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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-9804
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 Pkwy., Suite 200,
Bloomfield Hills, Michigan 48304
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (248) 647-2750
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding twelve months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to the filing requirements for the past 90 days.
YES X NO__
Number of shares of common stock outstanding as of October 31, 1998:
43,165,180
Total pages: 39
Listing of exhibits: 37
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1
<PAGE>
<TABLE>
<CAPTION>
PULTE CORPORATION
INDEX
Page No.
--------
<S> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets, September 30, 1998 and December 31, 1997..... 3
Condensed Consolidated Statements of Income, Three and Nine Months Ended
September 30, 1998 and 1997........................................................ 4
Condensed Consolidated Statement of Shareholders' Equity, Nine Months Ended
September 30, 1998................................................................. 5
Condensed Consolidated Statements of Cash Flows, Nine Months Ended
September 30, 1998 and 1997........................................................ 6
Notes to Condensed Consolidated Financial Statements................................ 8
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................. 24
PART II OTHER INFORMATION
Item 1 Legal Proceedings.......................................................... 37
Item 6 Exhibits and Reports on Form 8-K........................................... 37
SIGNATURES.......................................................................... 38
</TABLE>
2
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PULTE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
($000's omitted)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
----------- -----------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Cash and equivalents................................................... $ 154,238 $ 245,156
Unfunded settlements................................................... 46,828 69,768
House and land inventories............................................. 1,402,662 1,141,952
Mortgage-backed and related securities................................. 31,547 39,467
Residential mortgage loans and other securities available-for-sale..... 135,491 185,018
Other assets........................................................... 404,056 358,464
Discontinued operations................................................ 118,102 110,940
----------- -----------
$ 2,292,924 $ 2,150,765
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued liabilities, including book
overdrafts of $99,736 and $84,623 in 1998 and 1997,
respectively................................................... $ 621,406 $ 497,733
Collateralized short-term debt, recourse solely to applicable
subsidiary assets............................................... 117,466 162,707
Mortgage-backed bonds, recourse solely to applicable
subsidiary assets............................................... 30,401 37,413
Income taxes....................................................... 15,500 13,001
Subordinated debentures and senior notes........................... 538,944 546,900
Discontinued operations............................................ 86,212 80,174
----------- -----------
Total liabilities............................................... 1,409,929 1,337,928
Shareholders' equity................................................... 882,995 812,837
----------- -----------
$ 2,292,924 $ 2,150,765
=========== ===========
<FN>
Note: The balance sheet at December 31, 1997 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See accompanying notes to condensed consolidated financial statements.
</TABLE>
3
<PAGE>
PULTE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(000's omitted, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- --------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Homebuilding...................................... $ 746,680 $ 657,265 $ 1,918,869 $ 1,647,615
Mortgage banking and financing, interest and other 11,286 9,808 31,022 23,460
Corporate ........................................ 1,368 2,818 9,711 6,831
---------- ---------- ----------- -----------
Total revenues.......................... 759,334 669,891 1,959,602 1,677,906
---------- ---------- ----------- -----------
Expenses:
Homebuilding, principally cost of sales........... 696,587 622,000 1,808,890 1,577,449
Mortgage banking and financing, interest and other 6,386 6,850 20,174 20,073
Corporate, net.................................... 6,676 10,204 26,718 26,326
---------- ---------- ----------- -----------
Total expenses.......................... 709,649 639,054 1,855,782 1,623,848
---------- ---------- ----------- -----------
Other income:
Equity in income (loss) of Pulte-affiliates....... (3,021) (649) (608) (1,259)
---------- ---------- ----------- -----------
Income from continuing operations before income
taxes............................................. 46,664 30,188 103,212 52,799
Income taxes ........................................ 18,199 11,623 40,251 20,328
---------- ---------- ----------- ----------
Income from continuing operations.................... 28,465 18,565 62,961 32,471
Income from discontinued thrift operations,
net of income taxes............................... 91 1,145 700 3,349
---------- ---------- ----------- -----------
Net income ........................................ $ 28,556 $ 19,710 $ 63,661 $ 35,820
========== ========== =========== ===========
Per share data:
Basic:
Income from continuing operations............... $ .66 $ .44 $ 1.47 $ .72
Income from discontinued operations............. -- .03 .01 .08
---------- ---------- ----------- -----------
Net income...................................... $ .66 $ .47 $ 1.48 $ .80
========== ========== =========== ===========
Assuming dilution:
Income from continuing operations............... $ .64 $ .43 $ 1.44 $ .72
Income from discontinued operations............. -- .03 .01 .08
---------- ---------- ----------- -----------
Net income...................................... $ .64 $ .46 $ 1.45 $ .80
========== ========== =========== ===========
Cash dividends declared........................... $ .08 $ .03 $ .15 $ .09
========== ========== =========== ===========
Number of shares used in calculation:
Basic:
Weighted-average common shares outstanding...... 43,136 42,273 42,923 44,641
Assuming dilution:
Effect of dilutive securities - stock options 1,144 467 925 339
---------- ---------- ----------- -----------
Adjusted weighted-average common shares
and effect of dilutive securities....... 44,280 42,740 43,848 44,980
========== ========== =========== ===========
<FN>
See accompanying notes to condensed consolidated financial statements.
</TABLE>
4
<PAGE>
PULTE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
($000's omitted)
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Paid-in Comprehensive Retained
Stock Capital Income Earnings Total
------ ---------- ------------- -------- -----
<S> <C> <C> <C> <C> <C>
Shareholders' Equity, December 31, 1997 $ 213 $ 61,835 $ 1,687 $ 749,102 $ 812,837
Exercise of stock options................... 4 9,121 -- -- 9,125
Cash dividends declared..................... -- -- -- (6,454) (6,454)
Stock dividend declared..................... 214 (214) -- -- --
Shares issued in business acquisition....... 1 4,268 -- -- 4,269
Comprehensive income:
Net income............................... -- -- -- 63,661 63,661
Change in unrealized gains on securities
available-for-sale, net of income taxes -- -- (443) -- (443)
-------- ----------- ----------- ---------- ---------
Shareholders' Equity, September 30, 1998.... $ 432 $ 75,010 $ 1,244 $ 806,309 $ 882,995
======== =========== =========== ========== =========
<FN>
See accompanying notes to condensed consolidated financial statements.
</TABLE>
5
<PAGE>
PULTE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($000's omitted)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------
1998 1997
---- ----
<S> <C> <C>
Continuing operations:
Cash flows from operating activities:
Income from continuing operations................................... $ 62,961 $ 32,471
Adjustments to reconcile income from continuing operations
to net cash flows provided by (used in) operating activities:
Amortization, depreciation and other.......................... 4,213 5,231
Deferred income taxes......................................... (4,782) 12,356
Increase (decrease) in cash due to:
Inventories........................................... (109,555) (204,971)
Residential mortgage loans held for sale.............. 49,527 41,581
Other assets.......................................... 27,030 (35,537)
Accounts payable and accrued liabilities.............. 33,254 45,743
Income taxes.......................................... 24,371 1,484
---------- ----------
Net cash provided by (used in) operating activities..................... 87,019 (101,642)
---------- ----------
Cash flows from investing activities:
Principal payments of mortgage-backed securities.................... 7,196 5,966
Cash paid for acquisitions, net of cash acquired.................... (158,832) --
Other, net.......................................................... (477) 94
---------- ----------
Net cash (used in) provided by investing activities..................... (152,113) 6,060
---------- ----------
Cash flows from financing activities:
Payment of long-term debt and bonds................................. (8,001) (6,916)
Proceeds from borrowings............................................ 31,969 83,294
Repayment of borrowings............................................. (53,347) (40,706)
Stock repurchases................................................... -- (74,595)
Dividends paid...................................................... (4,727) (3,877)
Other, net.......................................................... 8,282 5,145
---------- ----------
Net cash used in financing activities................................... (25,824) (37,655)
---------- ----------
Net decrease in cash and equivalents - continuing operations............ $ (90,918) $ (133,237)
---------- ----------
</TABLE>
6
<PAGE>
PULTE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
($000's omitted)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------
1998 1997
---- ----
<S> <C> <C>
Discontinued Operations:
Cash flows from operating activities:
Income from discontinued operations................................. $ 700 $ 3,349
Change in deferred taxes............................................ 17,738 (720)
Change in income taxes.............................................. (18,846) 999
Other changes, net.................................................. 7,781 (3,166)
Cash flows from investing activities:
Purchase of securities available-for-sale........................... (21,809) (14,433)
Principal payments of mortgage-backed securities.................... 21,900 24,658
Net proceeds from sale of investments............................... - 3,219
Decrease in Covered Assets and FSLIC Resolution Fund
(FRF) receivables................................................. 34,642 28,215
Cash flows from financing activities:
Increase (decrease) in deposit liabilities.......................... 8,312 (6,802)
Repayment of borrowings............................................. (31,560) (31,560)
Decrease in Federal Home Loan Bank (FHLB) advances.................. (3,100) (4,000)
----------- ----------
Net increase (decrease) in cash and equivalents-discontinued operations. 15,758 (241)
---------- ----------
Net decrease in cash and equivalents.................................... (75,160) (133,478)
Cash and equivalents at beginning of period............................. 247,308 192,202
---------- ----------
Cash and equivalents at end of period................................... $ 172,148 $ 58,724
========== ==========
Cash - continuing operations............................................ $ 154,238 $ 56,388
Cash - discontinued operations.......................................... 17,910 2,336
---------- ----------
$ 172,148 $ 58,724
========== ==========
Supplemental disclosure of cash flow information-cash paid during the period
for:
Interest, net of amount capitalized;
Continuing operations............................................. $ 21,338 $ 13,170
Discontinued operations........................................... 1,415 2,048
---------- ----------
$ 22,753 $ 15,218
========== ==========
Income taxes........................................................ $ 21,168 $ 6,208
========== ==========
<FN>
See accompanying notes to condensed consolidated financial statements.
</TABLE>
7
<PAGE>
PULTE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
($000's omitted)
(Unaudited)
1. Basis of presentation and significant accounting policies
The condensed consolidated financial statements include the accounts of
Pulte Corporation (the Company), and all of its subsidiaries. The
Company's significant subsidiaries include Pulte Financial Companies,
Inc. (PFCI), Pulte Diversified Companies, Inc. (PDCI) and other
subsidiaries engaged in the homebuilding business. PDCI's operating
subsidiaries include Pulte Home Corporation (Pulte), Pulte International
Corporation (International) and other subsidiaries engaged in the
homebuilding business. PDCI's non-operating thrift subsidiary, First
Heights Bank, fsb (First Heights), has been classified as a discontinued
operation (See Note 2). The Company also has a mortgage banking company
(Pulte Mortgage) which is a subsidiary of Pulte.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the three and nine month periods ended
September 30, 1998 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1998. These financial
statements should be read in conjunction with the Company's consolidated
financial statements and footnotes thereto included in the Company's
annual report on Form 10-K for the year ended December 31, 1997.
Certain 1997 classifications have been changed to conform with the 1998
presentation.
In March 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of
Position 98-1 (SOP), "Accounting for the Costs of Software Developed or
Obtained for Internal Use". This SOP requires internal costs (i.e.,
salaries and related benefits and interest cost) to be capitalized
during the application development stage for internal-use software. The
Company has adopted, on a prospective basis, the provisions of SOP 98-1
effective January 1, 1998 and, accordingly, has capitalized $1,625 and
$3,075 of such costs during the three and nine month periods ended
September 30, 1998, respectively. The Company had historically expensed
similar costs to operations when they were incurred.
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 130, "Reporting Comprehensive Income". This standard is
effective for fiscal years beginning after December 15, 1997, and
requires that all items recognized under accounting standards as
components of comprehensive income be reported in an annual financial
statement that is displayed with the same prominence as other financial
statements. The Company's comprehensive income other than net income
consists solely of unrealized gains/(losses) on securities
available-for-sale, net of tax. For the quarters ended September 30,
1998 and 1997, such gains/(losses) amounted to $(119) and $34,
respectively, and for the nine months ended September 30, 1998 and 1997
were $(443) and $80, respectively. Such amounts are net of tax
(benefit)/provision of $(76), $27, $(261) and $(9), respectively.
In June 1998, the FASB issued Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities", which is required to be
adopted in years beginning after June 15, 1999, with earlier adoption
encouraged. This Statement will require the Company to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not
hedges must be adjusted to fair value through income. If the derivative
is a hedge, depending on the nature of the hedge, changes in the fair
value of derivatives will either be offset against the change in fair
value of the hedged assets, liabilities, or firm commitments through
earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. Pulte Mortgage, in the normal course of
business, uses derivative financial instruments to meet the financing
needs of its customers and reduce its own exposure to fluctuations in
interest rates. The Company has not yet determined what effect Statement
No. 133 will have on its earnings and financial position.
8
<PAGE>
PULTE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
(Unaudited)
2. Discontinued operations
Revenues of the Company's discontinued thrift operations for the three
and nine months ended September 30, 1998 were $1,565 and $5,131,
respectively. Revenues for the comparable periods of 1997 were $2,213
and $6,939, respectively. For the three and nine months ended September
30, 1998, discontinued thrift operations provided after-tax income of
$91 and $700, respectively. After-tax income for the comparable periods
of 1997 were $1,145 and $3,349, respectively.
3. Segment information
The Company has three reportable segments: Homebuilding, Financial
Services and Corporate. The Company's Homebuilding segment consists of
the following three business lines:
o Domestic Homebuilding, the Company's core business, which is
engaged in the construction of housing within the continental United
States targeting primarily the first-time, move-up and semi-custom
home buyer groups.
o International Homebuilding, which is primarily engaged in the
construction of housing in Puerto Rico and Mexico.
o Active Adult, which is engaged in the development of amenitized,
age-targeted and age-restricted communities throughout the
continental United States appealing to a growing demographic group
in their pre-retirement/retirement years. The Company and
Blackstone Real Estate Advisors (BRE), an affiliate of the
Blackstone Group, acquire and develop major active adult residential
communities through a joint venture in which the Company and BRE
each maintains a 50% ownership interest. The venture is currently
developing four active adult communities which it acquired from the
Company earlier this year. The Company accounts for this investment
under the equity method of accounting.
The Company's Financial Services segment consists principally of Pulte
Mortgage, its mortgage banking subsidiary, and to a lesser extent, the
operations of PFCI, its financing subsidiary.
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.
9
<PAGE>
PULTE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
(Unaudited)
3. Segment information (continued):
<TABLE>
<CAPTION>
Financial
Homebuilding Services Corporate Consolidated
------------ --------- --------- ------------
<S> <C> <C> <C> <C>
Nine Months Ended September 30, 1998:
Continuing Operations:
Revenues:
Unaffiliated customers....... $ 1,918,869 $ 31,022 $ 9,711 $ 1,959,602
============ ========= ========== ===========
Income (loss) before income taxes $ 109,371 $ 10,848 $ (17,007) $ 103,212
============ ========= ========== ===========
Three Months Ended September 30, 1998:
Continuing Operations:
Revenues:
Unaffiliated customers....... $ 746,680 $ 11,286 $ 1,368 $ 759,334
============ ========= ========== ===========
Income (loss) before income taxes $ 47,072 $ 4,900 $ (5,308) $ 46,664
============ ========= ========== ===========
At September 30, 1998:
Identifiable assets.......... $ 1,732,011 $ 183,521 $ 259,290 $ 2,174,822
============ ========= ==========
Assets of discontinued operations 118,102
-----------
Total assets................. $ 2,292,924
===========
Nine Months Ended September 30, 1997:
Continuing Operations:
Revenues:
Unaffiliated customers....... $ 1,647,615 $ 23,460 $ 6,831 $ 1,677,906
============ ========= ========== ===========
Income (loss) before income taxes $ 68,907 $ 3,387 $ (19,495) $ 52,799
============ ========= ========== ===========
Three Months Ended September 30, 1997:
Continuing Operations:
Revenues:
Unaffiliated customers....... $ 657,265 $ 9,808 $ 2,818 $ 669,891
============ ========= ========= ===========
Income (loss) before income taxes $ 34,616 $ 2,958 $ (7,386) $ 30,188
============ ========= ========== ===========
At September 30, 1997:
Identifiable assets.......... $ 1,539,874 $ 184,054 $ 160,340 $ 1,884,268
============ ========= ==========
Assets of discontinued operations 131,550
-----------
Total assets................. $ 2,015,818
===========
</TABLE>
10
<PAGE>
PULTE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted, except per share data)
(Unaudited)
4. Acquisitions
On May 27, 1998, the Company acquired all of the outstanding stock of
Tennessee-based Radnor Homes for an aggregate purchase price of
approximately $58,000. Consideration for this acquisition, which was
recorded using the purchase method of accounting, included $51,000 of
cash paid, approximately $3,000 of liabilities assumed and the issuance
of 153,570 shares of the Company's common stock. The purchase price has
been allocated to the assets acquired and liabilities assumed based on
relative fair value estimates. The Company has included the operating
results of Radnor Homes since the acquisition in its consolidated
results of operations.
On July 1, 1998, the Company acquired the outstanding stock and
membership interests in certain closely-held business of Florida-based,
DiVosta and Company for an aggregate purchase price of approximately
$155,000. Consideration for this acquisition, which was recorded
using the purchase method of accounting, included approximately
$109,000 of cash paid, approximately $25,000 of liabilities
assumed and $21,000 in the form of a seller-financed note. The
purchase price has been allocated to the assets acquired and liabilities
assumed based on relative fair value estimates. Goodwill of approximately
$47,000 represents the excess of the purchase price over these fair
value estimates and will be amortized using a straight-line method over
a seven-year period. The Company has included the operating results of
DiVosta and Company since the acquisition date in its consolidated
results of operations. Goodwill amortization was $1,700 for the
quarter ended September 30, 1998.
The following unaudited pro forma information presents a summary of the
consolidated results of operations of the Company as if the acquisitions
had occurred on January 1, 1997, with pro forma adjustments to give
effect to amortization of goodwill, interest expense on acquisition debt
and certain other adjustments, together with related income tax effects:
<TABLE>
<CAPTION>
(Unaudited)
Nine Months Ended
September 30,
------------------------
1998 1997
---- ----
<S> <C> <C>
Total revenues........................................ $2,052,737 $1,831,921
Total pre-tax income from continuing operations....... 115,820 58,777
Net Income............................................ 73,820 36,712
Per share data:
Basic.............................................. 1.72 0.82
Diluted............................................ 1.68 0.81
</TABLE>
The pro forma financial information is presented for informational
purposes only and is not necessarily indicative of the operating results
that would have occurred had the acquisitions been consummated as of
January 1, 1997, nor are they necessarily indicative of future operating
results.
11
<PAGE>
PULTE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted, except per share data)
(Unaudited)
5. Commitments and contingencies
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 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.
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. On March 17, 1998, the Court resolved by summary
judgment two additional interpretational issues in the District Court
Case in favor of the FDIC. On September 4, 1998, the Court issued an
order addressing the FDIC's motion for summary judgment on damages and
declaratory relief. The ruling did not address all of the damage issues,
including the amounts owed by the FDIC to First Heights, interest
assessments and other costs. The Company vigorously disagrees with all
of the Court's rulings in favor of the FDIC and intends to appeal if
these rulings become part of any final judgment. Based upon the
Company's review of the Court's rulings to date and its interpretation
of the outstanding issues not addressed by such rulings, the Company
believes that if it 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 $55,000. 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.
12
<PAGE>
PULTE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
(Unaudited)
6. Supplemental guarantor information
The Company has the following outstanding Senior Note obligations: (1)
$100,000, 7%, due 2003, (2) $115,000, 8.375%, due 2004, (3) $125,000,
7.3%, due 2005, and (4) $150,000, 7.625%, due 2017. Such obligations to
pay principal, premium, if any, and interest are guaranteed jointly and
severally on a senior basis by the Company's wholly-owned domestic and
active adult homebuilding subsidiaries (collectively, the Guarantors).
Such guarantees are full and unconditional. The principal non-Guarantors
include PDCI, Pulte International, Pulte Mortgage, First Heights, and
PFCI. See Note 1 for additional information on the Company's Guarantor
and non-Guarantor subsidiaries.
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.
13
<PAGE>
PULTE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
(Unaudited)
6. Supplemental Guarantor Information (continued)
CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Unconsolidated
----------------------------------------- Consolidated
Pulte Guarantor Non-Guarantor Eliminating Pulte
Corporation Subsidiaries Subsidiaries Entries Corporation
----------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and equivalents .................... $ 108,321 $ 41,811 $ 4,106 $ -- $ 154,238
Unfunded settlements .................... -- 46,759 69 -- 46,828
House and land inventories .............. -- 1,387,990 14,672 -- 1,402,662
Mortgage-backed and related securities .. -- -- 31,547 -- 31,547
Residential mortgage loans and other
securities available-for-sale ......... -- -- 135,491 -- 135,491
Land held for sale and future development -- 33,571 -- -- 33,571
Other assets ............................ 21,882 185,794 66,165 -- 273,841
Deferred income taxes ................... 97,439 -- (795) -- 96,644
Discontinued operations ................. -- -- 118,102 -- 118,102
Investment in subsidiaries .............. 945,252 13,669 938,072 (1,896,993) --
Advances receivable - subsidiaries ...... 326,773 644 91,005 (418,422) --
----------- ----------- ----------- ----------- -----------
$ 1,499,667 $ 1,710,238 $ 1,398,434 $(2,315,415) $ 2,292,924
=========== =========== =========== =========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued liabilities $ 87,574 $ 465,831 $ 68,001 $ -- $ 621,406
Collateralized short-term debt, recourse
solely to applicable subsidiary assets -- -- 117,466 -- 117,466
Mortgage-backed bonds, recourse solely to
applicable subsidiary assets .......... -- -- 30,401 -- 30,401
Income taxes ............................ 15,500 -- -- -- 15,500
Subordinated debentures and senior notes 487,448 51,496 -- -- 538,944
Discontinued operations ................. -- -- 86,212 -- 86,212
Advances payable - subsidiaries ......... 26,150 276,883 115,389 (418,422) --
----------- ----------- ----------- ----------- -----------
Total liabilities ................. 616,672 794,210 417,469 (418,422) 1,409,929
Shareholders' equity .................... 882,995 916,028 980,965 (1,896,993) 882,995
----------- ----------- ----------- ----------- -----------
$ 1,499,667 $ 1,710,238 $ 1,398,434 $(2,315,415) $ 2,292,924
=========== =========== =========== =========== ===========
</TABLE>
14
<PAGE>
PULTE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
(Unaudited)
6. Supplemental Guarantor Information (continued)
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Unconsolidated
---------------------------------------- Consolidated
Pulte Guarantor Non-Guarantor Eliminating Pulte
Corporation Subsidiaries Subsidiaries Entries 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 ..................... 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>
15
<PAGE>
PULTE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
(Unaudited)
6. Supplemental Guarantor Information (continued)
<TABLE>
<CAPTION>
CONSOLIDATING STATEMENT OF OPERATIONS
For the Nine months ended September 30, 1998
Unconsolidated
------------------------------------------ Consolidated
Pulte Guarantor Non-Guarantor Eliminating Pulte
Corporation Subsidiaries Subsidiaries Entries Corporation
----------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Homebuilding .............................. $ -- $ 1,911,031 $ 7,838 $ -- $ 1,918,869
Mortgage banking and financing,
interest and other .................... -- -- 31,022 -- 31,022
Corporate ................................. 6,981 1,031 1,699 -- 9,711
----------- ----------- ----------- ----------- -----------
Total revenues .............................. 6,981 1,912,062 40,559 -- 1,959,602
----------- ----------- ----------- ----------- -----------
Expenses:
Homebuilding:
Cost of sales ........................... -- 1,610,397 7,108 -- 1,617,505
Selling, general and administrative and
other expense ......................... 837 187,690 2,858 -- 191,385
Mortgage banking and financing, interest
and other ............................... -- -- 20,174 -- 20,174
Corporate, net ............................ 26,775 (2,371) 2,314 -- 26,718
----------- ----------- ----------- ----------- -----------
Total expenses .............................. 27,612 1,795,716 32,454 -- 1,855,782
----------- ----------- ----------- ----------- -----------
Other Income:
Equity in income (loss) of Pulte-affiliates.. -- 485 (1,093) -- (608)
----------- ----------- ----------- ----------- -----------
Income (loss) from continuing operations
before income taxes and equity in
income (loss) of subsidiaries ............. (20,631) 116,831 7,012 -- 103,212
Income taxes (benefit) ...................... (10,722) 46,675 4,298 -- 40,251
----------- ----------- ----------- ----------- -----------
Income (loss) from continuing operations
before equity in income (loss) of
subsidiaries .............................. (9,909) 70,156 2,714 -- 62,961
Income from discontinued operations ........ (209) -- 909 -- 700
----------- ----------- ----------- ----------- -----------
Income (loss) before equity in income
(loss) of subsidiaries .................... (10,118) 70,156 3,623 -- 63,661
----------- ----------- ----------- ----------- -----------
Equity in income (loss) of subsidiaries:
Continuing operations ..................... 72,870 6,477 72,197 (151,544) --
Discontinued operations ................... 909 -- -- (909) --
----------- ----------- ----------- ----------- -----------
73,779 6,477 72,197 (152,453) --
----------- ----------- ----------- ----------- -----------
Net income .................................. $ 63,661 $ 76,633 $ 75,820 $ (152,453) $ 63,661
=========== =========== =========== =========== ===========
</TABLE>
16
<PAGE>
PULTE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
(Unaudited)
6. Supplemental Guarantor Information (continued)
<TABLE>
<CAPTION>
CONSOLIDATING STATEMENT OF OPERATIONS
For the Three months ended September 30, 1998
Unconsolidated
----------------------------------------- Consolidated
Pulte Guarantor Non-Guarantor Eliminating Pulte
Corporation Subsidiaries Subsidiaries Entries Corporation
----------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Homebuilding ............................ $ -- $ 745,336 $ 1,344 $ -- $ 746,680
Mortgage banking and financing,
interest and other .................... -- -- 11,286 -- 11,286
Corporate ............................... 1,368 -- -- -- 1,368
--------- --------- --------- --------- ---------
Total revenues ............................ 1,368 745,336 12,630 -- 759,334
--------- --------- --------- --------- ---------
Expenses:
Homebuilding:
Cost of sales ......................... -- 626,061 1,388 -- 627,449
Selling, general and administrative and
other expense ....................... 279 68,035 824 -- 69,138
Mortgage banking and financing, interest
and other ............................. -- -- 6,386 -- 6,386
Corporate, net .......................... 6,762 297 (383) -- 6,676
--------- --------- --------- --------- ---------
Total expenses ............................ 7,041 694,393 8,215 -- 709,649
--------- --------- --------- --------- ---------
Other Income:
Equity in income (loss) of Pulte-affiliates . -- 359 (3,380) -- (3,021)
--------- --------- --------- --------- ---------
Income (loss) from continuing operations
before income taxes and equity in income
(loss) of subsidiaries .................. (5,673) 51,302 1,035 -- 46,664
Income taxes (benefit) .................... (3,331) 20,441 1,089 -- 18,199
--------- --------- --------- --------- ---------
Income (loss) from continuing operations
before equity in income (loss)
of subsidiaries ......................... (2,342) 30,861 (54) -- 28,465
Income (loss) from discontinued operations (391) -- 482 -- 91
--------- --------- --------- --------- ---------
Income (loss) before equity in income
(loss) of subsidiaries .................. (2,733) 30,861 428 -- 28,556
--------- --------- --------- --------- ---------
Equity in income (loss) of subsidiaries:
Continuing operations ................... 30,807 2,866 32,377 (66,050) --
Discontinued operations ................. 482 -- -- (482) --
--------- --------- --------- --------- ---------
31,289 2,866 32,377 (66,532) --
--------- --------- --------- --------- ---------
Net income ................................ $ 28,556 $ 33,727 $ 32,805 $ (66,532) $ 28,556
========= ========= ========= ========= =========
</TABLE>
17
<PAGE>
PULTE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
(Unaudited)
6. Supplemental Guarantor Information (continued)
<TABLE>
<CAPTION>
CONSOLIDATING STATEMENT OF OPERATIONS
For the Nine months ended September 30, 1997
Unconsolidated
------------------------------------------ Consolidated
Pulte Guarantor Non-Guarantor Eliminating Pulte
Corporation Subsidiaries Subsidiaries Entries Corporation
----------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Homebuilding ............................ $ -- $1,647,615 $ -- $ -- $ 1,647,615
Mortgage banking and financing,
interest and other .................. -- -- 23,460 -- 23,460
Corporate ............................... 1,254 5,577 -- -- 6,831
-------- ---------- -------- -------- -----------
Total revenues ............................ 1,254 1,653,192 23,460 -- 1,677,906
-------- ---------- -------- -------- -----------
Expenses:
Homebuilding:
Cost of sales ......................... -- 1,403,575 -- -- 1,403,575
Selling, general and administrative and
other expense ....................... 566 173,308 -- -- 173,874
Mortgage banking and financing, interest
and other ............................. -- -- 20,073 -- 20,073
Corporate, net .......................... 22,001 5,556 (1,231) -- 26,326
-------- ---------- -------- -------- -----------
Total expenses ............................ 22,567 1,582,439 18,842 -- 1,623,848
-------- ---------- -------- -------- -----------
Other Income:
Equity in income (loss) of Pulte-affiliates -- -- (1,259) -- (1,259)
-------- ---------- -------- -------- -----------
Income (loss) from continuing operations
before income taxes and equity in income
(loss) of subsidiaries .................. (21,313) 70,753 3,359 -- 52,799
Income taxes (benefit) .................... (9,748) 28,128 1,948 -- 20,328
-------- ---------- -------- -------- -----------
Income (loss) from continuing operations
before equity in income (loss) of
subsidiaries ............................ (11,565) 42,625 1,411 -- 32,471
Income (loss) from discontinued operations 4,915 -- (1,566) -- 3,349
-------- ---------- -------- -------- -----------
Income before equity in income (loss)
of subsidiaries ......................... (6,650) 42,625 (155) -- 35,820
-------- ---------- -------- -------- -----------
Equity in income (loss) of subsidiaries:
Continuing operations ................... 44,036 1,990 42,625 (88,651) --
Discontinued operations ................. (1,566) -- -- 1,566 --
-------- ---------- -------- -------- -----------
42,470 1,990 42,625 (87,085) --
-------- ---------- -------- -------- -----------
Net income ................................ $ 35,820 $ 44,615 $ 42,470 $(87,085) $ 35,820
======== ========== ======== ======== ===========
</TABLE>
18
<PAGE>
PULTE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
(Unaudited)
6. Supplemental Guarantor Information (continued)
<TABLE>
<CAPTION>
CONSOLIDATING STATEMENT OF OPERATIONS
For the Three months ended September 30, 1997
Unconsolidated
------------------------------------------ Consolidated
Pulte Guarantor Non-Guarantor Eliminating Pulte
Corporation Subsidiaries Subsidiaries Entries Corporation
----------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Homebuilding ............................ $ -- $ 657,265 $ -- $ -- $ 657,265
Mortgage banking and financing,
interest and other ..................... -- -- 9,808 -- 9,808
Corporate ............................... 82 2,736 -- -- 2,818
--------- --------- --------- --------- ---------
Total revenues ............................ 82 660,001 9,808 -- 669,891
--------- --------- --------- --------- ---------
Expenses:
Homebuilding:
Cost of sales ......................... -- 558,882 -- -- 558,882
Selling, general and administrative and
other expense ....................... 239 62,879 -- -- 63,118
Mortgage banking and financing, interest
and other ............................. -- -- 6,850 -- 6,850
Corporate, net .......................... 8,234 2,408 (438) -- 10,204
--------- --------- --------- --------- ---------
Total expenses ............................ 8,473 624,169 6,412 -- 639,054
--------- --------- --------- --------- ---------
Other Income:
Equity in income (loss) of
Pulte-affiliates ....................... -- -- (649) -- (649)
--------- --------- --------- --------- ---------
Income (loss) from continuing operations
before income taxes and equity in income
(loss) of subsidiaries .................. (8,391) 35,832 2,747 -- 30,188
Income taxes (benefit) .................... (4,030) 14,262 1,391 -- 11,623
--------- --------- --------- --------- ---------
Income (loss) from continuing operations
before equity in income (loss) of
subsidiaries ............................ (4,361) 21,570 1,356 -- 18,565
Income (loss) from discontinued operations 1,488 -- (343) -- 1,145
--------- --------- --------- --------- ---------
Income before equity in income (loss) of
subsidiaries ............................ (2,873) 21,570 1,013 -- 19,710
--------- --------- --------- --------- ---------
Equity in income (loss) of subsidiaries:
Continuing operations ................... 22,926 1,759 21,570 (46,255) --
Discontinued operations ................. (343) -- -- 343 --
--------- --------- --------- --------- ---------
22,583 1,759 21,570 (45,912) --
--------- --------- --------- --------- ---------
Net income ................................ $ 19,710 $ 23,329 $ 22,583 $ (45,912) $ 19,710
========= ========= ========= ========= =========
</TABLE>
19
<PAGE>
PULTE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
(Unaudited)
6. Supplemental Guarantor Information (continued)
<TABLE>
<CAPTION>
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Nine months ended September 30, 1998
Unconsolidated
------------------------------------------ Consolidated
Pulte Guarantor Non-Guarantor Eliminating Pulte
Corporation Subsidiaries Subsidiaries Entries Corporation
----------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Continuing operations:
Cash flows from operating activities:
Income from continuing operations ........... $ 62,961 $ 76,633 $ 74,911 $(151,544) $ 62,961
Adjustments to reconcile income from
continuing operations to net cash flows
provided by (used in) operating activities:
Equity in income of subsidiaries ....... (72,870) (6,477) (72,197) 151,544 --
Amortization, depreciation and other ... 145 3,918 150 -- 4,213
Deferred income taxes .................. (4,782) -- -- -- (4,782)
Increase (decrease) in cash due to:
Inventories ............................... -- (107,596) (1,959) -- (109,555)
Residential mortgage loans
held for sale ........................... -- -- 49,527 -- 49,527
Other assets .............................. (3,577) 54,167 (23,560) -- 27,030
Accounts payable and accrued liabilities .. 4,041 11,953 17,260 -- 33,254
Income taxes .............................. (27,105) 50,946 530 -- 24,371
--------- --------- --------- --------- ---------
Net cash provided by (used in) operating
activities .................................. (41,187) 83,544 44,662 -- 87,019
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Principal payments of mortgage backed
securities ................................ -- -- 7,196 -- 7,196
Dividends received from subsidiaries ........ 132,040 8,900 132,040 (272,980) --
Cash paid for acquisitions, net of cash
acquired .................................. -- (158,832) -- -- (158,832)
Investment in subsidiary .................... (32,040) (4,271) -- 36,311 --
Advances to affiliates ...................... (154,455) (644) (5,810) 160,909 --
Other, net .................................. -- -- (477) -- (477)
--------- --------- --------- --------- ---------
Net cash provided by (used in) investing
activities .................................. (54,455) (154,847) 132,949 (75,760) (152,113)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Payment of long-term debt and bonds ......... -- -- (8,001) -- (8,001)
Proceeds of borrowings ...................... -- 31,969 -- -- 31,969
Repayment of borrowings ..................... -- (8,101) (45,246) -- (53,347)
Capital contributions from parent ........... -- 32,040 4,271 (36,311) --
Advances from affiliates .................... 5,824 142,752 12,333 (160,909) --
Dividends paid .............................. (4,727) (132,040) (140,940) 272,980 (4,727)
Other, net .................................. 6,920 28 1,334 -- 8,282
--------- --------- --------- --------- ---------
Net cash provided by (used in)
financing activities ........................ 8,017 66,648 (176,249) 75,760 (25,824)
--------- --------- --------- --------- ---------
Net (decrease) increase in cash and
equivalents - continuing operations ......... $ (87,625) $ (4,655) $ 1,362 $ -- $ (90,918)
--------- --------- --------- --------- ---------
</TABLE>
20
<PAGE>
PULTE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
(Unaudited)
6. Supplemental Guarantor Information (continued)
<TABLE>
<CAPTION>
CONSOLIDATING STATEMENT OF CASH FLOWS (continued)
For the Nine months ended September 30, 1998
Unconsolidated
------------------------------------------- Consolidated
Pulte Guarantor Non-Guarantor Eliminating Pulte
Corporation Subsidiaries Subsidiaries Entries Corporation
----------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Discontinued operations:
Cash flows from operating activities:
Income from discontinued operations.. $ 700 $ -- $ 909 $ (909) $ 700
Change in deferred income taxes ..... 17,738 -- -- -- 17,738
Equity in income of subsidiaries .... (909) -- -- 909 --
Change in income taxes .............. (18,846) -- -- -- (18,846)
Other changes, net .................. 1,317 -- 6,464 -- 7,781
Cash flows from investing activities:
Purchase of securities available-
for-sale ........................ -- -- (21,809) -- (21,809)
Principal payments of mortgage-backed
securities ...................... -- -- 21,900 -- 21,900
Decrease in Covered Assets and FRF
receivables ..................... -- -- 34,642 -- 34,642
Cash flows from financing activities:
Increase in deposit liabilities ..... -- -- 8,312 -- 8,312
Repayment of borrowings ............. -- -- (31,560) -- (31,560)
Decrease in FHLB advances ........... -- -- (3,100) -- (3,100)
--------- --------- --------- --------- ---------
Net increase in cash and equivalents-
discontinued operations ............. -- -- 15,758 -- 15,758
--------- --------- --------- --------- ---------
Net (decrease) increase in cash and
equivalents ......................... (87,625) (4,655) 17,120 -- (75,160)
Cash and equivalents at beginning of
period .............................. 195,946 46,466 4,896 -- 247,308
--------- --------- --------- --------- ---------
Cash and equivalents at end of period . $ 108,321 $ 41,811 $ 22,016 $ -- $ 172,148
========= ========= ========= ========= =========
</TABLE>
21
<PAGE>
PULTE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
(Unaudited)
6. Supplemental Guarantor Information (continued)
<TABLE>
<CAPTION>
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Nine months ended September 30, 1997
Unconsolidated
------------------------------------------- Consolidated
Pulte Guarantor Non-Guarantor Eliminating Pulte
Corporation Subsidiaries Subsidiaries Entries Corporation
----------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Continuing operations:
Cash flows from operating activities:
Income from continuing operations ........... $ 32,471 $ 44,615 $ 44,036 $ (88,651) $ 32,471
Adjustments to reconcile income from
continuing operations to net cash flows
provided by (used in) operating activities:
Equity in income of subsidiaries ........ (44,036) (1,990) (42,625) 88,651 --
Amortization, depreciation and other .... 64 4,932 235 -- 5,231
Deferred income taxes ................... 12,356 -- -- -- 12,356
Increase (decrease) in cash due to:
Inventories ............................... -- (204,971) -- -- (204,971)
Residential mortgage loans
available-for-sale ...................... -- -- 41,581 -- 41,581
Other assets .............................. (4,208) (9,030) (22,299) -- (35,537)
Accounts payable and accrued
liabilities ............................. (1,320) 34,943 12,120 -- 45,743
Income taxes .............................. (28,593) 28,128 1,949 -- 1,484
--------- --------- --------- --------- ---------
Net cash provided by (used in) operating
activities .................................. (33,266) (103,373) 34,997 -- (101,642)
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Principal payments of mortgage-backed
securities ................................. -- -- 5,966 -- 5,966
Decrease in funds held by trustee ........... -- -- 94 -- 94
Dividends received from subsidiaries ........ -- 14,000 -- (14,000) --
Investment in subsidiaries .................. -- (1,497) -- 1,497 --
Advances to affiliates ...................... (83,664) 55 (3,415) 87,024 --
--------- --------- --------- --------- ---------
Net cash provided by (used in) investing
activities .................................. (83,664) 12,558 2,645 74,521 6,060
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Payment of long-term debt and bonds ......... -- -- (6,916) -- (6,916)
Proceeds from borrowings .................... 72,700 10,594 -- -- 83,294
Repayment of borrowings ..................... -- -- (40,706) -- (40,706)
Capital contributions from parent ........... -- -- 1,497 (1,497) --
Advances from affiliates .................... 2,352 63,406 21,266 (87,024) --
Stock repurchases ........................... (74,595) -- -- -- (74,595)
Dividends paid .............................. (3,877) -- (14,000) 14,000 (3,877)
Other, net .................................. 5,774 -- (629) -- 5,145
--------- --------- --------- --------- ---------
Net cash provided by (used in)
financing activities ........................ 2,354 74,000 (39,488) (74,521) (37,655)
--------- --------- --------- --------- ---------
Net decrease in cash and
equivalents - continuing operations ......... $(114,576) $ (16,815) $ (1,846) $ -- $(133,237)
========= ========= ========= ========= =========
</TABLE>
22
<PAGE>
PULTE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
(Unaudited)
6. Supplemental Guarantor Information (continued)
<TABLE>
<CAPTION>
CONSOLIDATING STATEMENT OF CASH FLOWS (continued)
For the Nine months ended September 30, 1997
Unconsolidated
------------------------------------------- Consolidated
Pulte Guarantor Non-Guarantor Eliminating Pulte
Corporation Subsidiaries Subsidiaries Entries Corporation
----------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Discontinued operations:
Cash flows from operating activities:
Income from discontinued operations .. $ 3,349 $ -- $ (1,566) $ 1,566 $ 3,349
Change in deferred income taxes ...... (720) -- -- -- (720)
Equity in loss of subsidiaries ....... 1,566 -- -- (1,566) --
Change in income taxes ............... 999 -- -- -- 999
Other changes, net ................... (5,194) -- 2,028 -- (3,166)
Cash flows from investing activities:
Purchase of securities available-
for-sale ......................... -- -- (14,433) -- (14,433)
Principal payments of mortgage-
backed securities ................ -- -- 24,658 -- 24,658
Net proceeds from sale of investment . -- -- 3,219 -- 3,219
Decrease in Covered Assets and FRF
receivables ...................... -- -- 28,215 -- 28,215
Cash flows from financing activities:
Decrease in deposit liabilities ...... -- -- (6,802) -- (6,802)
Repayment of borrowings .............. -- -- (31,560) -- (31,560)
Decrease in FHLB advances ............ -- -- (4,000) -- (4,000)
--------- --------- --------- --------- ---------
Net decrease in cash and equivalents-
discontinued operations .............. -- -- (241) -- (241)
--------- --------- --------- --------- ---------
Net decrease in cash and equivalents ... (114,576) (16,815) (2,087) -- (133,478)
Cash and equivalents at beginning of
period ............................... 114,585 71,599 6,018 -- 192,202
--------- --------- --------- --------- ---------
Cash and equivalents at end of period .. $ 9 $ 54,784 $ 3,931 $ -- $ 58,724
========= ========= ========= ========= =========
</TABLE>
23
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
($000's omitted, except per share data)
Overview:
A summary of the Company's operating results by business segment for the
three and nine month periods ended September 30, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Pre-tax income (loss):
Homebuilding operations .............. $ 47,072 $ 34,616 $ 109,371 $ 68,907
Financial Services operations ........ 4,900 2,958 10,848 3,387
Corporate ............................ (5,308) (7,386) (17,007) (19,495)
--------- --------- --------- ---------
Pre-tax income from continuing operations 46,664 30,188 103,212 52,799
Income taxes ............................ (18,199) (11,623) (40,251) (20,328)
--------- --------- --------- ---------
Income from continuing operations ....... 28,465 18,565 62,961 32,471
Income from discontinued operations ..... 91 1,145 700 3,349
--------- --------- --------- ---------
Net income .............................. $ 28,556 $ 19,710 $ 63,661 $ 35,820
========= ========= ========= =========
Per share data - assuming dilution:
Income from continuing operations .... $ .64 $ .43 $ 1.44 $ .72
Income from discontinued operations .. -- .03 .01 .08
--------- --------- --------- ---------
Net income ........................... $ .64 $ .46 $ 1.45 $ .80
========= ========= ========= =========
</TABLE>
A comparison of pre-tax income (loss) for the three and nine month periods
ended September 30, 1998 and 1997 is as follows:
o Pre-tax income of the Company's homebuilding business segment increased
36% and 59%, respectively, due primarily to the improvement in domestic
homebuilding operations where pre-tax income increased 43% and 58%,
respectively. Domestic unit settlements increased 8% and 11%,
respectively; and domestic gross margins improved 120 and 100 basis
points, respectively. The Company's domestic homebuilding business also
achieved improved leverage in overall selling, general and
administrative (SG&A) spending. On a year-to-date basis, SG&A spending,
as a percentage of sales, declined by 110 basis points.
o Pre-tax income of the Company's financial services business segment
increased substantially to $4,900, and $10,848, respectively, as
compared with $2,958 and $3,387 for the comparable 1997 periods. This
increase is entirely attributable to the Company's mortgage banking
operation which benefited from substantial increases in mortgage
origination volume, origination and servicing fees, as well as pricing
and marketing gains. Average operating costs per mortgage origination,
excluding provision for foreclosure-related losses, decreased by 17% and
15%, respectively, reflecting improved leverage of loan origination
volume.
o Pre-tax loss of the Company's corporate business segment decreased
$2,078 and $2,488 from the three and nine month periods ended September
30, 1997, respectively. The decrease in pre-tax loss for the quarter
primarily reflects a lower level of spending on corporate development
projects, as overhead expenses decreased $1,413. Quarterly results also
reflect a reduction of $665 in the corporate net interest spread
resulting from an increase in interest capitalized into homebuilding
inventories, partially offset by higher interest expense associated with
the issuance of $150,000 of 7.625% Senior Notes, due 2017, during the
fourth quarter of 1997. On a year-to-date basis, the decrease in
corporate overhead expenses of $4,043 primarily reflects the gain
recognized in the first quarter of 1998 from the sale of the Company's
interest in Expression Homes. This gain is partially offset by an
increase in interest expense associated with the $150,000 Senior Notes.
24
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
($000's omitted)
Homebuilding Operations:
During 1997, the Company reorganized its homebuilding operations into three
distinct business lines; Domestic, International, and Active Adult.
o Domestic Homebuilding operations are conducted in 42 markets, located
throughout 28 states. Domestic Homebuilding offers a broad product line
to meet the needs of the first-time, move-up and semi-custom home buyer.
o International Homebuilding operations are conducted through subsidiaries
of Pulte International Corporation in Puerto Rico and Mexico.
International Homebuilding product offerings focus on the demand of
first-time buyers and social interest housing in Mexico. The Company has
agreements in place with multi-national corporations to provide social
and employee interest housing in Mexico.
o Active Adult Homebuilding operations are primarily conducted through a
joint venture with Blackstone Real Estate Advisors (BRE), an affiliate
of the Blackstone Group, for the purpose of acquiring and developing
major active adult residential communities, amenitized age-targeted and
age-restricted communities appealing to a growing demographic group in
their pre-retirement and retirement years. The venture is currently
developing four communities which it acquired from the Company earlier
this year. The Company and BRE maintain a 50% ownership interest in this
new venture.
Certain operating data relating to the Company's joint ventures and
homebuilding operations for the three and nine month periods ended September
30, 1998 and 1997, are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Pulte/Pulte-affiliate Homebuilding revenues:
Domestic................................... $ 741,114 $ 637,304 $ 1,894,636 $ 1,605,189
International.............................. 4,907 6,675 43,938 26,437
Active Adult............................... 30,139 16,002 61,911 31,444
---------- ---------- ----------- -----------
Total Homebuilding........................... $ 776,160 $ 659,981 $ 2,000,485 $ 1,663,070
========== ========== =========== ===========
Pulte/Pulte-affiliate Homebuilding
pre-tax income (loss):
Domestic................................... $ 50,708 $ 35,466 $ 114,144 $ 72,112
International.............................. (4,527) (987) (3,902) (2,107)
Active Adult............................... 891 137 (871) (1,098)
---------- ---------- ------------ -----------
Total Homebuilding........................... $ 47,072 $ 34,616 $ 109,371 $ 68,907
========== ========== =========== ===========
Pulte/Pulte-affiliate settlements - units:
Domestic..................................... 4,134 3,822 10,899 9,860
International:
Pulte...................................... 22 59 106 170
Pulte-affiliated entities.................. 250 195 2,491 1,130
---------- ---------- ----------- -----------
Total International..................... 272 254 2,597 1,300
---------- ---------- ----------- -----------
Active Adult:
Pulte...................................... 37 109 128 223
Pulte-affiliated entity.................... 143 -- 252 -
---------- ---------- ----------- -----------
Total Active Adult..................... 180 109 380 223
---------- ---------- ----------- -----------
Total Pulte/Pulte-affiliate settlements - units. 4,586 4,185 13,876 11,383
========== ========== =========== ===========
</TABLE>
25
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
($000's omitted)
Homebuilding Operations (continued):
Domestic Homebuilding:
The domestic homebuilding business line represents the Company's core
business. Operations are conducted in 42 markets, located throughout 28
states, and are organized into nine regions as follows:
Pulte Home East:
Mid-Atlantic Region Connecticut, Delaware, Maryland,
Massachusetts, New Jersey, New Hampshire,
Pennsylvania, Rhode Island, Virginia
Southeast Region Georgia, North Carolina, South Carolina,
Tennessee
Florida Regions 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
No one individual market within the 42 markets represented more than 10% of
total domestic homebuilding net new orders, unit settlements or revenues
during the three and nine month periods ended September 30, 1998.
The following table presents selected unit information for Pulte's domestic
homebuilding operations for the three and nine month periods ended September
30, 1998 and 1997.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- --------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Domestic Homebuilding:
Unit settlements:
Pulte Home East.............................. 2,048 1,789 5,234 4,708
Pulte Home Central........................... 1,273 1,196 3,281 2,932
Pulte Home West.............................. 813 837 2,384 2,220
---------- ---------- ----------- -----------
4,134 3,822 10,899 9,860
========== ========== =========== ===========
Net new orders - units:
Pulte Home East.............................. 2,529 1,824 6,890 5,554
Pulte Home Central........................... 1,293 1,121 4,526 3,556
Pulte Home West.............................. 706 834 2,636 2,622
---------- ---------- ----------- -----------
4,528 3,779 14,052 11,732
========== ========== =========== ===========
Net new orders - dollars $ 796,000 $ 617,600 $ 2,457,000 $ 1,922,300
========== ========== =========== ===========
Backlog at September 30 - units:
Pulte Home East.............................. 3,216 2,462
Pulte Home Central........................... 2,261 1,604
Pulte Home West.............................. 1,069 1,049
----------- -----------
6,546 5,115
=========== ===========
Backlog at September 30 - dollars............... $ 1,179,700 $ 891,000
=========== ===========
</TABLE>
26
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
($000's omitted)
Homebuilding Operations (continued):
Domestic Homebuilding (continued):
During the quarter, the Company reported net new orders of 4,528, an increase
of 20% over the comparable period of the prior year. Year-to-date orders were
also up 20% to 14,052. These positive results reflect strong performance in
the Southeast, Great Lakes, Florida, Texas and Rocky Mountain Regions. On a
quarterly and year-to-date basis, net new orders, including acquired backlog,
provided by Radnor Homes and DiVosta & Company ("acquired operations")
amounted to 651 and 862 units, respectively.
Unit settlements increased 8% for the quarter and 11% year-to-date,
reflecting strong activity in the Southeast, Mid-Atlantic, Texas, California
and Great Lakes Regions. Strong demand, supported by favorable economic
conditions continued to drive increased order activity and record levels of
backlog. These factors have contributed to the solid settlement activity
during 1998. Unit settlements associated with acquired operations for the
three and nine months ended September 30, 1998 were 379 and 413, respectively.
The Company's backlog grew to an all-time record level at September 30,
1998 of 6,546 units, or approximately $1.2 billion, breaking record results
previously reported in the first and second quarters. Unit backlog at
September 30, 1998, was approximately 6%, 22% and 93% higher than that noted
at June 30, 1998, March 31, 1998 and December 31, 1997, respectively. Backlog
associated with acquired operations accounted for 449 units or $86,473 as of
September 30, 1998.
The following table presents a summary of pre-tax income for Pulte's domestic
homebuilding operations for the three and nine month periods ended September
30, 1998 and 1997:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues..................................... $ 741,114 $ 637,304 $ 1,894,636 $ 1,605,189
Cost of sales................................ (622,549) (542,835) (1,597,070) (1,368,774)
Selling, general and administrative expense.. (62,497) (54,417) (168,181) (161,098)
Interest (a) ................................ (5,398) (5,206) (14,241) (12,644)
Other income (expense), net.................. 38 620 (1,000) 9,439
---------- ---------- ----------- -----------
Pre-tax income............................... $ 50,708 $ 35,466 $ 114,144 $ 72,112
========== ========== =========== ===========
Average sales price.......................... $ 179 $ 167 $ 174 $ 163
========== ========== =========== ===========
<FN>
(a) The Company capitalizes interest cost into homebuilding inventories and
charges the interest to homebuilding interest expense when the related
inventories are closed.
</TABLE>
27
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
($000's omitted)
Homebuilding Operations (continued):
Domestic Homebuilding (continued):
Gross profit margins were 16.0% and 15.7% for the three and nine month
periods ended September 30, 1998, respectively, compared to 14.8% and 14.7%,
respectively, in the similar periods of the prior year. Several factors have
contributed to this favorable trend including strong customer demand,
positive home pricing, the benefits of leverage-buy purchasing activities,
effective production and inventory management, and the Company's P3
initiative (Pulte Preferred Partnerships) with contractors and suppliers. As
a result, gross margins continue to improve on a sequential-period basis as
evidenced by the 40 basis point increase from the 15.6% gross profit margin
reported for the quarter ended June 30, 1998. The third quarter 1998 gross
margin of 16% represents the fifth consecutive quarter of achieving gross
margin improvements.
For the nine months ending September 30, 1998, selling, general and
administrative expenses (SG&A) reflected the pro-rata share of benefit
savings from the restructuring plan effected in the second half of 1997, as
well as the improved leverage of SG&A dollar spending on higher unit sales
volume.
Other income, net, includes gains on land sales and other
homebuilding-related expenses. Other income, net, has also historically
included the net operating results of Pulte's Builder's Supply & Lumber (BSL)
subsidiary prior to its sale on March 20, 1998. For the quarter, other
income, net, decreased $582 due primarily to a decrease in the operating
results of BSL of $1,925 offset by an increase in income from land sales of
$516, increased interest income of $306, and other income of $500 related to
an insurance settlement. The decrease in other income, net, for the nine
months ended September 30, 1998 is due to the sale of BSL in March 1998. The
winding down of operations coupled with transaction costs incurred in
connection with the sale resulted in a decrease of other income of $7,293.
Also reflected in yearly results is a decrease of approximately $2,900 from
an insurance litigation settlement received in the first quarter of 1997.
The average selling price during the nine month period ended September 30,
1998 was $174, an increase from the average selling price of $163 in the
comparable period of the prior year. Changes in average selling price reflect
a number of factors, including the mix of product closed during a period.
Information related to interest in inventory is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest in inventory at beginning of period.... $ 14,379 $ 15,512 $ 14,719 $ 12,846
Interest capitalized............................ 6,093 5,194 14,596 15,298
Interest expensed............................... (5,398) (5,206) (14,241) (12,644)
---------- ---------- ----------- -----------
Interest in inventory at end of period.......... $ 15,074 $ 15,500 $ 15,074 $ 15,500
========== ========== =========== ===========
</TABLE>
At September 30, 1998, Pulte's domestic homebuilding operations controlled
approximately 63,000 lots, of which approximately 35,500 lots were owned and
approximately 27,500 lots were controlled through option agreements.
As a component of the Company's business strategies, the Company acquired all
of the outstanding stock of Tennessee-based Radnor Homes on May 27, 1998 for
an aggregate purchase price of approximately $58,000. Consideration for this
acquisition included approximately $51,000 of cash paid, approximately $3,000
of assumed liabilities and the issuance of 153,570 shares of the Company's
common stock. This transaction has been accounted for as a purchase, and as
such, the operating results of Radnor since the acquisition date have been
included in the Company's results of operations, and integrated into the
Southeast Region.
28
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
($000's omitted)
Homebuilding Operations (continued):
Domestic Homebuilding (continued):
On July 1, 1998, the Company acquired the outstanding stock and membership
interests in certain closely-held businesses of Florida-based, DiVosta and
Company for an aggregate purchase price of approximately $155,000.
Consideration for this acquisition, which was recorded using the purchase
method of accounting, included approximately $109,000 of cash paid,
approximately $25,000 of liabilities assumed and $21,000 in the form
of a seller-financed note. The purchase price has been allocated to the
assets acquired and liabilities assumed based on relative fair value
estimates. Goodwill of approximately $47,000 represents the excess of the
purchase price over these fair value estimates and will be amortized using a
straight-line method over a seven-year period. The Company has included the
operating results of DiVosta and Company since the acquisition date in its
consolidated results of operations. Goodwill amortization was $1,700
for the quarter ended September 30, 1998.
International Homebuilding:
International Homebuilding operations are primarily conducted through
subsidiaries of Pulte International Corporation in Puerto Rico and Mexico.
The following table presents selected financial data for Pulte's
international homebuilding operations for the three and nine month periods
ended September 30, 1998 and 1997.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues........................................ $ 1,344 $ 3,959 $ 7,838 $ 10,982
Cost of sales................................... (1,388) (3,205) (7,108) (9,159)
Selling, general and administrative expense..... (1,085) (1,020) (3,534) (2,609)
Other income (expense), net..................... (18) (72) (5) (62)
Equity in income (loss) of Mexico operations.... (3,380) (649) (1,093) (1,259)
---------- ---------- ----------- ------------
Pre-tax income (loss)........................... $ (4,527) $ (987) $ (3,902) $ (2,107)
========== ========== =========== ===========
Unit settlements:
Pulte........................................ 22 59 106 170
Pulte-affiliated entities.................... 250 195 2,491 1,130
---------- ---------- ----------- -----------
Total Pulte and Pulte-affiliates........... 272 254 2,597 1,300
========== ========== =========== ===========
</TABLE>
Pre-tax losses for the three and nine month periods ended September 30, 1998,
from the Company's international operations increased by $3,540 and $1,795,
respectively. These losses are primarily attributable to foreign currency
exchange losses in Mexico and operating losses in Puerto Rico. Foreign
currency exchange losses in Mexico amounted to $2,200 for the quarter and
$2,900 year-to-date. The foreign currency exchange losses are a result of the
decline in the value of the Mexican peso against the U.S. dollar. For the
three and nine month periods ended September 30, 1998, the Mexican peso
devalued 14% and 22%, respectively. The operational losses in Puerto Rico
amounted to $870 and $2,100 for the three and nine month periods ended
September 30, 1998, respectively. 1998 represents a rebuilding year for the
Puerto Rico business. A new management team is in place and land positions
and product offerings are being re-positioned. Hurricane Georges has also
adversely impacted Puerto Rico's business operations, causing a slow down
in its normal production schedule. Management expects that improvements
in Puerto Rico business operations will be realized in 1999.
29
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
($000's omitted)
Homebuilding Operations (continued):
International Homebuilding (continued):
The Company conducts business through five joint ventures located throughout
Mexico, the largest of which is located in the city of Juarez. The
Juarez-based venture is currently developing communities in Juarez,
Chihuahua, Nuevo Laredo, Reynosa and Matamoros. During 1996, the Company
announced that its Juarez venture had entered into two separate agreements to
construct homes in Mexico; one with General Motors Corporation and one with
Sony Magneticos de Mexico, S.A. de C.V., an affiliate of Sony Electronics,
Inc. As of September 30, 1998, the Company's net investment in the
Juarez-based joint venture approximated $23,500.
On June 22, 1998 Pulte formed a new Mexican joint venture with Desarrollos
Residenciales Turisticos, S.A. de C.V. (DRT), to construct primarily social
interest housing in Central Mexico. The venture is expected to build
approximately 3,200 units over the next two years and supports Pulte's
strategic growth initiative in the Mexican housing market. Current
development plans for this venture call for eight new housing projects in the
Bajio region surrounding Mexico City, targeting the cities of Puebla,
Queretaro, San Jose du Iturbide, San Juan del Rio and Zamora. Prior to the
formation of the joint venture, DRT had six of these projects under
construction and had secured permitting for the two remaining projects. At
September 30, 1998, the Company's net investment in this joint venture
approximated $7,000.
Active Adult Homebuilding:
Active Adult Homebuilding operations are primarily conducted through a joint
venture with Blackstone Real Estate Advisors (BRE), an affiliate of the
Blackstone Group, for the purpose of acquiring and developing major active
adult residential communities, amenitized age-targeted and age-restricted
communities appealing to a growing demographic group in their pre-retirement
and retirement years. The venture is currently developing four communities
which it acquired from the Company earlier this year. The Company and BRE
maintain a 50% ownership interest in this new venture.
The following table presents selected financial data for Pulte's Active Adult
homebuilding operations for the three and nine month periods ended September
30, 1998 and 1997. Such data includes the operating results of the Company's
Active Adult subsidiaries from January 1, 1998, through March 25, 1998, and
the equity in income (loss) of the joint venture entity from March 26, 1998
through September 30, 1998:
30
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
($000's omitted)
Homebuilding Operations (continued):
Active Adult Homebuilding (continued):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues................................... $ 4,222 $ 16,002 $ 16,395 $ 31,444
Cost of sales.............................. (3,512) (12,842) (13,327) (25,642)
Selling, general and administrative expense (181) (2,446) (3,959) (6,101)
Other income (expense), net................ 3 (577) (465) (799)
Equity in income of joint venture.......... 359 -- 485 -
---------- ---------- ----------- -----------
Pre-tax income (loss)...................... $ 891 $ 137 $ (871) $ (1,098)
========== ========== =========== ===========
Pulte and Pulte-affiliate:
Average sales price........................ $ 167 $ 147 $ 163 $ 141
========== ========== =========== ===========
Settlements - units........................ 180 109 380 223
========== ========== =========== ===========
Settlements - dollars...................... $ 30,139 $ 16,002 $ 61,911 $ 31,444
========== ========== =========== ===========
Net new orders - units..................... 149 84 581 282
========== ========== =========== ===========
Net new orders - dollars................... $ 28,600 $ 13,500 $ 107,300 $ 41,300
========== ========== =========== ===========
Backlog at September 30 - units............ 315 165
=========== ===========
Backlog at September 30 - dollars.......... $ 64,100 $ 25,600
=========== ===========
</TABLE>
Net new orders increased for the three and nine month periods ended September
30, 1998 by 65 and 299 units, respectively. These units primarily relate to
two communities for which sales operations had not yet commenced in the
comparable prior-year period and the ramp up of building activity at a third
community. Unit settlements for the three and nine month periods ended
September 30, 1998 increased by 71 and 157 units, respectively, as compared
to the similar periods of the prior year. The decreases in revenues, cost of
sales, SG & A and other income (expense) reflects the overall decreased
activity in the one remaining community in Pulte's Active Adult operating
subsidiary, a trend which will continue until the entire community is built
out. Of the net new orders, unit settlements and backlog reported for the
quarter ended September 30, 1998, 20, 37 and 16 units, respectively, related
to Pulte's Active Adult operating subsidiary. On a year-to-date basis, such
amounts were 264, 128 and 16 units respectively. This decreasing trend is
offset by the ramping up of activity at the Pulte/BRE joint venture, which
provided 129 net new orders, 143 unit settlements and 299 units in backlog
for the quarter ended September 30, 1998.
Financial Services Operations:
The Company conducts its financial services operations principally through
Pulte Mortgage Corporation (Pulte Mortgage), the Company's mortgage banking
subsidiary, and to a limited extent through Pulte Financial Companies, Inc.
(PFCI), the Company's financing subsidiary. Pre-tax income (loss) of the
Company's financial services operations for the three and nine month periods
ended September 30, 1998 and 1997, is as follows:
31
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
($000's omitted)
Financial Services Operations (continued):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Pre-tax income (loss):
Mortgage banking ......... $ 4,920 $ 2,986 $ 10,908 $ 3,487
Financing activities ..... (20) (28) (60) (100)
-------- -------- -------- --------
Pre-tax income ....... $ 4,900 $ 2,958 $ 10,848 $ 3,387
======== ======== ======== ========
</TABLE>
Mortgage Banking:
The following table presents mortgage origination data for Pulte Mortgage:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total originations:
Loans ........................ 3,194 2,730 8,752 6,970
========== ========== ========== ==========
Principal .................... $ 429,700 $ 339,400 $1,151,500 $ 848,600
========== ========== ========== ==========
Originations for Pulte customers:
Loans ........................ 2,258 2,145 6,350 5,594
========== ========== ========== ==========
Principal .................... $ 312,700 $ 275,400 $ 858,800 $ 705,700
========== ========== ========== ==========
</TABLE>
Mortgage origination volume for the three and nine month periods ended
September 30, 1998, increased 27% and 36%, respectively, over the comparable
1997 periods, driven primarily by increased unit sales realized in Pulte's
homebuilding operations. Pulte customers continue to account for the majority
of total loan production at September 30, 1998; however, increased loan
origination volume in the retail sector has contributed to improved leverage
of loan origination costs. Refinancings represented less than 10% of total
loan originations for each of the three and nine month periods ended
September 30, 1998. At September 30, 1998, loan application backlog increased
40% to $537,900 as compared with $384,700 at September 30, 1997. Backlog at
December 31, 1997 amounted to $294,000. Pulte continues to hedge its mortgage
pipeline in the normal course of its business and there has been no change in
Pulte Mortgage's strategy or use of derivative financial instruments in this
regard.
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which is required to be adopted in years
beginning after June 15, 1999, with earlier adoption encouraged. This
Statement will require the Company to recognize all derivatives on the
balance sheet at fair value. Derivatives that are not hedges must be adjusted
to fair value through income. If the derivative is a hedge, depending on the
nature of the hedge, changes in the fair value of derivatives will either be
offset against the change in fair value of the hedged assets, liabilities, or
firm commitments through earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings. Pulte Mortgage, in the
normal course of business, uses derivative financial instruments to meet the
financing needs of its customers and reduce its own exposure to fluctuations
in interest rates. The Company has not yet determined what effect Statement
No. 133 will have on its earnings and financial position.
32
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
($000's omitted)
Financial Services Operations (continued):
During the three and nine months ended September 30, 1998, origination fees
increased 20% and 45%, respectively, over the comparable periods of the prior
year. The increase in origination fees is due to the overall increase in loan
originations and an increase in non-funded, brokered loans. Pricing and
marketing gains increased $2,137 for the quarter and $6,941 year-to-date,
primarily the result of increased funded mortgage originations and increased
servicing retained loan production.
Net interest income decreased $104 and $440 for the three and nine month
periods ended September 30, 1998, respectively. These decreases are
attributable to the Company's management of equity capital coupled with a
flattening of the yield curve during the first nine months of 1998. For the
quarter and year-to-date, Pulte Mortgage's operating expenses increased $117
and $269, respectively, over the comparable prior year periods on increased
production of 27% and 36%, respectively. This improved cost leverage is a
result of the mortgage operations center and mortgage application center
initiatives implemented during 1997 which have expedited the loan approval
process and lowered the total cost from application to closing, and corporate
restructuring.
Financing Activities:
The Company's secured financing operations are conducted by the
limited-purpose subsidiaries of Pulte Financial Companies, Inc. (PFCI). Such
operations, which the Company is exiting, have 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. At September 30, 1998, one bond series with a
principal amount of $30,401 was outstanding. For the three and nine month
periods ended September 30, 1998, PFCI's pre-tax operating loss was $20 and
$60, respectively, compared to a pre-tax loss of $28 and $100 in 1997. Net
interest income continues to decrease as a result of lower average
outstanding balances on the collateral and bond portfolios.
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 three
and nine month periods ended September 30, 1998 and 1997:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net interest expense.................. $ 3,440 $ 4,105 $ 11,156 $ 9,601
Other corporate expenses, net......... 1,868 3,281 5,851 9,894
---------- ---------- ----------- -----------
Loss before income taxes.............. $ 5,308 $ 7,386 $ 17,007 $ 19,495
========== ========== =========== ===========
</TABLE>
33
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
($000's omitted)
Corporate (continued):
The decrease in pre-tax loss for the quarter primarily reflects a lower level
of spending on corporate development projects, as overhead expenses decreased
$1,413. Quarterly results also reflect a reduction of $665 in the corporate
net interest spread resulting from an increase in interest capitalized into
homebuilding inventories, partially offset by higher interest expense
associated with the issuance of $150,000 of 7.625% Senior Notes, due 2017,
during the fourth quarter of 1997. On a year-to-date basis, the decrease in
corporate overhead expenses of $4,043 primarily reflects the gain recognized
in the first quarter of 1998 from the sale of the Company's interest in
Expression Homes. This gain is partially offset by an increase in interest
expense associated with the $150,000 Senior Notes.
Restructuring:
During the fourth quarter of 1997, a pre-tax charge of $20,000 was recorded
in connection with the reorganization of the Company's operations. This
reorganization entailed:
o the realignment of homebuilding operations into business lines which
focus on specific customer segments;
o the creation of a mortgage applications center, which increased
overhead leverage by moving Pulte Mortgage's loan officers from field
branches to a central location in Denver, Colorado; and
o the right-sizing of its workforce on a company-wide basis.
The 1997 restructuring 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. As of September 30, 1998, the
Company has severed employment with approximately 137 employees.
The following table displays a rollforward of the liabilities accrued for the
Company's restructuring from December 31, 1997 to September 30, 1998:
<TABLE>
<CAPTION>
Balance at 1998 Balance at
December 31, Reserve September 30,
Type of Cost 1997 Uses 1998
- ------------ ------------- ------------- -------------
<S> <C> <C> <C>
Homebuilding operations:
Employee separation and other $ 6,057 $ 3,637 $ 2,420
Other 900 588 312
------------- ------------- -------------
6,957 4,225 2,732
------------- ------------- -------------
Mortgage Banking operations:
Employee separation and other 1,177 823 354
Other 280 156 124
------------- ------------- -------------
1,457 979 478
------------- ------------- -------------
Corporate:
Employee separation and other 2,530 1,115 1,415
------------- ------------- -------------
$ 10,944 $ 6,319 $ 4,625
============= ============= =============
</TABLE>
Management believes that the remaining reserves for business restructuring
costs are adequate to complete its plan and that a substantial portion of the
remaining accrual will be utilized during 1998.
34
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
($000's omitted)
Liquidity and Capital Resources:
Continuing Operations:
The Company generated $87,019 from operations for the nine months ended
September 30, 1998. This represents a positive cash flow change as compared
to the same period of the prior year. Operating cash flows primarily reflect
the sale of BSL in February and the sale of certain Active Adult communities
to the new Pulte/Blackstone joint venture in March. Net cash used in
investing activities of $152,113 increased from the comparable nine month
period of 1997 due principally to the Company's recent acquisition activity.
The Company's net cash used in financing activities decreased $11,831 over
the comparable nine month period of 1997, due primarily to share repurchases
under the Company's stock repurchase program during 1997. Financing cash
flows also reflect reduced borrowings and an increase in payments on such
borrowings.
At September 30, 1998, the Company had cash and equivalents of $154,238 and
total long-term indebtedness of $570,093. The Company's total long-term
indebtedness includes $487,448 of unsecured senior notes, $22,405 of
unsecured senior subordinated debentures, other Pulte limited recourse debt
of $29,091, $760 of First Heights' advances; and $30,401 of mortgage-backed
bonds payable for PFCI. The Company also has other non-recourse short-term
notes payable of $67,279.
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 $210,000
committed unsecured revolving credit facility, and other committed and
uncommitted credit lines, which at September 30, 1998, consisted of $20,000
and $250,000 related to Pulte and Pulte Mortgage operations, respectively.
During the remainder of 1998, management anticipates that homebuilding and
corporate working capital requirements, as well as cash payments associated
with the Company's restructuring plan, 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 no borrowings under its $210,000 unsecured revolving credit
facility during the first nine months of 1998 and no balance was outstanding
at September 30, 1998. Pulte Mortgage provides mortgage financing for many of
its home sales and uses its own funds and borrowings made available pursuant
to various committed and uncommitted credit arrangements which, at September
30, 1998, amounted to $250,000, an amount deemed adequate to cover
foreseeable needs. There were approximately $104,415 of borrowings
outstanding under the $250,000 (Pulte Mortgage) arrangement at September 30,
1998. 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.
Discontinued Operations:
Since the acquisition of First Heights, the Company's income taxes have been
significantly impacted by its thrift operations, principally because payments
received from the FSLIC Resolution Fund (FRF) are exempt from federal income
taxes. The Company's thrift assets are subject to regulatory restrictions and
a court order and thus are not available for general corporate purposes. The
final liquidation 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. In order to expedite the wind-down of its
thrift operations, the Company, with the approval of the OTS and FDIC, has
agreed to fund First Heights' repayment of its remaining certificates of
deposit. As part of such agreement, the Company will loan First Heights an
amount less than $25,000 during the fourth quarter of 1998. Repayment of
such amount will be part of the final liquidation of First Heights. The
Company's remaining investment in First Heights at September 30, 1998
approximated $27,000.
35
<PAGE>
ITEM 2. 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 the Company's operating strategy is to provide Pulte
management and employees the information systems needed to support the
Company's current operations and future growth. Management believes that
substantial progress has been made 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.
A critical component of this integrated systems effort involves replacement
of the Company's existing accounting systems, which management expects should
enhance access to and reporting of operating results and other financial
meansurments, as well as substantially resolve the Company's exposure to Year
2000 risk (the inability of certain computer software, hardware and other
equipment with embedded computer chips to properly process two-digit
year-date codes after 1999). To address the millennium date change issue, the
Company's homebuilding operations performed risk assessments of information
technology (IT), non-IT (embedded technology such as microprocessors in
office equipment and facilities) and essential homebuilding
supplier/contractor relationships. The Company's mortgage banking operation
also completed a comprehensive Year 2000 risk assessment for both internal
information systems and external relationships. Plans are being implemented
to bring all critical internal information systems into
compliance by the end of 1999. The Company does not expect the cost for such
compliance to have a material impact on its operating results or financial
condition. Although the Company believes that there are no significant risks
associated with its external relationships, there can be no guarantee that
all suppliers, contractors, customers or other service providers (e.g.
utility service providers, financial institutions, government agencies) will
be in compliance by the year 2000, in which case the Company's business and
results of operations could be adversely affected. Failure of a significant
number of essential third parties to be Year 2000 compliant would present the
most likely worst-case scenario. As a normal course of business, the Company
maintains contingency plans designed to address various other potential
business interruptions. These plans may be applicable to address the
interruption of support provided by third parties resulting from their
failure to be year 2000 compliant.
The Company is currently nearing the end of the design stage of its
integrated business system, and expects to conduct pilot testing during the
fourth quarter of 1998 at selected market sites. The Company plans a complete
roll-out of its new business systems for all company locations by the end of
1999. Cumulative spending for this internally-developed business software
approximated $5,125 at September 30, 1998, and additional spending of $2,500
is expected to complete the project. In 1997, the Company also completed the
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.
Forward-Looking Statements:
As a cautionary note, except for the historical information contained herein,
certain matters discussed in Item 2, "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 the
Company's ability to correct all material applications addressing the Year
2000 problem, as well as the ability of the Company's vendors to correct all
material applications addressing the Year 2000 problem, and the Company's
assessment of the Year 2000 problem's impact on its financial results and
operations, 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.
36
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
First Heights Related Litigation: Update on Lawsuit Filed on July 7,
1995 in the United States District Court, Eastern District of Michigan
(the "Court"), by the Federal Deposit Insurance Corporation ("FDIC")
against the Company, Pulte Diversified Companies, Inc. and First Heights
Bank (collectively, "the Pulte Parties") (the "District Court Case").
On September 4, 1998, the Court issued an order addressing the FDIC's
motion for summary judgment on damages and declaratory relief in the
District Court Case. Although the ruling did not address all of the
damage issues in the District Court Case, including the amounts owed by
the FDIC to First Heights, interest assessments and other costs, based
upon the Company's review of the ruling and interpretation for the
outstanding issues, the Company adjusted the range of potential
after-tax charges associated with the District Court Case to a range
from a nominal amount to as much as $55 million (the prior estimated
range was up to $40 million). The Company does not believe that a charge
should be recorded to Discontinued Operations at this time in respect of
the District Court Case.
The Company vigorously disagrees with the Court's rulings in favor of
the FDIC and intends to appeal when a final judgment is entered.
For further information concerning the District Court Case and a second
lawsuit filed on December 26, 1995 in the United States Court of Federal
Claims (Washington, D.C.) by the Pulte Parties against the United
States, see Note 5, notes to Condensed Consolidated Financial
Statements, which is contained in Part I, Item 1, of this Quarterly
Report on Form 10-Q and which is incorporated by reference into this
response.
Item 6. Exhibits and Reports on Form 8-K
Page Herein or
Incorporated
Exhibit Number and Description by Reference From
------------------------------ -----------------
(11) Statement Regarding Computation of
Per Share Earnings 39
(27) Financial Data Schedule
All other exhibits are omitted from this report because they are not
applicable.
37
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PULTE CORPORATION
/s/ ROGER A. CREGG
-----------------------------
Roger A. Cregg
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/ VINCENT J. FREES
-----------------------------
Vincent J. Frees
Vice President and Controller
(Principal Accounting Officer)
Date: November 13, 1998
38
PULTE CORPORATION
EXHIBIT 11 - STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
(Unaudited)
(000's omitted, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic:
Numerator:
Net income...................................... $ 28,556 $ 19,710 $ 63,661 $ 35,820
========== ========== =========== ===========
Denominator:
Weighted average common shares outstanding...... 43,136 42,273 42,923 44,641
========== ========== =========== ===========
Net income per share............................ $ .66 $ .47 $ 1.48 $ .80
========== ========== =========== ===========
Assuming dilution:
Numerator:
Net income...................................... $ 28,556 $ 19,710 $ 63,661 $ 35,820
========== ========== =========== ===========
Denominator:
Weighted average common shares outstanding...... 43,136 42,273 42,923 44,641
Effect of dilutive securities - stock options... 1,144 467 925 339
---------- ---------- ----------- -----------
Total ....................................... 44,280 42,740 43,848 44,980
========== ========== =========== ===========
Net income per share............................... $ .64 $ .46 $ 1.45 $ .80
========== ========== =========== ===========
</TABLE>
39
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1998
AND FOR THE THREE MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 154,238
<SECURITIES> 0
<RECEIVABLES> 46,828
<ALLOWANCES> 0
<INVENTORY> 1,402,662
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,292,924
<CURRENT-LIABILITIES> 0
<BONDS> 538,944<F1>
<COMMON> 432
0
0
<OTHER-SE> 882,563
<TOTAL-LIABILITY-AND-EQUITY> 2,292,924
<SALES> 1,918,869<F2>
<TOTAL-REVENUES> 1,959,602
<CGS> 1,617,505<F2>
<TOTAL-COSTS> 1,855,782
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,241<F3>
<INCOME-PRETAX> 103,212
<INCOME-TAX> 40,251
<INCOME-CONTINUING> 62,961
<DISCONTINUED> 700
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 63,661
<EPS-PRIMARY> 1.48
<EPS-DILUTED> 1.45
<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 sold.
</TABLE>
