10-Q 1 e-6239.txt QUARTERLY REPORT FOR QTR ENDING 12-31-00 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, 2000. [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from N/A to N/A. Commission File Number: 1-4785 DEL WEBB CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 86-0077724 (State or other jurisdiction (IRS Employer Identification Number) of incorporation or organization) 6001 NORTH 24TH STREET, PHOENIX, ARIZONA 85016 (Address of principal executive offices) (Zip Code) (602) 808-8000 (Registrant's phone number, including area code) NONE -------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of January 31, 2001 Registrant had outstanding 18,623,079 shares of common stock. DEL WEBB CORPORATION FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2000 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION PAGE Item 1. Financial Statements: Consolidated Balance Sheets as of December 31, 2000, June 30, 2000 and December 31, 1999......................... 1 Consolidated Statements of Earnings for the three and six months ended December 31, 2000 and 1999..................... 2 Consolidated Statements of Cash Flows for the six months ended December 31, 2000 and 1999..................... 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............................. 19 DEL WEBB CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE DATA)

See accompanying notes to consolidated financial statements. 1 DEL WEBB CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (IN THOUSANDS EXCEPT PER SHARE DATA) (UNAUDITED)

See accompanying notes to consolidated financial statements. 2 DEL WEBB CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)

See accompanying notes to consolidated financial statements. 3 DEL WEBB CORPORATION AND SUBIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (IN THOUSANDS) (UNAUDITED)

See accompanying notes to consolidated financial statements. 4 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 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, 2000, 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, 2000 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:

At December 31, 2000 the Company had 388 completed homes and 855 homes under construction that were not subject to a sales contract. These homes represented $69.9 million of home construction costs at December 31, 2000. At December 31, 1999 the Company had 294 completed homes and 895 homes under construction (representing $52.9 million of home construction costs) that were not subject to a sales contract. Included in land held for future development or sale at December 31, 2000 were 256 acres of commercial land and 1,062 acres of residential land that are currently being marketed for sale at the Company's active adult communities. Also included is 573 acres of commercial land currently being marketed for sale at the Company's Anthem Arizona project. 5 DEL WEBB CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (3) NOTES PAYABLE, SENIOR AND SUBORDINATED DEBT Notes payable, senior and subordinated debt consists of:

At December 31, 2000, under the most restrictive of the covenants in the Company's debt agreements, $86 million of the Company's retained earnings was available for payment of cash dividends and acquisition of stock. (4) INCOME TAXES The components of income taxes are: In Thousands (Unaudited) ---------------------------------------------- Three Months Ended Six Months Ended December 31, December 31, -------------------- -------------------- 2000 1999 2000 1999 ------- ------- ------- ------- Current: Federal $ 4,772 $ 5,207 $12,069 $10,483 State 331 321 857 646 ------- ------- ------- ------- 5,103 5,528 12,926 11,129 ------- ------- ------- ------- Deferred: Federal 7,123 1,952 8,409 3,809 State 506 221 668 516 ------- ------- ------- ------- 7,629 2,173 9,077 4,325 ------- ------- ------- ------- $12,732 $ 7,701 $22,003 $15,454 ======= ======= ======= ======= 6 DEL WEBB CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (5) REVENUES AND COSTS AND EXPENSES The components of revenues and costs and expenses are:

* For the three and six months ended December 31, 1999, revenues (in thousands) from the sale of models/vacation getaway homes with long-term leasebacks are net of deferred profits of $6,324 and $10,110, respectively. These deferred profits are being amortized as reductions of selling, general and administrative expenses over the leaseback periods, offsetting substantially all of the related rent expense.

7 DEL WEBB CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (6) INTEREST The following table shows the components of interest:

Interest income is included in other revenues. (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. 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 its communities, the Company has usually been 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. 8 DEL WEBB CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (7) SEGMENT INFORMATION (CONTINUED)

9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following 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, 2000, filed with the Securities and Exchange Commission. CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA

Included in net new orders for the three and six months ended December 31, 1999 were models and vacation getaway homes sold with long-term leasebacks. Sun City Grand had 31 such net new orders for the three month period and 145 for the six month period. The Sun Cities Las Vegas had 12 and 30 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 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA (CONTINUED)

Included in home closings for the three and six months ended December 31, 1999 were models and vacation getaway homes sold with long-term leasebacks. Profits on the closings of these units were deferred and are being amortized as reductions of selling, general and administrative expenses over the leaseback periods, offsetting substantially all of the related rent expense. Sun City Grand 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 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA (CONTINUED)

Included in backlog at December 31, 1999 were models and vacation getaway homes sold with long term leasebacks. Sun City Grand had 20 such homes in backlog. 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA (CONTINUED)

Average revenue per home closing for the models and vacation getaway homes with long-term leasebacks at Sun City Grand 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. 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA (CONTINUED)

NOTES: New orders are net of cancellations. The Company recognizes revenue at close of escrow. The Sun Cities Las Vegas include Sun City Summerlin (the last home closed April 2000), Sun City MacDonald Ranch and Sun City Anthem. The Sun Cities Northern California include Sun City Roseville (the last home closed March 2000) and Sun City Lincoln Hills. Other active adult communities represent two smaller-scale communities in Arizona and California. Home closings began at Anthem Country Club Arizona in September 1999. A substantial majority of the backlog at December 31, 2000 is currently anticipated to result in revenues in the next 12 months. However, a majority of the backlog is contingent upon the availability of financing for the customer and, in certain cases, sale of the customer's existing residence. 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, 2000 and 1999, cancellations of home sales orders as a percentage of new home sales orders written during the period were 14.7 percent and 15.4 percent, respectively. 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATIONS THREE MONTHS ENDED DECEMBER 31, 2000 AND 1999 REVENUES. Total revenues decreased to $487.0 million for the three months ended December 31, 2000 from $495.6 million for the three months ended December 31, 1999. The 1999 quarter included $14.3 million of revenues from models and vacation getaway homes sold with long-term leasebacks. There were no such sale/leasebacks in the 2000 quarter. Exclusive of closings of models and vacation getaway homes, active adult community homebuilding revenues decreased to $311.6 million for the 2000 quarter from $318.6 for the 1999 quarter. This decrease was primarily attributable to decreased closings at Sun City Grand, Sun City Hilton Head and Sun City at Huntley. Exclusive of closings of models, family and country club community homebuilding revenues decreased to $122.4 million for the 2000 quarter from $139.3 million for the 1999 quarter. The decrease was primarily attributable to decreased closings in the Arizona family communities (due to fewer subdivisions) and the Nevada family communities (due to closing out these operations). The effect of the decrease in the number of home closings was partially offset by an increase in average revenue per home closing, which increased nearly 14 percent in active adult communities and 21 percent in family and country club communities. HOME CONSTRUCTION, LAND AND OTHER COSTS. The decrease in home construction, land and other costs to $375.4 million for the 2000 quarter from $388.8 million for the 1999 quarter was largely due to the decrease in home closings. As a percentage of revenues, these costs decreased to 77.1 percent for the 2000 quarter from 78.4 percent for the 1999 quarter. This cost decrease as a percentage of revenues was primarily due to an increase in homebuilding gross margin to 24.3 percent for the 2000 quarter from 22.2 percent for the 1999 quarter. Of this total 2.1 percent increase, 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 price increases that have been effected over the past 12 months. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. As a percentage of revenues, selling, general and administrative expenses decreased to 12.1 percent for the 2000 quarter from 13.2 percent for the 1999 quarter. The decrease is primarily attributable to results of efforts to cut costs and improve the efficiency of operations. The results for three months ended December 31, 2000 are not necessarily indicative of the results to be expected for the full year. INTEREST. As a percentage of revenues, allocation of capitalized interest to costs and expenses decreased to 3.5 percent for the 2000 quarter from 4.1 percent for the 1999 quarter. This decrease is attributable to expected lower future debt levels from this expectation in the prior year. INCOME TAXES. The increase in income taxes to $12.7 million for the 2000 quarter from $7.7 million in the 1999 quarter was proportionate 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 $22.6 million for the 2000 quarter from $13.7 million for the 1999 quarter was primarily attributable to increased gross margin from land sales, lower selling, general and administrative expenses and lower interest amortized. 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) NET NEW ORDER ACTIVITY AND BACKLOG. Net new orders in the 2000 quarter were 3.8 percent higher than in the 1999 quarter. This increase was primarily attributable to the following: * Strong demand at Sun City Palm Desert; * Strong demand at Sun City Lincoln Hills resulted in increase at the Sun Cities Northern California; * Strong demand at Sun City Texas. Offsetting decreases were attributable to the following: * In the 1999 quarter, 40 models and vacation getaway homes (primarily at Sun City Grand) sold with long-term leasebacks and no such sale/leasebacks occurred in the 2000 quarter; * Clover Springs (part of Other Active Adult Communities) contributed 26 net new orders in the 1999 quarter and no new orders in the 2000 quarter; * Decreased net new orders Sun City Grand and Sun City Hilton Head. Due to increased sales prices, the dollar amount of homes under contract at December 31, 2000 was 3.4 percent higher than at December 31, 1999, while the number of homes in backlog was 4.7 percent lower. The unit backlog decrease was attributable to the following: * Satisfaction of prior-year pent-up demand at Sun City at Huntley; * Company's decision to cease family community operations in Nevada; * Reduction in the number of family community subdivisions in the Phoenix area; * Decreased net new orders at Clover Springs, Sun City Grand and Sun City Hilton Head, discussed above. SIX MONTHS ENDED DECEMBER 31, 2000 AND 1999 REVENUES. Total revenues decreased to $904.6 million for the six months ended December 31, 2000 from $905.2 million for the six months ended December 31, 1999. The 1999 six months included $24.1 million of revenues from models and vacation getaway homes sold with long-term leasebacks. There were no such sale/leasebacks in the 2000 six months. Exclusive of closings of models and vacation getaway homes, active adult community homebuilding revenues decreased to $589.0 million for the 2000 period from $611.2 million for the 1999 period. The principal reasons for this decrease were decreased closings at Sun City at Huntley, Sun City Hilton Head and Sun City Grand. Exclusive of closings of models, family and country club community homebuilding revenues increased to $240.2 million for the 2000 period from $236.0 million for the 1999 period. The increase was primarily attributable to an increase in the average revenue per unit from $234,600 in the 1999 period to $275,400 in the 2000 period. The effect of the decrease in the number of home closings was partially offset by an increase in average revenue per home closing, which increased nearly 12 percent in active adult communities and 17 percent in family and country club communities. 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) HOME CONSTRUCTION, LAND AND OTHER COSTS. The decrease in home construction, land and other costs to $692.3 million for the 2000 period from $702.6 million for the 1999 period was largely due to the decrease in home closings. As a percentage of revenues, these costs decreased to 76.5 percent for the 2000 period from 77.6 percent for the 1999 period. This cost decrease as a percentage of revenues was primarily due to an increase in homebuilding gross margin from 22.5 percent for the 1999 period to 24.1 percent for the 2000 period. Of this total 1.6 percent increase 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 increase in homebuilding gross margin was largely attributable to price increases that have been effected over the past 12 months. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. As a percentage of revenues, selling, general and administrative expenses decreased to 12.9 percent for the 2000 period from 13.5 percent for the 1999 period. This decrease is primarily attributable to results of efforts to cut costs and improve the efficiencies of operations. The results for the six months ended December 31, 2000 are not necessarily indicative of the results to be expected for the full year. INTEREST. As a percentage of revenues, allocation of capitalized interest decreased to 3.8 percent for the 2000 period from 4.1 percent for the 1999 period. This decrease is attributable to expected lower future debt levels from this expectation in the prior year. INCOME TAXES. The increase in income taxes to $22.0 million for the 2000 period from $15.5 million in the 1999 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 $39.1 million for the 2000 period from $27.5 million for the 1999 period was primarily attributable to increased gross margin from land sales, lower selling, general and administrative expenses and lower interest amortized. NET NEW ORDER ACTIVITY. Net new orders in the 2000 period were 2.1 percent higher than in the 1999 period. This increase is attributable to the following: * Strong demand at Sun City Palm Desert; * Strong demand at Sun City Anthem resulted in the increase at the Sun Cities Las Vegas; * Strong demand at Sun City Lincoln Hills resulted in the increase at the Sun Cities Northern California. Offsetting decreases were attributable to the following: * In the 1999 period, 185 models and vacation getaway homes (primarily at Sun City Grand) sold with long-term leasebacks and no such sale/leasebacks occurred in the 2000 period; * Clover Springs (part of Other Active Adult Communities) contributed 119 net new orders in the 1999 period but only 1 new order in the 2000 period; * Decreased net new orders at Sun City Grand and Sun City Hilton Head . 17 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 community 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 tracts of land, obtaining development approvals, developing land and lots and constructing project infrastructure (such as roads and utilities), 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, cash flow can significantly exceed earnings reported for financial statement purposes, as costs and expenses include allocation charges for substantial previously expended costs. During the 2000 period the Company generated $286 million of net cash from operating community sales activities, used $205 million for land and lot and amenity development at operating communities, and used $90 million for interest, income taxes and other operating activities. The resulting $9 million of net cash used for operating activities was funded mainly through borrowings under the Company's $500 million senior unsecured revolving credit facility. 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. In fiscal 1999 and fiscal 2000, the Company had several new communities under development. Primarily as a result of public debt offerings and borrowings to fund these development expenditures, the Company has considerably more indebtedness and was considerably more highly leveraged throughout fiscal 1999 and most of fiscal 2000 than it has been in recent years. The Company has reduced its leverage with debt to total capitalization declining from 71.5 percent at December 31, 1999 to 65.3 percent at December 31, 2000 as a result of debt repayments and an increase in retained earnings. The Company expects to have adequate capital resources to meet its needs for the next 12 months. If there is a significant downturn in anticipated operations, however, the Company will need to modify its business plan to operate with lower capital resources. Modifications of the business plan could include, among other things, delaying development expenditures at its communities. At December 31, 2000, under the most restrictive of the covenants in the debt agreements, $86 million of the retained earnings was available for payment of cash dividends and the acquisition of stock. FORWARD LOOKING INFORMATION: CERTAIN CAUTIONARY STATEMENTS This "Management's Discussion and Analysis of Financial Condition and Results of Operations" contains forward looking statements that involve risks and uncertainties, and actual results may differ materially. Certain forward looking statements are based on assumptions which may not prove to be accurate. Risks and uncertainties include risks associated with: the cyclical nature of real estate operations; land acquisition and development; the ability to successfully implement new strategic initiatives; government regulations; growth management and environmental considerations; geographic concentration; financing and leverage; interest rate fluctuations; construction labor and material costs; energy sources; future communities and new geographic markets; legal matters; natural risks; and other matters set forth in the Company's Annual Report on Form 10-K for the year ended June 30, 2000. 18 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The Company did not file any reports on Form 8-K during the period covered by this report. 19 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 12, 2001 /s/ LeRoy C. Hanneman, Jr. ----------------------------------- LeRoy C. Hanneman, Jr. Chief Executive Officer Date: February 12, 2001 /s/ John A. Spencer ----------------------------------- John A. Spencer Executive Vice President and Chief Financial Officer 20

DEL WEBB CORP 10-Q