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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-9804
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PULTE CORPORATION
(Exact name of registrant as specified in its charter)
MICHIGAN 38-2766606
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
33 Bloomfield Hills Parkway, Suite 200
Bloomfield Hills, Michigan 48304
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (248) 647-2750
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, par value $.01 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of class)
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 12 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 ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ].
Aggregate market value of voting stock held by nonaffiliates of the
registrant as of January 31, 1998: $676,209,187
Number of shares of common stock outstanding as of January 31, 1998:
21,295,505
Documents Incorporated by Reference
Applicable portions of the Proxy Statement for the 1998 Annual Meeting of
Shareholders are incorporated by reference in Part III of this Form.
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<PAGE>
PULTE CORPORATION
TABLE OF CONTENTS
Item Page
No. No.
- ---- ----
Part I
1 Business........................................................... 3
2 Properties......................................................... 8
3 Legal Proceedings.................................................. 8
4 Submission of Matters to a Vote of Security Holders................ 9
4A Executive Officers of the Registrant............................... 9
Part II
5 Market for the Registrant's Common Equity and Related
Stockholder Matters............................................. 11
6 Selected Financial Data............................................ 11
7 Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 14
8 Financial Statements and Supplementary Data........................ 24
9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................ 64
Part III
10 Directors and Executive Officers of the Registrant................. 64
11 Executive Compensation............................................. 64
12 Security Ownership of Certain Beneficial Owners and Management..... 64
13 Certain Relationships and Related Transactions..................... 64
Part IV
14 Exhibits, Financial Statement Schedules and Reports on
Form 8-K........................................................ 64
Signatures............................................................. 72
2
<PAGE>
PART I
ITEM 1. BUSINESS
Pulte Corporation
Pulte Corporation (the Company) is the publicly held parent corporation of
the Pulte Home Corporation (Pulte) group of companies. The Company is a
holding company and its assets consist principally of the capital stock of
its subsidiaries, cash and investments. Its income primarily consists of
dividends from its subsidiaries and interest on investments. The Company's
direct subsidiaries consist of Pulte Financial Companies, Inc. (PFCI) and
Pulte Diversified Companies, Inc. (PDCI). PDCI's direct subsidiaries are
Pulte and First Heights Bank, a federal savings bank (First Heights). Pulte
Mortgage Corporation (Pulte Mortgage) is a direct subsidiary of Pulte.
The Company conducts operations in two primary business segments:
homebuilding, through Pulte and its homebuilding subsidiaries, and financial
services, principally through the Company's mortgage banking subsidiary
(Pulte Mortgage) and to a limited extent by its financing subsidiary (PFCI).
The Company's thrift subsidiary, First Heights, has been classified as
discontinued operations. (See Note 3 of Notes to Consolidated Financial
Statements.)
Homebuilding Operations
Pulte builds a wide variety of homes, including detached units, townhouses,
condominium apartments and duplexes, with varying prices, models, options and
lot sizes, all sold for use as principal residences. Nearly tripling both its
housing sales (settlements) and net new orders since 1990, Pulte continued
the distinction it earned in 1996 as the nation's largest homebuilder with
1997 sales of over 15,300 homes and nearly 190,000 homes since its inception.
Additionally, during 1996, Pulte was recognized as "America's Best Builder"
by the National Association of Home Builders, the industry's trade
association, and by Builder Magazine, one of the industry's leading trade
publications.
The Company believes that its customer-focused approach has allowed it to
quickly identify and target emerging niches, including the mature buyer (home
buyers age 50 and over) and affordable housing segments. Initiatives focusing
on affordable housing, most notably the Canterbury Community concept
(affordable site-built homes), are currently offered or under way in 30
communities within ten markets nationwide.
As of December 31, 1997, Pulte offered homes for sale in 396 communities at
sales prices ranging from $45,000 to over $600,000. Sales prices of homes
currently offered for sale in 77% of Pulte's communities fall within the
range of $75,000 to $225,000 with a 1997 average unit selling price of
$162,000. Sales of single-family detached homes, as a percentage of total
unit sales, were 78%, 77% and 73% in 1997, 1996 and 1995, respectively. As of
December 31, 1997, Pulte operated in 41 markets within the following
geographic areas and Puerto Rico:
Pulte Home East:
Mid-Atlantic Region Delaware, Maryland, Massachusetts,
New Jersey, Pennsylvania, Rhode Island,
Virginia
Southeast Region Georgia, North Carolina, South Carolina
Florida Region Florida
Pulte Home Central:
Great Lakes Region Indiana, Michigan, Missouri, Ohio, Kansas
Midwest Region Illinois, Minnesota, Wisconsin
Texas Region Texas
Pulte Home West:
Southwest Region Arizona, Nevada
Rocky Mountain Region Colorado, Utah
California Region California
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The following table sets forth for-sale housing unit sales (settlements),
average sales prices, net new orders and backlog of orders (any of which may
be canceled):
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Unit settlements:
Pulte Home East ............................... 7,550 7,007 5,591 4,737 3,913
Pulte Home Central ............................ 4,385 4,589 4,403 3,577 3,432
Pulte Home West ............................... 3,387 3,017 2,451 2,828 2,453
-------- -------- -------- -------- --------
Total unit settlements ........................... 15,322 14,613 12,445 11,142 9,798
======== ======== ======== ======== ========
Average sales price .............................. $162,000 $159,000 $155,000 $147,000 $139,000
======== ======== ======== ======== ========
Net new orders - units:
Pulte Home East ............................... 7,492 7,128 6,243 4,592 4,165
Pulte Home Central ............................ 4,421 4,282 4,943 3,410 3,420
Pulte Home West ............................... 3,575 2,989 2,634 2,559 2,665
-------- -------- -------- -------- --------
Total net new orders ............................. 15,488 14,399 13,820 10,561 10,250
======== ======== ======== ======== ========
Markets, end of year ............................. 41 41 39 32 26
======== ======== ======== ======== ========
Active communities, end of year .................. 396 392 351 294 239
======== ======== ======== ======== ========
<CAPTION>
At December 31,
----------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Backlog - units:
Pulte Home East ............................... 1,715 1,773 1,652 1,000 1,145
Pulte Home Central ............................ 1,016 980 1,287 747 914
Pulte Home West ............................... 883 695 723 540 809
-------- -------- -------- -------- --------
Total backlog ................................. 3,614 3,448 3,662 2,287 2,868
======== ======== ======== ======== ========
Backlog, in thousands of dollars ................. $644,000 $596,000 $602,000 $387,000 $420,000
======== ======== ======== ======== ========
Backlog average sales price ...................... $178,000 $173,000 $164,000 $169,000 $146,000
======== ======== ======== ======== ========
</TABLE>
Unit sales (settlements) and net new orders in any year are strongly
influenced by local, regional and national market economic conditions.
Land Acquisition and Development
Locations for development are selected after completing extensive market
research, enabling Pulte to match the location and product offering with its
targeted consumer group. Factors considered include proximity to developed
areas, population growth patterns and, if applicable, estimated development
costs. Pulte has historically managed the risk of controlling its land
positions through use of option contracts and outright acquisition. Due to
the competitive market conditions of recent years, obtaining satisfactory
option terms to allow Pulte to control what it believes are prime development
locations in each of its respective markets has become increasingly more
difficult. As a result, Pulte has utilized outright acquisition more
frequently. Pulte typically controls land with the intent to complete sales
of housing units within 24 months from the date of opening a community,
except in the case of certain mature buyer developments for which the
completion of housing unit sales may require 60 months from the date of
opening a community. As a result, land is generally controlled after it is
properly zoned and developed or is ready for development. In addition, Pulte
disposes of land owned not required in its business. Where Pulte develops
land, it engages directly in many phases of the development process,
including land and site planning, obtaining environmental and other
regulatory approvals, and constructing roads, sewers, water and drainage
facilities, and other amenities. Pulte uses its staff and the services of
independent engineers and consultants in its land development activities.
Land development work is performed primarily by subcontractors and local
government authorities which construct sewer and water systems in some areas.
At December 31, 1997, Pulte owned approximately 28,700 lots in communities in
which homes are being constructed. In addition, Pulte had approximately
20,200 lots under option.
4
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Sales and Marketing
Pulte is dedicated to improving the quality and value of its homes through
proprietary innovative architectural and community designs and
state-of-the-art customer marketing techniques. Analyzing various qualitative
and quantitative data obtained through extensive market research, Pulte
segments its potential customers into well-defined buyer profiles. Once the
demands of potential buyers are understood, Pulte links its home design and
community development efforts to the specific lifestyle of each targeted
consumer group.
To meet the demands of its various customer segments, Pulte has established a
solid design expertise for a wide array of product lines. Pulte believes that
it is an innovator in the design of its homes, and it views its design
capacity as an integral aspect of its marketing strategy. Pulte's in-house
architectural services teams and management, supplemented by outside
consultants, have been successful in creating distinctive design features,
both in exterior facades, and interior options and features. One of Pulte's
strategies in certain markets has been to offer "the complete house" in which
all features shown in the home are included in the sales price. Standard
features typically offered include vaulted ceilings, flooring, carpet and
appliances, with the buyer having selection options as to the type of
flooring and carpet.
Typically, Pulte's own sales team, together with outside sales brokers, are
responsible for managing the customer through the sales process. Fully
furnished and landscaped model homes are used to showcase Pulte's homes and
their distinctive design features. Pulte has great success with the
first-time buyer in the low to moderate price range; in such cases, financing
under United States Government-insured and guaranteed programs is often used
and is facilitated through Pulte Mortgage. Pulte also enjoys strong sales to
the move-up buyer and, in certain markets, offers semi-custom homes in higher
price ranges. Pulte introduces its homes to prospective buyers through a
variety of media advertising, illustrated brochures and other advertising
displays. Customers also are obtained through referrals from other Pulte
customers. Also, Pulte maintains market and specific community information in
its internet home page which can be reached at http://www.pulte.com.
Construction
Pulte normally designs the homes it sells and builds such homes under the
supervision of its on-site construction superintendents. The construction
work is usually performed by subcontractors under contracts which, in many
instances, cover both labor and materials on a fixed-price basis. Pulte
believes that Pulte Preferred Partnerships (P3), an extension of its quality
assurance program, is establishing new standards for contractor relations.
Using a selective process, Pulte has teamed up with what it believes are
premier contractors and suppliers to improve all aspects of the land
development and house construction processes.
Pulte attempts to maintain efficient operations by using standard materials
and components from a variety of sources and, when feasible, by building on
contiguous lots. To minimize the effects of changes in construction costs,
the subcontracting and purchasing of building supplies and materials are
generally negotiated at or near the time when related sales contracts are
signed. In addition, Pulte utilizes the leverage its size affords by actively
negotiating its materials needs on a national or regional basis to minimize
component production cost. Pulte cannot determine the extent to which
necessary building materials will be available at reasonable prices in the
future and has, on occasion, experienced shortages of skilled labor in
certain trades and of building materials in some markets.
A Pulte subsidiary, Builders' Supply and Lumber Co., Inc. (BSL), operates
facilities in the greater metropolitan Washington, D.C., area, Charlotte,
Raleigh, Atlanta, Orlando and North East, Maryland, which provide building
materials to certain Pulte operating divisions as well as unaffiliated
customers. On February 13, 1998, the Company announced that it had entered
into an agreement to sell BSL. This sale is subject to financing and other
customary conditions and is expected to close during the first quarter of
1998.
Competition and Other Factors
Pulte employs a consumer-products orientation based upon customer
satisfaction and value-based brand recognition it believes is unique in the
home building industry and a significant factor in its long-term competitive
advantage. However, the housing industry in the United States is highly
competitive. In each of Pulte's market areas, there are
5
<PAGE>
numerous homebuilders with which it competes. Any provider of housing units,
for-sale or to rent, including apartment builders, may be considered a
competitor of Pulte. Conversion of apartments to condominiums further
provides certain segments of the population an alternative to traditional
housing, as well as the emergence and acceptance of manufactured housing.
Pulte competes primarily on the basis of reputation, price, location, design
and quality of its homes. The housing industry is cyclical and is affected by
a number of economic and other factors including: (1) significant national
and world events which impact consumer confidence; (2) changes in interest
rates; (3) changes in other costs associated with home ownership, such as
property taxes and energy costs; (4) various demographic factors; (5) changes
in federal income tax laws; and (6) changes in government mortgage financing
programs. In addition to these factors, Pulte's business and operations could
be affected by unanticipated shifts in demand for new homes.
Pulte's operations are subject to building, environmental and other
regulations of various state and local authorities. For its homes to qualify
for Federal Housing Administration (FHA) or Veterans Administration (VA)
mortgages, Pulte must satisfy valuation standards and site, material and
construction requirements of those agencies. Compliance by Pulte with
federal, state and local laws relating to protection of the environment has
had, to date, no material effect upon capital expenditures, earnings or the
competitive position of Pulte. More stringent requirements could be imposed
in the future on homebuilders and developers, thereby increasing the cost of
compliance.
Financial Services Operations
The Company's financial services operations are conducted by its mortgage
banking and other financial subsidiaries.
Mortgage Banking
Pulte Mortgage is a mortgage bank which arranges financing through the
origination of mortgage loans primarily for the benefit of buyers of Pulte's
homes, but also to the general public, and engages in the sale of such loans
and the related servicing rights. Pulte Mortgage is a lender approved by the
FHA and VA and is a seller/servicer approved by Government National Mortgage
Association (GNMA), Federal National Mortgage Association (FNMA), Federal
Home Loan Mortgage Corporation (FHLMC) and other investors. In its
conventional mortgage lending activities, Pulte Mortgage generally follows
underwriting guidelines established by FNMA and FHLMC.
During 1996, Pulte Mortgage reorganized its operations by centralizing its
mortgage underwriting, processing and closing functions in Denver, Colorado,
through the implementation of a mortgage operations center (MOC) concept.
Additionally, during 1997, Pulte Mortgage began a centralized telephone loan
officer concept which moved the loan officers from field branches to a
mortgage application center (MAC) located in Denver. Thus the principal field
contacts for the mortgage customers are Pulte's sales representatives who
forward the loan application to the MAC. The MAC loan officer calls the
customer to complete the loan application and then forwards it to the MOC for
processing. Pulte Mortgage believes both the MOC and the MAC will improve the
speed and efficiency of its mortgage operations, thus improving profitability
and allowing it to focus on creating mortgage opportunities with Pulte
customers.
In originating mortgage loans, Pulte Mortgage initially uses its own funds
and borrowings made available to it pursuant to various credit arrangements.
Subsequently, Pulte Mortgage sells such mortgage loans and mortgage-backed
securities to outside investors. During the years ended December 31, 1997,
1996 and 1995, Pulte Mortgage originated mortgage loans for 50%, 49% and 49%,
respectively, of the homes sold by Pulte. Such originations represented 81%,
72% and 62%, respectively, of Pulte Mortgage funded originations.
Approximately 34%, 38% and 50% of the total loans originated by Pulte
Mortgage during the years ended December 31, 1997, 1996 and 1995,
respectively, were insured by the FHA or partially guaranteed by the VA.
Prior to 1994, Pulte Mortgage had retained most of the servicing rights
related to mortgage loans it had originated and, thus, accepted the risks
inherent in servicing. Beginning in 1994, Pulte Mortgage changed its strategy
to sell originated mortgage servicing on a flow basis. In addition, during
the second half of 1994 and first half of 1995, Pulte Mortgage sold a
significant portion of its core mortgage servicing portfolio. At December 31,
1997, the outstanding balance of Pulte Mortgage's owned servicing portfolio
was $305,000,000 (2,786 loans) as compared with $394,000,000 (3,744 loans)
and $368,000,000 (3,852 loans) at December 31, 1996 and 1995, respectively.
At December 31, 1997, approximately 38% of such servicing portfolio was
insured by the FHA or partially guaranteed by the VA, compared to 32% at
December 31, 1996.
6
<PAGE>
The mortgage industry in the United States is highly competitive. Pulte
Mortgage competes with other mortgage companies and financial institutions to
provide attractive mortgage financing to both Pulte customers and the general
public. Pulte Mortgage, in originating and servicing mortgage loans, is
subject to rules and regulations of the FHA, VA, GNMA, FNMA, and FHLMC.
Other Financial Subsidiaries
Other financing activities are conducted by the limited purpose subsidiaries
of PFCI. Such subsidiaries previously engaged in the acquisition of mortgage
loans and mortgage-backed securities from Pulte Mortgage and unrelated
parties financed principally through long-term bonds which are secured only
by such mortgage loans and mortgage-backed securities. At December 31, 1997,
one bond series with a principal amount of $37,413,000 remained outstanding.
Such bonds are the obligations of the applicable PFCI issuer subsidiary; they
are neither obligations of, nor guaranteed by, the Company, PDCI, Pulte,
Pulte Mortgage or PFCI. (See Management's Discussion and Analysis of
Financial Condition and Results of Operations - Other Financial Subsidiaries
and Note 5 of Notes to Consolidated Financial Statements.)
Discontinued Operations
During 1994, the Company announced its strategy to exit the thrift industry
and increase its focus on homebuilding and related mortgage banking. First
Heights sold substantially all of its bank branches and related liabilities
(primarily deposits), plus certain other assets. The sale was completed
during the fourth quarter of 1994. Accordingly, such operations have been
presented as discontinued. Included in the sale were assets, primarily
consumer and commercial loans, of $116,886,000 and liabilities, primarily
deposits, of $1,205,047,000. To provide liquidity for the sale, First Heights
liquidated its investment portfolios and its single-family residential loan
portfolio and borrowed $127,000,000 from the Federal Deposit Insurance
Corporaiton (FDIC). One remaining retail branch office continues to operate
in Houston. First Heights is subject to regulation by the Office of Thrift
Supervision (OTS) and the FDIC. Specific regulations include, among others,
capital maintenance requirements, liquidity maintenance requirements,
limitations on the growth of total liabilities, limitations on the type and
amount of its investments, restrictions on transactions with affiliates, and
limitations on dividends paid to PDCI. (See Management's Discussion and
Analysis of Financial Condition and Results of Operations - Discontinued
Operations, and Note 3 of Notes to Consolidated Financial Statements.) The
Company is engaged in litigation with the FDIC and the United States in
connection with its thrift activities. (See Item 3 - Legal Proceedings).
Corporate
Corporate is a nonoperating segment that is comprised of the Company and
PDCI, both of which are holding companies. Its primary purpose is to support
the operations of the Company's subsidiaries as the internal source of
financing and by implementing and nurturing to maturity strategic initiatives
centered around new business development and improving operating
efficiencies. Examples of past and present strategic initiatives include:
o international expansion into Mexico and pursuit of additional
international opportunities;
o affordable housing opportunities, through the use of manufactured
and/or modular housing products and development of communities for
such products; and
o non-traditional building components and business initiatives.
Corporate assets include equity investments in its subsidiaries, short-term
financial instruments and affiliate advances. Its liabilities include senior
and subordinated debt and income taxes. Corporate revenues consist primarily
of investment earnings of excess funds, while its expenses include costs
associated with supporting its subsidiaries' operations and investigating
strategic initiatives.
7
<PAGE>
Organization/Employees
All subsidiaries and operating units operate in an autonomous fashion with
respect to day-to-day operations. All homebuilding real estate purchases and
other significant homebuilding, mortgage banking, financing activities and
similar operating decisions must be approved by business unit and/or senior
corporate management.
At December 31, 1997, the Company employed approximately 4,300 persons.
Employees of the Company and its subsidiaries are not represented by any
union. Subcontracted work, however, may be performed by union subcontractors.
Homebuilding, mortgage banking and financing management personnel are paid
performance bonuses based on individual performance and incentive
compensation based on the performance of the applicable division or
subsidiary. The Company's corporate management personnel are paid incentive
compensation based on overall performance of the Company (see Note 6 of Notes
to Consolidated Financial Statements). Each subsidiary is given autonomy
regarding employment of personnel, although the Company's senior corporate
management acts in an advisory capacity in the employment of subsidiary
officers. The Company considers its employee and subcontractor relations to
be satisfactory.
ITEM 2. PROPERTIES
The Company's and Pulte's corporate offices are located at 33 Bloomfield
Hills Parkway, Suite 200, Bloomfield Hills, Michigan, 48304, where 37,529
square feet of office space is leased. Pulte Mortgage's and PFCI's corporate
offices are located at 6061 South Willow Drive, Greenwood Village, Colorado,
80111. At this location, 47,400 square feet of office space is leased. Pulte
homebuilding markets and Pulte Mortgage branch operations generally lease
office space for their day-to-day operations. Pulte's subsidiary which
provides building materials owns three warehouses totaling 196,000 square
feet and leases 77,000 square feet of warehouse space in metropolitan
Washington, D.C., leases a 91,000 square foot warehouse facility in
Charlotte, owns a 112,000 square foot warehouse facility in Atlanta, leases a
100,000 square foot warehouse facility in Raleigh, owns a 47,000 square foot
warehouse facility in Orlando and leases 109,000 square feet of warehouse
space in North East, Maryland.
Because of the nature of Pulte's homebuilding operations, significant amounts
of property are held as inventory in the ordinary course of its homebuilding
business. Such properties are not included in response to this Item.
First Heights' administrative offices and it remaining retail branch office
are located in leased space at 2050 North Loop West, Suite 201, Houston,
Texas 77018.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various litigation incidental to its business. In
the opinion of management, none of this litigation will have a material
adverse financial impact on the Company.
First Heights-Related Litigation
The Company is a party to two lawsuits relating to First Heights' 1988
acquisition from the Federal Savings and Loan Insurance Corporation (FSLIC),
and First Heights' ownership of, five failed Texas thrifts. The first lawsuit
(the "District Court Case") was filed on July 7, 1995 in the United States
District Court, Eastern District of Michigan, by the Federal Deposit
Insurance Corporation (FDIC) against the Company, PDCI and First Heights
(collectively, the "Pulte Parties"). The second lawsuit (the "Court of
Federal Claims Case") was filed on December 26, 1996 in the United States
Court of Federal Claims (Washington, D.C.) by the Pulte Parties against the
United States. In the District Court Case, the FDIC seeks a declaration of
rights and other relief related to the assistance agreement entered into
between First Heights and the FSLIC. The FDIC is the successor to FSLIC. The
FDIC and the Pulte Parties disagree about the proper interpretation of
provisions in the assistance agreement which provide for sharing of certain
tax benefits achieved in connection with First Heights' 1988 acquisition and
ownership of the five failed Texas thrifts. The District Court Case also
includes certain other claims relating to the foregoing, including claims
resulting from the Company's and First Heights' amendment of a tax sharing
and allocation agreement between the Company and First Heights. The Pulte
Parties dispute the FDIC's claims and believe that a proper interpretation of
the assistance agreement limits the FDIC's participation in the tax benefits.
The Pulte Parties have filed an answer and a counterclaim, seeking, among
other things,
8
<PAGE>
a declaration that the FDIC has breached the assistance agreement in numerous
respects. On December 24, 1996, the Pulte Parties voluntarily dismissed
without prejudice certain of their claims in the District Court Case and on
December 26, 1996, initiated the Court of Federal Claims Case.
The Court of Federal Claims Case contains similar claims as those that were
voluntarily dismissed from the District Court Case. In their complaint, the
Pulte Parties assert breaches of contract on the part of the United States in
connection with the enactment of section 13224 of the Omnibus Budget
Reconciliation Act of 1993. That provision repealed portions of the tax
benefits that the Pulte Parties claim they were entitled to under the
contract to acquire the failed Texas thrifts. The Pulte Parties also assert
certain other claims concerning the contract, including claims that the
United States (through the FDIC as receiver) has improperly attempted to
amend the failed thrifts' pre-acquisition tax returns and that this attempt
was made in an effort to deprive the Pulte Parties of tax benefits they had
contracted for, and that the enactment of the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 breached the Government's obligation
not to require contributions of capital greater than those required by the
contract.
On March 5, 1998, the Company reported that an opinion and order had been
issued by the United States District Court (the "Court") which resolved by
summary judgment four of the interpretational issues which had been raised in
the District Court Case. On three issues, the Court ruled in favor of the
FDIC, and on one issue, the Court ruled in favor of the Company. The Company
vigorously disagrees with the Court's ruling in favor of the FDIC and intends
to appeal if these rulings become part of any final judgment. If the Company
were unsuccessful on appeal and if all other issues in such litigation were
resolved in favor of the FDIC, the Company would, at such time, take an
after-tax charge against discontinued operations in an amount which would
range from a nominal amount to as much as $40,000,000. The Company does not
believe that the claims in the Court of Federal Claims Case are affected by
the rulings in the District Court Case.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
This Item is not applicable.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is certain information with respect to all officers
(including executive officers) of the Company as of December 31, 1997.
<TABLE>
<CAPTION>
Year Became
Name Age Position An Officer
- ---- --- -------- ----------
<S> <C> <C> <C>
William J. Pulte 65 Chairman of the Board 1956
Robert K. Burgess 53 President and Chief Executive Officer 1984
Mark J. O'Brien 54 Executive Vice President and
Chief Operating Officer 1997
Roger A. Cregg 41 Senior Vice President 1997
Michael D. Hollerbach 44 Executive Vice President and
Chief Financial Officer 1989
William J. Crombie 50 Senior Vice President 1989
Michael A. O'Brien 45 Senior Vice President 1993
Vincent J. Frees 47 Vice President and Controller 1995
Gregory M. Nelson 42 Vice President 1993
John R. Stoller 49 Vice President, General Counsel and Secretary 1990
James A. Weissenborn 40 Vice President and Treasurer 1993
</TABLE>
9
<PAGE>
The following is a brief account of the business experience during the past
five years through December 31, 1997 of each officer:
Mr. Pulte was appointed Chairman of the Board in January 1991 and Co-Chairman
of the Executive Committee in April 1990. Previously, Mr. Pulte was Chairman
of the Executive Committee of the Board of Directors. Mr. Pulte served as
Chief Executive Officer from January 1991 through December 1992. He has been
a Director of the Company since 1956.
Mr. Burgess has been President since October 1985. In addition, Mr. Burgess
was appointed Chief Executive Officer in January 1993. He has been a Director
of the Company since 1985.
Mr. Mark O'Brien was appointed Executive Vice President and Chief Operating
Officer in August 1997. Prior to that date, Mr. O'Brien served in various
capacities with Company subsidiaries, most recently as President of Pulte
Home East, an operating unit of Pulte.
Mr. Cregg was appointed Senior Vice President in December 1997 and named
Chief Financial Officer effective January 31, 1998. Prior to joining the
Company, Mr. Cregg was Executive Vice President and Chief Financial Officer
of Zenith Electronics Corporation since 1996, and Vice President and Chief
Financial Officer of Sweetheart Cup Company from 1990 to 1996.
Mr. Hollerbach had been Executive Vice President and Chief Financial Officer
from June 1993 through January 1998, at which time Mr. Hollerbach left the
Company. He was previously Senior Vice President since July 1989. He had been
a Director of the Company from January 1993 through January 1998.
Mr. Crombie has been Senior Vice President since June 1993. From November
1989 to June 1993, he was Senior Vice President-Finance and Chief Financial
Officer.
Mr. Michael O'Brien became Senior Vice President in December 1994. From
December 1993 to November 1994, he was Vice President. From 1989 to November
1993, Mr. O'Brien served as Vice President-Human Resources of Pepsi-Cola,
Inc.
Mr. Frees became Vice President and Controller in May 1995. Prior to joining
the Company in April 1995, Mr. Frees served in various key financial
capacities with American Cyanamid Company since 1982.
Mr. Nelson has been Vice President since August 1993. From 1988 to August
1993, he was Director of Taxes. He has also been a Vice President of Pulte
since 1988. Mr. Nelson joined the Company in January 1982.
Mr. Stoller joined the Company in August 1990. In October 1990, he was
appointed Vice President and General Counsel. Prior to joining the Company,
Mr. Stoller served as Vice President, General Counsel and Secretary of
BetaWest Properties, Inc., a commercial real estate development subsidiary of
US WEST, Inc. Effective January 1, 1994, Mr. Stoller became Secretary of the
Company.
Mr. Weissenborn had been Vice President and Treasurer from August 1993
through January 1998, at which time Mr. Weissenborn left the Company. From
March 1989 to August 1993, he served as Executive Vice President and Chief
Financial Officer of First Heights.
There is no family relationship between any of the officers. Each officer
serves at the pleasure of the Board of Directors.
10
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's common stock is listed on the New York Stock Exchange (Symbol:
PHM). The table below sets forth, for the quarterly periods indicated, the
range of high and low sales prices and cash dividends declared per share.
<TABLE>
<CAPTION>
1997 1996
--------------------------------- --------------------------------
Declared Declared
High Low Dividends High Low Dividends
---- --- --------- ---- --- ---------
<S> <C> <C> <C> <C> <C> <C>
1st Quarter $34.75 $29.25 $.06 $34.63 $25.75 $.06
2nd Quarter 35.50 27.25 .06 29.63 24.75 .06
3rd Quarter 41.38 33.75 .06 27.50 24.00 .06
4th Quarter 42.50 34.44 .06 31.75 25.25 .06
</TABLE>
At December 31, 1997, there were 704 shareholders of record.
ITEM 6. SELECTED FINANCIAL DATA
Set forth below is selected consolidated financial data for each of the past
five fiscal years. The selected financial data should be read in conjunction
with Management's Discussion and Analysis of Financial Condition and Results
of Operations and the Company's Consolidated Financial Statements and Notes
thereto included elsewhere in this report.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ----------- ----------- ----------- -----------
OPERATING DATA: ($000's omitted)
<S> <C> <C> <C> <C> <C>
Homebuilding:
Sales (settlements)...................... $ 2,479,171 $ 2,319,734 $ 1,934,403 $ 1,637,306 $ 1,363,278
=========== =========== =========== =========== ===========
Income before income taxes, extraordinary
item and cumulative effect of change in
accounting principle.................. $ 113,601(A) $ 114,061 $ 84,462 $ 94,479 $ 78,456
=========== =========== =========== =========== ===========
(A) Includes one-time restructuring charge
of $14,800.
Financial services:
Revenues................................. $ 34,038 $ 50,197 $ 74,105 $ 107,799 $ 121,847
=========== =========== =========== =========== ===========
Income before income taxes, extraordinary
item and cumulative effect of change in
accounting principle.................. $ 5,350(B) $ 14,690 $ 18,436 $ 21,569 $ 22,608
=========== =========== =========== =========== ===========
(B) Includes one-time restructuring charge
of $2,100.
Corporate:
Revenues................................. $ 10,782 $ 14,352 $ 20,632 $ 10,808 $ 5,675
=========== =========== =========== =========== ===========
Loss before income taxes, extraordinary
item and cumulative effect of change in
accounting principle.................. $ (37,976)(C) $ (26,288) $ (20,874) $ (12,460) $ (10,025)
=========== =========== =========== =========== ===========
(C) Includes one-time restructuring charge
of $3,100.
</TABLE>
11
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA (continued)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
($000's omitted)
Consolidated results:
<S> <C> <C> <C> <C> <C>
Revenues $ 2,523,991 $ 2,384,283 $ 2,029,140 $ 1,755,913 $ 1,490,800
============ ============ ============ ============ ============
Income from continuing operations before
income taxes, extraordinary item and
cumulative effect of change in
accounting principle 80,975(D) 102,463 82,024 103,588 91,039
Income taxes 31,175 39,252 33,185 41,219 35,583
------------ ------------ ------------ ------------ ------------
Income from continuing operations before
extraordinary item and cumulative effect
of change in accounting principle 49,800 63,211 48,839 62,369 55,456
Income from discontinued operations 2,961 116,432 9,507 102,988 22,309
------------ ------------ ------------ ------------ ------------
Income before extraordinary item and
cumulative effect of change in
accounting principle 52,761 179,643 58,346 165,357 77,765
Extraordinary loss from early
extinguishment of debt -- -- -- (2,589) (3,397)
Cumulative effect of change in
accounting for income taxes -- -- -- -- 5,000
------------ ------------ ------------ ------------ ------------
Net income $ 52,761 $ 179,643 $ 58,346 $ 162,768 $ 79,368
============ ============ ============ ============ ============
<FN>
(D) Includes one-time restructuring charge of $20,000.
NOTE: The earnings per share amounts prior to 1997 have been restated as
required to comply with Statement of Financial Accounting Standards
No. 128, Earnings per Share. For further discussion of earnings per
share and the impact of Statement No. 128, see Notes to Consolidated
Financial Statements beginning on page 29.
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
PER SHARE DATA
Earnings per share:
<S> <C> <C> <C> <C> <C>
Income from continuing
operations before
extraordinary item and
cumulative effect of change
in accounting principle $ 2.29 (A) $ 2.54 $ 1.80 $ 2.26 $ 2.02
Income from discontinued operations... .14 4.67 .35 3.74 .81
------------ ------------ ------------ ------------ ------------
Income before extraordinary item and
cumulative effect of change in
accounting principle................ 2.43 (A) 7.21 2.15 6.00 2.83
Extraordinary item.................... -- -- -- (.09) (.12)
Cumulative effect of change in
accounting for income taxes......... -- -- -- -- .18
------------ ------------ ------------ ------------ ------------
Net income............................ $ 2.43 (A) $ 7.21 $ 2.15 $ 5.91 $ 2.89
============ ============ ============ ============ ============
Weighted-average common shares
outstanding (000's omitted)......... 21,755 24,926 27,074 27,556 27,479
============ ============ ============ ============ ============
<FN>
(A) Earnings per share amounts include $ .56 per share attributable to
one-time restructuring charge, net of income taxes.
</TABLE>
12
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA (continued)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
PER SHARE DATA (continued)
Earnings per share - assuming dilution:
<S> <C> <C> <C> <C> <C>
Income from continuing
operations before
extraordinary item
and cumulative effect of
change in accounting principle $ 2.27 (A) $ 2.51 $ 1.78 $ 2.24 $ 1.99
Income from discontinued operations... .13 4.63 .35 3.70 .80
------------ ------------ ------------ ------------ ------------
Income before extraordinary item and
cumulative effect of change in
accounting principle................ 2.40 (A) 7.14 2.13 5.94 2.79
Extraordinary item.................... -- -- -- (.09) (.12)
Cumulative effect of change in
accounting for income taxes......... -- -- -- -- .18
------------ ------------ ------------ ------------ ------------
Net income............................ $ 2.40 (A) $ 7.14 $ 2.13 $ 5.85 $ 2.85
============ ============ ============ ============ ============
Weighted-average common shares
outstanding and effect of dilutive
securities (000's omitted).......... 21,954 25,152 27,422 27,854 27,913
============ ============ ============ ============ ============
Shareholders' equity..................... $ 38.21 $ 35.65 $ 28.16 $ 25.88 $ 20.19
============ ============ ============ ============ ============
Cash dividends declared.................. $ .24 $ .24 $ .24 $ .24 $ .24
============ ============ ============ ============ ============
<FN>
(A) Earnings per share amounts include $ .56 per share attributable to
one-time restructuring charge, net of income taxes.
</TABLE>
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------
1997 1996 1995 1994 1993
-------------- ------------ ------------ ------------ ------------
($000's omitted)
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C>
House and land inventories............... $ 1,141,952 $ 1,017,262 $ 859,735 $ 752,369 $ 567,187
Total assets............................. 2,150,765 1,985,141 2,047,515 1,941,355 3,810,890
Total long-term indebtedness............. 650,169 541,505 743,828 714,645 1,354,617
Shareholders' equity..................... 812,837 829,273 761,003 710,589 556,314
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
OTHER DATA:
<S> <C> <C> <C> <C> <C>
Domestic homebuilding operations:
Total markets, at year end............ 41 41 39 32 26
Total active communities, at year end. 396 392 351 294 239
Total settlements - units............. 15,322 14,613 12,445 11,142 9,798
Total net new orders - units.......... 15,488 14,339 13,820 10,561 10,250
Backlog units, at year end............ 3,614 3,448 3,662 2,287 2,868
Average unit selling price............ $ 162,000 $ 159,000 $ 155,000 $ 147,000 $ 139,000
Gross profit margin................... 14.9% 14.8% 14.5% 15.4% 15.3%
Pulte and Pulte-affiliate
settlements - units:
Domestic.............................. 15,322 14,613 12,445 11,142 9,978
Mexico joint ventures................. 1,651 415 651 313 -
Retail manufactured housing........... 75 60 11 - -
------------ ------------ ------------ ------------ -----------
Total Pulte and Pulte-affiliate
settlements - units............... 17,048 15,088 13,107 11,455 9,798
============ ============ ============ ============ ===========
</TABLE>
13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
($000's omitted, except per share data)
A summary of the Company's operating results by business segment for the
years ended December 31, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1997 1996 1995
---------- ---------- ---------
<S> <C> <C> <C>
Pre-tax income (loss), before restructuring costs:
Homebuilding operations................................... $ 128,401 $ 114,061 $ 84,462
---------- ---------- ---------
Financial Services operations:
Mortgage banking........................................ 7,566 3,360 13,930
Financing activities.................................... (116) 11,330 4,506
---------- ---------- ---------
Total Financial Services................................ 7,450 14,690 18,436
---------- ---------- ---------
Corporate................................................. (34,876) (26,288) (20,874)
---------- ---------- ---------
Income from continuing operations before income taxes
and restructuring costs................................... 100,975 102,463 82,024
Restructuring costs........................................... 20,000 -- --
---------- ---------- ---------
Income from continuing operations before income taxes......... 80,975 102,463 82,024
Income taxes ................................................. 31,175 39,252 33,185
---------- ---------- ---------
Income from continuing operations............................ 49,800 63,211 48,839
Income from discontinued operations........................... 2,961 116,432 9,507
---------- ---------- ---------
Net income.................................................... $ 52,761 $ 179,643 $ 58,346
========== ========== =========
Per share data - assuming dilution:
Income from continuing operations before restructuring
costs, net of income taxes.............................. $ 2.83 $ 2.51 $ 1.78
Restructuring costs, net of income taxes.................. (.56) -- --
---------- ---------- ---------
Income from continuing operations......................... $ 2.27 $ 2.51 $ 1.78
Income from discontinued operations....................... .13 4.63 .35
---------- ---------- ---------
Net income................................................ $ 2.40 $ 7.14 $ 2.13
========== ========== =========
</TABLE>
A comparison of pre-tax income (loss) for the years ended December 31, 1997,
1996 and 1995 is as follows:
o Pre-tax income, before restructuring costs, of the Company's 1997
homebuilding operations increased $14,340, or 13%, over 1996 which had
reflected an increase in pre-tax income of $29,599, or 35%, from 1995
levels. These increases were primarily the result of greater volume of
unit settlements over each previous year, coupled with improvements in
gross profit margin, partially offset by leveraged increases in selling,
general and administrative expenses.
o Pre-tax income, before restructuring costs, of the Company's mortgage
banking operations increased $4,206, or 125%, during 1997. This is due to
lower operating expenses resulting from the conversion to centralized
loan processing during 1996. Results for 1995 include $10,148 of gains
from sale of core servicing rights; no sales occurred during 1996.
o Pre-tax income, before restructuring costs, of the Company's financing
activities decreased $11,446 during 1997. This is due to gains from the
sale of collateral during 1996. No such sales occurred in 1997. The
$6,824 increase in pre-tax income in 1996 over 1995 relates to the amount
of gains recognized from the sales of collateral.
o Pre-tax loss, before restructuring costs, from corporate operations for
1997 increased $8,588 over 1996 principally as a result of higher net
interest expense. In 1996, pre-tax loss from corporate operations
increased $5,414 due to higher interest expense and increased expenses
associated with the Company's strategic operating initiatives.
o During 1997, the Company recorded a one-time restructuring charge of
$20,000 associated with its corporate reorganization. This charge was to
cover costs associated with severance, asset impairment and other
charges.
o Income from discontinued operations increased during 1996 as a result of
recognizing $110,000 of tax benefits associated with net operating
losses.
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
($000's omitted)
Restructuring:
Since 1994, the Company's domestic homebuilding operations had been organized
as four operating companies, Pulte Home North, South, Central and West. This
organization enabled the Company to pursue its desired level of geographic
growth and market penetration. It also allowed the Company to facilitate
corporate direction, capital allocation, and risk management policies, while
allowing it to remain close to its customers. During early 1997, the Company
combined Pulte Home North and South, creating Pulte Home East, to provide
additional overhead leverage.
During August 1997, the Company announced that it was reorganizing its
corporate operations to enable the Company to take better advantage of its
size, talent base and competitive strengths. The reorganization was designed
to accomplish the following:
o Strengthen management focus on key customer groups and generate increased
operating efficiencies.
o Create a new position of Executive Vice President and Chief Operating
Officer with responsibility for all of the Company's homebuilding
operations.
o Replace the Company's existing homebuilding structure comprised of three
geographically-based operating companies with a structure focused more
closely on specific customer segments: domestic homebuilding, Active
Adult (mature buyer), and international.
o Evaluate and strategically deploy capital investment in homebuilding
operations.
o Structure the Company's mortgage banking operations to better support
homebuilding operations and improve operating performance.
o Right-size the workforce on a company-wide basis.
In conjunction with this reorganization, a pre-tax charge of $20,000 was
recorded during the fourth quarter. This charge included $11,787 of
separation and other costs for approximately 150 employees, $7,000 of asset
impairments and $1,213 of other costs, principally for office leases. The
after-tax effect of this charge was $12,300 or $.56 per diluted share.
The following table displays the status of the liabilities accrued for the
corporate restructuring as of December 31, 1997.
<TABLE>
<CAPTION>
1997 Reserve Uses
Original ------------------------------ Balance at
Type of Cost Reserve Cash Non-cash December 31
- ------------ ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Homebuilding operations:
Employee separation and other $ 6,900 $ (843) $ -- $ 6,057
Asset impairments 7,000 -- (7,000) -
Other 900 -- -- 900
------------- ------------- ------------- -------------
14,800 (843) (7,000) 6,957
------------- ------------- ------------- -------------
Mortgage Banking operations:
Employee separation and other 1,787 (610) -- 1,177
Other 313 (33) -- 280
------------- ------------- ------------- -------------
2,100 (643) -- 1,457
------------- ------------- ------------- -------------
Corporate:
Employee separation and other 3,100 (74) (496) 2,530
------------- ------------- ------------- -------------
$ 20,000 $ (1,560) $ (7,496) $ 10,944
============= ============= ============= =============
</TABLE>
It is anticipated that a substantial portion of the remaining accrual for
restructuring costs will be utilized during 1998. The Company believes that,
beginning in 1998, it will realize annual savings of approximately $10,000 as
a result of the implementation of the restructuring plan.
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
($000's omitted)
Homebuilding Operations:
The following table presents selected data for Pulte for the years ended
December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Unit settlements:
Pulte Home East................................... 7,550 7,007 5,591
Pulte Home Central................................ 4,385 4,589 4,403
Pulte Home West................................... 3,387 3,017 2,451
----------- ----------- -----------
15,322 14,613 12,445
=========== =========== ===========
Net new orders - units:
Pulte Home East................................... 7,492 7,128 6,243
Pulte Home Central................................ 4,421 4,282 4,943
Pulte Home West................................... 3,575 2,989 2,634
----------- ----------- -----------
15,488 14,399 13,820
=========== =========== ===========
Net new orders - dollars............................... $ 2,527,000 $ 2,313,000 $ 2,149,000
=========== =========== ===========
Backlog at December 31 - units:
Pulte Home East................................... 1,715 1,773 1,652
Pulte Home Central................................ 1,016 980 1,287
Pulte Home West................................... 883 695 723
----------- ----------- -----------
3,614 3,448 3,662
=========== =========== ===========
Backlog at December 31 - dollars....................... $ 644,000 $ 596,000 $ 602,000
=========== =========== ===========
Revenues............................................... $ 2,479,171 $ 2,319,734 $ 1,934,403
Cost of sales.......................................... (2,110,532) (1,975,826) (1,653,567)
Selling, general and administrative expenses........... (227,480) (215,300) (183,564)
Interest (A)........................................... (18,503) (17,216) (13,106)
Other income, net...................................... 5,745 2,669 296
----------- ----------- -----------
Pre-tax income before restructuring costs.............. $ 128,401 $ 114,061 $ 84,462
Restructuring costs.................................... (14,800) -- --
------------ ----------- -----------
Pre-tax income......................................... $ 113,601 $ 114,061 $ 84,462
=========== =========== ===========
Average sales price.................................... $ 162 $ 159 $ 155
=========== =========== ===========
<FN>
Note (A): The Company capitalizes interest cost into homebuilding
inventories and charges the interest to homebuilding interest
expense when the related inventories are closed.
</TABLE>
The following is a summary of the number of communities active as of
each respective date:
<TABLE>
<S> <C>
December 31, 1997................................ 396
September 30, 1997............................... 423
June 30, 1997.................................... 428
March 31, 1997................................... 406
December 31, 1996................................ 392
</TABLE>
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
($000's omitted)
Homebuilding Operations (continued):
Pulte conducts its domestic homebuilding operations through 40 markets
located throughout 25 states, as well as Puerto Rico, which are organized
into nine geographic regions. No one individual market operation represented
more than 10% of total Pulte net new orders, unit settlements or revenues
during 1997.
Net new orders for 1997 increased for the eighth consecutive year to a
Company-record 15,488 units, an 8% increase over 1996's 14,399 unit orders.
Strong contributions to net new order growth were noted during 1997 from
Pulte markets in its Southeast, Texas, Southwest and California regions,
partially offset by declines in its Mid-Atlantic and Florida regions.
Approximately one-half of this increase in net new orders is attributable to
Pulte's Canterbury Communities in the Southeast and Southwest. Canterbury
Communities is Pulte's site-built, affordable housing product offering. Net
new orders for 1996 increased 4% (to 14,399 units) over 1995's level which,
in turn, had increased 31% over the previous year's net new orders. This
result is attributable to increased net new orders for Pulte markets located
in its Florida (up 29%), Southeast (up 51%) and Southwest (up 24%) regions,
offset by a 38% decline in net new orders in markets in its Midwest region.
Units in backlog at December 31, 1997, increased 5% to 3,614 units from 3,448
units at December 31, 1996, while sales value in backlog ($644,000) increased
8% over the year earlier period ($596,000). This compares with 3,662 units
($602,000) at December 31, 1995.
Unit settlements increased 5% to 15,322 units during 1997. This follows a 17%
increase in units settled during 1996 over 1995. Pulte regions contributing
significantly to 1997's increased unit settlements were Southeast, Southwest,
California and Great Lakes. Contributions from these regions were muted
somewhat by the performance of Pulte's Mid-Atlantic, Midwest and Florida
regions. Approximately one-half of this increase in unit settlements is
attributable to Pulte's Canterbury Communities in the Southeast and
Southwest. During 1996, strong contributions in unit settlement growth were
noted in Pulte's Florida, Southeast, Southwest, Texas, California and Great
Lakes regions, as well as from its Active Adult product offerings. During
1996, unit settlements were supported by the brisk net new order pace
established in the latter half of 1995 which carried through the first four
months of 1996. Revenues also increased during 1997 to $2,479,171, a 7%
increase over 1996 revenues which, in turn, had increased 20% over 1995
revenues. The average home sales price increased from $155 in 1995 to $159 in
1996 and $162 in the current year.
Gross margins improved to 14.9% in 1997 from 14.8% in 1996 and 14.5% in 1995.
The improvement in gross margins from 1996 to 1997 and 1995 to 1996 is due in
part to Pulte's ongoing process improvement initiatives focused on lowering
house costs through improved operational efficiencies. Additionally, during
1995, gross margins were negatively impacted by competitive market conditions
and excess industry inventory levels. The level of demand for new housing
experienced during the latter half of 1995 and the first four months of 1996
resulted in improved gross margins for units settled during 1996 as compared
to 1995. Pulte anticipates that it will continue to realize gross margin
improvement as the benefits of its efforts in materials supply chain
management and in streamlining of operational processes begin to have a more
pronounced effect on each of its market operations.
Selling, general and administrative expenses increased from $215,300 for the
year ended December 31, 1996, to $227,480 for the year ended December 31,
1997. This represents an increase of 6% on an absolute dollar basis. However,
as a percentage of sales, 1997 overhead decreased to 9.2%, a 10 basis point
improvement over 1996 and a 30 basis point improvement over 1995. Pulte
anticipates that it will continue to improve overhead leverage as a result of
the reorganization of its homebuilding operations during 1997.
Other income, net, includes gains on land sales, the pre-tax results of
Builders' Supply & Lumber Co., Inc. (BSL) and other homebuilding-related
expenses. For 1997, the increase in other income, net, from 1996 was
principally the result of a $4,200 improvement in the operating results of
BSL, approximately $2,900 of proceeds from the settlement of certain
litigation, and a $1,700 net increase in profits from land sales reduced by
nearly $6,700 relating to asset impairment adjustments taken on
under-performing projects. The increase in other income, net, for 1996 over
1995 resulted from increased profits on land sales during the year.
17
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
($000's omitted)
Homebuilding Operations (continued):
In addition, as previously discussed, during the fourth quarter of 1997 the
Company incurred a one-time restructuring charge associated with reorganizing
its business operations. Restructuring costs of $14,800 charged to
homebuilding operations includes $6,900 of employee separation and other
costs, $7,000 of asset impairment adjustments and pre-acquisition cost and
land option deposit write-offs for active or proposed communities which are
to be exited and $900 of other costs, principally associated with office
lease cancellations.
Information related to interest in inventory is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Interest in inventory at beginning of year...... $ 12,846 $ 12,261 $ 8,053
Interest capitalized............................ 20,376 17,801 17,314
Interest expensed............................... (18,503) (17,216) (13,106)
----------- ----------- -----------
Interest in inventory at end of year............ $ 14,719 $ 12,846 $ 12,261
=========== =========== ===========
</TABLE>
On February 13, 1998, the Company announced that it had entered into an
agreement to sell BSL. No significant gain or loss is expected from the sale.
This all-cash sale is subject to financing and other customary conditions and
is expected to close during the first quarter of 1998.
Financial Services Operations:
Mortgage Banking Operations:
During the first quarter of 1997, the Company changed the name of its
mortgage banking operation from ICM Mortgage Corporation to Pulte Mortgage
Corporation (Pulte Mortgage). The following table presents selected
production data for Pulte Mortgage:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Total originations:
Loans ...................... 10,167 10,709 11,234
========== ========== ==========
Principal .................. $1,256,000 $1,278,000 $1,270,000
========== ========== ==========
Funded originations:
Loans ...................... 9,377 9,947 9,820
========== ========== ==========
Principal .................. $1,146,000 $1,168,000 $1,084,000
========== ========== ==========
Originations for Pulte customers:
Loans ...................... 7,597 7,194 6,058
========== ========== ==========
Principal .................. $ 960,000 $ 895,000 $ 731,000
========== ========== ==========
</TABLE>
Mortgage origination volume for 1997 decreased 2% from the previous year.
This follows a relatively flat performance during 1996 from 1995 levels.
However, Pulte Mortgage's continued emphasis on capturing a higher percentage
of Pulte unit settlements in their common markets has resulted in a 7%
increase in mortgage origination volume for Pulte customers during 1997 and a
31% increase in similar origination volume since 1995. Pulte customers
represented over 81% of all funded mortgages originated by Pulte Mortgage
during 1997. This compares with 72% and 62% for 1996 and 1995, respectively.
On July 1, 1995, Pulte Mortgage adopted Statement of Financial Accounting
Standards (SFAS) No. 122, Accounting for Mortgage Servicing Rights, which
requires a mortgage banking enterprise to recognize as separate assets the
servicing rights for mortgage loans regardless of the manner in which those
servicing rights are acquired. A mortgage banking enterprise that acquired
mortgage servicing rights through either the purchase or origination of
mortgage loans and sells or securitizes those loans with servicing rights
retained, must allocate the total cost of the mortgage loans to the mortgage
servicing rights and the loans (without the mortgage servicing rights) based
on their relative fair values.
18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
($000's omitted)
Financial Services Operations (continued):
Mortgage Banking Operations (continued):
The effect of this allocation results in a lower cost basis for the mortgage
loan resulting in a larger gain when the loan is sold. Effective January 1,
1997, SFAS No. 125, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities, superseded SFAS No. 122 with no
material impact on the financial statements.
During 1997, pricing and marketing gains decreased $107 compared to 1996,
while 1996 saw an increase of $9,269 over 1995. The decrease in 1997 was due
to lower volume of servicing retained originations as compared with 1996
while the increase in 1996 was due to higher volume of servicing retained
originations as compared with 1995. During 1995, prior to the adoption of
SFAS No. 122, Pulte Mortgage recorded pre-tax gains on sales of its core
mortgage servicing portfolio of $10,148. In addition, as part of its normal
operations, Pulte Mortgage recorded gains on sales of non-core mortgage
servicing rights of $9,566 during 1995. The sale of the core mortgage
servicing portfolio and the ongoing sale of servicing rights on a flow basis
are the result of repositioning Pulte Mortgage to concentrate on its primary
business of providing mortgage financing for Pulte's homebuyers. Pulte
Mortgage expects to continue to sell mortgage servicing rights as part of its
normal operations on a three to five month lag from the time of origination.
Servicing fee income for 1997 decreased to $750 from $926 in 1996 due to the
lower volume of servicing retained originations in 1997. Servicing fee income
decreased $505 during 1996 from 1995 primarily as a result of the sales of
core mortgage servicing portfolio discussed above. Mortgage origination fees
increased $235 or 7% during 1997 as a result of increases in miscellaneous
fees charged for originated loans. Mortgage origination fees decreased $1,092
or 24% during 1996 due to a decrease in the amount of non-funded originations
compared with the previous year.
Net interest income decreased $1,274 during 1997 as compared with 1996, and
by $816 in 1996 as compared to 1995. These declines are primarily due to
dividends in excess of current earnings paid by Pulte Mortgage to its parent,
Pulte, throughout 1997, 1996 and 1995, and a flattening of the yield curve
during 1997.
During 1997, Pulte Mortgage's operating expenses, excluding $2,100 of
restructuring costs (primarily employee separation and other costs),
decreased $5,290, or 23%, from 1996. These reductions of expenses are the
result of Pulte Mortgage's centralization of its mortgage underwriting,
processing and closing functions in Denver, Colorado, through implementation
of a mortgage operations center (MOC) during 1996. Additionally, during 1997,
Pulte Mortgage began a centralized telephone loan officer concept which moved
the loan officers from field branches to a mortgage applications center (MAC)
located in Denver. Thus, the principal field contacts for the mortgage
customers are Pulte's sales representatives who forward the loan application
to the MAC. The MAC loan officer calls the customer to complete the loan
application and then forwards it to the MOC for processing. Pulte Mortgage
believes that this new process will speed up the loan approval process while
lowering its total cost from application to closing. During 1997, three
markets were transferred to the MAC.
In 1995, Pulte Mortgage acquired a minority ownership interest in a Mexican
mortgage banking company, Su Casita. Su Casita is a limited purpose financial
institution under Mexican law, licensed to originate and service home
mortgage loans. Pulte Mortgage's investment was made to facilitate the
Company's homebuilding joint ventures in Mexico. For 1997, Pulte Mortgage's
equity in the earnings of Su Casita was $557, of which $503 represented
operating earnings and $54 represented its share of foreign currency gains.
During 1996, Pulte Mortgage's equity in the earnings of Su Casita was $225.
At December 31, 1997, Pulte Mortgage's investment in Su Casita approximated
$1,500.
At December 31, 1997, loan application backlog was $294,000 compared with
$246,000 at December 31, 1996 and $334,000 at December 31, 1995.
19
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
($000's omitted)
Financial Services Operations (continued):
Other Financial Subsidiaries
PFCI's pre-tax operating income decreased $11,446 during 1997 over the prior
year. This decrease was primarily the result of the 1996 recognition of gains
on sales of collateral aggregating $11,069; no such sales occurred during
1997. In addition, 1996's pre-tax income benefited from the reversal of a
provision for foreclosure-related losses of $1,078. Pre-tax operating income
for 1996 increased $6,824 from 1995. This increase was primarily the result
of gains on sales of collateral which aggregated $11,069 during 1996 as
compared to $4,003 in 1995.
Corporate:
Corporate is a non-operating business segment whose primary purpose is to
support the operations of the Company's subsidiaries as the internal source
of financing and by implementing and maturing strategic initiatives centered
on new business development and improving operating efficiencies. The Company
views this corporate function as a form of research and development, a
prelude to adding these initiatives to existing business segments or
necessitating the creation of new business segments. As a result, the
corporate segment's operating results will vary from quarter to quarter as
these strategic initiatives evolve.
The following table presents corporate results of operations for the years
ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Net interest expense............................... $ 14,079 $ 6,055 $ 1,000
Other corporate expenses, net...................... 20,797 20,233 19,874
----------- ----------- ----------
Loss before income taxes and restructuring costs... 34,876 26,288 20,874
Restructuring costs................................ 3,100 -- --
----------- ----------- ----------
Loss before income taxes........................... $ 37,976 $ 26,288 $ 20,874
=========== =========== ==========
</TABLE>
The increased loss for 1997 as compared with 1996 is due primarily to
increased net interest expense as a result of the utilization of
approximately $174,000 of available funds and, to a lesser extent, draws on
the Company's unsecured revolving credit arrangement to reacquire nearly 6.2
million shares of the Company's common stock during 1996 and the first four
months of 1997. In addition, as discussed above, during the fourth quarter of
1997 the Company incurred a one-time charge associated with restructuring its
business operations. The restructuring charge of $3,100 included in the
Corporate business segment primarily relates to cost of employee severance.
The increased loss for 1996 as compared with 1995 is due to greater net
interest expense as a result of the issuance of $125,000 of 7.3% unsecured
Senior Notes in the fourth quarter of 1995 and additional administrative
expenses related to the Company's strategic operating initiatives, partially
offset by a decrease in the loss recognized from the Company's Mexico
operations primarily as a result of the stabilization of the Mexican Peso.
On October 8, 1997, the Company and Fleetwood Enterprises, Inc. (Fleetwood)
announced that they would jointly form a new corporation, Expression Homes,
that would own and operate manufactured housing retail centers. However,
dramatic changes occurred in the manufactured housing industry associated
with the rapid consolidation of retail distribution. The rapid pace with
which retailers were being acquired, and the resulting increase in the cost
of these businesses, made it more difficult for Expression Homes to meet the
Company's objectives with regards to market penetration and financial
returns. Accordingly, on February 17, 1998, Fleetwood agreed to acquire the
Company's 51% ownership interest in Expression Homes and the Company's retail
manufactured housing sales center in Raleigh, North Carolina. The sale is
anticipated to close during the first quarter of 1998. The Company currently
anticipates recognizing a pre-tax gain from this sale in the range of
approximately $4,000 to $6,000.
20
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
($000's omitted)
Corporate (continued):
Pulte conducts its Mexico homebuilding operations through three joint venture
investments owned by a foreign subsidiary. In January 1996, the Company's
Monterrey joint venture partner assigned its interest in the joint venture to
the Company. The Company's net investment in the Monterrey venture
approximated $2,000 as of December 31, 1997. The Company intends to liquidate
the Monterrey assets in the normal course of business. The Company's Juarez
joint venture is currently developing communities in the cities of Juarez,
Chihuahua, Nuevo Laredo, Reynosa and Matamoros. Additionally, during 1996,
the Company announced that its Juarez joint venture had entered into two
separate agreements to construct homes in Mexico; one with Delphi Automotive
Systems, a division of General Motors Corporation (GM) and one with Sony
Magneticos de Mexico, S.A. de C.V., an affiliate of Sony Electronics, Inc.
(Sony). The Company's Juarez joint venture realized its first unit
settlements under the GM contract during the fourth quarter of 1997. The
Company's net investment in the Juarez joint venture approximated $25,000 as
of December 31, 1997. Also during 1996, the Company entered into a joint
venture to build 20 middle income housing units in Mexico City, all of which
are sold, but 17 units remain to close during the first quarter of 1998. The
Company's net investment in this joint venture approximated $600 as of
December 31, 1997.
During 1997, the Company recorded a loss of $1,700 related to its Mexico
operations, as compared with losses of $1,700 and $5,800 in 1996 and 1995,
respectively. Included in such results is the Company's share of joint
venture foreign currency losses which amounted to $600, $100 and $2,300 for
the years ended December 31, 1997, 1996 and 1995, respectively. The $1,100
operating loss sustained in 1997 was principally the result of increased
overhead levels necessitated by the increase in development activity
associated with performance under the housing agreements with GM and Sony.
In November 1997, the Company entered into a fixed-price agreement with
Minera Escondida Limitada, a Broken Hill Proprietary Company subsidiary, to
manage the construction of approximately 800 employee residential units in
two phases in Antofagasta, Chile. This project represents the Company's entry
into the Chilean market, and allows it to participate with another large,
international company. The Company accounts for the operating results of this
project using percentage of completion. The Company's net investment in this
project, maintained within a wholly-owned foreign subsidiary, approximated
$900 at December 31, 1997.
Discontinued Operations:
For the years ended December 31, 1997, 1996 and 1995, discontinued thrift
operations resulted in income of $2,961 (including income tax benefit of
$2,356), $6,432 (including income tax benefit of $1,076) and $9,507 (net of
income taxes of $157), respectively. Additionally, during 1996, the Company
recognized, as part of discontinued thrift operations, after-tax income of
approximately $110,000. Such income relates to tax benefits associated with
net operating losses. Certainty of realization of this amount is not
anticipated in the near term, is dependent upon various factors, and the
actual amount realized might be more or less than the amount recorded.
Liquidity And Capital Resources:
Continuing Operations:
The Company's net cash used in operating activities decreased from $64,225 in
1996 to $35,174 in 1997. This is principally due to a decrease in the level
of net cash investment in inventories as compared to 1996. Net cash provided
by investing activities decreased from $207,582 in 1996 to $7,969 in 1997
primarily as a result of reduced net proceeds from the sale of
mortgage-backed securities of PFCI. The Company's net cash from financing
activities increased from a use of cash of $245,959 in 1996 to a source of
cash of $82,736 in 1997. This resulted from an approximately $173,000
decrease in the amount of PFCI's mortgage-backed bonds redeemed during 1997
and an increase in new borrowings during 1997, primarily due to the issuance
of $150,000 of unsecured Senior Notes in the fourth quarter of 1997.
21
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
($000's omitted)
Liquidity And Capital Resources:
Continuing Operations:
At December 31, 1997, the Company had cash and equivalents of $245,156 and
total long-term indebtedness of $650,169. The Company's total indebtedness
includes $487,303 of unsecured senior notes, $22,405 of unsecured senior
subordinated debentures, other Pulte non-recourse and recourse debt of
$37,192 and $30,427, respectively, $35,420 of First Heights' advances,
$37,413 of mortgage-backed bonds payable for PFCI and $9 of capital lease
obligations for Pulte Mortgage. In October 1997, pursuant to the universal
shelf registrations filed in September 1995 and October 1997, the Company
issued $150,000, 7.625% unsecured Senior Notes, due 2017, which are
guaranteed by Pulte and certain wholly-owned subsidiaries of Pulte. The
Company used a portion of the net proceeds of the sale of the Senior Notes to
repay the outstanding borrowings under its unsecured revolving credit
facility which bore a variety of floating interest rates. The remaining net
proceeds from the sale of the Senior Notes were added to the Company's
general funds to be used for general corporate purposes which may include,
but are not limited to, capital contributions to the Company's subsidiaries
to strengthen such subsidiaries' continuing operations and to fund
acquisitions.
The Company believes it has adequate financial resources and sufficient
credit facilities to meet its current working capital needs. Sources of the
Company's working capital include its cash and equivalents, its $240,000
committed unsecured revolving credit facility, and other committed and
uncommitted credit lines, which at December 31, 1997, consisted of $20,000
and $250,000 related to Pulte and Pulte Mortgage operations, respectively.
Over the next twelve months, management anticipates that homebuilding and
corporate working capital requirements, as well as cash payments associated
with the Company's restructuring, will be principally funded with internally
generated funds and the previously mentioned credit facilities. The Company
routinely monitors current operational requirements and financial market
conditions to evaluate the utilization of available financing sources,
including securities offerings.
The Company finances its land acquisitions, development and construction
activities from internally generated funds and existing credit agreements.
The Company had a maximum borrowing of $126,000 under its $240,000 unsecured
revolving credit facility during 1997. There was no outstanding balance at
December 31, 1997. Pulte Mortgage provides mortgage financing for many of
Pulte's home sales and uses its own funds and borrowings made available
pursuant to various committed and uncommitted credit arrangements which, at
December 31, 1997, amounted to $250,000, an amount deemed adequate to cover
foreseeable needs. There were approximately $128,170 of borrowings
outstanding under the $250,000 (Pulte Mortgage) arrangement at December 31,
1997. Mortgage loans originated by Pulte Mortgage are subsequently sold,
principally to outside investors. The Company anticipates that there will be
adequate mortgage financing available for purchasers of its homes.
In the fourth quarter of 1994, the Company initiated a share repurchase
program with the intention of enhancing shareholder value by utilizing excess
corporate capital to acquire its shares at favorable prices and increasing
leverage. As of the date of the most recent share reacquisition, April 16,
1997, the Company had utilized in excess of $188,000 of available cash and,
to a lesser extent, funds drawn on its unsecured revolving credit facility to
reacquire 6,847,800 shares, or nearly 25% of the common stock outstanding
prior to the inception of this program. Management does not anticipate making
additional share repurchases in the foreseeable future.
Discontinued Operations:
Since its acquisition of First Heights, the Company's income taxes have been
significantly impacted by its thrift operations, principally because payments
received from the FRF are exempt from federal income taxes. The Company's
thrift assets are subject to regulatory restrictions and are not available
for general corporate purposes. The final liquidation and wind-down of the
Company's thrift operations is dependent on the final resolution of
outstanding matters with the Federal Deposit Insurance Corporation (FDIC),
manager of FRF. The Company is currently negotiating with the FDIC and is
involved in litigation with the FDIC. Although there is no certainty as to
the time of resolution of these matters, the Company believes that they might
be resolved within the next twelve months. At December 31, 1997, the Company
had a remaining investment in First Heights of approximately $26,100.
22
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
($000's omitted)
Information Technology and Year 2000 Compliance
An integral part of our operating strategy is to provide Pulte management and
employees the information systems needed to support the Company's current
operations and future growth. Investments totaling $4,600 and $3,200 in 1997
and 1996, respectively, have resulted in substantial progress toward the goal
of developing an integrated set of systems to support marketing, land and
product development, home sales, construction, service, and comprehensive
financial management. The Company anticipates that it will invest
approximately an additional $7,000 in the development and implementation of
its management information systems in 1998.
A critical component of this integrated systems effort involves replacement
of the Company's existing accounting system, which will substantially resolve
its Year 2000 exposure as well as significantly enhance the financial
management capabilities of its operational managers. Investment in
this financial component includes Year 2000 compliant accounting software
package selection and licensing amortization. The Company expects to complete
system development and pilot implementation, with enterprise-wide roll out
scheduled for completion in early 1999. The Company has evaluated all
essential homebuilding supplier/contractor relationships and has concluded
that there are no significant risks associated with Year 2000 issues
impacting operations. The Company's mortgage banking operation has also
completed a comprehensive Year 2000 risk assessment for both internal
information systems and external relationships. Plans are being implemented
to bring all critical information systems into compliance. The Company does
not expect the cost for such compliance to have a material impact on
operating results or financial condition. In 1997, the Company also completed
implementation of a company-wide telecommunications network to enhance
sharing of timely business information across all markets and provide the
pathway for future operational support of the integrated systems strategy.
All components of this new information technology environment are fully
compliant with Year 2000 processing requirements. Taken together, the Company
believes that its substantial past and current investments in these
information technology initiatives will provide the foundation necessary to
support and enhance operations in the years to come.
In October 1997, the Accounting Standards Executive Committee (AcSEC) of the
American Institute of Certified Public Accountants (AICPA) approved Statement
of Position 98-1 (SOP 98-1), "Accounting for the Costs of Software Developed
or Obtained for Internal Use". This SOP would require internal costs (i.e.,
salaries and related benefits and interest cost) to be capitalized during the
application development stage for internal-use software. In its effort to
develop the systems discussed above, the Company has expensed similar costs
to operations as they have been incurred. In December 1997, AcSEC received
clearance from the Financial Accounting Standards Board to issue SOP 98-1
subject to certain proposed changes. AcSEC expects to issue the final SOP
during March 1998 with adoption allowed on a prospective basis, applicable to
costs incurred after January 1, 1998. The Company has not yet determined what
impact this SOP might have upon its adoption. However, the Company does not
expect that adoption of this SOP will have a material effect on the financial
position or results of operations of the Company.
Special Notes Concerning Forward-looking Statements:
Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations, "Restructuring", contains certain forward-looking
statements relating to the possible impact of a one-time restructuring
charge. These forward-looking statements are based on current expectations
and include various assumptions. Such assumptions principally relate to
achieving estimated cost reductions as a result of realigning senior
operating and corporate staff roles and responsibilities while maintaining
work flow in the areas affected. The failure of such assumptions to be
realized may cause the actual restructuring charge and annual cost savings to
differ materially from the estimates set forth herein.
As an additional cautionary note, except for the historical information
contained herein, certain matters discussed in Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations, are
"forward-looking" statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such matters involve risks and uncertainties,
including changes in economic conditions and interest rates, increases in raw
material and labor costs, weather conditions, and general competitive
factors, that may cause actual results to differ materially.
23
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PULTE CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
($000's omitted, except share data)
<TABLE>
<CAPTION>
ASSETS
1997 1996
----------- -----------
<S> <C> <C>
Cash and equivalents................................................. $ 245,156 $ 189,625
Unfunded settlements................................................. 69,768 73,896
House and land inventories........................................... 1,141,952 1,017,262
Mortgage-backed and related securities............................... 39,467 47,113
Residential mortgage loans and other securities available-for-sale... 185,018 170,443
Other assets......................................................... 249,125 215,040
Deferred income taxes................................................ 109,339 127,686
Discontinued operations.............................................. 110,940 144,076
----------- -----------
$ 2,150,765 $ 1,985,141
=========== ===========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Liabilities:
Accounts payable and accrued liabilities, including book overdrafts
of $84,623 and $85,827 in 1997 and 1996, respectively.......... $ 497,733 $ 439,578
Collateralized short-term debt, recourse solely to applicable
subsidiary assets.............................................. 162,707 154,136
Mortgage-backed bonds, recourse solely to applicable subsidiary
assets......................................................... 37,413 45,304
Income taxes...................................................... 13,001 12,930
Subordinated debentures and senior notes.......................... 546,900 391,175
Discontinued operations........................................... 80,174 112,745
----------- -----------
Total liabilities.............................................. 1,337,928 1,155,868
----------- -----------
Shareholders' Equity:
Preferred stock, $.01 par value; 25,000,000 shares authorized,
none issued
Common stock, $.01 par value; 100,000,000 shares authorized,
21,272,530 and 23,261,655 shares issued and outstanding at
December 31, 1997 and 1996, respectively ...................... 213 233
Additional paid-in capital........................................ 61,835 57,516
Unrealized gains on securities available-for-sale, net of income
taxes of $1,056 and $982 in 1997 and 1996, respectively........ 1,687 1,474
Retained earnings................................................. 749,102 770,050
----------- -----------
Total shareholders' equity..................................... 812,837 829,273
----------- -----------
$ 2,150,765 $ 1,985,141
=========== ===========
<FN>
See notes to Consolidated Financial Statements.
</TABLE>
24
<PAGE>
PULTE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 1997, 1996 and 1995
($000's omitted, except per share data)
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Homebuilding..................................................... $ 2,479,171 $ 2,319,734 $ 1,934,403
Mortgage banking and financing:
Interest and other............................................. 34,038 50,197 54,391
Gain on sale of servicing...................................... -- -- 19,714
Corporate, principally interest.................................. 10,782 14,352 20,632
----------- ----------- -----------
Total revenues................................... 2,523,991 2,384,283 2,029,140
----------- ----------- -----------
Expenses:
Homebuilding, principally cost of sales.......................... 2,350,770 2,205,673 1,849,941
Mortgage banking and financing, principally interest ............ 26,588 35,507 55,669
Corporate, net................................................... 45,658 40,640 41,506
Restructuring costs.............................................. 20,000 -- --
----------- ----------- -----------
Total expenses................................... 2,443,016 2,281,820 1,947,116
----------- ----------- -----------
Income from continuing operations before income taxes ............... 80,975 102,463 82,024
Income taxes ........................................................ 31,175 39,252 33,185
----------- ----------- -----------
Income from continuing operations.................................... 49,800 63,211 48,839
Income from discontinued operations.................................. 2,961 116,432 9,507
----------- ----------- -----------
Net income........................................................... $ 52,761 $ 179,643 $ 58,346
=========== =========== ===========
Per share data:
Basic:
Income from continuing operations.............................. $ 2.29 $ 2.54 $ 1.80
Income from discontinued operations............................ 0.14 4.67 .35
----------- ----------- -----------
Net income..................................................... $ 2.43 $ 7.21 $ 2.15
=========== =========== ===========
Assuming dilution:
Income from continuing operations.............................. $ 2.27 $ 2.51 $ 1.78
Income from discontinued operations............................ .13 4.63 .35
----------- ----------- -----------
Net income..................................................... $ 2.40 $ 7.14 $ 2.13
=========== =========== ===========
Cash dividends declared.......................................... $ .24 $ .24 $ .24
=========== =========== ===========
Number of shares used in calculation:
Basic:
Weighted-average common shares outstanding.................. 21,755 24,926 27,074
Assuming dilution:
Effect of dilutive securities - stock options............... 199 226 348
----------- ----------- -----------
Adjusted weighted-average common shares
and effect of dilutive securities......................... 21,954 25,152 27,422
=========== =========== ===========
<FN>
See notes to Consolidated Financial Statements.
</TABLE>
25
<PAGE>
PULTE CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended December 31, 1997, 1996 and 1995
($000's omitted)
<TABLE>
<CAPTION>
Additional
Common Paid-in Unrealized Retained
Stock Capital Gains Earnings Total
------ --------- ---------- -------- -----
<S> <C> <C> <C> <C> <C>
Shareholders' Equity, January 1, 1995 $ 275 $ 75,595 $ -- $ 634,719 $ 710,589
Exercise of stock options.................. 1 2,040 -- -- 2,041
Cash dividends declared.................... -- -- -- (6,489) (6,489)
Change in unrealized gains on securities
available-for-sale, net of
income taxes of $5,482.................. -- -- 8,223 -- 8,223
Stock repurchases.......................... (6) (11,701) -- -- (11,707)
Net income ................................ -- -- -- 58,346 58,346
---------- ----------- ---------- --------- ---------
Shareholders' Equity, December 31, 1995 270 65,934 8,223 686,576 761,003
Exercise of stock options.................. 1 894 -- -- 895
Cash dividends declared.................... -- -- -- (5,958) (5,958)
Change in unrealized gains on securities
available-for-sale, net of income taxes
of $4,500............................... -- -- (6,749) -- (6,749)
Stock repurchases.......................... (38) (9,312) -- (90,211) (99,561)
Net income................................. -- -- -- 179,643 179,643
---------- ----------- ---------- --------- ---------
Shareholders' Equity, December 31, 1996 233 57,516 1,474 770,050 829,273
Exercise of stock options.................. 4 10,412 -- -- 10,416
Cash dividends declared.................... -- -- (5,153) (5,153)
Change in unrealized gains on securities
available-for-sale, net of income taxes
of $74.................................. -- -- 213 -- 213
Stock repurchases.......................... (24) (6,093) -- (68,556) (74,673)
Net income................................. -- -- -- 52,761 52,761
---------- ----------- ---------- --------- ---------
Shareholders' Equity, December 31, 1997 $ 213 $ 61,835 $ 1,687 $ 749,102 $ 812,837
========== =========== ========== ========= =========
<FN>
See notes to Consolidated Financial Statements.
</TABLE>
26
<PAGE>
PULTE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1997, 1996 and 1995
($000's omitted)
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- --------
Continuing operations:
<S> <C> <C> <C>
Cash flows from operating activities:
Income from continuing operations............................. $ 49,800 $ 63,211 $ 48,839
Adjustments to reconcile income from continuing operations to net
cash flows used in operating activities:
Amortization, depreciation and other........................ 7,813 6,747 6,338
Deferred income taxes....................................... (14,222) (9,517) (11,070)
Gain on sale of securities.................................. -- (11,069) (4,003)
Increase (decrease) in cash due to:
Inventories............................................... (124,690) (157,527) (107,366)
Residential mortgage loans available-for-sale............. (14,576) 7,859 (40,928)
Other assets.............................................. (37,931) (64,626) (35,627)
Accounts payable and accrued liabilities.................. 60,580 59,158 49,939
Income taxes.............................................. 38,052 41,539 38,124
---------- --------- --------
Net cash used in operating activities............................. (35,174) (64,225) (55,754)
---------- --------- --------
Cash flows from investing activities:
Proceeds from exchange of securities held-to-maturity......... -- 12,282 14,114
Proceeds from sale of securities available-for-sale........... -- 175,686 48,370
Principal payments on mortgage-backed securities.............. 7,933 19,892 47,667
Decrease in funds held by trustee............................. 17 4,348 1,911
Other, net.................................................... 19 (4,626) 1,035
---------- --------- --------
Net cash provided by investing activities......................... 7,969 207,582 113,097
---------- --------- --------
Cash flows from financing activities:
Payment of long-term debt and bonds........................... (9,106) (181,841) (107,543)
Proceeds from borrowings...................................... 164,183 40,709 200,163
Repayment of borrowings....................................... -- -- (470)
Stock repurchases............................................. (74,673) (99,561) (11,707)
Dividends paid................................................ (5,153) (5,958) (6,489)
Other, net.................................................... 7,485 692 1,338
---------- --------- --------
Net cash provided by (used in) financing activities............... 82,736 (245,959) 75,292
---------- --------- --------
Net increase (decrease) in cash and
equivalents-continuing operations............................. $ 55,531 $(102,602) $132,635
---------- --------- --------
<FN>
See notes to Consolidated Financial Statements.
</TABLE>
27
<PAGE>
PULTE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
For the years ended December 31, 1997, 1996 and 1995
($000's omitted)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ---------
Discontinued operations:
<S> <C> <C> <C>
Cash flows from operating activities:
Income from discontinued operations........................... $ 2,961 $ 116,432 $ 9,507
Change in deferred income taxes............................... 32,495 (38,321) 18,280
Change in income taxes........................................ (34,851) (72,755) (18,123)
Other changes, net ........................................... (10,257) (14,218) 7,742
Cash flows from investing activities:
Purchase of securities available-for-sale..................... (14,537) (42,209) (70,052)
Principal payments of mortgage-backed securities.............. 34,257 43,735 31,857
Net proceeds from sale of investments and loans............... 3,211 4,514 --
Decrease in Covered Assets and FSLIC Resolution Fund (FRF)
receivables................................................. 37,019 37,438 35,929
Increase in loans receivable.................................. -- (419) --
Cash flows from financing activities:
Increase (decrease) in deposit liabilities.................... (2,663) 3,404 (128,542)
Repayment of borrowings....................................... (31,560) (31,560) (31,560)
Increase (decrease) in FHLB advances.......................... (16,500) (6,400) 26,000
---------- ---------- -----------
Net decrease in cash and equivalents-
discontinued operations....................................... (425) (359) (118,962)
---------- ---------- -----------
Net increase (decrease) in cash and equivalents................... 55,106 (102,961) 13,673
Cash and equivalents at beginning of year......................... 192,202 295,163 281,490
---------- ---------- -----------
Cash and equivalents at end of year............................... $ 247,308 $ 192,202 $ 295,163
========== ========== ===========
Cash - continuing operations...................................... $ 245,156 $ 189,625 $ 292,227
Cash - discontinued operations.................................... 2,152 2,577 2,936
---------- ---------- -----------
$ 247,308 $ 192,202 $ 295,163
========== ========== ===========
Supplemental disclosure of cash flow information-
cash paid during the year for:
Interest, net of amount capitalized:
Continuing operations.................................... $ 19,920 $ 25,312 $ 27,861
Discontinued operations.................................. 2,590 2,279 11,728
---------- --------- -----------
$ 22,510 $ 27,591 $ 39,589
========== ========= ===========
Income taxes................................................ $ 5,821 $ 7,152 $ 6,099
========== ========= ===========
<FN>
See notes to Consolidated Financial Statements.
</TABLE>
28
<PAGE>
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000's omitted)
1. Basis of presentation and segment information
Basis of presentation
The consolidated financial statements include the accounts of Pulte
Corporation (the "Company"), and all of its significant subsidiaries. The
Company's direct subsidiaries consist of Pulte Financial Companies, Inc.
(PFCI) and Pulte Diversified Companies, Inc. (PDCI). PDCI's direct
subsidiaries are Pulte Home Corporation (Pulte) and First Heights Bank,
fsb (First Heights). Pulte Mortgage Corporation (Pulte Mortgage),
formerly known as ICM Mortgage Corporation, is a direct subsidiary of
Pulte. The Company's continuing operations include its homebuilding
(Pulte) and financial services subsidiaries, which include Pulte Mortgage
(mortgage banking) and PFCI (financing). The Company's thrift subsidiary,
First Heights, has been classified as discontinued operations (see Note
3).
The Company's financial reporting segments consist of Homebuilding
(Pulte), Financial Services (Mortgage Banking and Financing operations)
and Corporate. The Company's homebuilding operations comprise the most
substantial part of its business, with over 90% of consolidated revenues
contributed by Pulte's homebuilding divisions and subsidiaries. Pulte
Mortgage's principal function is providing mortgage financing services
for Pulte customers. PFCI, through its subsidiaries, previously engaged
in the acquisition of mortgages and mortgage-backed securities financed
by the issuance of long-term bonds which are secured by such mortgage
loans and mortgage-backed securities. Corporate is comprised of the
Company and PDCI, both of which are holding companies. Its primary
purpose is to support the operations of the Company's subsidiaries as the
internal source of financing and to implement and nurture to maturity
strategic initiatives centered around new business development and
improving operating efficiencies.
Certain 1996 and 1995 classifications have been changed to conform with
the 1997 presentation.
Segment information
New Segment Reporting Standard
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, Disclosures about Segments of
an Enterprise and Related Information (Statement 131), which is effective
for years beginning after December 15, 1997. Statement 131 establishes
standards for the way that public business enterprises report information
about operating segments in annual financial statements and requires that
those enterprises report selected information about operating segments in
interim financial reports. It also establishes standards for related
disclosures about products and services, geographic areas, and major
customers. Statement 131 is effective for financial statements for fiscal
years beginning after December 15, 1997, and therefore the Company will
adopt the new requirements retroactively in 1998. Management has not
completed its review of Statement 131, but does not anticipate that the
adoption of this statement will have a significant effect on the
Company's reported segments.
29
<PAGE>
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
($000's omitted)
Segment information (continued)
Homebuilding:
Homebuilding operations include the homebuilding divisions and
subsidiaries of Pulte. These operations consist principally of the
construction and sale of detached and attached single-family residential
homes in 41 markets within the following geographic areas and Puerto
Rico:
Pulte Home East:
Mid-Atlantic Region Delaware, Maryland, Massachusetts,
New Jersey, Pennsylvania, Rhode Island,
Virginia
Southeast Region Georgia, North Carolina, South Carolina
Florida Region Florida
Pulte Home Central:
Great Lakes Region Indiana, Michigan, Missouri, Ohio, Kansas
Midwest Region Illinois, Minnesota, Wisconsin
Texas Region Texas
Pulte Home West:
Southwest Region Arizona, Nevada
Rocky Mountain Region Colorado, Utah
California Region California
PULTE HOME CORPORATION
STATEMENTS OF OPERATIONS
For the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Sales (settlements):
Homebuilding.......................................... $ 2,479,171 $ 2,319,734 $ 1,934,403
Corporate............................................. 7,182 6,728 1,300
----------- ----------- -----------
2,486,353 2,326,462 1,935,703
----------- ----------- -----------
Costs and expenses:
Homebuilding:
Cost of sales......................................... 2,110,532 1,975,826 1,653,567
Selling, general and administrative expenses.......... 227,480 215,300 183,564
Interest (A).......................................... 18,503 17,216 13,106
Other (income), net................................... (5,745) (2,669) (296)
Restructuring costs................................... 14,800 -- --
Corporate................................................ 11,555 12,207 5,964
----------- ----------- -----------
Total costs and expenses................................. 2,377,125 2,217,880 1,855,905
----------- ----------- -----------
Income before income taxes .............................. $ 109,228 $ 108,582 $ 79,798
=========== =========== ===========
<FN>
Note (A): The Company capitalizes interest cost into homebuilding
inventories and charges the interest to homebuilding interest
expense when the related inventories are closed.
</TABLE>
30
<PAGE>
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
($000's omitted)
<TABLE>
<CAPTION>
PULTE HOME CORPORATION
BALANCE SHEETS
December 31, 1997 and 1996
ASSETS
1997 1996
----------- -----------
<S> <C> <C>
Current assets:
Cash and equivalents.......................................... $ 46,466 $ 71,599
Unfunded settlements.......................................... 69,768 73,896
Inventories:
Homes under construction.................................... 307,036 285,720
Models...................................................... 35,578 31,321
Land under development and improved lots.................... 799,338 700,221
----------- -----------
Total inventories............................................. 1,141,952 1,017,262
Other current assets.......................................... 124,509 101,512
----------- -----------
Total current assets...................................... 1,382,695 1,264,269
Investment in unconsolidated mortgage banking subsidiary *....... 11,890 23,425
Land held for sale and future development........................ 24,984 37,655
Other assets, net................................................ 39,523 39,804
----------- -----------
$ 1,459,092 $ 1,365,153
=========== ===========
<CAPTION>
LIABILITIES AND SHAREHOLDER'S EQUITY
<S> <C> <C>
Current liabilities:
Notes and land contracts payable, principally
limited recourse.......................................... $ 30,427 $ 21,438
Accounts payable.............................................. 215,012 195,403
Accrued liabilities........................................... 144,958 140,639
Due affiliates*............................................... 61,994 123,451
----------- -----------
Total current liabilities.................................. 452,391 480,931
Long-term debt................................................... 59,597 51,810
----------- -----------
Total liabilities................................................ 511,988 532,741
Shareholder's equity*............................................ 947,104 832,412
----------- -----------
$ 1,459,092 $ 1,365,153
========== ===========
<FN>
* Certain intersegment transactions and balances are eliminated in
consolidation and have no effect on consolidated earnings or equity.
</TABLE>
31
<PAGE>
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
($000's omitted)
Mortgage Banking:
Pulte Mortgage, a wholly-owned subsidiary of Pulte, is a mortgage bank
which arranges financing through the origination of mortgages to both
Pulte homebuyers and the general public. It operates generally in the
same markets and geographic areas in which Pulte's homebuilding divisions
are located. Pulte Mortgage's servicing portfolio aggregated $305,000 and
$394,000 at December 31, 1997 and 1996, respectively.
<TABLE>
<CAPTION>
PULTE MORTGAGE CORPORATION
STATEMENTS OF OPERATIONS
For the years ended December 31, 1997, 1996 and 1995
1997 1996 1995
------- -------- ---------
<S> <C> <C> <C>
Revenues:
Mortgage servicing and origination fees......... $ 4,515 $ 4,450 $ 6,047
Net gain from sale of mortgages................. 18,205 18,312 9,318
Interest and other.............................. 7,096 8,333 7,845
Earnings from equity investment................. 557 225 --
Net gain from sale of servicing rights.......... -- -- 19,714
------- -------- ---------
Total revenues............................... 30,373 31,320 42,924
------- -------- ---------
Expenses:
General and administrative...................... 17,403 22,693 25,112
Foreclosure related loss reversals.............. -- (100) (180)
Interest........................................ 5,404 5,367 4,062
Restructuring costs............................. 2,100 -- --
------- -------- ---------
Total expenses............................... 24,907 27,960 28,994
------- -------- ---------
Income before income taxes......................... $ 5,466 $ 3,360 $ 13,930
======= ======== =========
</TABLE>
32
<PAGE>
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
($000's omitted)
<TABLE>
<CAPTION>
PULTE MORTGAGE CORPORATION
BALANCE SHEETS
December 31, 1997 and 1996
ASSETS
1997 1996
---------- ---------
<S> <C> <C>
Current assets:
Cash and equivalents....................................... $ 1,082 $ 1,469
Residential mortgage loans available-for-sale.............. 185,018 170,443
Foreclosure related assets, net............................ 684 473
Capitalized servicing rights............................... 4,334 6,122
Receivables................................................ 5,893 4,904
---------- ---------
Total current assets..................................... 197,011 183,411
Other assets, net............................................. 3,569 3,780
---------- ---------
$ 200,580 $ 187,191
========== =========
<CAPTION>
LIABILITIES AND SHAREHOLDER'S EQUITY
<S> <C> <C>
Current liabilities:
Notes and drafts payable to banks.......................... $ 162,707 $ 154,136
Accounts payable and accrued liabilities................... 25,973 9,522
Current portion of long-term financing obligations........ 4 98
---------- ---------
Total current liabilities................................ 188,684 163,756
Long-term financing obligations............................... 5 10
---------- ---------
Total liabilities............................................. 188,689 163,766
Shareholder's equity*......................................... 11,891 23,425
---------- ---------
$ 200,580 $ 187,191
========== =========
<FN>
* Certain intersegment transactions and balances are eliminated in
consolidation and have no effect on consolidated earnings or equity.
</TABLE>
33
<PAGE>
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
($000's omitted)
Financing:
The Company's financing operations are conducted by limited purpose
subsidiaries of PFCI. Prior to 1989, PFCI subsidiaries engaged in the
acquisition of mortgage loans and mortgage-backed securities financed
principally through the issuance of long-term bonds secured by such
mortgage loans and mortgage-backed securities. Since 1989, the PFCI
subsidiaries have been liquidating their collateral portfolios and
related bonds outstanding. At December 31, 1997, one bond series with a
principal amount of $37,413 remained outstanding. These bonds are
expected to be redeemed, and the related collateral sold, by the end of
1998.
<TABLE>
<CAPTION>
PULTE FINANCIAL COMPANIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 1997, 1996 and 1995
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Interest, including amortization of net mortgage
discounts........................................... $ 3,665 $ 8,568 $ 27,178
Gain on sale of mortgage-backed securities and other -- 10,309 4,003
--------- --------- ---------
Total revenues................................... 3,665 18,877 31,181
--------- --------- ---------
Expenses:
Interest, including amortization of debt discounts and
issue costs......................................... 3,688 8,256 26,740
Foreclosure related loss reversals.................... -- (1,078) (404)
General and administrative............................ 93 369 339
--------- --------- ---------
Total expenses................................... 3,781 7,547 26,675
--------- --------- ---------
Income (loss) before income taxes....................... $ (116) $ 11,330 $ 4,506
========= ========= =========
<CAPTION>
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
ASSETS
1997 1996
--------- ---------
<S> <C> <C>
Cash and equivalents........................................ $ 1 $ 2
Funds held by trustee....................................... 977 994
Mortgage-backed securities.................................. 39,466 47,113
Accrued interest receivable and other....................... 1,648 1,856
--------- ---------
$ 42,092 $ 49,965
========= =========
<CAPTION>
LIABILITIES AND SHAREHOLDER'S EQUITY
<S> <C> <C>
Liabilities:
Bonds payable*............................................ $ 37,413 $ 45,304
Accrued liabilities, primarily interest................... 1,733 1,771
--------- ---------
Total liabilities........................................... 39,146 47,075
Shareholder's equity**...................................... 2,946 2,890
--------- ---------
$ 42,092 $ 49,965
========= =========
<FN>
* Bonds payable are the obligations of the applicable PFCI issuer subsidiary;
they are neither the obligations of, nor guaranteed by, the Company, PDCI,
Pulte, Pulte Mortgage or PFCI. (See Note 6.)
** Certain intersegment transactions and balances are eliminated in
consolidation and have no effect on consolidated earnings or equity.
</TABLE>
34
<PAGE>
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
($000's omitted)
2. Significant accounting policies
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Cash and equivalents
For purposes of the Statements of Cash Flows, commercial paper and time
deposits with a maturity of three months or less when acquired are
classified as cash equivalents.
Stock based compensation
The Company grants stock options to key employees for a fixed number of
shares with an exercise price not less than the fair value of the shares
at the date of grant. The Company accounts for the stock option grants in
accordance with Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees. No compensation expense is
recognized because all stock options granted have exercise prices equal
to the market value of the Company's stock on the date of the grant. The
pro forma disclosures required by Statement of Financial Accounting
Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, are
included in Note 6.
Foreign investments
The Company has investments in Mexico which are accounted for using the
equity method. Effective for periods ended after October 1, 1996, the
Company has remeasured the financial statements of its foreign equity
investments from the original functional currency (Peso) to the Company's
reporting currency (U.S. Dollar) due to Mexico's highly inflationary
economy. Accordingly, the Company translates the assets, liabilities and
equity of its foreign equity investments at the rates of exchange in
effect at each reporting period. Revenues and expenses are translated
using monthly average exchange rates. Gains and losses from (1)
translation of the financial statements of the Company's foreign equity
investments and (2) foreign currency transactions are included in expense
in the accompanying statements of operations. Foreign currency
translation and transaction losses aggregated $600, $100 and $2,300 for
the years ended December 31, 1997, 1996 and 1995, respectively. During
1997, the Company recorded a loss of $1,700 related to its Mexico
operations, as compared with losses of $1,700 and $5,800 in 1996 and
1995, respectively. The Company's aggregate net investment in Mexico is
approximately $27,600 as of December 31, 1997.
The Company maintains a foreign subsidiary which is performing under a
fixed-price agreement entered into during 1997 with a large,
international company to manage the construction of approximately 800
residential units in two phases in Antofagasta, Chile. The Company
accounts for the operating results of this project using percentage of
completion. The Company's net investment in this foreign subsidiary
approximated $900 at December 31, 1997.
Pulte Mortgage maintains a minority ownership interest in a Mexican
mortgage banking company which is accounted for using the equity method
of accounting. Pulte Mortgage has also remeasured the financial
statements of its foreign equity investment from the original functional
currency (Peso) to Pulte Mortgage's reporting currency (U.S. Dollar) due
to Mexico's highly inflationary economy. For 1997, Pulte Mortgage's
equity in the earnings of its investment was $557, of which $503
represented operating earnings and $54 represented its share of foreign
currency gains. During 1996, Pulte Mortgage's equity in the earnings of
its investment was $225. At December 31, 1997, Pulte Mortgage's
investment approximated $1,500.
35
<PAGE>
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
($000's omitted)
Income per share
In 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings Per Share. Statement 128 replaced the calculation of
primary and fully-diluted earnings per share with basic and diluted
earnings per share. Unlike primary earnings per share, basic earnings per
share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. Earnings per share amounts,
both basic and diluted, are disclosed for all periods presented and,
where appropriate, have been restated to conform to the Statement 128
requirements.
Fair values of financial instruments
The estimated fair values of financial instruments were determined by
management using available market information and appropriate valuation
methodologies. Considerable judgment is necessary to interpret market
data and develop estimated fair value. Accordingly, the estimates
presented are not necessarily indicative of the amounts the Company could
realize on disposition of the financial instruments. The use of different
market assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.
The carrying amounts of cash and cash equivalents approximate their fair
values due to their short-term nature. The carrying amounts of
mortgage-backed bonds approximate their fair values. The bonds are
expected to be redeemed during 1998.
The fair value of investment, mortgage-backed and related securities are
based on quoted market prices, when available. If quoted market prices
are not available, fair values are based on quoted market prices of
comparable instruments and other valuation techniques.
The fair values of subordinated debentures and senior notes are based on
quoted market prices, when available. If quoted market prices are not
available, fair values are based on quoted market prices of similar
issues.
Disclosures about fair value of financial instruments are based on
pertinent information available to management as of December 31, 1997.
Although management is not aware of any factors that would significantly
affect the reasonableness of the fair value amounts, such amounts have
not been comprehensively revalued for purposes of these financial
statements since that date and current estimates of fair value may differ
significantly from the amounts presented herein.
Advertising Cost
The Company expenses advertising costs as they are incurred. For the
years ended December 31, 1997, 1996 and 1995, the Company incurred
advertising costs of approximately $24,700, $21,900 and $18,900,
respectively.
Employee benefits
The Company maintains the Pulte Corporation Savings and Retirement Plan
401(k) (the "Plan") which covers substantially all of the Company's
employees. Company contributions to the Plan are expensed as paid and are
based on the employees' years of service. The total Company contributions
pursuant to the Plan were approximately $2,200, $2,300 and $2,100 for the
years ended December 31, 1997, 1996 and 1995, respectively.
36
<PAGE>
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
($000's omitted)
Long-lived assets
During the first quarter of 1996, the Company adopted SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, which requires impairment losses to be recorded
on long-lived assets used in operations when indicators of impairment are
present and the undiscounted cash flows estimated to be generated by
those assets are less than the assets' carrying amount. SFAS No. 121 also
addresses the accounting for long-lived assets that are expected to be
disposed of. The adoption of the provisions of SFAS No. 121 did not have
a material effect on the Company's financial position or results of
operations for the year ended December 31, 1996.
Homebuilding:
Allowance for warranties
Home purchasers are provided with warranties against certain building
defects. Estimated warranty cost is provided in the period in which the
sale is recorded.
Start-up costs
Costs and expenses associated with entry into new homebuilding markets
and opening new communities in existing markets are expensed when
incurred.
Revenues
Homebuilding revenues are recorded when the sales of homes are completed
and ownership has transferred to the customer. Unfunded settlements are
deposits in transit on homes for which the sale has been completed.
Inventories
Finished inventories are stated at the lower of accumulated cost or fair
value less costs to sell. Inventories under development or held for
development are stated at accumulated cost, unless such cost would not be
recovered from the cash flows generated by future disposition. In this
instance, such inventories are measured at fair value.
Sold units are expensed on a specific identification basis as cost of
sales. Included in inventories is related interest and property taxes.
The Company capitalized interest in the amount of $20,376, $17,801 and
$17,314 and expensed to homebuilding interest expense $18,503, $17,216
and $13,106 in 1997, 1996 and 1995, respectively.
Mortgage Banking:
Mortgage servicing rights
The Company conducts its mortgage banking activities through Pulte
Mortgage, whose primary business consists of providing residential
mortgage loan originations and related services to Pulte customers. In
May 1995, the FASB issued SFAS No. 122, Accounting for Mortgage Servicing
Rights (Statement 122). Under Statement 122, the costs associated with
originating a mortgage loan are to be allocated to the mortgage servicing
rights based on its fair value relative to the mortgage loan, as a whole.
Accordingly, under SFAS No. 122, the capitalized origination costs of the
loan are reduced by the amount allocated to the mortgage servicing
rights. Effective January 1, 1997, the Company adopted SFAS No. 125,
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, which superseded SFAS No. 122. There was
no material impact on the financial statements as a result of this
adoption.
37
<PAGE>
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
($000's omitted)
Mortgage servicing rights (continued)
The consolidated balance sheets include the following amounts of
capitalized mortgage servicing rights from originated mortgage loans as
of December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Conventional fixed rate loans....... $ 2,371 $ 4,039
Government fixed rate loans......... 1,200 1,059
Government variable rate loans...... 763 1,024
---------- ----------
$ 4,334 $ 6,122
========== ==========
</TABLE>
Mortgage loans
Residential mortgage loans available-for-sale are stated at the lower of
cost or aggregate market value. Unamortized net mortgage discounts
totaled $1,382 and $1,614 at December 31, 1997 and 1996, respectively.
Gains and losses from the sale of mortgage loans are recognized when the
loans are sold. Pulte Mortgage hedges its residential mortgage loans
available-for-sale by commitments in the cash forward market (see Note
11). Gains and losses from closed commitments and futures contracts are
matched against the related gains and losses on the sale of mortgage
loans.
Revenues
Mortgage servicing fees represent fees earned for servicing loans for
various investors, including affiliates. Servicing fees are based on a
contractual percentage of the outstanding principal balance and are
credited to income when the related mortgage payments are received. Loan
origination fees, commitment fees and certain direct loan origination
costs are deferred as an adjustment to the cost of the related mortgage
loan until such loan is sold.
Financing:
Mortgage-backed securities
PFCI adopted SFAS No. 115, Accounting for Certain Investments in Debt and
Equity Securities, on January 1, 1994. Based on prepayment experience of
certain subsidiaries since that time, PFCI elected to classify its
portfolio of Government National Mortgage Association (GNMA) securities
as available-for-sale beginning September 30, 1995. As
available-for-sale, such securities are reported at fair value with
unrealized gains and losses excluded from earnings and reported in a
separate component of shareholders' equity, net of income taxes.
38
<PAGE>
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
($000's omitted)
3. Discontinued operations
In September 1988, substantially all of the assets, business operations
and certain liabilities of five Texas-based insolvent thrifts were
acquired by First Heights. Assistance in connection with each acquisition
was provided by the Federal Savings and Loan Insurance Corporation
(FSLIC) pursuant to an Assistance Agreement.
FSLIC issued promissory notes representing the estimated negative net
worth of the acquired associations at the date of acquisition, the
balances of which, including accrued interest, were $103,010 and $131,579
at December 31, 1997 and 1996, respectively. The notes had a weighted
average interest rate of 5.4% and 5.8% at December 31, 1997 and 1996,
respectively. The notes are due in September 1998, and bear interest at
rates indexed to the Texas Cost of Funds plus a spread. The notes are
subject to annual prepayments, which are limited to 10% of the total
original note balances. The FSLIC Resolution Fund (FRF) exercised its
right to prepay the notes by $31,560 in each year since 1992. The FRF is
entitled to payments of up to 25% of certain tax benefits which may be
derived as a result of the assistance transactions.
During 1994, the Company announced its strategy to exit the thrift
industry and increase its focus on housing and related mortgage banking.
First Heights sold substantially all of its bank branches and related
liabilities (primarily deposits), plus certain other assets. One
remaining retail branch office continues to operate in Houston. The sale
was completed during the fourth quarter of 1994. Accordingly, such
operations are being presented as discontinued. To provide liquidity for
the sale, First Heights liquidated its investment portfolios and its
single-family residential loan portfolio and, as provided in the
Assistance Agreement, entered into a Liquidity Assistance Note (LAN) with
the Federal Deposit Insurance Corporation (FDIC) acting in its capacity
as manager of FRF. The LAN is collateralized by the FRF notes and bears
interest at a rate indexed to the Texas Cost of Funds plus a spread. The
LAN matures in September 1998. As discussed in Note 10, the Company is
involved in litigation with the FDIC and as part of this litigation, the
parties have asserted various claims with respect to obligations under
promissory notes issued by each of the parties in connection with the
thrift acquisition and activities.
Income from the Company's discontinued thrift operations for the years
ended December 31, 1997, 1996 and 1995 is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Discontinued thrift operations........... $ 2,961 $ 6,432 $ 9,507
Tax benefit of net operating losses...... -- 110,000 --
----------- ----------- ----------
$ 2,961 $ 116,432 $ 9,507
=========== =========== ==========
</TABLE>
Revenues of discontinued operations were $5,077, $12,164 and $20,919 for
the years ended December 31, 1997, 1996 and 1995, respectively. For the
years ended December 31, 1997, 1996 and 1995, discontinued thrift
operations resulted in income of $2,961 (including income tax benefit of
$2,356), $6,432 (including income tax benefit of $1,076) and $9,507 (net
of income taxes of $157), respectively.
During 1996, the Company recognized, as part of discontinued thrift
operations, after-tax income of approximately $110,000. Such income
relates to tax benefits associated with net operating losses. Certainty
of realization of this amount is not anticipated in the near term, is
dependent upon various factors, and the actual amount realized might be
more or less than the amount recorded.
39
<PAGE>
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
($000's omitted)
Assets and liabilities of discontinued operations were as follows:
<TABLE>
<CAPTION>
At December 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Assets:
Cash and equivalents............................................... $ 2,152 $ 2,577
Mortgage-backed and related securities............................. 18,620 45,601
Accounts and notes receivable-FRF, less LAN of $32,320 and
$63,880 at December 31, 1997 and 1996 respectively.............. 89,922 95,120
Assets covered by FRF.............................................. -- 261
Other assets....................................................... 246 517
---------- ----------
$ 110,940 $ 144,076
========== ==========
Liabilities:
Deposits, with interest rates ranging from 4% to 6% in 1996........ $ 37,462 $ 40,125
Accrued expenses and other liabilities............................. 39,612 49,018
FHLB advances...................................................... 3,100 19,600
Excess of acquired net assets over cost............................ -- 4,002
---------- ----------
$ 80,174 $ 112,745
========== ==========
</TABLE>
The fair value of financial instruments approximates carrying value at
December 31, 1997 and 1996.
4. Short-term credit arrangements
Short-term financing for the Company on an operating segment basis is as
follows:
Corporate/Homebuilding
At December 31, 1997, the Company, PDCI and Pulte jointly have a $240,000
unsecured revolving bank credit arrangement under which a variety of
interest rates are available to the Company. The credit arrangement
expires January 5, 2000. The credit arrangement contains customary
covenants, none of which significantly restrict the operations of the
Company. The Company also has two $10,000 uncommitted bank credit
arrangements. The Company did not borrow under its credit arrangements in
1996.
The following is aggregate borrowing information:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Unused credit lines at year-end................................ $ 260,000 $ 260,000 $ 260,000
Maximum amount outstanding at the end of any month............. $ 126,000 $ - $ 10,000
Average monthly indebtedness................................... $ 7,642 $ - $ 1,177
Range of interest rates during the year........................ 5.49 to - 6.26 to
8.50% 9.00%
Weighted average daily interest rate........................... 6.41% - 6.68%
</TABLE>
40
<PAGE>
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
($000's omitted)
Mortgage Banking
Notes and drafts payable to banks (collateralized short-term debt) are
secured by residential mortgage loans available-for-sale. The carrying
amounts of such borrowings approximate fair values.
At December 31, 1997, Pulte Mortgage had committed bank credit lines of
$150,000 and discretionary credit lines of $100,000. The bank credit
agreements require Pulte Mortgage to pay a fee for the committed credit
lines. During 1997, 1996 and 1995, Pulte Mortgage provided compensating
balances, in the form of custodial funds, in order to further reduce
interest rates. The bank credit agreements each contain certain
restrictions, including the maintenance of levels of equity. Under the
most restrictive of the agreements, Pulte Mortgage is required to
maintain a minimum tangible net worth of $10,000.
The following is aggregate borrowing information:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Unused credit lines at year-end................................ $ 121,830 $ 153,966 $ 244,543
Maximum amount outstanding at the end of any month............. $ 153,170 $ 121,034 $ 140,457
Average monthly indebtedness................................... $ 91,158 $ 93,881 $ 91,653
Range of interest rates during the year........................ .06 to .0625 to .425 to
7.55% 7.68% 9.00%
Weighted average daily interest rate........................... 5.99% 5.97% 7.10%
Weighted average rate at year-end.............................. 6.48% 6.25% 6.30%
</TABLE>
5. Long-term debt
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
At December 31,
------------------------
1997 1996
--------- --------
<S> <C> <C>
Corporate
7% unsecured Senior Notes, issued by Pulte Corporation, due 2003, not
redeemable prior to maturity, guaranteed on a senior basis by Pulte
and certain wholly-owned subsidiaries of Pulte. See Note 12........... $ 99,760 $ 99,720
8.375% unsecured Senior Notes, issued by Pulte Corporation, due 2004, not
redeemable prior to maturity, guaranteed on a senior basis by Pulte and
certain wholly-owned subsidiaries of Pulte. See Note 12............... 114,774 114,739
7.3% unsecured Senior Notes, issued by Pulte Corporation, due 2005, not
redeemable prior to maturity, guaranteed on a senior basis by Pulte and
certain wholly-owned subsidiaries of Pulte. See Note 12............... 124,917 124,906
7.625% unsecured Senior Notes, issued by Pulte Corporation, due 2017, not
redeemable prior to maturity, guaranteed on a senior basis by Pulte and
certain wholly-owned subsidiaries of Pulte. See Note 12............... 147,852
Homebuilding
10.125% unsecured senior subordinated debentures, issued by Pulte,
due 1999............................................................... 22,405 22,405
Other non-recourse debt, minimum annual principal payments required,
maturing at various times through 2002, interest rates ranging
from 5% to 16%......................................................... 37,192 29,405
--------- --------
$ 546,900 $391,175
========= ========
Estimated fair value...................................................... $ 572,280 $393,874
========= ========
41
<PAGE>
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(000's omitted)
Total Corporate and Homebuilding long-term debt maturities and mandatory
annual sinking fund payments during the five years subsequent to 1997 are
as follows: 1998 - $14,726; 1999 - $31,605; 2000 - $5,562; 2001 - $4,841;
2002 - $2,501 and thereafter $362.
Financing
Bonds payable at December 31, 1997 and 1996 consist of one bond issue
with a stated interest rate of 9%. The bond series is secured by separate
pools of mortgage-backed securities. Timing of bond retirements is
dependent upon mortgage payments and reinvestment rates.
Under provisions of the bond indentures, funds held by the trustees are
restricted so as to assure the payment of principal and interest on the
bonds to the extent of such funds. Such long-term borrowings are the
obligations of the applicable PFCI issuer subsidiary and are neither the
obligations of, nor guaranteed by, the Company, PDCI, Pulte, Pulte
Mortgage or PFCI.
6. Stock compensation plans and management incentive compensation
The Company has three fixed stock option plans. All three plans provide
for the grant of options (both non-qualified options and incentive stock
options as defined in each respective plan), stock appreciation rights
and restricted stock to key employees of the Company or its subsidiaries
(as determined by the Compensation Committee of the Board of Directors)
for periods not exceeding 10 years. The following is a brief description
of each plan:
o The Pulte Corporation 1995 Stock Incentive Plan for Key Employees
(1995 Plan) authorized the issuance of up to 2,000 shares of common
stock. On March 6, 1995, grants of 1,658 variable stock options
principally priced at $26 to $42 per share were awarded and
subsequently canceled. On December 13, 1995, grants of 1,687 fixed
stock options were awarded at prices not less than the fair market
value at the time of the grant. The first 50% of these stock options
vested on January 1, 1998, with 25% of the stock options vesting on
each of January 1, 1999 and January 1, 2000. As of December 31, 1997,
541 stock options remain available for grant.
o The Pulte Corporation 1994 Stock Incentive Plan for Key Employees
(1994 Plan) authorized the issuance of up to 1,000 shares of common
stock. On January 21, 1997, grants of 45 stock options with an
exercise price of $31 per share were awarded, of which 7 stock
options were subsequently canceled during 1997. On October 31, 1997,
an additional 90 stock options were granted with an exercise price of
$37 per share. All stock options granted during 1997 vest annually in
25% increments beginning two years from the date of the respective
grant. On May 10, 1996, grants of 30 stock options with an exercise
price of $28 per share were awarded. These options also vest annually
in 25% increments beginning May 10, 1998. On January 17, 1995, grants
of 250 stock options with an exercise price of $27 per share were
awarded. These stock options also vest annually in 25% increments
beginning January 17, 1997. As of December 31, 1997, 486 stock
options remain available for grant.
o The Pulte Corporation 1990 Stock Incentive Plan for Key Employees
(1990 Plan) authorized the issuance of up to 800 shares of common
stock. On October 31, 1997, grants of 54 stock options with an
exercise price of $37 per share were awarded. These stock options
vest annually in 25% increments beginning October 31, 1999. On
January 16, 1996, grants of 47 stock options with an exercise price
of $31 per share were awarded. These stock options also vest annually
in 25% increments beginning January 16, 1998. Additionally, on
January 17, 1995, grants of 21 stock options with an exercise price
of $27 per share were awarded. These stock options also vest annually
in 25% increments beginning January 17, 1997. As of December 31,
1997, 25 stock options remain available for grant.
42
<PAGE>
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(000's omitted, except per share data)
A summary of the status of the Company's three fixed stock option plans
as of December 31, 1997, 1996 and 1995 and changes during the years
ending on those dates is presented below:
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
------------------------ ------------------------ ------------------------
Weighted- Weighted- Weighted-
Average Average Average
Per Share Per Share Per Share
Shares Exercise Price Shares Exercise Price Shares Exercise Price
------ -------------- ------ -------------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year.. 3,075 $ 32 3,042 $ 32 1,270 $ 26
Granted......................... 189 35 77 30 3,616 35
Exercised....................... (385) 18 (44) 14 (114) 9
Forfeited....................... (336) 35 -- -- (1,730) 36
------ ------- -------
Outstanding, end of year........ 2,543 $ 34 3,075 $ 32 3,042 $ 32
====== ======= =======
Options exercisable at year-end. 477 545 311
====== ======= =======
Weighted-average per share
fair value of options
granted during the year...... $14.78 $ 11.12 $ 12.42
====== ======= =======
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------ ---------------------------------
Weighted- Weighted- Weighted-
Range of Number Average Average Number Average
Per Share Outstanding at Remaining Per Share Exercisable at Per Share
Exercise Prices December 31 Contract Life Exercise Price December 31 Exercise Price
- --------------- -------------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$ 9 40 2.6 years $ 9 40 $ 9
12 to 17 41 3.3 16 41 16
27 to 32 587 6.3 29 278 30
34 to 42 1,875 7.8 37 136 41
</TABLE>
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its three fixed stock option plans. No compensation
expense is recognized because all stock options granted have exercise
prices equal to the market value of the Company's stock on the date of
the grant. Under SFAS No. 123, compensation cost for the Company's three
stock-based compensation plans would be determined based on the fair
value at the grant dates for awards under those plans. Accordingly, for
the years ended December 31, 1997, 1996 and 1995, the Company's income
from continuing operations, net income and earnings per share would have
been reduced to the pro forma amounts indicated below:
43
<PAGE>
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
($000's omitted, except per share data)
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Income from continuing operations:
As reported.......................................... $ 49,800 $ 63,211 $ 48,839
=========== =========== ===========
Pro forma............................................ $ 45,455 $ 57,771 $ 48,220
=========== =========== ===========
Net income:
As reported.......................................... $ 52,761 $ 179,643 $ 58,346
=========== =========== ===========
Pro forma............................................ $ 48,416 $ 174,203 $ 57,727
=========== =========== ===========
Per share data:
Basic:
Income from continuing operations:
As reported.......................................... $ 2.29 $ 2.54 $ 1.80
=========== =========== ===========
Pro forma............................................ $ 2.09 $ 2.32 $ 1.78
=========== =========== ===========
Net income:
As reported......................................... $ 2.43 $ 7.21 $ 2.15
=========== =========== ===========
Pro forma........................................... $ 2.23 $ 6.99 $ 2.13
=========== =========== ===========
Assuming dilution:
Income from continuing operations:
As reported.......................................... $ 2.27 $ 2.51 $ 1.78
=========== =========== ===========
Pro forma............................................ $ 2.07 $ 2.32 $ 1.76
=========== =========== ===========
Net income:
As reported......................................... $ 2.40 $ 7.14 $ 2.13
=========== =========== ===========
Pro forma........................................... $ 2.21 $ 6.93 $ 2.11
=========== =========== ===========
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
assumptions used for grants in 1997, 1996 and 1995, respectively:
weighted-average dividend yields of .46%, .80% and .77%, expected
volatility of 29.44%, 29.85% and 32.14%, weighted-average risk-free
interest rates of 5.88%, 5.87% and 5.92%, and weighted-average expected
lives of 6.5 years, 6.5 years and 6.9 years. Pro forma income from
continuing operations, net income and earnings per share were
significantly affected by the large option grant on December 13, 1995,
which is not expected to be indicative of the size of annual awards, and
by the manner in which compensation expense associated with stock options
is recognized over the vesting periods of each award. Based upon stock
options outstanding at December 31, 1997, the estimated compensation
expense, after income taxes, to be recognized in pro forma income from
continuing operations and net income for the years ending December 31,
1998, 1999 and 2000 is $2,442, $1,309 and $316, respectively.
Homebuilding operating management personnel are paid current cash
incentive compensation based on operating performance. Mortgage banking,
financing and thrift management personnel are paid current cash incentive
compensation substantially based on the performance of the applicable
subsidiary. The Company's corporate management personnel are paid current
cash incentive compensation based on overall performance of the Company.
For the years ended December 31, 1997, 1996 and 1995, the Company's total
current cash incentive compensation was $17,500, $17,900 and $15,900,
respectively. In addition, commencing January 1, 1996, the Company
adopted a long-term cash incentive plan as a means of compensating key
operating employees for long-term performance and contributions to the
growth of the Company. Amounts accrued over the period from January 1,
1996, through December 31, 1999, are payable subsequent to December 31,
1999. For the years ended December 31, 1997, 1996, the Company accrued
$3,900 and $3,300, respectively, relating to this plan.
44
<PAGE>
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
($000's omitted, except per share data)
7. Income taxes
The Company's net deferred tax asset (liability) is as follows:
<TABLE>
<CAPTION>
At December 31,
-------------------------
1997 1996
-------- ----------
<S> <C> <C>
Deferred tax liabilities:
Continuing operations:
Capitalized items deducted for tax, net..................... $ (6,658) $ (5,954)
Discontinued operations:
Market losses deducted for tax, and other................... (512) (353)
Equity adjustment:
Unrealized gains on securities.............................. (1,056) (982)
-------- ---------
(8,226) (7,289)
-------- ---------
Deferred tax assets:
Continuing operations:
Non-deductible reserves and other........................... 49,901 34,975
Discontinued operations:
Net operating loss carryforwards............................ 43,212 75,922
AMT credit carryforwards.................................... 15,642 13,734
Acquired tax loss carryforwards............................. 5,524 5,524
Purchase accounting adjustments............................. -- 1,465
Non-deductible reserves and other........................... 3,286 3,346
Amortization................................................ -- 9
-------- ---------
117,565 134,975
-------- ---------
Net deferred tax asset ..................................... $109,339 $ 127,686
======== =========
</TABLE>
Net operating loss carryforwards expire in 2006. The acquired tax loss
carryforwards expire in the years 1999 through 2002.
Components of current and deferred income tax expense (benefit) of
continuing operations are as follows:
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -----
<S> <C> <C> <C>
Year ended December 31, 1997
Federal.................................... $ 40,586 $(11,977) $ 28,609
State and other............................ 4,811 (2,245) 2,566
--------- -------- ---------
$ 45,397 $(14,222) $ 31,175
========= ======== =========
Year ended December 31, 1996
Federal.................................... $ 43,319 $ (8,627) $ 34,692
State and other............................ 5,450 (890) 4,560
--------- -------- ---------
$ 48,769 $ (9,517) $ 39,252
========= ======== =========
Year ended December 31, 1995
Federal.................................... $ 38,922 $ (9,885) $ 29,037
State and other............................ 5,333 (1,185) 4,148
--------- -------- ---------
$ 44,255 $(11,070) $ 33,185
========= ======== =========
</TABLE>
The following table reconciles the statutory federal income tax rate to
the effective income tax rate for continuing operations:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Income taxes at federal statutory rate........................ 35.0% 35.0% 35.0%
Effect of state and local income taxes, net of federal tax.... 5.0 5.0 5.5
Settlement of state tax issues and other...................... (1.5) (1.7) --
------ ------ ------
Effective rate................................................ 38.5% 38.3% 40.5%
====== ====== ======
</TABLE>
45
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
($000's omitted)
8. Leases
The Company leases certain property and equipment under non-cancelable
leases. The office and equipment leases are generally for terms of three
to five years and generally provide renewal options for terms of up to an
additional three years. Model home leases are generally for shorter terms
approximating one year with renewal options on a month-to-month basis. In
most cases, management expects that in the normal course of business,
leases that expire will be renewed or replaced by other leases. The
future minimum lease payments required under operating leases that have
initial or remaining non-cancelable terms in excess of one year are as
follows:
<TABLE>
<S> <C>
Year Ending December 31,
1998...................................... $ 14,976
1999...................................... 10,742
2000...................................... 8,018
2001...................................... 5,750
2002...................................... 2,565
After 2002................................ 1,497
-----------
Total minimum lease payments $ 43,548
===========
</TABLE>
Net rental expense for the years ended December 31, 1997, 1996 and 1995,
was $17,617, $16,539 and $13,064, respectively. Certain leases contain
purchase options and generally provide that the Company shall pay for
insurance, taxes and maintenance.
9. Restructuring
Since 1994, the Company's domestic homebuilding operations had been
organized as four operating companies, Pulte Home North, South, Central
and West. This organization enabled the Company to pursue its desired
level of geographic growth and market penetration. It also allowed the
Company to facilitate corporate direction, capital allocation, and risk
management policies, while allowing it to remain close to its customers.
During early 1997, the Company combined Pulte Home North and South,
creating Pulte Home East, to provide additional overhead leverage.
During August 1997, the Company announced that it was reorganizing its
corporate operations to enable the Company to take better advantage of
its size, talent base and competitive strengths. The reorganization was
designed to accomplish the following:
o Strengthen management focus on key customer groups and generate
increased operating efficiencies.
o Create a new position of Executive Vice President and Chief Operating
Officer with responsibility for all of the Company's homebuilding
operations.
o Replace the Company's existing homebuilding structure comprised of
three geographically-based operating companies with a structure
focused more closely on specific customer segments: domestic
homebuilding, Active Adult (mature buyer), and international.
o Evaluate and strategically deploy capital investment in homebuilding
operations.
o Structure the Company's mortgage banking operations to better support
homebuilding operations and improve operating performance.
o Right-size the workforce on a company-wide basis.
In conjunction with this reorganization, a pre-tax charge of $20,000 was
recorded during the fourth quarter. This charge included $11,787 of
separation and other costs for approximately 150 employees, $7,000 of
asset impairments and $1,213 of other costs, principally for office
leases. The after-tax effect of this charge was $12,300 or $.56 per
diluted share.
46
<PAGE>
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
($000's omitted)
The following table displays the status of the liabilities accrued for
the corporate restructuring as of December 31, 1997.
<TABLE>
<CAPTION>
1997 Reserve Uses
Original ------------------------------ Balance at
Type of Cost Reserve Cash Non-cash December 31
- ------------ ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Homebuilding operations:
Employee separation and other $ 6,900 $ (843) $ -- $ 6,057
Asset impairments 7,000 -- (7,000) --
Other 900 -- -- 900
------------- ------------- ------------- -------------
14,800 (843) (7,000) 6,957
------------- ------------- ------------- -------------
Mortgage Banking operations:
Employee separation and other 1,787 (610) -- 1,177
Other 313 (33) -- 280
------------- ------------- ------------- -------------
2,100 (643) -- 1,457
------------- ------------- ------------- -------------
Corporate:
Employee separation and other 3,100 (74) (496) 2,530
------------- ------------- ------------- -------------
$ 20,000 $ (1,560) $ (7,496) $ 10,944
============= ============= ============= =============
</TABLE>
It is anticipated that a substantial portion of the remaining accrual for
restructuring costs will be utilized during 1998.
10. Commitments and contingencies
In the normal course of business, Pulte acquires rights under options or
option-type agreements to purchase land to be used in homebuilding
operations at future dates. The total purchase price applicable to land
under option at December 31, 1997 approximated $562,000 ($429,000 at
December 31, 1996).
At December 31, 1997, Pulte, in the normal course of business, had
outstanding letters of credit and performance bonds of $134,148 and
$114,685, respectively. In addition, Pulte Mortgage and PFCI had
outstanding letters of credit on Pulte's behalf aggregating $2,178.
The Company is involved in various litigation incidental to its business.
Management believes that none of this litigation will have a material
adverse impact on the results of operations or financial position of the
Company.
First Heights-Related Litigation
The Company is a party to two lawsuits relating to First Heights' 1988
acquisition from the Federal Savings and Loan Insurance Corporation
(FSLIC), and First Heights' ownership of, five failed Texas thrifts. The
first lawsuit (the "District Court Case") was filed on July 7, 1995 in
the United States District Court, Eastern District of Michigan, by the
Federal Deposit Insurance Corporation (FDIC) against the Company, PDCI
and First Heights (collectively, the "Pulte Parties"). The second lawsuit
(the "Court of Federal Claims Case") was filed on December 26, 1996 in
the United States Court of Federal Claims (Washington, D.C.) by the Pulte
Parties against the United States. In the District Court Case, the FDIC
seeks a declaration of rights and other relief related to the assistance
agreement entered into between First Heights and the FSLIC. The FDIC is
the successor to FSLIC. The FDIC and the Pulte Parties disagree about the
proper interpretation of provisions in the assistance agreement which
provide for sharing of certain tax benefits achieved in connection with
First Heights' 1988 acquisition and ownership of the five
47
<PAGE>
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
($000's omitted)
failed Texas thrifts. The District Court Case also includes certain other
claims relating to the foregoing, including claims resulting from the
Company's and First Heights' amendment of a tax sharing and allocation
agreement between the Company and First Heights. The Pulte Parties
dispute the FDIC's claims and believe that a proper interpretation of the
assistance agreement limits the FDIC's participation in the tax benefits.
The Pulte Parties have filed an answer and a counterclaim, seeking, among
other things, a declaration that the FDIC has breached the assistance
agreement in numerous respects. On December 24, 1996, the Pulte Parties
voluntarily dismissed without prejudice certain of their claims in the
District Court Case and on December 26, 1996, initiated the Court of
Federal Claims Case.
The Court of Federal Claims Case contains similar claims as those that
were voluntarily dismissed from the District Court Case. In their
complaint, the Pulte Parties assert breaches of contract on the part of
the United States in connection with the enactment of section 13224 of
the Omnibus Budget Reconciliation Act of 1993. That provision repealed
portions of the tax benefits that the Pulte Parties claim they were
entitled to under the contract to acquire the failed Texas thrifts. The
Pulte Parties also assert certain other claims concerning the contract,
including claims that the United States (through the FDIC as receiver)
has improperly attempted to amend the failed thrifts pre-acquisition tax
returns and that this attempt was made in an effort to deprive the Pulte
Parties of tax benefits they had contracted for, and that the enactment
of the Financial Institutions Reform, Recovery, and Enforcement Act of
1989 breached the Government's obligation not to require contributions of
capital greater than those required by the contract.
Management believes that the First Heights related litigation will not
have a material adverse impact on the results of operations or financial
position of the Company.
On March 5, 1998, the Company reported that an opinion and order had been
issued by the United States District Court (the "Court") which resolved
by summary judgment four of the interpretational issues which had been
raised in the District Court Case. On three issues, the Court ruled in
favor of the FDIC, and on one issue, the Court ruled in favor of the
Company. The Company vigorously disagrees with the Court's ruling in
favor of the FDIC and intends to appeal if these rulings become part of
any final judgment. If the Company were unsuccessful on appeal and if all
other issues in such litigation were resolved in favor of the FDIC, the
Company would, at such time, take an after-tax charge against
discontinued operations in an amount which would range from a nominal
amount to as much as $40,000. The Company does not believe that the
claims in the Court of Federal Claims Case are affected by the rulings in
the District Court Case.
11. Financial instruments, including those with off-balance sheet risk
Pulte Mortgage, in the normal course of business to meet the financing
needs of its customers and reduce its own exposure to fluctuations in
interest rates, uses derivative financial instruments with off-balance
sheet risk. These financial instruments include cash forward placement
contracts, mortgage-backed security forward contracts, options on
treasury future contracts, and options on mortgage-backed security
forwards. Pulte Mortgage does not use any derivative financial
instruments for trading purposes.
Mortgage-backed security forwards are commitments to either purchase or
sell a financial instrument at a specific future date for a specified
price and may be settled in cash or through delivery of the financial
instrument. Option contracts are contracts that grant the purchaser, for
a premium payment, the right to either purchase or sell a financial
instrument at a specified price within a specified period of time or on a
specified date from or to the writer of the option. Forward and futures
contracts are used to modify the repricing characteristics of
interest-earning assets and loan commitments, while options are used to
limit the temporary impact of interest rate fluctuations in the value of
loans held for sale and loan commitments. Mandatory and optional forward
commitments are used by Pulte Mortgage to hedge its interest rate
exposure during the period from when Pulte Mortgage extends an interest
rate lock to a loan applicant until the time the loan is sold to an
investor.
48
<PAGE>
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
($000's omitted)
Since Pulte Mortgage can terminate a loan commitment if the borrower does
not comply with the terms of the contract, and some loan commitments may
expire without being drawn upon, these commitments do not necessarily
represent future cash requirements of Pulte Mortgage. Pulte Mortgage
evaluates the creditworthiness of these transactions through its normal
credit policies.
The following are Pulte Mortgage's loan commitments:
<TABLE>
<CAPTION>
Fair
Commitment Market Interest Expiration
Amount Value Rates Dates
---------- ------ -------- ----------
<S> <C> <C> <C> <C>
At December 31, 1997:
Loan commitments to borrowers $45,661 $45,763 5.0 to January 1998-
8.38% May 1998
At December 31, 1996:
Loan commitments to borrowers $41,796 $41,625 5.0 to January 1997-
9.25% May 1997
</TABLE>
Pulte Mortgage has credit risk to the extent that the counterparties to
the derivative financial instruments do not perform their obligation
under the agreements. If one of the counterparties does not perform,
Pulte Mortgage would not receive the cash to which it would otherwise be
entitled under the conditions of the agreement. Pulte Mortgage manages
credit risk by entering into agreements with only large national
investment bankers with primary dealer status and with permanent
investors, all of whom meet Pulte Mortgage's established credit
underwriting standards. Management does not anticipate any material
losses as a result of its agreements and does not consider them to
represent an undue level of credit, interest or liquidity risk for Pulte
Mortgage.
The table below summarizes, by class, the contractual amounts of Pulte
Mortgage's derivative financial instruments.
<TABLE>
<CAPTION>
Fair
Contract Market Interest Expiration
Amount Value Rates Dates
-------- ------ -------- ----------
<S> <C> <C> <C> <C>
At December 31, 1997:
Sell Securities........... $190,250 $189,004 5.0 to January 1998-
7.5% March 1998
At December 31, 1996:
Sell Securities........... $181,500 $181,651 5.0 to January 1997-
8.0% March 1997
</TABLE>
Realized gains or losses on derivative financial instruments are
recognized in net gain from sale of mortgages in the period settlement
occurs.
12. Supplemental Guarantor Information
In September 1995, the Company filed a universal shelf registration of up
to $250,000 of debt or equity securities, of which $125,000 of 7.3%
unsecured Senior Notes were issued in October 1995. In addition, the
Company previously issued $100,000, 7%, and $115,000, 8.375%, unsecured
Senior Notes under a previous shelf registration. In October 1997, the
Company registered an additional $25,000 of debt securities for an
offering pursuant to Rule 462(b) of the Securities Act of 1933, as
amended, and issued $150,000 of 7.625% unsecured Senior Notes, due 2017,
pursuant to the September 1995 and October 1997 universal shelf
registrations. Such obligations to pay principal, premium, if any, and
interest are guaranteed jointly and severally on a senior basis by Pulte,
all of Pulte's wholly-owned homebuilding subsidiaries and Builders'
Supply & Lumber Co., Inc., which is a Pulte wholly-owned subsidiary
(collectively, the Guarantors). Such guarantees are full and
unconditional. The principal non-Guarantors include PDCI, Pulte Mortgage,
First Heights, and PFCI. See Note 1 for additional information on the
Company's Guarantor and non-Guarantor subsidiaries.
49
<PAGE>
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
($000's omitted)
12. Supplemental Guarantor Information (continued)
Supplemental consolidating financial information of the Company,
specifically including such information for the Guarantors, is presented
below. Investments in subsidiaries are presented using the equity method
of accounting. Separate financial statements of the Guarantors are not
provided because management has concluded that the segment information
provides sufficient detail to allow investors to determine the nature of
the assets held by and the operations of the combined groups.
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Unconsolidated
------------------------------------------
Pulte Guarantor Non-Guarantor Eliminating Consolidated
Corporation Subsidiaries Subsidiaries Entries Pulte Corporation
----------- ------------ -------------- ------------ -----------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and equivalents ..................... $ 195,946 $ 46,466 $ 2,744 $ -- $ 245,156
Unfunded settlements ..................... -- 69,768 -- -- 69,768
House and land inventories ............... -- 1,141,952 -- -- 1,141,952
Mortgage-backed and related securities ... -- -- 39,467 -- 39,467
Residential mortgage loans and other
securities available-for-sale ......... -- -- 185,018 -- 185,018
Land held for sale and future development -- 24,984 -- -- 24,984
Other assets ............................. 18,305 164,032 41,804 -- 224,141
Deferred income taxes .................... 110,395 -- (1,056) -- 109,339
Discontinued operations .................. -- -- 110,940 -- 110,940
Investment in subsidiaries ............... 970,897 11,890 995,248 (1,978,035) --
Advances receivable - subsidiaries ....... 100,663 -- 20,517 (121,180) --
----------- ----------- ----------- ----------- -----------
$ 1,396,206 $ 1,459,092 $ 1,394,682 $(2,099,215) $ 2,150,765
=========== =========== =========== =========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued
liabilities ........................... $ 58,470 $ 390,397 $ 48,866 $ -- $ 497,733
Collateralized short-term debt, recourse
solely to applicable subsidiary assets -- -- 162,707 -- 162,707
Mortgage-backed bonds, recourse
solely to applicable subsidiary assets -- -- 37,413 -- 37,413
Income taxes ............................. 13,001 -- -- -- 13,001
Subordinated debentures and senior
notes ................................. 487,303 59,597 -- -- 546,900
Discontinued operations .................. -- -- 80,174 -- 80,174
Advances payable - subsidiaries .......... 24,595 61,994 34,591 (121,180) --
----------- ----------- ----------- ----------- -----------
Total liabilities .................. 583,369 511,988 363,751 (121,180) 1,337,928
----------- ----------- ----------- ----------- -----------
Shareholders' Equity:
Common stock ............................. 213 -- 7,805 (7,805) 213
Additional paid-in capital ............... 61,835 364,945 543,434 (908,379) 61,835
Unrealized gains on securities
available-for-sale .................... 1,687 -- 1,687 (1,687) 1,687
Retained earnings ........................ 749,102 582,159 478,005 (1,060,164) 749,102
----------- ----------- ----------- ----------- -----------
Total shareholders' equity ......... 812,837 947,104 1,030,931 (1,978,035) 812,837
----------- ----------- ----------- ----------- -----------
$ 1,396,206 $ 1,459,092 $ 1,394,682 $(2,099,215) $ 2,150,765
=========== =========== =========== =========== ===========
</TABLE>
50
<PAGE>
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
($000's omitted)
12. Supplemental Guarantor Information (continued)
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Unconsolidated
------------------------------------------
Pulte Guarantor Non-Guarantor Eliminating Consolidated
Corporation Subsidiaries Subsidiaries Entries Pulte Corporation
----------- ------------ -------------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and equivalents ..................... $ 114,585 $ 71,599 $ 3,441 $ -- $ 189,625
Unfunded settlements ..................... -- 73,896 -- -- 73,896
House and land inventories ............... -- 1,017,262 -- -- 1,017,262
Mortgage-backed and related securities ... -- -- 47,113 -- 47,113
Residential mortgage loans and other
securities available-for-sale ......... -- -- 170,443 -- 170,443
Land held for sale and future development -- 37,655 -- -- 37,655
Other assets ............................. 12,860 140,489 24,036 -- 177,385
Deferred income taxes .................... 128,668 -- (982) -- 127,686
Discontinued operations .................. -- -- 144,076 -- 144,076
Investment in subsidiaries ............... 859,866 23,425 878,540 (1,761,831) --
Advances receivable - subsidiaries ....... 139,351 827 17,246 (157,424) --
----------- ----------- ----------- ----------- -----------
$ 1,255,330 $ 1,365,153 $ 1,283,913 $(1,919,255) $ 1,985,141
=========== =========== =========== =========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued
liabilities ........................... $ 51,731 $ 357,480 $ 30,367 $ -- $ 439,578
Collateralized short-term debt, recourse
solely to applicable subsidiary assets -- -- 154,136 -- 154,136
Mortgage-backed bonds, recourse
solely to applicable subsidiary assets -- -- 45,304 -- 45,304
Income taxes ............................. 12,930 -- -- -- 12,930
Subordinated debentures and senior
notes ................................. 339,365 51,810 -- -- 391,175
Discontinued operations .................. 4,002 -- 108,743 -- 112,745
Advances payable - subsidiaries .......... 18,029 123,451 15,944 (157,424) --
----------- ----------- ----------- ----------- -----------
Total liabilities .................. 426,057 532,741 354,494 (157,424) 1,155,868
----------- ----------- ----------- ----------- -----------
Shareholders' Equity:
Common stock .......................... 233 -- 7,804 (7,804) 233
Additional paid-in capital ............ 57,516 319,091 508,538 (827,629) 57,516
Unrealized gains on securities
available-for-sale .................. 1,474 -- 1,474 (1,474) 1,474
Retained earnings ..................... 770,050 513,321 411,603 (924,924) 770,050
----------- ----------- ----------- ----------- -----------
Total shareholders' equity ......... 829,273 832,412 929,419 (1,761,831) 829,273
----------- ----------- ----------- ----------- -----------
$ 1,255,330 $ 1,365,153 $ 1,283,913 $(1,919,255) $ 1,985,141
=========== =========== =========== =========== ===========
</TABLE>
51
<PAGE>
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
($000's omitted)
12. Supplemental Guarantor Information (continued)
CONSOLIDATING STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<CAPTION>
Unconsolidated
-----------------------------------------
Pulte Guarantor Non-Guarantor Eliminating Consolidated
Corporation Subsidiaries Subsidiaries Entries Pulte Corporation
----------- ------------ ------------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
Revenues:
Homebuilding ........................ $ -- $2,479,171 $ -- $ -- $2,479,171
Mortgage banking and financing,
interest and other ................ -- -- 34,038 -- 34,038
Corporate ........................... 2,054 7,182 1,546 -- 10,782
---------- ---------- ---------- ---------- ----------
Total revenues .................. 2,054 2,486,353 35,584 -- 2,523,991
---------- ---------- ---------- ---------- ----------
Expenses:
Homebuilding:
Cost of sales ..................... -- 2,110,532 -- -- 2,110,532
Selling, general and administrative
and other expense ................. -- 240,238 -- -- 240,238
Mortgage banking and financing,
principally interest .............. -- -- 26,588 -- 26,588
Corporate, net ...................... 32,456 11,555 1,647 -- 45,658
Restructuring costs ................. 3,100 14,800 2,100 -- 20,000
---------- ---------- ---------- ---------- ----------
Total expenses .................. 35,556 2,377,125 30,335 -- 2,443,016
---------- ---------- ---------- ---------- ----------
Income (loss) from continuing operations
before income taxes and equity in net
income of subsidiaries .............. (33,502) 109,228 5,249 -- 80,975
Income taxes (benefit) ................. (15,255) 43,668 2,762 -- 31,175
---------- ---------- ---------- ---------- ----------
Income (loss) from continuing operations
before equity in net income of
subsidiaries ........................ (18,247) 65,560 2,487 -- 49,800
Income from discontinued operations .... 6,620 -- (3,659) -- 2,961
---------- ---------- ---------- ---------- ----------
Income before equity in net income
of subsidiaries ..................... (11,627) 65,560 (1,172) -- 52,761
---------- ---------- ---------- ---------- ----------
Equity in net income of subsidiaries:
Continuing operations ............... 68,047 3,279 65,560 (136,886) --
Discontinued operations ............. (3,659) -- -- 3,659 --
---------- ---------- ---------- ---------- ----------
64,388 3,279 65,560 (133,227) --
---------- ---------- ---------- ---------- ----------
Net income ...................... $ 52,761 $ 68,839 $ 64,388 $ (133,227) $ 52,761
========== ========== ========== ========== ==========
</TABLE>
52
<PAGE>
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
($000's omitted)
12. Supplemental Guarantor Information (continued)
CONSOLIDATING STATEMENT OF OPERATIONS
For the year ended December 31, 1996
<TABLE>
<CAPTION>
Unconsolidated
----------------------------------------
Pulte Guarantor Non-Guarantor Eliminating Consolidated
Corporation Subsidiaries Subsidiaries Entries Pulte Corporation
----------- ------------ ------------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
Revenues:
Homebuilding ........................ $ -- $2,319,734 $ -- $ -- $2,319,734
Mortgage banking and financing,
interest and other ................ -- -- 50,197 -- 50,197
Corporate, principally interest ..... 6,724 6,728 900 -- 14,352
---------- ---------- ---------- ---------- ----------
Total revenues .................. 6,724 2,326,462 51,097 -- 2,384,283
---------- ---------- ---------- ---------- ----------
Expenses:
Homebuilding:
Cost of sales ..................... -- 1,975,826 -- -- 1,975,826
Selling, general and administrative
and other expense ................. -- 229,847 -- -- 229,847
Mortgage banking and financing,
principally interest .............. -- -- 35,507 -- 35,507
Corporate, net ...................... 25,931 12,207 2,502 -- 40,640
---------- ---------- ---------- ---------- ----------
Total expenses .................. 25,931 2,217,880 38,009 -- 2,281,820
---------- ---------- ---------- ---------- ----------
Income (loss) from continuing operations
before income taxes and equity in net
income of subsidiaries .............. (19,207) 108,582 13,088 -- 102,463
Income taxes (benefit) ................. (10,234) 43,485 6,001 -- 39,252
---------- ---------- ---------- ---------- ----------
Income (loss) from continuing operations
before equity in net income of
subsidiaries ........................ (8,973) 65,097 7,087 -- 63,211
Income from discontinued operations .... 106,120 -- 10,312 -- 116,432
---------- ---------- ---------- ---------- ----------
Income before equity in net income
of subsidiaries ..................... 97,147 65,097 17,399 -- 179,643
---------- ---------- ---------- ---------- ----------
Equity in net income of subsidiaries:
Continuing operations ............... 72,184 2,016 65,097 (139,297) --
Discontinued operations ............. 10,312 -- -- (10,312) --
---------- ---------- ---------- ---------- ----------
82,496 2,016 65,097 (149,609) --
---------- ---------- ---------- ---------- ----------
Net income ...................... $ 179,643 $ 67,113 $ 82,496 $ (149,609) $ 179,643
========== ========== ========== ========== ==========
</TABLE>
53
<PAGE>
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
($000's omitted)
12. Supplemental Guarantor Information (continued)
CONSOLIDATING STATEMENT OF OPERATIONS
For the year ended December 31, 1995
<TABLE>
<CAPTION>
Unconsolidated
-----------------------------------------
Pulte Guarantor Non-Guarantor Eliminating Consolidated
Corporation Subsidiaries Subsidiaries Entries Pulte Corporation
----------- ------------ ------------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
Revenues:
Homebuilding........................... $ - $ 1,934,403 $ - $ - $ 1,934,403
Mortgage banking and financing:
Interest and other................... - - 54,391 - 54,391
Gain on sale of servicing............ - - 19,714 - 19,714
Corporate, principally interest........ 17,709 1,300 1,623 - 20,632
----------- ----------- ----------- ---------- -----------
Total revenues..................... 17,709 1,935,703 75,728 - 2,029,140
----------- ----------- ----------- ---------- -----------
Expenses:
Homebuilding:
Cost of sales........................ - 1,653,567 - - 1,653,567
Selling, general and administrative
and other expense.................... - 196,374 - - 196,374
Mortgage banking and financing,
principally interest................. - - 55,669 - 55,669
Corporate, net......................... 26,987 5,964 8,555 - 41,506
----------- ----------- ----------- ---------- -----------
Total expenses.................... 26,987 1,855,905 64,224 - 1,947,116
----------- ----------- ----------- ---------- -----------
Income (loss) from continuing operations
before income taxes and equity in net
income of subsidiaries................. (9,278) 79,798 11,504 - 82,024
Income taxes (benefit).................... (5,702) 31,919 6,968 - 33,185
----------- ----------- ----------- ---------- -----------
Income (loss) from continuing operations
before equity in net income of
subsidiaries........................... (3,576) 47,879 4,536 - 48,839
Income from discontinued operations....... 4,715 - 4,792 - 9,507
----------- ----------- ----------- ---------- -----------
Income before equity in net income
of subsidiaries........................ 1,139 47,879 9,328 - 58,346
----------- ----------- ----------- ---------- -----------
Equity in net income of subsidiaries:
Continuing operations.................. 52,415 8,358 47,879 (108,652) -
Discontinued operations................ 4,792 - - (4,792) -
----------- ----------- ----------- ---------- -----------
57,207 8,358 47,879 (113,444) -
----------- ----------- ----------- ---------- -----------
Net income........................ $ 58,346 $ 56,237 $ 57,207 $ (113,444) $ 58,346
=========== =========== =========== ========== ===========
</TABLE>
54
<PAGE>
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
($000's omitted)
12. Supplemental Guarantor Information (continued)
CONSOLIDATING STATEMENT OF CASH FLOWS
For the year ended December 31, 1997
<TABLE>
<CAPTION>
Unconsolidated
-----------------------------------------
Pulte Guarantor Non-Guarantor Eliminating Consolidated
Corporation Subsidiaries Subsidiaries Entries Pulte Corporation
----------- ------------ ------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
Continuing operations:
Cash flows from operating activities:
Income from continuing operations ....... $ 49,800 $ 68,839 $ 68,047 $(136,886) $ 49,800
Adjustments to reconcile income from
continuing operations to net cash
flows provided by (used in)
operating activities:
Equity in income of subsidiaries .. (68,047) (3,279) (65,560) 136,886 --
Amortization, depreciation and
other ........................... 113 7,247 453 -- 7,813
Deferred income taxes ............. (14,222) -- -- -- (14,222)
Increase (decrease) in cash due to:
Inventories ..................... -- (124,690) -- -- (124,690)
Residential mortgage loans
available-for-sale ........... -- -- (14,576) -- (14,576)
Other assets .................... (5,445) (13,992) (18,494) -- (37,931)
Accounts payable and accrued
liabilities .................. 7,001 32,917 20,622 -- 60,580
Income taxes .................... (8,453) 43,668 2,837 -- 38,052
--------- --------- --------- --------- ---------
Net cash provided by (used in)
operating activities .................... (39,253) 10,710 (6,631) -- (35,174)
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Principal payments of mortgage-backed
securities ............................ -- -- 7,933 -- 7,933
Decrease in funds held by trustee ....... -- -- 17 -- 17
Dividends received from subsidiaries .... -- 17,000 -- (17,000) --
Advances to affiliates .................. 38,688 827 (3,020) (36,495) --
Other, net .............................. -- -- 19 -- 19
--------- --------- --------- --------- ---------
Net cash provided by investing activities .. $ 38,688 $ 17,827 $ 4,949 $ (53,495) $ 7,969
--------- --------- --------- --------- ---------
</TABLE>
55
<PAGE>
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
12. Supplemental Guarantor Information (continued)
CONSOLIDATING STATEMENT OF CASH FLOWS (continued)
For the year ended December 31, 1997
<TABLE>
<CAPTION>
Unconsolidated
-----------------------------------------
Pulte Guarantor Non-Guarantor Eliminating Consolidated
Corporation Subsidiaries Subsidiaries Entries Pulte Corporation
----------- ------------ ------------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
Cash flows from financing activities:
Payment of long-term debt and bonds ..... $ -- $ -- $ (9,106) $ -- $ (9,106)
Proceeds from borrowings ................ 147,825 7,787 8,571 -- 164,183
Advances from affiliates ................ 6,566 (61,457) 18,396 36,495 --
Stock repurchases ....................... (74,673) -- -- -- (74,673)
Dividends paid .......................... (5,153) -- (17,000) 17,000 (5,153)
Other, net .............................. 7,361 -- 124 -- 7,485
--------- --------- --------- --------- ---------
Net cash provided by (used in)
financing activities .................... 81,926 (53,670) 985 53,495 82,736
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and
equivalents - continuing operations ..... 81,361 (25,133) (697) -- 55,531
--------- --------- --------- --------- ---------
Discontinued operations:
Cash flows from operating activities:
Income from discontinued operations ..... 2,961 -- (3,659) 3,659 2,961
Change in deferred income taxes ......... 32,495 -- -- -- 32,495
Equity in income of subsidiaries ........ 3,659 -- -- (3,659) --
Change in income taxes .................. (34,851) -- -- -- (34,851)
Other changes, net ...................... (4,264) -- (5,993) -- (10,257)
Cash flows from investing activities:
Purchase of securities available-for-sale -- -- (14,537) -- (14,537)
Principal payments of mortgage-backed
securities ............................ -- -- 34,257 -- 34,257
Net proceeds from sale of investments ... -- -- 3,211 -- 3,211
Increase in Covered Assets and FRF
receivables ........................... -- -- 37,019 -- 37,019
Cash flows from financing activities:
Decrease in deposit liabilities ......... -- -- (2,663) -- (2,663)
Repayment of borrowings ................. -- -- (31,560) -- (31,560)
Decrease in FHLB advances ............... -- -- (16,500) -- (16,500)
--------- --------- --------- --------- ---------
Net decrease in cash and equivalents-
discontinued operations ................. -- -- (425) -- (425)
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and
equivalents ............................. 81,361 (25,133) (1,122) -- 55,106
Cash and equivalents at beginning of year .. 114,585 71,599 6,018 -- 192,202
--------- --------- --------- --------- ---------
Cash and equivalents at end of year ........ $ 195,946 $ 46,466 $ 4,896 $ -- $ 247,308
========= ========= ========= ========= =========
</TABLE>
56
<PAGE>
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
($000's omitted)
12. Supplemental Guarantor Information (continued)
CONSOLIDATING STATEMENT OF CASH FLOWS
For the year ended December 31, 1996
<TABLE>
<CAPTION>
Unconsolidated
-----------------------------------------
Pulte Guarantor Non-Guarantor Eliminating Consolidated
Corporation Subsidiaries Subsidiaries Entries Pulte Corporation
----------- ------------ ------------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
Continuing operations:
Cash flows from operating activities:
Income from continuing operations ......... $ 63,211 $ 67,113 $ 72,184 $(139,297) $ 63,211
Adjustments to reconcile income from
continuing operations to net cash
flows provided by (used in)
operating activities:
Equity in income of subsidiaries .... (72,184) (2,016) (65,097) 139,297 --
Amortization, depreciation and
other ............................. 85 6,107 555 -- 6,747
Deferred income taxes ............... (9,517) -- -- -- (9,517)
Gain on sale of securities .......... -- -- (11,069) -- (11,069)
Increase (decrease) in cash due to:
Inventories ....................... -- (157,527) -- -- (157,527)
Residential mortgage loans
available-for-sale ............. -- -- 7,859 -- 7,859
Other assets ...................... (7,963) (64,806) 8,143 -- (64,626)
Accounts payable and accrued
liabilities .................... 6,534 56,490 (3,866) -- 59,158
Income taxes ...................... (7,868) 43,485 5,922 -- 41,539
--------- --------- --------- --------- ---------
Net cash provided by (used in)
operating activities ...................... (27,702) (51,154) 14,631 -- (64,225)
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Proceeds from exchange of securities
held-to-maturity ........................ -- -- 12,282 -- 12,282
Proceeds from sale of securities available-
for-sale ................................ -- -- 175,686 -- 175,686
Principal payments of mortgage-backed
securities .............................. -- -- 19,892 -- 19,892
Decrease in funds held by trustee ......... -- -- 4,348 -- 4,348
Dividends received from subsidiaries ...... 30,000 22,000 -- (52,000) --
Investment in subsidiaries ................ (1,524) -- -- 1,524 --
Advances to affiliates .................... (2,054) 2,608 (2,782) 2,228 --
Other, net ................................ -- -- (4,626) -- (4,626)
--------- --------- --------- --------- ---------
Net cash provided by investing activities .... $ 26,422 $ 24,608 $ 204,800 $ (48,248) $ 207,582
--------- --------- --------- --------- ---------
</TABLE>
57
<PAGE>
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
12. Supplemental Guarantor Information (continued)
CONSOLIDATING STATEMENT OF CASH FLOWS (continued)
For the year ended December 31, 1996
<TABLE>
<CAPTION>
Unconsolidated
-----------------------------------------
Pulte Guarantor Non-Guarantor Eliminating Consolidated
Corporation Subsidiaries Subsidiaries Entries Pulte Corporation
----------- ------------ ------------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
Cash flows from financing activities:
Payment of long-term debt and bonds ..... $ -- $ -- $(181,841) $ -- $(181,841)
Proceeds from borrowings ................ -- 27,133 13,576 -- 40,709
Capital contributions from parent ....... -- -- 1,524 (1,524) --
Advances from affiliates ................ -- -- 2,228 (2,228) --
Stock repurchases ....................... (99,561) -- -- -- (99,561)
Dividends paid .......................... (5,958) -- (52,000) 52,000 (5,958)
Other, net .............................. 602 -- 90 -- 692
--------- --------- --------- --------- ---------
Net cash provided by (used in) financing
activities .............................. (104,917) 27,133 (216,423) 48,248 (245,959)
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and
equivalents - continuing operations ..... (106,197) 587 3,008 -- (102,602)
--------- --------- --------- --------- ---------
Discontinued operations:
Cash flows from operating activities:
Income from discontinued operations ..... 116,432 -- 10,312 (10,312) 116,432
Change in deferred income taxes ......... (38,321) -- -- -- (38,321)
Equity in income of subsidiaries ........ (10,312) -- -- 10,312 --
Changes in income taxes ................. (72,755) -- -- -- (72,755)
Other changes, net ...................... 4,956 -- (19,174) -- (14,218)
Cash flows from investing activities:
Purchase of securities available-for-sale -- -- (42,209) -- (42,209)
Principal payments of mortgage-backed
securities ............................ -- -- 43,735 -- 43,735
Net proceeds from sale of investments ... -- -- 4,514 -- 4,514
Decrease in Covered Assets and FRF
receivables ........................... -- -- 37,438 -- 37,438
Decrease in loans receivable ............ -- -- (419) -- (419)
Cash flows from financing activities:
Increase in deposit liabilities ......... -- -- 3,404 -- 3,404
Repayment of borrowings ................. -- -- (31,560) -- (31,560)
Decrease in FHLB advances ............... -- -- (6,400) -- (6,400)
--------- --------- --------- --------- ---------
Net decrease in cash and equivalents-
discontinued operations ................. -- -- (359) -- (359)
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and
equivalents ............................. (106,197) 587 2,649 -- (102,961)
Cash and equivalents at beginning of year .. 220,782 71,012 3,369 -- 295,163
--------- --------- --------- --------- ---------
Cash and equivalents at end of year ........ $ 114,585 $ 71,599 $ 6,018 $ -- $ 192,202
========= ========= ========= ========= =========
</TABLE>
58
<PAGE>
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
($000's omitted)
12. Supplemental Guarantor Information (continued)
CONSOLIDATING STATEMENT OF CASH FLOWS
For the year ended December 31, 1995
<TABLE>
<CAPTION>
Unconsolidated
-----------------------------------------
Pulte Guarantor Non-Guarantor Eliminating Consolidated
Corporation Subsidiaries Subsidiaries Entries Pulte Corporation
----------- ------------ ------------ ---------- -----------------
<S> <C> <C> <C> <C> <C>
Continuing operations:
Cash flows from operating activities:
Income from continuing operations ......... $ 48,839 $ 56,237 $ 52,415 $(108,652) $ 48,839
Adjustments to reconcile income from
continuing operations to net cash
flows used in operating activities:
Equity in income of subsidiaries .... (52,415) (8,358) (47,879) 108,652 --
Amortization, depreciation and ......
other ............................. 77 5,027 1,234 -- 6,338
Deferred income taxes ............... (11,070) -- -- -- (11,070)
Gain on sale of securities .......... -- -- (4,003) -- (4,003)
Increase (decrease) in cash due to:
Inventories ....................... -- (107,366) -- -- (107,366)
Residential mortgage loans
available-for-sale ............. -- -- (40,928) -- (40,928)
Other assets ...................... (2,105) (30,154) (3,368) -- (35,627)
Accounts payable and accrued
liabilities .................... 1,447 31,755 16,737 -- 49,939
Income taxes ...................... (731) 31,919 6,936 -- 38,124
--------- --------- --------- --------- ---------
Net cash used in operating activities ........ (15,958) (20,940) (18,856) -- (55,754)
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Proceeds from exchange of securities
held-to-maturity ........................ -- -- 14,114 -- 14,114
Proceeds from sale of securities available-
for-sale ................................ -- -- 48,370 -- 48,370
Principal payments of mortgage-backed
securities .............................. -- -- 47,667 -- 47,667
Decrease in funds held by trustee ......... -- -- 1,911 -- 1,911
Dividends received from subsidiaries ...... 10,652 40,000 -- (50,652) --
Investment in subsidiaries ................ (3,057) -- -- 3,057 --
Advances to affiliates .................... 5,907 (5,977) -- 70 --
Other, net ................................ -- 1,423 (388) -- 1,035
--------- --------- --------- --------- ---------
Net cash provided by investing activities .... $ 13,502 $ 35,446 $ 111,674 $ (47,525) $ 113,097
--------- --------- --------- --------- ---------
</TABLE>
59
<PAGE>
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
12. Supplemental Guarantor Information (continued)
CONSOLIDATING STATEMENT OF CASH FLOWS (continued)
For the year ended December 31, 1995
<TABLE>
<CAPTION>
Unconsolidated
------------------------------------------
Pulte Guarantor Non-Guarantor Eliminating Consolidated
Corporation Subsidiaries Subsidiaries Entries Pulte Corporation
----------- ------------ ------------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
Cash flows from financing activities:
Payment of long-term debt and bonds ..... $ -- $ -- $(107,543) $ -- $(107,543)
Proceeds from borrowings ................ 124,894 9,916 65,353 -- 200,163
Repayment of borrowings ................. -- -- (470) -- (470)
Capital contributions from parent ....... -- -- 3,057 (3,057) --
Advances from affiliates ................ -- 3,043 (2,973) (70) --
Stock repurchases ....................... (11,707) -- -- -- (11,707)
Dividends paid .......................... (6,489) -- (50,652) 50,652 (6,489)
Other, net .............................. 994 -- 344 -- 1,338
--------- --------- --------- --------- ---------
Net cash provided by (used in) financing
activities .............................. 107,692 12,959 (92,884) 47,525 75,292
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and
equivalents - continuing operations ..... 105,236 27,465 (66) -- 132,635
--------- --------- --------- --------- ---------
Discontinued operations:
Cash flows from operating activities:
Income from discontinued operations ..... 9,507 -- 4,792 (4,792) 9,507
Change in deferred income taxes ......... 18,280 -- -- -- 18,280
Equity in income of subsidiaries ........ (4,792) -- -- 4,792 --
Changes in income taxes ................. (18,123) -- -- -- (18,123)
Other changes, net ...................... (4,872) -- 12,614 -- 7,742
Cash flows from investing activities:
Purchase of securities available-for-sale -- -- (70,052) -- (70,052)
Principal payments of mortgage-backed
securities ............................ -- -- 31,857 -- 31,857
Decrease in Covered Assets and FRF
receivables ........................... -- -- 35,929 -- 35,929
Cash flows from financing activities:
Decrease in deposit liabilities ......... -- -- (128,542) -- (128,542)
Repayment of borrowings ................. -- -- (31,560) -- (31,560)
Decrease in FHLB advances ............... -- -- 26,000 -- 26,000
--------- --------- --------- --------- ---------
Net decrease in cash and equivalents-
discontinued operations ................. -- -- (118,962) -- (118,962)
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and
equivalents ............................. 105,236 27,465 (119,028) -- 13,673
Cash and equivalents at beginning of year .. 115,546 43,547 122,397 -- 281,490
--------- --------- --------- --------- ---------
Cash and equivalents at end of year ........ $ 220,782 $ 71,012 $ 3,369 $ -- $ 295,163
========= ========= ========= ========= =========
</TABLE>
60
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Pulte Corporation
We have audited the accompanying consolidated balance sheets of Pulte
Corporation as of December 31, 1997 and 1996 and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1997. Our audits also included
the financial statement schedule listed in the Index at Item 14. These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Pulte Corporation at December 31, 1997 and 1996 and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the information set
forth therein.
As discussed in the Notes to Consolidated Financial Statements, in 1995 the
Company changed its method of accounting for mortgage servicing.
ERNST & YOUNG LLP
Detroit, Michigan
January 21, 1998, except for the
last paragraph of Note 10 as to
which the date is March 5, 1998.
61
<PAGE>
PULTE CORPORATION
UNAUDITED QUARTERLY INFORMATION
($000's omitted, except per share data)
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
1997
Homebuilding operations:
Sales (settlements) ........................... $ 423,215 $ 567,135 $ 657,265 $ 831,556 $ 2,479,171
Cost of sales ................................. 360,005 484,509 559,061 706,957 2,110,532
Income before income taxes .................... 8,997 28,252 36,562 39,790(A) 113,601(B)
Financial services operations:
Revenues ...................................... $ 6,727 $ 6,925 $ 9,808 $ 10,578 $ 34,038
Income before income taxes .................... 164 439 3,045 1,702(B) 5,350(B)
Corporate:
Revenues ...................................... $ 1,758 $ 2,255 $ 2,818 $ 3,951 $ 10,782
Loss before income taxes ...................... (7,154) (8,087) (9,419) (13,316)(C) (37,976)(C)
Consolidated results:
Revenues ...................................... $ 431,700 $ 576,315 $ 669,891 $ 846,085 $ 2,523,991
Income from continuing operations
before income taxes .......................... 2,007 20,604 30,188 28,176(D) 80,975(D)
Income taxes .................................. 773 7,932 11,623 10,847 31,175
Income from continuing operations ............. 1,234 12,672 18,565 17,329 49,800
Income (loss) from discontinued operations .... 1,003 1,201 1,145 (388) 2,961
Net income .................................... 2,237 13,873 19,710 16,941 52,761
Per share data:
Basic:
Income from continuing operations ........ $ .05 $ .59 $ .88 $ .82(E) $ 2.29(E)
Income from discontinued operations ...... .04 .06 .05 (.02) .14
Net income ............................... .09 .65 .93 .80 2.43(G)
Weighted average common
shares outstanding ..................... 23,296 21,382 21,137 21,237 21,755
Assuming dilution:
Income from continuing operations ........ $ .05 $ .59 $ .87 $ .81(F) $ 2.27(G)
Income from discontinued operations ...... .04 .06 .05 (.02) .13
Net income ............................... .09 .65 .92 .79 2.40(G)
Adjusted weighted average common
shares and effect of dilutive securities 23,468 21,382 21,370 21,472 21,954
<FN>
Note: The earnings per share amounts for the first 3 quarters of 1997 have
been restated as required to comply with Statement of Financial
Accounting Standards No. 128, Earnings Per Share. For further
discussion of earnings per share and the impact of Statement No. 128,
see Notes to Consolidated Financial Statements beginning on page 29.
(A) Includes one-time restructuring charge of $14,800
(B) Includes one-time restructuring charge of $2,100
(B) Includes one-time restructuring charge of $3,100
(D) Includes one-time restructuring charge of $20,000
(E) Earnings per share amounts are after $.58 per share attritutable to
one-time restructuring charge, net of income taxes
(F) Earnings per share amounts are after $.57 per share attritutable to
one-time restructuring charge, net of income taxes
(G) Earnings per share amounts are after $.56 per share attritutable to
one-time restructuring charge, net of income taxes
</TABLE>
62
<PAGE>
PULTE CORPORATION
UNAUDITED QUARTERLY INFORMATION
($000's omitted, except per share data)
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
1996
Homebuilding operations:
Sales (settlements) ........................... $ 411,331 $ 568,672 $ 613,722 $ 726,009 $ 2,319,734
Cost of sales ................................. 350,780 486,349 520,841 617,856 1,975,826
Income before income taxes .................... 8,568 28,223 33,435 43,835 114,061
Financial services operations:
Revenues ...................................... $ 16,133 $ 15,096 $ 9,247 $ 9,721 $ 50,197
Income before income taxes .................... 4,838 5,909 1,332 2,611 14,690
Corporate:
Revenues ...................................... $ 5,055 $ 4,588 $ 2,203 $ 2,506 $ 14,352
Loss before income taxes ...................... (4,792) (6,581) (7,350) (7,565) (26,288)
Consolidated results:
Revenues ...................................... $ 432,519 $ 588,356 $ 625,172 $ 738,236 $ 2,384,283
Income from continuing operations
before income taxes .......................... 8,614 27,551 27,417 38,881 102,463
Income taxes .................................. 3,506 11,150 10,994 13,602 39,252
Income from continuing operations ............. 5,108 16,401 16,423 25,279 63,211
Income from discontinued operations ........... 1,972 1,793 111,208 1,459 116,432
Net income .................................... 7,080 18,194 127,631 26,738 179,643
Per share data:
Basic:
Income from continuing operations ........ $ .19 $ .64 $ .69 $ 1.08 $ 2.54
Income from discontinued operations ...... .07 .07 4.64 .06 4.67
Net income ............................... .26 .71 5.33 1.14 7.21
Weighted average common
shares outstanding ..................... 26,983 25,491 23,944 23,315 24,926
Assuming dilution:
Income from continuing operations ........ $ .19 $ .64 $ .68 $ 1.08 $ 2.51
Income from discontinued operations ...... .07 .07 4.61 .06 4.63
Net income ............................... .26 .71 5.29 1.14 7.14
Adjusted weighted average common
shares and effect of dilutive securities 27,250 25,703 24,141 23,542 25,152
<FN>
Note: The earnings per share amounts for 1996 have been restated as
required to comply with Statement of Financial Accounting Standards
No. 128, Earnings Per Share. For further discussion of earnings per
share and the impact of Statement No. 128, see Notes to Consolidated
Financial Statements beginning on page 29.
</TABLE>
63
<PAGE>
PART III
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
This Item is not applicable.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this Item with respect to executive officers of the
Company is set forth in Item 4A. Information required by this Item with
respect to members of the Board of Directors of the Company is contained in
the Proxy Statement for the 1998 Annual Meeting of Shareholders (1998 Proxy
Statement) under the caption "Election of Directors," incorporated herein by
this reference. Additionally, information required by this Item with respect
to compliance with Section 16(a) of the Securities Exchange Act of 1934 is
contained in the 1998 Proxy Statement under the caption "Beneficial Ownership
Reporting Compliance".
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item is contained in the 1998 Proxy Statement
under the caption "Remuneration of Directors and Executive Officers" and
under the caption "Stock Options Granted to Officers by the Company,"
incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item is contained in the 1998 Proxy Statement
under the caption "Election of Directors," incorporated herein by this
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item is contained in the 1998 Proxy Statement
under the caption "Remuneration of Directors and Executive Officers,"
incorporated herein by this reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K The
following documents are filed as part of this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
(a) Financial Statements and Schedules
<S> <C>
(1) Financial Statements Page Herein
-----------
Consolidated Balance Sheets at December 31, 1997 and 1996......... 24
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995............................. 25
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1997, 1996 and 1995................. 26
Consolidated Statements of Cash Flows for
the years ended December 31, 1997, 1996 and 1995............. 27
Notes to Consolidated Financial Statements........................ 29
(2) Financial Statement Schedules
I - Condensed Financial Information of Registrant............... 69
</TABLE>
All other schedules have been omitted since the required information is not
present, is not present in amounts sufficient to require submission of the
schedule or because the required information is included in the financial
statements or notes thereto.
64
<PAGE>
<TABLE>
<CAPTION>
(3) Exhibits Index
Page Herein or Incorporated
Exhibit Number and Description by Reference From
- ------------------------------ ---------------------------
<S> <C> <C>
(2) and
(10) (a) Assistance Agreement, dated Filed as Exhibit 2 and 10(a)
September 9, 1988, by and to Pulte Corporation's Annual
among The Federal Savings Report on Form 10-K for the
and Loan Insurance Corporation year ended December 31, 1988.
(FSLIC), First Heights, FSA,
Heights of Texas, FSB (Heights
of Texas) and Pulte Diversified
Companies, Inc. (PDCI).
(b) Amendment to Assistance Agreement, Filed as Exhibit 2 and 10(b) to
dated September 23, 1988, among Pulte Corporation's Annual Report
the FSLIC, First Heights, FSA, on Form 10-K for the year ended
Heights of Texas and PDCI. December 31, 1988.
(c) Promissory Notes
(1) Promissory Note No. 1, dated Filed as Exhibit 2 and 10(c) to
September 9, 1988, in the Pulte Corporation's Annual Report
amount of $139,400,000 from on Form 10-K for the year ended
the FSLIC to First Heights. December 31, 1988.
(2) Promissory Note No. 2, dated Filed as Exhibit 2 and 10(c) to
September 9, 1988, in the Pulte Corporation's Annual Report
amount of $172,365,000 from on Form 10-K for the year ended
the FSLIC to First Heights. December 31, 1988.
(3) Receiver's Note No. 3, dated Filed as Exhibit 2 and 10(c) to
September 23, 1988, in the Pulte Corporation's Annual Report
amount of $152,169,750 from on Form 10-K for the year ended
the FSLIC to the FSLIC as December 31, 1988.
receiver for Champion Savings
Association (Champion).
(4) Receiver's Note No. 4, dated Filed as Exhibit 2 and 10(c) to
September 23, 1988, in the Pulte Corporation's Annual Report
amount of $48,527,250 from the on Form 10-K for the year ended
FSLIC to the FSLIC as receiver December 31, 1988.
for Champion.
(d) Regulatory Capital Maintenance Filed as Exhibit 2 and 10(d) to
Agreement, dated September 9, 1988, Pulte Corporation's Annual Report
by and among, Pulte Corporation, on Form 10-K for the year ended
PDCI, First Heights, Heights of Texas December 31, 1988.
and the FSLIC.
</TABLE>
65
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
Page Herein or Incorporated
Exhibit Number and Description by Reference From
- ------------------------------ ---------------------------
<S> <C> <C>
(e) Amendment to Regulatory Capital Filed as Exhibit 2 and 10(e) to
Maintenance Agreement, dated Pulte Corporation's Annual Report
September 23, 1988, among Pulte on Form 10-K for the year ended
Corporation, PDCI, First Heights, December 31, 1988.
Heights of Texas and the FSLIC.
(f) Warranty Agreement, dated as of Filed as Exhibit 2 and 10(f) to
September 9, 1988, between Pulte Corporation's Annual Report
First Heights and the FSLIC. on Form 10-K for the year ended
December 31, 1988.
(g) Receiver's Note Agreement, dated Filed as Exhibit 2 and 10(g) to
September 23, 1988, between the Pulte Corporation's Annual Report
FSLIC, as receiver for Champion and on Form 10-K for the year ended
the FSLIC. December 31, 1988.
(3) (a) Articles of Incorporation, as amended. Filed as Exhibit 19(a) to Pulte
Corporation's Form 10-Q for the
quarter ended June 30, 1988.
(b) By-laws Filed as Exhibit 3(b) to the
Registrant's Registration Statement
on Form S-4 (Registration Statement
No. 33-17223).
(4) (a)Senior Note Indenture among Pulte Filed as Exhibit 4.1 to the
Corporation, certain of its subsidiaries, Registrant's Registration Statement
as Guarantors, and NationsBank of on Form S-3 (Registration Statement
Georgia, National Association, as Trustee, No. 33-71742).
including Form of Senior Guarantee, covering
Pulte Corporation's 8.375% unsecured Senior
Notes due 2004 ($115,000,000 aggregate
principal amount outstanding) and 7%
unsecured Senior Notes due 2003
($100,000,000 aggregate principal amount
outstanding)
(b) Senior Note Indenture among Pulte Corporation, Filed as Exhibit (c) 1 to the
certain of its subsidiaries, as Guarantors, and Registrant's Current Report on Form 8-K
and The First National Bank of Chicago, dated October 20, 1995.
as Trustee, covering Pulte Corporation's 7.3%
unsecured Senior Notes due 2005 ($125,000,000
aggregate principal amount outstanding) and
7.625% unsecured Senior Notes due 2017
($150,000,000 aggregate principal amount
outstanding).
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
Page Herein or Incorporated
Exhibit Number and Description by Reference From
- ------------------------------- --------------------------
<S> <C> <C>
(10) Material Contracts
(a) 1983 Key Employees' Stock Filed as Exhibit 10(a) to Pulte Home
Option Plan. Corporation's Annual Report on Form 10-K
for the fiscal year ended December 31,
1983. (1983 Annual Report)
(b) First Amendment to 1983 Key Filed as Exhibit 10(b) to the
Employees' Stock Option Plan Registrant's Registration Statement
on Form S-8 (Registration Statement
No. 33-20052).
(c) 1977 Key Employees' Stock Filed as Exhibit 1(a) to Pulte Home
Option Plan Corporation's Registration
Statement on Form S-8 (Registration
No. 2-59802).
(d) First Amendment to 1977 Key Filed as Exhibit III to Pulte Home
Employees' Stock Option Plan Corporation's Annual Report on Form
10-K for the year ended
December 31, 1981.
(e) Second Amendment to 1977 Key Filed as Exhibit 10(e) to the
Employees' Stock Option Plan Registrant's Registration Statement
on Form S-8 (Registration Statement
No. 33-20052).
(f) James Grosfeld Consulting Filed as Exhibit 10(g) to Pulte
Agreement April 30, 1990 Corporation's Annual Report on Form
10-K for the year ended
December 31, 1990.
(g) James Grosfeld Agreement Filed as Exhibit 10(h) to Pulte
November 16, 1990 Corporation's Annual Report on Form
10-K for the year ended
December 31, 1990.
(h) 1990 Stock Incentive Plan for Filed with the Proxy Statement dated
Key Employees April 3, 1990 and as an exhibit to the
Registrant's Registration Statement on
Form S-8 (Registration Statement
No. 33-40102).
(i) James Grosfeld Amendment and Filed as Exhibit 10(i) to Pulte
Extension to Consulting Corporation's Annual Report on Form
Agreement December 30, 1992. 10-K for the year ended
December 31, 1992.
</TABLE>
67
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
Page Herein or Incorporated
Exhibit Number and Description by Reference From
- ------------------------------ -----------------
<S> <C> <C>
(j) James Grosfeld Agreement Filed as Exhibit 10(a) to the Pulte Corporation
April 16, 1997 Report on Form 10-Q for the quarter ended
March 31, 1997.
(k) Stock Sale Agreement Filed as Exhibit 10(b) to the Pulte Corporation
April 16, 1997 Report on Form 10-Q for the quarter ended
March 31, 1997.
(l) 1994 Stock Incentive Plan for Filed with the Proxy Statement dated
Key Employees March 31, 1994 and as an exhibit to the
Registrant's Registration Statement on
Form S-8 (Registration Statement
No. 33-98944).
(m) Credit Agreement, dated Filed as Exhibit 10(l) to Pulte
January 5, 1995, among Pulte Corporation's Annual Report on Form 10-K
Corporation, NationsBank, N.A. for the year ended December 31, 1994.
(Carolinas) as Agent for certain lenders
(n) Fourth Amendment to Credit Agreement,
dated December 30, 1997, among Pulte
Corporation and NationsBank, N.A.,
as Agent for certain lenders.
(o) 1995 Stock Incentive Plan for Filed with the Proxy Statement dated
Key Employees March 31, 1995 and as an exhibit to the
Registrant's Registration Statement on
Form S-8 (Registration Statement
No 33-99218).
(11) Statement Regarding Computation
of Per Share Earnings 73
(21) Subsidiaries of the Registrant 74
(23) Consent of Independent Auditors 77
(27) Financial Data Schedule
</TABLE>
Reports on Form 8-K Filed During the Fourth Quarter of 1997:
Form 8-K dated October 6, 1997
Item 5. Other Events
Disclosed that indenture supplements were entered into with (1) The
Bank of New York concerning $100,000,000 aggregated principal amount of
7% senior notes of the Company due 2003, and $115,000,000 aggregated
principal amount of 8-3/8% senior notes of the Company due 2004 and (2)
The First National Bank of Chicago concerning $125,000,000 aggregated
principal amount of 7.3% senior notes of the Company due 2005.
Form 8-K dated October 15, 1997
Item 5. Other Events
Disclosed that, on October 9, 1997, the Company began circulating a
prospectus supplement (to prospectus dated September 29, 1995)
concerning $150,000,000 aggregate principal amount of 7 5/8% senior
notes of the Company due October 15, 2017.
68
<PAGE>
PULTE CORPORATION
SCHEDULE I- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Pulte Corporation (the Registrant) is a holding company. The accompanying
financial statements are not the primary consolidated financial statements
since these financial statements present only the accounts of Pulte
Corporation which include its investment in subsidiaries on the equity
method. The primary financial statements of the Company are its consolidated
financial statements.
The net assets of Pulte Home Corporation, Pulte Mortgage Corporation and
First Heights Bank, a federal savings bank, indirectly wholly-owned
subsidiaries of Pulte Corporation are subject to certain restrictions (see
Notes to Consolidated Financial Statements).
Pulte Corporation
Balance Sheets
December 31, 1997 and 1996
($000's omitted)
<TABLE>
<CAPTION>
1997 1996
---- ----
Assets:
<S> <C> <C>
Cash and equivalents............................................. $ 195,946 $ 114,585
Investment in subsidiaries, on the equity method ................. 970,897 859,866
Advances receivable - subsidiaries ............................... 100,663 139,351
Deferred income taxes ............................................ 110,395 128,668
Other accounts receivable ........................................ 18,305 12,860
---------- ----------
$1,396,206 $1,255,330
========== ==========
Liabilities and shareholders' equity:
Advances payable - subsidiaries.................................. $ 24,595 $ 18,029
Income taxes ..................................................... 13,001 12,930
Accrued liabilities .............................................. 58,470 51,731
Senior notes ..................................................... 487,303 339,365
Discontinued operations .......................................... -- 4,002
---------- ----------
Total liabilities ..................................... 583,369 426,057
Shareholders' equity ............................................. 812,837 829,273
---------- ----------
$1,396,206 $1,255,330
========== ==========
</TABLE>
69
<PAGE>
PULTE CORPORATION
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT - (continued)
Pulte Corporation
Statements of Income
For the years ended December 31, 1997, 1996 and 1995
($000's omitted)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenues - Interest income.................................. $ 2,054 $ 6,724 $ 17,709
-------- --------- ---------
Expenses - General and administrative....................... 15,125 13,761 10,423
Interest ........................................ 17,501 12,045 16,983
Restructuring costs.............................. 3,100 -- --
-------- --------- ---------
35,726 25,806 27,406
-------- --------- ---------
Expenses in excess of revenues................................ (33,672) (19,082) (9,697)
Other income (expense)........................................ 170 (125) 419
-------- --------- ---------
Loss from continuing operations before income taxes,
and equity in net income of subsidiaries................... (33,502) (19,207) (9,278)
Income tax (benefit).......................................... (15,255) (10,234) (5,702)
-------- --------- ---------
Loss from continuing operations before equity in net
income of subsidiaries..................................... (18,247) (8,973) (3,576)
-------- --------- ---------
Income from discontinued operations........................... 6,620 106,120 4,715
-------- --------- ---------
Equity in net income of subsidiaries
Continuing operations...................................... 68,047 72,184 52,415
Discontinued operations.................................... (3,659) 10,312 4,792
-------- --------- ---------
64,388 82,496 57,207
-------- --------- ---------
Net income.................................................... $ 52,761 $ 179,643 $ 58,346
======== ========= =========
</TABLE>
70
<PAGE>
PULTE CORPORATION
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT - (continued)
Pulte Corporation
Statements of Cash Flows
For the years ended December 31, 1997, 1996 and 1995
($000's omitted)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Continuing operations
Cash flows from operating activities:
Income from continuing operations ........................ $ 49,800 $ 63,211 $ 48,839
Adjustments to reconcile income from continuing operations
to net cash used in operating activities:
Equity in income of subsidiaries ..................... (68,047) (72,184) (52,415)
Amortization ......................................... 113 85 77
Deferred income taxes ................................ (14,222) (9,517) (11,070)
Changes in cash due to:
Accounts receivable and other assets ............... (5,445) (7,963) (2,105)
Income taxes ....................................... (8,453) (7,868) (731)
Accrued liabilities ................................ 7,001 6,534 1,447
--------- --------- ---------
Net cash used in operating activities ....................... (39,253) (27,702) (15,958)
--------- --------- ---------
Cash flows provided by investing activities:
Investment in subsidiaries ............................... -- (1,524) (3,057)
Dividends received from subsidiaries ..................... -- 30,000 10,652
Advances to (from) affiliates ............................ 38,688 (2,054) 5,907
--------- --------- ---------
Net cash provided by investing activities ................... 38,688 26,422 13,502
--------- --------- ---------
Cash flows from financing activities:
Dividends paid ........................................... (5,153) (5,958) (6,489)
Advances from affiliates ................................. 6,566 -- --
Stock repurchases ........................................ (74,673) (99,561) (11,707)
Proceeds from issuance of senior notes ................... 147,825 -- 124,894
Other .................................................... 7,361 602 994
--------- --------- ---------
Net cash provided by (used in) financing activities ......... 81,926 (104,917) 107,692
--------- --------- ---------
Net increase (decrease) in cash and equivalents -
continuing operations .................................... 81,361 (106,197) 105,236
--------- --------- ---------
Discontinued operations:
Cash flows from operating activities:
Income from discontinued operations ...................... 2,961 116,432 9,507
Change in deferred income taxes .......................... 32,495 (38,321) 18,280
Equity in income of subsidiaries ......................... 3,659 (10,312) (4,792)
Amortization and other ................................... (4,264) 4,956 (4,872)
Change in income taxes ................................... (34,851) (72,755) (18,123)
--------- --------- ---------
Net cash provided by operating activities ................ -- -- --
--------- --------- ---------
Net increase (decrease) in cash and equivalents ............. 81,361 (106,197) 105,236
Cash and equivalents at beginning of year ................... 114,585 220,782 115,546
--------- --------- ---------
Cash and equivalents at end of year ......................... $ 195,946 $ 114,585 $ 220,782
========= ========= =========
</TABLE>
71
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
PULTE CORPORATION
(Registrant)
March 12, 1998 /s/ Roger A. Cregg /s/ Vincent J. Frees
------------------ --------------------
Roger A. Cregg Vincent J. Frees
Senior Vice President Vice President and Controller
and Chief Financial Officer (Principal Accounting Officer)
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capabilities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ William J. Pulte Chairman of the Board of Directors March 12, 1998
- ----------------------------- and Member of Board of Directors
William J. Pulte
/s/ Robert K. Burgess President, Chief Executive Officer March 12, 1998
- ----------------------------- and Member of Board of Directors
Robert K. Burgess
/s/ Debra Kelly-Ennis Member of Board of Directors March 12, 1998
- -----------------------------
Debra Kelly-Ennis
/s/ David N. McCammon Member of Board of Directors March 12, 1998
- -----------------------------
David N. McCammon
/s/ Francis J. Sehn Member of Board of Directors March 12, 1998
- -----------------------------
Francis J. Sehn
/s/ Ralph L. Schlosstein Member of Board of Directors March 12, 1998
- -----------------------------
Ralph L. Schlosstein
/s/ Alan E. Schwartz Member of Board of Directors March 12, 1998
- -----------------------------
Alan E. Schwartz
/s/ John J. Shea Member of Board of Directors March 12, 1998
- -----------------------------
John J. Shea
</TABLE>
72
PULTE CORPORATION
EXHIBIT 11 - STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
(000's omitted, except per share data)
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------------------
1997 1996 1995 1994 1993
----- ----- ---- ----- -----
<S> <C> <C> <C> <C> <C>
Basic:
Numerator:
Net income .................................. $ 52,761 $179,643 $ 58,346 $162,768 $ 79,368
======== ======== ======== ======== ========
Denominator:
Weighted average common shares outstanding .. 21,755 24,926 27,074 27,556 27,479
======== ======== ======== ======== ========
Net income per share ........................ $ 2.43 $ 7.21 $ 2.15 $ 5.91 $ 2.89
======== ======== ======== ======== ========
Assuming dilution:
Numerator:
Net income .................................. $ 52,761 $179,643 $ 58,346 $162,768 $ 79,368
======== ======== ======== ======== ========
Denominator:
Weighted average common shares outstanding .. 21,755 24,926 27,074 27,556 27,479
Effect of dilutive securities - stock options 199 226 348 298 434
-------- -------- -------- -------- --------
Total ..................................... 21,954 25,152 27,422 27,854 27,913
======== ======== ======== ======== ========
Net income per share ........................ $ 2.40 $ 7.14 $ 2.13 $ 5.85 $ 2.85
======== ======== ======== ======== ========
</TABLE>
73
PULTE CORPORATION
EXHIBIT 21 - SUBSIDIARIES OF THE REGISTRANT
Pulte Corporation (the Company) owns 100% of the capital stock of Pulte
Diversified Companies, Inc. (PDCI), Pulte Financial Companies, Inc. (PFCI)
P-F Corporation, PCIC Corporation, Pulte Chile Corporation, Pulte SA
Corporation and Oakton Building Corporation, all Michigan corporations, and
100% of the capital stock of North American Builders Indemnity Company, a
Colorado corporation.
PDCI owns 100% of the capital stock of Pulte Home Corporation (Pulte) and WPB
Acquisition Corporation, both Michigan corporations, and 100% of the capital
stock of First Heights Bank, a federal savings bank (First Heights).
First Heights owns 100% of the capital stock of First Heights Investment
Corporation, a Texas corporation.
Pulte owns 100% of the capital stock of the following subsidiaries:
<TABLE>
<CAPTION>
Place of
Company Name Incorporation
------------ -------------
<S> <C>
Pulte Mortgage Corporation (1)....................................... Delaware
Pulte Homes of Michigan Corporation (2).............................. Michigan
Palmville Development Corp. ......................................... Michigan
Ceiba Homes Inc. .................................................... Michigan
Gurabo Homes, Inc. .................................................. Michigan
Salinas Homes, Inc. ................................................. Michigan
Salinas Builders, Inc. .............................................. Michigan
Dean Realty Company (3).............................................. Michigan
Cambridge Software, Inc. ............................................ Michigan
Pulte Development Corporation........................................ Michigan
Builders' Supply & Lumber Co., Inc. ................................. Michigan
PHM Realty, Inc. .................................................... Florida
Raleigh Classic Homes, Inc. ......................................... North Carolina
Charlotte Classic Homes, Inc. ....................................... North Carolina
Greensboro Classic Homes, Inc........................................ North Carolina
Preserve I, Inc. (4)................................................. Michigan
Preserve II, Inc. (4)................................................ Michigan
Pulte Home Corporation of Massachusetts (8).......................... Michigan
Pulte Homes of Minnesota Corporation................................. Minnesota
PBW Corporation (9).................................................. Michigan
Wil Corporation (9).................................................. Michigan
Canterbury Communities, Inc. (5)..................................... Michigan
Pulte Home Caribbean Corporation..................................... Michigan
Pulte Home Corporation of The Delaware Valley........................ Michigan
Pulte Homes of South Carolina, Inc. (6).............................. Michigan
Pulte Lifestyle Communities, Inc..................................... Michigan
Pulte Payroll Corporation............................................ Michigan
PHC Title Corporation (10)........................................... Michigan
PQL Realty Corporation............................................... Michigan
Pulte Land Development Corporation................................... Michigan
Springfield Golf Club, Inc. (11)..................................... Michigan
Springfield Realty Corporation....................................... Michigan
TVM Corporation (7).................................................. Michigan
James T. Lynch, Inc.................................................. Texas
Pulte Homes of Greater Kansas City, Inc.............................. Michigan
Pulte Nevada I, Inc. (12)............................................ Nevada
Pulte Nevada II, Inc. (12)........................................... Nevada
SRC Utilities, Inc................................................... Maryland
PHT Title Corporation (13)........................................... Michigan
74
<PAGE>
<FN>
Pulte owns .01% of the capital stock of Controladora PHC, S.A. De C.V., a
Mexican corporation.
1) Pulte Mortgage Corporation owns 100% of the capital stock of ICM
Mortgage Corporation, a Michigan Corporation and 22.69% of the
capital stock of Hipotecaria Su Casita, S.A. de C.V., a Mexican
corporation.
2) Pulte Homes of Michigan Corporation owns 100% of the capital stock
of Gulf Partners, Inc., Sean/Christopher Homes, Inc., and Pulte-IN
Corporation, all Michigan corporations, 100% of the capital stock of
Pulte Homes of Ohio Corporation, an Ohio corporation, 49% of
Grayhaven Estates Limited, L.L.C., a Michigan limited liability
company, 1% of the capital stock of Haggerty Hills Limited
Partnership, a Michigan limited partnership and 31.5% of Shorepointe
Village Homes, L.L.C., a Michigan limited partnership (with
Grayhaven Estates Limited, L.L.C. also owning 51%), Sean/Christopher
Homes, Inc.and Pulte-IN Corporation each own 50% of the capital
stock of Sean/Christopher Homes, LLC, an Indiana limited liability
company. Gulf Partners, Inc. owns 99% of the capital stock of
Haggerty Hills Limited Partnership, a Michigan limited partnership.
3) Dean Realty Company owns 100% of the capital stock of Pulte Real
Estate Company, a Florida corporation.
4) Preserve I, Inc. owns 99% and Preserve II, Inc. owns 1% of The
Preserve Limited Partnership, a Maryland limited partnership.
5) Canterbury Communities, Inc. owns 100% of the capital stock of
Canterbury Diversified Building Corporation and Canterbury Finance
Corporation, both Michigan corporations.
6) Pulte Homes of South Carolina, Inc. owns 100% of the capital stock
of Great American Homes, Inc. and SC Warranty Corporation, both
Michigan corporations.
7) TVM Corporation owns 63% of PHM Title Agency L.L.C., a Delaware
limited liability company.
8) Pulte Home Corporation of Massachusetts owns 99% of Willow Brook
Associates Limited Partnership, a Massachusetts limited partnership.
9) PBW Corporation owns 1% and Wil Corporation owns 99% of Wilben II
Limited Partnership, a Maryland limited partnership.
10) PHC Title Corporation owns 80% of Pulte Title Agency of Minnesota,
L.L.C., a Minnesota limited liability company and 99% of PHT Title
Agency, L.P., a Texas limited partnership..
11) Springfield Golf Club, Inc. owns 90% of Springfield Golf Resort,
L.L.C., an Arizona limited liability company.
12) Pulte Nevada I, Inc. owns 1% and Pulte Nevada II, Inc. owns 99% of
Pulte Homes of Texas, L.P., a Texas limited partnership
13) PHT Title Corporation owns 1% of PHT Title Agency, L.P., a Texas
limited partnership.
</TABLE>
75
<PAGE>
PULTE CORPORATION
EXHIBIT 21 - SUBSIDIARIES OF THE REGISTRANT (Continued)
Pulte is a member of the following partnerships:
<TABLE>
<CAPTION>
Place of Percentage
Entity Name Formation Ownership
----------- --------- ---------
<S> <C> <C>
Ashgrove Plantation L.L.C..................... Virginia 34.44%
Buildinvest Limited Partnership............... Maryland 33.33%
Crosland/Piper Glen Ltd. Partnership.......... N. Carolina 31.37%
Crosland/Wynfield Forest Limited Partnership.. N. Carolina 28.60%
Quantrell Mews, L.L.C......................... Virginia 20.00%
</TABLE>
PFCI owns 100% of the capital stock Guaranteed Mortgage Corporation III,
a Michigan corporation.
P-F Corporation owns 51% of Expression Homes Corporation, a Delaware
corporation.
Pulte Chile Corporation owns 99% and Pulte SA Corporation owns 1% of
Pulte de Chile Limitada, a Chilean limited partnership and Residencias
del Norte S.A., a Chilean corporation.
Oakton Building Corporation owns 99.99% of Controladora PHC, S.A. De
C.V. (Controladora), a Mexican corporation, and 23.33% of Nantar, S. De
R.L. De C.V., a Mexican limited liability company. Controladora owns
76.67% of Nantar, S. De R.L. De C.V., a Mexican limited liability
company, and 50% of Condak-Pulte S. De R.L. De C.V., 50% of CIV-Pulte
and 50% of Sand-Pulte S. De R.L. De C.V, all Mexican joint ventures.
76
PULTE CORPORATION
EXHIBIT 23 - CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statements (Form S-8 No. 33-20052, Form S-8 No. 2-59802, Form S-8 No.
33-40102, Form S-8 No. 33-98944 and Form S-8 No. 33-99218) and the
related Prospectuses of Pulte Corporation for the registration of shares
of its common stock of our report dated January 21, 1998, except for the
last paragraph of Note 10 as to which the date is March 5, 1998, with
respect to the consolidated financial statements and schedule of Pulte
Corporation included in this Annual Report on Form 10-K for the year
ended December 31, 1997 filed with the Securities and Exchange
Commission.
ERNST & YOUNG LLP
Detroit, Michigan
March 9, 1998
77
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997
AND FOR THE YEAR THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 245,156
<SECURITIES> 0
<RECEIVABLES> 69,768
<ALLOWANCES> 0
<INVENTORY> 1,141,952
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,150,765
<CURRENT-LIABILITIES> 0
<BONDS> 509,708<F1>
<COMMON> 213
0
0
<OTHER-SE> 812,624
<TOTAL-LIABILITY-AND-EQUITY> 2,150,765
<SALES> 2,479,171<F2>
<TOTAL-REVENUES> 2,523,991
<CGS> 2,110,532<F2>
<TOTAL-COSTS> 2,443,016
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,503<F3>
<INCOME-PRETAX> 80,975
<INCOME-TAX> 31,175
<INCOME-CONTINUING> 49,800
<DISCONTINUED> 2,961
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52,761
<EPS-PRIMARY> 2.43
<EPS-DILUTED> 2.40
<FN>
<F1> Bonds are comprised of subordinated debentures and senior notes.
<F2> Relates to homebuilding operations.
<F3> Relates to homebuilding operations. The Company capitalizes
interest cost into homebuilding inventories and charges the
interest to homebuilding interest expense when
the related inventories are closed.
</TABLE>
