10-Q 1 e10-q.txt QUARTERLY REPORT ENDED 6/30/00 1 ================================================================================ 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 JUNE 30, 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 July 31, 2000: 40,363,508 Total pages: 38 Listing of exhibits: 37 ================================================================================ 1 2 PULTE CORPORATION INDEX
PAGE NO. -------- PART I FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS (UNAUDITED) Condensed Consolidated Balance Sheets, June 30, 2000 and December 31, 1999.......... 3 Consolidated Statements of Income, for the Three and Six Months Ended June 30, 2000 and 1999............................................................. 4 Consolidated Statements of Shareholders' Equity, for the Six Months Ended June 30, 2000 and 1999............................................................. 5 Consolidated Statements of Cash Flows, for the Six Months Ended June 30, 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.................................................. 23 ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK................. 35 PART II OTHER INFORMATION ITEM 1 LEGAL PROCEEDINGS.......................................................... 36 ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........................ 37 ITEM 6 EXHIBITS................................................................... 37 SIGNATURES............................................................................ 38
2 3 PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PULTE CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS ($000'S OMITTED)
JUNE 30, DECEMBER 31, 2000 1999 ------------- ------------- (UNAUDITED) (NOTE) ASSETS Cash and equivalents................................................. $ 30,715 $ 51,718 Unfunded settlements................................................. 39,376 53,544 House and land inventories........................................... 1,983,751 1,792,733 Residential mortgage loans available-for-sale........................ 148,836 218,062 Other assets......................................................... 471,966 331,744 Deferred income taxes................................................ 55,381 57,224 Discontinued operations.............................................. 93,569 91,772 ----------- ----------- Total assets...................................................... $ 2,823,594 $ 2,596,797 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Accounts payable and accrued liabilities, including book overdrafts of $121,173 and $113,335 in 2000 and 1999, respectively........ $ 714,348 $ 694,826 Unsecured short-term borrowings................................... 96,000 7,000 Collateralized short-term debt, recourse solely to applicable subsidiary assets.............................................. 142,029 206,959 Income taxes...................................................... 5,206 11,769 Subordinated debentures and senior notes.......................... 701,219 525,965 Discontinued operations........................................... 57,528 56,959 ----------- ----------- Total liabilities.............................................. 1,716,330 1,503,478 Shareholders' equity................................................. 1,107,264 1,093,319 ----------- ----------- $ 2,823,594 $ 2,596,797 =========== ===========
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. 3 4 PULTE CORPORATION CONSOLIDATED STATEMENTS OF INCOME (000'S OMITTED, EXCEPT PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------- ------------------------- 2000 1999 2000 1999 ---------- ---------- ----------- ----------- REVENUES: Homebuilding........................................ $ 971,993 $ 821,317 $ 1,737,581 $ 1,488,140 Financial services, interest and other.............. 10,535 12,423 20,700 27,169 Corporate .......................................... 56 412 122 1,310 ---------- ---------- ----------- ----------- Total revenues............................ 982,584 834,152 1,758,403 1,516,619 ---------- ---------- ----------- ----------- EXPENSES: Homebuilding, principally cost of sales............. 886,359 759,746 1,606,568 1,388,305 Financial services, interest and other.............. 7,098 7,346 13,796 14,891 Corporate, net...................................... 13,276 9,323 23,257 17,957 ---------- ---------- ----------- ----------- Total expenses............................ 906,733 776,415 1,643,621 1,421,153 ---------- ---------- ----------- ----------- OTHER INCOME: Equity in income of Pulte-affiliates................ 1,639 297 2,170 2,160 ---------- ---------- ----------- ----------- Income from continuing operations before income taxes............................................... 77,490 58,034 116,952 97,626 Income taxes .......................................... 29,830 20,971 45,023 36,609 ------------ --------- ---------- --------- Income from continuing operations...................... 47,660 37,063 71,929 61,017 Income from discontinued operations.................... 32 53 99 429 ---------- ---------- ----------- ----------- Net income ............................................ $ 47,692 $ 37,116 $ 72,028 $ 61,446 ========== ========== =========== ========== PER SHARE DATA: Basic: Income from continuing operations................. $ 1.16 $ .86 $ 1.72 $ 1.41 Income from discontinued operations............... - - - .01 ---------- ---------- ----------- ----------- Net income........................................ $ 1.16 $ .86 $ 1.72 $ 1.42 ========== ========== =========== =========== Assuming dilution: Income from continuing operations................. $ 1.15 $ .85 $ 1.71 $ 1.37 Income from discontinued operations............... - - - .01 ---------- ---------- ----------- ----------- Net income........................................ $ 1.15 $ .85 $ 1.71 $ 1.38 ========== ========== =========== =========== Cash dividends declared............................. $ .04 $ .04 $ .08 $ .08 ========== ========== =========== =========== Number of shares used in calculation: Basic: Weighted-average common shares outstanding..... 41,053 43,245 41,875 43,239 Assuming dilution: Effect of dilutive securities - stock options.. 516 593 355 1,376 ---------- ---------- ---------- ---------- Adjusted weighted-average common shares and effect of dilutive securities........ 41,569 43,838 42,230 44,615 ========== ========== ========== ==========
See accompanying Notes to Condensed Consolidated Financial Statements. 4 5 PULTE CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY ($000'S OMITTED) (UNAUDITED)
ACCUMULATED OTHER ADDITIONAL COMPREHENSIVE COMMON PAID-IN INCOME RETAINED STOCK CAPITAL (LOSS) EARNINGS TOTAL -------- ------------ -------------- ----------- ----------- SHAREHOLDERS' EQUITY, DECEMBER 31, 1999....... $ 433 $ 77,070 $ (259) $ 1,016,075 $ 1,093,319 Exercise of stock options..................... 3 6,507 - - 6,510 Cash dividends declared....................... - - (3,336) (3,336) Stock repurchases............................. (31) (5,649) - (55,774) (61,454) Comprehensive income: Net income................................ - - - 72,028 72,028 Foreign currency translation adjustments.. - - 197 - 197 ----------- Total comprehensive income.................... 72,225 -------- ----------- ----------- ----------- ----------- SHAREHOLDERS' EQUITY, JUNE 30, 2000........... $ 405 $ 77,928 $ (62) $ 1,028,993 $ 1,107,264 ======== =========== =========== =========== =========== SHAREHOLDERS' EQUITY, DECEMBER 31, 1998....... $ 432 $ 75,051 $ 1,130 $ 844,829 $ 921,442 Exercise of stock options..................... - 1,659 - - 1,659 Cash dividends declared....................... - - - (3,459) (3,459) Comprehensive income: Net income................................ - - - 61,446 61,446 Change in unrealized gains on securities available-for-sale, net of income taxes.. - - (1,130) - (1,130) Foreign currency translation adjustments.. - - 233 - 233 ----------- Total comprehensive income.................... 60,549 -------- ----------- ----------- ----------- ----------- SHAREHOLDERS' EQUITY, JUNE 30, 1999........... $ 432 $ 76,710 $ 233 $ 902,816 $ 980,191 ======== =========== =========== =========== ===========
See accompanying Notes to Condensed Consolidated Financial Statements. 5 6 PULTE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS ($000'S OMITTED) (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2000 1999 ---------- ---------- CONTINUING OPERATIONS: Cash flows from operating activities: Income from continuing operations................................... $ 71,929 $ 61,017 Adjustments to reconcile income from continuing operations to net cash flows provided by (used in) operating activities: Amortization, depreciation and other.......................... 7,531 6,107 Deferred income taxes......................................... (6,479) (1,402) Gain on sale of securities.................................... - (1,664) Increase (decrease) in cash due to: Inventories........................................... (301,293) (268,606) Residential mortgage loans available-for-sale......... 69,226 73,508 Other assets.......................................... (17,828) (64,341) Accounts payable and accrued liabilities.............. 19,486 62,517 Income taxes.......................................... 2,536 5,732 ---------- ---------- Net cash used in operating activities................................... (154,892) (127,132) ---------- ---------- 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.......................................................... (865) (567) ---------- ---------- Net cash provided by (used in) investing activities..................... (865) 28,809 ---------- ---------- Cash flows from financing activities: Payment of long-term debt and bonds................................. - (28,077) Proceeds from borrowings............................................ 264,157 112,800 Repayment of borrowings............................................. (70,487) (84,558) Stock repurchases................................................... (61,454) - Dividends paid...................................................... (3,336) (3,459) Other, net.......................................................... 5,874 1,636 ---------- ---------- Net cash provided by (used in) financing activities..................... 134,754 (1,658) ---------- ---------- Net decrease in cash and equivalents - continuing operations............ (21,003) (99,981) ---------- ----------
6 7 PULTE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) ($000'S OMITTED) (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2000 1999 ---------- ---------- DISCONTINUED OPERATIONS: Cash flows from operating activities: Income from discontinued operations................................. $ 99 $ 429 Change in deferred taxes............................................ 8,322 7,451 Change in income taxes.............................................. (8,237) (7,258) Other changes, net.................................................. 1,869 1,217 Cash flows from investing activities: Purchase of securities available-for-sale........................... - 219 Increase in Covered Assets and FSLIC Resolution Fund receivables.... (1,844) (1,971) ---------- ---------- Net increase in cash and equivalents-discontinued operations............ 209 87 ---------- ---------- Net decrease in cash and equivalents.................................... (20,794) (99,894) Cash and equivalents at beginning of period............................. 51,797 125,329 ---------- ---------- Cash and equivalents at end of period................................... $ 31,003 $ 25,435 ========== ========== Cash - continuing operations............................................ $ 30,715 $ 25,217 Cash - discontinued operations.......................................... 288 218 ---------- ---------- $ 31,003 $ 25,435 ========== ========== Supplemental disclosure of cash flow information- cash paid during the period for: Interest, net of amount capitalized............................... $ 14,752 $ 12,078 ========== ========== Income taxes..................................................... $ 38,265 $ 30,956 ========== ==========
See accompanying Notes to Condensed Consolidated Financial Statements. 7 8 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" or "Pulte"), 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 primarily in the homebuilding business. PDCI's operating subsidiaries include Pulte Home Corporation (PHC), 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 PHC. 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 six month period ended June 30, 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 June 30, 2000 and 1999, the Company's comprehensive income other than net income amounted to $224 and $226, respectively, net of tax provision of $(30) and $0, respectively. For the six months ended June 30, 2000 and 1999, the Company's comprehensive income (loss) other than net income amounted to $197 and $(897), respectively, net of tax benefit of $(18) 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 Nos. 137 and 138, 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 9 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 and six months ended June 30, 2000, amounted to $961 and $1,886 respectively. Revenues for the comparable periods of 1999 were $915 and $2,085, respectively. For the three and six months ended June 30, 2000 discontinued thrift operations provided after-tax income of $32 and $99, respectively. After-tax income for the comparable periods of 1999 was $53 and $429, 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: - 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. - 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. - 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 10 PULTE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ($000'S OMITTED) (UNAUDITED) 3. SEGMENT INFORMATION (CONTINUED)
OPERATING DATA BY SEGMENT THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------- ------------------------- 2000 1999 2000 1999 ---------- ---------- ----------- ----------- Revenues: Homebuilding...................................... $ 971,993 $ 821,317 $ 1,737,581 $ 1,488,140 Financial Services................................ 10,535 12,423 20,700 27,169 Corporate ........................................ 56 412 122 1,310 ---------- ---------- ----------- ----------- Total revenues............................... 982,584 834,152 1,758,403 1,516,619 ---------- ---------- ----------- ----------- Cost of sales: Homebuilding...................................... 790,292 680,220 1,420,973 1,235,908 ---------- ---------- ----------- ----------- Selling, general and administrative: Homebuilding...................................... 88,504 73,341 171,269 140,627 Financial Services................................ 5,487 5,481 10,459 10,887 Corporate ........................................ 3,405 1,394 4,972 3,428 ---------- ---------- ----------- ----------- Total selling, general and administrative.... 97,396 80,216 186,700 154,942 ---------- ---------- ----------- ----------- Interest: Homebuilding...................................... 6,489 5,429 11,567 9,574 Financial Services................................ 1,611 1,715 3,287 3,754 Corporate ........................................ 7,949 5,199 13,681 9,716 ---------- ---------- ----------- ----------- Total interest............................... 16,049 12,343 28,535 23,044 ---------- ---------- ----------- ----------- Other expense, net: Homebuilding...................................... 1,075 756 2,760 2,196 Financial Services................................ - 150 50 250 Corporate ........................................ 1,921 2,730 4,603 4,813 ---------- ---------- ----------- ----------- Total other expense, net..................... 2,996 3,636 7,413 7,259 ---------- ---------- ----------- ----------- Total costs and expenses............................. 906,733 776,415 1,643,621 1,421,153 ---------- ---------- ----------- ----------- Equity in income of joint ventures: Homebuilding...................................... 1,639 297 2,170 2,160 ---------- ---------- ----------- ----------- Income (loss) before income taxes: Homebuilding...................................... 87,272 61,868 133,182 101,995 Financial Services................................ 3,437 5,077 6,904 12,278 Corporate ........................................ (13,219) (8,911) (23,134) (16,647) ---------- ---------- ----------- ----------- Total income before income taxes..................... $ 77,490 $ 58,034 $ 116,952 $ 97,626 ========== ========== =========== ===========
10 11 PULTE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ($000'S OMITTED) (UNAUDITED) 3. SEGMENT INFORMATION (CONTINUED)
ASSET DATA BY SEGMENT FINANCIAL HOMEBUILDING SERVICES CORPORATE TOTAL ------------ -------- --------- ----- AT JUNE 30, 2000: Inventory......................... $ 1,983,751 $ - $ - $ 1,983,751 =========== Identifiable assets............... 2,452,221 173,449 104,355 $ 2,730,025 Assets of discontinued operations. 93,569 ----------- Total assets...................... $ 2,823,594 =========== 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 ===========
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 11 12 PULTE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ($000'S OMITTED) (UNAUDITED) 4. COMMITMENTS AND CONTINGENCIES (CONTINUED) First Heights-related litigation (continued) had contracted for, and that the enactment of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 breached the Government's obligation not to require contributions of capital greater than those required by the contract. On March 5, 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 about 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 has appealed 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. DEBT In March 2000, the Company entered into a $25,000 revolving credit facility which can be canceled at the Company's discretion. The Company's unsecured revolving credit facilities totaled $400,000 at June 30, 2000. In April 2000, the Company sold in a private placement pursuant to Rule 144A under the Securities Act, $175,000 of 9.5% Senior Notes due in 2003. Effective May 26, 2000, the Company filed an S-4 Registration Statement with the Securities and Exchange Commission, offering to exchange the original unregistered Notes for registered Notes. This exchange was completed subsequent to the end of the second quarter. The terms of the new notes are substantially identical to those of the original notes. Net proceeds received from the sale were used to repay short-term borrowings under unsecured bank credit arrangements and for general corporate purposes. 12 13 PULTE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ($000'S OMITTED) (UNAUDITED) 6. SUPPLEMENTAL GUARANTOR INFORMATION The Company has the following outstanding Senior Note obligations: (1) $175,000, 9.5%, due 2003, (2) $100,000, 7%, due 2003, (3) $115,000, 8.375%, due 2004, (4) $125,000, 7.3%, due 2005, and (5) $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. 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. CONDENSED CONSOLIDATING BALANCE SHEET JUNE 30, 2000
UNCONSOLIDATED --------------------------------------------- CONSOLIDATED PULTE GUARANTOR NON-GUARANTOR ELIMINATING PULTE CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES CORPORATION ----------- ------------ ------------ ------- ----------- ASSETS Cash and equivalents.................... $ - $ 26,978 $ 3,737 $ - $ 30,715 Unfunded settlements.................... - 41,211 (1,835) - 39,376 House and land inventories.............. - 1,948,734 35,017 - 1,983,751 Residential mortgage loans and other securities available-for-sale........ - - 148,836 - 148,836 Land held for sale and future development.......................... - 162,728 - - 162,728 Other assets............................ 22,702 216,061 70,475 - 309,238 Deferred income taxes................... 55,381 - - - 55,381 Discontinued operations................. - - 93,569 - 93,569 Investment in subsidiaries.............. 1,383,137 22,487 1,390,131 (2,795,755) - Advances receivable - subsidiaries...... 566,148 965 38,872 (605,985) - ----------- ----------- ----------- ------------- ----------- $ 2,027,368 $ 2,419,164 $ 1,778,802 $ (3,401,740) $ 2,823,594 =========== =========== =========== ============ =========== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Accounts payable and accrued liabilities $ 91,185 $ 564,122 $ 59,041 $ - $ 714,348 Unsecured short-term borrowings......... 96,000 - - - 96,000 Collateralized short-term debt, recourse solely to applicable subsidiary assets - - 142,029 - 142,029 Income taxes............................ 5,206 - - - 5,206 Subordinated debentures and senior notes 662,065 18,154 21,000 - 701,219 Discontinued operations................. - - 57,528 - 57,528 Advances payable - subsidiaries......... 65,648 452,819 87,518 (605,985) - ----------- ------------ ----------- ------------ ----------- Total liabilities................. 920,104 1,035,095 367,116 (605,985) 1,716,330 Shareholders' equity.................... 1,107,264 1,384,069 1,411,686 (2,795,755) 1,107,264 ----------- ----------- ----------- ------------ ----------- $ 2,027,368 $ 2,419,164 $ 1,778,802 $ (3,401,740) $ 2,823,594 =========== =========== =========== ============ ===========
13 14 PULTE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ($000'S OMITTED) 6. SUPPLEMENTAL GUARANTOR INFORMATION (CONTINUED) CONDENSED CONSOLIDATING BALANCE SHEET DECEMBER 31, 1999
UNCONSOLIDATED --------------------------------------------- CONSOLIDATED PULTE GUARANTOR NON-GUARANTOR ELIMINATING PULTE CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES CORPORATION ----------- ------------ ------------- ------- ----------- 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 ============ =========== ============ ============ =============
14 15 PULTE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ($000'S OMITTED) (UNAUDITED) 6. SUPPLEMENTAL GUARANTOR INFORMATION (CONTINUED) CONSOLIDATING STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000
UNCONSOLIDATED ------------------------------------------- CONSOLIDATED PULTE GUARANTOR NON-GUARANTOR ELIMINATING PULTE CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES CORPORATION ----------- ------------ ------------- ----------- ------------ REVENUES: Homebuilding.............................. $ - $ 1,730,239 $ 7,342 $ - $ 1,737,581 Financial services, interest and other.... - - 20,700 - 20,700 Corporate................................. 92 30 - - 122 -------- ----------- -------- --------- ----------- Total revenues.............................. 92 1,730,269 28,042 - 1,758,403 -------- ----------- -------- --------- ----------- EXPENSES: Homebuilding: Cost of sales............................ - 1,414,354 6,619 - 1,420,973 Selling, general and administrative and other expense.......................... 547 183,983 1,065 - 185,595 Financial services, interest and other.... - - 13,796 - 13,796 Corporate, net............................ 20,749 3,504 (996) - 23,257 -------- ----------- -------- --------- ----------- Total expenses.............................. 21,296 1,601,841 20,484 - 1,643,621 -------- ----------- -------- --------- ----------- OTHER INCOME: Equity in income of Pulte-affiliates........ - - 2,170 - 2,170 -------- ----------- -------- --------- ----------- Income (loss) from continuing operations before income taxes and equity in income of subsidiaries.......................... (21,204) 128,428 9,728 - 116,952 Income taxes (benefit)...................... (9,951) 49,932 5,042 - 45,023 -------- ----------- -------- --------- ----------- Income (loss) from continuing operations before equity in income of subsidiaries... (11,253) 78,496 4,686 - 71,929 Income (loss) from discontinued operations.. (884) - 983 - 99 -------- ----------- -------- --------- ----------- Income (loss) before equity in income of subsidiaries........................... (12,137) 78,496 5,669 - 72,028 -------- ----------- -------- --------- ----------- Equity in income of subsidiaries: Continuing operations..................... 83,182 4,285 84,462 (171,929) - Discontinued operations................... 983 - - (983) - -------- ----------- -------- --------- ----------- 84,165 4,285 84,462 (172,912) - -------- ----------- -------- --------- ----------- Net income.................................. $ 72,028 $ 82,781 $ 90,131 $(172,912) $ 72,028 ======== =========== ======== ========= ===========
15 16 PULTE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ($000'S OMITTED) (UNAUDITED) 6. SUPPLEMENTAL GUARANTOR INFORMATION (CONTINUED) CONSOLIDATING STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2000
UNCONSOLIDATED ------------------------------------------- CONSOLIDATED PULTE GUARANTOR NON-GUARANTOR ELIMINATING PULTE CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES CORPORATION ----------- ------------ ------------ ------- ----------- REVENUES: Homebuilding............................... $ - $ 967,291 $ 4,702 $ - $ 971,993 Financial services, interest and other..... - - 10,535 - 10,535 Corporate.................................. 56 - - - 56 -------- ---------- -------- --------- ----------- Total revenues.............................. 56 967,291 15,237 - 982,584 -------- ---------- -------- --------- ----------- EXPENSES: Homebuilding: Cost of sales............................. - 785,990 4,302 - 790,292 Selling, general and administrative and other expense........................... 320 95,670 77 - 96,067 Financial services, interest and other.... - - 7,098 - 7,098 Corporate, net............................ 11,540 1,701 35 - 13,276 -------- ---------- -------- --------- ----------- Total expenses.............................. 11,860 883,361 11,512 - 906,733 -------- ---------- -------- --------- ----------- OTHER INCOME: Equity in income of Pulte-affiliates........ - - 1,639 - 1,639 -------- ---------- -------- --------- ----------- Income (loss) from continuing operations before income taxes and equity in income of subsidiaries.......................... (11,804) 83,930 5,364 - 77,490 Income taxes (benefit)...................... (5,037) 32,318 2,549 - 29,830 -------- ---------- -------- --------- ----------- Income (loss) from continuing operations before equity in income of subsidiaries... (6,767) 51,612 2,815 - 47,660 Income (loss) from discontinued operations.. (476) - 508 - 32 -------- ---------- -------- --------- ----------- Income (loss) before equity in income of subsidiaries.......................... (7,243) 51,612 3,323 - 47,692 -------- ---------- -------- --------- ----------- Equity in income of subsidiaries: Continuing operations.................... 54,427 2,132 54,285 (110,844) - Discontinued operations.................. 508 - - (508) - -------- ---------- -------- --------- ----------- 54,935 2,132 54,285 (111,352) - -------- ---------- -------- --------- ----------- Net income.................................. $ 47,692 $ 53,744 $ 57,608 $(111,352) $ 47,692 ======== ========== ======== ========= ===========
16 17 PULTE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ($000'S OMITTED) (UNAUDITED) 6. SUPPLEMENTAL GUARANTOR INFORMATION (CONTINUED) CONSOLIDATING STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999
UNCONSOLIDATED -------------------------------------------- CONSOLIDATED PULTE GUARANTOR NON-GUARANTOR ELIMINATING PULTE CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES CORPORATION ----------- ------------ -------------- ----------- ----------- REVENUES: Homebuilding.............................. $ - $ 1,473,624 $ 14,516 $ - $ 1,488,140 Financial services, interest and other ... - - 27,169 - 27,169 Corporate................................. 75 - 1,235 - 1,310 -------- ----------- -------- --------- ----------- Total revenues.............................. 75 1,473,624 42,920 - 1,516,619 -------- ----------- -------- --------- ----------- EXPENSES: Homebuilding: Cost of sales............................ - 1,222,238 13,670 - 1,235,908 Selling, general and administrative and other expense.......................... 707 150,438 1,252 - 152,397 Financial services, interest and other ... - - 14,891 - 14,891 Corporate, net............................ 16,012 1,449 496 - 17,957 -------- ----------- -------- --------- ----------- Total expenses.............................. 16,719 1,374,125 30,309 - 1,421,153 -------- ----------- -------- --------- ----------- OTHER INCOME: Equity in income of Pulte-affiliates........ - 816 1,344 - 2,160 -------- ----------- -------- --------- ----------- Income (loss) from continuing operations before income taxes and equity in income of subsidiaries.......................... (16,644) 100,315 13,955 - 97,626 Income taxes (benefit)...................... (7,972) 38,471 6,110 - 36,609 -------- ----------- -------- --------- ----------- Income (loss) from continuing operations before equity in income of subsidiaries.......................... (8,672) 61,844 7,845 - 61,017 Income (loss) from discontinued operations.. (728) - 1,157 - 429 -------- ----------- -------- --------- ----------- Income (loss) before equity in income of subsidiaries....................... (9,400) 61,844 9,002 - 61,446 -------- ----------- -------- --------- ----------- Equity in income of subsidiaries: Continuing operations..................... 69,689 6,578 63,570 (139,837) - Discontinued operations................... 1,157 - - (1,157) - -------- ----------- -------- --------- ----------- 70,846 6,578 63,570 (140,994) - -------- ----------- -------- --------- ----------- Net income.................................. $ 61,446 $ 68,422 $ 72,572 $(140,994) $ 61,446 ======== =========== ======== ========= ===========
17 18 PULTE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ($000'S OMITTED) (UNAUDITED) 6. SUPPLEMENTAL GUARANTOR INFORMATION (CONTINUED) CONSOLIDATING STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1999
UNCONSOLIDATED --------------------------------------------- CONSOLIDATED PULTE GUARANTOR NON-GUARANTOR ELIMINATING PULTE CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES CORPORATION ----------- ------------ ------------ ------- ----------- REVENUES: Homebuilding............................... $ - $ 815,124 $ 6,193 $ - $ 821,317 Financial services, interest and other..... - - 12,423 - 12,423 Corporate.................................. 2 - 410 - 412 -------- ---------- -------- --------- ----------- Total revenues............................... 2 815,124 19,026 - 834,152 -------- ---------- -------- --------- ----------- EXPENSES: Homebuilding: Cost of sales............................. - 674,479 5,741 - 680,220 Selling, general and administrative and other expense........................... 432 79,201 (107) - 79,526 Financial services, interest and other..... - - 7,346 - 7,346 Corporate, net............................. 8,953 686 (316) - 9,323 -------- ---------- -------- --------- ----------- Total expenses............................... 9,385 754,366 12,664 - 776,415 -------- ---------- -------- --------- ----------- OTHER INCOME: Equity in income (loss) of Pulte-affiliates.. - 560 (263) - 297 -------- ---------- ---------- --------- --------- Income (loss) from continuing operations before income taxes and equity in income of subsidiaries........................... (9,383) 61,318 6,099 - 58,034 Income taxes (benefit)....................... (5,208) 23,547 2,632 - 20,971 -------- ---------- -------- --------- ----------- Income (loss) from continuing operations before equity in income of subsidiaries.... (4,175) 37,771 3,467 - 37,063 Income (loss) from discontinued operations... (477) - 530 - 53 -------- ---------- -------- --------- ----------- Income (loss) before equity in income of subsidiaries............................ (4,652) 37,771 3,997 - 37,116 -------- ---------- -------- --------- ----------- Equity in income of subsidiaries: Continuing operations...................... 41,238 3,130 38,517 (82,885) - Discontinued operations.................... 530 - - (530) - -------- ---------- -------- --------- ----------- 41,768 3,130 38,517 (83,415) - -------- ---------- -------- --------- ----------- Net income................................... $ 37,116 $ 40,901 $ 42,514 $ (83,415) $ 37,116 ======== ========== ======== ========= ===========
18 19 PULTE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ($000'S OMITTED) (UNAUDITED) 6. SUPPLEMENTAL GUARANTOR INFORMATION (CONTINUED) CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2000
UNCONSOLIDATED ----------------------------------------------- CONSOLIDATED PULTE GUARANTOR NON-GUARANTOR ELIMINATING PULTE CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES CORPORATION ----------- ------------ ------------- ----------- ------------ CONTINUING OPERATIONS: Cash flows from operating activities: Income from continuing operations.............. $ 71,929 $ 82,781 $ 89,148 $(171,929) $ 71,929 Adjustments to reconcile income from continuing operations to net cash flows provided by (used in) operating activities: Equity in income of subsidiaries............ (83,182) (4,285) (84,462) 171,929 - Amortization, depreciation and other........ 97 7,958 (524) - 7,531 Deferred income taxes....................... (6,479) - - - (6,479) Increase (decrease) in cash due to: Inventories................................ - (298,428) (2,865) - (301,293) Residential mortgage loans available-for-sale........................ - - 69,226 - 69,226 Other assets............................... (1,593) 1,525 (17,760) - (17,828) Accounts payable and accrued liabilities... 3,861 14,845 780 - 19,486 Income taxes............................... (49,019) 49,918 1,637 - 2,536 ---------- ---------- ---------- --------- ---------- Net cash provided by (used in) operating activities...................................... (64,386) (145,686) 55,180 - (154,892) ---------- ---------- ---------- --------- ---------- Cash flows from investing activities: Dividends received from subsidiaries............ - 2,000 - (2,000) - Investment in subsidiary........................ (100) (308) - 408 - Advances to affiliates.......................... (160,382) 2,933 1,699 155,750 - Other, net...................................... - - (865) - (865) ---------- ---------- ---------- -------- ---------- Net cash provided by (used in) investing activities...................................... (160,482) 4,625 834 154,158 (865) ---------- ---------- ---------- -------- ---------- Cash flows from financing activities: Proceeds from borrowings........................ 263,278 879 - - 264,157 Repayment of borrowings......................... - (5,557) (64,930) - (70,487) Capital contributions from parent............... - - 408 (408) - Advances from affiliates........................ 20,682 128,511 6,557 (155,750) - Stock repurchases............................... (61,454) - - - (61,454) Dividends paid.................................. (3,336) - (2,000) 2,000 (3,336) Other, net...................................... 5,648 - 226 - 5,874 ---------- ---------- ---------- -------- ---------- Net cash provided by (used in) financing activities............................ 224,818 123,833 (59,739) (154,158) 134,754 ---------- ---------- ---------- -------- ---------- Net decrease in cash and equivalents - continuing operations............ (50) (17,228) (3,725) - (21,003) ---------- ---------- ---------- -------- ----------
19 20 PULTE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ($000'S OMITTED) (UNAUDITED) 6. SUPPLEMENTAL GUARANTOR INFORMATION (CONTINUED) CONSOLIDATING STATEMENT OF CASH FLOWS (CONTINUED) FOR THE SIX MONTHS ENDED JUNE 30, 2000
UNCONSOLIDATED -------------------------------------------- CONSOLIDATED PULTE GUARANTOR NON-GUARANTOR ELIMINATING PULTE CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES CORPORATION ----------- ------------ ------------ ----------- ----------- DISCONTINUED OPERATIONS: Cash flows from operating activities: Income from discontinued operations.............................. $ 99 $ - $ 983 $ (983) $ 99 Change in deferred income taxes........... 8,322 - - - 8,322 Equity in income of subsidiaries.......... (983) - - 983 - Change in income taxes.................... (8,237) - - - (8,237) Other, net................................ 799 - 1,070 - 1,869 Cash flows from investing activities: Increase in Covered Assets and FRF receivables.............................. - - (1,844) - (1,844) ---------- -------- ---------- -------- ---------- Net increase in cash and equivalents- discontinued operations.................. - - 209 - 209 ---------- -------- ---------- -------- ---------- Net decrease in cash and equivalents....... (50) (17,228) (3,516) - (20,794) Cash and equivalents at beginning of period................................... 50 44,206 7,541 - 51,797 ---------- -------- ---------- -------- ---------- Cash and equivalents at end of period...... $ - $ 26,978 $ 4,025 $ - $ 31,003 ========== ======== ========== ======== ==========
20 21 PULTE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ($000'S OMITTED) (UNAUDITED) 6. SUPPLEMENTAL GUARANTOR INFORMATION (CONTINUED) CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1999
UNCONSOLIDATED ------------------------------------------ CONSOLIDATED PULTE GUARANTOR NON-GUARANTOR ELIMINATING PULTE CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES CORPORATION ----------- ------------ ------------- ----------- ------------ CONTINUING OPERATIONS: Cash flows from operating activities: Income from continuing operations.............. $ 61,017 $ 68,422 $ 71,415 $(139,837) $ 61,017 Adjustments to reconcile income from continuing operations to net cash flows provided by (used in) operating activities: Equity in income of subsidiaries............ (69,689) (6,578) (63,570) 139,837 - Amortization, depreciation and other........ 97 6,261 (251) - 6,107 Deferred income taxes....................... (1,402) - - - (1,402) Gain on sale of securities.................. - - (1,664) - (1,664) Increase (decrease) in cash due to: Inventories................................. - (268,641) 35 - (268,606) Residential mortgage loans available-for-sale........................ - - 73,508 - 73,508 Other assets................................ 2,527 (59,865) (7,003) - (64,341) Accounts payable and accrued liabilities.... 2,598 55,637 4,282 - 62,517 Income taxes................................ (37,855) 42,573 1,014 - 5,732 ---------- ---------- --------- --------- ---------- Net cash provided by (used in) operating activities..................................... (42,707) (162,191) 77,766 - (127,132) ---------- ---------- --------- --------- ---------- 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........... 2,150 11,294 - (13,444) - Other, net..................................... - - (567) - (567) Investment in subsidiary....................... (4,358) (5,725) - 10,083 - Advances to affiliates......................... (139,022) (4) (551) 139,577 - ---------- ---------- --------- --------- ---------- Net cash provided by (used in) investing activities..................................... (141,230) 5,565 28,258 136,216 28,809 ---------- ---------- --------- --------- ---------- Cash flows from financing activities: Payment of long-term debt and bonds............ - - (28,077) - (28,077) Proceeds from borrowings....................... 112,800 - - - 112,800 Repayment of borrowings........................ - (8,894) (75,664) - (84,558) Capital contributions from parent.............. - 2,458 7,625 (10,083) - Advances from affiliates....................... (3,589) 139,835 3,331 (139,577) - Dividends paid................................. (3,459) - (13,444) 13,444 (3,459) Other, net..................................... 1,657 50 (71) - 1,636 ---------- ---------- --------- --------- ---------- Net cash provided by (used in) financing activities........................... 107,409 133,449 (106,300) (136,216) (1,658) ---------- ---------- --------- --------- ---------- Net decrease in cash and equivalents - continuing operations............ $ (76,528) $ (23,177) $ (276) $ - $ (99,981) ---------- ---------- --------- --------- ----------
21 22 PULTE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ($000'S OMITTED) (UNAUDITED) 6. SUPPLEMENTAL GUARANTOR INFORMATION (CONTINUED) CONSOLIDATING STATEMENT OF CASH FLOWS (CONTINUED) FOR THE SIX MONTHS ENDED JUNE 30, 1999
UNCONSOLIDATED ------------------------------------------- CONSOLIDATED PULTE GUARANTOR NON-GUARANTOR ELIMINATING PULTE CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES CORPORATION ----------- ------------ ------------ ----------- ----------- DISCONTINUED OPERATIONS: Cash flows from operating activities: Income from discontinued operations.......................... $ 429 $ - $ 1,157 $ (1,157) $ 429 Change in deferred income taxes....... 7,451 - - - 7,451 Equity in income of subsidiaries...... (1,157) - - 1,157 - Change in income taxes................ (7,258) - - - (7,258) Other changes, net.................... 535 - 682 - 1,217 Cash flows from investing activities: Purchase of securities available- for-sale............................. - - 219 - 219 Decrease in Covered Assets and FRF receivables.......................... - - (1,971) - (1,971) ---------- -------- ---------- -------- ---------- Net increase in cash and equivalents- discontinued operations............... - - 87 - 87 ---------- -------- ---------- -------- ---------- Net decrease in cash and equivalents........................... (76,528) (23,177) (189) - (99,894) Cash and equivalents at beginning of period................................ 76,555 46,109 2,665 - 125,329 ---------- -------- ---------- -------- ---------- Cash and equivalents at end of period... $ 27 $ 22,932 $ 2,476 $ - $ 25,435 ========== ======== ========== ======== ==========
22 23 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ($000'S OMITTED, EXCEPT PER SHARE DATA) OVERVIEW: A summary of the Company's operating results by business segment for the three and six month periods ended June 30, 2000 and 1999 is as follows:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------- ------------------------- 2000 1999 2000 1999 ---------- ---------- ----------- ----------- Pre-tax income (loss): Homebuilding operations........................... $ 87,272 61,868 $ 133,182 $ 101,995 Financial Services operations..................... 3,437 5,077 6,904 12,278 Corporate ........................................ (13,219) (8,911) (23,134) (16,647) ----------- ---------- ------------ ----------- Pre-tax income from continuing operations............ 77,490 58,034 116,952 97,626 Income taxes ........................................ (29,830) (20,971) (45,023) (36,609) ---------- ---------- ----------- ----------- Income from continuing operations.................... 47,660 37,063 71,929 61,017 Income from discontinued operations.................. 32 53 99 429 ---------- ---------- ----------- ----------- Net income ........................................ $ 47,692 $ 37,116 $ 72,028 $ 61,446 ========== ========== =========== =========== Per share data - assuming dilution: Income from continuing operations................... $ 1.15 $ .85 $ 1.71 $ 1.37 Income from discontinued operations................. - - - .01 ---------- ---------- ----------- ----------- Net income........................................ $ 1.15 $ . 85 $ 1.71 $ 1.38 ========== ========== =========== ===========
A comparison of pre-tax income (loss) for the three and six month periods ended June 30, 2000 and 1999 is as follows: - Pre-tax income of the Company's homebuilding business segment increased 41% and 31%, respectively, due primarily to the improvement in Domestic Homebuilding operations where pre-tax income increased 34% and 26%, respectively. Domestic unit settlements increased 5% and 2%; domestic gross margins improved 150 and 110 basis points; and domestic average unit selling price increased by 8% and 9%, respectively. - Pre-tax income of the Company's financial services business segment decreased 32% and 44%, respectively, as a result of competitive market conditions, an increase in non-funded brokered loans and an increase in consumer use of adjustable rate mortgages. In addition, the prior year's six month results include a net gain of approximately $1,700 as Pulte Financial Companies, Inc. (PFCI), a financing subsidiary of the Company, sold its remaining mortgage-backed securities portfolio during the first quarter of 1999. - Pre-tax loss of the Company's corporate business segment increased $4,300 and $6,500, respectively, from the three and six month periods ended June 30, 1999. The increase in pre-tax loss for the quarter primarily reflects an increase of approximately $2,700 and $3,900, respectively, 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 $1,600 and $2,600, respectively, in other expense, primarily due to the continued funding of corporate strategic initiatives. 23 24 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: - 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. - 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. - 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% of the unit net new orders and unit settlements for the three and six month periods ended June 30, 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 these periods. Certain operating data relating to the Company's joint ventures and homebuilding operations for the three and six months ended June 30, 2000 and 1999, are as follows:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------- ------------------------- 2000 1999 2000 1999 ---------- ---------- ----------- ----------- Pulte/Pulte-affiliate homebuilding revenues: Domestic.......................................... $ 867,884 $ 771,114 $1,543,300 $ 1,384,484 International..................................... 44,682 19,127 74,239 54,438 Active Adult...................................... 99,407 75,510 186,939 146,697 ----------- ---------- ----------- ----------- Total homebuilding................................... $ 1,011,973 $ 865,751 $ 1,804,478 $ 1,585,619 =========== ========== =========== =========== Pre-tax income (loss): Domestic..................................... $ 78,491 $ 58,375 $ 118,404 $ 94,146 International................................ 1,641 (609) 1,280 231 Active Adult................................. 7,140 4,102 13,498 7,618 ----------- ---------- ----------- ----------- Total Homebuilding operations................... $ 87,272 $ 61,868 $ 133,182 $ 101,995 =========== ========== =========== =========== Pulte and Pulte-affiliate settlements - units: Domestic.......................................... 4,367 4,174 7,860 7,681 International: Pulte ...................................... 55 73 86 174 Pulte-affiliated entities.................... 2,089 849 3,585 2,716 ----------- ---------- ----------- ----------- Total International.......................... 2,144 922 3,671 2,890 ----------- ---------- ----------- ----------- Active Adult: Pulte........................................ 459 265 864 547 Pulte-affiliated entity...................... - 152 - 279 ----------- ---------- ----------- ----------- Total Active Adult........................... 459 417 864 826 ----------- ---------- ----------- ----------- Total Pulte and Pulte-affiliate settlements - units.. 6,970 5,513 12,395 11,397 =========== ========== =========== ===========
24 25 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 SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------- ------------------------- 2000 1999 2000 1999 ---------- ---------- ----------- ----------- Unit settlements: Pulte Home East.............................. 2,074 2,070 3,813 3,765 Pulte Home Central........................... 1,458 1,374 2,502 2,384 Pulte Home West.............................. 835 730 1,545 1,532 ---------- ---------- ----------- ----------- 4,367 4,174 7,860 7,681 ========== ========== =========== =========== Net new orders - units: Pulte Home East.............................. 2,309 2,439 4,717 5,153 Pulte Home Central........................... 1,389 1,630 3,222 3,285 Pulte Home West.............................. 918 808 1,921 1,794 ---------- ---------- ----------- ----------- 4,616 4,877 9,860 10,232 ========== ========== =========== =========== Net new orders - dollars $ 955,000 $ 929,000 $ 2,060,000 $ 1,931,000 ========== ========== =========== =========== Backlog at June 30 - units: Pulte Home East.............................. 3,346 3,655 Pulte Home Central........................... 2,303 2,815 Pulte Home West.............................. 1,098 1,119 ----------- ----------- 6,747 7,589 =========== =========== Backlog at June 30 - dollars.................... $ 1,544,000 $ 1,482,000 =========== ===========
25 26 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 three and six months ended June 30, 1999, the Company reported net new orders of 4,616 and 9,860, respectively, a decrease of 5% and 4%, respectively, from the record levels of the prior year. Strong performance in the California and Texas Regions was offset by declines in the Mid-Atlantic, Great Lakes and Midwest Regions. Unit settlements increased 5% for the quarter and 2% year-to-date, both records for their respective periods, reflecting strong activity in the Southeast, Florida, Rocky Mountain and Great Lakes Regions. Strong demand continued to drive vigorous order activity and record levels of backlog. These factors have contributed to the solid settlement activity that continued through the first six months of 2000. The Company's backlog at June 30, 2000 fell 842 units compared to a company record 7,589 units set June 30, 1999. Backlog value grew to an all-time record of $1,544,000. The following table presents a summary of pre-tax income for Pulte's Domestic Homebuilding operations for the three and six months ended June 30, 2000 and 1999:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------- ------------------------- 2000 1999 2000 1999 ---------- ---------- ----------- ----------- Revenues..................................... $ 867,884 $ 771,114 $ 1,543,300 $ 1,384,484 Cost of sales................................ (705,617) (638,115) (1,263,717) (1,149,203) Selling, general and administrative expense.. (77,528) (69,480) (149,132) (131,960) Interest (A) ................................ (5,825) (5,429) (10,306) (9,574) Other income (expense), net.................. (423) 285 (1,741) 399 ---------- ---------- ----------- ----------- Pre-tax income............................... $ 78,491 $ 58,375 $ 118,404 $ 94,146 ========== ========== =========== =========== Average sales price.......................... $ 199 $ 185 $ 196 $ 180 ========== ========== =========== ===========
(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 18.7% and 18.1%, respectively, for the three and six month periods ended June 30, 2000, compared to 17.2% and 17.0%, respectively, 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 10 basis points for the three and six month periods ended June 30, 2000. 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. Other income (expense), net realized increased expenses of $708 and $2,140 for the quarter and year-to-date, respectively, as gains on sales of land were primarily offset by a writedown in the net realizable value of certain properties. 26 27 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) ($000'S OMITTED) HOMEBUILDING OPERATIONS (CONTINUED): Domestic Homebuilding (continued): The average selling price for the three and six month periods ended June 30, 2000, was $199 and $196, respectively, an increase from the average selling price of $185 and $180 in the comparable periods of the prior year. Changes in average selling price reflect a number of factors, including changes in market selling prices and the mix of products closed during a period. At June 30, 2000, Pulte's Domestic Homebuilding operations controlled approximately 61,100 lots, of which approximately 37,300 lots were owned and approximately 23,800 lots were controlled through option agreements. Domestic Homebuilding inventory at June 30, 2000, was approximately $1,684,900 of which approximately $1,098,600 is related to land and land development. 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 $36,200 at June 30, 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 June 30, 2000, the Company's net investment in Condak approximated $20,800. 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, Leon and Zamora. At June 30, 2000, the Company's net investment in this joint venture approximated $5,700. The following table presents selected financial data for Pulte's International Homebuilding operations for the three and six months ended June 30, 2000 and 1999.
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------- ------------------------- 2000 1999 2000 1999 ---------- ---------- ----------- ----------- Pre-tax income (loss): Revenues........................................ $ 4,702 $ 6,193 $ 7,342 $ 14,516 Cost of sales................................... (4,302) (5,741) (6,619) (13,670) Selling, general and administrative expense..... (1,349) (1,170) (2,505) (2,357) Other income, net............................... 951 372 892 398 Equity in income of Mexico operations........... 1,639 (263) 2,170 1,344 ---------- ---------- ----------- ----------- Pre-tax income (loss)........................... $ 1,641 $ (609) $ 1,280 $ 231 ========== ========== =========== =========== Unit settlements: Pulte........................................ 55 73 86 174 Pulte-affiliated entities.................... 2,089 849 3,585 2,716 ---------- ---------- ----------- ----------- Total Pulte and Pulte-affiliates...... 2,144 922 $ 3,671 2,890 ========== ========== =========== ===========
27 28 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) ($000'S OMITTED) HOMEBUILDING OPERATIONS (CONTINUED): International Homebuilding (continued): The pre-tax income of $1,641 and $1,280 for the three and six month periods ended June 30, 2000, as compared to a pre-tax loss of $609 and pretax income of $231 for the three and six months ended June 30, 1999, was primarily a result of a strong rebound in mortgage funding activity. Foreign currency exchange losses in the Mexican operations amounted to $531 and $469, respectively, reflecting a slight increase in the value of the Mexican peso against the U.S. dollar. 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 June 30, 2000, the Company's Active Adult operations include 23 communities located in Arizona, California and Florida. The following table presents selected financial data for Pulte's Active Adult Homebuilding operations for the three and six month periods ended June 30, 2000 and 1999. Data for 2000 includes the fully consolidated operating results of the Company's Active Adult operations through June 30, 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 SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------- ------------------------- 2000 1999 2000 1999 ---------- ---------- ----------- ----------- Pre-tax income: Revenues................................... $ 99,407 $ 44,010 $ 186,939 $ 89,140 Cost of sales.............................. (80,373) (36,364) (150,637) (73,035) Selling, general and administrative expense (9,627) (2,691) (19,632) (6,310) Interest................................... (664) - (1,261) - Other expense, net......................... (1,603) (1,413) (1,911) (2,993) Equity in income of joint venture.......... - 560 - 816 ---------- ---------- ----------- ----------- Pre-tax income............................. $ 7,140 $ 4,102 $ 13,498 $ 7,618 ========== ========== =========== ===========
28 29 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): THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------- ------------------------- 2000 1999 2000 1999 ---------- ---------- ----------- ----------- Pulte and Pulte-affiliate: Average sales price........................ $ 217 $ 181 $ 216 $ 178 ========== ========== =========== =========== Unit settlements........................... 459 417 864 826 ========== ========== =========== =========== Net new orders - units..................... 543 495 1,262 1,046 ========== ========== =========== =========== Net new orders - dollars................... $ 118,000 $ 101,700 $ 268,600 $ 206,300 ========== ========== =========== =========== Backlog at June 30 - units................. 1,083 767 =========== ============ Backlog at June 30 - dollars............... $ 233,500 $ 161,100 =========== ===========
Net new orders increased 10% and 21%, respectively, for the three and six month periods ended June 30, 2000. Unit settlements increased 10% and 5%, respectively. Backlog units increased 41% while backlog value increased 46%. This strong performance was a result of vigorous 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 half of 2000, compared with the same periods in 1999, reflects 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. During 2000, positive product mix, along with higher gross profit margins, contributed to significantly higher pre-tax income compared with 1999. Gross profit margins of 19.1% and 19.4% for the three and six month periods, respectively, 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 three and six month periods ended June 30 would have been 19.5% and 19.9%, respectively, compared with 17.4% and 18.1%, respectively, in 1999. 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 the joint venture operations, such as transaction costs and acquisition accounting adjustments.
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------- ------------------------- 2000 1999 2000 1999 ---------- ---------- ----------- ----------- PRO-FORMA PRO-FORMA ----------------------- ------------------------- Pro-forma financial summary: Revenues....................................... $ 99,407 $ 75,510 $ 186,939 $ 146,697 Cost of sales.................................. (80,022) (62,391) (149,765) (120,032) Selling, general and administrative expense.... (9,627) (6,249) (19,632) (14,045) Interest....................................... (664) (415) (1,261) (935) Other expense, net............................. (1,603) (1,681) (1,911) (3,021) ----------- ----------- ------------ ------------ Pre-tax income................................. $ 7,491 $ 4,774 $ 14,370 $ 8,664 ========== ========== =========== ===========
29 30 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): Pro-forma revenues increased 32% and 27%, respectively, for the three and six months ended June 30, 2000, compared with 1999, due to an increase in unit settlements and in average selling price. Pro-forma average selling price increased 20% and 21%, respectively, while pro-forma unit settlements increased 10% and 5%, respectively. Pro-forma gross profit margins increased 210 and 170 basis points, respectively, as a result of strong demand for housing and a favorable product mix. Pro-forma selling, general and administrative expense as a percent of revenues increased 140 and 90 basis points, respectively, as a result of costs incurred in the opening of new communities. At June 30, 2000, Pulte's Active Adult Homebuilding operations controlled approximately 12,300 lots, of which approximately 6,000 lots were owned and approximately 6,300 were controlled through option agreements. Active Adult Homebuilding inventory at June 30, 2000, was approximately $241,300, of which approximately $198,000 is related to land and land development. 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 and six month periods ended June 30, 2000 and 1999, is as follows:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------- ------------------------- 2000 1999 2000 1999 ---------- ---------- ----------- ----------- Pre-tax income (loss): Mortgage banking.......................... $ 3,437 $ 5,079 $ 6,904 $ 10,645 Financing activities...................... - (2) - 1,633 ---------- ---------- ----------- ----------- Pre-tax income........................ $ 3,437 $ 5,077 $ 6,904 $ 12,278 ========== ========== =========== ===========
Mortgage Banking: The following table presents mortgage origination data for PMC:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------- ------------------------- 2000 1999 2000 1999 ---------- ---------- ----------- ----------- Total originations: Loans..................................... 3,206 3,423 5,643 6,532 ========== ========== =========== =========== Principal................................. $ 458,200 $ 474,200 $ 800,400 $ 896,500 ========== ========== =========== =========== Originations for Pulte customers: Loans..................................... 2,661 2,569 4,693 4,790 ========== ========== =========== =========== Principal................................. $ 394,500 $ 367,400 $ 690,200 $ 679,700 ========== ========== =========== ===========
30 31 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): Mortgage origination unit volume for the three and six month periods ended June 30, 2000, decreased 6% and 14%, respectively, from the comparable 1999 periods. During the first six 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 six month period ended June 30, 2000, as compared to 7% of total loan originations for 1999. At June 30, 2000, loan application backlog increased 5% to $745,000 as compared with $710,000 at June 30, 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 Nos. 137 and 138, 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. During the three and six months ended June 30, 2000, origination fees increased 13% and 12%, respectively, over the comparable periods 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 31% and 34%, respectively, due primarily to lower servicing retained originations. Net interest income increased 1% for the six month period despite a 17% decline in funded production due to a wider yield curve. During the quarter net interest income decreased 18% as a result of a 10% drop in funded production and a higher cost of funds due to a new warehouse line that became effective March 31, 2000. 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. 31 32 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) ($000'S OMITTED) CORPORATE (CONTINUED): The following table presents corporate results of operations for the three and six months ended June 30, 2000 and 1999:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------- ------------------------- 2000 1999 2000 1999 ---------- ---------- ----------- ----------- Net interest expense........................... $ 7,893 $ 5,197 $ 13,559 $ 9,641 Other corporate expenses, net.................. 5,326 3,714 9,575 7,006 ---------- ---------- ----------- ----------- Loss before income taxes....................... $ 13,219 $ 8,911 $ 23,134 $ 16,647 ========== ========== =========== ===========
Pre-tax loss of the Company's corporate business segment increased $4,308 and $6,487, respectively, from the three and six month periods ended June 30, 1999. The increase in pre-tax loss for the quarter primarily reflects an increase of approximately $2,700 in net interest expense and a net increase of approximately $1,600 in other corporate expense, net. Year-to-date results reflect an increase of approximately $3,900 in net interest expense and an increase in other corporate expenses, net, of approximately $2,600. The increase in net interest expense is related to higher average use of the Company's unsecured revolving credit facility in addition to the issuance in April 2000 of $175,000 Senior Notes primarily related to increased working capital requirements of the homebuilding operations. Interest incurred for the three and six months periods ended June 30, 2000, excluding interest incurred by the Company's financial services operations, was approximately $16,500 and $30,200, respectively. Other corporate expenses, net, reflect the inclusion of one-time expenses of approximately $2,400 for the six months ended June 30, 2000, primarily for costs related to certain corporate strategic initiatives including the amendment of certain stock option participant agreements and losses incurred upon the settlement of a derivative contract. 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 SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------- ------------------------- 2000 1999 2000 1999 ---------- ---------- ----------- ----------- Interest in inventory at beginning of period... $ 21,901 $ 18,534 $ 19,092 $ 16,356 Interest capitalized........................... 8,608 7,366 16,495 13,689 Interest expensed.............................. (6,489) (5,429) (11,567) (9,574) ---------- ---------- ----------- ----------- Interest in inventory at end of period......... $ 24,020 $ 20,471 $ 24,020 $ 20,471 ========== ========== =========== ===========
LIQUIDITY AND CAPITAL RESOURCES : Continuing Operations: The Company's net cash used in operating activities amounted to $154,892, 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 house inventory from levels at December 31, 1999. Net cash from investing activities decreased from a source of cash of $28,809 in 1999 to a use of cash of $865 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 $1,658 in 1999 to a source of cash of $134,754 in 2000. This increase primarily reflects the Company's issuance of $175,000 Senior Notes in April 2000 and higher borrowing levels under the Company's revolving credit facility to support the Company's strategic operating goals and to fund the Company's stock repurchase plan. 32 33 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): The Company finances its homebuilding land acquisitions, development and construction activities from internally generated funds and existing credit agreements. The Company had $96,000 of borrowings under its $400,000 unsecured revolving credit facilities at June 30, 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 June 30, 2000, amounted to $250,000, an amount deemed adequate to cover foreseeable needs. There were approximately $136,000 of borrowings outstanding under the $250,000 PMC arrangement at June 30, 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. At June 30, 2000, the Company had cash and equivalents of $30,715 and total long-term indebtedness of $701,219. The Company's total long-term indebtedness includes $662,065 of unsecured senior notes, a $21,000 unsecured promissory note and other Pulte limited recourse debt of $18,154. The Company also has other non-recourse short-term notes payable of $59,489 and First Heights advances of $760. The first $14,000 due under the $21,000 unsecured promissory note is payable during 2000. 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%. 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 June 30, 2000, the Company had purchased 3,106,100 shares at an average price of $19.75 per share. The Company anticipates that it will continue to fund repurchases under the plan through cash flows from operations. In March 2000, the Company entered into a $25,000 revolving credit facility which can be canceled at the Company's discretion. In April 2000 the Company sold, in a private placement, 9.5%, $175,000 Senior Notes due 2003 and subsequently filed an S-4 Registration Statement with the Securities and Exchange Commission in May 2000. 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 and for general corporate purposes. Sources of the Company's working capital at June 30, 2000, include its cash and equivalents, and its $400,000 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 June 30, 2000, approximated $30,300. 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 33 34 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): Discontinued Operations (continued): 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. 34 35 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Quantitative disclosure: The Company is subject to interest rate risk on its long term debt. The Company seeks to minimize its interest rate exposure by using variable rate financing; however, the Company runs the risk of interest rate declines with respect to its fixed rate long term corporate debt instruments. The following table sets forth, as of June 30, 2000, the Company's long term debt obligations, principal cash flows by scheduled maturity, weighted average interest rates and estimated fair market value: ($000'S OMITTED)
FAIR THERE- VALUE 2000 2001 2002 2003 2004 AFTER TOTAL 6/30/2000 --------- --------- --------- --------- --------- --------- --------- --------- RATE SENSITIVE LIABILITIES: Fixed interest rate debt: Pulte Corporation public debt instruments............... $ - $ - $ - $275,000 $115,000 $275,000 $ 665,000 $ 621,493 Average interest rate.......... - - - 8.59% 8.38% 7.48% 7.61% - Pulte Diversified Companies, Inc., unsecured promissory note........................... $ 14,000 7,000 - - - - $ 21,000 $ 21,000 Average interest rate.......... 8.00% 8.00% - - - - 8.00% - Pulte Home Corporation other non-recourse debt........................... $ 9,868 8,286 - - - - $ 18,154 $ 18,154 Average interest rate.......... 8.80% 8.60% - - - - 8.84% -
Qualitative disclosure: This information is set forth on page 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 23 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). 35 36 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 about 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. 36 37 PART II. OTHER INFORMATION (CONTINUED) ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company's Annual Meeting of Shareholders was held on May 18, 2000. The following matters were considered and acted upon, with the results indicated below.
SHARES SHARES WITHHOLDING SHARES VOTED SHARES AUTHORITY VOTED FOR AGAINST ABSTAINING TO VOTE --------- ------- ---------- ------- ELECTION OF DIRECTORS The election of Director for term expiring 2003: Debra J. Kelly-Ennis 36,418,206 - 239,216 - Patrick J. O'Meara 36,418,206 - 239,216 - Alan E. Schwartz 36,373,337 - 284,085 - PROPOSAL TO ADOPT THE COMPANY'S 2000 STOCK PLAN FOR NONEMPLOYEE DIRECTORS 30,231,274 2,652,244 424,577 3,349,327 PROPOSAL TO ADOPT THE COMPANY'S 2000 STOCK INCENTIVE PLAN FOR KEY EMPLOYEES 22,600,518 10,215,586 497,992 3,343,326 PROPOSAL TO ADOPT THE COMPANY'S LONG TERM INCENTIVE PLAN 35,544,952 756,868 355,602 - PROPOSAL TO AMEND THE COMPANY'S 1990 STOCK INCENTIVE PLAN FOR KEY EMPLOYEES 34,742,388 1,806,680 108,354 -
ITEM 6. EXHIBITS (A) EXHIBITS AND REPORT ON FORM 8-K (27) Financial Data Schedule (B) REPORT ON FORM 8-K No reports on Form 8-K were filed during the quarter ended June 30, 2000 37 38 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: August 14, 2000 38 39 Exhibit Index -------------
Exhibit No. Description ----------- ----------- 27 Financial Data Schedule