=============================================================================
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 March 31, 1999
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 April 30, 1999: 43,250,180
Total pages: 38
Listing of exhibits: 36
=============================================================================
<PAGE>
PULTE CORPORATION
INDEX
Page No.
--------
PART I FINANCIAL INFORMATION
Item 1 Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets, March 31, 1999 and
December 31, 1998................................................ 3
Condensed Consolidated Statements of Income, Three Months Ended
March 31, 1999 and 1998........................................... 4
Condensed Consolidated Statement of Shareholders' Equity,
Three Months Ended March 31, 1999................................. 5
Condensed Consolidated Statements of Cash Flows, Three Months
Ended March 31, 1999 and 1998..................................... 6
Notes to Condensed Consolidated Financial Statements............... 8
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 21
Item 3 Quantitative & Qualitative Disclosures About Market
Risk.................................................... 34
PART II OTHER INFORMATION
Item 1 Legal Proceedings........................................ 36
Item 6(a) Exhibits................................................. 36
Item 6(b) Reports on Form 8-K...................................... 37
SIGNATURES......................................................... 38
2
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PULTE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
($000's omitted)
March 31, December 31,
1999 1998
--------- ------------
(Unaudited) (Note)
ASSETS
Cash and equivalents ............................. $ 44,030 $ 125,198
Unfunded settlements ............................. 49,139 49,140
House and land inventories ....................... 1,582,886 1,455,208
Mortgage-backed and related securities ........... -- 29,290
Residential mortgage loans and other
securities available-for-sale .................. 156,689 234,974
Other assets ..................................... 377,415 367,351
Discontinued operations .......................... 89,707 88,678
---------- ----------
Total assets ................................. $2,299,866 $2,349,839
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued liabilities,
including book overdrafts of $126,175 and
$112,688 in 1999 and 1998, respectively ... $ 566,753 $ 575,373
Unsecured short-term borrowings .............. 30,000 --
Collateralized short-term debt, recourse
solely to applicable subsidiary assets .... 144,317 217,060
Mortgage-backed bonds, recourse solely to
applicable subsidiary assets .............. -- 28,075
Income taxes ................................. 15,943 9,592
Subordinated debentures and senior notes ..... 541,759 542,039
Discontinued operations ...................... 56,505 56,258
---------- ----------
Total liabilities ......................... 1,355,277 1,428,397
Shareholders' equity ......................... 944,589 921,442
---------- ----------
Total liabilities and shareholder's equity ... $2,299,866 $2,349,839
========== ==========
Note: The balance sheet at December 31, 1998 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.
3
<PAGE>
<TABLE>
<CAPTION>
PULTE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(000's omitted, except per share data)
(Unaudited)
For The Three Months Ended
March 31,
--------------------------
1999 1998
-------- ---------
<S> <C> <C>
Revenues:
Homebuilding............................................ $666,823 $508,635
Mortgage banking and financing, interest and other...... 14,746 8,359
Corporate ............................................ 898 3,577
-------- --------
Total revenues.............................. 682,467 520,571
-------- --------
Expenses:
Homebuilding, principally cost of sales ............ 628,559 491,041
Mortgage banking and financing, interest and other...... 7,545 5,971
Corporate, net.......................................... 8,634 7,872
-------- --------
Total expenses.............................. 644,738 504,884
-------- --------
Other income:
Equity in income of Pulte-affiliates.................... 1,863 2,165
-------- --------
Income from continuing operations before income taxes...... 39,592 17,852
Income taxes ............................................ 15,638 6,962
-------- --------
Income from continuing operations.......................... 23,954 10,890
Income from discontinued thrift operations, net of
income taxes............................................. 376 371
-------- --------
Net income................................................. $ 24,330 $ 11,261
======== ========
Per share data:
Basic:
Income from continuing operations ................... $ .55 $ .25
Income from discontinued operations.................. .01 .01
------- --------
Net income........................................... $ .56 $ .26
======== ========
Assuming dilution:
Income from continuing operations ................... $ .54 $ .25
Income from discontinued operations ................. .01 .01
------- --------
Net income........................................... $ .55 $ .26
======== ========
Cash dividends declared................................. $ .04 $ .03
======== ========
Number of shares used in calculation:
Basic:
Weighted-average common shares outstanding........ 43,233 42,588
Assuming dilution:
Effect of dilutive securities - stock options..... 814 660
-------- --------
Adjusted weighted-average common shares
and effect of dilutive securities ............ 44,047 43,248
======== ========
</FN>
See accompanying notes to condensed consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PULTE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
($000's omitted)
(Unaudited)
Accumulated
Additional Other
Common Paid-in Comprehensive Retained
Stock Capital Income Earnings Total
------ ---------- ------------- --------- -----
<S> <C> <C> <C> <C> <C>
Shareholders' Equity, December 31, 1998 ..... $ 432 $ 75,051 $ 1,130 $ 844,829 $ 921,442
Exercise of stock options ................... -- 1,673 -- -- 1,673
Cash dividends declared ..................... -- -- -- (1,733) (1,733)
Comprehensive income:
Net income .............................. -- -- -- 24,330 24,330
Change in unrealized gains on
securities available-for-sale, net of
income taxes .......................... -- -- (1,130) -- (1,130)
Foreign currency translation
adjustments ........................... -- -- 7 -- 7
----- --------- --------- --------- ---------
Shareholders' Equity, March 31, 1999 ........ $ 432 $ 76,724 $ 7 $ 867,426 $ 944,589
===== ========= ========= ========= =========
<FN>
See accompanying notes to condensed consolidated financial statements.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
PULTE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($000's omitted)
(Unaudited)
Three Months Ended
March 31,
------------------
1999 1998
---- ----
<S> <C> <C>
Continuing operations:
Cash flows from operating activities:
Income from continuing operations ........................... $ 23,954 $ 10,890
Adjustments to reconcile income from
continuing operations to net cash flows provided
by (used in) operating activities:
Amortization, depreciation and other ................ 3,142 1,672
Deferred income taxes ............................... (746) (4,028)
Gain on sale of securities .......................... (1,664) --
Increase (decrease) in cash due to:
Inventories ................................ (127,678) 41,926
Residential mortgage loans held for sale ... 78,285 49,863
Other assets ............................... (9,927) 73,953
Accounts payable and accrued liabilities ... 2,881 (71,568)
Income taxes ............................... 2,979 7,599
--------- ---------
Net cash provided by (used in) operating activities ............. (28,774) 110,307
--------- ---------
Cash flows from investing activities:
Proceeds from sale of securities available-for-sale ......... 27,886 --
Principal payments of mortgage-backed securities ............ 1,490 2,014
Other, net .................................................. 567 (255)
--------- ---------
Net cash provided by investing activities ....................... 29,943 1,759
--------- ---------
Cash flows from financing activities:
Payment of long-term debt and bonds ......................... (28,076) (9,227)
Proceeds from borrowings .................................... 30,000 --
Repayment of borrowings ..................................... (83,932) (45,053)
Dividends paid .............................................. (1,733) (1,278)
Other, net .................................................. 1,404 1,265
--------- ---------
Net cash used in financing activities ........................... (82,337) (54,293)
--------- ---------
Net increase (decrease) in cash and equivalents -
continuing operations ......................................... $ (81,168) $ 57,773
--------- ---------
</TABLE>
6
<PAGE>
PULTE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
($000's omitted)
(Unaudited)
Three Months Ended
March 31,
------------------
1999 1998
---- ---
Discontinued Operations:
Cash flows from operating activities:
Income from discontinued operations ................. $ 376 $ 371
Change in deferred taxes ............................ (3,183) 6,181
Change in income taxes .............................. 3,372 (6,486)
Other changes, net .................................. 574 (2)
Cash flows from investing activities:
Purchase of securities available-for-sale ........... 223 (21,809)
Principal payments of mortgage-backed securities .... -- 7,654
Decrease in Covered Assets and FRF receivables ...... (1,003) 30,764
Cash flows from financing activities:
Increase in deposit liabilities ..................... -- 37,092
Repayment of borrowings ............................. -- (31,560)
Increase in Federal Home Loan Bank (FHLB) advances .. -- 1,900
-------- --------
Net increase in cash and equivalents-
discontinued operations ............................... 359 24,105
-------- --------
Net increase (decrease) in cash and equivalents ......... (80,809) 81,878
Cash and equivalents at beginning of period ............. 125,329 247,308
-------- --------
Cash and equivalents at end of period ................... $ 44,520 $329,186
======== ========
Cash - continuing operations ............................ $ 44,030 $302,929
Cash - discontinued operations .......................... 490 26,257
-------- --------
$ 44,520 $329,186
======== ========
Supplemental disclosure of cash flow information-
cash paid during the period for:
Interest, net of amount capitalized:
Continuing operations ............................ $ 2,051 $ 3,420
Discontinued operations .......................... -- 628
-------- --------
$ 2,051 $ 4,048
======== ========
Income taxes ........................................ $ 12,217 $ 3,194
======== ========
See accompanying notes to condensed consolidated financial statements.
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 significant
subsidiaries. The Company's direct subsidiaries include Pulte Financial
Companies, Inc. (PFCI), Pulte Diversified Companies, Inc. (PDCI) and
other subsidiaries which are engaged in the homebuilding business.
PDCI's operating subsidiaries include Pulte Home Corporation (Pulte),
Pulte International Corporation (International) and other subsidiaries
which are 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 Company (PMC), 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 month period ended March
31, 1999 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999. 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,
1998.
Certain 1998 classifications have been changed to conform with the 1999
presentation.
Earnings per share data, both basic and diluted, reflect the impact of
the Company's 2-for-1 stock split effective June 1, 1998.
The Company's comprehensive income other than net income consists of
unrealized gains/(losses) on securities available-for-sale, net of tax
and foreign currency translation adjustments. For the quarters ended
March 31, 1999 and 1998, the Company's comprehensive income other than
net income amounted to $1,123 and $(197), respectively, net of tax
(benefit)/provision of $772 and $(62), 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 plans to adopt this
statement on January 1, 2000, but 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
During the first quarter of 1994, the Company adopted a plan of
disposal for First Heights and announced its strategy to exit the
thrift industry and increase its focus on housing and related mortgage
banking. First Heights sold all but one of its 32 bank branches and
related deposits to two unrelated purchasers. The sale was
substantially completed during the fourth quarter of 1994, although the
Company held brokered deposits which were not liquidated until 1998.
Although the Company in 1994, expected to complete the plan of disposal
within a reasonable period of time, contractual disputes with the FDIC
prevented the prepayment of the FSLIC Resolution Fund (FRF) notes,
thereby precluding the Company from completing the disposal in
accordance with its original plan. To provide liquidity for the sale,
First Heights liquidated its investment portfolios and its
single-family residential loan portfolio and, as provided in the
Assistance Agreement, entered into a Liquidity Assistance Note (LAN)
with the Federal Deposit Insurance Corporation (FDIC) acting in its
capacity as manager of FRF. The LAN is collateralized by the FRF notes
and bears interest at a rate indexed to the Texas Cost of Funds plus a
spread. The LAN and the FRF notes matured in September 1998; however,
payment of these obligations is being withheld by both parties pending
resolution of all open matters with the FDIC. As discussed in Note 4,
the Company is involved in litigation with the FDIC and as part of this
litigation, the parties have asserted various claims with respect to
obligations under promissory notes issued by each of the parties in
connection with the thrift acquisition and activities.
As of December 31, 1998, First Heights no longer held any deposits, nor
did it maintain an investment portfolio. First Heights' day-to-day
activities have been principally devoted to supporting residual
regulatory compliance matters and the litigation with the FDIC; and are
not reflective of the active operations of the former thrift, such as
maintaining traditional transaction accounts, (e.g., checking and
savings accounts) or making loans.
Accordingly, such operations are being presented as discontinued.
Revenues of the Company's discontinued thrift operations primarily
represent interest income on the outstanding FRF notes and receivables
and for the three months ended March 31, 1999 and 1998, amounted to
$1,170 and $1,787 respectively. For the three months ended March 31,
1999 and 1998, discontinued thrift operations provided after-tax income
of $376 and $371, 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 acquisition/development of land primarily for
residential purposes within the continental United States and the
construction of housing on such land targeted for the first-time,
move-up and semi-custom home buyer groups.
o International Homebuilding, which is primarily engaged in the
acquisition/development of land primarily for residential
purposes, and the construction of housing on such land in Puerto
Rico and Mexico.
o Active Adult Homebuilding, which conducts its operations primarily
through a joint venture, and 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's Financial Services segment consists principally of mortgage
banking operations conducted through PMC and other mortgage banking
subsidiaries, and to a minor extent, the operations of PFCI, a financing
subsidiary of the Company.
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, to develop and implement strategic initiatives
centered on new business development and operating efficiencies, and to
provide the necessary administrative support functions to support the
Company as a publicly traded entity.
9
<PAGE>
PULTE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
(Unaudited)
3. Segment information (continued)
Operating Data by Segment
Three Months Ended
March 31,
-------------------------
1999 1998
---- ----
Revenues:
Homebuilding ................................... $666,823 $508,635
Financial Services ............................. 14,746 8,359
Corporate ...................................... 898 3,577
-------- --------
Total Revenues ............................. 682,467 520,571
-------- --------
Cost of sales:
Homebuilding ................................... 555,688 430,000
Financial Services ............................. -- --
Corporate ...................................... -- --
-------- --------
Total cost of sales ........................ 555,688 430,000
-------- --------
Selling, general and administrative:
Homebuilding ................................... 67,286 55,849
Financial Services ............................. 5,406 4,164
Corporate ...................................... 2,034 1,651
-------- --------
Total selling, general and
administrative ........................... 74,726 61,664
-------- --------
Interest:
Homebuilding ................................... 4,145 3,886
Financial Services ............................. 2,039 1,607
Corporate ...................................... 4,517 6,009
-------- --------
Total interest ............................. 10,701 11,502
-------- --------
Other expense, net:
Homebuilding ................................... 1,440 1,306
Financial Services ............................. 100 200
Corporate ...................................... 2,083 212
-------- --------
Total other expense, net ................... 3,623 1,718
-------- --------
Total costs and expenses ........................... 644,738 504,884
-------- --------
Equity in income of joint ventures:
Homebuilding ................................... 1,863 2,165
Financial Services ............................. -- --
Corporate ...................................... -- --
-------- --------
Total equity in income of joint ventures ... 1,863 2,165
-------- --------
Income from continuing operations
before income taxes .............................. $ 39,592 $ 17,852
======== ========
10
<PAGE>
PULTE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
(Unaudited)
3. Segment information (continued)
<TABLE>
<CAPTION>
Asset Data by Segment
Financial
Homebuilding Services Corporate Total
------------ --------- --------- -----
<S> <C> <C> <C> <C>
At March 31, 1999:
House inventory ..................... $ 475,840 $ -- $ -- $ 475,840
Land inventory ...................... 1,107,046 -- -- 1,107,046
---------- -------- -------- ----------
Total Inventory ................ $1,582,886 $ -- $ -- $1,582,886
========== ======== ======== ==========
Identifiable assets ................. 1,907,538 168,196 134,425 2,210,159
Assets of discontinued operations ... 89,707
----------
Total assets ........................ $2,299,866
==========
At December 31, 1998:
House inventory ..................... $ 403,443 $ -- $ -- $ 403,443
Land inventory ...................... 1,051,765 -- -- 1,051,765
---------- -------- -------- ----------
Total Inventory ................ $1,455,208 $ -- $ -- $1,455,208
========== ======== ======== ==========
Identifiable assets ................. 1,782,644 274,488 204,029 2,261,161
Assets of discontinued operations ... 88,678
----------
Total assets ........................ $2,349,839
==========
4. Commitments and contingencies
The Company is involved in various litigation incidental to its
continuing business operations. Management believes that none of this
litigation will have a material adverse impact on the results of
operations or financial position of the Company.
First Heights-Related Litigation
The Company is a party to two lawsuits relating to First Heights' 1988
acquisition from the Federal Savings and Loan Insurance Corporation
(FSLIC), and First Heights' ownership of, five failed Texas thrifts.
The first lawsuit (the "District Court Case") was filed on July 7, 1995
in the United States District Court, Eastern District of Michigan, by
the Federal Deposit Insurance Corporation (FDIC) against the Company,
PDCI and First Heights (collectively, the "Pulte Parties"). The second
lawsuit (the "Court of Federal Claims Case") was filed on December 26,
1996 in the United States Court of Federal Claims (Washington, D.C.) by
the Pulte Parties against the United States. In the District Court
Case, the FDIC seeks a declaration of rights and other relief related
to the assistance agreement entered into between First Heights and the
FSLIC. The FDIC is the successor to FSLIC. The FDIC and the Pulte
Parties disagree about the proper interpretation of provisions in the
assistance agreement which provide for sharing of certain tax benefits
achieved in connection with First Heights' 1988 acquisition and
ownership of the five 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.
11
<PAGE>
PULTE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
(Unaudited)
4. Commitments and contingencies (continued)
First Heights-Related Litigation (continued)
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. The United States has filed a motion for summary judgment
against the Company in the Court of Federal Claims Case, and the
Company's preliminary opposition to the motion is due in late May 1999;
the Court is likely to hold a preliminary hearing on the motion in late
June 1999.
On March 5, 1999, the United States District Court (the Court), entered
a "Final Judgment" against First Heights and PDCI (the Court had
previously ruled that Pulte Corporation was not liable for monetary
damages to the FDIC) resolving by summary judgment in favor of the FDIC
most of the FDIC's claims against the Pulte Defendants. The Final
Judgment requires PDCI and First Heights to pay the FDIC monetary
damages totaling approximately $221.3 million, including interest and
future tax sharing but excluding costs (such as attorneys fees) to be
determined in the future by the District Court. However, the FDIC has
acknowledged that it has already paid itself or withheld from
assistance, including the FRF notes, its obligation to pay to First
Heights approximately $105 million, excluding interest thereon. The
Company believes that it is entitled to a credit or actual payment of
such amount. The Final Judgment does not address this issue. Based upon
the Company's review of the Final Judgment, the Company believes that,
if the Final Judgment were to be upheld in its entirety on appeal, the
potential after-tax charges against Discontinued Operations, after
giving effect to interest owed by the FDIC to First Heights, will be
approximately $88 million, plus post- judgment interest (currently 5%
per year). The Company vigorously disagrees with the Court's rulings
and has appealed to the Sixth Circuit Court of Appeals. The Company has
posted a bond in the amount of $110 million pending resolution of the
appeals process. The Company believes the District Court erred in
granting summary judgment to the FDIC. Among other things, the Company
believes the District Court improperly resolved highly disputed factual
issues which should have been presented to a jury and, as a result, it
improperly granted summary judgment accepting the FDIC's view of the
facts on substantially all disputed issues and, therefore, that the
Company has a strong basis for appeal of the District Court's decision
and that an appellate court, properly applying the standards of review
for this case, should reverse the District Court's decision and remand
the case for trial, if not in its entirety, then at least in material
respects.
The Company does not believe that the claims in the Court of Federal
Claims Case are in any way prejudiced by the rulings in the District
Court Case. The Company is considering seeking relief in the Court of
Federal Claims Case that would, if granted, recoup portions of the
damages awarded in the District Court Case.
5. 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, PMC, First Heights,
and PFCI. See Note 1 for additional information on the Company's
Guarantor and non-Guarantor subsidiaries.
12
<PAGE>
PULTE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
(Unaudited)
5. Supplemental Guarantor Information (continued)
Supplemental consolidating financial information of the Company,
specifically including such information for the Guarantors, is
presented below. Investments in subsidiaries are presented using the
equity method of accounting. Separate financial statements of the
Guarantors are not provided as the consolidating financial information
contained herein provides a more meaningful disclosure to allow
investors to determine the nature of the assets held by and the
operations of the combined groups.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATING BALANCE SHEET
MARCH 31, 1999
Unconsolidated
----------------------------------------- Consolidated
Pulte Guarantor Non-Guarantor Eliminating Pulte
Corporation Subsidiaries Subsidiaries Entries Corporation
----------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and equivalents ......................... $ 1,179 $ 38,921 $ 3,930 $ -- $ 44,030
Unfunded settlements ......................... -- 57,068 (7,929) -- 49,139
House and land inventories ................... -- 1,560,345 22,541 -- 1,582,886
Residential mortgage loans and other
securities available-for-sale .............. -- -- 156,689 -- 156,689
Land held for sale and future development .... -- 34,253 -- -- 34,253
Other assets ................................. 19,111 187,478 52,259 -- 258,848
Deferred income taxes ........................ 84,314 -- -- -- 84,314
Discontinued operations ...................... -- -- 89,707 -- 89,707
Investment in subsidiaries ................... 1,098,665 14,074 1,097,153 (2,209,892) --
Advances receivable - subsidiaries ........... 372,227 -- 48,897 (421,124) --
----------- ----------- ----------- ----------- -----------
$ 1,575,496 $ 1,892,139 $ 1,463,247 $(2,631,016) $ 2,299,866
=========== =========== =========== =========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued liabilities ..... $ 67,094 $ 452,462 $ 47,197 $ -- $ 566,753
Unsecured short-term borrowings .............. 30,000 -- -- -- 30,000
Collateralized short-term debt, recourse
solely to applicable subsidiary assets ..... -- -- 144,317 -- 144,317
Income taxes ................................. 15,943 -- -- -- 15,943
Subordinated debentures and senior notes ..... 487,545 33,214 21,000 -- 541,759
Discontinued operations ...................... -- -- 56,505 -- 56,505
Advances payable - subsidiaries .............. 30,325 338,878 51,921 (421,124) --
----------- ----------- ----------- ----------- -----------
Total liabilities ..................... 630,907 824,554 320,940 (421,124) 1,355,277
Shareholders' equity ......................... 944,589 1,067,585 1,142,307 (2,209,892) 944,589
----------- ----------- ----------- ----------- -----------
$ 1,575,496 $ 1,892,139 $ 1,463,247 $(2,631,016) $ 2,299,866
=========== =========== =========== =========== ===========
</TABLE>
13
<PAGE>
PULTE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
(Unaudited)
5. Supplemental Guarantor Information (continued)
<TABLE>
<CAPTION>
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1998
Unconsolidated
----------------------------------------- Consolidated
Pulte Guarantor Non-Guarantor Eliminating Pulte
Corporation Subsidiaries Subsidiaries Entries Corporation
----------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and equivalents ......................... $ 76,555 $ 46,109 $ 2,534 $ -- $ 125,198
Unfunded settlements ......................... -- 57,135 (7,995) -- 49,140
House and land inventories ................... -- 1,431,245 23,963 -- 1,455,208
Mortgage-backed and related securities ....... -- -- 29,290 -- 29,290
Residential mortgage loans and other
securities available-for-sale ............. -- -- 234,974 -- 234,974
Land held for sale and future development .... -- 35,977 -- -- 35,977
Other assets ................................. 17,949 178,020 55,742 -- 251,711
Deferred income taxes ........................ 80,385 -- (722) -- 79,663
Discontinued operations ...................... -- -- 88,678 -- 88,678
Investment in subsidiaries ................... 1,066,313 16,958 1,062,114 (2,145,385) --
Advances receivable - subsidiaries ........... 271,915 485 46,405 (318,805) --
----------- ----------- ----------- ----------- -----------
$ 1,513,117 $ 1,765,929 $ 1,534,983 $(2,464,190) $ 2,349,839
=========== =========== =========== =========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued
liabilities ............................... $ 62,014 $ 461,766 $ 51,593 $ -- $ 575,373
Collateralized short-term debt, recourse
solely to applicable subsidiary assets .... -- -- 217,060 -- 217,060
Mortgage-backed bonds, recourse
solely to applicable subsidiary assets .... -- -- 28,075 -- 28,075
Income taxes ................................. 9,592 -- -- -- 9,592
Subordinated debentures and senior
notes ..................................... 487,496 33,543 21,000 -- 542,039
Discontinued operations ...................... -- -- 56,258 -- 56,258
Advances payable - subsidiaries .............. 32,573 230,491 55,741 (318,805) --
----------- ----------- ----------- ----------- -----------
Total liabilities ..................... 591,675 725,800 429,727 (318,805) 1,428,397
Shareholders' equity ......................... 921,442 1,040,129 1,105,256 (2,145,385) 921,442
----------- ----------- ----------- ----------- -----------
$ 1,513,117 $ 1,765,929 $ 1,534,983 $(2,464,190) $ 2,349,839
=========== =========== =========== =========== ===========
</TABLE>
14
<PAGE>
PULTE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
(Unaudited)
5. Supplemental Guarantor Information (continued)
CONSOLIDATING STATEMENT OF OPERATIONS
For the three months ended March 31, 1999
<TABLE>
<CAPTION>
Unconsolidated
----------------------------------------- Consolidated
Pulte Guarantor Non-Guarantor Eliminating Pulte
Corporation Subsidiaries Subsidiaries Entries Corporation
----------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Homebuilding ............................... $ -- $658,500 $ 8,323 $ -- $666,823
Mortgage banking and financing,
interest and other .................... -- -- 14,746 -- 14,746
Corporate .................................. 73 -- 825 -- 898
-------- -------- -------- -------- --------
Total revenues ............................... 73 658,500 23,894 -- 682,467
-------- -------- -------- -------- --------
Expenses:
Homebuilding:
Cost of sales ......................... -- 547,759 7,929 -- 555,688
Selling, general and administrative and
other expense ......................... 275 71,237 1,359 -- 72,871
Mortgage banking and financing, interest
and other ............................. -- -- 7,545 -- 7,545
Corporate, net ............................. 7,059 763 812 -- 8,634
-------- -------- -------- -------- --------
Total expenses ............................... 7,334 619,759 17,645 -- 644,738
-------- -------- -------- -------- --------
Other Income:
Equity in income of Pulte-affiliates ......... -- 256 1,607 -- 1,863
-------- -------- -------- -------- --------
Income (loss) from continuing operations
before income taxes and equity in income
of subsidiaries ....................... (7,261) 38,997 7,856 -- 39,592
Income taxes (benefit) ....................... (2,764) 14,924 3,478 -- 15,638
-------- -------- -------- -------- --------
Income (loss) from continuing operations
before equity in income of subsidiaries .... (4,497) 24,073 4,378 -- 23,954
Income from discontinued operations ......... (251) -- 627 -- 376
-------- -------- -------- -------- --------
Income (loss) before equity in income
(loss) of subsidiaries ............... (4,748) 24,073 5,005 -- 24,330
-------- -------- -------- -------- --------
Equity in income (loss) of subsidiaries:
Continuing operations ...................... 28,451 3,448 25,053 (56,952) --
Discontinued operations .................... 627 -- -- (627) --
-------- -------- -------- -------- --------
29,078 3,448 25,053 (57,579) --
-------- -------- -------- -------- --------
Net income ................................... $ 24,330 $ 27,521 $ 30,058 $(57,579) $ 24,330
======== ======== ======== ======== ========
</TABLE>
15
<PAGE>
PULTE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
(Unaudited)
5. Supplemental Guarantor Information (continued)
<TABLE>
<CAPTION>
CONSOLIDATING STATEMENT OF OPERATIONS
For the three months ended March 31, 1998
Unconsolidated
---------------------------------------- Consolidated
Pulte Guarantor Non-Guarantor Eliminating Pulte
Corporation Subsidiaries Subsidiaries Entries Corporation
----------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Homebuilding ............................... $ -- $ 508,635 $ -- $ -- $ 508,635
Mortgage banking and financing,
interest and other .................... -- -- 8,359 -- 8,359
Corporate .................................. 2,546 1,031 -- -- 3,577
--------- --------- --------- --------- ---------
Total revenues ............................... 2,546 509,666 8,359 -- 520,571
--------- --------- --------- --------- ---------
Expenses:
Homebuilding:
Cost of sales ......................... -- 430,000 -- -- 430,000
Selling, general and administrative and
other expense ......................... 465 60,576 -- -- 61,041
Mortgage banking and financing, interest
and other ............................. -- -- 5,971 -- 5,971
Corporate, net ............................. 9,661 (3,190) 1,401 -- 7,872
--------- --------- --------- --------- ---------
Total expenses ............................... 10,126 487,386 7,372 -- 504,884
--------- --------- --------- --------- ---------
Other Income:
Equity in income of Pulte-affiliates ......... -- -- 2,165 -- 2,165
--------- --------- --------- --------- ---------
Income (loss) from continuing operations
before income taxes and equity in income
of subsidiaries ....................... (7,580) 22,280 3,152 -- 17,852
Income taxes (benefit) ....................... (3,471) 9,055 1,378 -- 6,962
--------- --------- --------- --------- ---------
Income (loss) from continuing operations
before equity in income of subsidiaries .... (4,109) 13,225 1,774 -- 10,890
Income from discontinued operations ......... 305 -- 66 -- 371
--------- --------- --------- --------- ---------
Income (loss) before equity in income
(loss) of subsidiaries ............... (3,804) 13,225 1,840 -- 11,261
--------- --------- --------- --------- ---------
Equity in income (loss) of subsidiaries:
Continuing operations ...................... 14,999 1,460 13,225 (29,684) --
Discontinued operations .................... 66 -- -- (66) --
--------- --------- --------- --------- ---------
15,065 1,460 13,225 (29,750) --
--------- --------- --------- --------- ---------
Net income ................................... $ 11,261 $ 14,685 $ 15,065 $ (29,750) $ 11,261
========= ========= ========= ========= =========
</TABLE>
16
<PAGE>
PULTE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
(Unaudited)
5. Supplemental Guarantor Information (continued)
<TABLE>
<CAPTION>
CONSOLIDATING STATEMENT OF CASH FLOWS
For the three months ended March 31, 1999
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 .......... $ 23,954 $ 27,521 $ 29,431 $ (56,952) $ 23,954
Adjustments to reconcile income from
continuing operations to net
cash flows provided by (used in)
operating activities:
Equity in income of subsidiaries ......... (28,451) (3,448) (25,053) 56,952 --
Amortization, depreciation and other ..,.. 49 3,058 35 -- 3,142
Deferred income taxes .................... (746) -- -- -- (746)
Gain on sale of securities ............... -- -- (1,664) -- (1,664)
Increase (decrease) in cash due to:
Inventories .............................. -- (129,100) 1,422 -- (127,678)
Residential mortgage loans
available-for-sale ................... -- -- 78,285 -- 78,285
Other assets ............................. (1,162) (10,725) 1,960 -- (9,927)
Accounts payable and accrued liabilities.. 4,974 1,128 (3,221) -- 2,881
Income taxes ............................. (14,581) 17,077 483 -- 2,979
--------- --------- --------- --------- ---------
Net cash provided by (used in) operating
activities ................................. (15,963) (94,489) 81,678 -- (28,774)
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of securities
available-for-sale ....................... -- -- 27,886 -- 27,886
Principal payments of mortgage-backed
securities ............................... -- -- 1,490 -- 1,490
Dividends received from subsidiaries ....... -- 6,000 -- (6,000) --
Other, net ................................. -- -- 567 -- 567
Investment in subsidiary ................... (4,358) (2,247) -- 6,605 --
Advances to affiliates ..................... (82,752) 485 (361) 82,628 --
--------- --------- --------- --------- ---------
Net cash provided by (used in) investing
activities ................................. (87,110) 4,238 29,582 83,233 29,943
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Payment of long-term debt and bonds ........ -- -- (28,076) -- (28,076)
Proceeds from borrowings ................... 30,000 -- -- -- 30,000
Repayment of borrowings .................... -- (10,705) (73,227) -- (83,932)
Capital contributions from parent .......... -- 2,458 4,147 (6,605) --
Advances from affiliates ................... (2,248) 91,310 (6,434) (82,628) --
Dividends paid ............................. (1,733) -- (6,000) 6,000 (1,733)
Other, net ................................. 1,678 -- (274) -- 1,404
--------- --------- --------- --------- ---------
Net cash provided by (used in)
financing activities ....................... 27,697 83,063 (109,864) (83,233) (82,337)
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and
equivalents - continuing operations ........ $ (75,376) $ (7,188) $ 1,396 $ -- $ (81,168)
--------- --------- --------- --------- ---------
</TABLE>
17
<PAGE>
PULTE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
(Unaudited)
5. Supplemental Guarantor Information (continued)
<TABLE>
<CAPTION>
CONSOLIDATING STATEMENT OF CASH FLOWS (continued)
For the three months ended March 31, 1999
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 ........ $ 376 $ -- $ 627 $ (627) $ 376
Change in deferred income taxes ............ (3,183) -- -- (3,183)
Equity in income of subsidiaries ........... (627) -- -- 627 --
Change in income taxes ..................... 3,372 -- -- -- 3,372
Other changes, net ......................... 62 -- 512 -- 574
Cash flows from investing activities:
Purchase of securities available-for-sale .. -- -- 223 -- 223
Decrease in Covered Assets and FRF
receivables ............................... -- -- (1,003) -- (1,003)
--------- --------- --------- --------- ---------
Net increase in cash and equivalents-
discontinued operations .................... -- -- 359 -- 359
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and
equivalents ................................ (75,376) (7,188) 1,755 -- (80,809)
Cash and equivalents at beginning of period .. 76,555 46,109 2,665 -- 125,329
--------- --------- --------- --------- ---------
Cash and equivalents at end of period ........ $ 1,179 $ 38,921 $ 4,420 $ -- $ 44,520
========= ========= ========= ========= =========
</TABLE>
18
<PAGE>
PULTE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
(Unaudited)
5. Supplemental Guarantor Information (continued)
<TABLE>
<CAPTION>
CONSOLIDATING STATEMENT OF CASH FLOWS
For the three months ended March 31, 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 .......... $ 10,890 $ 14,685 $ 14,999 $ (29,684) $ 10,890
Adjustments to reconcile income
from continuing operations to net
cash flows provided by (used in)
operating activities:
Equity in income of subsidiaries ......... (14,999) (1,460) (13,225) 29,684 --
Amortization, depreciation and other ..... 48 1,491 133 -- 1,672
Deferred income taxes .................... (4,028) -- -- -- (4,028)
Increase (decrease) in cash due to:
Inventories .............................. -- 41,926 -- -- 41,926
Residential mortgage loans
available-for-sale ................... -- -- 49,863 -- 49,863
Other assets ............................. 2,067 102,466 (30,580) -- 73,953
Accounts payable and accrued liabilitie.. 3,143 (73,561) (1,150) -- (71,568)
Income taxes ............................. (2,638) 9,055 1,182 -- 7,599
--------- --------- --------- --------- ---------
Net cash provided by (used in) operating
activities ................................. (5,517) 94,602 21,222 -- 110,307
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Principal payments of mortgage-backed
securities................................ -- -- 2,014 -- 2,014
Dividends received from subsidiaries ....... 132,040 2,500 132,040 (266,580) --
Other, net ................................. -- -- (255) -- (255)
Investment in subsidiary ................... (32,040) -- -- 32,040 --
Advances to affiliates ..................... (25,854) -- (1,437) 27,291 --
--------- --------- --------- --------- ---------
Net cash provided by (used in) investing
activities ................................. 74,146 2,500 132,362 (207,249) 1,759
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Payment of long-term debt and bonds ........ -- (6,918) (2,309) -- (9,227)
Repayment of borrowings .................... -- (3,656) (41,397) -- (45,053)
Capital contributions from parent .......... -- -- 32,040 (32,040) --
Advances from affiliates ................... (2,871) 36,713 (6,551) (27,291) --
Dividends paid ............................. (1,278) (132,040) (134,540) 266,580 (1,278)
Other, net ................................. 1,265 -- -- -- 1,265
--------- --------- --------- --------- ---------
Net cash provided by (used in)
financing activities ....................... (2,884) (105,901) (152,757) 207,249 (54,293)
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and
equivalents - continuing operations ........ $ 65,745 $ (8,799) $ 827 $ -- $ 57,773
--------- --------- --------- --------- ---------
</TABLE>
19
<PAGE>
PULTE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
(Unaudited)
5. Supplemental Guarantor Information (continued)
<TABLE>
<CAPTION>
CONSOLIDATING STATEMENT OF CASH FLOWS (continued)
For the three months ended March 31, 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 ........ $ 371 $ -- $ 66 $ (66) $ 371
Change in deferred income taxes ............ 6,181 -- -- -- 6,181
Equity in income of subsidiaries ........... (66) -- -- 66 --
Change in income taxes ..................... (6,486) -- -- -- (6,486)
Other changes, net ......................... -- -- (2) -- (2)
Cash flows from investing activities:
Purchase of securities available-
for-sale .............................. -- -- (21,809) -- (21,809)
Principal payments of mortgage-backed
securities ............................ -- -- 7,654 -- 7,654
Decrease in Covered Assets and FRF
receivables ........................... -- -- 30,764 -- 30,764
Cash flows from financing activities:
Increase in deposit liabilities ............ -- -- 37,092 -- 37,092
Repayment of borrowings .................... -- -- (31,560) -- (31,560)
Increase in FHLB advances .................. -- -- 1,900 -- 1,900
--------- --------- --------- -------- ---------
Net increase in cash and equivalents-
discontinued operations .................... -- -- 24,105 -- 24,105
--------- --------- --------- -------- ---------
Net increase (decrease) in cash and
equivalents ................................ 65,745 (8,799) 24,932 -- 81,878
Cash and equivalents at beginning of
period ..................................... 195,946 46,466 4,896 -- 247,308
--------- --------- --------- -------- ---------
Cash and equivalents at end of period ........ $ 261,691 $ 37,667 $ 29,828 $ -- $ 329,186
========= ========= ========= ======== =========
</TABLE>
20
<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 month period ended March 31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1999 1998
---- ----
<S> <C> <C>
Pre-tax income (loss):
Homebuilding operations.................... $ 40,127 $19,759
Financial Services operations.............. 7,201 2,388
Corporate ............................... (7,736) (4,295)
-------- -------
Pre-tax income from continuing operations..... 39,592 17,852
Income taxes ............................... (15,638) (6,962)
-------- -------
Income from continuing operations............. 23,954 10,890
Income from discontinued operations........... 376 371
-------- -------
Net income ................................ $ 24,330 $11,261
======== =======
Per share data - assuming dilution:
Income from continuing operations.......... $ .54 $ .25
Income from discontinued operations........ .01 .01
-------- -------
Net income................................. $ .55 $ .26
======== =======
</TABLE>
A comparison of pre-tax income (loss) for the three month period endd
March 31, 1999 and 1998 is as follows:
o Pre-tax income of the Company's homebuilding business segment increased
103%, due primarily to the improvement in domestic homebuilding
operations where pre-tax income increased 92%. Domestic unit
settlements increased 27%; domestic gross margins improved 140 basis
points; and domestic unit selling price increased by approximately 5%.
o Pre-tax income of the Company's financial services business segment
increased substantially to $7,201, as compared with $2,388 for the
comparable 1998 period. This increase is attributable to the Company's
mortgage banking operations which benefited from substantial increases
in mortgage origination volume, origination and servicing fees, as well
as pricing and marketing gains. In addition, Pulte Financial Companies,
Inc. (PFCI), a subsidiary of the Company redeemed its remaining
mortgage-backed bond portfolio and recorded a net gain on this
transaction of approximately $1,700.
o Pre-tax loss of the Company's corporate business segment increased
$3,441 from the three month period ended March 31, 1998. The increase
in pre-tax loss for the quarter primarily reflects an increase of
approximately $1,000 in the corporate net interest spread attributed to
capital investment in the domestic homebuilding operations, and an
increase of approximately $2,500 in other expense, net. 1998 other
corporate expense, net amounted to $800, reflecting several one-time
events, including a gain of approximately $5,000 on the sale of
Expression Homes which was partially offset by provisions of $3,500 for
the write down of certain projects and R&D investments.
21
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
($000's omitted)
Homebuilding Operations:
The Company's Homebuilding segment consists of the following business lines:
o Domestic Homebuilding operations are conducted in 41 markets, located
throughout 27 states. Domestic Homebuilding offers a broad product line
to meet the needs of the first-time, move-up and semi-custom home
buyer. During 1998, the Company acquired two homebuilders,
Tennessee-based Radnor Homes on May 27, 1998 and Florida-based DiVosta
& Company on July 1, 1998 (the "acquired operations").
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 interest and employee 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. Active Adult Operations include 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.
Certain operating data relating to the Company's joint ventures and
homebuilding operations for the three months ended March 31, 1999 and 1998,
are as follows:
Three Months Ended
March 31,
------------------
1999 1998
---- ----
Pre-tax income (loss):
Homebuilding operations:
Domestic ............................... $39,001 $20,355
International .......................... 840 864
Active Adult ........................... 286 (1,460)
------- -------
Total Homebuilding operations .......... $40,127 $19,759
======= =======
Pulte and Pulte-affiliate settlements - units:
Domestic .................................. 3,788 2,980
------- -------
International:
Pulte .................................. 101 52
Pulte-affiliated entities .............. 1,867 1,410
------- -------
Total International ................. 1,968 1,462
------- -------
Active Adult:
Pulte .................................. 1 64
Pulte-affiliated entity ................ 127 16
------- -------
Total Active Adult .................. 128 80
------- -------
Total Pulte and Pulte-affiliate
settlements - units .................. 5,884 4,522
======= =======
22
<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 41 markets, located throughout 27
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 Region Florida
Pulte Home Central:
Great Lakes Region Indiana, Kansas, Michigan, Missouri, Ohio
Midwest Region Illinois, Minnesota
Texas Region Texas
Pulte Home West:
Southwest Region Arizona, Nevada
Rocky Mountain Region Colorado, Utah
California Region California
No one individual market within the 41 markets represented more than 10% of
total domestic homebuilding net new orders, unit settlements or revenues
during the three month period ended March 31, 1999.
The following table presents selected unit information for Pulte's domestic
homebuilding operations for the three months ended March 31, 1999 and 1998.
Three Months Ended
March 31,
------------------
1999 1998
---- ----
Unit settlements:
Pulte Home East ................ 1,976 1,428
Pulte Home Central ............. 1,010 813
Pulte Home West ................ 802 739
---------- --------
3,788 2,980
========== ========
Net new orders - units:
Pulte Home East ................ 3,086 2,209
Pulte Home Central ............. 1,655 1,718
Pulte Home West ................ 986 1,006
---------- --------
5,727 4,933
========== ========
Net new orders - dollars .......... $1,070,000 $857,000
========== ========
Backlog - units:
Pulte Home East ................ 3,753 2,341
Pulte Home Central ............. 2,559 1,921
Pulte Home West ................ 1,041 1,084
---------- --------
7,353 5,346
========== ========
Backlog at March 31 - dollars ..... $1,411,000 $979,000
========== ========
23
<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 5,727, an increase
of 16% over the comparable period of the prior year, reflecting strong
performance in the Southeast, Florida, Great Lakes, and Mid-Atlantic Regions.
Net new orders provided by the acquired operations amounted to 474 units.
Unit settlements increased 27% for the quarter, reflecting strong activity in
the Southeast, Florida, 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 1999. Quarterly
settlement activity for the acquired operations amounted to 351 units.
The Company's backlog at March 31, 1999 grew to an all-time record level of
7,353 units, or approximately $1.4 billion, breaking the previous company
record of 6,546 units set in September 1998. Unit backlog at March 31, 1999,
was approximately 36%, 12% and 20% higher than that noted at December 31,
1998, September 30, 1998 and June 30, 1998, respectively. Backlog at March 31,
1999 associated with acquired operations amounted to 622 units or $119,000.
The following table presents a summary of pre-tax income for Pulte's domestic
homebuilding operations for the three months ended March 31, 1999 and 1998:
Three Months Ended
March 31,
------------------
1999 1998
---- ----
Revenues ..................................... $ 658,396 $ 495,367
Cost of sales................................. (547,682) (419,117)
Selling, general and administrative
expense..................................... (66,099) (50,958)
Interest (a).................................. (4,145) (3,886)
Other expense, net............................ (1,469) (1,051)
--------- ---------
Pre-tax income................................ $ 39,001 $ 20,355
========= =========
Average sales price........................... $ 174 $ 166
========= =========
(a) The Company capitalizes interest cost into homebuilding inventories and
charges the interest to homebuilding interest expense when the related
inventories are closed.
24
<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 16.8% for the three month period ended March 31,
1999, compared to 15.4%, in the same period of the prior year. Several
factors contributed to this favorable trend including continued 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.
For the three months ending March 31, 1999, selling, general and
administrative expenses (SG&A) reflect the Company's continued focus to gain
increased leverage on its existing markets and overheads. As a percentage of
sales, SG&A decreased 30 basis points as compared with the first quarter of
1998.
Other expense, net, includes gains on land sales and other
homebuilding-related expenses. Other expense, 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
expense, net, increased $418, reflecting amortization of goodwill expense
associated with homebuilding acquisitions and other expenses, offset by gains
on land sales.
The average selling price during the three month period ended March 31, 1999
was $174, an increase from the average selling price of $166 in the
comparable period of the prior year. Changes in average selling price reflect
a number of factors, including changes in market selling prices and the mix
of product closed during a period.
Information related to interest in inventory is as follows:
Three Months Ended
March 31,
------------------
1999 1998
------- -------
Interest in inventory at beginning of period....... $16,356 $14,719
Interest capitalized .............................. 6,323 5,049
Interest expensed .............................. (4,145) (3,886)
------- -------
Interest in inventory at end of period............. $18,534 $15,882
======= =======
At March 31, 1999, Pulte's domestic homebuilding operations controlled
approximately 62,800 lots, of which approximately 39,500 lots were owned and
approximately 23,300 lots were controlled through option agreements.
25
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
($000's omitted)
Homebuilding Operations (continued):
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 months ended March 31,
1999 and 1998.
Three Months Ended
March 31,
------------------
1999 1998
---- ----
Pre-tax income:
Revenues ......................................... $ 8,323 $ 4,116
Cost of sales..................................... (7,929) (3,572)
Selling, general and administrative expense....... (1,187) (1,293)
Other income, net................................. 26 12
Equity in income of Mexico operations............. 1,607 1,601
------- -------
Pre-tax income ................................... $ 840 $ 864
======= =======
Unit settlements:
Pulte.......................................... 101 52
Pulte-affiliated entities...................... 1,867 1,410
------- -------
Total Pulte and Pulte-affiliates............. 1,968 1,462
======= =======
Pre-tax income for the three month period ended March 31, 1999, from the
Company's international operations was relatively unchanged as compared with
the same period of the prior year. With a new management team in place and
the repositioning of land positions and product offerings, 1999 represents a
rebuilding year for the Puerto Rico business. Foreign currency exchange gains
in Mexico amounted to $79 for the quarter, reflecting a 4% increase in the
value of the Mexican peso against the U.S. dollar.
The Company's aggregate net investment in its five joint ventures located
throughout Mexico approximated $27,200 at March 31, 1999. The largest of
these ventures, Condak-Pulte S. De R.L. De C.V., is located in the city of
Juarez. The Juarez-based venture is currently developing communities in
Juarez, Chihuahua, Nuevo Laredo, Reynosa and Matamoros, under agreements with
Delphi Automotive Systems and Sony Magneticos de Mexico, S.A. de C.V., an
affiliate of Sony Electronics, Inc. As of March 31, 1999, the Company's net
investment in the Juarez-based joint venture approximated $17,400.
Desarrollos Residenciales Turisticos, S.A. de C.V. (DRT), another of the
Company's joint ventures in Mexico, is constructing primarily social interest
housing in Central Mexico. This venture is expected to build more than 3,000
units over the next two years, supporting 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 March 31, 1999, the Company's net investment in
this joint venture approximated $5,000.
26
<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:
Active Adult Homebuilding operations are primarily conducted through a
50%-owned joint venture Active Adult operations acquire and develop major
Active Adult residential communities, highly amenitized age-targeted and age-
restricted communities appealing to a growing demographic group in their pre-
retirement and retirement years. The venture is presently headquartered in
Phoenix, Arizona, and is developing four communities located in Arizona,
California and New Jersey, and is evaluating opportunities to add more
communities later in 1999. Springfield at Whitney Oaks, the Venture's Active
Adult Community in Northern California, recently received the Gold Achievement
Award for the best seniors' housing development in the nation, as presented by
the National Council on Seniors Housing. At March 31, 1999, the Company's
aggregate net investment in the Active Adult joint venture approximated
$18,300.
The following table presents selected financial data for Pulte's Active Adult
homebuilding operations for the three month period ended March 31, 1999 and
1998. Prior year data includes the operating results of the Company's Active
Adult subsidiaries from January 1, 1998, through March 25, 1998, the date
upon which the formation of the joint venture occurred. 1999 data reflect the
equity in income of the joint venture entity and the operations of Pulte's
one remaining Active Adult community.
Three Months Ended
March 31,
------------------
1999 1998
---- ----
Pre-tax income (loss):
Revenues ............................ $ 104 $ 9,152
Cost of sales ....................... (77) (7,311)
Selling, general and administrative
expense ........................... -- (3,598)
Other income (expense), net ......... 3 (267)
Equity in income of joint venture ... 256 564
-------- --------
Pre-tax income (loss) ............... $ 286 $ (1,460)
======== ========
Pulte and Pulte-affiliate:
Average sales price ................. $ 204 $ 171
======== ========
Unit settlements .................... 128 80
======== ========
Net new orders - units .............. 179 215
======== ========
Net new orders - dollars ............ $ 36,500 $ 39,500
======== ========
Backlog - units ..................... 222 249
======== ========
Backlog - dollars ................... $ 47,600 $ 44,600
======== ========
Net new orders decreased for the three month period ended March 31, 1999 by
36 units, and unit settlements increased by 60%, both reflecting the build
out of Pulte's one remaining Active Adult community, and the ramping up of
new communities for the joint venture. The decreases in revenues, cost of
sales, selling, general and administrative expense, and other income
(expense) reflect the overall decreased activity in the one remaining
community in Pulte's Active Adult operating subsidiary, which recorded its
final unit settlement in January 1999.
27
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
($000's omitted)
Financial Services Operations:
The Company conducts its financial services operations principally through
Pulte Mortgage Corporation (PMC), 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 month periods ended March 31,
1999 and 1998, is as follows:
Three Months Ended
March 31,
------------------
1999 1998
---- ----
Pre-tax income (loss):
Mortgage banking ............ $5,566 $2,411
Financing activities ........ 1,635 (23)
------ ------
Pre-tax income ........... $7,201 $2,388
====== ======
Mortgage Banking:
The following table presents mortgage origination data for Pulte Mortgage:
Three Months Ended
March 31,
------------------
1999 1998
---- ----
Total originations:
Loans ........................ 3,109 2,372
======== ========
Principal .................... $422,300 $305,400
======== ========
Originations for Pulte customers:
Loans ........................ 2,221 1,795
======== ========
Principal .................... $312,300 $234,900
======== ========
Mortgage unit origination volume for the three month period ended March 31,
1999, increased 31% over the comparable 1998 period, driven primarily by a
24% increase in unit sales realized in Pulte's homebuilding operations and a
54% increase in origination volume in the retail sector. Refinancings
represented 10% of total loan originations for the three month period ended
March 31, 1999. At March 31, 1999, loan application backlog increased 36% to
$623,000 as compared with $459,300 at March 31, 1998. 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 plans to adopt this statement on January 1,
2000, but has not yet determined what effect Statement No. 133 will have on
its earnings and financial position.
28
<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 months ended March 31, 1999, origination fees increased 55%
over the comparable period of the prior year. The increase in origination
fees is due to the overall increase in loan originations, higher revenues per
loan and an increase in non-funded, brokered loans. Pricing and marketing
gains increased $3,251 for the quarter, primarily the result of increased
funded mortgage originations and increased servicing retained loan
production. Net interest income increased 64% due to higher funded
production and a widening of the yield curve.
Financing Activities:
The Company's secured financing operations, which had been conducted by the
limited-purpose subsidiaries of Pulte Financial Companies, Inc. (PFCI),
included 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. During the quarter, PFCI
recognized a net gain of approximately $1,700 in connection with the early
redemption of its remaining mortgage-backed bond portfolio.
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, to develop and implement strategic initiatives centered on new
business development and operating efficiencies, and to provide the
administrative support associated with being a publicly traded entity. The
Company views the corporate function as a form of research and development,
by exploring and nurturing strategic initiatives centered on new business and
product development. 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
months ended March 31, 1999 and 1998:
Three Months Ended
March 31,
------------------
1999 1998
---- ----
Net interest expense .............. $4,444 $3,464
Other corporate expenses, net ..... 3,292 831
------ ------
Loss before income taxes .......... $7,736 $4,295
====== ======
29
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
($000's omitted)
Corporate (continued):
Pre-tax loss of the Company's corporate business segment increased $3,441
from the three month period ended March 31, 1998. The increase in pre-tax
loss for the quarter primarily reflects an increase of approximately $1,000
in the corporate net interest spread attributed to increased capital
investment in the domestic homebuilding operations, and an increase of
approximately $2,500 in other expense, net. 1998 other corporate expense,
net amounted to $800, reflecting several one-time events, such as a gain of
approximately $5,000 on the sale of Expression Homes which was partially
offset by provisions of $3,500 for the write down of certain projects and
R&D investments.
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 $.28 per diluted share (adjusted for the effect of the
Company's 2-for-1 stock split effective June 1, 1998). As of March 31, 1999,
the Company has severed employment with approximately 150 employees.
The following table displays a rollforward of the liabilities accrued for the
Company's restructuring from December 31, 1998 to March 31, 1999:
Balance at 1999 Balance at
December 31, Reserve March 31,
Type of Cost 1998 Uses 1999
- ------------ ------------ --------- ----------
Homebuilding operations:
Employee separation and other ... $ 1,502 $ (319) $ 1,183
Other ........................... 255 (71) 184
------- ------- -------
1,757 (390) 1,367
------- ------- -------
Mortgage Banking operations:
Employee separation and other ... 337 (2) 335
Other ........................... 79 (32) 47
------- ------- -------
416 (34) 382
------- ------- -------
Corporate:
Employee separation and other ... 922 (282) 640
------- ------- -------
$ 3,095 $ (706) $ 2,389
======= ======= =======
The remaining accrual for restructuring costs at March 31, 1999 primarily
relates to longer term severance agreements and deferred compensation
liabilities which are expected to be fully paid by December 31, 2000.
30
<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's net cash used in operating activities amounted to $28,774,
reflecting an increase in the use of operating funds as compared with the
same period last year. This increase is primarily attributable to increases
in inventory levels resulting from land purchases offset by a decrease in
PMC's holdings of residential mortgage loans available-for-sale, increases in
net income and other assets and an increase in accounts payable. Net cash
provided by investing activities increased from $1,759 in 1998 to $29,943 in
1999 due primarily to the sale of the underlying collateral of PFCI's
mortgage-backed bond portfolio which was redeemed during the quarter. Net
cash used in financing activities increased to $82,337 in 1999, compared with
$54,293 in 1998. This increase reflects PFCI's redemption of its remaining
mortgage-backed bond portfolio, payments on collateralized short-term debt
related to PMC's residential mortgage loan portfolio, offset by increased
borrowings of $30,000 under the Company's revolving credit facility.
The Company finances its land acquisitions and its development and
construction activities from internally generated funds and existing credit
agreements. The Company had $30,000 of borrowings under its $210,000
unsecured revolving credit facility at March 31, 1999. 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 March 31, 1999, amounted to $250,000, and was
subsequently increased to $275,000 during April, an amount deemed adequate to
cover foreseeable needs. There were approximately $134,000 of borrowings
outstanding under the $250,000 PMC arrangement at March 31, 1999. Mortgage
loans originated by PMC are subsequently sold, principally to outside
investors. The Company anticipates that there will be adequate mortgage
financing available for purchasers of its homes.
The Company's income tax liabilities are affected by a number of factors.
Management anticipates that the Company's effective tax rate for 1999 will
range between 39% and 40%.
At March 31, 1999, the Company had cash and equivalents of $44,030 and total
indebtedness of $571,759. The Company's total long-term indebtedness includes
$487,545 of unsecured senior notes, $22,405 unsecured senior subordinated
debentures, a $21,000 unsecured promissory note and other Pulte limited
recourse debt of $10,809. The Company also has other non-recourse short-term
notes payable of $49,090 and First Heights advances of $760. The $22,405
unsecured senior subordinated debenture and the first $7,000 installment due
under the $21,000 unsecured promissory note are also payable during 1999.
Sources of the Company's working capital at March 31, 1999 include its cash
and equivalents, its $210,000 committed unsecured revolving credit facility
and its $10,000 uncommitted bank credit arrangement. During the second
quarter and for the remainder of 1999, management anticipates utilizing
additional financing resources, including, depending on market conditions,
securities offerings, to meet its projected homebuilding and corporate
working capital requirements. As the Company continues to seek strategic
acquisition opportunities, it will consider alternative financing sources, as
needed, to fund such transactions.
Discontinued Operations:
The Company's remaining investment in First Heights at March 31, 1999
approximated $28,000. 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)
were 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.
31
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
($000's omitted)
Liquidity and Capital Resources (continued):
Discontinued Operations (continued):
As discussed in Note 4 of Notes to Condensed Consolidated Financial
Statements, the Company vigorously disagrees with the Final Judgment entered
by the United States District Court and has appealed to the Sixth Circuit
Court of Appeals. The Company has posted a bond in the amount of $110 million.
Based upon the Company's assessment of its legal position in the District
Court litigation with the FDIC as well as the expected duration of the legal
process in this case, the Company does not currently believe that the judgment
ordered by the District Court against Pulte Diversified Companies, Inc. and
First Heights will have a material impact on the Company's liquidity.
Inflation
The Company and the homebuilding industry in general, may be adversely
affected during periods of high inflation, because of higher land and
construction costs. Inflation also increases the Company's financing, labor
and material costs. In addition, higher mortgage interest rates significantly
affect the affordability of permanent mortgage financing to prospective
homebuyers. The Company attempts to pass through to its customers any
increases in its costs through increased sales prices and, to date, inflation
has not had a material adverse effect on the Company's results of operations.
However, there is no assurance that inflation will not have a material
adverse impact on the Company's future results of operations.
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. This new system is designed to
enhance access to and reporting of operating results and other financial
measurements, 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 and corporate 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 Year 2000 risk assessment for both
internal information systems and external relationships.
The Company's State of Readiness
The chart illustrated below summarizes the Company's current major
information systems and management's current assessment of the potential risk
of Year 2000 issues. The status of each major information technology (IT)
activity is reported by "phase" as defined below.
32
<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 (continued):
The Company's State of Readiness (continued)
Phase 1 Assessment Exposure (analysis and testing)
Phase 2 Problem correction and validation
Phase 3 Implementation/rollout of upgrades and corrections
Phase 4 Communication with affected parties
<TABLE>
<CAPTION>
1999 Expected Date
of Completion
IT related Systems IT Dependency Phase/Status (all Phases)
- ------------------ ------------- ------------ ------------------
<S> <C> <C> <C>
1. Integrated Business Systems
- Financial accounting High 3 September 30
- Sales & Construction support Medium 3 September 30
- Service management Low Complete Complete
- Payroll and Benefits administration High Complete Complete
2. Datacenter Equipment & Operations High Complete Complete
3. Data and Voice Communications Networks High 3 September 30
4. Desktop PC's, incl. electronic mail Medium 3 September 30
5. Key suppliers
- Banking and insurance providers Medium 2 June 30
- Field trade contractors and
material suppliers Low 4 June 30
</TABLE>
Non-IT Systems
The Company does not own or operate any material "non-IT" systems,
facilities, or industrial equipment that it believes might be adversely
affected by the Year 2000 issue. All administrative office premises are
leased, and are typically low-rise facilities in major metropolitan areas.
All telephone systems and electronic office equipment are being assessed and
corrected as part of Project 3 listed above.
Supplier/Contractor Relationships
Customer deliverables are not critically reliant on information technology.
In markets where contracts and legal correspondence are computer generated,
final documents are always printed in hard-copy form for signature. Should
existing computerized sales systems be rendered inoperable for any reason,
sales personnel are currently trained to prepare all required customer
documentation manually. In addition, standard Pulte contract language does
not permit customers to cancel purchases for nominal delays.
The Company's trade contractors/suppliers in general are not highly reliant
on information systems for delivery of service or materials to the job-site,
as is the case for the majority of the homebuilding industry. Day-to-day
business communication of printed schedules and home specification
information typically occurs via fax or manual exchange in printed form (as
opposed to electronically, e.g., via EDI data communications). Pulte will be
providing Year 2000 risk assessment guidelines to its field operations and
purchasing managers during the year to ensure that any predictable Year
2000-related issues can be identified and resolved, or alternative supplier
relationships
33
<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 (continued):
established with compliant service providers. Current Pulte operating policy
normally requires that supply relationships be established locally with at
least two alternative sources for all building tasks and materials supply.
The Company has either already exchanged Year 2000 readiness information with
all national contract suppliers, or will have completed this activity by the
second quarter of 1999. Such Year 2000 readiness information has already been
exchanged with all of the Company's major banks. In conjunction with the
financial accounting systems replacement initiative, the Company is also
currently upgrading its cash management system. Verification testing will be
performed with each major bank to the extent possible, with full
implementation scheduled for the second quarter of 1999.
The Risks of the Company's Year 2000 Issues & The Company's Contingency Plans
The major focus of the Company's information systems efforts in 1999 will be
to complete the nationwide roll-out of its new financial accounting and
operating systems. Management believes that this initiative is properly
resourced and will be completed by the end of the third quarter of 1999.
While management believes it unlikely, it is possible, on a
worst-case-scenario basis, that some markets may not be completely
transitioned by year end. Should this occur, the Company plans to resort to
the use of manual business tracking processes which could delay normal
day-to-day back office activities, but which would not interfere with the
Company's ability to complete the construction of homes or close home sales.
This worst-case scenario, is therefore, not expected to have a material
adverse effect upon the Company's liquidity, financial position or results of
operations.
While there can be no assurance that no legal claims will arise due to
perceived or real Year 2000 issues, the Company does not expect a material
impact on its liquidity, financial position or results of operations caused
by internal Year 2000 issues or by possible claims asserted by third parties.
Costs Related to Year 2000
Cumulative spending for the Company's internally-developed business software
was approximately $6,360 through March 31, 1999, and additional spending for
the remainder of 1999 to complete the project is expected to amount to
$5,000. In addition to the software development costs, the Company expects to
incur additional expenses to be Year 2000 compliant; however, the Company
does not expect the cost for such compliance to have a material impact on its
liquidity, financial position or results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative disclosure:
There have been no material changes in the Company's market risk during the
three months ended March 31, 1999.
Qualitative disclosure:
This information is set forth on pages 29 and 30 of Part II, of Item 7.A.,
Management's Discussion and Analysis of Financial Condition and Results of
Operations, of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998 and is incorporated herein by reference. As discussed
herein on page 22 of Item 2., Management's Discussion and Analysis of
Financial Condition and Results of Operation, Pulte Financial Companies, Inc.
(PFCI), a subsidiary of the Company redeemed its remaining mortgage-backed
bond portfolio, the balance of which remained outstanding at December 31,
1998 in the amount of $28,075, and recorded a net realized gain on this
transaction of approximately $1,700.
34
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
($000's omitted)
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" and Item 3., "Quantitative
and Qualitative Disclosures About Market Risk", 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 exposure to certain market risks, changes in economic conditions,
tax and interest rates, increases in raw material and labor costs, weather
conditions, and general competitive factors, that may cause actual results to
differ materially; its ability to resolve all outstanding matters related to
First Heights (including the outcome of the Company's appeal in the District
Court litigation with the FDIC), its 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.
35
<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 March 5, 1999, the United States District Court (the Court), entered
a "Final Judgment" against First Heights and PDCI (the Court had
previously ruled that Pulte Corporation was not liable for monetary
damages to the FDIC) resolving by summary judgment in favor of the FDIC
most of the FDIC's claims against the Pulte Defendants. The Final
Judgment requires PDCI and First Heights to pay the FDIC monetary
damages totaling approximately $221.3 million, including interest and
future tax sharing but excluding costs (such as attorneys fees) to be
determined in the future by the District Court. However, the FDIC has
acknowledged that it has already paid itself or withheld from
assistance, including the FRF notes, its obligation to pay to First
Heights approximately $105 million, excluding interest thereon. The
Company believes that it is entitled to a credit or actual payment of
such amount. The Final Judgment does not address this issue. Based upon
the Company's review of the Final Judgment, the Company believes that,
if the Final Judgment were to be upheld in its entirety on appeal, the
potential after-tax charges against Discontinued Operations, after
giving effect to interest owed by the FDIC to First Heights, will be
approximately $88 million, plus post- judgment interest (currently 5%
per year). The Company vigorously disagrees with the Court's rulings and
has appealed to the Sixth Circuit Court of Appeals. The Company has
posted a bond in the amount of $110 million pending resolution of the
appeals process. The Company believes that the District Court erred in
granting summary judgment to the FDIC. Among other things, the Company
believes that the District Court improperly resolved highly disputed
factual issues which should have been presented to a jury and, as a
result, it improperly granted summary judgment accepting the FDIC's view
of the facts on substantially all disputed issues and, therefore, that
the Company has a strong basis for appeal of the District Court's
decision and that an appellate court, properly applying the standards of
review for this case, should reverse the District Court's decision and
remand the case for trial, if not in its entirety, then at least in
material respects.
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 4, 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(a). Exhibits
Page herein or incorporated
Exhibit number and description by reference from
------------------------------ ---------------------------
(27) Financial Data Schedule
All other exhibits are omitted from
this report because they are not
applicable.
36
<PAGE>
PART II. OTHER INFORMATION (Continued)
Item 6(b). Reports on Form 8-K
Form 8-K dated February 26, 1999
Item 5. Other Events
Disclosed that On January 31, 1999, Pulte Corporation (the "Company")
entered into an indenture supplement with The Bank of New York as
Successor Trustee to NationsBank of Georgia, National Association,
concerning $100,000,000 aggregated principal amount of 7% senior notes
of the Company due 2003, and $115,000,000 aggregated principal amount
of 8-3/8% senior notes of the Company due 2004; and that on
January 31, 1999, the Company entered into an indenture supplement with
The First National Bank of Chicago, a national banking association,
concerning $125,000,000 aggregated principal amount of 7.3% senior
notes of the Company due 2005, and $120,000,000 aggregated principal
amount of 7.625% senior notes of the Company due 2017, for the purpose
of adding and updating subsidiary companies as guarantors of the
Guaranteed Obligations under the indentures.
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: May 11, 1999
38
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 44,030
<SECURITIES> 0
<RECEIVABLES> 49,139
<ALLOWANCES> 0
<INVENTORY> 1,582,886
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,299,866
<CURRENT-LIABILITIES> 0
<BONDS> 541,759<F1>
<COMMON> 432
0
0
<OTHER-SE> 944,157
<TOTAL-LIABILITY-AND-EQUITY> 2,299,866
<SALES> 666,823<F2>
<TOTAL-REVENUES> 682,467
<CGS> 555,688<F2>
<TOTAL-COSTS> 644,738
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,145<F3>
<INCOME-PRETAX> 39,592
<INCOME-TAX> 15,638
<INCOME-CONTINUING> 23,954
<DISCONTINUED> 376
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,330
<EPS-PRIMARY> 0.56
<EPS-DILUTED> 0.55
<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>
