<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 DECEMBER 31, 1998.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the transition period from N/A to N/A .
Commission File Number: 1-4785
DEL WEBB CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 86-0077724
(State or other jurisdiction (IRS Employer Identification Number)
of incorporation or organization)
6001 NORTH 24TH STREET, PHOENIX, ARIZONA 85016
(Address of principal executive offices) (Zip Code)
(602) 808-8000
(Registrant's phone number, including area code)
NONE
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No___
As of January 25, 1999 Registrant had outstanding 18,205,085 shares of common
stock.
<PAGE> 2
DEL WEBB CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED
DECEMBER 31, 1998
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements:
Consolidated Balance Sheets as of December 31, 1998,
June 30, 1998 and December 31, 1997............................ 1
Consolidated Statements of Earnings for the three and six
months ended December 31, 1998 and 1997........................ 2
Consolidated Statements of Cash Flows for the six
months ended December 31, 1998 and 1997........................ 3
Notes to Consolidated Financial Statements...................... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................20
<PAGE> 3
DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, DECEMBER 31,
1998 1998 1997
(UNAUDITED) (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------
ASSETS .
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Real estate inventories (Notes 2, 3 and 6) $ 1,390,293 $ 1,113,297 $ 1,018,692
Cash and short-term investments 17,241 14,362 1,222
Receivables 31,979 41,498 26,897
Property and equipment, net 54,476 33,333 18,415
Deferred income taxes (Note 4) -- -- 4,996
Other assets 109,785 107,972 88,226
- ------------------------------------------------------------------------------------------------------------------
$ 1,603,774 $ 1,310,462 $ 1,158,448
==================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------
Notes payable, senior and subordinated debt (Note 3) $ 908,773 $ 703,938 $ 621,519
Contractor and trade accounts payable 103,780 78,114 61,766
Accrued liabilities and other payables 104,538 98,066 82,716
Home sale deposits 102,409 80,332 68,515
Deferred income taxes (Note 4) 8,648 4,245 --
Income taxes payable (Note 4) 8,635 -- 6,083
- ------------------------------------------------------------------------------------------------------------------
Total liabilities 1,236,783 964,695 840,599
- ------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Common stock, $.001 par value. Authorized 30,000,000
shares; issued 18,205,085 shares at December 31, 1998,
18,107,606 shares at June 30, 1998 and 17,839,710
shares at December 31, 1997 18 18 18
Additional paid-in capital 168,827 166,328 162,841
Retained earnings 205,882 184,890 161,545
- ------------------------------------------------------------------------------------------------------------------
374,727 351,236 324,404
Less deferred compensation (7,736) (5,469) (6,555)
- ------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 366,991 345,767 317,849
- ------------------------------------------------------------------------------------------------------------------
$ 1,603,774 $ 1,310,462 $ 1,158,448
==================================================================================================================
</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 SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
- ---------------------------------------------------------------------------------------
1998 1997 1998 1997
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues (Note 5) $354,248 $278,935 $622,895 $526,978
- ---------------------------------------------------------------------------------------
Costs and expenses (Note 5):
Home construction, land and other 270,621 211,037 474,474 401,981
Selling, general and administrative 47,523 39,364 88,675 75,825
Interest (Note 6) 15,037 10,932 25,532 21,999
- ---------------------------------------------------------------------------------------
333,181 261,333 588,681 499,805
- ---------------------------------------------------------------------------------------
Earnings before income taxes 21,067 17,602 34,214 27,173
Income taxes (Note 4) 7,584 6,336 12,317 9,782
- ---------------------------------------------------------------------------------------
Net earnings $ 13,483 $ 11,266 $ 21,897 $ 17,391
=======================================================================================
Weighted average shares outstanding 18,156 17,741 18,132 17,665
=======================================================================================
Weighted average shares outstanding -
assuming dilution 18,732 18,298 18,700 18,119
=======================================================================================
Net earnings per share $ .74 $ .64 $ 1.21 $ .98
=======================================================================================
Net earnings per share - assuming
dilution $ .72 $ .62 $ 1.17 $ .96
=======================================================================================
</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>
SIX MONTHS ENDED
DECEMBER 31,
- -----------------------------------------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers related to community home sales $ 595,029 $ 499,960
Cash received from commercial land and facility sales at operating communities 26,619 21,178
Cash paid for costs related to home construction at operating communities (377,994) (320,089)
- -----------------------------------------------------------------------------------------------------------
Net cash provided by operating community sales activities 243,654 201,049
Cash paid for land acquisitions at operating communities (14,549) (16,558)
Cash paid for lot development at operating communities (72,834) (68,661)
Cash paid for amenity development at operating communities (36,133) (23,597)
- -----------------------------------------------------------------------------------------------------------
Net cash provided by operating communities 120,138 92,233
Cash paid for costs related to communities in the pre-operating stage (252,196) (61,274)
Cash received from (used for) mortgage operations 6,221 (1,831)
Cash received from residential land development project 1,191 2,762
Cash paid for corporate activities (20,826) (18,423)
Interest paid (34,381) (24,307)
Cash received (paid) for income taxes 1,502 (4,789)
- -----------------------------------------------------------------------------------------------------------
NET CASH USED FOR OPERATING ACTIVITIES (178,351) (15,629)
- -----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (17,559) (1,188)
Investments in life insurance policies (1,156) (2,228)
- -----------------------------------------------------------------------------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES (18,715) (3,416)
- -----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings 332,873 134,266
Repayments of debt (131,744) (139,080)
Stock purchases (433) (4)
Proceeds from exercise of common stock options 154 2,137
Dividends paid (905) (1,767)
- -----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 199,945 (4,448)
- -----------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS 2,879 (23,493)
CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD 14,362 24,715
- -----------------------------------------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 17,241 $ 1,222
===========================================================================================================
</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>
SIX MONTHS ENDED
DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Reconciliation of net earnings to net cash used for operating activities:
Net earnings $ 21,897 $ 17,391
Allocation of non-cash common costs in costs and expenses, excluding interest 156,703 115,499
Amortization of capitalized interest in costs and expenses 25,532 21,999
Deferred compensation amortization 997 886
Depreciation and other amortization 3,729 3,122
Deferred income taxes 4,403 1,527
Net (increase) decrease in home construction costs (36,987) 18,045
Land acquisitions (16,377) (35,963)
Lot development (215,105) (81,068)
Amenity development (142,084) (38,001)
Pre-acquisition costs -- (13,926)
Net change in other assets and liabilities 18,941 (25,140)
- ------------------------------------------------------------------------------------------------------------
Net cash used for operating activities $(178,351) $ (15,629)
============================================================================================================
</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.
The Company develops residential communities ranging from
smaller-scale, non-amenitized communities within its conventional
homebuilding operations to large-scale, master-planned communities with
extensive amenities. The Company currently conducts its operations in
Arizona, California, Florida, Illinois, Nevada, South Carolina and
Texas. The Company's communities are generally large-scale,
master-planned residential communities at which the Company controls
all phases of the master plan development process from land selection
through the construction and sale of homes. Within its communities, the
Company is usually the exclusive builder of homes. The Company's
conventional homebuilding operations encompass the construction and
sale of homes in various locations in Arizona and Nevada.
These consolidated financial statements should be read in conjunction
with the consolidated financial statements and the related disclosures
contained in the Company's Annual Report on Form 10-K for the year
ended June 30, 1998, filed with the Securities and Exchange Commission.
In the Consolidated Statements of Cash Flows, the Company defines
operating communities as communities generating revenues from home
closings. Communities in the pre-operating stage are those not yet
generating revenues from home closings.
The results of operations for the six months ended December 31, 1998
are not necessarily indicative of the results to be expected for the
full fiscal year.
(2) REAL ESTATE INVENTORIES
The components of real estate inventories are as follows:
<TABLE>
<CAPTION>
In Thousands
- --------------------------------------------------------------------------------------------
December 31, June 30, December 31,
1998 1998 1997
(Unaudited) (Unaudited)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Home construction costs $ 219,157 $ 182,170 $ 163,973
Unamortized improvement and amenity costs 839,853 603,390 537,745
Unamortized capitalized interest 71,516 61,455 50,125
Land held for housing 220,855 220,441 226,258
Land and facilities held for future development or
sale 38,912 45,841 40,591
- --------------------------------------------------------------------------------------------
$1,390,293 $1,113,297 $1,018,692
============================================================================================
</TABLE>
At December 31, 1998 the Company had 240 completed homes and 870 homes under
construction that were not subject to a sales contract. These homes represented
$47.9 million of home construction costs at December 31, 1998. At December 31,
1997 the Company had 383 completed homes and 822 homes under construction,
representing $48.1 million of home construction costs, that were not subject to
a sales contract.
5
<PAGE> 8
DEL WEBB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) REAL ESTATE INVENTORIES (CONTINUED)
Included in land and facilities held for future development or sale at
December 31, 1998 were 327 acres of residential land, commercial land
and worship sites that are currently being marketed for sale at the
Company's communities.
(3) NOTES PAYABLE, SENIOR AND SUBORDINATED DEBT
Notes payable, senior and subordinated debt consists of the following:
<TABLE>
<CAPTION>
In Thousands
- ------------------------------------------------------------------------------------------
December 31, June 30, December 31,
1998 1998 1997
(Unaudited) (Unaudited)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
9 3/4% Senior Subordinated Debentures due 2003,
net, unsecured $ 98,287 $ 98,081 $ 97,876
9% Senior Subordinated Debentures due 2006,
net, unsecured 98,039 97,902 97,765
9 3/4% Senior Subordinated Debentures due 2008,
net, unsecured 145,612 145,370 145,128
9 3/8% Senior Subordinated Debentures due 2009,
net, unsecured 195,180 194,977 --
Notes payable to banks under a revolving credit
facility and short-term lines of credit, unsecured 328,030 111,209 196,373
Real estate and other notes, primarily secured 43,625 56,399 84,377
- ------------------------------------------------------------------------------------------
$908,773 $703,938 $621,519
==========================================================================================
</TABLE>
At December 31, 1998 the Company had $307.0 million outstanding under its $450
million senior unsecured revolving credit facility and $21.0 outstanding under
its $25 million of short-term lines of credit.
At December 31, 1998, under the most restrictive of the covenants in the
Company's debt agreements, $39.7 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.
6
<PAGE> 9
DEL WEBB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) INCOME TAXES
The components of income taxes are:
<TABLE>
<CAPTION>
In Thousands
(Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended Six Months Ended
December 31, December 31,
- --------------------------------------------------------------------------------
1998 1997 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current:
Federal $ 6,131 $ 6,349 $ 7,376 $ 7,575
State 402 607 538 680
- --------------------------------------------------------------------------------
6,533 6,956 7,914 8,255
- --------------------------------------------------------------------------------
Deferred:
Federal 677 (502) 3,868 1,313
State 374 (118) 535 214
- --------------------------------------------------------------------------------
1,051 (620) 4,403 1,527
- --------------------------------------------------------------------------------
$ 7,584 $ 6,336 $ 12,317 $ 9,782
================================================================================
</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 Six Months Ended
December 31, December 31,
- ---------------------------------------------------------------------------------------------------
1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Homebuilding:
Active adult communities $258,290 $205,595 $465,776 $361,739
Country club communities -- 11,287 -- 33,945
Conventional subdivision communities 68,794 50,700 121,149 102,226
- ---------------------------------------------------------------------------------------------------
Total homebuilding 327,084 267,582 586,925 497,910
Land and facility sales 23,747 8,613 29,678 24,131
Other 3,417 2,740 6,292 4,937
- ---------------------------------------------------------------------------------------------------
$354,248 $278,935 $622,895 $526,978
===================================================================================================
Costs and expenses:
Home construction and land:
Active adult communities $191,546 $155,917 $346,196 $274,389
Country club communities -- 7,953 -- 24,664
Conventional subdivision communities 56,329 41,866 99,022 85,901
- ---------------------------------------------------------------------------------------------------
Total homebuilding 247,875 205,736 445,218 384,954
Cost of land and facility sales 20,697 4,835 25,544 15,788
Other cost of sales 2,049 466 3,712 1,239
- ---------------------------------------------------------------------------------------------------
Total home construction, land and other 270,621 211,037 474,474 401,981
Selling, general and administrative 47,523 39,364 88,675 75,825
Interest 15,037 10,932 25,532 21,999
- ---------------------------------------------------------------------------------------------------
$333,181 $261,333 $588,681 $499,805
===================================================================================================
</TABLE>
8
<PAGE> 11
DEL WEBB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) INTEREST
The components of interest are:
<TABLE>
<CAPTION>
In Thousands
(Unaudited)
- ------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
December 31, December 31,
- ------------------------------------------------------------------------------------
1998 1997 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest incurred and capitalized $19,455 $12,989 $35,593 $26,003
====================================================================================
Amortization of capitalized interest
in costs and expenses $15,037 $10,932 $25,532 $21,999
====================================================================================
Unamortized capitalized interest in real
estate inventories at period end $71,516 $50,125
====================================================================================
Interest income $ 346 $ 302 $ 637 $ 555
====================================================================================
</TABLE>
Interest income is included in other revenues.
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 fiscal year ended June 30, 1998, filed with the Securities and Exchange
Commission.
CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 31, CHANGE DECEMBER 31, CHANGE
- ------------------------------------------------------------------------------------------- --------------------------------------
1998 1997 AMOUNT PERCENT 1998 1997 AMOUNT PERCENT
- ------------------------------------------------------------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA :
Number of net new orders:
Active adult communities:
Sun Cities Phoenix 274 272 2 0.7% 546 534 12 2.2%
Sun Cities Las Vegas 231 240 (9) (3.8%) 532 518 14 2.7%
Sun City Palm Desert 96 91 5 5.5% 230 153 77 50.3%
Sun City Roseville 124 137 (13) (9.5%) 324 313 11 3.5%
Sun City Hilton Head 91 75 16 21.3% 191 170 21 12.4%
Sun City Georgetown 82 108 (26) (24.1%) 133 193 (60) (31.1%)
Sun City at Huntley 167 N/A 167 N/A 375 N/A 375 N/A
Florida communities 76 N/A 76 N/A 160 N/A 160 N/A
Other communities 49 34 15 44.1% 101 34 67 197.1%
- ------------------------------------------------------------------------------------------- --------------------------------------
Total active adult communities 1,190 957 233 24.3% 2,592 1,915 677 35.4%
- ------------------------------------------------------------------------------------------- --------------------------------------
Country club communities:
Arizona N/A (1) 1 N/A N/A (1) 1 N/A
Nevada 38 N/A 38 N/A 104 N/A 104 N/A
- ------------------------------------------------------------------------------------------- --------------------------------------
Total country club communities 38 (1) 39 N/A 104 (1) 105 N/A
- ------------------------------------------------------------------------------------------- --------------------------------------
Conventional subdivision communities:
Arizona 181 203 (22) (10.8%) 411 477 (66) (13.8%)
Nevada 166 71 95 133.8% 258 113 145 128.3%
California N/A N/A N/A N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------- --------------------------------------
Total conventinal subdivision communities 347 274 73 26.6% 669 590 79 13.4%
- ------------------------------------------------------------------------------------------- --------------------------------------
Total 1,575 1,230 345 28.0% 3,365 2,504 861 34.4%
=========================================================================================== ======================================
</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 SIX MONTHS
ENDED ENDED
DECEMBER 31, CHANGE DECEMBER 31, CHANGE
- ---------------------------------------------------------------------------------------------------------------------
1998 1997 AMOUNT PERCENT 1998 1997 AMOUNT PERCENT
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Number of home closings:
Active adult communities:
Sun Cities Phoenix 332 362 (30) (8.3%) 606 621 (15) (2.4%)
Sun Cities Las Vegas 274 289 (15) (5.2%) 510 531 (21) (4.0%)
Sun City Palm Desert 113 77 36 46.8% 235 118 117 99.2%
Sun City Roseville 184 155 29 18.7% 353 273 80 29.3%
Sun City Hilton Head 94 96 (2) (2.1%) 167 180 (13) (7.2%)
Sun City Georgetown 105 112 (7) (6.3%) 184 223 (39) (17.5%)
Sun City at Huntley N/A N/A N/A N/A N/A N/A N/A N/A
Florida communities 139 N/A 139 N/A 245 N/A 245 N/A
Other communities 55 N/A 55 N/A 100 N/A 100 N/A
- ---------------------------------------------------------------------------------------------------------------------
Total active adult communities 1,296 1,091 205 18.8% 2,400 1,946 454 23.3%
- ---------------------------------------------------------------------------------------------------------------------
Country club communities:
Arizona N/A 30 (30) (100.0%) N/A 112 (112) (100.0%)
Nevada N/A N/A N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------
Total country club communities N/A 30 (30) (100.0%) N/A 112 (112) (100.0%)
- ---------------------------------------------------------------------------------------------------------------------
Conventional subdivision communities:
Arizona 282 236 46 19.5% 504 442 62 14.0%
Nevada 71 51 20 39.2% 113 124 (11) (8.9%)
California N/A N/A N/A N/A N/A 20 (20) (100.0%)
- ---------------------------------------------------------------------------------------------------------------------
Total conventional subdivision
communities 353 287 66 23.0% 617 586 31 5.3%
- ---------------------------------------------------------------------------------------------------------------------
Total 1,649 1,408 241 17.1% 3,017 2,644 373 14.1%
=====================================================================================================================
</TABLE>
11
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA (CONTINUED)
<TABLE>
<CAPTION>
AT DECEMBER 31, CHANGE
- ---------------------------------------------------------------------------------------------------
1998 1997 AMOUNT PERCENT
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BACKLOG DATA :
Homes under contract:
Active adult communities:
Sun Cities Phoenix 609 605 4 0.7%
Sun Cities Las Vegas 570 520 50 9.6%
Sun City Palm Desert 260 161 99 61.5%
Sun City Roseville 353 320 33 10.3%
Sun City Hilton Head 193 149 44 29.5%
Sun City Georgetown 140 172 (32) (18.6%)
Sun City at Huntley 375 N/A 375 N/A
Florida communities 190 N/A 190 N/A
Other communities 103 34 69 202.9%
- ---------------------------------------------------------------------------------------------------
Total active adult communities 2,793 1,961 832 42.4%
- ---------------------------------------------------------------------------------------------------
Country club communities:
Arizona N/A 7 (7) (100.0%)
Nevada 104 N/A 104 N/A
- ---------------------------------------------------------------------------------------------------
Total country club communities 104 7 97 1,385.7%
- ---------------------------------------------------------------------------------------------------
Conventional subdivision communities:
Arizona 392 402 (10) (2.5%)
Nevada 229 80 149 186.3%
California N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------
Total conventional subdiviision communities 621 482 139 28.8%
- ---------------------------------------------------------------------------------------------------
Total 3,518 2,450 1,068 43.6%
===================================================================================================
Aggregate contract sales amount
(dollars in millions) $ 770 $ 506 $ 264 52.2%
===================================================================================================
Average contract sales amount per home
(dollars in thousands) $ 219 $ 207 $ 12 5.8%
===================================================================================================
</TABLE>
12
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 31, CHANGE DECEMBER 31, CHANGE
- --------------------------------------------------------------------------------------- -------------------------------------------
1998 1997 AMOUNT PERCENT 1998 1997 AMOUNT PERCENT
- --------------------------------------------------------------------------------------- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AVERAGE REVENUE PER HOME
CLOSING:
Active adult communities:
Sun Cities Phoenix $184,100 $160,400 $ 23,700 14.8% $176,200 $157,500 $ 18,700 11.9%
Sun Cities Las Vegas 213,000 205,000 8,000 3.9% 203,700 197,900 5,800 2.9%
Sun City Palm Desert 248,400 227,700 20,700 9.1% 239,900 228,800 11,100 4.9%
Sun City Roseville 236,600 208,400 28,200 13.5% 231,800 209,400 22,400 10.7%
Sun City Hilton Head 193,700 165,900 27,800 16.8% 189,400 167,400 22,000 13.1%
Sun City Georgetown 220,700 201,200 19,500 9.7% 219,800 199,700 20,100 10.1%
Sun City at Huntley N/A N/A N/A N/A N/A N/A N/A N/A
Florida communities 110,500 N/A N/A N/A 107,900 N/A N/A N/A
Other communites 190,000 N/A N/A N/A 184,600 N/A N/A N/A
Average active adult communities 199,300 188,400 10,900 5.8% 194,100 185,900 8,200 4.4%
Country club communities:
Arizona N/A 376,200 N/A N/A N/A 303,100 N/A N/A
Nevada N/A N/A N/A N/A N/A N/A N/A N/A
Average country club communities N/A 376,200 N/A N/A N/A 303,100 N/A N/A
Conventional subdivision communities:
Arizona 195,300 181,300 14,000 7.7% 197,100 180,900 16,200 9.0%
Nevada 193,200 155,200 38,000 24.5% 193,000 149,500 43,500 29.1%
California N/A N/A N/A N/A N/A 186,600 N/A N/A
Average conventional subdivision
communities 194,900 176,700 18,200 10.3% 196,400 174,400 22,000 12.6%
Total 198,400 190,000 8,400 4.4% 194,500 188,300 6,200 3.3%
======================================================================================= ===========================================
OPERATING STATISTICS:
Costs and expenses as a percentage
of revenues:
Home construction, land and other 76.4% 75.7% 0.7% 0.9% 76.2% 76.3% (0.1%) (0.1%)
Selling, general and administrative 13.4% 14.1% (0.7%) (5.0%) 14.2% 14.4% (0.2%) (1.4%)
Interest 4.2% 3.9% 0.3% 7.7% 4.1% 4.2% (0.1%) (2.4%)
Ratio of home closings to homes under
contract in backlog at beginning of
period 45.9% 53.6% (7.7%) (14.4%) 95.2% 102.1% (6.9%) (6.8%)
======================================================================================= ===========================================
</TABLE>
13
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA (CONTINUED)
NOTES:
New orders are net of cancellations. The Company recognizes revenue at close of
escrow.
The Sun Cities Phoenix include Sun City West, which is built out, and Sun City
Grand.
The Sun Cities Las Vegas include Sun City Summerlin, Sun City MacDonald Ranch
and Sun City Anthem. The Company began taking new home sales orders at Sun City
Anthem in July 1998. Home closings began at Sun City Anthem in late December
1998.
The Company began taking new home sales orders at Sun City at Huntley in
September 1998.
In January 1998 the Company acquired certain assets and assumed certain
liabilities at two operating active adult communities in central Florida.
Other communities represent two smaller-scale communities in Arizona and
California at which new order activity began in October and November 1997,
respectively. Home closings began at these communities in March and May 1998,
respectively.
The Company completed new order activity at Terravita (an Arizona country club
community) in April 1997. Home closings at Terravita were completed in May 1998.
The Company began taking new home sales orders at Anthem Country Club (a Nevada
country club community near Las Vegas) in July 1998.
The Company completed new order activity for its Coventry Homes southern
California operations in June 1997. Home closings for these operations were
completed in August 1997.
A majority of the backlog at December 31, 1998 is currently anticipated to
result in revenues in the next 12 months. However, a majority of the backlog is
contingent primarily upon the availability of financing for the customer and, in
certain cases, sale of the customer's existing residence or other factors. Also,
as a practical matter, the Company's ability to obtain damages for breach of
contract by a potential home buyer is limited to retaining all or a portion of
the deposit received. Cancellations of home sales orders as a percentage of new
home sales orders written during the six months ended December 31, 1998 and 1997
were 14.7 percent for both periods.
14
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1998 AND 1997
REVENUES. Revenues increased to $354.2 million for the three months ended
December 31, 1998 from $278.9 million for the three months ended December 31,
1997. This increase was largely due to Sun City Palm Desert and Sun City
Roseville, which respectively closed 36 and 29 more homes in the 1998 quarter
than in the 1997 quarter. Management believes that these increases are largely
attributable to improvement in California's real estate economy and its economy
generally. The Company's Florida communities and smaller-scale communities in
Arizona and California, none of which had home closings in the 1997 quarter,
also contributed to the increase in revenues. An increase in the average revenue
per home closing resulted in $13.9 million of the increase in revenues. An
increase in land and facility sales (including the sale of all of the Company's
unsold conventional subdivision lots in the Tucson area) resulted in $15.1
million of the increase in revenues.
HOME CONSTRUCTION, LAND AND OTHER COSTS. The increase in home construction, land
and other costs to $270.6 million for the 1998 quarter compared to $211.0
million for the 1997 quarter was largely due to the increase in home closings.
As a percentage of revenues these costs also increased, to 76.4 percent for the
1998 quarter compared to 75.7 percent for the 1997 quarter. The percentage
increase was attributable to low-margin land sales in the Company's conventional
subdivision community operations. Homebuilding margins improved, primarily as a
result of increased revenue per home closing at virtually all of the Company's
communities.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. As a percentage of revenues,
selling, general and administrative expenses decreased to 13.4 percent for the
1998 quarter compared to 14.1 percent for the 1997 quarter. This decrease
resulted from the spreading of corporate overhead over significantly greater
revenues.
INTEREST. As a percentage of revenues, amortization of capitalized interest was
4.2 percent for the 1998 quarter compared to 3.9 percent for the 1997 quarter.
This increase was primarily due to an increase in debt levels (see "Liquidity
and Financial Condition of the Company").
INCOME TAXES. The increase in income taxes to $7.6 million for the 1998 quarter
compared to $6.3 million for the 1997 quarter was due to the increase in
earnings before income taxes. The effective tax rate in both quarters was 36
percent.
NET EARNINGS. The increase in net earnings to $13.5 million for the 1998 quarter
compared to $11.3 million for the 1997 quarter was primarily attributable to the
increases in home closings and homebuilding gross margins, partially offset by
the increased interest amortization.
NET NEW ORDER ACTIVITY AND BACKLOG. Net new orders in the 1998 quarter were 28.0
percent higher than in the 1997 quarter. The number of homes under contract at
December 31, 1998 was 43.6 percent higher than at December 31, 1997. Both of
these increases were primarily attributable Sun City at Huntley, conventional
subdivision communities at Anthem near Las Vegas, the Florida communities and
Anthem Country Club near Las Vegas. These communities had new order activity for
all of the 1998 quarter but had not yet commenced new order activity in the 1997
quarter.
The Company experienced decreases in both net new orders and backlog at Sun City
Georgetown. Management believes that a contributing factor to these decreases
was the fact that an entirely new set of model homes was under construction
during the six months ended December 31, 1998. These models are scheduled to
open in February 1999.
15
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997
REVENUES. Revenues increased to $622.9 million for the six months ended December
31, 1998 from $527.0 million for the six months ended December 31, 1997. This
increase was largely due to Sun City Palm Desert and Sun City Roseville, which
respectively closed 117 and 80 more homes in the 1998 period than in the 1997
period. Management believes that these increases are largely attributable to
improvement in California's real estate economy and its economy generally. The
Company's Florida communities and smaller-scale communities in Arizona and
California, none of which had home closings in the 1997 period, also contributed
to the increase in revenues. An increase in the average revenue per home closing
resulted in $18.7 million of the increase in revenues.
HOME CONSTRUCTION, LAND AND OTHER COSTS. The increase in home construction, land
and other costs to $474.5 million for the 1998 period compared to $402.0 million
for the 1997 period was largely due to the increase in home closings. As a
percentage of revenues, these costs decreased slightly to 76.2 percent for the
1998 period compared to 76.3 percent for the 1997 period. Homebuilding margins
improved, primarily as a result of increased revenue per home closing at
virtually all of the Company's communities.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. As a percentage of revenues,
selling, general and administrative expenses decreased to 14.2 percent for the
1998 period compared to 14.4 percent for the 1997 period. This decrease resulted
from the spreading of corporate overhead over significantly greater revenues.
INTEREST. As a percentage of revenues, amortization of capitalized interest was
4.1 percent for the 1998 period compared to 4.2 percent for the 1997 period.
INCOME TAXES. The increase in income taxes to $12.3 million for the 1998 period
compared to $9.8 million for the 1997 period was due to the increase in earnings
before income taxes. The effective tax rate in both periods was 36 percent.
NET EARNINGS. The increase in net earnings to $21.9 million for the 1998 period
compared to $17.4 million for the 1997 period was primarily attributable to the
increase in home closings and homebuilding gross margins.
NET NEW ORDER ACTIVITY. Net new orders in the 1998 period were 34.4 percent
higher than in the 1997 period. This increase was primarily attributable to the
same factors that produced the increase in net new orders for the three months
ended December 31, 1998 as compared to the three months ended December 31, 1997.
LIQUIDITY AND FINANCIAL CONDITION OF THE COMPANY
The cash flow for each of the Company's communities can differ substantially
from reported earnings, depending on the status of the development cycle. The
initial years of development or expansion require significant cash outlays for,
among other things, land acquisition, obtaining master plan and other approvals,
land and lot development, construction of amenities (including golf courses and
recreation centers), model homes, sales and administration facilities, major
roads, utilities and general landscaping and interest. Since these costs are
capitalized, this can result in income reported for financial statement purposes
during those initial years significantly exceeding cash flow. However, after the
initial years of development or expansion, when these expenditures are made,
cash flow can significantly exceed earnings reported for financial statement
purposes, as costs and expenses include amortization charges for substantial
amounts of previously expended costs.
16
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
During the 1998 period the Company generated $243.6 million of net cash from
operating community sales activities, used $123.5 million for land and lot and
amenity development at operating communities, paid $252.2 million for costs
related to communities in the pre-operating stage and used $46.3 million for
other operating activities. The resulting $178.4 million of net cash used for
operating activities was funded mainly through borrowings under the Company's
$450 million senior unsecured revolving credit facility (the "Credit Facility")
and $25 million short-term lines of credit (together with the Credit Facility,
the "Facilities"). Increase home sale deposits (resulting from the increase in
net new orders and backlog) were also a significant source of funding in the
1998 period.
The Company is currently engaged in substantial development. It has under
development, among other projects: (i) Sun City Lincoln Hills, planned as the
successor to Sun City Roseville; (ii) Anthem Las Vegas, which includes Sun City
Anthem, Anthem Country Club and a conventional subdivision community; (iii)
Anthem Phoenix, which is planned to include a country club community and
conventional subdivision communities and (iv) Sun City at Huntley.
To date, material cash expenditures have been made for these communities. The
Company anticipates that it will make material additional development and
housing construction expenditures at these communities over the next 12 months.
In order to provide adequate capital to meet the Company's operating
requirements for the next 12 months, the Company is seeking to increase the
Credit Facility by $50 million and to sell $200 million of Senior Subordinated
Debentures in a public offering (the "Offering"). The proceeds from the Offering
would be used to repay borrowings under the Credit Facility, which would then be
redrawn to fund development expenditures.
Following completion of the Offering, not all of the unused portion of the
Facilities would be available to the Company for borrowing as a result of
limitations imposed by existing debt covenants under the Credit Facility. The
limitations on borrowing on the Credit Facility involve the "Total Debt to
Tangible Net Worth" covenant. To the extent the Company can reduce its leverage
ratio, by increasing shareholders' equity or repaying debt, more of the unused
portion of the Facilities will become available for borrowing.
At December 31, 1998 the Company had $17.2 million of cash and short-term
investments and $328.0 million outstanding under the Facilities and $147.0
million of unused and available borrowing capacity under the Facilities.
Assuming the Offering was completed and the net proceeds applied at December 31,
1998, the Company would have had outstanding $133.5 million of the $335.2
million then available under the Facilities. The Company has continued to borrow
additional net amounts under the Facilities ($383.0 million was outstanding at
January 31,1999) and, subject to availability, expects to do so in the future to
fund its development expenditures. If the Offering is completed or the amount of
the Credit Facility is increased, the Company expects to have adequate capital
resources to meet its needs for the next 12 months.
If the Company is unable to successfully increase the Credit Facility by $50
million or complete the Offering, or if it does so but there is a significant
downturn in the Company's anticipated operations and other capital resources are
not obtained, the Company will need to modify its business plan to operate with
lower capital resources. Modifications of the business plan could include, among
other things, delaying development expenditures at its communities. Such
actions, if implemented, could have a material adverse effect on operations.
The Company's degree of leverage from time to time will affect its interest
incurred and capital resources, which could limit its ability to capitalize on
business opportunities or withstand adverse changes. If the Company cannot at
any time obtain sufficient capital resources to fund its development and
expansion expenditures, its projects may be delayed, resulting in cost
increases, adverse effects on the Company's results of operations and possible
material adverse effects on the Company. No assurance can be given as to the
terms, availability or cost of any future financing the Company may need. If the
Company is at any time unable to service its debt, refinancing or obtaining
additional financing may be required and may not be available or available on
terms acceptable to the Company.
At December 31, 1998, under the most restrictive of the covenants in the
Company's debt agreements, $39.7 million of the Company's retained earnings was
available for payment of cash dividends or the acquisition by the Company of its
common stock.
17
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs being written using two
digits (rather than four) to define the applicable year. Computer programs that
have time-sensitive software may not recognize dates beginning in the year 2000,
which could result in miscalculations or system failures.
To date, the Company's Year 2000 remediation efforts have focused primarily on
its core business computer applications (i.e., those systems that the Company is
dependent upon for the conduct of day-to-day business operations). Starting over
two years ago, the Company initiated a comprehensive review of its core business
applications to determine the adequacy of these systems to meet future business
requirements. Year 2000 readiness was only one of many factors considered in
this assessment. Out of this effort, a number of systems were identified for
upgrade or replacement. In no case is a system being replaced solely because of
Year 2000 issues, although in some cases the timing of system replacements is
being accelerated. Thus, the Company does not believe the costs of these system
replacements are specifically Year 2000 related. Additionally, while the Company
may have incurred an opportunity cost for addressing the Year 2000 issue, it
does not believe that any specific information technology projects have been
deferred to date as a result of its Year 2000 efforts.
As of February 1999, the Company believes all of its core business systems are
adequately Year 2000 capable for its purposes, except for its lead tracking and
mortgage processing systems and some of its document imaging systems. Projects
are currently underway to replace each of these systems, with implementations
and testing scheduled for completion by June 1999, with the exception of the
lead tracking system, which is anticipated to be implemented in phases beginning
in February 1999 and continuing through September 1999. As with systems that
have already been replaced, the Company does not believe the costs of these
replacements, which are anticipated to aggregate approximately $1 million, are
specifically Year 2000 related. The Company has also purchased at a cost of
approximately $100,000 a software product that, it believes, can identify
personal computers and related equipment with imbedded software that is not
adequately Year 2000 capable for the Company's purposes. The Company expects to
incur costs to replace or repair such equipment, but it has not at this time
determined the amount of these costs. Since some of the equipment would
otherwise be replaced through normal attrition, lease expirations and scheduled
upgrades in the ordinary course of business, it is possible that much of these
costs would not be solely related to Year 2000 readiness.
The Company is also assessing other potential Year 2000 issues, including
non-information technology systems. A broad-based Year 2000 Task Force has been
formed and is meeting monthly to identify areas of concern and develop action
plans. The Company currently anticipates that testing of non-information
technology systems will be completed by mid-1999. As part of the Task Force
effort, the Company's relationships with vendors, contractors, financial
institutions and other third parties are being considered to determine the
status of the Year 2000 issue efforts on the part of the other parties to
material relationships. The Year 2000 Task Force includes both internal and
Company-external representation.
The Company expects to incur Year 2000-related costs through the end of 1999 but
does not at present anticipate that these costs will be material. The Company
believes that the most reasonably likely worst-case scenario for the Year 2000
issue would be that the Company or the third parties with whom it has
relationships were to be unsuccessful in their Year 2000 remediation efforts. If
this were to occur, the Company would encounter disruptions to its business that
could have a material adverse effect on it. The Company could also be materially
adversely affected by widespread economic or financial market disruption or by
Year 2000 computer system failures at government agencies on which the Company
is dependent for zoning, building permits and related matters.
The Company has not at this time established a formal Year 2000 contingency plan
but will consider and, if necessary, address doing so as part of its Year 2000
Task Force activities. The Company maintains and deploys contingency plans
designed to address various other potential business interruptions. These plans
may be applicable to address the interruption of support provided by third
parties resulting from their failure to be Year 2000 ready.
18
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
FORWARD LOOKING INFORMATION; CERTAIN CAUTIONARY STATEMENTS
Certain statements contained in this "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section that are not historical
results are forward looking statements. These forward looking statements involve
risks and uncertainties including, but not limited to, risks associated with
financing and leverage, the development of future communities and new geographic
markets, governmental regulation, including land exchanges with governmental
entities, environmental considerations, competition, the geographic
concentration of the Company's operations, the cyclical nature of real estate
operations and other conditions generally, fluctuations in labor and material
costs, natural risks that exist in certain of the Company's market areas, risks
associated with the Year 2000 issue and other matters set forth in the Company's
Form 10-K for the year ended June 30, 1998. Certain forward looking statements
are based upon assumptions of future events, which may not prove to be accurate.
Actual results may differ materially from those projected or implied.
19
<PAGE> 22
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.
20
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, who are duly authorized to do so.
DEL WEBB CORPORATION
(REGISTRANT)
Date: February 1, 1999 /s/ Philip J. Dion
-------------------------------------------------
Philip J. Dion
Chairman and Chief Executive Officer
Date: February 1, 1999 /s/ John A. Spencer
-------------------------------------------------
John A. Spencer
Senior Vice President and Chief Financial Officer
21
<PAGE> 24
Index to Exhibits
-----------------
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1998 AND THE CONSOLIDATED
STATEMENT OF EARNINGS FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 17,241
<SECURITIES> 0
<RECEIVABLES> 31,979
<ALLOWANCES> 0
<INVENTORY> 1,390,293
<CURRENT-ASSETS> 0
<PP&E> 54,476
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 908,773
0
0
<COMMON> 18
<OTHER-SE> 366,973
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 622,895
<CGS> 0
<TOTAL-COSTS> 500,006
<OTHER-EXPENSES> 88,675
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 34,214
<INCOME-TAX> 12,317
<INCOME-CONTINUING> 21,897
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,897
<EPS-PRIMARY> 1.21
<EPS-DILUTED> 1.17
</TABLE>
