1
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, 1998.
[ ] 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, 1998 Registrant had outstanding 18,098,084 shares of common
stock.
2
DEL WEBB CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED
MARCH 31, 1998
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31, 1998,
June 30, 1997 and March 31, 1997............................ 1
Consolidated Statements of Earnings for the three and nine
months ended March 31, 1998 and 1997........................ 2
Consolidated Statements of Cash Flows for the nine
months ended March 31, 1998 and 1997........................ 3
Notes to Consolidated Financial Statements.................... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................. 18
Item 6. Exhibits and Reports on Form 8-K.............................. 18
3
DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
MARCH 31, June 30, MARCH 31,
1998 1997 1997
(UNAUDITED) (UNAUDITED)
- -----------------------------------------------------------------------------------------------------------
ASSETS
- -----------------------------------------------------------------------------------------------------------
Real estate inventories (Notes 2, 3 and 6) $ 1,107,277 $ 939,684 $ 948,151
Cash and short-term investments 13,746 24,715 15,387
Receivables 33,638 28,892 26,052
Property and equipment, net 32,990 20,937 21,073
Deferred income taxes (Note 4) -- 6,526 8,916
Income taxes receivable (Note 4) 2,029 -- --
Other assets (Note 7) 107,907 65,908 62,126
- -----------------------------------------------------------------------------------------------------------
$ 1,297,587 $ 1,086,662 $ 1,081,705
===========================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------
Notes payable, senior and subordinated debt (Note 3) $ 736,717 $ 563,068 $ 573,951
Contractor and trade accounts payable 74,205 70,827 70,429
Accrued liabilities and other payables 77,041 79,959 65,901
Home sale deposits 81,874 69,476 78,752
Deferred income taxes (Note 4) 116 -- --
Income taxes payable (Note 4) -- 3,502 5,355
- -----------------------------------------------------------------------------------------------------------
Total liabilities 969,953 786,832 794,388
- -----------------------------------------------------------------------------------------------------------
Shareholders' equity:
Common stock, $.001 par value. Authorized 30,000,000
shares; issued 18,035,966 shares at March 31, 1998,
17,691,118 shares at June 30, 1997 and 17,692,632 shares
at March 31, 1997 18 18 18
Additional paid-in capital 165,156 160,308 160,351
Retained earnings 168,173 145,922 133,480
- -----------------------------------------------------------------------------------------------------------
333,347 306,248 293,849
Less cost of common stock in treasury, 124,509 shares at
June 30, 1997 and 102,499 shares at March 31, 1997 -- (1,914) (1,580)
Less deferred compensation (5,713) (4,504) (4,952)
- -----------------------------------------------------------------------------------------------------------
Total shareholders' equity 327,634 299,830 287,317
- -----------------------------------------------------------------------------------------------------------
$ 1,297,587 $ 1,086,662 $ 1,081,705
===========================================================================================================
See accompanying notes to consolidated financial statements.
1
4
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,
- -------------------------------------------------------------------------------------------
1998 1997 1998 1997
- -------------------------------------------------------------------------------------------
Revenues (Note 5) $254,714 $280,317 $781,692 $838,294
- -------------------------------------------------------------------------------------------
Costs and expenses (Note 5):
Home construction, land and other 194,644 213,373 596,625 644,212
Interest (Note 6) 9,473 12,398 31,472 35,680
Selling, general and administrative 38,847 39,584 114,672 117,204
- -------------------------------------------------------------------------------------------
242,964 265,355 742,769 797,096
- -------------------------------------------------------------------------------------------
Earnings before income taxes and
extraordinary item 11,750 14,962 38,923 41,198
Income taxes (Note 4) 4,230 5,386 14,012 14,831
- -------------------------------------------------------------------------------------------
Earnings before extraordinary item 7,520 9,576 24,911 26,367
Extraordinary item:
Loss from extinguishment of debt
(net of tax) -- 1,285 -- 1,285
- -------------------------------------------------------------------------------------------
Net earnings $ 7,520 $ 8,291 $ 24,911 $ 25,082
===========================================================================================
Weighted average shares outstanding 17,890 17,630 17,740 17,584
===========================================================================================
Weighted average shares outstanding -
assuming dilution 18,749 17,884 18,350 17,888
===========================================================================================
Net earnings per share:
Earnings before extraordinary item $ .42 $ .54 $ 1.40 $ 1.50
Extraordinary item -- .07 -- .07
- -------------------------------------------------------------------------------------------
$ .42 $ .47 $ 1.40 $ 1.43
===========================================================================================
Net earnings per share - assuming dilution:
Earnings before extraordinary item $ .40 $ .54 $ 1.36 $ 1.47
Extraordinary item -- .07 -- .07
- -------------------------------------------------------------------------------------------
$ .40 $ .46 $ 1.36 $ 1.40
===========================================================================================
See accompanying notes to consolidated financial statements.
2
5
DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
MARCH 31,
- -----------------------------------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers related to community home sales $ 587,147 $ 613,483
Cash received from commercial land and facility sales 21,063 8,217
Cash paid for costs related to community home construction (383,293) (429,777)
- -----------------------------------------------------------------------------------------------------
Net cash provided by community sales activities 224,917 191,923
Cash paid for land acquisitions at operating communities (14,687) (6,334)
Cash paid for lot development at operating communities (77,033) (70,288)
Cash paid for amenity development at operating communities (34,868) (41,915)
- -----------------------------------------------------------------------------------------------------
Net cash provided by operating communities 98,329 73,386
Cash paid for costs related to communities in the pre-operating stage (107,493) (63,090)
Cash received from customers related to conventional homebuilding 165,259 178,092
Cash paid for land, development, construction and other costs related to
conventional homebuilding (161,158) (163,097)
Cash received from residential land development project 4,649 5,717
Cash paid for corporate activities (47,092) (33,465)
Interest paid (46,340) (42,199)
Cash paid for income taxes (11,587) (8,672)
- -----------------------------------------------------------------------------------------------------
NET CASH USED FOR OPERATING ACTIVITIES (105,433) (53,328)
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (15,038) (2,396)
Investments in life insurance policies (2,749) (1,505)
- -----------------------------------------------------------------------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES (17,787) (3,901)
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings 297,035 478,865
Repayments of debt (186,986) (421,324)
Proceeds from exercise of common stock options 4,869 1,077
Stock repurchases (8) (1,708)
Dividends paid (2,659) (2,634)
- -----------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 112,251 54,276
- -----------------------------------------------------------------------------------------------------
NET DECREASE IN CASH AND SHORT-TERM INVESTMENTS (10,969) (2,953)
CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD 24,715 18,340
- -----------------------------------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 13,746 $ 15,387
=====================================================================================================
See accompanying notes to consolidated financial statements.
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DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
MARCH 31,
- ----------------------------------------------------------------------------------------------------------
1998 1997
- ----------------------------------------------------------------------------------------------------------
Reconciliation of net earnings to net cash used for operating activities:
Net earnings $ 24,911 $ 25,082
Allocation of non-cash common costs in costs and expenses, excluding interest 183,050 190,215
Amortization of capitalized interest in costs and expenses 31,472 35,680
Deferred compensation amortization 1,359 1,321
Depreciation and other amortization 4,623 4,736
Deferred income taxes on earnings before extraordinary item 6,639 3,696
Extraordinary loss from extinguishment of debt (net of tax) -- 1,285
Net increase in home construction costs (17,497) (33,475)
Land acquisitions (70,509) (27,198)
Lot development (131,782) (111,400)
Amenity development (62,953) (72,048)
Pre-acquisition costs (13,676) (17,694)
Net change in other assets and liabilities (61,070) (53,528)
- ----------------------------------------------------------------------------------------------------------
Net cash used for operating activities $(105,433) $ (53,328)
==========================================================================================================
See accompanying notes to consolidated financial statements.
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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 small-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, California, Florida,
Illinois, Nevada, South Carolina and Texas. The Company's primary
activities involve the development of large-scale, master-planned
communities with extensive amenities for active adults age 55 and over.
The Company designs, develops and markets these communities, controlling
all phases of the master plan development process from land selection
through the construction and sale of homes. Within its communities, the
Company is usually the exclusive 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, 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 nine months ended March 31,
1998 are not necessarily indicative of the results to be expected for the
full fiscal year.
5
8
DEL WEBB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) REAL ESTATE INVENTORIES
The components of real estate inventories are as follows:
In Thousands
- --------------------------------------------------------------------------------------------
March 31, June 30, March 31,
1998 1997 1997
(Unaudited) (Unaudited)
- --------------------------------------------------------------------------------------------
Home construction costs $ 199,515 $ 182,018 $ 211,275
Unamortized improvement and amenity costs 574,560 489,142 487,905
Unamortized capitalized interest 57,785 46,121 46,054
Land held for housing 245,556 174,930 155,430
Land and facilities held for future development or
sale 29,861 47,473 47,487
- --------------------------------------------------------------------------------------------
$1,107,277 $ 939,684 $ 948,151
============================================================================================
At March 31, 1998 the Company had 479 completed homes and 680 homes under
construction that were not subject to a sales contract. These homes
represented $54.7 million of home construction costs at March 31, 1998. At
March 31, 1997 the Company had 352 completed homes and 730 homes under
construction (representing $47.0 million of home construction costs) that
were not subject to a sales contract.
Included in land and facilities held for future development or sale at
March 31, 1998 were 207 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 nine months ended March 31, 1998, the Company acquired the
initial portions of land for (i) a planned active adult community in the
Chicago area town of Huntley, Illinois, (ii) a planned large-scale
master-planned community in the southern Las Vegas valley and (iii) 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.
At Sun City Palm Desert, the Company has decided to move forward with
development of a portion of a second phase at that community. This portion
is planned for an additional 1,000 homes.
6
9
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
- ---------------------------------------------------------------------------------------
March 31, June 30, March 31,
1998 1997 1997
(Unaudited) (Unaudited)
- ---------------------------------------------------------------------------------------
9 3/4% Senior Subordinated Debentures due 2003, net $ 97,978 $ 97,670 $ 97,567
9% Senior Subordinated Debentures due 2006, net 97,834 97,628 97,560
9 3/4% Senior Subordinated Debentures due 2008, net 145,249 144,889 144,855
Notes payable to banks under a revolving credit
facility and short-term lines of credit 311,000 185,990 205,000
Real estate and other notes 84,656 36,891 28,969
- ---------------------------------------------------------------------------------------
$736,717 $563,068 $573,951
=======================================================================================
In January 1998 the amount of the Company's senior unsecured revolving
credit facility was increased from $350 million to $400 million.
At March 31, 1998 the Company had $288.0 million outstanding under its
$400 million senior unsecured revolving credit facility and $23.0 million
outstanding under its $25 million of short-term lines of credit. In May
1998 the Company completed a public offering of $200 million in principal
amount of 9 3/8% Senior Subordinated Debentures due 2009. The
approximately $195 million of net proceeds of the offering were used to
reduce the amount outstanding under the revolving credit facility. After
giving effect to this use of proceeds, as of March 31, 1998, the Company
would have had the capacity to borrow $55.0 million under the credit
facility and short term lines of credit under then-existing covenants. The
Company is negotiating an amendment to the credit facility to revise
certain debt-related covenants and increase the amount of the credit
facility to $450 million, all of which would be available to borrow,
subject to compliance by the Company with the revised covenants.
At March 31, 1998, under the most restrictive of the covenants in the
Company's debt agreements, $14.5 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.
7
10
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,
1998 1997 1998 1997
- --------------------------------------------------------------------------------
Current:
Federal $ (613) $ 3,954 $ 6,962 $ 9,357
State (269) 454 411 1,778
- --------------------------------------------------------------------------------
(882) 4,408 7,373 11,135
- --------------------------------------------------------------------------------
Deferred:
Federal 4,756 1,593 6,069 3,956
State 356 (615) 570 (260)
- --------------------------------------------------------------------------------
5,112 978 6,639 3,696
- --------------------------------------------------------------------------------
$ 4,230 $ 5,386 $ 14,012 $ 14,831
================================================================================
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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,
1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------
Revenues:
Homebuilding:
Communities $186,828 $220,728 $582,512 $633,713
Conventional 48,265 53,289 150,491 166,013
- ---------------------------------------------------------------------------------------------------
Total homebuilding 235,093 274,017 733,003 799,726
Land and facility sales 17,213 3,827 41,344 30,061
Other 2,408 2,473 7,345 8,507
- ---------------------------------------------------------------------------------------------------
$254,714 $280,317 $781,692 $838,294
===================================================================================================
Costs and expenses:
Home construction and land:
Communities $137,585 $164,449 $436,638 $476,625
Conventional 39,901 45,694 125,802 140,441
- ---------------------------------------------------------------------------------------------------
Total homebuilding 177,486 210,143 562,440 617,066
Cost of land and facility sales 16,252 2,690 32,040 24,751
Other cost of sales 906 540 2,145 2,395
- ---------------------------------------------------------------------------------------------------
Total home construction, land and other 194,644 213,373 596,625 644,212
Interest 9,473 12,398 31,472 35,680
Selling, general and administrative 38,847 39,584 114,672 117,204
- ---------------------------------------------------------------------------------------------------
$242,964 $265,355 $742,769 $797,096
===================================================================================================
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12
DEL WEBB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) INTEREST
The following table shows the components of interest:
In Thousands
(Unaudited)
- ------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
March 31, March 31,
- ------------------------------------------------------------------------------------
1998 1997 1998 1997
- ------------------------------------------------------------------------------------
Interest incurred and capitalized $17,133 $13,086 $43,136 $38,073
====================================================================================
Amortization of capitalized interest
in costs and expenses $ 9,473 $12,398 $31,472 $35,680
====================================================================================
Unamortized capitalized interest in real
estate inventories at period end $57,785 $46,054
====================================================================================
Interest income $ 206 $ 369 $ 761 $ 1,166
====================================================================================
Interest income is included in other revenues.
(7) OTHER ASSETS
Other assets are summarized as follows:
In Thousands
- ------------------------------------------------------------------------------------
March 31, June 30, March 31,
1998 1997 1997
(Unaudited) (Unaudited)
- ------------------------------------------------------------------------------------
Pre-acquisition costs $ 50,721 $ 30,876 $ 28,199
Cash surrender values of life insurance policies 22,635 20,083 17,355
Prepaid expenses, deposits and other 34,551 14,949 16,572
- ------------------------------------------------------------------------------------
$107,907 $ 65,908 $ 62,126
====================================================================================
Substantially all of pre-acquisition costs at March 31, 1998 consists of
costs incurred for the acquisition of an 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 Las Vegas
area for property to be included in the Company's Anthem Las Vegas
Project, substantially all of which would be for Sun City Anthem. Any
exchange is subject to regulatory approvals and other conditions. If an
exchange is effected, these costs will 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.
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13
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 NINE MONTHS
ENDED CHANGE ENDED CHANGE
MARCH 31, MARCH 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 AMOUNT PERCENT 1998 1997 AMOUNT PERCENT
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATING DATA :
Number of net new orders:(1)
Sun Cities Phoenix(2) 393 372 21 5.6% 927 994 (67) (6.7%)
Sun Cities Las Vegas(3) 308 272 36 13.2% 826 751 75 10.0%
Sun City Palm Desert 162 118 44 37.3% 315 183 132 72.1%
Sun City Roseville 196 153 43 28.1% 509 347 162 46.7%
Sun City Hilton Head 103 92 11 12.0% 273 228 45 19.7%
Sun City Georgetown 118 132 (14) (10.6%) 311 325 (14) (4.3%)
Florida communities(4) 122 N/A 122 N/A 122 N/A 122 N/A
Other communities(5) 99 N/A 99 N/A 172 N/A 172 N/A
Coventry Homes 432 335 97 29.0% 983 849 134 15.8%
- ------------------------------------------------------------------------------------------------------------------------------------
Total current communities 1,933 1,474 459 31.1% 4,438 3,677 761 20.7%
Completed operations:
Sun City Tucson(6) N/A 20 (20) (100.0%) N/A 58 (58) (100.0%)
Terravita(7) 1 89 (88) (98.9%) N/A 192 (192) (100.0%)
Coventry Homes - So. California(8) N/A 55 (55) (100.0%) N/A 152 (152) (100.0%)
- ------------------------------------------------------------------------------------------------------------------------------------
Total 1,934 1,638 296 18.1% 4,438 4,079 359 8.8%
====================================================================================================================================
Number of home closings:
Sun Cities Phoenix(2) 292 271 21 7.7% 913 769 144 18.7%
Sun Cities Las Vegas(3) 241 277 (36) (13.0%) 772 808 (36) (4.5%)
Sun City Palm Desert 84 69 15 21.7% 202 162 40 24.7%
Sun City Roseville 147 118 29 24.6% 420 446 (26) (5.8%)
Sun City Hilton Head 90 105 (15) (14.3%) 270 290 (20) (6.9%)
Sun City Georgetown 75 151 (76) (50.3%) 298 438 (140) (32.0%)
Florida communities(4) 71 N/A 71 N/A 71 N/A 71 N/A
Other communities(5) 5 N/A 5 N/A 5 N/A 5 N/A
Coventry Homes 259 277 (18) (6.5%) 825 914 (89) (9.7%)
- ------------------------------------------------------------------------------------------------------------------------------------
Total current communities 1,264 1,268 (4) (0.3%) 3,776 3,827 (51) (1.3%)
Completed operations:
Sun City Tucson(6) N/A 23 (23) (100.0%) N/A 102 (102) (100.0%)
Terravita(7) 6 120 (114) (95.0%) 118 307 (189) (61.6%)
Coventry Homes - So. California(8) N/A 56 (56) (100.0%) 20 126 (106) (84.1%)
- ------------------------------------------------------------------------------------------------------------------------------------
Total 1,270 1,467 (197) (13.4%) 3,914 4,362 (448) (10.3%)
====================================================================================================================================
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14
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 CHANGE ENDED CHANGE
MARCH 31, MARCH 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 AMOUNT PERCENT 1998 1997 AMOUNT PERCENT
- ------------------------------------------------------------------------------------------------------------------------------------
BACKLOG DATA:
Homes under contract at March 31:
Sun Cities Phoenix(2) 706 778 (72) (9.3%)
Sun Cities Las Vegas(3) 587 585 2 0.3%
Sun City Palm Desert 239 133 106 79.7%
Sun City Roseville 369 278 91 32.7%
Sun City Hilton Head 162 131 31 23.7%
Sun City Georgetown 215 265 (50) (18.9%)
Florida communities(4) 256 N/A 256 N/A
Other communities(5) 167 N/A 167 N/A
Coventry Homes 616 507 109 21.5%
- ------------------------------------------------------------------------------------
Total current communities 3,317 2,677 640 23.9%
Completed operations:
Sun City Tucson(6) N/A 1 (1) (100.0%)
Terravita(7) 2 189 (187) (98.9%)
Coventry Homes - So. California(8) N/A 49 (49) (100.0%)
- ------------------------------------------------------------------------------------
Total(9) 3,319 2,916 403 13.8%
====================================================================================
Aggregate contract sales amount
(dollars in millions) $ 663 $ 566 $ 97 17.1%
====================================================================================
Average contract sales amount per
home (dollars in thousands) $ 200 $ 194 $ 6 3.1%
====================================================================================
AVERAGE REVENUE PER HOME
CLOSING :
Sun Cities Phoenix(2) $ 158,500 $ 163,700 $ (5,200) (3.2%) $ 157,800 $ 161,900 $ (4,100) (2.5%)
Sun Cities Las Vegas(3) 200,300 184,100 16,200 8.8% 198,600 179,500 19,100 10.6%
Sun City Palm Desert 228,000 232,600 (4,600) (2.0%) 228,500 225,600 2,900 1.3%
Sun City Roseville 224,500 221,700 2,800 1.3% 214,700 210,600 4,100 1.9%
Sun City Hilton Head 173,100 174,500 (1,400) (0.8%) 169,300 165,900 3,400 2.0%
Sun City Georgetown 195,800 176,500 19,300 10.9% 198,700 180,300 18,400 10.2%
Florida Communities(4) 97,900 N/A N/A N/A 97,900 N/A N/A N/A
Other Communities(5) 130,000 N/A N/A N/A 130,000 N/A N/A N/A
Coventry Homes 186,400 149,200 37,200 24.9% 177,900 151,000 26,900 17.8%
Weighted average current
communities 184,200 176,600 7,600 4.3% 183,500 173,800 9,700 5.6%
Completed operations:
Sun City Tucson(6) N/A 164,200 N/A N/A N/A 167,100 N/A N/A
Terravita(7) 379,300 286,800 92,500 32.3% 307,000 291,800 15,200 5.2%
Coventry Homes - So. California(8) N/A 213,400 N/A N/A 186,600 222,000 (35,400) (15.9%)
Total weighted average 185,100 186,800 (1,700) (0.9%) 187,300 183,300 4,000 2.2%
====================================================================================================================================
12
15
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 CHANGE ENDED CHANGE
MARCH 31, MARCH 31,
- -----------------------------------------------------------------------------------------------------------------------------
1998 1997 AMOUNT PERCENT 1998 1997 AMOUNT PERCENT
- -----------------------------------------------------------------------------------------------------------------------------
OPERATING STATISTICS:
Costs and expenses as a percentage of revenues:
Home construction, land and other 76.4% 76.1% 0.3% 0.4% 76.3% 76.8% (0.5%) (0.7%)
Interest 3.7% 4.4% (0.7%) (15.9%) 4.0% 4.3% (0.3%) (7.0%)
Selling, general and administrative 15.3% 14.1% 1.2% 8.5% 14.7% 14.0% 0.7% 5.0%
Ratio of home closings to homes
under contract in backlog at
beginning of period 51.8% 53.4% (1.6%) (3.0%) 151.1% 136.4% 14.7% 10.8%
============================================================================================================================
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 In January 1998 the Company acquired certain assets and assumed certain
liabilities at two operating age-restricted communities in central
Florida. Included in this acquisition was a backlog of 205 homes at these
two communities at the date of acquisition.
5 Represents three smaller-scale communities in Arizona and California at
which net new order activity began in the nine months ended March 31,
1998. Home closings also began at one of these communities in March 1998.
6 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.
7 The Company completed net new order activity at Terravita in April 1997.
Home closings at Terravita were virtually complete at March 31, 1998.
8 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.
9 A majority of the backlog at March 31, 1998 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 nine months
ended March 31, 1998 and 1997, cancellations of home sales orders as a
percentage of new home sales orders written during the period were 14.2
percent and 17.5 percent, respectively. See "Forward Looking Information;
Certain Cautionary Statements."
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16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
REVENUES. Revenues decreased to $254.7 million for the three months ended March
31, 1998 from $280.3 million for the three months ended March 31, 1997,
primarily from a decrease in home closings. This decrease in home closings and
the resulting decrease in net earnings were primarily due to a lower beginning
backlog and to decreased home closings at Terravita, Coventry Homes' southern
California operations and Sun City Tucson, reflecting the completion of those
operations.
HOME CONSTRUCTION, LAND AND OTHER COSTS. The decrease in home construction, land
and other costs to $194.6 million for the 1998 quarter compared to $213.4
million for the 1997 quarter was primarily due to the decrease in home closings.
These costs as a percentage of revenues increased to 76.4 percent for the 1998
quarter compared to 76.1 percent for the 1997 quarter. The increase was
primarily due to a large, low-margin land sale at Coventry Homes' Phoenix
operations in the 1998 quarter, partially offset by a higher profit margin on
home closings resulting from a change in mix of product and home closings among
the Company's communities and conventional home building operations.
INTEREST. As a percentage of revenues, amortization of capitalized interest was
3.7 percent for the 1998 quarter compared to 4.4 percent for the 1997 quarter.
This decrease was primarily due to an increase in pre-operating communities, at
which interest is being capitalized on qualified assets but at which interest
amortization on home closings has not yet begun.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. As a percentage of revenues,
selling, general and administrative expenses increased to 15.3 percent for the
1998 quarter compared to 14.1 percent for the 1997 quarter. This increase
resulted primarily from spreading relatively fixed overhead over lower revenues.
NET NEW ORDER ACTIVITY AND BACKLOG. Total net new orders in the 1998 quarter
were 18.1 percent higher than in the 1997 quarter. Net new orders at operations
that were selling homes in the third quarter of both fiscal 1998 and fiscal 1997
increased 16.1 percent.
The increase in total net new orders was largely due to the commencement of
Florida community operations in January 1998 and net new order activity at three
smaller-scale communities in Arizona and California in the current fiscal year.
These increases were partially offset by declines attributable to the recently
completed operations of Terravita, Coventry Homes' southern California
operations and Sun City Tucson.
The increase in net new orders at operations that were selling homes in the
third quarter of both fiscal 1998 and fiscal 1997 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. Management believes that the increase in net new orders at the Sun
Cities Las Vegas is due to the continued strength of the Las Vegas market. At
Sun City Hilton Head, management believes that the increase in net new orders
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 as a result of increases
in Phoenix and Las Vegas.
The number of homes under contract at March 31, 1998 was 13.8 percent higher
than at March 31, 1997. Management believes that this backlog increase was
largely due to the same factors that produced the increase in net new orders.
Backlog decreases also were experienced at the Sun Cities Phoenix (where Sun
City West is approaching completion) and Sun City Georgetown (where sales have
leveled after satisfaction of initial local pent-up demand).
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
NINE MONTHS ENDED MARCH 31, 1998 AND 1997
REVENUES. Revenues decreased to $781.7 million for the nine months ended March
31, 1998 from $838.3 million for the nine months ended March 31, 1997. This
decrease was due to the decreased closings at Terravita, Coventry Homes'
southern California operations and Sun City Tucson, reflecting the completion of
those operations.
HOME CONSTRUCTION, LAND AND OTHER COSTS. The decrease in home construction, land
and other costs to $596.6 million for the 1998 period compared to $644.2 million
for the 1997 period was primarily due to the decrease in home closings. These
costs as a percentage of revenues decreased to 76.3 percent for the 1998 period
compared to 76.8 percent for the 1997 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 volume of lower-margin land
sales at a subtantially complete residential land development project in
Phoenix.
INTEREST. As a percentage of revenues, amortization of capitalized interest was
4.0 percent for the 1998 period compared to 4.3 percent for the 1997 period.
This decrease resulted primarily from the same factors that produced the
decrease for the three-month period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. As a percentage of revenues,
selling, general and administrative expenses increased to 14.7 percent for the
1998 period compared to 14.0 percent for the 1997 period. This increase resulted
primarily from the same factors that produced the increase for the three-month
period.
NET NEW ORDER ACTIVITY AND BACKLOG. Total net new orders in the 1998 period were
8.8 percent higher than in the 1997 period. Net new orders at operations that
were selling homes in both the 1998 and 1997 periods increased 12.7 percent. The
number of homes under contract at March 31, 1998 was 13.8 percent higher than at
March 31,1997. See "Three Months Ended March 31, 1998 and 1997 -- Net New Order
Activity and Backlog."
LIQUIDITY AND FINANCIAL CONDITION OF THE COMPANY
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 its $400 million senior unsecured revolving credit facility
(the "Credit Facility"). Also in January 1998, the amount of the Credit Facility
was increased from $350 million to $400 million.
The cash flow for each of the Company's communities can differ substantially
from reported earnings, depending on the status of the development cycle. The
initial years of development or expansion require significant cash outlays for,
among other things, land acquisition, obtaining master plan and other approvals,
construction of amenities (including golf courses and recreation centers), model
homes, sales and administration facilities, major roads, utilities, general
landscaping and interest. Since these costs are capitalized, this can result in
income reported for financial statement purposes during those initial years
significantly exceeding cash flow. However, after the initial years of
development or expansion, when these expenditures are made, cash flow can
significantly exceed earnings reported for financial statement purposes, as
costs and expenses include amortization charges for substantial amounts of
previously expended costs.
During the nine months ended March 31, 1998 the Company generated $224.9 million
of net cash from community sales activities, used $126.6 million of cash for
land and lot and amenity development at operating communities, paid $107.5
million for costs related to communities in the pre-operating stage, generated
$4.1 million of net cash from conventional homebuilding operations and used
$100.3 million of cash for other operating activities. The resulting $105.4
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 and from borrowings under
the Company's senior unsecured revolving credit facility.
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18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
At March 31, 1998 the Company had $13.7 million of cash and short-term
investments, $288.0 million outstanding under the Credit Facility and $23.0
million outstanding under its $25 million of short-term lines of credit. Under
existing covenants, the Company had the ability to borrow an additional $59.8
million of the available capacity at March 31, 1998 under the Credit Facility
and short-term lines of credit.
At March 31, 1998, under the most restrictive of the covenants in the Company's
debt agreements, $14.5 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 May 1998 the Company completed a public offering of $200 million in principal
amount of 9 3/8% Senior Subordinated Debentures due 2009 (the "Offering").
The approximately $195 million of net proceeds from the Offering were used to
repay a portion of the amounts outstanding under the Credit Facility. After
giving effect to this use of proceeds, as of March 31, 1998 the Company would
have had the capacity to borrow $55.0 million under the credit facility and
short term lines of credit under then-existing covenants.
The Company is currently experiencing a period of substantial growth and has
under development, among other projects: (i) Sun City Lincoln Hills, planned as
the successor to Sun City Roseville; (ii) Anthem Las Vegas, which will include
Sun City Anthem (planned as the successor to Sun City Summerlin), Anthem Country
Club (a non-age-restricted golf course community) and a conventional home
building component (Coventry Anthem); (iii) Anthem Phoenix, planned to include a
non-age-restricted country club community and a conventional home building
component and which may also include an active adult community at a later date;
and (iv) Sun City at Huntley, located in Huntley, Illinois (near Chicago).
In periods of significant growth, such as the Company is now experiencing, the
Company will require significant additional capital resources, whether from
issuances of equity or by incurring additional indebtedness. The Company
currently anticipates that it will require material additional capital resources
for these communities.
The Company is negotiating an amendment to the credit facility to revise certain
debt-related covenants and increase the amount of the credit facility to $450
million, all of which would be available, subject to compliance by the Company
with the revised covenants. If, however, the amendment negotiations are not
successfully concluded and the Company cannot obtain sufficient capital from
other sources to fund its development and expansion expenditures, its projects
may be delayed, possibly as early as the first quarter of fiscal 1999, resulting
in cost increases and adverse effects on the Company's results of operations.
While, based upon the negotiations to date, the Company believes an amendment
will be obtained, no assurance can be given as to whether any such amendment
will be available to the Company, as to the terms on which it might be available
or as to the availability or cost of any future financing.
As a result of the Offering and anticipated future borrowings under the Credit
Facility, the Company expects to be more highly leveraged than it has been in
recent years. 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. 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.
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19
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 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.
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. The large majority of
the computer software used by the Company is already year 2000 compliant. The
Company is currently working to resolve any remaining potential impact of the
year 2000 on the processing of date-sensitive information by the Company's
computerized information systems. Based on current information, the costs of
addressing potential problems are not expected to have a material adverse impact
on the Company's financial position, results of operations or cash flows in
future periods. However, the failure of the Company, its contractors, suppliers
or financial institutions to resolve the year 2000 issue in a timely manner
could result in a material financial risk. The Company is assessing the effect
of a failure of its contractors, suppliers or financial institutions to
adequately address the year 2000 issue.
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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, purportedly, on behalf of an alleged 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 has reached a settlement agreement with certain of the named plaintiffs,
which is subject to court approval, and management of the Company believes that
the disagreements are likely to be resolved, perhaps by June 30, 1998, without
any material adverse financial impact. Certain class members have opted out of
the proposed settlement and objections to the settlement have been filed with
the court. There can be no assurance that the settlement agreement will be
approved by the court, that the disagreements will be resolved by June 30, 1998
or that class members opting out of a completed settlement will not file
litigation seeking damages. The Company believes it has meritorious defenses to
all claims and will vigorously defend any such litigation that is brought.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 10.2 Fifth Amendment to Amended and Restated
Revolving Loan Agreement, entered into as of October
1, 1997 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 10.3 Sixth Amendment to Amended and Restated Revolving Loan
Agreement, entered into as of December 1, 1997 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 10.4 Seventh Amendment to Amended and Restated Revolving Loan
Agreement entered into as of January 15, 1998 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 27 Financial Data Schedule
Exhibit 27.1 Restated 03/31/97 Financial Data Schedule
Exhibit 99.1 Asset Acquisition Agreement, entered into as of December
22, 1997 by and among Del Webb Communities, Inc. and
Spruce Creek Golf and Country Club, Inc., Spruce Creek
Golf and Country Club Homeowners' Association, Inc. and
Spruce Creek Preserve Homeowners' Association, Inc.
(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: May 14, 1998 /s/ Philip J. Dion
-------------------- -------------------------------------------------
Philip J. Dion
Chairman and Chief Executive Officer
Date: May 14, 1998 /s/ John A. Spencer
-------------------- -------------------------------------------------
John A. Spencer
Senior Vice President and Chief Financial Officer
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22
EXHIBIT INDEX
Sequentially
Numbered
Exhibit Number Description Page
- -------------- --------------------------------------------------------- ------------
Exhibit 10.2 Fifth Amendment to Amended and Restated Revolving Loan
Agreement, entered into as of October 1, 1997 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 10.3 Sixth Amendment to Amended and Restated Revolving Loan
Agreement, entered into as of December 1, 1997 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 10.4 Seventh Amendment to Amended and Restated Revolving Loan
Agreement entered into as of January 15, 1998 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 27 Financial Data Schedule
Exhibit 27.1 Restated 03/31/97 Financial Data Schedule
Exhibit 99.1 Asset Acquisition Agreement, entered into as of December
22, 1997 by and among Del Webb Communities, Inc. and
Spruce Creek Golf and Country Club, Inc., Spruce Creek
Golf and Country Club Homeowners' Association, Inc. and
Spruce Creek Preserve Homeowners' Association, Inc.