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, 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
of incorporation or organization) Identification Number)
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 31, 2000 Registrant had outstanding 18,327,575 shares of common
stock.
<PAGE>
DEL WEBB CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED
DECEMBER 31, 1999
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements:
Consolidated Balance Sheets as of December 31, 1999,
June 30, 1999 and December 31, 1998........................... 1
Consolidated Statements of Earnings for the three and six
months ended December 31, 1999 and 1998....................... 2
Consolidated Statements of Cash Flows for the six
months ended December 31, 1999 and 1998....................... 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................................ 21
<PAGE>
DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
December 31, December 31,
1999 June 30, 1998
(Unaudited) 1999 (Unaudited)
- ---------------------------------------------------------------------------------------------------
ASSETS
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Real estate inventories (Notes 2, 3 and 6) $ 1,832,939 $ 1,622,581 $ 1,309,293
Cash and short-term investments 32 22,669 17,241
Receivables 31,336 33,529 31,979
Property and equipment, net 76,417 72,423 54,476
Other assets 72,207 115,595 109,785
- ---------------------------------------------------------------------------------------------------
$ 2,012,931 $ 1,866,797 $ 1,603,774
===================================================================================================
LIABILITIES AND SHAREHOLDERS EQUITY
- ---------------------------------------------------------------------------------------------------
Notes payable, senior and subordinated debt (Note 3) $ 1,092,303 $ 1,040,613 $ 908,773
Contractor and trade accounts payable 135,930 115,456 103,780
Accrued liabilities and other payables 146,801 127,980 104,538
Home sale deposits 166,755 145,362 102,409
Deferred income taxes (Note 4) 26,834 22,510 8,648
Income taxes payable (Note 4) 9,705 10,082 8,635
- ---------------------------------------------------------------------------------------------------
Total liabilities 1,578,328 1,462,003 1,236,783
- ---------------------------------------------------------------------------------------------------
Shareholders' equity:
Common stock, $.001 par value. Authorized 30,000,000
shares; issued 18,292,128 shares at December 31, 1999,
18,221,385 shares at June 30, 1999 and 18,205,085
shares at December 31, 1998 18 18 18
Additional paid-in capital 170,565 168,865 168,827
Retained earnings 269,549 242,075 205,882
- ---------------------------------------------------------------------------------------------------
440,132 410,958 374,727
Less deferred compensation (5,529) (6,164) (7,736)
- ---------------------------------------------------------------------------------------------------
Total shareholders' equity 434,603 404,794 366,991
- ---------------------------------------------------------------------------------------------------
$ 2,012,931 $ 1,866,797 $ 1,603,774
===================================================================================================
</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)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
- ------------------------------------------------------------------------------------------------
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues (Note 5) $495,613 $354,248 $905,175 $622,895
- ------------------------------------------------------------------------------------------------
Costs and expenses (Note 5):
Home construction, land and other 388,808 270,621 702,637 474,474
Selling, general and administrative 65,282 47,523 122,221 88,675
Interest (Note 6) 20,133 15,037 37,390 25,532
- ------------------------------------------------------------------------------------------------
474,223 333,181 862,248 588,681
- ------------------------------------------------------------------------------------------------
Earnings before income taxes 21,390 21,067 42,927 34,214
Income taxes (Note 4) 7,701 7,584 15,454 12,317
- ------------------------------------------------------------------------------------------------
Net earnings $ 13,689 $ 13,483 $ 27,473 $ 21,897
================================================================================================
Weighted average shares
outstanding - basic 18,271 18,156 18,247 18,132
================================================================================================
Weighted average shares
outstanding - assuming dilution 18,683 18,732 18,655 18,700
================================================================================================
Net earnings per share - basic $ .75 $ .74 $ 1.51 $ 1.21
================================================================================================
Net earning per share - assuming dilution $ .73 $ .72 $ 1.47 $ 1.17
================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
DEL WEBB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
- -------------------------------------------------------------------------------------------------------------
1999 1998
- -------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Cash received from customers related to operating community home sales $ 884,807 $ 595,029
Cash received from commercial land and facility sales at operating communities 25,580 26,619
Cash paid for costs related to home construction at operating communities (558,351) (377,994)
- -------------------------------------------------------------------------------------------------------------
Net cash provided by operating community sales activities 352,036 243,654
Cash paid for land acquisitions at operating communities (19,130) (14,549)
Cash paid for lot development at operating communities (161,475) (72,834)
Cash paid for amenity development at operating communities (115,414) (36,133)
- -------------------------------------------------------------------------------------------------------------
Net cash provided by operating communities 56,017 120,138
Cash paid for costs related to communities in the pre-operating stage (14,716) (252,196)
Cash received from mortgage operations 4,974 6,221
Cash received from (paid for) residential land development project (3,056) 1,191
Cash paid for corporate activities (31,519) (20,826)
Interest paid (48,914) (34,381)
Cash received (paid) for income taxes (10,997) 1,502
- -------------------------------------------------------------------------------------------------------------
NET CASH USED FOR OPERATING ACTIVITIES (48,211) (178,351)
- -------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (8,533) (17,559)
Investments in life insurance policies (1,566) (1,156)
- -------------------------------------------------------------------------------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES (10,099) (18,715)
- -------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings 189,437 332,873
Repayments of debt (154,032) (131,744)
Stock repurchases (3) (433)
Proceeds from exercise of common stock options 271 154
Dividends paid -- (905)
- -------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 35,673 199,945
- -------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS (22,637) 2,879
CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD 22,669 14,362
- -------------------------------------------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 32 $ 17,241
=============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
DEL WEBB CORPORATION AND SUBIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
(UNAUDITED)
Six Months Ended
December 31,
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
Reconciliation of net earnings to net cash used
for operating activities:
Net earnings $ 27,473 $ 21,897
Amortization of non-cash common costs in costs
and expenses, excluding interest 213,946 156,703
Amortization of capitalized interest in costs
and expenses 37,390 25,532
Deferred compensation amortization 3,653 997
Depreciation and other amortization 5,890 3,729
Deferred income taxes 4,325 4,403
Net increase in home construction costs (24,043) (36,987)
Land acquisitions (19,130) (16,377)
Lot development (161,475) (215,105)
Amenity development (115,414) (142,084)
Net change in other assets and liabilities (20,826) 18,941
- --------------------------------------------------------------------------------
Net cash used for operating activities $ (48,211) $(178,351)
================================================================================
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. Active adult communities
(primarily its Sun City communities) are generally large-scale, master
planned communities with extensive amenities for people age 55 and over.
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 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 six months ended December 31, 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:
In Thousands
- --------------------------------------------------------------------------------
December 31, December 31,
1999 June 30, 1998
(Unaudited) 1999 (Unaudited)
- --------------------------------------------------------------------------------
Home construction costs $ 289,411 $ 265,368 $ 219,157
Unamortized improvement and amenity costs 1,150,138 977,867 839,853
Unamortized capitalized interest 99,092 85,007 71,516
Land held for housing 235,726 191,624 220,855
Land and facilities held for future
development or sale 58,572 102,715 38,912
- --------------------------------------------------------------------------------
$1,832,939 $1,622,581 $1,390,293
================================================================================
At December 31, 1999 the Company had 294 completed homes and 895 homes
under construction that were not subject to a sales contract. These homes
represented $52.9 million of home construction costs at December 31, 1999.
At December 31, 1998 the Company had 240 completed homes and 870 homes
under construction (representing $47.9 million of home construction costs)
that were not subject to a sales contract.
5
<PAGE>
(2) REAL ESTATE INVENTORIES (CONTINUED)
Included in land and facilities held for future development or sale at
December 31, 1999 were 252 acres of commercial land that are currently
being marketed for sale at the Company's active adult communities and 470
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 December 31, 1999 were 152 lots on
selected residential land parcels in the Company's Arizona family community
operations and 914 lots in the Company's Nevada family communities.
(3) NOTES PAYABLE, SENIOR AND SUBORDINATED DEBT
Notes payable, senior and subordinated debt consists of:
In Thousands
- --------------------------------------------------------------------------------
December 31, December 31,
1999 June 30, 1998
(Unaudited) 1999 (Unaudited)
- --------------------------------------------------------------------------------
9 3/4% Senior Subordinated Debentures
due 2003, net, unsecured $ 98,698 $ 98,492 $ 98,287
9% Senior Subordinated Debentures
due 2006, net, unsecured 98,312 98,176 98,039
9 3/4% Senior Subordinated Debentures
due 2008, net, unsecured 146,096 145,854 145,612
9 3/8% Senior Subordinated Debentures
due 2009, net, unsecured 195,647 195,413 195,180
10 1/4% Senior Subordinated Debentures
due 2010, net, unsecured 143,922 143,622 --
Notes payable to banks under a revolving
credit facility and short-term lines
of credit, unsecured 346,000 301,000 328,030
Real estate and other notes, primarily
secured 63,628 58,056 43,625
- --------------------------------------------------------------------------------
$1,092,303 $1,040,613 $ 908,773
================================================================================
At December 31, 1999 the Company had $336.0 million outstanding under its
$500 million senior unsecured revolving credit facility and $10.0 million
outstanding under its $25 million of short-term lines of credit.
At December 31, 1999, under the most restrictive of the covenants in the
Company's debt agreements, $60.3 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 Six Months Ended
December 31, December 31,
- --------------------------------------------------------------------------------
1999 1998 1999 1998
- --------------------------------------------------------------------------------
Current:
Federal $ 5,207 $ 6,131 $10,483 $ 7,376
State 321 402 646 538
- --------------------------------------------------------------------------------
5,528 6,533 11,129 7,914
- --------------------------------------------------------------------------------
Deferred:
Federal 1,952 677 3,809 3,868
State 221 374 516 535
- --------------------------------------------------------------------------------
2,173 1,051 4,325 4,403
- --------------------------------------------------------------------------------
$ 7,701 $ 7,584 $15,454 $12,317
================================================================================
(5) REVENUES AND COSTS AND EXPENSES
The components of revenues and costs and expenses are:
In Thousands
(Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended Six Months Ended
December 31, December 31,
- --------------------------------------------------------------------------------
1999 1998 1999 1998
- --------------------------------------------------------------------------------
Revenues:
Homebuilding:
Active adult communities $318,608 $258,290 $611,227 $465,776
Family and country club
communities* 139,254 68,794 235,990 121,149
- --------------------------------------------------------------------------------
457,862 327,084 847,217 586,925
Models/vacation getaway homes
with long-term leaseback 14,339 -- 24,064 --
- --------------------------------------------------------------------------------
Total homebuilding 472,201 327,084 871,281 586,925
Land and facility sales 19,234 23,747 25,649 29,678
Other 4,178 3,417 8,245 6,292
- --------------------------------------------------------------------------------
$495,613 $354,248 $905,175 $622,895
================================================================================
* For the three and six months ended December 31, 1999, revenues from the
sale of models/vacation getaway homes with long-term leaseback are net of
deferred profits of $6,324,000 and $10,110,000, respectively. These
deferred profits are being amortized as reductions of selling, general and
administrative expenses over the leaseback periods.
7
<PAGE>
(5) REVENUES AND COSTS AND EXPENSES (CONTINUED)
In Thousands
(Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended Six Months Ended
December 31, December 31,
- --------------------------------------------------------------------------------
1999 1998 1999 1998
- --------------------------------------------------------------------------------
Costs and expenses:
Home construction and land:
Active adult communities $240,846 $191,546 $461,259 $346,196
Family and country club
communities 112,348 56,329 189,964 99,022
- --------------------------------------------------------------------------------
353,194 247,875 651,223 445,218
Models/vacation getaway homes
with long-term leaseback 14,339 -- 24,064 --
- --------------------------------------------------------------------------------
Total homebuilding 367,533 247,875 675,287 445,218
Cost of land and facility sales 18,263 20,697 21,557 25,544
Other cost of sales 3,012 2,049 5,793 3,712
- --------------------------------------------------------------------------------
Total home construction, land
and other 388,808 270,621 702,637 474,474
Selling, general and administrative 65,282 47,523 122,221 88,675
Interest 20,133 15,037 37,390 25,532
- --------------------------------------------------------------------------------
$474,223 $333,181 $862,248 $588,681
================================================================================
(6) INTEREST
The following table shows the components of interest:
In Thousands
(Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended Six Months Ended
December 31, December 31,
- --------------------------------------------------------------------------------
1999 1998 1999 1998
- --------------------------------------------------------------------------------
Interest incurred and capitalized $26,406 $19,455 $51,475 $35,593
================================================================================
Amortization of capitalized interest
in costs and expenses $20,133 $15,037 $37,390 $25,532
================================================================================
Unamortized capitalized interest
included in real estate inventories
at period end $99,092 $71,516
================================================================================
Interest income $ 183 $ 346 $ 434 $ 637
================================================================================
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. Active
adult communities (primarily its Sun City communities) are generally
large-scale, master planned communities with extensive amenities for people
age 55 and over. 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 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.
<TABLE>
<CAPTION>
In Thousands
(Unaudited)
- ------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
December 31, December 31,
- ------------------------------------------------------------------------------------------
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Active adult communities $33,677 $265,466 $ 637,693 $ 475,076
Family and country club communities 60,761 86,438 265,191 143,383
Corporate and other 1,175 2,344 2,291 4,436
- ------------------------------------------------------------------------------------------
$95,613 $354,248 $ 905,175 $ 622,895
==========================================================================================
EBIT:
Active adult communities $45,088 $ 42,756 $ 88,357 $ 72,923
Family and country club communities 15,584 8,836 27,668 15,044
Corporate and other 19,149) (15,488) (35,708) (28,221)
- ------------------------------------------------------------------------------------------
$41,523 $ 36,104 $ 80,317 $ 59,746
==========================================================================================
Amortization of Capitalized Interest:
Active adult communities $14,121 $ 11,272 $ 27,151 $ 19,698
Family and country club communities 6,012 3,765 10,239 5,834
Corporate and other -- -- -- --
- ------------------------------------------------------------------------------------------
$20,133 $ 15,037 $ 37,390 $ 25,532
==========================================================================================
Assets at Period End:
Active adult communities $1,314,678 $1,074,807
Family and country club communities 492,200 341,759
Corporate and other 206,053 187,208
- ------------------------------------------------------------------------------------------
$2,012,931 $1,603,774
==========================================================================================
</TABLE>
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion of the results of operations and financial condition
should be read in conjunction with the accompanying consolidated financial
statements and notes thereto and the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1999, 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
- -----------------------------------------------------------------------------------------------------------
1999 1998 Amount Percent 1999 1998 Amount Percent
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Number of net new orders:
Active adult communities:
Sun Cities Phoenix 251 274 (23) (8.4%) 569 546 23 4.2%
Sun Cities Las Vegas 232 231 1 0.4% 486 532 (46) (8.6%)
Sun City Palm Desert 79 96 (17) (17.7%) 160 230 (70) (30.4%)
Sun Cities Northern California 136 124 12 9.7% 274 324 (50) (15.4%)
Sun City Hilton Head 78 91 (13) (14.3%) 175 191 (16) (8.4%)
Sun City Georgetown 52 82 (30) (36.6%) 137 133 4 3.0%
Sun City at Huntley 76 167 (91) (54.5%) 193 375 (182) (48.5%)
Florida communities 63 76 (13) (17.1%) 149 160 (11) (6.9%)
Other communities 77 49 28 57.1% 205 101 104 103.0%
- -----------------------------------------------------------------------------------------------------------
Total active adult communities 1,044 1,190 (146) (12.3%) 2,348 2,592 (244) (9.4%)
- -----------------------------------------------------------------------------------------------------------
Family and country club communities:
Arizona country club communities 63 N/A 63 N/A 106 N/A 106 N/A
Nevada country club communities 54 38 16 42.1% 111 104 7 6.7%
Arizona family communities 205 181 24 13.3% 439 411 28 6.8%
Nevada family communities 63 166 (103) (62.0%) 117 258 (141) (54.7%)
- -----------------------------------------------------------------------------------------------------------
Total family and country club
communities 385 385 -- -- 773 773 -- --
- -----------------------------------------------------------------------------------------------------------
Total 1,429 1,575 (146) (9.3%) 3,121 3,365 (244) (7.3%)
===========================================================================================================
</TABLE>
Included in net new orders for the three and six months ended December 31, 1999
are models and vacation getaway homes sold with long-term leasebacks. The Sun
Cities Phoenix had 31 such net new orders for the three month period and 145 for
the six month period. The Sun Cities Las Vegas had 9 and 27 for the three and
six months, respectively. The Nevada country club communities had 0 and 13 for
the three and six month periods, respectively.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA (CONTINUED)
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
December 31, Change December 31, Change
- ------------------------------------------------------------------------------------------------------------
1999 1998 Amount Percent 1999 1998 Amount Percent
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Number of home closings:
Active adult communities:
Sun Cities Phoenix 420 332 88 26.5% 757 606 151 24.9%
Sun Cities Las Vegas 261 274 (13) (4.7%) 512 510 2 0.4%
Sun City Palm Desert 114 113 1 0.9% 249 235 14 6.0%
Sun Cities Northern California 211 184 27 14.7% 340 353 (13) (3.7%)
Sun City Hilton Head 118 94 24 25.5% 213 167 46 27.5%
Sun City Georgetown 74 105 (31) (29.5%) 133 184 (51) (27.7%)
Sun City at Huntley 188 N/A 188 N/A 414 N/A 414 N/A
Florida communities 63 139 (76) (54.7%) 129 245 (116) (47.3%)
Other communities 72 55 17 30.9% 150 100 50 50.0%
- ------------------------------------------------------------------------------------------------------------
Total active adult communities 1,521 1,296 225 17.4% 2,897 2,400 497 20.7%
- ------------------------------------------------------------------------------------------------------------
Family and country club communities:
Arizona country club communities 90 N/A 90 N/A 107 N/A 107 N/A
Nevada country club communities 68 N/A 68 N/A 123 N/A 123 N/A
Arizona family communities 328 282 46 16.3% 552 504 48 9.5%
Nevada family communities 115 71 44 62.0% 251 113 138 122.1%
- ------------------------------------------------------------------------------------------------------------
Total family and country club
communities 601 353 248 70.3% 1,033 617 416 67.4%
- ------------------------------------------------------------------------------------------------------------
Total 2,122 1,649 473 28.7% 3,930 3,017 913 30.3%
============================================================================================================
</TABLE>
Included in home closings for the three and six months ended December 31, 1999
are models and vacation getaway homes sold with long-term leasebacks. Profits on
the closings of these units are deferred and amortized as reductions of selling,
general and administrative expenses over the leaseback periods. The Sun Cities
Phoenix had 93 such home closings for the three months and 125 for the six
months. The Sun Cities Las Vegas had 9 and 27 for the three and six months,
respectively. The Nevada country club communities had 5 and 13 for the three and
six months, respectively.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA (CONTINUED)
At December 31, Change
- -------------------------------------------------------------------------------
1999 1998 Amount Percent
- -------------------------------------------------------------------------------
BACKLOG DATA:
Homes under contract:
Active adult communities:
Sun Cities Phoenix 546 609 (63) (10.3%)
Sun Cities Las Vegas 519 570 (51) (8.9%)
Sun City Palm Desert 195 260 (65) (25.0%)
Sun Cities Northern California 342 353 (11) (3.1%)
Sun City Hilton Head 156 193 (37) (19.2%)
Sun City Georgetown 162 140 22 15.7%
Sun City at Huntley 284 375 (91) (24.3%)
Florida communities 153 190 (37) (19.5%)
Other communities 223 103 120 116.5%
- ------------------------------------------------------------------------------
Total active adult communities 2,580 2,793 (213) (7.6%)
- ------------------------------------------------------------------------------
Family and country club communities:
Arizona country club communities 243 N/A 243 N/A
Nevada country club communities 123 104 19 18.3%
Arizona family communities 614 392 222 56.6%
Nevada family communities 115 229 (114) (49.8%)
- ------------------------------------------------------------------------------
Total family and country
club communities 1,095 725 370 51.0%
- ------------------------------------------------------------------------------
Total 3,675 3,518 157 4.5%
==============================================================================
Aggregate contract sales amount
(dollars in millions) $ 917 $ 770 $ 147 19.1%
==============================================================================
Average contract sales amount per home
(dollars in thousands) $ 250 $ 219 $ 31 14.2%
==============================================================================
Included in backlog at December 31, 1999 at the Sun Cities Phoenix were 20
models and vacation getaway homes sold with long term leasebacks.
12
<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 Six Months Ended
December 31, Change December 31, Change
- ---------------------------------------------------------------------------------------------------------------------
1999 1998 Amount Percent 1999 1998 Amount Percent
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AVERAGE REVENUE PER HOME CLOSING:
Active adult communities:
Sun Cities Phoenix $167,600 $184,100 $(16,500) (9.0%) $173,400 $176,200 $(2,800) (1.6%)
Sun Cities Las Vegas 238,900 213,000 25,900 12.2% 229,200 203,700 25,500 12.5%
Sun City Palm Desert 278,400 248,400 30,000 12.1% 276,900 239,900 37,000 15.4%
Sun Cities Northern California 278,300 236,600 41,700 17.6% 278,100 231,800 46,300 20.0%
Sun City Hilton Head 188,100 193,700 (5,600) (2.9%) 198,800 189,400 9,400 5.0%
Sun City Georgetown 229,400 220,700 8,700 3.9% 226,800 219,800 7,000 3.2%
Sun City at Huntley 230,600 N/A N/A N/A 232,300 N/A N/A N/A
Florida communities 141,500 110,500 31,000 28.1% 137,600 107,900 29,700 27.5%
Other communities 212,800 190,000 22,800 12.0% 202,300 184,600 17,700 9.6%
Average active
adult communities 216,900 199,300 17,600 8.8% 217,100 194,100 23,000 11.8%
Family and country club
communities:
Arizona country club
communities 257,000 N/A N/A N/A 250,700 N/A N/A N/A
Nevada country club
communities 413,000 N/A N/A N/A 420,800 N/A N/A N/A
Arizona family communities 209,000 195,300 13,700 7.0% 208,500 197,100 11,400 5.8%
Nevada family communities 195,200 193,200 2,000 1.0% 194,200 193,000 1,200 0.6%
Average family and country
club communities 236,600 194,900 41,700 21.4% 234,600 196,400 38,200 19.5%
Total average 222,500 198,400 24,100 12.1% 221,700 194,500 27,200 14.0%
=====================================================================================================================
</TABLE>
Average revenue per home closing for the models and vacation getaway homes with
long-term leasebacks at the Sun Cities Phoenix was $88,800 and $90,900 for the
three and six months respectively ended December 31, 1999. At the Sun Cities Las
Vegas, the average revenue for these home closings was $346,200 for the three
months and $233,500 for the six months. At the Nevada country club communities,
the average revenue for these home closings was $593,800 for the three months
and $492,100 for the six months.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING STATISTICS:
Costs and expenses as a percentage of
revenues:
Home construction, land and other 78.4% 76.4% 2.0% 2.6% 77.6% 76.2% 1.4% 1.8%
Selling, general and administrative 13.2% 13.4% (0.2%) (1.5%) 13.5% 14.2% (0.7%) (4.9%)
Interest 4.1% 4.2% (0.1%) (2.4%) 4.1% 4.1% -- --
Ratio of home closings to homes
under contract in backlog at
beginning of period 48.6% 45.9% 2.7% 5.9% 87.6% 95.2% (7.6%) (8.0%)
=====================================================================================================================
</TABLE>
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
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.
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 December 31, 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 six months ended December 31,
1999 and 1998, cancellations of home sales orders as a percentage of new home
sales orders written during the period were 15.4 percent and 14.7 percent,
respectively.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
REVENUES. Total revenues increased to $495.6 million for the three months ended
December 31, 1999 from $354.2 million for the three months ended December 31,
1998.
Total active adult community homebuilding revenues increased to $330.0 million
for the 1999 quarter from $258.3 million for the 1998 quarter. The Company
believes that the principal reasons for this increase were:
* The Company's Sun City at Huntley community near Chicago, which had
not yet begun home closings in the 1998 quarter, contributed $43.4
million to the increase.
* The Sun Cities Northern California, which had not yet begun home
closings at Sun City Lincoln Hills in the 1998 quarter, contributed
$14.2 million to the increase.
* $11.4 million was attributable to revenues from models and vacation
getaway homes sold with a long-term leaseback.
* An increase in the average revenue per home closing contributed $17.8
million to the increase.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Partially offsetting these increases were $27.4 million of decreased revenues
from lower home closings at the Sun Cities Las Vegas, Sun City Georgetown and
the Florida communities. These decreases in home closings were primarily due to
lower beginning backlogs at these communities.
Total family and country club community homebuilding revenues increased to
$142.2 million for the 1999 quarter from $68.8 million for the 1998 quarter. The
Company believes that the principal reasons for this increase were:
* The Company's Nevada country club communities, which had not yet begun
home closings at Anthem Las Vegas in the 1998 quarter, contributed
$28.1 million to the increase.
* The Company's Arizona country club communities, which had not yet
begun home closings at Anthem Arizona in the 1998 quarter, contributed
$23.1 million to the increase.
* The Company's Nevada family communities, which had not yet begun home
closings at Anthem Las Vegas in the 1998 quarter, contributed $8.8
million to the increase.
* The Company's Arizona family communities, which had not yet begun home
closings at Anthem Arizona in the 1998 quarter, contributed $8.1
million to the increase.
* An increase in the average revenue per home closing contributed $5.3
million to the increase.
HOME CONSTRUCTION, LAND AND OTHER COSTS. The increase in home construction, land
and other costs to $388.8 million for the 1999 quarter from $270.6 million for
the 1998 quarter was largely due to the increase in home closings. As a
percentage of revenues, these costs increased to 78.4 percent for the 1999
quarter from 76.4 percent for the 1998 quarter. A large, low-margin land sale in
the 1999 quarter at the Company's Phoenix-area family community operations
contributed to the increase.
This cost increase as a percentage of revenues was also due to a decline in
homebuilding gross margin from 24.2 percent for the 1998 quarter to 22.2 percent
for the 1999 quarter. Of this total 2.0 percent decline in homebuilding gross
margin, 0.7 percent was attributable to deferred profit recognition in the 1999
quarter on the sale and long-term leaseback of 107 model and vacation getaway
homes at three of the Company's communities. The balance was largely
attributable to changes in the mix of home closings between the Company's
various communities, increased discounts on the sale of discontinued field
models at some locations, increased warranty costs and increased common cost
amortization at a number of the Company's active adult communities.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. As a percentage of revenues,
selling, general and administrative expenses decreased to 13.2 percent for the
1999 quarter from 13.4 percent for the 1998 quarter. This decrease resulted from
spreading corporate overhead over significantly greater revenues.
INTEREST. As a percentage of revenues, amortization of capitalized interest
decreased slightly to 4.1 percent for the 1999 quarter from 4.2 percent for the
1998 quarter. This decrease was primarily due to a change in the mix of home
closings between the Company's various communities.
INCOME TAXES. The increase in income taxes to $7.7 million for the 1999 quarter
from $7.6 million in the 1998 quarter was proportionate to the increase in
earnings before income taxes. The effective tax rate in both quarters was 36
percent.
NET EARNINGS. The small increase in net earnings to $13.7 million for the 1999
quarter from $13.5 million for the 1998 quarter was primarily attributable to
the increase in revenues, which was almost completely offset by the decrease in
margins discussed above.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
NET NEW ORDER ACTIVITY AND BACKLOG. Net new orders in the 1999 quarter were 9.3
percent lower than in the 1998 quarter. The Company believes that this decrease
may be primarily attributable to the following:
* The Company reduced advertising expenditures in the 1999 quarter. In
January 2000 it launched its new national brand-building campaign. The
reduced advertising expenditures may have contributed to decreases in
the Company's sales traffic and vacation getaway program occupancy
rates.
* The 62.0 percent decrease at the Nevada family communities may be
largely attributable to the fact that the Company is selling a
substantial portion of its remaining lots at these communities to
other home builders, rather than build homes on them to sell.
* Sun City at Huntley, which the Company believes was still experiencing
significant pent-up demand in the 1998 quarter and has yet to
establish a normalized sales pattern, had a 54.5 percent decrease.
The Company is preparing to open new recreational amenities at many of its
communities, which may help increase sales activity at these communities.
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,
decreases in home resales nationally, and the fact that the Company's net new
orders in fiscal 1999 benefited from grand opening sales at a number of new
communities and were the highest in the Company's history, the Company currently
anticipates that its level of net new orders for fiscal 2000 will be below the
level of fiscal 1999.
The number of homes under contract at December 31, 1999 was 4.5 percent higher
than at December 31, 1998. This increase was primarily attributable to the
family and country club communities at Anthem Arizona. These communities had not
yet commenced new order activity at December 31, 1998. Backlog decreases at the
Nevada family communities and Sun City at Huntley were attributable to the
declines in net new orders at these communities, discussed above. The Company
believes that the backlog decreases at most of the other active adult
communities may be attributable in part to increased sales prices, reduced
advertising expenditures, increased mortgage interest rates, decreased home
resales nationally and the pending opening of new recreational amenities at many
communities, all of which may have contributed to levels of net new orders being
below levels of home closings.
SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
REVENUES. Total revenues increased to $905.2 million for the six months ended
December 31, 1999 from $622.9 million for the six months ended December 31,
1998.
Total active adult community homebuilding revenues increased to $628.9 million
for the 1999 period from $465.8 million for the 1998 period. The Company
believes that the principal reasons for this increase were:
* The Company's Sun City at Huntley community near Chicago, which had
not yet begun home closings in the 1998 period, contributed $96.2
million to the increase.
* $17.7 million was attributable to revenues from models and vacation
getaway homes sold with a long-term leaseback.
* An increase in the average revenue per home closing contributed $42.8
million to the increase.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Total family and country club community homebuilding revenues increased to
$242.4 million for the 1999 period from $121.1 million for the 1998 period. The
Company believes that the principal reasons for this increase were:
* The Company's Nevada country club communities, which had not yet begun
home closings at Anthem Las Vegas in the 1998 period, contributed
$51.8 million to the increase.
* The Company's Nevada family communities, which had not yet begun home
closings at Anthem Las Vegas in the 1998 period, contributed $26.9
million to the increase.
* The Company's Arizona country club communities, which had not yet
begun home closings at Anthem Arizona in the 1998 period, contributed
$26.8 million to the increase.
* The Company's Arizona family communities, which had not yet begun home
closings at Anthem Arizona in the 1998 period, contributed $5.9
million to the increase.
* An increase in the average revenue per home closing contributed $9.9
million to the increase.
HOME CONSTRUCTION, LAND AND OTHER COSTS. The increase in home construction, land
and other costs to $702.6 million for the 1999 period from $474.5 million for
the 1998 period was largely due to the increase in home closings. As a
percentage of revenues, these costs increased to 77.6 percent for the 1999
period from 76.2 percent for the 1998 period. A large, low-margin land sale in
the 1999 period at the Company's Phoenix-area family community operations
contributed to the increase.
This cost increase as a percentage of revenues was also due to a decline in
homebuilding gross margin from 24.1 percent for the 1998 period to 22.5 percent
for the 1999 period. Of this total 1.6 percent decline in homebuilding gross
margin, 0.6 percent was attributable to deferred profit recognition in the 1999
period on the sale and long-term leaseback of 165 model and vacation getaway
homes at three of the Company's communities. The balance of the decline in
homebuilding gross margin was largely attributable to changes in the mix of home
closings between the Company's various communities, increased discounts on the
sale of discontinued field models at some locations, increased warranty costs
and increased common cost amortization at a number of the Company's active adult
communities.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. As a percentage of revenues,
selling, general and administrative expenses decreased to 13.5 percent for the
1999 period from 14.2 percent for the 1998 period. This decrease resulted from
spreading corporate overhead over significantly greater revenues.
INTEREST. As a percentage of revenues, amortization of capitalized interest was
4.1 percent for both the 1999 period and the 1998 period.
INCOME TAXES. The increase in income taxes to $15.5 million for the 1999 period
from $12.3 million in the 1998 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 $27.5 million for the 1999 period
from $21.9 million for the 1998 period was primarily attributable to the first
quarter increase in home closings and homebuilding revenues and the first
quarter decrease in selling, general and administrative expenses as a percentage
of revenues, partially offset by the decline in gross margin.
NET NEW ORDER ACTIVITY. Net new orders in the 1999 period were 7.3 percent lower
than in the 1998 period. The Company believes that this decrease may primarily
be attributable to the following:
* The Company reduced advertising expenditures in the 1999 period. In
January 2000 it launched its new national brand-building campaign. The
reduced advertising expenditures may have contributed to decreases in
the Company's sales traffic and vacation getaway program occupancy
rates.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
* Sun City at Huntley, which the Company believes was experiencing
significant pent-up demand in the 1998 period and has yet to establish
a normalized sales pattern, had a 48.5 percent decrease.
* The 54.7 percent decrease at the Nevada family communities may be
largely attributable to the fact that the Company is selling a
substantial portion of its remaining lots at these communities to
other home builders, rather than build homes on them to sell.
* Sun City Palm Desert, which last year experienced a very strong period
in the prior year, had a 30.4 percent decrease.
* The Sun Cities Northern California, at which Sun City Roseville is now
sold out and contributed only 1 net new order in the 1999 period, had
a 15.4 percent decrease.
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 period the Company generated $352.0 million of net cash from
operating community sales activities, used $296.0 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 $89.5 million for
interest, income taxes and other operating activities. The resulting $48.2
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 $25 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 fiscal 1999 and the first six months of fiscal
2000, 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 the balance of
fiscal 2000. 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 December 31,
1999 the Company had $346.0 million outstanding under the Credit Facilities.
Through at least March 31, 2000, the Company expects to continue to borrow
additional amounts under the Credit Facilities to fund continuing development at
its communities.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
As a result of public debt offerings and borrowings to fund development
expenditures, described above, the Company has considerably more indebtedness
and was considerably more highly leveraged at December 31, 1999 than it has been
in recent years. However, the Company reduced its leverage from September 30,
1999, with debt to total capitalization declining from 72.5 percent at that date
to 71.5 percent at December 31, 1999. The Company currently intends to further
reduce its ratio of debt to total capitalization to 67 percent or lower before
incurring material development expenditures for any significant new communities.
The Company's current goal is to reach 67 percent debt to total capitalization
by December 31, 2000.
The Company expects to have adequate capital resources to meet its needs for the
next 12 months. In addition, the Company is selling to other home builders
certain land parcels in its Arizona family community operations and a
substantial portion 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.
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 December 31, 1999, under the most restrictive of the covenants in the
Company's debt agreements, $60.3 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
As of January 31, 2000, the Company had tested all of its core business systems
and determined that they were adequately Year 2000 capable for its purposes. At
the present time, the Company does not believe that the Year 2000 issue had a
material adverse effect on it.
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 December 31, 1999, the majority of the Company's Year 2000 remediation
efforts 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
were deferred as a result of its Year 2000 efforts.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
The Company also purchased at a cost of approximately $100,000 a software
product that identified personal computers and related equipment with imbedded
software that was 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 were not solely
related to Year 2000 readiness. The Company expects to incur some minor
additional Year 2000-related costs in the remainder of fiscal 2000 but does not
at present anticipate that these costs will be material.
The Company also assessed other potential Year 2000 issues, including
non-information technology systems. A broad-based Year 2000 Task Force was
formed and met regularly to identify areas of concern and develop action plans.
The Company also completed testing of non-information technology systems and
determined that they were 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 included both
internal and Company-external representation.
With its Year 2000 remediation and testing complete, the Company also
established emergency preparedness procedures and contingency plans to
supplement existing contingency plans designed to address other potential
business interruptions.
FORWARD LOOKING INFORMATION: CERTAIN CAUTIONARY STATEMENTS
Certain statements in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" that are not historical results are forward
looking statements. They involve risks and uncertainties. Certain forward
looking statements are based on assumptions as to future events. Some of these
assumptions will prove inaccurate; actual results will differ from those set
forth or implied in the forward looking statements and the variances may be
material. Risks and uncertainties include: financing and leverage; the
development of future communities, including in new geographic markets;
governmental regulation, including growth management controls; 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 in certain
market areas; and other matters in the Company's Annual Report on Form 10-K for
the year ended June 30, 1999.
20
<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.
21
<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: February 11, 2000 /s/ LeRoy C. Hanneman, Jr.
----------------------------------------
LeRoy C. Hanneman, Jr.
Chief Executive Officer
Date: February 11, 2000 /s/ John A. Spencer
----------------------------------------
John A. Spencer
Executive Vice President and
Chief Financial Officer
22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1999 AND THE CONSOLIDATED
STATEMENT OF EARNINGS FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 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-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 32
<SECURITIES> 0
<RECEIVABLES> 31,336
<ALLOWANCES> 0
<INVENTORY> 1,832,939
<CURRENT-ASSETS> 0
<PP&E> 76,417
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,012,931
<CURRENT-LIABILITIES> 0
<BONDS> 1,092,303
0
0
<COMMON> 18
<OTHER-SE> 434,585
<TOTAL-LIABILITY-AND-EQUITY> 2,012,931
<SALES> 0
<TOTAL-REVENUES> 905,175
<CGS> 0
<TOTAL-COSTS> 740,027
<OTHER-EXPENSES> 122,221
<LOSS-PROVISION> 0
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<INCOME-PRETAX> 42,927
<INCOME-TAX> 15,454
<INCOME-CONTINUING> 27,473
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<NET-INCOME> 27,473
<EPS-BASIC> 1.51
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</TABLE>
