UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the period ended December 31, 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 January 31, 1998 Registrant had outstanding 17,833,110 shares of common
stock.
DEL WEBB CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED
DECEMBER 31, 1997
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements:
Consolidated Balance Sheets as of December 31, 1997,
June 30, 1997 and December 31, 1996.............................................. 1
Consolidated Statements of Earnings for the three and six
months ended December 31, 1997 and 1996.......................................... 2
Consolidated Statements of Cash Flows for the six
months ended December 31, 1997 and 1996.......................................... 3
Notes to Consolidated Financial Statements......................................... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..............................................10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings .................................................................16
Item 6. Exhibits and Reports on Form 8-K...................................................16
DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands Except Share Data)
December 31, June 30, December 31,
1997 1997 1996
(Unaudited) (Unaudited)
- ----------------------------------------------------------------------------------------------------------------
Assets .
- ----------------------------------------------------------------------------------------------------------------
Real estate inventories (Notes 2, 3 and 6) $ 1,018,692 $ 939,684 $ 930,250
Cash and short-term investments 1,222 24,715 1,876
Receivables 26,897 28,892 25,174
Property and equipment, net 18,415 20,937 22,109
Deferred income taxes (Note 4) 4,996 6,526 9,894
Other assets (Note 7) 88,226 65,908 55,306
- ----------------------------------------------------------------------------------------------------------------
$ 1,158,448 $ 1,086,662 $ 1,044,609
================================================================================================================
Liabilities and Shareholders' Equity
- ----------------------------------------------------------------------------------------------------------------
Notes payable, senior and subordinated debt (Note 3) $ 621,519 $ 563,068 $ 536,036
Contractor and trade accounts payable 61,766 70,827 74,080
Accrued liabilities and other payables 82,716 79,959 64,341
Home sale deposits 68,515 69,476 83,179
Income taxes payable (Note 4) 6,083 3,502 6,706
- ----------------------------------------------------------------------------------------------------------------
Total liabilities 840,599 786,832 764,342
- ----------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Common stock, $.001 par value. Authorized 30,000,000
shares; issued 17,839,710 shares at December 31, 1997,
17,691,118 shares at June 30, 1997 and 17,643,757 shares
at December 31, 1996 18 18 18
Additional paid-in capital 162,841 160,308 159,929
Retained earnings 161,545 145,922 126,071
- ----------------------------------------------------------------------------------------------------------------
324,404 306,248 286,018
Less cost of common stock in treasury, 124,509 shares at
June 30, 1997 and 16,971 shares at December 31, 1996 - (1,914) (287)
Less deferred compensation (6,555) (4,504) (5,464)
- ----------------------------------------------------------------------------------------------------------------
Total shareholders' equity 317,849 299,830 280,267
- ----------------------------------------------------------------------------------------------------------------
$ 1,158,448 $ 1,086,662 $ 1,044,609
================================================================================================================
See accompanying notes to consolidated financial statements.
1
DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In Thousands Except Per Share Data)
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
- ---------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------
Revenues (Note 5) $ 278,935 $ 293,682 $ 526,978 $ 557,977
- ---------------------------------------------------------------------------------------------------------------
Costs and expenses (Note 5):
Home construction, land and other 211,037 225,675 401,981 430,839
Interest (Note 6) 10,932 11,698 21,999 23,282
Selling, general and administrative 39,364 39,436 75,825 77,620
- ---------------------------------------------------------------------------------------------------------------
261,333 276,809 499,805 531,741
- ---------------------------------------------------------------------------------------------------------------
Earnings before income taxes 17,602 16,873 27,173 26,236
Income taxes (Note 4) 6,336 6,074 9,782 9,445
- ---------------------------------------------------------------------------------------------------------------
Net earnings $ 11,266 $ 10,799 $ 17,391 $ 16,791
===============================================================================================================
Weighted average shares outstanding 17,741 17,582 17,665 17,561
===============================================================================================================
Weighted average shares outstanding -
assuming dilution 18,298 17,876 18,119 17,890
===============================================================================================================
Net earnings per share $ .64 $ .61 $ .98 $ .96
===============================================================================================================
Net earnings per share - assuming
dilution $ .62 $ .60 $ .96 $ .94
===============================================================================================================
See accompanying notes to consolidated financial statements.
2
DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Six Months Ended
December 31,
- -------------------------------------------------------------------------------------------------------------------
1997 1996
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers related to community home sales $ 398,289 $ 404,331
Cash received from commercial land and facility sales 20,493 7,192
Cash paid for costs related to community home construction (243,929) (286,229)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by community sales activities 174,853 125,294
Cash paid for land acquisitions at operating communities (6,731) (1,888)
Cash paid for lot development at operating communities (52,695) (51,779)
Cash paid for amenity development at operating communities (23,486) (29,257)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating communities 91,941 42,370
Cash paid for costs related to communities in the pre-operating stage (61,274) (44,883)
Cash received from customers related to conventional homebuilding 102,280 120,387
Cash paid for land, development, construction and other costs related to
conventional homebuilding (103,819) (107,802)
Cash received from residential land development project 2,762 5,641
Cash paid for corporate activities (18,423) (19,187)
Interest paid (24,307) (24,264)
Cash paid for income taxes (4,789) (4,090)
- -------------------------------------------------------------------------------------------------------------------
NET CASH USED FOR OPERATING ACTIVITIES (15,629) (31,828)
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,188) (1,720)
Investments in life insurance policies (2,228) (1,303)
- -------------------------------------------------------------------------------------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES (3,416) (3,023)
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings 134,266 140,480
Repayments of debt (139,080) (120,490)
Proceeds from exercise of common stock options 2,137 150
Purchases of treasury stock (4) -
Dividends paid (1,767) (1,753)
- -------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (4,448) 18,387
- -------------------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH AND SHORT-TERM INVESTMENTS (23,493) (16,464)
CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD 24,715 18,340
- -------------------------------------------------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 1,222 $ 1,876
===================================================================================================================
See accompanying notes to consolidated financial statements.
3
DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In Thousands)
(Unaudited)
Six Months Ended
December 31,
- -----------------------------------------------------------------------------------------------------------------
1997 1996
- -----------------------------------------------------------------------------------------------------------------
Reconciliation of net earnings to net cash used for operating activities:
Net earnings $ 17,391 $ 16,791
Allocation of non-cash common costs in costs and expenses, excluding interest 115,499 130,404
Amortization of capitalized interest in costs and expenses 21,999 23,282
Deferred compensation amortization 886 893
Depreciation and other amortization 3,122 4,208
Deferred income taxes 1,527 2,718
Net (increase) decrease in home construction costs 18,045 (17,818)
Land acquisitions (35,963) (14,535)
Lot development (81,068) (81,973)
Amenity development (38,001) (53,791)
Pre-acquisition costs (13,926) (11,173)
Net change in other assets and liabilities (25,140) (30,834)
- -----------------------------------------------------------------------------------------------------------------
Net cash used for operating activities $ (15,629) $ (31,828)
=================================================================================================================
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 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 and six months ended December 31, 1997
are not necessarily indicative of the results to be expected for the full fiscal
year.
5
DEL WEBB CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(2) Real Estate Inventories
The components of real estate inventories are as follows:
In Thousands
- ----------------------------------------------------------------------------------------------------------
December 31, June 30, December 31,
1997 1997 1996
(Unaudited) (Unaudited)
- ----------------------------------------------------------------------------------------------------------
Home construction costs $ 163,973 $ 182,018 $ 195,618
Unamortized improvement and amenity costs 537,745 489,142 474,110
Unamortized capitalized interest 50,125 46,121 45,366
Land held for housing 226,258 174,930 158,050
Land and facilities held for future development or
sale 40,591 47,473 57,106
- ----------------------------------------------------------------------------------------------------------
$ 1,018,692 $ 939,684 $ 930,250
==========================================================================================================
At December 31, 1997 the Company had 383 completed homes and 822 homes under
construction that were not subject to a sales contract. These homes represented
$48.1 million of home construction costs at December 31, 1997. At December 31,
1996 the Company had 345 completed homes and 809 homes under construction
(representing $49.6 milion of home construction costs) that were not subject to
a sales contract.
Included in land and facilities held for future development or sale at December
31, 1997 were 304 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 six months ended December 31, 1997, the Company acquired the initial
portions of land for a planned active adult community in the Chicago area town
of Huntley, Illinois, for a planned 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 part of real estate inventories.
In January 1998 the Company acquired certain assets and assumed certain
liabilities at two operating age-restricted communities in central Florida for a
total purchase price of approximately $45 million. The two communities had
approximately 2,600 homes remaining to be constructed and closed as of the date
of acquisition.
6
DEL WEBB CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(3) Notes Payable, Senior and Subordinated Debt
Notes payable, senior and subordinated debt consists of the following:
In Thousands
- ----------------------------------------------------------------------------------------------------------
December 31, June 30, December 31,
1997 1997 1996
(Unaudited) (Unaudited)
- ----------------------------------------------------------------------------------------------------------
10 7/8% Senior Notes, net $ - $ - $ 97,820
9 3/4% Senior Subordinated Debentures due 2003, net 97,876 97,670 97,464
9% Senior Subordinated Debentures due 2006, net 97,765 97,628 97,491
9 3/4% Senior Subordinated Debentures due 2008, net 145,128 144,889 -
Notes payable to banks under a revolving credit
facility and short-term lines of credit 196,373 185,990 213,150
Real estate and other notes 84,377 36,891 30,111
- ----------------------------------------------------------------------------------------------------------
$ 621,519 $ 563,068 $ 536,036
==========================================================================================================
At December 31, 1997 the Company had $187.0 million outstanding under its $350
million senior unsecured revolving credit facility and $9.4 outstanding under
its $25 million of short-term lines of credit.
At December 31, 1997, under the most restrictive of the covenants in the
Company's debt agreements, $20.2 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.
In January 1998 the amount of the Company's senior unsecured revolving credit
facility was increased to $400 million.
(4) Income Taxes
The components of income taxes are:
In Thousands
(Unaudited)
- ----------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
December 31, December 31,
- ----------------------------------------------------------------------------------------------------------
1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------------
Current:
Federal $ 6,349 $ 4,345 $ 7,575 $ 5,403
State 607 1,292 680 1,324
- ----------------------------------------------------------------------------------------------------------
6,956 5,637 8,255 6,727
- ----------------------------------------------------------------------------------------------------------
Deferred:
Federal (502) 35 1,313 2,363
State (118) 402 214 355
- ----------------------------------------------------------------------------------------------------------
(620) 437 1,527 2,718
- ----------------------------------------------------------------------------------------------------------
$ 6,336 $ 6,074 $ 9,782 $ 9,445
==========================================================================================================
7
DEL WEBB CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(5) Revenues and Costs and Expenses
The components of revenues and costs and expenses are:
In Thousands
(Unaudited)
- ----------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
December 31, December 31,
- ----------------------------------------------------------------------------------------------------------
1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------------
Revenues:
Homebuilding:
Communities $ 216,882 $ 216,032 $ 395,684 $ 412,985
Conventional 50,700 63,389 102,226 112,724
- ----------------------------------------------------------------------------------------------------------
Total homebuilding 267,582 279,421 497,910 525,709
Land and facility sales 8,613 10,606 24,131 26,234
Other 2,740 3,655 4,937 6,034
- ----------------------------------------------------------------------------------------------------------
$ 278,935 $ 293,682 $ 526,978 $ 557,977
==========================================================================================================
Costs and expenses:
Home construction and land:
Communities $ 163,870 $ 161,832 $ 299,053 $ 312,176
Conventional 41,866 53,570 85,901 94,747
- ----------------------------------------------------------------------------------------------------------
Total homebuilding 205,736 215,402 384,954 406,923
Cost of land and facility sales 4,835 9,303 15,788 22,061
Other cost of sales 466 970 1,239 1,855
- ----------------------------------------------------------------------------------------------------------
Total home construction, land and other 211,037 225,675 401,981 430,839
Interest 10,932 11,698 21,999 23,282
Selling, general and administrative 39,364 39,436 75,825 77,620
- ----------------------------------------------------------------------------------------------------------
$ 261,333 $ 276,809 $ 499,805 $ 531,741
==========================================================================================================
8
DEL WEBB CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(6) Interest
The following table shows the components of interest:
In Thousands
(Unaudited)
- ---------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
December 31, December 31,
- ---------------------------------------------------------------------------------------------------------
1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------
Interest incurred and capitalized $ 12,989 $ 12,921 $ 26,003 $ 24,987
=========================================================================================================
Amortization of capitalized interest
in costs and expenses $ 10,932 $ 11,698 $ 21,999 $ 23,282
=========================================================================================================
Unamortized capitalized interest in real
estate inventories at period end $ 50,125 $ 45,366
=========================================================================================================
Interest income $ 302 $ 425 $ 555 $ 797
=========================================================================================================
Interest income is included in other revenues in the Consolidated Statements of
Earnings.
(7) Other Assets
Other assets are summarized as follows:
In Thousands
- ----------------------------------------------------------------------------------------------------------
December 31, June 30, December 31,
1997 1997 1996
(Unaudited) (Unaudited)
- ----------------------------------------------------------------------------------------------------------
Pre-acquisition costs $ 50,989 $ 30,876 $ 21,807
Cash surrender values of life insurance policies 21,887 20,083 17,441
Prepaid expenses 5,226 5,903 6,038
Utility deposits 4,896 4,971 5,344
Other 5,228 4,075 4,676
- ----------------------------------------------------------------------------------------------------------
$ 88,226 $ 65,908 $ 55,306
==========================================================================================================
A large majority of pre-acquisition costs at December 31, 1997 consists of costs
incurred for the acquisition of environmentally-sensitive property by the
Company for the purpose of exchanging the property with the United States Bureau
of Land Management for property in the Los Vegas area that may be developed by
the Company. Any exchange is subject to regulatory approvals and other
conditions. When a trade is effected, these costs would be reclassified to be
part of real estate inventories.
Cash surrender values of life insurance policies relate to policies acquired in
connection with certain executive benefit plans.
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 Six Months Ended
December 31, Change December 31, Change
- -----------------------------------------------------------------------------------------------------------------------
1997 1996 Amount Percent 1997 1996 Amount Percent
- -----------------------------------------------------------------------------------------------------------------------
OPERATING DATA :
- ----------------
Number of net new orders: (1)
Sun Cities Phoenix (2) 272 348 (76) (21.8%) 534 622 (88) (14.1%)
Sun Cities Las Vegas (3) 240 270 (30) (11.1%) 518 479 39 8.1%
Sun City Palm Desert 91 51 40 78.4% 153 65 88 135.4%
Sun City Roseville 137 96 41 42.7% 313 194 119 61.3%
Sun City Hilton Head 75 60 15 25.0% 170 136 34 25.0%
Sun City Georgetown 108 92 16 17.4% 193 193 - -
Other communities (4) 59 N/A 59 N/A 73 N/A 73 N/A
Coventry Homes 249 263 (14) (5.3%) 551 514 37 7.2%
- -----------------------------------------------------------------------------------------------------------------------
Total current communities 1,231 1,180 51 4.3% 2,505 2,203 302 13.7%
Completed operations:
Sun City Tucson (5) N/A 14 (14) (100.0%) N/A 38 (38) (100.0%)
Terravita (6) (1) 75 (76) (101.3%) (1) 103 (104) (101.0%)
Coventry Homes - So. California (7) N/A 41 (41) (100.0%) N/A 97 (97) (100.0%)
- -----------------------------------------------------------------------------------------------------------------------
Total 1,230 1,310 (80) (6.1%) 2,504 2,441 63 2.6%
=======================================================================================================================
Number of home closings:
Sun Cities Phoenix (2) 362 266 96 36.1% 621 498 123 24.7%
Sun Cities Las Vegas (3) 289 278 11 4.0% 531 531 - -
Sun City Palm Desert 77 50 27 54.0% 118 93 25 26.9%
Sun City Roseville 155 155 - - 273 328 (55) (16.8%)
Sun City Hilton Head 96 110 (14) (12.7%) 180 185 (5) (2.7%)
Sun City Georgetown 112 144 (32) (22.2%) 223 287 (64) (22.3%)
Terravita (6) 30 103 (73) (70.9%) 112 187 (75) (40.1%)
Other communities (4) N/A N/A N/A N/A N/A N/A N/A N/A
Coventry Homes 287 335 (48) (14.3%) 566 637 (71) (11.1%)
- -----------------------------------------------------------------------------------------------------------------------
Total current communities 1,408 1,441 (33) (2.3%) 2,624 2,746 (122) (4.4%)
Completed operations:
Sun City Tucson (5) N/A 24 (24) (100.0%) N/A 79 (79) (100.0%)
Coventry Homes - So. California (7) N/A 48 (48) (100.0%) 20 70 (50) (71.4%)
- -----------------------------------------------------------------------------------------------------------------------
Total 1,408 1,513 (105) (6.9%) 2,644 2,895 (251) (8.7%)
=======================================================================================================================
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA (Continued)
- -------------------------------------------------------------
Three Months Ended Six Months Ended
December 31, Change December 31, Change
- ------------------------------------------------------------------------------------------------------------------------
1997 1996 Amount Percent 1997 1996 Amount Percent
- ------------------------------------------------------------------------------------------------------------------------
BACKLOG DATA :
- --------------
Homes under contract at December 31:
Sun Cities Phoenix (2) 605 677 (72) (10.6%)
Sun Cities Las Vegas (3) 520 590 (70) (11.9%)
Sun City Palm Desert 161 84 77 91.7%
Sun City Roseville 320 243 77 31.7%
Sun City Hilton Head 149 144 5 3.5%
Sun City Georgetown 172 284 (112) (39.4%)
Terravita (6) 7 220 (213) (96.8%)
Other communities (4) 73 N/A 73 N/A
Coventry Homes 443 449 (6) (1.3%)
- -------------------------------------------------------------------------------
Total current communities 2,450 2,691 (241) (9.0%)
Completed operations:
Sun City Tucson (5) N/A 4 (4) (100.0%)
Coventry Homes - So. California (7) N/A 50 (50) (100.0%)
- -------------------------------------------------------------------------------
Total (8) 2,450 2,745 (295) (10.7%)
===============================================================================
Aggregate contract sales amount
(dollars in millions) $ 506 $ 537 $ (31) (5.8%)
===============================================================================
Average contract sales amount per
home (dollars in thousands) $ 207 $ 196 $ 11 5.6%
===============================================================================
AVERAGE REVENUE PER HOME
- ---------------------------
CLOSING :
- --------
Sun Cities Phoenix (2) $ 160,400 $ 166,900 $ (6,500) (3.9%) $157,500 $161,000 $ (3,500) (2.2%)
Sun Cities Las Vegas (3) 205,000 174,800 30,200 17.3% 197,900 177,100 20,800 11.7%
Sun City Palm Desert 227,700 203,900 23,800 11.7% 228,800 220,500 8,300 3.8%
Sun City Roseville 208,400 213,200 (4,800) (2.3%) 209,400 206,600 2,800 1.4%
Sun City Hilton Head 165,900 163,100 2,800 1.7% 167,400 161,100 6,300 3.9%
Sun City Georgetown 201,200 184,100 17,100 9.3% 199,700 182,200 17,500 9.6%
Terravita (6) 376,200 304,100 72,100 23.7% 303,100 294,900 8,200 2.8%
Other communities (4) N/A N/A N/A N/A N/A N/A N/A N/A
Coventry Homes 176,700 155,800 20,900 13.4% 174,000 151,800 22,200 14.6%
Weighted average current
communities 190,000 183,400 6,600 3.6% 188,300 180,800 7,500 4.1%
Completed operations:
Sun City Tucson (5) N/A 167,600 N/A N/A N/A 168,000 N/A N/A
Coventry Homes - So. California (7) N/A 233,000 N/A N/A 186,600 229,000 (42,400) (18.5%)
Total weighted average 190,000 184,700 5,300 2.9% 188,300 181,600 6,700 3.7%
========================================================================================================================
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA (Continued)
- --------------------------------------------------------------
Three Months Ended Six Months Ended
December 31, Change December 31, Change
- ------------------------------------------------------------------------------------------------------------------------
1997 1996 Amount Percent 1997 1996 Amount Percent
- ------------------------------------------------------------------------------------------------------------------------
OPERATING STATISTICS:
- ---------------------
Costs and expenses as a percentage
of revenues:
Home construction, land and other 75.7% 76.8% (1.1%) (1.4%) 76.3% 77.2% (0.9%) (1.2%)
Interest 3.9% 4.0% (0.1%) (2.5%) 4.2% 4.2% - -
Selling, general and administrative 14.1% 13.4% 0.7% 5.2% 14.4% 13.9% 0.5% 3.6%
Ratio of home closings to homes
under contract in backlog at
beginning of period 53.6% 51.3% 2.3% 4.5% 102.1% 90.5% 11.6% 12.8%
=======================================================================================================================
(1) Net of cancellations. The Company recognizes revenue at close of
escrow.
(2) Includes Sun City West and Sun City Grand. The Company began taking new
home sales orders at Sun City Grand in October 1996. Home closings
began at Sun City Grand in February 1997.
(3) Includes Sun City Summerlin and Sun City MacDonald Ranch.
(4) Represents three smaller-scale communities in Arizona and California at
which net new order activity began in the six months ended December 31,
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 December 31, 1997 is currently anticipated
to result in revenues in the next 12 months. However, a majority of the
backlog is contingent primarily upon the availability of financing for
the customer and, in certain cases, sale of the customer's existing
residence or other factors. Also, as a practical matter, the Company's
ability to obtain damages for breach of contract by a potential home
buyer is limited to retaining all or a portion of the deposit received.
In the six months ended December 31, 1997 and 1996, cancellations of
home sales orders as a percentage of new home sales orders written
during the period were 14.7 percent and 19.8 percent, respectively. See
"Forward Looking Information; Certain Cautionary Statements."
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS
- ---------------------
Three Months Ended December 31, 1997 and 1996
REVENUES. Revenues decreased to $278.9 million for the three months ended
December 31, 1997 from $293.7 million for the three months ended December 31,
1996. This decrease was due primarily to decreased closings at Terravita,
Coventry Homes' southern California operations and Sun City Tucson, reflecting
the completion or approaching completion of those operations.
HOME CONSTRUCTION, LAND AND OTHER COSTS. The decrease in home construction, land
and other costs to $211.0 million for the 1997 quarter compared to $225.7
million for the 1996 quarter was primarily due to the decrease in home closings.
These costs as a percentage of revenues decreased to 75.7 percent for the 1997
quarter compared to 76.8 percent for the 1996 quarter, with the decrease
primarily due to improved margins on land and facility sales (due to the
declining contribution from lower-margin land sales at Foothills, the Company's
nearly complete residential land development project in Phoenix) and improved
margins for Coventry Homes (due to the completion of low-margin southern
California operations).
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. As a percentage of revenues,
selling, general and administrative expenses increased to 14.1 percent for the
1997 quarter compared to 13.4 percent for the 1996 quarter. This increase
resulted primarily from the spreading of relatively fixed corporate overhead
over lower revenues.
NET NEW ORDER ACTIVITY AND BACKLOG. Net new orders in the 1997 quarter were 6.1
percent lower than in the 1996 quarter. Exclusive of completed operations, net
new orders increased 4.3 percent. The increase was due to the commencement of
net new order activity at three smaller-scale communities in Arizona and
California in the six months ended December 31, 1997. Increased net new orders
were also experienced at all of the Company's other current communities except
the Sun Cities Phoenix (which had a high level of net new orders in the 1996
quarter due to pent-up demand at Sun City Grand, at which the Company began
taking net new orders in October 1996) and the Sun Cities Las Vegas (which
experienced a very strong 1996 quarter).
The number of homes under contract at December 31, 1997 was 10.7 percent lower
than at December 31, 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. A backlog decrease
was also experienced at Sun City Georgetown as net new orders did not keep pace
with home closings at that community over the past 12 months. Backlog increases
at Sun City Roseville and Sun City Palm Desert resulted from increases in net
new orders which management believes may indicate continued improvement in the
California real estate economy. The commencement of net new order activity at
the three smaller-scale communities in Arizona and California also contributed
to the backlog increase.
Six Months Ended December 31, 1997 and 1996
REVENUES. Revenues decreased to $527.0 million for the six months ended December
31, 1997 from $558.0 million for the six months ended December 31, 1996. This
decrease was due to the decreased closings at Terravita, Coventry Homes'
southern California operations and Sun City Tucson, reflecting the completion or
approaching completion of those operations.
HOME CONSTRUCTION, LAND AND OTHER COSTS. The decrease in home construction, land
and other costs to $402.0 million for the 1997 period compared to $430.8 million
for the 1996 period was primarily due to the decrease in home closings. These
costs as a percentage of revenues decreased to 76.3 percent for the 1997 period
compared to 77.2 percent for the 1996 period, 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.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. As a percentage of revenues,
selling, general and administrative expenses increased to 14.4 percent for the
1997 period compared to 13.9 percent for the 1996 period. This increase resulted
primarily from the spreading of relatively fixed corporate overhead over lower
revenues.
NET NEW ORDER ACTIVITY AND BACKLOG. Net new orders in the 1997 period were 2.6
percent higher than in the 1996 period. Exclusive of completed operations, net
new orders increased 13.7 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 benefited 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 8.1 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. Coventry Homes' net new orders increased 7.2
percent as a result of increases in Tucson and Las Vegas. The commencement of
net new order activity at three smaller- scale communities in Arizona and
California in the six months ended December 31, 1997 also contributed to the
overall increase in net new orders from the 1996 period to the 1997 period.
The number of homes under contract at December 31, 1997 was 10.7 percent lower
than at December 31, 1996. See "Three Months Ended December 31, 1997 and 1996 --
Net New Order Activity and Backlog."
LIQUIDITY AND FINANCIAL CONDITION OF THE COMPANY
- ------------------------------------------------
At December 31, 1997 the Company had $1.2 million of cash and short-term
investments, $187.0 million outstanding under its $350 million senior unsecured
revolving credit facility and $9.4 million outstanding under its $25 million of
short-term lines of credit.
In January 1998 the Company acquired certain assets and assumed certain
liabilities at two operating age-restricted communities in central Florida for a
total purchase price of approximately $45 million, which was funded by
borrowings under the Company's senior unsecured revolving credit facility. Also
in January 1998, the amount of the Company's senior unsecured revolving credit
facility was increased from $350 million to $400 million.
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 delay could result in cost increases
and may adversely affect the Company's results of operations.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
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 six months ended December 31, 1997 the Company generated $174.9
million of net cash from community sales activities, used $82.9 million of cash
for land and lot and amenity development at operating communities, paid $61.3
million for costs related to communities in the pre-operating stage, used $1.5
million of net cash for conventional homebuilding operations and used $44.8
million of cash for other operating activities. The resulting $15.6 million of
net cash used for operating activities (which was primarily attributable to
expenditures for communities not yet generating home sales revenues) was funded
mainly through utilization of cash and short-term investments existing at the
beginning of the period.
At December 31, 1997, under the most restrictive of the covenants in the
Company's debt agreements, $20.2 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.
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 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 straight or convertible senior, senior
subordinated or subordinated debt, common stock, preferred stock, warrants or a
combination of any of them.
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, including in land exchanges with
governmental entities, 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 1. Legal Proceedings
-----------------
In December 1997 a lawsuit was filed by eight Terravita residents, individually
and on behalf of a purported class consisting of all Terravita residents. The
complaint principally arises from disagreements over the value of the Terravita
golf course (and related assets) and representations allegedly made relating to
operation of the golf club and the Terravita community. The Company is involved
in settlement negotiations with the Terravita residents, and management of the
Company believes that the disagreements are likely to be resolved without any
material adverse financial impact on the Company. The complaint seeks, among
other things, injunctive relief, compensatory and punitive damages, and
rescission of all home sales contracts. Litigation arising from the complaint
could have a material adverse effect on the Company. The Company believes it has
meritorious defenses to all claims.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibit 10.1 Agreement of Purchase and Sale for acquisition of
Dreyfus property located on the eastern shore of Lake
Tahoe in Washoe County, Nevada.
Exhibit 27 Financial Data Schedule
Exhibit 27.1 Restated 12/31/96 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: February 9, 1998 /s/ Philip J. Dion
----------------------------- ------------------------------------
Philip J. Dion
Chairman and Chief Executive Officer
Date: February 9, 1998 /s/ John A. Spencer
---------------------------- ------------------------------------
John A. Spencer
Senior Vice President and Chief
Financial Officer
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