<PAGE> 1
Total Pages: 13
Index to Exhibits: Page 13
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 0-12811
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 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.
- 1 -
<PAGE> 2
GUARANTEED MORTGAGE CORPORATION III
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 10
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13
SIGNATURES 13
- 2 -
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GUARANTEED MORTGAGE CORPORATION III
CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
----------- ------------
ASSETS
------
<S> <C> <C>
Cash $ 1,190 $ 2,066
Funds held by trustee 1,138,854 1,336,403
Mortgage-backed securities
available-for-sale at estimated
fair value 54,270,671 56,975,222
Accrued interest receivable 396,913 440,701
Due from affiliates 5,313
----------- ------------
$55,812,941 $58,754,392
=========== ============
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
Liabilities:
Bonds payable $52,256,761 $54,681,582
Accrued liabilities, primarily
interest 811,174 847,561
Due to affiliates 831
Deferred income taxes 1,101,191 1,283,665
----------- ------------
Total liabilities 54,169,126 56,813,639
----------- ------------
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 1,113,332 1,113,332
Retained deficit (1,122,303) (1,099,076)
Unrealized gains on securities
available-for-sale, net of income
taxes of $1,101,191 and $1,283,665 1,651,786 1,925,497
----------- ------------
Total shareholder's equity 1,643,815 1,940,753
----------- ------------
$55,812,941 $58,754,392
=========== ============
</TABLE>
See accompanying notes.
- 3 -
<PAGE> 4
GUARANTEED MORTGAGE CORPORATION III
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 $ 1,182,038 $2,545,137
Fee income 7,268 8,074
----------- ----------
Total revenues 1,189,306 2,553,211
----------- ----------
Expenses:
Interest 1,193,584 2,504,418
General and administrative 34,434 43,153
----------- ----------
Total expenses 1,228,018 2,547,571
----------- ----------
Income (loss) before income tax (benefit) (38,712) 5,640
Income tax (benefit) (15,485) 2,256
----------- ----------
Net income (loss) (23,227) 3,384
Retained earnings (deficit) at
beginning of quarter (1,099,076) 495,426
----------- ----------
Retained earnings (deficit) at
end of quarter $(1,122,303) $ 498,810
=========== ==========
</TABLE>
See accompanying notes.
- 4 -
<PAGE> 5
GUARANTEED MORTGAGE CORPORATION III
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) $ (23,227) $ 3,384
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Provision for income tax (benefit) (15,485) 2,256
Operating changes in cash due to:
Decrease in accrued interest receivable 43,788 18,024
Increase in accrued liabilities 232,515 1,077,477
------------ ------------
Net cash provided by operating activities 237,591 1,101,141
------------ ------------
Cash flows from investing activities:
Principal amortization and prepayments
of held-to-maturity mortgage-backed
securities 3,200,615
Principal amortization and prepayments
of available-for-sale mortgage-backed
securities 2,248,366
Decrease in funds held by trustee 197,549 58,810
------------ ------------
Net cash provided by investing activities 2,445,915 3,259,425
------------ ------------
Cash flows from financing activities:
Bond principal payments (2,693,723) (4,273,450)
Increase (decrease) in due affiliates 9,341 (85,406)
------------ ------------
Net cash used in financing activities (2,684,382) (4,358,856)
------------ ------------
Net increase (decrease) in cash (876) 1,710
Cash at beginning of period 2,066 450
------------ ------------
Cash at end of period $ 1,190 $ 2,160
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the period for interest $ 961,070 $ 1,426,940
============ ============
</TABLE>
See accompanying notes.
- 5 -
<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 $(5,313) and $831 at March 31, 1996 and December 31, 1995,
respectively. Average month-end balances due these affiliates were
$7,237 and $25,756 for the quarters ended March 31, 1996 and 1995,
respectively.
-- 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 quarters ended March 31, 1996 and 1995, GMC III paid
$7,268 and $8,074, respectively, to PFCI for management fees related
to the issuance and administration of non-recourse bonds (see Note 3).
- 6 -
<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 SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities, on
January 1, 1994, GMC III 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.
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 during 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 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 III 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.
- 7 -
<PAGE> 8
GUARANTEED MORTGAGE CORPORATION III
NOTES TO CONDENSED FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
-- 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 $54,270,671,
which included gross unrealized gains of $2,752,977 on securities with an
amortized cost of $51,517,694. At December 31, 1995, these securities
had an estimated fair market value based on quoted market prices of
$56,975,222, which included gross unrealized gains of $3,209,162 on
securities with an amortized cost of $53,766,060. 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 March 31, 1996 and December 31, 1995 consisted of one bond
issue with a stated interest rate of 9.0. The bond issue has classes with
serial maturities. The bond is secured by separate pools of mortgage-backed
securities. Timing of the bond retirement is dependent upon payments
received on mortgage loans. The bond is further collateralized by letters of
credit in the aggregate amount of $517,000.
- 8 -
<PAGE> 9
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 March 31, 1996, $57,667,756 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.
- 9 -
<PAGE> 10
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) 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) was amortized into operations as an adjustment of
mortgage yield.
The Company's pretax income (loss) was $(38,712) and $5,640 for the quarters
ended March 31, 1996 and 1995, respectively. Earnings decreased during the
first quarter ended March 31, 1996 as compared with the same period in 1995
primarily due to decreased interest spreads resulting from increased
dispersion of average collateral coupon rates and the corresponding average
bond coupon rates. Reductions in weighted average collateral coupon rates
will continue as weighted average bond coupon rates increase as a result of
lower interest bearing debt being paid down prior to the higher interest
bearing debt. The company expects to continue to experience reductions in
interest income as mortgage prepayments continue.
- 10 -
<PAGE> 11
GUARANTEED MORTGAGE CORPORATION III
KEY FACTORS IMPACTING INTEREST REVENUE AND INTEREST EXPENSE
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
1996 1995
------------ ------------
INTEREST REVENUE:
-----------------
<S> <C> <C>
Mortgage-backed securities portfolio
balance at amortized cost at end of period $51,517,694 $110,814,492
Weighted average rate at end of period 9.00% 9.056%
Funds held by trustee balance at
end of period $ 1,138,854 $ 2,216,573
Interest income for the period $ 1,176,720 $ 2,535,211
Interest income earned on funds held by
trustee for the period 5,318 9,925
----------- ------------
Total interest income $ 1,182,038 $ 2,545,136
=========== ============
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
1996 1995
------------ ------------
INTEREST EXPENSE:
-----------------
<S> <C> <C>
Bonds payable balance at end of period $52,256,761 $111,680,712
Weighted average rate at end of period 9.00% 8.89%
Interest expense for the period $ 1,193,584 $ 2,504,418
=========== ============
</TABLE>
- 11 -
<PAGE> 12
GUARANTEED MORTGAGE CORPORATION III
FINANCIAL CONDITION
-------------------
The Company's bonds are secured by a collateral package consisting of the
Certificates purchased in connection with the issuance of the bond series, or
Funding Notes or a combination thereof, letters of credit and cash. The
collateral package is pledged to NBD Bank, N.A. as trustee on behalf of the
holders of the bonds. 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. The Company is
anticipating repayment of all outstanding debt by late 1996.
- 12 -
<PAGE> 13
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 III
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)
- 13 -
<PAGE> 14
Exhibit Index
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule
<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> 1,140,044
<SECURITIES> 54,270,671
<RECEIVABLES> 402,226
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 55,812,941
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 55,812,941
<CURRENT-LIABILITIES> 1,912,365
<BONDS> 52,256,761
0
0
<COMMON> 1,000
<OTHER-SE> 1,642,815
<TOTAL-LIABILITY-AND-EQUITY> 55,812,941
<SALES> 0
<TOTAL-REVENUES> 1,189,306
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 34,434
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,193,584
<INCOME-PRETAX> (38,712)
<INCOME-TAX> (15,485)
<INCOME-CONTINUING> (23,227)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (23,227)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
