<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 0-12811
-------
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, 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, 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
</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>
SEPTEMBER 30, DECEMBER 31,
1995 1994
-------- --------
<S> <C> <C>
ASSETS
------
Cash $ 1,264 $ 450
Funds held by trustee 2,730,824 2,275,383
Mortgage-backed securities held-to-maturity,
at amortized cost 114,015,107
Mortgage-backed securities available-for-sale,
at estimated fair value 107,827,316
Accrued interest receivable 800,207 869,788
Due from affiliates 17,790
----------------- -----------------
$ 111,377,401 $ 117,160,728
================= =================
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
Liabilities:
Bonds payable $ 103,756,670 $ 114,830,836
Accrued liabilities, primarily
interest 1,567,256 1,727,987
Due to affiliates 86,479
Other liabilities 2,212,705
----------------- -----------------
Total liabilities 107,536,631 116,645,302
----------------- -----------------
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 501,711 495,426
Unrealized gains on securities 3,319,059
----------------- -----------------
Total shareholder's equity 3,840,770 515,426
----------------- -----------------
$ 111,377,401 $ 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 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 $ 2,367,207 $ 2,744,983 $ 7,367,690 $ 8,860,166
Amortization of net
mortgage discounts/
premiums (150,958) (491,658)
Fee income 6,540 7,232 21,554 25,014
--------------- --------------- ---------------- ---------------
Total revenues 2,373,747 2,601,257 7,389,244 8,393,522
--------------- --------------- ---------------- ---------------
Expenses:
Interest 2,341,563 2,712,154 7,270,502 8,832,164
Amortization of bond
discounts and issue
costs 188,317 574,318
General and
administrative 32,750 21,029 108,267 69,194
--------------- --------------- ---------------- ---------------
Total expenses 2,374,313 2,921,500 7,378,769 9,475,676
--------------- --------------- ---------------- ---------------
Income (loss) before income
tax (benefit) (566) (320,243) 10,475 (1,082,154)
Income tax (benefit) (226) (124,895) 4,190 (422,040)
--------------- --------------- ---------------- ---------------
Net income (loss) (340) (195,348) 6,285 (660,114)
Retained earnings at
beginning of period 502,051 7,235,101 495,426 7,699,867
--------------- --------------- ---------------- ---------------
Retained earnings at
end of period $ 501,711 $ 7,039,753 $ 501,711 $ 7,039,753
=============== =============== ================ ===============
</TABLE>
See accompanying notes.
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<PAGE> 5
GUARANTEED MORTGAGE CORPORATION III
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 income (loss) $ 6,285 $ (660,114)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Amortization of net mortgage
premiums/discounts 491,658
Amortization of bond discounts
and issue costs 574,318
Provision for income tax (benefit) 4,190 (422,040)
Operating changes in cash due to:
Decrease in accrued interest receivable 69,581 240,689
Increase in accrued liabilities 3,284,642 2,608,906
------------- -------------
Net cash provided by operating
activities 3,364,698 2,833,417
------------- -------------
Cash flows from investing activities:
Principal amortization and prepayments
of held-to-maturity mortgage-backed
securities 11,719,555 33,505,660
(Increase) decrease in funds held by trustee (455,441) 4,649,186
------------- -------------
Net cash provided by investing
activities 11,264,114 38,154,846
------------- -------------
Cash flows from financing activities:
Bond principal payments (14,519,539) (40,866,780)
Decrease in due affiliates (108,459) (122,400)
------------- -------------
Net cash used in financing
activities (14,627,998) (40,989,180)
------------- -------------
Net increase (decrease) in cash 814 (917)
Cash at beginning of period 450 1,003
------------- -------------
Cash at end of period $ 1,264 $ 86
============= =============
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the period for interest $ 3,985,859 $ 6,223,257
============= =============
</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 $(17,790) and $86,479 at September 30, 1995 and December 31,
1994, respectively. Average month-end balances due these
affiliates were $6,511 and $286,075 for the nine months ended
September 30, 1995 and 1994, respectively. Advances payable by GMC
III to affiliates initially related to the acquisition of
mortgage-backed securities and have been decreased by operating
earnings over the life of GMC III.
-- 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, 1995 and 1994, GMC III
paid $21,554 and $25,014, 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
-- For the past several years, GMC III 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 III 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.
Given recent prepayment experience, it appears that GMC III 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 III'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 III 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 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 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 III
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 $107,827,316, which included gross unrealized
gains of $5,531,764 on securities with an amortized cost of $102,295,552.
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 September 30, 1995 and December 31, 1994 consisted of two
bond issues with stated interest rates ranging from 8.50% to 9.0% for both
periods. Weighted average interest rates were 8.91% and 8.88% at September
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 $982,182.
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, 1995, $64,867,801 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. SUBSEQUENT EVENT
During the quarter ended September 30, 1995, GMC III notified the trustee
of its intent to redeem on November 1, 1995, and December 1, 1995,
$2,928,285 and $42,965,297, respectively, of its long term debt prior to
scheduled maturity. The funds for these extinguishments were obtained
from the sale of the mortgage-backed securities which collateralized the
bonds.
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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 $(566) and $10,475 for the
quarter and nine months ended September 30, 1995, respectively, as
compared to $(320,243) and $(1,082,154) 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 as a result of 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 prepaying
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 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
GUARANTEED MORTGAGE CORPORATION III
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 $ 102,295,552 $ 118,862,585 $ 102,295,552 $ 118,862,585
Weighted average rate at
end of period 9.05% 9.06% 9.05% 9.06%
Funds held by trustee
balance at end of period $ 2,730,824 $ 2,972,268 $ 2,730,824 $ 2,972,268
Interest income for the
period $ 2,354,870 $ 2,732,968 $ 7,334,312 $ 8,811,541
Interest income earned on
funds held by trustee for
the period 12,337 12,015 33,378 48,625
Amortization of net
mortgage discounts/premiums (150,958) (491,658)
----------------- ----------------- ----------------- -----------------
Total $ 2,367,207 $ 2,594,025 $ 7,367,690 $ 8,368,508
================= ================= ================= =================
</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 $ 103,756,670 $ 120,319,093 $ 103,756,670 $ 120,319,093
Weighted average rate at
end of period 8.91% 8.88% 8.91% 8.88%
Interest expense for the
period $ 2,341,563 $ 2,712,154 $ 7,270,502 $ 8,832,164
Amortization of bond
discounts and issue costs 188,317 574,318
----------------- ------------------- ----------------- -----------------
Total $ 2,341,563 $ 2,900,471 $ 7,270,502 $ 9,406,482
================= ================= ================= =================
</TABLE>
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<PAGE> 11
GUARANTEED MORTGAGE CORPORATION III
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
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> 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 III
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
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<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> 2,732,088
<SECURITIES> 107,827,316
<RECEIVABLES> 817,997
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 111,377,401
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 111,377,401
<CURRENT-LIABILITIES> 3,779,961
<BONDS> 103,756,670
<COMMON> 1,000
0
0
<OTHER-SE> 3,839,770
<TOTAL-LIABILITY-AND-EQUITY> 111,377,401
<SALES> 0
<TOTAL-REVENUES> 7,389,244
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 108,267
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,270,502
<INCOME-PRETAX> 10,475
<INCOME-TAX> 4,190
<INCOME-CONTINUING> 6,285
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,285
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
