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, 1997.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the transition period from N/A to N/A .
----- -----
Commission File Number: 1-4785
DEL WEBB CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 86-0077724
(State or other jurisdiction (IRS Employer Identification Number)
of incorporation or organization)
6001 North 24th Street, Phoenix, Arizona 85016
(Address of principal executive offices) (Zip Code)
(602) 808-8000
(Registrant's phone number, including area code)
NONE
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
As of April 30, 1997 Registrant had outstanding 17,562,673 shares of common
stock.
<PAGE>
DEL WEBB CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED
March 31, 1997
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31, 1997,
June 30, 1996 and March 31, 1996............................... 1
Consolidated Statements of Operations for the three and nine
months ended March 31, 1997 and 1996........................... 2
Consolidated Statements of Cash Flows for the nine
months ended March 31, 1997 and 1996........................... 3
Notes to Consolidated Financial Statements....................... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................. 17
<PAGE>
DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands Except Share Data)
<TABLE>
<CAPTION>
March 31, June 30, March 31,
1997 1996 1996
(Unaudited) (Unaudited)
- ----------------------------------------------------------------------------------------------------------------
Assets
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Real estate inventories (Notes 2, 3 and 6) $ 948,151 $ 899,815 $ 921,610
Cash and short-term investments 15,387 18,340 14,573
Receivables 26,052 25,162 24,946
Property and equipment, net 21,073 27,599 28,306
Deferred income taxes (Note 4) 8,916 12,612 13,485
Other assets 62,126 41,267 38,631
- ----------------------------------------------------------------------------------------------------------------
$ 1,081,705 $ 1,024,795 $ 1,041,551
================================================================================================================
Liabilities and Shareholders' Equity
- ----------------------------------------------------------------------------------------------------------------
Notes payable, senior and subordinated debt (Note 3) $ 573,951 $ 514,677 $ 555,081
Contractor and trade accounts payable 70,429 82,918 78,492
Accrued liabilities and other payables 65,901 68,920 64,121
Home sale deposits 78,752 88,304 89,120
Income taxes payable (Note 4) 5,355 5,200 1,488
- ----------------------------------------------------------------------------------------------------------------
Total liabilities 794,388 760,019 788,302
- ----------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Common stock, $.001 par value. Authorized
30,000,000 shares; issued 17,692,632 shares at
March 31, 1997, 17,541,772 shares at
June 30, 1996 and 17,542,217 shares at
March 31, 1996 18 18 17
Additional paid-in capital 160,351 158,262 158,271
Retained earnings 133,480 111,033 99,965
- ----------------------------------------------------------------------------------------------------------------
293,849 269,313 258,253
Less cost of common stock in treasury, 102,499
shares at March 31, 1997, 3,751 shares
at June 30, 1996 and 3,031 shares at
March 31, 1996 (1,580) (70) (57)
Less deferred compensation (4,952) (4,467) (4,947)
- ----------------------------------------------------------------------------------------------------------------
Total shareholders' equity 287,317 264,776 253,249
- ----------------------------------------------------------------------------------------------------------------
$ 1,081,705 $ 1,024,795 $ 1,041,551
================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
- ---------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues (Note 5) $ 280,317 $ 256,014 $ 838,294 $ 701,791
- ---------------------------------------------------------------------------------------------------------------
Costs and expenses (Note 5):
Home construction, land and other 213,373 196,033 644,212 538,153
Interest (Note 6) 12,398 10,569 35,680 28,268
Selling, general and administrative 39,584 38,850 117,204 100,671
Loss from impairment of southern
California real estate inventories - 65,000 - 65,000
- ---------------------------------------------------------------------------------------------------------------
265,355 310,452 797,096 732,092
- ---------------------------------------------------------------------------------------------------------------
Earnings (loss) before income
taxes and extraordinary item 14,962 (54,438) 41,198 (30,301)
Income taxes (Note 4) (5,386) 19,053 (14,831) 10,605
- ---------------------------------------------------------------------------------------------------------------
Earnings (loss) before extraordinary
item 9,576 (35,385) 26,367 (19,696)
Extraordinary item:
Loss from extinguishment of
debt (net of tax) (Note 3) 1,285 - 1,285 -
- ---------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 8,291 $ (35,385) $ 25,082 $ (19,696)
===============================================================================================================
Weighted average shares outstanding 17,884 17,958 17,888 17,527
===============================================================================================================
Earnings (loss) per share:
Earnings (loss) before extraordinary
item $ .54 $ (1.97) $ 1.47 $ (1.12)
Extraordinary item (.07) - (.07) -
- ---------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ .46 $ (1.97) $ 1.40 $ (1.12)
===============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
- -------------------------------------------------------------------------------------------------------------------
1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers related to community home sales $ 613,483 $ 525,110
Cash received from commercial land and facility sales 8,217 7,564
Cash paid for costs related to community home construction (429,777) (352,099)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by community sales activities 191,923 180,575
Cash paid for land acquisitions at operating communities (6,334) (5,076)
Cash paid for lot development at operating communities (70,288) (71,322)
Cash paid for amenity development at operating communities (41,915) (43,889)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating communities 73,386 60,288
Cash paid for costs related to communities in the pre-operating stage (63,090) (77,799)
Cash received from customers related to conventional homebuilding 178,092 149,541
Cash paid for land, development, construction and other costs related
to conventional homebuilding (163,097) (158,598)
Cash received from residential land development project 5,717 6,408
Cash paid for corporate activities (33,465) (30,569)
Interest paid (42,199) (33,466)
Cash paid for income taxes (8,672) (9,014)
- -------------------------------------------------------------------------------------------------------------------
NET CASH USED FOR OPERATING ACTIVITIES (53,328) (93,209)
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (2,396) (5,325)
Investments in life insurance policies (1,505) (2,313)
- -------------------------------------------------------------------------------------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES (3,901) (7,638)
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings 478,865 229,579
Repayments of debt (421,324) (175,956)
Proceeds from sale of common stock - 45,271
Proceeds from exercise of common stock options 1,077 148
Purchases of treasury stock (1,708) (30)
Dividends paid (2,634) (2,492)
- -------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 54,276 96,520
- -------------------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH AND SHORT-TERM INVESTMENTS (2,953) (4,327)
CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD 18,340 18,900
- -------------------------------------------------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 15,387 $ 14,573
===================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
- -------------------------------------------------------------------------------------------------------------------
1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Reconciliation of net earnings (loss) to net cash used for operating activities:
Net earnings (loss) $ 25,082 $ (19,696)
Allocation of non-cash common costs in costs and expenses,
excluding interest 190,215 164,949
Amortization of capitalized interest in costs and expenses 35,680 28,268
Deferred compensation amortization 1,321 1,336
Depreciation and other amortization 4,736 6,266
Deferred income taxes on earnings before extraordinary item 3,696 (18,683)
Non-cash loss from impairment of southern California real estate inventories - 65,000
Extraordinary loss from extinguishment of debt (net of tax) 1,285 -
Net increase in home construction costs (33,475) (47,549)
Land acquisitions (27,198) (31,159)
Lot development (111,400) (150,425)
Amenity development (72,048) (77,354)
Pre-acquisition costs (17,694) (6,256)
Net change in other assets and liabilities (53,528) (7,906)
- -------------------------------------------------------------------------------------------------------------------
Net cash used for operating activities $ (53,328) $ (93,209)
===================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
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 (the "Company"). In the opinion of management,
the accompanying unaudited consolidated financial statements contain all
adjustments (consisting of only normal recurring adjustments, primarily
elimination 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 prior periods
have been reclassified to be consistent with the current period 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 nine months ended March 31, 1997 are not
necessarily indicative of the results to be expected for the full fiscal year.
5
<PAGE>
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
- -----------------------------------------------------------------------------------------------
March 31, June 30, March 31,
1997 1996 1996
(Unaudited) (Unaudited)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Home construction costs $ 211,275 $ 177,800 $ 189,904
Unamortized improvement and amenity costs 487,905 439,679 445,298
Unamortized capitalized interest 46,054 43,661 44,852
Land held for housing 155,430 168,530 191,240
Land and facilities held for future development
or sale 47,487 70,145 50,316
- -----------------------------------------------------------------------------------------------
$ 948,151 $ 899,815 $ 921,610
===============================================================================================
</TABLE>
At March 31, 1997 the Company had 352 completed homes and 730 homes under
construction that were not subject to a sales contract. These homes represented
$27.8 million and $19.2 million, respectively, of home construction costs at
March 31, 1997. At March 31, 1996 the Company had 233 completed homes and 639
homes under construction (representing $17.6 million and $19.5 million,
respectively, of home construction costs) that were not subject to a sales
contract.
Included in land and facilities held for future development or sale at March 31,
1997 were 318 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 facilities held
for future development or sale at March 31, 1997 were 74 acres of residential
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
- -------------------------------------------------------------------------------------------------
March 31, June 30, March 31,
1997 1996 1996
(Unaudited) (Unaudited)
- -------------------------------------------------------------------------------------------------
<C> <C> <C> <C>
10 7/8% Senior Notes, net $ - $ 97,475 $ 97,303
9 3/4% Senior Subordinated Debentures due 2003,
net 97,567 97,259 97,156
9% Senior Subordinated Debentures due 2006,
net 97,560 97,355 97,286
9 3/4% Senior Subordinated Debentures due 2008,
net 144,855 - -
Notes payable to banks under a revolving credit
facility and short-term lines of credit 205,000 193,000 233,000
Real estate and other notes 28,969 29,588 30,336
- -------------------------------------------------------------------------------------------------
$ 573,951 $ 514,677 $ 555,081
=================================================================================================
</TABLE>
6
<PAGE>
DEL WEBB CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(3) Notes Payable, Senior and Subordinated Debt (Continued)
At March 31, 1997 the Company had $205 million outstanding under its
$350 million senior unsecured revolving credit facility and no amount
outstanding under its $15 million of short-term lines of credit.
In January 1997 the Company completed a public offering of $150 million
in principal amount of 9 3/4% Senior Subordinated Debentures due 2008.
The Debentures were issued to the public at a 0.5 percent discount to
yield 9.8 percent. The $145 million of net proceeds from the offering
were used to repay a portion of the amounts outstanding under the
Company's $350 million senior unsecured revolving credit facility. The
Company subsequently reborrowed under that facility to redeem all of
its $100 million of outstanding 10 7/8% Senior Notes at par on March
31, 1997. In connection with the early redemption of the 10 7/8% Senior
Notes, the Company recognized an extraordinary loss of $1.3 million
(which represented the unamortized discount and debt issue costs for
the Senior Notes, net of a $0.7 million tax benefit). The balance of
the reborrowings have been or will be used to fund land acquisitions
and develop new projects or for other general corporate purposes.
At March 31, 1997, under the most restrictive of the covenants in the
Company's debt agreements, $12.7 million of the Company's retained
earnings was available for payment of cash dividends and for the
acquisition by the Company of its common stock.
(4) Income Taxes
The components of income taxes on earnings (loss) before the
extraordinary loss from extinguishment of debt are:
<TABLE>
<CAPTION>
In Thousands
(Unaudited)
- --------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
March 31, March 31,
1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current:
Federal $ 3,954 $ 3,972 $ 9,357 $ 7,298
State 454 (158) 1,778 780
- --------------------------------------------------------------------------------------------------
4,408 3,814 11,135 8,078
- --------------------------------------------------------------------------------------------------
Deferred:
Federal 1,593 (19,672) 3,956 (15,981)
State (615) (3,195) (260) (2,702)
- --------------------------------------------------------------------------------------------------
978 (22,867) 3,696 (18,683)
- --------------------------------------------------------------------------------------------------
Total income tax expense (benefit) $ 5,386 $ (19,053) $ 14,831 $ (10,605)
==================================================================================================
</TABLE>
In the three and nine months ended March 31, 1997, the Company also recognized a
$0.7 million income tax benefit related to the extraordinary loss from
extinguishment of debt.
7
<PAGE>
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 Nine Months Ended
March 31, March 31,
1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Homebuilding:
Communities $ 220,728 $ 199,376 $ 633,713 $ 525,076
Conventional 53,289 50,474 166,013 145,481
- --------------------------------------------------------------------------------------------------------
Total homebuilding 274,017 249,850 799,726 670,557
Land and facility sales 3,827 3,499 30,061 24,848
Other 2,473 2,665 8,507 6,386
- --------------------------------------------------------------------------------------------------------
$ 280,317 $ 256,014 $ 838,294 $ 701,791
========================================================================================================
Costs and expenses:
Home construction and land:
Communities $ 164,449 $ 150,949 $ 476,625 $ 393,816
Conventional 45,694 41,843 140,441 123,024
- --------------------------------------------------------------------------------------------------------
Total homebuilding 210,143 192,792 617,066 516,840
Cost of land and facility sales 2,690 2,537 24,751 19,046
Other cost of sales 540 704 2,395 2,267
- --------------------------------------------------------------------------------------------------------
Total home construction, land
and other 213,373 196,033 644,212 538,153
Interest 12,398 10,569 35,680 28,268
Selling, general and administrative 39,584 38,850 117,204 100,671
Loss from impairment of southern
California real estate inventories - 65,000 - 65,000
- --------------------------------------------------------------------------------------------------------
$ 265,355 $ 310,452 $ 797,096 $ 732,092
========================================================================================================
</TABLE>
8
<PAGE>
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 Nine Months Ended
March 31, March 31,
1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest incurred and capitalized $ 13,086 $ 12,885 $ 38,073 $ 39,127
========================================================================================================
Amortization of capitalized interest
in costs and expenses $ 12,398 $ 10,569 $ 35,680 $ 28,268
========================================================================================================
Unamortized capitalized interest in real
estate inventories at period end $ 46,054 $ 44,852
========================================================================================================
Interest income $ 369 $ 182 $ 1,166 $ 732
========================================================================================================
</TABLE>
9
<PAGE>
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 Nine Months Ended
March 31, Change March 31, Change
- ------------------------------------------------------------------------------------------------------------------
1997 1996 Amount Percent 1997 1996 Amount Percent
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA :
- ----------------
Number of net new orders: (1)
Sun Cities Phoenix(2) 372 290 82 28.3% 994 694 300 43.2%
Sun City Tucson 20 56 (36) (64.3%) 58 127 (69) (54.3%)
Sun Cities Las Vegas(3) 272 345 (73) (21.2%) 751 855 (104) (12.2%)
Sun City Palm Desert 118 75 43 57.3% 183 142 41 28.9%
Sun City Roseville 153 121 32 26.4% 347 373 (26) (7.0%)
Sun City Hilton Head(4) 92 124 (32) (25.8%) 228 273 (45) (16.5%)
Sun City Georgetown(4) 132 151 (19) (12.6%) 325 326 (1) (0.3%)
Terravita 89 162 (73) (45.1%) 192 309 (117) (37.9%)
Coventry Homes 390 464 (74) (15.9%) 1,001 1,091 (90) (8.2%)
- -----------------------------------------------------------------------------------------------------------------
Total 1,638 1,788 (150) (8.4%) 4,079 4,190 (111) (2.6%)
=================================================================================================================
Number of home closings:
Sun Cities Phoenix(2) 271 207 64 30.9% 769 611 158 25.9%
Sun City Tucson 23 71 (48) (67.6%) 102 206 (104) (50.5%)
Sun Cities Las Vegas(3) 277 265 12 4.5% 808 634 174 27.4%
Sun City Palm Desert 69 65 4 6.2% 162 158 4 2.5%
Sun City Roseville 118 206 (88) (42.7%) 446 517 (71) (13.7%)
Sun City Hilton Head(4) 105 78 27 34.6% 290 187 103 55.1%
Sun City Georgetown(4) 151 70 81 115.7% 438 70 368 525.7%
Terravita 120 90 30 33.3% 307 321 (14) (4.4%)
Coventry Homes 333 336 (3) (0.9%) 1,040 974 66 6.8%
- -----------------------------------------------------------------------------------------------------------------
Total 1,467 1,388 79 5.7% 4,362 3,678 684 18.6%
=================================================================================================================
BACKLOG DATA :
- --------------
Homes under contract at
March 31:
Sun Cities Phoenix(2) 778 585 193 33.0%
Sun City Tucson 1 70 (69) (98.6%)
Sun Cities Las Vegas(3) 585 623 (38) (6.1%)
Sun City Palm Desert 133 131 2 1.5%
Sun City Roseville 278 427 (149) (34.9%)
Sun City Hilton Head(4) 131 235 (104) (44.3%)
Sun City Georgetown(4) 265 378 (113) (29.9%)
Terravita 189 286 (97) (33.9%)
Coventry Homes 556 657 (101) (15.4%)
- ------------------------------------------------------------------------
Total(5) 2,916 3,392 (476) (14.0%)
========================================================================
Aggregate contract sales amount
(dollars in millions) $ 566 $ 647 $ (81) (12.5%)
========================================================================
Average contract sales amount per
home (dollars in thousands) $ 194 $ 191 $ 3 1.6%
========================================================================
</TABLE>
10
<PAGE>
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 Nine Months Ended
March 31, Change March 31, Change
- -----------------------------------------------------------------------------------------------------------------
1997 1996 Amount Percent 1997 1996 Amount Percent
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AVERAGE REVENUE PER
HOME CLOSING :
Sun Cities Phoenix(2) $ 163,700 $ 164,000 $ (300) (0.2%) $ 161,900 $160,500 $ 1,400 0.9%
Sun City Tucson 164,200 172,400 (8,200) (4.8%) 167,100 173,000 (5,900) (3.4%)
Sun Cities Las Vegas(3) 184,100 164,000 20,100 12.3% 179,500 172,100 7,400 4.3%
Sun City Palm Desert 232,600 212,000 20,600 9.7% 225,600 226,200 (600) (0.3%)
Sun City Roseville 221,700 209,500 12,200 5.8% 210,600 212,900 (2,300) (1.1%)
Sun City Hilton Head(4) 174,500 165,500 9,000 5.4% 165,900 159,300 6,600 4.1%
Sun City Georgetown(4) 176,500 184,000 (7,500) (4.1%) 180,300 184,000 (3,700) (2.0%)
Terravita 286,800 300,100 (13,300) (4.4%) 291,800 292,200 (400) (0.1%)
Coventry Homes 160,000 150,200 9,800 6.5% 159,600 149,400 10,200 6.8%
Weighted average 186,800 180,000 6,800 3.8% 183,300 182,300 1,000 0.5%
=================================================================================================================
OPERATING STATISTICS:
- ---------------------
Cost and expenses as a
percentage of revenues:
Home construction, land and
other 76.1% 76.6% (0.5%) (0.7%) 76.8% 76.7% 0.1% 0.1%
Interest 4.4% 4.1% 0.3% 7.3% 4.3% 4.0% 0.3% 7.5%
Selling, general and
administrative 14.1% 15.2% (1.1%) (7.2%) 14.0% 14.3% (0.3%) (2.1%)
Ratio of home closings to homes
under contract in backlog at
beginning of period 53.4% 46.4% 7.0% 15.1% 136.4% 127.7% 8.7% 6.8%
=================================================================================================================
</TABLE>
(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. 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.
(4) Home closings began at Sun City Hilton Head in August 1995 and at Sun City
Georgetown in February 1996.
(5) A majority of the backlog at March 31, 1997 is currently anticipated to
result in revenues in the next 12 months. However, a majority of the
backlog is contingent upon the availability of financing for the customer,
sale of the customer's existing residence or other factors. Also, as a
practical matter, the Company's ability to obtain damages for breach of
contract by a potential home buyer is limited to retaining all or a portion
of the deposit received. In the nine months ended March 31, 1997 and 1996,
cancellations of home sales orders as a percentage of new home sales orders
written during the period were 17.5 percent and 17.7 percent, respectively.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
RESULTS OF OPERATIONS
- ---------------------
Three Months Ended March 31, 1997 and 1996
REVENUES. Revenues increased to $280.3 million for the three months ended March
31, 1997 from $256.0 million for the three months ended March 31, 1996.
Increased home closings at Sun City Georgetown (where the Company had home
closings for only part of the 1996 quarter) accounted for $14.9 million of the
increase. Increased home closings at the Sun Cities Phoenix (where home closings
did not begin at Sun City Grand until February 1997) accounted for $10.5 million
of the increase. Increased home closings at Terravita (at which the Company had
a relatively low level of home closings in the 1996 quarter) resulted in $9.0
million in increased revenues.
Decreased home closings at Sun City Roseville (reflecting the decrease in net
new orders experienced at that community in the first quarter of the current
fiscal year) and Sun City Tucson (reflecting the approaching completion of that
community) resulted in decreased revenues of $18.4 million and $8.3 million,
respectively.
An increase in the average revenue per home closing resulted in a $9.6 million
increase in revenues. This increase in average revenue per home closing was
primarily due to changes in mix of product, subdivisions and home closings among
the Company's communities and conventional homebuilding operations and to
increases in lot premiums and optional upgrades in homes at certain communities.
HOME CONSTRUCTION, LAND AND OTHER COSTS. The increase in home construction, land
and other costs to $213.4 million for the 1997 quarter compared to $196.0
million for the 1996 quarter was due to the increase in home closings. As a
percentage of revenues, these costs were 76.1 percent for the 1997 quarter
compared to 76.6 percent for the 1996 quarter, with the decrease largely due to
the increase in average revenue per home closing, an improved product mix at one
community and reduced land and amenity cost allocations at one other community.
INTEREST. As a percentage of revenues, amortization of capitalized interest was
4.4 percent for the 1997 quarter compared to 4.1 percent for the 1996 quarter.
The increase was primarily due to higher levels of indebtedness.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. As a percentage of revenues,
selling, general and administrative expenses decreased to 14.1 percent for the
1997 quarter as compared to 15.2 percent for the 1996 quarter. This decrease
resulted from the spreading of relatively fixed corporate overhead over greater
revenues.
LOSS FROM IMPAIRMENT OF SOUTHERN CALIFORNIA REAL ESTATE INVENTORIES. In
connection with the Company's adoption of Statement of Financial Accounting
Standards No. 121 in the 1996 quarter, the Company incurred a non-cash loss in
the amount of $65.0 million pre-tax ($42.3 million after tax) with respect to
its Sun City Palm Desert active adult community.
INCOME TAXES. The increase in income taxes to a $5.4 million expense in the 1997
quarter as compared to a $19.1 million benefit in the 1996 quarter was primarily
due to the change in earnings (loss) before income taxes and extraordinary item.
The effective tax rate also increased from 35 percent to 36 percent.
EXTRAORDINARY ITEM. In connection with the early redemption of all of the
Company's $100 million of outstanding 107/8 Senior Notes at par on March 31,
1997, an extraordinary loss of $1.3 million was recognized in the 1997 quarter.
This amount represented the unamortized discount and debt issue costs for the
Senior Notes, net of a $0.7 million tax benefit.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
NET EARNINGS (LOSS). The Company had net earnings of $8.3 million in the 1997
quarter compared to a net loss of $35.4 million in the 1996 quarter, primarily
due to the non-cash loss from impairment of southern California real estate
inventories incurred by the Company in the 1996 quarter. A portion of the
increased earnings was also due to a 79-unit (5.7 percent) increase in home
closings, which helped the Company realize a $24.2 million (9.7 percent)
increase in homebuilding revenues and a $6.8 million (11.9 percent) increase in
homebuilding gross margin.
NET NEW ORDER ACTIVITY AND BACKLOG. Net new orders in the 1997 quarter were 8.4
percent lower than in the 1996 quarter, a quarter in which the Company recorded
the highest level of net new orders in its history. This decrease was largely
attributable to Sun City Tucson and Terravita, where net new orders declined
64.3 percent and 45.1 percent, respectively, from the 1996 quarter, reflecting
the approaching completion of those communities. Coventry Homes had a 15.9
percent decrease in net new orders as a result of having fewer subdivisions open
in the 1997 quarter than in the 1996 quarter and the Sun Cities Las Vegas
experienced a 21.2 percent decrease from a particularly strong third quarter in
the prior fiscal year. Net new orders at Sun City Hilton Head decreased 25.8
percent from the 1996 quarter; management believes this decline may be largely
attributable to significant model renovations that resulted in the closure of
many of the models for a large part of the 1997 quarter.
The number of homes under contract at March 31, 1997 was 14.0 percent lower than
at March 31, 1996. This backlog decrease was due primarily to a decrease at Sun
City Roseville as a result of a decline in net new orders in the first quarter
of the current fiscal year and a high level of home closings in the past 12
months at that community. Backlog decreases at Sun City Tucson and Terravita
were attributable to the approaching completion of those communities.
Nine Months Ended March 31, 1997 and 1996
REVENUES. Increased home closings at Sun City Georgetown and Sun City Hilton
Head (two communities at which the Company had home closings for only part of
the nine months ended March 31, 1996) accounted for $67.7 million and $16.4
million, respectively, of the increase in revenues to $838.3 million for the
nine months ended March 31, 1997 from $701.8 million for the 1996 period.
Increased home closings at the Sun Cities Las Vegas (where the Company had home
closings at Sun City MacDonald Ranch for only part of the 1996 period) and the
Sun Cities Phoenix (where home closings did not begin at Sun City Grand until
February 1997) accounted for $29.9 million and $25.4 million, respectively, of
the increase in revenues. Decreased home closings at Sun City Tucson (reflecting
the approaching completion of that community) and Sun City Roseville (reflecting
the decrease in net new orders experienced at that community in the first
quarter of the current fiscal year) resulted in decreased revenues of $18.0
million and $15.1 million, respectively.
An increase in the average revenue per home closing resulted in a $16.1 million
increase in revenues. This increase in average revenue per home closing was
primarily due to changes in mix of product, subdivisions and home closings among
the Company's communities and conventional homebuilding operations and to
increases in lot premiums at certain communities.
Land and facility sales and other revenues were $7.3 million higher in the 1997
period than in the 1996 period. In general, land and facility 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 $644.2 million for the 1997 period compared to $538.2 million
for the 1996 period was primarily due to the increase in home closings. As a
percentage of revenues, these costs were 76.8 percent for the 1997 period
compared to 76.7 percent for the 1996 period.
INTEREST. As a percentage of revenues, amortization of capitalized interest was
4.3 percent for the 1997 period compared to 4.0 percent for the 1996 period. The
increase resulted from the same factor that produced the increase for the three
month period.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. As a percentage of revenues,
selling, general and administrative expenses decreased to 14.0 percent for the
1997 period as compared to 14.3 percent for the 1996 period. This decrease
resulted from the spreading of relatively fixed corporate overhead over greater
revenues.
LOSS FROM IMPAIRMENT OF SOUTHERN CALIFORNIA REAL ESTATE INVENTORIES. In the 1996
period the Company incurred a non-cash loss in the amount of $65.0 million
pre-tax ($42.3 million after-tax) with respect to its Sun City Palm Desert
active adult community. See "Three Months Ended March 31, 1997 and 1996 -- Loss
From Impairment of Southern California Real Estate Inventories."
INCOME TAXES. The increase in income taxes to a $14.8 million expense in the
1997 period compared to a $10.6 million benefit in the 1996 period was due to
the change in earnings (loss) before income taxes and extraordinary item. The
effective tax rate also increased from 35 percent to 36 percent.
EXTRAORDINARY ITEM. In connection with the early redemption of all of the
Company's $100 million of outstanding 107/8% Senior Notes at par on March 31,
1997, an extraordinary loss of $1.3 million was recognized in the 1997 period.
See "Three Months Ended March 31, 1997 and 1996 -- Extraordinary Item."
NET EARNINGS (LOSS). The Company had net earnings of $25.1 million in the 1997
period compared to a net loss of $19.7 million in the 1996 period, primarily due
to the non-cash loss with respect to southern California real estate inventories
incurred by the Company in the 1996 period. Excluding this non-cash loss in the
1996 period, net earnings increased by $2.5 million (11.2 percent), while home
closings increased by 684 units (18.6 percent) and revenues increased by $136.5
million (19.5 percent). The overall less-than-proportionate increase in net
earnings was primarily attributable to the extraordinary loss recognized by the
Company in the 1997 quarter.
NET NEW ORDER ACTIVITY AND BACKLOG. Net new orders in the 1997 period were 2.6
percent lower than in the 1996 period. A significant increase was realized at
the Sun Cities Phoenix as a result of new order activity at Sun City Grand,
which began taking new orders in October 1996. Net new orders at Sun City Tucson
and Terravita declined 54.3 percent and 37.9 percent, respectively, from the
1996 period, reflecting the approaching completion of those communities. Net new
orders at the Sun Cities Las Vegas declined 12.2 percent from a particularly
strong 1996 period. Coventry Homes also experienced an 8.2 percent decrease in
net new orders as a result of having fewer subdivisions open in the 1997 period
than in the 1996 period.
See "Three Months Ended March 31, 1997 and 1996 -- Net New Order Activity and
Backlog" for a discussion of backlog.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
LIQUIDITY AND FINANCIAL CONDITION OF THE COMPANY
- ------------------------------------------------
At March 31, 1997 the Company had $15.4 million of cash and short-term
investments, $205 million outstanding under its $350 million senior unsecured
revolving credit facility and no amount outstanding under its $15 million of
short-term lines of credit.
In January 1997 the Company completed a public offering of $150 million in
principal amount of 9 3/4% Senior Subordinated Debentures due 2008. The $145
million of net proceeds from the offering were used to repay a portion of the
amounts outstanding under the Company's $350 million senior unsecured revolving
credit facility. The Company subsequently reborrowed under that facility to
redeem all of its $100 million of outstanding 10 7/8% Senior Notes at par on
March 31, 1997. The balance of the reborrowings have been or will be used to
fund land acquisitions and develop new projects or for other general corporate
purposes.
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. However, these operating
requirements reflect some limitations on the timing and extent of new projects
and activities that the Company may otherwise desire to undertake.
The Company's senior unsecured revolving credit facility and the indentures for
the Company's publicly-held debt contain restrictions which, depending on the
circumstances, could 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 nine months ended March 31, 1997 the Company generated $191.9 million
of net cash from community sales activities, used $118.5 million of cash for
land and lot and amenity development at operating communities, paid $63.1
million for costs related to communities in the pre-operating stage, generated
$15.0 million of net cash from conventional homebuilding operations and used
$78.6 million of cash for other operating activities. The resulting $53.3
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, including payment of interest and income
taxes) was funded mainly through proceeds from the public offering of $150
million in excess of the $100 million redemption of the Company's Senior Notes,
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 March 31, 1997, under the most restrictive of the covenants in the Company's
debt agreements, $12.7 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. During the third quarter of fiscal 1997, the Company acquired
111,000 shares of its common stock at a total cost of $1.7 million.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
FORWARD LOOKING INFORMATION; CERTAIN CAUTIONARY STATEMENTS
- ----------------------------------------------------------
Management believes that in fiscal 1998 it will be difficult to maintain
earnings at the level currently anticipated for fiscal 1997, primarily because
of the build-out of the Company's Terravita community, projected higher interest
rates, a projected lower backlog at the beginning of fiscal 1998 than at the
beginning of fiscal 1997 and the fact that the Company will not be adding any
new Sun City communities during the year.
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,
including those in the paragraph above, involve risks and uncertainties
including, but not limited to, risks associated with new and future communities,
including entitlement timing and completion, competition, financing
availability, fluctuations in interest rates or labor and material costs,
government regulation, geographic concentration and other matters set forth in
the Company's Annual Report on Form 10-K for the year ended June 30, 1996.
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.
16
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibit 27 Financial Data Schedule
(b) In the quarter ended March 31, 1997 the Company filed three reports
on Form 8-K dated: (1) January 13, 1997 to file a press release
announcing net new orders and home closings for the quarter ended
December 31, 1996; (2) January 17, 1997 to file the Underwriting
Agreement for the $150 million in principal amount of 9 3/4% Senior
Subordinated Debentures due 2008 publicly issued by the Company in
January 1997; and (3) January 21, 1997 to file the Indenture for the
$150 million of 9 3/4% Senior Subordinated Debentures due 2008.
17
<PAGE>
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 7, 1997 /s/ Philip J. Dion
-------------------------- ----------------------------------------
Philip J. Dion
Chairman and Chief Executive Officer
Date: May 7, 1997 /s/ John A. Spencer
-------------------------- -----------------------------------------
John A. Spencer
Senior Vice President and Chief Financial
Officer
18
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE CONSOLIDATED
BALANCE SHEET AS OF MARCH 31, 1997 AND THE
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE
MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
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