UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the period ended September 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 or other jurisdiction (IRS Employer Identification Number)
of incorporation or organization)
6001 North 24th Street, Phoenix, Arizona 85016
(Address of principal executive offices) (Zip Code)
(602) 808-8000
(Registrant's phone number, including area code)
NONE
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
As of October 31, 1997 Registrant had outstanding 17,645,150 shares of common
stock.
DEL WEBB CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED
SEPTEMBER 30, 1997
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30, 1997,
June 30, 1997 and September 30, 1996........................................................ 1
Consolidated Statements of Earnings for the three
months ended September 30, 1997 and 1996.................................................... 2
Consolidated Statements of Cash Flows for the three
months ended September 30, 1997 and 1996.................................................... 3
Notes to Consolidated Financial Statements.................................................... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................................................10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.............................................................. 15
DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands Except Share Data)
September 30, June 30, September 30,
1997 1997 1996
(Unaudited) (Unaudited)
- ----------------------------------------------------------------------------------------------------------------
Assets .
- ----------------------------------------------------------------------------------------------------------------
Real estate inventories (Notes 2, 3 and 6) $ 965,887 $ 939,684 $ 922,065
Cash and short-term investments 4,921 24,715 7,662
Receivables 22,294 28,892 29,248
Property and equipment, net 19,330 20,937 23,800
Deferred income taxes (Note 4) 4,378 6,526 10,331
Other assets 49,861 65,908 53,101
- ----------------------------------------------------------------------------------------------------------------
$ 1,066,671 $ 1,086,662 $ 1,046,207
================================================================================================================
Liabilities and Shareholders' Equity
- ----------------------------------------------------------------------------------------------------------------
Notes payable, senior and subordinated debt (Note 3) $ 548,716 $ 563,068 $ 550,912
Contractor and trade accounts payable 64,114 70,827 72,416
Accrued liabilities and other payables 66,997 79,959 55,111
Home sale deposits 76,416 69,476 93,357
Income taxes payable (Note 4) 4,189 3,502 3,949
- ----------------------------------------------------------------------------------------------------------------
Total liabilities 760,432 786,832 775,745
- ----------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Common stock, $.001 par value. Authorized 30,000,000
shares; issued 17,679,783 shares at September 30, 1997,
17,691,118 shares at June 30, 1997 and 17,548,958 shares
at September 30, 1996 18 18 18
Additional paid-in capital 159,814 160,308 158,378
Retained earnings 151,168 145,922 116,148
- ----------------------------------------------------------------------------------------------------------------
311,000 306,248 274,544
Less cost of common stock in treasury, 49,950 shares
at September 30, 1997, 124,509 shares at June 30, 1997
and 6,801 shares at September 30, 1996 (762) (1,914) (105)
Less deferred compensation (3,999) (4,504) (3,977)
- ----------------------------------------------------------------------------------------------------------------
Total shareholders' equity 306,239 299,830 270,462
- ----------------------------------------------------------------------------------------------------------------
$ 1,066,671 $ 1,086,662 $ 1,046,207
================================================================================================================
See accompanying notes to consolidated financial statements.
1
DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In Thousands Except Per Share Data)
(Unaudited)
Three Months Ended
September 30,
- -----------------------------------------------------------------------------------------------------------------
1997 1996
- -----------------------------------------------------------------------------------------------------------------
Revenues (Note 5) $ 248,043 $ 264,295
- -----------------------------------------------------------------------------------------------------------------
Costs and expenses (Note 5):
Home construction, land and other 190,944 205,164
Interest (Note 6) 11,067 11,584
Selling, general and administrative 36,461 38,184
- -----------------------------------------------------------------------------------------------------------------
238,472 254,932
- -----------------------------------------------------------------------------------------------------------------
Earnings before income taxes 9,571 9,363
Income taxes (Note 4) 3,446 3,371
- -----------------------------------------------------------------------------------------------------------------
Net earnings $ 6,125 $ 5,992
=================================================================================================================
Weighted average shares outstanding 17,938 17,897
=================================================================================================================
Net earnings per share $ .34 $ .33
=================================================================================================================
See accompanying notes to consolidated financial statements.
2
DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Three Months Ended
September 30,
- -------------------------------------------------------------------------------------------------------------------
1997 1996
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers related to community home sales $ 190,022 $ 198,896
Cash received from commercial land and facility sales 15,067 3,335
Cash paid for costs related to community home construction (122,452) (140,333)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by community sales activities 82,637 61,898
Cash paid for land acquisitions at operating communities (2,495) (733)
Cash paid for lot development at operating communities (26,447) (26,138)
Cash paid for amenity development at operating communities (9,321) (15,313)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating communities 44,374 19,714
Cash paid for costs related to communities in the pre-operating stage (13,718) (24,851)
Cash received from customers related to conventional homebuilding 54,734 54,584
Cash paid for land, development, construction and other costs related to
conventional homebuilding (52,556) (57,218)
Cash received from residential land development project 918 3,177
Cash paid for corporate activities (15,367) (17,833)
Interest paid (20,205) (19,247)
Cash paid for income taxes (558) (1,887)
- -------------------------------------------------------------------------------------------------------------------
NET CASH USED FOR OPERATING ACTIVITIES (2,378) (43,561)
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (206) (1,233)
Investments in life insurance policies (2,036) (937)
- -------------------------------------------------------------------------------------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES (2,242) (2,170)
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings 63,149 87,555
Repayments of debt (78,150) (51,735)
Proceeds from exercise of common stock options 709 110
Purchases of treasury stock (3) -
Dividends paid (879) (877)
NET CASH PROVIDED BY FINANCING ACTIVITIES (15,174) 35,053
- -------------------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH AND SHORT-TERM INVESTMENTS (19,794) (10,678)
CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD 24,715 18,340
- -------------------------------------------------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 4,921 $ 7,662
===================================================================================================================
See accompanying notes to consolidated financial statements.
3
DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In Thousands)
(Unaudited)
Three Months Ended
September 30,
- -----------------------------------------------------------------------------------------------------------------
1997 1996
- -----------------------------------------------------------------------------------------------------------------
Reconciliation of net earnings to net cash used for operating activities:
Net earnings $ 6,125 $ 5,992
Allocation of non-cash common costs in costs and expenses, excluding interest 53,274 65,403
Amortization of capitalized interest in costs and expenses 11,067 11,584
Deferred compensation amortization 420 455
Depreciation and other amortization 1,566 1,956
Deferred income taxes 2,147 2,281
Net (increase) decrease in home construction costs 11,074 (18,865)
Land acquisitions (11,295) (12,179)
Lot development (40,349) (38,460)
Amenity development (14,310) (23,506)
Pre-acquisition costs (2,412) (9,032)
Net change in other assets and liabilities (19,685) (29,190)
- -----------------------------------------------------------------------------------------------------------------
Net cash used for operating activities $ (2,378)$ (43,561)
=================================================================================================================
See accompanying notes to consolidated financial statements.
4
DEL WEBB CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Basis of Presentation
The consolidated financial statements include the accounts of Del Webb
Corporation and its subsidiaries ("Company"). In the opinion of
management, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting of only normal recurring
adjustments, primarily eliminations of all significant intercompany
transactions and accounts) necessary to present fairly the financial
position, results of operations and cash flows for the periods
presented.
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 in Arizona and Nevada.
These consolidated financial statements should be read in conjunction
with the consolidated financial statements and the related disclosures
contained in the Company's Annual Report on Form 10-K for the year
ended June 30, 1997, filed with the Securities and Exchange Commission.
In the Consolidated Statements of Cash Flows, the Company defines
operating communities as communities generating revenues from home
closings. Communities in the pre-operating stage are those not yet
generating revenues from home closings.
The results of operations for the three months ended September 30, 1997
are not necessarily indicative of the results to be expected for the
full fiscal year.
5
DEL WEBB CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(2) Real Estate Inventories
The components of real estate inventories are as follows:
In Thousands
----------------------------------------------------------------------------------------------------------
September 30, June 30, September 30,
1997 1997 1996
(Unaudited) (Unaudited)
----------------------------------------------------------------------------------------------------------
Home construction costs $ 170,944 $ 182,018 $ 196,665
Unamortized improvement and amenity costs 503,730 489,142 447,517
Unamortized capitalized interest 48,068 46,121 44,143
Land held for housing 199,750 174,930 168,574
Land and facilities held for future development or
sale 43,395 47,473 65,166
----------------------------------------------------------------------------------------------------------
$ 965,887 $ 939,684 $ 922,065
==========================================================================================================
At September 30, 1997 the Company had 437 completed homes and 382 homes
under construction that were not subject to a sales contract. These
homes represented $34.1 million and $8.1 million, respectively, of home
construction costs at September 30, 1997. At September 30, 1996 the
Company had 332 completed homes and 724 homes under construction
(representing $27.3 million and $14.0 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
September 30, 1997 were 375 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.
During the three months ended September 30, 1997, the Company acquired
the initial portions of land for a potential large-scale master-planned
community in the southern Las Vegas valley and for a planned
smaller-scale, less-amenitized community in northern California.
Accordingly, capitalized pre-acquisition costs previously classified as
other assets for these communities are now classified as real estate
inventories.
(3) Notes Payable, Senior and Subordinated Debt
Notes payable, senior and subordinated debt consists of the following:
In Thousands
----------------------------------------------------------------------------------------------------------
September 30, June 30, September 30,
1997 1997 1996
(Unaudited) (Unaudited)
----------------------------------------------------------------------------------------------------------
10 7/8% Senior Notes, net $ - $ - $ 97,647
9 3/4% Senior Subordinated Debentures due 2003, net 97,773 97,670 97,362
9% Senior Subordinated Debentures due 2006, net 97,697 97,628 97,423
9 3/4% Senior Subordinated Debentures due 2008, net 145,007 144,889 -
Notes payable to banks under a revolving credit
facility and short-term lines of credit 186,000 185,990 229,000
Real estate and other notes 22,239 36,891 29,480
----------------------------------------------------------------------------------------------------------
$ 548,716 $ 563,068 $ 550,912
==========================================================================================================
6
DEL WEBB CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(3) Notes Payable, Senior and Subordinated Debt (continued)
At September 30, 1997 the Company had $182.0 million outstanding under
its $350 million senior unsecured revolving credit facility and $4.0
outstanding under its $20 million of short-term lines of credit.
At September 30, 1997, under the most restrictive of the covenants in
the Company's debt agreements, $17.1 million of the Company's retained
earnings was available for payment of cash dividends and for the
acquisition by the Company of its common stock.
(4) Income Taxes
Components of Income Taxes
The components of income taxes are:
In Thousands
(Unaudited)
-----------------------------------------------------------------------------------------------------
Three Months Ended
September 30,
1997 1996
-----------------------------------------------------------------------------------------------------
Current:
Federal $ 1,226 $ 1,058
State 73 32
-----------------------------------------------------------------------------------------------------
1,299 1,090
-----------------------------------------------------------------------------------------------------
Deferred:
Federal 1,815 2,328
State 332 (47)
-----------------------------------------------------------------------------------------------------
2,147 2,281
-----------------------------------------------------------------------------------------------------
$ 3,446 $ 3,371
=====================================================================================================
7
DEL WEBB CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(5) Revenues and Costs and Expenses
The components of revenues and costs and expenses are:
In Thousands
(Unaudited)
------------------------------------------------------------------------------------------------------
Three Months Ended
September 30,
1997 1996
------------------------------------------------------------------------------------------------------
Revenues:
Homebuilding:
Communities $ 178,802 $ 196,953
Conventional 51,526 49,335
------------------------------------------------------------------------------------------------------
Total homebuilding 230,328 246,288
Land and facility sales 15,518 15,628
Other 2,197 2,379
------------------------------------------------------------------------------------------------------
$ 248,043 $ 264,295
======================================================================================================
Costs and expenses:
Home construction and land:
Communities $ 135,183 $ 150,344
Conventional 44,035 41,177
------------------------------------------------------------------------------------------------------
Total homebuilding 179,218 191,521
Cost of land and facility sales 10,953 12,758
Other cost of sales 773 885
------------------------------------------------------------------------------------------------------
Total home construction, land and other 190,944 205,164
Interest 11,067 11,584
Selling, general and administrative 36,461 38,184
------------------------------------------------------------------------------------------------------
$ 238,472 $ 254,932
======================================================================================================
8
DEL WEBB CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(6) Interest
The following table shows the components of interest:
In Thousands
(Unaudited)
------------------------------------------------------------------------------------------------------
Three Months Ended
September 30,
1997 1996
------------------------------------------------------------------------------------------------------
Interest incurred and capitalized $ 13,014 $ 12,066
======================================================================================================
Amortization of capitalized interest in costs and expenses $ 11,067 $ 11,584
======================================================================================================
Unamortized capitalized interest included in real estate
inventories at period end $ 48,068 $ 44,143
======================================================================================================
Interest income $ 253 $ 372
======================================================================================================
Interest income is included in other revenues in the Consolidated
Statements of Earnings.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion of the results of operations and financial condition
should be read in conjunction with the accompanying consolidated financial
statements and notes thereto and the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1997, filed with the Securities and Exchange
Commission.
CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA
- -------------------------------------------------
Three Months Ended
September 30, Change
- -------------------------------------------------------------------------------------------------------------------
1997 1996 Amount Percent
- -------------------------------------------------------------------------------------------------------------------
OPERATING DATA :
- ----------------
Number of net new orders:(1)
Sun Cities Phoenix (2) 262 274 (12) (4.4%)
Sun Cities Las Vegas (3) 278 209 69 33.0%
Sun City Palm Desert 62 14 48 342.9%
Sun City Roseville 176 98 78 79.6%
Sun City Hilton Head 95 76 19 25.0%
Sun City Georgetown 85 101 (16) (15.8%)
Other communities (4) 14 N/A 14 N/A
Coventry Homes 302 251 51 20.3%
- -------------------------------------------------------------------------------------------------------------------
Total current communities 1,274 1,023 251 24.5%
Completed operations:
Sun City Tucson (5) N/A 24 (24) (100.0%)
Terravita (6) N/A 28 (28) (100.0%)
Coventry Homes - Southern California (7) N/A 56 (56) (100.0%)
- -------------------------------------------------------------------------------------------------------------------
Total 1,274 1,131 143 12.6%
===================================================================================================================
Number of home closings:
Sun Cities Phoenix (2) 259 232 27 11.6%
Sun Cities Las Vegas (3) 242 253 (11) (4.3%)
Sun City Palm Desert 41 43 (2) (4.7%)
Sun City Roseville 118 173 (55) (31.8%)
Sun City Hilton Head 84 75 9 12.0%
Sun City Georgetown 111 143 (32) (22.4%)
Terravita (6) 82 84 (2) (2.4%)
Other communities (4) N/A N/A N/A N/A
Coventry Homes 279 302 (23) (7.6%)
- -------------------------------------------------------------------------------------------------------------------
Total current communities 1,216 1,305 (89) (6.8%)
Completed operations:
Sun City Tucson (5) N/A 55 (55) (100.0%)
Coventry Homes - Southern California (7) 20 22 (2) (9.1%)
- -------------------------------------------------------------------------------------------------------------------
Total 1,236 1,382 (146) (10.6%)
===================================================================================================================
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA (Continued)
- -------------------------------------------------------------
Three Months Ended
September 30, Change
- -------------------------------------------------------------------------------------------------------------------
1997 1996 Amount Percent
- -------------------------------------------------------------------------------------------------------------------
BACKLOG DATA :
- --------------
Homes under contract at September 30:
Sun Cities Phoenix (2) 695 595 100 16.8%
Sun Cities Las Vegas (3) 569 598 (29) (4.8%)
Sun City Palm Desert 147 83 64 77.1%
Sun City Roseville 338 302 36 11.9%
Sun City Hilton Head 170 194 (24) (12.4%)
Sun City Georgetown 176 336 (160) (47.6%)
Terravita (6) 38 248 (210) (84.7%)
Other communities (4) 14 N/A 14 N/A
Coventry Homes 481 521 (40) (7.7%)
- -------------------------------------------------------------------------------------------------------------------
Total current communities 2,628 2,877 (249) (8.7%)
Completed operations:
Sun City Tucson (5) N/A 14 (14) (100.0%)
Coventry Homes - Southern California (7) N/A 57 (57) (100.0%)
- -------------------------------------------------------------------------------------------------------------------
Total (8) 2,628 2,948 (320) (10.9%)
===================================================================================================================
Aggregate contract sales amount
(dollars in millions) $ 527 $ 575 $ (48) (8.3%)
===================================================================================================================
Average contract sales amount per home
(dollars in thousands) $ 201 $ 195 $ 6 3.1%
===================================================================================================================
AVERAGE REVENUE PER HOME CLOSING :
Sun City West $ 153,500 $ 154,200 $ (700) (0.5%)
Sun Cities Las Vegas (2) 189,500 179,600 9,900 5.5%
Sun City Palm Desert 230,800 239,700 (8,900) (3.7%)
Sun City Roseville 210,700 200,700 10,000 5.0%
Sun City Hilton Head (3) 169,200 158,000 11,200 7.1%
Sun City Georgetown (3) 198,200 180,300 17,900 9.9%
Terravita (6) 276,300 283,600 (7,300) (2.6%)
Other communities (4) N/A N/A N/A N/A
Coventry Homes 171,300 147,300 24,000 16.3%
Weighted average current communities 186,300 178,600 7,700 4.3%
Completed operations:
Sun City Tucson (5) N/A 168,100 N/A N/A
Coventry Homes - Southern California (7) 186,600 220,100 (33,500) (15.2%)
Total weighted average 186,300 178,200 8,100 4.5%
===================================================================================================================
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA (Continued)
- -------------------------------------------------------------
Three Months Ended
September 30, Change
- -------------------------------------------------------------------------------------------------------------------
1997 1996 Amount Percent
- -------------------------------------------------------------------------------------------------------------------
OPERATING STATISTICS :
Cost and expenses as a percentage of revenues:
Home construction, land and other 77.0% 77.6% (0.6%) (0.8%)
Interest 4.5% 4.4% 0.1% 2.3%
Selling, general and administrative 14.7% 14.4% 0.3% 2.1%
Ratio of home closings to homes under contract
in backlog at beginning of period 47.7% 43.2% 4.5% 10.4%
===================================================================================================================
(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.
(4) As of September 30, 1997, the Company had one smaller-scale community in
Arizona at which net new order activity began in September 1997.
(5) The Company completed net new order activity at Sun City Tucson in February
1997. Home closings at Sun City Tucson were completed in April 1997.
(6) The Company completed net new order activity at Terravita in April 1997.
(7) The Company completed net new order activity for its Coventry Homes -
Southern California operations in June 1997. Home closings for these
operations were completed in August 1997.
(8) A majority of the backlog at September 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 three months ended September 30, 1997 and
1996, cancellations of home sales orders as a percentage of new home sales
orders written during the period were 14.0 percent and 20.8 percent,
respectively.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
RESULTS OF OPERATIONS
- ---------------------
Revenues. Revenues decreased to $248.0 million for the three months ended
September 30, 1997 from $264.3 million for the the three months ended September
30, 1996. Decreased home closings at Sun City Roseville and Sun City Georgetown
(each of which had a substantially lower backlog at the beginning of the 1997
quarter than at the beginning of the 1996 quarter) accounted for $11.0 million
and $5.8 million, respectively, in decreased revenues. Decreased home closings
at Sun City Tucson (reflecting the April 1997 completion of that community)
resulted in a $9.2 million decrease in revenues. These decreases were partially
offset by an increase in the average revenue per home closing, which resulted in
increased revenues of $11.4 million.
Home Construction, Land and Other Costs. The decrease in home construction, land
and other costs to $190.9 million for the 1997 quarter compared to $205.2
million for the 1996 quarter was primarily due to the decrease in home closings.
These costs as a percentage of revenues decreased to 77.0 percent for the 1997
quarter compared to 77.6 percent for the 1996 quarter, with the decrease
primarily due to improved margins on land and facility sales. The improved
margins on land and facility sales were primarily due to the declining
contribution from lower-margin land sales at Foothills, the Company's nearly
complete residential land development project in Phoenix.
Interest. As a percentage of revenues, amortization of capitalized interest was
4.5 percent for the 1997 quarter compared to 4.4 percent for the 1996 quarter.
This increase was primarily due to changes in the mix of home closings among the
Company's communities and conventional homebuilding operations.
Selling, General and Administrative Expenses. As a percentage of revenues,
selling, general and administrative expenses increased to 14.7 percent for the
1997 quarter as compared to 14.4 percent for the 1996 quarter. This increase
resulted primarily from the spreading of relatively fixed corporate overhead
over lower revenues.
Income Taxes. The small increase in income taxes in the 1997 quarter as compared
to the 1996 quarter was due to the increase in earnings before income taxes. The
effective tax rate was 36 percent in both quarters.
Net New Order Activity and Backlog. Net new orders in the 1997 quarter were 12.6
percent higher than in the 1996 quarter. Exclusive of completed operations, net
new orders increased 24.5 percent. The increase was largely due to increases at
Sun City Roseville and Sun City Palm Desert, which management believes may
indicate continued improvement in the California real estate economy. In
addition, both of these California communities benefitted from the introduction
of new product offerings, which management believes had a positive impact on new
orders.
Net new orders at the Sun Cities Las Vegas increased 33.0 percent, which
management believes is primarily due to the continued strength of the Las Vegas
market. At Sun City Hilton Head, net new orders increased 25.0 percent, which
management believes may be partially due to the fact that important commercial
and service- related businesses have announced development plans for the area
adjacent to Sun City Hilton Head. These increases were partially offset by a
15.8 percent decrease in net new orders at Sun City Georgetown. That community
is in the process of introducing new product offerings which are designed to
appeal to a larger segment of the Texas active adult market.
The number of homes under contract at September 30, 1997 was 10.9 percent lower
than at September 30, 1996. This backlog decrease was largely due to decreases
attributable to the approaching completion of Terravita and the August 1997
completion of Coventry Homes' southern California operations. Sun City
Georgetown has also experienced a significant backlog decrease as net new orders
did not keep pace with home closings at that community over the past 12 months.
LIQUIDITY AND FINANCIAL CONDITION OF THE COMPANY
- ------------------------------------------------
At September 30, 1997 the Company had $4.9 million of cash and short-term
investments, $182.0 million outstanding under its $350 million senior unsecured
revolving credit facility and $4.0 million outstanding under its $20 million of
short-term lines of credit.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
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 costs are capitalized, this can result in
income reported for financial statement purposes during those initial years
significantly exceeding cash flow. However, after the initial years of
development or expansion, when these expenditures are made, cash flow can
significantly exceed earnings reported for financial statement purposes, as
costs and expenses include amortization charges for substantial amounts of
previously expended costs.
During the 1997 quarter the Company generated $82.6 million of net cash from
community sales activities, used $38.3 million of cash for land and lot and
amenity development at operating communities, paid $13.7 million for costs
related to communities in the pre-operating stage, generated $2.2 million of net
cash from conventional homebuilding operations and used $35.2 million of cash
for other operating activities. The resulting $2.4 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)
was funded mainly through utilization of cash and short-term investments
existing at the beginning of the period.
At September 30, 1997, under the most restrictive of the covenants in the
Company's debt agreements, $17.1 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.
In October 1997 a shelf registration statement filed by the Company with the
Securities and Exchange Commission, covering up to $200 million of the Company's
debt and equity securities, became effective. The shelf registration statement
provides the Company with additional flexibility to respond to market
conditions. The securities covered by the registration statement may be offered
for sale from time to time in the future in one or more series and in the form
of senior, senior subordinated or subordinated debt, common stock, preferred
stock or warrants to purchase such securities.
FORWARD LOOKING INFORMATION; CERTAIN CAUTIONARY STATEMENTS
- ----------------------------------------------------------
Certain statements contained in this "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section that are not historical
results are forward looking statements. These forward looking statements involve
risks and uncertainties including, but not limited to, risks associated with 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, natural
risks that exist in certain of the Company's market areas and other matters set
forth in the Company's Form 10-K for the year ended June 30, 1997. 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.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibit 27 Financial Data Schedule
(b) The Company did not file any reports on Form 8-K during the period
covered by this report.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, who are duly authorized to do so.
DEL WEBB CORPORATION
(Registrant)
Date: November 10, 1997 /s/ Philip J. Dion
------------------------- ----------------------------------------
Philip J. Dion
Chairman and Chief Executive Officer
Date: November 10, 1997 /s/ John A. Spencer
------------------------- ----------------------------------------
John A. Spencer
Senior Vice President and Chief
Financial Officer
16