<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(MARK ONE) FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
Commission File Number 0-12316
GUARANTEED MORTGAGE CORPORATION II
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
MICHIGAN 31-1067092
- - --------------------------------------- ----------------------------
(State or other jurisdiction of (I.R.S. Identification No.)
incorporation or organization)
6061 South Willow Drive, Suite 301, Greenwood Village, Colorado 80111
- - ---------------------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (303) 740-3370
--------------
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 twelve 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
-------- --------
Number of shares of common stock outstanding as of October 31, 1995: 1,000
Registrant meets the conditions set forth in General Instruction H(1)(a) and
(b) of Form 10-Q and is therefore filing this Quarterly Report on Form 10-Q
with the reduced disclosure format.
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<PAGE> 2
GUARANTEED MORTGAGE CORPORATION II
INDEX
PAGE NO.
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Condensed Balance Sheets, September 30, 1995 and December 31, 1994 3
Condensed Statements of Operations and Retained Earnings,
Three Months Ended September 30, 1995 and September 30, 1994 and
Nine Months Ended September 30, 1995 and September 30, 1994 4
Condensed Statements of Cash Flows, Nine Months Ended
September 30, 1995 and September 30, 1994 5
Notes to Condensed Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 12
- 2 -
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GUARANTEED MORTGAGE CORPORATION II
CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
-------------- ---------------
<S> <C> <C>
ASSETS
------
Cash $ 1,100 $ 522
Funds held by trustee 14,623,748 4,340,779
Mortgage-backed securities held-to-maturity,
at amortized cost 210,877,263
Mortgage-backed securities available-for-sale,
at estimated fair value 188,512,591
Accrued interest receivable 1,352,148 1,604,025
Due from affiliates 218,367
------------------- -------------------
$ 204,707,954 $ 216,822,589
=================== ===================
LIABILITIES AND SHAREHOLDER'S EQUITY
-------------------------------------
Liabilities:
Bonds payable $ 188,266,130 $ 209,456,332
Accrued liabilities, primarily
interest 2,822,981 3,130,338
Due to affiliates 68,779
Other liabilities 3,805,766
------------------- -------------------
Total liabilities 194,894,877 212,655,449
------------------- -------------------
Shareholder's equity:
Common stock, $1 par value; 50,000
shares authorized; 1,000 shares
issued and outstanding 1,000 1,000
Additional paid-in capital 19,000 19,000
Retained earnings 4,084,428 4,147,140
Unrealized gains on securities 5,708,649
------------------- -------------------
Total shareholder's equity 9,813,077 4,167,140
------------------- -------------------
$ 204,707,954 $ 216,822,589
=================== ===================
</TABLE>
See accompanying notes.
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<PAGE> 4
GUARANTEED MORTGAGE CORPORATION II
CONDENSED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER SEPTEMBER SEPTEMBER SEPTEMBER
30, 1995 30, 1994 30, 1995 30, 1994
---------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Revenues:
Interest $ 4,376,754 $ 5,103,914 $ 13,671,036 $ 17,059,118
Amortization of net
mortgage discounts 220,034 728,212
--------------- --------------- --------------- ---------------
Total revenues 4,376,754 5,323,948 13,671,036 17,787,330
--------------- --------------- --------------- ---------------
Expenses:
Interest 4,381,987 5,108,191 13,630,707 17,276,326
Amortization of bond
discounts and issue
costs 663,102 2,179,412
General and
administrative 45,231 35,249 144,849 111,965
--------------- --------------- --------------- ---------------
Total expenses 4,427,218 5,806,542 13,775,556 19,567,703
--------------- --------------- --------------- ---------------
Loss before income
tax benefit and
extraordinary item (50,464) (482,594) (104,520) (1,780,373)
Income tax benefit (20,186) (188,212) (41,808) (694,346)
--------------- --------------- --------------- ---------------
Loss before
extraordinary item (30,278) (294,382) (62,712) (1,086,027)
Extraordinary loss from
early extinguishment
of debt, net of tax
benefits (944,630)
--------------- --------------- --------------- ---------------
Net loss (30,278) (294,382) (62,712) (2,030,657)
Retained earnings at
beginning of period 4,114,706 8,843,376 4,147,140 10,579,651
--------------- --------------- --------------- ---------------
Retained earnings at
end of period $ 4,084,428 $ 8,548,994 $ 4,084,428 $ 8,548,994
=============== =============== =============== ================
</TABLE>
See accompanying notes.
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<PAGE> 5
GUARANTEED MORTGAGE CORPORATION II
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER SEPTEMBER
30, 1995 30, 1994
------------------- -------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (62,712) $ (2,030,657)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Amortization of net mortgage
discounts (728,212)
Amortization of bond discounts
and issue costs 2,179,412
Loss from early extinguishment
of debt 1,548,573
Provision for income tax benefit (41,808) (1,298,289)
Operating changes in cash due to:
Decrease in accrued interest
receivable 251,877 771,688
Increase in accrued liabilities 2,699,203 3,626,763
------------------ ------------------
Net cash provided by operating activities 2,846,560 4,069,278
------------------ ------------------
Cash flows from investing activities:
Principal amortization and prepayments of
held-to-maturity mortgage-backed securities 22,176,866 58,878,058
Transfer of held-to-maturity mortgage-backed
securities to holding company 9,702,221 31,845,017
(Increase) decrease in funds held by trustee (10,282,969) 10,165,009
------------------ ------------------
Net cash provided by investing activities 21,596,118 100,888,084
------------------ ------------------
Cash flows from financing activities:
Bond principal payments (24,196,762) (105,251,777)
Increase (decrease) in due affiliates (245,338) 294,653
------------------ ------------------
Net cash used in financing activities (24,442,100) (104,957,124)
------------------ ------------------
Net increase in cash 578 238
Cash at beginning of period 522 763
------------------ ------------------
Cash at end of period $ 1,100 $ 1,001
================== =================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for interest $ 10,931,504 $ 13,649,562
================== =================
</TABLE>
See accompanying notes.
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<PAGE> 6
GUARANTEED MORTGAGE CORPORATION II
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION, RELATED PARTY TRANSACTIONS AND SIGNIFICANT
ACCOUNTING POLICIES
BASIS OF PRESENTATION
Guaranteed Mortgage Corporation II (GMC II) is a wholly-owned financing
subsidiary of Pulte Financial Companies, Inc. (PFCI), which is a
wholly-owned financing subsidiary of Pulte Corporation.
GMC II previously engaged in the acquisition of mortgage-backed
securities (guaranteed by the Government National Mortgage Association -
GNMA) from affiliates. Such acquisitions were financed principally
through the issuance of long term bonds secured by such mortgage-backed
securities. GMC II has not initiated any such transactions since 1987
and is presently allowing its balance sheet to liquidate. As the
mortgage-backed securities and bonds outstanding continue to decline,
operating revenues and expenses will decline accordingly.
RELATED PARTY TRANSACTIONS
Transactions and arrangements between GMC II and PFCI, Pulte Corporation
and/or Pulte Home Corporation (PHC), an indirect wholly-owned subsidiary
of Pulte Corporation, are summarized as follows:
-- GMC II has periodic interest-free cash and non-cash advances from
certain affiliates, the net (receivable) payable balances of which
were $(218,367) and $68,779 at September 30, 1995 and December 31,
1994, respectively. Average month-end balances due these affiliates
were $(22,452) and $5,132,073 during the nine months ended September
30, 1995 and 1994, respectively. Advances payable by GMC II to
affiliates initially related to the acquisition of mortgage-backed
securities and have been decreased by operating earnings over the
life of GMC II.
-- During the nine months ended September 30, 1995 and 1994,
respectively, GMC II transferred $9,702,221 and $31,845,017 of net
mortgage-backed securities to its affiliate, Pulte Financial Holding
Corporation. The net amount of $31,845,017 transferred during 1994
consisted of $32,604,924 of mortgage-backed securities and $759,907
of the remaining associated unamortized mortgage discount.
-- Certain of GMC II's corporate officers are also officers of PFCI,
Pulte Corporation, PHC, ICM, and/or other affiliates of GMC II.
-- PFCI incurs certain administrative expenses on behalf of GMC II,
for which GMC II reimburses PFCI.
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<PAGE> 7
GUARANTEED MORTGAGE CORPORATION II
NOTES TO CONDENSED FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
SIGNIFICANT ACCOUNTING POLICIES
-- For the past several years, GMC II has been redeeming its GNMA
collateralized bonds at the earliest possible redemption date for
each individual bond series. The bonds are typically redeemable at
certain specified dates or when the remaining principal balance of
related collateral is less than 10% of the collateral's original
principal balance. With the adoption of FASB Statement 115 on
January 1, 1994, GMC II determined that FASB 115, paragraph 11-b,
allowed for continued classification of the GNMA securities as
held-to-maturity, since all sales of the securities were projected
to occur at a point where less than 15% of the securities' original
principal balance would remain outstanding. These projections were
based on actual observed prepayments interpolated out to each
series' projected redemption date. The projections indicated
outstanding principal balance percentages of less than 10%, which
was well below the 15% threshold for classifying the securities as
held-to-maturity. From FASB 115's adoption at January 1, 1994
through September 30, 1995, all sales of GNMA securities have been
at levels less than 15% of the original principal amounts. Given
recent prepayment experience, it appears that GMC II will liquidate
the collateral and redeem the bonds at dates where the remaining
GNMA securities sale balances will be approximately 20% of the
securities' original principal amounts. Such collateral sales and
bond redemptions are projected to occur between now and December 31,
1996. Although GMC II's management approach and intent with respect
to these securities remains unchanged, the ability to recognize
future security sales for accounting purposes as maturities is not
now applicable given recent updated collateral balance projections
for the same redemption dates as previously used for all remaining
bond series. Accordingly, GMC II has reclassified all GNMA
securities into the available-for-sale category effective September
30, 1995.
-- As a result of higher coupon mortgage collateral prepaying at a
proportionably faster rate than previously indicated due to the
high level of refinance activity in 1993 and 1994 while lower
coupon interest bearing debt has paid down at a faster rate than
the higher coupon interest bearing debt, GMC II's average
collateral coupon rate has decreased at an accelerated pace while
its average bond coupon rate has increased. This coupon dispersion
indicates further reduction of average collateral coupon rates in
1995 and 1996 which caused GMC II to change its accounting estimate
of amortization speeds and expensed all remaining mortgage discount
balances, bond discounts and issue costs in December, 1994. The
net amount of expense relating to this write-off amounted to
$2,678,999.
-- The accompanying unaudited condensed financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating
results for the nine month period ended September 30, 1995 are not
necessarily indicative of the results that may be expected for the
year ended December 31, 1995. For further information, refer to
the financial statements and footnotes thereto included in the
Registrant Company's annual report on Form 10-K for the year ended
December 31, 1994.
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<PAGE> 8
GUARANTEED MORTGAGE CORPORATION II
NOTES TO CONDENSED FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
2. MORTGAGE-BACKED SECURITIES
At September 30, 1995, mortgage-backed securities (GNMA certificates) had
an estimated market value of $188,512,591, which included gross
unrealized gains of $9,514,415 on securities with an amortized cost of
$178,998,176. At December 31, 1994, these securities had an estimated
market value of $213,132,078 which included gross unrealized gains of
$2,254,815 on securities with an amortized cost of $210,877,263. Actual
maturities of these mortgaged-backed securities may differ from
contractual maturities because the issuers of the securities have the
right to prepay obligations without penalties.
3. BONDS PAYABLE
Bonds payable at September 30, 1995 and December 31, 1994 consisted of
six bond issues with stated interest rates ranging from 8.45% to 11.00%.
The weighted average interest rate was 9.23% at September 30, 1995 and
December 31, 1994. All of these bond issues have classes of bonds with
serial maturities. Each series of the bonds is secured by separate pools
of mortgage-backed securities.
Timing of bond retirements is dependent upon mortgage payments and
reinvestment rates. The bonds are further collateralized by additional
pledged GNMA certificates in the aggregate amount of $1,294,733.
Under provisions of the bond indenture, funds held by trustee are
restricted so as to assure the payment of principal and interest on the
bonds to the extent of such funds.
4. EXTRAORDINARY ITEM
During the nine months ended September 30, 1994, GMC II extinguished
$33,900,294 of its long term debt prior to scheduled maturity, resulting
in an extraordinary loss of $1,548,573 due to the write-off of
unamortized bond discounts and issue costs. Tax benefits related to the
extraordinary loss amounted to $603,943 for the nine months ended
September 30, 1994.
The funds for this extinguishment were obtained from related party
advances.
5. SUBSEQUENT EVENT
During the quarter ended September 30, 1995, GMC II notified the trustee
of its intent to redeem on October 1, 1995, $9,800,915 of its long term
debt prior to scheduled maturity.
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<PAGE> 9
GUARANTEED MORTGAGE CORPORATION II
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company's mortgage-backed securities (GNMA certificates) are used as
collateral for associated bonds payable. Mortgage-backed securities were
acquired from affiliates. Through December 31, 1994, any difference between
the acquisition price and the principal balance of the securities at their
date of acquisition (mortgage premiums/discounts) was amortized into
operations as an adjustment of mortgage yield.
The Company's pre-tax loss before extraordinary item was $50,464 and
$104,520 for the quarter and nine months ended September 30, 1995,
respectively, as compared to $482,594 and $1,780,373 for the respective
periods in 1994. Losses decreased primarily as a result of GMC II's no
longer incurring amortization expense in 1995 as a result of GMC II changing
its accounting estimate of amortization speeds in December, 1994 and as a
result of decreases in actual outstanding collateral and bond balances in
1995.
GMC II's average collateral coupon rate has decreased at an accelerated
pace, while its average bond coupon rate has remained constant. This
condition is caused by higher coupon mortgage collateral pre-paying at a
proportionally faster rate than previously indicated due to the high level
of refinance activity that occurred during 1993 and 1994, while the lower
coupon interest bearing debt is paid down at a faster rate than the higher
coupon interest bearing debt. Analysis of collateral coupon dispersion in
1994 indicated further reduction of average collateral coupon interest rates
in 1995 and 1996 which resulted in GMC II changing its accounting estimate
of amortization speeds in December, 1994. Accordingly, GMC II expensed all
remaining mortgage discount balances, bond discounts and issue costs in
December, 1994. The net amount of expense relating to this write-off in
1994 amounted to $2,678,999. The Company expects to continue to experience
reductions in net interest income as mortgage prepayments continue.
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<PAGE> 10
GUARANTEED MORTGAGE CORPORATION II
KEY FACTORS IMPACTING INTEREST REVENUE AND INTEREST EXPENSE
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1995 1994 1995 1994
----------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
INTEREST REVENUE:
- - ----------------
Mortgage-backed securities
portfolio balance at
amortized cost $ 178,998,176 $ 219,205,923 $ 178,998,176 $ 219,205,923
Weighted average rate at
end of period 9.00% 9.11% 9.00% 9.11%
Funds held by trustee
balance at end of period $ 14,623,748 $ 5,627,253 $ 14,623,748 $ 5,627,253
Interest income for the
period $ 4,339,094 $ 5,072,509 $ 13,580,999 $ 16,930,560
Interest income earned on
funds held by trustee for
the period 37,660 31,405 90,037 128,558
Amortization of net
mortgage discounts 220,034 728,212
----------------- ----------------- ----------------- -----------------
Total $ 4,376,754 $ 5,323,948 $ 13,671,036 $ 17,787,330
================= ================= ================= =================
</TABLE>
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1995 1994 1995 1994
----------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
INTEREST EXPENSE:
- - ----------------
Bonds payable balance $ 188,266,130 $ 218,734,691 $ 188,266,130 $ 218,734,691
Weighted average rate at
end of period 9.23% 9.24% 9.23% 9.24%
Interest expense for the
period $ 4,381,987 $ 5,108,191 $ 13,630,707 $ 17,276,326
Amortization of bond
discounts and issue costs 663,102 2,179,412
----------------- ----------------- ----------------- -----------------
Total $ 4,381,987 $ 5,771,293 $ 13,630,707 $ 19,455,738
================= ================= ================= =================
</TABLE>
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<PAGE> 11
GUARANTEED MORTGAGE CORPORATION II
FINANCIAL CONDITION
Each series of the Company's bonds is secured by a separate collateral package
consisting of the GNMA certificates purchased in connection with the issuance
of a bond series, additional pledged GNMA certificates and cash. The
collateral package for a series is pledged to NBD Bank, N.A. as trustee on
behalf of the holders of bonds of such series. Funds held by the trustee with
respect to the bonds are restricted so as to assure the payment of principal
and interest on the bonds to the extent of such funds.
The Company will not have additional capital or liquidity requirements in
excess of collateral prepayments and additional pledged collateral balances,
assuming the mortgage-backed securities (GNMA certificates) continue to pay
principal and interest in accordance with their terms. No additional capital
requirements are anticipated since the cash flows from the collateral packages
are projected to be sufficient to repay the existing debt.
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<PAGE> 12
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibit is required to be filed as part of this
report as required under 601c(2) of Regulation S-K:27.
Financial Data Schedule for the 10-Q for the quarter ended
September 30, 1995.
(b) Reports on Form 8-K. The Company did not file any reports on Form
8-K during the quarter ended September 30, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GUARANTEED MORTGAGE CORPORATION II
November 13, 1995 By: /s/ James A. Weissenborn
- - ------------------------ ------------------------------
(Date) James A. Weissenborn, President
(Principal Executive Officer)
November 13, 1995 By: /s/ Bruce E. Robinson
- - ------------------------ ------------------------------
(Date) Bruce E. Robinson, Vice
President-Finance
and Treasurer
(Principal Financial Officer)
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<PAGE> 13
EXHIBIT INDEX
Exhibit No. Description
- - ----------- -----------------------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 14,624,848
<SECURITIES> 188,512,591
<RECEIVABLES> 1,570,515
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 204,707,954
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 204,707,954
<CURRENT-LIABILITIES> 6,628,747
<BONDS> 188,266,130
<COMMON> 1,000
0
0
<OTHER-SE> 9,812,077
<TOTAL-LIABILITY-AND-EQUITY> 204,707,954
<SALES> 0
<TOTAL-REVENUES> 13,671,036
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 144,849
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,630,707
<INCOME-PRETAX> (104,520)
<INCOME-TAX> (41,808)
<INCOME-CONTINUING> (62,712)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (62,712)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
