SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the Quarterly Period Ended June 30, 2001OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-9804
PULTE HOMES, INC.(Exact name of registrant as specified in its charter)
33 Bloomfield Hills Pkwy., Suite 200,Bloomfield Hills, Michigan 48304(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code (248) 647-2750
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days.
YES NO
Number of shares of common stock outstanding as of July 31, 2001: 58,916,547
Total pages: 35
Listing of exhibits: 33
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TABLE OF CONTENTS
PULTE HOMES, INC.
INDEX
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PART 1. FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTS
PULTE HOMES, INC.CONDENSED CONSOLIDATED BALANCE SHEETS($000’s omitted)
Note: The balance sheet at December 31, 2000 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.
See accompanying Notes to Condensed Consolidated Financial Statements.
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PULTE HOMES, INC.CONSOLIDATED STATEMENTS OF INCOME(000’s omitted, except per share data)(Unaudited)
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PULTE HOMES, INC.CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY($000’s omitted)(Unaudited)
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PULTE HOMES, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS($000’s omitted)(Unaudited)
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PULTE HOMES, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS($000’s omitted)(Unaudited)
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PULTE HOMES, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)($000’s omitted, except per share information)(Unaudited)
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PULTE HOMES, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)($000’s omitted)(Unaudited)
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CONDENSED CONSOLIDATING BALANCE SHEETJUNE 30, 2001
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CONDENSED CONSOLIDATING BALANCE SHEETDECEMBER 31, 2000
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CONSOLIDATING STATEMENT OF OPERATIONSFor the three months ended June 30, 2001
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CONSOLIDATING STATEMENT OF OPERATIONSFor the six months ended June 30, 2001
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CONSOLIDATING STATEMENT OF OPERATIONSFor the three months ended June 30, 2000
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CONSOLIDATING STATEMENT OF OPERATIONSFor the six months ended June 30, 2000
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PULTE CORPORATIONNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)($000’s omitted)(Unaudited)
CONSOLIDATING STATEMENT OF CASH FLOWSFor the six months ended June 30, 2001
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CONSOLIDATING STATEMENT OF CASH FLOWSFor the six months ended June 30, 2000
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS($000’s omitted)
Overview:
A summary of the Company’s operating results by business segment for the three and six month periods ended June 30, 2001 and 2000 is as follows:
A comparison of pre-tax income (loss) for the three and six month periods ended June 30, 2001 and 2000 is as follows:
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)($000’s omitted)
Homebuilding Operations:
The Company’s Homebuilding segment consists of the following business units:
No individual market within the Company’s Homebuilding segment represented more than 10% of total segment net new orders, unit settlements or revenues for the three and six months ended June 30, 2001. The Metropolitan Atlanta market accounted for 10% of the unit net new orders and unit settlements for the three and six month periods ended June 30, 2000.
Certain operating data relating to the Company’s joint ventures and homebuilding operations for the three and six months ended June 30, 2001 and 2000, are as follows:
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Homebuilding Operations (continued):
Domestic Homebuilding:
The Domestic Homebuilding business unit represents the Company’s core business. Operations are conducted in 41 markets, located throughout 26 states, and are organized into five groups as follows:
The following table presents selected unit information for Pulte’s Domestic Homebuilding operations:
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Domestic Homebuilding (continued):
For the three months ended June 30, 2001, unit settlements declined 6% primarily due to delays in the opening of certain communities related to the timing of land development approvals, coupled with a lower inventory of completed homes available for sale. The net new order pace continued to be strong with a slight increase from the prior year to 5,178 units as demand continued at high levels. For the six months ended June 30, 2001, unit settlements declined 5% due to the delays discussed earlier. Net new orders for the same six month period increased 5% to a record 11,633 units as most regions of the country experienced improvements over the prior year period. As a result of the increases in net new orders, higher average selling prices and reduced deliveries during the period, unit backlog increased 12% to an all-time record value of over $2 billion.
The following table presents a summary of pre-tax income for Pulte’s Domestic Homebuilding operations for the three and six months ended June 30, 2001 and 2000:
Gross profit margins were 20.3% and 20.2%, respectively, for the three and six month periods ended June 30, 2001, compared to 18.7% and 18.3%, respectively, in the same period of the prior year. A higher average sales price, lower operating costs and lower material costs contributed to these increases.
As a percentage of sales, selling, general and administrative expenses increased 100 basis points for the three month period ended June 30, 2001 and 50 basis points for the six months then ended. This increase reflects higher startup costs associated with new communities and increased compensation related expenses.
Other income (expense) net, includes net land activity and other homebuilding-related expenses. For the three and six month periods ended 2001, net land activity amounted to $14,882 and $12,399, respectively, compared to $4,543 and $5,208, respectively, for the prior year periods. Net land activity relates to gains/losses on the sale of land, the impact of decisions not to pursue certain land acquisitions and options, the write-off of related pre-acquisition costs and land inventory valuation reserves on land held for sale. The increase in net land activity in 2001 represents a significant increase in land sale gains during the second quarter of 2001.
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The average selling price for the three and six month periods ended June 30, 2001, was $219 and $200, respectively, an increase from the average selling price of $217 and $198 in the comparable periods of the prior year. Changes in average selling price reflect a number of factors, including changes in market selling prices and the mix of products closed during a period.
Pulte’s Domestic Homebuilding operations controlled approximately 79,000 and 67,000 lots, of which approximately 44,200 and 43,300 lots were owned, and approximately 34,800 and 23,700 lots were controlled through option agreements at June 30, 2001 and 2000, respectively. Domestic Homebuilding inventory at June 30, 2001, was approximately $2,217,900 of which $1,556,400 is related to land and land development. At June 30, 2000, inventory was approximately $1,926,200 of which $1,296,700 was related to land and land development. Included in other assets is approximately $177,500 in land held for disposition as of June 30, 2001, as compared to $131,000 in the prior year.
International Homebuilding:
International Homebuilding operations are primarily conducted through subsidiaries of Pulte International Corporation (International) in Mexico, Puerto Rico and Argentina.
Mexico International’s 100%-owned subsidiary, Pulte International-Mexico, Inc., conducts its operations primarily through five joint ventures located throughout Mexico. Its net investment in these joint ventures approximated $35,400 at June 30, 2001. The largest of these ventures, Condak-Pulte S. De R.L. De C.V. (Condak-Pulte), is located in the city of Juarez. Condak-Pulte is currently developing communities in Juarez, Chihuahua, Nuevo Laredo, Monterrey, Reynosa and Matamoros, under agreements with Delphi Automotive Systems, Sony Magneticos de Mexico, S.A. de C.V., an affiliate of Sony Electronics, Inc and Centro Comerciales Coriana, S.A. De C. V. As of June 30, 2001, International’s net investment in Condak-Pulte approximated $27,200.
Desarrollos Residenciales Turisticos, S.A. de C.V., another of its joint ventures in Mexico, is constructing primarily social interest housing in Central Mexico. Current development plans for this venture include housing projects in the Bajio region surrounding Mexico City, targeting the cities of Puebla, Queretaro, San Jose du Iturbide, San Juan del Rio and Zamora. At June 30, 2001, International’s net investment in this joint venture approximated $6,900.
Puerto Rico Operations in Puerto Rico are primarily conducted through International’s 100%-owned subsidiary, Pulte International Caribbean Corporation. Desarrolladores Urbanos (Canovanas), S.E., its Puerto Rican joint venture is developing 121 acres located in Metropolitan San Juan. At June 30, 2001, its net investment in this joint venture approximated $3,900.
Argentina Operations in Argentina are conducted through Pulte SRL, International’s 100%-owned Argentine subsidiary which recorded its first closings during the second quarter.
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International Homebuilding (continued):
The following table presents selected financial data for Pulte’s International Homebuilding operations for the three and six months ended June 30, 2001 and 2000.
The pre-tax losses of $1,459 and $326 for the three and six month periods ended June 30, 2001, as compared to pre-tax income of $1,641 and $1,280 for the three and six months ended June 30, 2000, were primarily driven by decreased closings from the Mexican operations where changes in government lending practices slowed mortgage funding during the second quarter of 2001 and start-up costs in Argentina.
Financial Services Operations:
The Company conducts its financial services operations principally through Pulte Mortgage Corporation (PMC), the Company’s mortgage banking subsidiary. Pre-tax income of the Company’s financial services operations for the three and six month periods ended June 30, 2001 was $5,763 and $11,215, respectively compared to $3,437 and $6,904, respectively for the prior year periods. This growth is a result of increased capture rates and a favorable pricing environment.
The following table presents mortgage origination data for PMC:
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Financial Services Operations (continued):
Mortgage origination unit volume for the three and six month periods ended June 30, 2001, increased 25% and 29%, respectively, from the comparable 2000 periods as the Company realized an increase in capture rate due to improved market penetration in those markets that the Company’s mortgage operations entered last year. In addition, refinancings represented 12% of total loan originations for the six month period ended June 30, 2001, as compared to 2% of total loan originations for 2000. For the three and six month periods ended June 30, 2001, pricing and marketing gains increased $5,346 and $8,652, respectively, due to higher production volume and a favorable production mix. Increased general and administrative expenses primarily due to higher production and the integration of new markets partially offset these gains during 2001. At June 30, 2001, loan application backlog increased 33% to $991,000 as compared with $745,000 at June 30, 2000. Pulte continues to hedge its mortgage pipeline in the normal course of its business and there has been no change in PMC’s strategy or use of derivative financial instruments in this regard.
Financial Accounting Standards Board Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended by Financial Accounting Standards Board Statement No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities,” requires companies to recognize all of their derivative instruments as either assets or liabilities in the statement of financial position at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument, based upon the exposure being hedged, as either a fair value hedge or a cash flow hedge.
The Company hedges portions of its forecasted cash flow from sales of closed mortgage loans with derivative financial instruments. During the six months ended June 30, 2001, the Company did not recognize any net gains or losses related to the ineffective portion of the hedging instrument excluded from the assessment of hedge effectiveness. In addition, the Company recognized $2, net of taxes, in losses during 2001, for cash flow hedges that were discontinued because it is probable that the original forecasted transaction will not occur. At June 30, the Company expects to reclassify $312, net of taxes, of net gains on derivative instruments from accumulated other comprehensive income to earnings during the next twelve months from sales of closed mortgage loans.
Corporate:
Corporate is a non-operating business segment whose primary purpose is to support the operations of the Company’s subsidiaries as the internal source of financing, to develop and implement strategic initiatives centered on new business development and operating efficiencies, and to provide the administrative support associated with being a publicly traded entity. As a result, the corporate segment’s operating results will vary from quarter to quarter as these strategic initiatives evolve.
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Corporate (continued):
The following table presents corporate results of operations for the three and six months ended June 30, 2001 and 2000:
Pre-tax loss of the Company’s corporate business segment was relatively flat for the three and six month periods ended June 30, 2001, as both net interest expense and other corporate expenses, net were in line with the prior year. Interest incurred for the three and six month periods ended June 30, 2001, excluding interest incurred by the Company’s financial services operations, was approximately $19,200 and $35,500, respectively.
Net interest expense is net of amounts capitalized into homebuilding inventories. Amounts capitalized are charged to homebuilding interest expense when the related inventories are closed. Information related to interest in inventory is as follows:
Liquidity and Capital Resources:
Continuing Operations:
The Company’s net cash used in operating activities amounted to $261,072, reflecting an increase in the use of operating funds as compared with the same period last year. This increase is primarily attributable to increases in land inventory from levels at December 31, 2000. Net cash from investing activities was relatively consistent with the prior year. Net cash from financing activities increased from $134,754 to $180,129 in 2001 as the Company did not repurchase stock under its stock repurchase plan during 2001 as it did during 2000.
The Company finances its homebuilding land acquisitions, development and construction activities from internally generated funds and existing credit agreements. The Company had no borrowings under its $390,000 unsecured revolving credit facilities at June 30, 2001. PMC provides mortgage financing for many of its home sales and uses its own funds and borrowings made available pursuant to various committed and uncommitted credit arrangements which, at June 30, 2001, amounted to $325,000, an amount deemed adequate to cover foreseeable needs. There were approximately $196,000 of borrowings outstanding under the $325,000 PMC arrangement at June 30, 2001. Mortgage loans originated by PMC are subsequently sold, principally to outside investors. The Company anticipates that there will be adequate mortgage financing available for purchasers of its homes.
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Liquidity and Capital Resources (continued):
Continuing Operations (continued):
At June 30, 2001, the Company had cash and equivalents of $101,805 and total long-term indebtedness of $884,918. The Company’s total long-term indebtedness includes $858,347 of unsecured senior notes, a $7,000 unsecured promissory note and other Pulte limited recourse debt of $19,571. The Company also has other non-recourse short-term notes payable of $54,700 and First Heights advances of $760.
The Company’s income tax liabilities are affected by a number of factors. Management anticipates that the Company’s effective tax rate for 2001 will be between 38% and 39%.
Sources of the Company’s working capital at June 30, 2001, include its cash and equivalents, and its $390,000 committed unsecured revolving credit facilities. The Company routinely monitors current operational requirements and financial market conditions to evaluate the utilization of available financial sources, including securities offerings.
In July 2001, the Company expanded its revolving credit facilities to a total of $560,000 in contemplation of its acquisition of Del Webb Corporation.
In August 2001, the Company sold in a private placement pursuant to Rule 144A under the Securities Act, $500,000 of 7 7/8% Senior Notes due in 2011. Net proceeds received from the sale were used to repay certain indebtedness acquired in the Del Webb Corporation acquisition, to pay certain expenses associated with that acquisition and for general corporate purposes.
Discontinued Operations:
The Company’s remaining investment in First Heights at June 30, 2001, approximated $32,500. The Company’s thrift assets are subject to regulatory restrictions and a court order and thus are not available for general corporate purposes. The final liquidation of the Company’s thrift operations is dependent on the final resolution of outstanding matters with the Federal Deposit Insurance Corporation (FDIC), manager of the FSLIC Resolution Fund. As discussed in Note 4 of Notes to Condensed Consolidated Financial Statements, the Company vigorously disagrees with the final judgment entered by the United States District Court and has appealed to the Sixth Circuit Court of Appeals. The Company has posted bonds in the amount of $117,000. Based upon the Company’s assessment of its legal position in the District Court litigation with the FDIC, as well as the expected duration of the legal process in this case, the Company does not currently believe that the judgment ordered by the District Court against Pulte Diversified Companies, Inc. and First Heights will have a material impact on the Company’s liquidity.
Inflation:
The Company and the homebuilding industry in general, may be adversely affected during periods of high inflation, because of higher land and construction costs. Inflation also increases the Company’s financing, labor and material costs. In addition, higher mortgage interest rates significantly affect the affordability of permanent mortgage financing to prospective homebuyers. The Company attempts to pass through to its customers any increases in its costs through increased sales prices and, to date, inflation has not had a material adverse effect on the Company’s results of operations. However, there is no assurance that inflation will not have a material adverse impact on the Company’s future results of operations.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)($000’s omitted, except per share information)
Del Webb Acquisition:
On July 31, 2001, the Company completed its acquisition of Del Webb Corporation (Del Webb). Under the terms of the merger agreement, each outstanding share of Del Webb common stock was exchanged for approximately 0.894 shares of newly issued Company stock. Approximately 17 million shares were issued to Del Webb shareholders.
Del Webb is primarily a homebuilder with operations in six states. For the fiscal year ended June 30, 2001, Del Webb reported net income of $91,200 on revenues of $1,936,117 and 7,038 unit settlements. Backlog reported at June 30, 2001 was 3,682 units valued at approximately $994,000.
New Accounting Pronouncements:
In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141,“Business Combinations,”and No. 142, “Goodwill and Other Intangible Assets,” effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives.
The Company will apply the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of 2002. Application of the nonamortization provisions of the Statement is expected to result in an increase in net income of approximately $4,100 ($0.09 per share) per year. Any goodwill recorded as a result of the July 2001 acquisition of Del Webb Corporation will not be amortized. During 2002, the Company will perform the first of the required impairment tests of goodwill as of January 1, 2002, and has not yet determined what the effect of these tests will be on the earnings and financial position of the Company.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative disclosure:
There have been no material changes in the Company’s market risk during the three months ended June 30, 2001.
Qualitative disclosure:
This information is set forth on pages 26 and 27 of Part II, of Item 7A.,Management’s Discussion and Analysis of Financial Condition and Results of Operations, of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000, and is incorporated herein by reference.
Forward-Looking Statements:
As a cautionary note, except for the historical information contained herein, certain matters discussed in Item 2., “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 3., “Quantitative and Qualitative Disclosures About Market Risk”, are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such matters involve risks and uncertainties, including:
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 4, Notes to Condensed Consolidated Financial Statements, which is contained in Part I, Item 1, of this Quarterly Report on Form 10-Q and which is incorporated by reference into this response.
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PART II. OTHER INFORMATION (continued)
Item 4. Submission of Matters to a Vote of Security Holders
The Company’s Annual Meeting of Shareholders was held on May 17, 2001. The following matters were considered and acted upon, with the results indicated below.
Item 6. Exhibits and Report on Form 8-K
(a) Exhibits
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(a) Exhibits (continued)
(b) Report on Form 8-K
On July 25, 2001, the Company filed a Current Report on Form 8-K which included a press release dated July 24, 2001, wherein it provided information regarding the share exchange ratio for its pending acquisition of Del Webb Corporation.
On July 26, 2001, the Company filed a Current Report on Form 8-K which included a press release dated July 24, 2001, wherein it provided updated financial and other information.
On July 27, 2001, the Company filed a Current Report on Form 8-K which included a press release dated July 27, 2001, wherein it announced that the stockholders of Del Webb Corporation voted to approve the acquisition of Del Webb Corporation by the Company and that the shareholders of the Company approved the issuance of Company shares to Del Webb Corporation stockholders in the transaction.
On July 31, 2001, the Company filed a Current Report on Form 8-K which included a press release dated July 31, 2001, wherein it announced that it had completed its acquisition of Del Webb Corporation.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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