10-Q 1 e-6832.txt QUARTERLY REPORT FOR THE QTR ENDED 3/31/2001 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the period ended March 31, 2001. [ ] 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 April 30, 2001 Registrant had outstanding 18,708,294 shares of common stock. DEL WEBB CORPORATION FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2001 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Page Item 1. Financial Statements: Consolidated Balance Sheets as of March 31, 2001, June 30, 2000 and March 31, 2000..............................1 Consolidated Statements of Earnings for the three and nine months ended March 31, 2001 and 2000..........................2 Consolidated Statements of Cash Flows for the nine months ended March 31, 2001 and 2000..........................3 Notes to Consolidated Financial Statements......................5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..........................10 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K...............................20 DEL WEBB CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE DATA)

~~DECEMBER~~March 31, ~~DECEMBER~~June 3130, ~~2000~~March ~~JUNE 30~~31, ~~1999~~2001 ~~(UNAUDITED)~~2000 2000 ~~(UNAUDITED)~~ ----------- ----------- ----------- (Unaudited) (Unaudited) ASSETS Real estate inventories (Notes 2, 3 and 6) $ 1,~~778~~807,~~853~~251 $ 1,755,398 $ 1,~~832~~856,~~939~~368 Cash and short-term investments ~~141~~4,128 21,038 3217,006 Receivables 4460,~~517~~195 36,121 3136,~~336~~674 Property and equipment, net 95,~~476~~986 96,637 7691,~~417~~251 Other assets 7577,~~920~~411 71,563 7274,~~207~~102 ----------- ----------- ----------- $ 12,~~994~~044,~~907~~971 $ 1,980,757 $ 2,~~012~~075,~~931~~401 =========== =========== =========== LIABILITIES AND SHAREHOLDERS EQUITY Notes payable, senior and subordinated debt (Note 3) $ ~~982~~1,~~592~~042,232 $ 1,005,424 $ 1,~~092~~162,~~303~~014 Contractor and trade accounts payable ~~110~~90,~~872~~560 113,574 ~~135~~119,~~930~~556 Accrued liabilities and other payables ~~151~~140,~~099~~050 158,351 ~~146~~136,~~801~~413 Home sale deposits ~~159~~156,~~547~~082 165,762 ~~166~~161,~~755~~118 Deferred income taxes (Note 4) 5664,~~107~~224 47,030 2642,~~834~~908 Income taxes payable (Note 4) 135,~~290~~693 8,230 91,~~705~~987 ----------- ----------- ----------- Total liabilities 1,~~473~~498,~~507~~841 1,498,371 1,~~578~~623,~~328~~996 ----------- ----------- ----------- Shareholders' equity: Common stock, $.001 par value. Authorized 30,000,000 shares; issued 18,~~522~~708,~~162~~191 shares at ~~December~~March 31, ~~2000~~2001, 18,360,213 shares at June 30, 2000 and 18,~~292~~328,~~128~~258 shares at ~~December~~March 31, ~~1999~~2000 18 18 18 Additional paid-in capital ~~173~~176,~~626~~860 170,112 170,~~565~~326 Retained earnings ~~355~~376,~~355~~454 316,240 ~~269~~285,~~549~~535 ----------- ----------- ----------- ~~528~~553,~~999~~332 486,370 ~~440~~455,~~132~~879 Less deferred compensation (7,~~599~~202) (3,984) (54,~~529~~474) ----------- ----------- ----------- Total shareholders' equity ~~521~~546,~~400~~130 482,386 ~~434~~451,~~603~~405 ----------- ----------- ----------- $ 12,~~994~~044,~~907~~971 $ 1,980,757 $ 2,~~012~~075,~~931~~401 =========== =========== ===========

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

~~THREE~~Three ~~MONTHS~~Months ~~ENDED~~Ended ~~SIX~~Nine ~~MONTHS~~Months ~~ENDED~~Ended ~~DECEMBER~~March 31, ~~DECEMBER~~March 31, ------------------------- ------------------------- 2001 2000 ~~1999~~2001 2000 ~~1999~~ ---------- ---------- ---------- ---------- Revenues (Note 5) $~~486~~ 429,~~953~~217 $~~495~~ 499,~~613~~799 $~~904~~1,~~611~~333,828 $~~905~~1,~~175~~404,974 ---------- ---------- ---------- ---------- Costs and expenses (Note 5): Home construction, land and other ~~375~~319,~~397~~808 ~~388~~384,~~808~~933 ~~692~~1,~~335~~012,143 ~~702~~1,~~637~~087,570 Selling, general and administrative 5863,~~924~~577 6567,~~282~~930 ~~116~~179,~~351~~928 ~~122~~190,~~221~~151 Interest (Note 6) 1715,~~266~~992 2021,~~133~~958 3450,~~807~~799 3759,~~390~~348 ---------- ---------- ---------- ---------- ~~451~~399,~~587~~377 474,~~223~~821 ~~843~~1,~~493~~242,870 ~~862~~1,~~248~~337,069 ---------- ---------- ---------- ---------- Earnings before income taxes 3529,~~366~~840 2124,~~390~~978 6190,~~118~~958 4267,~~927~~905 Income taxes (Note 4) 128,~~732~~742 78,~~701~~992 2230,~~003~~745 1524,~~454~~446 ---------- ---------- ---------- ---------- Net earnings $ 2221,~~634~~098 $ 1315,~~689~~986 $ 3960,~~115~~213 $ 2743,~~473~~459 ========== ========== ========== ========== Weighted average shares outstanding - basic 18,~~482~~607 18,~~271~~319 18,~~428~~488 18,~~247~~271 ========== ========== ========== ========== Weighted average shares outstanding - assuming dilution 1819,~~934~~182 18,~~683~~530 18,~~721~~934 18,~~655~~598 ========== ========== ========== ========== Net earnings per share - basic $ 1.2213 $ .7587 $ 23.1226 $ 12.5138 ========== ========== ========== ========== Net earning per share - assuming dilution $ 1.2010 $ .7386 $ 23.0918 $ 12.4734 ========== ========== ========== ==========

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

~~SIX~~Nine ~~MONTHS~~Months ~~ENDED~~Ended ~~DECEMBER~~March 31, -------------------------- 2001 2000 ~~1999~~ ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from customers related to operating community home sales $ ~~810~~1,~~976~~216,685 $ ~~884~~1,~~807~~344,579 Cash received from commercial land and facility sales at operating communities 3951,~~312~~958 2549,~~580~~618 Cash paid for costs related to home construction at operating communities (~~564~~860,~~327~~899) (~~558~~866,~~351~~202) ----------- ----------- Net cash provided by operating community sales activities ~~285~~407,~~961~~744 ~~352~~527,~~036~~995 Cash paid for land acquisitions at operating communities (612,~~382~~393) (1938,~~130~~063) Cash paid for lot development at operating communities (~~146~~208,~~435~~501) (~~161~~231,~~475~~810) Cash paid for amenity development at operating communities (5275,~~159~~528) (~~115~~169,~~414~~865) ----------- ----------- Net cash provided by operating communities 80111,~~985~~322 5688,~~017~~257 Cash paid for costs related to communities in the pre-operating stage -- (14,716) Cash received/paid ~~from~~for mortgage operations 4(10,~~642~~256) 45,~~974~~176 Cash received/(paid) for residential land development project ~~352~~1,399 (31,~~056~~907) Cash paid for corporate activities (3972,~~453~~208) (3158,~~519~~046) Interest paid (4880,~~686~~778) (4882,~~914~~674) Cash paid for income taxes (714,~~013~~866) (10,997) ----------- ----------- NET CASH USED FOR OPERATING ACTIVITIES (965,~~173~~387) (4874,~~211~~907) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (37,~~864~~109) (813,~~533~~177) Investments in life insurance policies (21,~~577~~783) (1,~~566~~821) ----------- ----------- NET CASH USED FOR INVESTING ACTIVITIES (68,~~441~~892) (1014,~~099~~998) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings ~~184~~344,~~946~~474 ~~189~~340,~~437~~797 Repayments of debt (~~190~~290,~~832~~885) (~~154~~257,~~032~~319) ~~Stock repurchases (1) (3)~~ Proceeds from exercise of common stock options ~~604~~and ~~271~~stock repurchases 3,780 764 ----------- ----------- NET CASH ~~(USED FOR)/~~PROVIDED BY FINANCING ACTIVITIES (557,~~283)~~369 3584,~~673~~242 ----------- ----------- NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS (2016,~~897~~910) (225,~~637~~663) CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD 21,038 22,669 ----------- ----------- CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ ~~141~~4,128 $ 3217,006 =========== ===========

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

~~SIX~~Nine ~~MONTHS~~Months ~~ENDED~~Ended ~~DECEMBER~~March 31, ----------------------~~----~~ 2001 2000 ~~1999~~ --------- --------- Reconciliation of net earnings to net cash used for operating activities: Net earnings $ 3960,~~115~~213 $ 2743,~~473~~459 Amortization of non-cash common costs in costs and expenses, excluding interest ~~205~~300,~~939~~378 ~~213~~340,~~946~~937 Amortization of capitalized interest in costs and expenses 3450,~~807~~799 3759,~~390~~348 Deferred compensation amortization ~~692~~1,022 34,~~653~~024 Depreciation and other amortization 58,~~384~~291 59,~~890~~678 Deferred income taxes 917,~~077~~193 413,~~325~~163 Net increase in home construction costs (2845,~~400~~644) (2441,~~043~~467) Land acquisitions (612,~~382~~393) (1938,~~130~~063) Lot development (~~146~~208,~~435~~501) (~~161~~231,~~475~~810) Amenity development (5275,~~159~~528) (~~115~~169,~~414~~865) Net change in other assets and liabilities (70161,~~811~~217) (2064,~~826~~311) --------- --------- Net cash used for operating activities $ (965,~~173~~387) $ (4874,~~211~~907) ========= =========

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 nine months ended March 31, 2001 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~~March 31, ~~December~~June 3130, ~~2000~~March ~~June 30~~31, ~~1999~~2001 ~~(Unaudited)~~2000 2000 ~~(Unaudited)~~ ----------- ---------- ----------- (Unaudited) (Unaudited) Home construction costs $ ~~289~~306,~~190~~434 $ 260,790 $ ~~289~~306,~~411~~835 Unallocated improvement and amenity costs 1,~~101~~093,~~967~~253 1,097,643 1,~~150~~158,~~138~~704 Unallocated capitalized interest ~~120~~129,~~625~~243 105,213 99103,~~092~~305 Land held for housing ~~197~~188,~~624~~089 205,142 ~~235~~232,~~726~~535 Land held for future development or sale 6990,~~447~~232 86,610 5854,~~572~~989 ---------- ---------- ---------- $1,~~778~~807,~~853~~251 $1,755,398 $1,~~832~~856,~~939~~368 ========== ========== ==========

At March 31, 2001 the Company had 415 completed homes and 776 homes under construction that were not subject to a sales contract. These homes represented $69.1 million of home construction costs at March 31, 2001. At March 31, 2000 the Company had 329 completed homes and 823 homes under construction (representing $61.4 million of home construction costs) that were not subject to a sales contract. Included in land held for future development or sale at March 31, 2001 were 170 acres of commercial land and 1,041 acres of residential land that are currently being marketed for sale at the Company's active adult communities. Also included is 531 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:

In Thousands --------------------------------------~~---~~ ~~December~~March 31, ~~December~~June 3130, ~~2000~~March ~~June 30~~31, ~~1999~~2001 ~~(Unaudited)~~2000 2000 ~~(Unaudited)~~ ---------- ---------- ---------- (Unaudited) (Unaudited) 9 3/4% Senior Subordinated Debentures due 2003, ~~net, unsecured~~ $ 99,~~109~~212 $ 98,903 $ 98,~~698~~801 net, unsecured 9% Senior Subordinated Debentures due 2006, net, unsecured 98,~~586~~654 98,449 98,~~312~~381 9 3/4% Senior Subordinated Debentures due 2008, net, unsecured 146,~~580~~701 146,338 146,~~096~~217 9 3/8% Senior Subordinated Debentures due 2009, net, unsecured 196,~~113~~230 195,880 195,~~647~~763 10 1/4% Senior Subordinated Debentures due 2010, net, unsecured 144,~~524~~674 144,223 ~~143~~144,~~922~~073 Notes payable to banks under a senior revolving credit facility and short-term lines of credit, unsecured ~~237~~293,~~000~~848 235,000 ~~346~~393,~~000~~334 Real estate and other notes, primarily secured 6062,~~680~~913 86,631 6385,~~628~~445 ---------- ---------- ---------- $ ~~982~~1,~~592~~042,232 $1,005,424 $1,~~092~~162,~~303~~014 ========== ========== ==========

At March 31, 2001, under the most restrictive of the covenants in the Company's debt agreements, $95 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 Nine Months Ended March 31, March 31, --------------------- -------------------- 2001 2000 2001 2000 -------- -------- -------- -------- Current: Federal $ 475 $ (6,752) $ 12,544 $ 3,731 State 150 (329) 1,008 317 -------- -------- -------- -------- 625 (7,081) 13,552 4,048 -------- -------- -------- -------- Deferred: Federal 7,436 17,398 15,844 21,207 State 681 (1,325) 1,349 (809) -------- -------- -------- -------- 8,117 16,073 17,193 20,398 -------- -------- -------- -------- $ 8,742 $ 8,992 $ 30,745 $ 24,446 ======== ======== ======== ======== 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:

In Thousands (Unaudited) ---------------------------------------------------- Three Months Ended ~~Six~~Nine Months Ended ~~December~~March 31, ~~December~~March 31, ------------------------ ------------------------ 2001 2000 ~~1999~~2001 2000 ~~1999~~ ---------- ---------- ---------- ---------- Revenues: Homebuilding: Active adult communities $~~311~~ 281,~~614~~423 $~~318~~ 305,~~608~~682 $~~588~~ 870,~~955~~378 $~~611~~ 916,~~227~~909 Family and country club communities ~~122~~128,~~362~~046 ~~139~~157,~~254~~066 ~~240~~368,~~155~~201 ~~235~~393,~~990~~056 ---------- ---------- ---------- ---------- ~~433~~409,~~976~~469 ~~457~~462,~~862~~748 ~~829~~1,~~110~~238,579 ~~847~~1,~~217~~309,965 Models/vacation getaway homes with long-term leaseback * -- 146,~~339~~538 -- 2430,~~064~~602 ---------- ---------- ---------- ---------- Total homebuilding ~~433~~409,~~976~~469 ~~472~~469,~~201~~286 ~~829~~1,~~110~~238,579 ~~871~~1,~~281~~340,567 Land and facility sales 4412,~~846~~837 1924,~~234~~040 6174,~~339~~176 2549,~~649~~689 Other 86,~~131~~911 46,~~178~~473 1421,~~162~~073 814,~~245~~718 ---------- ---------- ---------- ---------- $~~486~~ 429,~~953~~217 $~~495~~ 499,~~613~~799 $~~904~~1,~~611~~333,828 $~~905~~1,~~175~~404,974 ========== ========== ========== ==========

* For the three and nine months ended March 31, 2000, revenues (in thousands) from the sale of models/vacation getaway homes with long-term leasebacks are net of deferred profits of $3,549 and $13,659 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.

In Thousands (Unaudited) ---------------------------------------------------- Three Months Ended ~~Six~~Nine Months Ended ~~December~~March 31, ~~December~~March 31, ------------------------ ------------------------ 2001 2000 ~~1999~~2001 2000 ~~1999~~ ---------- ---------- ---------- ---------- Costs and expenses: Home construction and land: Active adult communities $~~232~~ 206,~~388~~939 $~~240~~ 231,~~846~~768 $~~440~~ 647,~~929~~868 $~~461~~ 693,~~259~~027 Family and country club communities 9699,~~034~~865 ~~112~~123,~~348~~005 ~~188~~288,~~576~~441 ~~189~~312,~~964~~969 ---------- ---------- ---------- ---------- ~~328~~306,~~422~~804 ~~353~~354,~~194~~773 ~~629~~936,~~505~~309 ~~651~~1,~~223~~005,996 Models/vacation getaway homes with long-term leaseback -- 146,~~339~~538 -- 2430,~~064~~602 ---------- ---------- ---------- ---------- Total homebuilding ~~328~~306,~~422~~804 ~~367~~361,~~533~~311 ~~629~~936,~~505~~309 ~~675~~1,~~287~~036,598 Cost of land and facility sales 407,~~447~~862 1819,~~263~~393 5057,~~073~~935 2140,~~557~~950 Other cost of sales 65,~~528~~142 34,~~012~~229 1217,~~757~~899 510,~~793~~022 ---------- ---------- ---------- ---------- Total home construction, land ~~and other 375~~319,~~397~~808 ~~388~~384,~~808~~933 ~~692~~1,~~335~~012,143 ~~702~~1,~~637~~087,570 and other Selling, general and administrative 5863,~~924~~577 6567,~~282~~930 ~~116~~179,~~351~~928 ~~122~~190,~~221~~151 Interest 1715,~~266~~992 2021,~~133~~958 3450,~~807~~799 3759,~~390~~348 ---------- ---------- ---------- ---------- $~~451~~ 399,~~587~~377 $ 474,~~223~~821 $~~843~~1,~~493~~242,870 $~~862~~1,~~248~~337,069 ========== ========== ========== ==========

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

In Thousands (Unaudited) --------------------------------------------- Three Months Ended ~~Six~~Nine Months Ended ~~December~~March 31, ~~December~~March 31, -------------------- -------------------- 2001 2000 ~~1999~~2001 2000 ~~1999~~ -------- -------- -------- -------- Interest incurred and capitalized $ 24,~~943~~610 $ 26,~~406~~171 $ 5074,~~219~~829 $51 77,~~475~~646 ======== ======== ======== ======== Allocation of capitalized interest in costs and expenses $ 1715,~~266~~992 $20 21,~~133~~958 $ 3450,~~807~~799 $37 59,~~390~~348 ======== ======== ======== ======== Unallocated capitalized interest included in real estate inventories at period end $~~120~~129,~~625~~243 $99103,~~092~~305 $~~120~~129,~~625~~243 $99103,~~092~~305 ======== ======== ======== ======== Interest income $ ~~167~~383 $ ~~183~~205 $ ~~378~~762 $ ~~434~~639 ======== ======== ======== ========

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. 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)

In Thousands (Unaudited) -------------------------- --------------------------~~----------~~ Three Months Ended ~~Six~~Nine Months Ended ~~December~~March 31, ~~December~~March 31, ----------- -----------~~------~~ ----------- -----------~~------~~ 2001 2000 ~~1999~~2001 2000 ~~1999~~ ----------- ----------- ----------- ----------- Revenues: Active adult communities $ ~~320~~290,~~027~~022 $ ~~333~~319,~~677~~471 $ ~~605~~895,~~912~~934 $ ~~637~~957,~~693~~164 Family and country club communities ~~143~~137,~~610~~821 ~~160~~179,~~761~~190 ~~274~~411,~~126~~947 ~~265~~444,~~191~~381 Corporate and other 231,~~316~~374 1,~~175~~138 2425,~~573~~947 23,~~291~~429 ----------- ----------- ----------- ----------- $ ~~486~~429,~~953~~217 $ ~~495~~499,~~613~~799 $ ~~904~~1,~~611~~333,828 $ ~~905~~1,~~175~~404,974 =========== =========== =========== =========== EBIT: Active adult communities $ 5345,~~146~~885 $ 4543,~~088~~024 $ 95141,~~382~~267 $ 88131,~~357~~381 Family and country club communities 2319,~~317~~912 1522,~~584~~989 4262,~~206~~118 2750,~~668~~657 Corporate and other (2319,~~831~~965) (19,~~149~~077) (4161,~~663~~628) (3554,~~708~~785) ----------- ----------- ----------- ----------- $ 5245,~~632~~832 $ 4146,~~523~~936 $ 95141,~~925~~757 $ 80127,~~317~~253 =========== =========== =========== =========== Allocation of Capitalized Interest: Active adult communities $ 1110,~~470~~351 $ 1415,~~121~~061 $ 2333,~~434~~786 $ 2742,~~151~~211 Family and country club communities 5,~~796~~641 6,~~012~~897 1117,~~373~~013 1017,~~239~~137 Corporate and other -- -- -- -- ----------- ----------- ----------- ----------- $ 1715,~~266~~992 $ 2021,~~133~~958 $ 3450,~~807~~799 $ 3759,~~390~~348 =========== =========== =========== =========== Expenditures for Real Estate Inventories: Active adult communities $ ~~238~~220,~~762~~238 $ ~~271~~257,~~252~~603 $ ~~464~~684,~~394~~632 $ ~~530~~788,~~470~~073 Family and country club communities ~~103~~100,~~315~~367 ~~135~~124,~~907~~029 ~~193~~293,~~458~~825 ~~250~~374,~~431~~460 Corporate and other 52-- 19,~~334~~323 ~~183~~-- 312,~~446~~769 ----------- ----------- ----------- ----------- $ ~~342~~320,~~129~~605 $ ~~408~~390,~~493~~955 $ ~~658~~978,~~035~~457 $ ~~784~~1,~~347~~175,302 =========== =========== =========== =========== Purchases of Property and Equipment: Active adult communities $ --880 $ 1,~~708~~362 $ --721 $ 34,~~298~~660 Family and country club communities ~~827~~232 ~~185~~1,229 ~~912~~1,144 ~~389~~1,618 Corporate and other 12,~~479~~133 2,~~634~~053 25,~~952~~244 46,~~846~~899 ----------- ----------- ----------- ----------- $ 23,~~306~~245 $ 4,~~527~~644 $ 37,~~864~~109 $ 813,~~533~~177 =========== =========== =========== =========== Depreciation and Other Amortization: Active adult communities $ ~~904~~1,173 $ ~~894~~1,394 $ 13,~~916~~089 $ 23,~~081~~043 Family and country club communities ~~549~~462 ~~131~~184 ~~939~~1,401 ~~258~~442 Corporate and other 1,~~280~~272 2,~~065~~881 23,~~529~~801 36,~~551~~193 ----------- ----------- ----------- ----------- $ 2,~~733~~907 $ 34,~~090~~459 $ 58,~~384~~291 $ 59,~~890~~678 =========== =========== =========== =========== Assets at Period End: Active adult communities $ 1,~~408~~512,~~257~~329 $ 1,~~314~~421,~~678~~647 $ 1,~~408~~512,~~257~~329 $ 1,~~314~~421,~~678~~647 Family and country club communities ~~474~~466,~~854~~412 ~~492~~515,~~200~~583 ~~474~~466,~~854~~412 ~~492~~515,~~200~~583 Corporate and other ~~111~~66,~~796~~230 ~~206~~138,~~053~~171 ~~111~~66,~~796~~230 ~~206~~138,~~053~~171 ----------- ----------- ----------- ----------- $ 12,~~994~~044,~~907~~971 $ 2,~~012~~075,~~913~~401 $ 12,~~994~~044,~~907~~971 $ 2,~~012~~075,~~931~~401 =========== =========== =========== ===========

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

~~THREE~~Three ~~MONTHS~~Months ~~SIX~~Nine ~~MONTHS~~Months ~~ENDED~~Ended ~~ENDED~~Ended ~~DECEMBER~~March 31, ~~CHANGE~~Change ~~DECEMBER~~March 31, ~~CHANGE~~Change --------------- ------------------ --------------- ----------------- 2001 2000 ~~1999~~Amount ~~AMOUNT~~Percent ~~PERCENT~~2001 2000 ~~1999~~Amount ~~AMOUNT~~Percent ~~PERCENT~~ ----- ----- ------ ------- ----- ----- ------ ------- OPERATING DATA: Number of net new orders: Active adult communities: Sun City Grand ~~191~~318 ~~251~~407 (6089) (2321.9%) ~~408~~726 ~~569~~976 (~~161~~250) (2825.36%) Sun Cities Las Vegas ~~240~~318 ~~232~~391 8(73) 3(18.47%) ~~591~~909 ~~486~~877 ~~105~~32 213.6% Sun City Palm Desert ~~122~~198 79162 4336 5422.42% ~~220~~418 ~~160~~322 6096 3729.58% Sun Cities Northern California ~~219~~277 ~~136~~206 8371 6134.05% ~~456~~733 ~~274~~480 ~~182~~253 6652.47% Sun City Hilton Head 5868 7897 (2029) (2529.69%) ~~128~~196 ~~175~~272 (4776) (2627.9%) Sun City Texas 77103 52105 25(2) ~~48.~~(1.9%) ~~159~~262 ~~137~~242 2220 168.13% Sun City at Huntley 6893 7671 ~~(8)~~22 ~~(10~~31.50%) ~~189~~282 ~~193~~264 ~~(4)~~18 (26.18%) Florida communities 7687 6397 13(10) 20(10.63%) ~~153~~240 ~~149~~246 4(6) (2.74%) Other communities 5075 7789 (2714) (3515.17%) ~~102~~177 ~~205~~294 (~~103~~117) (5039.28%) ----- ----- ----- ----- ----- ----- ----- ----- Total active adult communities 1,~~101~~537 1,~~044~~625 57(88) (5.54%) 23,~~406~~943 23,~~348~~973 58(30) 2(0.58%) ----- ----- ----- ----- ----- ----- ----- ----- Family and country club communities: Arizona country club communities 6992 63127 6(35) 9(27.56%) ~~121~~213 ~~106~~233 15(20) 14(8.26%) Nevada country club communities 6465 54112 10(47) 18(42.50%) ~~125~~190 ~~111~~223 14(33) 12(14.68%) Arizona family communities ~~198~~296 ~~205~~324 (728) (38.46%) ~~440~~736 ~~439~~763 1(27) 0(3.25%) Nevada family communities 5218 63107 (1189) (1783.52%) 96114 ~~117~~224 (21110) (1749.91%) ----- ----- ----- ----- ----- ----- ----- ----- Total family and country club ~~Communities~~communities ~~383~~471 ~~385~~670 (2199) (029.57%) ~~782~~1,253 ~~773~~1,443 9(190) 1(13.2%) ----- ----- ----- ----- ----- ----- ----- ----- Total 12,~~484~~008 12,~~429~~295 55(287) 3(12.85%) 35,~~188~~196 35,~~121~~416 67(220) 2(4.1%) ===== ===== ===== ===== ===== ===== ===== =====

Included in net new orders for the three and nine months ended March 31, 2000 were models and vacation getaway homes sold with long-term leasebacks. Sun City Grand had 17 such net new orders for the three month period and 162 for the nine month period. The Sun Cities Las Vegas had 3 and 33 for the three and nine months, respectively. The Nevada country club communities had 13 for the nine month period. 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA (CONTINUED)

~~THREE~~Three ~~MONTHS~~Months ~~SIX~~Nine ~~MONTHS~~Months ~~ENDED~~Ended ~~ENDED~~Ended ~~DECEMBER~~March 31, ~~CHANGE~~Change ~~DECEMBER~~March 31, ~~CHANGE~~Change --------------- ------------------ --------------- ----------------- 2001 2000 ~~1999~~Amount ~~AMOUNT~~Percent ~~PERCENT~~2001 2000 ~~1999~~Amount ~~AMOUNT~~Percent ~~PERCENT~~ ----- ----- ------ ------- ----- ----- ------ ------- OPERATING DATA: Number of home closings: Active adult communities: Sun City Grand ~~272~~219 ~~420~~323 (~~148~~104) (3532.2%) ~~574~~793 ~~757~~1,080 (~~183~~287) (2426.26%) Sun Cities Las Vegas ~~343~~285 ~~261~~328 82(43) 31(13.41%) ~~602~~887 ~~512~~840 9047 175.6% Sun City Palm Desert ~~107~~154 ~~114~~118 ~~(7)~~36 (630.15%) ~~217~~371 ~~249~~367 ~~(32)~~4 ~~(12~~1.91%) Sun Cities Northern California ~~215~~202 ~~211~~214 4(12) 1(5.96%) ~~371~~573 ~~340~~554 3119 93.14% Sun City Hilton Head 7057 ~~118~~81 (4824) (4029.76%) ~~135~~192 ~~213~~294 (78102) (3634.67%) Sun City Texas 7061 7456 ~~(4) (~~5 8.49%) ~~120~~181 ~~133~~189 (138) (94.82%) Sun City at Huntley 7853 ~~188~~120 (~~110~~67) (5855.58%) ~~153~~206 ~~414~~534 (~~261~~328) (6361.04%) Florida communities 5872 6364 ~~(5)~~8 (712.95%) ~~120~~192 ~~129~~193 (91) (7.0.5%) Other communities 4855 72103 (2448) (3346.36%) ~~132~~187 ~~150~~253 (1866) (1226.01%) ----- ----- ----- ----- ----- ----- ----- ----- Total active adult communities 1,~~261~~158 1,~~521~~407 (~~260~~249) (17.17%) 23,~~424~~582 24,~~897~~304 (~~473~~722) (16.38%) ----- ----- ----- ----- ----- ----- ----- ----- Family and country club communities: Arizona country club communities 8480 90132 (652) (639.74%) ~~179~~259 ~~107~~239 7220 678.34% Nevada country club communities 69 68 148 120 41.57% ~~106~~174 ~~123~~171 ~~(17)~~3 ~~(13~~1.8%) Arizona family communities ~~228~~264 ~~328~~383 (~~100~~119) (3031.51%) ~~466~~730 ~~552~~935 (86205) (1521.69%) Nevada family communities 4540 ~~115~~81 (7041) (6050.96%) ~~121~~161 ~~251~~332 (~~130~~171) (51.85%) ----- ----- ----- ----- ----- ----- ----- ----- Total family and country club ~~communities~~Communities ~~426~~452 ~~601~~644 (~~175~~192) (29.18%) ~~872~~1,324 1,~~033~~677 (~~161~~353) (1521.60%) ----- ----- ----- ----- ----- ----- ----- ----- Total 1,~~687~~610 2,~~122~~051 (~~435~~441) (2021.5%) 34,~~296~~906 35,~~930~~981 (~~634~~1,075) (1618.10%) ===== ===== ===== ===== ===== ===== ===== =====

Included in home closings for the three and nine months ended March 31, 2000 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 35 such home closings for the three months and 160 for the nine months. The Sun Cities Las Vegas had 5 and 32 for the three and nine months, respectively. The Nevada country club communities had 13 for the nine months. 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA (CONTINUED)

ATAt ~~DECEMBER~~March 31, ~~CHANGE~~Change ------------------ -------------------- 2001 2000 ~~1999~~Amount ~~AMOUNT~~Percent ~~PERCENT~~ ------ ------ ------ ------- BACKLOG DATA: Homes under contract: Active adult communities: Sun City Grand ~~395~~494 ~~546~~630 (~~151~~136) (2721.76%) Sun Cities Las Vegas ~~532~~565 ~~519~~582 13(17) (2.59%) Sun City Palm Desert ~~249~~293 ~~195~~239 54 2722.76% Sun Cities Northern California ~~481~~556 ~~342~~334 ~~139~~222 4066.65% Sun City Hilton Head ~~131~~142 ~~156~~172 (2530) (1617.04%) Sun City Texas ~~257~~299 ~~162~~211 9588 5841.67% Sun City at Huntley ~~181~~221 ~~284~~235 (~~103~~14) (366.30%) Florida communities ~~242~~257 ~~153~~186 8971 5838.2% Other communities ~~103~~123 ~~223~~209 (~~120~~86) (5341.81%) ------ ------ ------ ------ Total active adult communities 2,~~571~~950 2,~~580~~798 ~~(9)~~152 (05.34%) ------ ------ ------ ------ Family and country club communities: Arizona country club communities ~~176~~188 ~~243~~238 (6750) (2721.60%) Nevada country club communities ~~182~~179 ~~123~~187 59(8) 48(4.03%) Arizona family communities ~~484~~516 ~~614~~555 (~~130~~39) (217.20%) Nevada family communities 9068 ~~115~~141 (2573) (2151.78%) ------ ------ ------ ------ Total family and country club communities ~~932~~951 1,~~095~~121 (~~163~~170) (1415.92%) ------ ------ ------ ------ Total 3,~~503~~901 3,~~675~~919 (~~172~~18) (40.75%) ====== ====== ====== ====== Aggregate contract sales amount (dollars in millions) $1,062 ~~948~~ $1,009 ~~917~~ $ 3153 35.43% ====== ====== ====== ====== Average contract sales amount per home (dollars in thousands) $ ~~271~~272 $ ~~250~~257 $ 2115 85.48% ====== ====== ====== ======

Included in Sun City Grand's backlog at March 31, 2000 were 2 models and vacation getaway homes sold with long-term leasebacks. 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA (CONTINUED)

~~THREE~~Nine ~~MONTHS~~Months ~~SIX~~Three ~~MONTHS~~Months ~~ENDED~~Ended ~~ENDED~~Ended ~~DECEMBER~~March 31, ~~CHANGE~~Change ~~DECEMBER~~March 31, ~~CHANGE~~Change ------------------- ------------------ ------------------- ------------------ 2001 2000 ~~1999~~Amount ~~AMOUNT~~Percent ~~PERCENT~~2001 2000 ~~1999~~Amount ~~AMOUNT~~Percent ~~PERCENT~~ -------- -------- -------- ------- -------- -------- -------- ------- AVERAGE REVENUE PER HOME CLOSING: Active adult communities: Sun City Grand $~~212~~228,~~900~~000 $~~167~~188,600 45$ 39,~~300~~400 2720.09% $~~206~~212,~~700~~600 $~~173~~178,~~400~~000 33$ 34,~~300~~600 19.24% Sun Cities Las Vegas ~~239~~228,~~100~~800 ~~238~~224,900 ~~200~~3,900 0.1.7% ~~233~~232,~~600~~000 ~~229~~227,~~200~~500 4,~~400~~500 12.90% Sun City Palm Desert ~~327~~289,300 ~~278~~272,400 4816,900 ~~17.~~6.2% ~~323~~309,~~900~~600 ~~276~~275,~~900~~400 4734,~~000~~200 1712.04% Sun Cities Northern California ~~311~~298,~~500~~600 ~~278~~275,~~300~~200 3323,~~200~~400 118.95% ~~307~~304,000 ~~278~~277,~~100~~000 2827,~~900~~000 109.47% Sun City Hilton Head ~~230~~256,~~800~~200 ~~188~~201,~~100~~300 4254,~~700~~900 2227.73% ~~241~~246,~~700~~000 ~~198~~199,~~800~~500 4246,~~900~~500 2123.63% Sun City Texas ~~266~~242,~~900~~000 ~~229~~241,~~400~~300 ~~37,500~~700 160.3% ~~247~~245,~~000~~300 ~~226~~231,~~800~~100 2014,200 86.91% Sun City at Huntley ~~241~~246,~~400~~900 ~~230~~222,~~600~~700 1024,~~800~~200 410.79% ~~253~~251,~~100~~500 ~~232~~230,~~300~~100 2021,~~800~~400 9.03% Florida communities ~~151~~156,~~100~~300 ~~141~~139,~~500~~900 916,~~600~~400 611.87% ~~151~~153,~~200~~100 ~~137~~138,~~600~~300 1314,~~600~~800 910.97% Other communities ~~151~~140,~~500~~400 ~~212~~204,~~800~~000 (6163,~~300~~600) (2831.82%) ~~199~~182,~~600~~200 ~~202~~203,~~300~~000 (220,~~700~~800) (110.32%) Average active adult communities ~~247~~243,~~100~~000 ~~216~~221,900 3021,~~200~~100 ~~13.~~9.5% 243,000 ~~217~~218,~~100~~700 2524,~~900~~300 11.91% Family and country club communities: Arizona country club communities ~~345~~366,~~400~~700 ~~257~~289,~~000~~500 8877,~~400~~200 3426.47% ~~339~~347,~~400~~900 ~~250~~272,~~700~~100 8875,~~700~~800 3527.49% Nevada country club communities ~~393~~416,~~400~~500 ~~413~~459,~~000~~400 (1942,~~600~~900) (49.73%) ~~425~~422,~~800~~200 ~~420~~431,~~800~~600 5(9,~~000~~400) 1(2.2%) Arizona family communities ~~245~~229,~~200~~600 ~~209~~216,~~000~~500 3613,~~200~~100 176.31% ~~234~~232,~~500~~700 ~~208~~211,~~500~~700 2621,000 129.59% Nevada family communities ~~228~~244,~~800~~200 ~~195~~171,~~200~~500 3372,~~600~~700 1742.24% ~~206~~215,~~400~~800 ~~194~~188,~~200~~600 1227,200 614.34% Average family and country club communities ~~287~~283,~~200~~300 ~~236~~243,~~600~~900 5039,~~600~~400 2116.42% ~~275~~278,~~400~~100 ~~234~~238,~~600~~200 4039,~~800~~900 1716.48% Total average ~~$257~~254,~~200~~300 ~~$222~~228,~~500~~800 3425,~~700~~500 1511.61% ~~$251~~252,~~600~~500 ~~$221~~224,~~700~~100 2928,~~900~~400 1312.57% ======== ======== ======== ===== ======== ======== ======== =====

Average revenue per home closing for the models and vacation getaway homes with long-term leasebacks at Sun City Grand was $132,700 and $100,000 for the three and nine months ended March 31, 2000 respectively. At the Sun Cities Las Vegas, the average revenue for these home closings was $378,600 for the three months and $256,200 for the nine months. At the Nevada country club communities, the average revenue for these home closings was $492,100 for the nine months. 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA (CONTINUED)

~~THREE~~Three ~~MONTHS~~Months ~~SIX~~Ended ~~MONTHS~~Nine ~~ENDED~~Months ~~ENDED~~Ended ~~DECEMBER~~March 31, ~~CHANGE~~Change ~~DECEMBER~~March 31, ~~CHANGE~~Change --------------- ----------------- --------------- ----------------- 2001 2000 ~~1999~~Amount ~~AMOUNT~~Percent ~~PERCENT~~2001 2000 ~~1999~~Amount ~~AMOUNT~~Percent ~~PERCENT~~ ----- ----- ------ ------- ----- ----- ------ ------- OPERATING STATISTICS: Costs and expenses as a percentage of revenues: Home construction, land and other 7774.15% 7877.40% (12.35%) (13.72%) 7675.59% 77.64% (1.15%) (1.49%) Selling, general and administrative 1214.18% 13.26% (1.12%) (8.38%) 1213.95% 13.5% (0.60%) (40.40%) Interest 3.57% 4.14% (0.67%) (1415.69%) 3.8% 4.12% (0.34%) (79.35%) ===== ===== ===== ===== ===== ===== ===== =====

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 March 31, 2001 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 nine months ended March 31, 2001 and 2000, cancellations of home sales orders as a percentage of new home sales orders written during the period were 13.9 percent and 14.5 percent, respectively. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2001 AND 2000 REVENUES. Total revenues decreased to $429.2 million for the three months ended March 31, 2001 from $499.8 million for the three months ended March 31, 2000. Exclusive of closings of models and vacation getaway homes, active adult community homebuilding revenues decreased to $281.4 million for the 2001 quarter from $305.7 million for the 2000 quarter. This decrease was primarily attributable to decreased closings at Sun City Grand, Sun Cities Las Vegas and Sun City at Huntley. Exclusive of closings of models, family and country club community homebuilding revenues decreased to $128.0 million for the 2001 quarter from $157.1 million for the 2000 quarter. This decrease was primarily attributable to decreased closings in the Arizona family communities (due to fewer subdivisions). 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 9.5% in active adult communities and 16.2% in family and country club communities. 14 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 $319.8 million for the 2001 quarter from $384.9 million for the 2000 quarter was largely due to the decrease in home closings and a decrease in land and facility sales. As a percentage of revenues, these costs decreased to 74.5 percent for the 2001 quarter from 77.0 percent for the 2000 quarter. Of this total 2.5 percent decrease, 1.3 percent was attributable to deferred profit recognition in the 2000 quarter on the sale and long-term leaseback of 40 model and vacation getaway homes at two of the Company's communities. The balance of the decrease 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 increased to 14.8 percent for the 2001 quarter from 13.6 percent for the 2000 quarter. This percentage increase is primarily attributable to decreased revenues partially offset by results of efforts to cut costs and improve the efficiency of operations. Actual expenses decreased to $63.6 million in the 2001 quarter from $67.9 million in the 2000 period. INTEREST. As a percentage of revenues, allocation of capitalized interest to costs and expenses decreased to 3.7 percent for the 2001 quarter from 4.4 percent for the 2000 quarter. This decrease is attributable to expected lower future debt levels from this expectation in the prior year. INCOME TAXES. The decrease in income taxes to $8.7 million for the 2001 quarter from $9.0 million in the 2000 quarter was attributable to a $2 million tax benefit recognized in the 2001 quarter offset in part by the increase in earnings before income taxes. The effective tax rates for the 2001 and 2000 quarters was 29.3 percent and 36 percent respectively. NET EARNINGS. The increase in net earnings to $21.1 million for the 2001 quarter from $16.0 million for the 2000 quarter was primarily attributable to an increase in homebuilding margin percentage, lower interest costs and lower taxes. This increase in net earnings was accomplished with less revenue than the 2000 period. NET NEW ORDER ACTIVITY AND BACKLOG. Net new orders in the 2001 quarter were 12.5 percent lower than in the 2000 quarter. This decrease was primarily attributable to the following: * Decreased net new orders at Sun City Grand * Company's decision to cease family community subdivisions in Nevada * Decreased net new orders at Sun Cities Las Vegas due to closing out of Sun City MacDonald Ranch Offsetting increases were attributable to the following: * New orders in the California active adult communities were up 29 percent to a combined 475 units. 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) NINE MONTHS ENDED MARCH 31, 2001 AND 2000 REVENUES. Total revenues decreased to $1.33 billion for the nine months ended March 31, 2001 from $1.40 billion for the nine months ended March 31, 2000. Exclusive of closings of models and vacation getaway homes, active adult community homebuilding revenues decreased to $870.4 million for the 2001 period from $916.9 million for the 2000 period. The principal reason for this decrease was 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 $368.2 million for the 2001 period from $393.1 million for the 2000 period. The decrease was primarily attributable to decreased closings in the Arizona family communities (due to fewer subdivisions) and in the Nevada family communities (due to closing out of 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 11.1 percent in active adult communities and 16.8 percent in family and country club communities. HOME CONSTRUCTION, LAND AND OTHER COSTS. The decrease in home construction, land and other costs to $1.01 billion for the 2001 period from $1.09 billion for the 2000 period was largely due to the decrease in home closings. As a percentage of revenues, these costs decreased to 75.9 percent for the 2001 period from 77.4 percent for the 2000 period. This cost decrease as a percentage of revenues was primarily due to an increase in homebuilding gross margin to 24.4 percent for the 2001 period from 22.7 percent for the 2000 period. Of this 1.7 percent rise in homebuilding gross margin, 0.5 percent was attributable to deferred profit recognition in the 2000 period on the sale and long-term leaseback of 208 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 for the 2001 period were 13.5 percent which is consistent with the 2000 period. This is primarily attributable to results of efforts to cut costs and improve the efficiencies of operations amid a decrease in total revenues from the 2000 period. Actual expenses decreased to $179.9 million in the 2001 period from $190.2 million for the 2000 period. The results for the nine months ended March 31, 2001 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 2001 period from 4.2 percent for the 2000 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 $30.7 million for the 2001 period from $24.4 million in the 2000 period was due to the increase in earnings before income taxes offset in part by the $2 million tax benefit recognized in the 2001 period. The effective tax rate for the 2001 period was 33.8 percent and 36.0 percent for the 2000 period. NET EARNINGS. The increase in net earnings to $60.2 million for the 2001 period from $43.5 million for the 2000 period was primarily attributable to a combination of higher homebuilding margin percentage, lower interest costs, and a lower tax rate in the 2001 period. 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) NET NEW ORDER ACTIVITY. Net new orders in the 2001 period were 4.1 percent lower than in the 2000 period. This decrease is attributable to the following: * Decreased net new orders at Sun City Grand * Clover Springs (part of Other Active Adult Communities) contributed 151 net new orders in the 2000 period and 1 in the 2001 period as a result of closing out that community * Company's decision to cease family community operations in Nevada * Decreased net new orders at Sun City Hilton Head Offsetting increases were attributable to the following: * Strong demand at Sun City Lincoln Hills resulted in the increase in net new orders in the Sun Cities Northern California * Strong demand at Sun City Palm Desert 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 2001 period the Company generated $408 million of net cash from operating community sales activities, used $297 million for land and lot and amenity development at operating communities, and used $176 million for interest, income taxes and other operating activities. The resulting $65 million of net cash used for operating activities was funded mainly through borrowings under the Company's $500 million senior unsecured revolving credit facility. At March 31, 2001 the Company had $289 million outstanding under the 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 72.0 percent at March 31, 2000 to 65.6 percent at March 31, 2001 as a result of debt repayments and in 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 March 31, 2001, under the most restrictive of the covenants in the Company's debt agreements, $95 million of the retained earnings was available for payment of cash dividends and the acquisition of stock. 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) SUBSEQUENT EVENTS On April 30, 2001, the Company, Pulte Corporation ("Pulte") and Pulte Acquisition Corporation ("Acquisition") entered into a Plan and Agreement of Merger (the "Merger Agreement") under which Pulte will acquire all of the outstanding shares of the Company in a stock for stock transaction. Pursuant to the Merger Agreement and subject to the terms and conditions set forth therein, Acquisition will be merged with and into the Company, with the Company to be the surviving corporation of such Merger, and as a result of the Merger, the Company will become a wholly-owned subsidiary of Pulte. Pursuant to the Merger Agreement, at the Effective Time (as defined in the Merger Agreement), each outstanding share of common stock of the Company, par value $0.001 per share ("Company Common Stock"), will be converted into and become the right to receive the number of shares of common stock of Pulte, par value $0.01 per share ("Pulte Common Stock") determined as follows (the "Merger Consideration"): (i) if the average of the last sale price of a share of Pulte Common Stock as reported on the New York Stock Exchange, Inc. ("NYSE") consolidated tape for the fifteen NYSE trading days ending on, and including, the third NYSE trading day prior to the day of the meeting at which the stockholders of the Company vote upon the Merger (the "Market Value") is greater than or equal to $45.04, the Merger Consideration will be 0.866 shares of Pulte Common Stock for each share of Company Common Stock.; (ii) if the Market Value of a share of Pulte Common Stock is equal to or greater than $39.00 but less than $45.04, the Merger Consideration for each share of Company Common Stock will be the number of shares of Pulte Common Stock equal to $39.00 divided by the Market Value of each share of Pulte Common Stock; (iii) if the Market Value of a share of Pulte Common Stock is equal to or greater than $33.00 but less than $39.00, the Merger Consideration will be one share of Pulte Common Stock for each share of Company Common Stock; (iv) if the Market Value of a share of Pulte Common Stock is equal to or greater than $30.00 but less than $33.00, the Merger Consideration for each share of Company Common Stock will be the number of shares of Pulte Common Stock equal to $33.00 divided by the Market Value of each share of Pulte Common Stock; and (v) if the Market Value of a share of Pulte Common Stock is less than $30.00, the Merger Consideration will be 1.1 shares of Pulte Common Stock for each share of Company Common Stock, provided that if the Market Value of a share of Pulte Common Stock is less than $27.00, the Company will have the right to terminate the Merger Agreement. The Merger is subject to, among other things, approval by the stockholders of the Company of the Merger and by the shareholders of Pulte for the issuance of Pulte Common Stock in the Merger and related proposals. The Merger is also subject to receipt of applicable governmental approvals and the satisfaction of customary closing conditions. William J. Pulte and affiliated trusts, which own approximately 26 percent of the outstanding Pulte Common Stock, have agreed, pursuant to a Voting Agreement, dated as of April 30, 2001, with the Company (the "Voting Agreement"), to vote in favor of the issuance of Pulte Common Stock and related proposals. 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, entitlement 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. 19 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit 1.1 Current list of Directors and Officers that are party to the Directors and Officers Indemnification Agreement Exhibit 1.2 Current list of Officers that are party to a Change in Control Agreement (24 month) Exhibit 1.3 Sample (24 month) Change in Control Agreement letter Exhibit 1.4 Current list of Officers that are party to a Change in Control Agreement (12 month) Exhibit 1.5 Sample (12 month) Change in Control Agreement letter Exhibit 1.6 Amended and Restated Supplemental Executive Retirement Plan No. 1, effective as of February 8, 2001 Exhibit 1.7 Amended and Restated Supplemental Executive Retirement Plan No. 2, effective as of February 8, 2001 Exhibit 1.8 Current list of participants to the Del Webb Corporation Supplemental Executive Retirement Plan No. 2 Exhibit 1.9 Amended and Restated Del Webb Corporation (1991) Executive Long-Term Incentive Plan effective as of February 8, 2001 Exhibit 1.10 Amended and Restated Del Webb Corporation 1993 Executive Long-Term Incentive Plan effective as of February 8, 2001 Exhibit 1.11 Amended and Restated Del Webb Corporation 1995 Executive Long-Term Incentive Plan effective as of February 8, 2001 Exhibit 1.12 Amended and Restated Del Webb Corporation 1998 Executive Long-Term Incentive Plan effective as of February 8, 2001 Exhibit 1.13 Amended and Restated Del Webb Corporation (1991) Director Stock Plan effective as of February 8, 2001 Exhibit 1.14 Amended and Restated Del Webb Corporation 1995 Director Stock Plan effective as of February 8, 2001 Exhibit 1.15 Amended and Restated Del Webb Corporation 1998 Director Stock Plan effective as of February 8, 2001 Exhibit 1.16 Amendment to Exhibit A of Del Webb Corporation Umbrella Trust 20 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED) Exhibit 1.17 Supplemental Executive Retirement Plan No. 2 amended and restated Participation Agreement effective as of December 1, 1999 between the Registrant and LeRoy C. Hanneman, Jr. Exhibit 1.18 Supplemental Executive Retirement Plan No. 1 amended and restated Participation Agreement effective as of January 1, 2000, between the Registrant and John A. Spencer Exhibit 1.19 Employment Agreement between the Registrant and Jay A. Thompson effective as of January 1, 2001 Exhibit 1.20 Employment Agreement between Registrant and LeRoy C. Hanneman, Jr. effective as of December 1, 1999 In addition to those Exhibits shown above, the Company hereby incorporates the following Exhibits pursuant to Exchange Act Rule 12b-32 and regulation Section 229.10(d) by reference to the filings set forth below: Exhibit 2.1 Plan and Agreement of Merger, dated as of April 30, 2001, by and among the Company, Pulte Corporation, a Michigan corporation, and Pulte Acquisition Corporation, a Delaware corporation, filed as an exhibit to the Company's Current Report on Form 8-K, dated May 2, 2001. Exhibit 9.1 Voting Agreement, dated as of April 30, 2001, by and among the Company, William J. Pulte and other parties thereto, filed as an exhibit to the Company's Current Report on Form 8-K, dated May 2, 2001. (b) The Company did not file any reports on Form 8-K during the period covered by this report. However, subsequent to this reporting period, on May 2, 2001, the Company filed a report on Form 8-K (Item 5) announcing the signing of a definitive agreement to merge Pulte Acquisition Corporation with and into the Company, with the Company surviving as a wholly owned subsidiary of Pulte Corporation. 21 SIGNATURES Pursuant to the requirements of the Securities Exchange act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, who are duly authorized to do so. DEL WEBB CORPORATION (REGISTRANT) Date: May 14, 2001 /s/ LeRoy C. Hanneman, Jr. ---------------------------------------- LeRoy C. Hanneman, Jr. President and Chief Executive Officer Date: May 14, 2001 /s/ John A. Spencer ---------------------------------------- John A. Spencer Executive Vice President and Chief Financial Officer 22

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