<PAGE> 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 SEPTEMBER 30, 1996.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the transition period from N/A to N/A .
Commission File Number: 1-4785
DEL WEBB CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 86-0077724
(State or other jurisdiction (IRS Employer Identification Number)
of incorporation or organization)
6001 NORTH 24TH STREET, PHOENIX, ARIZONA 85016
(Address of principal executive offices) (Zip Code)
(602) 808-8000
(Registrant's phone number, including area code)
NONE
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
As of October 25, 1996 Registrant had outstanding 17,541,457 shares of common
stock.
<PAGE> 2
DEL WEBB CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED
SEPTEMBER 30, 1996
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30, 1996,
June 30, 1996 and September 30, 1995...................... 1
Consolidated Statements of Earnings for the three
months ended September 30, 1996 and 1995.................. 2
Consolidated Statements of Cash Flows for the three
months ended September 30, 1996 and 1995.................. 3
Notes to Consolidated Financial Statements.................. 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................ 15
Separate financial statements of the Company's subsidiaries that are guarantors
of the Company's 10 7/8% Senior Notes due 2000 are not included because those
subsidiaries are jointly and severally liable as guarantors of the Notes and the
aggregate assets, liabilities, earnings and equity of those subsidiaries are
substantially equivalent to the assets, liabilities, earnings and equity of the
Company and its subsidiaries on a consolidated basis.
<PAGE> 3
DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, June 30, SEPTEMBER 30,
1996 1996 1995
(UNAUDITED) (UNAUDITED)
- -------------------------------------------------------------------------------------------------------
ASSETS .
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Real estate inventories (Notes 2, 3 and 6) $ 922,065 $ 899,815 $868,195
Cash and short-term investments 7,662 18,340 29,934
Receivables 29,248 25,162 18,850
Property and equipment, net 23,800 27,599 29,782
Deferred income taxes (Note 4) 10,331 12,612 -
Other assets 53,101 41,267 32,452
- ------------------------------------------------------------------------------------------------------
$1,046,207 $1,024,795 $979,213
======================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------
Notes payable, senior and subordinated debt (Note 3) $ 550,912 $ 514,677 $492,668
Contractor and trade accounts payable 72,416 82,918 62,383
Accrued liabilities and other payables 55,111 68,920 53,504
Home sale deposits 93,357 88,304 78,959
Income taxes payable (Note 4) 3,949 5,200 3,395
Deferred income taxes (Note 4) - - 7,546
- ------------------------------------------------------------------------------------------------------
Total liabilities 775,745 760,019 698,455
- ------------------------------------------------------------------------------------------------------
Shareholders' equity:
Common stock, $.001 par value. Authorized 30,000,000
shares; issued 17,548,958 shares at September 30, 1996,
17,541,772 shares at June 30, 1996 and 17,396,551 shares
at September 30, 1995 18 18 17
Additional paid-in capital 158,378 158,262 155,269
Retained earnings 116,148 111,033 127,940
- ------------------------------------------------------------------------------------------------------
274,544 269,313 283,226
Less cost of common stock in treasury, 6,801 shares
at September 30, 1996, 3,751 shares at June 30, 1996
and 1,417 shares at September 30, 1995 (105) (70) (18)
Less deferred compensation (3,977) (4,467) (2,450)
- ------------------------------------------------------------------------------------------------------
Total shareholders' equity 270,462 264,776 280,758
- ------------------------------------------------------------------------------------------------------
$1,046,207 $1,024,795 $979,213
======================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE> 4
DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
- ---------------------------------------------------------------------
1996 1995
- ---------------------------------------------------------------------
<S> <C> <C>
Revenues (Note 5) $264,295 $206,318
- ---------------------------------------------------------------------
Costs and expenses (Note 5):
Home construction, land and other 205,164 159,292
Interest (Note 6) 11,584 7,700
Selling, general and administrative 38,184 29,274
- ---------------------------------------------------------------------
254,932 196,266
- ---------------------------------------------------------------------
Earnings before income taxes 9,363 10,052
Income taxes (Note 4) 3,371 3,518
- ---------------------------------------------------------------------
Net earnings $ 5,992 $ 6,534
=====================================================================
Weighted average shares outstanding 17,897 16,671
=====================================================================
Net earnings per share $ .33 $ .39
=====================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 5
DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
- --------------------------------------------------------------------------------------------------------------
1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers related to community home sales $ 198,896 $ 156,446
Cash received from commercial land and amenity sales 3,335 1,712
Cash paid for costs related to community home construction (140,333) (101,998)
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by community sales activities 61,898 56,160
Cash paid for land acquisitions at operating communities (733) (9)
Cash paid for lot development at operating communities (26,138) (25,038)
Cash paid for amenity development at operating communities (15,313) (12,227)
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by operating communities 19,714 18,886
Cash paid for costs related to communities in the pre-operating stage (24,851) (27,053)
Cash received from customers related to conventional homebuilding 54,584 50,722
Cash paid for land, development, construction and other costs related to
conventional homebuilding (57,218) (45,731)
Cash received from residential land development project 3,177 3,770
Cash paid for corporate activities (17,833) (18,497)
Interest paid (19,247) (11,349)
Cash paid for income taxes (1,887) (1,182)
- ---------------------------------------------------------------------------------------------------------------
NET CASH USED FOR OPERATING ACTIVITIES (43,561) (30,434)
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,233) (2,188)
Investments in life insurance policies (937) (1,055)
- ---------------------------------------------------------------------------------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES (2,170) (3,243)
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings 87,555 93,781
Repayments of debt (51,735) (93,559)
Proceeds from sale of common stock -- 45,237
Proceeds from exercise of common stock options 110 --
Purchases of treasury stock -- (2)
Dividends paid (877) (746)
- ---------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 35,053 44,711
- ---------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS (10,678) 11,034
CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD 18,340 18,900
- ---------------------------------------------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 7,662 $ 29,934
===============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 6
DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
- ------------------------------------------------------------------------------------------------------------
1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Reconciliation of net earnings to net cash used for operating activities:
Net earnings $ 5,992 $ 6,534
Allocation of non-cash common costs in costs and expenses, excluding interest 65,403 48,849
Amortization of capitalized interest in costs and expenses 11,584 7,700
Deferred compensation amortization 455 385
Depreciation and other amortization 1,956 1,999
Deferred income taxes 2,281 2,349
Net increase in home construction costs (18,865) (19)
Land acquisitions (12,179) (4,337)
Lot development (38,460) (57,647)
Amenity development (23,506) (23,264)
Pre-acquisition costs (9,032) --
Net change in other assets and liabilities (29,190) (12,983)
- ------------------------------------------------------------------------------------------------------------
Net cash used for operating activities $(43,561) $(30,434)
============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 7
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. Certain financial statement items from the prior year have
been reclassified to be consistent with the current year financial
statement presentation.
The Company's operations include its communities, conventional
homebuilding operations and residential land development project. The
Company's communities are large-scale, master-planned residential
communities at which the Company controls all phases of the master plan
development process from land selection through the construction and
sale of homes. Within its communities, the Company is the exclusive
builder of homes. The Company's conventional homebuilding operations
encompass the construction and sale of homes in subdivisions. The
Company's residential land development project is being completed and
includes the sale of individual land parcels and lots to other builders
and developers for conventional housing and related commercial
development.
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, 1996, filed with the Securities and Exchange Commission.
In the Consolidated Statements of Cash Flows, the Company defines
operating communities as communities generating revenues from home
closings. Communities in the pre-operating stage are those not yet
generating revenues from home closings.
The results of operations for the three months ended September 30, 1996
are not necessarily indicative of the results to be expected for the
full fiscal year.
5
<PAGE> 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:
<TABLE>
<CAPTION>
In Thousands
- -------------------------------------------------------------------------------------------------------
September 30, June 30, September 30,
1996 1996 1995
(Unaudited) (Unaudited)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Home construction costs $196,665 $ 177,800 $142,374
Unamortized improvement and amenity costs 447,517 439,679 396,513
Unamortized capitalized interest 44,143 43,661 62,290
Land held for housing 168,574 168,530 213,907
Land and amenities held for future development or sale 65,166 70,145 53,111
- ------------------------------------------------------------------------------------------------------
$922,065 $ 899,815 $868,195
======================================================================================================
</TABLE>
At September 30, 1996 the Company had 332 completed homes and 724 homes under
construction that were not subject to a sales contract. These homes represented
$27.3 million and $14.0 million, respectively, of home construction costs at
September 30, 1996. At September 30, 1995 the Company had 341 completed homes
and 386 homes under construction (representing $24.4 million and $10.9 million,
respectively, of home construction costs) that were not subject to a sales
contract.
Included in land and amenities held for future development or sale at September
30, 1996 were 344 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. Also included in land and amenities held
for future development or sale at September 30, 1996 were 179 acres of
residential land and commercial land at the Company's residential land
development project.
(3) NOTES PAYABLE, SENIOR AND SUBORDINATED DEBT
Notes payable, senior and subordinated debt consists of the following:
<TABLE>
<CAPTION>
In Thousands
- ------------------------------------------------------------------------------------------------------
September 30, June 30, September 30,
1996 1996 1995
(Unaudited) (Unaudited)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
10 7/8% Senior Notes, net $ 97,647 $ 97,475 $ 96,959
9 3/4% Senior Subordinated Debentures, net 97,362 97,259 96,950
9% Senior Subordinated Debentures, net 97,423 97,355 97,149
Subordinated Swiss Franc Bonds, net -- -- 12,755
Notes payable to banks under a revolving credit
facility and short-term lines of credit 229,000 193,000 165,000
Real estate and other notes 29,480 29,588 23,855
- ------------------------------------------------------------------------------------------------------
$ 550,912 $514,677 $492,668
======================================================================================================
</TABLE>
At September 30, 1996 the Company had $220.0 million outstanding under its $350
million senior unsecured revolving credit facility and $9.0 outstanding under
its $15 million of short-term lines of credit.
At September 30, 1996, under the most restrictive of the covenants in the
Company's debt agreements, $10.2 million of the Company's retained earnings was
available for payment of cash dividends and for the acquisition by the Company
of its common stock.
6
<PAGE> 9
DEL WEBB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) INCOME TAXES
COMPONENTS OF INCOME TAXES
The components of income taxes are:
<TABLE>
<CAPTION>
In Thousands
(Unaudited)
- -------------------------------------------------------------
Three Months Ended
September 30,
1996 1995
- -------------------------------------------------------------
<S> <C> <C>
Current:
Federal $ 1,058 $ 1,092
State 32 77
- -------------------------------------------------------------
1,090 1,169
- -------------------------------------------------------------
Deferred:
Federal 2,328 1,791
State (47) 558
- -------------------------------------------------------------
2,281 2,349
- -------------------------------------------------------------
$ 3,371 $ 3,518
=============================================================
</TABLE>
7
<PAGE> 10
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:
<TABLE>
<CAPTION>
In Thousands
(Unaudited)
- --------------------------------------------------------------------
Three Months Ended
September 30,
1996 1995
- --------------------------------------------------------------------
<S> <C> <C>
Revenues:
Homebuilding:
Communities $196,953 $149,199
Conventional 49,335 45,271
- --------------------------------------------------------------------
Total homebuilding 246,288 194,470
Land and amenity sales 15,628 10,197
Other 2,379 1,651
- --------------------------------------------------------------------
$264,295 $206,318
====================================================================
Costs and expenses:
Home construction and land:
Communities $150,344 $111,863
Conventional 41,177 38,709
- --------------------------------------------------------------------
Total homebuilding 191,521 150,572
Interest 11,584 7,700
Cost of land and amenity sales 12,758 7,989
Other cost of sales 885 731
Selling, general and administrative 38,184 29,274
- --------------------------------------------------------------------
$254,932 $196,266
====================================================================
</TABLE>
8
<PAGE> 11
DEL WEBB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) INTEREST
The following table shows the components of interest:
<TABLE>
<CAPTION>
In Thousands
(Unaudited)
- -------------------------------------------------------------------------------------
Three Months Ended
September 30,
- -------------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C>
Interest incurred $12,066 $14,197
Less capitalized interest 12,066 14,197
- --------------------------------------------------------------------------------------
Interest expense $ -- $ --
======================================================================================
Amortization of capitalized interest in costs and expenses $11,584 $ 7,700
======================================================================================
Unamortized capitalized interest included in real estate
inventories at period end $44,143 $62,290
======================================================================================
Interest income $ 372 $ 327
======================================================================================
</TABLE>
9
<PAGE> 12
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 year ended June 30, 1996, filed with the Securities and Exchange Commission.
CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, CHANGE
- ---------------------------------------------------------------------------------------
1996 1995 AMOUNT PERCENT
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING DATA :
Number of net new orders:(1)
Sun City West 274 157 117 74.5%
Sun City Tucson 24 41 (17) (41.5%)
Sun Cities Las Vegas (2) 209 227 (18) (7.9%)
Sun City Palm Desert 14 30 (16) (53.3%)
Sun City Roseville 98 150 (52) (34.7%)
Sun City Hilton Head (3) 76 60 16 26.7%
Sun City Georgetown (3) 101 131 (30) (22.9%)
Terravita 28 56 (28) (50.0%)
Coventry Homes 307 312 (5) (1.6%)
- --------------------------------------------------------------------------------------
Total 1,131 1,164 (33) (2.8%)
======================================================================================
Number of home closings:
Sun City West 232 196 36 18.4%
Sun City Tucson 55 66 (11) (16.7%)
Sun Cities Las Vegas (2) 253 197 56 28.4%
Sun City Palm Desert 43 43 -- --
Sun City Roseville 173 144 29 20.1%
Sun City Hilton Head (3) 75 22 53 240.9%
Sun City Georgetown (3) 143 N/A 143 N/A
Terravita 84 109 (25) (22.9%)
Coventry Homes 324 306 18 5.9%
- --------------------------------------------------------------------------------------
Total 1,382 1,083 299 27.6%
======================================================================================
BACKLOG DATA :
Homes under contract at September 30:
Sun City West 595 463 132 28.5%
Sun City Tucson 14 124 (110) (88.7%)
Sun Cities Las Vegas (2) 598 432 166 38.4%
Sun City Palm Desert 83 134 (51) (38.1%)
Sun City Roseville 302 577 (275) (47.7%)
Sun City Hilton Head (3) 194 187 7 3.7%
Sun City Georgetown (3) 336 253 83 32.8%
Terravita 248 245 3 1.2%
Coventry Homes 578 546 32 5.9%
- --------------------------------------------------------------------------------------
Total (4) 2,948 2,961 (13) (0.4%)
======================================================================================
Aggregate contract sales amount
(dollars in millions) $ 575 $ 571 $ 4 0.7%
======================================================================================
Average contract sales amount per home
(dollars in thousands) $ 195 $ 193 $ 2 1.0%
======================================================================================
</TABLE>
10
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, CHANGE
- --------------------------------------------------------------------------------------------------------
1996 1995 AMOUNT PERCENT
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVERAGE REVENUE PER HOME CLOSING :
Sun City West $154,200 $157,200 $ (3,000) (1.9%)
Sun City Tucson 168,100 167,700 400 0.2%
Sun Cities Las Vegas (2) 179,600 178,400 1,200 0.7%
Sun City Palm Desert 239,700 232,100 7,600 3.3%
Sun City Roseville 200,700 202,300 (1,600) (0.8%)
Sun City Hilton Head (3) 158,000 127,800 30,200 23.6%
Sun City Georgetown (3) 180,300 N/A N/A N/A
Terravita 283,600 277,400 6,200 2.2%
Coventry Homes 152,300 147,900 4,400 3.0%
Weighted average 178,200 179,600 (1,400) (0.8%)
=======================================================================================================
OPERATING STATISTICS:
Cost and expenses as a percentage
of revenues:
Home construction, land and other 77.6% 77.2% 0.4% 0.5%
Interest 4.4% 3.7% 0.7% 18.9%
Selling, general and administrative 14.4% 14.2% 0.2% 1.4%
Ratio of home closings to homes under contract
in backlog at beginning of period 43.2% 37.6% 5.6% 14.9%
=======================================================================================================
</TABLE>
(1) Net of cancellations. The Company recognizes revenue at close of escrow.
(2) Includes Sun City Summerlin and Sun City MacDonald Ranch. The Company began
taking new home sales orders at Sun City MacDonald Ranch in September 1995.
Home closings began at Sun City MacDonald Ranch in January 1996.
(3) Home closings began at Sun City Hilton Head in August 1995 and at Sun City
Georgetown in February 1996.
(4) A majority of the backlog at September 30, 1996 is currently anticipated to
result in revenues in the next 12 months. However, a majority of the
backlog is contingent upon the availability of financing for the customer,
sale of the customer's existing residence or other factors. Also, as a
practical matter, the Company's ability to obtain damages for breach of
contract by a potential home buyer is limited to retaining all or a portion
of the deposit received. In the three months ended September 30, 1996 and
1995, cancellations of home sales orders as a percentage of new home sales
orders written during the period were 20.8 percent and 19.1 percent,
respectively.
11
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
REVENUES. Home closings at Sun City Georgetown (where the Company had not yet
begun delivering homes in the three months ended September 30, 1995) and Sun
City Hilton Head (where the Company did not begin delivering homes until August
1995) accounted for $25.8 million and $6.8 million, respectively, of the
increase in revenues to $264.3 million for the three months ended September 30,
1996 from $206.3 million for the 1995 quarter. Increased home closings at the
Sun Cities Las Vegas (where home closings did not begin at Sun City MacDonald
Ranch until January 1996) accounted for $10.0 million of the increase in
revenues. Increased home closings (resulting from higher backlogs at the
beginning of the period) at Sun City West and Coventry Homes resulted in
increased revenues of $5.7 million and $2.7 million, respectively. Increased
home closings at Sun City Roseville accounted for $5.9 million of the increase
in revenues.
Decreased home closings at Sun City Tucson and Terravita (reflecting the
approaching completion of those communities) resulted in decreased revenues of
$1.9 million and $6.9 million, respectively. A change in the average revenue per
home closing resulted in the remaining change in revenues from the 1995 quarter.
This change was primarily due to a change in mix of home closings among the
Company's communities.
Land and amenity sales and other revenues were $6.2 million higher in the 1996
quarter than in the 1995 quarter. Land sales are a normal part of the Company's
master-planned community developments but occur irregularly, complicating
period-to-period comparisons.
HOME CONSTRUCTION, LAND AND OTHER COSTS. The increase in home construction, land
and other costs to $205.2 million for the 1996 quarter compared to $159.3
million for the 1995 quarter was primarily due to the increase in home closings.
As a percentage of revenues, these costs were 77.6 percent for the 1996 quarter
compared to 77.2 percent for the 1995 quarter, with the increase primarily due
to changes in mix of product, subdivisions and home closings among the Company's
communities and conventional homebuilding operations and to increased discounts
at certain communities.
INTEREST. As a percentage of revenues, amortization of capitalized interest was
4.4 percent for the 1996 quarter compared to 3.7 percent for the 1995 quarter.
This increase was primarily due to higher levels of indebtedness and increases
in land held for longer-term development (with respect to which land the Company
cannot allocate capitalized interest). Also, as a result of the non-cash loss
from impairment of the Company's Sun City Palm Desert community incurred in
connection with the adoption in fiscal 1996 of Statement of Financial Accounting
Standards No. 121, more capitalized interest was allocated to communities with
greater home closings than Sun City Palm Desert, resulting in an increase in
amortization of capitalized interest as a percentage of revenues for the
quarter ended September 30, 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. As a percentage of revenues,
selling, general and administrative expenses increased to 14.4 percent for the
1996 quarter as compared to 14.2 percent for the 1995 quarter. This increase
occurred, despite an increase in total revenues, primarily because of increased
sales and marketing expenses at certain communities and because relatively fixed
general and administrative expenses were incurred at certain other communities
that had lower revenues in the 1996 quarter than in the 1995 quarter.
Of the increase in total selling, general and administrative expenses to $38.2
million for the 1996 quarter as compared to $29.3 million for the 1995 quarter,
$3.3 million was attributable to higher sales and marketing expenses, $2.0
million was due to increased commissions on the increased revenues and $1.9
million resulted from the recognition of expenses at Sun City Hilton Head, Sun
City MacDonald Ranch and Sun City Georgetown in the 1996 quarter (pre-operating
costs were capitalized for part or all of the 1995 quarter since home closings
had not yet begun at these communities). The balance of the increase was due to
a variety of general and administrative expenses.
INCOME TAXES. The decrease in income taxes to $3.4 million in the 1996 quarter
as compared to $3.5 million in the 1995 quarter was due to the decrease in
earnings before income taxes, partially offset by an increase in the effective
tax rate from 35 percent to 36 percent.
12
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
NET EARNINGS. Net earnings decreased to $6.0 million in the 1996 quarter from
$6.5 million in the 1995 quarter despite a 299-unit increase in home closings
and a $58.0 million increase in revenues. This decrease in net earnings was
primarily attributable to two factors: (1) a substantial increase in
amortization of capitalized interest (see "Interest") and (2) a shift in the
mix of communities generating home sales revenues. The newer communities of Sun
City MacDonald Ranch, Sun City Hilton Head and Sun City Georgetown had operating
margins in the 1996 quarter below the average community operating margin for the
1995 quarter. At the same time, as a result of the increased revenues from the
Company's newer communities, the more mature, higher-margin communities of Sun
City West, Sun City Summerlin and Terravita all showed a decline from the 1995
quarter to the 1996 quarter in the percentage of consolidated revenues they
generated.
Generally, the Company's newer communities have lower initial operating margins
as a result of a variety of factors, primarily pricing strategies and unit
volume levels. Management currently anticipates that these factors will continue
to affect the Company's results of operations for the second quarter of fiscal
1997 but that these newer communities will be more efficient in the second half
of fiscal 1997 as product pricing normalizes. In addition, home closings are
currently anticipated to begin in the second half of fiscal 1997 at Sun City
Grand (the successor community to Sun City West at which the Company began
taking new home sales orders on October 1, 1996). Management does not currently
anticipate that Sun City Grand will have the initially lower operating margins
usually associated with other new market communities.
NET NEW ORDER ACTIVITY AND BACKLOG. Net new orders in the 1996 quarter were
substantially the same as in the 1995 quarter, decreasing 2.8 percent. A
significant increase was realized at Sun City West, where the availability of
desirable home sites in a particularly well-located area of the community (which
area is now sold out) stimulated sales in the 1996 quarter. Net new orders at
Sun City Hilton Head increased 26.7 percent, reflecting this community's
on-going marketing activities. Net new orders at the Company's other operations
were down from the 1995 quarter, which is consistent with the results of many
other homebuilders and is indicative of the challenges offered by a variety of
local market factors and higher mortgage interest rates.
Both Sun City Palm Desert and Terravita had decreased net new order activity in
the 1996 quarter as compared to the 1995 quarter, although traditionally slow
seasonal sales activity in the summer months makes it difficult to accurately
assess local market conditions. At Sun City Palm Desert, net new orders
continued to be affected by adverse conditions in the southern California
economy and real estate market. At Terravita, net new orders were impacted
by a higher than normal cancellation rate and the fact that the community is
nearing completion, which has restricted the availability of more desirable
home sites. This community, which had 431 net new orders in fiscal 1996 and had
only 198 homes remaining to be sold as of September 30, 1996, generally
experiences its peak selling season in the November through May time period.
Net new orders at Sun City Tucson declined 41.5 percent from the 1995 quarter,
reflecting the approaching completion of that community. Net new orders at Sun
City Roseville declined 34.7 percent, and the Company has recently introduced
programs designed to enhance traffic and focus marketing efforts on the San
Francisco Bay area. Net new orders at Sun City Georgetown declined 22.9 percent
against a particularly strong first quarter one year ago, when the community
benefitted from early pent-up demand. Net new orders for Coventry Homes were
down modestly in its Phoenix and Tucson operations and up slightly in its Las
Vegas and southern California markets.
The number of homes under contract at September 30, 1996 was substantially the
same as at September 30, 1995, decreasing 0.4 percent. Backlog increases were
realized from new sales orders at Sun City Georgetown and Sun City MacDonald
Ranch (at which the Company had only been taking new home sales orders for four
months and one month, respectively, at September 30, 1995). Sun City West also
experienced a significant increase in backlog as a result of the increased net
new order activity discussed above. These backlog increases were offset by
decreases at Sun City Tucson (reflecting the approaching build-out of that
community) and Sun City Roseville (as a result of the decline in net new orders
and a high level of home closings in the past 12 months at that community).
13
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND FINANCIAL CONDITION OF THE COMPANY
At September 30, 1996 the Company had $7.7 million of cash and short-term
investments, $220.0 million outstanding under its $350 million senior unsecured
revolving credit facility and $ 9.0 million outstanding under its $15 million of
short-term lines of credit.
Management believes that the Company's current borrowing capacity, when combined
with existing cash and short-term investments and currently anticipated cash
flows from the Company's operating communities, conventional homebuilding
activities and residential land development project, will provide the Company
with adequate capital resources to fund the Company's currently anticipated
operating requirements for the next 12 months.
The Company's senior unsecured revolving credit facility and the indentures for
the Company's publicly-held debt contain restrictions which could, depending on
the circumstances, affect the Company's ability to borrow in the future. If the
Company at any time is not successful in obtaining sufficient capital to fund
its then planned development and expansion expenditures, some or all of its
projects may be significantly delayed. Any such delay could result in cost
increases and may adversely affect the Company's results of operations.
The cash flow for each of the Company's communities can differ substantially
from reported earnings, depending on the status of the development cycle. The
initial years of development or expansion require significant cash outlays for,
among other things, land acquisition, obtaining master plan and other approvals,
construction of amenities (including golf courses and recreation centers), model
homes, sales and administration facilities, major roads, utilities, general
landscaping and interest. Since these costs are capitalized, this can result in
income reported for financial statement purposes during those initial years
significantly exceeding cash flow. However, after the initial years of
development or expansion, when these expenditures are made, cash flow can
significantly exceed earnings reported for financial statement purposes, as
costs and expenses include amortization charges for substantial amounts of
previously expended costs.
During the 1996 quarter the Company generated $61.9 million of net cash from
community sales activities, used $42.2 million of cash for land and lot and
amenity development at operating communities, paid $24.9 million for costs
related to communities in the pre-operating stage, used $2.6 million of net cash
for conventional homebuilding operations and used $35.8 million of cash for
other operating activities. The resulting $43.6 million of net cash used for
operating activities (which was primarily attributable to expenditures for
communities not yet generating home sales revenues and for corporate activities)
was funded mainly through borrowings under the Company's senior unsecured
revolving credit facility and utilization of cash and short-term investments
existing at the beginning of the period.
At September 30, 1996 under the most restrictive of the covenants in the
Company's debt agreements, $10.2 million of the Company's retained earnings was
available for payment of cash dividends and for the acquisition by the Company
of its common stock.
FORWARD LOOKING INFORMATION; CERTAIN CAUTIONARY STATEMENTS
Certain statements contained in this "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section are forward looking
statements. Such statements involve risks and uncertainties and actual results
may differ materially from those projected or implied. Further, certain forward
looking statements are based on assumptions of future events which may not prove
to be accurate. Risks and uncertainties include risks associated with new and
future communities, competition, financing availability, fluctuations in
interest rates or labor and material costs, government regulation, geographic
concentration, natural risks and other matters set forth in the Company's Form
10-K for the year ended June 30, 1996.
14
<PAGE> 17
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 Financial Data Schedule
(b) The Company did not file any reports on Form 8-K during the period
covered by this report.
15
<PAGE> 18
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: October 28, 1996 /s/ Philip J. Dion
------------------ ------------------------------------
Philip J. Dion
Chairman and Chief Executive Officer
Date: October 28, 1996 /s/ John A. Spencer
------------------ ------------------------------------
John A. Spencer
Senior Vice President and Chief
Financial Officer
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1996 AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 7,662
<SECURITIES> 0
<RECEIVABLES> 24,248
<ALLOWANCES> 0
<INVENTORY> 922,065
<CURRENT-ASSETS> 0
<PP&E> 46,432
<DEPRECIATION> 22,632
<TOTAL-ASSETS> 1,046,207
<CURRENT-LIABILITIES> 0
<BONDS> 550,912
0
0
<COMMON> 18
<OTHER-SE> 270,444
<TOTAL-LIABILITY-AND-EQUITY> 1,046,207
<SALES> 263,023
<TOTAL-REVENUES> 264,295
<CGS> 216,676
<TOTAL-COSTS> 216,748
<OTHER-EXPENSES> 38,184
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 9,363
<INCOME-TAX> 3,371
<INCOME-CONTINUING> 5,992
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,992
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0
</TABLE>
