<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, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 or 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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Commission File Number 0-12811
GUARANTEED MORTGAGE CORPORATION III
(Exact name of registrant as specified in its charter)
MICHIGAN 31-1054754
(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, 1994: 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 III
INDEX
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets, September 30, 1994 and
December 31, 1993 3
Statements of Operations and Retained Earnings,
Three Months Ended September 30, 1994 and
September 30, 1993 and
Nine Months Ended September 30, 1994 and
September 30, 1993 4
Statements of Cash Flows, Nine Months Ended
September 30, 1994 and September 30, 1993 5
Notes to 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
</TABLE>
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<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GUARANTEED MORTGAGE CORPORATION III
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1994 1993
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ASSETS
<S> <C> <C>
Cash $ 86 $ 1,003
Funds held by trustee 2,972,268 7,621,454
Mortgage-backed securities 120,535,326 154,532,645
Accrued interest receivable 919,864 1,160,553
Bond issue costs 574,815 759,108
Due from affiliates 294,484
------------ ------------
$125,296,843 $164,074,763
============ ============
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Bonds payable $116,429,353 $153,750,523
Accrued liabilities, primarily
interest 1,807,737 2,354,417
Due to affiliates 249,956
------------ ------------
Total liabilities 118,237,090 156,354,896
------------ ------------
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 7,039,753 7,699,867
------------ ------------
Total shareholder's equity 7,059,753 7,719,867
------------ ------------
$125,296,843 $164,074,763
============ ============
</TABLE>
See accompanying notes.
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<PAGE> 4
GUARANTEED MORTGAGE CORPORATION III
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, 1994 30, 1993 30, 1994 30, 1993
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Revenues:
Interest, including
amortization of
net mortgage
discounts/premiums $2,594,025 $3,933,542 $ 8,368,508 $15,008,134
Fee income 7,232 10,305 25,014 35,220
---------- ---------- ----------- -----------
Total revenues 2,601,257 3,943,847 8,393,522 15,043,354
---------- ---------- ----------- -----------
Expenses:
Interest, including
amortization of bond
discounts and issue
costs 2,900,471 4,122,131 9,406,482 15,343,757
General and
administrative 21,029 34,661 69,194 143,803
---------- ---------- ----------- -----------
Total expenses 2,921,500 4,156,792 9,475,676 15,487,560
---------- ---------- ----------- -----------
Loss before income
tax benefit and
extraordinary
item (320,243) (212,945) (1,082,154) (444,206)
Income tax benefit (124,895) (80,919) (422,040) (168,799)
---------- ---------- ----------- -----------
Loss before
extraordinary item (195,348) (132,026) (660,114) (275,407)
Extraordinary loss from
early extinguishment
of debt, net of tax
benefit (1,257,563)
---------- ---------- ----------- -----------
Net loss (195,348) (132,026) (660,114) (1,532,970)
Retained earnings at
beginning of period 7,235,101 9,121,684 7,699,867 10,522,628
---------- ---------- ----------- -----------
Retained earnings at
end of period $7,039,753 $8,989,658 $ 7,039,753 $ 8,989,658
========== ========== =========== ===========
</TABLE>
See accompanying notes.
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<PAGE> 5
GUARANTEED MORTGAGE CORPORATION III
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER SEPTEMBER
30, 1994 30, 1993
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<S> <C> <C>
Cash flows from operating activities:
Net loss $ (660,114) $ (1,532,970)
Adjustments to reconcile net loss
to net cash provided by
operating activities:
Amortization of net mortgage
premiums/discounts 491,658 309,130
Amortization of bond discounts
and issue costs 574,318 516,437
Loss from early extinguishment
of debt 2,028,327
Provision for income tax benefit (422,040) (939,563)
Operating changes in cash due to:
Decrease in accrued interest receivable 240,689 995,784
Increase in accrued liabilities 2,608,906 1,049,017
------------ -------------
Net cash provided by operating
activities 2,833,417 2,426,162
------------ -------------
Cash flows from investing activities:
Principal amortization and prepayments
of mortgage-backed securities 33,505,660 50,281,074
Transfer of mortgage-backed securities
to holding company 75,304,263
Decrease in funds held by trustee 4,649,186 1,724,263
------------ -------------
Net cash provided by investing
activities 38,154,846 127,309,600
------------ -------------
Cash flows from financing activities:
Bond principal payments (40,866,780) (129,873,484)
Increase (decrease) in due affiliates (122,400) 137,123
------------ -------------
Net cash used in financing
activities (40,989,180) (129,736,361)
------------ -------------
Net decrease in cash (917) (599)
Cash at beginning of period 1,003 936
------------ -------------
Cash at end of period $ 86 $ 337
============ =============
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the period for interest $ 6,223,257 $ 13,778,303
============ =============
</TABLE>
See accompanying notes.
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<PAGE> 6
GUARANTEED MORTGAGE CORPORATION III
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION, RELATED PARTY TRANSACTIONS AND SIGNIFICANT
ACCOUNTING POLICIES
BASIS OF PRESENTATION
Guaranteed Mortgage Corporation III (GMC III) is a wholly-owned financing
subsidiary of Pulte Financial Companies, Inc. (PFCI), which is a wholly-owned
financing subsidiary of Pulte Corporation.
GMC III acquired mortgage-backed securities from affiliates and entered into
funding agreements with various limited purpose financing companies (funding
companies), the notes (funding notes) issued thereunder being secured by
mortgage-backed securities. GMC III then issued bonds collateralized by such
securities or funding notes. The mortgage-backed securities are guaranteed
by the Government National Mortgage Association, the Federal National
Mortgage Association or the Federal Home Loan Mortgage Corporation.
RELATED PARTY TRANSACTIONS
Transactions and arrangements between GMC III and PFCI, Pulte Corporation
and/or Pulte Home Corporation (PHC), an indirect wholly- owned subsidiary of
Pulte Corporation are summarized as follows:
-- GMC III has periodic interest-free cash and non-cash advances from
certain affiliates, the net (receivable) payable balances of which were
$(294,484) and $249,956 at September 30, 1994 and December 31, 1993,
respectively. Average month-end balances due these affiliates were
$286,075 and $6,307,469 for the nine months ended September 30, 1994 and
1993, respectively. Advances payable by GMC III to affiliates related
principally to the acquisition of mortgage-backed securities.
-- Certain of GMC III's corporate officers are also officers of PFCI, Pulte
Corporation, PHC, ICM, and/or other affiliates of GMC III.
-- PFCI incurs certain administrative expenses on behalf of GMC III, for
which GMC III reimburses PFCI.
-- During the nine months ended September 30, 1994 and 1993, GMC III paid
$25,014 and $35,219, respectively, to PFCI for management fees related to
the issuance and administration of non-recourse bonds (see Note 3).
SIGNIFICANT ACCOUNTING POLICIES
-- The Company adopted Statement of Accounting Standards No. 115 (FAS No.
115), "Accounting for Certain Investments in Debt and Equity Securities",
effective January 1, 1994, for investments held as of or acquired after
that date. There was no cumulative effect as of January 1, 1994 on net
income or equity
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<PAGE> 7
GUARANTEED MORTGAGE CORPORATION III
NOTES TO FINANCIAL STATEMENTS, CONTINUED
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
as a result of the adoption of FAS No. 115. Mortgage-backed
securities are classified as held-to-maturity based upon the
Company's positive intent and ability to hold the securities to
maturity. Held-to-maturity securities are stated at amortized cost
and are adjusted for amortization of premiums and accretion of
discounts over the estimated life of the security. Such
amortization, along with interest and dividends are included in
interest income.
-- The information furnished in this report reflects all adjustments which
are, in the opinion of management, necessary for a fair statement of the
results of the interim periods. All adjustments are of a normal
recurring nature.
2. MORTGAGE-BACKED SECURITIES
At September 30, 1994, mortgage-backed securities (GNMA certificates)
had an estimated market value of $121,828,073, which included gross
unrealized gains of $1,292,747 on securities with an amortized cost of
$120,535,326. At December 31, 1993, these securities had an estimated
market value of $163,612,379, which included gross unrealized gains of
$9,079,734 on securitie with an amortized cost of $154,532,645. Expected
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.
During the nine months ended September 30, 1993, GMC III extinguished
$79,295,473 of its long-term debt prior to scheduled maturity. Due to this
redemption, GMC III transferred the related outstanding collateral of
$77,044,581 and the unamortized discount of $1,740,318 associated with this
collateral, to its affiliate, Pulte Financial Holding Company.
3. BONDS PAYABLE
Bonds payable at September 30, 1994 and December 31, 1993 consisted of two
bond issues with stated interest rates ranging from 8.50% to 9.0% for both
periods. Weighted average stated interest rates were 8.88% and 8.82% at
September 30, 1994 and December 31, 1993, respectively. Both of the 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 payments received on mortgage loans.
The bonds are further collateralized by additional pledged GNMA certificates
in the aggregate amount of $1,257,311.
Bonds payable are stated net of discounts. At September 30, 1994 and
December 31, 1993, unamortized bond discounts were $3,889,740 and
$4,279,765, respectively.
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<PAGE> 8
GUARANTEED MORTGAGE CORPORATION III
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. BONDS PAYABLE (CONTINUED)
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.
As of September 30, 1994, $79,465,967 was outstanding for three series of
non-recourse bonds issued by GMC III, in the initial aggregate principal
amount of $527,300,000, which are secured by funding notes or mortgage-
backed securities in which GMC III has nominal or no ownership interest. In
accordance with generally accepted accounting principles, these series of
bonds are not treated as borrowings and, accordingly, such bonds and related
collateral are not included on the balance sheet.
4. EXTRAORDINARY ITEM
During the nine months ended September 30, 1993, GMC III extinguished
$79,295,473 of its long-term debt prior to scheduled maturity, resulting in
an extraordinary pretax loss of $2,028,327 due to the write-off of
unamortized bond discounts and issue costs. Tax benefits related to these
extraordinary losses amounted to $770,763, for the nine months ended
September 30, 1993.
The funds for these extinguishments were obtained from the sale of
mortgage-backed securities which colateralized the bond.
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<PAGE> 9
GUARANTEED MORTGAGE CORPORATION III
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company's mortgage-backed securities 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
discounts/premiums) are amortized into operations over the estimated lives of
the securities.
The Company's pretax loss before extraordinary item was $320,243 and
$1,082,154 for the quarter and nine months ended September 30, 1994,
respectively, as compared to $212,945 and $444,206 for the respective periods
in 1993. Earnings have decreased during 1994 from 1993 primarily due to the
reduced interest carry (i.e. interest income less interest expense) as a
result of volume declines due to mortgage prepayments and bond redemptions.
Pretax extraordinary losses from bond extinguishments during the nine months
ended September 30, 1993, were $2,028,327. These losses resulted from the
writeoff of unamortized bond discounts and bond issue costs. There was no
similar activity in the comparable period in 1994.
FINANCIAL CONDITION
It is anticipated that the Company will have no additional capital or
liquidity requirements, assuming the mortgage-backed securities continue to
pay principal and interest in accordance with their terms.
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<PAGE> 10
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, 1994.
(b) Reports on Form 8-K. The Company did not file any reports on Form
8-K during the quarter ended September 30, 1994.
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 III
November 14, 1994 By: /s/ JAMES A. WEISSENBORN
----------------- -------------------------------
(Date) James A. Weissenborn, President
(Principal Executive Officer)
November 14, 1994 By: /s/ BRUCE E. ROBINSON
----------------- -------------------------------
(Date) Bruce E. Robinson, Controller
(Principal Accounting Officer)
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<PAGE> 11
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------------------- ----
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 2,972,354
<SECURITIES> 120,535,326
<RECEIVABLES> 1,789,163
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 125,296,843
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 125,296,843
<CURRENT-LIABILITIES> 1,807,737
<BONDS> 116,429,353
<COMMON> 1,000
0
0
<OTHER-SE> 7,058,753
<TOTAL-LIABILITY-AND-EQUITY> 125,296,843
<SALES> 0
<TOTAL-REVENUES> 8,393,522
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 69,164
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,406,482
<INCOME-PRETAX> (1,082,154)
<INCOME-TAX> (422,040)
<INCOME-CONTINUING> (660,114)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (660,114)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
