<PAGE> 1
Total Pages: 11
Index to Exhibits: Page 11
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 JUNE 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 0-12811
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 July 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 III
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Condensed Balance Sheets, June 30, 1995 and December 31, 1994 3
Condensed Statements of Operations and Retained Earnings,
Three Months Ended June 30, 1995 and June 30, 1994 and
Six Months Ended June 30, 1995 and June 30, 1994 4
Condensed Statements of Cash Flows, Six Months Ended
June 30, 1995 and June 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 11
SIGNATURES 11
</TABLE>
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<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GUARANTEED MORTGAGE CORPORATION III
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1994
------------------ ------------------
<S> <C> <C>
ASSETS
------
Cash $ 2,006 $ 450
Funds held by trustee 2,189,117 2,275,383
Mortgage-backed securities 106,728,411 114,015,107
Accrued interest receivable 827,671 869,788
Due from affiliates 8,444
------------ ------------
$109,755,649 $117,160,728
============ ============
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
Liabilities:
Bonds payable $107,610,331 $114,830,836
Accrued liabilities, primarily
interest 1,623,267 1,727,987
Due to affiliates 86,479
------------ ------------
Total liabilities 109,233,598 116,645,302
------------ ------------
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 502,051 495,426
------------ ------------
Total shareholder's equity 522,051 515,426
------------ ------------
$109,755,649 $117,160,728
============ ============
</TABLE>
See accompanying notes.
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<PAGE> 4
GUARANTEED MORTGAGE CORPORATION III
CONDENSED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1995 1994 1995 1994
----------------- ----------------- ----------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Interest $2,455,346 $2,908,520 $5,000,482 $6,115,182
Amortization of net
mortgage discounts/
premiums (163,562) (340,700)
Fee income 6,939 8,045 15,014 17,781
---------- ---------- ---------- ----------
Total revenues 2,462,285 2,753,003 5,015,496 5,792,263
---------- ---------- ---------- ----------
Expenses:
Interest 2,424,520 2,901,341 4,928,938 6,120,010
Amortization of bond
discounts and issue
costs 191,235 386,001
General and
administrative 32,364 23,612 75,517 48,164
---------- ---------- ---------- ----------
Total expenses 2,456,884 3,116,188 5,004,455 6,554,175
---------- ---------- ---------- ----------
Income (loss) before income
tax (benefit) 5,401 (363,185) 11,041 (761,912)
Income tax (benefit) 2,160 (141,642) 4,416 (297,146)
---------- ---------- ---------- ----------
Net income (loss) 3,241 (221,543) 6,625 (464,766)
Retained earnings at
beginning of period 498,810 7,456,644 495,426 7,699,867
---------- ---------- ---------- ----------
Retained earnings at
end of period $ 502,051 $7,235,101 $ 502,051 $7,235,101
========== ========== ========== ==========
</TABLE>
See accompanying notes.
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<PAGE> 5
GUARANTEED MORTGAGE CORPORATION III
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1995 1994
--------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 6,625 $ (464,766)
Adjustments to reconcile net income (loss)
to net cash provided by
operating activities:
Amortization of net mortgage
premiums/discounts 340,700
Amortization of bond discounts
and issue costs 386,001
Provision for income tax (benefit) 4,416 (297,146)
Operating changes in cash due to:
Decrease in accrued interest
receivable 42,117 203,336
Increase in accrued liabilities 2,166,880 1,629,212
----------- ------------
Net cash provided by operating activities 2,220,038 1,797,337
----------- ------------
Cash flows from investing activities:
Principal amortization and prepayments
of mortgage-backed securities 7,286,696 27,686,507
Decrease in funds held by trustee 86,266 3,827,149
----------- ------------
Net cash provided by investing activities 7,372,962 31,513,656
----------- ------------
Cash flows from financing activities:
Bond principal payments (9,492,105) (33,237,183)
Decrease in due affiliates (99,339) (73,902)
----------- ------------
Net cash used in financing activities (9,591,444) (33,311,085)
----------- ------------
Net increase (decrease) in cash 1,556 (92)
Cash at beginning of period 450 1,003
----------- ------------
Cash at end of period $ 2,006 $ 911
=========== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for interest $ 2,762,059 $ 4,490,797
=========== ============
</TABLE>
See accompanying notes.
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<PAGE> 6
GUARANTEED MORTGAGE CORPORATION III
NOTES TO CONDENSED 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 previously engaged in the acquisition of 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. GMC III has
not initiated any such transactions since 1988 and is presently allowing
its balance sheet to liquidate. As the security portfolio and the bonds
outstanding continue to decline, GMC III's revenues and expenses will
decline accordingly.
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 $(8,444) and $86,479 at June 30, 1995 and December 31, 1994,
respectively. Average month-end balances due these affiliates were
$18,068 and $225,670 for the six months ended June 30, 1995 and 1994,
respectively. Advances payable by GMC III to affiliates relate
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 six months ended June 30, 1995 and 1994, GMC III paid
$15,014 and $17,781, respectively, to PFCI for management fees
related to the issuance and administration of non-recourse bonds (see
Note 3).
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<PAGE> 7
GUARANTEED MORTGAGE CORPORATION III
NOTES TO CONDENSED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
SIGNIFICANT ACCOUNTING POLICIES
-- 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.
-- As a result of higher coupon mortgage collateral pre-paying at a
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 III'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
III to change its accounting estimate of amortization speeds and
expensed all remaining mortgage discount/premium balances, bond
discounts and issue costs in December 1994. The net amount of
expense relating to this write-off amounted to $5,812,061.
-- 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 six month period ended June
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.
2. MORTGAGE-BACKED SECURITIES
At June 30, 1995, mortgage-backed securities (GNMA certificates) had an
estimated market value of $112,366,341, which included gross unrealized
gains of $5,637,930 on securities with an amortized cost of $106,728,411.
At December 31, 1994, these securities had an estimated market value of
$115,620,712, which included gross unrealized gains of $1,605,605 on
securities with an amortized cost of $114,015,107. 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
Bonds payable at June 30, 1995 and December 31, 1994 consisted of two bond
issues with stated interest rates ranging from 8.5% to 9.0%. Weighted
average interest rates were 8.90% and 8.88% at June 30, 1995 and December
31, 1994, 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 $986,758.
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<PAGE> 8
GUARANTEED MORTGAGE CORPORATION III
NOTES TO CONDENSED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
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 June 30, 1995, $68,217,530 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.
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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 (Certificates) or finance
companies' notes secured by Certificates (Funding Notes) were 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 discounts/premiums) was amortized
into operations as an adjustment of mortgage yield.
The Company's pretax income (loss) was $5,401 and $11,041 for the quarter
and six months ended June 30, 1995, respectively as compared to $(363,185)
and $(761,912) for the respective periods in 1994. Earnings increased due
to increased interest spreads which were primarily a result of GMC III no
longer incurring amortization expense in 1995 arising from GMC III
changing its accounting estimate of amortization speeds in December, 1994.
GMC III's average collateral coupon rate has decreased at an accelerated
pace, while its average bond coupon rate has increased. This condition is
caused by higher coupon mortgage collateral pre-paying at a 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 indicated further
reduction of average collateral coupon interest rates in 1995 and 1996
which resulted in GMC III changing its accounting estimate of amortization
speeds in December, 1994. Accordingly, GMC III expensed all remaining
mortgage discount/premium balances, bond discounts and issue costs in
December, 1994. The net amount of expense relating to this write off in
1994 amounted to $5,812,061. The Company expects to continue to
experience reductions in net interest income as mortgage prepayments
continue. The Company is anticipating repayment of all outstanding long
term debt by late 1996.
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<PAGE> 10
KEY FACTORS IMPACTING INTEREST REVENUE AND INTEREST EXPENSE
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1995 1994 1995 1994
---------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
INTEREST REVENUE:
Mortgage-backed securities
portfolio balance $106,728,411 $124,681,739 $106,728,411 $124,681,739
Weighted average rate
at end of period 9.05% 9.06% 9.05% 9.06%
Interest income for the period $ 2,455,346 $ 2,908,520 $ 5,000,482 $ 6,115,182
Amortization of net mortgage
discounts/premiums (163,562) (340,700)
------------ ------------ ------------ ------------
Total $ 2,455,346 $ 2,744,958 $ 5,000,482 $ 5,774,482
============ ============ ============ ============
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1995 1994 1995 1994
----------------- ---------------- ---------------- ----------------
INTEREST EXPENSE:
Bonds payable balance $107,610,331 $126,873,642 $107,610,331 $126,873,642
Weighted average rate
at end of period 8.90% 8.865% 8.90% 8.865%
Interest expense for
the period $ 2,424,520 $ 2,901,341 $ 4,928,938 $ 6,120,010
Amortization of bond
discounts and issue costs 191,235 386,001
------------ ------------ ------------ ------------
Total $ 2,424,520 $ 3,092,576 $ 4,928,938 $ 6,506,011
============ ============ ============ ============
</TABLE>
FINANCIAL CONDITION
Each series of the Company's bonds is secured by a separate collateral package
consisting, in part, of the Certificates purchased in connection with the
issuance of a bond series, or Funding Notes or a combination thereof,
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 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 additional pledged collateral balances,
assuming the mortgage-backed securities 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. The Company is anticipating
repayment of all outstanding debt by late 1996.
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<PAGE> 11
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 June
30, 1995.
(b) Reports on Form 8-K. The Company did not file any reports
on Form 8-K during the quarter ended June 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 III
August 10, 1995 By: \s\ James A. Weissenborn
--------------- -------------------------
(Date) James A. Weissenborn, President
(Principal Executive Officer)
August 10, 1995 By: \s\ Bruce E. Robinson
--------------- -----------------------
(Date) Bruce E. Robinson, Vice President
- Finance and Treasurer
(Principal Financial Officer)
- 11 -
<PAGE> 12
Exhibit Index
Exhibit Number Description
-------------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 2,191,123
<SECURITIES> 106,728,411
<RECEIVABLES> 836,115
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 109,755,649
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 109,755,649
<CURRENT-LIABILITIES> 1,623,267
<BONDS> 107,610,331
<COMMON> 1,000
0
0
<OTHER-SE> 521,051
<TOTAL-LIABILITY-AND-EQUITY> 109,755,649
<SALES> 0
<TOTAL-REVENUES> 5,015,496
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 75,517
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,928,938
<INCOME-PRETAX> 11,041
<INCOME-TAX> 4,416
<INCOME-CONTINUING> 6,625
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,625
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
