============================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 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 July 31, 1998: 43,115,080 Total pages: 40 Listing of exhibits: 36 =============================================================================
<TABLE> <CAPTION> PULTE CORPORATION INDEX Page No. -------- <S> <C> PART I FINANCIAL INFORMATION Item 1 Financial Statements (Unaudited) Condensed Consolidated Balance Sheets, June 30, 1998 and December 31, 1997.......... 3 Condensed Consolidated Statements of Income, Three and Six Months Ended June 30, 1998 and 1997............................................................. 4 Condensed Consolidated Statement of Shareholders' Equity, Six Months Ended June 30, 1998...................................................................... 5 Condensed Consolidated Statements of Cash Flows, Six Months Ended June 30, 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.................................................. 23 PART II OTHER INFORMATION Item 4 Submission of Matters to a Vote of Security Holders........................ 36 Item 5 Other Information.......................................................... 36 Item 6 Exhibits and Reports on Form 8-K........................................... 36 SIGNATURES.......................................................................... 38 </TABLE> 2
PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS <TABLE> <CAPTION> PULTE CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS ($000's omitted) June 30, December 31, 1998 1997 ----------- ------------ (Unaudited) (Note) <S> <C> <C> ASSETS Cash and equivalents................................................... $ 279,901 $ 245,156 Unfunded settlements................................................... 56,242 69,768 House and land inventories............................................. 1,196,552 1,141,952 Mortgage-backed and related securities................................. 34,422 39,467 Residential mortgage loans and other securities available-for-sale..... 164,429 185,018 Other assets........................................................... 334,272 358,464 Discontinued operations................................................ 134,257 110,940 ----------- ----------- $ 2,200,075 $ 2,150,765 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Accounts payable and accrued liabilities, including book overdrafts of $80,140 and $84,623 in 1998 and 1997, respectively................................................... $ 508,588 $ 497,733 Collateralized short-term debt, recourse solely to applicable subsidiary assets............................................... 147,164 162,707 Mortgage-backed bonds, recourse solely to applicable subsidiary assets............................................... 33,083 37,413 Income taxes....................................................... 12,016 13,001 Subordinated debentures and senior notes........................... 539,501 546,900 Discontinued operations............................................ 102,966 80,174 ----------- ----------- Total liabilities............................................... 1,343,318 1,337,928 Shareholders' equity................................................... 856,757 812,837 ----------- ----------- $ 2,200,075 $ 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) Three Months Ended Six Months Ended June 30, June 30, ----------------------- ------------------------- 1998 1997 1998 1997 ---------- ---------- ----------- ----------- <S> <C> <C> <C> <C> Revenues: Homebuilding...................................... $ 663,554 $ 567,135 $ 1,172,189 $ 990,350 Mortgage banking and financing, interest and other 11,377 6,925 19,736 13,652 Corporate ........................................ 4,766 2,255 8,343 4,013 ---------- ---------- ----------- ----------- Total revenues.......................... 679,697 576,315 1,200,268 1,008,015 ---------- ---------- ----------- ----------- Expenses: Homebuilding, principally cost of sales........... 621,262 540,059 1,112,303 955,449 Mortgage banking and financing, interest and other 7,817 6,574 13,788 13,223 Corporate, net.................................... 12,170 8,378 20,042 16,122 ---------- ---------- ----------- ----------- Total expenses.......................... 641,249 555,011 1,146,133 984,794 ---------- ---------- ----------- ----------- Other income: Equity in income (loss) of Pulte-affiliates....... 248 (700) 2,413 (610) ---------- ---------- ----------- ----------- Income from continuing operations before income taxes............................................. 38,696 20,604 56,548 22,611 Income taxes ........................................ 15,090 7,932 22,052 8,705 ---------- ---------- ----------- ----------- Income from continuing operations.................... 23,606 12,672 34,496 13,906 Income from discontinued thrift operations, net of income taxes............................... 238 1,201 609 2,204 ---------- ---------- ----------- ----------- Net income ........................................ $ 23,844 $ 13,873 $ 35,105 $ 16,110 ========== ========== =========== =========== Per share data: Basic: Income from continuing operations............... $ .55 $ .30 $ .81 $ .31 Income from discontinued operations............. -- .02 .01 .05 ---------- ---------- ----------- ----------- Net income...................................... $ .55 $ .32 $ .82 $ .36 ========== ========== =========== =========== Assuming dilution: Income from continuing operations............... $ .54 $ .29 $ .79 $ .31 Income from discontinued operations............. -- .03 .02 .05 ---------- ---------- ----------- ----------- Net income...................................... $ .54 $ .32 $ .81 $ .36 ========== ========== =========== =========== Cash dividends declared........................... $ .04 $ .03 $ .07 $ .06 ========== ========== =========== =========== Number of shares used in calculation: Basic: Weighted-average common shares outstanding...... 43,039 42,764 42,815 44,668 Assuming dilution: Effect of dilutive securities - stock options 913 252 793 312 ---------- ---------- ----------- ----------- Adjusted weighted-average common shares and effect of dilutive securities....... 43,952 43,016 43,608 44,980 ========== ========== =========== =========== <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 ................. 3 7,861 -- -- 7,864 Cash dividends declared ................... -- -- -- (2,994) (2,994) Stock dividend declared ................... 214 (214) -- -- -- Change in unrealized gains on securities available-for-sale, net of income taxes of $185 ............................... -- -- (324) -- (324) Shares issued in business acquisition ..... 1 4,268 -- -- 4,269 Net income ................................ -- -- -- 35,105 35,105 --------- --------- --------- --------- --------- Shareholders' Equity, June 30, 1998 ....... $ 431 $ 73,750 $ 1,363 $ 781,213 $ 856,757 ========= ========= ========= ========= ========= <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) Six Months Ended June 30, ----------------------- 1998 1997 --------- ---------- <S> <C> <C> Continuing operations: Cash flows from operating activities: Income from continuing operations .................................. $ 34,496 $ 13,906 Adjustments to reconcile income from continuing operations to net cash flows provided by (used in) operating activities: Amortization, depreciation and other ......................... 1,838 3,553 Deferred income taxes ........................................ (5,908) 5,136 Increase (decrease) in cash due to: Inventories .......................................... 4,125 (127,455) Residential mortgage loans held for sale ............. 20,588 44,290 Other assets ......................................... 27,860 (35,633) Accounts payable and accrued liabilities ............. (12,318) (9,710) Income taxes ......................................... 13,335 (1,053) --------- --------- Net cash provided by (used in) operating activities .................... 84,016 (106,966) --------- --------- Cash flows from investing activities: Principal payments of mortgage-backed securities ................... 4,517 4,145 Cash paid for acquisitions, net of cash acquired ................... (43,969) -- Other, net ......................................................... (321) (71) --------- --------- Net cash (used in) provided by investing activities .................... (39,773) 4,074 --------- --------- Cash flows from financing activities: Payment of long-term debt and bonds ................................ (4,982) (4,638) Proceeds from borrowings ........................................... 15,975 111,166 Repayment of borrowings ............................................ (23,045) (36,221) Stock repurchases .................................................. -- (74,595) Dividends paid ..................................................... (2,994) (2,658) Other, net ......................................................... 5,548 1,959 --------- --------- Net cash used in financing activities .................................. (9,498) (4,987) --------- --------- Net increase (decrease) in cash and equivalents - continuing operations $ 34,745 $(107,879) --------- --------- </TABLE> 6
<TABLE> <CAPTION> PULTE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) ($000's omitted) (Unaudited) Six Months Ended June 30, ---------------------- 1998 1997 --------- --------- <S> <C> <C> Discontinued Operations: Cash flows from operating activities: Income from discontinued operations ................................ $ 609 $ 2,204 Change in deferred taxes ........................................... 11,824 (727) Change in income taxes ............................................. (12,583) 729 Other changes, net ................................................. 6,548 (1,967) Cash flows from investing activities: Purchase of securities available-for-sale .......................... (21,809) (12,912) Principal payments of mortgage-backed securities ................... 17,384 15,152 Net proceeds from sale of investments .............................. -- 3,219 Decrease in Covered Assets and FSLIC Resolution Fund (FRF) receivables ................................................ 29,741 29,481 Cash flows from financing activities: Increase (decrease) in deposit liabilities ......................... 25,367 (7,385) Repayment of borrowings ............................................ (31,560) (31,560) Increase (decrease) in Federal Home Loan Bank (FHLB) advances ...... (3,100) 3,650 --------- --------- Net increase (decrease) in cash and equivalents-discontinued operations 22,421 (116) --------- --------- Net increase (decrease) in cash and equivalents ........................ 57,166 (107,995) Cash and equivalents at beginning of period ............................ 247,308 192,202 --------- --------- Cash and equivalents at end of period .................................. $ 304,474 $ 84,207 ========= ========= Cash - continuing operations ........................................... $ 279,901 $ 81,746 Cash - discontinued operations ......................................... 24,573 2,461 --------- --------- $ 304,474 $ 84,207 ========= ========= Supplemental disclosure of cash flow information-cash paid during the period for: Interest, net of amount capitalized; Continuing operations ............................................ $ 16,947 $ 9,988 Discontinued operations .......................................... 956 1,272 --------- --------- $ 17,903 $ 11,260 ========= ========= Income taxes ....................................................... $ 13,725 $ 4,291 ========= ========= <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 subsidiaries include Pulte Financial Companies, Inc. (PFCI), Pulte Diversified Companies, Inc. (PDCI) and other subsidiaries engaged in the homebuilding business. PDCI's operating subsidiaries include Pulte Home Corporation (Pulte) and Pulte International Corporation (International). PDCI's non-operating thrift subsidiary, First Heights Bank, fsb (First Heights), has been classified as a discontinued operation (See Note 2). The Company also has a mortgage banking company (Pulte Mortgage) which is a subsidiary of Pulte. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended June 30, 1998 are not necessarily indicative of the results that may be expected for the year ending 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 of the American Institute of Certified Public Accountants issued Statement of Position 98-1 (SOP), "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. The Company has adopted, on a prospective basis, the provisions of SOP 98-1 effective January 1, 1998 and, accordingly, has capitalized $750 and $1,450 of such costs during the three and six month periods ended June 30, 1998, respectively. The Company had historically expensed similar costs to operations when they were incurred. In June 1997, the Financial Accounting Standards Board (FASB) issued Statement No. 130, "Reporting Comprehensive Income". This standard is effective for fiscal years beginning after December 15, 1997, and requires that all items recognized under accounting standards as components of comprehensive income be reported in an annual financial statement that is displayed with the same prominence as other financial statements. The Company's comprehensive income other than net income consists solely of unrealized gains on securities available for sale, net of income tax. The Company's total comprehensive income for the quarters ended June 30, 1998 and 1997 was $23,717 and $14,122, respectively, and for the six months ended June 30, 1998 and 1997 was $34,781 and $16,147, respectively. Such amounts are not significantly different from the respective net incomes. In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities", which is required to be adopted in years beginning after June 15, 1999, with earlier adoption encouraged. This Statement will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. Pulte Mortgage, in the normal course of business, uses derivative financial instruments to meet the financing needs of its customers and reduce its own exposure to fluctuations in interest rates. The Company has not yet determined what effect Statement No. 133 will have on its earnings and financial position. 8
2. Discontinued operations Revenues of the Company's discontinued thrift operations for the three and six months ended June 30, 1998 were $1,779 and $3,566, respectively. Revenues for the comparable periods of 1997 were $2,301 and $4,726, respectively. For the three and six months ended June 30, 1998, discontinued thrift operations provided after-tax income of $238 and $609, respectively. After-tax income for the comparable periods of 1997 were $1,201 and $2,204, 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 housing in Puerto Rico and Mexico. o Active Adult, which is engaged in the development of amenitized, age-targeted and age-restricted communities throughout the continental United States appealing to a growing demographic group in their pre- retirement/retirement years. On March 25, 1998, the Company announced the formation of a new venture with Blackstone Real Estate Advisors (BRE), an affiliate of the Blackstone Group, 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, and as such, the Company accounts for this investment under the equity method of accounting. 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. 9
<TABLE> <CAPTION> 3. Segment information (continued) Financial Homebuilding Services Corporate Consolidated ------------ --------- --------- ------------ <S> <C> <C> <C> <C> Six Months Ended June 30, 1998: Continuing Operations: Revenues: Unaffiliated customers....... $ 1,172,189 $ 19,736 $ 8,343 $ 1,200,268 ============ ========= ========== =========== Income (loss) before income taxes $ 62,299 $ 5,948 $ (11,699) $ 56,548 ============ ========= ========== =========== Three Months Ended June 30, 1998: Continuing Operations: Revenues: Unaffiliated customers....... $ 663,554 $ 11,377 $ 4,766 $ 679,697 ============ ========= ========== =========== Income (loss) before income taxes $ 42,540 $ 3,560 $ (7,404) $ 38,696 ============ ========= ========== =========== At June 30, 1998: Identifiable assets.......... $ 1,466,959 $ 214,475 $ 384,384 $ 2,065,818 ============ ========= ========== Assets of discontinued operations 134,257 ----------- Total assets................. $ 2,200,075 =========== Six Months Ended June 30, 1997: Continuing Operations: Revenues: Unaffiliated customers....... $ 990,350 $ 13,652 $ 4,013 $ 1,008,015 ============ ========= ========== =========== Income (loss) before income taxes $ 34,291 $ 429 $ (12,109) $ 22,611 ============ ========= ========== =========== Three Months Ended June 30, 1997: Continuing Operations: Revenues: Unaffiliated customers....... $ 567,135 $ 6,925 $ 2,255 $ 576,315 ============ ========= ========= =========== Income (loss) before income taxes $ 26,376 $ 351 $ (6,123) $ 20,604 ============ ========= ========== =========== At June 30, 1997: Identifiable assets.......... $ 1,480,787 $ 182,143 $ 171,051 $ 1,833,981 ============ ========= ========== Assets of discontinued operations 138,682 ----------- Total assets................. $ 1,972,663 =========== </TABLE> 10
PULTE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) ($000's omitted, except per share data) (Unaudited) 4. Acquisitions On May 27, 1998, the Company acquired all of the outstanding stock of Tennessee-based Radnor Homes for an aggregate purchase price of approximately $58,000. Consideration for this acquisition, which was recorded using the purchase method of accounting, included $51,000 of cash paid, approximately $3,000 of liabilities assumed and the issuance of 153,570 shares of the Company's common stock. The purchase price has been allocated to the assets acquired and liabilities assumed based on relative fair value estimates. The Company has included the operating results of Radnor Homes since the acquisition in its consolidated results of operations. On July 1, 1998, the Company acquired all of the outstanding stock and membership interests in certain closely-held businesses of Florida-based DiVosta and Company for an aggregate purchase price of approximately $155,000. Consideration for this acquisition, which will be recorded using the purchase method of accounting, included approximately $109,000 of cash paid, approximately $25,000 of liabilities assumed and $21,000 in the form of a seller-financed note. 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 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. 11
PULTE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) ($000's omitted) (Unaudited) 5. Commitments and contingencies (continued) 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 17, 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. The Company believes that if it was 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 the Company's wholly-owned domestic and active adult homebuilding subsidiaries (collectively, the Guarantors). Such guarantees are full and unconditional. The principal non-Guarantors include PDCI, Pulte International, 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. 12
PULTE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) ($000's omitted) (Unaudited) 6. Supplemental Guarantor Information (continued) <TABLE> <CAPTION> CONSOLIDATING BALANCE SHEET JUNE 30, 1998 Unconsolidated ---------------------------------------- Consolidated Pulte Guarantor Non-Guarantor Eliminating Pulte Corporation Subsidiaries Subsidiaries Entries Corporation ----------- ------------ ------------ ----------- ----------- <S> <C> <C> <C> <C> <C> ASSETS Cash and equivalents .................... $ 225,706 $ 49,292 $ 4,903 $ -- $ 279,901 Unfunded settlements .................... -- 55,946 296 -- 56,242 House and land inventories .............. -- 1,185,006 11,546 -- 1,196,552 Mortgage-backed and related securities .. -- -- 34,422 -- 34,422 Residential mortgage loans and other securities available-for-sale ......... -- -- 164,429 -- 164,429 Land held for sale and future development -- 32,058 -- -- 32,058 Other assets ............................ 23,158 116,621 58,827 -- 198,606 Deferred income taxes ................... 104,479 -- (871) -- 103,608 Discontinued operations ................. -- -- 134,257 -- 134,257 Investment in subsidiaries .............. 914,003 13,135 902,092 (1,829,230) -- Advances receivable - subsidiaries ...... 169,823 -- 21,370 (191,193) -- ----------- ----------- ----------- ----------- ----------- $ 1,437,169 $ 1,452,058 $ 1,331,271 $(2,020,423) $ 2,200,075 =========== =========== =========== =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Accounts payable and accrued liabilities $ 59,616 $ 382,528 $ 66,444 $ -- $ 508,588 Collateralized short-term debt, recourse solely to applicable subsidiary assets -- -- 147,164 -- 147,164 Mortgage-backed bonds, recourse solely to applicable subsidiary assets .......... -- -- 33,083 -- 33,083 Income taxes ............................ 12,016 -- -- -- 12,016 Subordinated debentures and senior notes 487,399 52,102 -- -- 539,501 Discontinued operations ................. -- -- 102,966 -- 102,966 Advances payable - subsidiaries ......... 21,381 135,197 34,615 (191,193) -- ----------- ----------- ----------- ----------- ----------- Total liabilities ................. 580,412 569,827 384,272 (191,193) 1,343,318 Shareholders' equity .................... 856,757 882,231 946,999 (1,829,230) 856,757 ----------- ----------- ----------- ----------- ----------- $ 1,437,169 $ 1,452,058 $ 1,331,271 $(2,020,423) $ 2,200,075 =========== =========== =========== =========== =========== </TABLE> 13
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> 14
PULTE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) ($000's omitted) (Unaudited) 6. Supplemental Guarantor Information (continued) <TABLE> <CAPTION> CONSOLIDATING STATEMENT OF OPERATIONS For the Six months ended June 30, 1998 Unconsolidated ------------------------------------------- Consolidated Pulte Guarantor Non-Guarantor Eliminating Pulte Corporation Subsidiaries Subsidiaries Entries Corporation ----------- ------------ ------------- ----------- ------------ <S> <C> <C> <C> <C> <C> Revenues: Homebuilding .............................. $ -- $ 1,165,695 $ 6,494 $ -- $ 1,172,189 Mortgage banking and financing, interest and other .................... -- -- 19,736 -- 19,736 Corporate ................................. 5,613 1,031 1,699 -- 8,343 ----------- ----------- ----------- ----------- ----------- Total revenues .............................. 5,613 1,166,726 27,929 -- 1,200,268 ----------- ----------- ----------- ----------- ----------- Expenses: Homebuilding: Cost of sales ......................... -- 984,336 5,720 -- 990,056 Selling, general and administrative and other expense ......................... 558 119,655 2,034 -- 122,247 Mortgage banking and financing, interest and other ............................. -- -- 13,788 -- 13,788 Corporate, net ............................ 20,013 (2,668) 2,697 -- 20,042 ----------- ----------- ----------- ----------- ----------- Total expenses .............................. 20,571 1,101,323 24,239 -- 1,146,133 ----------- ----------- ----------- ----------- ----------- Other Income: Equity in income of Pulte-affiliates ........ -- 126 2,287 -- 2,413 ----------- ----------- ----------- ----------- ----------- Income (loss) from continuing operations before income taxes and equity in income of subsidiaries ....................... (14,958) 65,529 5,977 -- 56,548 Income taxes (benefit) ...................... (7,391) 26,234 3,209 -- 22,052 ----------- ----------- ----------- ----------- ----------- Income (loss) from continuing operations before equity in income of subsidiaries ... (7,567) 39,295 2,768 -- 34,496 Income from discontinued operations ........ 182 -- 427 -- 609 ----------- ----------- ----------- ----------- ----------- Income (loss) before equity in income (loss) of subsidiaries ............... (7,385) 39,295 3,195 -- 35,105 ----------- ----------- ----------- ----------- ----------- Equity in income (loss) of subsidiaries: Continuing operations ..................... 42,063 3,610 39,169 (84,842) -- Discontinued operations ................... 427 -- -- (427) -- ----------- ----------- ----------- ----------- ----------- 42,490 3,610 39,169 (85,269) -- ----------- ----------- ----------- ----------- ----------- Net income .................................. $ 35,105 $ 42,905 $ 42,364 $ (85,269) $ 35,105 =========== =========== =========== =========== =========== </TABLE> 15
PULTE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) ($000's omitted) (Unaudited) 6. Supplemental Guarantor Information (continued) <TABLE> <CAPTION> CONSOLIDATING STATEMENT OF OPERATIONS For the Three months ended June 30, 1998 Unconsolidated ---------------------------------------- Consolidated Pulte Guarantor Non-Guarantor Eliminating Pulte Corporation Subsidiaries Subsidiaries Entries Corporation ----------- ------------ ------------- ----------- ------------- <S> <C> <C> <C> <C> <C> Revenues: Homebuilding .............................. $ -- $ 661,176 $ 2,378 $ -- $ 663,554 Mortgage banking and financing, interest and other .................... -- -- 11,377 -- 11,377 Corporate ................................. 3,067 -- 1,699 -- 4,766 --------- --------- --------- --------- --------- Total revenues .............................. 3,067 661,176 15,454 -- 679,697 --------- --------- --------- --------- --------- Expenses: Homebuilding: Cost of sales ......................... -- 557,908 2,148 -- 560,056 Selling, general and administrative and other expense ..................... 93 60,051 1,062 -- 61,206 Mortgage banking and financing, interest and other ............................. -- -- 7,817 -- 7,817 Corporate, net ............................ 10,354 520 1,296 -- 12,170 --------- --------- --------- --------- --------- Total expenses .............................. 10,447 618,479 12,323 -- 641,249 --------- --------- --------- --------- --------- Other Income: Equity in income of Pulte-affiliates ........ -- (438) 686 -- 248 --------- --------- --------- --------- --------- Income (loss) from continuing operations before income taxes and equity in income of subsidiaries ....................... (7,380) 42,259 3,817 -- 38,696 Income taxes (benefit) ...................... (3,919) 17,179 1,830 -- 15,090 --------- --------- --------- --------- --------- Income (loss) from continuing operations before equity in income of subsidiaries ... (3,461) 25,080 1,987 -- 23,606 Income (loss) from discontinued operations .. (123) -- 361 -- 238 --------- --------- --------- --------- --------- Income (loss) before equity in income (loss) of subsidiaries ............... (3,584) 25,080 2,348 -- 23,844 --------- --------- --------- --------- --------- Equity in income (loss) of subsidiaries: Continuing operations ..................... 27,067 2,151 25,518 (54,736) -- Discontinued operations ................... 361 -- -- (361) -- --------- --------- --------- --------- --------- 27,428 2,151 25,518 (55,097) -- --------- --------- --------- --------- --------- Net income .................................. $ 23,844 $ 27,231 $ 27,866 $ (55,097) $ 23,844 ========= ========= ========= ========= ========= </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 OPERATIONS For the Six months ended June 30, 1997 Unconsolidated ------------------------------------------- Consolidated Pulte Guarantor Non-Guarantor Eliminating Pulte Corporation Subsidiaries Subsidiaries Entries Corporation ----------- ------------ ------------- ----------- ----------- <S> <C> <C> <C> <C> <C> Revenues: Homebuilding .............................. $ -- $ 990,350 $ -- $ -- $ 990,350 Mortgage banking and financing, interest and other .................... -- -- 13,652 -- 13,652 Corporate ................................. 1,172 2,841 -- -- 4,013 ----------- ----------- ----------- ----------- ----------- Total revenues .............................. 1,172 993,191 13,652 -- 1,008,015 ----------- ----------- ----------- ----------- ----------- Expenses: Homebuilding: Cost of sales ......................... -- 844,693 -- -- 844,693 Selling, general and administrative and other expense ..................... 327 110,429 -- -- 110,756 Mortgage banking and financing, interest and other ............................. -- -- 13,223 -- 13,223 Corporate, net ............................ 13,767 3,147 (792) -- 16,122 ----------- ----------- ----------- ----------- ----------- Total expenses .............................. 14,094 958,269 12,431 -- 984,794 ----------- ----------- ----------- ----------- ----------- Other Income: Equity in income of Pulte-affiliates ........ -- -- (610) -- (610) ----------- ----------- ----------- ----------- ----------- Income (loss) from continuing operations before income taxes and equity in income of subsidiaries ....................... (12,922) 34,922 611 -- 22,611 Income taxes (benefit) ...................... (5,718) 13,866 557 -- 8,705 ----------- ----------- ----------- ----------- ----------- Income (loss) from continuing operations before equity in income of subsidiaries ... (7,204) 21,056 54 -- 13,906 Income (loss) from discontinued operations .. 3,427 -- (1,223) -- 2,204 ----------- ----------- ----------- ----------- ----------- Income (loss) before equity in income (loss) of subsidiaries ............... (3,777) 21,056 (1,169) -- 16,110 ----------- ----------- ----------- ----------- ----------- Equity in income (loss) of subsidiaries: Continuing operations ..................... 21,110 231 21,056 (42,397) -- Discontinued operations ................... (1,223) -- -- 1,223 -- ----------- ----------- ----------- ----------- ----------- 19,887 231 21,056 (41,174) -- ----------- ----------- ----------- ----------- ----------- Net income .................................. $ 16,110 $ 21,287 $ 19,887 $ (41,174) $ 16,110 =========== =========== =========== =========== =========== </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 OPERATIONS For the Three months ended June 30, 1997 Unconsolidated ----------------------------------------- Consolidated Pulte Guarantor Non-Guarantor Eliminating Pulte Corporation Subsidiaries Subsidiaries Entries Corporation ----------- ------------ ------------- ----------- ------------- <S> <C> <C> <C> <C> <C> Revenues: Homebuilding .............................. $ -- $ 567,135 $ -- $ -- $ 567,135 Mortgage banking and financing, interest and other .................... -- -- 6,925 -- 6,925 Corporate ................................. 382 1,873 -- -- 2,255 --------- --------- --------- --------- --------- Total revenues .............................. 382 569,008 6,925 -- 576,315 --------- --------- --------- --------- --------- Expenses: Homebuilding: Cost of sales ......................... -- 484,688 -- -- 484,688 Selling, general and administrative and other expense ..................... 167 55,204 -- -- 55,371 Mortgage banking and financing, interest and other ............................. -- -- 6,574 -- 6,574 Corporate, net ............................ 7,006 1,789 (417) -- 8,378 --------- --------- --------- --------- --------- Total expenses .............................. 7,173 541,681 6,157 -- 555,011 --------- --------- --------- --------- --------- Other Income: Equity in income of Pulte-affiliates ........ -- -- (700) -- (700) --------- --------- --------- --------- --------- Income (loss) from continuing operations before income taxes and equity in income of subsidiaries ....................... (6,791) 27,327 68 -- 20,604 Income taxes (benefit) ...................... (3,248) 10,882 298 -- 7,932 --------- --------- --------- --------- --------- Income (loss) from continuing operations before equity in income of subsidiaries ... (3,543) 16,445 (230) -- 12,672 Income (loss) from discontinued operations .. 1,707 -- (506) -- 1,201 --------- --------- --------- --------- --------- Income (loss) before equity in income (loss) of subsidiaries ............... (1,836) 16,445 (736) -- 13,873 --------- --------- --------- --------- --------- Equity in income (loss) of subsidiaries: Continuing operations ..................... 16,215 193 16,445 (32,853) -- Discontinued operations ................... (506) -- -- 506 -- --------- --------- --------- --------- --------- 15,709 193 16,445 (32,347) -- --------- --------- --------- --------- --------- Net income .................................. $ 13,873 $ 16,638 $ 15,709 $ (32,347) $ 13,873 ========= ========= ========= ========= ========= </TABLE> 18
PULTE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) ($000's omitted) (Unaudited) 6. Supplemental Guarantor Information (continued) <TABLE> <CAPTION> CONSOLIDATING STATEMENT OF CASH FLOWS For the six months ended June 30, 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 ........... $ 34,496 $ 42,905 $ 41,937 $ (84,842) $ 34,496 Adjustments to reconcile income from continuing operations to net cash flows provided by (used in) operating activities: Equity in income of subsidiaries ....... (42,063) (3,610) (39,169) 84,842 -- Amortization, depreciation and other ... 96 1,491 251 -- 1,838 Deferred income taxes .................. (5,908) -- -- -- (5,908) Increase (decrease) in cash due to: Inventories ............................... -- 2,958 1,167 -- 4,125 Residential mortgage loans held for sale .......................... -- -- 20,588 -- 20,588 Other assets .............................. (4,853) 49,233 (16,520) -- 27,860 Accounts payable and accrued liabilities .. (371) (27,684) 15,737 -- (12,318) Income taxes .............................. (15,207) 28,612 (70) -- 13,335 --------- --------- --------- --------- --------- Net cash provided by (used in) operating activities .................................. (33,810) 93,905 23,921 -- 84,016 --------- --------- --------- --------- --------- Cash flows from investing activities: Principal payments of mortgage backed securities .............................. -- -- 4,517 -- 4,517 Dividends received from subsidiaries ........ 132,040 4,700 132,040 (268,780) -- Cash paid for acquisitions, net of cash acquired ................................ -- (43,969) -- -- (43,969) Investment in subsidiary .................... (32,040) (2,378) -- 34,418 -- Advances to affiliates ...................... (40,618) -- (881) 41,499 -- Other, net .................................. -- -- (321) -- (321) --------- --------- --------- --------- --------- Net cash provided by (used in) investing activities .................................. 59,382 (41,647) 135,355 (192,863) (39,773) --------- --------- --------- --------- --------- Cash flows from financing activities: Payment of long-term debt and bonds ......... -- -- (4,982) -- (4,982) Proceeds of borrowings ...................... -- 15,975 -- -- 15,975 Repayment of borrowings ..................... -- (7,495) (15,550) -- (23,045) Capital contributions from parent ........... -- 32,040 2,378 (34,418) -- Advances from affiliates .................... 1,055 42,022 (1,578) (41,499) -- Dividends paid .............................. (2,994) (132,040) (136,740) 268,780 (2,994) Other, net .................................. 6,127 66 (645) -- 5,548 --------- --------- --------- --------- --------- Net cash provided by (used in) financing activities ........................ 4,188 (49,432) (157,117) 192,863 (9,498) --------- --------- --------- --------- --------- Net increase in cash and equivalents - continuing operations ......... $ 29,760 $ 2,826 $ 2,159 $ -- $ 34,745 --------- --------- --------- --------- --------- </TABLE> 19
PULTE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) ($000's omitted) (Unaudited) 6. Supplemental Guarantor Information (continued) <TABLE> <CAPTION> CONSOLIDATING STATEMENT OF CASH FLOWS (continued) For the six months ended June 30, 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 ..................... $ 609 $ -- $ 427 $ (427) $ 609 Change in deferred income taxes ..... 11,824 -- -- -- 11,824 Equity in income of subsidiaries .... (427) -- -- 427 -- Change in income taxes .............. (12,583) -- -- -- (12,583) Other changes, net .................. 577 -- 5,971 -- 6,548 Cash flows from investing activities: Purchase of securities available- for-sale ........................ -- -- (21,809) -- (21,809) Principal payments of mortgage-backed securities ...................... -- -- 17,384 -- 17,384 Decrease in Covered Assets and FRF receivables ..................... -- -- 29,741 -- 29,741 Cash flows from financing activities: Increase in deposit liabilities ..... -- -- 25,367 -- 25,367 Repayment of borrowings ............. -- -- (31,560) -- (31,560) Decrease in FHLB advances ........... -- -- (3,100) -- (3,100) --------- --------- --------- --------- --------- Net increase in cash and equivalents- discontinued operations ............. -- -- 22,421 -- 22,421 --------- --------- --------- --------- --------- Net increase in cash and equivalents ......................... 29,760 2,826 24,580 -- 57,166 Cash and equivalents at beginning of period .............................. 195,946 46,466 4,896 -- 247,308 --------- --------- --------- --------- --------- Cash and equivalents at end of period . $ 225,706 $ 49,292 $ 29,476 $ -- $ 304,474 ========= ========= ========= ========= ========= </TABLE> 20
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 six months ended June 30, 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 ........... $ 13,906 $ 21,159 $ 21,110 $ (42,269) $ 13,906 Adjustments to reconcile income from continuing operations to net cash flows provided by (used in) operating activities: Equity in income of subsidiaries ....... (21,110) (405) (20,754) 42,269 -- Amortization, depreciation and other ... 43 3,210 300 -- 3,553 Deferred income taxes .................. 5,136 -- -- -- 5,136 Increase (decrease) in cash due to: Inventories ............................... -- (127,455) -- -- (127,455) Residential mortgage loans held-for-sale .......................... -- -- 44,290 -- 44,290 Other assets .............................. (4,408) (18,591) (12,634) -- (35,633) Accounts payable and accrued liabilities .. (3,643) (9,044) 2,977 -- (9,710) Income taxes .............................. (15,477) 13,866 558 -- (1,053) --------- --------- --------- --------- --------- Net cash provided by (used in) operating activities .................................. (25,553) (117,260) 35,847 -- (106,966) --------- --------- --------- --------- --------- Cash flows from investing activities: Principal payments of mortgage-backed securities ................ -- -- 4,145 -- 4,145 Dividends received from subsidiaries ........ -- 10,500 -- (10,500) -- Investment in subsidiaries .................. -- (270) -- 270 -- Advances to affiliates ...................... (120,065) 70 (956) 120,951 -- Other, net .................................. -- 1 (72) -- (71) --------- --------- --------- --------- --------- Net cash provided by (used in) investing activities .................................. (120,065) 10,301 3,117 110,721 4,074 --------- --------- --------- --------- --------- Cash flows from financing activities: Payment of long-term debt and bonds ......... -- -- (4,638) -- (4,638) Proceeds from borrowings .................... 107,390 3,776 -- -- 111,166 Repayment of borrowings ..................... -- -- (36,221) -- (36,221) Capital contributions from parent ........... -- -- 270 (270) -- Advances from affiliates .................... 34 109,931 10,986 (120,951) -- Stock repurchases ........................... (74,595) -- -- -- (74,595) Dividends paid .............................. (2,658) -- (10,500) 10,500 (2,658) Other, net .................................. 1,734 -- 225 -- 1,959 --------- --------- --------- --------- --------- Net cash provided by (used in) financing activities ........................ 31,905 113,707 (39,878) (110,721) (4,987) --------- --------- --------- --------- --------- Net increase (decrease) in cash and equivalents - continuing operations ......... $(113,713) $ 6,748 $ (914) $ -- $(107,879) --------- --------- --------- --------- --------- </TABLE> 21
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 six months ended June 30, 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 from discontinued operations .. $ 2,204 $ -- $ (1,223) $ 1,223 $ 2,204 Change in deferred income taxes ...... (727) -- -- -- (727) Equity in loss of subsidiaries ....... 1,223 -- -- (1,223) -- Change in income taxes ............... 729 -- -- -- 729 Other changes, net ................... (3,429) -- 1,462 -- (1,967) Cash flows from investing activities: Purchase of securities available- for-sale ......................... -- -- (12,912) -- (12,912) Principal payments of mortgage- backed securities ................ -- -- 15,152 -- 15,152 Net proceeds from sale of investment . -- -- 3,219 -- 3,219 Decrease in Covered Assets and FRF receivables ...................... -- -- 29,481 -- 29,481 Cash flows from financing activities: Decrease in deposit liabilities ...... -- -- (7,385) -- (7,385) Repayment of borrowings .............. -- -- (31,560) -- (31,560) Increase in FHLB advances ............ -- -- 3,650 -- 3,650 --------- --------- --------- --------- --------- Net decrease in cash and equivalents- discontinued operations .............. -- -- (116) -- (116) --------- --------- --------- --------- --------- Net increase (decrease) in cash and equivalents .......................... (113,713) 6,748 (1,030) -- (107,995) Cash and equivalents at beginning of period ............................... 114,585 71,599 6,018 -- 192,202 --------- --------- --------- --------- --------- Cash and equivalents at end of period .. $ 872 $ 78,347 $ 4,988 $ -- $ 84,207 ========= ========= ========= ========= ========= </TABLE> 22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ($000's omitted, except per share data) Overview: A summary of the Company's operating results by business segment for the three and six month periods ended June 30, 1998 and 1997 is as follows: <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, ----------------------- ------------------------- 1998 1997 1998 1997 ---------- ---------- ----------- ----------- <S> <C> <C> <C> <C> Pre-tax income (loss): Homebuilding operations .............. $ 42,540 $ 26,376 $ 62,299 $ 34,291 Financial Services operations ........ 3,560 351 5,948 429 Corporate ............................ (7,404) (6,123) (11,699) (12,109) -------- -------- -------- -------- Pre-tax income from continuing operations 38,696 20,604 56,548 22,611 Income taxes ............................ (15,090) (7,932) (22,052) (8,705) -------- -------- -------- -------- Income from continuing operations ....... 23,606 12,672 34,496 13,906 Income from discontinued operations ..... 238 1,201 609 2,204 -------- -------- -------- -------- Net income .............................. $ 23,844 $ 13,873 $ 35,105 $ 16,110 ======== ======== ======== ======== Per share data - assuming dilution: Income from continuing operations .... $ .54 $ .29 $ .79 $ .31 Income from discontinued operations .. -- .03 .02 .05 -------- -------- -------- -------- Net income ........................... $ .54 $ .32 $ .81 $ .36 ======== ======== ======== ======== </TABLE> A comparison of pre-tax income (loss) for the three and six month periods ended June 30, 1998 and 1997 is as follows: o Pre-tax income of the Company's homebuilding business segment increased 61% and 82%, respectively, due primarily to the dramatic improvement in domestic homebuilding operations where pre-tax income increased 56% and 73%, respectively. Domestic unit settlements increased 10% and 12%, respectively; and domestic gross margins improved 110 and 80 basis points, respectively. The Company's domestic homebuilding business also achieved improved leverage in overall selling, general and administrative (SG&A) spending. On a total dollar basis, SG&A spending was relatively flat for the quarter, and actually decreased by almost $1,000 year-to-date on increased sales of $104,600 and $185,600, respectively. o Pre-tax income of the Company's financial services business segment increased substantially to $3,560, and $5,948, respectively, as compared with $351 and $429 for the comparable 1997 periods. This increase is entirely attributable to the Company's mortgage banking operation which benefited from substantial increases in mortgage origination volume, origination and servicing fees, as well as pricing and marketing gains. Average operating costs per mortgage origination, excluding provision for foreclosure-related losses, decreased by 14% and 18%, respectively, reflecting improved leverage of loan origination volume. o Pre-tax loss of the Company's corporate business segment increased $1,281 from the three month period ended June 30, 1997 and decreased $410 from the six month period ended June 30, 1997. The increase in pre-tax loss over the comparable three month quarterly period of 1997 is primarily the result of a significant increase in net interest expense associated with the issuance of $150,000 of Senior Notes during the fourth quarter of 1997. The decrease in the year-to-date pre-tax loss from the comparable 1997 period is attributable to the gain recognized in the first quarter of 1998 from the sale of the Company's interest in Expression Homes offset by the increased interest expense associated with the $150,000 Senior Notes. 23
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 June 30, 1998, the Company has severed employment with approximately 125 employees. The following table displays a rollforward of the liabilities accrued for the Company's restructuring from December 31, 1997 to June 30, 1998: <TABLE> <CAPTION> Balance at 1998 Balance at December 31, Reserve June 30, Type of Cost 1997 Uses 1998 - ------------ ------------ ------- ---------- <S> <C> <C> <C> Homebuilding operations: Employee separation and other $ 6,057 $ 2,702 $ 3,355 Other ....................... 900 449 451 ------- ------- ------- 6,957 3,151 3,806 ------- ------- ------- Mortgage Banking operations: Employee separation and other 1,177 444 733 Other ....................... 280 114 166 ------- ------- ------- 1,457 558 899 ------- ------- ------- Corporate: Employee separation and other 2,530 976 1,554 ------- ------- ------- $10,944 $ 4,685 $ 6,259 ======= ======= ======= </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. 24
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 are conducted in 42 markets, located throughout 28 states. Domestic Homebuilding offers a broad product line to meet the needs of the first-time and move-up, and semi-custom home buyer. o International Homebuilding operations are conducted through subsidiaries of Pulte International Corporation in Puerto Rico and Mexico. 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 and retirement years. Certain operating data relating to the Company's homebuilding operations for the three and six month periods ended June 30, 1998 and 1997, are as follows: <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, -------------------- -------------------- 1998 1997 1998 1997 --------- --------- -------- -------- <S> <C> <C> <C> <C> Pre-tax income (loss): Homebuilding operations: Domestic .................................. $ 43,081 $ 27,650 $ 63,436 $ 36,646 International ............................. (239) (905) 625 (1,120) Active Adult .............................. (302) (369) (1,762) (1,235) -------- -------- -------- -------- Total Homebuilding operations .................. $ 42,540 $ 26,376 $ 62,299 $ 34,291 ======== ======== ======== ======== Pulte and Pulte-affiliate settlements - units: Domestic .................................... 3,785 3,434 6,765 6,038 International: Pulte ..................................... 32 58 84 111 Pulte-affiliated entities ................. 831 378 2,241 935 -------- -------- -------- -------- Total International .................... 863 436 2,325 1,046 -------- -------- -------- -------- Active Adult: Pulte ..................................... 27 73 91 114 Pulte-affiliated entity ................... 93 -- 109 -- -------- -------- -------- -------- Total Active Adult .................... 120 73 200 114 -------- -------- -------- -------- Total Pulte and Pulte-affiliate settlements - units . 4,768 3,943 9,290 7,198 ======== ======== ======== ======== </TABLE> 25
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) ($000's omitted) Homebuilding Operations (continued): Domestic Homebuilding: The domestic homebuilding business line represents the Company's core business. Operations are conducted in 42 markets, located throughout 28 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, Tennessee 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 42 markets represented more than 10% of total domestic homebuilding net new orders, unit settlements or revenues during the three and six month periods ended June 30, 1998. The following table presents selected unit information for Pulte's domestic homebuilding operations for the three and six month periods ended June 30, 1998 and 1997. <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, ----------------------- ------------------------- 1998 1997 1998 1997 ---------- ---------- ----------- ----------- <S> <C> <C> <C> <C> Unit settlements: Pulte Home East.............................. 1,758 1,644 3,186 2,919 Pulte Home Central........................... 1,195 1,015 2,008 1,736 Pulte Home West.............................. 832 775 1,571 1,383 ---------- ---------- ----------- ----------- 3,785 3,434 6,765 6,038 ========== ========== =========== =========== Net new orders - units: Pulte Home East.............................. 2,152 1,927 4,361 3,730 Pulte Home Central........................... 1,515 1,177 3,233 2,435 Pulte Home West.............................. 924 882 1,930 1,788 ---------- ---------- ----------- ----------- 4,591 3,986 9,524 7,953 ========== ========== =========== =========== Net new orders - dollars $ 804,000 $ 661,000 $ 1,661,000 $ 1,305,000 ========== ========== =========== =========== Backlog at June 30 - units: Pulte Home East.............................. 2,735 2,427 Pulte Home Central........................... 2,241 1,679 Pulte Home West.............................. 1,176 1,052 ----------- ----------- 6,152 5,158 =========== =========== Backlog at June 30 - dollars.................... $ 1,125,000 $ 911,000 =========== =========== </TABLE> 26
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) ($000's omitted) Homebuilding Operations (continued): Domestic Homebuilding (continued): Net new orders increased during the second quarter of 1998 by 605 units, or approximately 15% over the second quarter of 1997. Contributing to a majority of this increase were Pulte markets in the Southeast, the Great Lakes, Texas, and California Regions. For the six months ended June 30, 1998, net new orders increased by 1,360 units, or 17%, to 9,313 units, excluding the impact of the Radnor acquisition which provided an additional 211 units, due to improvements in the Southeast, Great Lakes, Midwest, Texas and California regions. In general, macro-economic and weather conditions favorably affected the new order environment during the first half of 1998. Unit settlements during the three and six month periods ended June 30, 1998, increased 10% and 12%, respectively, over the comparable prior year periods. Strong customer demand and favorable economic conditions contributed to record-setting net new orders in the first quarter of 1998. This increase, along with strong backlog levels at December 31, 1997, contributed to the favorable settlement activity in the first half of 1998, most notably in the Mid-Atlantic, Southeast, Texas, California, Great Lakes and Midwest Regions. As a result of the favorable environment surrounding net new orders during the first half of 1998, unit backlog at June 30, 1998 increased by 817 units to an all-time Company record of 5,975 units, excluding the impact of the Radnor acquisition which provided an additional 177 units. Unit backlog at June 30, 1998, excluding Radnor, is approximately 12% and 16% higher than that noted at March 31, 1998 and June 30, 1997, respectively. The following table presents a summary of pre-tax income for Pulte's domestic homebuilding operations for the three and six month periods ended June 30, 1998 and 1997: <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, ----------------------- ------------------------- 1998 1997 1998 1997 ---------- ---------- ----------- ----------- <S> <C> <C> <C> <C> Revenues..................................... $ 658,155 $ 553,570 $ 1,153,522 $ 967,885 Cost of sales................................ (555,404) (473,483) (974,521) (825,939) Selling, general and administrative expense.. (54,726) (54,298) (105,684) (106,681) Interest (a) ................................ (4,957) (4,086) (8,843) (7,438) Other income (expense), net.................. 13 5,947 (1,038) 8,819 ---------- ---------- ----------- ----------- Pre-tax income............................... $ 43,081 $ 27,650 $ 63,436 $ 36,646 ========== ========== =========== =========== Average sales price.......................... $ 174 $ 161 $ 171 $ 160 ========== ========== =========== =========== <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> 27
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) ($000's omitted) Homebuilding Operations (continued): Domestic Homebuilding (continued): Gross profit margins were 15.6% and 15.5% for the three and six month periods ended June 30, 1998, respectively, compared to 14.5% and 14.7%, respectively, in the similar periods of the prior year. Several factors have combined to contribute to this favorable trend including, a positive economic environment, strong customer demand, positive home pricing, the benefits of leverage-buy purchasing activities, effective production and inventory management, and the Company's P3 initiative (Pulte Preferred Partnerships) with contractors and suppliers. As a result, gross margins continue to improve on a sequential-period basis as evidenced by the 20 basis point increase from the 15.4% gross profit margin reported at March 31, 1998. During the first half of 1998, selling, general and administrative expenses (SG&A) reflected the pro-rata share of benefit savings from the restructuring plan effected in the second half of 1997, as well as the improved leverage of SG&A dollar spending on higher unit sales volume. 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's Supply & Lumber (BSL) subsidiary prior to its sale on March 20, 1998. As a result of this sale, other income, net, for the three and six month periods ended June 30, 1998 decreased by $1,900 and $5,400, respectively. The decrease for the quarter is attributable to the sale of BSL in March 1998 resulting in no operating income or loss for the second quarter of 1998. Year-to-date results were unfavorably impacted by sales transaction costs and operating losses of $1,700 compared with operating income of approximately $3,700 a year ago. Other income, net, for the three and six month periods ended June 30, 1998 also reflects a decrease of approximately $2,900 of proceeds from an insurance litigation settlement received in the first quarter of 1997. The average selling price during the three month period ended June 30, 1998 was $174, an increase from the average selling price of $161 in the comparable period of the prior year and of $166 for each of the quarters ended March 31, 1998 and December 31, 1997. Changes in average selling price reflect a number of factors, including the mix of product closed during a period. Information related to interest in inventory is as follows: <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, ----------------------- ------------------------- 1998 1997 1998 1997 ---------- ---------- ----------- ----------- <S> <C> <C> <C> <C> Interest in inventory at beginning of period......... $ 15,882 $ 13,645 $ 14,719 $ 12,846 Interest capitalized................................. 3,454 5,953 8,503 10,104 Interest expensed.................................... (4,957) (4,086) (8,843) (7,438) ---------- ---------- ----------- ----------- Interest in inventory at end of period............... $ 14,379 $ 15,512 $ 14,379 $ 15,512 ========== ========== =========== =========== </TABLE> At June 30, 1998, Pulte's domestic homebuilding operations controlled approximately 52,200 lots, of which approximately 31,000 lots were owned and approximately 21,200 lots were controlled through option agreements. As a component of the Company's growth strategies, the Company acquired all of the outstanding stock of Tennessee-based Radnor Homes on May 27, 1998 for an aggregate purchase price of approximately $58,000. Consideration for this acquisition included approximately $51,000 of cash paid, approximately $3,000 of assumed liabilities and the issuance of 153,570 shares of the Company's common stock. This transaction has been accounted for as a purchase, and as such, the operating results of Radnor since the acquisition date have been included in the Company's results of operations, and integrated into the Southeast Region. Just prior to its acquisition, Radnor was selling in 22 communities in eight cities, all of which are located in Tennessee. In 1997, Radnor's average sales price was $204. In 1998, Radnor's net orders are expected to exceed 450 units, with a total sales value of approximately $100,000. 28
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) ($000's omitted) Homebuilding Operations (continued): Domestic Homebuilding (continued): On July 1, 1998, the Company acquired all of the outstanding stock and membership interests in certain closely-held businesses of Florida-based DiVosta and Company for an aggregate purchase price of approximately $155,000. The transaction will be accounted for as a purchase, and as such, the operating results of DiVosta will be included in the results of operations of the Company beginning in the third quarter of 1998. Consideration for this acquisition included approximately $109,000 of cash paid, approximately $25,000 of liabilities assumed and $21,000 in the form of a seller-financed note. During 1997, DiVosta delivered 850 homes and generated revenues of approximately $134,000. At the date of acquisition, DiVosta's backlog was approximately 350 homes with a total sales value of approximately $60,000. International Homebuilding: International Homebuilding operations are primarily conducted through subsidiaries of Pulte International Corporation in Puerto Rico and Mexico. The following table presents selected financial data for Pulte's international homebuilding operations for the three and six month periods ended June 30, 1998 and 1997. <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, ----------------------- ------------------------- 1998 1997 1998 1997 ---------- ---------- ----------- ----------- <S> <C> <C> <C> <C> Pre-tax income (loss): Revenues........................................ $ 2,378 $ 3,775 $ 6,494 $ 7,023 Cost of sales................................... (2,148) (3,156) (5,720) (5,954) Selling, general and administrative expense..... (1,156) (831) (2,449) (1,589) Other income, net............................... 1 7 13 10 Equity in income of Mexico operations........... 686 (700) 2,287 (610) ---------- ---------- ----------- ----------- Pre-tax income (loss)........................... $ (239) $ (905) $ 625 $ (1,120) ========== ========== =========== =========== Unit settlements: Pulte........................................ 32 58 84 111 Pulte-affiliated entities.................... 831 378 2,241 935 ---------- ---------- ----------- ----------- Total Pulte and Pulte-affiliates........... 863 436 2,325 1,046 ========== ========== =========== =========== </TABLE> Pre-tax loss for the quarter ended June 30, 1998 from the Company's international operations decreased by $666, or approximately 74%, as compared with the prior quarter of 1997. On a year-to-date comparison, pre-tax income from international operations increased 156%. These favorable increases are principally due to Pulte's share of joint venture (J.V.) operations in Mexico, where total J.V. unit closings were up 120% and 140%, and total J.V. revenues were up 162% and 155% for the three and six month periods ended June 30, 1998, respectively. 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 $1,700 as of June 30, 1998. The Company intends to liquidate the Monterrey assets (two 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 venture had entered into two separate agreements to construct homes in Mexico; one with General Motors Corporation and one with Sony Magneticos de Mexico, S.A. de C.V., an affiliate of Sony Electronics, Inc. The Company's net investment in the Juarez joint venture approximated $17,000 as of June 30, 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 $500 at June 30, 1998. 29
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) ($000's omitted) Homebuilding Operations (continued): International Homebuilding (continued): On June 22, 1998 Pulte formed a new Mexican joint venture with Desarrollos Residenciales Turisticos, S.A. de C.V. (DRT), to construct low- and medium- cost housing in Central Mexico. The venture is expected to build approximately 3,200 units over the next two years and supports Pulte's strategic growth initiative in the Mexican housing market. Current development plans for this venture call for eight new housing projects in the Bajio region surrounding Mexico City, targeting the cities of Puebla, Queretaro, San Jose du Hurbide, San Juan del Rio and Zamora. Prior to the formation of the joint venture, DRT had six of these projects under construction and had secured permitting for the two remaining projects. At June 30, 1998, the Company's net investment in this joint venture approximated $5,400. 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 and six month periods ended June 30, 1998 and 1997. Such data includes the operating results of the Company's subsidiaries from January 1, 1998, through March 25, 1998, and the equity in income (loss) of the joint venture entity from March 26, 1998 through June 30, 1998. <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, ----------------------- ------------------------- 1998 1997 1998 1997 ---------- ---------- ----------- ----------- <S> <C> <C> <C> <C> Pre-tax income (loss): Revenues................................... $ 3,021 $ 9,790 $ 12,173 $ 15,442 Cost of sales.............................. (2,504) (8,049) (9,815) (12,800) Selling, general and administrative expense (180) (1,929) (3,778) (3,655) Other income, net.......................... (201) (181) (468) (222) Equity in income of joint venture.......... (438) -- 126 -- ---------- ---------- ----------- ----------- Pre-tax income (loss)...................... $ (302) $ (369) $ (1,762) $ (1,235) ========== ========== =========== =========== Pulte and Pulte-affiliate: Average sales price........................ $ 151 $ 134 $ 159 $ 135 ========== ========== =========== =========== Unit settlements........................... 120 73 200 114 ========== ========== =========== =========== Net new orders - units..................... 217 77 432 198 ========== ========== =========== =========== Net new orders - dollars................... $ 39,200 $ 11,600 $ 78,700 $ 27,800 ========== ========== =========== =========== Backlog at June 30 - units................. 346 190 =========== =========== Backlog at June 30 - dollars............... $ 66,000 $ 28,000 =========== =========== </TABLE> 30
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) ($000's omitted) Homebuilding Operations (continued): Active Adult Homebuilding (continued): Net new orders increased for the three and six month periods ended June 30, 1998 by 140 and 234 units, respectively. These units primarily relate to two communities for which sales operations had not yet commenced in the comparable prior year period and the ramp up of building activity at a third community. Unit settlements for the three and six month periods ended June 30, 1998 increased by 47 and 86 units, respectively, as compared to the similar periods of the prior year. These increases are primarily the result of one community which recognized its first closings during the 1998 period. 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 three and six months ended June 30, 1998, principally due to costs associated with starting up operations at two new communities and the new venture with BRE. Increases in average selling price reflect a number of factors, including the mix of product closed during a period, and communities operating in each respective period. Equity in income of joint venture represents the income recognized by the Company during 1998 relating to the operations of the joint venture entity. 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 and six month periods ended June 30, 1998 and 1997, is as follows: <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, ----------------------- ------------------------- 1998 1997 1998 1997 ---------- ---------- ----------- ----------- <S> <C> <C> <C> <C> Pre-tax income (loss): Mortgage banking........................... $ 3,577 $ 381 $ 5,988 $ 501 Financing activities....................... (17) (30) (40) (72) ---------- ---------- ----------- ----------- Pre-tax income......................... $ 3,560 $ 351 $ 5,948 $ 429 ========== ========== =========== =========== </TABLE> Mortgage Banking: The following table presents mortgage origination data for Pulte Mortgage: <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, --------------------- --------------------- 1998 1997 1998 1997 -------- -------- -------- -------- <S> <C> <C> <C> <C> Total originations: Loans ........................ 3,186 2,413 5,558 4,240 ======== ======== ======== ======== Principal .................... $416,400 $288,100 $721,800 $509,200 ======== ======== ======== ======== Originations for Pulte customers: Loans ........................ 2,297 1,982 4,092 3,449 ======== ======== ======== ======== Principal .................... $311,200 $245,500 $546,100 $430,300 ======== ======== ======== ======== </TABLE> 31
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) ($000's omitted) Financial Services Operations (continued): Mortgage origination volume for the three and six month periods ended June 30, 1998, increased 45% and 42%, respectively, over the comparable 1997 periods, driven primarily by increased unit sales realized in Pulte's homebuilding operations. Pulte customers continue to account for the majority of total loan production at June 30, 1998; however, increased loan origination volume in the retail sector has contributed to improved leverage of loan origination costs. Refinancings represented less than 10% of total loan originations for each of the three and six month periods ended June 30, 1998. At June 30, 1998, loan application backlog increased 42% to $522,000 as compared with $367,000 at June 30, 1997. Backlog at December 31, 1997 amounted to $294,000. Pulte 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. During the three and six months ended June 30, 1998, origination fees increased 74% and 68%, respectively, over the comparable periods of the prior year. The increase in origination fees is due to the overall increase in loan originations and an increase in non-funded, brokered loans. Pricing and marketing gains increased $3,022 for the quarter and $5,062 year-to-date, primarily the result of increased funded mortgage originations and increased servicing retained loan production. Net interest income decreased $80 and $340 for the three and six month periods ended June 30, 1998, respectively. These decreases are attributable to the Company's management of equity capital coupled with a flattening of the yield curve during the first half of 1998. For the quarter and year-to-date, Pulte Mortgage's operating expenses increased $588 and $153 over the comparable prior year periods on increased production of 45% and 42%. This improved cost leverage is a result of the mortgage operations center and mortgage application center initiatives implemented during late 1996 and 1997, respectively, which have expedited the loan approval process and lowered the total cost from application to closing, and corporate restructuring. Financing Activities: The Company's secured financing operations are conducted by the limited-purpose subsidiaries of Pulte Financial Companies, Inc. (PFCI). Such operations, which the Company is exiting, 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 June 30, 1998, one bond series with a principal amount of $33,083 was outstanding. For the three and six month periods ended June 30, 1998, PFCI's pre-tax operating loss was $17 and $40, respectively, compared to a pre-tax loss of $30 and $72 in 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. 32
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) ($000's omitted) The following table presents corporate results of operations for the three and six month periods ended June 30, 1998 and 1997: <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, ----------------------- ------------------------- 1998 1997 1998 1997 ---------- ---------- ----------- ----------- <S> <C> <C> <C> <C> Net interest expense................. $ 4,252 $ 3,053 $ 7,716 $ 5,496 Other corporate expenses, net........ 3,152 3,070 3,983 6,613 ---------- ---------- ----------- ----------- Loss before income taxes............. $ 7,404 $ 6,123 $ 11,699 $ 12,109 ========== ========== =========== =========== </TABLE> The increase in pre-tax loss for the three month period ended June 30, 1998 is primarily due to 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. The decrease in pre-tax loss for the six month period ended June 30, 1998 is primarily due to the recognition of a one-time gain of $5,000 in the first quarter of 1998 from the sale of the Company's interest in Expression Homes offset by the 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 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 $106,966 for the six months ended June 30, 1997, to a source of $84,016 for the six months ended June 30, 1998. This is principally due to the sales of BSL and certain Active Adult communities to the new Pulte/Blackstone joint venture. Net cash used in investing activities of $39,773 increased from the comparable six month period of 1997 due principally to the Company's recent acquisition activity. The Company's net cash used in financing activities increased $4,511 over the comparable six month period of 1997, primarily the result of decreased short-term loan proceeds offset by a decrease in cash used for stock repurchases. At June 30, 1998, the Company had cash and equivalents of $279,901 and total long-term indebtedness of $619,746 The Company's total indebtedness includes $487,399 of unsecured senior notes, $22,405 of unsecured senior subordinated debentures, other Pulte non-recourse and limited-recourse debt of $46,402 and $29,697, respectively; $760 of First Heights' advances; and $33,083 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 June 30, 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. 33
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): 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 June 30, 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 June 30, 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 June 30, 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 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's remaining investment in First Heights at June 30, 1998 approximated $26,000. Information Technology and Year 2000 Compliance An integral part of our operating strategy is to provide Pulte management and employees the information systems needed to support the Company's current operations and future growth. Substantial progress has been made toward the goal of developing an integrated set of systems to support marketing, land and product development, home sales, construction, service, and comprehensive financial management. During the first half of 1998, the Company invested approximately $3,000 in support of this goal and estimates that it will invest approximately an additional $3,500 in the development and implementation of its management information systems in 1998. A critical component of this integrated systems effort involves replacement of the Company's existing accounting system, which management expects will substantially resolve the Company's Year 2000 exposure, as well as significantly enhance the financial management capabilities of its operational managers. Investment in this financial component includes Year 2000 compliant accounting software package selection and licensing amortization. The Company expects to complete system development and pilot implementation, with enterprise-wide roll out scheduled for completion in 1999. The Company has evaluated all essential homebuilding supplier/contractor relationships and believes that there are no significant risks associated with Year 2000 issues impacting operations. The Company's mortgage banking operation has also completed a comprehensive Year 2000 risk assessment for both internal information systems and external relationships. Plans are being implemented to bring all critical information systems into compliance. The Company does not expect the cost for such compliance to have a material impact on operating results or financial condition. In 1997, the Company also completed implementation of a company-wide telecommunications network to enhance sharing of timely business information across all markets and provide the pathway for future operational support of the integrated systems strategy. 34
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) ($000's omitted) Information Technology and Year 2000 Compliance (continued): All components of this new information technology environment are fully compliant with Year 2000 processing requirements. Taken together, the Company believes that its substantial past and current investments in these information technology initiatives will provide the foundation necessary to support and enhance operations in the years to come. Nevertheless, achieving Year 2000 compliance is dependent on many factors, some of which are not completely within the Company's control. Should either the Company's internal systems or the internal systems of one or more significant vendors or suppliers fail to achieve year 2000 compliance, the Company's business and its results of operations could be adversely affected. 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 the Company's ability to correct all material applications addressing the Year 2000 problem, as well as the ability of the Company's vendors to correct all material applications addressing the Year 2000 problem, and the Company's assessment of the Year 2000 problem's impact on its financial results and operations, 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. 35
PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The Company's Annual Meeting of Shareholders was held on May 7, 1998. The following matters were considered and acted upon, with the results indicated below: <TABLE> <CAPTION> Shares Shares Withholding Shares Voted Shares Authority Election of Directors Voted For Against Abstaining To Vote - --------------------- --------- ------- ---------- ----------- <S> <C> <C> <C> <C> The election of Director for term expiring 2000: Debra J. Kelly-Ennis ............. 19,708,380 -- -- 91,711 The election of Directors for terms expiring 2001: David N. McCammon ................ 19,709,400 -- -- 90,691 William J. Pulte ................. 19,710,965 -- -- 89,126 Francis J. Sehn .................. 19,704,644 -- -- 95,447 Proposal to adopt the Company's Stock Plan for Nonemployee Directors ........ 19,095,386 681,442 23,262 1 </TABLE> Item 5. Other Information The Company must receive notice of any proposals of shareholders that are intended to be presented at the Company's 1999 Annual Meeting of Shareholders, but that are not intended to be considered for inclusion in the Company's Proxy Statement and Proxy related to that meeting, no later than February 15, 1999 to be considered timely. Such proposals should be sent to the Company's Secretary at the Company's offices, 33 Bloomfield Hills Parkway, Suite 200, Bloomfield Hills, MI 48304 by certified mail, return receipt requested. If the Company does not have notice of the matter by that date, the Company's form of proxy in connection with that meeting may confer discretionary authority to vote on that matter, and the persons named in the Company's form of proxy will vote the shares represented by such proxies in accordance with their best judgement. Item 6. Exhibits and Reports on Form 8-K Page Herein or Incorporated Exhibit Number and Description by Reference From ------------------------------ --------------------------- (10) Material Contracts Filed with Proxy Statement on March 27, 1998 and as Exhibit 4.3 to the Registrant's Registration Statement on Form S-8 (Registration Statement No. 33-51019 filed on May 7, 1998) 36
PART II. OTHER INFORMATION (continued) Item 6. Exhibits and Reports on Form 8-K (continued) Page Herein or Incorporated Exhibit Number and Description by Reference From - ------------------------------ --------------------------- (11) Statement Regarding Computation of Per Share Earnings 39 (27) Financial Data Schedule All other exhibits are omitted from this report because they are not applicable. 37
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PULTE CORPORATION /s/ ROGER A. CREGG ----------------------------- Roger A. Cregg Senior Vice President and Chief Financial Officer (Principal Financial Officer) /s/ VINCENT J. FREES ----------------------------- Vincent J. Frees Vice President and Controller (Principal Accounting Officer) Date: August 13, 1998 38