UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934. For the fiscal year July 1, 1996 to June 30, 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 of Incorporation) (IRS Employer Identification Number)
6001 North 24th Street, Phoenix, Arizona 85016
(Address of principal executive offices) (Zip Code)
(602) 808-8000
(Registrant's phone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
------------------- ------------------------------
registered
----------
New York Stock Exchange
Common Stock (par value $.001 per share) Pacific Stock Exchange
9 3/4% Senior Subordinated Debentures due 2003 New York Stock Exchange
9% Senior Subordinated Debentures due 2006 New York Stock Exchange
9 3/4% Senior Subordinated Debentures due 2008 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
Registrant's Common Stock outstanding at July 31, 1997 was 17,577,461 shares. At
that date, the aggregate market value of Registrant's Common shares held by
non-affiliates, based upon the closing price of the Common Stock on the New York
Stock Exchange on that date, was approximately $327,400,000.
Documents Incorporated by Reference
Portions of Registrant's definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on November 6, 1997 are incorporated herein as set forth
in Part III of this Annual Report.
DEL WEBB CORPORATION
FORM 10-K ANNUAL REPORT
For the Fiscal Year Ended
June 30, 1997
TABLE OF CONTENTS
PART I
Item 1. PAGE
and
Item 2. Business and Properties
The Company......................................................... 1
Master-Planned Communities.......................................... 1
Future Communities.................................................. 2
Conventional Homebuilding........................................... 3
Product Design...................................................... 4
Construction........................................................ 4
Sales Activities.................................................... 4
Competition......................................................... 5
Certain Factors Affecting the Company's Operations.................. 5
Forward Looking Information; Certain Cautionary Statements.......... 7
Executive Officers of the Company................................... 8
Employees...........................................................10
Item 3. Legal Proceedings...................................................10
Item 4. Submission of Matters to a Vote of Security Holders.................10
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters.......................................11
Item 6. Selected Consolidated Financial Data................................12
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Certain Consolidated Financial and Operating Data...............14
Results of Operations...........................................16
Liquidity and Financial Condition of the Company................19
Impact of Inflation.............................................20
TABLE OF CONTENTS (continued)
PART II (Continued)
PAGE
Item 8. Financial Statements and Supplementary Data.........................20
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure............................20
PART III
Item 10. Directors and Executive Officers of the Registrant..................21
Item 11. Executive Compensation..............................................21
Item 12. Security Ownership of Certain Beneficial Owners
and Management....................................................21
Item 13. Certain Relationships and Related Transactions......................21
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K...............................................22
PART I
Items 1. and 2. Business and Properties
THE COMPANY
Del Webb Corporation develops residential communities ranging from
smaller-scale, non-amenitized communities within its conventional homebuilding
operations to large-scale, master-planned communities with extensive amenities.
The Company currently conducts its operations in the states of Arizona, Nevada,
California, Texas and South Carolina.
The Company's primary activities involve the development of large-scale,
master-planned communities with extensive amenities for active adults age 55 and
over. The Company is one of the nation's leading developers of such
age-qualified active adult communities. It has extensive experience in the
active adult community business, having built and sold more than 56,000 homes at
ten Sun City communities over the past 37 years. The Company designs, develops
and markets these communities, controlling all phases of the master plan
development process from land selection through the construction and sale of
homes. Within its communities, the Company is usually the exclusive developer of
homes.
The Company was incorporated in 1946 in Arizona and reincorporated in 1994 in
Delaware. The Company's principal executive offices are located at 6001 North
24th Street, Phoenix, Arizona 85016 and its telephone number is (602) 808-8000.
The Company conducts substantially all of its activities through subsidiaries
and, as used in this Annual Report, the term the "Company" includes Del Webb
Corporation and its subsidiaries unless the context indicates otherwise.
Statements in this Annual Report as to acreage, mileage, number of future homes,
square feet, employees and shareholders are approximations.
MASTER-PLANNED COMMUNITIES
At June 30, 1997 the Company had nine large-scale, master-planned communities at
which home closings were taking place. The Company also had one master-planned
community, Sun City Tucson, at which home closings were completed in the fiscal
year ended June 30, 1997. These communities are generally characterized by
extensive and distinguishing amenities which promote an active lifestyle
involving numerous clubs, classes and recreational, fitness and social
activities. These amenities have included, among others, golf courses, exercise
and fitness centers, swimming pools, social halls, arts and crafts studios,
tennis courts, walking trails and restaurants.
The following table shows certain information concerning the nine communities at
which the Company was delivering homes at June 30, 1997. The table includes
information with respect to land owned by the Company and which it has options
to acquire.
Sun Cities Sun Cities Sun City Sun City Sun City Sun City
Phoenix Las Vegas Palm Desert Roseville Hilton Head Georgetown Terravita
------- --------- ----------- --------- ----------- ---------- ---------
First home closing............. 1978 1989 1992 1995 1995 1996 1994
Total acres.................... 10,859 3,064 865 1,200 5,600 5,625 823
Homes at completion............ 26,150 10,146 2,409 3,109 8,500 10,500 1,380
Home closings through
June 30, 1997................ 16,291 7,195 1,384 1,674 676 851 1,260
Future homes to be closed...... 9,859 2,951 1,025 1,435 7,824 9,649 120
Future homes to be offered..... 9,167 2,418 899 1,155 7,665 9,447 -
Base price range of homes at
June 30, 1997 (in thousands). $90 - 250 $100 - 290 $120 - 300 $120 - 290 $100 - 270 $110 - 240 $170 - 400
1
The Sun Cities Phoenix include Sun City West and Sun City Grand. These
communities are located 25 miles northwest of downtown Phoenix, Arizona. The
build-out of Sun City West is being coordinated with the development of Sun City
Grand, where home closings began in February 1997.
The Sun Cities Las Vegas include Sun City Summerlin and Sun City MacDonald
Ranch. Sun City Summerlin is located eight miles northwest of downtown Las
Vegas, Nevada. Sun City MacDonald Ranch is located in Henderson, Nevada, near
Las Vegas.
Sun City Palm Desert is located in the Coachella Valley 20 miles east of Palm
Springs, California, and 130 miles east of downtown Los Angeles. Information in
the above table is for phase one of that community. The Company also owns 700
adjacent acres for a second phase of development at Sun City Palm Desert. If
developed, this second phase is currently planned for 2,300 homes. Development
of future phases at any of the Company's communities will depend on the state of
the economy and prospects for the communities at the time the current phases
near completion.
Sun City Roseville is located 20 miles northeast of downtown Sacramento,
California.
Sun City Hilton Head is located inland 13 miles from Hilton Head Island, South
Carolina. This community encompasses 5,600 acres, 2,569 of which are owned by
the Company and the balance of which it has options to purchase.
Sun City Georgetown is located 30 miles north of downtown Austin, Texas. This
community encompasses 5,625 acres, 4,883 of which are owned by the Company and
the balance of which it has options to purchase.
Terravita is a master-planned residential country-club community located in
Scottsdale, Arizona, that is not age- qualified. All remaining homes at
Terravita are subject to home sale contracts, with a backlog of 120 homes
remaining to be closed as of June 30, 1997.
FUTURE COMMUNITIES
The Company believes that the demographic attributes of its active adult market
segment of people age 55 and over present significant opportunities for future
active adult communities. The Company's plan is to capitalize on those
opportunities and its experience, expertise and reputation by developing active
adult communities in strategically selected locations. The current business
strategy of the Company includes conducting extensive market research on
prospective areas, including consumer surveys and supply and demand analyses, in
connection with its evaluation of sites for future active adult communities. To
the extent the Company has had a successful community in an area, the Company
generally strives to maintain a market presence in that area through development
of a successor community as build-out of the former community approaches.
At any given time, the Company may have a number of land acquisitions for
potential communities under study and in various stages of investigation or
negotiation. The Company is currently investigating the acquisition of land for
communities to be located both in areas of the country where the Company has
active adult communities (such as the Prescott, Arizona area) and in other areas
(such as the Williamsburg, Virginia area), including full four-season areas
(i.e., areas which experience cold winters) where it does not have experience in
developing communities.
The Company's potential future communities are subject to extensive federal,
state and local regulations regarding development and the environment, the broad
discretion that governmental agencies have in administering those regulations,
"no growth" or "slow growth" political views and concerns of environmental
groups, all of which can prevent, delay, make uneconomic or significantly
increase the cost of such communities.
In connection with the development of the Company's potential future
communities, numerous governmental approvals and permits are required throughout
the development process, and no assurance can be given as to the receipt (or
timing of receipt) of these approvals or permits. In addition, third parties can
file lawsuits challenging approvals or permits received, which could cause
substantial uncertainties and material delays for the community and, if
successful, could result in approvals or permits being voided.
2
In making significant land acquisitions, the Company generally endeavors to
acquire options on the land to mitigate risks and reduce holding costs during
the detailed feasibility and entitlement process. However, under certain
circumstances, the Company may acquire such property at an earlier stage in the
development process.
At June 30, 1997 the Company had three lower-amenitized future communities in
various stages of development. These communities range in size from 360 to 1,000
planned units on 175 to 300 acres (some of which the Company owns and some of
which the Company has options to acquire). Two of these communities are
age-qualified and one is not. These smaller-scale communities are generally
planned to include fitness centers, clubhouses, swimming pools, tennis courts
and walking trails, but not golf courses. Sales activity is expected to begin at
all three of these communities in the fiscal year ending June 30, 1998.
Set forth below is selected information concerning several large-scale
communities which the Company is planning to develop. None of these potential
communities is currently anticipated to have home closings in the fiscal year
ending June 30, 1998.
Chicago Area
------------
The Company is planning a 5,000-unit active adult community on 1,800 acres which
it has options to purchase in the Chicago area town of Huntley, Illinois. The
major amenities at this large-scale active adult community will be comparable to
those at the Company's existing large-scale communities and will be designed for
summer and winter health, fitness and social activities.
Las Vegas Area
--------------
The Company is planning a 4,700-acre master-planned community in the southern
Las Vegas valley. This community is planned to consist of three components: a
3,400-acre large-scale active adult community to be the successor community to
Sun City Summerlin; a 950-acre gate-guarded, amenity-rich country club community
that will not be age-qualified; and a 350-acre conventional residential
development planned to contain multiple communities and homes offered in a wide
range of prices. The Company is currently working with the United States Bureau
of Land Management ("BLM") to obtain the land for this community in trades for
environmentally-sensitive lands obtained or to be obtained by the Company for
purposes of the trades. The first phase of this land (920 acres) was acquired
from the BLM in July 1997.
Sun City Lincoln Hills
----------------------
Sun City Lincoln Hills is planned as the successor large-scale active adult
community to Sun City Roseville, which is nearby. Sun City Lincoln Hills is
planned for 4,800 homes on 2,361 acres, 400 of which are owned by the Company
and the balance of which the Company has options to purchase. Sun City Lincoln
Hills is planned to have amenities comparable to those at the Company's existing
large-scale communities.
Villages at Desert Hills
------------------------
Since 1992 the Company has owned 5,600 acres of land north of Phoenix as the
site for a possible master-planned community currently known as the Villages at
Desert Hills. This community is currently planned for 14,500 homes. The Villages
at Desert Hills is planned to include conventional and master-planned
communities.
CONVENTIONAL HOMEBUILDING
The Company began its conventional homebuilding operations in the Phoenix area
in 1991 and expanded these operations to Tucson in 1994, Las Vegas and southern
California in 1995 and north-central Arizona in 1996. At June 30, 1997 the
Company had a backlog of home sales orders at 25 communities -- 14 in the
Phoenix area, 4 in the Tucson area, 4 in the Las Vegas area, 2 in southern
California and 1 in north-central Arizona. The Company has no current plans to
continue its conventional homebuilding operations in southern California after
completion of its existing communities.
3
In order to capitalize on its market knowledge and organizational structure, the
Company's conventional homebuilding activities are primarily conducted in
metropolitan or market areas in which the Company is developing an active adult
community. The Company's conventional homebuilding operations offer homes in a
broad range of prices ($70,000 to $420,000 at June 30, 1997). For the year ended
June 30, 1997, conventional homebuilding operations generated 20.8 percent of
the Company's homebuilding revenues. The Company currently expects that active
adult community development will continue to be its primary business activity.
PRODUCT DESIGN
The Company designs homes to suit its market and endeavors to conform to the
popular home design characteristics in the particular geographic market
involved. Home designs are periodically reviewed and refined or changed to
reflect changing home buyer tastes in each market. Homes at the Company's
communities generally range in size from 1,000 square feet to 3,700 square feet.
The Company offers a program of interior and exterior upgrades, including
different styles of cabinetry and floor coverings and, at its communities, a
program for architectural changes to allow home buyers to further modify their
homes.
CONSTRUCTION
The Company generally functions as its own general contractor. At all stages of
production, the Company's management personnel and on-site superintendents
coordinate the activities of contractors, consultants and suppliers and subject
their work to quality and cost controls. Consulting firms assist in project
planning and independent contractors are employed to perform almost all of the
site development and construction work. Within its communities the Company is
usually the exclusive developer of homes and does not sell vacant lots to others
for residential construction purposes. The time required for construction of the
Company's homes depends on the weather, time of year, local labor situations,
availability of materials and supplies and other factors. The Company strives to
coordinate the construction of homes with home sales orders to control the costs
and risks associated with completed but unsold inventory. An inventory of unsold
homes is maintained for immediate sale to customers.
SALES ACTIVITIES
At each of its large-scale communities the Company establishes a large and
well-appointed sales pavilion and an extensive complex of furnished model homes.
These models include a wide variety of single family homes, each of which is
generally available in several exterior styles.
The Company's homes are sold by its commissioned sales personnel, who are
available to provide prospective home buyers with floor plans, price
information, option selections and tours of models and lots. All communities
have co-brokerage programs with independent real estate brokers. Homes are sold
through sales contracts, some of which allow customers to purchase homes for
delivery up to one year or more in the future. The sales contracts generally
require an initial deposit and an additional deposit prior to commencement of
construction. The Company provides to all home buyers standardized warranties
subject to specified limitations.
While more than one factor may contribute to a given home sale, the Company's
experience indicates that a substantial portion of the home sales at its
communities are attributable to follow-ups on referrals from residents of its
communities and to the Company's "Vacation Getaway" program. This program
enables prospective purchasers to visit an active adult community and stay (for
a modest charge) in vacation homes for from a few days to one week to experience
the Sun City lifestyle prior to deciding whether to purchase a home.
The Company's information is that most home buyers at its active adult
communities generally visit the community in which they purchase on more than
one occasion before buying. This may affect the success or initial success of
the sales effort at those communities at which a higher proportion of the
potential customers do not live within a several-hour driving distance from the
community.
The Company also markets its communities through billboards, television and
radio commercials, local and national print advertising, direct mailings and
telemarketing.
4
The Company offers mortgage financing for the purchasers of homes at its
communities. The Company sells the mortgages it generates to third parties.
COMPETITION
All of the Company's real estate operations are subject to substantial
competition. The Company competes with numerous national, regional and local
homebuilders and developers, some of which have greater financial resources than
the Company.
The Company believes that it maintains a leading position within the active
adult community market in each of the metropolitan areas in which it has a
community currently generating revenues. The Company believes the major
competitive factors in active adult community home purchases include location,
lifestyle, price, value, recreational facilities and other amenities, and
builder/developer reputation. The Company believes its reputation, established
by building and selling more than 56,000 homes over 37 years and providing an
attractive lifestyle for adults age 55 and over, enhances the Company's active
adult community marketing position.
For the Company's active adult communities, there are varying degrees of direct
and increasing competition from businesses engaged exclusively or primarily in
the sale of homes to buyers age 55 and older and from non-age-qualified,
master-planned communities in these areas. The Company competes with new home
sales and resales at these other communities, as well as with resales of homes
in its own communities. The Company believes there may be significant additional
future competition in active adult community development, including competition
from national homebuilders and conventional community developers.
In each of the areas in which the Company has conventional homebuilding
operations, the Company is subject to a high degree of competition from new home
developers, home resales, rental housing and condominium development. The
Company believes that the major competitive factors in this part of its business
include location, home quality, price, design and mortgage financing terms.
CERTAIN FACTORS AFFECTING THE COMPANY'S OPERATIONS
Set forth below is a brief description of certain matters that may affect the
Company.
FUTURE AND NEWER COMMUNITIES. The Company's communities are built out over time.
The medium- and long-term future of the Company will be dependent on the
Company's ability to develop and market future communities successfully.
Acquiring land and committing the financial and managerial resources to develop
a large-scale community involves significant risks. Before these communities
generate any revenues, they require material expenditures for, among other
things, acquiring land, obtaining development approvals and constructing project
infrastructure (such as roads and utilities), recreation centers, model homes
and sales facilities. It generally takes several years for such communities to
achieve positive cash flow.
5
The Company will incur additional risks, to the extent it develops a different
size or style of community or develops communities in climates or geographic
areas in which it does not have experience. These risks include acquiring the
necessary construction materials and labor in sufficient amounts and on
acceptable terms and adapting the Company's construction methods to different
geographies and climates. Among other things, the Company believes that a
significant portion of the home sales at its active adult communities is
attributable to referrals from, or sales to, residents of those communities. The
extent of such referrals or sales at new communities developed in other areas of
the country may be less than the Company has enjoyed at the active adult
communities where it currently sells homes, and there will be challenges
attracting potential customers from areas and to a market in which the Company
has not had significant experience.
GOVERNMENTAL REGULATION AND ENVIRONMENTAL CONSIDERATIONS. The Company's business
is subject to extensive federal, state and local regulations regarding
development and the environment, the broad discretion that governmental agencies
have in administering those regulations and "no growth" or "slow growth"
political views and concerns of environmental groups, all of which can prevent,
delay, make uneconomic or significantly increase the cost of its developments.
In connection with the development of the Company's new and existing communities
and other real estate projects, numerous governmental approvals and permits are
required throughout the development process, and no assurance can be given as to
the receipt (or timing of receipt) of these approvals or permits. In addition,
third parties can file lawsuits challenging approvals or permits received, which
could cause substantial uncertainties and material delays for the project and,
if successful, could result in approvals or permits being voided.
GEOGRAPHIC CONCENTRATION. The Company's primary business operations are
particularly concentrated in the Phoenix and Las Vegas metropolitan areas. Its
entire operations are comprised of a limited number of communities in five
states. The Company's geographic concentration and limited number of projects
may create increased vulnerability to regional economic downturns or other
adverse project-specific matters.
A significant number of purchasers at the Company's active adult communities in
Arizona, Nevada and southern California are from southern California. Those
communities may be affected by conditions in the southern California real estate
market and the southern California economy generally.
CYCLICAL NATURE OF REAL ESTATE OPERATIONS AND OTHER CONDITIONS GENERALLY. The
Company's communities are subject to real estate market conditions (both where
its communities and conventional homebuilding operations are located and in
areas where its potential customers reside), the cyclical nature of real estate
operations, general national economic conditions and changing demographic
conditions.
The Company's communities are long-term projects. Sales activity at the
Company's communities varies from period to period, and the ultimate success of
any community cannot necessarily be judged by results in any particular period
or periods. A community may generate significantly higher sales levels at
inception (whether because of local pent-up demand in the area or other reasons)
than it does during later periods over the life of the community. Revenues and
earnings of the Company will also be affected by period-to-period fluctuations
in the mix of product and home closings among the Company's communities and
conventional homebuilding operations and by sales of commercial land and
facilities at the Company's communities.
The Company's real estate operations also depend upon the availability and cost
of mortgage financing. An increase in interest rates, which may result from
governmental policies and other factors outside the control of the Company, may
adversely affect the buying decisions of potential home buyers and their ability
to sell their existing homes.
CONSTRUCTION LABOR AND MATERIALS COSTS. The Company has from time to time
experienced shortages of materials or qualified tradespeople or volatile
increases in the cost of certain materials (particularly increases in the price
of lumber and framing, which are significant components of home construction
costs), resulting in longer than normal construction periods and increased costs
not reflected in the prices of homes for which home sale contracts had been
entered into up to one year in advance of scheduled closing. Generally, the
Company's home sale contracts do not contain, or contain limited, provisions for
price increases if the Company's costs of construction increase. The Company
relies heavily on local contractors, who may be inadequately capitalized or
understaffed. The inability or failure of one or more local contractors to
perform may result in construction delays, increased costs and loss of some home
sale contracts.
6
FINANCING AND LEVERAGE. Real estate development is dependent on the availability
and cost of financing. In periods of significant growth, the Company will
require significant additional capital resources, whether from issuances of
equity or by incurring additional indebtedness. The Company's principal credit
facility restricts and the indentures for its publicly-held debt contain
provisions that may restrict indebtedness of the Company. The availability of
debt financing is also dependent on governmental policies and other factors
outside the control of the Company. No assurance can be given as to the
availability or cost of any future financing. If the Company cannot obtain
sufficient capital to fund its development and expansion expenditures, its
projects may be significantly delayed, resulting in cost increases and adverse
effects on the Company's results of operations. The Company's degree of leverage
from time to time will affect its interest incurred and may limit funds
available for operations, which could limit its ability to withstand adverse
changes or capitalize on business opportunities.
NATURAL RISKS. Some of the Company's communities are subject to natural risks
including earthquakes, floods, tornados, hurricanes and significant rainfall.
Such natural risks could have a material adverse impact on the development of
and results of operations for the community affected.
Additional information on factors which could affect the Company's financial
results may be included in subsequent reports filed by the Company with the
Securities and Exchange Commission.
FORWARD LOOKING INFORMATION; CERTAIN CAUTIONARY STATEMENTS
Certain statements contained in this Annual Report that are not historical
results are forward looking statements. These forward looking statements,
involve risks and uncertainties including but not limited to those referred to
above. Actual results may differ materially from those projected or implied.
Further, certain forward looking statements are based upon assumptions of future
events, which may not prove to be accurate.
7
EXECUTIVE OFFICERS OF THE COMPANY
Set forth below are the names and ages of all executive officers of the Company
and the offices held with the Company at July 31, 1997.
Years
Years as an Employed
Executive by the
Name Age Position Officer Company
- ---------------------- --------- ----------------------------------------- ---------------- ------------
P. J. Dion 52 Chairman of the Board and 15 15
Chief Executive Officer
J. F. Contadino 55 Executive Vice President 5 6
L. C. Hanneman, Jr. 50 Executive Vice President 8 25
J. H. Gleason 55 Senior Vice President, Project Planning 7 9
and Development
A. L. Mariucci 40 Senior Vice President and 11 13
General Manager - Terravita and
Villages at Desert Hills
F. D. Pankratz 47 Senior Vice President and 9 10
General Manager - Sun City
Summerlin and Sun City
MacDonald Ranch
C. T. Roach 50 Senior Vice President and 8 18
General Manager - Sun City West
and Sun City Grand
J. A. Spencer 48 Senior Vice President and 12 18
Chief Financial Officer
L. W. Beckner 50 Vice President, Information Services 1 1
R. C. Jones 52 Vice President and General Counsel 5 5
D. V. Mickus 51 Vice President, Treasurer and Secretary 11 14
J. M. Murray 43 Vice President and General Manager - 1 8
Sun City Roseville
D. E. Rau 40 Vice President and Controller 11 12
D. G. Schreiner 44 Vice President, Marketing 4 6
M. L. Schuttenberg 54 Vice President, Human Resources 4 11
R. L. Vandermeer 46 Vice President and General Manager - Less than 8
Sun City Hilton Head one year
R. R. Wagoner 56 Vice President, Land Development 3 5
- ---------------------- --------- ----------------------------------------- ---------------- ------------
Mr. Dion has served as Chairman of the Board and Chief Executive Officer since
November 1987.
Mr. Contadino has served as Executive Vice President, overseeing conventional
homebuilding and non-active adult community operations, since May 1996. Prior to
that time he served as Senior Vice President from January 1994 to May 1996 and
as Vice President from November 1991 to January 1994.
8
EXECUTIVE OFFICERS OF THE COMPANY (Continued)
Mr. Hanneman has served as Executive Vice President, overseeing active adult
community operations, since May 1996. Prior to that time he served as Senior
Vice President from January 1994 to May 1996 and as Vice President from January
1989 to January 1994. From August 1987 to May 1996 he served as General Manager
of Sun City Summerlin and, subsequently, Sun City MacDonald Ranch.
Mr. Gleason has served as Senior Vice President, Project Planning and
Development, since January 1994. Prior to that time he served as Vice President,
Project Planning and Development, from June 1993 to January 1994. He became a
Vice President in January 1990.
Ms. Mariucci has served as Senior Vice President since May 1996. Prior to that
time she served as a Vice President from June 1986 (when she began serving as
Vice President, Corporate Planning and Development) to May 1996. She has served
as General Manager of Terravita since December 1992 and General Manager of the
Villages at Desert Hills since July 1996.
Mr. Pankratz has served as General Manager of Sun City Summerlin and Sun City
MacDonald Ranch since May 1996. Prior to that time he served as General Manager
of Sun City Palm Desert from February 1990 to May 1996. Since September 1988 he
has served as Senior Vice President.
Mr. Roach has served as Senior Vice President since January 1994. Prior to that
time he served as Vice President from January 1989 to January 1994. Since August
1987 he has served as General Manager of Sun City West and, subsequently, Sun
City Grand.
Mr. Spencer has served as Chief Financial Officer since April 1993. Since
February 1991 he has served as Senior Vice President.
Mr. Beckner has served as Vice President, Information Services, since November
1995. Prior to that time he was employed by AlliedSignal Corporation in Tempe,
Arizona, where he held the position of Director, Strategic Alliances.
Mr. Jones has served as Vice President and General Counsel since January 1992.
Mr. Mickus has served as Vice President and Treasurer since November 1985 and as
Secretary commencing in June 1991.
Mr. Murray has served as Vice President since September 1995. Since December
1992 he has served as General Manager of Sun City Roseville. Prior to that time
he served in a financial management capacity for a subsidiary of the Company
from July 1989 to December 1992.
Mr. Rau has served as Vice President and Controller since February 1991.
Mr. Schreiner has served as Vice President, Marketing, since December 1992.
Prior to that time he served as Senior Vice President, Marketing and Operations,
of Coventry Homes from October 1992 to December 1992 and Vice President,
Marketing and Operations, of Coventry Homes from January 1991 to October 1992.
Ms. Schuttenberg has served as Vice President, Human Resources, since April
1993. Prior to that time she served as Director of Human Resources from March
1992 to April 1993.
Mr. Vandermeer has served as Vice President since November 1996, when he began
serving as General Manager of Sun City Hilton Head. Prior to that time he served
as General Manager of Sun City Georgetown from October 1994 to November 1996 and
in a sales management capacity at Sun City West from January 1991 to October
1994.
Mr. Wagoner has served as Vice President, Land Development, since January 1994.
Prior to that time he served as Director of Land Development from January 1992
to January 1994. Prior to 1992 Mr. Wagoner was a principal and stockholder for
32 years at Collar, Williams and White Engineering in Phoenix, where he held
various positions including President.
9
EMPLOYEES
At June 30, 1997 the Company had 2,500 employees. The Company currently has no
unionized employees. The Company believes that its employee relations are
generally satisfactory.
Item 3. Legal Proceedings
The Company is a party to various legal proceedings arising in the ordinary
course of business. While it is not feasible to predict the ultimate disposition
of these matters, it is the opinion of management that their outcome will not
have a material adverse effect on the financial condition of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
None.
10
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The Company's common stock is listed on the New York Stock Exchange and Pacific
Stock Exchange under the trading symbol (WBB). The following table sets forth
the high and low sales prices of the Company's common stock on the New York
Stock Exchange for the two fiscal years ended June 30, 1997.
Sales Price
- ---------------------------------------------------------------------------------------------------------
Fiscal Year 1997 Fiscal Year 1996
- ---------------------------------------------------------------------------------------------------------
Quarter Ended High Low High Low
- ---------------------------------------------------------------------------------------------------------
September 30 19 3/4 16 1/4 25 17 3/4
December 31 17 3/4 15 1/4 21 1/2 17 3/8
March 31 17 7/8 15 1/4 20 3/4 16 1/4
June 30 17 14 3/4 20 16 3/8
- ---------------------------------------------------------------------------------------------------------
As of July 31, 1997 the number of shareholders of record of common stock of the
Company was 3,100.
The Company has paid regular quarterly dividends of $.05 per share for each
quarter in the last five fiscal years. The amount and timing of any future
dividends is subject to the discretion of the Board of Directors. Among the
factors which the Board of Directors may consider in determining the amount and
timing of dividends are the earnings, cash needs and capital resources of the
Company. In addition, the Company is party to a loan agreement and various
indentures that contain covenants restricting the Company's ability to pay
dividends and acquire its common stock. Under the most restrictive of these
covenants, at June 30, 1997 $15.2 million of the Company's retained earnings
were available for payment of cash dividends and for the acquisition by the
Company of its common stock. During fiscal 1997 the Company acquired 137,258
shares of its common stock at a total cost of $2.1 million.
In August 1995 the Company publicly sold 2,474,900 shares of its common stock at
a price to the public of $19.50 per share.
11
Item 6. Selected Consolidated Financial Data
(Not covered by report of independent auditors)
The following tables set forth selected consolidated financial data of the
Company as of and for each of the five fiscal years ended June 30, 1997. They
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Dollars In Thousands Except Per Share Data
Year Ended June 30,
- ----------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------
Statement of operations information:
Revenues:
Home sales - communities $ 906,523 $ 794,671 $ 620,012 $ 405,462 $ 324,817
Home sales - conventional homebuilding 237,566 217,158 144,469 79,992 44,456
Land and facility sales and other 42,173 38,904 38,638 24,607 21,313
- ---------------------------------------------------------------------------------------------------------
Total revenues $ 1,186,262 $ 1,050,733 $ 803,119 $ 510,061 $ 390,586
=========================================================================================================
Earnings (loss):
Continuing operations (1) $ 39,686 $ (7,751) $ 28,491 $ 17,021 $ 16,863
Total (2) $ 38,401 $ (7,751) $ 28,491 $ 17,021 $ 24,511
=========================================================================================================
Net earnings (loss) per share:
Continuing operations (1) $ 2.22 $ (.44) $ 1.87 $ 1.13 $ 1.05
Total (2) 2.15 (.44) 1.87 1.13 1.53
=========================================================================================================
Cash dividends per share $ .20 $ .20 $ .20 $ .20 $ .20
=========================================================================================================
(1) In fiscal 1996, in connection with the adoption of Statement of Financial
Accounting Standards ("SFAS") No. 121, the Company incurred a non-cash
loss from impairment of southern California real estate inventories in the
amount of $65.0 million pre-tax ($42.3 million after tax) related to the
valuation of its Sun City Palm Desert active adult community. Exclusive of
the non-cash loss, the Company's net earnings for fiscal 1996 were $34.5
million, or $1.96 per share.
(2) Total earnings for fiscal 1997 include a $1.3 million extraordinary loss
from the early extinguishment of debt. Total earnings for fiscal 1993
include a $12.8 million loss from discontinued operations (primarily
additional loss provisions related to the Company's discontinued land
development projects), a $0.5 million extraordinary gain from the
extinguishment of debt on a discounted basis and a $20.0 million increase
in net earnings as a result of a cumulative effect of an accounting change
from the adoption of SFAS No. 109.
12
Item 6. Selected Consolidated Financial Data (Continued)
(Not covered by report of independent auditors)
Dollars In Thousands
Year Ended June 30,
- ---------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------
Balance sheet information at year-end:
Total assets $ 1,086,662 $ 1,024,795 $ 925,050 $ 758,424 $ 555,586
Notes payable and senior debt 222,881 320,063 284,585 189,657 133,175
Subordinated debt 340,187 194,614 206,673 206,019 108,688
----------- ----------- ---------- ---------- ----------
Total notes payable, senior and
subordinated debt 563,068 514,677 491,258 395,676 241,863
Shareholders' equity $ 299,830 $ 264,776 $ 229,342 $ 201,324 $ 199,446
Total notes payable, senior and
subordinated debt divided by total
notes payable, senior and subordinated
debt and shareholders' equity 65.3% 66.0% 68.2% 66.3% 54.8%
=========================================================================================================
13
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion of results of operations and financial condition should
be read in conjunction with the Selected Consolidated Financial Data and the
Consolidated Financial Statements and Notes thereto.
CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA
- -------------------------------------------------
Set forth below is certain consolidated financial and operating data of the
Company as of and for each of the three fiscal years ended June 30, 1997.
Year Ended Change Change
June 30, 1997 vs 1996 1996 vs 1995
- ------------------------------------------------------------- ------------------- --------------------
1997 1996 1995 Amount Percent Amount Percent
- ------------------------------------------------------------- ------------------- --------------------
OPERATING DATA:
Number of net new orders(1):
Sun Cities Phoenix(2) 1,271 963 946 308 32.0% 17 1.8%
Sun City Tucson 58 160 310 (102) (63.8%) (150) (48.4%)
Sun Cities Las Vegas(3) 1,091 1,241 770 (150) (12.1%) 471 61.2%
Sun City Palm Desert 262 216 267 46 21.3% (51) (19.1%)
Sun City Roseville 553 537 515 16 3.0% 22 4.3%
Sun City Hilton Head(4) 337 349 149 (12) (3.4%) 200 134.2%
Sun City Georgetown(4) 440 491 122 (51) (10.4%) 369 302.5%
Terravita 226 431 392 (205) (47.6%) 39 9.9%
Coventry Homes 1,359 1,462 1,063 (103) (7.0%) 399 37.5%
- ------------------------------------------------------------- ------------------- --------------------
Total 5,597 5,850 4,534 (253) (4.3%) 1,316 29.0%
============================================================= =================== ====================
Number of home closings:
Sun Cities Phoenix(2) 1,132 912 1,104 220 24.1% (192) (17.4%)
Sun City Tucson 103 264 444 (161) (61.0%) (180) (40.5%)
Sun Cities Las Vegas(3) 1,200 1,001 847 199 19.9% 154 18.2%
Sun City Palm Desert 248 251 282 (3) (1.2%) (31) (11.0%)
Sun City Roseville(4) 650 731 293 (81) (11.1%) 438 149.5%
Sun City Hilton Head(4) 371 305 N/A 66 21.6% 305 N/A
Sun City Georgetown(4) 616 235 N/A 381 162.1% 235 N/A
Terravita 410 425 425 (15) (3.5%) - -
Coventry Homes 1,476 1,407 921 69 4.9% 486 52.8%
- ------------------------------------------------------------- ------------------- --------------------
Total 6,206 5,531 4,316 675 12.2% 1,215 28.2%
============================================================= =================== ====================
BACKLOG DATA:
Homes under contract at June 30:
Sun Cities Phoenix(2) 692 553 502 139 25.1% 51 10.2%
Sun City Tucson N/A 45 149 (45) (100.0%) (104) (69.8%)
Sun Cities Las Vegas(3) 533 642 402 (109) (17.0%) 240 59.7%
Sun City Palm Desert 126 112 147 14 12.5% (35) (23.8%)
Sun City Roseville(4) 280 377 571 (97) (25.7%) (194) (34.0%)
Sun City Hilton Head(4) 159 193 149 (34) (17.6%) 44 29.5%
Sun City Georgetown(4) 202 378 122 (176) (46.6%) 256 209.8%
Terravita 120 304 298 (184) (60.5%) 6 2.0%
Coventry Homes 478 595 540 (117) (19.7%) 55 10.2%
- ------------------------------------------------------------- ------------------- --------------------
Total(5) 2,590 3,199 2,880 (609) (19.0%) 319 11.1%
============================================================= =================== ====================
Aggregate contract sales amount
(dollars in millions) $514 $617 $565 ($103) (16.7%) $52 9.2%
Average contract sales amount
per home (dollars in thousands) $198 $193 $196 $5 2.6% $(3) (1.5%)
============================================================= =================== ====================
14
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA (Continued)
- -------------------------------------------------------------
Year Ended Change Change
June 30, 1997 vs 1996 1996 vs 1995
- ---------------------------------------------------------------------- -------------------- --------------------
1997 1996 1995 Amount Percent Amount Percent
- ---------------------------------------------------------------------- -------------------- --------------------
AVERAGE REVENUE PER
HOME CLOSING:
Sun Cities Phoenix(2) $ 158,900 $ 160,300 $ 151,100 $ (1,400) (0.9%) $ 9,200 6.1%
Sun City Tucson 167,000 170,600 164,400 (3,600) (2.1%) 6,200 3.8%
Sun Cities Las Vegas(3) 182,900 171,000 180,700 11,900 7.0% (9,700) (5.4%)
Sun City Palm Desert 221,100 224,100 214,400 (3,000) (1.3%) 9,700 4.5%
Sun City Roseville(4) 215,800 217,800 201,100 (2,000) (0.9%) 16,700 8.3%
Sun City Hilton Head(4) 168,100 159,200 N/A 8,900 5.6% N/A N/A
Sun City Georgetown(4) 183,100 181,500 N/A 1,600 0.9% N/A N/A
Terravita 292,100 295,600 253,700 (3,500) (1.2%) 41,900 16.5%
Coventry Homes 161,000 154,300 156,900 6,700 4.3% (2,600) (1.7%)
Weighted average $ 184,400 $ 182,900 $ 177,100 $ 1,500 0.8% $ 5,800 3.3%
====================================================================== ==================== ====================
OPERATING STATISTICS:
Costs and expenses as a
percentage of revenues:
Home construction, land and
other 77.0% 76.9% 76.6% 0.1% 0.1% 0.3% 0.4%
Interest 4.2% 4.0% 3.9% 0.2% 5.0% 0.1% 2.6%
Selling, general and
administrative 13.6% 14.0% 14.1% (0.4%) (2.9%) (0.1%) (0.7%)
Ratio of home closings to homes
under contract in backlog at
beginning of year 194.0% 192.0% 162.1% 2.0% 1.0% 29.9% 18.4%
====================================================================== ==================== ====================
(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) The Company began taking new home sales orders at Sun City Hilton Head in
November 1994 and at Sun City Georgetown in June 1995. Home closings began
at Sun City Roseville in February 1995, at Sun City Hilton Head in August
1995 and at Sun City Georgetown in February 1996.
(5) A majority of the backlog at June 30, 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 years ended June 30, 1997, 1996 and 1995,
cancellations of home sales orders as a percentage of new home sales orders
written during the year were 17.1 percent, 17.2 percent and 18.3 percent,
respectively.
15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
RESULTS OF OPERATIONS
- ---------------------
REVENUES. Revenues increased to $1.19 billion for the fiscal year ended June 30,
1997 from $1.05 billion for the fiscal year ended June 30, 1996. 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 fiscal 1996) accounted for
$69.2 million and $10.5 million, respectively, of the increase. Increased home
closings at the Sun Cities Las Vegas (where the Company had home closings at Sun
City MacDonald Ranch for only part of fiscal 1996), the Sun Cities Phoenix
(where home closings did not begin at Sun City Grand until February 1997) and
Coventry Homes (due mainly to the expansion of operations in the Las Vegas area)
accounted for $34.0 million, $35.3 million and $10.6 million, respectively, of
the increase in revenues. Decreased home closings at Sun City Roseville
(reflecting the decrease in net new orders experienced at that community in the
first quarter of fiscal 1997) and Sun City Tucson (reflecting the completion of
that community) resulted in decreased revenues of $17.6 million and $27.5
million, respectively.
An increase in the average revenue per home closing resulted in a $23.0 million
increase in revenues. This increase in average revenue per home closing was
primarily due to changes in mix of product 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 closings at Sun City Hilton Head and Sun City Georgetown accounted for
$48.6 million and $42.7 million, respectively, of the increase in revenues to
$1.05 billion for fiscal 1996 from $803.1 million for the fiscal year ended June
30, 1995. The Company had not yet begun delivering homes at these communities in
fiscal 1995. Increased home closings at the Sun Cities Las Vegas (where home
closings began at Sun City MacDonald Ranch in January 1996) and Sun City
Roseville (where the Company had home closings for only a part of fiscal 1995)
accounted for $27.8 million and $88.1 million, respectively, of the increase in
revenues.
Decreased home closings at the Sun Cities Phoenix (due to a lower backlog at the
beginning of the year at Sun City West), Sun City Tucson (reflecting the
approaching build-out of that community) and Sun City Palm Desert (see "Loss
from Impairment of Southern California Real Estate Inventories") collectively
resulted in a $65.2 million decrease in revenues. Increased home closings at
Coventry Homes (which benefitted from increases in Phoenix, Tucson, Las Vegas
and southern California operations) resulted in increased revenues of $76.3
million.
An increase in the average revenue per home closing (excluding the new
communities of Sun City Hilton Head and Sun City Georgetown) resulted in a $29.1
million increase in revenues from fiscal 1995 to fiscal 1996. This increase was
primarily due to sales price increases previously implemented by the Company,
increases in lot premiums at certain communities and changes in product mix.
HOME CONSTRUCTION, LAND AND OTHER COSTS. The increase in home construction, land
and other costs to $913.9 million for fiscal 1997 compared to $808.0 million for
fiscal 1996 was due to the increase in home closings. As a percentage of
revenues, these costs were 77.0 percent for fiscal 1997 and 76.9 percent for
fiscal 1996.
The increase in home construction, land and other costs to $808.0 million for
fiscal 1996 compared to $614.8 million for fiscal 1995 was primarily due to the
increase in home closings. As a percentage of revenues, these costs were 76.9
percent for fiscal 1996 compared to 76.6 percent for fiscal 1995, with the
increase primarily attributable to changes in mix of product and home closings
among the Company's communities and conventional homebuilding operations.
On a period-to-period basis, home construction, land and other costs as a
percentage of revenues will vary due to, among other things, changes in product
mix, differences between individual communities, lot premiums, optional
upgrades, price increases and changes in construction costs.
16
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
INTEREST. As a percentage of revenues, amortization of capitalized interest was
4.2 percent for fiscal 1997 compared to 4.0 percent for fiscal 1996. The
increase was primarily due to the fiscal 1996 adoption of Statement of Financial
Accounting Standards ("SFAS") No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of, which 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. See "Loss From Impairment of
Southern California Real Estate Inventories".
As a percentage of revenues, amortization of capitalized interest was 4.0
percent for fiscal 1996 compared to 3.9 percent for fiscal 1995. This increase
was primarily due to higher levels of indebtedness and increases in land held
for longer-term development, with respect to which land the Company does not
allocate capitalized interest.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. As a percentage of revenues,
selling, general and administrative expenses decreased to 13.6 percent for
fiscal 1997 as compared to 14.0 percent for fiscal 1996. This decrease resulted
from the spreading of relatively fixed corporate overhead over greater revenues.
Of the increase in total selling, general and administrative expenses to $147.3
million for fiscal 1996 from $113.2 million for fiscal 1995, $12.7 million was
attributable to higher sales and marketing expenses, $6.5 million was due to
increased commissions on the increased revenues and $7.7 million resulted from
the recognition of expenses at Sun City Roseville, Sun City Hilton Head, Sun
City MacDonald Ranch and Sun City Georgetown in fiscal 1996 (which were
capitalized prior to the commencement of home closings, which for each of these
communities occurred during fiscal 1995). The balance of the increase was due to
a variety of general and administrative expenses.
LOSS FROM IMPAIRMENT OF SOUTHERN CALIFORNIA REAL ESTATE INVENTORIES. In
connection with its adoption of SFAS No. 121 in fiscal 1996, the Company
incurred a non-cash loss from impairment of southern California real estate
inventories in the amount of $65.0 million pre-tax ($42.3 million after tax)
related to the valuation of its Sun City Palm Desert active adult community.
Exclusive of the non-cash loss, the Company's net earnings for fiscal 1996 were
$34.5 million, or $1.96 per share.
In the first six months of fiscal 1996, net new orders at Sun City Palm Desert
were substantially below both the comparable period of the prior fiscal year and
the Company's expectations. Although the Company was encouraged by net new
orders significantly greater in the first 45 days of the third quarter of fiscal
1996 than in the comparable period in the prior fiscal year, a lower than
anticipated level of net new orders was expected in the remainder of fiscal 1996
and net new orders for all of fiscal 1996 were anticipated to be lower than in
prior fiscal years. Additionally, a national home builder was developing an
active adult community near Sun City Palm Desert which was expected to cause
additional competitive pressures at that community. Based on these and other
factors, the Company reduced its estimate with respect to net new orders and
closings in the fiscal years ending June 30,1997 and beyond to below the levels
achieved in the three fiscal years ended June 30, 1995. This resulted in
expected future net cash flows (undiscounted and without interest charges) at
Sun City Palm Desert being less than the book value of the asset. As required by
SFAS No. 121, the Company therefore recorded in fiscal 1996 a non-cash loss from
impairment of southern California real estate inventories to reflect Sun City
Palm Desert at its estimated fair value. Fair value was estimated based upon an
evaluation of comparable market prices and discounted expected future cash
flows.
The Company owns additional land for a second phase of development at Sun City
Palm Desert. Development of subsequent phases of large-scale real estate
projects is always assessed in light of conditions existing when construction of
the phase is to begin, and any decision on the development of the second phase
at this community will depend on the state of the economy and prospects for the
community at the time the current phase is nearing completion.
17
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
INCOME TAXES. The increase in income taxes to a $22.3 million expense in fiscal
1997 compared to a $4.2 million benefit for fiscal 1996 was due to the change in
earnings (loss) before income taxes and extraordinary item. The effective tax
rate also increased to 36 percent from 35 percent.
The change in income taxes to a $4.2 million benefit for fiscal 1996 as compared
to a $15.3 million expense for fiscal 1995 was due to the change in earnings
(loss) before income taxes. The effective tax rate in both fiscal 1996 and
fiscal 1995 was 35 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 fiscal 1997. This
amount represented the unamortized discount and debt issue costs for the Senior
Notes, net of a $0.7 million tax benefit.
NET EARNINGS (LOSS). The Company had net earnings of $38.4 million in fiscal
1997 compared to a net loss of $7.8 million in fiscal 1996, primarily due to the
non-cash loss with respect to southern California real estate inventories
incurred by the Company in fiscal 1996. Excluding this non-cash loss in fiscal
1996, net earnings increased by $3.9 million (11.3 percent), while home closings
increased by 675 units (12.2 percent) and revenues increased by $135.5 million
(12.9 percent). The overall less-than-proportionate increase in net earnings was
attributable to the extraordinary loss recognized by the Company in fiscal 1997.
NET NEW ORDER ACTIVITY AND BACKLOG. Net new orders in fiscal 1997 were 4.3
percent lower than in fiscal 1996. 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 63.8 percent and 47.6 percent, respectively, from fiscal
1996, reflecting the completion or approaching completion of those communities.
Net new orders at the Sun Cities Las Vegas declined 12.1 percent from a
particularly strong fiscal 1996. Coventry Homes also experienced a 7.0 percent
decrease in net new orders as a result of having fewer communities open in
fiscal 1997 than in fiscal 1996.
The number of homes under contract at June 30, 1997 was 19.0 percent lower than
at June 30, 1996. This backlog decrease was due primarily to decreases at: Sun
City Roseville (as a result of a decline in net new orders in the first quarter
of fiscal 1997 and a high level of home closings in fiscal 1997); Sun City
Georgetown and Coventry Homes (as their net new orders did not keep pace with
home closings in fiscal 1997); and Sun City Tucson and Terravita (attributable
to the completion or approaching completion of those communities).
Net new orders increased 29.0 percent in fiscal 1996 compared to fiscal 1995.
This increase was largely attributable to new sales orders at Sun City
Georgetown (at which the Company began taking new sales orders in June 1995) and
substantial increases for Coventry Homes (due to increases in Phoenix, Tucson,
Las Vegas and southern California operations) and Sun City Hilton Head (at which
new orders were negatively impacted in fiscal 1995 by adverse weather
conditions).
Net new orders at Sun City Tucson decreased 48.4 percent in fiscal 1996 compared
to fiscal 1995, reflecting the approaching build-out of that community. Net new
orders at the Sun Cities Las Vegas increased 61.2 percent, primarily as a result
of the commencement of new order activity at Sun City MacDonald Ranch in
September 1995.
At Sun City Palm Desert, net new orders decreased 19.1 percent in fiscal 1996
compared to fiscal 1995. See "Loss from Impairment of Southern California Real
Estate Inventories."
The number of homes under contract at June 30, 1996 was 11.1 percent higher than
at June 30, 1995. This increase was primarily attributable to new sales orders
at Sun City Georgetown and Sun City MacDonald Ranch, partially offset by the
decreased net new order activity at Sun City Tucson and a reduction in the
number of homes under contract at Sun City Roseville as a result of home
closings at that community.
18
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
LIQUIDITY AND FINANCIAL CONDITION OF THE COMPANY
- ------------------------------------------------
At June 30, 1997 the Company had $24.7 million of cash and short-term
investments, $174.0 million outstanding under its $350 million senior unsecured
revolving credit facility and $12.0 million outstanding under its $20 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 and conventional homebuilding
activities, 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 could, depending on
the circumstances, affect the Company's ability to borrow in the future. If the
Company at any time is not successful in obtaining sufficient capital to fund
its then planned development and expansion expenditures, some or all of its
projects may be significantly delayed. Any such delay could result in cost
increases and may adversely affect the Company's results of operations.
The cash flow for each of the Company's communities can differ substantially
from reported earnings, depending on the status of the development cycle. The
initial years of development or expansion require significant cash outlays for,
among other things, land acquisition, obtaining master plan and other approvals,
construction of amenities (including golf courses and recreation centers), model
homes, sales and administration facilities, major roads, utilities, general
landscaping and interest. Since these initial costs are generally capitalized,
this can result in income reported for financial statement purposes during the
initial years significantly exceeding cash flow. However, after the initial
years of development or expansion, when these expenditures are made, cash flow
can significantly exceed earnings reported for financial statement purposes, as
costs and expenses include amortization charges for substantial amounts of
previously expended costs.
During fiscal 1997 the Company generated $305.5 million of net cash from
community sales activities, used $169.0 million of cash for land and lot and
amenity development at operating communities, paid $81.8 million for costs
related to communities in the pre-operating stage, generated $18.7 million of
net cash from conventional homebuilding operations and used $95.9 million of
cash for other operating activities. The resulting $22.5 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.
19
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
At June 30, 1997, under the most restrictive of the covenants in the Company's
debt agreements, $15.2 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 fiscal 1997, the Company acquired 137,258 shares of its
common stock at a total cost of $2.1 million.
IMPACT OF INFLATION
- -------------------
Operations of the Company can be impacted by inflation. Home and land sales
prices can increase, but inflation can also cause increases in interest costs
and the costs of land, raw materials and contract labor. Unless such increased
costs are recovered through higher sales prices, operating margins will
decrease. High mortgage interest rates may also make it more difficult for the
Company's potential customers to sell their existing homes in order to move to
one of the Company's communities or to finance the purchases of their new homes.
ACCOUNTING STANDARDS NOT YET ADOPTED BY THE COMPANY
- ---------------------------------------------------
The Financial Accounting Standards Board ("FASB") has issued several new
pronouncements that are not yet adopted by the Company.
In February 1997 the FASB issued SFAS No. 128, "Earnings Per Share", which
specifies the computation, presentation, and disclosure requirements for
earnings per share for entities with publicly-held common stock. SFAS No. 128
will be effective for the Company for the quarter ending December 31, 1997;
earlier application is not permitted. This new accounting standard will require
presentation of basic earnings per share (which for the Company is currently
anticipated to result in slightly higher earnings per share than would otherwise
be reported) and diluted earnings per share (which for the Company is currently
anticipated to result in essentially the same earnings per share as the Company
would otherwise report as primary earnings per share).
In February 1997 the FASB issued SFAS No. 129, "Disclosure of Information about
Capital Structure", to consolidate existing disclosure requirements. This new
standard contains no change in disclosure requirements for the Company. It will
be effective for the Company for the quarter ending December 31, 1997.
In June 1997 the FASB issued SFAS No. 130, "Reporting Comprehensive Income", to
establish standards for reporting and display of comprehensive income (all
changes in equity during a period except those resulting from investments by and
distributions to owners) and its components in financial statements. This new
standard, which will be effective for the Company for the fiscal year ending
June 30, 1999, is not currently anticipated to have a significant impact on the
Company's consolidated financial statements based on the current financial
structure and operations of the Company.
In June 1997 the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", to establish standards for reporting
information about operating segments in annual financial statements, selected
information about operating segments in interim financial reports and
disclosures about products and services, geographic areas and major customers.
This new standard, which will be effective for the Company for the fiscal year
ending June 30, 1999, will require the Company to report financial information
on the basis that is used internally for evaluating segment performance and
deciding how to allocate resources to segments, which is currently anticipated
to result in more detailed information in the notes to the Company's
consolidated financial statements than is currently required and provided.
Item 8. Financial Statements and Supplementary Data
The response to this item is submitted as a separate section of this report
below.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
20
PART III
Item 10. Directors and Executive Officers of the Registrant
For information with respect to the Executive Officers of the Registrant, see
"Item 1 -- Executive Officers of the Company" at the end of Part I of this
report. Information with respect to the Directors of the Registrant is
incorporated herein by reference to the Registrant's definitive proxy statement
to be filed pursuant to Regulation 14A within 120 days after the end of the most
recent fiscal year covered by this Form 10-K.
Item 11. Executive Compensation
Information in response to this Item is incorporated herein by reference to the
Registrant's definitive proxy statement to be filed pursuant to Regulation 14A
within 120 days after the end of the most recent fiscal year covered by this
Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners
and Management
Information in response to this Item is incorporated herein by reference to the
Registrant's definitive proxy statement to be filed pursuant to Regulation 14A
within 120 days after the end of the most recent fiscal year covered by this
Form 10-K.
Item 13. Certain Relationships and Related Transactions
Information in response to this Item is incorporated herein by reference to the
Registrant's definitive proxy statement to be filed pursuant to Regulation 14A
within 120 days after the end of the most recent fiscal year covered by this
Form 10-K.
21
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K
(a) 1. and 2. The response to this portion of Item 14 is submitted
as a separate section of this report beginning on
page 24.
3. Exhibits
The Exhibit Index attached to this Report is hereby
incorporated by reference.
(b) In the quarter ended June 30, 1997 the Company did not file any reports
on Form 8-K.
22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, who is duly authorized to do so, in Phoenix, Arizona
on the 5th day of September, 1997.
DEL WEBB CORPORATION
(Registrant)
By: /s/ Philip J. Dion
------------------------------------
Philip J. Dion
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant in
the capacities and on the dates indicated.
Signature Title Date
- ----------------------------------------------------------------------------------------------------------
/s/ Philip J. Dion Chairman and Chief Executive Officer September 5, 1997
- ------------------------------------ (Principal Executive Officer)
(Philip J. Dion)
/s/ John A. Spencer Senior Vice President and September 5, 1997
- ------------------------------------ Chief Financial Officer
(John A. Spencer) (Principal Financial Officer)
/s/ David E. Rau Vice President and Controller September 5, 1997
- ------------------------------------ (Principal Accounting Officer)
(David E. Rau)
/s/ D. Kent Anderson Director September 5, 1997
- ------------------------------------
(D. Kent Anderson)
/s/ Hugh F. Culverhouse, Jr. Director September 5, 1997
- ------------------------------------
(Hugh F. Culverhouse, Jr.)
/s/ Kenny C. Guinn Director September 5, 1997
- ------------------------------------
(Kenny C. Guinn)
/s/ Michael O. Maffie Director September 5, 1997
- ------------------------------------
(Michael O. Maffie)
/s/ J. Russell Nelson Director September 5, 1997
- ------------------------------------
(J. Russell Nelson)
/s/ Peter A. Nelson Director September 5, 1997
- ------------------------------------
(Peter A. Nelson)
/s/ Michael E. Rossi Director September 5, 1997
- ------------------------------------
(Michael E. Rossi)
/s/ Glenn W. Schaeffer Director September 5, 1997
- ------------------------------------
(Glenn W. Schaeffer)
/s/ C. Anthony Wainwright Director September 5, 1997
- ------------------------------------
(C. Anthony Wainwright)
/s/ Sam Yellen Director September 5, 1997
- ------------------------------------
(Sam Yellen)
23
DEL WEBB CORPORATION
FORM 10-K
Item 8, Item 14(a) (1) and (2)
Index of Consolidated Financial Statements and Schedule
The following financial statements required to be included in Item 8 and other
disclosures by the Registrant are listed below:
PAGE
Management's Report.......................................................... 25
Independent Auditors' Report................................................. 26
Consolidated Financial Statements:
Balance Sheets as of June 30, 1997 and 1996........................... 27
Statements of Operations for each of the years in the three-year
period ended June 30, 1997.......................................... 28
Statements of Shareholders' Equity for each of the years in the
three-year period ended June 30, 1997............................... 29
Statements of Cash Flows for each of the years in the three-year
period ended June 30, 1997.......................................... 30
Notes to Consolidated Financial Statements............................ 32
The following financial statement schedule of the Registrant and its
subsidiaries is included in Item 14(a) (2):
PAGE
Consolidated Financial Statement Schedule:
II Valuation and Qualifying Accounts for each of the years in the
three-year period ended June 30, 1997............................ 46
Schedules other than the one listed above are omitted because the conditions
requiring their filing do not exist or because the required information is given
in the financial statements, including the notes thereto.
24
MANAGEMENT'S REPORT
Financial Statements
Del Webb Corporation is responsible for the preparation, integrity and fair
presentation of its published financial statements. The consolidated financial
statements that follow have been prepared in accordance with generally accepted
accounting principles and, as such, include amounts based on judgements and
estimates made by management. The Company also prepared the other information
included in the annual report and is responsible for its accuracy and
consistency with the consolidated financial statements.
The consolidated financial statements have been audited by the independent
accounting firm, KPMG Peat Marwick LLP, which was given access to all financial
records and related data, including minutes of all meetings of shareholders, the
board of directors and committees of the board. The Company believes that all
representations made to the independent auditors during their audit were valid
and appropriate. KPMG Peat Marwick LLP's audit report is presented on the
following page.
Internal Control System
The Company maintains a system of internal control over financial reporting and
over safeguarding of assets against unauthorized acquisition, use or disposition
which is designed to provide reasonable assurance to the Company's management
and board of directors regarding the preparation of reliable published financial
statements and such asset safeguarding. The system includes a documented
organizational structure and division of responsibility, established policies
and procedures (including a code of conduct) which are communicated throughout
the Company, and the selection, training and development of employees. Internal
auditors monitor the operation of the internal control system and report
findings and recommendations to management and the board of directors, and
corrective actions are taken to correct deficiencies if and as they are
identified. The board, operating through its audit committee which is composed
of directors who are not officers or employees of the Company, provides
oversight to the financial reporting and asset safeguarding process.
Even an effective internal control system, no matter how well designed, has
inherent limitations -- including the possibility of the circumvention or
overriding of controls -- and therefore can provide only reasonable assurance
with respect to financial statement preparation and asset safeguarding. Further,
because of changes in conditions, internal control system effectiveness may vary
over time.
The Company assessed its internal control system as of June 30, 1997 in relation
to criteria for effective internal control over financial reporting described in
"Internal Control -- Integrated Framework" issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on its assessment, the Company
believes that, as of June 30, 1997, its system of internal control over
financial reporting and over safeguarding of assets against unauthorized
acquisition, use or disposition met those criteria.
/s/ Philip J. Dion
- ------------------------------------
Philip J. Dion
Chairman and Chief Executive Officer
/s/ John A. Spencer
- ------------------------------------
John A. Spencer
Senior Vice President and Chief Financial Officer
June 30, 1997
25
Independent Auditors' Report
----------------------------
The Board of Directors and Shareholders
Del Webb Corporation:
We have audited the consolidated financial statements of Del Webb Corporation
and subsidiaries as listed in the accompanying index. In connection with our
audits of the consolidated financial statements, we also have audited the
financial statement schedule listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Del Webb Corporation
and subsidiaries as of June 30, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended June 30, 1997 in conformity with generally accepted accounting principles.
Also in our opinion, the related financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
As discussed in Notes 1 and 13 to the consolidated financial statements, in
fiscal 1996 the Company changed its method of accounting for impairment of
long-lived assets in accordance with the adoption of Statement of Financial
Accounting Standards No. 121.
KPMG Peat Marwick LLP
Phoenix, Arizona
August 15, 1997
26
DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1997 and 1996
In Thousands
- ------------------------------------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------------------------------------
Assets
- ------------------------------------------------------------------------------------------------------------
Real estate inventories (Notes 2, 6 and 12) $ 939,684 $ 899,815
Cash and short-term investments 24,715 18,340
Receivables (Note 3) 28,892 25,162
Property and equipment, net (Note 4) 20,937 27,599
Deferred income taxes (Note 7) 6,526 12,612
Other assets (Note 5) 65,908 41,267
- ------------------------------------------------------------------------------------------------------------
$ 1,086,662 $ 1,024,795
============================================================================================================
Liabilities and Shareholders' Equity
- ------------------------------------------------------------------------------------------------------------
Notes payable, senior and subordinated debt (Note 6) $ 563,068 $ 514,677
Contractor and trade accounts payable 70,827 82,918
Accrued liabilities and other payables 79,959 68,920
Home sale deposits 69,476 88,304
Income taxes payable (Note 7) 3,502 5,200
- ------------------------------------------------------------------------------------------------------------
Total liabilities 786,832 760,019
- ------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Common stock, $.001 par value. Authorized 30,000,000
shares; issued 17,691,118 shares and 17,541,772 shares
at June 30, 1997 and 1996, respectively (Notes 8 and 9) 18 18
Additional paid-in capital (Note 8) 160,308 158,262
Retained earnings (Note 6) 145,922 111,033
- ------------------------------------------------------------------------------------------------------------
306,248 269,313
Less cost of common stock in treasury, 124,509 shares and
3,751 shares at June 30, 1997 and 1996, respectively (Note 8) (1,914) (70)
Less deferred compensation (Note 9) (4,504) (4,467)
- ------------------------------------------------------------------------------------------------------------
Total shareholders' equity 299,830 264,776
- ------------------------------------------------------------------------------------------------------------
$ 1,086,662 $ 1,024,795
============================================================================================================
See accompanying notes to consolidated financial statements.
27
DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended June 30, 1997, 1996 and 1995
In Thousands
Except Per Share Data
- --------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
Revenues (Note 11) $ 1,186,262 $ 1,050,733 $ 803,119
- --------------------------------------------------------------------------------------------------------------------
Costs and expenses (Note 11):
Home construction, land and other 913,872 807,988 614,847
Interest (Note 12) 49,457 42,354 31,205
Selling, general and administrative 160,924 147,315 113,235
Loss from impairment of southern California
real estate inventories (Notes 12 and 13) - 65,000 -
- --------------------------------------------------------------------------------------------------------------------
1,124,253 1,062,657 759,287
- --------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes and
extraordinary item 62,009 (11,924) 43,832
Income taxes (Note 7) (22,323) 4,173 (15,341)
- --------------------------------------------------------------------------------------------------------------------
Earnings (loss) before extraordinary item 39,686 (7,751) 28,491
Extraordinary item:
Loss from extinguishment of debt (net of tax) (Note 6) 1,285 - -
- --------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 38,401 $ (7,751) $ 28,491
====================================================================================================================
Weighted average shares outstanding 17,862 17,425 15,209
====================================================================================================================
Earnings (loss) per share:
Earnings (loss) before extraordinary item $ 2.22 $ (0.44) $ 1.87
Extraordinary item (0.07) - -
- --------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 2.15 $ (0.44) $ 1.87
====================================================================================================================
See accompanying notes to consolidated financial statements.
28
DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended June 30, 1997, 1996 and 1995
In Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
Additional Total
Common Paid-In Retained Treasury Deferred Shareholders'
Stock Capital Earnings Stock Compensation Equity
- ------------------------------------------------------------------------------------------------------------------------------------
Balances at July 1, 1994 $ 112,944 $ 8,333 $ 96,630 $ (14,600) $ (1,983) $ 201,324
Shares issued and retired for stock option,
restricted stock and retirement savings plans
(254,781 shares of treasury stock issued and
30,291 shares of common stock retired), net
of amortization (202) -- -- 3,550 (845) 2,503
Treasury stock acquired, 444 shares -- -- -- (8) -- (8)
Change from common stock without par value
to $.001 par value common stock (Note 8) (112,726) 112,726 -- -- -- --
Cash dividends ($ .20 per share) -- -- (2,968) -- -- (2,968)
Net earnings -- -- 28,491 -- -- 28,491
- ------------------------------------------------------------------------------------------------------------------------------------
Balances at June 30, 1995 16 121,059 122,153 (11,058) (2,828) 229,342
Shares issued and retired for stock option and
restricted stock plans (178,463 shares of
common stock issued, 2,200 shares net
increase in treasury stock and 32,512 shares
of common stock retired), net of amortization -- 2,992 -- (39) (1,639) 1,314
Proceeds from sale of 1,597,172 shares of
common stock and 877,728 shares of
treasury stock, less offering costs of $3.0
million (Note 8) 2 34,211 -- 11,058 -- 45,271
Treasury stock acquired, 1,551 shares -- -- -- (31) -- (31)
Cash dividends ($ .20 per share) -- -- (3,369) -- -- (3,369)
Net loss -- -- (7,751) -- -- (7,751)
- ------------------------------------------------------------------------------------------------------------------------------------
Balances at June 30, 1996 18 158,262 111,033 (70) (4,467) 264,776
Shares issued and retired for stock option and
restricted stock plans (186,717 shares of
common stock issued, 16,500 shares net
decrease in treasury stock and 37,371 shares
of common stock retired), net of amortization -- 2,046 -- 261 (37) 2,270
Treasury stock acquired, 137,258 shares -- -- -- (2,105) -- (2,105)
Cash dividends ($.20 per share) -- -- (3,512) -- -- (3,512)
Net earnings -- -- 38,401 -- -- 38,401
- ------------------------------------------------------------------------------------------------------------------------------------
Balances at June 30, 1997 $ 18 $ 160,308 $ 145,922 $ (1,914) $ (4,504) $ 299,830
====================================================================================================================================
See accompanying notes to consolidated financial statements.
29
DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30, 1997, 1996 and 1995
(In Thousands)
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Cash received from customers related to community home sales $ 876,379 $ 792,835 $ 588,526
Cash received from commercial land and facility sales 8,328 7,880 1,599
Cash paid for costs related to community home construction (579,188) (509,315) (377,735)
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by community sales activities 305,519 291,400 212,390
Cash paid for land acquisitions at operating communities (11,885) (8,351) (8,046)
Cash paid for lot development at operating communities (100,588) (96,863) (62,612)
Cash paid for amenity development at operating communities (56,503) (63,853) (29,683)
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by operating communities 136,543 122,333 112,049
Cash paid for costs related to communities in the pre-operating
stage (81,755) (92,668) (98,183)
Cash received from customers related to conventional
homebuilding 248,488 222,513 146,210
Cash paid for land, development, construction and other costs
related to conventional homebuilding (229,830) (213,959) (152,696)
Cash received from residential land development project 7,110 8,834 10,309
Cash paid for corporate activities (42,327) (34,280) (29,402)
Interest paid (45,854) (47,444) (44,104)
Cash paid for income taxes (14,879) (10,501) (1,796)
- ------------------------------------------------------------------------------------------------------------------
Net cash used for operating activities (22,504) (45,172) (57,613)
- ------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of property and equipment (4,284) (6,715) (13,256)
Investments in life insurance policies (3,222) (3,554) (1,594)
- ------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (7,506) (10,269) (14,850)
- ------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Borrowings 547,871 305,122 766,968
Repayments of debt (506,990) (292,260) (679,985)
Proceeds from sale of common stock - 45,271 -
Purchases of treasury stock (2,105) (31) (8)
Proceeds from exercise of common stock options 1,121 148 882
Dividends paid (3,512) (3,369) (2,968)
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 36,385 54,881 84,889
- ------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and short-term investments 6,375 (560) 12,426
Cash and short-term investments at beginning of year 18,340 18,900 6,474
- ------------------------------------------------------------------------------------------------------------------
Cash and short-term investments at end of year $ 24,715 $ 18,340 $ 18,900
==================================================================================================================
See accompanying notes to consolidated financial statements.
30
DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years ended June 30, 1997, 1996 and 1995
(In Thousands)
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
Reconciliation of net earnings (loss) to net cash used for operating
activities:
Net earnings (loss) $ 38,401 $ (7,751) $ 28,491
Allocation of non-cash common costs in costs and expenses,
excluding interest 268,806 247,734 188,081
Amortization of capitalized interest in costs and expenses 49,457 42,354 31,205
Deferred compensation amortization 1,748 1,804 1,598
Depreciation and other amortization 6,425 8,740 5,243
Deferred income taxes on earnings (loss) before extraordinary item 6,086 (17,810) 16,801
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 (4,218) (35,445) (42,566)
Land acquisitions (61,499) (37,176) (39,332)
Lot development (155,348) (190,959) (154,864)
Amenity development (89,063) (103,086) (78,785)
Pre-acquisition costs (19,869) (8,732) (2,770)
Net change in other assets and liabilities (64,715) (9,845) (10,715)
- ------------------------------------------------------------------------------------------------------------------
Net cash used for operating activities $ (22,504) $ (45,172) $ (57,613)
==================================================================================================================
See accompanying notes to consolidated financial statements.
31
DEL WEBB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997, 1996 and 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of Del Webb
Corporation and its subsidiaries (the "Company"). All significant
intercompany transactions and accounts have been eliminated in
consolidation. Certain financial statement items from prior years have
been reclassified to be consistent with the current year financial
statement presentation.
Operations
----------
The Company develops residential communities ranging from
smaller-scale, non-amenitized communities within its conventional
homebuilding operations to large-scale, master-planned communities with
extensive amenities. The Company currently conducts its operations in
the states of Arizona, Nevada, California, Texas and South Carolina.
The Company's communities are generally 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
usually the exclusive builder of homes. The Company's conventional
homebuilding operations encompass the construction and sale of homes in
various locations, primarily in Arizona and Nevada.
The Company's operations are subject to a number of risks and
uncertainties, including, but not limited to, risks associated with the
development of future and newer communities (including development in
new geographic areas), governmental regulation and environmental
considerations, the geographic concentration of the Company's
operations, the cyclical nature of real estate operations and other
conditions generally, competition, fluctuations in labor and material
costs, the availability and cost of financing and certain natural risks
that exist in certain of the Company's market areas.
Real Estate Inventories
-----------------------
Real estate inventories include undeveloped land, partially improved
land, amenities and homes on finished lots, in various stages of
completion. These assets include direct construction costs for homes
and common costs. Common costs include land, general and subdivision
land development costs, model and vacation home costs in excess of
normal direct construction costs, costs of community sales centers,
costs of assets (such as golf courses and recreation centers)
contributed to certain of the community associations, costs of
subsidizing the community associations, development period interest and
other costs, all of which are capitalized. The capitalized costs and
estimated future common costs are allocated, on a community by
community basis, to residential and commercial lots based upon the
estimated relative sales value that each lot has to the estimated
aggregate sales value of all lots in the community. Home construction,
land and other costs and expenses includes the direct construction
costs of the home and an allocation of common costs. Sales commissions,
advertising and other marketing expenses are included in selling,
general and administrative expenses. The Company recognizes revenue at
close of escrow.
The Company values its real estate inventories in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", which the Company adopted in fiscal 1996. In
accordance with SFAS No. 121, prior period financial statements have
not been restated to reflect the change in accounting principle.
32
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
SFAS No. 121 requires that long-lived assets, such as real estate
inventories, be reviewed for impairment whenever events or changes in
circumstances indicate that the book value of the asset may not be
recoverable. If the sum of the expected future net cash flows
(undiscounted and without interest charges) from an asset to be held
and used is less than the book value of the asset, an impairment loss
must be recognized in the amount of the difference between the book
value and fair value. For long-term assets like active adult
communities, the determination of whether there is an impairment loss
is dependent primarily on the Company's estimate of annual home
closings over the life of the community, which involves numerous
assumptions and judgements as to future events over a period of many
years. In connection with its adoption of SFAS No. 121 in fiscal 1996,
the Company incurred a non-cash loss from impairment of southern
California real estate inventories in the amount of $65.0 million
pre-tax ($42.3 million after tax) related to the valuation of its Sun
City Palm Desert active adult community (see Note 13).
Cash and Short-Term Investments
-------------------------------
The Company's policy is to invest its cash in high-grade,
income-producing short-term investments. Accordingly, uninvested cash
balances are generally kept at minimum levels. Short-term investments
are valued at the lower of cost or market and principally include
overnight repurchase agreements, certificates of deposit and commercial
paper with an original maturity of less than 90 days.
Depreciation
------------
Depreciation is computed using principally the straight-line method for
financial statement purposes and accelerated methods for tax purposes,
over the estimated useful lives of the assets.
Income Taxes
------------
The Company accounts for income taxes using the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in
future years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in the consolidated statement of
operations as an adjustment to the effective income tax rate in the
period that includes the enactment date.
Earnings (Loss) Per Share
-------------------------
Earnings (loss) per share is determined by dividing net earnings (loss)
by the weighted average number of common and common equivalent shares
outstanding during the year. Common equivalent shares of 282,000 and
382,000 included in the computation of earnings per share for fiscal
1997 and 1995, respectively, represent the effect of stock options.
Consolidated Statements of Cash Flows
-------------------------------------
In the Consolidated Statements of Cash Flows, the Company defines
operating communities as communities generating revenues from home
closings. Communities in the pre-operating stage are those not yet
generating revenues from home closings.
Warranty Costs
--------------
Estimated future warranty costs are charged to home construction, land
and other costs and expenses when the revenues from home closings are
recognized.
33
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Financial Instruments
---------------------
In the normal course of business, the Company may invest in various
financial assets and incurs various financial liabilities. The Company
does not trade in derivative financial instruments, although it
occasionally enters into agreements involving derivative financial
instruments for purposes other than trading. At June 30, 1997 the
Company had no derivative financial instruments.
The fair value estimates of financial instruments presented in Note 6
have been determined by the Company using available market information
and valuation methodologies deemed appropriate by the Company.
Considerable judgement is required in interpreting market data to
develop the estimates of fair value. Accordingly, these fair value
estimates are not necessarily indicative of the amounts the Company
might pay or receive in actual market transactions. Potential taxes and
other transaction costs have not been considered in estimating fair
value.
The fair values of the Company's publicly held debt are estimated based
on the quoted bid prices for these debt instruments on June 30, 1997.
The carrying amounts of the Company's remaining debt approximate the
estimated fair values because they are at interest rates comparable to
rates currently available to the Company for debt with similar terms
and remaining maturities. For all other financial instruments, the
carrying amounts approximate the fair values because of the short
maturity of these instruments and in some cases because they bear
interest at market rates. As substantially all of the Company's assets
(including real estate inventories, property and equipment and deferred
income taxes) are not financial instruments, the disclosures in Note 6
do not reflect the value of the Company as a whole.
Stock-Based Compensation
------------------------
In accordance with the provisions of Accounting Principals Board
Opinion No. 25, Accounting for Stock Issued to Employees, the Company
measures stock-based compensation expense as the excess of the market
price at the grant date over the amount the employee must pay for the
stock. The Company's policy is to generally grant stock options at fair
market value at the date of grant, so no compensation expense is
recognized. As permitted, the Company has elected to adopt the
disclosure provisions only of SFAS No. 123, "Accounting for Stock-Based
Compensation" (see Note 9).
Use of Estimates
----------------
The preparation of the Company's consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions, particularly those
previously discussed for real estate inventories, that affect the
amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ materially from those
estimates.
(2) REAL ESTATE INVENTORIES
The components of real estate inventories are as follows:
In Thousands
at June 30,
-----------------------------------------------------------------------------------------------
1997 1996
-----------------------------------------------------------------------------------------------
Home construction costs $ 182,018 $ 177,800
Unamortized improvement and amenity costs 489,142 439,679
Unamortized capitalized interest 46,121 43,661
Land held for housing 174,930 168,530
Land and facilities held for future development or sale 47,473 70,145
-----------------------------------------------------------------------------------------------
$ 939,684 $ 899,815
===============================================================================================
34
(2) REAL ESTATE INVENTORIES (Continued)
At June 30, 1997, the Company had 403 completed homes and 516 homes
under construction that were not subject to a sales contract. These
homes represented $30.9 million and $17.7 million, respectively, of
home construction costs at June 30, 1997. At June 30, 1996 the Company
had 252 completed homes and 480 homes under construction (representing
$20.1 million and $15.0 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
June 30, 1997 were 313 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.
(3) RECEIVABLES
Receivables are summarized as follows:
In Thousands
at June 30,
------------------------------------------------------------------------------------------------
1997 1996
------------------------------------------------------------------------------------------------
Escrow funds from home and land sales $ 8,254 $ 7,479
Mortgage loans held for sale 8,629 9,073
Notes from sales of land and facilities 8,424 4,547
Other 3,585 4,063
------------------------------------------------------------------------------------------------
$ 28,892 $ 25,162
================================================================================================
(4) PROPERTY AND EQUIPMENT, NET
Property and equipment, stated at cost, and related accumulated
depreciation are summarized as follows:
In Thousands
at June 30,
------------------------------------------------------------------------------------------------
1997 1996
------------------------------------------------------------------------------------------------
Buildings and improvements $ 6,803 $ 9,120
Equipment 40,240 39,133
Land and improvements - 2,839
------------------------------------------------------------------------------------------------
47,043 51,092
Less accumulated depreciation 26,106 23,493
------------------------------------------------------------------------------------------------
$ 20,937 $ 27,599
================================================================================================
35
(5) OTHER ASSETS
Other assets are summarized as follows:
In Thousands
at June 30,
------------------------------------------------------------------------------------------------
1997 1996
------------------------------------------------------------------------------------------------
Pre-acquisition costs $ 30,876 $ 10,141
Cash surrender value of life insurance policies 20,083 15,500
Prepaid expenses 5,903 5,760
Utility deposits 4,971 5,965
Other 4,075 3,901
------------------------------------------------------------------------------------------------
$ 65,908 $ 41,267
================================================================================================
(6) NOTES PAYABLE, SENIOR AND SUBORDINATED DEBT
Notes payable, senior and subordinated debt consists of the following:
In Thousands
at June 30,
------------------------------------------------------------------------------------------------
1997 1996
------------------------------------------------------------------------------------------------
10 7/8% Senior Notes, net $ - $ 97,475
9 3/4% Senior Subordinated Debentures due 2003, net 97,670 97,259
9% Senior Subordinated Debentures due 2006, net 97,628 97,355
9 3/4% Senior Subordinated Debentures due 2008, net 144,889 -
Notes payable to banks under a revolving credit facility
and short-term lines of credit 185,990 193,000
Real estate and other notes, variable interest rates from
prime to prime plus 1% and fixed rates from 7.38%
to 10.21%, maturities to 2004 36,891 29,588
------------------------------------------------------------------------------------------------
$ 563,068 $ 514,677
================================================================================================
In April 1992 the Company completed a public offering of $100 million
of Senior Notes and on March 31,1997, redeemed at par all $100 million
of these outstanding Senior Notes. In connection with this early
redemption, 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.
In March 1993 the Company completed a public offering of $100 million
of Senior Subordinated Debentures, which are shown net of unamortized
deferred financing costs and discount. These Debentures are due on
March 1, 2003 and have a stated interest rate of 9 3/4 percent per
year. Interest is payable semi-annually on March 1 and September 1. The
annual effective interest rate of the Debentures, after giving effect
to the amortization of deferred financing costs and discount, is 10.2
percent. The Debentures may be redeemed by the Company on or after
March 1, 1998, 1999 and 2000 at 104.875, 102.4375 and 100 percent,
respectively, of the principal amount of the Debentures redeemed, plus
accrued and unpaid interest to the redemption date. 36
(6) NOTES PAYABLE, SENIOR AND SUBORDINATED DEBT (Continued)
In February 1994 the Company completed a public offering of $100
million of Senior Subordinated Debentures, which are shown net of
unamortized deferred financing costs. These Debentures are due on
February 15, 2006 and have a stated interest rate of 9 percent per
year. Interest is payable semi-annually on February 15 and August 15.
The annual effective interest rate of the Debentures, after giving
effect to the amortization of deferred financing costs, is 9.3 percent.
The Debentures may be redeemed by the Company on or after February 15,
1999, 2000, 2001, 2002 and 2003 at 104.500, 103.375, 102.250, 101.125
and 100 percent, respectively, of the principal amount of the
Debentures redeemed, plus accrued and unpaid interest to the redemption
date.
In January 1997 the Company completed a public offering of $150 million
of Senior Subordinated Debentures, which are shown net of unamortized
deferred financing costs and discount. These Debentures are due on
January 15, 2008 and have a stated interest rate of 9 3/4 percent per
year. Interest is payable semi-annually on January 15 and July 15. The
annual effective interest rate of the Debentures, after giving effect
to the amortization of deferred financing costs and discount, is 10.1
percent. The Debentures may be redeemed by the Company on or after
January 15, 2002, 2003, 2004 and 2005 at 104.875, 103.250, 101.625 and
100 percent, respectively, of the principal amount of the Debentures
redeemed, plus accrued and unpaid interest to the redemption date.
In March 1994 the Company established a $125 million senior unsecured
revolving credit facility. The facility was increased to $175 million
in November 1994, $300 million in June 1995 and $350 million in July
1996. If the revolving credit facility is not subsequently amended, its
capacity will begin declining in June 1998 through its maturity in
December 2000. Borrowings under this facility bear interest at the
prime rate or, if the Company selects, at the Eurodollar rate plus 1.70
percent. The effective interest rate on borrowings outstanding under
the senior unsecured revolving credit facility at June 30, 1997 was 7.9
percent.
The senior unsecured revolving credit facility and the indentures for
the Company's publicly-held debt contain covenants which, taken
together and among other things, limit investments in unentitled land
and unsold homes, conventional homebuilding assets, dividends, stock
repurchases, incurrence of indebtedness and certain acquisitions and
which could, depending on the circumstances, affect the Company's
ability to borrow in the future.
At June 30, 1997 the Company had $174.0 million outstanding under its
$350 million senior unsecured revolving credit facility and $12.0
million outstanding under its $20 million of short-term lines of
credit.
At June 30, 1997, under the most restrictive of the covenants in the
Company's debt agreements, $15.2 million of the Company's retained
earnings was available for payment of cash dividends and for the
acquisition by the Company of its common stock.
The estimated fair values at June 30, 1997 of the Company's 9 3/4%
Senior Subordinated Debentures due 2003, 9% Senior Subordinated
Debentures due 2006 and 9 3/4% Senior Subordinated Debentures due 2008
were $98.8 million, $102.9 million and $154.5 million, respectively.
The estimated fair values at June 30, 1996 of the Company's Senior
Notes, 9 3/4% Senior Subordinated Debentures due 2003 and 9% Senior
Subordinated Debentures due 2006 were $101.5 million, $100.0 million
and $92.5 million, respectively.
The principal payment requirements (in thousands) on debt for the next
five years ended June 30 are as follows:
1998 $ 29,761
1999 $ 77,957
2000 $ 70,595
2001 $ 35,871
2002 $ 1,909
37
(7) INCOME TAXES
Components of Income Taxes
--------------------------
The components of income taxes on earnings before the extraordinary
item are:
In Thousands
Year Ended June 30,
------------------------------------------------------------------------------------------------
1997 1996 1995
------------------------------------------------------------------------------------------------
Current:
Federal $ 14,029 $ 11,333 $ (3,336)
State 2,208 2,304 1,876
------------------------------------------------------------------------------------------------
16,237 13,637 (1,460)
------------------------------------------------------------------------------------------------
Deferred:
Federal 6,854 (15,084) 15,953
State (768) (2,726) 848
------------------------------------------------------------------------------------------------
6,086 (17,810) 16,801
------------------------------------------------------------------------------------------------
$ 22,323 $ (4,173) $ 15,341
================================================================================================
In the year ended June 30, 1997, the Company also recognized a $0.7
million income tax benefit related to the extraordinary loss from
extinguishment of debt.
Components of Deferred Income Taxes
-----------------------------------
The components of deferred income taxes are as follows:
In Thousands
Year Ended June 30,
------------------------------------------------------------------------------------------------
1997 1996 1995
------------------------------------------------------------------------------------------------
Change in net operating loss carryforwards $ (451) $ (201) $ 15,164
Change in loss provisions for discontinued
operations 2,982 1,854 3,556
Change in basis differences of real estate 2,802 (18,214) 9,721
Deferred compensation (1,422) (1,087) (237)
Amortization of short period loss - 486 76
Accelerated depreciation 2,094 4,245 (6,037)
Change in tax credit carryforwards 3,051 - -
Change in deferred tax asset valuation allowance (473) - (2,744)
Other (2,497) (4,893) (2,698)
------------------------------------------------------------------------------------------------
$ 6,086 $ (17,810) $ 16,801
================================================================================================
The deferred income tax benefit for fiscal 1996, and the related
deferred tax asset at June 30, 1996, resulted from the non-cash loss
from impairment of southern California real estate inventories
recognized by the Company in fiscal 1996 (see Note 13).
The 1997 and 1995 reductions in the deferred tax asset valuation
allowance resulted from additional years of operating earnings
generated by the Company, which increased the portion of the gross
deferred tax asset that the Company believed would more likely than not
be realized.
38
(7) INCOME TAXES (Continued)
Deferred Tax Assets and Liabilities
Deferred tax assets and liabilities have been recognized in the
consolidated balance sheets due to temporary differences and
carryforwards as follows:
In Thousands
at June 30,
------------------------------------------------------------------------------------------------
1997 1996
------------------------------------------------------------------------------------------------
Deferred tax assets:
Net operating loss carryforwards $ 652 $ 201
Tax credit carryforwards - 3,051
Liabilities of discontinued operations,
principally due to loss provisions 4,597 7,579
Property and equipment, principally due
to differences in depreciation 5,130 7,224
State income taxes 2,586 2,886
Deferred compensation 6,796 5,374
Accruals 11,630 8,903
Other 1,141 766
------------------------------------------------------------------------------------------------
32,532 35,984
Valuation allowance 3,389 3,862
------------------------------------------------------------------------------------------------
29,143 32,122
------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Real estate, principally due to basis differences 21,087 18,285
Other 1,530 1,225
------------------------------------------------------------------------------------------------
22,617 19,510
------------------------------------------------------------------------------------------------
Net deferred income taxes $ 6,526 $ 12,612
================================================================================================
Reconciliation of Effective Income Taxes
----------------------------------------
Income taxes differ from the amounts computed using the federal
statutory income tax rate as a result of the following:
In Thousands
Year Ended June 30,
------------------------------------------------------------------------------------------------
1997 1996 1995
------------------------------------------------------------------------------------------------
Expected taxes at current federal statutory
income tax rate $ 21,703 $ (4,173) $ 15,341
State income taxes, net of federal benefit 2,856 (274) 1,771
Federal and state tax credits (2,210) (2,580) -
Adjustments due to the settlement of audits and
resolution of issues 252 2,407 718
Change in deferred tax asset valuation allowance (473) - (2,744)
Other 195 447 255
------------------------------------------------------------------------------------------------
Income taxes $ 22,323 $ (4,173) $ 15,341
================================================================================================
39
(7) INCOME TAXES (Continued)
Carryforward
------------
At June 30, 1997 the Company had a state net operating loss
carryforward of $13.0 million that expires in fiscal 2010.
(8) EQUITY TRANSACTIONS
In August 1995 the Company publicly sold 2,474,900 shares of its common
stock. The net proceeds of $45.3 million were used to repay a portion
of the indebtedness then outstanding under the Company's senior
unsecured revolving credit facility.
In November 1994 the Company changed its state of incorporation from
Arizona to Delaware. In connection with this reincorporation, the
common stock changed from common stock without par value to common
stock with a par value of $.001 per share, which resulted in a
consolidated balance sheet reclassification within shareholders' equity
from common stock to additional paid-in capital. There was no impact on
total shareholders' equity as a result of the reincorporation.
(9) COMMON STOCK RESERVED
The Company has five stock option plans: the 1981 Stock Option Plan
(under which no grants can be made subsequent to December 31, 1991),
the 1986 Stock Option and Stock Appreciation Rights (SAR) Plan (under
which no grants can be made subsequent to December 31, 1995) and the
1991, 1993 and 1995 Executive Long-Term Incentive Plans (1991 ELTIP,
1993 ELTIP and 1995 ELTIP, which cover both options and restricted
stock grants). Options under each of these plans are granted to key
employees to purchase shares of the Company's common stock at a price
not less than the current market price at the date of the grant. The
options are exercisable over a ten-year period from the date of the
grant. Shares authorized for grant under the 1991 ELTIP total 750,000.
Shares authorized for grant under the 1993 ELTIP total 1,200,000, of
which no more than 450,000 may be used for restricted stock grants.
Shares authorized for grant under the 1995 ELTIP total 1,200,000, of
which no more than 100,000 may be used for restricted stock grants.
The Company has the 1991 Directors' Stock Plan and the 1995 Director
Stock Plan, under which options may be granted to the Directors of the
Company to purchase shares of the Company's common stock at a price not
less than the current market price at the date of grant. Under these
plans the Directors may elect to defer some or all of their annual
retainers and receive restricted stock or stock options at prices that,
when combined with the amounts of deferred retainers, equal the current
market price at the date of the grant. Shares authorized under these
plans total 75,000 per plan.
40
(9) COMMON STOCK RESERVED (Continued)
Effective in fiscal 1997 the Company adopted the disclosure
requirements of SFAS No. 123, "Accounting for Stock-Based
Compensation." As permitted under SFAS No. 123, the Company will
continue to measure stock-based compensation expense as the excess of
the market price at the grant date over the amount the employee must
pay for the stock.
SFAS No. 123 requires disclosure of pro forma net earnings and pro
forma net earnings per share as if the fair value based method had been
applied in measuring compensation expense for awards granted in fiscal
1997 and 1996. Management believes that the fiscal 1997 and 1996 pro
forma amounts may not be representative of the effects of stock-based
awards on future pro forma net earnings and pro forma net earnings per
share because those pro forma amounts exclude the pro forma
compensation expense related to unvested stock options granted before
fiscal 1996.
Reported and pro forma net earnings (loss), in thousands, and net
earnings (loss) per share amounts for the years ended June 30, 1997 and
1996 are set forth below:
1997 1996
------------------------------------------------------------------------------------------------
Reported:
Net earnings (loss) $ 38,401 $ (7,751)
Net earnings (loss) per share 2.15 (0.44)
Pro forma:
Net earnings (loss) 37,777 (8,056)
Net earnings (loss) per share 2.11 (0.46)
------------------------------------------------------------------------------------------------
The fair values of the options granted were estimated on the date of
their grant using the Black-Scholes option pricing model based on the
following weighted average assumptions:
1997 1996
------------------------------------------------------------------------------------------------
Risk free interest rate 6.26% 5.84%
Expected life (in years) 7.4 7.4
Expected volatility 27% 32%
Expected dividend yield 1.17% 1.16%
------------------------------------------------------------------------------------------------
41
(9) COMMON STOCK RESERVED (Continued)
Stock option activity for the years ended June 30, 1997, 1996 and 1995
is summarized as follows:
1997 1996 1995
-------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
----------------------------------------------------------------------------------------------------------
Options outstanding,
beginning of year 1,801,288 $ 14.82 1,438,470 $ 13.19 1,248,019 $ 12.49
Granted 339,665 16.39 388,201 20.83 325,720 15.99
Exercised (94,017) 11.93 (12,883) 11.52 (72,785) 12.12
Canceled (65,323) 17.89 (12,500) 17.68 (62,484) 14.88
----------------------------------------------------------------------------------------------------------
Options outstanding,
end of year 1,981,613 $ 15.12 1,801,288 $ 14.82 1,438,470 $ 13.19
==========================================================================================================
Options exercisable
at end of year 1,287,530 $ 13.49 1,145,236 $ 12.70 925,528 $ 12.03
==========================================================================================================
Weighted average fair
value of options granted
during the year $ 6.46 $ 8.73
===============================================================================
Stock options outstanding at June 30, 1997 were as follows:
Options Outstanding Options Exercisable
----------------------------------------------------------------------------------------------------------
Weighted
Average Weighted Weighted
Range of Exercise Remaining Average Exercise Average Exercise
Price Options Contractual Life Price Options Price
----------------------------------------------------------------------------------------------------------
$5.63 - $9.89 193,948 3.6 years $ 8.47 193,948 $ 8.47
$10.13 - $14.75 694,253 3.9 12.73 694,253 12.73
$15.71 - $19.38 739,352 7.9 16.38 323,858 16.43
$20.56 - $20.88 354,060 8.4 20.86 75,471 20.85
------------------ -----------------
1,981,613 6.1 years $ 15.12 1,287,530 $ 13.49
==========================================================================================================
Shares granted, net of cancellations, under the Company's restricted
stock plans during the years ended June 30, 1997, 1996 and 1995
aggregated 109,200 shares, 163,380 shares and 148,901 shares,
respectively. The Company recognized compensation expense of $1.7
million, $1.8 million and $1.6 million related to shares granted under
the restricted stock plans for the years ended June 30, 1997, 1996 and
1995, respectively.
(10) DEFINED CONTRIBUTION PLAN
The Company sponsors a defined contribution retirement savings plan
that covers substantially all employees of the Company after completion
of six months of service. Company contributions to this plan, which
include amounts based on a percentage of employee contributions as well
as discretionary contributions, were $2.6 million, $2.0 million and
$1.5 million for the years ended June 30, 1997, 1996 and 1995,
respectively.
42
(11) REVENUES AND COSTS AND EXPENSES
The components of revenues and costs and expenses:
In Thousands
Year Ended June 30,
- ---------------------------------------------------------------------------------------------------------
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
Revenues:
Homebuilding:
Communities $ 906,523 $ 794,671 $ 620,012
Conventional 237,566 217,158 144,469
- ---------------------------------------------------------------------------------------------------------
Total homebuilding 1,144,089 1,011,829 764,481
Land and facility sales 31,289 29,525 31,892
Other 10,884 9,379 6,746
- ---------------------------------------------------------------------------------------------------------
$ 1,186,262 $ 1,050,733 $ 803,119
=========================================================================================================
Costs and expenses:
Home construction and land:
Communities $ 682,873 $ 597,014 $ 459,258
Conventional 202,054 184,532 121,915
- ---------------------------------------------------------------------------------------------------------
Total homebuilding 884,927 781,546 581,173
Cost of land and facility sales 26,051 23,227 28,847
Other cost of sales 2,894 3,215 4,827
- ---------------------------------------------------------------------------------------------------------
Total home construction, land and other 913,872 807,988 614,847
Interest 49,457 42,354 31,205
Selling, general and administrative 160,924 147,315 113,235
Loss from impairment of southern California real
estate inventories - 65,000 -
- ---------------------------------------------------------------------------------------------------------
$ 1,124,253 $ 1,062,657 $ 759,287
=========================================================================================================
(12) INTEREST
The following table shows the components of interest:
In Thousands
Year Ended June 30,
- ---------------------------------------------------------------------------------------------------------
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
Interest incurred and capitalized $ 51,917 $ 52,022 $ 46,641
=========================================================================================================
Amortization of capitalized interest in costs and
expenses $ 49,457 $ 42,354 $ 31,205
=========================================================================================================
Unamortized capitalized interest included in real
estate inventories at year end $ 46,121 $ 43,661 $ 55,793
=========================================================================================================
Interest income $ 1,510 $ 1,017 $ 581
=========================================================================================================
Unamortized capitalized interest included in real estate inventories at
June 30, 1996 was reduced by $21.8 million, the portion of the non-cash
loss from impairment of southern California real estate inventories
allocated to unamortized capitalized interest (see Note 13). Interest
income is included in other revenues.
43
(13) IMPAIRMENT OF SOUTHERN CALIFORNIA REAL ESTATE INVENTORIES
In connection with its adoption of SFAS No. 121 in fiscal 1996, the
Company incurred a non-cash loss from impairment of southern California
real estate inventories in the amount of $65.0 million ($42.3 million
after tax) related to the valuation of its Sun City Palm Desert active
adult community (see Note 1).
In the first six months of fiscal 1996, net new orders at Sun City Palm
Desert were substantially below both the comparable period of the prior
fiscal year and the Company's expectations. Although the Company was
encouraged by net new orders significantly greater in the first 45 days
of the third quarter of fiscal 1996 than in the comparable period in
the prior fiscal year, a lower than anticipated level of net new orders
was expected in the remainder of fiscal 1996 and net new orders for all
of fiscal 1996 were anticipated to be lower than in prior fiscal years.
Additionally, a national home builder was developing an active adult
community near Sun City Palm Desert, which was expected to cause
additional competitive pressures at that community. Based on these and
other factors, the Company reduced its estimate with respect to net new
orders and closings in the fiscal years ending June 30, 1997 and beyond
to below the levels achieved in the three fiscal years ended June 30,
1995. This resulted in expected future net cash flows (undiscounted and
without interest charges) at Sun City Palm Desert being less than the
book value of the asset. As required by SFAS No. 121, the Company
therefore recorded in fiscal 1996 a non-cash loss from impairment of
southern California real estate inventories to reflect Sun City Palm
Desert at its estimated fair value. Fair value was estimated based upon
an evaluation of comparable market prices and discounted expected
future cash flows.
(14) CONTINGENT LIABILITIES AND COMMITMENTS
The Company is a party to various legal proceedings arising in the
ordinary course of business. While it is not feasible to predict the
ultimate disposition of these matters, it is the opinion of management
that their outcome will not have a material adverse effect on the
financial condition of the Company.
The Company has issued surety bonds and standby letters of credit
aggregating $94.4 million at June 30, 1997.
The Company leases from third parties, under operating leases, office
space, models, apartment units which it rents to prospective customers
at its active adult communities, automobiles and certain other
equipment. The leases are generally renewable at the Company's option
for additional periods. Total rent expense incurred by the Company was
$7.5 million, $6.9 million and $4.8 million for the years ended June
30, 1997, 1996 and 1995, respectively.
Minimum lease payments (in thousands) to be made by the Company under
non-cancelable lease agreements are as follows:
1998 $ 5,451
1999 3,640
2000 2,678
2001 2,342
2002 1,962
Later years 6,193
-----------
$ 22,266
===========
44
(15) QUARTERLY FINANCIAL INFORMATION (Unaudited)
Quarterly financial information for the years ended June 30, 1997 and
1996 is presented below. The sum of the individual quarterly data may
not equal the annual data due to rounding and fluctuations in weighted
average shares outstanding on a quarter-to-quarter basis.
In Thousands Except Per Share Data
Three Months Ended
------------------------------------------------------------------------------------------------
June 30, March 31, December 31, September 30,
1997 1997 1996 1996
------------------------------------------------------------------------------------------------
Revenues $ 347,968 $ 280,317 $ 293,682 $ 264,295
Earnings before extraordinary
item 13,319 9,576 10,799 5,992
Net earnings 13,319 8,291 10,799 5,992
Earnings per share before
extraordinary item .75 .54 .60 .33
Net earnings per share .75 .46 .60 .33
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
June 30, March 31, December 31, September 30,
1996 1996 1995 1995
------------------------------------------------------------------------------------------------
Revenues $ 348,942 $ 256,014 $ 239,459 $ 206,318
Net earnings (loss) 11,945 (35,385) 9,155 6,534
Net earnings (loss) per share .67 (2.02) .51 .39
------------------------------------------------------------------------------------------------
The net loss in the quarter ended March 31, 1996 resulted from the
non-cash loss from impairment of southern California real estate
inventories related to the valuation of the Company's Sun City Palm
Desert active adult community (see Note 13).
45
DEL WEBB CORPORATION AND SUBSIDIARIES SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS -----------
Years ended June 30, 1997, 1996 and 1995
In Thousands
- --------------------------------------------------------------------------------------------------------------------
Additions Additions
Balance at Charged to Charged to
Beginning of Costs and Other Balance at
Classification Year Expenses Accounts Deductions End of Year
- --------------------------------------------------------------------------------------------------------------------
1997
- ----
Reserve for residential land development project $ 7,126 $ 365 $ - $ - $ 7,491
Deferred tax asset valuation allowance 3,862 - - 473 3,389
Reserves for disposal costs of discontinued
operations 12,209 - - 1,827 10,382
- --------------------------------------------------------------------------------------------------------------------
$ 23,197 $ 365 $ - $ 2,300 $ 21,262
====================================================================================================================
1996
- ----
Reserve for residential land development project $ 8,264 $ - $ - $ 1,138 $ 7,126
Deferred tax asset valuation allowance 3,862 - - - 3,862
Reserves for disposal costs of discontinued
operations 27,855 - - 15,646 12,209
- --------------------------------------------------------------------------------------------------------------------
$ 39,981 $ - $ - $ 16,784 $ 23,197
====================================================================================================================
1995
- ----
Reserve for residential land development project $ 6,738 $ 1,526 $ - $ - $ 8,264
Deferred tax asset valuation allowance 6,606 - - 2,744 3,862
Reserves for disposal costs of discontinued
operations 29,155 - - 1,300 27,855
- --------------------------------------------------------------------------------------------------------------------
$ 42,499 $ 1,526 $ - $ 4,044 $ 39,981
====================================================================================================================
46
DEL WEBB CORPORATION
Report on Form 10-K For The
Year Ended June 30, 1997
10-K EXHIBIT INDEX
------------------
NON-FINANCIAL STATEMENT EXHIBITS
--------------------------------
Exhibit
Number
- ------
3.0 Amended and Restated Certificate of Incorporation of the
Registrant, incorporated by reference to Exhibit 99.0 to
Registrant's Report on Form 10-Q for the quarter ended
September 30, 1994.
3.1 The Bylaws of the Registrant effective November 1, 1994; as
amended on February 13, 1996, incorporated by reference to
Exhibit 3.1 to Registrant's Report on Form 10-K for the year
ended June 30, 1996.
4.1 Indenture dated as of April 15, 1992 between Registrant and
United States Trust Company of New York, as Trustee, defining
the rights of holders of the 10 7/8% Senior Notes due 2000,
incorporated by reference to Registration Statement No.
33-45703. Notes have been redeemed.
4.2 Indenture dated as of March 8, 1993 between Registrant and
Fidelity Trust Company, New York, as Trustee, defining the
rights of the holders of the 9 3/4% Senior Subordinated
Debentures due 2003, incorporated by reference to Registration
Statement No. 33-56898.
4.3 Indenture dated as of February 4, 1994, between Registrant and
The Bank of New York, as Trustee, defining the rights of the
holders of the 9% Senior Subordinated Debentures due 2006
incorporated by reference to Registration Statement No.
33-68732.
4.4 Indenture dated as of January 21, 1997, between Registrant,
State Street Bank and Trust Company, as Trustee, defining the
rights of the holders of the 9 3/4% Senior Subordinated
Debentures due 2008 incorporated by reference to Registrant's
Report on Form 8-K dated January 21, 1997.
10.1 Sample Change of Control Agreement between Registrant and
certain of its officers with schedule setting forth the
differences.
10.2 Employment and Consulting Agreement dated July 10, 1996,
between the Registrant and Philip J. Dion, incorporated by
reference to Exhibit 10.2 to Registrant's Report on Form 10-K
for the year ended June 30, 1996.
10.6 Office Lease Agreement between Western Plaza Investors, L.P.
and Registrant dated April 20, 1994 incorporated by reference
to Registrant's Report on Form 10-K for the year ended June
30, 1994; as amended by the First Amendment to Lease dated
February 29, 1996, incorporated by reference to Exhibit 10.6
to Registrant's Report on Form 10-K for the year ended June
30, 1996.
10.7 Del Webb Corporation Deferred Compensation Plan effective June
1, 1993, incorporated by reference to Exhibit 10.7 to
Registrant's Report on Form 10-K for the year ended June 30,
1993.
10.8 Key Executive Life Insurance Plan II dated April 1, 1992,
incorporated by reference to Exhibit 10.8 to Registrant's
Report on Form 10-K for the year ended June 30, 1992; as
amended on November 8, 1994, incorporated by reference to
Exhibit 10.8 to Registrant's Report on Form 10-K for the year
ended June 30, 1996.
10.9 Key Executive Life Insurance Plan dated May 15, 1991,
incorporated by reference to Exhibit 10.10 to Registrant's
Report on Form 10-K for the year ended June 30, 1991; as
amended on November 18, 1994, incorporated by reference to
Exhibit 10.9 to Registrant's Report on Form 10-K for the year
ended June 30, 1996.
10.10 Del Webb Corporation Executive Long-Term Incentive Plan
adopted November 20, 1991, incorporated by reference to
Registrant's Report on Form 10-K for the year ended June 30,
1992; and First Amendment to the Executive Long-Term Incentive
Plan dated June 30, 1993, incorporated by reference to Exhibit
10.10 to Registrant's Report on Form 10-K for the year ended
June 30, 1993; as amended by the Second Amendment to the
Executive Long-Term Incentive Plan dated June 20, 1996.
10.11 Del Webb Corporation 1993 Executive Long Term Incentive Plan
dated March 17, 1994, incorporated by reference to Exhibit
10.11 to Registrant's Report on Form 10-K for the year ended
June 30, 1994; as amended by the First Amendment to the 1993
Executive Long-Term Incentive Plan dated June 20, 1996.
2
10.13 Del Webb Corporation Supplemental Executive Retirement Plan
No. 1, as amended and restated April 20, 1993, incorporated by
reference to Exhibit 10.12 to Registrant's Report on Form 10-K
for the year ended June 30, 1993; as amended by First
Amendment to the Del Webb Corporation Supplemental Executive
Retirement Plan No. 1 effective July 1, 1995, incorporated by
reference to Exhibit 10.13 to Registrant's Report on Form 10-K
for the year ended June 30, 1995.
10.14 Del Webb Corporation Director Stock Plan dated November 20,
1991, incorporated by reference to Exhibit 10.13 to
Registrant's Report on Form 10-K for the year ended June 30,
1993.
10.15 Amended and Restated Revolving Loan Agreement by and among Del
Webb Corporation and Bank of America National Trust and
Savings Association as Agent, and Bank One Arizona, NA, as
Co-Agent, dated June 27, 1995; as amended by the Second
Amendment to the Amended and Restated Revolving Loan Agreement
effective July 22, 1996, incorporated by reference to Exhibit
10.15 to Registrant's Report on Form 10-K for the year ended
June 30, 1996; as amended by the Third Amendment to the
Amended and Restated Revolving Loan Agreement effective March
31, 1997; as amended by the Fourth Amendment to the Amended
and Restated Revolving Loan Agreement effective April 29,
1997.
10.16 Current list of participants to the Del Webb Corporation
Supplemental Executive Retirement Plan No. 2, as amended and
restated April 20, 1993, incorporated by reference to Exhibit
10.16 to Registrant's Report on Form 10-K for the year ended
June 30, 1993; as amended by First Amendment to the Del Webb
Corporation Supplemental Executive Retirement Plan No. 2
effective July 1, 1995, incorporated by reference to Exhibit
10.16 to Registrant's Report on Form 10-K for the year ended
June 30, 1995.
10.17 Senior Officer Medical and Dental Reimbursement Plan, as
amended and restated November 16, 1992, incorporated by
reference to Exhibit 10.17 to Registrant's Report on Form 10-K
for the year ended June 30, 1993.
10.18 1981 Stock Option Plan, as amended October 29, 1981; as
amended January 29, 1987, as amended by the Third Amendment to
the Del Webb Corporation 1981 Stock Option Plan dated June 30,
1993, incorporated by reference to Exhibit 10.18 to
Registrant's Report on Form 10-K for the year ended June 30,
1993.
3
10.19 1986 Stock Option and SAR Plan of the Del Webb Corporation, as
amended January 27, 1987; as amended by the Second Amendment
to the 1986 Stock Option and SAR Plan dated June 30, 1993,
incorporated by reference to Exhibit 10.19 to Registrant's
Report on Form 10-K for the year ended June 30, 1993.
10.23 Del E. Webb Corporation Umbrella Trust dated June 11, 1987, as
amended by Amendment Number One to the Del Webb Corporation
Umbrella Trust dated February 8, 1989, and Amendment Number
Two to Del Webb Corporation Umbrella Trust dated March 14,
1990, incorporated by reference to Exhibit 10.23 to
Registrant's Report on Form 10-K for the year ended June 30,
1996.
10.24 Sample Directors and Officers Indemnification Agreement
between Registrant and its directors and officers with list of
such directors and officers.
10.25 Del Webb Corporation 1995 Executive Long-Term Incentive Plan
adopted July 13, 1995, incorporated by reference to Exhibit
10.25 to Registrant's Report on Form 10-K for the year ended
June 30, 1995; as amended by the First Amendment to the 1995
Executive Long-Term Incentive Plan dated June 20, 1996.
10.26 Del Webb Corporation 1995 Director Stock Plan adopted July 13,
1995, incorporated by reference to Exhibit 10.26 to
Registrant's Report on Form 10-K for the year ended June 20,
1995.
10.27 Del Webb Corporation 1995 Executive Management Incentive Plan
adopted July 13, 1995, incorporated by reference to Exhibit
10.27 to Registrant's Report on Form 10-K for the year ended
June 30, 1995.
10.28 Del Webb Corporation Management Incentive Plan Fiscal 1998
(July 1, 1997 - June 30, 1998).
10.29 Amended and Restated Certificate and Agreement of Limited
Partnership of New Mexico Asset Limited Partnership effective
June 18, 1996, incorporated by reference to Exhibit 10.29 to
Registrant's Report on Form 10-K for the year ended June 30,
1996.
10.30 Supplemental Executive Retirement Plan No. 1 Participation
Agreement between the Registrant and Philip J. Dion Amended
and Restated effective July 25, 1996, incorporated by
reference to Exhibit 10.30 to Registrant's Report on Form 10-K
for the year ended June 30, 1996.
4
10.31 1996/97 Executive Management Incentive Plan Award Agreement
between the Registrant and Philip J. Dion dated August 21,
1996.
10.32 Key Executive Life Plan Plus dated August 23, 1995,
incorporated by reference to Exhibit 10.32 to Registrant's
Report on Form 10-K for the year ended June 30, 1996.
10.33 Key Executive Life Plan 1995 dated October 5, 1995,
incorporated by reference to Exhibit 10.33 to Registrant's
Report on Form 10-K for the year ended June 30, 1996.
10.34 Group Term Carve-Out Plan dated November 18, 1994,
incorporated by reference to Exhibit 10.34 to Registrant's
Report on Form 10-K for the year ended June 30, 1996.
10.35 Employment Agreement dated April 11, 1997 between the
Registrant and Joseph F. Contadino.
10.36 Employment Agreement dated April 11, 1997 between the
Registrant and John H. Gleason.
10.37 Employment Agreement dated April 11, 1997 between the
Registrant and LeRoy C. Hanneman.
10.38 Employment Agreement dated April 11, 1997 between the
Registrant and Anne L. Mariucci.
10.39 Supplemental Executive Retirement Plan No. 1 Participation
Agreement as of April 11, 1997 between the Registrant and
Joseph F. Contadino.
10.40 Supplemental Executive Retirement Plan No. 1 Participation
Agreement as of April 11, 1997 between the Registrant and John
H. Gleason.
10.41 Supplemental Executive Retirement Plan No. 1 Participation
Agreement as of April 11, 1997 between the Registrant and
LeRoy C. Hanneman.
10.42 Supplemental Executive Retirement Plan No. 1 Participation
Agreement as of April 11, 1997 between the Registrant and Anne
L. Mariucci.
21.0 Subsidiaries of the Registrant.
23.0 Consent of Experts.
27 Financial Data Schedule.
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