10-Q 1 k62537e10-q.htm QUARTERLY REPORT DATED 4/30/01 e10-q
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2001
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
incorporation or organization)
(I.R.S. Employer
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
NO

Number of shares of common stock outstanding as of April 30, 2001: 42,132,781

Total pages: 31

Listing of exhibits: 30

1

PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
CONDENSED CONSOLIDATED BALANCE SHEETS, MARCH 31, 2001 AND DECEMBER 31, 2000
CONSOLIDATED STATEMENTS OF INCOME, FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY, FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
CONSOLIDATED STATEMENTS OF CASH FLOWS, FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
SIGNATURES

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PULTE CORPORATION

INDEX

             
Page No.
PART I FINANCIAL INFORMATION
Item 1 Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets, March 31, 2001 and December 31, 2000
 3
Consolidated Statements of Income, for the Three Months Ended March 31, 2001 and 2000
 4
Consolidated Statements of Shareholders’ Equity, for the Three Months Ended March 31, 2001 and 2000
 5
Consolidated Statements of Cash Flows, for the Three Months Ended March 31, 2001 and 2000
 6
Notes to Condensed Consolidated Financial Statements
 7
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations
 20
Item 3 Quantitative and Qualitative Disclosures About Market Risk
 29
PART II OTHER INFORMATION
Item 1 Legal Proceedings
 30
Item 6 Exhibits and Reports on Form 8-K
 30
SIGNATURES
 31

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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PULTE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
($000’s omitted)

                       
March 31, December 31,
2001 2000
(Unaudited) (Note)
ASSETS
Cash and equivalents
 $ 199,343 $ 183,985
Unfunded settlements
 46,200 83,147
House and land inventories
 2,049,248 1,880,263
Residential mortgage loans available-for-sale
 220,108 259,239
Other assets
 485,248 423,277
Deferred income taxes
 42,764 56,572
Total assets
 $ 3,042,911 $ 2,886,483
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Accounts payable and accrued liabilities, including book overdrafts of $100,065 and $109,810 in 2001 and 2000, respectively
 $ 650,458 $ 708,178
Collateralized short-term debt, recourse solely to applicable subsidiary assets
 209,830 242,603
Income taxes
 775 10,169
Subordinated debentures and senior notes
 886,237 677,602
Total liabilities
 1,747,300 1,638,552
Shareholders’ equity
 1,295,611 1,247,931
$ 3,042,911 $ 2,886,483

Note: The balance sheet at December 31, 2000 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.

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PULTE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(000’s omitted, except per share data)
(Unaudited)

                         
For The Three Months Ended
March 31,
2001 2000
Revenues:
Homebuilding
 $ 817,320 $ 765,588
Financial services, interest and other
 14,075 10,165
Corporate
 717 66
Total revenues
 832,112 775,819
Expenses:
Homebuilding, principally cost of sales
 751,622 720,209
Financial services, interest and other
 8,623 6,698
Corporate, net
 10,259 9,981
Total expenses
 770,504 736,888
Other income:
Equity in income of Pulte-affiliates
 2,000 531
Income from continuing operations before income taxes
 63,608 39,462
Income taxes
 24,489 15,193
Income from continuing operations
 39,119 24,269
Income from discontinued operations
 252 67
Net income
 $ 39,371 $ 24,336
Per share data:
Basic:
Income from continuing operations
 $ .94 $ .57
Income from discontinued operations
 .01 —
Net income
 $ .95 $ .57
Assuming dilution:
Income from continuing operations
 $ .91 $ .57
Income from discontinued operations
 .01 —
Net income
 $ .92 $ .57
Cash dividends declared
 $ .04 $ .04
Number of shares used in calculation:
Basic:
Weighted-average common shares outstanding
 41,795 42,696
Assuming dilution:
Effect of dilutive securities — stock options
 1,204 175
Adjusted weighted-average common shares and effect of dilutive securities
 42,999 42,871

See accompanying Notes to Condensed Consolidated Financial Statements.

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PULTE CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
($000’s omitted)
(Unaudited)

                                                   
Accumulated
Other
Additional Comprehensive
Common Paid-in Unearned Income Retained
Stock Capital Compensation (Loss) Earnings Total
Shareholders’ Equity,
December 31, 2000
 $ 416 $ 109,593 $ — $ 185 $ 1,137,737 $ 1,247,931
Exercise of stock options
 4 10,406 — — — 10,410
Issuance of restricted stock
 1 5,557 (5,558 ) — — —
Amortization of restricted stock award
 — — 308 — — 308
Cash dividends declared
 — — — — (1,695 ) (1,695 )
Comprehensive income (loss):
Net income
 — — — 39,371 39,371
Change in fair value of derivatives, net of income taxes of ($13)
 — — (27 ) — (27 )
Foreign currency translation adjustments, net of income taxes of ($377)
 — — — (687 ) — (687 )
Total comprehensive income
 38,657
Shareholders’ Equity,
March 31, 2001
 $ 421 $ 125,556 $ (5,250 ) $ (529 ) $ 1,175,413 $ 1,295,611
Shareholders’ Equity,
December 31, 1999
 $ 433 $ 77,070 $ — $ (259 ) $ 1,016,075 $ 1,093,319
Exercise of stock options
 1 2,984 — — — 2,985
Cash dividends declared
 — — — — (1,689 ) (1,689 )
Stock repurchases
 (13 ) (2,341 ) — — (20,316 ) (22,670 )
Comprehensive income (loss):
Net income
 — — — — 24,336 24,336
Foreign currency translation adjustments, net of income taxes of ($12)
 — — — (27 ) — (27 )
Total comprehensive income
 38,657
Shareholders’ Equity,
March 31, 2000
 $ 421 $ 77,713 $ — $ (286 ) $ 1,018,406 $ 1,096,254

See accompanying Notes to Condensed Consolidated Financial Statements.

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PULTE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
($000’s omitted)
(Unaudited)

                         
For The Three Months Ended
March 31,
2001 2000
Cash flows from operating activities:
Net income
 $ 39,371 $ 24,336
Adjustments to reconcile net income to net cash flows used in operating activities:
Amortization, depreciation and other
 5,045 3,626
Deferred income taxes
 13,808 7,016
Increase (decrease) in cash due to:
Inventories
 (198,690 ) (199,868 )
Residential mortgage loans available-for-sale
 39,131 94,068
Other assets
 4,845 (10,921 )
Accounts payable and accrued liabilities
 (59,783 ) (32,640 )
Income taxes
 (6,659 ) (14,153 )
Net cash used in operating activities
 (162,932 ) (128,536 )
Cash flows from investing activities:
Increase in covered assets and FRF receivables
 (1,055 ) (903 )
Other, net
 (831 ) (674 )
Net cash used in investing activities
 (1,886 ) (1,577 )
Cash flows from financing activities:
Payment of long-term debt and bonds
 — (1,373 )
Proceeds from borrowings
 214,244 225,700
Repayment of borrowings
 (39,439 ) (85,261 )
Issuance of common stock
 7,675 —
Stock repurchases
 — (22,670 )
Dividends paid
 (1,695 ) (1,689 )
Other, net
 (609 ) 2,536
Net cash provided by financing activities
 180,176 117,243
Net increase (decrease) in cash and equivalents
 15,358 (12,870 )
Cash and equivalents at beginning of period
 183,985 51,797
Cash and equivalents at end of period
 $ 199,343 $ 38,927
Supplemental disclosure of cash flow information — cash paid during the period for:
Interest, net of amount capitalized
 $ (1,969 ) $ 311
Income taxes
 $ 15,482 $ 12,594

See accompanying Notes to Condensed Consolidated Financial Statements.

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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 Diversified Companies, Inc. (PDCI) and other subsidiaries which are engaged 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), is 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 accounting principles generally accepted in the United States 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 accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2001, are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. 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, 2000.

        Certain amounts related to discontinued operations previously reported in the 2000 financial statements and notes thereto were reclassified to conform to the 2001 presentation.

        Financial Accounting Standards Board Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended by Financial Accounting Standards Board Statement No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities,” requires companies to recognize all of their derivative instruments as either assets or liabilities in the statement of financial position at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument, based upon the exposure being hedged, as either a fair value hedge or a cash flow hedge.

        For derivative instruments that are designated and qualify as a fair value hedge (i.e., hedging the exposure to changes in the fair value of an asset or a liability or an identified portion thereof that is attributable to a particular risk), the gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings during the period of the change in fair values. For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. For derivative instruments not designated as hedging instruments, the gain or loss is recognized in current earnings during the period of change. The Company currently uses only cash flow hedge accounting.

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PULTE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000’s omitted)
(Unaudited)

1.     Basis of presentation and significant accounting policies (continued)

        Market risks arise from movements in interest rates and cancelled or modified commitments to lend. In order to reduce these risks, the Company uses derivative financial instruments. These financial instruments include cash forward placement contracts on mortgage-backed securities, whole loan investor commitments, options on treasury futures contracts, and options on cash forward placement contracts on mortgage-backed securities. The Company does not use any derivative financials instruments for trading purposes. When the Company commits to lend to the borrower (interest rate is locked to the borrower), the Company enters into one of the aforementioned derivative financial instrument. The change in the value of the loan commitment and the derivative financial instrument is recognized in current earnings during the period of change.

        The Company hedges portions of its forecasted cash flow from sales of closed mortgage loans with derivative financial instruments. During the quarter ended March 31, 2001, the Company did not recognize any net gains or losses related to the ineffective portion of the hedging instrument excluded from the assessment of hedge effectiveness. In addition, the Company recognized $2, net of taxes, in losses during the quarter ended March 31, 2001, for cash flow hedges that were discontinued because it is probable that the original forecasted transaction will not occur. At March 31, the Company expects to reclassify $27, net of taxes, of net gains on derivative instruments from accumulated other comprehensive income to earnings during the next twelve months from sales of closed mortgage loans.

2.     Discontinued operations

        During the first quarter of 1994, the Company adopted a plan of disposal for First Heights and announced its strategy to exit the thrift industry and increase its focus on housing and related mortgage banking. First Heights sold all but one of its 32 bank branches and related deposits to two unrelated purchasers. The sale was substantially completed during the fourth quarter of 1994, although the Company held brokered deposits which were not liquidated until 1998.

        Although the Company in 1994, expected to complete the plan of disposal within a reasonable period of time, contractual disputes with the 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 notes. 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.

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PULTE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000’s omitted)
(Unaudited)

2.     Discontinued operations (continued)

        Included in accounts payable and accrued liabilities are litigation-related accruals recorded by the Company, offset by accounts and notes receivable due from the FRF, of $29,340 as of March 31, 2001 and $30,250 as of December 31, 2001.

        Revenues of the Company’s discontinued thrift operations primarily represent interest income on the outstanding FRF notes and receivables, and for the three months ended March 31, 2001 and 2000, amounted to $1,083 and $925 respectively while providing after-tax income of $252 and $67, respectively.

3.     Segment information

        The Company has three reportable segments: Homebuilding, Financial Services and Corporate.

             The Company’s Homebuilding segment consists of the following two 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 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, Puerto Rico and Argentina.

        The Company’s Financial Services segment consists principally of mortgage banking operations conducted through PMC and its subsidiaries.

        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.

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PULTE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000’s omitted)
(Unaudited)

3.    Segment information (continued)

      Operating Data by Segment

                     
For The Three Months Ended
March 31,
2001 2000
Revenues:
Homebuilding
 $ 817,320 $ 765,588
Financial Services
 14,075 10,165
Corporate
 717 66
Total revenues
 832,112 775,819
Cost of sales:
Homebuilding
 654,783 630,681
Total cost of sales
 654,783 630,681
Selling, general and administrative:
Homebuilding
 88,802 82,765
Financial Services
 6,314 4,972
Corporate
 2,474 1,567
Total selling, general and administrative
 97,590 89,304
Interest:
Homebuilding
 5,940 5,078
Financial Services
 2,309 1,676
Corporate
 6,366 5,732
Total interest
 14,615 12,486
Other expense, net:
Homebuilding
 2,097 1,685
Financial Services
 — 50
Corporate
 1,419 2,682
Total other expense, net
 3,516 4,417
Total costs and expenses
 770,504 736,888
Equity in income of joint ventures:
Homebuilding
 2,000 531
Total equity in income of joint ventures
 2,000 531
Income (loss) before income taxes:
Homebuilding
 67,698 45,910
Financial services
 5,452 3,467
Corporate
 (9,542 ) (9,915 )
Total income before income taxes
 $ 63,608 $ 39,462

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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 March 31, 2001:
Inventory
 $ 2,049,248 $ — $ — $ 2,049,248
Identifiable assets
 2,667,770 250,203 124,938 $ 3,042,911
At December 31, 2000:
Inventory
 $ 1,880,263 $ — $ — $ 1,880,263
Identifiable assets
 2,443,540 283,265 159,678 $ 2,886,483

4.     Commitments and contingencies

        The Company is involved in various litigation incidental to its continuing business operations. Management believes that this litigation will not 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. The third lawsuit was filed by First Heights on January 10, 2000, 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 the 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 and that appeal remains pending.

        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 disagreed 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 disputed the FDIC’s claims and believe that a proper interpretation of the Assistance Agreement limited 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.

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PULTE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000’s omitted)
(Unaudited)

4.     Commitments and contingencies (continued)

        First Heights-related litigation (continued)

        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 Parties. The Final Judgment requires PDCI and First Heights to pay the FDIC monetary damages totaling approximately $221,300, including interest but excluding costs (such as attorneys fees) to be determined in the future by the District Court and post-judgment interest. However, the FDIC acknowledged that it had already paid itself or withheld from assistance its obligation to pay to First Heights approximately $105,000, excluding interest thereon. The Company believes that it is entitled to a credit or actual payment of such amount plus interest. The Final Judgment does not address this issue. The Company disagreed with the District Court’s rulings and appealed the decision to the Sixth Circuit Court of Appeals.

        On October 12, 2000, the Sixth Circuit Court of Appeals rendered its opinion in which it affirmed in part, reversed in part and remanded the case to the District Court for further proceedings. The Sixth Circuit affirmed most of the District Court’s adverse liability rulings, including as to the sharing of certain tax benefits achieved in connection with First Heights’ 1988 acquisition and ownership of the five failed Texas thrifts and regarding the Company’s and First Heights’ amendment of a tax sharing and allocation agreement and rescission of a warrant assumption agreement between PDCI and First Heights. The Sixth Circuit, however, vacated the District Court’s damage calculations as to a number of issues, vacated the District Court’s pre-judgment interest award, and remanded to the District Court for a proper recalculation of all such amounts. The Sixth Circuit denied both the Company’s and the FDIC’s petition for rehearing. Since the Sixth Circuit opinion leaves certain significant issues to be resolved through further Court proceedings the Company is currently unable to precisely calculate the final amount it may owe. Based upon its reading of the Sixth Circuit opinion, however, the Company determined that an after-tax charge of $30,000 to Discontinued Operations was appropriate in 2000. The final settlement with the FDIC may be more or less than amounts provided because the outcome of the remaining litigation issues is uncertain. The Company and the FDIC are actively engaged in negotiations with respect to a possible settlement of this case.

        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.

        The Court of Federal Claims Case contains similar claims as those that were voluntarily dismissed from the District Court Case. In their complaint, the Pulte Parties assert breaches of contract on the part of the United States in connection with the enactment of section 13224 of the Omnibus Budget Reconciliation Act of 1993. That provision repealed portions of the tax benefits that the Pulte Parties claim they were entitled to under the contract to acquire the failed Texas thrifts. The Pulte Parties also assert certain other claims concerning the contract, including claims that the United States (through the FDIC as receiver) has improperly attempted to amend the failed thrifts’ pre-acquisition tax returns and that this attempt was made in an effort to deprive the Pulte Parties of tax benefits they had contracted for, and that the enactment of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 breached the Government’s obligation not to require contributions of capital greater than those required by the contract.

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PULTE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000’s omitted)
(Unaudited)

5.     Debt

        In February 2001, the Company sold $200,000, 8 1/8% Senior Notes, due 2011. Net proceeds received from the sale were used to repay short-term borrowings and for other general corporate purposes.

6.     Pending acquisition of Del Webb Corporation

        On April 30, 2001, the Company entered into a definitive merger agreement to acquire Del Webb Corporation. The Company will acquire all of the outstanding shares of Del Webb in a tax-free stock-for-stock transaction. The Company will also assume Del Webb’s outstanding debt. The total purchase price is subject to adjustment based on the 15-day average of Pulte’s closing stock price for a period ending on and including the third trading day prior to Del Webb’s shareholder meeting to vote on the transaction. The transaction is conditioned upon, among other things, the approvals of the shareholders of both companies and appropriate regulatory approvals. If the necessary approvals are obtained, the Company expects to close the transaction in the third quarter of 2001.

        Del Webb is primarily a homebuilder with operations in six states. For the fiscal year ended June 30, 2000, Del Webb had net income of $74,165 on revenues of $2,040,003 and delivery of 8,419 homes.

7.     Supplemental Guarantor information

        The Company has the following outstanding Senior Note obligations: (1) $200,000, 8.125%, due 2011, (2) $175,000, 9.5% due 2003, (3) $100,000, 7%, due 2003, (4) $112,000, 8.375%, due 2004, (5) $125,000, 7.3%, due 2005, and (6) $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 homebuilding subsidiaries (collectively, the Guarantors). Such guarantees are full and unconditional. The principal non-Guarantors include PDCI, Pulte International Corporation, PMC and First Heights.

        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.

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PULTE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000’s omitted)
(Unaudited)

6.     Supplemental Guarantor information (continued)

CONDENSED CONSOLIDATING BALANCE SHEET
MARCH 31, 2001

                                             
Unconsolidated
Consolidated
Pulte Guarantor Non-Guarantor Eliminating Pulte
Corporation Subsidiaries Subsidiaries Entries Corporation
ASSETS
Cash and equivalents
 $ — $ 174,155 $ 25,188 $ — $ 199,343
Unfunded settlements
 — 50,486 (4,286 ) — 46,200
House and land inventories
 — 2,012,335 36,913 — 2,049,248
Residential mortgage loans available-for-sale
 — — 220,108 — 220,108
Land held for sale and future development
 — 144,248 — — 144,248
Other assets
 47,958 217,508 75,534 — 341,000
Deferred income taxes
 42,764 — — — 42,764
Investment in subsidiaries
 1,363,317 70,664 1,452,117 (2,886,098 ) —
Advances receivable — subsidiaries
 889,108 23,882 25,745 (938,735 ) —
$ 2,343,147 $ 2,693,278 $ 1,831,319 $ (3,824,833 ) $ 3,042,911
LIABILITIES AND
SHAREHOLDERS’ EQUITY
Liabilities:
Accounts payable and accrued liabilities
 $ 126,611 $ 493,327 $ 30,520 $ — $ 650,458
Collateralized short-term debt, recourse solely to applicable subsidiary assets
 — — 209,830 — 209,830
Income taxes
 775 — — — 775
Subordinated debentures and Senior Notes
 858,202 21,035 7,000 — 886,237
Advances payable — subsidiaries
 61,948 698,506 178,281 (938,735 ) —
Total liabilities
 1,047,536 1,212,868 425,631 (938,735 ) 1,747,300
Shareholders’ equity
 1,295,611 1,480,410 1,405,688 (2,886,098 ) 1,295,611
$ 2,343,147 $ 2,693,278 $ 1,831,319 $ (3,824,833 ) $ 3,042,911

14

Table of Contents

PULTE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000’s omitted)
(Unaudited)

6.     Supplemental Guarantor information (continued)

CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2000

                                             
Unconsolidated
Consolidated
Pulte Guarantor Non-Guarantor Eliminating Pulte
Corporation Subsidiaries Subsidiaries Entries Corporation
ASSETS
Cash and equivalents
 $ — $ 133,860 $ 50,125 $ — $ 183,985
Unfunded settlements
 — 91,008 (7,861 ) — 83,147
House and land inventories
 — 1,852,534 27,729 — 1,880,263
Residential mortgage loans available-for-sale
 — — 259,239 — 259,239
Land held for sale and future development
 — 121,084 — — 121,084
Other assets
 41,136 196,627 64,430 — 302,193
Deferred income taxes
 56,572 — — — 56,572
Investment in subsidiaries
 1,419,923 27,704 1,497,150 (2,944,777 ) —
Advances receivable — subsidiaries
 540,914 23,491 2,786 (567,191 ) —
$ 2,058,545 $ 2,446,308 $ 1,893,598 $ (3,511,968 ) $ 2,886,483
LIABILITIES AND
SHAREHOLDERS’ EQUITY
Liabilities:
Accounts payable and accrued liabilities
 $ 112,131 $ 565,611 $ 30,436 $ — $ 708,178
Collateralized short-term debt, recourse solely to applicable subsidiary assets
 — — 242,603 — 242,603
Income taxes
 10,169 — — — 10,169
Subordinated debentures and Senior Notes
 659,296 11,306 7,000 — 677,602
Advances payable — subsidiaries
 29,018 373,171 165,002 (567,191 ) —
Total liabilities
 810,614 950,088 445,041 (567,191 ) 1,638,552
Shareholders’ equity
 1,247,931 1,496,220 1,448,557 (2,944,777 ) 1,247,931
$ 2,058,545 $ 2,446,308 $ 1,893,598 $ (3,511,968 ) $ 2,886,483

15

Table of Contents

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 March 31, 2001

                                               
Unconsolidated
Consolidated
Pulte Guarantor Non-Guarantor Eliminating Pulte
Corporation Subsidiaries Subsidiaries Entries Corporation
Revenues:
Homebuilding $ — $ 805,796 $ 11,524 $ — $ 817,320
Financial services, interest and other — — 14,075 — 14,075
Corporate 29 688 — — 717
Total revenues 29 806,484 25,599 — 832,112
Expenses:
Homebuilding:
Cost of sales — 644,550 10,233 — 654,783
Selling, general and administrative and
other expense 648 94,372 1,819 — 96,839
Financial services, interest and other — — 8,623 — 8,623
Corporate, net 8,963 1,747 (451 ) — 10,259
Total expenses 9,611 740,669 20,224 — 770,504
Other Income:
Equity in income of Pulte-affiliates — — 2,000 — 2,000
Income (loss) from continuing operations
before income taxes and equity in income
of subsidiaries (9,582 ) 65,815 7,375 — 63,608
Income taxes (benefit) (4,163 ) 25,427 3,225 — 24,489
Income (loss) from continuing operations
before equity in income of subsidiaries (5,419 ) 40,388 4,150 — 39,119
Income (loss) from discontinued operations (328 ) — 580 — 252
Income (loss) before equity in income
of subsidiaries (5,747 ) 40,388 4,730 — 39,371
Equity in income of subsidiaries:
Continuing operations 44,538 3,379 41,818 (89,735 ) —
Discontinued operations 580 — — (580 ) —
45,118 3,379 41,818 (90,315 ) —
Net income $ 39,371 $ 43,767 $ 46,548 $ (90,315 ) $ 39,371

16

Table of Contents

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 March 31, 2000

                                               
Unconsolidated
Consolidated
Pulte Guarantor Non-Guarantor Eliminating Pulte
Corporation Subsidiaries Subsidiaries Entries Corporation
Revenues:
Homebuilding $ — $ 762,948 $ 2,640 $ — $ 765,588
Financial services, interest and other — — 10,165 — 10,165
Corporate 36 30 — — 66
Total revenues 36 762,978 12,805 — 775,819
Expenses:
Homebuilding:
Cost of sales — 628,364 2,317 — 630,681
Selling, general and administrative and
other expense 227 88,313 988 — 89,528
Financial services, interest and other — — 6,698 — 6,698
Corporate, net 9,209 1,803 (1,031 ) — 9,981
Total expenses 9,436 718,480 8,972 — 736,888
Other Income:
Equity in income of Pulte-affiliates — — 531 — 531
Income (loss) from continuing operations
before income taxes and equity in income
of subsidiaries (9,400 ) 44,498 4,364 — 39,462
Income taxes (benefit) (4,914 ) 17,614 2,493 — 15,193
Income (loss) from continuing operations
before equity in income of subsidiaries (4,486 ) 26,884 1,871 — 24,269
Income (loss) from discontinued operations (408 ) — 475 — 67
Income (loss) before equity in income
of subsidiaries (4,894 ) 26,884 2,346 — 24,336
Equity in income of subsidiaries:
Continuing operations 28,755 2,153 30,177 (61,085 ) —
Discontinued operations 475 — — (475 ) —
29,230 2,153 30,177 (61,560 ) —
Net income $ 24,336 $ 29,037 $ 32,523 $ (61,560 ) $ 24,336

17

Table of Contents

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 three months ended March 31, 2001

                                                   
Unconsolidated
Consolidated
Pulte Guarantor Non-Guarantor Eliminating Pulte
Corporation Subsidiaries Subsidiaries Entries Corporation
Continuing operations:
Cash flows from operating activities:
Net Income $ 39,371 $ 43,767 $ 46,548 $ (90,315 ) $ 39,371
Adjustments to reconcile net income
to net cash flows provided by
(used in) operating activities:
Equity in income of subsidiaries (45,118 ) (3,379 ) (41,818 ) 90,315 —
Amortization, depreciation and other 432 4,297 316 — 5,045
Deferred income taxes 13,808 — — — 13,808
Increase (decrease) in cash due to:
Inventories — (189,506 ) (9,184 ) — (198,690 )
Residential mortgage loans
available-for-sale — — 39,131 — 39,131
Other assets (6,822 ) 21,885 (10,218 ) — 4,845
Accounts payable and accrued liabilities 16,754 (65,664 ) (10,873 ) — (59,783 )
Income taxes (34,303 ) 25,427 2,217 — (6,659 )
Net cash provided by (used in) operating
activities (15,878 ) (163,173 ) 16,119 — (162,932 )
Cash flows from investing activities:
Increase in covered assets and FRF
Receivables — — (1,055 ) — (1,055 )
Dividends received from subsidiaries 100,000 1,000 100,000 (201,000 ) —
Investment in subsidiary — (216 ) (12,568 ) 12,784 —
Advances to affiliates (320,550 ) (391 ) (22,959 ) 343,900 —
Other, net (714 ) 104 (221 ) — (831 )
Net cash provided by (used in) investing
activities (221,264 ) 497 63,197 155,684 (1,886 )
Cash flows from financing activities:
Proceeds from borrowings 198,782 9,729 5,733 — 214,244
Repayment of borrowings — (6,666 ) (32,773 ) — (39,439 )
Capital contributions from parent — — 12,784 (12,784 ) —
Advances from affiliates 32,380 299,908 11,612 (343,900 ) —
Issuance of common stock 7,675 — — — 7,675
Dividends paid (1,695 ) (100,000 ) (101,000 ) 201,000 (1,695 )
Other, net — — (609 ) — (609 )
Net cash provided by (used in)
financing activities 237,142 202,971 (104,253 ) (155,684 ) 180,176
Net increase (decrease) in cash and
equivalents — 40,295 (24,937 ) — 15,358
Cash and equivalents at beginning of
period — 133,860 50,125 — 183,985
Cash and equivalents at end of period $ — $ 174,155 $ 25,188 $ — $ 199,343

18

Table of Contents

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 three months ended March 31, 2000

                                                 
Unconsolidated
Consolidated
Pulte Guarantor Non-Guarantor Eliminating Pulte
Corporation Subsidiaries Subsidiaries Entries Corporation
Cash flows from operating activities:
Net income $ 24,336 $ 29,037 $ 32,523 $ (61,560 ) $ 24,336
Adjustments to reconcile net income to
net cash flows provided by (used in)
operating activities:
Equity in income of subsidiaries (29,230 ) (2,153 ) (30,177 ) 61,560 —
Amortization, depreciation and other 49 3,933 (356 ) — 3,626
Deferred income taxes 7,016 — — — 7,016
Increase (decrease) in cash due to:
Inventories — (198,185 ) (1,683 ) — (199,868 )
Residential mortgage loans
available-for-sale — — 94,068 — 94,068
Other assets (937 ) 8,831 (18,815 ) — (10,921 )
Accounts payable and accrued liabilities 4,470 (30,950 ) (6,160 ) — (32,640 )
Income taxes (32,318 ) 17,614 551 — (14,153 )
Net cash provided by (used in) operating
activities (26,614 ) (171,873 ) 69,951 — (128,536 )
Cash flows from investing activities:
Increase in covered assets and FRF
Receivables — — (903 ) — (903 )
Dividends received from subsidiaries — 1,000 — (1,000 ) —
Investment in subsidiary — (147 ) — 147 —
Advances to affiliates (178,510 ) 3,257 669 174,584 —
Other, net (27 ) — (647 ) — (674 )
Net cash provided by (used in) investing
activities (178,537 ) 4,110 (881 ) 173,731 (1,577 )
Cash flows from financing activities:
Payment of long-term debt and bonds — (1,373 ) — — (1,373 )
Proceeds from borrowings 225,700 — — — 225,700
Repayment of borrowings — (2,696 ) (82,565 ) — (85,261 )
Capital contributions from parent — — 147 (147 ) —
Advances from affiliates 1,178 163,431 9,975 (174,584 ) —
Stock repurchases (22,670 ) — — — (22,670 )
Dividends paid (1,689 ) — (1,000 ) 1,000 (1,689 )
Other, net 2,582 — (46 ) — 2,536
Net cash provided by (used in)
financing activities 205,101 159,362 (73,489 ) (173,731 ) 117,243
Net decrease in cash and equivalents (50 ) (8,401 ) (4,419 ) — (12,870 )
Cash and equivalents at beginning of
period 50 44,206 7,541 — 51,797
Cash and equivalents at end of period $ — $ 35,805 $ 3,122 $ — $ 38,927

19

Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
($000’s omitted, except per share data)

Overview:

      A summary of the Company’s operating results by business segment for the three month periods ended March 31, 2001 and 2000 is as follows:

                   
Three Months Ended
March 31,
2001 2000
Pre-tax income (loss):
Homebuilding operations $ 67,698 $ 45,910
Financial Services operations 5,452 3,467
Corporate (9,542 ) (9,915 )
Pre-tax income from continuing operations 63,608 39,462
Income taxes 24,489 15,193
Income from continuing operations 39,119 24,269
Income from discontinued operations 252 67
Net income $ 39,371 $ 24,336
Per share data — assuming dilution:
Income from continuing operations $ .91 $ .57
Income from discontinued operations .01 —
Net income $ .92 $ .57

      A comparison of pre-tax income (loss) for the three month periods ended March 31, 2001 and 2000 is as follows:

  •   Pre-tax income of the Company’s homebuilding business segment increased 47%, due primarily to the improvement in Domestic Homebuilding operations where pre-tax income increased 44%. Domestic gross margins improved 240 basis points as domestic average unit selling price increased by approximately 9%.
 
  •   Pre-tax income of the Company’s financial services business segment increased to $5,452, as compared with $3,467 for the comparable 2000 period. Higher volumes and declining interest rates contributed to this increase.
 
  •   Pre-tax loss of the Company’s corporate business segment decreased 4% from the three month period ended March 31, 2000. The Company’s net interest spread was flat in comparison to the prior year quarter while corporate overhead expense improved slightly.

20

Table of Contents

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 first-time, first and second move-up and active adult homebuyers.
 
  •   International Homebuilding operations are conducted through subsidiaries of Pulte International Corporation in Mexico, Puerto Rico and Argentina. International Homebuilding product offerings focus on the demand of first-time buyers and social interest housing in Mexico and Puerto Rico. Housing for middle-to-upper income consumer groups is also available in Puerto Rico and Argentina. The Company has agreements in place with multi-national corporations to provide social interest housing in Mexico.

      No individual market within the Company’s Homebuilding segment represented more than 10% of total segment net new orders, unit settlements or revenues for the three month period ended March 31, 2001. The Metropolitan Atlanta market accounted for 10% and 11%, respectively, of the unit net new orders and unit settlements for the three month period ended March 31, 2000.

      Certain operating data relating to the Company’s joint ventures and homebuilding operations for the three months ended March 31, 2001 and 2000, are as follows:

                       
Three Months Ended
March 31,
2001 2000
Pulte/Pulte-affiliate Homebuilding revenues:
Homebuilding Operations:
Domestic $ 805,796 $ 762,948
International 49,932 29,557
Total Homebuilding $ 855,728 $ 792,505
Pulte/Pulte-affiliate Homebuilding pre-tax income (loss):
Homebuilding Operations:
Domestic $ 66,565 $ 46,271
International 1,133 (361 )
Total Homebuilding $ 67,698 $ 45,910
Pulte/Pulte-affiliate settlements — units:
Domestic 3,768 3,898
International:
Pulte 89 31
Pulte-affiliated entities 1,685 1,496
Total International 1,774 1,527
Total Pulte and Pulte-affiliate settlements — units 5,542 5,425

21

Table of Contents

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 five groups as follows:

     
   Northeast: Connecticut, Delaware, Maryland, Massachusetts, New Jersey, Pennsylvania, Rhode Island, Virginia
   
   Southeast: Florida, Georgia, North Carolina, South Carolina, Tennessee
   
   Midwest: Illinois, Indiana, Kansas, Michigan, Minnesota, Missouri, Ohio
   
   Central: Colorado, Texas
   
   West: Arizona, California, Nevada

   The following table presents selected unit information for Pulte’s Domestic Homebuilding operations:

                   
Three Months Ended
March 31,
2001 2000
Unit settlements:
 
Northeast 393 372
Southeast 1,609 1,662
Midwest 448 591
Central 632 601
West 686 672
3,768 3,898
Net new orders — units:
 
Northeast 532 521
Southeast 2,533 2,431
Midwest 1,103 910
Central 1,354 1,104
West 933 997
6,455 5,963
 
Net new orders — dollars $ 1,399,000 $ 1,255,000
Backlog at March 31 — units:
 
Northeast 949 989
Southeast 3,065 2,915
Midwest 1,562 1,311
Central 1,536 1,295
West 1,052 987
8,164 7,497
 
Backlog at March 31 — dollars $ 1,900,000 $ 1,672,000

22

Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
($000’s omitted)

Homebuilding Operations (continued):

Domestic Homebuilding (continued):

      During the quarter, net new orders were an all time record 6,455 units, up 8% from the prior year. Increases were noted in all areas of the country, except California. Unit settlements declined 3% to 3,768 in 2001 from a record 3,898 units in 2000. Gains in the Northeast, Central and West groups were offset by slower settlement activity in the Southeast and Midwest. The Company’s backlog at March 31, 2001 was an all-time record at 8,164 units and valued at $1.9 billion.

      The following table presents a summary of pre-tax income for Pulte’s Domestic Homebuilding operations for the three months ended March 31, 2001 and 2000:

                 
Three Months Ended
March 31,
2001 2000
Revenues $ 805,796 $ 762,948
Cost of sales (644,550 ) (628,364 )
Selling, general and administrative expense (86,202 ) (81,609 )
Interest † (5,940 ) (5,078 )
Other expense, net (2,539 ) (1,626 )
Pre-tax income $ 66,565 $ 46,271
Average sales price $ 214 $ 196

      † 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 an all time record 20% for the three month period ended March 31, 2001, compared to 17.6%, in the same period of the prior year. This increase can be attributed to continued strong customer demand, positive home pricing and lower costs for certain commodity building products.

      As a percentage of sales, selling, general and administrative expense was consistent with the first quarter of 2000. Other expense net, includes net land activity and other homebuilding-related expenses. Net land activity amounted to expense of $2,500 in 2001 compared to income of $700 in 2000. Net land activity relates to gains/losses on the sale of land, the impact of decisions not to pursue land acquisitions and options, the write-off of related pre-acquisition costs and land inventory valuation reserves on land held for sale. The decrease in net land activity in 2001 represents reduced land sales and a writedown in the net realizable value of certain land positions.

      The average selling price during the three month period ended March 31, 2001, was $214, an increase from the average selling price of $196 in the comparable period of the prior year. Changes in average selling price reflect a number of factors, including changes in market selling prices and the mix of product closed during a period.

      Pulte’s Domestic Homebuilding operations controlled approximately 73,700 and 77,100 lots, of which approximately 43,200 and 45,600 lots were owned, and approximately 30,500 and 31,500 lots were controlled through option agreements at March 31, 2001 and 2000, respectively. Domestic Homebuilding inventory at March 31, 2001, was approximately $1,986,400 of which $1,405,100 is related to land and land development. At March 31, 2000, inventory was approximately $1,939,900 of which $1,369,600 was related to land and land development. Included in other assets is approximately $123,600 in land held for disposition as of March 31, 2001, as compared to $6,200 in the prior year.

23

Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
($000’s omitted)

Homebuilding Operations (continued):

International Homebuilding:

      International Homebuilding operations are primarily conducted through subsidiaries of Pulte International Corporation in Mexico, Puerto Rico and Argentina.

      The Company’s aggregate net investment in its five joint ventures located throughout Mexico approximated $26,800 at March 31, 2001. The largest of these ventures, Condak-Pulte S. De R.L. De C.V. (Condak-Pulte), is located in the city of Juarez. Condak-Pulte is currently developing communities in Juarez, Chihuahua, Nuevo Laredo, Monterrey, Reynosa and Matamoros, under agreements with Delphi Automotive Systems, Sony Magneticos de Mexico, S.A. de C.V., an affiliate of Sony Electronics, Inc. and Centro Comerciales Soriana, S.A. de C.V. As of March 31, 2001, the Company’s net investment in Condak-Pulte approximated $18,900.

      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. Current development plans for this venture include housing projects in the Bajio region surrounding Mexico City, targeting the cities of Puebla, Queretaro, San Jose du Iturbide, San Juan del Rio and Zamora. At March 31, 2001, the Company’s net investment in this joint venture approximated $6,300.

      Desarrolladores Urbanos (Canovanas), S.E., the Company’s Puerto Rican joint venture is developing 121 acres located in Metropolitan San Juan. At March 31, 2001, the Company’s net investment in this joint venture approximated $3,900.

      Operations in Argentina are conducted through Pulte SRL, its 100%-owned Argentine subsidiary. Closings in Argentina are not expected to occur until the third quarter of 2001.

      The following table presents selected financial data for Pulte’s International Homebuilding operations for the three months ended March 31, 2001 and 2000.

                     
Three Months Ended
March 31,
2001 2000
Revenues $ 11,524 $ 2,640
Cost of sales (10,233 ) (2,317 )
Selling, general and administrative expense (2,600 ) (1,156 )
Other income (expense), net 442 (59 )
Equity in income of Mexico operations 2,000 531
Pre-tax income (loss) $ 1,133 $ (361 )
Unit settlements:
Pulte 89 31
Pulte-affiliated entities 1,685 1,496
Total Pulte and Pulte-affiliates 1,774 1,527

      Puerto Rico closed 89 homes in the three month period ended March 31, 2001. This exceeded the prior year by 58 units, as a result of an increase in the number of active selling communities. Lower margins in close-out communities reduced income slightly for these operations.

      The Company’s Mexican joint venture closings of 1,685 units exceeded the prior year quarter by 189 units due to strong performance by Condak-Pulte. Higher gross margins and lower overheads contributed to stronger performance by the joint venture operations.

24

Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
($000’s omitted)

Financial Services Operations:

      The Company conducts its financial services operations principally through Pulte Mortgage Corporation (PMC), the Company’s mortgage banking subsidiary. Pre-tax income of the Company’s financial services operations for the three month periods ended March 31, 2001 and 2000, was $5,452 and $3,467 respectively. This increase was due to higher production volume and declining interest rates.

Mortgage Banking:

      The following table presents mortgage origination data for PMC:

                   
Three Months Ended
March 31,
2001 2000
Total originations:
Loans 3,258 2,437
Principal $ 489,100 $ 342,200
Originations for Pulte customers:
Loans 2,302 2,032
Principal $ 365,300 $ 295,700

      Mortgage origination unit volume for the three month period ended March 31, 2001, increased 34% from the comparable 2000 period as lower interest rates spurred higher levels of homebuying and refinancing. Refinancings represented 13% of total loan originations for the three month period ended March 31, 2001, as compared to 2% of total loan originations for 2000. At March 31, 2001, loan application backlog increased 28% to $847,000 as compared with $660,000 at March 31, 2000. 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.

      During the three months ended March 31, 2001, pricing and marketing gains increased $3,300 as funded originations increased 38% from the same period in 2000. Net interest income decreased $166 primarily due to a narrowing of the yield curve. Origination fees decreased $449 from the comparable period of the prior year primarily due to a more competitive pricing environment

      Financial Accounting Standards Board Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended by Financial Accounting Standards Board Statement No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities,” requires companies to recognize all of their derivative instruments as either assets or liabilities in the statement of financial position at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument, based upon the exposure being hedged, as either a fair value hedge or a cash flow hedge.

      For derivative instruments that are designated and qualify as a fair value hedge (i.e., hedging the exposure to changes in the fair value of an asset or a liability or an identified portion thereof that is attributable to a particular risk), the gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings during the period of the change in fair values. For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. For derivative instruments not designated as hedging instruments, the gain or loss is recognized in current earnings during the period of change. The Company currently uses only cash flow hedge accounting.

25

Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
($000’s omitted)

Financial Services Operations (continued):

      Market risks arise from movements in interest rates and cancelled or modified commitments to lend. In order to reduce these risks, the Company uses derivative financial instruments. These financial instruments include cash forward placement contracts on mortgage-backed securities, whole loan investor commitments, options on treasury futures contracts, and options on cash forward placement contracts on mortgage-backed securities. The Company does not use any derivative financials instruments for trading purposes. When the Company commits to lend to the borrower (interest rate is locked to the borrower), the Company enters into one of the aforementioned derivative financial instrument. The change in the value of the loan commitment and the derivative financial instrument is recognized in current earnings during the period of change.

      The Company hedges portions of its forecasted cash flow from sales of closed mortgage loans with derivative financial instruments. During the quarter ended March 31, 2001, the Company did not recognize any net gains or losses related to the ineffective portion of the hedging instrument excluded from the assessment of hedge effectiveness. In addition, the Company recognized $2, net of taxes, in losses during the quarter ended March 31, 2001, for cash flow hedges that were discontinued because it is probable that the original forecasted transaction will not occur. At March 31, the Company expects to reclassify $27, net of taxes, of net gains on derivative instruments from accumulated other comprehensive income to earnings during the next twelve months from sales of closed mortgage loans.

Corporate:

      Corporate is a non-operating business segment whose primary purpose is to support the operations of the Company’s subsidiaries as the internal source of financing, to develop and implement strategic initiatives centered on new business development and operating efficiencies, and to provide the administrative support associated with being a publicly traded entity. As a result, the corporate segment’s operating results will vary from quarter to quarter as these strategic initiatives evolve.

      The following table presents results of operations for the corporate segment for the three months ended      March 31, 2001 and 2000:

                 
Three Months Ended
March 31,
2001 2000
Net interest expense $ 5,649 $ 5,666
Other corporate expenses, net 3,893 4,249
Loss before income taxes $ 9,542 $ 9,915

      Pre-tax loss of the Company’s corporate business segment decreased $373 from the three month period ended March 31, 2000. The decrease in pre-tax loss for the quarter primarily reflects a decrease of approximately $360 in other expense. Other corporate expenses, net for the prior year include one-time expenses of approximately $2,400 related primarily to amendment of certain stock option participant agreements and losses incurred upon settlement of a derivative contract. Excluding these expenses, other corporate expenses, net were approximately $1,800 for the first quarter of 2000, compared with approximately $3,900 for the first quarter of 2001. The increase in expense in 2001 is primarily due to higher costs related to certain corporate strategic initiatives, and higher compensation expense. Net interest expense was flat as interest on a higher debt balance was offset by higher interest capitalization. Interest incurred for the three months ended March 31, 2001 and 2000, excluding interest incurred by the Company’s financial services operations was $16,300 and $13,600, respectively.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
($000’s omitted)

Corporate (continued):

      Net interest expense is net of amounts capitalized into homebuilding inventories. Amounts capitalized are charged to homebuilding interest expense when the related inventories are closed. Information related to interest in inventory is as follows:

                 
Three Months Ended
March 31,
2001 2000
Interest in inventory at beginning of period $ 24,202 $ 19,092
Interest capitalized 9,927 7,887
Interest expensed (5,940 ) (5,078 )
Interest in inventory at end of period $ 28,189 $ 21,901

Liquidity and Capital Resources:

Continuing Operations:

      The Company’s net cash used in operating activities amounted to $162,932, reflecting an increase in the use of operating funds as compared with the same period last year due to a larger decrease in accounts payable and accrued liabilities and a smaller decrease in PMC’s holdings of residential mortgage loans available-for-sale than in the prior year. Net cash used in investing activities was comparable to last year’s use of $1,577. Net cash provided by financing activities increased to $180,176 in 2001. This increase primarily reflects higher repayments under the Company’s revolving credit facilities and funding under the Company’s stock repurchase plan in the prior year.

      The Company finances its homebuilding land acquisitions, development and construction activities from internally generated funds and existing credit agreements. The Company had no borrowings under its $390,000 unsecured revolving credit facilities at March 31, 2001. PMC provides mortgage financing for many of the Company’s home sales and uses its own funds and borrowings made available pursuant to various committed and uncommitted credit arrangements which, at March 31, 2001, amounted to $325,000, an amount deemed adequate to cover foreseeable needs. There were approximately $200,000 of borrowings outstanding under the $325,000 PMC arrangements at March 31, 2001. Mortgage loans originated by PMC are subsequently sold, principally to outside investors. The Company anticipates that there will be adequate mortgage financing available for purchasers of its homes.

      The Company’s income tax liabilities are affected by a number of factors. Management anticipates that the Company’s effective tax rate for 2001 will be between 38% and 39%.

      At March 31, 2001, the Company had cash and equivalents of $199,343 and total long-term indebtedness of $886,237. The Company’s total long-term indebtedness includes $858,202 of unsecured senior notes, a $7,000 unsecured promissory note and other Pulte limited recourse debt of $21,035. The Company also has other non-recourse short-term notes payable of $41,952 and First Heights advances of $760.

      In February 2001, the Company sold 8 1/8%, $200,000 Senior Notes, due 2011. 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.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
($000’s omitted)

Liquidity and Capital Resources (continued):

Continuing Operations (continued):

      Sources of the Company’s working capital at March 31, 2001, include its cash and equivalents, and its $390,000 committed unsecured revolving credit facilities. The Company routinely monitors financial market conditions to evaluate the utilization of available financial sources, including securities offerings for use in current operations or for transactions such as the acquisition of Del Webb Corporation, as discussed below.

Discontinued Operations:

      The Company’s remaining investment in First Heights at March 31, 2001, approximated $32,000. 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. 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 $117,000. Based upon the Company’s assessment of its legal position in the District Court litigation with the FDIC, as well as the expected duration of the legal process in this case, the Company does not currently believe that the judgment ordered by the District Court against Pulte Diversified Companies, Inc. and First Heights will have a material impact on the Company’s liquidity.

Inflation:

      The Company and the homebuilding industry in general, may be adversely affected during periods of high inflation, because of higher land and construction costs. Inflation also increases the Company’s financing, labor and material costs. In addition, higher mortgage interest rates significantly affect the affordability of permanent mortgage financing to prospective homebuyers. The Company attempts to pass through to its customers any increases in its costs through increased sales prices and, to date, inflation has not had a material adverse effect on the Company’s results of operations. However, there is no assurance that inflation will not have a material adverse impact on the Company’s future results of operations.

Pending Acquisition of Del Webb Corporation

      On April 30, 2001, the Company entered into a definitive merger agreement to acquire Del Webb Corporation. The Company will acquire all of the outstanding shares of Del Webb in a tax-free stock-for-stock transaction. The Company will also assume Del Webb’s outstanding debt. The total purchase price is subject to adjustment based on the 15-day average of Pulte’s closing stock price for a period ending on and including the third trading day prior to Del Webb’s shareholder meeting to vote on the transaction. The transaction is conditioned upon, among other things, the approvals the shareholders of both companies and appropriate regulatory approvals. If the necessary approvals are obtained, the Company expects to close the transaction in the third quarter of 2001.

      Del Webb is primarily a homebuilder with operations in six states. For the fiscal year ended June 30, 2000, Del Webb had net income of $74,165 on revenues of $2,040,003 and deliveries of 8,419 homes.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Quantitative disclosure:

      The Company is subject to interest rate risk on its long term debt to the extent long-term rates decline. 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 debt instruments. The following table sets forth, as of March 31, 2001, 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).

                                                                   
As of March 31, 2001 and for the
Years ended December 31,
There- Fair
2001 2002 2003 2004 2005 after Total Value
Rate sensitive liabilities:
   
Fixed interest rate debt:
   
Pulte Corporation public
debt instruments $ — $ — $ 275,000 $ 112,000 $ 125,000 $ 350,000 $ 862,000 $ 885,282
Average interest rate — — 8.59 % 8.38 % 7.30 % 7.91 % 8.10 %
   
Pulte Diversified
Companies, Inc., unsecured
promissory note $ 7,000 — — — — — $ 7,000 $ 7,000
Average interest rate 8.00 % — — — — — 8.00 %
   
Pulte Home Corporation
other non-recourse
debt $ 9,030 $ 1,935 3,000 3,000 3,000 1,070 $ 21,035 $ 21,035
Average interest rate 8.08 % 3.00 % 9.00 % 9.00 % 9.00 % 9.00 % 8.05 %

Qualitative disclosure:

      This information is set forth on pages 26 and 27 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, 2000, and is incorporated herein by reference.

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, issues and timing surrounding land entitlement and development, weather conditions, 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).

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

      See Note 4, notes to Condensed Consolidated Financial Statements, which is contained in Part I, Item 1, of this Quarterly Report on Form 10-Q and which is incorporated by reference into this response.

Item 6. Exhibits and Report on Form 8-K

   (a) Exhibits

      None.

   (b) Report on Form 8-K

      On February 8, 2001, the Company filed a Current Report on Form 8-K, which included certain exhibits in connection with the issuance of its 8 1/8% Senior Subordinated Notes due 2011 pursuant to Registration Statement No. 333-54978.

      On February 12, 2001, the Company filed a Current Report on Form 8-K which included a press release dated January 25, 2001, wherein it provided updated financial and other information.

      On May 2, 2001, the Company filed a Current Report on Form 8-K which included a press release dated May 1, 2001, wherein it provided information regarding its pending acquisition of Del Webb Corporation. Also included was the Plan and Agreement of Merger, dated April 30, 2001.

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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

 
 
  Roger A. Cregg
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)

 
 
  Vincent J. Frees
Vice President and Controller
(Principal Accounting Officer)

  Date: May 14, 2001

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