============================================================================= SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 1997 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 (810) 647-2750 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. YES __X__ NO _____ Number of shares of common stock outstanding as of April 30, 1997: 20,961,605 Total pages: 28 Listing of exhibits: 26 =============================================================================
PULTE CORPORATION INDEX Page No. -------- PART I FINANCIAL INFORMATION Item 1 Financial Statements (Unaudited) Condensed Consolidated Balance Sheets, March 31, 1997 and December 31, 1996 ................................................... 3 Condensed Consolidated Statements of Income, Three Months Ended March 31, 1997 and 1996.............................................. 4 Condensed Consolidated Statement of Shareholders' Equity, Three Months Ended March 31, 1997.......................................... 5 Condensed Consolidated Statements of Cash Flows, Three Months Ended March 31, 1997 and 1996.............................................. 6 Notes to Condensed Consolidated Financial Statements.................. 8 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations..................................... 19 PART II OTHER INFORMATION Item 6 Exhibits and Reports on Form 8-K.............................. 26 SIGNATURES............................................................ 27 2
<TABLE> <CAPTION> PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PULTE CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS ($000's omitted) March 31, December 31, 1997 1996 --------- ------------ (Unaudited) (Note) <S> <C> <C> ASSETS Cash and equivalents...................................... $ 62,271 $ 189,625 Unfunded settlements...................................... 55,751 73,896 House and land inventories................................ 1,113,098 1,017,262 Mortgage-backed and related securities.................... 44,661 47,113 Residential mortgage loans and other securities available-for-sale...................................... 106,604 170,443 Other assets.............................................. 349,645 342,726 Discontinued operations................................... 146,436 144,076 ---------- ---------- $1,878,466 $1,985,141 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Accounts payable and accrued liabilities, including book overdrafts of $55,918 and $85,827 in 1997 and 1996, respectively........................................ $ 384,626 $ 439,578 Collateralized short-term debt, recourse solely to applicable subsidiary assets........................ 94,915 154,136 Mortgage-backed bonds, recourse solely to applicable subsidiary assets................................... 43,225 45,304 Income taxes........................................... 12,094 12,930 Subordinated debentures and senior notes............... 395,899 391,175 Discontinued operations................................ 114,803 112,745 ---------- ---------- Total liabilities................................... 1,045,562 1,155,868 Shareholders' equity...................................... 832,904 829,273 ---------- ---------- $1,878,466 $1,985,141 ========== ========== <FN> Note: The balance sheet at December 31, 1996 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See accompanying notes to condensed consolidated financial statements. </TABLE> 3
<TABLE> <CAPTION> PULTE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (000's omitted, except per share data) (Unaudited) For The Three Months Ended March 31, -------------------------- 1997 1996 --------- --------- <S> <C> <C> Revenues: Homebuilding............................................ $ 423,215 $ 411,331 Mortgage banking and financing, interest and other...... 6,727 16,133 Corporate, principally interest......................... 1,758 5,055 --------- --------- Total revenues.................................. 431,700 432,519 --------- --------- Expenses: Homebuilding, principally cost of sales................. 414,218 402,763 Mortgage banking and financing, interest and other...... 6,563 11,295 Corporate, net.......................................... 8,912 9,847 --------- --------- Total expenses.................................. 429,693 423,905 --------- --------- Income from continuing operations before income taxes..... 2,007 8,614 Income taxes.............................................. 773 3,506 --------- --------- Income from continuing operations......................... 1,234 5,108 Income from discontinued thrift operations, net of income taxes............................................ 1,003 1,972 --------- --------- Net income................................................ $ 2,237 $ 7,080 ========= ========= Per share data: Primary and fully-diluted: Income from continuing operations..................... $ .05 $ .19 Income from discontinued operations................... .04 .07 --------- --------- Net income............................................ $ .09 $ .26 ========= ========= Cash dividends declared................................. $ .06 $ .06 ========= ========= Weighted-average common shares outstanding: Primary............................................... 23,467 27,250 ========= ========= Fully-diluted......................................... 23,468 27,250 ========= ========= <FN> See accompanying notes to condensed consolidated financial statements. </TABLE> 4
<TABLE> <CAPTION> PULTE CORPORATION CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY ($000's omitted) (Unaudited) Additional Common Paid-in Unrealized Retained Stock Capital Gains Earnings Total ------- ---------- ---------- -------- ----- <S> <C> <C> <C> <C> <C> Shareholders' Equity, December 31, 1996 $ 233 $ 57,516 $ 1,474 $ 770,050 $ 829,273 Exercise of stock options ............. -- 1,606 -- -- 1,606 Change in unrealized gains on securities available-for-sale, net of income taxes of $192 ............................ -- -- (212) -- (212) Net income ............................ -- -- -- 2,237 2,237 --------- --------- --------- --------- --------- Shareholders' Equity, March 31, 1997 .. $ 233 $ 59,122 $ 1,262 $ 772,287 $ 832,904 ========= ========= ========= ========= ========= <FN> See accompanying notes to condensed consolidated financial statements. </TABLE> 5
<TABLE> <CAPTION> PULTE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ($000's omitted) (Unaudited) Three Months Ended March 31, ------------------ 1997 1996 ---- ---- <S> <C> <C> Continuing operations: Cash flows from operating activities: Income from continuing operations ........................ $ 1,234 $ 5,108 Adjustments to reconcile income from continuing operations to net cash flows used in operating activities: Amortization, depreciation and other ............... 322 1,639 Deferred income taxes .............................. (1,750) (4,627) Gain on sale of securities ......................... -- (4,495) Increase (decrease) in cash due to: Inventories .................................. (95,836) (61,082) Residential mortgage loans held for sale ..... 63,838 58,514 Other assets ................................. 12,832 (8,407) Accounts payable and accrued liabilities ..... (54,378) (7,242) Income taxes ................................. 257 6,977 --------- --------- Net cash used in operating activities ....................... (73,481) (13,615) --------- --------- Cash flows from investing activities: Proceeds from sale of securities available-for-sale ...... -- 61,076 Principal payments of mortgage-backed securities ......... 2,028 8,431 Decrease (increase) in funds held by trustee ............. 68 (49,432) Other, net ............................................... -- (3,064) --------- --------- Net cash provided by investing activities ................... 2,096 17,011 --------- --------- Cash flows from financing activities: Payment of long-term debt and bonds ...................... (2,373) (60,784) Proceeds from borrowings ................................. 4,702 -- Repayment of borrowings .................................. (59,304) (49,210) Stock repurchases ........................................ -- (9,261) Dividends paid ........................................... -- (1,622) Other, net ............................................... 1,006 82 --------- --------- Net cash used in financing activities ....................... (55,969) (120,795) --------- --------- Net decrease in cash and equivalents-continuing operations .. $(127,354) $(117,399) --------- --------- </TABLE> 6
<TABLE> <CAPTION> PULTE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) ($000's omitted) (Unaudited) Three Months Ended March 31, ------------------ 1997 1996 ---- ---- <S> <C> <C> Discontinued Operations: Cash flows from operating activities: Income from discontinued operations ................... $ 1,003 $ 1,972 Change in income taxes ................................ -- (97) Other changes, net .................................... (1,097) (2,051) Cash flows from investing activities: Purchase of securities available-for-sale ............. (12,828) (9,560) Principal payments of mortgage-backed securities ...... 7,539 13,133 Net proceeds from sale of investments ................. 2,330 -- Decrease in Covered Assets and (FRF) receivables ...... 30,646 31,283 Cash flows from financing activities: Decrease in deposit liabilities ....................... (9,347) (1,521) Repayment of borrowings ............................... (31,560) (31,560) Increase (decrease) in Federal Home Loan Bank (FHLB) advances ............................................ 13,000 (1,900) --------- --------- Net decrease in cash and equivalents-discontinued operations ............................................ (314) (301) --------- --------- Net decrease in cash and equivalents ..................... (127,668) (117,700) Cash and equivalents at beginning of period .............. 192,202 295,163 --------- --------- Cash and equivalents at end of period .................... $ 64,534 $ 177,463 ========= ========= Cash - continuing operations ............................. $ 62,271 $ 174,828 Cash - discontinued operations ........................... 2,263 2,635 --------- --------- $ 64,534 $ 177,463 ========= ========= Supplemental disclosure of cash flow information-cash paid during the period for: Interest, net of amount capitalized; Continuing operations ............................... $ 3,614 $ 8,591 Discontinued operations ............................. 508 732 --------- --------- $ 4,122 $ 9,323 ========= ========= Income taxes .......................................... $ 2,223 $ 1,155 ========= ========= <FN> See accompanying notes to condensed consolidated financial statements. </TABLE> 7
PULTE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ($000's omitted) (Unaudited) 1. Basis of presentation and significant accounting policies Basis of presentation The condensed consolidated financial statements include the accounts of Pulte Corporation (the Company), and all of its significant subsidiaries. The Company's direct subsidiaries consist of Pulte Financial Companies, Inc. (PFCI) and Pulte Diversified Companies, Inc. (PDCI). PDCI's direct subsidiaries are Pulte Home Corporation (Pulte) and First Heights Bank, fsb (First Heights). Pulte Mortgage Corporation, formerly known as ICM Mortgage Corporation, is a direct subsidiary of Pulte. The Company's continuing operations include its homebuilding (Pulte) and financial services subsidiaries, which include Pulte Mortgage (mortgage banking) and PFCI (financing). The Company's thrift subsidiary, First Heights, has been classified as discontinued operations (See Note 2). The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 1997 are not necessarily indicative of the results that may be expected for the year ended December 31, 1997. 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, 1996. Certain 1996 classifications have been changed to conform with the 1997 presentation. Significant accounting policies In February 1997, the Financial Accounting Standards Board (FASB) adopted Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share, which is effective for fiscal years ending after December 15, 1997. This statement replaces Accounting Principles Board (APB) Opinion No 15, Earnings Per Share, and the presentation of primary earnings per share (EPS) with a presentation of basic EPS. This statement also requires dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS calculation. Basic EPS excludes dilution and is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS is computed similarly to fully-diluted EPS pursuant to APB 15. Under SFAS No. 128, the Company's basic and diluted EPS amounts would have been identical to the primary and fully-diluted EPS amounts presented in its consolidated statements of income for the three months ended March 31, 1997 and 1996. 2. Discontinued operations Revenues of the Company's discontinued thrift operations for the three months ended March 31, 1997 and 1996, were $2,425 and $3,304, respectively. For the three months ended March 31, 1997 and 1996, discontinued thrift operations provided after-tax income of $1,003 and $1,972, respectively. Additional discounts of approximately $2,800 at March 31, 1997, are being amortized into income over the life of the related Federal Savings and Loan Insurance Corporation (FSLIC) Resolution Fund (FRF) note at a rate of approximately $1,200 per quarter. 8
PULTE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) ($000's omitted) (Unaudited) 3. Segment information <TABLE> <CAPTION> Financial Services ------------------------- Mortgage Homebuilding Banking Financing Corporate Consolidated ------------ -------- --------- --------- ------------ <S> <C> <C> <C> <C> <C> Three Months Ended March 31, 1997: Continuing Operations: Revenues: Unaffiliated customers $ 423,215 $ 5,746 $ 981 $ 1,758 $ 431,700 ========== ========== ========== ========== ========== Income (loss) before income taxes .......... $ 8,997 $ 206 $ (42) $ (7,154) $ 2,007 ========== ========== ========== ========== ========== At March 31, 1997: Identifiable assets ....... $1,401,101 $ 120,516 $ 45,124 $ 165,289 $1,732,030 ========== ========== ========== ========== Assets of discontinued operations .............. 146,436 ---------- Total assets .............. $1,878,466 ========== Three Months Ended March 31, 1996: Continuing Operations: Revenues: Unaffiliated customers $ 411,331 $ 7,523 $ 8,610 $ 5,055 $ 432,519 ========== ========== ========== ========== ========== Income (loss) before income taxes .......... $ 8,568 $ 457 $ 4,381 $ (4,792) $ 8,614 ========== ========== ========== ========== ========== At March 31, 1996: Identifiable assets ....... $1,174,440 $ 136,886 $ 236,830 $ 219,861 $1,768,017 ========== ========== ========== ========== Assets of discontinued operations .............. 153,028 ---------- Total assets .............. $1,921,045 ========== </TABLE> 4. Subsequent event On April 16, 1997, the Company acquired 2,325,000 shares of its common stock from two corporations controlled by James Grosfeld and his family. These shares represented approximately 9.9% of the Company's then-outstanding common shares. The price paid for the shares was approximately $73,000, an amount per share equivalent to the average closing price of the Company's common stock over the 30 business days preceding the transaction closing date. In connection with the acquisition, the Company and Mr. Grosfeld also entered into an agreement that modified a consulting agreement dated April 27, 1990, and an agreement dated November 16, 1990, between Mr. Grosfeld and the Company. The modifications included (1) prepayment by the Company, at an agreed-upon discount rate, of the deferred amounts due to Mr. Grosfeld under the two agreements; $2,972 was paid at the closing of the share acquisition and $869 will be payable upon the first to occur of January 1, 2000 or Mr. Grosfeld's death, (2) a 13-month extension (until December 31, 1999) of Mr. Grosfeld's duties to provide advisory services to the Company and its subsidiaries in connection with the Company's thrift operations and other matters requested by the Company, and (3) a 10-year extension of the restrictions imposed by the November 1990 agreement on certain of Mr. Grosfeld's activities, until December 1, 2008. 9
PULTE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) ($000's omitted) (Unaudited) 5. Commitments and contingencies Federal Deposit Insurance Corporation The Company is a party to two lawsuits relating to First Heights' 1988 acquisition from the 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 FDIC against the Company, PDCI and First Heights (collectively, the "Pulte Defendants"). The second lawsuit (the "Court of Claims Case") was filed on December 26, 1996 in the United States Court of Federal Claims (Washington, D.C.) by the Pulte Defendants against the United States. In the District Court Case, the FDIC seeks a declaration of rights and other relief related to the assistance agreement entered into between First Heights and the FSLIC. The FDIC is the successor to FSLIC. The FDIC and the Pulte Defendants 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 Defendants 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 Defendants had 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 Defendants voluntarily dismissed without prejudice certain of their claims in the District Court Case and on December 26, 1996, initiated the Court of Claims Case. The Court of Claims Case contains essentially the same claims as were voluntarily dismissed from the District Court Case. 6. Supplemental guarantor information The Company previously filed a universal shelf registration of up to $250,000 of debt or equity securities of which $125,000 of 7.3% unsecured Senior Notes were issued in October, 1995. In addition, the Company has previously issued $100,000 of 7%, and $115,000 of 8.375% unsecured Senior Notes. Such obligations to pay principal, premium, if any, and interest are guaranteed jointly and severally on a senior basis by Pulte, all of Pulte's wholly-owned homebuilding subsidiaries and Builders' Supply & Lumber Co., Inc. which is a Pulte wholly-owned subsidiary (collectively, the Guarantors). Such guarantees are full and unconditional. The principal non-Guarantors include PDCI, the parent company of Pulte, Pulte Mortgage, First Heights, and PFCI. See Note 1 for additional information on the Company's Guarantor and non-Guarantor subsidiaries. Supplemental consolidating financial information of the Company, specifically including such information for the Guarantors, is presented below. Investments in subsidiaries are presented using the equity method of accounting. Separate financial statements of the Guarantors are not provided because management has concluded that the segment information provides sufficient detail to allow investors to determine the nature of the assets held by and the operations of the combined groups. 10
PULTE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) ($000's omitted) (Unaudited) 6. Supplemental Guarantor Information (continued) <TABLE> <CAPTION> CONSOLIDATING BALANCE SHEET March 31, 1997 Unconsolidated ----------------------------------------------- Consolidated Pulte Guarantor Non-Guarantor Eliminating Pulte Corporation Subsidiaries Subsidiaries Entries Corporation ----------- ------------ ------------- ----------- ------------ <S> <C> <C> <C> <C> <C> ASSETS Cash and equivalents ............ $ 5,155 $ 54,300 $ 2,816 $ -- $ 62,271 Unfunded settlements ............ -- 55,751 -- -- 55,751 House and land inventories ...... -- 1,113,098 -- -- 1,113,098 Mortgage-backed and related securities .................... -- -- 44,661 -- 44,661 Residential mortgage loans and other securities available-for-sale ............ -- -- 106,604 -- 106,604 Land held for sale and future development ................... -- 29,918 -- -- 29,918 Deferred income taxes ........... 130,418 -- (790) -- 129,628 Other assets .................... 14,262 148,034 27,803 -- 190,099 Discontinued operations ......... -- -- 146,436 -- 146,436 Investment in subsidiaries ...... 863,831 19,049 885,031 (1,767,911) -- Advances receivable - subsidiaries .................. 243,286 551 18,931 (262,768) -- ----------- ----------- ----------- ----------- ----------- $ 1,256,952 $ 1,420,701 $ 1,231,492 $(2,030,679) $ 1,878,466 =========== =========== =========== =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Accounts payable and accrued liabilities ................... $ 50,461 $ 307,803 $ 26,362 $ -- $ 384,626 Collateralized short-term debt, recourse solely to applicable subsidiary assets ............. -- -- 94,915 -- 94,915 Mortgage-backed bonds, recourse solely to applicable subsidiary assets .. -- -- 43,225 -- 43,225 Income taxes .................... 12,094 -- -- -- 12,094 Subordinated debentures and senior notes .................. 339,387 56,512 -- -- 395,899 Discontinued operations ......... 2,784 -- 112,019 -- 114,803 Advances payable - subsidiaries . 19,322 219,375 24,071 (262,768) -- ----------- ----------- ----------- ----------- ----------- Total liabilities .......... 424,048 583,690 300,592 (262,768) 1,045,562 Shareholders' equity ............ 832,904 837,011 930,900 (1,767,911) 832,904 ----------- ----------- ----------- ----------- ----------- $ 1,256,952 $ 1,420,701 $ 1,231,492 $(2,030,679) $ 1,878,466 =========== =========== =========== =========== =========== </TABLE> 11
PULTE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) ($000's omitted) (Unaudited) 6. Supplemental Guarantor Information (continued) <TABLE> <CAPTION> CONSOLIDATING BALANCE SHEET December 31, 1996 Unconsolidated ----------------------------------------------- Consolidated Pulte Guarantor Non-Guarantor Eliminating Pulte Corporation Subsidiaries Subsidiaries Entries Corporation ----------- ------------ ------------- ----------- ------------ <S> <C> <C> <C> <C> <C> ASSETS Cash and equivalents ............ $ 114,585 $ 71,599 $ 3,441 $ -- $ 189,625 Unfunded settlements ............ -- 73,896 -- -- 73,896 House and land inventories ...... -- 1,017,262 -- -- 1,017,262 Mortgage-backed and related securities .................... -- -- 47,113 -- 47,113 Residential mortgage loans and other securities available-for-sale ............ -- -- 170,443 -- 170,443 Land held for sale and future development ................... -- 37,655 -- -- 37,655 Deferred income taxes ........... 128,668 -- (982) -- 127,686 Other assets .................... 12,860 140,489 24,036 -- 177,385 Discontinued operations ......... -- -- 144,076 -- 144,076 Investment in subsidiaries ...... 859,866 23,425 878,540 (1,761,831) -- Advances receivable - subsidiaries .................. 139,351 827 17,246 (157,424) -- ----------- ----------- ----------- ----------- ----------- $ 1,255,330 $ 1,365,153 $ 1,283,913 $(1,919,255) $ 1,985,141 =========== =========== =========== =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Accounts payable and accrued liabilities ................... $ 51,731 $ 357,480 $ 30,367 $ -- $ 439,578 Collateralized short-term debt, recourse solely to applicable subsidiary assets ............. -- -- 154,136 -- 154,136 Mortgage-backed bonds, recourse solely to applicable subsidiary assets .. -- -- 45,304 -- 45,304 Income taxes .................... 12,930 -- -- -- 12,930 Subordinated debentures and senior notes .................. 339,365 51,810 -- -- 391,175 Discontinued operations ......... 4,002 -- 108,743 -- 112,745 Advances payable - subsidiaries . 18,029 123,451 15,944 (157,424) -- ----------- ----------- ----------- ----------- ----------- Total liabilities .......... 426,057 532,741 354,494 (157,424) 1,155,868 Shareholders' equity ............ 829,273 832,412 929,419 (1,761,831) 829,273 ----------- ----------- ----------- ----------- ----------- $ 1,255,330 $ 1,365,153 $ 1,283,913 $(1,919,255) $ 1,985,141 =========== =========== =========== =========== =========== </TABLE> 12
PULTE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) ($000's omitted) (Unaudited) 6. Supplemental Guarantor Information (continued) <TABLE> <CAPTION> CONSOLIDATING STATEMENT OF OPERATIONS For the three months ended March 31, 1997 Unconsolidated ----------------------------------------- Consolidated Pulte Guarantor Non-Guarantor Eliminating Pulte Corporation Subsidiaries Subsidiaries Entries Corporation ----------- ------------ ------------- ----------- ------------ <S> <C> <C> <C> <C> <C> Revenues: Homebuilding ................... $ -- $423,215 $ -- $ -- $423,215 Mortgage banking and financing, interest and other ........... -- -- 6,727 -- 6,727 Corporate, principally interest 790 968 -- -- 1,758 -------- -------- -------- -------- -------- Total revenues ................... 790 424,183 6,727 -- 431,700 -------- -------- -------- -------- -------- Expenses: Homebuilding: Cost of sales ................ -- 360,005 -- -- 360,005 Selling, general and administrative and other expense .............. -- 54,213 -- -- 54,213 Mortgage banking and financing, interest and other .................... -- -- 6,563 -- 6,563 Corporate, net ................. 6,920 2,506 (514) -- 8,912 -------- -------- -------- -------- -------- Total expenses ................... 6,920 416,724 6,049 -- 429,693 -------- -------- -------- -------- -------- Income (loss) from continuing operations before income taxes and equity in income of subsidiaries ................ (6,130) 7,459 678 -- 2,007 Income taxes (benefit) ........... (2,470) 2,984 259 -- 773 -------- -------- -------- -------- -------- Income (loss) from continuing operations before equity in income of subsidiaries ...... (3,660) 4,475 419 -- 1,234 Income (loss) from discontinued operations ..................... 1,720 -- (717) -- 1,003 -------- -------- -------- -------- -------- Income (loss) before equity in income (loss) of subsidiaries ................... (1,940) 4,475 (298) -- 2,237 -------- -------- -------- -------- -------- Equity in income (loss) of subsidiaries: Continuing operations ........ 4,894 124 4,475 (9,493) -- Discontinued operations ...... (717) -- -- 717 -- -------- -------- -------- -------- -------- 4,177 124 4,475 (8,776) -- -------- -------- -------- -------- -------- Net income ....................... $ 2,237 $ 4,599 $ 4,177 $ (8,776) $ 2,237 ======== ======== ======== ======== ======== </TABLE> 13
PULTE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) ($000's omitted) (Unaudited) 6. Supplemental Guarantor Information (continued) <TABLE> <CAPTION> CONSOLIDATING STATEMENT OF OPERATIONS For the three months ended March 31, 1996 Unconsolidated ------------------------------------------ Consolidated Pulte Guarantor Non-Guarantor Eliminating Pulte Corporation Subsidiaries Subsidiaries Entries Corporation ----------- ------------ ------------- ----------- ------------ <S> <C> <C> <C> <C> <C> Revenues: Homebuilding ................... $ -- $411,331 $ -- $ -- $411,331 Mortgage banking and financing, interest and other ........... -- -- 16,133 -- 16,133 Corporate, principally interest 2,808 1,889 358 -- 5,055 -------- -------- -------- -------- -------- Total revenues ................... 2,808 413,220 16,491 -- 432,519 -------- -------- -------- -------- -------- Expenses: Homebuilding: Cost of sales ................ -- 350,780 -- -- 350,780 Selling, general and administrative and other expense .............. -- 51,983 -- -- 51,983 Mortgage banking and financing, interest and other .................... -- -- 11,295 -- 11,295 Corporate, net .................. 6,254 3,152 441 -- 9,847 -------- -------- -------- -------- -------- Total expenses ................... 6,254 405,915 11,736 -- 423,905 -------- -------- -------- -------- -------- Income (loss) from continuing operations before income taxes and equity in income of subsidiaries ................ (3,446) 7,305 4,755 -- 8,614 Income taxes (benefit) ........... (1,333) 2,922 1,917 -- 3,506 -------- -------- -------- -------- -------- Income (loss) from continuing operations before equity in income of subsidiaries ................ (2,113) 4,383 2,838 -- 5,108 Income from discontinued operations ..................... 1,315 -- 657 -- 1,972 -------- -------- -------- -------- -------- Income (loss) before equity in income of subsidiaries ................... (798) 4,383 3,495 -- 7,080 -------- -------- -------- -------- -------- Equity in income of subsidiaries: Continuing operations ........ 7,221 274 4,383 (11,878) -- Discontinued operations ...... 657 -- -- (657) -- -------- -------- -------- -------- -------- 7,878 274 4,383 (12,535) -- -------- -------- -------- -------- -------- Net income ....................... $ 7,080 $ 4,657 $ 7,878 $(12,535) $ 7,080 ======== ======== ======== ======== ======== </TABLE> 14
PULTE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) ($000's omitted) (Unaudited) 6. Supplemental Guarantor Information (continued) <TABLE> <CAPTION> CONSOLIDATING STATEMENT OF CASH FLOWS For the three months ended March 31, 1997 Unconsolidated -------------------------------------------- Consolidated Pulte Guarantor Non-Guarantor Eliminating Pulte Corporation Subsidiaries Subsidiaries Entries Corporation ----------- ------------ ------------- ----------- ------------ <S> <C> <C> <C> <C> <C> Continuing operations: Cash flows from operating activities: Income from continuing operations.. $ 1,234 $ 4,599 $ 4,894 $ (9,493) $ 1,234 Adjustments to reconcile income from continuing operations to net cash flows provided by (used in) operating activities: Equity in subsidiaries ........ (4,894) (124) (4,475) 9,493 -- Amortization, depreciation and other ................... 22 -- 300 -- 322 Deferred income taxes ......... (1,750) -- -- -- (1,750) Increase (decrease) in cash due to: Inventories ................... -- (95,836) -- -- (95,836) Residential mortgage loans available-for-sale .......... -- -- 63,838 -- 63,838 Other assets .................. (1,402) 18,337 (4,103) -- 12,832 Accounts payable and accrued liabilities ................. (1,270) (49,677) (3,431) -- (54,378) Income taxes .................. (2,942) 2,984 215 -- 257 --------- --------- --------- --------- --------- Net cash provided by (used in) operating activities .............. (11,002) (119,717) 57,238 -- (73,481) --------- --------- --------- --------- --------- Cash flows from investing activities: Principal payments of mortgage-backed securities .... -- -- 2,028 -- 2,028 Decrease in funds held by trustee ....................... -- -- 68 -- 68 Dividends received from subsidiaries .................. -- 4,500 -- (4,500) -- Advances to affiliates .......... (100,736) 276 (1,697) 102,157 -- --------- --------- --------- --------- --------- Net cash provided by (used in) investing activities .............. (100,736) 4,776 399 97,657 2,096 --------- --------- --------- --------- --------- Cash flows from financing activities: Payment of long-term debt and bonds ..................... -- -- (2,373) -- (2,373) Proceeds from borrowings ........ -- 4,702 -- -- 4,702 Repayment of borrowings ......... -- -- (59,304) -- (59,304) Advances from affiliates ........ 1,293 92,940 7,924 (102,157) -- Dividends paid .................. -- -- (4,500) 4,500 -- Other, net ...................... 1,015 -- (9) -- 1,006 --------- --------- --------- --------- --------- Net cash provided by (used in) financing activities .............. 2,308 97,642 (58,262) (97,657) (55,969) --------- --------- --------- --------- --------- Net increase (decrease) in cash and equivalents - continuing operations ............. $(109,430) $ (17,299) $ (625) $ -- $(127,354) --------- --------- --------- --------- --------- </TABLE> 15
PULTE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) ($000's omitted) (Unaudited) 6. Supplemental Guarantor Information (continued) <TABLE> <CAPTION> CONSOLIDATING STATEMENT OF CASH FLOWS (continued) For the three months ended March 31, 1997 Unconsolidated --------------------------------------------- Consolidated Pulte Guarantor Non-Guarantor Eliminating Pulte Corporation Subsidiaries Subsidiaries Entries Corporation ----------- ------------ ------------- ----------- ------------ <S> <C> <C> <C> <C> <C> Discontinued operations: Cash flows from operating activities: Income (loss) from discontinued operations ...... $ 1,003 $ -- $ (717) $ 717 $ 1,003 Change in deferred income taxes -- -- -- -- -- Equity in subsidiaries ......... 717 -- -- (717) -- Other changes, net ............. (1,720) -- 623 -- (1,097) Cash flows from investing activities: Purchase of securities available-for-sale ........... -- -- (12,828) -- (12,828) Principal payments of mortgage-backed securities ... -- -- 7,539 -- 7,539 Net proceeds from sale of investment ................... -- -- 2,330 -- 2,330 Decrease in Covered Assets and FRF receivables .......... -- -- 30,646 -- 30,646 Cash flows from financing activities: Increase in deposit liabilities -- -- (9,347) -- (9,347) Repayment of borrowings ........ -- -- (31,560) -- (31,560) Decrease in FHLB advances ...... -- -- 13,000 -- 13,000 --------- --------- --------- --------- --------- Net decrease in cash and equivalents - discontinued operations .......... -- -- (314) -- (314) --------- --------- --------- --------- --------- Net decrease in cash and equivalents ...................... (109,430) (17,299) (939) -- (127,668) Cash and equivalents at beginning of period ............. 114,585 71,599 6,018 -- 192,202 --------- --------- --------- --------- --------- Cash and equivalents at end of period ........................ $ 5,155 $ 54,300 $ 5,079 $ -- $ 64,534 ========= ========= ========= ========= ========= </TABLE> 16
PULTE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) ($000's omitted) (Unaudited) 6. Supplemental Guarantor Information (continued) <TABLE> <CAPTION> CONSOLIDATING STATEMENT OF CASH FLOWS For the three months ended March 31, 1996 Unconsolidated --------------------------------------------- Consolidated Pulte Guarantor Non-Guarantor Eliminating Pulte Corporation Subsidiaries Subsidiaries Entries Corporation ----------- ------------ ------------- ----------- ------------ <S> <C> <C> <C> <C> <C> Continuing operations: Cash flows from operating activities: Income from continuing operations $ 5,108 $ 4,657 $ 7,221 $ (11,878) $ 5,108 Adjustments to reconcile income from continuing operations to net cash flows provided by (used in) operating activities: Equity in subsidiaries ... (7,221) (274) (4,383) 11,878 -- Amortization, depreciation and other .............. 22 1,404 213 -- 1,639 Deferred income taxes .... (4,627) -- -- -- (4,627) Gain on sale of securities -- -- (4,495) -- (4,495) Increase (decrease) in cash due to: Inventories .............. -- (61,082) -- -- (61,082) Residential mortgage loans available-for-sale -- -- 58,514 -- 58,514 Other assets ............. (4,996) (8,610) 5,199 -- (8,407) Accounts payable and accrued liabilities .... 5,996 (5,791) (7,447) -- (7,242) Income taxes ............. 2,138 2,922 1,917 -- 6,977 --------- --------- --------- --------- --------- Net cash provided by (used in) operating activities ........... (3,580) (66,774) 56,739 -- (13,615) --------- --------- --------- --------- --------- Cash flows from investing activities: Proceeds from sale of securities available-for-sale ......... -- -- 61,076 -- 61,076 Principal payments of mortgage-backed securities . -- -- 8,431 -- 8,431 Decrease in funds held by trustee .................... -- -- (49,432) -- (49,432) Dividends received from subsidiaries ............... -- 14,000 -- (14,000) -- Investment in subsidiaries ... (762) -- -- 762 -- Advances to affiliates ....... (85,592) 310 (2,056) 87,338 -- Other, net ................... -- (2,309) (755) -- (3,064) --------- --------- --------- --------- --------- Net cash provided by (used in) investing activities ........... (86,354) 12,001 17,264 74,100 17,011 --------- --------- --------- --------- --------- Cash flows from financing activities: Payment of long-term debt and bonds .................. -- -- (60,784) -- (60,784) Repayment of borrowings ...... -- (4,510) (44,700) -- (49,210) Capital contributions from parent ..................... -- -- 762 (762) -- Advances from affiliates ..... -- 39,555 47,783 (87,338) -- Stock repurchases ............ (9,261) -- -- -- (9,261) Dividends paid ............... (1,622) -- (14,000) 14,000 (1,622) Other, net ................... 82 -- -- -- 82 --------- --------- --------- --------- --------- Net cash provided by (used in) financing activities ........... (10,801) 35,045 (70,939) (74,100) (120,795) --------- --------- --------- --------- --------- Net increase (decrease) in cash and equivalents - continuing operations ..................... $(100,735) $ (19,728) $ 3,064 $ -- (117,399) --------- --------- --------- --------- --------- </TABLE> 17
PULTE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) ($000's omitted) (Unaudited) 6. Supplemental Guarantor Information (continued) <TABLE> <CAPTION> CONSOLIDATING STATEMENT OF CASH FLOWS (continued) For the three months ended March 31, 1996 Unconsolidated --------------------------------------------- Consolidated Pulte Guarantor Non-Guarantor Eliminating Pulte Corporation Subsidiaries Subsidiaries Entries Corporation ----------- ------------ ------------- ----------- ------------ <S> <C> <C> <C> <C> <C> Discontinued operations: Cash flows from operating activities: Income from discontinued operations ................... $ 1,972 $ -- $ 657 $ (657) $ 1,972 Equity in subsidiaries ......... (657) -- -- 657 -- Change in income taxes ......... (97) -- -- -- (97) Other changes, net ............. (1,218) -- (833) -- (2,051) Cash flows from investing activities: Purchase of securities available-for-sale ........... -- -- (9,560) -- (9,560) Principal payments of mortgage-backed securities ................... -- -- 13,133 -- 13,133 Decrease in Covered Assets and FRF receivables .......... -- -- 31,283 -- 31,283 Cash flows from financing activities: Increase in deposit liabilities .................. -- -- (1,521) -- (1,521) Repayment of borrowings ........ -- -- (31,560) -- (31,560) Decrease in FHLB advances ...... -- -- (1,900) -- (1,900) --------- --------- --------- --------- --------- Net decrease in cash and equivalents - discontinued operations .......... -- -- (301) -- (301) --------- --------- --------- --------- --------- Net increase (decrease) in cash and equivalents ............. (100,735) (19,728) 2,763 -- (117,700) Cash and equivalents at beginning of period .............. 220,782 71,012 3,369 -- 295,163 --------- --------- --------- --------- --------- Cash and equivalents at end of period ........................ $ 120,047 $ 51,284 $ 6,132 $ -- $ 177,463 ========= ========= ========= ========= ========= </TABLE> 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ($000's omitted, except per share data) A summary of Pulte Corporation's operating results by business segment for the three month periods ended March 31, 1997 and 1996 is as follows: <TABLE> <CAPTION> Three Months Ended March 31, ------------------ 1997 1996 ---- ---- <S> <C> <C> Pre-tax income (loss): Homebuilding operations................................. $ 8,997 $ 8,568 -------- -------- Financial Services operations: Mortgage banking...................................... 206 457 Financing activities.................................. (42) 4,381 -------- -------- Total Financial Services.............................. 164 4,838 -------- -------- Corporate............................................... (7,154) (4,792) -------- -------- Income from continuing operations before income taxes...... 2,007 8,614 Income taxes............................................... 773 3,506 -------- -------- Income from continuing operations.......................... 1,234 5,108 Income from discontinued operations........................ 1,003 1,972 -------- -------- Net income................................................. $ 2,237 $ 7,080 ======== ======== Net income per share....................................... $ .09 $ .26 ======== ======== </TABLE> A comparison of pre-tax income for the three month periods ended March 31, 1997 and 1996 is as follows: - -- Pre-tax income of the Company's homebuilding operations increased $429 during the first quarter of 1997 primarily as a result of increases in the average sales price of homes closed, gross profit margins and pre-tax income of Builders Supply & Lumber (BSL) partially offset by higher selling, general and administrative expenses. - -- Pre-tax income of the Company's mortgage banking operations decreased from $457 for the three months ended March 31, 1996, to $206 for the three months ended March 31, 1997. Principally this relates to decreases in the amount of gains recognized from sales of mortgages and mortgage origination fees earned, partially offset by decreases in operating expenses as a result of converting to a centralized loan processing format during 1996. - -- Pre-tax income of the Company's financing activities decreased $4,423 from the comparable period of 1996 primarily due to gains from sales of collateral during the first three months of 1996; no such sales took place during the first three months of 1997. - -- Pre-tax loss from corporate operations increased from $4,792 for the three months ended March 31, 1996, to $7,154 for the three months ended March 31, 1997. This increase is primarily the result of higher net interest expense and expenses associated with the Company's strategic operating initiatives. 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) ($000's omitted) Homebuilding Operations: The following table presents selected financial data for Pulte Home Corporation (Pulte) for the three months ended March 31, 1997 and 1996. <TABLE> <CAPTION> Three Months Ended March 31, ------------------ 1997 1996 ---- ---- <S> <C> <C> Unit settlements: Pulte Home East.......................... 1,346 1,146 Pulte Home Central....................... 721 982 Pulte Home West.......................... 631 587 -------- -------- 2,698 2,715 ======== ======== Net new orders - units: Pulte Home East.......................... 1,908 1,932 Pulte Home Central....................... 1,258 1,468 Pulte Home West.......................... 1,000 847 -------- -------- 4,166 4,247 ======== ======== Net new orders - dollars.................. $666,000 $682,000 ======== ======== Backlog at March 31 - units: Pulte Home East.......................... 2,335 2,438 Pulte Home Central....................... 1,517 1,773 Pulte Home West.......................... 1,064 983 -------- -------- 4,916 5,194 ======== ======== Backlog at March 31 - dollars............. $838,000 $873,000 ======== ======== Revenues.................................. $423,215 $411,331 Cost of sales............................. (360,005) (350,780) Selling, general and administrative expense (53,905) (49,400) Interest (A).............................. (3,352) (3,206) Other income, net......................... 3,044 623 -------- -------- Pre-tax income............................ $ 8,997 $ 8,568 ======== ======== Average sales price....................... $ 157 $ 152 ======== ======== </TABLE> The following is a summary of the number of communities active as of each respective date: <TABLE> <S> <C> March 31, 1997...................... 406 December, 1996...................... 392 September, 1996..................... 387 June 30, 1996....................... 378 March 31, 1996...................... 379 </TABLE> Note (A): The Company capitalizes interest cost into homebuilding inventories and charges the interest to homebuilding interest expense when the related inventories are closed. 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) ($000's omitted) Homebuilding Operations (continued): Pulte conducts its domestic homebuilding operations through 41 markets in 25 states and Puerto Rico. Effective January 1, 1997, Pulte combined the homebuilding operations of its North and South operating companies, creating Pulte Home East (PHE). As of that date, Pulte's homebuilding operations have been organized into three operating companies; PHE, Pulte Home Central (PHC) and Pulte Home West (PHW). No one individual market within the 41 markets represented more than 10% of total Pulte net new orders, unit settlements or revenues during the three months ended March 31, 1997. Net new orders during the first quarter of 1997 decreased approximately 2% from the record level set during the first quarter of 1996, which represented a 32% increase over the comparable period of 1995. PHE's net new orders remained flat compared to 1996, but were 36% in excess of net new orders for the first quarter of 1995. PHW's 18% increase in net new orders over the first quarter of 1996 was substantially the result of the growth of its Active Adult (mature buyer) and Canterbury Community (affordable site-built housing) product offerings. Such an increase comes on top of a 38% escalation in PHW net new orders from the first quarter of 1995. PHC's net new orders decreased 14% from the comparable period of the prior year. This, however, followed a 22% increase in net new orders during the first quarter of 1996 over the first quarter of 1995. A couple of factors in certain upper-midwest markets contributed to this decrease. First, a number of communities sold out faster than expected during 1996 and replacement communities were not ready for sale during the first quarter of 1997. This situation is anticipated to change over the next several quarters as new communities are brought online and begin to contribute. Secondly, PHC also encountered a general decline in market demand during the first quarter of 1997. In general, the trend of net new orders during the early second quarter has begun to surpass that of the comparable prior year time period. However, this trend in net new orders and the anticipated contribution of new communities could be adversely affected by future interest rate increases, changes in consumer preferences and market competition. Unit settlements during the three months ended March 31, 1997, decreased less than 1% (17 units) from the comparable period of 1996, which had increased 34% over the comparable period of 1995. Despite the decline in unit settlements, first quarter homebuilding revenues rose to a record $423,215 as a result of a 3% increase in the average home sales price from the same period of the prior year. The strength of unit settlement activity during each quarter is heavily influenced by the trend of unit backlog at end of the preceding quarter. Unit backlog at December 31, 1996, was 6% less than the record fourth quarter unit backlog of 3,622 units at December 31, 1995. That record represented a 60% increase over the December 31, 1994 unit backlog. PHE's settlements for the three months ended March 31, 1997, increased 17% over the same period of 1996 and more than 50% over the comparable period of 1995. Such increases are the direct result of new market entries since 1994. Settlements for PHC decreased 27% from the three months ended March 31, 1996, which had increased 49% over the first quarter of 1995. First quarter 1996 unit settlements for PHC were strongly affected by its unit backlog at December 31, 1995, which was 31% higher than the unit backlog registered at the end of 1996. Settlements for PHW increased 7% during the first quarter of 1997. This increase was on top of a 24% increase in settlements during the first quarter of 1996 over the comparable period of 1995. Such increases are primarily the result of PHW's Active Adult and Canterbury Community product offerings. The average selling price during the first quarter of 1997 was $157, a decrease from the average selling price of $158 in the fourth quarter of 1996 but an increase over the average selling price of $152 for the comparable period of the prior year. The change in average selling price is due primarily to product mix. Gross profit margin was 14.9% for the three months ended March 31, 1997, flat in comparison with the fourth quarter of 1996, but up from 14.7% in the comparable prior year period. The improvement in gross profit margins is due in part to the Company's ongoing process improvement initiatives focused on lowering house costs through improved operational efficiencies. 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) ($000's omitted) Homebuilding Operations (continued): Selling, general and administrative expenses for the three months ended March 31, 1997 increased $4,505 over the same period in 1996. This is primarily related to the addition of expenses for three markets that were not in operation during the first quarter of 1996 (Jacksonville, Rhode Island and Southern California), as well as an increase in the number of selling communities compared to the prior year. Other income, net, includes gains on land sales, the pre-tax results of Builders' Supply & Lumber Co., Inc. (BSL) and other homebuilding-related expenses. For the three months ended March 31, 1997, other income, net, was favorably impacted by improved operating results of BSL as compared to the same period a year ago. Information related to interest in inventory is as follows: <TABLE> <CAPTION> Three Months Ended March 31, ------------------ 1997 1996 ---- ---- <S> <C> <C> Interest in inventory at beginning of period... $12,846 $12,261 Interest capitalized........................... 4,151 3,995 Interest expensed.............................. (3,352) (3,206) ------- ------- Interest in inventory at end of period......... $13,645 $13,050 ======= ======= </TABLE> At March 31, 1997, Pulte owned approximately 29,700 lots in communities in which homes are being constructed. In addition, Pulte had approximately 15,900 lots under option. Financial Services Operations: Mortgage Banking Operations: During the first quarter of 1997, the Company changed the name of its mortgage banking operation from ICM Mortgage Corporation to Pulte Mortgage Corporation (Pulte Mortgage). The following table presents mortgage origination data for Pulte Mortgage: <TABLE> <CAPTION> Three Months Ended March 31, ------------------ 1997 1996 ---- ---- Production: <S> <C> <C> Total originations: Loans...................................... 1,827 2,331 ======== ======== Principal.................................. $221,100 $264,500 ======== ======== Funded originations: Loans...................................... 1,723 2,160 ======== ======== Principal.................................. $207,300 $241,000 ======== ======== Originations for Pulte customers: Loans...................................... 1,372 1,421 ======== ======== Principal.................................. $172,400 $167,100 ======== ======== </TABLE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) ($000's omitted) Financial Services Operations (continued): Mortgage Banking Operations (continued): Mortgage origination volume for the three months ended March 31, 1997 decreased 16% from the first three months of 1996. Pulte Mortgage has continued its emphasis on expanding in Pulte's existing and new markets. As a result, the volume of originations for Pulte customers has increased to 83% of funded originations for the first three months of 1997, compared with 69% of funded originations for the same period in 1996. Pulte Mortgage continues to hedge its mortgage pipeline in the normal course of its business and there has been no change in Pulte Mortgage's strategy or use of derivative financial instruments in this regard. Primarily due to the decrease in non-funded mortgage origination volume, origination fee revenues decreased $259, or 32%, during the first quarter of 1997 as compared to the first quarter of 1996. During the three months ended March 31, 1997, marketing gains from the sales of mortgages decreased by $1,177, or 26%, compared with the same period of 1996. This decrease was due to lower volume of servicing retained originations during the first quarter of 1997 compared with the first quarter of 1996. During the first quarter of 1997, Pulte Mortgage's operating expenses decreased $1,153, or 20%, from the comparable period of 1996. This reduction in expenses is attributable to Pulte Mortgage's centralization of its mortgage underwriting, processing and closing functions in Denver, Colorado, through implementation of a mortgage operations center (MOC) during 1996. Net interest income for the three months ended March 31, 1997, remained relatively flat as compared to the similar period of 1996. At March 31, 1997, loan application backlog was $347,000 as compared with $246,000 at December 31, 1996, and $468,000 at March 31, 1996. Financing Activities: The Company's secured financing operations are conducted by the limited-purpose subsidiaries of Pulte Financial Companies, Inc. (PFCI). Such subsidiaries have engaged in the acquisition of mortgage loans and mortgage-backed securities financed principally through the issuance of long-term bonds secured by such mortgage loans and mortgage-backed securities. At March 31, 1997, one bond series with a principal amount of $43,225 was outstanding. For the three months ended March 31, 1997, PFCI's pre-tax operating loss was $42, down from $4,381 of pre-tax income for the comparable period of 1996. During the three months ended March 31, 1996, PFCI recorded net gains on sales of collateral of $4,495. No such sales took place during the first quarter of 1997. Net interest income continues to decrease as a result of lower average outstanding balances on the collateral and bond portfolios. Corporate: Corporate is a non-operating business segment whose primary purpose is to support the operations of the Company's subsidiaries as the internal source of financing and by implementing and maturing strategic initiatives centered on new business development and improving operating efficiencies. The Company views this corporate function as a form of research and development, a prelude to adding these initiatives to existing business segments or necessitating the creation of new business segments. As a result, the corporate segment's operating results will vary from quarter to quarter as these strategic initiatives evolve. 24
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 month periods ended March 31, 1997 and 1996: <TABLE> <CAPTION> Three Months Ended March 31, ----------------- 1997 1996 ---- ---- <S> <C> <C> Net interest expense................ $2,443 $ 968 Other corporate expenses, net....... 4,711 3,824 ------ ------ Loss before income taxes............ $7,154 $4,792 ====== ====== </TABLE> The increased loss for the three months ended March 31, 1997, resulted from a couple of factors. First, the increase in net interest expense resulted from utilizing approximately $100 million to reacquire over 3.8 million shares of the Company's common stock during 1996. Secondly, the Company incurred $887 of additional strategic initiatives expense in pursuing manufactured housing opportunities, expanding operations in Mexico and evaluating additional international opportunities. During the three months ended March 31, 1997, the Company recorded income of $139 from its Mexico operations as compared with a loss of $36 for the comparable period of 1996. Included in Mexico's income for the first quarter of 1997 and loss for the first quarter of 1996 is the Company's share of Mexico joint venture foreign currency gains which amounted to $29 and $106, respectively. For the three months ended March 31, 1997, settlements of the Company's Mexico joint ventures aggregated 557 units as compared to 48 units for the comparable period of 1996. Pulte conducts its Mexico homebuilding operations in the cities of Monterrey, Juarez, Chihuahua, Nuevo Laredo, Reynosa, Matamoros and Mexico City through three joint venture investments owned by a foreign subsidiary. In January 1996, the Company's Monterrey joint venture partner assigned its interest in the joint venture to the Company. The Company's net investment in the Monterrey venture approximated $3,400 as of March 31, 1997. The Company intends to liquidate the Monterrey assets (2 communities) in the normal course of business. The Company's Juarez joint venture is currently developing 12 communities. Additionally, during 1996, the Company announced that its Juarez joint venture had entered into two separate agreements to construct homes in Mexico; one with Delphi Automotive Systems, a division of General Motors Corporation (GM) and one with Sony Magneticos de Mexico, S.A. de C.V., an affiliate of Sony Electronics, Inc. (Sony). The first unit settlements under the GM contract are expected to commence in the fourth quarter of 1997. The Company's net investment in the Juarez joint venture approximated $8,400 as of March 31, 1997. Also during 1996, the Company entered into a joint venture to build 20 middle income housing units in Mexico City which are to begin closing in the second quarter of 1997. The Company's net investment in this joint venture approximated $900 as of March 31, 1997. Liquidity and Capital Resources: Continuing Operations: The Company's net cash used in operating activities increased from $13,615 at March 31, 1996 to $73,481 at March 31, 1997. This is principally due to an approximately $35,000 increase in inventory primarily associated with continued expansion of Active Adult (mature buyer) and Canterbury Communities (affordable site-built homes) product offerings and the addition of three new markets, as previously mentioned, and an approximately $47,000 decrease in accounts payable and accrued liabilities, offset by an approximately $21,000 decrease in other assets primarily caused by an $18,000 decrease in unfunded settlements. Net cash provided by investing activities decreased from $17,011 at March 31, 1996, to $2,096 at March 31, 1997, primarily as a result of decreased proceeds from sales of available-for-sale and mortgage-backed securities of PFCI, offset by a decrease in PFCI funds held by trustees. The Company's net cash used in financing activities decreased from $120,795 at March 31, 1996, to $55,969 at March 31, 1997. This resulted primarily from an approximately $58,000 decrease in the amount of PFCI's mortgage-backed bonds redeemed. 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) ($000's omitted) Liquidity and Capital Resources (continued): Continuing Operations (continued): At March 31, 1997, the Company had cash and equivalents of $62,271 and total indebtedness of $645,988. The Company's total indebtedness includes $339,387 of unsecured senior notes, $22,405 of unsecured senior subordinated debentures, other Pulte non-recourse and limited recourse debt of $34,107 and $16,251, respectively, $95,698 of First Heights' deposits and advances, $43,225 of mortgage-backed bonds payable for PFCI and $94,915 of notes and drafts payable for Pulte Mortgage. The Company believes it has adequate financial resources and sufficient credit facilities to meet its current working capital needs. Sources of the Company's working capital include its cash and equivalents, its $250,000 committed unsecured revolving credit facility, and other committed and uncommitted credit lines, which at March 31, 1997, consisted of $10,000 and $250,000 related to Pulte and Pulte Mortgage operations, respectively. During the remainder of 1997, management anticipates that homebuilding and corporate working capital requirements will be funded with internally generated funds and the previously mentioned credit facilities. Additionally, the Company has on file with the Securities and Exchange Commission a universal shelf registration which provides for up to an additional $125,000 of debt or equity securities. The Company routinely monitors current operational requirements and financial market conditions to evaluate the utilization of available financing sources. The Company finances its land acquisitions, development and construction activities from internally generated funds and existing credit agreements. The Company borrowed $27,700 under its $250,000 unsecured revolving credit facility during the first quarter of 1997, but no balance was outstanding at March 31, 1997. Pulte Mortgage provides mortgage financing for many of its home sales and uses its own funds and borrowings made available pursuant to various committed and uncommitted credit arrangements which, at March 31, 1997 amounted to $250,000, an amount deemed adequate to cover foreseeable needs. There were approximately $94,915 of borrowings outstanding under the $250,000 (Pulte Mortgage) arrangement at March 31, 1997. Mortgage loans originated by Pulte Mortgage are subsequently sold, principally to outside investors. The Company anticipates that there will be adequate mortgage financing available for purchasers of its homes. On April 16, 1997, the Company repurchased 2,325,000 shares of its common stock for approximately $73,000 from two corporations controlled by James Grosfeld and his family, and also modified certain existing agreements with Mr. Grosfeld. Funds for this repurchase were principally obtained from the Company's unsecured revolving credit facility. Subsequent to March 31, 1997, the Company repurchased 49,300 shares of its common stock under the August 20, 1996 repurchase authorization at an aggregate repurchase price of $1,414. The Company did not repurchase any of its common stock during the three months ended March 31, 1997. Since the fourth quarter of 1994, the Company has utilized $188,067 of available cash and, to a lesser extent, funds drawn on its revolving credit facility to reacquire 6,847,800 shares, or nearly 25% of its then-outstanding common stock. Approximately 467,200 shares remain available for repurchase under the most recent authorization. Discontinued Operations: The Company's income taxes have been significantly impacted by its thrift operations, principally because payments received from FSLIC Resolution Fund (FRF) are exempt from federal income taxes. The Company's thrift assets are subject to regulatory restrictions and are not available for general corporate purposes. The final liquidation and wind-down of the Company's thrift operations is dependent on the final resolution of outstanding matters with the Federal Deposit Insurance Corporation (FDIC), manager of FRF. The Company is currently involved in litigation with the FDIC. The Company is uncertain as to when this matter might be resolved. At March 31, 1997, the Company had a remaining investment in First Heights of approximately $29,000. 25
PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K Exhibit number and description Page Number (10) Material Contracts (a)James Grosfeld Agreement April 16, 1997 (b)Stock Sale Agreement April 16, 1997 (11) Statement Regarding Computation of Per Share Earnings 28 (27) Financial Data Schedule All other exhibits are omitted from this report because they are not applicable. Reports on Form 8-K The Company did not file any reports on Form 8-K during the quarter ended March 31, 1997. 26
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/ MICHAEL D. HOLLERBACH ----------------------------------------- Michael D. Hollerbach Executive Vice President and Chief Financial Officer (Principal Financial Officer) /s/ VINCENT J. FREES ----------------------------------------- Vincent J. Frees Vice President and Controller (Principal Accounting Officer) Date: May 6, 1997 27