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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2000
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, 2000: 41,172,973
Total pages: 35
Listing of exhibits: 33
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1
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PULTE CORPORATION
INDEX
Page No.
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PART I FINANCIAL INFORMATION
Item 1 Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets, March 31, 2000 and December 31, 1999......... 3
Consolidated Statements of Income, for the Three Months Ended March 31, 2000
and 1999............................................................................ 4
Consolidated Statements of Shareholders' Equity, for the Three Months Ended
March 31, 2000 and 1999............................................................. 5
Consolidated Statements of Cash Flows, for the Three Months Ended March 31, 2000
and 1999............................................................................ 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 and Qualitative Disclosures About Market Risk................. 32
PART II OTHER INFORMATION
Item 1 Legal Proceedings.......................................................... 33
Item 6(a)Exhibits................................................................... 33
SIGNATURES............................................................................ 34
</TABLE>
2
<TABLE>
<CAPTION>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PULTE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
($000's omitted)
March 31, December 31,
2000 1999
----------- -----------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Cash and equivalents................................................. $ 38,864 $ 51,718
Unfunded settlements................................................. 44,627 53,544
House and land inventories........................................... 1,992,601 1,792,733
Residential mortgage loans available-for-sale........................ 123,994 218,062
Other assets......................................................... 351,109 331,744
Deferred income taxes................................................ 50,208 57,224
Discontinued operations.............................................. 92,675 91,772
----------- -----------
Total assets...................................................... $ 2,694,078 $ 2,596,797
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued liabilities, including book overdrafts
of $109,810 and $113,335 in 2000 and 1999, respectively........ $ 658,820 $ 694,826
Unsecured short-term borrowings................................... 232,700 7,000
Collateralized short-term debt, recourse solely to applicable
subsidiary assets.............................................. 124,394 206,959
Income taxes...................................................... - 11,769
Subordinated debentures and senior notes.......................... 524,641 525,965
Discontinued operations........................................... 57,269 56,959
----------- -----------
Total liabilities.............................................. 1,597,824 1,503,478
Shareholders' equity.............................................. 1,096,254 1,093,319
------------ ------------
$ 2,694,078 $ 2,596,797
============ ============
<FN>
Note: The balance sheet at December 31, 1999 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
3
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PULTE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(000's omitted, except per share data)
(Unaudited)
For The Three Months Ended
March 31,
--------------------------
2000 1999
-------- --------
<S> <C> <C>
Revenues:
Homebuilding............................................ $765,588 $666,823
Financial services, interest and other.................. 10,165 14,746
Corporate .............................................. 66 898
-------- --------
Total revenues................................ 775,819 682,467
-------- --------
Expenses:
Homebuilding, principally cost of sales................. 720,209 628,559
Financial services, interest and other.................. 6,698 7,545
Corporate, net.......................................... 9,981 8,634
-------- --------
Total expenses................................ 736,888 644,738
-------- --------
Other income:
Equity in income of Pulte-affiliates.................... 531 1,863
-------- --------
Income from continuing operations before income taxes...... 39,462 39,592
Income taxes .............................................. 15,193 15,638
-------- --------
Income from continuing operations.......................... 24,269 23,954
Income from discontinued operations........................ 67 376
-------- --------
Net income................................................. $ 24,336 $ 24,330
======== ========
Per share data:
Basic:
Income from continuing operations ................... $ .57 $ .55
Income from discontinued operations................... -- .01
-------- --------
Net income............................................ $ .57 $ .56
======== ========
Assuming dilution:
Income from continuing operations ................... $ .57 $ .54
Income from discontinued operations................... -- .01
-------- --------
Net income............................................ $ .57 $ .55
======== ========
Cash dividends declared................................. $ .04 $ .04
======== ========
Number of shares used in calculation:
Basic:
Weighted-average common shares outstanding......... 42,696 43,233
Assuming dilution:
Effect of dilutive securities - stock options...... 175 814
-------- --------
Adjusted weighted-average common shares
and effect of dilutive securities............... 42,871 44,047
======== ========
<FN>
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
4
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<CAPTION>
PULTE CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
($000's omitted)
(Unaudited)
Accumulated
Other
Additional Comprehensive
Common Paid-in Income Retained
Stock Capital (Loss) Earnings Total
------ ---------- ------------- -------- -----
<S> <C> <C> <C> <C> <C>
Shareholders' Equity, December 31, 1999 ........ $ 433 $77,070 $ (259) $1,016,075 $1,093,319
Exercise of stock options ...................... 1 2,984 -- -- 2,985
Cash dividends declared ........................ -- -- -- (1,689) (1,689)
Stock repurchases .............................. (13) (2,341) -- (20,316) (22,670)
Comprehensive income (loss):
Net income ................................. -- -- -- 24,336 24,336
Foreign currency translation adjustments,
net of income taxes of ($12) ............ -- -- (27) -- (27)
----------
Total comprehensive income 24,309
----- ------- -------- ---------- ----------
Shareholders' Equity, March 31, 2000 ........... $ 421 $77,713 $ (286) $1,018,406 $1,096,254
===== ======= ======== ========== ==========
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
of ($722) ................................ -- -- (1,130) -- (1,130)
Foreign currency translation adjustments ... -- -- 7 -- 7
----------
Total comprehensive income 23,207
----- ------- -------- ---------- ----------
Shareholders' Equity, March 31, 1999 ........... $ 432 $76,724 $ 7 $ 867,426 $ 944,589
===== ======= ======== ========== ==========
<FN>
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
5
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<CAPTION>
PULTE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
($000's omitted)
(Unaudited)
Three Months Ended
March 31,
----------------------
2000 1999
--------- -------
<S> <C> <C>
Continuing operations:
Cash flows from operating activities:
Income from continuing operations ...................... $ 24,269 $ 23,954
Adjustments to reconcile income from
continuing operations to net cash flows
provided by (used in) operating activities:
Amortization, depreciation and other ............. 3,626 3,142
Deferred income taxes ............................ (1,310) (746)
Gain on sale of securities ....................... -- (1,664)
Increase (decrease) in cash due to:
Inventories ................................... (199,868) (127,678)
Residential mortgage loans available-for-sale . 94,068 78,285
Other assets .................................. (10,921) (9,927)
Accounts payable and accrued liabilities ...... (33,409) 2,881
Income taxes .................................. (5,878) 2,979
--------- ---------
Net cash used in operating activities ...................... (129,423) (28,774)
--------- ---------
Cash flows from investing activities:
Proceeds from sale of securities available-for-sale .... -- 27,886
Principal payments of mortgage-backed securities ....... -- 1,490
Other, net ............................................. (674) 567
--------- ---------
Net cash provided by (used in) investing activities ........ (674) 29,943
--------- ---------
Cash flows from financing activities:
Payment of long-term debt and bonds .................... (1,373) (28,076)
Proceeds from borrowings ............................... 225,700 30,000
Repayment of borrowings ................................ (85,261) (83,932)
Stock repurchases ...................................... (22,670) --
Dividends paid ......................................... (1,689) (1,733)
Other, net ............................................. 2,536 1,404
--------- ---------
Net cash provided by (used in) financing activities ........ 117,243 (82,337)
--------- ---------
Net decrease in cash and equivalents -
continuing operations .................................... (12,854) (81,168)
--------- ---------
</TABLE>
6
PULTE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
($000's omitted)
(Unaudited)
Three Months Ended
March 31,
----------------------
2000 1999
--------- ---------
Discontinued operations:
Cash flows from operating activities:
Income from discontinued operations ........... $ 67 $ 376
Change in deferred taxes ...................... 8,326 (3,183)
Change in income taxes ........................ (8,275) 3,372
Other changes, net ............................ 769 574
Cash flows from investing activities:
Purchase of securities available-for-sale ..... -- 223
Increase in Covered Assets and FSLIC
Resolution Receivables ...................... (903) (1,003)
--------- ---------
Net increase (decrease) in cash and
equivalents - discontinued operations ........... (16) 359
--------- ---------
Net decrease in cash and equivalents .............. (12,870) (80,809)
Cash and equivalents at beginning of period ....... 51,797 125,329
--------- ---------
Cash and equivalents at end of period ............. $ 38,927 $ 44,520
========= =========
Cash - continuing operations ...................... $ 38,864 $ 44,030
Cash - discontinued operations .................... 63 490
--------- ---------
$ 38,927 $ 44,520
========= =========
Supplemental disclosure of cash flow information-
cash paid during the period for:
Interest, net of amount capitalized ......... $ 311 $ 2,051
========= =========
Income taxes ................................ $ 12,594 $ 12,217
========= =========
See accompanying Notes to Condensed Consolidated Financial Statements.
7
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 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,
2000, are not necessarily indicative of the results that may be expected
for the year ending December 31, 2000. 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, 1999.
The Company's comprehensive income (loss) 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, 2000 and 1999, the Company's comprehensive loss other than net
income amounted to $27 and $1,123, respectively, net of tax provision of
$12 and $772, respectively.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No.
137, which is required to be adopted in years beginning after June 15,
2000. 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. PMC, 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, 2001, but has
not yet determined what effect SFAS No. 133 will have on its earnings
and financial position.
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.
8
PULTE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
(Unaudited)
2. Discontinued operations (continued)
Although the Company in 1994, expected to complete the plan of disposal
within a reasonable period of time, contractual disputes with the
Federal Deposit Insurance Corporation (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 FDIC acting in its capacity as manager of
the 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.
First Heights no longer holds any deposits, nor does 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 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, 2000 and 1999, amounted to $925
and $1,170 respectively. For the three months ended March 31, 2000 and
1999, discontinued thrift operations provided after-tax income of $67
and $376, 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 units:
o Domestic Homebuilding, the Company's core business, is engaged in
the acquisition and 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, first and
second move-up and active adult home buyer groups.
o International Homebuilding is primarily engaged in the acquisition
and development of land principally for residential purposes, and
the construction of housing on such land in Mexico and Puerto Rico.
o Active Adult Homebuilding is engaged in the development of
amenitized, age-targeted and age-qualified communities throughout
the continental United States appealing to a growing demographic
group in their pre-retirement and retirement years.
The Company's Financial Services segment consists principally of mortgage
banking operations conducted through PMC and its subsidiaries, and to a
minor extent, the operations of PFCI, a financing subsidiary of the
Company, which ceased operations during 1999.
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 functions to support the Company as
a publicly traded entity.
9
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,
------------------------
2000 1999
--------- ---------
Revenues:
Homebuilding.................................. $ 765,588 $ 666,823
Financial Services............................ 10,165 14,746
Corporate..................................... 66 898
--------- ---------
Total revenues............................. 775,819 682,467
--------- ---------
Cost of sales:
Homebuilding.................................. 630,681 555,688
--------- ---------
Total cost of sales........................ 630,681 555,688
--------- ---------
Selling, general and administrative:
Homebuilding.................................. 82,765 67,286
Financial Services............................ 4,972 5,406
Corporate..................................... 1,567 2,034
--------- ---------
Total selling, general and
administrative........................... 89,304 74,726
--------- ---------
Interest:
Homebuilding.................................. 5,078 4,145
Financial Services............................ 1,676 2,039
Corporate..................................... 5,732 4,517
--------- ---------
Total interest............................. 12,486 10,701
--------- ---------
Other expense, net:
Homebuilding.................................. 1,685 1,440
Financial Services............................ 50 100
Corporate..................................... 2,682 2,083
--------- ---------
Total other expense, net................... 4,417 3,623
--------- ---------
Total costs and expenses......................... 736,888 644,738
--------- ---------
Equity in income of joint ventures:
Homebuilding.................................. 531 1,863
--------- ---------
Total equity in income of joint ventures... 531 1,863
--------- ---------
Total income before income taxes:
Homebuilding.................................. 45,910 40,127
Financial services............................ 3,467 7,201
Corporate..................................... (9,915) (7,736)
--------- ---------
Total income before income taxes................. $ 39,462 $ 39,592
========= =========
10
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, 2000:
Inventory .......................... $1,992,601 $ -- $ -- $1,992,601
==========
Identifiable assets ................ 2,356,918 153,323 91,162 $2,601,403
Assets of discontinued operations .. 92,675
----------
Total assets ....................... $2,694,078
==========
At December 31, 1999:
Inventory .......................... $1,792,733 $ -- $ -- $1,792,733
==========
Identifiable assets ................ 2,175,424 237,318 92,283 $2,505,025
Assets of discontinued operations .. 91,772
----------
Total assets ....................... $2,596,797
==========
</TABLE>
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 three 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 the FSLIC. The FDIC and the Pulte Parties
disagree about the proper interpretation of provisions in the Assistance
Agreement which provide for sharing of certain tax benefits achieved in
connection with First Heights' 1988 acquisition and ownership of the
five failed Texas thrifts. The District Court Case also includes certain
other claims relating to the foregoing, including claims resulting from
the Company's and First Heights' amendment of a tax sharing and
allocation agreement between the Company and First Heights. The Pulte
Parties dispute the FDIC's claims and believe that a proper
interpretation of the Assistance Agreement limits the FDIC's
participation in the tax benefits. The Pulte Parties filed an answer and
a counterclaim, seeking, among other things, a declaration that the FDIC
has breached the Assistance Agreement in numerous respects. On December
24, 1996, the Pulte Parties voluntarily dismissed without prejudice
certain of their claims in the District Court Case and on December 26,
1996, initiated the Court of Federal Claims Case.
The Court of Federal Claims Case contains similar claims as those that
were voluntarily dismissed from the District Court Case. In their
complaint, the Pulte Parties assert breaches of contract on the part of
the United States in connection with the enactment of section 13224 of
the Omnibus Budget Reconciliation Act of 1993. That provision repealed
portions of the tax benefits that the Pulte Parties claim they were
entitled to under the contract to acquire the failed Texas thrifts. The
Pulte Parties also assert certain other claims concerning the contract,
including claims that the United States (through the FDIC as receiver)
has improperly attempted to amend the failed thrifts' pre-acquisition
tax returns and that this attempt was made in an effort to deprive the
Pulte Parties of tax benefits they had contracted for, and that the
enactment of the Financial Institutions Reform, Recovery, and
Enforcement
11
PULTE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
(Unaudited)
4. Commitments and contingencies (continued)
First Heights-related litigation (continued)
Act of 1989 breached the Government's obligation not to require
contributions of capital greater than those required by the contract.
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 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 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 the decision to the Sixth Circuit Court of Appeals. 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.
On January 10, 2000, First Heights filed a lawsuit in the United States
District Court, Eastern District of Michigan against the FDIC regarding
the amounts, including interest the FDIC is obligated to pay First
Heights on two promissory notes which had been executed by FDIC's
predecessor, the FSLIC. The FDIC filed a motion to dismiss the case and
on April 12, 2000, the District Court dismissed First Heights'
complaint. First Heights intends to appeal the Court's ruling to the
Sixth Circuit Court of Appeals.
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 should they be upheld.
5. Subsequent event
In April 2000, the Company issued $175,000 of 9.5% Senior Notes due in
2003. Proceeds received from the sale were used to repay short-term
borrowings under unsecured bank credit arrangements and for general
corporate purposes.
6. Supplemental Guarantor information
The Company has the following outstanding Senior Note obligations: (1)
$100,000, 7%, due 2003, (2) $115,000, 8.375%, due 2004, (3) $125,000,
7.3%, due 2005, and (4) $150,000, 7.625%, due 2017. Such obligations to
pay principal, premium, if any, and interest are guaranteed jointly and
severally on a senior basis by the Company's wholly-owned domestic and
active adult homebuilding subsidiaries (collectively, the Guarantors).
Such guarantees are full and unconditional. The principal non-Guarantors
include PDCI, Pulte International Corporation, PMC, First Heights and
PFCI.
12
PULTE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
(Unaudited)
6. 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>
<CAPTION>
CONDENSED CONSOLIDATING BALANCE SHEET
MARCH 31, 2000
Unconsolidated
----------------------------------------
Consolidated
Pulte Guarantor Non-Guarantor Eliminating Pulte
Corporation Subsidiaries Subsidiaries Entries Corporation
----------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and equivalents ...................... $ -- $ 35,805 $ 3,059 $ -- $ 38,864
Unfunded settlements ...................... -- 38,774 5,853 -- 44,627
House and land inventories ................ -- 1,958,766 33,835 -- 1,992,601
Residential mortgage loans and other
securities available-for-sale ........... -- -- 123,994 -- 123,994
Land held for sale and future
development ............................. -- 49,155 -- -- 49,155
Other assets .............................. 24,833 218,396 58,725 -- 301,954
Deferred income taxes ..................... 50,208 -- -- -- 50,208
Discontinued operations ................... -- -- 92,675 -- 92,675
Investment in subsidiaries ................ 1,327,878 21,222 1,335,794 (2,684,894) --
Advances receivable - subsidiaries ........ 550,886 641 39,902 (591,429) --
----------- ----------- ----------- ----------- -----------
$ 1,953,805 $ 2,322,759 $ 1,693,837 $(3,276,323) $ 2,694,078
=========== =========== =========== =========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued liabilities .. $ 90,968 $ 521,303 $ 46,549 $ -- $ 658,820
Unsecured short-term borrowings ........... 232,700 -- -- -- 232,700
Collateralized short-term debt, recourse
solely to applicable subsidiary assets .. -- -- 124,394 -- 124,394
Subordinated debentures and senior notes .. 487,739 15,902 21,000 -- 524,641
Discontinued operations ................... -- -- 57,269 -- 57,269
Advances payable - subsidiaries ........... 46,144 455,435 89,850 (591,429) --
----------- ----------- ----------- ----------- -----------
Total liabilities ................... 857,551 992,640 339,062 (591,429) 1,597,824
Shareholders' equity ...................... 1,096,254 1,330,119 1,354,775 (2,684,894) 1,096,254
----------- ----------- ----------- ----------- -----------
$ 1,953,805 $ 2,322,759 $ 1,693,837 $(3,276,323) $ 2,694,078
=========== =========== =========== =========== ===========
</TABLE>
13
PULTE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
(Unaudited)
6. Supplemental Guarantor information (continued)
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 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 .................... $ 50 $ 44,206 $ 7,462 $ -- $ 51,718
Unfunded settlements .................... -- 60,143 (6,599) -- 53,544
House and land inventories .............. -- 1,760,581 32,152 -- 1,792,733
Residential mortgage loans available-
for-sale .............................. -- -- 218,062 -- 218,062
Land held for sale and future
development ........................... -- 52,453 -- -- 52,453
Other assets ............................ 21,109 206,327 51,855 -- 279,291
Deferred income taxes ................... 57,224 -- -- -- 57,224
Discontinued operations ................. -- -- 91,772 -- 91,772
Investment in subsidiaries .............. 1,298,676 19,904 1,302,700 (2,621,280) --
Advances receivable - subsidiaries ...... 354,211 3,898 40,571 (398,680) --
----------- ----------- ----------- ----------- -----------
$ 1,731,270 $ 2,147,512 $ 1,737,975 $(3,019,960) $ 2,596,797
=========== =========== =========== =========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued
liabilities .......................... $ 86,526 $ 554,745 $ 53,555 $ -- $ 694,826
Unsecured short-term borrowings ......... 7,000 -- -- -- 7,000
Collateralized short-term debt,
recourse solely to applicable
subsidiary assets .................... -- -- 206,959 -- 206,959
Income taxes ............................ 11,769 -- -- -- 11,769
Subordinated debentures and senior
notes ................................ 487,690 17,275 21,000 -- 525,965
Discontinued operations ................. -- -- 56,959 -- 56,959
Advances payable - subsidiaries ......... 44,966 274,390 79,324 (398,680) --
----------- ----------- ----------- ----------- -----------
Total liabilities ................. 637,951 846,410 417,797 (398,680) 1,503,478
Shareholders' equity .................... 1,093,319 1,301,102 1,320,178 (2,621,280) 1,093,319
----------- ----------- ----------- ----------- -----------
$ 1,731,270 $ 2,147,512 $ 1,737,975 $(3,019,960) $ 2,596,797
=========== =========== =========== =========== ===========
</TABLE>
14
PULTE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
(Unaudited)
6. Supplemental Guarantor information (continued)
<TABLE>
<CAPTION>
CONSOLIDATING STATEMENT OF OPERATIONS
For the three months ended March 31, 2000
Unconsolidated
----------------------------------------- Consolidated
Pulte Guarantor Non-Guarantor Eliminating Pulte
Corporation Subsidiaries Subsidiaries Entries Corporation
----------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Homebuilding ............................. $ -- $762,948 $ 2,640 $ -- $765,588
Financial services, interest and other ... -- -- 10,165 -- 10,165
Corporate ................................ 36 30 -- -- 66
-------- -------- -------- -------- --------
Total revenues ............................. 36 762,978 12,805 -- 775,819
-------- -------- -------- -------- --------
Expenses:
Homebuilding:
Cost of sales .......................... -- 628,364 2,317 -- 630,681
Selling, general and administrative
and other expense .................... 227 88,313 988 -- 89,528
Financial services, interest and other ... -- -- 6,698 -- 6,698
Corporate, net ........................... 9,209 1,803 (1,031) -- 9,981
-------- -------- -------- -------- --------
Total expenses ............................. 9,436 718,480 8,972 -- 736,888
-------- -------- -------- -------- --------
Other Income:
Equity in income of Pulte-affiliates ....... -- -- 531 -- 531
-------- -------- -------- -------- --------
Income (loss) from continuing operations
before income taxes and equity in
income of subsidiaries ................... (9,400) 44,498 4,364 -- 39,462
Income taxes (benefit) ..................... (4,914) 17,614 2,493 -- 15,193
-------- -------- -------- -------- --------
Income (loss) from continuing operations
before equity in income of subsidiaries .. (4,486) 26,884 1,871 -- 24,269
Income (loss) from discontinued
operations ............................... (408) -- 475 -- 67
-------- -------- -------- -------- --------
Income (loss) before equity in income
of subsidiaries .......................... (4,894) 26,884 2,346 -- 24,336
-------- -------- -------- -------- --------
Equity in income of subsidiaries:
Continuing operations .................... 28,755 2,153 30,177 (61,085) --
Discontinued operations .................. 475 -- -- (475) --
-------- -------- -------- -------- --------
29,230 2,153 30,177 (61,560) --
-------- -------- -------- -------- --------
Net income ................................. $ 24,336 $ 29,037 $ 32,523 $(61,560) $ 24,336
======== ======== ======== ======== ========
</TABLE>
15
PULTE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
(Unaudited)
6. Supplemental Guarantor information (continued)
<TABLE>
<CAPTION>
CONSOLIDATING STATEMENT OF OPERATIONS
For the three months ended March 31, 1999
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
Financial services, 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
Financial services, 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 (loss) from discontinued operations .. (251) -- 627 -- 376
-------- -------- -------- -------- --------
Income (loss) before equity in income
of subsidiaries ........................... (4,748) 24,073 5,005 -- 24,330
-------- -------- -------- -------- --------
Equity in income 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>
16
PULTE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
(Unaudited)
6. Supplemental Guarantor information (continued)
<TABLE>
<CAPTION>
CONSOLIDATING STATEMENT OF CASH FLOWS
For the three months ended March 31, 2000
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 .......... $ 24,269 $ 29,037 $ 32,048 $ (61,085) $ 24,269
Adjustments to reconcile income from
continuing operations to net cash flows
provided by (used in) operating
activities:
Equity in income of subsidiaries ....... (28,755) (2,153) (30,177) 61,085 --
Amortization, depreciation and other ... 49 3,933 (356) -- 3,626
Deferred income taxes .................. (1,310) -- -- -- (1,310)
Increase (decrease) in cash due to:
Inventories .......................... -- (198,185) (1,683) -- (199,868)
Residential mortgage loans
available-for-sale ................. -- -- 94,068 -- 94,068
Other assets ......................... (937) 8,831 (18,815) -- (10,921)
Accounts payable and accrued
liabilities ........................ 4,113 (30,950) (6,572) -- (33,409)
Income taxes ......................... (24,043) 17,614 551 -- (5,878)
--------- --------- --------- --------- ---------
Net cash provided by (used in) operating
activities ................................. (26,614) (171,873) 69,064 -- (129,423)
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Dividends received from subsidiaries ....... -- 1,000 -- (1,000) --
Investment in subsidiary ................... -- (147) -- 147 --
Advances to affiliates ..................... (178,510) 3,257 669 174,584 --
Other, net ................................. (27) -- (647) -- (674)
--------- --------- --------- --------- ---------
Net cash provided by (used in) investing
activities ................................. (178,537) 4,110 22 173,731 (674)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Payment of long-term debt and bonds ........ -- (1,373) -- -- (1,373)
Proceeds from borrowings ................... 225,700 -- -- -- 225,700
Repayment of borrowings .................... -- (2,696) (82,565) -- (85,261)
Capital contributions from parent .......... -- -- 147 (147) --
Advances from affiliates ................... 1,178 163,431 9,975 (174,584) --
Stock repurchases .......................... (22,670) -- -- -- (22,670)
Dividends paid ............................. (1,689) -- (1,000) 1,000 (1,689)
Other, net ................................. 2,582 -- (46) -- 2,536
--------- --------- --------- --------- ---------
Net cash provided by (used in)
financing activities ....................... 205,101 159,362 (73,489) (173,731) 117,243
--------- --------- --------- --------- ---------
Net decrease in cash and
equivalents - continuing operations ........ (50) (8,401) (4,403) -- (12,854)
--------- --------- --------- --------- ---------
</TABLE>
17
PULTE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
(Unaudited)
6. Supplemental Guarantor information (continued)
<TABLE>
<CAPTION>
CONSOLIDATING STATEMENT OF CASH FLOWS (continued)
For the three months ended March 31, 2000
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 ....................... $ 67 $ -- $ 475 $ (475) $ 67
Change in deferred income taxes ...... 8,326 -- -- -- 8,326
Equity in loss of subsidiaries ....... (475) -- -- 475 --
Change in income taxes ............... (8,275) -- -- -- (8,275)
Other, net ........................... 357 -- 412 -- 769
Cash flows from investing activities:
Increase in Covered Assets and FRF
receivables ...................... -- -- (903) -- (903)
-------- -------- -------- -------- --------
Net decrease in cash and equivalents-
discontinued operations .............. -- -- (16) -- (16)
-------- -------- -------- -------- --------
Net decrease in cash and equivalents ... (50) (8,401) (4,419) -- (12,870)
Cash and equivalents at beginning of
period ............................... 50 44,206 7,541 -- 51,797
-------- -------- -------- -------- --------
Cash and equivalents at end of period .. $ -- $ 35,805 $ 3,122 $ -- $ 38,927
======== ======== ======== ======== ========
</TABLE>
18
PULTE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
(Unaudited)
6. Supplemental Guarantor information (continued)
<TABLE>
<CAPTION>
CONSOLIDATING STATEMENT OF CASH FLOWS
For the 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) --
Investment in subsidiary ................ (4,358) (2,247) -- 6,605 --
Advances to affiliates .................. (82,752) 485 (361) 82,628 --
Other, net .............................. -- -- 567 -- 567
--------- --------- --------- --------- ---------
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>
19
PULTE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
(Unaudited)
6. Supplemental Guarantor information (continued)
<TABLE>
<CAPTION>
CONSOLIDATING STATEMENT OF CASH FLOWS (continued)
For the 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, net ........................... 62 -- 512 -- 574
Cash flows from investing activities:
Net proceeds from sale of
investments ........................ -- -- 223 -- 223
Increase 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>
20
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 periods ended March 31, 2000 and 1999 is as follows:
Three Months Ended
March 31,
-------------------
2000 1999
------- -------
Pre-tax income (loss):
Homebuilding operations ................. $45,910 $40,127
Financial Services operations ........... 3,467 7,201
Corporate ............................... (9,915) (7,736)
------- -------
Pre-tax income from continuing operations .. 39,462 39,592
Income taxes ............................... 15,193 15,638
------- -------
Income from continuing operations .......... 24,269 23,954
Income from discontinued operations ........ 67 376
------- -------
Net income ................................. $24,336 $24,330
======= =======
Per share data - assuming dilution:
Income from continuing operations ....... $ .57 $ .54
Income from discontinued operations ..... -- .01
------- -------
Net income .............................. $ .57 $ .55
======= =======
A comparison of pre-tax income (loss) for the three month periods ended
March 31, 2000 and 1999 is as follows:
o Pre-tax income of the Company's homebuilding business segment increased
14%, due primarily to the improvement in Domestic Homebuilding
operations where pre-tax income increased 12%. Domestic gross margins
improved 70 basis points as domestic average unit selling price
increased by approximately 11%. Unit closings for the quarter were 3,493
homes, essentially unchanged from the prior year.
o Pre-tax income of the Company's financial services business segment
decreased to $3,467, as compared with $7,201 for the comparable 1999
period. This decrease was a result of competitive market conditions and
increasing interest rates which slowed mortgage originations. In
addition, during the first quarter of 1999 Pulte Financial Companies,
Inc. (PFCI), a financing subsidiary of the Company, sold its remaining
mortgage-backed securities 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
$2,179 from the three month period ended March 31, 1999. The increase in
pre-tax loss for the quarter primarily reflects an increase of
approximately $1,200 in the corporate net interest spread attributed to
the support of the Company's short-term and long-term strategic
operating goals, and a net increase of approximately $1,000 in other
expense, primarily due to the continued funding of corporate strategic
initiatives.
21
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 units:
o Domestic Homebuilding operations are conducted in 41 markets, located
throughout 25 states. Domestic Homebuilding offers a broad product line
to meet the needs of the first-time, first and second move-up and active
adult home buyer.
o International Homebuilding operations are conducted through subsidiaries
of Pulte International Corporation in Mexico and Puerto Rico.
International Homebuilding product offerings focus on the demand of
first-time buyers and social interest housing in Mexico and Puerto Rico.
The Company has agreements in place with multi-national corporations to
provide social interest and employee housing in Mexico.
o Active Adult operations acquire and develop major active adult
residential communities. These amenitized, age-targeted and
age-qualified communities appeal to a growing demographic group in their
pre-retirement and retirement years.
The Metropolitan Atlanta market accounted for 10% and 11%, respectively, of
the unit net new orders and unit settlements for the three month period ended
March 31, 2000. No other individual market within the Company's Homebuilding
segment represented more than 10% of total segment net new orders, unit
settlements or revenues during this period.
Certain operating data relating to the Company's joint ventures and
homebuilding operations for the three months ended March 31, 2000 and 1999,
are as follows:
Three Months Ended
March 31,
------------------
2000 1999
-------- ------
Pulte/Pulte-affiliate Homebuilding revenues:
Homebuilding Operations:
Domestic ...................................... $675,416 $613,370
International ................................. 29,557 35,311
Active Adult .................................. 87,532 71,187
-------- --------
Total Homebuilding ............................ $792,505 $719,868
======== ========
Pulte/Pulte-affiliate Homebuilding pre-tax
income (loss):
Homebuilding Operations:
Domestic ...................................... $ 39,913 $ 35,771
International ................................. (361) 840
Active Adult .................................. 6,358 3,516
-------- --------
Total Homebuilding ............................ $ 45,910 $ 40,127
======== ========
Pulte and Pulte-affiliate settlements - units:
Domestic ........................................ 3,493 3,507
-------- --------
International:
Pulte ......................................... 31 101
Pulte-affiliated entities ..................... 1,496 1,867
-------- --------
Total International ........................ 1,527 1,968
-------- --------
Active Adult:
Pulte ......................................... 405 282
Pulte-affiliated entity ....................... -- 127
-------- --------
Total Active Adult ......................... 405 409
-------- --------
Total Pulte and Pulte-affiliate settlements -
units ....................................... 5,425 5,884
======== ========
22
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 unit represents the Company's core
business. Operations are conducted in 41 markets, located throughout 25
states, and are organized into nine regions as follows:
Pulte Home East:
Mid-Atlantic Region Connecticut, Delaware, Maryland, Massachusetts,
New Jersey, 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
California Region California
The following table presents selected unit information for Pulte's Domestic
Homebuilding operations:
Three Months Ended
March 31,
-----------------------
2000 1999
---------- ---------
Unit settlements:
Pulte Home East................. 1,739 1,695
Pulte Home Central.............. 1,044 1,010
Pulte Home West................. 710 802
---------- ----------
3,493 3,507
========== ==========
Net new orders - units:
Pulte Home East................. 2,408 2,714
Pulte Home Central.............. 1,833 1,655
Pulte Home West................. 1,003 986
---------- ----------
5,244 5,355
========== ==========
Net new orders - dollars........... $1,105,000 $1,002,000
========== ==========
Backlog at March 31 - units:
Pulte Home East................. 3,111 3,286
Pulte Home Central.............. 2,372 2,559
Pulte Home West................. 1,015 1,041
---------- ----------
6,498 6,886
========== ==========
Backlog at March 31 - dollars...... $1,457,000 $1,324,000
========== ==========
23
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 5,244, a slight
decrease from the comparable period of the prior year. Strong performance in
California and Texas was offset by declines in the Southwest and Mid-Atlantic
Regions. Unit settlements remained essentially unchanged from 1999 at 3,493
units. Strong activity in the Florida and Great Lakes Regions was muted by
slower activity in the Southwest, Mid-Atlantic and Texas regions. The
Company's backlog at March 31, 2000, fell 388 units to 6,498 units, but the
dollar value was up to its highest level ever for a first quarter at
approximately $1.5 billion.
The following table presents a summary of pre-tax income for Pulte's Domestic
Homebuilding operations for the three months ended March 31, 2000 and 1999:
Three Months Ended
March 31,
----------------------
2000 1999
--------- ---------
Revenues...................................... $ 675,416 $ 613,370
Cost of sales................................. (558,100) (511,088)
Selling, general and administrative expense... (71,604) (62,480)
Interest (a).................................. (4,481) (4,145)
Other income (expense), net................... (1,318) 114
--------- ---------
Pre-tax income................................ $ 39,913 $ 35,771
========= =========
Average sales price........................... $ 193 $ 175
========= =========
(a) The Company capitalizes interest cost into homebuilding inventories and
charges the interest to homebuilding interest expense when the related
inventories are closed.
Gross profit margins were 17.4% for the three month period ended March 31,
2000, compared to 16.7%, in the same period of the prior year. This increase
can be attributed to continued strong customer demand, positive home pricing,
favorable product mix and production efficiency gains.
As a percentage of sales, selling, general and administrative expenses
increased 40 basis points as compared with the first quarter of 1999. This
increase reflects increased construction related expenses including service
related costs associated with a continuous focus on improving quality, and an
increase in compensation related expenses.
Other income (expense), net, includes gains on land sales and other
homebuilding-related expenses. For the quarter ended March 31, 2000, other
income (expense), net was $(1,318) as compared to $114 for 1999 and is
attributable to normal operating expense.
The average selling price during the three month period ended March 31, 2000,
was $193, an increase from the average selling price of $175 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.
At March 31, 2000, Pulte's Domestic Homebuilding operations controlled
approximately 64,500 lots, of which approximately 39,800 lots were owned and
approximately 24,700 lots were controlled through option agreements. Domestic
Homebuilding inventory at March 31, 2000, was approximately $1,702,000 of
which approximately $1,171,600 is related to land and land development.
24
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 Mexico and Puerto Rico.
The Company's aggregate net investment in its five joint ventures located
throughout Mexico approximated $37,300 at March 31, 2000. The largest of
these ventures, Condak-Pulte S. De R.L. De C.V. (Condak), is located in the
city of Juarez. Condak 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, 2000, the Company's net investment
in Condak approximated $23,800.
Desarrollos Residenciales Turisticos, S.A. de C.V., 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
include 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. At March 31, 2000, the Company's net investment in this joint
venture approximated $5,500.
The following table presents selected financial data for Pulte's
International Homebuilding operations for the three months ended March 31,
2000 and 1999.
Three Months Ended
March 31,
-------------------
2000 1999
------- -------
Revenues........................................ $ 2,640 $ 8,323
Cost of sales................................... (2,317) (7,929)
Selling, general and administrative expense..... (1,156) (1,187)
Other income (expense), net..................... (59) 26
Equity in income of Mexico operations........... 531 1,607
------- -------
Pre-tax income (loss)........................... $ (361) $ 840
======= =======
Unit settlements:
Pulte........................................ 31 101
Pulte-affiliated entities.................... 1,496 1,867
------- -------
Total Pulte and Pulte-affiliates........... 1,527 1,968
======= =======
The pre-tax loss of $361 for the three month period ended March 31, 2000, as
compared to pre-tax income of $840 in 1999 was primarily a result of delays
in mortgage funding and the start-up of new communities which had a negative
impact on the timing of unit closings in Mexico. Foreign currency exchange
gains in Mexico amounted to $62 for the quarter, reflecting a 4% increase in
the value of the Mexican peso against the U.S. dollar.
25
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
($000's omitted)
Homebuilding Operations (continued):
Active Adult Homebuilding:
Through July 1, 1999, Active Adult Homebuilding operations were conducted
through a joint venture with Blackstone Real Estate Advisors (BRE), an
affiliate of the Blackstone Group. Effective July 1, 1999, the Company
purchased BRE's interest in the net assets of the Active Adult joint venture.
As a result of this purchase, Pulte owns 100% of the former joint venture
operations, and effective July 1, 1999, these operations are fully
consolidated with the operating results of Pulte's other homebuilding
operations. Prior to this purchase, Pulte's 50% interest in this joint
venture was accounted for as an equity investment. The impact of acquiring
the additional 50% interest was immaterial to the Company's consolidated
revenues, pre-tax income from operations, net income and earnings per share
(both basic and diluted).
In addition, during the third quarter of 1999, the Company made the decision
to align its Florida-based DiVosta and Company (DiVosta) operations, given
their common buyer profiles, with the Company's other Active Adult operations
effective January 1, 2000. Previously, DiVosta's operations were included in
the Company's Domestic Homebuilding operations.
Active Adult operations acquire and develop major active adult residential
communities. These highly amenitized, age-targeted and age-qualified
communities appeal to a growing demographic group in their pre-retirement and
retirement years. As of March 31, 2000, the Company's Active Adult operations
include 16 communities located in Arizona, California and Florida.
The following table presents selected financial data for Pulte's Active Adult
Homebuilding operations for the three month period ended March 31, 2000 and
1999. Data for 2000 includes the fully consolidated operating results of the
Company's Active Adult operations through March 31, 2000. Prior year data
reflects the Company's equity in income of the joint venture operations, and
the fully consolidated operating results of the Company's other Active Adult
operations, primarily DiVosta.
Three Months Ended
March 31,
--------------------
2000 1999
-------- -------
Revenues ..................................... $ 87,532 $ 45,130
Cost of sales ................................ (70,264) (36,671)
Selling, general and administrative expense .. (10,005) (3,618)
Interest ..................................... (597) --
Other expense, net ........................... (308) (1,581)
Equity in income of joint venture ............ -- 256
-------- --------
Pre-tax income ............................... $ 6,358 $ 3,516
======== ========
Pulte and Pulte-affiliate:
Average sales price .......................... $ 216 $ 174
======== ========
Settlements - units .......................... 405 409
======== ========
Net new orders - units ....................... 719 551
======== ========
Net new orders - dollars ..................... $150,600 $104,600
======== ========
Backlog at March 31 - units .................. 999 689
======== ========
Backlog at March 31 - dollars ................ $214,900 $134,900
======== ========
26
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
($000's omitted)
Homebuilding Operations (continued):
Active Adult Homebuilding (continued):
Net new orders in the first quarter of 2000 increased from 1999 primarily due
to strong demand in Florida. Unit settlements were essentially unchanged from
the prior year period. Backlog of 999 units and $215,000 at March 31, 2000,
was a result of the strong demand in Florida, along with an increase in the
number of selling communities in Arizona and California.
The increase in revenues, cost of sales and selling, general and
administrative expense in the first quarter of 2000, compared with the same
period in 1999, reflect the purchase of BRE's interest in the joint venture
operations. Prior to the purchase, the Company accounted for these operations
as an equity investment. In the first quarter of 2000, positive product mix,
along with higher gross profit margins, contributed to significantly higher
pre-tax income compared with 1999. Gross profit margins of 19.7% for the
first quarter of 2000 include acquisition accounting adjustments related to
the Company's purchase of BRE's 50% interest in the joint venture operations
effective July 1, 1999. Excluding the impact of acquisition accounting, gross
profit margins for the first quarter of 2000 would have been 20.3%, compared
with 18.7% for the first quarter of 1999. The Company anticipates that gross
profit margins will continue to be adversely impacted by acquisition
accounting adjustments through the first half of 2000.
The following pro-forma information and related discussion provide a more
meaningful comparison of the results of operations for the Active Adult
operations. The pro-forma information presents selected financial data for
Pulte's wholly-owned and joint venture operations as if they had been
consolidated for both 2000 and 1999. It excludes costs related to the sale
and subsequent repurchase of these operations, such as transaction costs and
acquisition accounting adjustments.
Three Months Ended
March 31,
-------------------
2000 1999
-------- --------
Pro-forma
-------------------
Pro-forma financial summary:
Revenues ..................................... $ 87,532 $ 71,187
Cost of sales ................................ (69,743) (57,641)
Selling, general and administrative expense .. (10,005) (7,796)
Interest ..................................... (597) (520)
Other expense, net ........................... (308) (1,340)
-------- --------
Pre-tax income ............................... $ 6,879 $ 3,890
======== ========
Pro-forma revenues increased in the first quarter of 2000, compared with
1999, due to an increase in the average selling price to $216 from $174.
Pro-forma gross profit margins were 20.3% and 19.0% for the first quarters of
2000 and 1999, respectively. These increases were a result of strong demand
for housing and product mix. Pro-forma selling, general and administrative
expense as a percent of revenues was 11.4% for the first quarter of 2000,
compared with 11.0% for the first quarter of 1999.
At March 31, 2000, Pulte's Active Adult Homebuilding operations controlled
approximately 12,800 lots, of which approximately 6,000 lots were owned and
approximately 6,800 were controlled through option agreements. Active Adult
Homebuilding inventory at March 31, 2000, was approximately $237,800, of
which approximately $198,000 is related to land and land development.
27
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 PFCI. Pre-tax income of the Company's
financial services operations for the three month periods ended March 31,
2000 and 1999, is as follows:
Three Months Ended
March 31,
------------------
2000 1999
------- -------
Pre-tax income:
Mortgage banking .................. $ 3,427 $ 5,566
Financing activities .............. -- 1,635
------- -------
Pre-tax income .................... $ 3,427 $ 7,201
======= =======
Mortgage Banking:
The following table presents mortgage origination data for PMC:
Three Months Ended
March 31,
--------------------
2000 1999
-------- --------
Total originations:
Loans .............................. 2,437 3,109
======== ========
Principal .......................... $342,200 $422,300
======== ========
Originations for Pulte customers:
Loans .............................. 2,032 2,221
======== ========
Principal .......................... $295,700 $312,300
======== ========
Mortgage origination volume for the three month period ended March 31, 2000,
decreased 19% from the comparable 1999 period. During the first three months
of 2000, competitive market conditions and rising interest rates continued to
decrease non-Pulte originations. Refinancings represented 2% of total loan
originations for the three month period ended March 31, 2000, as compared to
10% of total loan originations for 1999. At March 31, 2000, loan application
backlog increased 6% to $660,000 as compared with $623,000 at March 31, 1999.
Pulte continues to hedge its mortgage pipeline in the normal course of its
business and there has been no change in PMC's strategy or use of derivative
financial instruments in this regard.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended by SFAS No. 137, which is
required to be adopted in years beginning after June 15, 2000. 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. PMC, in the normal course of
business, uses derivative financial instruments to meet the financing needs
of its customers and to reduce its own exposure to fluctuations in interest
rates. The Company plans to adopt this statement on January 1, 2001, but has
not yet determined what effect SFAS No. 133 will have on its earnings and
financial position.
28
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
($000's omitted)
Financial Services Operations (continued):
Mortgage Banking (continued):
During the three months ended March 31, 2000, origination fees increased 12%
over the comparable period of the prior year. The increase in origination
fees is primarily due to an increase in non-funded, brokered loans. Pricing
and marketing gains decreased $3,093 for the quarter, as funded originations
decreased 25% from the same period in 1999. Net interest income increased 31%
primarily due to a widening of the yield curve.
Financing Activities:
The Company's secured financing operations, which had been conducted by the
limited-purpose subsidiaries of PFCI, ceased operations during 1999. During
the first quarter of 1999, PFCI recognized a net gain of approximately $1,700
in connection with the sale of its remaining mortgage-backed securities
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. 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, 2000 and 1999:
Three Months Ended
March 31,
------------------
2000 1999
------ ------
Net interest expense.................... $5,666 $4,444
Other corporate expenses, net........... 4,249 3,292
------ ------
Loss before income taxes................ $9,915 $7,736
====== ======
Pre-tax loss of the Company's corporate business segment increased $2,179
from the three month period ended March 31, 1999. The increase in pre-tax
loss for the quarter primarily reflects an increase of approximately $1,200
in net interest expense and a net increase of approximately $1,000 in other
expense. The increase in net interest expense is related to higher average
use of the Company's unsecured revolving credit facility primarily related to
increased working capital requirements of the Homebuilding Operations. Other
corporate expenses, net, reflect the inclusion of one-time expenses of
approximately $2,400 for the quarter ended March 31, 2000, primarily for
costs related to certain corporate strategic initiatives including the
amendment of certain stock option participant agreements and losses incurred
upon settlement of a derivative contract. Such one time expenses were
partially offset by lower administrative support expenses for the quarter.
29
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
($000's omitted)
Corporate (continued):
Net interest expense is net of amounts capitalized into homebuilding
inventories. Amounts capitalized are charged to homebuilding interest expense
when the related inventories are closed. Information related to interest in
inventory is as follows:
Three Months Ended
March 31,
------------------
2000 1999
------- -------
Interest in inventory at beginning of period........ $19,092 $16,356
Interest capitalized................................ 7,887 6,323
Interest expensed................................... (5,078) (4,145)
------- -------
Interest in inventory at end of period.............. $21,901 $18,534
======= =======
Liquidity and Capital Resources :
Continuing Operations:
The Company's net cash used in operating activities amounted to $129,423,
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 and decreases in the levels
of accounts payable and accrued liabilities from levels at December 31, 1999,
offset by a decrease in PMC's holdings of residential mortgage loans
available-for-sale. Net cash from investing activities decreased from a
source of cash of $29,943 in 1999 to a use of cash of $674 due primarily to
the sale of the underlying collateral of PFCI's mortgage-backed bond
portfolio which was redeemed during the first quarter of 1999. Net cash from
financing activities increased from a use of cash of $82,337 in 1999 to a
source of cash of $117,243 in 2000. This increase primarily reflects
increased borrowings under the Company's revolving credit facility to support
the Company's strategic operating goals and to fund the Company's stock
repurchase plan.
The Company finances its homebuilding land acquisitions, development and
construction activities from internally generated funds and existing credit
agreements. The Company had $232,700 of borrowings under its $375,000
unsecured revolving credit facilities at March 31, 2000. PMC 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, 2000, amounted to $250,000, an amount
deemed adequate to cover foreseeable needs. There were approximately $119,000
of borrowings outstanding under the $250,000 PMC arrangement at March 31,
2000. 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 2000 will be
between 38% and 39%.
30
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
($000's omitted, except per share data)
Liquidity and Capital Resources (continued):
Continuing Operations (continued):
At March 31, 2000, the Company had cash and equivalents of $38,864 and total
long-term indebtedness of $524,641. The Company's total long-term
indebtedness includes $487,739 of unsecured senior notes, a $21,000 unsecured
promissory note and other Pulte limited recourse debt of $15,902. The Company
also has other non-recourse short-term notes payable of $62,350 and First
Heights advances of $760. The first $14,000 due under the $21,000 unsecured
promissory note is payable during 2000.
On January 20, 2000, the Company's Board of Directors approved a stock
repurchase plan of up to $100,000. Shares will be purchased from time-to-time
in the open market, depending upon market conditions. As of March 31, 2000,
the Company had purchased 1,474,000 shares at an average price of $17.61 per
share. The Company anticipates that it will continue to fund repurchases
under the plan through cash flows from operations.
In April 2000 the Company sold, in a private placement, 9.5%, $175,000 Senior
Notes due 2003. The net proceeds from the sale of the Senior Notes were used
to repay short-term borrowings under the Company's revolving bank credit
arrangements.
Sources of the Company's working capital at March 31, 2000, include its cash
and equivalents, and its $375,000 committed unsecured revolving credit
facilities. The Company routinely monitors current operational requirements
and financial market conditions to evaluate the utilization of available
financial sources, including securities offerings.
Discontinued Operations:
The Company's remaining investment in First Heights at March 31, 2000,
approximated $29,800. 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 the FSLIC Resolution Fund
(FRF). In order to expedite the wind-down of its thrift operations, the
Company, with the approval of the Office of Thrift Supervision and the FDIC,
funded First Heights' repayment of its remaining certificates of deposit with
a loan of approximately $17,000 during the fourth quarter of 1998. Repayment
of such amount will be part of the final liquidation of First Heights. 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 bonds in the amount of $117 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.
31
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, 2000.
Qualitative disclosure:
This information is set forth on pages 31 and 32 of Part II, of Item 7A.,
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, 1999, and is incorporated herein by reference. As
discussed herein on page 21 of Item 2., Management's Discussion and Analysis
of Financial Condition and Results of Operation, Pulte Financial Companies,
Inc., a subsidiary of the Company redeemed its remaining mortgage-backed bond
portfolio and recorded a net realized gain on this transaction of
approximately $1,700 during the first quarter of 1999.
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, and 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).
32
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. ("PDCI") 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 $117 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.
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
------------------------------ ---------------------------
(4) (c) Indenture supplement dated Filed as Exhibit 4.5 to the
April 3, 2000 among Pulte Registrant's Registration
Corporation, Bank One Trust Statement on Form S-4
Company, National Association (Registration Statement No.
(as successor Trustee to The 333-36814)
First National Bank of Chicago),
and certain subsidiaries of
Pulte Corporation
(d) Registration Rights Agreement Filed as Exhibit 4.17 to the
dated April 3, 2000 among Registrant's Registration
Pulte Corporation, Merrill Statement on Form S-4
Lynch, Pierce, Fenner & Smith (Registration Statement No.
Incorporated, as the Initial 333-36814)
Purchaser Representative.
(27) Financial Data Schedule 35
All other exhibits are omitted from
this report because they are not
applicable.
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 15, 2000
34
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2000 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-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 38,864
<SECURITIES> 0
<RECEIVABLES> 44,627
<ALLOWANCES> 0
<INVENTORY> 1,992,601
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,694,078
<CURRENT-LIABILITIES> 0
<BONDS> 524,641<F1>
<COMMON> 421
0
0
<OTHER-SE> 1,095,833
<TOTAL-LIABILITY-AND-EQUITY> 2,694,078
<SALES> 765,588<F2>
<TOTAL-REVENUES> 775,819
<CGS> 630,681<F2>
<TOTAL-COSTS> 736,888
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,078<F3>
<INCOME-PRETAX> 39,462
<INCOME-TAX> 15,193
<INCOME-CONTINUING> 24,269
<DISCONTINUED> 67
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,336
<EPS-BASIC> .57
<EPS-DILUTED> .57
<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>
