<PAGE> 1
Total Pages: 10
Index to Exhibits: Page 10
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 PERIOD ENDED MARCH 31, 1996
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 (IRS 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 April 30, 1996: 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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GUARANTEED MORTGAGE CORPORATION II
INDEX
PAGE NO.
--------
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Condensed Balance Sheets, March 31, 1996 and December 31, 1995 3
Condensed Statements of Operations and Retained Earnings,
Three Months Ended March 31, 1996 and 1995 4
Condensed Statements of Cash Flows, Three Months Ended
March 31, 1996 and 1995 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 10
SIGNATURES 10
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<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GUARANTEED MORTGAGE CORPORATION II
CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Cash $ 792 $ 12,797
Funds held by trustee 53,634,665 4,005,267
Mortgage-backed securities available-for-sale,
at estimated fair value 117,258,479 181,868,074
Accrued interest receivable 831,157 1,294,857
Due from affiliates 236,402
------------ ------------
$171,725,093 $187,417,397
============ ============
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Bonds payable $112,499,707 $170,590,843
Accrued liabilities, primarily
interest 1,609,082 2,530,618
Due to affiliates 45,370,271
Deferred income taxes 2,288,430 4,109,158
------------ ------------
Total liabilities 161,767,490 177,230,619
------------ ------------
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 6,504,958 4,003,040
Unrealized gains on securities
available-for-sale, net of income
taxes of $2,288,430 and $4,109,158 3,432,645 6,163,738
------------ ------------
Total shareholder's equity 9,957,603 10,186,778
------------ ------------
$171,725,093 $187,417,397
============ ============
</TABLE>
See accompanying notes.
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GUARANTEED MORTGAGE CORPORATION II
CONDENSED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1996 1995
------------ ------------
<S> <C> <C>
Revenues:
Interest $ 2,912,320 $ 4,722,479
Gain on sale of mortgage-backed securities 4,260,819
------------ ------------
Total revenues 7,173,139 4,722,479
------------ ------------
Expenses:
Interest 2,959,362 4,694,369
General and administrative 43,913 58,526
------------ ------------
Total expenses 3,003,275 4,752,895
------------ ------------
Income (loss) before income tax (benefit) 4,169,864 (30,416)
Income tax (benefit) 1,667,946 (12,166)
------------ ------------
Net income (loss) 2,501,918 (18,250)
Retained earnings at beginning
of quarter 4,003,040 4,147,140
------------ ------------
Retained earnings at end of
quarter $ 6,504,958 $ 4,128,890
============ ============
</TABLE>
See accompanying notes.
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<PAGE> 5
GUARANTEED MORTGAGE CORPORATION II
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,501,918 $ (18,250)
Adjustments to reconcile net income (loss)
to net cash provided by
operating activities:
Gain on sale of mortgage-backed securities (4,260,819)
Provision for income tax (benefit) 1,667,946 (12,166)
Operating changes in cash due to:
Decrease in accrued interest
receivable 463,700 48,108
Increase (decrease) in accrued liabilities (921,536) 1,768,299
------------ ------------
Net cash (used in) provided by
operating activities (548,791) 1,785,991
------------ ------------
Cash flows from investing activities:
Principal amortization and prepayments
of held-to-maturity mortgage-backed securities 6,414,069
Principal amortization and prepayments of
available-for-sale mortgage-backed securities 5,486,910
Sale of available-for-sale mortgage-backed
securities 58,831,682
(Increase) decrease in funds held by trustee (49,629,398) 617,965
------------ ------------
Net cash provided by
investing activities 14,689,194 7,032,034
------------ ------------
Cash flows from financing activities:
Bond principal payments (58,091,136) (8,811,586)
Net change in due affiliates 43,938,728 (6,197)
------------ ------------
Net cash used in financing
activities (14,152,408) (8,817,783)
------------ ------------
Net increase (decrease) in cash (12,005) 242
Cash at beginning of period 12,797 522
------------ ------------
Cash at end of period $ 792 $ 764
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for interest $ 3,867,770 $ 2,926,070
============ ============
</TABLE>
See accompanying notes.
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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 the bonds outstanding continue to decline, operating
earnings 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 payable (receivable) balances of
which were $45,370,271 and $(236,402) at March 31, 1996 and
December 31, 1995, respectively. Average month-end balances due
these affiliates were $8,034,329 and $72,069 during the quarters
ended March 31, 1996 and 1995, respectively.
-- 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.
SIGNIFICANT ACCOUNTING POLICIES
-- For the past several years, GMC II has been redeeming 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 SFAS No. 115, Accounting for
Certain Investments in Debt and Equity Securities, on January 1,
1994, GMC II determined that SFAS No. 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.
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<PAGE> 7
GUARANTEED MORTGAGE CORPORATION II
NOTES TO CONDENSED FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
From SFAS No. 115's adoption at January 1, 1994 through September 30,
1995, all sales of GNMA securities were 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
during 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 securities
held-to-maturity 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
reclassified all GNMA securities into the available-for-sale category
effective September 30, 1995.
-- Gains from the sale of mortgage-backed securities are calculated
based on amortized cost.
-- 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 three month period
ended March 31, 1996 are not necessarily indicative of the results
that may be expected for the year ended December 31, 1996. 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, 1995.
2. MORTGAGE-BACKED SECURITIES
At March 31, 1996, mortgage-backed securities (GNMA certificates) had an
estimated fair market value based on quoted market prices of $117,258,479,
which included gross unrealized gains of $5,721,075 on securities with an
amortized cost of $111,537,404. At December 31, 1995, these securities had
an estimated fair market value based on quoted market prices of
$181,868,074, which included gross unrealized gains of $10,272,896 on
securities with an amortized cost of $171,595,178. Actual maturities of
these mortgage-backed securities may differ from contractual maturities
because the issuers of the securities may have the right to prepay
obligations without penalties.
3. BONDS PAYABLE
During the quarter ended March 31, 1996, GMC II extinguished or called for
the extinguishment of $156,837,376 of its long-term debt prior to
scheduled maturity. There were no extraordinary losses related to these
redemptions since all bond discounts and issue costs related to these
bonds had been fully amortized prior to their redemption dates.
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GUARANTEED MORTGAGE CORPORATION II
NOTES TO CONDENSED FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
3. BONDS PAYABLE (CONTINUED)
Bonds payable at March 31, 1996 and 1995 consisted of three and six bond
issues, respectively, with stated interest rates ranging from 8.45% to
11.00%. The weighted average stated interest rates were 8.94% and 9.12%
at March 31, 1996 and December 31, 1995, respectively. 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 letters of
credit in the aggregate amount of $865,000.
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. SUBSEQUENT EVENT
During April 1996, GMC II sold $101,510,866 of its mortgage-backed
securities resulting in a pretax gain of $5,497,396. GMC II also
extinguished $51,753,820 and $52,047,865 of its long-term debt prior to
scheduled maturity on April 1, 1996 and May 1, 1996, respectively.
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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. 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 pretax income (loss) was $4,169,864 and $(30,416) for the
quarters ended March 31, 1996 and 1995, respectively. The pretax income
increased during the quarter ended March 31, 1996 as compared with the
same period of 1995 primarily due to the sale of mortgage-backed
securities, resulting in a pretax gain of $4,260,819.
FINANCIAL CONDITION
Each series of the Company's bonds is secured by a separate collateral
package consisting of the Certificates purchased in connection with the
issuance of a bond series, letters of credit and cash. The collateral
package for a series is pledged to NBD Bank, N.A. as trustee on behalf of
the holders of the 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 letter of credit 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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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 March
31, 1996.
(b) Reports on Form 8-K. The Company did not file any
reports on Form 8-K during the quarter ended March 31, 1996.
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
May 13, 1996 By: /s/ James A. Weissenborn
- -------------------- -------------------------------------------
(Date) James A. Weissenborn, President
(Principal Executive Officer)
May 13, 1996 By: /s/ Bruce E. Robinson
- -------------------- -------------------------------------------
(Date) Bruce E. Robinson, Vice President-Finance
and Treasurer
(Principal Financial Officer)
<PAGE> 11
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 53,635,457
<SECURITIES> 117,258,479
<RECEIVABLES> 831,157
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 171,725,093
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 171,725,093
<CURRENT-LIABILITIES> 49,267,783
<BONDS> 112,499,707
0
0
<COMMON> 1,000
<OTHER-SE> 9,956,603
<TOTAL-LIABILITY-AND-EQUITY> 171,725,093
<SALES> 0
<TOTAL-REVENUES> 7,173,139
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 43,913
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,959,362
<INCOME-PRETAX> 4,169,864
<INCOME-TAX> 1,667,946
<INCOME-CONTINUING> 2,501,918
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,501,918
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
