============================================================================== 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, 1998 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-9804 PULTE CORPORATION (Exact name of registrant as specified in its charter) MICHIGAN 38-2766606 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 33 Bloomfield Hills Pkwy., Suite 200, Bloomfield Hills, Michigan 48304 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (248) 647-2750 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. YES _X _ NO___ Number of shares of common stock outstanding as of April 30, 1998: 21,321,205 Total pages: 32 Listing of exhibits: 30 ==============================================================================
PULTE CORPORATION INDEX Page No. -------- PART I FINANCIAL INFORMATION Item 1 Financial Statements (Unaudited) Condensed Consolidated Balance Sheets, March 31, 1998 and December 31, 1997................................................. 3 Condensed Consolidated Statements of Income, Three Months Ended March 31, 1998 and 1997........................................... 4 Condensed Consolidated Statement of Shareholders' Equity, Three Months Ended March 31, 1998................................. 5 Condensed Consolidated Statements of Cash Flows, Three Months Ended March 31, 1998 and 1997........................................... 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................................ 30 SIGNATURES............................................................. 31 2
PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS <TABLE> <CAPTION> PULTE CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS ($000's omitted) March 31, December 31, 1998 1997 ----------- ----------- (Unaudited) (Note) <S> <C> <C> ASSETS Cash and equivalents............................... $ 302,929 $ 245,156 Unfunded settlements............................... 41,280 69,768 House and land inventories......................... 1,100,026 1,141,952 Mortgage-backed and related securities............. 37,175 39,467 Residential mortgage loans and other securities available-for-sale.................... 135,155 185,018 Other assets....................................... 308,399 358,464 Discontinued operations............................ 150,215 110,940 ---------- ---------- $2,075,179 $2,150,765 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Accounts payable and accrued liabilities, including book overdrafts of $65,050 and $84,623 in 1998 and 1997, respectively...... $ 421,040 $ 497,733 Collateralized short-term debt, recourse solely to applicable subsidiary assets...... 121,310 162,707 Mortgage-backed bonds, recourse solely to applicable subsidiary assets............. 35,427 37,413 Income taxes................................... 13,868 13,001 Subordinated debentures and senior notes....... 540,030 546,900 Discontinued operations........................ 119,370 80,174 ---------- ---------- Total liabilities........................... 1,251,045 1,337,928 Shareholders' equity............................... 824,134 812,837 ---------- ---------- $2,075,179 $2,150,765 ========== ========== <FN> Note: The balance sheet at December 31, 1997 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, ------------------ 1998 1997 ---- ----- <S> <C> <C> Revenues: Homebuilding......................................... $508,635 $423,215 Mortgage banking and financing, interest and other................................. 8,359 6,727 Corporate ........................................... 3,577 1,758 -------- -------- Total revenues............................. 520,571 431,700 -------- -------- Expenses: Homebuilding, principally cost of sales.............. 491,041 415,390 Mortgage banking and financing, interest and other................................. 5,971 6,649 Corporate, net....................................... 7,872 7,744 -------- -------- Total expenses............................. 504,884 429,783 -------- -------- Other income: Equity in income of Pulte-affiliates................. 2,165 90 -------- -------- Income from continuing operations before income taxes.......................................... 17,852 2,007 Income taxes............................................ 6,962 773 -------- -------- Income from continuing operations....................... 10,890 1,234 Income from discontinued thrift operations, net of income taxes................................... 371 1,003 -------- -------- Net income.............................................. $ 11,261 $ 2,237 ======== ======== Per share data: Basic: Income from continuing operations .............. $ .51 $ .05 Income from discontinued operations................ .02 .04 -------- -------- Net income......................................... $ .53 $ .09 ======== ======== Assuming dilution: Income from continuing operations .............. $ .50 $ .05 Income from discontinued operations................ .02 .04 -------- -------- Net income......................................... $ .52 $ .09 ======== ======== Cash dividends declared.............................. $ .06 $ .06 ======== ======== Number of shares used in calculation: Basic: Weighted-average common shares outstanding...... 21,294 23,296 Assuming dilution: Effect of dilutive securities - stock options... 330 172 -------- -------- Adjusted weighted-average common shares and effect of dilutive securities........... 21,624 23,468 ======== ======== <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, 1997 ............. $213 $61,835 $ 1,687 $ 749,102 $ 812,837 Exercise of stock options ........................... -- 1,511 -- -- 1,511 Cash dividends declared ............................. -- -- -- (1,278) (1,278) Change in unrealized gains on securities available-for-sale, net of income taxes of $62 ..... -- -- (197) -- (197) Net income .......................................... -- -- -- 11,261 11,261 ---- ------- ------- --------- --------- Shareholders' Equity, March 31, 1998 ................ $213 $63,346 $ 1,490 $ 759,085 $ 824,134 ==== ======= ======= ========= ========= <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, ------------------ 1998 1997 ---- ---- Continuing operations: <S> <C> <C> Cash flows from operating activities: Income from continuing operations ........................ $ 10,890 $ 1,234 Adjustments to reconcile income from continuing operations to net cash flows provided by (used in) operating activities: Amortization, depreciation and other .............. 1,672 322 Deferred income taxes ............................. (4,028) (1,116) Increase (decrease) in cash due to: Inventories ............................... 41,926 (95,836) Residential mortgage loans held for sale .. 49,863 63,838 Other assets .............................. 73,953 12,832 Accounts payable and accrued liabilities .. (71,568) (54,378) Income taxes .............................. 7,599 (377) -------- --------- Net cash provided by (used in) operating activities ........ 110,307 (73,481) -------- --------- Cash flows from investing activities: Principal payments of mortgage-backed securities ......... 2,014 2,028 Other, net ............................................... (255) 68 -------- --------- Net cash provided by investing activities .................. 1,759 2,096 -------- --------- Cash flows from financing activities: Payment of long-term debt and bonds ...................... (9,227) (2,373) Proceeds from borrowings ................................. -- 4,702 Repayment of borrowings .................................. (45,053) (59,304) Dividends paid ........................................... (1,278) -- Other, net ............................................... 1,265 1,006 -------- --------- Net cash used in financing activities ...................... (54,293) (55,969) -------- --------- Net increase (decrease) in cash and equivalents - continuing operations .................................... $ 57,773 $(127,354) -------- --------- </TABLE> 6
<TABLE> <CAPTION> PULTE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) ($000's omitted) (Unaudited) Three Months Ended March 31, ------------------- 1998 1997 ---- ---- <S> <C> <C> Discontinued Operations: Cash flows from operating activities: Income from discontinued operations ................. $ 371 $ 1,003 Change in deferred taxes ............................ 6,181 (635) Change in income taxes .............................. (6,486) 133 Other changes, net .................................. (2) (595) Cash flows from investing activities: Purchase of securities available-for-sale ........... (21,809) (12,828) Principal payments of mortgage-backed securities .... 7,654 7,539 Net proceeds from sale of investments ............... -- 2,330 Decrease in Covered Assets and (FRF) receivables .... 30,764 30,646 Cash flows from financing activities: Increase (decrease) in deposit liabilities .......... 37,092 (9,347) Repayment of borrowings ............................. (31,560) (31,560) Increase in Federal Home Loan Bank (FHLB) advances .. 1,900 13,000 --------- --------- Net increase (decrease) in cash and equivalents- discontinued operations ............................... 24,105 (314) --------- --------- Net increase (decrease) in cash and equivalents ......... 81,878 (127,668) Cash and equivalents at beginning of period ............. 247,308 192,202 --------- --------- Cash and equivalents at end of period ................... $ 329,186 $ 64,534 ========= ========= Cash - continuing operations ............................ $ 302,929 $ 62,271 Cash - discontinued operations .......................... 26,257 2,263 --------- --------- $ 329,186 $ 64,534 ========= ========= Supplemental disclosure of cash flow information- cash paid during the period for: Interest, net of amount capitalized; Continuing operations ............................. $ 3,420 $ 3,614 Discontinued operations ........................... 628 508 --------- --------- $ 4,048 $ 4,122 ========= ========= Income taxes ........................................ $ 3,194 $ 2,223 ========= ========= <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 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 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, 1998 are not necessarily indicative of the results that may be expected for the year ended December 31, 1998. 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, 1997. Certain 1997 classifications have been changed to conform with the 1998 presentation. In March 1998, the Accounting Standards Executive Committee (AcSEC) of the American Institute of Certified Public Accountants (AICPA) issued Statement of Position 98-1 (SOP 98-1), "Accounting for the Costs of Software Developed or Obtained for Internal Use". This SOP requires internal costs (i.e., salaries and related benefits and interest cost) to be capitalized during the application development stage for internal-use software. SOP 98-1 is effective for years beginning after December 15, 1998, with early adoption encouraged. The Company has adopted, on a prospective basis, the provisions of SOP 98-1 effective January 1, 1998 and, accordingly, has capitalized $700 of such costs during the three months ended March 31, 1998. The Company had historically expensed similar costs to operations when they were incurred. 2. Discontinued operations Revenues of the Company's discontinued thrift operations for the three months ended March 31, 1998 and 1997, were $1,787 and $2,425, respectively. For the three months ended March 31, 1998 and 1997, discontinued thrift operations provided after-tax income of $371 and $1,003, respectively. 3. Segment information The Company has three reportable segments: Homebuilding, Financial Services and Corporate. The Company's Homebuilding segment consists of the following three business lines: o Domestic Homebuilding, the Company's core business, which is engaged in the construction of housing within the continental United States targeting primarily the first-time and move-up customer group. o International Homebuilding, which is engaged in the construction of first-time and social interest housing in Puerto Rico and Mexico. o Active Adult, which is engaged in the development of amenitized, age-targeted or age-restricted communities throughout the continental United States appealing to a growing demographic group in their pre-retirement/retirement years. As of March 26, 1998, the Company's Active Adult operations reflect its 50% interest in a joint venture with the Blackstone Real Estate Advisors, an affiliate of the Blackstone Group.
The Company's Financial Services segment consists principally of Pulte Mortgage, its mortgage banking subsidiary, and to a lesser extent, the operations of PFCI, its financing subsidiary. 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. 8
PULTE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) ($000's omitted, except per share data) (Unaudited) 3. Segment information (continued) <TABLE> <CAPTION> Financial Homebuilding Services Corporate Consolidated ------------ --------- --------- ------------ Three Months Ended March 31, 1998: <S> <C> <C> <C> <C> Continuing Operations: Revenues: Unaffiliated customers .............. $ 508,635 $ 8,359 $ 3,577 $ 520,571 ========== ======== ========= ========== Income (loss) before income taxes ... $ 19,759 $ 2,388 $ (4,295) $ 17,852 ========== ======== ========= ========== At March 31, 1998: Identifiable assets ................. $1,328,938 $186,977 $ 409,049 $1,924,964 ========== ======== ========= Assets of discontinued operations .. 150,215 ---------- Total assets ........................ $2,075,179 ========== Three Months Ended March 31, 1997: Continuing Operations: Revenues: Unaffiliated customers .............. $ 423,215 $ 6,727 $ 1,758 $ 431,700 ========== ======== ========= ========== Income (loss) before income taxes ... $ 7,915 $ 78 $ (5,986) $ 2,007 ========== ======== ========= ========== At March 31, 1997: Identifiable assets ................. $1,386,045 $165,640 $ 180,345 $1,732,030 ========== ======== ========= Assets of discontinued operations ... 146,436 ---------- Total assets ........................ $1,878,466 ========== </TABLE> 4. Subsequent event On May 7, 1998, the Company announced that its Board of Directors had declared a two-for-one stock split to be effected in the form of a 100% stock dividend. The additional shares will be distributed on June 1, 1998, to the shareholders of record as of May 18, 1998. Additionally, the Board of Directors authorized a 33% increase in the Company's quarterly dividend, raising it from $.06 per share to $.08 per share on a pre-split basis. 5. Commitments and contingencies First Heights-Related Litigation The Company is a party to two lawsuits relating to First Heights' 1988 acquisition from the Federal Savings and Loan Insurance Corporation (FSLIC), and First Heights' ownership of, five failed Texas thrifts. The first lawsuit (the "District Court Case") was filed on July 7, 1995 in the United States District Court, Eastern District of Michigan, by the Federal Deposit Insurance Corporation (FDIC) against the Company, PDCI and First Heights (collectively, the "Pulte Parties"). The second lawsuit (the "Court of Federal Claims Case") was filed on December 26, 1996 in the United States Court of Federal Claims (Washington, D.C.) by the Pulte Parties against 9
PULTE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) ($000's omitted) (Unaudited) 5. Commitments and contingencies (continued) the United States. In the District Court Case, the FDIC seeks a declaration of rights and other relief related to the assistance agreement entered into between First Heights and the FSLIC. The FDIC is the successor to FSLIC. The FDIC and the Pulte Parties disagree about the proper interpretation of provisions in the assistance agreement which provide for sharing of certain tax benefits achieved in connection with First Heights' 1988 acquisition and ownership of the five failed Texas thrifts. The District Court Case also includes certain other claims relating to the foregoing, including claims resulting from the Company's and First Heights' amendment of a tax sharing and allocation agreement between the Company and First Heights. The Pulte Parties dispute the FDIC's claims and believe that a proper interpretation of the assistance agreement limits the FDIC's participation in the tax benefits. The Pulte Parties have filed an answer and a counterclaim, seeking, among other things, a declaration that the FDIC has breached the assistance agreement in numerous respects. On December 24, 1996, the Pulte Parties voluntarily dismissed without prejudice certain of their claims in the District Court Case and on December 26, 1996, initiated the Court of Federal Claims Case. The Court of Federal Claims Case contains similar claims as those that were voluntarily dismissed from the District Court Case. In their complaint, the Pulte Parties assert breaches of contract on the part of the United States in connection with the enactment of section 13224 of the Omnibus Budget Reconciliation Act of 1993. That provision repealed portions of the tax benefits that the Pulte Parties claim they were entitled to under the contract to acquire the failed Texas thrifts. The Pulte Parties also assert certain other claims concerning the contract, including claims that the United States (through the FDIC as receiver) has improperly attempted to amend the failed thrifts' pre-acquisition tax returns and that this attempt was made in an effort to deprive the Pulte Parties of tax benefits they had contracted for, and that the enactment of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 breached the Government's obligation not to require contributions of capital greater than those required by the contract. On March 5, 1998, the Company reported that an opinion and order had been issued by the United States District Court (the "Court") which resolved by summary judgment four of the interpretational issues which had been raised in the District Court Case. On three issues, the Court ruled in favor of the FDIC, and on one issue, the Court ruled in favor of the Company. On March 12, 1998, the Court resolved by summary judgment two additional interpretational issues in the District Court Case. On both issues the Court ruled in favor of the FDIC. The Company vigorously disagrees with all of the Court's rulings in favor of the FDIC and intends to appeal if these rulings become part of any final judgment. If the Company were unsuccessful on appeal and if all other issues in such litigation were resolved in favor of the FDIC, the Company would, at such time, take an after-tax charge against discontinued operations in an amount which would range from a nominal amount to as much as $40,000. The Company does not believe that the claims in the Court of Federal Claims Case are affected by the rulings in the District Court Case. 6. Supplemental guarantor information The Company has the following outstanding Senior Note obligations; (1) $100,000, 7%, due 2003, (2) $115,000, 8.375%, due 2004, (3) $125,000, 7.3%, due 2005, and (4) $150,000, 7.625%, due 2017. Such obligations to pay principal, premium, if any, and interest are guaranteed jointly and severally on a senior basis by Pulte and all of Pulte's wholly-owned homebuilding subsidiaries (collectively, the Guarantors). Such guarantees are full and unconditional. The principal non-Guarantors include PDCI, 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, 1998 Unconsolidated ----------------------------------------- Consolidated Pulte Guarantor Non-Guarantor Eliminating Pulte Corporation Subsidiaries Subsidiaries Entries Corporation ----------- ------------ ------------- ---------- ------------ <S> <C> <C> <C> <C> <C> ASSETS Cash and equivalents ....................... $ 261,691 $ 37,667 $ 3,571 $ -- $ 302,929 Unfunded settlements ....................... -- 41,280 -- -- 41,280 House and land inventories ................. -- 1,100,026 -- -- 1,100,026 Mortgage-backed and related securities ..... -- -- 37,175 -- 37,175 Residential mortgage loans and other securities available-for-sale ............ -- -- 135,155 -- 135,155 Land held for sale and future development .. -- 28,516 -- -- 28,516 Other assets ............................... 16,238 84,080 72,317 -- 172,635 Deferred income taxes ...................... 108,242 -- (994) -- 107,248 Discontinued operations .................... -- -- 150,215 -- 150,215 Investment in subsidiaries ................. 886,700 11,769 877,948 (1,776,417) -- Advances receivable - subsidiaries ......... 136,754 -- 21,775 (158,529) -- ---------- ---------- ----------- ----------- ---------- $1,409,625 $1,303,338 $ 1,297,162 $(1,934,946) $2,075,179 ========== ========== =========== =========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Accounts payable and accrued liabilities ... $ 62,548 $ 313,095 $ 45,397 $ -- $ 421,040 Collateralized short-term debt, recourse solely to applicable subsidiary assets ... -- -- 121,310 -- 121,310 Mortgage-backed bonds, recourse solely to applicable subsidiary assets ............. -- -- 35,427 -- 35,427 Income taxes ............................... 13,868 -- -- -- 13,868 Subordinated debentures and senior notes ... 487,351 52,679 -- 540,030 Discontinued operations .................... -- -- 119,370 -- 119,370 Advances payable - subsidiaries ............ 21,724 107,762 29,043 (158,529) -- ---------- ---------- ----------- ----------- ---------- Total liabilities ................... 585,491 473,536 350,547 (158,529) 1,251,045 Shareholders' equity ....................... 824,134 829,802 946,615 (1,776,417) 824,134 ---------- ---------- ----------- ----------- ---------- $1,409,625 $1,303,338 $ 1,297,162 $(1,934,946) $2,075,179 ========== ========== =========== =========== ========== </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, 1997 Unconsolidated ----------------------------------------- Consolidated Pulte Guarantor Non-Guarantor Eliminating Pulte Corporation Subsidiaries Subsidiaries Entries Corporation ----------- ------------ ------------- ---------- ------------ <S> <C> <C> <C> <C> <C> ASSETS Cash and equivalents ....................... $ 195,946 $ 46,466 $ 2,744 $ -- $ 245,156 Unfunded settlements ....................... -- 69,768 -- -- 69,768 House and land inventories ................. -- 1,141,952 -- -- 1,141,952 Mortgage-backed and related securities ..... -- -- 39,467 -- 39,467 Residential mortgage loans and other securities available-for-sale ........... -- -- 185,018 -- 185,018 Land held for sale and future development .. -- 24,984 -- -- 24,984 Other assets ............................... 18,305 164,032 41,804 -- 224,141 Deferred income taxes ...................... 110,395 -- (1,056) -- 109,339 Discontinued operations .................... -- -- 110,940 -- 110,940 Investment in subsidiaries ................. 970,897 11,890 995,248 (1,978,035) -- Advances receivable - subsidiaries ......... 100,663 -- 20,517 (121,180) -- ---------- ---------- ----------- ----------- ---------- $1,396,206 $1,459,092 $ 1,394,682 $(2,099,215) $ 2,150,765 ========== ========== =========== =========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Accounts payable and accrued liabilities ............................. $ 58,470 $ 390,397 $ 48,866 $ -- $ 497,733 Collateralized short-term debt, recourse solely to applicable subsidiary assets .. -- -- 162,707 -- 162,707 Mortgage-backed bonds, recourse solely to applicable subsidiary assets ......... -- -- 37,413 -- 37,413 Income taxes ............................... 13,001 -- -- -- 13,001 Subordinated debentures and senior notes ................................... 487,303 59,597 -- -- 546,900 Discontinued operations .................... -- -- 80,174 -- 80,174 Advances payable - subsidiaries ............ 24,595 61,994 34,591 (121,180) -- ---------- ---------- ----------- ----------- ---------- Total liabilities ................... 583,369 511,988 363,751 (121,180) 1,337,928 Shareholders' equity ....................... 812,837 947,104 1,030,931 (1,978,035) 812,837 ---------- ---------- ----------- ----------- ---------- $1,396,206 $1,459,092 $ 1,394,682 $(2,099,215) $2,150,765 ========== ========== =========== =========== ========== </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, 1998 Unconsolidated ----------------------------------------- Consolidated Pulte Guarantor Non-Guarantor Eliminating Pulte Corporation Subsidiaries Subsidiaries Entries Corporation ----------- ------------ ------------- ---------- ------------ <S> <C> <C> <C> <C> <C> Revenues: Homebuilding .............................. $ -- $ 508,635 $ -- $ -- $508,635 Mortgage banking and financing, interest and other ................... -- -- 8,359 -- 8,359 Corporate ................................. 2,546 1,031 -- -- 3,577 -------- --------- -------- -------- -------- Total revenues .............................. 2,546 509,666 8,359 -- 520,571 -------- --------- -------- -------- -------- Expenses: Homebuilding: Cost of sales ........................... -- 430,000 -- -- 430,000 Selling, general and administrative and other expense .................... 465 60,576 -- -- 61,041 Mortgage banking and financing, interest and other ............................ -- -- 5,971 -- 5,971 Corporate, net .......................... 9,661 (3,190) 1,401 -- 7,872 -------- --------- -------- -------- -------- Total expenses .............................. 10,126 487,386 7,372 -- 504,884 -------- --------- -------- -------- -------- Other Income: Equity in income of Pulte-affiliates ...... -- -- 2,165 -- 2,165 -------- --------- -------- -------- -------- Income (loss) from continuing operations before income taxes and equity in income of subsidiaries ........................... (7,580) 22,280 3,152 -- 17,852 Income taxes (benefit) ...................... (3,471) 9,055 1,378 -- 6,962 -------- --------- -------- -------- -------- Income (loss) from continuing operations before equity in income of subsidiaries ... (4,109) 13,225 1,774 -- 10,890 Income from discontinued operations ........ 305 -- 66 -- 371 -------- --------- -------- -------- -------- Income (loss) before equity in income (loss) of subsidiaries .................... (3,804) 13,225 1,840 -- 11,261 -------- --------- -------- -------- -------- Equity in income (loss) of subsidiaries: Continuing operations ..................... 14,999 1,460 13,225 (29,684) -- Discontinued operations ................... 66 -- -- (66) -- -------- --------- -------- -------- -------- 15,065 1,460 13,225 (29,750) -- -------- --------- -------- -------- -------- Net income .................................. $ 11,261 $ 14,685 $ 15,065 $(29,750) $ 11,261 ======== ========= ======== ======== ======== </TABLE> 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, 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 ................................. 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 .................... 160 55,225 -- -- 55,385 Mortgage banking and financing, interest and other ............................ -- -- 6,649 -- 6,649 Corporate, net .......................... 6,760 1,359 (375) -- 7,744 ------- -------- ------- ------- -------- Total expenses .............................. 6,920 416,589 6,274 -- 429,783 ------- -------- ------- ------- -------- Other Income: Equity in income of Pulte-affiliates ...... -- -- 90 -- 90 ------- -------- ------- ------- -------- Income (loss) from continuing operations before income taxes and equity in income of subsidiaries ........................... (6,130) 7,594 543 -- 2,007 Income taxes (benefit) ...................... (2,470) 2,984 259 -- 773 ------- -------- ------- ------- -------- Income (loss) from continuing operations before equity in income of subsidiaries ... (3,660) 4,610 284 -- 1,234 Income (loss) from discontinued operations .. 1,720 -- (717) -- 1,003 ------- -------- ------- ------- -------- Income (loss) before equity in income (loss) of subsidiaries .................... (1,940) 4,610 (433) -- 2,237 ------- -------- ------- ------- -------- Equity in income (loss) of subsidiaries: Continuing operations ..................... 4,894 38 4,610 (9,542) -- Discontinued operations ................... (717) -- -- 717 -- ------- -------- ------- ------- -------- 4,177 38 4,610 (8,825) -- ------- -------- ------- ------- -------- Net income .................................. $ 2,237 $ 4,648 $ 4,177 $(8,825) $ 2,237 ======= ======== ======= ======= ======== </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, 1998 Unconsolidated ----------------------------------------- Consolidated Pulte Guarantor Non-Guarantor Eliminating Pulte Corporation Subsidiaries Subsidiaries Entries Corporation ----------- ------------ ------------- ---------- ------------ <S> <C> <C> <C> <C> <C> Continuing operations: Cash flows from operating activities: Income from continuing operations ........ $ 10,890 $ 14,685 $ 14,999 $ (29,684) $ 10,890 Adjustments to reconcile income from continuing operations to net cash flows provided by (used in) operating activities: Equity in income of subsidiaries ....... (14,999) (1,460) (13,225) 29,684 -- Amortization, depreciation and other ... 48 1,491 133 -- 1,672 Deferred income taxes .................. (4,028) -- -- -- (4,028) Increase (decrease) in cash due to: Inventories ............................ -- 41,926 -- -- 41,926 Residential mortgage loans available-for-sale .................. -- -- 49,863 -- 49,863 Other assets ........................... 2,067 102,466 (30,580) -- 73,953 Accounts payable and accrued liabilities ......................... 3,143 (73,561) (1,150) -- (71,568) Income taxes ........................... (2,638) 9,055 1,182 -- 7,599 --------- --------- --------- --------- --------- Net cash provided by (used in) operating activities ..................... (5,517) 94,602 21,222 -- 110,307 --------- --------- --------- --------- --------- Cash flows from investing activities: Decrease in funds held by trustee ........ -- -- 2,014 -- 2,014 Dividends received from subsidiaries ..... 132,040 2,500 132,040 (266,580) -- Other, net ............................... -- -- (255) -- (255) Investment in subsidiary ................. (32,040) -- -- 32,040 -- Advances to affiliates ................... (25,854) -- (1,437) 27,291 -- --------- --------- --------- --------- --------- Net cash provided by (used in) investing activities ..................... 74,146 2,500 132,362 (207,249) 1,759 --------- --------- --------- --------- --------- Cash flows from financing activities: Payment of long-term debt and bonds ...... -- (6,918) (2,309) -- (9,227) Repayment of borrowings .................. -- (3,656) (41,397) -- (45,053) Capital contributions from parent ........ -- -- 32,040 (32,040) -- Advances from affiliates ................. (2,871) 36,713 (6,551) (27,291) -- Dividends paid ........................... (1,278) (132,040) (134,540) 266,580 (1,278) Other, net ............................... 1,265 -- -- -- 1,265 --------- --------- --------- --------- --------- Net cash provided by (used in) financing activities ..................... (2,884) (105,901) (152,757) 207,249 (54,293) --------- --------- --------- --------- --------- Net increase (decrease) in cash and equivalents - continuing operations ...... $ 65,745 $ (8,799) $ 827 $ -- $ 57,773 --------- --------- --------- --------- --------- </TABLE> 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, 1998 Unconsolidated ----------------------------------------- Consolidated Pulte Guarantor Non-Guarantor Eliminating Pulte Corporation Subsidiaries Subsidiaries Entries Corporation ----------- ------------ ------------- ---------- ------------ <S> <C> <C> <C> <C> <C> Discontinued operations: Cash flows from operating activities: Income from discontinued operations ......................... $ 371 $ -- $ 66 $(66) $ 371 Change in deferred income taxes .......... 6,181 -- -- -- 6,181 Equity in income of subsidiaries ......... (66) -- -- 66 -- Change in income taxes ................... (6,486) -- -- -- (6,486) Other changes, net ....................... -- -- (2) -- (2) Cash flows from investing activities: Purchase of securities available- for-sale ............................ -- -- (21,809) -- (21,809) Principal payments of mortgage-backed securities .......................... -- -- 7,654 -- 7,654 Decrease in Covered Assets and FRF receivables ......................... -- -- 30,764 -- 30,764 Cash flows from financing activities: Increase in deposit liabilities .......... -- -- 37,092 -- 37,092 Repayment of borrowings .................. -- -- (31,560) -- (31,560) Increase in FHLB advances ................ -- -- 1,900 -- 1,900 --------- -------- -------- ---- --------- Net increase in cash and equivalents- discontinued operations .................. -- -- 24,105 -- 24,105 --------- -------- -------- ---- --------- Net increase (decrease) in cash and equivalents .......................... 65,745 (8,799) 24,932 -- 81,878 Cash and equivalents at beginning of period ................................... 195,946 46,466 4,896 -- 247,308 --------- -------- -------- ---- --------- Cash and equivalents at end of period ...... $ 261,691 $ 37,667 $ 29,828 $-- $ 329,186 ========= ======== ======== ==== ========= </TABLE> 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, 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 income of subsidiaries ....... (4,894) (124) (4,475) 9,493 -- Amortization, depreciation and other ... 22 -- 300 -- 322 Deferred income taxes .................. (1,116) -- -- -- (1,116) 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 ........................... (3,576) 2,984 215 -- (377) --------- --------- -------- --------- --------- 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 decrease in cash and equivalents - continuing operations ...... $(109,430) $ (17,299) $ (625) $ -- $(127,354) --------- --------- -------- --------- --------- </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, 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 .......... (635) -- -- -- (635) Equity in income of subsidiaries ......... 717 -- -- (717) -- Change in income taxes ................... 133 -- -- -- 133 Other changes, net ....................... (1,218) -- 623 -- (595) 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) Increase 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> 18
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, 1998 and 1997 is as follows: <TABLE> <CAPTION> Three Months Ended March 31, ------------------ 1998 1997 ---- ---- <S> <C> <C> Pre-tax income (loss): Homebuilding operations .................. $ 19,759 $ 7,915 Financial Services operations ............ 2,388 78 Corporate ................................ (4,295) (5,986) -------- ------- Pre-tax income from continuing operations ... 17,852 2,007 Income taxes ................................ (6,962) (773) -------- ------- Income from continuing operations ........... 10,890 1,234 Income from discontinued operations ......... 371 1,003 -------- ------- Net income .................................. $ 11,261 $ 2,237 ======== ======= Per share data - assuming dilution: Income from continuing operations ........ $ .50 $ .05 Income from discontinued operations ...... .02 .04 -------- ------- Net income ............................... $ .52 $ .09 ======== ======= </TABLE> A comparison of pre-tax income (loss) for the three months ended March 31, 1998 and 1997 is as follows: o Pre-tax income of the Company's homebuilding business segment increased $11,844, or 150%, over the comparable 1997 period. This increase is primarily the result of a dramatic improvement in domestic homebuilding operations for which pre-tax income increased $11,359, to $20,355, for the first quarter of 1998. A 14% increase in domestic unit settlements, coupled with a 50 basis point improvement in gross margins and a 230 basis point improvement in selling, general and administrative expense leverage, were responsible for this increase in domestic homebuilding pre-tax income. o Pre-tax income of the Company's financial services business segment increased $2,310, substantially above the amount recognized for the first three months of 1997. This increase is entirely attributable to the Company's mortgage banking operation which benefited from a 38% increase in mortgage origination volume, providing a 60% increase in origination fees and a 51% increase in pricing and marketing gains, and a 9% decrease in operating expenses. Operating costs per mortgage origination reflect improved leverage, declining by 32% from first quarter 1997 levels. o Pre-tax loss of the Company's corporate business segment decreased $1,691, or 28%, from the first three months of 1997. This is primarily the result of the gain recognized from the sale of the Company's interest in Expression Homes offset by a significant increase in net interest expense associated with the issuance of $150,000 of Senior Notes during the fourth quarter of 1997. 19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) ($000's omitted) Restructuring: During the fourth quarter of 1997, a pre-tax charge of $20,000 was recorded in connection with the reorganization of the Company's operations. This reorganization entailed: o the realignment of homebuilding operations into business lines which focus on specific customer segments; o the creation of a mortgage applications center, which increased overhead leverage by moving Pulte Mortgage's loan officers from field branches to a central location in Denver, Colorado; and o the right-sizing of its workforce on a company-wide basis. The 1997 restructuring charge included $11,787 of separation and other costs for approximately 150 employees, $7,000 of asset impairments and $1,213 of other costs, principally for office leases. The after-tax effect of this charge was $12,300 or $.56 per diluted share. As of March 31, 1998, the Company has severed employment with approximately 120 employees. The following table displays a rollforward of the liabilities accrued for the Company's restructuring from December 31, 1997 to March 31, 1998: <TABLE> <CAPTION> Balance at 1998 Balance at December 31, Reserve March 31, Type of Cost 1997 Uses 1998 - ------------ ------------ ------- ---------- <S> <C> <C> <C> Homebuilding operations: Employee separation and other ..... $ 6,057 $1,630 $4,427 Other ............................. 900 242 658 ------- ------ ------ 6,957 1,872 5,085 ------- ------ ------ Mortgage Banking operations: Employee separation and other ..... 1,177 328 849 Other ............................. 280 68 212 ------- ------ ------ 1,457 396 1,061 ------- ------ ------ Corporate: Employee separation and other ..... 2,530 750 1,780 ------- ------ ------ $10,944 $3,018 $7,926 ======= ====== ====== </TABLE> Management believes that the remaining reserves for business restructuring costs are adequate to complete its plan and that a substantial portion of the remaining accrual will be utilized during 1998. 20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) ($000's omitted) Homebuilding Operations: During 1997, the Company reorganized its homebuilding operations into three distinct business lines; Domestic, International, and Active Adult. o Domestic Homebuilding operations represent Pulte's primary business line and are conducted in 40 markets, located throughout 27 states. Domestic Homebuilding product offerings focus primarily on the first-time and move-up buyer segments, as well as Canterbury Communities (affordable, site-built housing). o International Homebuilding operations are conducted in Puerto Rico, through a Pulte subsidiary, and in Mexico through Pulte-affiliated entities. International Homebuilding product offerings focus on the demand of first-time buyers and social interest housing in Mexico. The Company has several agreements in place with multi-national corporations to support social interest housing in Mexico. o Active Adult Homebuilding operations through March 25, 1998, were conducted through Pulte subsidiaries. On March 25, 1998, the Company announced the formation of a new venture in which both the Company and Blackstone Real Estate Advisors (BRE), an affiliate of the Blackstone Group, have committed investment capital for the purpose of acquiring and developing major active adult residential communities. In an initial transaction, the venture purchased and will continue to develop four of the Company's existing active adult communities. Both the Company and BRE maintain a 50% ownership interest in this new venture. Active Adult homebuilding operations focus on the development of amenitized age-targeted or age-restricted communities appealing to a growing demographic group in their pre-retirement/retirement years. Certain operating data relating to the Company's homebuilding operations for the three months ended March 31, 1998 and 1997, are as follows: <TABLE> <CAPTION> Three Months Ended March 31, -------------------- 1998 1997 ---- ---- <S> <C> <C> Pre-tax income (loss): Homebuilding operations: Domestic ............................... $ 20,355 $ 8,996 International .......................... 864 (215) Active Adult ........................... (1,460) (866) -------- ------- Total Homebuilding operations .......... $ 19,759 $ 7,915 ======== ======= Pulte and Pulte-affiliate settlements - units: Domestic .................................. 2,980 2,604 -------- ------- International: Pulte .................................. 52 53 Pulte-affiliated entities .............. 1,410 557 -------- ------- Total International .................. 1,462 610 -------- ------- Active Adult: Pulte .................................. 64 41 Pulte-affiliated entity ................ 16 -- -------- ------- Total Active Adult ................... 80 41 -------- ------- Total Pulte and Pulte-affiliate settlements - units .................. 4,522 3,255 ======== ======= </TABLE> 21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) ($000's omitted) Homebuilding Operations (continued): Domestic Homebuilding: The domestic homebuilding business line represents the Company's core business. Operations are conducted in 40 markets, located throughout 27 states, and are organized into nine regions as follows: Pulte Home East: - ---------------- Mid-Atlantic Region Connecticut, Delaware, Maryland, Massachusetts, New Jersey, New Hampshire, Pennsylvania, Rhode Island, Virginia Southeast Region Georgia, North Carolina, South Carolina Florida Region Florida Pulte Home Central: - ------------------- Great Lakes Region Indiana, Michigan, Missouri, Ohio, Kansas Midwest Region Illinois, Minnesota, Wisconsin Texas Region Texas Pulte Home West: - ---------------- Southwest Region Arizona, Nevada Rocky Mountain Region Colorado, Utah California Region California No one individual market within the 40 markets represented more than 10% of total domestic homebuilding net new orders, unit settlements or revenues during the three month period ended March 31, 1998. The following table presents selected unit information for Pulte's domestic homebuilding operations for the three month periods ended March 31, 1998 and 1997. <TABLE> <CAPTION> Three Months Ended March 31, ------------------ 1998 1997 ---- ---- <S> <C> <C> Unit settlements: Pulte Home East ...................... 1,428 1,275 Pulte Home Central ................... 813 721 Pulte Home West ...................... 739 608 -------- -------- 2,980 2,604 ======== ======== Net new orders - units: Pulte Home East ...................... 2,209 1,803 Pulte Home Central ................... 1,718 1,258 Pulte Home West ...................... 1,006 906 -------- -------- 4,933 3,967 ======== ======== Net new orders - dollars ............... $857,000 $644,000 ======== ======== Backlog - units: Pulte Home East ...................... 2,341 2,144 Pulte Home Central ................... 1,921 1,517 Pulte Home West ...................... 1,084 945 -------- -------- 5,346 4,606 ======== ======== Backlog at March 31 - dollars .......... $979,000 $803,000 ======== ======== </TABLE> 22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) ($000's omitted) Homebuilding Operations (continued): Domestic Homebuilding (continued): Net new orders increased during the first quarter of 1998 by 966 units, or approximately 24%, over the first quarter of 1997 to a Company record of 4,933 units. Contributing to a majority of this increase were Pulte markets in the Southeast, Mid-Atlantic, Texas, Great Lakes, California, and Midwest Regions. In general, macro-economic and weather conditions favorably affected the new order environment during the first quarter of 1998. Unit settlements during the three months ended March 31, 1998, increased approximately 14% from the comparable prior year period, to 2,980 units. This is due primarily to the 5% higher unit backlog noted at December 31, 1997 from the backlog at December 31, 1996. Positive comparisons between the three month periods ended March 31, 1998 and 1997 were noted for Pulte markets in the Southeast, Southwest, California, and Midwest Regions. As a result of the favorable environment surrounding new orders during the first quarter of 1998, unit backlog at March 31, 1998 increased by 740 units, or approximately 16%, from the balance noted at March 31, 1997, and increased by 1,953 units, or approximately 58%, from unit backlog at December 31, 1997. The following table presents a summary of pre-tax income for Pulte's domestic homebuilding operations for the three month periods ended March 31, 1998 and 1997: <TABLE> <CAPTION> Three Months Ended March 31, ------------------ 1998 1997 ---- ---- <S> <C> <C> Revenues........................................ $ 495,367 $ 414,315 Cost of sales................................... (419,117) (352,456) Selling, general and administrative expense..... (50,958) (52,383) Interest (a).................................... (3,886) (3,352) Other income (expense), net..................... (1,051) 2,872 --------- --------- Pre-tax income.................................. $ 20,355 $ 8,996 ========= ========= Average sales price............................. $ 166 $ 159 ========= ========= <FN> (a)The Company capitalizes interest cost into homebuilding inventories and charges the interest to homebuilding interest expense when the related inventories are closed. </TABLE> 23
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) ($000's omitted) Homebuilding Operations (continued): Domestic Homebuilding (continued): Gross profit margins were 15.4% for the three month period ended March 31, 1998, compared with 14.9% in the similar period of the prior year. This favorable comparison between quarters is the result of the favorable market demand conditions which were present during the latter portion of 1997, as well as results from the Company's ongoing process improvement initiatives which are aimed towards reducing the component costs of house construction. These initiatives continue to provide margin improvement on a sequential-period basis as indicated in the improvement from 14.9% gross margins realized for the fourth quarter of 1997. During the first three months of 1998, selling, general and administrative expenses (SG&A) began to reflect savings from the corporate reorganization effected in the second half of 1997. During the first quarter of 1998, the absolute amount of SG&A decreased $1,425, or 3%, from prior year levels while SG&A as a percentage of sales revenues declined from 12.6% for the three months ended March 31, 1997, to 10.3% for the three months ended March 31, 1998, a 230 basis-point improvement. Other income, net, includes gains on land sales and other homebuilding-related expenses. Other income, net, has also historically included the net operating results of Pulte's Builder Supply & Lumber (BSL) subsidiary prior to its sale on March 20, 1998. For the three months ended March 31, 1998, other income, net, was unfavorably impacted by results attributable to BSL. In the first quarter of 1998, Pulte recognized a loss from operations and sales transaction costs aggregating $1,700 as compared to profit from operations of $1,800 for the comparative period. The average selling price during the three month period ended March 31, 1998 was $166, a 4% increase from the average selling price of $159 in the comparable period of the prior year. The average selling price for the fourth quarter of 1997 was $166. Changes in average selling price are primarily due to the mix of product closed during a period. Information related to interest in inventory is as follows: <TABLE> <CAPTION> Three Months Ended March 31, ------------------ 1998 1997 ---- ---- <S> <C> <C> Interest in inventory at beginning of period....... $14,719 $12,846 Interest capitalized............................... 5,049 4,151 Interest expensed ................................ (3,886) (3,352) ------- ------- Interest in inventory at end of period............. $15,882 $13,645 ======= ======= </TABLE> At March 31, 1998, Pulte's domestic homebuilding operations controlled approximately 46,600 lots, of which approximately 26,700 lots were owned and approximately 19,900 lots were controlled through option agreements. 24
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) ($000's omitted) Homebuilding Operations (continued): International Homebuilding: International Homebuilding operations are conducted in Puerto Rico, through a Pulte subsidiary, and in Mexico through three joint venture investments owned by a foreign subsidiary. The following table presents selected financial data for Pulte's international homebuilding operations for the three month periods ended March 31, 1998 and 1997. <TABLE> <CAPTION> Three Months Ended March 31, ------------------ 1998 1997 ---- ---- <S> <C> <C> Pre-tax income (loss): Revenues...................................... $ 4,116 $ 3,248 Cost of sales................................. (3,572) (2,798) Selling, general and administrative expense... (1,293) (758) Other income, net............................. 12 3 Equity in income of Mexico operations......... 1,601 90 ------- ------- Pre-tax income (loss)......................... $ 864 $ (215) ======= ======= Unit settlements: Pulte....................................... 52 53 Pulte-affiliated entities................... 1,410 557 ------- ------- Total Pulte and Pulte-affiliates.......... 1,462 610 ======= ======= </TABLE> Pre-tax income of the Company's international operations improved by $1,079 as a result of an $1,511 increase in the equity in income from the Mexico joint venture operations. This improvement is principally due to a 50% increase in the number of unit closings relating to the Company's housing agreement with Delphi Automotive Systems, a division of General Motors Corporation (GM). In early 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 $1,600 as of March 31, 1998. 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 communities in the cities of Juarez, Chihuahua, Nuevo Laredo, Reynosa and Matamoros. During 1996, the Company announced that its Juarez joint venture had entered into two separate agreements to construct homes in Mexico; one with GM and one with Sony Magneticos de Mexico, S.A. de C.V., an affiliate of Sony Electronics, Inc. (Sony). The Company's net investment in the Juarez joint venture approximated $17,000 as of March 31, 1998. The Company is a party to a joint venture to build 50 upper income housing units in Mexico City which are expected to close by the end of 1998. The Company's net investment in this joint venture approximated $600 as of March 31, 1998. 25
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) ($000's omitted) Homebuilding Operations (continued): Active Adult Homebuilding: Active Adult Homebuilding operations through March 25, 1998, were conducted through Pulte subsidiaries. On March 25, 1998, the Company announced the formation of a new venture in which both the Company and Blackstone Real Estate Advisors (BRE), an affiliate of the Blackstone Group, have committed investment capital for the purpose of acquiring and developing major active adult residential communities. In an initial transaction, the venture purchased and will continue to develop four of the Company's existing active adult communities. Both the Company and BRE maintain a 50% ownership interest in this new venture. Active Adult homebuilding operations focus on the development of amenitized age-targeted or age-restricted communities appealing to a growing demographic group in their pre-retirement/retirement years. The following table presents selected financial data for Pulte's Active Adult homebuilding operations for the three month periods ended March 31, 1998 and 1997. The three month period ended March 31, 1998, includes the operating results of the Company's subsidiaries from January 1, 1998, through March 25, 1998, and the operating results of the joint venture entity from March 26, 1998 through March 31, 1998. <TABLE> <CAPTION> Three Months Ended March 31, -------------------- 1998 1997 ---- ---- <S> <C> <C> Pre-tax income (loss): Revenues ...................................... $ 9,152 $ 5,652 Cost of sales ................................. (7,311) (4,751) Selling, general and administrative expense ... (3,598) (1,726) Other income, net ............................. (267) (41) Equity in income of joint venture ............. 564 -- -------- -------- Pre-tax income (loss) ......................... $ (1,460) $ (866) ======== ======== Pulte and Pulte-affiliate: Average sales price ........................... $ 171 $ 138 ======== ======== Unit settlements .............................. 80 41 ======== ======== Net new orders - units ........................ 215 121 ======== ======== Net new orders - dollars ...................... $ 39,500 $ 16,200 ======== ======== Backlog - units ............................... 249 186 ======== ======== Backlog - dollars ............................. $ 44,600 $ 26,200 ======== ======== </TABLE> Net new orders increased during the first quarter of 1998 by 94 units. These units primarily relate to two communities for which sales operations had not yet commenced in the comparable prior year period. Unit settlements for the three months ended March 31, 1998 increased by 39 units from the first quarter of 1997, primarily as a result of one community which recognized its first closings during the 1998 period. Sixteen of the unit settlements reported are attributable to the 5 days of operations of the new joint venture. The increased revenues and cost of sales are the result of the increased unit settlements and a higher average selling price. Selling, general and administrative expenses increased during the first quarter of 1998 principally due to costs associated with starting up operations at two new communities. The increases in average selling price and average selling price in backlog are due to the mix of products sold and communities operating in each respective period. Equity in income of joint venture represents the income recognized by the Company during the first quarter of 1998 relating to the operations of the joint venture entity. 26
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 (Pulte Mortgage), the Company's mortgage banking subsidiary, and to a limited extent by Pulte Financial Companies, Inc. (PFCI), the Company's financing subsidiary. Pre-tax income (loss) of the Company's financial services operations for the three month periods ended March 31, 1998 and 1997, is as follows: <TABLE> <CAPTION> Three Months Ended March 31, ------------------ 1998 1997 ---- ---- <S> <C> <C> Pre-tax income (loss): Mortgage banking ...................... $ 2,411 $ 120 Financing activities .................. (23) (42) ------- ----- Pre-tax income ...................... $ 2,388 $ 78 ======= ===== </TABLE> Mortgage Banking: The following table presents mortgage origination data for Pulte Mortgage: <TABLE> <CAPTION> Three Months Ended March 31, ---------------------- 1998 1997 --------- --------- <S> <C> <C> Total originations: Loans .................................. 2,372 1,827 ========= ========= Principal .............................. $ 305,400 $ 221,100 ========= ========= Originations for Pulte customers: Loans .................................. 1,795 1,467 ========= ========= Principal .............................. $ 234,900 $ 184,800 ========= ========= </TABLE> Mortgage origination volume for the three months ended March 31, 1998, increased 38% compared to the similar 1997 period. This increase was primarily the result of increased loan originations for Pulte customers and increased volume of refinancings. The volume of originations for Pulte customers decreased to 76% of total originations for the three months ended March 31, 1998, from 80% of total originations for the similar period of 1997. This decrease is the result of the increased volume of refinancings during the first quarter of 1998. 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. At March 31, 1998, loan application backlog increased 32% to $459,000 compared with $294,000 at December 31, 1997, and $347,000 at March 31, 1997. During the first three months of 1998, origination fees increased $333 and pricing and marketing gains increased $2,040 from the comparable period of the prior year due to an increase in servicing retained originations. Net interest income decreased $256 during the first three months of 1998 primarily due to the payment of dividends in excess of current earnings by Pulte Mortgage to Pulte and due to the flattening of the yield curve during the latter half of 1997. Pulte Mortgage's operating expenses decreased $435 during the first quarter of 1998 primarily as a result of the mortgage operations center and mortgage application center initiatives implemented during late 1996 and 1997, respectively. Pulte Mortgage believes that these new processes will speed up the loan approval process while lowering its total cost from application to closing. 27
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) ($000's omitted) Financial Services Operations (continued): 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, 1998, one bond series with a principal amount of $35,427 was outstanding. For the three months ended March 31, 1998, PFCI's pre-tax operating loss was $23. This compares to a pre-tax loss of $42 for the comparable period 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. The following table presents corporate results of operations for the three month periods ended March 31, 1998 and 1997: <TABLE> <CAPTION> Three Months Ended March 31, ------------------ 1998 1997 ---- ---- <S> <C> <C> Net interest expense............................. $3,464 $ 2,443 Other corporate expenses, net.................... 831 3,543 ------ ------- Loss before income taxes......................... $4,295 $ 5,986 ====== ======= </TABLE> The decrease in pre-tax loss for the three month period ended March 31, 1998, is primarily due to the net of the following: o recognition of a one-time gain of $5,000 from the sale of the Company's interest in Expression Homes; o an increase in net interest expense associated with the issuance of $150,000 of 7.625% Senior Notes, due 2017, during the fourth quarter of 1997; and o provisions for the write-down of certain projects and alternative building component investments. Liquidity and Capital Resources : Continuing Operations: The Company's net cash flows from operating activities increased from a use of $73,481 for the three months ended March 31, 1997, to source of $110,307 for the three months ended March 31, 1998. This is principally due to an approximately $120,000 decrease in the level of net cash investment in inventories as compared to the 1997 period and an approximately $61,000 decrease in other assets resulting from the proceeds from the sale of BSL and the proceeds from the sale of one-half of the Company's interest in certain Active Adult communities to the new Pulte / Blackstone joint venture. Net cash provided by investing activities decreased from $2,096 for the three months ended March 31, 1997 to $1,759 for the three months ended March 31, 1998. The Company's net cash used in financing activities decreased from $55,969 for the three months ended March 31,1997, to $54,293 for the three months ended March 31, 1998. 28
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): At March 31, 1998, the Company had cash and equivalents of $302,929 and total long-term indebtedness of $607,988. The Company's total indebtedness includes $487,351 of unsecured senior notes, $22,405 of unsecured senior subordinated debentures, other Pulte non-recourse and limited recourse debt of $30,274 and $26,771, respectively, $5,760 of First Heights' advances and $35,427 of mortgage-backed bonds payable for PFCI. 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 $210,000 committed unsecured revolving credit facility, and other committed and uncommitted credit lines, which at March 31, 1998, consisted of $20,000 and $250,000 related to Pulte and Pulte Mortgage operations, respectively. During the remainder of 1998, management anticipates that homebuilding and corporate working capital requirements, as well as cash payments associated with the Company's restructuring plan, will be principally funded with internally generated funds and the previously mentioned credit facilities. The Company routinely monitors current operational requirements and financial market conditions to evaluate the utilization of available financing sources, including securities offerings. The Company finances its land acquisitions, development and construction activities from internally generated funds and existing credit agreements. The Company had no borrowings under its $210,000 unsecured revolving credit facility during the first quarter of 1998 and no balance was outstanding at March 31, 1998. 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, 1998, amounted to $250,000, an amount deemed adequate to cover foreseeable needs. There were approximately $121,310 of borrowings outstanding under the $250,000 (Pulte Mortgage) arrangement at March 31, 1998. 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. Discontinued Operations: Since the acquisition of First Heights, the Company's income taxes have been significantly impacted by its thrift operations, principally because payments received from the 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 negotiating and involved in litigation with the FDIC. Although there is no certainty as to the time frame for resolution of these matters, the Company believes that they might be resolved within the next twelve months. At March 31, 1998, the Company had a remaining investment in First Heights of approximately $26,000. 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", are "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such matters involve risks and uncertainties, including changes in economic conditions and interest rates, increases in raw material and labor costs, weather conditions, and general competitive factors, that may cause actual results to differ materially. 29
PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K Exhibit number and description Page Number ----------- (11) Statement Regarding Computation of Per Share Earnings 32 (27) Financial Data Schedule Allother exhibits are omitted from this report because they are not applicable. Reports on Form 8-K during the quarter ended March 31, 1998 Form 8-K dated March 20, 1998: Item 5. Other Events Disclosed that indenture supplements were entered into with (1) The Bank of New York concerning $100,000,000 aggregated principal amount of 7% senior notes of the Company due 2003, and $115,000,000 aggregated principal amount of 8-3/8% senior notes of the Company due 2004 and (2) The First National Bank of Chicago concerning $125,000,000 aggregated principal amount of 7.3% senior notes of the Company due 2005. 30
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PULTE CORPORATION /s/ ROGER A CREGG --------------------------------- Roger A. Cregg Senior Vice President and Chief Financial Officer (Principal Financial Officer) /s/ VINCENT J. FREES --------------------------------- Vincent J. Frees Vice President and Controller (Principal Accounting Officer) Date: May 15, 1998 31