UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934. For the period ended SEPTEMBER 30, 1999.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the transition period from N/A to N/A .
Commission File Number: 1-4785
DEL WEBB CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 86-0077724
(State or other jurisdiction (IRS Employer Identification Number)
of incorporation or organization)
6001 NORTH 24TH STREET, PHOENIX, ARIZONA 85016
(Address of principal executive offices) (Zip Code)
(602) 808-8000
(Registrant's phone number, including area code)
NONE
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
As of October 31, 1999 Registrant had outstanding 18,223,163 shares of common
stock.
<PAGE>
DEL WEBB CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED
SEPTEMBER 30, 1999
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30, 1999,
June 30, 1999 and September 30, 1998..................... 1
Consolidated Statements of Earnings for the three
months ended September 30, 1999 and 1998............... 2
Consolidated Statements of Cash Flows for the three
months ended September 30, 1999 and 1998............... 3
Notes to Consolidated Financial Statements............... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K......................... 20
<PAGE>
DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30, SEPTEMBER 30,
1999 1999 1998
(UNAUDITED) (UNAUDITED)
- -------------------------------------------------------------------------------------------------------
ASSETS
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Real estate inventories (Notes 2, 3 and 6) $ 1,728,900 $ 1,622,581 $ 1,230,381
Cash and short-term investments 14,613 22,669 5,665
Receivables 43,002 33,529 34,104
Property and equipment, net 74,157 72,423 44,957
Other assets 121,363 115,595 109,845
- -------------------------------------------------------------------------------------------------------
$ 1,982,035 $ 1,866,797 $ 1,424,952
=======================================================================================================
LIABILITIES AND SHAREHOLDERS EQUITY
- -------------------------------------------------------------------------------------------------------
Notes payable, senior and subordinated debt (Note 3) $ 1,107,582 $ 1,040,613 $ 784,874
Contractor and trade accounts payable 114,485 115,456 87,744
Accrued liabilities and other payables 118,320 127,980 86,771
Home sale deposits 185,505 145,362 101,606
Deferred income taxes (Note 4) 24,662 22,510 7,597
Income taxes payable (Note 4) 11,925 10,082 2,580
- -------------------------------------------------------------------------------------------------------
Total liabilities 1,562,479 1,462,003 1,071,172
- -------------------------------------------------------------------------------------------------------
Shareholders' equity:
Common stock, $.001 par value. Authorized 30,000,000
shares; issued 18,225,643 shares at September 30, 1999,
18,221,385 shares at June 30, 1999 and 18,109,182
shares at September 30, 1998 18 18 18
Additional paid-in capital 169,081 168,865 166,331
Retained earnings 255,859 242,075 192,400
- -------------------------------------------------------------------------------------------------------
424,958 410,958 358,749
Less deferred compensation (5,402) (6,164) (4,969)
- -------------------------------------------------------------------------------------------------------
Total shareholders' equity 419,556 404,794 353,780
- -------------------------------------------------------------------------------------------------------
$ 1,982,035 $ 1,866,797 $ 1,424,952
=======================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
Revenues (Note 5) $409,562 $268,647
- --------------------------------------------------------------------------------
Costs and expenses (Note 5):
Home construction, land and other 313,829 203,853
Selling, general and administrative 56,939 41,152
Interest (Note 6) 17,257 10,495
- --------------------------------------------------------------------------------
388,025 255,500
- --------------------------------------------------------------------------------
Earnings before income taxes 21,537 13,147
Income taxes (Note 4) 7,753 4,733
- --------------------------------------------------------------------------------
Net earnings $ 13,784 $ 8,414
================================================================================
Weighted average shares outstanding - basic 18,223 18,107
================================================================================
Weighted average shares outstanding - assuming dilution 18,628 18,668
================================================================================
Net earnings per share - basic $ .76 $ .46
================================================================================
Net earning per share - assuming dilution $ .74 $ .45
================================================================================
See accompanying notes to consolidated financial statements.
2
<PAGE>
DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
- ---------------------------------------------------------------------------------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers related to operating community home sales $ 427,026 $ 283,427
Cash received from commercial land and facility sales at operating communities 6,344 5,301
Cash paid for costs related to home construction at operating communities (275,205) (181,518)
- ---------------------------------------------------------------------------------------------------------
Net cash provided by operating community sales activities 158,165 107,210
Cash paid for land acquisitions at operating communities (7,534) (10,143)
Cash paid for lot development at operating communities (73,488) (33,380)
Cash paid for amenity development at operating communities (55,919) (14,143)
- ---------------------------------------------------------------------------------------------------------
Net cash provided by operating communities 21,224 49,544
Cash paid for costs related to communities in the pre-operating stage (14,716) (100,706)
Cash received from mortgage operations 1,684 7,729
Cash received from (paid for) residential land development project (2,514) 631
Cash paid for corporate activities (26,870) (10,507)
Interest paid (30,869) (19,559)
Cash received (paid) for income taxes (3,507) 1,603
- ---------------------------------------------------------------------------------------------------------
NET CASH USED FOR OPERATING ACTIVITIES (55,568) (71,265)
- ---------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (4,006) (13,324)
Investments in life insurance policies (1,538) (843)
- ---------------------------------------------------------------------------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES (5,544) (14,167)
- ---------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings 121,820 139,435
Repayments of debt (68,979) (61,795)
Stock repurchases (3) --
Proceeds from exercise of common stock options 218 --
Dividends paid -- (905)
- ---------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 53,056 76,735
- ---------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH AND SHORT-TERM INVESTMENTS (8,056) (8,697)
CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD 22,669 14,362
- ---------------------------------------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 14,613 $ 5,665
=========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
DEL WEBB CORPORATION AND SUBIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
Reconciliation of net earnings to net cash used
for operating activities:
Net earnings $ 13,784 $ 8,414
Amortization of non-cash common costs in costs
and expenses, excluding interest 90,998 62,470
Amortization of capitalized interest in costs
and expenses 17,257 10,495
Deferred compensation amortization 763 484
Depreciation and other amortization 2,800 1,701
Deferred income taxes 2,152 3,352
Net increase in home construction costs (40,254) (8,163)
Land acquisitions (7,534) (11,852)
Lot development (77,434) (88,167)
Amenity development (67,198) (58,139)
Net change in other assets and liabilities 9,098 8,140
- --------------------------------------------------------------------------------
Net cash used for operating activities $(55,568) $(71,265)
================================================================================
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 eliminations of all significant intercompany transactions and
accounts) necessary to present fairly the financial position, results of
operations and cash flows for the periods presented. Certain financial
statement items from the prior year have been reclassified to be consistent
with the current year financial statement presentation.
The Company conducts its operations in Arizona, California, Florida,
Illinois, Nevada, South Carolina and Texas. The Company's active adult
communities (primarily its Sun City communities) are generally large-scale,
master planned communities with extensive amenities for people age 55 and
over. The Company's family and country club communities are open to people
of all ages and are generally developed in metropolitan or market areas in
which the Company is developing active adult communities. Within all of its
communities, the Company is usually the exclusive builder of homes.
The 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,
1999, filed with the Securities and Exchange Commission.
In the Consolidated Statements of Cash Flows, the Company defines operating
communities as communities generating revenues from home closings.
Communities in the pre-operating stage are those not yet generating
revenues from home closings.
The results of operations for the three months ended September 30, 1999 are
not necessarily indicative of the results to be expected for the full
fiscal year.
(2) REAL ESTATE INVENTORIES
The components of real estate inventories are:
<TABLE>
<CAPTION>
In Thousands
- -----------------------------------------------------------------------------------------
September 30, June 30, September 30,
1999 1999 1998
(Unaudited) (Unaudited)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Home construction costs $ 305,622 $ 265,368 $ 190,333
Unamortized improvement and amenity costs 1,074,115 977,867 704,170
Unamortized capitalized interest 92,819 85,007 67,098
Land held for housing 191,306 191,624 230,453
Land and facilities held for future development
or sale 65,038 102,715 38,327
- -----------------------------------------------------------------------------------------
$1,728,900 $1,622,581 $1,230,381
=========================================================================================
</TABLE>
At September 30, 1999 the Company had 347 completed homes and 497 homes
under construction that were not subject to a sales contract. These homes
represented $45.0 million of home construction costs at September 30, 1999.
At September 30, 1998 the Company had 297 completed homes and 647 homes
under construction (representing $34.7 million of home construction costs)
that were not subject to a sales contract.
5
<PAGE>
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
September 30, 1999 were 201 acres of commercial land that are currently
being marketed for sale at the Company's active adult communities and 398
acres of commercial land that are currently being marketed for sale at the
Company's Anthem Arizona project. Also included in land and facilities held
for future development or sale at September 30, 1999 were 533 lots on
selected residential land parcels in the Company's Arizona family community
operations and 927 lots in the Company's Nevada family communities.
(3) NOTES PAYABLE, SENIOR AND SUBORDINATED DEBT
Notes payable, senior and subordinated debt consists of:
<TABLE>
<CAPTION>
In Thousands
- ---------------------------------------------------------------------------------------------
September 30, June 30, September 30,
1999 1999 1998
(Unaudited) (Unaudited)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
9 3/4% Senior Subordinated Debentures due 2003,
net, unsecured $ 98,595 $ 98,492 $ 98,184
9% Senior Subordinated Debentures due 2006,
net, unsecured 98,244 98,176 97,970
9 3/4% Senior Subordinated Debentures due 2008,
net, unsecured 145,975 145,854 145,491
9 3/8% Senior Subordinated Debentures due 2009,
net, unsecured 195,530 195,413 195,063
10 1/4% Senior Subordinated Debentures due 2010,
net, unsecured 143,772 143,622 --
Notes payable to banks under a revolving credit
facility and short-term lines of credit, unsecured 353,304 301,000 197,830
Real estate and other notes, primarily secured 72,162 58,056 50,336
- ---------------------------------------------------------------------------------------------
$1,107,582 $1,040,613 $784,874
=============================================================================================
</TABLE>
At September 30, 1999 the Company had $350.0 million outstanding under its
$500 million senior unsecured revolving credit facility and $3.3 million
outstanding under its $20 million of short-term lines of credit.
At September 30, 1999, under the most restrictive of the covenants in the
Company's debt agreements, $55.3 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>
(4) INCOME TAXES
The components of income taxes are:
In Thousands
(Unaudited)
---------------------------------------------------------------------------
Three Months Ended
September 30,
---------------------------------------------------------------------------
1999 1998
---------------------------------------------------------------------------
Current:
Federal $5,276 $1,245
State 325 136
---------------------------------------------------------------------------
5,601 1,381
---------------------------------------------------------------------------
Deferred:
Federal 1,857 3,191
State 295 161
---------------------------------------------------------------------------
2,152 3,352
---------------------------------------------------------------------------
$7,753 $4,733
===========================================================================
(5) REVENUES AND COSTS AND EXPENSES
The components of revenues and costs and expenses are:
In Thousands
(Unaudited)
---------------------------------------------------------------------------
Three Months Ended
September 30,
---------------------------------------------------------------------------
1999 1998
---------------------------------------------------------------------------
Revenues:
Homebuilding:
Active adult communities $292,619 $207,486
Family and country club communities 96,736 52,355
---------------------------------------------------------------------------
389,355 259,841
Models/vacation getaway homes with
long-term leaseback 9,725 --
---------------------------------------------------------------------------
Total homebuilding 399,080 259,841
Land and facility sales 6,415 5,931
Other 4,067 2,875
---------------------------------------------------------------------------
$409,562 $268,647
===========================================================================
7
<PAGE>
(5) REVENUES AND COSTS AND EXPENSES (CONTINUED)
In Thousands
(Unaudited)
---------------------------------------------------------------------------
Three Months Ended
September 30,
---------------------------------------------------------------------------
1999 1998
---------------------------------------------------------------------------
Costs and expenses:
Home construction and land:
Active adult communities $220,413 $154,650
Family and country club communities 77,616 42,693
---------------------------------------------------------------------------
298,029 197,343
Models/vacation getaway homes with
long-term leaseback 9,725 --
---------------------------------------------------------------------------
Total homebuilding 307,754 197,343
Cost of land and facility sales 3,294 4,847
Other cost of sales 2,781 1,663
---------------------------------------------------------------------------
Total home construction, land and other 313,829 203,853
Selling, general and administrative 56,939 41,152
Interest 17,257 10,495
---------------------------------------------------------------------------
$388,025 $255,500
===========================================================================
(6) INTEREST
The following table shows the components of interest:
In Thousands
(Unaudited)
---------------------------------------------------------------------------
Three Months Ended
September 30,
---------------------------------------------------------------------------
1999 1998
---------------------------------------------------------------------------
Interest incurred and capitalized $25,069 $16,138
===========================================================================
Amortization of capitalized interest
in costs and expenses $17,257 $10,495
===========================================================================
Unamortized capitalized interest included
in real estate inventories at period end $92,819 $67,098
===========================================================================
Interest income $ 251 $ 291
===========================================================================
Interest income is included in other revenues.
8
<PAGE>
(7) SEGMENT INFORMATION
The Company conducts its operations in two primary segments in Arizona,
California, Florida, Illinois, Nevada, South Carolina and Texas. The
Company's active adult communities (primarily its Sun City communities) are
generally large-scale, master planned communities with extensive amenities
for people age 55 and over. The Company's family and country club
communities are open to people of all ages and are generally developed in
metropolitan or market areas in which the Company is developing active
adult communities. Within all of its communities, the Company is usually
the exclusive builder of homes.
Both of the Company's primary segments generate their revenues through the
sale of homes (and, to a much lesser extent, land and facilities) to
external customers in the United States. The Company is not dependent on
any major customer.
Information as to the operations of the Company in different business
segments is set forth below based on the nature of the Company's
communities and their customers. Certain information has not been included
by segment due to the immateriality of the amount to the segments or in
total. The Company evaluates segment performance based on several factors,
of which the primary financial measure is earnings before interest and
taxes ("EBIT"). The accounting policies of the business segments are the
same as those for the Company. There are no significant intersegment
transactions.
9
<PAGE>
In Thousands
(Unaudited)
---------------------------------------------------------------------------
Three Months Ended
September 30,
---------------------------------------------------------------------------
1999 1998
---------------------------------------------------------------------------
Revenues:
Active adult communities $ 304,016 $ 209,610
Family and country club communities 104,430 56,945
Corporate and other 1,116 2,092
---------------------------------------------------------------------------
$ 409,562 $ 268,647
===========================================================================
EBIT:
Active adult communities $ 43,269 $ 30,167
Family and country club communities 12,084 6,208
Corporate and other (16,559) (12,733)
---------------------------------------------------------------------------
$ 38,794 $ 23,642
===========================================================================
Amortization of Capitalized Interest:
Active adult communities $ 13,030 $ 8,426
Family and country club communities 4,227 2,069
Corporate and other -- --
---------------------------------------------------------------------------
$ 17,257 $ 10,495
===========================================================================
Assets at Period End:
Active adult communities $ 1,294,132 $ 958,366
Family and country club communities 488,788 311,622
Corporate and other 199,115 154,964
---------------------------------------------------------------------------
$ 1,982,035 $ 1,424,952
===========================================================================
Expenditures for Real Estate Inventories:
Active adult communities $ 259,218 $ 216,747
Family and country club communities 114,524 84,596
Corporate and other 2,112 123
---------------------------------------------------------------------------
$ 375,854 $ 301,466
===========================================================================
Purchases of Property and Equipment:
Active adult communities $ 1,590 $ 2,390
Family and country club communities 204 82
Corporate and other 2,212 10,852
---------------------------------------------------------------------------
$ 4,006 $ 13,324
===========================================================================
Depreciation and Other Amortization:
Active adult communities $ 1,187 $ 674
Family and country club communities 127 52
Corporate and other 1,486 975
---------------------------------------------------------------------------
$ 2,800 $ 1,701
===========================================================================
10
<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 fiscal year ended June 30, 1999, filed with the Securities and Exchange
Commission.
CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA
THREE MONTHS ENDED
SEPTEMBER 30, CHANGE
- --------------------------------------------------------------------------------
1999 1998 AMOUNT PERCENT
- --------------------------------------------------------------------------------
OPERATING DATA:
Number of net new orders:
Active adult communities:
Sun Cities Phoenix 318 272 46 16.9%
Sun Cities Las Vegas 254 301 (47) (15.6%)
Sun City Palm Desert 81 134 (53) (39.6%)
Sun Cities Northern California 138 200 (62) (31.0%)
Sun City Hilton Head 97 100 (3) (3.0%)
Sun City Georgetown 85 51 34 66.7%
Sun City at Huntley 117 208 (91) (43.8%)
Florida communities 86 84 2 2.4%
Other communities 128 52 76 146.2%
- --------------------------------------------------------------------------------
Total active adult communities 1,304 1,402 (98) (7.0%)
- --------------------------------------------------------------------------------
Family and country club communities:
Arizona country club communities 43 N/A 43 N/A
Nevada country club communities 57 66 (9) (13.6%)
Arizona family communities 234 230 4 1.7%
Nevada family communities 54 92 (38) (41.3%)
- --------------------------------------------------------------------------------
Total family and country club
communities 388 388 -- --
- --------------------------------------------------------------------------------
Total 1,692 1,790 (98) (5.5%)
================================================================================
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA (CONTINUED)
THREE MONTHS ENDED
SEPTEMBER 30, CHANGE
- --------------------------------------------------------------------------------
1999 1998 AMOUNT PERCENT
- --------------------------------------------------------------------------------
OPERATING DATA:
Number of home closings:
Active adult communities:
Sun Cities Phoenix 337 274 63 23.0%
Sun Cities Las Vegas 251 236 15 6.4%
Sun City Palm Desert 135 122 13 10.7%
Sun Cities Northern California 129 169 (40) 23.7%
Sun City Hilton Head 95 73 22 30.1%
Sun City Georgetown 59 79 (20) (25.3%)
Sun City at Huntley 226 N/A 226 N/A
Florida communities 66 106 (40) (37.7%)
Other communities 78 45 33 73.3%
- --------------------------------------------------------------------------------
Total active adult communities 1,376 1,104 272 24.6%
- --------------------------------------------------------------------------------
Family and country club communities:
Arizona country club communities 17 N/A 17 N/A
Nevada country club communities 55 N/A 55 N/A
Arizona family communities 224 222 2 0.9%
Nevada family communities 136 42 94 223.8%
- --------------------------------------------------------------------------------
Total family and country club
communities 432 264 168 63.6%
- --------------------------------------------------------------------------------
Total 1,808 1,368 440 32.2%
================================================================================
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA (CONTINUED)
THREE MONTHS ENDED
SEPTEMBER 30, CHANGE
- --------------------------------------------------------------------------------
1999 1998 AMOUNT PERCENT
- --------------------------------------------------------------------------------
BACKLOG DATA:
Homes under contract at September 30:
Active adult communities:
Sun Cities Phoenix 715 667 48 7.2%
Sun Cities Las Vegas 548 613 (65) (10.6%)
Sun City Palm Desert 230 277 (47) (17.0%)
Sun Cities Northern California 417 413 4 1.0%
Sun City Hilton Head 196 196 -- --
Sun City Georgetown 184 163 21 12.9%
Sun City at Huntley 396 208 188 90.4%
Florida communities 153 253 (100) (39.5%)
Other communities 218 109 109 100.0%
- --------------------------------------------------------------------------------
Total active adult communities 3,057 2,899 158 5.5%
- --------------------------------------------------------------------------------
Family and country club communities:
Arizona country club communities 270 N/A 270 N/A
Nevada country club communities 137 66 71 107.6%
Arizona family communities 737 493 244 49.5%
Nevada family communities 167 134 33 24.6%
- --------------------------------------------------------------------------------
Total family and country club
communities 1,311 693 618 89.2%
- --------------------------------------------------------------------------------
Total 4,368 3,592 776 21.6%
================================================================================
Aggregate contract sales amount
(dollars in millions) $ 1,040 $ 762 $ 278 36.5%
================================================================================
Average contract sales amount per home
(dollars in thousands) $ 238 $ 212 $ 26 12.3%
================================================================================
13
<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
SEPTEMBER 30, CHANGE
- ------------------------------------------------------------------------------------------
1999 1998 AMOUNT PERCENT
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVERAGE REVENUE PER HOME CLOSING:
Active adult communities:
Sun Cities Phoenix $ 180,600 $ 166,500 $ 14,100 8.5%
Sun Cities Las Vegas 219,000 192,900 26,100 13.5%
Sun City Palm Desert 275,500 232,000 43,500 18.8%
Sun Cities Northern California 277,900 226,500 51,400 22.7%
Sun City Hilton Head 212,200 183,800 28,400 15.5%
Sun City Georgetown 223,600 218,700 4,900 2.2%
Sun City at Huntley 233,700 N/A N/A N/A
Florida communities 133,800 104,500 29,300 28.0%
Other communities 192,700 178,000 14,700 8.3%
Average active adult communities 217,200 187,900 29,300 15.6%
Family and country club communities:
Arizona country club communities 217,900 N/A N/A N/A
Nevada country club communities 430,400 N/A N/A N/A
Arizona family communities 207,600 199,400 8,200 4.1%
Nevada family communities 193,200 192,500 700 0.4%
Average family and country club
communities 231,900 198,300 33,600 16.9%
Total average $ 220,700 $ 189,900 $ 30,800 16.2%
OPERATING STATISTICS:
Costs and expenses as a percentage
of revenues:
Home construction, land and other 76.6% 75.9% 0.7% 0.9%
Selling, general and administrative 13.9% 15.3% (1.4%) (9.2%)
Interest 4.2% 3.9% 0.3% 7.7%
Ratio of home closings to homes under contract
in backlog at beginning of period 40.3% 43.2% (2.9%) (6.7%)
==========================================================================================
</TABLE>
NOTES:
New orders are net of cancellations. The Company recognizes revenue at close of
escrow.
The Sun Cities Phoenix includes Sun City West, which is built out, and Sun City
Grand.
The Sun Cities Las Vegas include Sun City Summerlin, Sun City MacDonald Ranch
and Sun City Anthem. The Company began taking new home sales orders at Sun City
Anthem in July 1998. Home closings began at Sun City Anthem in December 1998.
The Sun Cities Northern California include Sun City Roseville and Sun City
Lincoln Hills. The Company began taking new home sales orders at Sun City
Lincoln Hills in February 1999. Home closings began at Sun City Lincoln Hills in
July 1999.
The Company began taking new home sales orders at Sun City at Huntley in
September 1998. Home closings began at Sun City at Huntley in April 1999.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
NOTES (CONTINUED):
Other active adult communities represent two smaller-scale communities in
Arizona and California.
The Company began taking new home sales orders at Anthem Country Club (an
Arizona country club community near Phoenix) in February 1999. Home closings
began at Anthem Arizona Country Club in September 1999.
The Company began taking new home sales orders at Anthem Country Club (a Nevada
country club community near Las Vegas) in July 1998. Home closings began at
Anthem Las Vegas Country Club in February 1999.
A substantial majority of the backlog at September 30, 1999 is currently
anticipated to result in revenues in the next 12 months. However, a majority of
the backlog is contingent primarily upon the availability of financing for the
customer and, in certain cases, sale of the customer's existing residence or
other factors. Also, as a practical matter, the Company's ability to obtain
damages for breach of contract by a potential home buyer is limited to retaining
all or a portion of the deposit received. In the three months ended September
30, 1999 and 1998, cancellations of home sales orders as a percentage of new
home sales orders written during the period were 15.1 percent and 13.6 percent,
respectively.
RESULTS OF OPERATIONS
REVENUES. Total revenues increased to $409.6 million for the three months ended
September 30, 1999 from $268.6 million for the three months ended September 30,
1998.
Active adult community homebuilding revenues, exclusive of $6.3 million of
revenues from models and vacation getaway homes sold with a long-term leaseback,
increased to $292.6 million for the 1999 quarter from $207.5 million for the
1998 quarter. The Company's Sun City at Huntley community near Chicago, which
had not yet begun home closings in the 1998 quarter, accounted for a $52.8
million increase in total active adult community homebuilding revenues. The Sun
Cities Phoenix, Sun Cities Las Vegas and Sun City Palm Desert, each of which
closed more homes in the 1999 quarter than in the 1998 quarter, accounted for a
$21.9 million increase in total active adult community homebuilding revenues.
These increases in home closings were primarily due to increased beginning
backlogs. An increase in the average revenue per home closing resulted in a
$17.9 million increase in total active adult community homebuilding revenues.
Family and country club community homebuilding revenues, exclusive of $3.4
million of revenues from models and vacation getaway homes sold with a long-term
leaseback, increased to $96.7 million for the 1999 quarter from $52.4 million
for the 1998 quarter. The Company's family and country club communities at
Anthem Las Vegas and Anthem Arizona, which had not yet begun home closings in
the 1998 quarter, accounted for a $50.3 million increase in total family and
country club community homebuilding revenues.
HOME CONSTRUCTION, LAND AND OTHER COSTS. The increase in home construction, land
and other costs to $313.8 million for the 1999 quarter from $203.9 million for
the 1998 quarter was largely due to the increase in home closings. As a
percentage of revenues, these costs increased to 76.6 percent for the 1999
quarter from 75.9 percent for the 1998 quarter, due to a decline in homebuilding
gross margin from 24.1 percent for the 1998 quarter to 22.9 percent for the 1999
quarter. Half of this decline in homebuilding gross margin was attributable to
deferred profit recognition in the 1999 quarter on the sale and long-term
leaseback of 58 model homes and vacation getaway homes at three of the Company's
communities. The balance of the decline in homebuilding gross margin was largely
attributable to increased discounts at a number of the Company's active adult
communities, including Sun City Summerlin and Sun City Roseville which are
nearing completion.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. As a percentage of revenues,
selling, general and administrative expenses decreased to 13.9 percent for the
1999 quarter from 15.3 percent for the 1998 quarter. This decrease resulted from
the spreading of corporate overhead over significantly greater revenues.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
INTEREST. As a percentage of revenues, amortization of capitalized interest was
4.2 percent for the 1999 quarter compared to 3.9 percent for the 1998 quarter.
This increase was primarily due to an increase in debt levels (see "Liquidity
and Financial Condition of the Company"). Increased interest rates also
contributed to this increased interest amortization.
INCOME TAXES. The increase in income taxes to $7.8 million for the 1999 quarter
from $4.7 million in the 1998 quarter was due to the increase in earnings before
income taxes. The effective tax rate in both quarters was 36 percent.
NET EARNINGS. The increase in net earnings to $13.8 million for the 1999 quarter
from $8.4 million for the 1998 quarter was primarily attributable to the
increase in home closings and homebuilding revenues and the decrease in selling,
general and administrative expenses as a percentage of revenues.
NET NEW ORDER ACTIVITY AND BACKLOG. Net new orders in the 1999 quarter were 5.5
percent lower than in the 1998 quarter. This decrease was primarily due to Sun
City at Huntley (which, the Company believes, experienced significant pent-up
demand, which may no longer exist, when it began taking new orders in the 1998
quarter), the Sun Cities Las Vegas (at which Sun City Summerlin is now sold out
and contributed only 23 net new orders in the 1999 quarter), the Sun Cities
Northern California (at which Sun City Roseville is now sold out and contributed
no net new orders in the 1999 quarter) and Sun City Palm Desert (which last year
experienced its best first quarter of sales since inception, with this year's
first quarter of sales being the second best since inception). The Company is
preparing to open new recreational amenities at many of its communities, which
may help increase sales activity at these communities.
An increase in the cancellation percentage from 13.6 percent for the 1998
quarter to 15.1 percent for the 1999 quarter also contributed to the decline in
net new orders. The increased cancellation percentage was attributable to the
new communities that began home sales activity in fiscal 1999. These communities
experienced a very low cancellation percentage during their initial period of
pent-up demand, but they may now be experiencing more normal rates of
cancellations.
Based on the factors mentioned above, the sale of family community land parcels
on which homes will not be built and sold by the Company (see "Liquidity and
Financial Condition of the Company"), increases in mortgage interest rates and
decreases in home resales nationally, the Company currently anticipates that its
level of net new orders for fiscal 2000 will be slightly below the level of
fiscal 1999.
The number of homes under contract at September 30, 1999 was 21.6 percent higher
than at September 30, 1998. This increase was primarily attributable to Sun City
at Huntley and the family and country club communities at Anthem Arizona and
Anthem Las Vegas. These communities had not yet commenced or had only recently
commenced new order activity at September 30, 1998. Backlog decreases at the Sun
Cities Las Vegas and Sun City Palm Desert were attributable to the declines in
net new orders discussed above. The backlog decrease at the Florida communities
was due to decreases in net new orders over the past 12 months. The Company
believes the level of net new orders at the Florida communities may have been
negatively affected by significant product changes and increases in home sales
prices effected by the Company over that time period.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
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, acquiring large tracts of land, obtaining development
approvals, developing land and lots and constructing project infrastructure
(such as roads and utilities), large recreation centers, golf courses, model
homes and sales facilities. 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 1999 quarter the Company generated $158.2 million of net cash from
operating community sales activities, used $137.0 million for land and lot and
amenity development at operating communities, paid $14.7 million for costs
related to communities in the pre-operating stage and used $62.1 million for
other operating activities. The resulting $55.6 million of net cash used for
operating activities was funded mainly through borrowings under the Company's
$500 million senior unsecured revolving credit facility (the "Credit Facility")
and $20 million short-term lines of credit (together with the Credit Facility,
the "Credit Facilities").
Real estate development is dependent on, among other things, the availability
and cost of financing. In periods of significant growth, the Company requires
significant additional capital resources, whether from issuances of equity or by
increasing its indebtedness. In the fiscal year ended June 30, 1999, the Company
had under development, among other projects: (i) Sun City Lincoln Hills, the
successor community to Sun City Roseville; (ii) Anthem Las Vegas, which includes
Sun City Anthem, country club and family communities; (iii) Anthem Arizona,
which includes country club and family communities and (iv) Sun City at Huntley.
Given its assessment of market conditions and appropriate timing for these new
communities, the Company decided to engage in substantial development at these
communities and permit its indebtedness and leverage to increase substantially.
To date, material cash expenditures have been made for these communities. The
Company anticipates that it will make material additional development and
housing construction expenditures at these communities through at least December
31, 1999. In order to provide adequate capital to meet the Company's operating
requirements for the next 12 months, the Company in February 1999 completed a
$150 million public debt offering and negotiated an increase in the amount of
its Credit Facility from $450 million to $500 million. At September 30, 1999 the
Company had $353.3 million outstanding under the Credit Facilities.
As a result of public debt offerings and borrowings to fund development
expenditures, described above, the Company has considerably more indebtedness
and is considerably more highly leveraged at September 30, 1999 than it has been
in recent years. The Company expects to continue to borrow additional amounts
under the Credit Facilities to fund continuing development at these communities.
The Company expects to have adequate capital resources to meet its needs for the
next 12 months. In addition, the Company is offering for sale to other home
builders certain land parcels in its Arizona family community operations and
most of the remaining lots in its Nevada family communities and is planning to
otherwise manage its expenditures to meet its needs and available resources over
this time period. If there is a significant downturn in the Company's
anticipated operations, however, the Company will need to further 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.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
The Company's indebtedness and leverage from time to time will affect its
interest incurred and capital resources, which could limit its ability to
capitalize on business opportunities or withstand adverse changes. Additionally,
the availability and cost of debt financing depends on governmental policies and
other factors outside the Company's control. If the Company cannot at any time
obtain sufficient capital resources to fund its development and expansion
expenditures, its projects may be delayed, resulting in cost increases, adverse
effects on the Company's results of operations and possible material adverse
effects on the Company. No assurance can be given as to the terms, availability
or cost of any future financing the Company may need. If the Company is at any
time unable to service its debt, refinancing or obtaining additional financing
may be required and may not be available or available on terms acceptable to the
Company.
At September 30, 1999, under the most restrictive of the covenants in the
Company's debt agreements, $55.3 million of the Company's retained earnings was
available for payment of cash dividends and the acquisition by the Company of
its common stock.
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.
Through September 30, 1999, the majority of the Company's Year 2000 remediation
efforts have addressed 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 more than three 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 was a system replaced solely because of Year 2000 issues, although in
some cases the timing of system replacements was accelerated. Thus, the Company
does not believe the costs of these system replacements, which aggregated
approximately $2 million (the majority of which related to software acquisitions
and were thus capitalized), were 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 significant information technology
projects have been deferred to date as a result of its Year 2000 efforts.
As of October 1999, the Company has tested all of its core business systems and
believes they are adequately Year 2000 capable for its purposes, with the
exception of its sales lead tracking system, replacement of which is scheduled
to be completed by December 1999. The replacement lead tracking system has been
in use within the Company since early 1999, with implementation occurring
sequentially across the Company's various business units.
The Company also purchased at a cost of approximately $100,000 a software
product that identifies personal computers and related equipment with imbedded
software that is not adequately Year 2000 capable for the Company's purposes.
The Company incurred costs to replace or repair that equipment. Since the
majority of that equipment would otherwise have been replaced through normal
attrition, lease expirations and scheduled upgrades in the ordinary course of
business, the Company believes that these equipment costs are not solely related
to Year 2000 readiness.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
The Company also assessed other potential Year 2000 issues, including
non-information technology systems. A broad-based Year 2000 Task Force was
formed and continues to meet regularly to identify areas of concern and develop
action plans. The Company also completed testing of non-information technology
systems and determined that they are Year 2000 capable for its purposes. As part
of the Year 2000 Task Force effort, the Company's relationships with vendors,
contractors, financial institutions and other third parties were also 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 additional Year 2000-related costs in fiscal 2000
but does not at present anticipate that these costs will be material. The
Company believes that the most reasonably likely worst-case scenario for the
Year 2000 issue would be that the Company or the third parties with whom it has
material relationships were to be unsuccessful in their Year 2000 remediation
efforts. In that event, the Company may encounter disruptions to its business
that could have a material adverse effect on it. The Company would 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.
With its Year 2000 remediation and testing substantially complete, the Company
is establishing Year 2000 emergency preparedness procedures and contingency
plans to supplement existing contingency plans that are designed to address
various other potential business interruptions.
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 statements involve risks and
uncertainties. Actual results will differ from those set forth or implied in the
forward looking statements and the variances may be material. Further, certain
forward looking statements are based on assumptions as to future events. Some of
these assumptions will prove inaccurate. Risks and uncertainties include risks
associated with: financing and leverage; the development of future communities,
including in new geographic markets; governmental regulation, including growth
management; environmental considerations; competition; the geographic
concentration of the Company's operations; the cyclical nature of real estate
operations; interest rate increases; fluctuations in labor and material costs;
natural risks that exist in certain of the Company's market areas; Year 2000
disruptions; and other matters set forth in the Company's Annual Report on Form
10-K for the year ended June 30, 1999.
19
<PAGE>
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>
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: November 5, 1999 /s/ Philip J. Dion
----------------- ----------------------------------------------------
Philip J. Dion
Chairman and Chief Executive Officer
Date: November 5, 1999 /s/ John A. Spencer
----------------- ----------------------------------------------------
John A. Spencer
Executive Vice President and Chief Financial Officer
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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