.7%) 446 517 (71) (13.7%) Sun City Hilton Head(4) 105 78 27 34.6% 290 187 103 55.1% Sun City Georgetown(4) 151 70 81 115.7% 438 70 368 525.7% Terravita 120 90 30 33.3% 307 321 (14) (4.4%) Coventry Homes 333 336 (3) (0.9%) 1,040 974 66 6.8% - ----------------------------------------------------------------------------------------------------------------- Total 1,467 1,388 79 5.7% 4,362 3,678 684 18.6% ================================================================================================================= BACKLOG DATA : - -------------- Homes under contract at March 31: Sun Cities Phoenix(2) 778 585 193 33.0% Sun City Tucson 1 70 (69) (98.6%) Sun Cities Las Vegas(3) 585 623 (38) (6.1%) Sun City Palm Desert 133 131 2 1.5% Sun City Roseville 278 427 (149) (34.9%) Sun City Hilton Head(4) 131 235 (104) (44.3%) Sun City Georgetown(4) 265 378 (113) (29.9%) Terravita 189 286 (97) (33.9%) Coventry Homes 556 657 (101) (15.4%) - ------------------------------------------------------------------------ Total(5) 2,916 3,392 (476) (14.0%) ======================================================================== Aggregate contract sales amount (dollars in millions) $ 566 $ 647 $ (81) (12.5%) ======================================================================== Average contract sales amount per home (dollars in thousands) $ 194 $ 191 $ 3 1.6% ======================================================================== 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA (Continued) - ------------------------------------------------------------- Three Months Ended Nine Months Ended March 31, Change March 31, Change - ----------------------------------------------------------------------------------------------------------------- 1997 1996 Amount Percent 1997 1996 Amount Percent - ----------------------------------------------------------------------------------------------------------------- AVERAGE REVENUE PER HOME CLOSING : Sun Cities Phoenix(2) $ 163,700 $ 164,000 $ (300) (0.2%) $ 161,900 $160,500 $ 1,400 0.9% Sun City Tucson 164,200 172,400 (8,200) (4.8%) 167,100 173,000 (5,900) (3.4%) Sun Cities Las Vegas(3) 184,100 164,000 20,100 12.3% 179,500 172,100 7,400 4.3% Sun City Palm Desert 232,600 212,000 20,600 9.7% 225,600 226,200 (600) (0.3%) Sun City Roseville 221,700 209,500 12,200 5.8% 210,600 212,900 (2,300) (1.1%) Sun City Hilton Head(4) 174,500 165,500 9,000 5.4% 165,900 159,300 6,600 4.1% Sun City Georgetown(4) 176,500 184,000 (7,500) (4.1%) 180,300 184,000 (3,700) (2.0%) Terravita 286,800 300,100 (13,300) (4.4%) 291,800 292,200 (400) (0.1%) Coventry Homes 160,000 150,200 9,800 6.5% 159,600 149,400 10,200 6.8% Weighted average 186,800 180,000 6,800 3.8% 183,300 182,300 1,000 0.5% ================================================================================================================= OPERATING STATISTICS: - --------------------- Cost and expenses as a percentage of revenues: Home construction, land and other 76.1% 76.6% (0.5%) (0.7%) 76.8% 76.7% 0.1% 0.1% Interest 4.4% 4.1% 0.3% 7.3% 4.3% 4.0% 0.3% 7.5% Selling, general and administrative 14.1% 15.2% (1.1%) (7.2%) 14.0% 14.3% (0.3%) (2.1%) Ratio of home closings to homes under contract in backlog at beginning of period 53.4% 46.4% 7.0% 15.1% 136.4% 127.7% 8.7% 6.8% ================================================================================================================= (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. Home closings began at Sun City Grand in February 1997. (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 March 31, 1997 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 nine months ended March 31, 1997 and 1996, cancellations of home sales orders as a percentage of new home sales orders written during the period were 17.5 percent and 17.7 percent, respectively. 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) RESULTS OF OPERATIONS - --------------------- Three Months Ended March 31, 1997 and 1996 REVENUES. Revenues increased to $280.3 million for the three months ended March 31, 1997 from $256.0 million for the three months ended March 31, 1996. Increased home closings at Sun City Georgetown (where the Company had home closings for only part of the 1996 quarter) accounted for $14.9 million of the increase. Increased home closings at the Sun Cities Phoenix (where home closings did not begin at Sun City Grand until February 1997) accounted for $10.5 million of the increase. Increased home closings at Terravita (at which the Company had a relatively low level of home closings in the 1996 quarter) resulted in $9.0 million in increased revenues. Decreased home closings at Sun City Roseville (reflecting the decrease in net new orders experienced at that community in the first quarter of the current fiscal year) and Sun City Tucson (reflecting the approaching completion of that community) resulted in decreased revenues of $18.4 million and $8.3 million, respectively. An increase in the average revenue per home closing resulted in a $9.6 million increase in revenues. This increase in average revenue per home closing was primarily due to changes in mix of product, subdivisions and home closings among the Company's communities and conventional homebuilding operations and to increases in lot premiums and optional upgrades in homes at certain communities. HOME CONSTRUCTION, LAND AND OTHER COSTS. The increase in home construction, land and other costs to $213.4 million for the 1997 quarter compared to $196.0 million for the 1996 quarter was due to the increase in home closings. As a percentage of revenues, these costs were 76.1 percent for the 1997 quarter compared to 76.6 percent for the 1996 quarter, with the decrease largely due to the increase in average revenue per home closing, an improved product mix at one community and reduced land and amenity cost allocations at one other community. INTEREST. As a percentage of revenues, amortization of capitalized interest was 4.4 percent for the 1997 quarter compared to 4.1 percent for the 1996 quarter. The increase was primarily due to higher levels of indebtedness. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. As a percentage of revenues, selling, general and administrative expenses decreased to 14.1 percent for the 1997 quarter as compared to 15.2 percent for the 1996 quarter. This decrease resulted from the spreading of relatively fixed corporate overhead over greater revenues. LOSS FROM IMPAIRMENT OF SOUTHERN CALIFORNIA REAL ESTATE INVENTORIES. In connection with the Company's adoption of Statement of Financial Accounting Standards No. 121 in the 1996 quarter, the Company incurred a non-cash loss in the amount of $65.0 million pre-tax ($42.3 million after tax) with respect to its Sun City Palm Desert active adult community. INCOME TAXES. The increase in income taxes to a $5.4 million expense in the 1997 quarter as compared to a $19.1 million benefit in the 1996 quarter was primarily due to the change in earnings (loss) before income taxes and extraordinary item. The effective tax rate also increased from 35 percent to 36 percent. EXTRAORDINARY ITEM. In connection with the early redemption of all of the Company's $100 million of outstanding 107/8 Senior Notes at par on March 31, 1997, an extraordinary loss of $1.3 million was recognized in the 1997 quarter. This amount represented the unamortized discount and debt issue costs for the Senior Notes, net of a $0.7 million tax benefit. 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) NET EARNINGS (LOSS). The Company had net earnings of $8.3 million in the 1997 quarter compared to a net loss of $35.4 million in the 1996 quarter, primarily due to the non-cash loss from impairment of southern California real estate inventories incurred by the Company in the 1996 quarter. A portion of the increased earnings was also due to a 79-unit (5.7 percent) increase in home closings, which helped the Company realize a $24.2 million (9.7 percent) increase in homebuilding revenues and a $6.8 million (11.9 percent) increase in homebuilding gross margin. NET NEW ORDER ACTIVITY AND BACKLOG. Net new orders in the 1997 quarter were 8.4 percent lower than in the 1996 quarter, a quarter in which the Company recorded the highest level of net new orders in its history. This decrease was largely attributable to Sun City Tucson and Terravita, where net new orders declined 64.3 percent and 45.1 percent, respectively, from the 1996 quarter, reflecting the approaching completion of those communities. Coventry Homes had a 15.9 percent decrease in net new orders as a result of having fewer subdivisions open in the 1997 quarter than in the 1996 quarter and the Sun Cities Las Vegas experienced a 21.2 percent decrease from a particularly strong third quarter in the prior fiscal year. Net new orders at Sun City Hilton Head decreased 25.8 percent from the 1996 quarter; management believes this decline may be largely attributable to significant model renovations that resulted in the closure of many of the models for a large part of the 1997 quarter. The number of homes under contract at March 31, 1997 was 14.0 percent lower than at March 31, 1996. This backlog decrease was due primarily to a decrease at Sun City Roseville as a result of a decline in net new orders in the first quarter of the current fiscal year and a high level of home closings in the past 12 months at that community. Backlog decreases at Sun City Tucson and Terravita were attributable to the approaching completion of those communities. Nine Months Ended March 31, 1997 and 1996 REVENUES. Increased home closings at Sun City Georgetown and Sun City Hilton Head (two communities at which the Company had home closings for only part of the nine months ended March 31, 1996) accounted for $67.7 million and $16.4 million, respectively, of the increase in revenues to $838.3 million for the nine months ended March 31, 1997 from $701.8 million for the 1996 period. Increased home closings at the Sun Cities Las Vegas (where the Company had home closings at Sun City MacDonald Ranch for only part of the 1996 period) and the Sun Cities Phoenix (where home closings did not begin at Sun City Grand until February 1997) accounted for $29.9 million and $25.4 million, respectively, of the increase in revenues. Decreased home closings at Sun City Tucson (reflecting the approaching completion of that community) and Sun City Roseville (reflecting the decrease in net new orders experienced at that community in the first quarter of the current fiscal year) resulted in decreased revenues of $18.0 million and $15.1 million, respectively. An increase in the average revenue per home closing resulted in a $16.1 million increase in revenues. This increase in average revenue per home closing was primarily due to changes in mix of product, subdivisions and home closings among the Company's communities and conventional homebuilding operations and to increases in lot premiums at certain communities. Land and facility sales and other revenues were $7.3 million higher in the 1997 period than in the 1996 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 $644.2 million for the 1997 period compared to $538.2 million for the 1996 period was primarily due to the increase in home closings. As a percentage of revenues, these costs were 76.8 percent for the 1997 period compared to 76.7 percent for the 1996 period. INTEREST. As a percentage of revenues, amortization of capitalized interest was 4.3 percent for the 1997 period compared to 4.0 percent for the 1996 period. The increase resulted from the same factor that produced the increase for the three month period. 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. As a percentage of revenues, selling, general and administrative expenses decreased to 14.0 percent for the 1997 period as compared to 14.3 percent for the 1996 period. This decrease resulted from the spreading of relatively fixed corporate overhead over greater revenues. LOSS FROM IMPAIRMENT OF SOUTHERN CALIFORNIA REAL ESTATE INVENTORIES. In the 1996 period the Company incurred a non-cash loss in the amount of $65.0 million pre-tax ($42.3 million after-tax) with respect to its Sun City Palm Desert active adult community. See "Three Months Ended March 31, 1997 and 1996 -- Loss From Impairment of Southern California Real Estate Inventories." INCOME TAXES. The increase in income taxes to a $14.8 million expense in the 1997 period compared to a $10.6 million benefit in the 1996 period was due to the change in earnings (loss) before income taxes and extraordinary item. The effective tax rate also increased from 35 percent to 36 percent. EXTRAORDINARY ITEM. In connection with the early redemption of all of the Company's $100 million of outstanding 107/8% Senior Notes at par on March 31, 1997, an extraordinary loss of $1.3 million was recognized in the 1997 period. See "Three Months Ended March 31, 1997 and 1996 -- Extraordinary Item." NET EARNINGS (LOSS). The Company had net earnings of $25.1 million in the 1997 period compared to a net loss of $19.7 million in the 1996 period, primarily due to the non-cash loss with respect to southern California real estate inventories incurred by the Company in the 1996 period. Excluding this non-cash loss in the 1996 period, net earnings increased by $2.5 million (11.2 percent), while home closings increased by 684 units (18.6 percent) and revenues increased by $136.5 million (19.5 percent). The overall less-than-proportionate increase in net earnings was primarily attributable to the extraordinary loss recognized by the Company in the 1997 quarter. NET NEW ORDER ACTIVITY AND BACKLOG. Net new orders in the 1997 period were 2.6 percent lower than in the 1996 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 54.3 percent and 37.9 percent, respectively, from the 1996 period, reflecting the approaching completion of those communities. Net new orders at the Sun Cities Las Vegas declined 12.2 percent from a particularly strong 1996 period. Coventry Homes also experienced an 8.2 percent decrease in net new orders as a result of having fewer subdivisions open in the 1997 period than in the 1996 period. See "Three Months Ended March 31, 1997 and 1996 -- Net New Order Activity and Backlog" for a discussion of backlog. 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) LIQUIDITY AND FINANCIAL CONDITION OF THE COMPANY - ------------------------------------------------ At March 31, 1997 the Company had $15.4 million of cash and short-term investments, $205 million outstanding under its $350 million senior unsecured revolving credit facility and no amount 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 $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 subsequently reborrowed under that facility to redeem all of its $100 million of outstanding 10 7/8% Senior Notes at par on March 31, 1997. The balance of the reborrowings have been or will be used to fund land acquisitions and develop new projects 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. However, these operating requirements reflect some limitations on the timing and extent of new projects and activities that the Company may otherwise desire to undertake. The Company's senior unsecured revolving credit facility and the indentures for the Company's publicly-held debt contain restrictions which, depending on the circumstances, could 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. During the nine months ended March 31, 1997 the Company generated $191.9 million of net cash from community sales activities, used $118.5 million of cash for land and lot and amenity development at operating communities, paid $63.1 million for costs related to communities in the pre-operating stage, generated $15.0 million of net cash from conventional homebuilding operations and used $78.6 million of cash for other operating activities. The resulting $53.3 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 proceeds from the public offering of $150 million in excess of the $100 million redemption of the Company's Senior Notes, 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 March 31, 1997, under the most restrictive of the covenants in the Company's debt agreements, $12.7 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. During the third quarter of fiscal 1997, the Company acquired 111,000 shares of its common stock at a total cost of $1.7 million. 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) FORWARD LOOKING INFORMATION; CERTAIN CAUTIONARY STATEMENTS - ---------------------------------------------------------- Management believes that in fiscal 1998 it will be difficult to maintain earnings at the level currently anticipated for fiscal 1997, primarily because of the build-out of the Company's Terravita community, projected higher interest rates, a projected lower backlog at the beginning of fiscal 1998 than at the beginning of fiscal 1997 and the fact that the Company will not be adding any new Sun City communities during the year. 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, including those in the paragraph above, involve risks and uncertainties including, but not limited to, risks associated with new and future communities, including entitlement timing and completion, competition, financing availability, fluctuations in interest rates or labor and material costs, government regulation, geographic concentration 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. 16 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibit 27 Financial Data Schedule (b) In the quarter ended March 31, 1997 the Company filed three reports on Form 8-K dated: (1) January 13, 1997 to file a press release announcing net new orders and home closings for the quarter ended December 31, 1996; (2) January 17, 1997 to file the Underwriting Agreement for the $150 million in principal amount of 9 3/4% Senior Subordinated Debentures due 2008 publicly issued by the Company in January 1997; and (3) January 21, 1997 to file the Indenture for the $150 million of 9 3/4% Senior Subordinated Debentures due 2008. 17 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, who are duly authorized to do so. DEL WEBB CORPORATION (Registrant) Date: May 7, 1997 /s/ Philip J. Dion -------------------------- ---------------------------------------- Philip J. Dion Chairman and Chief Executive Officer Date: May 7, 1997 /s/ John A. Spencer -------------------------- ----------------------------------------- John A. Spencer Senior Vice President and Chief Financial Officer 18