UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934. For the period ended MARCH 31, 1999.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the transition period from N/A to N/A .
Commission File Number: 1-4785
DEL WEBB CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 86-0077724
(State or other jurisdiction (IRS Employer Identification Number)
of incorporation or organization)
6001 NORTH 24TH STREET, PHOENIX, ARIZONA 85016
(Address of principal executive offices) (Zip Code)
(602) 808-8000
(Registrant's phone number, including area code)
NONE
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
As of April 30, 1999 Registrant had outstanding 18,208,661 shares of common
stock.
DEL WEBB CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED
MARCH 31, 1999
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31, 1999
June 30, 1998 and March 31, 1998............................. 1
Consolidated Statements of Earnings for the three and nine
months ended March 31, 1999 and 1998......................... 2
Consolidated Statements of Cash Flows for the nine
months ended March 31, 1999 and 1998......................... 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............................... 20
DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
MARCH 31, June 30, MARCH 31,
1999 1998 1998
(Unaudited) (Unaudited)
- -------------------------------------------------------------------------------------------
ASSETS
- -------------------------------------------------------------------------------------------
Real estate inventories (Notes 2, 3 and 6) $ 1,579,686 $ 1,113,297 $ 1,107,277
Cash and short-term investments 7,343 14,362 13,746
Receivables 42,796 41,498 33,638
Property and equipment, net 48,600 33,333 32,990
Income taxes receivable (Note 4) -- -- 2,029
Other assets 114,629 107,972 107,907
- -------------------------------------------------------------------------------------------
$ 1,793,054 $ 1,310,462 $ 1,297,587
===========================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------
Notes payable, senior and subordinated
debt (Note 3) $ 1,038,171 $ 703,938 $ 736,717
Contractor and trade accounts payable 104,112 78,114 74,205
Accrued liabilities and other payables 123,009 98,066 77,041
Home sale deposits 123,616 80,332 81,874
Deferred income taxes (Note 4) 17,123 4,245 116
Income taxes payable (Note 4) 6,806 -- --
- -------------------------------------------------------------------------------------------
Total liabilities 1,412,837 964,695 969,953
- -------------------------------------------------------------------------------------------
Shareholders' equity:
Common stock, $.001 par value. Authorized
30,000,000 shares; issued 18,216,364 shares
at March 31, 1999, 18,107,606 shares at
June 30, 1998 and 18,035,966 shares
at March 31, 1998 18 18 18
Additional paid-in capital 168,620 166,328 165,156
Retained earnings 218,351 184,890 168,173
- -------------------------------------------------------------------------------------------
386,989 351,236 333,347
Less deferred compensation (6,772) (5,469) (5,713)
- -------------------------------------------------------------------------------------------
Total shareholders' equity 380,217 345,767 327,634
- -------------------------------------------------------------------------------------------
$ 1,793,054 $ 1,310,462 $ 1,297,587
===========================================================================================
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 NINE MONTHS ENDED
MARCH 31, MARCH 31,
- -----------------------------------------------------------------------------------
1999 1998 1999 1998
- -----------------------------------------------------------------------------------
Revenues (Note 5) $324,428 $254,714 $947,323 $781,692
- -----------------------------------------------------------------------------------
Costs and expenses (Note 5):
Home construction, land and other 242,010 194,644 716,484 596,625
Selling, general and administrative 49,731 38,847 138,406 114,672
Interest (Note 6) 13,204 9,473 38,736 31,472
- -----------------------------------------------------------------------------------
304,945 242,964 893,626 742,769
- -----------------------------------------------------------------------------------
Earnings before income taxes 19,483 11,750 53,697 38,923
Income taxes (Note 4) 7,014 4,230 19,331 14,012
- -----------------------------------------------------------------------------------
Net earnings $ 12,469 $ 7,520 $ 34,366 $ 24,911
===================================================================================
Weighted average shares outstanding 18,220 17,890 18,161 17,740
===================================================================================
Weighted average shares outstanding -
assuming dilution 18,752 18,749 18,717 18,350
===================================================================================
Net earnings per share - basic $ .68 $ .42 $ 1.89 $ 1.40
===================================================================================
Net earnings per share - assuming
dilution $ .66 $ .40 $ 1.84 $ 1.36
===================================================================================
See accompanying notes to consolidated financial statements.
2
DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
MARCH 31,
- -----------------------------------------------------------------------------------------------------------
1999 1998
- -----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers related to community home sales $ 893,243 $ 734,238
Cash received from commercial land and facility sales at operating communities 37,375 36,461
Cash paid for costs related to home construction at operating communities (594,937) (495,039)
- -----------------------------------------------------------------------------------------------------------
Net cash provided by operating community sales activities 335,681 275,660
Cash paid for land acquisitions at operating communities (20,247) (28,983)
Cash paid for lot development at operating communities (129,792) (105,631)
Cash paid for amenity development at operating communities (66,671) (38,722)
- -----------------------------------------------------------------------------------------------------------
Net cash provided by operating communities 118,971 102,324
Cash paid for costs related to communities in the pre-operating stage (333,972) (107,493)
Cash received from mortgage operations 7,497 106
Cash received from residential land development project 2,036 4,649
Cash paid for corporate activities (56,567) (47,092)
Interest paid (57,840) (46,340)
Cash received (paid) for income taxes 1,502 (11,587)
- -----------------------------------------------------------------------------------------------------------
NET CASH USED FOR OPERATING ACTIVITIES (318,373) (105,433)
- -----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (17,045) (15,038)
Investments in life insurance policies (974) (2,749)
- -----------------------------------------------------------------------------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES (18,019) (17,787)
- -----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings 628,996 297,035
Repayments of debt (298,951) (186,986)
Stock repurchases (920) (8)
Proceeds from exercise of common stock options 1,153 4,869
Dividends paid (905) (2,659)
- -----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 329,373 112,251
- -----------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH AND SHORT-TERM INVESTMENTS (7,019) (10,969)
CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD 14,362 24,715
- -----------------------------------------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 7,343 $ 13,746
===========================================================================================================
See accompanying notes to consolidated financial statements.
3
DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
MARCH 31,
- ---------------------------------------------------------------------------------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------
Reconciliation of net earnings to net cash used for operating activities:
Net earnings $ 34,366 $ 24,911
Allocation of non-cash common costs in costs and expenses, excluding interest 235,684 183,050
Amortization of capitalized interest in costs and expenses 38,736 31,472
Deferred compensation amortization 1,581 1,359
Depreciation and other amortization 6,072 4,623
Deferred income taxes 12,878 6,639
Net increase in home construction costs (92,511) (17,497)
Land acquisitions (27,549) (70,509)
Lot development (319,262) (131,782)
Amenity development (208,543) (62,953)
Pre-acquisition costs -- (13,676)
Net change in other assets and liabilities 175 (61,070)
- ---------------------------------------------------------------------------------------------------------
Net cash used for operating activities $(318,373) $(105,433)
=========================================================================================================
See accompanying notes to consolidated financial statements.
4
(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 currently conducts it operations in two primary segments in the
states of Arizona, California, Florida, Illinois, Nevada, South Carolina
and Texas. The Company's active adult communities (primarily its Sun City
communities) are generally large-scale, master planned communities with
extensive amenities for people age 55 and over. The Company's family and
country club communities are open to people of all ages and are generally
developed in metropolitan or market areas in which the Company is
developing age-qualified communities. Within all of its communities, the
Company is usually the exclusive builder of homes.
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,
1998, filed with the Securities and Exchange Commission.
In the Consolidated Statements of Cash Flows, the Company defines operating
communities as communities generating revenues from home closings.
Communities in the pre-operating stage are those not yet generating
revenues from home closings.
The results of operations for the nine months ended March 31, 1999 are not
necessarily indicative of the results to be expected for the full fiscal
year.
(2) REAL ESTATE INVENTORIES
The components of real estate inventories are as follows:
In Thousands
- --------------------------------------------------------------------------------
March 31, June 30, March 31,
1999 1998 1998
(Unaudited) (Unaudited)
- --------------------------------------------------------------------------------
Home construction costs $ 274,681 $ 182,170 $ 199,515
Unamortized improvement and amenity
costs 971,391 603,390 574,560
Unamortized capitalized interest 80,658 61,455 57,785
Land held for housing 218,802 220,441 245,556
Land and facilities held for future
development or sale 34,154 45,841 29,861
- --------------------------------------------------------------------------------
$1,579,686 $1,113,297 $1,107,277
================================================================================
At March 31, 1999 the Company had 436 completed homes and 395 homes under
construction that were not subject to a sales contract. These homes
represented $52.1 million of home construction costs at March 31, 1999. At
March 31, 1998 the Company had 479 completed homes and 680 homes under
construction, representing $54.7 million of home construction costs, that
were not subject to a sales contract.
5
DEL WEBB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) REAL ESTATE INVENTORIES (Continued)
Included in land and facilities held for future development or sale at
March 31, 1999 were 275 acres of residential land, commercial land and
worship sites that are currently being marketed for sale at the Company's
communities.
(3) NOTES PAYABLE, SENIOR AND SUBORDINATED DEBT
Notes payable, senior and subordinated debt consists of the following:
In Thousands
- ------------------------------------------------------------------------------------------------
March 31, June 30, March 31,
1999 1998 1998
(Unaudited) (Unaudited)
- ------------------------------------------------------------------------------------------------
9 3/4% Senior Subordinated Debentures due 2003,
net, unsecured $ 98,390 $ 98,081 $ 97,978
9% Senior Subordinated Debentures due 2006,
net, unsecured 98,107 97,902 97,834
9 3/4% Senior Subordinated Debentures due 2008,
net, unsecured 145,733 145,370 145,249
9 3/8% Senior Subordinated Debentures due 2009,
net, unsecured 195,297 194,977 --
10 1/4% Senior Subordinated Debentures due 2010,
net, unsecured 143,409 -- --
Notes payable to banks under a revolving credit
facility and short-term lines of credit, unsecured 308,200 111,209 311,000
Real estate and other notes, primarily secured 49,035 56,399 84,656
- ------------------------------------------------------------------------------------------------
$1,038,171 $ 703,938 $ 736,717
================================================================================================
In February 1999 the Company completed a public offering of $150 million in
principal amount of 10 1/4% Senior Subordinated Debentures due 2010. The
$143 million of net proceeds from the offering were used to repay a portion
of the amounts outstanding under the Company's senior unsecured revolving
credit facility (the "Credit Facility").
Also in February 1999, the Company increased the amount of its Credit
Facility from $450 million to $500 million. At March 31, 1999 the Company
had $289.0 million outstanding under its Credit Facility and $19.2 million
outstanding under its $25 million of short-term lines of credit (together
with the Credit Facility, the "Facilities"). As a result of limitations
imposed by the "Total Debt to Tangible Net Worth" covenant under the Credit
Facility, $124.2 million of the $216.8 million of unused capacity under the
Facilities was available to the Company at March 31, 1999.
At March 31, 1999, under the most restrictive of the covenants in the
Company's debt agreements, $43.8 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.
6
DEL WEBB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) INCOME TAXES
The components of income taxes are:
In Thousands
(Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
March 31, March 31,
- --------------------------------------------------------------------------------
1999 1998 1999 1998
- --------------------------------------------------------------------------------
Current:
Federal $(1,312) $ (613) $ 6,064 $ 6,962
State (149) (269) 389 411
- --------------------------------------------------------------------------------
(1,461) (882) 6,453 7,373
- --------------------------------------------------------------------------------
Deferred:
Federal 7,881 4,756 11,749 6,069
State 594 356 1,129 570
- --------------------------------------------------------------------------------
8,475 5,112 12,878 6,639
- --------------------------------------------------------------------------------
$ 7,014 $ 4,230 $19,331 $14,012
================================================================================
7
DEL WEBB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) REVENUES AND COSTS AND EXPENSES
The components of revenues and costs and expenses are:
In Thousands
(Unaudited)
- ------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
March 31, March 31,
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------
Revenues:
Homebuilding:
Active adult communities $238,658 $184,553 $704,434 $546,292
Family and country club communities 67,045 50,540 188,194 186,711
- ------------------------------------------------------------------------------------------------
Total homebuilding 305,703 235,093 892,628 733,003
Land and facility sales 12,333 17,213 42,011 41,344
Other 6,392 2,408 12,684 7,345
- ------------------------------------------------------------------------------------------------
$324,428 $254,714 $947,323 $781,692
================================================================================================
Costs and expenses:
Home construction and land:
Active adult communities $178,184 $135,774 $524,380 $410,163
Family and country club communities 53,826 41,712 152,848 152,277
- ------------------------------------------------------------------------------------------------
Total homebuilding 232,010 177,486 677,228 562,440
Cost of land and facility sales 8,683 16,252 34,227 32,040
Other cost of sales 1,317 906 5,029 2,145
- ------------------------------------------------------------------------------------------------
Total home construction, land and other 242,010 194,644 716,484 596,625
Selling, general and administrative 49,731 38,847 138,406 114,672
Interest 13,204 9,473 38,736 31,472
- ------------------------------------------------------------------------------------------------
$304,945 $242,964 $893,626 $742,769
================================================================================================
8
DEL WEBB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) INTEREST
The components of interest are:
In Thousands
(Unaudited)
- -------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
March 31, March 31,
- -------------------------------------------------------------------------------------------------
1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------
Interest incurred and capitalized $22,346 $17,133 $57,939 $43,136
=================================================================================================
Amortization of capitalized interest
in costs and expenses $13,204 $ 9,473 $38,736 $31,472
=================================================================================================
Unamortized capitalized interest in real
estate inventories at period end $80,658 $57,785
=================================================================================================
Interest income $ 194 $ 206 $ 831 $ 761
=================================================================================================
Interest income is included in other revenues.
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, 1998, filed with the Securities and Exchange
Commission.
CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA
THREE MONTHS NINE MONTHS
ENDED ENDED
MARCH 31, CHANGE MARCH 31, CHANGE
- ------------------------------------------------------------------------------ ---------------------------------
1999 1998 AMOUNT PERCENT 1999 1998 AMOUNT PERCENT
- ------------------------------------------------------------------------------ ---------------------------------
OPERATING DATA:
Number of net new orders:
Active adult communities:
Sun Cities Phoenix 387 393 (6) (1.5%) 933 927 6 0.6%
Sun Cities Las Vegas 378 308 70 22.7% 910 826 84 10.2%
Sun City Palm Desert 123 162 (39) (24.1%) 353 315 38 12.1%
Sun Cities No. California 232 196 36 18.4% 556 509 47 9.2%
Sun City Hilton Head 141 103 38 36.9% 332 273 59 21.6%
Sun City Georgetown 104 118 (14) (11.9%) 237 311 (74) (23.8%)
Sun City at Huntley 130 N/A 130 N/A 505 N/A 505 N/A
Florida communities 86 122 (36) (29.5%) 246 122 124 101.6%
Other communities 82 67 15 22.4% 183 101 82 81.2%
- ------------------------------------------------------------------------------ ---------------------------------
Total active adult communities 1,663 1,469 194 13.2% 4,255 3,384 871 25.7%
- ------------------------------------------------------------------------------ ---------------------------------
Family and country club communities:
Arizona country club communities 148 1 147 * 148 N/A 148 N/A
Nevada country club communities 60 N/A 60 N/A 164 N/A 164 N/A
Arizona family communities 502 356 146 41.0% 913 833 80 9.6%
Nevada family communities 149 108 41 38.0% 407 221 186 84.2%
California family communities N/A N/A N/A N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------ ---------------------------------
Total family and country club
communities 859 465 394 84.7% 1,632 1,054 578 54.8%
- ------------------------------------------------------------------------------ ---------------------------------
Total 2,522 1,934 588 30.4% 5,887 4,438 1,449 32.6%
============================================================================== ================================
* Not a meaningful percentage.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA (CONTINUED)
THREE MONTHS NINE MONTHS
ENDED ENDED
MARCH 31, CHANGE MARCH 31, CHANGE
- ------------------------------------------------------------------------------ ---------------------------------
1999 1998 AMOUNT PERCENT 1999 1998 AMOUNT PERCENT
- ------------------------------------------------------------------------------ ---------------------------------
Number of home closings:
Active adult communities:
Sun Cities Phoenix 304 292 12 4.1% 910 913 (3) (0.3%)
Sun Cities Las Vegas 323 241 82 34.0% 833 772 61 7.9%
Sun City Palm Desert 109 84 25 29.8% 344 202 142 70.3%
Sun Cities No. California 165 147 18 12.2% 518 420 98 23.3%
Sun City Hilton Head 71 90 (19) (21.1%) 238 270 (32) (11.9%)
Sun City Georgetown 84 75 9 12.0% 268 298 (30) (10.1%)
Sun City at Huntley N/A N/A N/A N/A N/A N/A N/A N/A
Florida communities 89 71 18 25.4% 334 71 263 370.4%
Other communites 61 5 56 * 161 5 156 *
- ------------------------------------------------------------------------------ ---------------------------------
Total active adult communities 1,206 1,005 201 20.0% 3,606 2,951 655 22.2%
- ------------------------------------------------------------------------------ ---------------------------------
Family and country club communities:
Arizona country club communities N/A 6 (6) (100.0%) N/A 118 (118) (100.0%)
Nevada country club communities 13 N/A 13 N/A 13 N/A 13 N/A
Arizona family communities 220 210 10 4.8% 724 652 72 11.0%
Nevada family communities 74 49 25 51.0% 187 173 14 8.1%
California family communities N/A N/A N/A N/A N/A 20 (20) (100.0%)
- ------------------------------------------------------------------------------ ---------------------------------
Total family and country club
communities 307 265 42 15.8% 924 963 (39) 4.0%
- ------------------------------------------------------------------------------ ---------------------------------
Total 1,513 1,270 243 19.1% 4,530 3,914 616 15.7%
============================================================================== =================================
* Not a meaningful percentage.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA (CONTINUED)
AT MARCH 31, CHANGE
- --------------------------------------------------------------------------------
1999 1998 AMOUNT PERCENT
- --------------------------------------------------------------------------------
BACKLOG DATA:
Homes under contract:
Active adult communities:
Sun Cities Phoenix 692 706 (14) (2.0%)
Sun Cities Las Vegas 625 587 38 6.5%
Sun City Palm Desert 274 239 35 14.6%
Sun Cities No. California 420 369 51 13.8%
Sun City Hilton Head 263 162 101 62.3%
Sun City Georgetown 160 215 (55) (25.6%)
Sun City at Huntley 505 N/A 505 N/A
Florida communities 187 256 (69) (27.0%)
Other communities 124 96 28 29.2%
- --------------------------------------------------------------------------------
Total active adult communities 3,250 2,630 620 23.6%
- --------------------------------------------------------------------------------
Family and country club communities:
Arizona country club communities 148 2 146 *
Nevada country club communities 151 N/A 151 N/A
Arizona family communities 674 548 126 23.0%
Nevada family communities 304 139 165 118.7%
California family communities N/A N/A N/A N/A
- --------------------------------------------------------------------------------
Total family and country club
communities 1,277 689 588 85.3%
- --------------------------------------------------------------------------------
Total 4,527 3,319 1,208 36.4%
================================================================================
Aggregate contract sales amount
(dollars in millions) $1,026 $ 663 $ 363 54.8%
================================================================================
Average contract sales amount per home
(dollars in thousands) $ 227 $ 200 $ 27 13.5%
================================================================================
* Not a meaningful percentage.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA (CONTINUED)
THREE MONTHS NINE MONTHS
ENDED ENDED
MARCH 31, CHANGE MARCH 31, CHANGE
- -------------------------------------------------------------------------- ----------------------------------
1999 1998 AMOUNT PERCENT 1999 1998 AMOUNT PERCENT
- -------------------------------------------------------------------------- ----------------------------------
AVERAGE REVENUE PER HOME CLOSING:
Active adult communities:
Sun Cities Phoenix $174,900 $158,500 $16,400 10.3% $175,700 $157,800 $17,900 11.3%
Sun Cities Las Vegas 204,900 200,300 4,600 2.3% 204,200 198,600 5,600 2.8%
Sun City Palm Desert 251,400 228,000 23,400 10.3% 243,500 228,500 15,000 6.6%
Sun Cities No. California 249,100 224,500 24,600 11.0% 237,300 214,700 22,600 10.5%
Sun City Hilton Head 183,500 173,100 10,400 6.0% 187,600 169,300 18,300 10.8%
Sun City Georgetown 201,500 195,800 5,700 2.9% 214,100 198,700 15,400 7.8%
Sun City at Huntley N/A N/A N/A N/A N/A N/A N/A N/A
Florida communities 117,700 97,900 19,800 20.2% 110,500 97,900 12,600 12.9%
Other communites 169,700 130,000 39,700 30.5% 179,000 130,000 49,000 37.7%
Average active adult
communities 197,900 183,600 14,300 7.8% 195,400 185,100 10,300 5.6%
Family and country club communities:
Arizona country club communities N/A 379,300 N/A N/A N/A 307,000 N/A N/A
Nevada country club communities 325,400 N/A N/A N/A 325,400 N/A N/A N/A
Arizona family communities 218,500 194,500 24,000 12.3% 203,600 185,300 18,300 9.9%
Nevada family communities 199,200 151,400 47,800 31.6% 195,400 150,000 45,400 30.3%
California family communiites N/A N/A N/A N/A N/A 186,600 N/A N/A
Average family and country
club communities 218,400 190,700 27,700 14.5% 203,700 193,900 9,800 5.1%
Total 202,100 185,100 17,000 9.2% 197,000 187,300 9,700 5.2%
========================================================================== ==================================
OPERATING STATISTICS:
Costs and expenses as a percentage
of revenues:
Home construction, land and
other 74.6% 76.4% (1.8%) (2.4%) 75.6% 76.3% (0.7%) (0.9%)
Selling, general and
administrative 15.3% 15.3% -- -- 14.6% 14.7% (0.1%) (0.7%)
Interest 4.1% 3.7% 0.4% 10.8% 4.1% 4.0% 0.1% 2.5%
Ratio of home closings to homes
under contract in backlog at
beginning of period 43.0% 51.8% (8.8%) (17.0%) 142.9% 151.1% (8.2%) (5.4%)
========================================================================== ===================================
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA (CONTINUED)
NOTES:
New orders are net of cancellations. The Company recognizes revenue at close of
escrow.
The Sun Cities Phoenix include Sun City West, which is built out, and Sun City
Grand.
The Sun Cities Las Vegas include Sun City Summerlin, Sun City MacDonald Ranch
and Sun City Anthem. The Company began taking new home sales orders at Sun City
Anthem in July 1998. Home closings began at Sun City Anthem in December 1998.
The Sun Cities Northern California include Sun City Roseville and Sun Cities
Lincoln Hills. The Company began taking new home sales orders at Sun City
Lincoln Hills in February 1999.
The Company began taking new home sales orders at Sun City at Huntley in
September 1998.
In January 1998 the Company acquired certain assets and assumed certain
liabilities at two operating active adult communities in central Florida.
Other active adult communities represent two smaller-scale communities in
Arizona and California at which new order activity began in October and November
1997, respectively. Home closings began at these communities in March and May
1998, respectively.
Arizona country club communities include Terravita and Anthem Country Club. The
Company completed new order activity at Terravita in April 1997. Home closings
at Terravita were completed in May 1998. The Company began taking new home sales
orders at Anthem Country Club in February 1999.
The Company began taking new home sales orders at Anthem Country Club (a Nevada
country club community near Las Vegas) in July 1998. Home closings began at
Anthem Country Club in February 1999.
The Company completed new order activity for its California family communities
in June 1997. Home closings for these communities were completed in August 1997.
A substantial majority of the backlog at March 31, 1999 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. Cancellations of home sales orders as a percentage of
new home sales orders written during the nine months ended March 31, 1999 and
1998 were 13.8 percent and 14.2 percent, respectively.
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
REVENUES. Revenues increased to $324.4 million for the three months ended March
31, 1999 from $254.7 million for the three months ended March 31, 1998.
Management believes that these increases are largely attributable to improvement
in California's real estate economy and its economy generally. The Company's Sun
City Anthem, Anthem Country Club and Coventry Anthem communities near Las Vegas,
its smaller-scale active adult communities in Arizona and California and its
Coventry Bellasera community near Phoenix (which collectively had only five home
closings in the 1998 quarter) accounted for $45.6 million of the increase in
revenues. An increase in the average revenue per home closing resulted in $18.2
million of the increase in revenues.
HOME CONSTRUCTION, LAND AND OTHER COSTS. The increase in home construction, land
and other costs to $242.0 million for the 1999 quarter compared to $194.6
million for the 1998 quarter was largely due to the increase in home closings.
Homebuilding gross margins in the 1999 quarter were in line with previous fiscal
1999 quarters but were slightly lower than the 1998 quarter. As a percentage of
revenues, total home construction, land and other costs decreased to 74.6
percent for the 1999 quarter compared to 76.4 percent for the 1998 quarter. The
percentage decrease was attributable to a gain on an equipment sale and a
utility refund (aggregating $3.2 million) included in revenues in the 1999
quarter and to a large, low-margin land sale in the 1998 quarter.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. As a percentage of revenues,
selling, general and administrative expenses were 15.3 percent for both the 1999
and the 1998 quarters.
INTEREST. As a percentage of revenues, amortization of capitalized interest was
4.1 percent for the 1999 quarter compared to 3.7 percent for the 1998 quarter.
This increase was primarily due to an increase in debt levels (see "Liquidity
and Financial Condition of the Company").
INCOME TAXES. The increase in income taxes to $7.0 million for the 1999 quarter
compared to $4.2 million for the 1998 quarter was due to the increase in
earnings before income taxes. The effective tax rate in both quarters was 36
percent.
NET EARNINGS. The increase in net earnings to $12.5 million for the 1999 quarter
compared to $7.5 million for the 1998 quarter was primarily attributable to the
increases in home closings and revenues.
NET NEW ORDER ACTIVITY AND BACKLOG. Net new orders in the 1999 quarter were 30.4
percent higher than in the 1998 quarter. The number of homes under contract at
March 31, 1999 was 36.4 percent higher than at March 31, 1998. Both of these
increases were primarily attributable to Sun City at Huntley and the Anthem
communities near Phoenix and Las Vegas. These communities had new order activity
for all of the 1999 quarter but had not yet commenced new order activity in the
1998 quarter. Management believes that the decreases in net new orders and
backlog at Sun City Georgetown and the Florida active adult communities may have
been partially attributable to the impact of increased sales prices and
potential buyers awaiting the recent openings of new model homes.
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
NINE MONTHS ENDED MARCH 31, 1999 AND 1998
REVENUES. Revenues increased to $947.3 million for the nine months ended March
31, 1999 from $781.7 million for the nine months ended March 31, 1998. The
Company's Anthem communities near Las Vegas, Florida communities, smaller-scale
active adult communities in Arizona and California and Coventry Bellasera
community near Phoenix (which collectively had only 76 home closings in the 1998
period) accounted for $104.9 million of the increase in revenues. An increase in
the average revenue per home closing resulted in $59.8 million of the increase
in revenues. Sun City Palm Desert and Sun City Roseville, which respectively
closed 142 and 98 more homes in the 1999 period than in the 1998 period,
accounted for $53.4 million of the increase in revenues. Management believes
that these increases are largely attributable to improvement in California's
real estate economy and its economy generally. Partially offsetting these
increases were $58.2 million of decreased revenues at the completed Sun City
West, Terravita and Coventry Southern California communities, which collectively
had only 19 home closings in the 1999 period.
HOME CONSTRUCTION, LAND AND OTHER COSTS. The increase in home construction, land
and other costs to $716.5 million for the 1999 period compared to $596.6 million
for the 1998 period was largely due to the increase in home closings. As a
percentage of revenues, these costs decreased to 75.6 percent for the 1999
period compared to 76.3 percent for the 1998 period. Homebuilding margins
improved from 23.3 percent to 24.1 percent, primarily as a result of increased
revenue per home closing at virtually all of the Company's communities.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. As a percentage of revenues,
selling, general and administrative expenses decreased to 14.6 percent for the
1999 period compared to 14.7 percent for the 1998 period. This small decrease
resulted from the spreading of corporate overhead over significantly greater
revenues.
INTEREST. As a percentage of revenues, amortization of capitalized interest was
4.1 percent for the 1999 period compared to 4.0 percent for the 1998 period.
This small increase was primarily due to an increase in debt levels (see
"Liquidity and Financial Condition of the Company").
INCOME TAXES. The increase in income taxes to $19.3 million for the 1999 period
compared to $14.0 million for the 1998 period was due to the increase in
earnings before income taxes. The effective tax rate in both periods was 36
percent.
NET EARNINGS. The increase in net earnings to $34.4 million for the 1999 period
compared to $24.9 million for the 1998 period was primarily attributable to the
increase in home closings, revenues and homebuilding gross margins.
NET NEW ORDER ACTIVITY. Net new orders in the 1999 period were 32.6 percent
higher than in the 1998 period. This increase was primarily attributable to Sun
City at Huntley and the Anthem communities near Phoenix and Las Vegas, partially
offset by decreases at Sun City Georgetown and the Florida communities (see
"Three Months Ended March 31, 1999 and 1998 - Net New Order Activity and
Backlog").
LIQUIDITY AND FINANCIAL CONDITION OF THE COMPANY
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,
land and lot development, construction of amenities (including golf courses and
recreation centers), model homes, sales and administration facilities, major
roads, utilities and 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.
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
During the first nine months of fiscal 1999 the Company generated $335.7 million
of net cash from operating community sales activities, used $216.7 million for
land and lot and amenity development at operating communities, paid $334.0
million for costs related to communities in the pre-operating stage and used
$103.4 million for other operating activities. The resulting $318.4 million of
net cash used for operating activities was funded mainly through borrowings
under the Company's $500 million senior unsecured revolving credit facility (the
"Credit Facility") and $25 million short-term lines of credit (together with the
Credit Facility, the "Facilities"). The net proceeds from the February 1999
public offering of $150 million in principal amount of 10 1/4% Senior
Subordinated Debentures due 2010 (the "Offering") were used to repay a portion
of the indebtedness outstanding under the Credit Facility. Increased home sale
deposits (resulting from the increase in net new orders and backlog) were also a
significant source of funding in the 1999 period.
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 increasing
its indebtedness. In the first nine months of fiscal 1999 the Company has been
engaged in substantial development. It has had under development, among other
projects: (i) Sun City Lincoln Hills, the successor community to Sun City
Roseville; (ii) Anthem Las Vegas, which includes Sun City Anthem, Anthem Country
Club and a family community; (iii) Anthem Phoenix, which includes a country club
community and family communities and (iv) Sun City at Huntley.
To date, material cash expenditures have been made for these communities. The
Company anticipates that it will make material additional development and
housing construction expenditures at these communities through at least December
31, 1999. In order to provide adequate capital to meet the Company's operating
requirements for the next 12 months, the Company in February 1999 completed the
Offering and increased the amount of its Credit Facility from $450 million to
$500 million. At March 31, 1999 the Company had $308.2 million outstanding under
the Facilities. As a result of limitations imposed by the "Total Debt to
Tangible Net Worth" covenant under the Credit Facility, $124.2 million of the
$216.8 million of unused capacity under the Facilities was available to the
Company at March 31, 1999. To the extent the Company can reduce its leverage
ratio, by increasing shareholders' equity or repaying debt or both, more of the
unused portion of the Facilities will become available for borrowing in the
future.
As a result of the Offering and borrowings to fund development expenditures at
the communities referred to above, the Company is considerably more highly
leveraged at March 31, 1999 than it has been in recent years. The Company
expects to continue to borrow additional amounts under the Facilities to fund
continuing development at these communities. The Company expects to have
adequate capital resources to meet its needs for the next 12 months and intends
to manage its expenditures to meet its needs and available resources over this
time period. If there is a significant downturn in the Company's anticipated
operations and other capital resources are not obtained, the Company will need
to modify its business plan to operate with lower capital resources.
Modifications of the business plan could include, among other things, further
delaying development expenditures at its communities.
The Company's degree of leverage from time to time will affect its interest
incurred and capital resources, which could limit its ability to capitalize on
business opportunities or withstand adverse changes. Additionally, the
availability and cost of debt financing depends on governmental policies and
other factors outside the Company's control. If the Company cannot at any time
obtain sufficient capital resources to fund its development and expansion
expenditures, its projects may be delayed, resulting in cost increases, adverse
effects on the Company's results of operations and possible material adverse
effects on the Company. No assurance can be given as to the terms, availability
or cost of any future financing the Company may need. If the Company is at any
time unable to service its debt, refinancing or obtaining additional financing
may be required and may not be available or available on terms acceptable to the
Company.
At March 31, 1999, under the most restrictive of the covenants in the Company's
debt agreements, $43.8 million of the Company's retained earnings was available
for payment of cash dividends or the acquisition by the Company of its common
stock.
17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs being written using two
digits (rather than four) to define the applicable year. Computer programs that
have time-sensitive software may not recognize dates beginning in the year 2000,
which could result in miscalculations or system failures.
To date, the Company's Year 2000 remediation efforts have focused primarily on
its core business computer applications (i.e., those systems that the Company is
dependent upon for the conduct of day-to-day business operations). Starting over
two years ago, the Company initiated a comprehensive review of its core business
applications to determine the adequacy of these systems to meet future business
requirements. Year 2000 readiness was only one of many factors considered in
this assessment. Out of this effort, a number of systems were identified for
upgrade or replacement. In no case is a system being replaced solely because of
Year 2000 issues, although in some cases the timing of system replacements is
being accelerated. Thus, the Company does not believe the costs of these system
replacements are specifically Year 2000 related. Additionally, while the Company
may have incurred an opportunity cost for addressing the Year 2000 issue, it
does not believe that any specific information technology projects have been
deferred to date as a result of its Year 2000 efforts.
As of May 1999, the Company believes all of its core business systems are
adequately Year 2000 capable for its purposes, except for its lead tracking and
mortgage processing systems and some of its document imaging systems. Projects
are currently underway to replace each of these systems, with implementations
and testing scheduled for completion by June 1999, with the exception of the
lead tracking system, which is anticipated to be implemented in phases
continuing through October 1999. As with systems that have already been
replaced, the Company does not believe the costs of these replacements, which
are anticipated to aggregate approximately $2 million, are specifically Year
2000 related. The Company has also purchased at a cost of approximately $100,000
a software product that, it believes, can identify personal computers and
related equipment with imbedded software that is not adequately Year 2000
capable for the Company's purposes. The Company expects to incur costs to
replace or repair such equipment, but it has not at this time determined the
amount of these costs. Since some of the equipment would otherwise be replaced
through normal attrition, lease expirations and scheduled upgrades in the
ordinary course of business, it is possible that much of these costs would not
be solely related to Year 2000 readiness.
The Company is also assessing other potential Year 2000 issues, including
non-information technology systems. A broad-based Year 2000 Task Force has been
formed and is meeting monthly to identify areas of concern and develop action
plans. The Company currently anticipates that testing of non-information
technology systems will be completed by mid-1999. As part of the Year 2000 Task
Force effort, the Company's relationships with vendors, contractors, financial
institutions and other third parties are being considered to determine the
status of the Year 2000 issue efforts on the part of the other parties to
material relationships. The Year 2000 Task Force includes both internal and
Company-external representation.
The Company expects to incur Year 2000-related costs through the end of 1999 but
does not at present anticipate that these costs will be material. The Company
believes that the most reasonably likely worst-case scenario for the Year 2000
issue would be that the Company or the third parties with whom it has material
relationships were to be unsuccessful in their Year 2000 remediation efforts. If
this were to occur, the Company may encounter disruptions to its business that
could have a material adverse effect on it. The Company could also be materially
adversely affected by widespread economic or financial market disruption or by
Year 2000 computer system failures at government agencies on which the Company
is dependent for zoning, building permits and related matters.
The Company has not at this time established a formal Year 2000 contingency plan
but will consider and, if necessary, address doing so as part of its Year 2000
Task Force activities. The Company maintains and deploys contingency plans
designed to address various other potential business interruptions. These plans
may be applicable to address the interruption of support provided by third
parties resulting from their failure to be Year 2000 ready.
18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
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
financing and leverage, the development of future communities and new geographic
markets, governmental regulation, including land exchanges with governmental
entities, environmental considerations, competition, the geographic
concentration of the Company's operations, the cyclical nature of real estate
operations and other conditions generally, fluctuations in labor and material
costs, natural risks that exist in certain of the Company's market areas, risks
associated with the Year 2000 issue and other matters set forth in the Company's
Form 10-K for the year ended June 30, 1998. Certain forward looking statements
are based upon assumptions of future events, which may not prove to be accurate.
Actual results may differ materially from those projected or implied.
19
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 10.1 First Amendment to Second Amended and Restated Revolving
Loan Agreement, entered into as of February 19, 1999 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.
Exhibit 10.2 First Supplemental Indenture, entered into as of February
18, 1999, by and between Del Webb Corporation and Bank of
Montreal Trust Company as trustee for the Company's $150
million of 10 1/4% Senior Subordinated Debentures due 2010.
Exhibit 10.3 First Amendment to the Del Webb Corporation 1995 Director
Stock Plan effective as of February 11, 1998.
Exhibit 10.4 First Amendment to the Del Webb Corporation 1995 Executive
Management Incentive Plan effective as of February 11, 1998.
Exhibit 10.5 First Amendment to the Del Webb Corporation Director Stock
Plan effective as of February 11, 1998.
Exhibit 10.6 Second Amendment to the Del Webb Corporation 1995 Executive
Long-Term Incentive Plan effective as of February 11, 1998.
Exhibit 10.7 Second Amendment to the Del Webb Corporation 1993 Executive
Long-Term Incentive Plan effective as of February 11, 1998.
Exhibit 10.8 Third Amendment to the Del Webb Corporation Executive Long-
Term Incentive Plan effective as of February 11, 1998.
Exhibit 10.9 Third Amendment to the Del Webb Corporation Supplemental
Executive Retirement Plan No. 1 dated March 10, 1999.
Exhibit 10.10 Fourth Amendment to the Del Webb Corporation Supplemental
Executive Retirement Plan No. 2 dated March 10, 1999.
Exhibit 10.11 Amendment to Employment and Consulting Agreement entered
into as of March 9, 1999 by Del Webb Corporation and Philip
J. Dion.
Exhibit 10.12 Amendment to Employment Agreement entered into as of March
22, 1999 by Del Webb Corporation and LeRoy C. Hanneman, Jr.
Exhibit 10.13 Amendment to Employment Agreement entered into as of March
22, 1999 by Del Webb Corporation and John H. Gleason.
Exhibit 10.14 Change in Control Agreement letter dated March 15, 1999 and
related list of recipients.
Exhibit 27 Financial Data Schedule
(b) In the quarter ended March 31, 1999 the Company filed a report on Form 8-K
dated February 18, 1999 to file the Underwriting Agreement and Indenture
for the $150 million of 10 1/4% Senior Subordinated Debentures due 2010
issued by the Company in February 1999.
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, who are duly authorized to do so.
DEL WEBB CORPORATION
(REGISTRANT)
Date: May 13, 1999 /s/ Philip J. Dion
---------------- ------------------------------------
Philip J. Dion
Chairman and Chief Executive Officer
Date: May 13, 1999 /s/ John A. Spencer
---------------- ------------------------------------
John A. Spencer
Executive Vice President and
Chief Financial Officer
21