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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-9804
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PULTE CORPORATION
(Exact name of registrant as specified in its charter)
MICHIGAN 38-2766606
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
33 Bloomfield Hills Parkway, Suite 200
Bloomfield Hills, Michigan 48304
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (248) 647-2750
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, par value $.01 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES _X_ NO__
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [X].
Aggregate market value of voting stock held by nonaffiliates of the
registrant as of January 31, 2000: $937,244,822
Number of shares of common stock outstanding as of January 31, 2000:
43,223,780
Documents Incorporated by Reference
Applicable portions of the Proxy Statement for the 2000 Annual Meeting of
Shareholders are incorporated by reference in Part III of this Form.
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PULTE CORPORATION
TABLE OF CONTENTS
Item Page
No. No.
---- ----
Part I
1 Business ..................................................... 3
2 Properties ................................................... 9
3 Legal Proceedings ............................................ 9
4 Submission of Matters to a Vote of Security Holders .......... 10
4A Executive Officers of the Registrant ......................... 11
Part II
5 Market for the Registrant's Common Equity and Related
Stockholder Matters ........................................ 12
6 Selected Financial Data ...................................... 12
7 Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................ 14
7A Quantitative and Qualitative Disclosures About Market Risk ... 31
8 Financial Statements and Supplementary Data .................. 33
9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure ................................... 73
Part III
10 Directors and Executive Officers of the Registrant ........... 73
11 Executive Compensation ....................................... 73
12 Security Ownership of Certain Beneficial Owners and
Management.................................................. 73
13 Certain Relationships and Related Transactions ............... 73
Part IV
14 Exhibits, Financial Statement Schedules and Reports on
Form 8-K ................................................... 73
Signatures ........................................................ 81
2
PART I
ITEM 1. BUSINESS
Pulte Corporation
Pulte Corporation (the Company) is a publicly held holding company whose
subsidiaries engage in the homebuilding and financial services businesses.
Its assets consist principally of the capital stock of its subsidiaries,
cash and investments. Its income primarily consists of dividends from its
subsidiaries and interest on investments. The Company's significant
subsidiaries include Pulte Financial Companies, Inc. (PFCI), Pulte
Diversified Companies, Inc. (PDCI) and other subsidiaries which are engaged
in the homebuilding business. PDCI's operating subsidiaries include Pulte
Home Corporation (Pulte), Pulte International Corporation (International) and
other subsidiaries which are engaged in the homebuilding business. PDCI's
non-operating thrift subsidiary, First Heights Bank, fsb (First Heights), has
been classified as a discontinued operation (See Note 4 of Notes to
Consolidated Financial Statements). The Company also has a mortgage banking
company, Pulte Mortgage Corporation (PMC), which is a subsidiary of Pulte.
The Company has three reportable business segments: Homebuilding, Financial
Services and Corporate. The Company's Homebuilding segment consists of the
following three business units:
o Domestic Homebuilding, the Company's core business, is engaged in the
acquisition and development of land primarily for residential purposes
within the continental United States and the construction of housing on
such land targeted for the first-time, first and second move-up, and
active adult home buyer groups.
o International Homebuilding is primarily engaged in the acquisition and
development of land primarily for residential purposes, and the
construction of housing on such land in Mexico and Puerto Rico.
o Active Adult Homebuilding is engaged in the development of amenitized,
age-targeted and age-qualified communities throughout the continental
United States appealing to a growing demographic group in their
pre-retirement and retirement years.
The Company's Financial Services segment consists principally of mortgage
banking operations conducted through PMC and its subsidiaries and, to a minor
extent, the operations of PFCI, a financing subsidiary of the Company, which
ceased operations during 1999.
Corporate is a non-operating business segment whose primary purpose is to
support the operations of the Company's subsidiaries as the internal source
of financing, to develop and implement strategic initiatives centered on new
business development and operating efficiencies, and to provide the necessary
administrative functions to support the Company as a publicly traded entity.
Financial information, including revenue, pre-tax income and identifiable
assets of each of the Company's business segments is included in Note 1 of
Notes to Consolidated Financial Statements.
3
Homebuilding Operations
Years Ended December 31,
($000 omitted)
--------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
Pulte/Pulte-affiliate Homebuilding revenues:
Domestic ................................ $3,591,453 $2,778,773 $2,407,104 $2,276,068 $1,911,209
International ........................... 127,310 64,590 41,196 16,163 6,869
Active Adult ............................ 121,879 104,839 54,602 32,142 23,194
---------- ---------- ---------- ---------- ----------
Total Homebuilding ............................ $3,840,642 $2,948,202 $2,502,902 $2,324,373 $1,941,272
========== ========== ========== ========== ==========
Pulte/Pulte-affiliate settlements - units:
Domestic ................................ 19,276 15,897 14,691 14,202 12,293
International:
Pulte ............................... 262 166 254 191 --
Pulte-affiliated entities ........... 6,512 3,682 1,651 415 651
---------- ---------- ---------- ---------- ----------
Total International ............ 6,774 3,848 1,905 606 651
---------- ---------- ---------- ---------- ----------
Active Adult:
Pulte ............................... 293 154 377 220 152
Pulte-affiliated entity ............. 279 460 -- -- --
---------- ---------- ---------- ---------- ----------
Total Active Adult ............. 572 614 377 220 152
---------- ---------- ---------- ---------- ----------
Total Pulte/Pulte-affiliate settlements - units 26,622 20,359 16,973 15,028 13,096
========== ========== ========== ========== ==========
Unit sales (settlements) and net new orders in any year are strongly
influenced by local, regional and national market economic conditions.
Domestic Homebuilding
Pulte builds a wide variety of homes, including detached units, townhouses,
condominium apartments and duplexes, with varying prices, models, options and
lot sizes, all sold for use as principal residences. Since 1990, Pulte has
more than tripled its annual unit closings, unit orders and unit backlog
levels. Including 1999 sales of over 19,000 homes, the Company has sold over
220,000 homes since its inception.
During 1998, the Company acquired two homebuilders: Tennessee-based Radnor
Homes in May 1998 and Florida-based DiVosta & Company in July 1998. In
accordance with its operational strategy, the Company will continue to
evaluate available strategic acquisition opportunities which coincide with
its long-range goals.
As of December 31, 1999, Pulte's Domestic Homebuilding operations offered
homes for sale in 385 communities at sales prices ranging from $50,000 to
over $850,000. Sales prices of homes currently offered for sale in 79% of
Pulte's communities fall within the range of $100,000 to $275,000 with a 1999
average unit selling price of $186,000. Sales of single-family detached
homes, as a percentage of total unit sales, were 79%, 76% and 78% in 1999,
1998 and 1997, respectively. Pulte's Domestic Homebuilding operations are
geographically diverse to better insulate sales from demand changes in
individual markets. As of December 31, 1999, Pulte's Domestic Homebuilding
business operated in 41 markets spanning 25 states.
4
International Homebuilding
International Homebuilding operations are primarily 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 these countries.
In Mexico, the Company conducts business through five joint ventures. The
largest of these ventures, Condak-Pulte S. De R.L. De C.V., is located in the
city of Juarez. The Juarez-based venture is currently developing communities
in Juarez, Chihuahua, Nuevo Laredo, Reynosa and Matamoros, under agreements
with Delphi Automotive Systems and Sony Magneticos de Mexico, S.A. de C.V.,
an affiliate of Sony Electronics. Desarrollos Residenciales Turisticos,
S.A.de C.V. (DRT), another of the Company's joint ventures in Mexico, is
constructing primarily social interest housing in the Bajio region
surrounding Mexico City, targeting the cities of Puebla, Queretaro, San Jose
de Iturbide, San Juan del Rio and Zamora.
In Puerto Rico, homebuilding operations are principally conducted in the
greater metropolitan San Juan submarkets and several communities located in
Arecibo, Mayaguez and Ponce. In September 1999, the Company entered into a
joint venture agreement with Desarolladores Urbanos (Canovanas), S. E., an
established Puerto Rican special partnership created for the acquisition and
development of 121 acres located in the municipality of Canovanas, Puerto
Rico.
Active Adult Homebuilding
Active Adult operations acquire and develop major active adult residential
communities. These amenitized, age-targeted and age-qualified communities
appeal to a growing demographic group in their pre-retirement and retirement
years. From March 25, 1998, through July 1, 1999, Active Adult Homebuilding
operations were conducted through a joint venture with Blackstone Real Estate
Advisors (BRE), an affiliate of the Blackstone Group. Effective July 1, 1999,
the Company purchased BRE's interest in the net assets of the Active Adult
joint venture. The operations are headquartered in Phoenix, Arizona, and at
December 31, 1999, includes three communities located in Arizona and
California. Springfield at Whitney Oaks, the venture's Active Adult Community
in Northern California, received the Gold Achievement Award during 1999 for
the best seniors' housing development in the nation, as presented by the
National Council on Seniors Housing.
Land Acquisition and Development
Locations for development of Domestic Homebuilding and Active Adult
communities are selected after completing extensive market research, enabling
Pulte to match the location and product offering with its targeted consumer
group. Factors considered include proximity to developed areas, population
growth patterns and, if applicable, estimated development costs. Pulte has
historically managed the risk of controlling its land positions through use
of option contracts and outright acquisition. Due to the competitive market
conditions of recent years, obtaining satisfactory option terms to allow
Pulte to control what it believes are prime development locations in each of
its respective markets has become increasingly more difficult. As a result,
Pulte has utilized outright acquisition more frequently. Pulte typically
controls land with the intent to complete sales of housing units within 24
months from the date of opening a community, except in the case of certain
Active Adult developments for which the completion of housing unit sales may
require as much as 60 months from the date of opening a community. As a
result, land is generally controlled after it is properly zoned and developed
or is ready for development. In addition, Pulte disposes of owned land not
required in its business. Where Pulte develops land, it engages directly in
many phases of the development process, including land and site planning,
obtaining environmental and other regulatory approvals, and constructing
roads, sewers, water and drainage facilities, and other amenities. Pulte uses
its staff and the services of independent engineers and consultants in its
land development activities. Land development work is performed primarily by
subcontractors and local government authorities which construct sewer and
water systems in some areas. At December 31, 1999, Pulte's Domestic, Active
Adult and Puerto Rican Homebuilding operations owned approximately 43,800
lots in communities in which homes are being constructed and had
approximately 27,200 lots under option.
5
Sales and Marketing
Pulte is dedicated to improving the quality and value of its Domestic and
Active Adult homes through innovative proprietary architectural and community
designs and state-of-the-art customer marketing techniques. Analyzing various
qualitative and quantitative data obtained through extensive market research,
Pulte segments its potential customers into well-defined buyer profiles. Once
the demands of potential buyers are understood, Pulte links its home design
and community development efforts to the specific lifestyle of each targeted
consumer group.
To meet the demands of its various Domestic and Active Adult customers, Pulte
has established a solid design expertise for a wide array of product lines.
Pulte believes that it is an innovator in the design of its homes, and it
views its design capacity as an integral aspect of its marketing strategy.
Pulte's in-house architectural services teams and management, supplemented by
outside consultants, have been successful in creating distinctive design
features, both in exterior facades, and interior options and features. One of
Pulte's strategies in certain markets has been to offer "the complete house"
in which all features shown in the home are included in the sales price.
Standard features typically offered include vaulted ceilings, appliances, and
a selection of flooring and carpet which is chosen by the buyer.
Typically, Pulte's own Domestic and Active Adult sales team, together with
outside sales brokers, are responsible for managing the customer through the
sales process. Fully furnished and landscaped model homes are used to
showcase Pulte's homes and their distinctive design features. Pulte has great
success with the first-time buyer in the low to moderate price range; in such
cases, financing under United States Government-insured and guaranteed
programs is often used and is facilitated through PMC. Pulte also enjoys
strong sales to the move-up buyer and, in certain markets, offers semi-custom
homes in higher price ranges. Pulte introduces its homes to prospective
buyers through a variety of media advertising, illustrated brochures and
other advertising displays. Customers are also obtained through referrals
from other Pulte customers. In addition, Pulte's website, www.pulte.com,
provides virtual tours of Pulte models that allow homebuyers and realtors to
prescreen homes and make their search process more efficient. The virtual
tours allow buyers to see both the interior and the exterior of the home in
the same way they would if they were actually there. Pulte's website also
enables users to search for their home, obtain details regarding the local
schools, services and other features, examine mortgage options using an
online calculator, learn more about Pulte and communicate directly with the
organization.
Pulte's international sales and marketing efforts focus on the identification
of regions throughout Mexico and Puerto Rico which are experiencing
population and industrial growth. In these markets, the demand for affordable
and social interest housing is strong. In Mexico, the Juarez-based joint
venture has entered into two separate agreements to construct affordable
social interest housing with Delphi Automotive Systems and Sony Magneticos de
Mexico, S.A.de C.V., an affiliate of Sony Electronics, Inc. In Puerto Rico,
the strongest customer demand is for single-family detached homes (flats),
but affordable alternative product offerings include two story attached units
(townhomes) and three-story condominium units with exterior stairs
(walk-ups).
Construction
The construction process for Pulte's Domestic and Active Adult homes begins
with the in-house design of the homes it sells. The building phase is
conducted under the supervision of its on-site construction superintendents.
The construction work is usually performed by subcontractors under contracts
which, in many instances, cover both labor and materials on a fixed-price
basis. Pulte believes that Pulte Preferred Partnerships (P3), an extension of
its quality assurance program, is establishing new standards for contractor
relations. Using a selective process, Pulte has teamed up with what it
believes are premier contractors and suppliers to improve all aspects of the
land development and house construction processes.
Pulte maintains efficient construction operations by using standard materials
and components from a variety of sources and, when feasible, by building on
contiguous lots. To minimize the effects of changes in construction costs,
the subcontracting and purchasing of building supplies and materials are
generally negotiated at or near the time when related sales contracts are
signed. In addition, Pulte utilizes the leverage its size affords by actively
negotiating its materials needs on a national or regional basis to minimize
component production cost. The Company is also working to establish a more
integrated system that can effectively link suppliers, contractors and the
production schedule through strategic business partnerships like BuildNet, a
builder-to-manufacturer e-business exchange.
6
Construction (continued)
International housing in Puerto Rico and Mexico consists primarily of
reinforced poured concrete and/or concrete block construction with flat roofs
and public water, electric and sanitary system connections. Building
materials, supplies and components are sourced locally and the construction
work is performed by general contractors and/or subcontractors under
contracts, which in many cases, include both labor and materials.
Pulte cannot determine the extent to which necessary building materials will
be available at reasonable prices in the future and has, on occasion,
experienced shortages of skilled labor in certain trades and of building
materials in some markets.
Competition and Other Factors
Pulte's dedication to customer satisfaction is evidenced by its consumer and
value-based brand approach to product development, and is something that the
Company believes enables it to distinguish itself in the homebuilding
industry and contributes to its long-term competitive advantage. However, the
housing industry in the United States is highly competitive. In each of
Pulte's market areas, there are numerous homebuilders with which it competes.
Any provider of housing units, for-sale or to rent, including apartment
builders, may be considered a competitor of Pulte. Conversion of apartments
to condominiums further provides certain segments of the population an
alternative to traditional housing, as does the emergence and acceptance of
manufactured housing. Pulte competes primarily on the basis of reputation,
price, location, design and quality of its homes. The housing industry is
cyclical and is affected by a number of economic and other factors including:
(1) significant national and world events which impact consumer confidence;
(2) changes in interest rates; (3) changes in other costs associated with
home ownership, such as property taxes and energy costs; (4) various
demographic factors; (5) changes in federal income tax laws; and (6) changes
in government mortgage financing programs. In addition to these factors,
Pulte's business and operations could be affected by unanticipated shifts in
demand for new homes.
Pulte's operations are subject to building, environmental and other
regulations of various state, local and foreign governing authorities. For
its homes to qualify for Federal Housing Administration (FHA) or Veterans
Administration (VA) mortgages, Pulte must satisfy valuation standards and
site, material and construction requirements of those agencies. Compliance by
Pulte with federal, state and local laws relating to protection of the
environment has had, to date, no material effect upon capital expenditures,
earnings or the competitive position of Pulte. More stringent requirements
could be imposed in the future on homebuilders and developers, thereby
increasing the cost of compliance.
Financial Services Operations
The Company's financial services operations are conducted by its mortgage
banking and other financial subsidiaries.
Mortgage Banking
PMC is a mortgage bank which arranges financing through the origination of
mortgage loans primarily for the benefit of Pulte's domestic and active adult
home buyers, but also to the general public. PMC also engages in the sale of
such loans and the related servicing rights. PMC is a lender approved by the
FHA and VA and is a seller/servicer approved by Government National Mortgage
Association (GNMA), Federal National Mortgage Association (FNMA), Federal
Home Loan Mortgage Corporation (FHLMC) and other investors. In its
conventional mortgage lending activities, PMC generally follows underwriting
guidelines established by FNMA and FHLMC.
PMC's mortgage underwriting, processing and closing functions are centralized
in Denver, Colorado using a mortgage operations center (MOC) concept. During
1997, PMC began a centralized telephone loan officer concept which moved the
loan officers from field branches to a mortgage application center (MAC)
located in Denver, and resulted in Pulte's sales representatives becoming the
principal field contacts for mortgage customers. Pulte sales representatives
forward the loan applications to a MAC loan officer who calls the customer to
complete the loan application and then forwards it to the MOC for processing.
PMC believes both the MOC and the MAC improve the speed and efficiency of its
mortgage operations, thereby improving profitability and allowing PMC to
focus on creating mortgage opportunities with Pulte customers.
7
Mortgage Banking (continued)
In originating mortgage loans, PMC initially uses its own funds and
borrowings made available to it pursuant to various credit arrangements.
Subsequently, PMC sells such mortgage loans and mortgage-backed securities to
outside investors.
During the years ended December 31, 1999, 1998 and 1997, PMC originated
mortgage loans for 55%, 56% and 55%, respectively, of the homes sold by
Pulte. Such originations represented 79%, 73% and 81%, respectively, of PMC
originations.
In order to reduce the risks inherent in servicing, PMC sells its servicing
rights on a flow basis through fixed price servicing sales contracts. This
strategy results in PMC owning the servicing rights for only a short period
of time, usually two to three months after the loan is originated, which
substantially reduces impairment issues with respect to the fair value of
these reported assets.
The mortgage industry in the United States is highly competitive. PMC
competes with other mortgage companies and financial institutions to provide
attractive mortgage financing to both Pulte customers and the general public.
PMC, in originating and servicing mortgage loans, is subject to rules and
regulations of the FHA, VA, GNMA, FNMA, and FHLMC. The Internet is also
becoming an increasingly important resource for homebuyers in obtaining
financing as a number of companies now provide online approval for its
customers. These Internet-based mortgage companies may also be considered
competitors of PMC.
Other Financial Subsidiaries
Other financing activities, which had been conducted by a limited purpose
subsidiary of PFCI, included the acquisition of mortgage loans and
mortgage-backed securities from PMC and other unrelated parties, and using
these assets as collateral, financed these acquisitions principally with
long-term bonds. During 1999, PFCI did an early redemption of its remaining
mortgage-backed bond portfolio, sold its remaining mortgage backed securities
portfolio and ceased operations.
Discontinued Operations
During the first quarter of 1994, the Company adopted a plan of disposal for
First Heights and announced its strategy to exit the thrift industry and
increase its focus on housing and related mortgage banking. First Heights
sold all but one of its 32 bank branches and related deposits to two
unrelated purchasers. The sale was substantially completed during the fourth
quarter of 1994. Although the Company in 1994, expected to complete the plan
of disposal within a reasonable period of time, contractual disputes with the
Federal Deposit Insurance Corporation (FDIC) prevented the prepayment of the
FSLIC Resolution Fund (FRF) notes, thereby precluding the Company from
completing the disposal in accordance with its original plan. To provide
liquidity for the sale, First Heights liquidated its investment portfolios
and its single-family residential loan portfolio and, as provided in the
Assistance Agreement, entered into a Liquidity Assistance Note (LAN) with the
FDIC acting in its capacity as manager of the FRF notes. The LAN is
collateralized by the FRF notes and bears interest at a rate indexed to the
Texas Cost of Funds plus a spread. The LAN matured in September 1998;
however, payment of this liability is temporarily withheld by First Heights
pending resolution of all open matters with the FDIC. As discussed in Note 11
of Notes to Consolidated Financial Statements, the Company is involved in
litigation with the FDIC and as part of this litigation, the parties have
asserted various claims with respect to obligations under promissory notes
issued by each of the parties in connection with the thrift acquisition and
activities.
At December 31, 1999, First Heights no longer has any deposits; nor does it
maintain an investment portfolio. First Heights' day-to-day activities have
been principally devoted to supporting residual regulatory compliance matters
and the litigation with the FDIC, and are not reflective of the active
operations of the former thrift, such as maintaining traditional transaction
accounts, (e.g., checking and savings accounts) or making loans. Accordingly,
such operations are being presented as discontinued.
8
Corporate
Corporate is a non-operating segment that is comprised of the Company and
PDCI, both of which are holding companies. The primary purpose of Corporate
is to support the operations of the Company's subsidiaries as the internal
source of financing, and to develop and implement strategic initiatives
centered around new business development and operating efficiencies. Business
development activities include the pursuit of additional international
opportunities as well as the development of innovative building components
and processes. Corporate also includes the activities associated with
supporting a publicly traded company listed on the New York Stock Exchange.
Corporate assets include equity investments in its subsidiaries, short-term
financial instruments and affiliate advances. Liabilities include senior and
subordinated debt and income taxes. Corporate revenues consist primarily of
investment earnings of excess funds, while its expenses include costs
associated with supporting a publicly traded company and its subsidiaries'
operations, and investigating strategic initiatives.
Organization/Employees
All subsidiaries and operating units operate independently with respect to
daily operations. Homebuilding real estate purchases and other significant
homebuilding, mortgage banking, financing activities and similar operating
decisions must be approved by the business unit and/or corporate senior
management.
At December 31, 1999, the Company employed approximately 5,000 persons.
Employees of the Company and its subsidiaries are not represented by any
union. Subcontracted work, however, may be performed by union subcontractors.
Homebuilding, mortgage banking and financing management personnel are paid
performance bonuses and incentive compensation. Performance bonuses are based
on individual performance while incentive compensation is based on the
performance of the applicable division or subsidiary. The Company's corporate
management personnel are paid incentive compensation based on overall
performance of the Company (see Note 7 of Notes to Consolidated Financial
Statements). Each subsidiary is given autonomy regarding employment of
personnel, although the Company's senior corporate management acts in an
advisory capacity in the employment of subsidiary officers. The Company
considers its employee and subcontractor relations to be satisfactory.
ITEM 2. PROPERTIES
The Company's and Pulte's homebuilding and corporate headquarters are located
at 33 Bloomfield Hills Parkway, Suite 200, Bloomfield Hills, Michigan 48304,
where 34,559 square feet of office space is leased. The Company also leases
18,110 square feet of office space at 165 Kirts Boulevard, Troy, Michigan
48084 for certain centralized business support services. PMC's and PFCI's
corporate offices are located at 7475 South Joliet Street, Englewood,
Colorado 80112. At this location, 51,000 square feet of office space is
leased. Pulte homebuilding markets and PMC branch operations generally lease
office space for their day-to-day operations. First Heights' administrative
office is located in 1,869 square feet of leased space at 2050 North Loop
West, Suite 201, Houston, Texas 77018.
Because of the nature of Pulte's homebuilding operations, significant amounts
of property are held as inventory in the ordinary course of its homebuilding
business. Such properties are not included in response to this Item.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various litigation incidental to its business. In
the opinion of management, none of this litigation will have a material
adverse financial impact on the Company.
First Heights-Related Litigation
The Company is a party to three lawsuits relating to First Heights' 1988
acquisition from the Federal Savings and Loan Insurance Corporation (FSLIC),
and First Heights' ownership of five failed Texas thrifts. The first lawsuit
(the "District Court Case") was filed on July 7, 1995 in the United States
District Court, Eastern District of Michigan, by the Federal Deposit
Insurance Corporation (FDIC) against the Company, PDCI and First Heights
(collectively, the "Pulte Parties"). The second lawsuit (the "Court of
Federal Claims Case") was filed on December 26, 1996, in the United States
Court of Federal Claims (Washington, D.C.) by the Pulte Parties against the
United States. In the District Court Case, the FDIC seeks a declaration of
rights and other relief related to the assistance agreement entered into
9
First Heights-Related Litigation (continued)
between First Heights and the FSLIC. The FDIC is the successor to the 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 filed an answer and a counterclaim, seeking, among other
things, a declaration that the FDIC has breached the assistance agreement in
numerous respects. On December 24, 1996, the Pulte Parties voluntarily
dismissed without prejudice certain of their claims in the District Court
Case and on December 26, 1996, initiated the Court of Federal Claims Case.
The Court of Federal Claims Case contains similar claims as those that were
voluntarily dismissed from the District Court Case. In their complaint, the
Pulte Parties assert breaches of contract on the part of the United States in
connection with the enactment of section 13224 of the Omnibus Budget
Reconciliation Act of 1993. That provision repealed portions of the tax
benefits that the Pulte Parties claim they were entitled to under the
contract to acquire the failed Texas thrifts. The Pulte Parties also assert
certain other claims concerning the contract, including claims that the
United States (through the FDIC as receiver) has improperly attempted to
amend the failed thrifts' pre-acquisition tax returns and that this attempt
was made in an effort to deprive the Pulte Parties of tax benefits they had
contracted for, and that the enactment of the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 breached the Government's obligation
not to require contributions of capital greater than those required by the
contract.
On March 5, 1999, the United States District Court (the Court), entered a
"Final Judgment" against First Heights and PDCI (the Court had previously
ruled that Pulte Corporation was not liable for monetary damages to the FDIC)
resolving by summary judgment in favor of the FDIC most of the FDIC's claims
against the Pulte Defendants. The Final Judgment requires PDCI and First
Heights to pay the FDIC monetary damages totaling approximately $221.3
million, including interest but excluding costs (such as attorneys fees) to
be determined in the future by the District Court. However, the FDIC has
acknowledged that it has already paid itself or withheld from assistance its
obligation to pay to First Heights approximately $105 million, excluding
interest thereon. The Company believes that it is entitled to a credit or
actual payment of such amount. The Final Judgment does not address this
issue. Based upon the Company's review of the Final Judgment, the Company
believes that, if the Final Judgment were to be upheld in its entirety on
appeal, the potential after-tax charges against Discontinued Operations,
after giving effect to interest owed by the FDIC to First Heights, will be
approximately $88 million, plus post-judgment interest (currently 5% per
year). The Company vigorously disagrees with the Court's rulings and has
appealed the decision to the Sixth Circuit Court of Appeals. The Company
believes that the District Court erred in granting summary judgment to the
FDIC. Among other things, the Company believes that the District Court
improperly resolved highly disputed factual issues which should have been
presented to a jury and, as a result, it improperly granted summary judgment
accepting the FDIC's view of the facts on substantially all disputed issues
and, therefore, that the Company has a strong basis for appeal of the
District Court's decision and that an appellate court, properly applying the
standards of review for this case, should reverse the District Court's
decision and remand the case for trial, if not in its entirety, then at least
in material respects.
On January 10, 2000, First Heights filed a lawsuit in the United States
District Court, Eastern District of Michigan, against the FDIC regarding the
amounts, including interest the FDIC is obligated to pay First Heights on two
promissory notes which had been executed by FDIC's predecessor, the FSLIC.
The Company does not believe that the claims in the Court of Federal Claims
Case are in any way prejudiced by the rulings in the District Court Case. The
Company is considering seeking relief in the Court of Federal Claims Case
that would, if granted, recoup portions of the damages awarded in the
District Court Case.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
This Item is not applicable.
10
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is certain information with respect to all officers
(including executive officers) of the Company as of December 31, 1999.
Year Became
Name Age Position An Officer
- ---- --- ------------------------------------------------- -----------
William J. Pulte 67 Chairman of Executive and Nominating Committees
of the Board of Directors 1956
Robert K. Burgess 55 Chairman of the Board and Chief Executive Officer 1984
Mark J. O'Brien 56 President and Chief Operating Officer 1997
Roger A. Cregg 43 Senior Vice President and Chief Financial Officer 1997
Michael A. O'Brien 47 Senior Vice President - Corporate Development 1993
John R. Stoller 51 Senior Vice President, General Counsel and Secretary 1990
Vincent J. Frees 50 Vice President and Controller 1995
Gregory M. Nelson 44 Vice President and Assistant Secretary 1993
Bruce E. Robinson 38 Vice President and Treasurer 1998
The following is a brief account of the business experience during the past
five years through December 31, 1999, of each officer:
Mr. Pulte was appointed Chairman of the Executive and Nominating Committees
of the Board of Directors in December 1998. Previously, Mr. Pulte served as
Chairman of the Board since 1991.
Mr. Burgess was appointed Chairman of the Board in December 1998. Previously,
Mr. Burgess served as President since October 1985, and had been appointed
Chief Executive Officer in January 1993.
Mr. Mark O'Brien was appointed President in December 1998. Prior to that
date, he served as Executive Vice President and Chief Operating Officer since
August 1997 and had served in various capacities with Company subsidiaries,
most notably as President of Pulte Home East, an operating unit of Pulte.
Mr. Cregg was appointed Senior Vice President in December 1997 and was named
Chief Financial Officer effective January 31, 1998. Prior to joining the
Company, Mr. Cregg was Executive Vice President and Chief Financial Officer
of Zenith Electronics Corporation since 1996, and Vice President and Chief
Financial Officer of Sweetheart Cup Company from 1990 to 1996.
Mr. Michael O'Brien became Senior Vice President in December 1994. From
December 1993 to November 1994, he was Vice President.
Mr. Stoller was appointed Senior Vice President in September 1999. Prior to
that date, he served as Vice President and General Counsel since October
1990.
Mr. Frees became Vice President and Controller in May 1995. Prior to joining
the Company in April 1995, Mr. Frees served in various key financial
capacities with American Cyanamid Company since 1982.
Mr. Nelson has been Vice President since August 1993.
Mr. Robinson was appointed Treasurer in July 1998 and was named Vice
President and Treasurer effective January 20, 1999. Mr. Robinson has served
in various capacities with the Company since 1988, most recently as Director
of Research and Analysis.
There is no family relationship between any of the officers. Each officer
serves at the pleasure of the Board of Directors.
11
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's common stock is listed on the New York Stock Exchange (Symbol:
PHM). The table below sets forth, for the quarterly periods indicated, the
range of high and low sales prices and cash dividends declared per share,
adjusted for the effect of the Company's 2-for-1 stock split effective June
1, 1998.
1999 1998
------------------------- -------------------------
Declared Declared
High Low Dividends High Low Dividends
---- --- --------- ---- --- ---------
1st Quarter $31.25 $20.25 $ .04 $23.25 $20.50 $ .03
2nd Quarter 25.63 19.81 .04 30.88 23.50 .04
3rd Quarter 24.13 20.38 .04 35.44 24.69 .04
4th Quarter 23.00 17.00 .04 29.75 20.00 .04
At December 31, 1999, there were 653 shareholders of record.
ITEM 6. SELECTED FINANCIAL DATA
Set forth below is selected consolidated financial data for each of the past
five fiscal years. The selected financial data should be read in conjunction
with Management's Discussion and Analysis of Financial Condition and Results
of Operations and the Company's Consolidated Financial Statements and Notes
thereto included elsewhere in this report.
Years Ended December 31,
($000's omitted)
--------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
OPERATING DATA:
Homebuilding:
Sales (settlements) ................. $ 3,677,716 $ 2,810,151 $ 2,479,171 $ 2,319,734 $ 1,934,403
=========== =========== =========== =========== ===========
Income before income taxes .......... $ 316,561 $ 173,346 $ 106,178(a) $ 106,391 $ 75,476
=========== =========== =========== =========== ===========
Financial services:
Revenues ............................ $ 49,873 $ 43,678 $ 34,038 $ 50,197 $ 74,105
=========== =========== =========== =========== ===========
Income before income taxes .......... $ 20,828 $ 15,194 $ 5,014(b) $ 13,941 $ 17,491
=========== =========== =========== =========== ===========
Corporate:
Revenues ............................ $ 2,748 $ 12,692 $ 10,782 $ 14,352 $ 20,632
=========== =========== =========== =========== ===========
Loss before income taxes ............ $ (50,984) $ (22,726) $ (30,217)(c) $ (17,869) $ (10,943)
=========== =========== =========== =========== ===========
Consolidated results:
Revenues ............................ $ 3,730,337 $ 2,866,521 $ 2,523,991 $ 2,384,283 $ 2,029,140
=========== =========== =========== =========== ===========
Income from continuing operations
before income taxes .............. 286,405 165,814 80,975(d) 102,463 82,024
Income taxes ........................ 108,118 64,666 31,175 39,252 33,185
----------- ----------- ----------- ----------- -----------
Income from continuing operations ... 178,287 101,148 49,800 63,211 48,839
Income (loss) from discontinued
operations ....................... (122) 1,035 2,961 116,432 9,507
----------- ----------- ----------- ----------- -----------
Net income .......................... $ 178,165 $ 102,183 $ 52,761 $ 179,643 $ 58,346
=========== =========== =========== =========== ===========
(a) Includes one-time restructuring charge of $14,800.
(b) Includes one-time restructuring charge of $2,100.
(c) Includes one-time restructuring charge of $3,100.
(d) Includes one-time restructuring charge of $20,000.
12
ITEM 6. SELECTED FINANCIAL DATA (continued)
Years Ended December 31,
-------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
PER SHARE DATA (a)
Earnings per share-basic:
Income from continuing operations ... $ 4.12 $ 2.35 $ 1.14(b) $ 1.27 $ .90
Income from discontinued operations.. -- .03 .07 2.33 .18
-------- -------- -------- -------- --------
Net income .......................... $ 4.12 $ 2.38 $ 1.21(b) $ 3.60 $ 1.08
======== ======== ======== ======== ========
Weighted-average common shares
outstanding (000's omitted) ...... 43,246 42,984 43,510 49,852 54,148
======== ======== ======== ======== ========
Earnings per share - assuming dilution:
Income from continuing operations ... $ 4.07 $ 2.30 $ 1.13(b) $ 1.26 $ .89
Income from discontinued operations.. -- .03 .07 2.31 .17
-------- -------- -------- -------- --------
Net income .......................... $ 4.07 $ 2.33 $ 1.20(b) $ 3.57 $ 1.06
======== ======== ======== ======== ========
Weighted-average common shares
outstanding and effect of dilutive
securities (000's omitted) ....... 43,823 43,884 43,908 50,304 54,844
======== ======== ======== ======== ========
Shareholders' equity ................... $ 25.27 $ 21.35 $ 19.10 $ 17.82 $ 14.08
======== ======== ======== ======== ========
Cash dividends declared ................ $ .16 $ .15 $ .12 $ .12 $ .12
======== ======== ======== ======== ========
(a) Per share data reflect the effect of the Company's 2-for-1 stock split
effective June 1, 1998, and amounts prior to 1997 have been restated as
required to comply with Statement of Financial Accounting Standards No.
128, "Earnings per Share". For further discussion of earnings per share
see Notes to Consolidated Financial Statements beginning on page 38.
(b) Earnings per share amounts include $ .28 per share attributable to
one-time restructuring charge, net of income taxes.
December 31,
($000's omitted)
------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
BALANCE SHEET DATA:
House and land inventories ................ $1,792,733 $1,455,208 $1,141,952 $1,017,262 $ 859,735
Total assets .............................. 2,596,797 2,349,839 2,129,419 1,985,141 2,047,515
Total long-term indebtedness .............. 525,965 570,114 584,313 436,587 589,229
Shareholders' equity ...................... 1,093,319 921,442 812,837 829,273 761,003
Years Ended December 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
OTHER DATA:
Domestic Homebuilding operations:
Total markets, at year end ............. 41 41 40 40 38
Total active communities, at year end .. 385 399 385 382 346
Total settlements - units .............. 19,276 15,897 14,691 14,202 12,293
Total net new orders - units ........... 19,153 17,918 14,841 13,977 13,486
Backlog units, at year end ............. 5,291 5,414 3,393 3,243 3,468
Average unit selling price ............. $ 186,000 $ 175,000 $ 164,000 $ 160,000 $ 155,000
Gross profit margin % .................. 17.9% 16.1% 14.8% 14.8% 14.5%
Pulte and Pulte-affiliate
settlements - units:
Domestic ............................... 19,276 15,897 14,691 14,202 12,293
International .......................... 6,774 3,848 1,905 606 651
Active Adult ........................... 572 614 377 220 152
---------- ---------- ---------- ---------- ----------
Total Pulte and Pulte-affiliate
settlements - units ............... 26,622 20,359 16,973 15,028 13,096
========== ========== ========== ========== ==========
13
ITEM 7. 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
years ended December 31, 1999, 1998 and 1997 is as follows:
Years Ended December 31,
------------------------------------
1999 1998 1997
--------- --------- ----------
Pre-tax income (loss), before
restructuring costs:
Homebuilding operations ................ $ 316,561 $ 173,346 $ 120,978
Financial Services operations .......... 20,828 15,194 7,114
Corporate .............................. (50,984) (22,726) (27,117)
--------- --------- ---------
Income from continuing operations before
income taxes and restructuring costs ..... 286,405 165,814 100,975
Restructuring costs ........................ -- -- 20,000
--------- --------- ---------
Income from continuing operations before
income taxes ............................. 286,405 165,814 80,975
Income taxes ............................... 108,118 64,666 31,175
--------- --------- ---------
Income from continuing operations .......... 178,287 101,148 49,800
Income (loss) from discontinued
operations ............................... (122) 1,035 2,961
--------- --------- ---------
Net income ................................. $ 178,165 $ 102,183 $ 52,761
========= ========= =========
Per share data - assuming dilution:
Income from continuing operations
before restructuring costs,
net of income taxes ................. $ 4.07 $ 2.30 $ 1.41
Restructuring costs, net of income taxes -- -- (.28)
--------- --------- ---------
Income from continuing operations ...... $ 4.07 $ 2.30 $ 1.13
Income from discontinued operations .... -- .03 .07
--------- --------- ---------
Net income ............................. $ 4.07 $ 2.33 $ 1.20
========= ========= =========
A comparison of pre-tax income (loss), before restructuring costs, for the
years ended December 31, 1999, 1998 and 1997 is as follows:
o Pre-tax income of the Company's homebuilding business segment increased
83% in 1999 and 43% in 1998. Compared to 1998, 1999 results primarily
reflect a 21% increase in Domestic Homebuilding unit sales volume, an
increase in average selling price to $186, and a 180 basis point
improvement in gross margins. In addition, both International and
Active Adult Homebuilding operations reversed prior year losses. 1998
results, as compared with 1997, primarily reflect an 8% increase in
Domestic Homebuilding unit sales volume and a 130 basis point
improvement in gross margins offset by decreases in other income
resulting from the sale of Builders Supply & Lumber Co., Inc. (BSL) in
March 1998.
o Pre-tax income of the Company's financial services business segment
increased in 1999 to $20,828, a 37% increase as compared with 1998.
This increase is attributable to the Company's mortgage banking
operation which benefited from substantial increases in mortgage
origination volume, origination fees and pricing and marketing gains.
Results for 1999 also reflect a net gain of approximately $1,700 in
connection with the sale of the mortgage-backed securities by Pulte
Financial Companies, Inc. (PFCI), a subsidiary of the Company. The
increase in pre-tax income in 1998, as compared with 1997, is also
attributable to the Company's mortgage banking operations which in 1998
benefited from the same factors as during 1999. In addition, average
operating costs per mortgage origination, excluding provision for
foreclosure-related losses and restructuring costs, decreased by 16% in
1998 compared to 1997, reflecting improved leverage of loan origination
volume.
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
($000's omitted, except per share data)
Overview (continued):
o Pre-tax loss of the Company's corporate business segment increased
$28,258 in 1999 and decreased $4,391 in 1998. The increase in pre-tax
loss in 1999 resulted from higher net interest expense, higher costs
associated with compensation, insurance, business development costs,
and the write-down of a commercial land position. In addition, during
1998, the Company realized a one-time gain on the sale of its interest
in a manufactured housing venture. The decrease in pre-tax loss in 1998
compared with 1997 primarily reflects the $5,000 gain recognized from
the sale of the Company's interest in Expression Homes, a manufactured
housing joint venture with Fleetwood Homes, during the first quarter.
Homebuilding Operations:
During 1997, the Company reorganized its homebuilding operations into three
distinct business units; Domestic, International and Active Adult.
o Domestic Homebuilding operations are conducted in 41 markets, located
throughout 25 states. Domestic Homebuilding offers a broad product line
to meet the needs of the first-time, first and second move-up, and
active adult home buyer. During 1998, the Company acquired two
homebuilders, Tennessee-based Radnor Homes on May 27, 1998 and
Florida-based DiVosta & Company on July 1, 1998.
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 and
Puerto Rico. The Company has agreements in place with multi-national
corporations to provide social interest housing in Mexico.
o Active Adult operations acquire and develop major active adult
residential communities. These amenitized, age-targeted and
age-qualified communities appeal to a growing demographic group in
their pre-retirement and retirement years. From March 25, 1998, through
July 1, 1999, Active Adult Homebuilding operations were conducted
through a joint venture with Blackstone Real Estate Advisors (BRE), an
affiliate of the Blackstone Group. Effective July 1, 1999, the Company
purchased BRE's interest in the net assets of the Active Adult joint
venture for an aggregate cash purchase price of $26 million. As a
result of this purchase, Pulte owns 100% of the Active Adult operations
and effective July 1, 1999, the Active Adult operations are fully
consolidated with the operating results of Pulte's other homebuilding
operations. Prior to this purchase, and since March 25, 1998, Pulte's
50% interest in this joint venture was accounted for as an equity
investment.
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
($000's omitted)
Homebuilding Operations (continued):
Certain operating data relating to the Company's joint ventures and
homebuilding operations are as follows:
Years Ended December 31,
----------------------------------------
1999 1998 1997
----------- ----------- -----------
Pulte/Pulte-affiliate Homebuilding revenues:
Domestic ............................. $ 3,591,453 $ 2,778,773 $ 2,407,104
International ........................ 127,310 64,590 41,196
Active Adult ......................... 121,879 104,839 54,602
----------- ----------- -----------
Total Homebuilding ...................... $ 3,840,642 $ 2,948,202 $ 2,502,902
=========== =========== ===========
Pulte/Pulte-affiliate Homebuilding pre-tax
income (loss):
Domestic (a) ......................... $ 309,975 $ 179,052 $ 123,052
International ........................ 5,538 (5,034) (3,141)
Active Adult ......................... 1,048 (672) 1,067
----------- ----------- -----------
Total Homebuilding ...................... $ 316,561 $ 173,346 $ 120,978
=========== =========== ===========
Pulte/Pulte-affiliate settlements - units:
Domestic ............................. 19,276 15,897 14,691
----------- ----------- -----------
International:
Pulte ............................. 262 166 254
Pulte-affiliated entities ......... 6,512 3,682 1,651
----------- ----------- -----------
Total International ............... 6,774 3,848 1,905
----------- ----------- -----------
Active Adult:
Pulte ............................. 293 154 377
Pulte-affiliated entity ........... 279 460 --
----------- ----------- -----------
Total Active Adult ...................... 572 614 377
----------- ----------- -----------
Total Pulte/Pulte-affiliate
settlements - units ...................... 26,622 20,359 16,973
=========== =========== ===========
(a) 1997 pre-tax income is before restructuring costs of $14,800. See
page 26, "Restructuring".
16
ITEM 7. 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 41 markets, located throughout 25
states, and are organized into nine regions as follows:
Pulte Home East:
- ----------------
Mid-Atlantic Region Connecticut, Delaware, Maryland, Massachusetts,
New Jersey, Pennsylvania,
Rhode Island, Virginia
Southeast Region Georgia, North Carolina, South Carolina,
Tennessee
Florida Region Florida
Pulte Home Central:
- -------------------
Great Lakes Region Indiana, Kansas, Michigan, Missouri, Ohio
Midwest Region Illinois, Minnesota
Texas Region Texas
Pulte Home West:
- ----------------
Southwest Region Arizona, Nevada
Rocky Mountain Region Colorado
California Region California
No one individual market within the 41 markets represented more than 10% of
total Domestic Homebuilding net new orders, unit settlements or revenues
during the three years ended December 31, 1999.
The following table presents selected unit information for Pulte's Domestic
Homebuilding operations:
Years Ended December 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
Unit settlements:
Pulte Home East ............. 10,088 7,902 7,154
Pulte Home Central .......... 5,889 4,696 4,385
Pulte Home West ............. 3,299 3,299 3,152
---------- ---------- ----------
19,276 15,897 14,691
========== ========== ==========
Net new orders - units:
Pulte Home East ............. 10,431 8,985 7,098
Pulte Home Central .......... 5,558 5,594 4,421
Pulte Home West ............. 3,164 3,339 3,322
---------- ---------- ----------
19,153 17,918 14,841
========== ========== ==========
Net new orders - dollars .......... $3,733,000 $3,161,000 $2,450,000
========== ========== ==========
Backlog at December 31 - units:
Pulte Home East ............. 2,986 2,643 1,560
Pulte Home Central .......... 1,583 1,914 1,016
Pulte Home West ............. 722 857 817
---------- ---------- ----------
5,291 5,414 3,393
========== ========== ==========
Backlog at December 31 - dollars .. $1,141,000 $ 999,000 $ 617,000
========== ========== ==========
17
ITEM 7. 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 for the eleventh consecutive year to an all-time
Company record of 19,153 units in 1999, a 7% increase over 1998 order levels.
Contributing to this strong performance were markets in the Great Lakes,
Midwest, Southeast and Florida regions offset by softer performance in the
Rocky Mountain, Southwest and Texas regions. 1999 results also reflect an
entire year's results for Radnor Homes and DiVosta & Company, ("the acquired
operations") which were acquired in mid-1998 and contributed net new orders
of 1,564 in 1999, compared with 1,182 in 1998. Order growth in the Southeast,
Mid-Atlantic, Great Lakes, Texas and Southwest regions contributed to the 21%
increase in 1998 orders as compared with 1997.
Unit settlements in 1999 also hit a record-setting high, increasing 21% to
19,276 units. These results reflect strong performance in the Southeast,
Florida, Texas and Great Lakes Regions. The acquired operations contributed
1,456 unit settlements in 1999, compared with 683 in 1998. Unit settlement
activity in 1998 increased 8% over 1997 levels due to significant increases
in the Southeast, Mid-Atlantic, Texas, California and Great Lakes regions and
the unit settlements provided by the acquired operations. The average home
sales price increased from $164 in 1997 to $175 in 1998 and to $186 in the
current year. Changes in average selling price reflect a number of factors,
including the mix of product closed during a period. Overall, strong demand,
supported by favorable economic conditions continued to drive increased order
activity and record levels of backlog. These factors have contributed to the
solid settlement activity during 1999 and 1998.
The Company's ending backlog was down slightly to 5,291 homes, but the dollar
value was up 14% to $1.14 billion. Unit backlog at December 31, 1998, was
approximately 60% higher than that noted at the end of 1997. Excluding the
December 31, 1998, backlog associated with acquired operations of 499 units,
or $91,000, the increase would have been 45%.
The following table presents a summary of pre-tax income for Pulte's Domestic
Homebuilding operations:
Years Ended December 31,
-----------------------------------------
1999 1998 1997
----------- ------------ -----------
Revenues ..................... $ 3,591,453 $ 2,778,773 $ 2,407,104
Cost of sales ................ (2,947,583) (2,331,517) (2,051,591)
Selling, general and
administrative expenses .... (307,697) (244,025) (219,993)
Interest (a) ................. (24,166) (20,164) (18,503)
Other income (expense), net .. (2,032) (4,015) 6,035
----------- ----------- -----------
Pre-tax income before
restructuring costs ........ 309,975 179,052 123,052
Restructuring costs .......... -- -- (14,800)
----------- ----------- -----------
Pre-tax income ............... $ 309,975 $ 179,052 $ 108,252
=========== =========== ===========
Average sales price .......... $ 186 $ 175 $ 164
=========== =========== ===========
(a) The Company capitalizes interest cost into homebuilding inventories and
charges the interest to homebuilding interest expense when the related
inventories are closed.
18
ITEM 7. 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 in 1999 increased to 17.9%, up 180 basis points over
1998. Gross profit margins in 1998 increased to 16.1%, up 130 basis points
over 1997. Factors which continue to contribute to this favorable trend
include 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.
For the year ended December 31, 1999, selling, general and administrative
expenses (SG&A), as a percentage of sales, declined to 8.6% from 8.8% in 1998
and 9.1% in 1997, reflecting the leverage of SG&A spending on higher unit
sales volume. The decrease from 1998 to 1997 also reflects the benefit
savings from the restructuring plan effected in the last quarter of 1997.
Other income (expense) net, includes gains on land sales and other
homebuilding-related expenses. Other income (expense) net, has also
historically included the net operating results of BSL prior to its sale on
March 20, 1998. The decrease in other expense for the year ended December 31,
1999, is due to the winddown of operations and transaction costs related to
the sale of BSL which are included in 1998. The decrease in other income from
1998 to 1997 is due to the winding down of BSL operations coupled with
transaction costs incurred in connection with the sale which resulted in a
decrease of other income of $7,030. Also reflected in yearly results is a
decrease in 1998 of approximately $2,900 resulting from an insurance
litigation settlement received in the first quarter of 1997.
At December 31, 1999, Pulte's Domestic Homebuilding operations controlled
approximately 66,700 lots, of which approximately 39,800 lots were owned and
approximately 26,900 lots were controlled through option agreements.
As a component of the Company's business strategies, the Company acquired all
of the outstanding stock of Tennessee-based Radnor Homes and the net assets
of an affiliated company 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 was accounted for as a purchase, and as such, the operating
results of Radnor Homes since the acquisition date are included in the
Company's results of operations, and integrated into the Southeast Region.
On July 1, 1998, the Company acquired the outstanding stock and membership
interests in certain closely-held businesses of Florida-based DiVosta &
Company for an aggregate purchase price of approximately $155,000.
Consideration for this acquisition, which was 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. The purchase price has been allocated to the assets
acquired and liabilities assumed based on relative fair value estimates.
Goodwill of approximately $47,000 represents the excess of the purchase price
over these fair value estimates and will be amortized using a straight-line
method over a seven-year period. The Company has included the operating
results of DiVosta & Company since the acquisition date in its consolidated
results of operations. Goodwill amortization was $6,600 and $3,400 for the
years ended December 31, 1999 and 1998, respectively.
19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
($000's omitted)
Homebuilding Operations (continued):
International Homebuilding:
International Homebuilding operations are primarily conducted through
subsidiaries of Pulte International Corporation in Mexico and Puerto Rico.
The Company's aggregate net investment in its five joint ventures located
throughout Mexico approximated $33,200 at December 31, 1999. The largest of
these ventures, Condak-Pulte S. De R.L. De C.V., is located in the city of
Juarez. The Juarez-based venture is currently developing communities in
Juarez, Chihuahua, Nuevo Laredo, Reynosa and Matamoros, under agreements with
Delphi Automotive Systems and Sony Magneticos de Mexico, S.A. de C.V., an
affiliate of Sony Electronics, Inc. As of December 31, 1999, the Company's
net investment in the Juarez-based joint venture approximated $25,400.
On June 22, 1998, Pulte formed a new Mexican joint venture with Desarrollos
Residenciales Turisticos, S.A. de C.V. (DRT), to construct primarily social
interest 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. This venture is
constructing primarily social interest housing in the Bajio region
surrounding Mexico City, targeting the cities of Puebla, Queretaro, San Jose
du Iturbide, 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 December 31, 1999, the
Company's net investment in this joint venture approximated $5,700.
In September 1999 the Company's Puerto Rican operations entered into a joint
venture agreement with Desarrolladores Urbanos (Canovanas), S.E., an
established Puerto Rican special partnership created for the acquisition and
development of 121 acres located in the municipality of Canovanas, Puerto
Rico. At December 31, 1999, the Company's net investment in this joint
venture approximated $2,800.
The following table presents selected financial data for Pulte's
International Homebuilding operations for the years ended December 31, 1999,
1998 and 1997.
Years Ended December 31,
--------------------------------
1999 1998 1997
-------- -------- --------
Revenues ................................. $ 21,941 $ 12,152 $ 17,465
Cost of sales ............................ (20,337) (12,000) (14,793)
Selling, general and administrative
expense ................................ (4,588) (4,639) (3,702)
Other income (expense), net .............. 2,522 (85) (71)
Equity in income (loss) of Mexico
operations ............................. 6,000 (462) (2,040)
-------- -------- --------
Pre-tax income (loss) .................... $ 5,538 $ (5,034) $ (3,141)
======== ======== ========
Unit settlements:
Pulte ................................. 262 166 254
Pulte-affiliated entities ............. 6,512 3,682 1,651
-------- -------- --------
6,774 3,848 1,905
======== ======== ========
The Company's international operations reversed 1998 losses of approximately
$5,000 to record $5,538 of pre-tax income during 1999. In Puerto Rico, 1999
results were positively impacted by changes in the management team during
1998. For 1999, a 58% increase in unit closings to 262, along with improved
gross profit margins and reduced selling, general and administrative
expenses, resulted in operating income, compared with losses during 1998. In
addition, other income includes a gain of approximately $2,400 related to the
sale of land during the fourth quarter of 1999. Operational losses during
1998 reflect the rebuilding efforts associated with Hurricane Georges and the
refocusing of land positions and product offerings by the new management
team.
20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
($000's omitted)
Homebuilding Operations (continued):
International Homebuilding (continued):
In Mexico, 1999 results reflect improved income from joint venture
operations, due to a 77% increase in unit closings to 6,512, offset by
increased overhead costs associated with expansion in Mexico. In addition, a
6% increase in the Mexican peso resulted in foreign currency gains of
approximately $1,700, compared with losses of approximately $2,800 during
1998 and $570 during 1997.
Active Adult Homebuilding:
From March 25, 1998, through July 1, 1999, Active Adult Homebuilding
operations were conducted through a joint venture with Blackstone Real Estate
Advisors (BRE), an affiliate of the Blackstone Group. Effective July 1, 1999,
the Company purchased BRE's interest in the net assets of the Active Adult
joint venture for an aggregate cash purchase price of $26 million. The
purchase price was allocated to assets acquired and liabilities assumed using
the purchase method of accounting. As a result of this purchase, Pulte owns
100% of the Active Adult operations, and effective July 1, 1999, the Active
Adult operations are fully consolidated with the operating results of Pulte's
other homebuilding operations. Prior to this purchase, and since March 25,
1998, Pulte's 50% interest in this joint venture was accounted for as an
equity investment. The impact of acquiring the additional 50% interest was
immaterial to the Company's consolidated revenues, pre-tax income from
operations, net income and earnings per share (both basic and diluted).
Active Adult operations acquire and develop major active adult residential
communities. These highly amenitized, age-targeted and age-qualified
communities appeal to a growing demographic group in their pre-retirement and
retirement years. These operations, headquartered in Phoenix, Arizona, at
December 31, 1999, include three communities located in Arizona and
California. Springfield at Whitney Oaks, an Active Adult Community in
Northern California, received the Gold Achievement Award for the best
seniors' housing development in the nation during 1999, as presented by the
National Council on Seniors Housing.
21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
($000's omitted)
Homebuilding Operations (continued):
Active Adult Homebuilding (continued):
The following table presents selected financial data for Pulte's Active Adult
Homebuilding operations for the years ended December 31, 1999, 1998, and
1997. Prior year data includes the operating results of the Company's Active
Adult subsidiaries from January 1, 1998, through March 25, 1998, the date
upon which the formation of the joint venture occurred, and the equity in
income of the joint venture from that date forward. 1999 data reflects the
equity in income of the joint venture entity through June 30, 1999 and the
operating results of the Company's Active Adult subsidiaries from July 1,
1999 forward.
Years Ended December 31,
-----------------------------------
1999 1998 1997
--------- --------- ---------
Revenues ............................ $ 64,322 $ 19,226 $ 54,602
Cost of sales ....................... (55,921) (15,736) (44,148)
Selling, general and
administrative expense ............ (6,766) (4,020) (8,997)
Interest ............................ (1,021) -- --
Other expense, net .................. (382) (452) (390)
Equity in income of joint venture ... 816 310 --
--------- --------- ---------
Pre-tax income (loss) ............... $ 1,048 $ (672) $ 1,067
========= ========= =========
Pulte and Pulte-affiliate:
Average sales price ................. $ 213 $ 171 $ 145
========= ========= =========
Settlements - units ................. 572 614 377
========= ========= =========
Settlements - dollars ............... $ 121,900 $ 104,800 $ 54,600
========= ========= =========
Net new orders - units .............. 542 671 385
========= ========= =========
Net new orders - dollars ............ $ 123,300 $ 123,300 $ 57,600
========= ========= =========
Backlog at December 31 - units ...... 141 171 114
========= ========= =========
Backlog at December 31 - dollars .... $ 38,600 $ 37,200 $ 18,700
========= ========= =========
Net new orders and unit settlements in 1999 decreased from 1998 primarily
related to the completion and close-out of two Active Adult communities
during 1999. The increase in revenues, cost of sales and selling, general and
administrative expense in 1999 compared with 1998 reflect the repurchase of
BRE's interest in the Active Adult joint venture. Prior to the repurchase,
the Company accounted for these operations as an equity investment.
The increase in net new orders and settlements in 1998 compared with 1997 was
due to new joint venture communities which began closing units during 1998.
The decrease in revenues, cost of sales and selling, general and
administrative expense from 1998 to 1997 reflect the formation of the Active
Adult joint venture with BRE in March 1998, at which time all but one of
Pulte's four Active Adult subsidiaries ceased to operate. Therefore,
operating results for these subsidiaries reflect only three months of
activity during 1998. Subsequent to the formation of this joint venture with
BRE, Pulte began to account for its Active Adult operations as an equity
investment, the pre-tax results of which reflect the start-up stage of this
new operation.
Gross profit margins were 15.6% for the year ended December 31, 1999,
compared with 18.2% and 19.1% for the years ended December 31, 1998 and 1997,
respectively. The decrease in 1999 was primarily due to acquisition
accounting adjustments related to the Company's purchase of BRE's 50%
interest in the joint venture operations effective July 1, 1999. Excluding
the impact of acquisition accounting, gross profit margins for 1999 would
have been 18.3%. The Company anticipates that gross profit margins will
continue to be adversely impacted by acquisition accounting adjustments
through the first half of 2000.
22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
($000's omitted)
Homebuilding Operations (continued):
Active Adult Homebuilding (continued):
The following pro-forma information and related discussion provide a more
meaningful comparison of the results of operations for the Active Adult
operations. The pro-forma information presents selected financial data for
Pulte's wholly-owned and joint venture operations as if they had been
consolidated for all of 1998 and 1999. It excludes costs related to the sale
and subsequent repurchase of these operations, such as transaction costs and
acquisition accounting adjustments.
Years Ended December 31,
-----------------------------------
1999 1998 1997
--------- --------- ---------
Proforma Actual
---------------------- ---------
Financial summary:
Revenues .......................... $ 121,879 $ 104,839 $ 54,602
Cost of sales ..................... (99,577) (85,018) (44,148)
Selling, general and administrative
expense ......................... (14,502) (14,906) (8,997)
Interest .......................... (1,956) (1,756) --
Other expense, net ................ (409) (2,438) $ (390)
--------- --------- ---------
Pre-tax income ....................... $ 5,435 $ 721 $ 1,067
========= ========= =========
Net new orders and unit settlements in 1999 decreased from 1998 primarily
related to the completion and close-out of two Active Adult communities
during 1999. Revenues increased in 1999 compared with 1998 due to an increase
in average selling price to $213 from $171 as a result of strong demand for
housing and product mix. The increase in net new orders, settlements and
revenue in 1998 compared with 1997 was due to new communities which began
closing units during 1998. Gross profit margin was 18.3% for the year ended
December 31, 1999, compared with 18.9% and 19.1% for the years ended December
31, 1998 and 1997, respectively. Selling, general and administrative expense
as a percent of revenues was 11.9% for the year ended December 31, 1999,
compared with 14.2% and 16.5% for the years ending December 31, 1998 and
1997. The decrease as a percent of revenue is due to the leveraging of these
expenses on higher sales volume. Other expense, net for 1998 includes
write-off of pre-acquisition land costs.
Since March 25, 1998, through December 31, 1999, the Active Adult operations
have borrowed on a $60,000 credit line secured by their inventory to finance
development and construction activities. The interest cost incurred is
capitalized into inventory and charged to interest expense when the related
inventories are closed. This credit line was paid off and canceled in
December 1999. Beginning in 2000 these operations will be funded through the
Company's corporate business segment.
At December 31, 1999, Pulte's Active Adult Homebuilding operations controlled
approximately 3,600 lots, of which approximately 3,300 lots were owned and
approximately 300 lots were controlled through option agreements.
23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
($000's omitted)
Financial Services Operations:
The Company conducts its financial services operations principally through
Pulte Mortgage Corporation (PMC), the Company's mortgage banking subsidiary
and, to a limited extent, through Pulte Financial Companies, Inc. (PFCI), the
Company's financing subsidiary, which completed the sale of its remaining
mortgage-backed securities portfolio during the first quarter of 1999.
Pre-tax income (loss) of the Company's financial services operations is as
follows:
Years Ended December 31,
----------------------------------------
1999 1998 1997
----------- ----------- -----------
Pre-tax income (loss):
Mortgage banking ........ $ 19,017 $ 15,268 $ 7,230
Financing activities .... 1,811 (74) (116)
----------- ----------- -----------
Pre-tax income before
restructuring costs ... 20,828 15,194 7,114
Restructuring costs ..... -- -- (2,100)
----------- ----------- -----------
Pre-tax income ............. $ 20,828 $ 15,194 $ 5,014
=========== =========== ===========
Mortgage Banking:
Years Ended December 31,
----------------------------------------
1999 1998 1997
----------- ----------- -----------
Total originations:
Loans .................. 13,728 12,772 10,167
=========== =========== ===========
Principal .............. $ 1,908,200 $ 1,687,000 $ 1,256,000
=========== =========== ===========
Originations for Pulte
customers:
Loans .................. 10,858 9,295 8,271
=========== =========== ===========
Principal .............. $ 1,558,400 $ 1,265,000 $ 1,060,000
=========== =========== ===========
PMC sells its servicing rights on a flow basis through fixed price servicing
sales contracts. Due to the short period of time the servicing rights are
held, usually two to three months, the Company does not amortize the
servicing asset. Since the servicing rights are recorded at the value in the
servicing sales contracts, there are no impairment issues related to these
assets. PMC also originates mortgage loans using its own funds or borrowings
made available to it pursuant to various credit arrangements, and then sells
such mortgage loans to outside investors.
Mortgage origination volume for the year ended December 31, 1999, increased
13% over 1998 due primarily to the 21% increase in year-to-date unit sales
realized in Pulte's Domestic Homebuilding operations. Pulte customers
continue to account for the majority of total loan production during 1999,
representing 79% of total production versus 73% in 1998. Refinancings
represented less than 5% of total loan originations in 1999 compared with
almost 10% during 1998. During the second half of 1999, competitive market
conditions due to rising mortgage interest rates decreased non-Pulte
originations. Mortgage origination volume for the year ended December 31,
1998, increased 34% over 1997 and was driven by increased volume in both unit
sales realized in Pulte's homebuilding operations and unit sales realized
from the retail sector. At December 31, 1999, loan application backlog
increased 8% to $499,000 as compared to $460,000 at December 31, 1998 and
$294,000 at December 31, 1997. 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.
24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
($000's omitted)
Financial Services Operations (continued):
Mortgage Banking (continued):
During 1999, origination fees increased by $2,029 or 41% over the prior year.
The increase in origination fees is due to an increase in non-funded
(brokered) loans and higher revenues per loan. Mortgage origination fees
increased $1,149 or 31% during 1998, as compared with 1997, as a result of
the overall increase in loan originations and an increase in non-funded,
brokered loans. Pricing and marketing gains increased $2,289 or 9% from the
same period in 1998, due primarily to increased funded mortgage originations,
which increased 11% from 1998. During 1998, pricing and marketing gains
increased $7,586 or 42% compared to 1997, primarily as a result of increased
funded mortgage originations and increased servicing retained loan
production.
Net interest income in 1999 increased 59% from 1998 to $2,186. This increase
was due to higher funded production, a widening of the yield curve and
slightly higher average shareholder's equity. As compared with 1997, net
interest income decreased 18% to $1,379 during 1998 due to reduced balances
of equity capital coupled with a lower spread between short-term and
long-term mortgage rates. PMC operating expenses increased $2,964 or 16% from
1998 due primarily to higher loan production. Operating expenses decreased
$992 or 6% from 1997 on increased production of 34%. This improved cost
leverage is a result of the mortgage operations center (MOC) and mortgage
application center (MAC) initiatives implemented during 1997 which have
expedited the loan approval process and lowered the total costs from
application to closing, and the corporate restructuring.
During 1999, PMC also recognized increased equity income from its minority
interest in a Mexican mortgage banking company. Other income also included
final settlement of a private mortgage insurance bankruptcy.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended by SFAS No. 137 which is
required to be adopted in years beginning after June 15, 2000. 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. PMC, 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 plans to adopt this statement on January 1, 2001, but has
not yet determined what effect SFAS No. 133 will have on its earnings and
financial position.
Financing Activities:
The Company's secured financing operations, which had been conducted by a
limited-purpose subsidiary of Pulte Financial Companies, Inc. (PFCI),
included 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. During the first quarter of
1999, PFCI recognized a net gain of approximately $1,700 in connection with
the sale of its remaining mortgage-backed securities portfolio.
25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
($000's omitted)
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 year to year
as these strategic initiatives evolve.
The following table presents corporate results of operations for the years
ended December 31, 1999, 1998 and 1997:
Years Ended December 31,
---------------------------
1999 1998 1997
------- ------- -------
Net interest expense ............. $22,824 $14,269 $14,079
Other corporate expenses, net .... 28,160 8,457 13,038
------- ------- -------
Loss before income taxes and
restructuring costs ............ 50,984 22,726 27,117
Restructuring costs .............. -- -- 3,100
------- ------- -------
Loss before income taxes ......... $50,984 $22,726 $30,217
======= ======= =======
The increase in pre-tax loss of $28,258 in 1999, as compared with 1998
resulted from higher net interest expense due to increased short-term
borrowings to fund working capital needs, higher costs associated with
compensation due to increased profitability, insurance, business development
costs and the write-down of a commercial land position. The decrease in
pre-tax loss, before restructuring costs, of $4,391 in 1998, as compared with
1997 is due to a one-time gain of $5,000 in 1998 on the sale of the Company's
interest in Expression Homes, a manufactured housing joint venture with
Fleetwood Homes, and an increase in the net interest spread.
Corporate 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. Through December 31,
1999, such amounts were allocated to Domestic Homebuilding interest
expense. Interest cost incurred by Active Adult operations on its secured
credit line was capitalized into inventory and charged to Active Adult
interest expense when the related inventories closed. This credit line was
paid off and canceled in December 1999. Beginning in 2000 these operations
will be funded through the Company's corporate business segment. Corporate
interest incurred and capitalized into inventory will be allocated to the
homebuilding segment business units as appropriate. Information related to
Corporate interest capitalized into inventory is as follows:
Years Ended December 31,
--------------------------------
1999 1998 1997
-------- -------- --------
Interest in inventory at
beginning of year .................... $ 16,356 $ 14,719 $ 12,846
Interest capitalized ................... 26,902 21,801 20,376
Interest expensed ...................... (24,166) (20,164) (18,503)
-------- -------- --------
Interest in inventory at end of year ... $ 19,092 $ 16,356 $ 14,719
======== ======== ========
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.
The 1997 restructuring charge included $11,787 of separation and other costs
for approximately 150 employees, $7,000 of asset net realizability
adjustments and $1,213 of other costs, principally for office leases. The
after-tax effect of this charge was $12,300 or $.28 per diluted share. As of
December 31, 1999, the Company has severed employment with approximately 150
employees.
26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
($000's omitted)
Restructuring (continued):
The Company's restructuring plan included right-sizing the workforce on a
Company-wide basis. The Company's plan of restructuring included the
following employee groups: approximately 100 construction and administrative
support employees, 27 middle managers/supervisors and 23 members of senior
management.
This reorganization entailed the realignment of homebuilding operations into
business lines which focus on specific customer segments; the creation of a
mortgage applications center, which increased overhead leverage by moving
PMC's loan officers from field branches to a central location in Denver,
Colorado; and the evaluation and strategic deployment of inventory investment
in the Company's homebuilding operations. As such, various homebuilding
communities located primarily in Florida, North Carolina, South Carolina and
Illinois with assets such as house and land inventory were affected by an
exit plan to either sell such inventory or expedite the wind-down/withdrawal
of homebuilding activities. The fair value of these assets was determined
based on estimated selling price, less costs to complete, less direct selling
and disposal costs.
The following tables display the status of liabilities accrued for the
Company's restructuring from origination to December 31, 1999.
1997 Reserve Uses Balance at
Original ---------------------- December 31,
Type of Cost Reserve Cash Non-cash 1997
- ------------ -------- -------- --------- ------------
Homebuilding operations:
Employee separation and other ... $ 6,900 $ (843) $ -- $ 6,057
Net realizability adjustments ... 7,000 -- (7,000) --
Other ........................... 900 -- -- 900
-------- -------- -------- --------
14,800 (843) (7,000) 6,957
-------- -------- -------- --------
Mortgage Banking operations:
Employee separation and other ... 1,787 (610) -- 1,177
Other ........................... 313 (33) -- 280
-------- -------- -------- --------
2,100 (643) -- 1,457
-------- -------- -------- --------
Corporate:
Employee separation and other ... 3,100 (74) (496) 2,530
-------- -------- -------- --------
$ 20,000 $ (1,560) $ (7,496) $ 10,944
======== ======== ======== ========
Balance at 1998 Reserve Uses Balance at
December 31, ---------------------- December 31,
Type of Cost 1997 Cash Non-cash 1998
- ------------ ------------ -------- --------- ------------
Homebuilding operations:
Employee separation and other ... $ 6,057 $ (4,555) $ -- $ 1,502
Other ........................... 900 (645) -- 255
-------- -------- -------- --------
6,957 (5,200) -- 1,757
-------- -------- -------- --------
Mortgage Banking operations:
Employee separation and other ... 1,177 (840) -- 337
Other ........................... 280 (201) -- 79
-------- -------- -------- --------
1,457 (1,041) -- 416
-------- -------- -------- --------
Corporate:
Employee separation and other ... 2,530 (1,608) -- 922
-------- -------- -------- --------
$ 10,944 $ (7,849) $ -- $ 3,095
======== ======== ======== ========
27
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
($000's omitted)
Restructuring (continued):
Balance at 1999 Reserve Uses Balance at
December 31, --------------------- December 31,
Type of Cost 1998 Cash Non-cash 1999
- ------------ ------------ ------- -------- ------------
Homebuilding operations:
Employee separation and other ... $ 1,502 $ (576) $ -- $ 926
Other ........................... 255 (255) -- --
------- ------- ------- -------
1,757 (831) -- 926
------- ------- ------- -------
Mortgage Banking operations:
Employee separation and other ... 337 (248) -- 89
Other ........................... 79 (79) -- --
------- ------- ------- -------
416 (327) -- 89
------- ------- ------- -------
Corporate:
Employee separation and other ... 922 (314) -- 608
------- ------- ------- -------
$ 3,095 $(1,472) $ -- $ 1,623
======= ======= ======= =======
The remaining accrual for restructuring costs at December 31, 1999, relates
principally to severance agreements which are expected to be fully paid
during 2000. The Company believes that implementation of the restructuring
plan resulted in annual cost savings of approximately $10,000.
Liquidity and Capital Resources :
Continuing Operations:
The Company's net cash from operating activities increased from a use of cash
of $129,344 in 1998 to a source of cash of $11,627 in 1999 reflecting
increases in net income and accounts payable and a decrease in PMC's holdings
of residential mortgage loans available-for-sale, offset by increases in
inventory and other assets. Net cash from investing activities increased from
a use of cash of $44,674 in 1998 to a source of cash of $2,535 in 1999
resulting primarily from the sale of PFCI's mortgage-backed securities
portfolio, offset by the purchase of BRE's interest in the net assets of the
Active Adult joint venture. Cash used in 1998 investing activity primarily
reflects the Company's purchase of Radnor Homes and DiVosta & Company, and
the sale of 50% of its interest in the Active Adult subsidiaries to BRE in
March 1998. Net cash from financing activities decreased from a source of
cash of $54,060 in 1998 to a use of cash of $87,642 in 1999 due primarily to
PFCI's redemption of its mortgage-backed bond portfolio, decreased borrowings
on collateralized short-term debt related to PMC's residential mortgage loan
portfolio and repayment of unsecured senior subordinated debentures and other
debt. 1998 activity reflects proceeds from borrowings, primarily to finance
the Company's acquisitions during 1998, repayment of other non-recourse debt
and dividends paid.
The Company finances homebuilding land acquisition, development and
construction activities from internally generated funds and existing credit
agreements. The Company's Active Adult operation used a $60,000 credit line
secured by its inventory to finance its development and construction
activities during most of 1999. At the request of the Company, this credit
line was paid off and canceled during December 1999. The Company had
borrowings of $7,000 under its $375,000 unsecured revolving credit facilities
at December 31, 1999. 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 December 31,
1999, amounted to $345,000, an amount deemed adequate to cover foreseeable
needs. There were approximately $220,000 of borrowings outstanding under the
$345,000 PMC arrangement at December 31, 1999. 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.
28
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
($000's omitted)
Continuing Operations (continued):
The Company's income tax liabilities are affected by a number of factors. In
1999, the Company's effective tax rate decreased to 37.75% from 39% in 1998.
The reduced income tax rate results from a lower effective state tax rate and
the favorable resolution of various state income tax matters. In 1998, the
Company's effective income tax rate increased .5% from 1997, primarily
reflecting a shift in the sales mix to jurisdictions with higher tax rates.
Management anticipates that the Company's effective tax rate for 2000 will
range between 38% and 39%.
At December 31, 1999, the Company had cash and equivalents of $51,718 and
total indebtedness of $525,965. The Company's total long-term indebtedness
includes $487,690 of unsecured senior notes, a $21,000 unsecured promissory
note and other Pulte limited recourse debt of $17,275. The Company also has
other non-recourse short-term notes payable of $65,046 and First Heights
advances of $760. During 1999, the Company redeemed the $28,075 of
mortgage-backed bonds payable by PFCI and the $22,405 unsecured senior
subordinated debentures. The first installment of $7,000 due under the
$21,000 unsecured promissory note, originally due July 1, 1999, was, at the
option of the noteholder, extended to 2000.
In the normal course of business, Pulte acquires rights under options or
option-type agreements to purchase land to be used in homebuilding operations
at future dates. The total purchase price applicable to land under option at
December 31, 1999, approximated $835,400.
At December 31, 1999, the Company also had outstanding letters of credit and
performance bonds of $165,300 and $374,600, respectively.
On January 20, 2000, the Company's Board of Directors approved a stock
repurchase plan of up to $100 million. At the closing stock price of the
Company's shares on that date, the program would allow for repurchase of 12
percent of all outstanding shares. Shares will be purchased from time-to-time
in the open market, depending upon market conditions. The Company anticipates
funding repurchases under the plan through cash flows from operations.
Through February 29, 2000, the Company had purchased 1,066,600 shares for an
aggregate price of $18,342.
Sources of the Company's working capital at December 31, 1999, include its
cash and equivalents, and its $375,000 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.
Discontinued Operations:
The Company's remaining investment in First Heights at December 31, 1999,
approximated $29,400. 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
(FRF). In order to expedite the wind-down of its thrift operations, the
Company, with the approval of the OTS and FDIC, funded First Heights'
repayment of its remaining certificates of deposit with a loan of
approximately $17,000 during the fourth quarter of 1998. Repayment of such
amount will be part of the final liquidation of First Heights. As discussed
in Note 11 of Notes to 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 million. 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.
29
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
($000's omitted)
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.
Information Technology and Year 2000 Compliance:
An integral part of the Company's operating strategy is to provide Pulte
management and employees the information systems needed to support the
Company's current operations and future growth. Management believes that
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.
A critical component of this integrated systems effort involved replacement
of the Company's previous accounting system. This new system is designed to
enhance access to and reporting of operating results and other financial
measurements. The Company believes that the new system substantially resolved
any exposure to Year 2000 risk. The following was also completed in
contemplation of the millennium date change issue:
o In conjunction with the financial accounting systems replacement, the
Company upgraded its cash management system.
o The Company's homebuilding, mortgage banking and corporate operations
performed risk assessments of information technology (IT), non-IT
(embedded technology such as microprocessors in office equipment and
facilities) and essential homebuilding supplier/contractor
relationships.
o The Company exchanged Year 2000 readiness information with all of its
national contract suppliers and major banks.
The Company did not experience any significant problems as a result of the
Year 2000 date change and does not expect any continued exposure. While there
can be no assurance that no legal claims will arise due to perceived or real
Year 2000 issues, the Company does not expect a material impact on its
liquidity, financial position or results of operations caused by internal
Year 2000 issues or by possible claims asserted by third parties.
Cumulative spending for the Company's internally-developed business software
was approximately $7,700 through December 31, 1999. Additional costs incurred
related to year 2000 compliance efforts were not material to continuing
operations. No future expenditures related to Year 2000 are expected.
30
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to interest rate risk on its long term debt to the
extent long-term rates decline. The following tables set forth, as of
December 31, 1999 and 1998, the Company's long term debt obligations,
principal cash flows by scheduled maturity, weighted average interest rates
and estimated fair market value.
As of December 31, 1999 for the
Years ended December 31
--------------------------------------------------------------------------------------------
There- Fair
2000 2001 2002 2003 2004 after Total Value
------- ------- ------- -------- -------- -------- -------- --------
Rate sensitive liabilities:
Fixed interest rate debt:
Pulte Corporation public
debt instruments ......... $ -- -- -- $100,000 $115,000 $275,000 $490,000 $452,208
Average interest rate .... -- -- -- 7.00% 8.38% 7.48% 7.61% --
Pulte Diversified
Companies, Inc.,
unsecured promissory
note ..................... $14,000 7,000 -- -- -- -- $ 21,000 $ 21,000
Average interest rate .... 8.00% 8.00% -- -- -- -- 8.00% --
Pulte Home Corporation
other non-recourse
debt ..................... $11,066 5,782 427 -- -- -- $ 17,275 $ 17,275
Average interest rate .... 8.98% 8.00% 8.50% -- -- -- 8.64% --
As of December 31, 1998 for the
Years ended December 31
--------------------------------------------------------------------------------------------
There- Fair
1999 2000 2001 2002 2003 after Total Value
------- ------- ------- -------- -------- -------- -------- --------
Rate sensitive liabilities:
Fixed interest rate debt:
Pulte Corporation public
debt instruments ......... $ -- -- -- -- $100,000 $390,000 $490,000 $502,574
Average interest rate .... -- -- -- -- 7.00% 7.74% 7.61% --
Pulte Diversified
Companies, Inc.,.unsecured
promissory note .......... $ 7,000 7,000 7,000 -- -- -- $ 21,000 $ 21,000
Average interest rate .... 8.00% 8.00% 8.00% -- -- -- 8.00% --
Pulte Financial Companies,
Inc., mortgage-backed
bonds .................... $28,075 -- -- -- -- -- $ 28,075 $ 29,290
Average interest rate .... 9% -- -- -- -- -- 9% --
Pulte Home Corporation
unsecured senior
subordinated debentures .. $22,405 -- -- -- -- -- $ 22,405 $ 22,900
Average interest rate .... 10.13% -- -- -- -- -- 10.13% --
Pulte Home Corporation
other non-recourse
debt ..................... $ 6,766 1,920 1,920 532 -- -- $ 11,138 $ 11,138
Average interest rate .... 10.34% 10.00% 10.00% 10.00% -- -- 10.21% --
31
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(continued)
PMC, operating as a mortgage banker, is also subject to interest rate risk.
Interest rate risk begins when PMC commits to lend money to a customer at
agreed upon terms (i.e., commits to lend at a certain interest rate for a
certain period of time). The interest rate risk continues through the loan
closing and until the loan is sold to an investor. During 1998 and 1999, this
period of interest rate exposure averaged approximately 60 days. In periods
of rising interest rates, the length of exposure will generally increase due
to customers locking in an interest rate sooner as opposed to letting the
interest rate float.
In order to minimize the interest rate risk PMC (i) finances the loans via a
variable rate borrowing agreement tied to the Federal Funds rate and (ii)
hedges its loan commitments and closed loans through derivative financial
instruments with off-balance sheet risk. These financial instruments include
cash forward placement contracts on mortgage-backed securities, whole loan
investor commitments, options on treasury future contracts and options on
cash forward placement contracts on mortgage-backed securities. PMC does not
use any derivative financial instruments for trading purposes.
Hypothetical changes in the fair values of PMC's financial instruments
arising from immediate parallel shifts in long-term mortgage rates of plus
50, 100 and 150 basis points would not be material to the Company's financial
results.
The Company's aggregate net investment in Mexico approximated $33,200 at
December 31, 1999. This investment, which is exposed to foreign currency
exchange risk, could devalue by as much as $5,250 in 2000, assuming a
hypothetical 18% annualized devaluation of the Mexican peso against the U.S.
dollar during 2000. During the second quarter of 1998, the three-year
cumulative rate of inflation in Mexico fell below 100%. As a result, the
Mexican economy ceased to be considered hyperinflationary effective January
1, 1999. Based on this change in economic status and under current accounting
rules, a majority of the Company's translation adjustments in 1999 were not
included in the determination of net income for the Company's international
operations, but rather were reported separately and accumulated in a separate
component of equity and included in the determination of other comprehensive
income.
Special Notes Concerning Forward-looking Statements
As a cautionary note, except for the historical information contained herein,
certain matters discussed in Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Item 7A, "Quantitative &
Qualitative Disclosures About Market Risk", are "forward-looking" statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Such matters involve risks and uncertainties, including: the Company's
exposure to certain market risks, changes in economic conditions, tax and
interest rates, increases in raw material and labor costs, weather
conditions, and general competitive factors, that may cause actual results to
differ materially; its ability to resolve all outstanding matters related to
First Heights (including the outcome of the Company's appeal in the District
Court litigation with the FDIC), its 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.
32
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PULTE CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
(000's omitted, except share data)
ASSETS
1999 1998
----------- -----------
Cash and equivalents .................................... $ 51,718 $ 125,198
Unfunded settlements .................................... 53,544 49,140
House and land inventories .............................. 1,792,733 1,455,208
Mortgage-backed and related securities .................. -- 29,290
Residential mortgage loans available-for-sale ........... 218,062 234,974
Other assets ............................................ 331,744 287,688
Deferred income taxes ................................... 57,224 79,663
Discontinued operations ................................. 91,772 88,678
----------- -----------
$ 2,596,797 $ 2,349,839
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued liabilities,
including book overdrafts of $113,335 and
$112,688 in 1999 and 1998, respectively .......... $ 694,826 $ 575,373
Unsecured short-term borrowings ..................... 7,000 --
Collateralized short-term debt, recourse
solely to applicable subsidiary assets ........... 206,959 217,060
Mortgage-backed bonds, recourse solely to
applicable subsidiary assets ..................... -- 28,075
Income taxes ........................................ 11,769 9,592
Subordinated debentures and senior notes ............ 525,965 542,039
Discontinued operations ............................. 56,959 56,258
----------- -----------
Total liabilities ................................ 1,503,478 1,428,397
----------- -----------
Shareholders' Equity:
Preferred stock, $.01 par value;
25,000,000 shares authorized,
none issued
Common stock, $.01 par value;
100,000,000 shares authorized,
43,263,780 and 43,167,180 shares issued
and outstanding in 1999 and 1998, respectively ... 433 432
Additional paid-in capital .......................... 77,070 75,051
Accumulated other comprehensive income (loss),
net of income taxes of $52 and $722 in 1999
and 1998, respectively ........................... (259) 1,130
Retained earnings ................................... 1,016,075 844,829
----------- -----------
Total shareholders' equity ....................... 1,093,319 921,442
----------- -----------
$ 2,596,797 $ 2,349,839
=========== ===========
See Notes to Consolidated Financial Statements.
33
PULTE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
For the years ended December 31, 1999, 1998 and 1997
(000's omitted, except per share data)
1999 1998 1997
---------- ----------- -----------
Revenues:
Homebuilding ......................................... $ 3,677,716 $ 2,810,151 $ 2,479,171
Financial services, interest and other ............... 49,873 43,678 34,038
Corporate ............................................ 2,748 12,692 10,782
----------- ----------- -----------
Total revenues ....................... 3,730,337 2,866,521 2,523,991
----------- ----------- -----------
Expenses:
Homebuilding, principally cost of sales ............. 3,367,971 2,636,653 2,356,153
Financial services, principally
interest and other .................................. 29,045 28,484 26,924
Corporate, net ...................................... 53,732 35,418 37,899
Restructuring costs ................................. -- -- 20,000
----------- ----------- -----------
Total expenses ....................... 3,450,748 2,700,555 2,440,976
----------- ----------- -----------
Other expense:
Equity in profit (loss) of Pulte-affiliates ......... 6,816 (152) (2,040)
----------- ----------- -----------
Income from continuing operations
before income taxes ...................................... 286,405 165,814 80,975
Income taxes ............................................. 108,118 64,666 31,175
----------- ----------- -----------
Income from continuing operations ........................ 178,287 101,148 49,800
Income (loss) from discontinued operations ............... (122) 1,035 2,961
----------- ----------- -----------
Net income ............................................... 178,165 102,183 52,761
----------- ----------- -----------
Other comprehensive income (loss):
Unrealized gains (losses) on securities
available-for-sale arising during the period
net of taxes of ($722), ($334) and $74,
respectively ........................................ (1,130) (557) 213
Foreign currency translation adjustments,
net of taxes of $52 ................................. (259) -- --
----------- ----------- -----------
Comprehensive income ................................ $ 176,776 $ 101,626 $ 52,974
=========== =========== ===========
Per share data:
Basic:
Income from continuing operations ................. $ 4.12 $ 2.35 $ 1.14
Income from discontinued operations ............... -- .03 .07
----------- ----------- -----------
Net income ........................................ $ 4.12 $ 2.38 $ 1.21
=========== =========== ===========
Assuming dilution:
Income from continuing operations ................. $ 4.07 $ 2.30 $ 1.13
Income from discontinued operations ............... -- .03 .07
----------- ----------- -----------
Net income ........................................ $ 4.07 $ 2.33 $ 1.20
=========== =========== ===========
Cash dividends declared .............................. $ .16 $ .15 $ .12
=========== =========== ===========
Number of shares used in calculation:
Basic:
Weighted-average common shares outstanding ..... 43,246 42,984 43,510
Assuming dilution:
Effect of dilutive securities - stock options .. 577 900 398
----------- ----------- -----------
Adjusted weighted-average common shares
and effect of dilutive securities ........... 43,823 43,884 43,908
=========== =========== ===========
See Notes to Consolidated Financial Statements.
34
PULTE CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended December 31, 1999, 1998 and 1997
($000's omitted)
Accumulated
Additional Other
Common Paid-in Comprehensive Retained
Stock Capital Income (Loss) Earnings Total
------ --------- ------------- -------- -----
Shareholders' Equity, December 31, 1996 ......... $ 233 $57,516 $ 1,474 $ 770,050 $ 829,273
Exercise of stock options ....................... 4 10,412 -- -- 10,416
Cash dividends declared - $.12 per share ........ -- -- (5,153) (5,153)
Stock repurchases ............................... (24) (6,093) -- (68,556) (74,673)
Comprehensive Income:
Net income ................................... -- -- -- 52,761 52,761
Change in unrealized gains on securities
available-for-sale, net of income taxes
of $74 .................................... -- -- 213 -- 213
------ ------- -------- ---------- ----------
Shareholders' Equity, December 31, 1997 ......... 213 61,835 1,687 749,102 812,837
Exercise of stock options ....................... 4 9,162 -- -- 9,166
Cash dividends declared - $.15 per share ........ -- -- -- (6,456) (6,456)
Stock dividend declared ......................... 214 (214) -- -- --
Shares issued in business acquisition ........... 1 4,268 -- -- 4,269
Comprehensive Income:
Net income ................................... -- -- -- 102,183 102,183
Change in unrealized gains on securities
available-for-sale, net of income taxes
of $(334) ................................. -- -- (557) -- (557)
------ ------- -------- ---------- ----------
Shareholders' Equity, December 31, 1998 ......... 432 75,051 1,130 844,829 921,442
Exercise of stock options ....................... 1 2,019 -- -- 2,020
Cash dividends declared - $.16 per share ........ -- -- -- (6,919) (6,919)
Comprehensive Income:
Net Income ................................... -- -- -- 178,165 178,165
Change in unrealized gains on securities
available-for-sale, net of income taxes
of ($722) ................................. -- -- (1,130) -- (1,130)
Foreign currency translation adjustments,
net of income taxes of $52 ................ -- -- (259) -- (259)
------ ------- -------- ---------- ----------
Shareholders' Equity, December 31, 1999 ......... $ 433 $77,070 $ (259) $1,016,075 $1,093,319
====== ======= ======== ========== ==========
See Notes to Consolidated Financial Statements.
35
PULTE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1999, 1998 and 1997
($000's omitted)
1999 1998 1997
--------- --------- ---------
Continuing operations:
Cash flows from operating activities:
Income from continuing operations .................... $ 178,287 $ 101,148 $ 49,800
Adjustments to reconcile income from
continuing operations to net cash
flows used in operating activities:
Amortization, depreciation and other .............. 13,497 5,044 7,813
Foreign currency (gain) loss ...................... (1,702) 2,798 570
Deferred income taxes ............................. 1,599 (2,170) (14,222)
Gain on sale of securities ........................ (1,664) -- --
Increase (decrease) in cash due to:
Inventories ..................................... (258,196) (224,812) (124,690)
Residential mortgage loans available-for-sale ... 16,912 (49,956) (14,576)
Other assets .................................... (61,375) (30,914) (38,501)
Accounts payable and accrued liabilities ........ 100,155 37,147 60,580
Income taxes .................................... 24,114 32,371 38,052
--------- --------- ---------
Net cash provided by (used in) operating activities ...... 11,627 (129,344) (35,174)
--------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of securities available-for-sale .. 27,886 -- --
Principal payments on mortgage-backed securities ..... 1,490 9,287 7,933
Cash paid for acquisitions, net of cash acquired ..... (24,714) (158,832) --
Proceeds from sale of business operations ............ -- 90,602 --
Other, net ........................................... (2,127) 14,269 36
--------- --------- ---------
Net cash provided by (used in) investing activities ...... 2,535 (44,674) 7,969
--------- --------- ---------
Cash flows from financing activities:
Payment of long-term debt and bonds .................. (50,480) (10,672) (9,106)
Proceeds from borrowings ............................. 18,717 91,998 164,183
Repayment of borrowings .............................. (49,989) (26,054) --
Stock repurchases .................................... -- -- (74,673)
Dividends paid ....................................... (6,919) (6,456) (5,153)
Other, net ........................................... 1,029 5,244 7,485
--------- --------- ---------
Net cash provided by (used in) financing activities ...... (87,642) 54,060 82,736
--------- --------- ---------
Net increase (decrease) in cash and
equivalents-continuing operations .................... $ (73,480) $(119,958) $ 55,531
--------- --------- ---------
See Notes to Consolidated Financial Statements.
36
PULTE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
For the years ended December 31, 1999, 1998 and 1997
($000's omitted)
1999 1998 1997
--------- --------- ---------
Discontinued operations:
Cash flows from operating activities:
Income (loss) from discontinued operations ............ $ (122) $ 1,035 $ 2,961
Change in deferred income taxes ....................... 21,562 26,444 32,495
Change in income taxes ................................ (21,562) (27,830) (34,851)
Other changes, net .................................... 3,608 7,028 (10,257)
Cash flows from investing activities:
Purchase of securities available-for-sale ............. -- (21,809) (14,537)
Principal payments of mortgage-backed securities ...... -- 23,180 34,257
Net proceeds from sale of investments and loans ....... -- 11,276 3,211
(Increase) decrease in Covered Assets and FSLIC
Resolution Fund receivables ...................... (3,538) 33,603 37,019
Cash flows from financing activities:
Decrease in deposit liabilities ....................... -- (37,462) (2,663)
Proceeds from borrowings .............................. -- 17,174 --
Repayment of borrowings ............................... -- (31,560) (31,560)
Decrease in FHLB advances ............................. -- (3,100) (16,500)
--------- --------- ---------
Net decrease in cash and equivalents-
discontinued operations ............................... (52) (2,021) (425)
--------- --------- ---------
Net increase (decrease) in cash and equivalents ........... (73,532) (121,979) 55,106
Cash and equivalents at beginning of year ................. 125,329 247,308 192,202
--------- --------- ---------
Cash and equivalents at end of year ....................... $ 51,797 $ 125,329 $ 247,308
========= ========= =========
Cash - continuing operations .............................. $ 51,718 $ 125,198 $ 245,156
Cash - discontinued operations ............................ 79 131 2,152
--------- --------- ---------
$ 51,797 $ 125,329 $ 247,308
========= ========= =========
Supplemental disclosure of cash flow information-
cash paid during the year for:
Interest, net of amount capitalized:
Continuing operations ........................... $ 26,225 $ 28,141 $ 19,920
Discontinued operations ......................... -- 3,090 2,590
--------- --------- ---------
$ 26,225 $ 31,231 $ 22,510
========= ========= =========
Income taxes paid .................................. $ 63,685 $ 33,811 $ 5,821
========= ========= =========
Non-cash investing and financing activities:
Issuance of common stock for business acquisition .. $ -- $ 4,269 $ --
========= ========= =========
See Notes to Consolidated Financial Statements.
37
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000's omitted)
1. Basis of presentation and segment information
Basis of presentation
The consolidated financial statements include the accounts of Pulte
Corporation (the Company), and all of its significant subsidiaries. The
Company's direct subsidiaries include Pulte Financial Companies, Inc.
(PFCI), Pulte Diversified Companies, Inc. (PDCI) and other subsidiaries
which are engaged in the homebuilding business. PDCI's operating
subsidiaries include Pulte Home Corporation (Pulte), Pulte International
Corporation (International) and other subsidiaries which are engaged in
the homebuilding business. PDCI's non-operating thrift subsidiary, First
Heights Bank, fsb (First Heights), has been classified as a discontinued
operation (See Note 4). The Company also has a mortgage banking company,
Pulte Mortgage Company (PMC), which is a subsidiary of Pulte.
Segment information
Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures
about Segments of an Enterprise and Related Information", established the
reporting standard for presentation of operating segment financial
information by public business enterprises. In accordance with SFAS No.
131, the Company identified three reportable segments: Homebuilding,
Financial Services and Corporate.
The Company's Homebuilding segment consists of the following three
business units:
o Domestic Homebuilding, the Company's core business, is engaged in the
acquisition and development of land primarily for residential purposes
within the continental United States and the construction of housing on
such land targeted for the first-time, first and second move-up, and
active adult home buyer groups.
o International Homebuilding is primarily engaged in the acquisition and
development of land principally for residential purposes, and the
construction of housing on such land in Mexico and Puerto Rico.
o Active Adult Homebuilding is engaged in the development of amenitized,
age-targeted and age-qualified communities throughout the continental
United States appealing to a growing demographic group in their
pre-retirement and retirement years.
The Company's Financial Services segment consists principally of mortgage
banking operations conducted through PMC and its subsidiaries, and to a
minor extent, the operations of PFCI, a financing subsidiary of the
Company, which ceased operations during 1999.
Corporate is a non-operating business segment whose primary purpose is to
support the operations of the Company's subsidiaries as the internal
source of financing, to develop and implement strategic initiatives
centered on new business development and operating efficiencies, and to
provide the necessary administrative functions to support the Company as
a publicly traded entity.
38
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
1. Basis of presentation and segment information (continued)
Segment information (continued)
Operating Data by Segment
Years Ended December 31,
------------------------------------------
1999 1998 1997
---------- ----------- ------------
Revenues:
Homebuilding ................................... $ 3,677,716 $ 2,810,151 $ 2,479,171
Financial Services ............................. 49,873 43,678 34,038
Corporate ...................................... 2,748 12,692 10,782
----------- ----------- -----------
Total revenues ............................. 3,730,337 2,866,521 2,523,991
----------- ----------- -----------
Cost of sales:
Homebuilding ................................... 3,023,841 2,359,253 2,110,532
----------- ----------- -----------
Total cost of sales ........................ 3,023,841 2,359,253 2,110,532
----------- ----------- -----------
Selling, general and administrative:
Homebuilding ................................... 319,051 252,684 232,692
Financial Services ............................. 21,391 19,241 17,832
Corporate ...................................... 12,682 6,695 7,435
----------- ----------- -----------
Total selling, general and administrative .. 353,124 278,620 257,959
----------- ----------- -----------
Interest:
Homebuilding ................................... 25,187 20,164 18,503
Financial Services ............................. 7,404 9,043 9,092
Corporate ...................................... 24,224 21,910 16,133
----------- ----------- -----------
Total interest ............................. 56,815 51,117 43,728
----------- ----------- -----------
Other (income) expense, net:
Homebuilding ................................... (108) 4,552 (5,574)
Financial Services ............................. 250 200 --
Corporate ...................................... 16,826 6,813 14,331
----------- ----------- -----------
Total other expense, net ................... 16,968 11,565 8,757
----------- ----------- -----------
Restructuring costs:
Homebuilding ................................... -- -- 14,800
Financial Services ............................. -- -- 2,100
Corporate ...................................... -- -- 3,100
----------- ----------- -----------
Total restructuring costs .................. -- -- 20,000
----------- ----------- -----------
Total costs and expenses ........................... 3,450,748 2,700,555 2,440,976
----------- ----------- -----------
Equity in income (loss) of joint ventures:
Homebuilding ................................... 6,816 (152) (2,040)
----------- ----------- -----------
Total equity in income (loss) of
joint ventures ......................... 6,816 (152) (2,040)
----------- ----------- -----------
Income before income taxes:
Homebuilding ................................... 316,561 173,346 106,178
Financial Services ............................. 20,828 15,194 5,014
Corporate ...................................... (50,984) (22,726) (30,217)
----------- ----------- -----------
Total income before income taxes ........... $ 286,405 $ 165,814 $ 80,975
=========== =========== ===========
39
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
1. Basis of presentation and segment information (continued)
Segment information (continued)
Supplemental Operating Data by Geographic Region
Years Ended December 31,
------------------------------------------
1999 1998 1997
---------- ----------- ------------
Revenues:
Domestic United States ................. $ 3,707,048 $ 2,850,349 $ 2,504,980
International .......................... 23,289 16,172 19,011
----------- ----------- -----------
Total revenues ..................... 3,730,337 2,866,521 2,523,991
----------- ----------- -----------
Cost of sales:
Domestic United States ................. 3,003,504 2,347,253 2,095,739
International .......................... 20,337 12,000 14,793
----------- ----------- -----------
Total cost of sales ................ 3,023,841 2,359,253 2,110,532
----------- ----------- -----------
Selling, general and administrative:
Domestic United States ................. 349,633 274,778 255,061
International .......................... 3,491 3,842 2,898
----------- ----------- -----------
Total selling, general and
administrative ................ 353,124 278,620 257,959
----------- ----------- -----------
Interest:
Domestic United States ................. 56,815 51,117 43,728
International .......................... -- -- --
----------- ----------- -----------
Total interest ..................... 56,815 51,117 43,728
----------- ----------- -----------
Other (income) expense, net:
Domestic United States ................. 19,490 5,460 7,139
International .......................... (2,522) 6,105 1,618
----------- ----------- -----------
Total other expense, net ........... 16,968 11,565 8,757
----------- ----------- -----------
Restructuring costs ........................ -- -- 20,000
----------- ----------- -----------
Total costs and expenses ........... 3,450,748 2,700,555 2,440,976
----------- ----------- -----------
Equity in income (loss) of joint ventures .. 6,816 (152) (2,040)
----------- ----------- -----------
Income before income taxes ................. $ 286,405 $ 165,814 $ 80,975
=========== =========== ===========
40
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
1. Basis of presentation and segment information (continued)
Segment information (continued)
Asset Data by Segment
Financial
Homebuilding Services Corporate Total
------------ --------- --------- -----
At December 31, 1999:
Inventory .......................... $1,792,733 $ -- $ -- $1,792,733
==========
Identifiable assets ................ 2,175,424 237,318 92,283 2,505,025
Assets of discontinued operations .. 91,772
----------
Total assets ....................... $2,596,797
==========
At December 31, 1998:
Inventory .......................... $1,455,208 $ -- $ -- $1,455,208
==========
Identifiable assets ................ 1,782,644 274,488 204,029 2,261,161
Assets of discontinued operations .. 88,678
----------
Total assets ....................... $2,349,839
==========
At December 31, 1997:
Inventory .......................... $1,141,952 $ -- $ -- $1,141,952
==========
Identifiable assets ................ 1,446,340 224,624 347,515 2,018,479
Assets of discontinued operations .. 110,940
----------
Total assets ....................... $2,129,419
==========
Supplemental Asset Data by Geographic Region
Domestic
United States International Total
------------- ------------- -----
At December 31, 1999:
Inventory .......................... $1,760,581 $ 32,152 $1,792,733
==========
Identifiable assets ................ 2,439,740 65,285 2,505,025
Assets of discontinued operations .. 91,772 91,772
----------
Total assets ....................... $2,596,797
==========
At December 31, 1998:
Inventory .......................... $1,431,245 $ 23,963 $1,455,208
==========
Identifiable assets ................ 2,199,727 61,434 2,261,161
Assets of discontinued operations .. 88,678 88,678
----------
Total assets ....................... $2,349,839
==========
At December 31, 1997:
Inventory .......................... $1,129,239 $ 12,713 $1,141,952
==========
Identifiable assets ................ 1,979,358 39,121 2,018,479
Assets of discontinued operations .. 110,940 110,940
----------
Total assets ....................... $2,129,419
==========
41
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
2. Significant accounting policies
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Cash and equivalents
For purposes of the Statements of Cash Flows, commercial paper and time
deposits with a maturity of three months or less when acquired are
classified as cash equivalents.
Stock based compensation
The Company grants stock options to key employees for a fixed number of
shares with an exercise price not less than the fair value of the shares
at the date of grant. The Company accounts for the stock option grants in
accordance with Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees". No compensation expense is
recognized because all stock options granted have exercise prices equal
to the market value of the Company's stock on the date of the grant. The
pro forma disclosures required by SFAS No. 123, "Accounting for
Stock-Based Compensation", are included in Note 7.
Foreign investments
The Company has investments in Mexico and Puerto Rico which are accounted
for using the equity method. These investments primarily include the
50%-owned Mexican joint ventures of Condak-Pulte S. De R.L. De C.V. and
Desarrollos Residenciales Turisticos, S.A. de C.V., the net investments
of which comprise $25,400 and $5,700, respectively at December 31, 1999.
They also include the 50%-owned Puerto Rican joint venture of Desarrollos
Urbanos (Canovanas), whose net investment balance was $2,800 at December
31, 1999. To support homebuilding activities in Mexico, the Company also
purchased a minority ownership interest (approximately 22.9%) in a
Mexican mortgage banking company, the balance of which approximated
$4,014 at December 31, 1999. Gains and losses resulting from the change
in Mexican peso exchange rates are recognized in accordance with SFAS No.
52, "Foreign Currency Translation". Effective for periods ended after
October 1, 1996 through December 31, 1998, the Mexican economy was
considered hyper-inflationary; accordingly, SFAS No. 52 required that the
U.S. dollar be the assumed functional currency of the company's
investments in Mexico. During 1998, the three-year cumulative rate of
inflation in Mexico fell below 100%, resulting in the Mexican economy no
longer being considered hyper-inflationary. Effective January 1, 1999,
the functional currency of the Company's investments in Mexico is the
Mexican peso. The Company recorded a $1,702 gain on foreign currency
transactions for the year ended December 31, 1999. Foreign currency
transaction and translation losses aggregated $2,798 and $570 for the
years ended December 31, 1998 and 1997, respectively. During 1999, the
Company recorded income of $6,000 related to its Mexico operations, as
compared with losses of $462 and $2,040 in 1998 and 1997, respectively.
The Company's aggregate net investment in Mexico is approximately $33,200
as of December 31, 1999.
Income per share
Basic earnings per share is computed by dividing income available to
common stockholders (the numerator) by the weighted-average number of
common shares (the denominator) for the period. The computation of
diluted earnings per share is similar to basic earnings per share, except
that the denominator is increased to include the dilutive effects of
options, warrants and convertible securities. Any options that have an
exercise price greater than the average market price are excluded from
the diluted income per share calculation. For the years ended December
31, 1999, 1998 and 1997, 2,623,000, 29,000 and 649,000, respectively, of
the exercisable stock options were excluded from this calculation.
Earnings per share amounts, both basic and diluted, are disclosed for all
periods presented and reflect the impact of the Company's 2-for-1 stock
split effective June 1, 1998.
42
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
2. Significant accounting policies (continued)
Fair values of financial instruments
The estimated fair values of financial instruments were determined by
management using available market information and appropriate valuation
methodologies. Considerable judgment is necessary to interpret market
data and develop estimated fair value. Accordingly, the estimates
presented are not necessarily indicative of the amounts the Company could
realize on disposition of the financial instruments. The use of different
market assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.
The carrying amounts of cash and equivalents approximate their fair
values due to their short-term nature.
The fair value of investment, mortgage-backed and related securities are
based on quoted market prices, when available. If quoted market prices
are not available, fair values are based on quoted market prices of
comparable instruments and other valuation techniques.
The fair values of subordinated debentures and senior notes are based on
quoted market prices, when available. If quoted market prices are not
available, fair values are based on quoted market prices of similar
issues.
Disclosures about fair value of financial instruments are based on
pertinent information available to management as of December 31, 1999.
Although management is not aware of any factors that would significantly
affect the reasonableness of the fair value amounts, such amounts have
not been comprehensively revalued for purposes of these financial
statements since that date and current estimates of fair value may differ
significantly from the amounts presented herein.
Advertising cost
The Company expenses advertising costs as they are incurred. For the
years ended December 31, 1999, 1998 and 1997, the Company incurred
advertising costs of approximately $31,800, $25,300 and $24,700,
respectively.
Employee benefit
The Company maintains the Pulte Home Corporation Investment Savings Plus
(the "Plan") which covers substantially all of the Company's employees.
Company contributions to the Plan are expensed as paid and are based on
the employees' years of service. The total Company contributions pursuant
to the Plan were approximately $2,100, $2,000 and $2,200 for the years
ended December 31, 1999, 1998 and 1997, respectively.
Long-lived assets
Impairment of long-lived assets is reviewed quarterly. In accordance with
SFAS No. 121, "Accounting for the Impairment of Long Lived Assets and
Long Lived Assets to Be Disposed Of", impairment is determined when
estimated future undiscounted cash flows associated with the asset are
less than the asset's carrying value.
Internally developed software
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 $7,130 and $6,210 of
such costs as of December 31, 1999 and 1998, respectively. The Company
had historically expensed similar costs to operations when they were
incurred.
43
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
2. Significant accounting policies (continued)
Comprehensive income
All items recognized under accounting standards as components of
comprehensive income should 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 of
unrealized gains/(losses) on securities available-for-sale and foreign
currency translation adjustments. For the years ended December 31, 1999,
1998 and 1997, the Company's comprehensive income (loss) other than net
income amounted to ($1,389), ($557) and $213, respectively, net of tax
(benefit) provision of ($670), ($334) and $74, respectively.
Derivative instruments and hedging activities
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities", as
amended by SFAS No. 137, which is required to be adopted in years
beginning after June 15, 2000. 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. PMC, 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 plans to adopt this statement on January 1, 2001, but has not
yet determined what effect SFAS No. 133 will have on its earnings and
financial position.
Homebuilding:
Allowance for warranties
Home purchasers are provided with warranties against certain building
defects. Estimated warranty cost is provided in the period in which the
sale is recorded.
Start-up costs
Costs and expenses associated with entry into new homebuilding markets
and opening new communities in existing markets are expensed when
incurred.
Revenues
Homebuilding revenues are recorded when the sales of homes are completed
and ownership has transferred to the customer. Unfunded settlements are
deposits in transit on homes for which the sale has been completed.
Inventories
Finished inventories are stated at the lower of accumulated cost or fair
value less costs to sell. Inventories under development or held for
development are stated at accumulated cost, unless such cost would not be
recovered from the cash flows generated by future disposition. In this
instance, such inventories are measured at fair value.
Sold units are expensed on a specific identification basis as cost of
sales. Included in inventories is related interest and property taxes.
The Company capitalized interest in the amount of $28,858, $21,801 and
$20,376 and expensed to homebuilding interest expense $26,122, $20,164
and $18,503 in 1999, 1998 and 1997, respectively.
44
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
2. Significant accounting policies (continued)
Financial Services:
Mortgage servicing rights
The Company sells its servicing rights on a flow basis through fixed
price servicing sales contracts. Due to the short period of time the
servicing rights are held, usually two to three months, the Company does
not amortize the servicing asset. Since the servicing rights are recorded
at the value in the servicing sales contracts, there are no impairment
issues related to these assets. The Company could be required to
repurchase loans found to be defective. Reserves for such future
repurchases or indemnifications have been reflected in accounts payable
and accrued liabilities. During 1999, 1998 and 1997 total servicing
rights recognized were $38,290, $35,995 and $21,933, respectively.
Residential mortgage loans held for sale
Residential mortgage loans available-for-sale are stated at the lower of
aggregate cost or market value. Unamortized net mortgage discounts
totaled $947 and $800 at December 31, 1999 and 1998, respectively.
Gains and losses from sales of mortgage loans are recognized when the
loans are sold. The Company hedges its residential mortgage loans
available-for-sale (see Note 12). Gains and losses from closed
commitments and futures contracts are matched against the related gains
and losses on the sale of mortgage loans.
Mortgage servicing, origination and commitment fees
Mortgage servicing fees represent fees earned for servicing loans for
various investors. Servicing fees are based on a contractual percentage
of the outstanding principal balance and are credited to income when the
related mortgage payments are received. Loan origination fees, commitment
fees and certain direct loan origination costs are deferred as an
adjustment to the cost of the related mortgage loan until such loan is
sold.
3. Acquisitions
Effective July 1, 1999, the Company purchased Blackstone Real Estate
Advisors' interest in the net assets of the Active Adult joint venture
for an aggregate cash purchase price of $26 million. The purchase price
was allocated to assets acquired and liabilities assumed using the
purchase method of accounting. As a result of this purchase, Pulte owns
100% of the Active Adult operations, and effective July 1, 1999, the
Active Adult operations are fully consolidated with the operating results
of Pulte's other homebuilding operations. Prior to this purchase, and
since March 25, 1998, Pulte's 50% interest in this joint venture was
accounted for as an equity investment. The impact of acquiring the
additional 50% interest was immaterial to the Company's consolidated
revenues, pre-tax income from operations, net income and earnings per
share (both basic and diluted).
On July 1, 1998, the Company acquired the outstanding stock and
membership interests in certain closely-held businesses of Florida-based,
DiVosta & Company (DiVosta) for an aggregate purchase price of
approximately $155,000. Consideration for this acquisition, which was
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. The purchase price has
been allocated to the assets acquired and liabilities assumed based on
relative fair value estimates. Goodwill of approximately $47,000
represents the excess of the purchase price over these fair value
estimates and will be amortized using a straight-line method over a
seven-year period. The Company has included the operating results of
DiVosta since the acquisition date in its consolidated results
of operations. Goodwill amortization was $6,600 and $3,400 for the years
ended December 31, 1999 and 1998, respectively.
45
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted, except per share data)
3. Acquisitions (continued)
On May 27, 1998, the Company acquired all of the outstanding stock of
Tennessee-based Radnor Homes (Radnor) and the net assets of an affiliate
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 tangible
assets acquired and liabilities assumed based on relative fair value
estimates. The Company has included the operating results of Radnor since
the acquisition in its consolidated results of operations.
The following unaudited pro forma information presents a summary of the
consolidated results of operations of the Company as if the acquisitions
had occurred on January 1, 1997, with pro forma adjustments to give
effect to amortization of goodwill, interest expense on acquisition debt
and certain other adjustments, together with related income tax effects:
(Unaudited)
Years Ended December 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
Total revenues ............. $3,787,894 $3,045,269 $2,729,344
Total pre-tax income from
continuing operations .... 287,451 179,467 97,164
Net Income ................. 178,816 112,716 61,842
Per share data:
Basic ................. $ 4.13 $ 2.62 $ 1.42
Diluted ............... $ 4.08 $ 2.57 $ 1.40
The pro forma financial information is presented for informational
purposes only and is not necessarily indicative of the operating results
that would have occurred had the acquisitions been consummated as of
January 1, 1997, nor are they necessarily indicative of future operating
results.
4. Discontinued operations
In September 1988, substantially all of the assets, business operations
and certain liabilities of five Texas-based insolvent thrifts were
acquired by First Heights. Assistance in connection with each acquisition
was provided by the Federal Savings and Loan Insurance Corporation
(FSLIC) pursuant to an Assistance Agreement.
The FSLIC issued promissory notes representing the estimated negative net
worth of the acquired associations at the date of acquisition, the
balances of which, including accrued interest, were $77,555 and $74,403
at December 31, 1999 and 1998, respectively. The notes had a weighted
average interest rate of 5.1% and 5.5% at December 31, 1999 and 1998,
respectively. The notes, bearing interest at rates indexed to the Texas
Cost of Funds plus a spread, were due in September 1998; notwithstanding
this maturity, the Federal Deposit Insurance Corporation (FDIC) has
chosen to temporarily withhold payment. The notes were subject to annual
prepayments, which were limited to 10% of the total original note
balances. The FSLIC Resolution Fund (FRF) exercised its right to prepay
the notes by $31,560 in each year from 1992 through 1998. The FRF is
entitled to payments of up to 25% of certain tax benefits which may be
derived as a result of the assistance transactions.
During the first quarter of 1994, the Company adopted a plan of disposal
for First Heights and announced its strategy to exit the thrift industry
and increase its focus on housing and related mortgage banking. First
Heights sold all but one of its 32 bank branches and related deposits to
two unrelated purchasers. The sale was substantially completed during the
fourth quarter of 1994, although the Company held brokered deposits which
were not liquidated until 1998.
46
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted, except per share data)
4. Discontinued operations (continued)
Although the Company in 1994, expected to complete the plan of disposal
within a reasonable period of time, contractual disputes with the FDIC
prevented the prepayment of the FRF notes, thereby precluding the Company
from completing the disposal in accordance with its original plan. To
provide liquidity for the sale, First Heights liquidated its investment
portfolios and its single-family residential loan portfolio and, as
provided in the Assistance Agreement, entered into a Liquidity Assistance
Note (LAN) with the FDIC acting in its capacity as manager of the FRF
notes. The LAN is collateralized by the FRF notes and bears interest at a
rate indexed to the Texas Cost of Funds plus a spread. The LAN matured in
September 1998; however, payment of this liability is also temporarily
withheld by First Heights pending resolution of all open matters with the
FDIC. As discussed in Note 11, the Company is involved in litigation with
the FDIC and as part of this litigation, the parties have asserted
various claims with respect to obligations under promissory notes issued
by each of the parties in connection with the thrift acquisition and
activities.
At December 31, 1999 and 1998, First Heights no longer had any deposits,
nor did it maintain an investment portfolio. First Heights' day-to-day
activities have been principally devoted to supporting residual
regulatory compliance matters and the litigation with the FDIC, and are
not reflective of the active operations of the former thrift, such as
maintaining traditional transaction accounts (e.g., checking and savings
accounts) or making loans. Accordingly, such operations are being
presented as discontinued.
Assets and liabilities of discontinued operations were as follows:
At December 31,
-----------------
1999 1998
------- -------
Assets:
Cash and equivalents .................... $ 79 $ 131
Accounts and notes receivable-FRF,
less LAN of $760 at
December 31, 1999 and 1998 ......... 91,417 87,879
Other assets ............................ 276 668
------- -------
$91,772 $88,678
======= =======
Liabilities:
Accrued expenses and other liabilities .. $39,785 $39,084
Due affiliate ........................... 17,174 17,174
------- -------
$56,959 $56,258
======= =======
Revenues of discontinued operations were $3,677, $6,412, and $5,077 for
the years ended December 31, 1999, 1998 and 1997, respectively. For the
years ended December 31, 1999, 1998 and 1997, discontinued thrift
operations resulted in income (loss) of $(122), $1,035 (including income
tax benefit of $1,386) and $2,961 (including income tax benefit of
$2,356), respectively.
During 1996, the Company recognized, as part of discontinued thrift
operations, after-tax income of approximately $110,000. Such income
relates to tax benefits associated with net operating losses (NOLs).
Although the Company has computed its NOLs and reported them to the
Internal Revenue Service (the "IRS") in a manner that it believes will
comply with applicable law and that indicates that they generally are
available to be used to offset the Company's taxable income, there can be
no assurance that the IRS will agree with the Company's determination of
the amount of NOLs, in which case, if the IRS were to prevail, the use of
a portion or all of the Company's NOLs could be disallowed.
47
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
5. Short-term credit arrangements
Short-term financing for the Company on an operating segment basis is as
follows:
Corporate/Homebuilding
At December 31, 1999, the Company, PDCI and Pulte jointly have $375,000
in committed unsecured revolving credit facilities under which a variety
of interest rates are available to the Company. The $210,000 revolving
credit facility which was outstanding at December 31, 1998, was reduced
to $170,000 during December 1999 as $40,000 matured and was not renewed.
This revolving credit facility expires January 5, 2002. The $10,000
uncommitted bank credit arrangement available at December 31, 1998,
expired during 1999. In September 1999, the Company entered into a
$205,000 revolving credit facility which has a maturity of September 15,
2000. The bank credit agreements each contain certain restrictions,
including the maintenance of levels of equity. Under the most restrictive
of the agreements, the Company, PDCI and Pulte jointly are required to
maintain a minimum tangible net worth of $550,000 plus 50% of
consolidated net income earned subsequent to December 31, 1994.
The Company's Active Adult operation used a $60,000 credit line secured
by its inventory to finance its development and construction activities
during most of 1999. At the request of the Company, this credit line was
paid off and canceled during December 1999.
The following is aggregate borrowing information:
1999 1998 1997
-------- --------- --------
Available credit lines at year end....... $375,000 $ 220,000 $260,000
Unused credit lines at year-end.......... $368,000 $ 220,000 $260,000
Maximum amount outstanding at the
end of any month....................... $200,000 $ - $126,000
Average monthly indebtedness............. $106,984 $ 202 $ 7,642
Range of interest rates during the year.. 4.87 to 5.00 to 5.49 to
9.25% 8.50% 8.50%
Weighted average daily interest rate..... 6.26% 5.12% 6.41%
Financial Services
Notes payable to banks (collateralized short-term debt) are secured by
residential mortgage loans available-for-sale. The carrying amounts of
such borrowings approximate fair values.
At December 31, 1999, PMC had committed bank credit lines of $220,000 and
discretionary credit lines of $125,000. The bank credit agreements
require PMC to pay a fee for the committed credit lines. During 1999,
1998 and 1997, PMC provided compensating balances, in the form of escrows
and other custodial funds, in order to further reduce interest rates. The
bank credit agreements each contain certain restrictions, including the
maintenance of levels of equity. Under the most restrictive of the
agreements, PMC is required to maintain a minimum tangible net worth of
$10,000.
The following is aggregate borrowing information:
1999 1998 1997
-------- -------- --------
Available credit lines at year end....... $345,000 $250,000 $250,000
Unused credit lines at year-end.......... $122,475 $ 40,000 $121,830
Maximum amount outstanding at the
end of any month....................... $197,525 $210,000 $153,170
Average monthly indebtedness............. $121,527 $113,972 $ 90,158
Range of interest rates during the year.. 6.00 to 6.00 to 6.00 to
8.15% 7.67% 7.55%
Weighted average daily interest rate..... 5.58% 5.92% 5.99%
Weighted average rate at year-end........ 7.11% 5.51% 6.48%
48
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
6. Long-term debt
Long-term debt is summarized as follows:
At December 31,
---------------------
Corporate 1999 1998
-------- --------
7% unsecured Senior Notes, issued by Pulte Corporation, due 2003, not
redeemable prior to maturity, guaranteed on a senior basis by
Pulte and certain wholly-owned subsidiaries of Pulte. See Note 13........... $ 99,840 $ 99,800
8.375% unsecured Senior Notes, issued by Pulte Corporation, due 2004, not
redeemable prior to maturity, guaranteed on a senior basis by Pulte and
certain wholly-owned subsidiaries of Pulte. See Note 13..................... 114,842 114,808
7.3% unsecured Senior Notes, issued by Pulte Corporation, due 2005, not
redeemable prior to maturity, guaranteed on a senior basis by Pulte and
certain wholly-owned subsidiaries of Pulte. See Note 13..................... 124,938 124,927
7.625% unsecured Senior Notes, issued by Pulte Corporation, due 2017, not
redeemable prior to maturity, guaranteed on a senior basis by Pulte and
certain wholly-owned subsidiaries of Pulte. See Note 13..................... 148,070 147,961
8% unsecured promissory note, issued by Pulte Diversified Companies, Inc.,
due 2001, unconditionally guaranteed by Pulte................................ 21,000 21,000
Homebuilding
10.125% unsecured senior subordinated debentures, issued by Pulte,
due 1999..................................................................... -- 22,405
Other non-recourse debt, minimum annual principal payments required,
maturing at various times through 2002, interest rates ranging
from 6% to 12%............................................................... 17,275 11,138
-------- --------
$525,965 $542,039
======== ========
Estimated fair value............................................................. $490,483 $557,612
======== ========
Total Corporate and Homebuilding long-term debt maturities and mandatory
annual sinking fund payments during the five years subsequent to 1999 are
as follows: 2000 - $25,066; 2001 - $12,782; 2002 - $427; 2003 - $99,840;
2004- $114,842 and thereafter $273,008.
Financing
Bonds payable at December 31, 1998, consists of one bond issue with a
stated interest rate of 9%. The bond series was secured by separate pools
of mortgage-backed securities. Early retirement of this bond occurred
during the first quarter of 1999, with net realized gain on the sale of
underlying collateral of approximately $1,700.
49
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. Stock compensation plans and management incentive compensation
The Company has three fixed stock option plans for employees: the Pulte
Corporation 1995 Stock Incentive Plan for Key Employees, the Pulte
Corporation 1994 Stock Incentive Plan for Key Employees and the Pulte
Corporation 1990 Stock Incentive Plan for Key Employees (collectively,
"the Plans"). The Plans authorize the issuance of up to 4,000,000,
2,000,000 and 1,600,000 shares, respectively. As of December 31, 1999,
1,122,000 stock options remain available for grant. The Plans provide for
the grant of options (both non-qualified options and incentive stock
options as defined in each respective plan), stock appreciation rights
and restricted stock to key employees of the Company or its subsidiaries
(as determined by the Compensation Committee of the Board of Directors)
for periods not exceeding 10 years. Options granted under the Plans vest
incrementally in periods ranging from two to five years.
The Company also has a stock option plan for nonemployee directors
("Directors Plan"). Under the Directors Plan, each new nonemployee
director will receive 600 shares of Common Stock and options to purchase
an additional 4,000 shares. In addition, nonemployee directors are
entitled to an annual distribution of 600 shares of Common Stock and
options to purchase an additional 4,000 shares. This plan authorizes the
issuance of up to 133,400 shares. As of December 31, 1999, 57,400 shares
remain available for grant. All options granted are non-qualified, are
immediately vested and are exercisable on the date of grant. Options
granted under the Directors Plan are exercisable for 10 years from the
grant date.
A summary of the status of the Company's stock option plans as of
December 31, 1999, 1998 and 1997 and changes during the years ending on
those dates is presented below (000's omitted, except per share data):
1999 1998 1997
---------------------------- ---------------------------- --------------------------
Weighted- Weighted- Weighted-
Average Average Average
Per Share Per Share Per Share
Shares Exercise Price Shares Exercise Price Shares Exercise Price
------ -------------- ------ -------------- ------ --------------
Outstanding, beginning of year........ 4,400 $18 5,086 $17 6,150 $16
Granted............................... 1,427 23 199 22 378 18
Exercised............................. (93) 15 (461) 15 (770) 9
Forfeited............................. (145) 20 (424) 17 (672) 18
-------- ------- -------
Outstanding, end of year.............. 5,589 $19 4,400 $18 5,086 $17
======== ======= =======
Options exercisable at year-end....... 2,028 898 954
======== ======= =======
Weighted-average per share
fair value of options
granted during the year........... $ 10.45 $ 8.52 $ 7.39
======== ======= =======
The following table summarizes information about fixed stock options
outstanding at December 31, 1999 (000's omitted, except per share data):
Options Outstanding Options Exercisable
---------------------------------------------------- -------------------------------
Weighted- Weighted- Weighted-
Range of Number Average Average Number Average
Per Share Outstanding at Remaining Per Share Exercisable at Per Share
Exercise Prices December 31 Contract Life Exercise Price December 31 Exercise Price
--------------- -------------- ----------------- -------------- -------------- --------------
$8 80 1.3 years $ 8 80 $ 8
$13 to 16 740 4.2 $15 615 $15
$17 to 33 4,769 7.0 $19 1,333 $19
50
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted, except per share data)
7. Stock compensation plans and management incentive compensation
(continued)
Under SFAS No. 123, compensation cost for the Company's stock-based
compensation plans would be determined based on the fair value at the
grant dates for awards under those plans. The pro forma effects of
applying SFAS No. 123 are not indicative of future amounts because this
statement does not apply to awards granted prior to fiscal year 1996.
Additional stock option awards are anticipated in future years.
For the years ended December 31, 1999, 1998 and 1997, the Company's
income from continuing operations, net income and earnings per share
would have been reduced to the pro forma amounts indicated below:
1999 1998 1997
---------- ---------- ----------
Income from continuing operations:
As reported .................... $ 178,287 $ 101,148 $ 49,800
========== ========== ==========
Pro forma ...................... $ 174,685 $ 99,655 $ 45,455
========== ========== ==========
Net income:
As reported .................... $ 178,165 $ 102,183 $ 52,761
========== ========== ==========
Pro forma ...................... $ 174,563 $ 100,690 $ 48,416
========== ========== ==========
Per share data:
Basic:
Income from continuing operations:
As reported .................... $ 4.12 $ 2.35 $ 1.14
========== ========== ==========
Pro forma ...................... $ 4.04 $ 2.32 $ 1.04
========== ========== ==========
Net income:
As reported ................... $ 4.12 $ 2.38 $ 1.21
========== ========== ==========
Pro forma ..................... $ 4.04 $ 2.34 $ 1.11
========== ========== ==========
Assuming dilution:
Income from continuing operations:
As reported .................... $ 4.07 $ 2.30 $ 1.13
========== ========== ==========
Pro forma ...................... $ 3.98 $ 2.27 $ 1.04
========== ========== ==========
Net income:
As reported ................... $ 4.07 $ 2.33 $ 1.20
========== ========== ==========
Pro forma ..................... $ 3.98 $ 2.29 $ 1.10
========== ========== ==========
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
assumptions used for grants in 1999, 1998 and 1997, respectively:
weighted-average dividend yields of .67%, .68% and .46%, expected
volatility of 30.5%, 29.8% and 29.44%, weighted-average risk-free
interest rates of 5.48%, 5.57% and 5.88%, and weighted-average expected
lives of 7.27 years, 6.75 years and 6.5 years. Based upon stock options
outstanding at December 31, 1999, the estimated compensation expense,
after income taxes, to be recognized in pro forma income from continuing
operations and net income for the years ending December 31, 2000, 2001
and 2002 is $5,857, $4,291 and $1,594, respectively.
51
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
7. Stock compensation plans and management incentive compensation (continued)
Homebuilding operating management personnel are paid current cash
incentive compensation based on operating performance. Mortgage banking,
financing and thrift management personnel are paid current cash incentive
compensation substantially based on the performance of the applicable
subsidiary. The Company's corporate management personnel are paid current
cash incentive compensation based on overall performance of the Company.
For the years ended December 31, 1999, 1998 and 1997, the Company's total
current cash incentive compensation expense was $45,300, $25,500 and
$17,500, respectively. In addition, the Company utilizes a long-term cash
incentive plan as a means of compensating key operating employees for
long-term performance and contributions to the growth of the Company.
Amounts accrued over the period from January 1, 1996, through December
31, 1999, are payable subsequent to December 31, 1999. For the years
ended December 31, 1999, 1998 and 1997 the Company expensed $10,087,
$4,600 and $3,900, respectively, relating to this plan.
8. Income taxes
The Company's net deferred tax asset (liability) is as follows:
At December 31,
--------------------
1999 1998
-------- --------
Deferred tax liabilities:
Continuing operations:
Capitalized items deducted for tax, net ..... $(11,314) $ (9,203)
Discontinued operations:
Market losses deducted for tax, and other ... (7) (533)
Equity adjustment:
Unrealized gains on securities .............. -- (722)
-------- --------
(11,321) (10,458)
-------- --------
Deferred tax assets:
Continuing operations:
Non-deductible reserves and other ........... 55,128 53,580
Net operating loss carryforwards - foreign .. -- 1,036
Discontinued operations:
Net operating loss carryforwards ............ 2,257 2,257
AMT credit carryforwards .................... 8,243 30,262
Non-deductible reserves and other ........... 2,917 2,986
-------- --------
68,545 90,121
-------- --------
Net deferred tax asset ...................... $ 57,224 $ 79,663
======== ========
The net operating losses expire in 2006 and are generally available to
offset the Company's taxable income in future years. The AMT credit
carryforwards have an indefinite life.
Realization of the net deferred tax asset is dependent on future
reversals of existing taxable temporary differences and adequate future
taxable income. Although realization is not assured, management believes
that it is more likely than not that the net deferred tax asset will be
realized.
52
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
8. Income taxes (continued)
Components of current and deferred income tax expense (benefit) of
continuing operations are as follows
Current Deferred Total
------- -------- -----
Year ended December 31, 1999
Federal ................... $ 99,932 $ 1,399 $ 101,331
State and other ........... 6,587 200 6,787
--------- --------- ---------
$ 106,519 $ 1,599 $ 108,118
========= ========= =========
Year ended December 31, 1998
Federal ................... $ 60,052 $ (1,274) $ 58,778
State and other ........... 6,784 (896) 5,888
--------- --------- ---------
$ 66,836 $ (2,170) $ 64,666
========= ========= =========
Year ended December 31, 1997
Federal ................... $ 40,586 $ (11,977) $ 28,609
State and other ........... 4,811 (2,245) 2,566
--------- --------- ---------
$ 45,397 $ (14,222) $ 31,175
========= ========= =========
The following table reconciles the statutory federal income tax rate to
the effective income tax rate for continuing operations:
1999 1998 1997
----- ----- -----
Income taxes at federal statutory rate ..... 35.00% 35.00% 35.00%
Effect of state and local income taxes,
net of federal tax ...................... 2.23 4.20 5.00
Settlement of state tax issues and other ... .52 (.20) (1.50)
----- ----- -----
Effective rate ............................. 37.75% 39.00% 38.50%
===== ===== =====
9. Leases
The Company leases certain property and equipment under non-cancelable
leases. The office and equipment leases are generally for terms of three
to five years and generally provide renewal options for terms of up to an
additional three years. Model home leases are generally for shorter terms
approximating one year with renewal options on a month-to-month basis. In
most cases, management expects that in the normal course of business,
leases that expire will be renewed or replaced by other leases. The
future minimum lease payments required under operating leases that have
initial or remaining non-cancelable terms in excess of one year are as
follows:
Years Ending December 31,
2000............................. $ 14,495
2001............................. 11,216
2002............................. 6,112
2003............................. 4,105
2004............................. 2,695
After 2004....................... 5,867
-------
Total minimum lease payments..... $44,490
=======
Net rental expense for the years ended December 31, 1999, 1998 and 1997
was $18,616, $15,273 and $17,617, respectively. Certain leases contain
purchase options and generally provide that the Company shall pay for
insurance, taxes and maintenance.
53
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
10. 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.
The 1997 restructuring charge included $11,787 of separation and other
costs for approximately 150 employees, $7,000 of asset net realizability
adjustments and $1,213 of other costs, principally for office leases. The
after-tax effect of this charge was $12,300 or $.28 per diluted share
(adjusted for the effect of the Company's 2-for-1 stock split effective
June 1, 1998). As of December 31, 1999, the Company has severed
employment with approximately 150 employees.
The Company's restructuring plan included right-sizing the workforce on a
company-wide basis. The Company's plan of restructuring included the
following employee groups: approximately 100 construction and
administrative support employees, 27 middle managers/supervisors and 23
members of senior management.
This reorganization entailed the realignment of homebuilding operations
into business units which focus on specific customer segments; the
creation of a mortgage applications center, which increased overhead
leverage by moving PMC's loan officers from field branches to a central
location in Denver, Colorado; and the evaluation and strategic deployment
of inventory investment in the Company's homebuilding operations. As
such, various homebuilding communities located primarily in Florida,
North Carolina, South Carolina and Illinois with assets such as house and
land inventory were affected by an exit plan to either sell such
inventory or expedite the wind-down/withdrawal of homebuilding
activities. The fair value of these assets was determined based on
estimated selling price, less costs to complete, less direct selling and
disposal costs.
The following tables display the status of liabilities accrued for the
company's restructuring from origination to December 31, 1999:
1997 Reserve Uses Balance at
Original ------------------ December 31,
Type of Cost Reserve Cash Non-cash 1997
- ------------ -------- ---- -------- -----------
Homebuilding operations:
Employee separation and other $ 6,900 $ (843) $ -- $ 6,057
Asset net realizability adjustments 7,000 -- (7,000) --
Other 900 -- -- 900
-------- -------- -------- --------
14,800 (843) (7,000) 6,957
-------- -------- -------- --------
Mortgage Banking operations:
Employee separation and other 1,787 (610) -- 1,177
Other 313 (33) -- 280
-------- -------- -------- --------
2,100 (643) -- 1,457
-------- -------- -------- --------
Corporate:
Employee separation and other 3,100 (74) (496) 2,530
-------- -------- -------- --------
$ 20,000 $ (1,560) $ (7,496) $ 10,944
======== ======== ======== ========
54
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
10. Restructuring (continued)
Balance at 1998 Reserve Uses Balance at
December 31, ---------------------- December 31,
Type of Cost 1997 Cash Non-cash 1998
- ------------ ------------ -------- --------- ------------
Homebuilding operations:
Employee separation and other ... $ 6,057 $ (4,555) $ -- $ 1,502
Other ........................... 900 (645) -- 255
-------- -------- -------- --------
6,957 (5,200) -- 1,757
-------- -------- -------- --------
Mortgage Banking operations:
Employee separation and other ... 1,177 (840) -- 337
Other ........................... 280 (201) -- 79
-------- -------- -------- --------
1,457 (1,041) -- 416
-------- -------- -------- --------
Corporate:
Employee separation and other ... 2,530 (1,608) -- 922
-------- -------- -------- --------
$ 10,944 $ (7,849) $ -- $ 3,095
======== ======== ======== ========
Balance at 1999 Reserve Uses Balance at
December 31, --------------------- December 31,
Type of Cost 1998 Cash Non-cash 1999
- ------------ ------------ ------- -------- ------------
Homebuilding operations:
Employee separation and other ... $ 1,502 $ (576) $ -- $ 926
Other ........................... 255 (255) -- --
------- ------- ------- -------
1,757 (831) -- 926
------- ------- ------- -------
Mortgage Banking operations:
Employee separation and other ... 337 (248) -- 89
Other ........................... 79 (79) -- --
------- ------- ------- -------
416 (327) -- 89
------- ------- ------- -------
Corporate:
Employee separation and other ... 922 (314) -- 608
------- ------- ------- -------
$ 3,095 $(1,472) $ -- $ 1,623
======= ======= ======= =======
The remaining accrual for restructuring costs at December 31, 1999
relates to severance agreement and deferred compensation liabilities
which are expected to be fully paid by December 31, 2000.
11. Commitments and contingencies
In the normal course of business, Pulte acquires rights under options
or option-type agreements to purchase land to be used in homebuilding
operations at future dates. The total purchase price applicable to land
under option at December 31, 1999 and 1998 approximated $835,400 and
$757,500 respectively.
At December 31, 1999, Pulte, in the normal course of business, had
outstanding letters of credit and performance bonds of $165,300 and
$374,600, respectively.
The Company is involved in various litigation incidental to its
continuing business operations. Management believes that none of this
litigation will have a material adverse impact on the results of
operations or financial position of the Company.
55
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
11. Commitments and contingencies (continued)
First Heights-Related Litigation
The Company is a party to three lawsuits relating to First Heights'
1988 acquisition from the Federal Savings and Loan Insurance
Corporation (FSLIC), and First Heights' ownership of five failed Texas
thrifts. The first lawsuit (the "District Court Case") was filed on
July 7, 1995, in the United States District Court, Eastern District of
Michigan, by the Federal Deposit Insurance Corporation (FDIC) against
the Company, PDCI and First Heights (collectively, the "Pulte
Parties"). The second lawsuit (the "Court of Federal Claims Case") was
filed on December 26, 1996, in the United States Court of Federal
Claims (Washington, D.C.) by the Pulte Parties against the United
States. In the District Court Case, the FDIC seeks a declaration of
rights and other relief related to the assistance agreement entered
into between First Heights and the FSLIC. The FDIC is the successor to
the FSLIC. The FDIC and the Pulte Parties 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 filed an answer and a counterclaim,
seeking, among other things, a declaration that the FDIC has breached
the assistance agreement in numerous respects. On December 24, 1996,
the Pulte Parties voluntarily dismissed without prejudice certain of
their claims in the District Court Case and on December 26, 1996,
initiated the Court of Federal Claims Case.
The Court of Federal Claims Case contains similar claims as those that
were voluntarily dismissed from the District Court Case. In their
complaint, the Pulte Parties assert breaches of contract on the part of
the United States in connection with the enactment of section 13224 of
the Omnibus Budget Reconciliation Act of 1993. That provision repealed
portions of the tax benefits that the Pulte Parties claim they were
entitled to under the contract to acquire the failed Texas thrifts. The
Pulte Parties also assert certain other claims concerning the contract,
including claims that the United States (through the FDIC as receiver)
has improperly attempted to amend the failed thrifts' pre-acquisition
tax returns and that this attempt was made in an effort to deprive the
Pulte Parties of tax benefits they had contracted for, and that the
enactment of the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 breached the Government's obligation not to
require contributions of capital greater than those required by the
contract.
On March 5, 1999, the United States District Court (the Court), entered
a "Final Judgment" against First Heights and PDCI (the Court had
previously ruled that Pulte Corporation was not liable for monetary
damages to the FDIC) resolving by summary judgment in favor of the FDIC
most of the FDIC's claims against the Pulte Defendants. The Final
Judgment requires PDCI and First Heights to pay the FDIC monetary
damages totaling approximately $221.3 million, including interest but
excluding costs (such as attorneys fees) to be determined in the future
by the District Court. However, the FDIC has acknowledged that it has
already paid itself or withheld from assistance its obligation to pay
to First Heights approximately $105 million, excluding interest
thereon. The Company believes that it is entitled to a credit or actual
payment of such amount. The Final Judgment does not address this issue.
Based upon the Company's review of the Final Judgment, the Company
believes that, if the Final Judgment were to be upheld in its entirety
on appeal, the potential after-tax charges against Discontinued
Operations, after giving effect to interest owed by the FDIC to First
Heights, will be approximately $88 million, plus post-judgment interest
(currently 5% per year). The Company vigorously disagrees with the
Court's rulings and has appealed the decision to the Sixth Circuit
Court of Appeals. The Company believes that the District Court erred in
granting summary judgment to the FDIC. Among other things, the Company
believes that the District Court improperly resolved highly disputed
factual issues which should have been presented to a jury and, as a
result, it improperly granted summary judgment accepting the FDIC's
view of the facts on substantially all disputed issues and, therefore,
that the Company has a strong basis for appeal of the District Court's
decision and that an appellate court, properly applying the standards
of review for this case, should reverse the District Court's decision
and remand the case for trial, if not in its entirety, then at least in
material respects.
56
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
11. Commitments and contingencies (continued)
First Heights-Related Litigation (continued)
On January 10, 2000, First Heights filed a lawsuit in the United States
District Court, Eastern District of Michigan against the FDIC regarding
the amounts, including interest the FDIC is obligated to pay First
Heights on two promissory notes which had been executed by FDIC's
predecessor, the FSLIC.
The Company does not believe that the claims in the Court of Federal
Claims Case are in any way prejudiced by the rulings in the District
Court Case. The Company is considering seeking relief in the Court of
Federal Claims Case that would, if granted, recoup portions of the
damages awarded in the District Court Case.
12. Financial instruments, including those with off-balance sheet risk
Market risks arise from movements in interest rates and canceled or
modified commitments to lend. In order to reduce these risks, the
Company uses derivative financial instruments with off-balance sheet
risk. These financial instruments include cash forward placement
contracts on mortgage-backed securities, whole loan investor
commitments, options on treasury futures contracts and options on cash
forward placement contracts on mortgage-backed securities. The Company
does not use any derivative financial instruments for trading purposes.
Cash forward placement contracts on mortgage-backed securities are
commitments to either purchase or sell a specified financial instrument
at a specified future date for a specified price and may be settled in
cash by offsetting the position, or through the delivery of the
financial instrument. Whole loan investor commitments are obligations
of the investor to buy loans at a specified price within a specified
time period. Options on treasury future contracts and options on
mortgage-backed securities grant the purchaser, for a premium payment,
the right to either purchase or sell a specified treasury futures
contract or a specified mortgage-backed security, respectively, for a
specified price within a specified period of time or on a specified
date from or to the writer of the option.
Mandatory cash forward contracts on mortgage-backed securities are the
predominant derivative financial instruments used to minimize the
market risk during the period from when the Company extends an interest
rate lock to a loan applicant until the time the loan is sold to an
investor. Options on cash forward contracts on mortgage-backed
securities are used in the same manner as mandatory cash forward
contracts, but provide protection from interest rates rising, while
still allowing an opportunity for profit if interest rates fall.
Options on the treasury futures contracts are used as cross hedges on
various loan product types and to protect the Company in a volatile
interest rate environment from unexpected increases, cancellations or
modifications in lending commitments.
Since PMC can terminate a loan commitment if the borrower does not
comply with the terms of the contract, and some loan commitments may
expire without being drawn upon, these commitments do not necessarily
represent future cash requirements of PMC. PMC evaluates the
creditworthiness of these transactions through its normal credit
policies.
57
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
12. Financial instruments, including those with off-balance sheet risk
(continued)
The following are PMC's loan commitments:
Fair
Commitment Market Interest Expiration
Amount Value Rates Dates
---------- ------ -------- ----------
At December 31, 1999:
Loan commitments to borrowers $51,341 $51,189 5.50 to January 2000-
10.50% November 2000
At December 31, 1998:
Loan commitments to borrowers $67,925 $68,091 5.50 to January 1999-
9.75% July 1999
PMC has credit risk to the extent that the counterparties to the
derivative financial instruments do not perform their obligation under
the agreements. If one of the counterparties does not perform, PMC
would not receive the cash to which it would otherwise be entitled
under the conditions of the agreement. PMC manages credit risk by
entering into agreements with large national investment bankers or
financial institutions, all of whom meet PMC's established credit
underwriting standards. Options on futures are traded on organized
exchanges with the exchange clearinghouse serving as the counterparty
in the trade, reducing the risk of non-performance. Management does not
anticipate any material losses as a result of its agreements and does
not consider them to represent an undue level of credit, interest or
liquidity risk for PMC.
The table below summarizes, by class, the contractual amounts of PMC's
derivative financial instruments.
Fair
Contract Market Interest Expiration
Amount Value Rates Dates
---------- ------ -------- ----------
At December 31, 1999:
Sell Securities $242,854 $244,537 5.50 to January 2000-
8.00% February 2000
At December 31, 1998:
Sell Securities $268,773 $268,191 5.50 to January 1999-
6.50% February 1999
Realized gains or losses on derivative financial instruments are
recognized in net gain from sale of mortgages in the period settlement
occurs.
13. 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, PMC, 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, as the consolidating financial information contained herein
provides a more meaningful disclosure to allow investors to determine the
nature of assets held and the operations of the combined groups.
58
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
13. Supplemental Guarantor Information (continued)
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1999
Unconsolidated
------------------------------------------
Pulte Guarantor Non-Guarantor Eliminating Consolidated
Corporation Subsidiaries Subsidiaries Entries Pulte Corporation
----------- ------------ ------------- ----------- -----------------
ASSETS
Cash and equivalents ........................... $ 50 $ 44,206 $ 7,462 $ -- $ 51,718
Unfunded settlements ........................... -- 60,143 (6,599) -- 53,544
House and land inventories ..................... -- 1,760,581 32,152 -- 1,792,733
Residential mortgage loans available-for-sale .. -- -- 218,062 -- 218,062
Land held for sale and future development ...... -- 52,453 -- -- 52,453
Other assets ................................... 21,109 206,327 51,855 -- 279,291
Deferred income taxes .......................... 57,224 -- -- -- 57,224
Discontinued operations ........................ -- -- 91,772 -- 91,772
Investment in subsidiaries ..................... 1,298,676 19,904 1,302,700 (2,621,280) --
Advances receivable - subsidiaries ............. 354,211 3,898 40,571 (398,680) --
----------- ----------- ----------- ----------- -----------
$ 1,731,270 $ 2,147,512 $ 1,737,975 $(3,019,960) $ 2,596,797
=========== =========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued
liabilities ................................. $ 86,526 $ 554,745 $ 53,555 $ -- $ 694,826
Unsecured short-term borrowings ................ 7,000 -- -- -- 7,000
Collateralized short-term debt, recourse
solely to applicable subsidiary assets ...... -- -- 206,959 -- 206,959
Income taxes ................................... 11,769 -- -- -- 11,769
Subordinated debentures and senior
notes ....................................... 487,690 17,275 21,000 -- 525,965
Discontinued operations ........................ -- -- 56,959 -- 56,959
Advances payable - subsidiaries ................ 44,966 274,390 79,324 (398,680) --
----------- ----------- ----------- ----------- -----------
Total liabilities ....................... 637,951 846,410 417,797 (398,680) 1,503,478
----------- ----------- ----------- ----------- -----------
Shareholders' Equity:
Common stock ................................... 433 -- 11,137 (11,137) 433
Additional paid-in capital ..................... 77,070 546,754 650,816 (1,197,570) 77,070
Accumulated other comprehensive income ......... (259) -- (259) 259 (259)
Retained earnings .............................. 1,016,075 754,348 658,484 (1,412,832) 1,016,075
----------- ----------- ----------- ----------- -----------
Total shareholders' equity .............. 1,093,319 1,301,102 1,320,178 (2,621,280) 1,093,319
----------- ----------- ----------- ----------- -----------
$ 1,731,270 $ 2,147,512 $ 1,737,975 $(3,019,960) $ 2,596,797
=========== =========== =========== =========== ===========
59
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
13. Supplemental Guarantor Information (continued)
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1998
Unconsolidated
------------------------------------------
Pulte Guarantor Non-Guarantor Eliminating Consolidated
Corporation Subsidiaries Subsidiaries Entries Pulte Corporation
----------- ------------ ------------- ----------- -----------------
ASSETS
Cash and equivalents ........................... $ 76,555 $ 46,109 $ 2,534 $ -- $ 125,198
Unfunded settlements ........................... -- 57,135 (7,995) -- 49,140
House and land inventories ..................... -- 1,431,245 23,963 -- 1,455,208
Mortgage-backed and related securities ......... -- -- 29,290 -- 29,290
Residential mortgage loans available-for-sale .. -- -- 234,974 -- 234,974
Land held for sale and future development ...... -- 35,977 -- -- 35,977
Other assets ................................... 17,949 178,020 55,742 -- 251,711
Deferred income taxes .......................... 80,385 -- (722) -- 79,663
Discontinued operations ........................ -- -- 88,678 -- 88,678
Investment in subsidiaries ..................... 1,066,313 16,958 1,062,114 (2,145,385) --
Advances receivable - subsidiaries ............. 271,915 485 46,405 (318,805) --
----------- ----------- ----------- ----------- -----------
$ 1,513,117 $ 1,765,929 $ 1,534,983 $(2,464,190) $ 2,349,839
=========== =========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued
liabilities ................................. $ 62,014 $ 461,766 $ 51,593 $ -- $ 575,373
Collateralized short-term debt, recourse
solely to applicable subsidiary assets ...... -- -- 217,060 -- 217,060
Mortgage-backed bonds, recourse
solely to applicable subsidiary assets ...... -- -- 28,075 -- 28,075
Income taxes ................................... 9,592 -- -- -- 9,592
Subordinated debentures and senior
notes ....................................... 487,496 33,543 21,000 -- 542,039
Discontinued operations ........................ -- -- 56,258 -- 56,258
Advances payable - subsidiaries ................ 32,573 230,491 55,741 (318,805) --
----------- ----------- ----------- ----------- -----------
Total liabilities ....................... 591,675 725,800 429,727 (318,805) 1,428,397
----------- ----------- ----------- ----------- -----------
Shareholders' Equity:
Common stock ................................... 432 -- 7,806 (7,806) 432
Additional paid-in capital ..................... 75,051 479,920 645,540 (1,125,460) 75,051
Unrealized gains on securities
available-for-sale .......................... 1,130 -- 1,130 (1,130) 1,130
Retained earnings .............................. 844,829 560,209 450,780 (1,010,989) 844,829
----------- ----------- ----------- ----------- -----------
Total shareholders' equity .............. 921,442 1,040,129 1,105,256 (2,145,385) 921,442
----------- ----------- ----------- ----------- -----------
$ 1,513,117 $ 1,765,929 $ 1,534,983 $(2,464,190) $ 2,349,839
=========== =========== =========== =========== ===========
60
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
13. Supplemental Guarantor Information (continued)
CONSOLIDATING STATEMENT OF OPERATIONS
For the year ended December 31, 1999
Unconsolidated
------------------------------------------
Pulte Guarantor Non-Guarantor Eliminating Consolidated
Corporation Subsidiaries Subsidiaries Entries Pulte Corporation
----------- ------------ ------------- ----------- -----------------
Revenues:
Homebuilding ............................. $ -- $ 3,655,775 $ 21,941 $ -- $ 3,677,716
Mortgage banking and financing,
interest and other .................... -- -- 49,873 -- 49,873
Corporate ................................ 681 719 1,348 -- 2,748
----------- ----------- --------- --------- -----------
Total revenues ...................... 681 3,656,494 73,162 -- 3,730,337
----------- ----------- --------- --------- -----------
Expenses:
Homebuilding:
Cost of sales ......................... -- 3,003,504 20,337 -- 3,023,841
Selling, general and administrative
and other expense ..................... 1,097 342,064 969 -- 344,130
Mortgage banking and financing,
principally interest .................. -- -- 29,045 -- 29,045
Corporate, net ........................... 40,609 10,570 2,553 -- 53,732
----------- ----------- --------- --------- -----------
Total expenses ...................... 41,706 3,356,138 52,904 -- 3,450,748
----------- ----------- --------- --------- -----------
Other Income:
Equity in income of Pulte-affiliates ........ -- 816 6,000 -- 6,816
----------- ----------- --------- --------- -----------
Income (loss) from continuing operations
before income taxes and equity in net
income of subsidiaries ................... (41,025) 301,172 26,258 -- 286,405
Income taxes (benefit) ...................... (22,704) 118,796 12,026 -- 108,118
----------- ----------- --------- --------- -----------
Income (loss) from continuing operations
before equity in net income of
subsidiaries ............................. (18,321) 182,376 14,232 -- 178,287
Income (loss) from discontinued operations .. (2,037) -- 1,915 -- (122)
----------- ----------- --------- --------- -----------
Income (loss) before equity in net income
of subsidiaries .......................... (20,358) 182,376 16,147 -- 178,165
----------- ----------- --------- --------- -----------
Equity in net income of subsidiaries:
Continuing operations .................... 196,608 11,727 192,644 (400,979) --
Discontinued operations .................. 1,915 -- -- (1,915) --
----------- ----------- --------- --------- -----------
198,523 11,727 192,644 (402,894) --
----------- ----------- --------- --------- -----------
Net income .......................... $ 178,165 $ 194,103 $ 208,791 $(402,894) $ 178,165
=========== =========== ========= ========= ===========
61
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
13. Supplemental Guarantor Information (continued)
CONSOLIDATING STATEMENT OF OPERATIONS
For the year ended December 31, 1998
Unconsolidated
--------------------------------------------
Pulte Guarantor Non-Guarantor Eliminating Consolidated
Corporation Subsidiaries Subsidiaries Entries Pulte Corporation
----------- ------------ ------------- ----------- -----------------
Revenues:
Homebuilding ............................... $ -- $ 2,797,999 $ 12,152 $ -- $ 2,810,151
Mortgage banking and financing,
interest and other ...................... -- -- 43,678 -- 43,678
Corporate .................................. 7,641 1,031 4,020 -- 12,692
----------- ----------- ----------- ----------- -----------
Total revenues ........................ 7,641 2,799,030 59,850 -- 2,866,521
----------- ----------- ----------- ----------- -----------
Expenses:
Homebuilding:
Cost of sales ........................... -- 2,347,253 12,000 -- 2,359,253
Selling, general and administrative
and other expense ....................... 953 272,520 3,927 -- 277,400
Mortgage banking and financing,
principally interest .................... -- -- 28,484 -- 28,484
Corporate, net ............................. 32,107 (1,785) 5,096 -- 35,418
----------- ----------- ----------- ----------- -----------
Total expenses ........................ 33,060 2,617,988 49,507 -- 2,700,555
----------- ----------- ----------- ----------- -----------
Other Income:
Equity in income (loss) of Pulte-affiliates ... -- 310 (462) -- (152)
----------- ----------- ----------- ----------- -----------
Income (loss) from continuing operations
before income taxes and equity in net
income of subsidiaries ..................... (25,419) 181,352 9,881 -- 165,814
Income taxes (benefit) ........................ (14,006) 72,663 6,009 -- 64,666
----------- ----------- ----------- ----------- -----------
Income (loss) from continuing operations
before equity in net income of
subsidiaries ............................... (11,413) 108,689 3,872 -- 101,148
Income (loss) from discontinued operations .... (301) -- 1,336 -- 1,035
----------- ----------- ----------- ----------- -----------
Income (loss) before equity in net income
of subsidiaries ............................ (11,714) 108,689 5,208 -- 102,183
----------- ----------- ----------- ----------- -----------
Equity in net income of subsidiaries:
Continuing operations ...................... 112,561 9,094 112,232 (233,887) --
Discontinued operations .................... 1,336 -- -- (1,336) --
----------- ----------- ----------- ----------- -----------
113,897 9,094 112,232 (235,223) --
----------- ----------- ----------- ----------- -----------
Net income ............................ $ 102,183 $ 117,783 $ 117,440 $ (235,223) $ 102,183
=========== =========== =========== =========== ===========
62
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
13. Supplemental Guarantor Information (continued)
CONSOLIDATING STATEMENT OF OPERATIONS
For the year ended December 31, 1997
Unconsolidated
------------------------------------------
Pulte Guarantor Non-Guarantor Eliminating Consolidated
Corporation Subsidiaries Subsidiaries Entries Pulte Corporation
----------- ------------ ------------- ----------- -----------------
Revenues:
Homebuilding .............................. $ -- $ 2,479,171 $ -- $ -- $ 2,479,171
Mortgage banking and financing,
interest and other ..................... -- -- 34,038 -- 34,038
Corporate ................................. 2,054 7,182 1,546 -- 10,782
----------- ----------- ----------- ----------- -----------
Total revenues ....................... 2,054 2,486,353 35,584 -- 2,523,991
----------- ----------- ----------- ----------- -----------
Expenses:
Homebuilding:
Cost of sales .......................... -- 2,110,532 -- -- 2,110,532
Selling, general and administrative
and other expense ...................... 803 244,818 -- -- 245,621
Mortgage banking and financing,
principally interest ................... -- -- 26,924 -- 26,924
Corporate, net ............................ 31,653 6,256 (10) -- 37,899
Restructuring costs ....................... 3,100 14,800 2,100 -- 20,000
----------- ----------- ----------- ----------- -----------
Total expenses ....................... 35,556 2,376,406 29,014 -- 2,440,976
----------- ----------- ----------- ----------- -----------
Other Income:
Equity in loss of Pulte-affiliates ........... -- -- (2,040) -- (2,040)
----------- ----------- ----------- ----------- -----------
Income (loss) from continuing operations
before income taxes and equity in net
income of subsidiaries .................... (33,502) 109,947 4,530 -- 80,975
Income taxes (benefit) ....................... (15,255) 43,668 2,762 -- 31,175
----------- ----------- ----------- ----------- -----------
Income (loss) from continuing operations
before equity in net income of
subsidiaries .............................. (18,247) 66,279 1,768 -- 49,800
Income (loss) from discontinued operations ... 6,620 -- (3,659) -- 2,961
----------- ----------- ----------- ----------- -----------
Income (loss) before equity in net income
of subsidiaries ........................... (11,627) 66,279 (1,891) -- 52,761
----------- ----------- ----------- ----------- -----------
Equity in net income (loss) of subsidiaries:
Continuing operations ..................... 68,047 2,943 66,279 (137,269) --
Discontinued operations ................... (3,659) -- -- 3,659 --
----------- ----------- ----------- ----------- -----------
64,388 2,943 66,279 (133,610) --
----------- ----------- ----------- ----------- -----------
Net income ........................... $ 52,761 $ 69,222 $ 64,388 $ (133,610) $ 52,761
=========== =========== =========== =========== ===========
63
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
13. Supplemental Guarantor Information (continued)
CONSOLIDATING STATEMENT OF CASH FLOWS
For the year ended December 31, 1999
Unconsolidated
----------------------------------------
Pulte Guarantor Non-Guarantor Eliminating Consolidated
Corporation Subsidiaries Subsidiaries Entries Pulte Corporation
----------- ------------ ------------- ----------- -----------------
Continuing operations:
Cash flows from operating activities:
Income from continuing operations ........... $ 178,287 $ 194,103 $ 206,876 $(400,979) $ 178,287
Adjustments to reconcile income from
continuing operations to net cash
flows provided by (used in)
operating activities:
Equity in income of subsidiaries .... (196,608) (11,727) (192,644) 400,979 --
Amortization, depreciation and
other ............................. 194 13,964 (661) -- 13,497
Foreign currency transaction gain ... -- -- (1,702) -- (1,702)
Deferred income taxes ............... 1,599 -- -- -- 1,599
Gain on sale of securities .......... -- -- (1,664) -- (1,664)
Increase (decrease) in cash due to:
Inventories ....................... -- (250,007) (8,189) -- (258,196)
Residential mortgage loans
available-for-sale ............. -- -- 16,912 -- 16,912
Other assets ...................... (3,160) (67,181) 8,966 -- (61,375)
Accounts payable and accrued
liabilities .................... 22,374 70,358 7,423 -- 100,155
Income taxes ...................... (103,308) 126,120 1,302 -- 24,114
--------- --------- --------- --------- ---------
Net cash provided by (used in) operating
activities .................................... (100,622) 75,630 36,619 -- 11,627
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of securities
available-for-sale ....................... -- -- 27,886 -- 27,886
Principal payments of mortgage-backed
securities ............................... -- -- 1,490 -- 1,490
Cash paid for acquisitions, net of cash
acquired ................................. -- (24,714) -- -- (24,714)
Dividends received from subsidiaries ........ 3,550 15,294 -- (18,844) --
Investment in subsidiaries .................. (38,678) (7,752) -- 46,430 --
Advances (to) from affiliates ............... 48,465 (3,413) (15,634) (29,418) --
Other, net .................................. -- -- (2,127) -- (2,127)
--------- --------- --------- --------- ---------
Net cash provided by (used in) investing
activities .................................. $ 13,337 $ (20,585) $ 11,615 $ (1,832) $ 2,535
--------- --------- --------- --------- ---------
64
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
13. Supplemental Guarantor Information (continued)
CONSOLIDATING STATEMENT OF CASH FLOWS (continued)
For the year ended December 31, 1999
Unconsolidated
-----------------------------------------
Pulte Guarantor Non-Guarantor Eliminating Consolidated
Corporation Subsidiaries Subsidiaries Entries Pulte Corporation
----------- ------------ ------------- ----------- -----------------
Cash flows from financing activities:
Payment of long-term debt and bonds ... $ -- $ (22,405) $ (28,075) $ -- $ (50,480)
Proceeds from borrowings .............. 7,000 11,717 -- -- 18,717
Repayment of borrowings ............... -- (31,281) (18,708) -- (49,989)
Capital contributions from parent ..... -- 36,779 9,651 (46,430) --
Advances (to) from affiliates ......... 9,053 (51,758) 13,287 29,418 --
Dividends paid ........................ (6,919) -- (18,844) 18,844 (6,919)
Other, net ............................ 1,646 -- (617) -- 1,029
--------- --------- --------- --------- ---------
Net cash provided by (used in) financing
activities ............................ 10,780 (56,948) (43,306) 1,832 (87,642)
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and
equivalents - continuing operations ... (76,505) (1,903) 4,928 -- (73,480)
--------- --------- --------- --------- ---------
Discontinued operations:
Cash flows from operating activities:
Income (loss) from discontinued
operations ......................... (122) -- 1,915 (1,915) (122)
Change in deferred income taxes ....... 21,562 -- -- -- 21,562
Equity in income of subsidiaries ...... (1,915) -- -- 1,915 --
Change in income taxes ................ (21,562) -- -- -- (21,562)
Other changes, net .................... 2,037 -- 1,571 -- 3,608
Cash flows from investing activities:
Increase in Covered Assets and FRF
receivables ........................ -- -- (3,538) -- (3,538)
--------- --------- --------- --------- ---------
Net decrease in cash and equivalents-
discontinued operations ............... -- -- (52) -- (52)
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and
equivalents ........................... (76,505) (1,903) 4,876 -- (73,532)
Cash and equivalents at beginning
of year ............................... 76,555 46,109 2,665 -- 125,329
--------- --------- --------- --------- ---------
Cash and equivalents at end of year ...... $ 50 $ 44,206 $ 7,541 $ -- $ 51,797
========= ========= ========= ========= =========
65
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
13. Supplemental Guarantor Information (continued)
CONSOLIDATING STATEMENT OF CASH FLOWS
For the year ended December 31, 1998
Unconsolidated
----------------------------------------
Pulte Guarantor Non-Guarantor Eliminating Consolidated
Corporation Subsidiaries Subsidiaries Entries Pulte Corporation
----------- ------------ ------------- ----------- -----------------
Continuing operations:
Cash flows from operating activities:
Income from continuing operations ........... $ 101,148 $ 117,783 $ 116,104 $(233,887) $ 101,148
Adjustments to reconcile income from
continuing operations to net cash
flows provided by (used in)
operating activities:
Equity in income of subsidiaries .... (112,561) (9,094) (112,232) 233,887 --
Amortization, depreciation and
other ............................. 193 5,096 (245) -- 5,044
Foreign currency transaction loss ... -- -- 2,798 -- 2,798
Deferred income taxes ............... (2,170) -- -- -- (2,170)
Increase (decrease) in cash due to:
Inventories ....................... -- (213,562) (11,250) -- (224,812)
Residential mortgage loans
available-for-sale ............. -- -- (49,956) -- (49,956)
Other assets ...................... 356 (17,076) (14,194) -- (30,914)
Accounts payable and accrued
liabilities .................... 1,138 32,666 3,343 -- 37,147
Income taxes ...................... (45,645) 72,663 5,353 -- 32,371
--------- --------- --------- --------- ---------
Net cash used in operating activities .......... (57,541) (11,524) (60,279) -- (129,344)
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Principal payments of mortgage-backed
securities ............................... -- -- 9,287 -- 9,287
Cash paid for acquisitions, net of cash
acquired ................................. -- (158,832) -- -- (158,832)
Proceeds from sale of businesses
operations ............................... -- 90,602 -- -- 90,602
Dividends received from subsidiaries ........ 132,040 12,900 132,040 (276,980) --
Investment in subsidiaries .................. (48,981) -- -- 48,981 --
Advances to affiliates ...................... (172,652) (485) (26,518) 199,655 --
Other, net .................................. 15,000 -- (731) -- 14,269
--------- --------- --------- --------- ---------
Net cash provided by (used in) investing
activities .................................. $ (74,593) $ (55,815) $ 114,078 $ (28,344) $ (44,674)
--------- --------- --------- --------- ---------
66
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
13. Supplemental Guarantor Information (continued)
[CAPTION]
CONSOLIDATING STATEMENT OF CASH FLOWS (continued)
For the year ended December 31, 1998
Unconsolidated
-----------------------------------------
Pulte Guarantor Non-Guarantor Eliminating Consolidated
Corporation Subsidiaries Subsidiaries Entries Pulte Corporation
----------- ------------ ------------- ----------- -----------------
Cash flows from financing activities:
Payment of long-term debt and bonds ......... $ -- $ -- $ (10,672) $ -- $ (10,672)
Proceeds from borrowings .................... -- 29,039 62,959 -- 91,998
Repayment of borrowings ..................... -- (26,054) -- -- (26,054)
Capital contributions from parent ........... -- 48,731 250 (48,981) --
Advances from affiliates .................... 12,247 147,306 40,102 (199,655) --
Dividends paid .............................. (6,456) (132,040) (144,940) 276,980 (6,456)
Other, net .................................. 6,952 -- (1,708) -- 5,244
--------- --------- --------- --------- ---------
Net cash provided by (used in) financing
activities .................................. 12,743 66,982 (54,009) 28,344 54,060
--------- --------- --------- --------- ---------
Net decrease in cash and
equivalents - continuing operations ......... (119,391) (357) (210) -- (119,958)
--------- --------- --------- --------- ---------
Discontinued operations:
Cash flows from operating activities:
Income from discontinued operations ......... 1,035 -- 1,336 (1,336) 1,035
Change in deferred income taxes ............. 26,444 -- -- -- 26,444
Equity in income of subsidiaries ............ (1,336) -- -- 1,336
Change in income taxes ...................... (27,830) -- -- -- (27,830)
Other changes, net .......................... 1,687 -- 5,341 -- 7,028
Cash flows from investing activities:
Purchase of securities available-for-sale ... -- -- (21,809) -- (21,809)
Principal payments of mortgage-backed
securities ............................... -- -- 23,180 -- 23,180
Net proceeds from sale of investments ....... -- -- 11,276 -- 11,276
Decrease in Covered Assets and FRF
receivables .............................. -- -- 33,603 -- 33,603
Cash flows from financing activities:
Decrease in deposit liabilities ............. -- -- (37,462) -- (37,462)
Proceeds from borrowings .................... -- -- 17,174 -- 17,174
Repayment of borrowings ..................... -- -- (31,560) -- (31,560)
Decrease in FHLB advances ................... -- -- (3,100) -- (3,100)
--------- --------- --------- --------- ---------
Net decrease in cash and equivalents-
discontinued operations ..................... -- -- (2,021) -- (2,021)
--------- --------- --------- --------- ---------
Net decrease in cash and equivalents ........... (119,391) (357) (2,231) -- (121,979)
Cash and equivalents at beginning of year ...... 195,946 46,466 4,896 -- 247,308
--------- --------- --------- --------- ---------
Cash and equivalents at end of year ............ $ 76,555 $ 46,109 $ 2,665 $ -- $ 125,329
========= ========= ========= ========= =========
67
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
13. Supplemental Guarantor Information (continued)
CONSOLIDATING STATEMENT OF CASH FLOWS
For the year ended December 31, 1997
Unconsolidated
-----------------------------------------
Pulte Guarantor Non-Guarantor Eliminating Consolidated
Corporation Subsidiaries Subsidiaries Entries Pulte Corporation
----------- ------------ ------------- ----------- -----------------
Continuing operations:
Cash flows from operating activities:
Income from continuing operations ........... $ 49,800 $ 69,222 $ 68,047 $(137,269) $ 49,800
Adjustments to reconcile income from
continuing operations to net cash
flows provided by (used in)
operating activities:
Equity in income of subsidiaries .... (68,047) (2,943) (66,279) 137,269 --
Amortization, depreciation and
other ............................. 113 7,247 453 -- 7,813
Foreign currency transaction loss ... -- -- 570 -- 570
Deferred income taxes ............... (14,222) -- -- -- (14,222)
Increase (decrease) in cash due to:
Inventories ....................... -- (124,690) -- -- (124,690)
Residential mortgage loans
available-for-sale ............. -- -- (14,576) -- (14,576)
Other assets ...................... (5,445) (13,992) (19,064) -- (38,501)
Accounts payable and accrued
liabilities .................... 7,001 32,198 21,381 -- 60,580
Income taxes ...................... (8,453) 43,668 2,837 -- 38,052
--------- --------- --------- --------- ---------
Net cash provided by (used in)
operating activities ........................ (39,253) 10,710 (6,631) -- (35,174)
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Principal payments of mortgage-backed
securities ............................... -- -- 7,933 -- 7,933
Dividends received from subsidiaries ........ -- 17,000 -- (17,000) --
Advances (to) from affiliates ............... 38,688 827 (3,020) (36,495) --
Other, net .................................. -- -- 36 -- 36
--------- --------- --------- --------- ---------
Net cash provided by investing activities ...... $ 38,688 $ 17,827 $ 4,949 $ (53,495) $ 7,969
--------- --------- --------- --------- ---------
68
PULTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($000's omitted)
13. Supplemental Guarantor Information (continued)
CONSOLIDATING STATEMENT OF CASH FLOWS (continued)
For the year ended December 31, 1997
Unconsolidated
------------------------------------------
Pulte Guarantor Non-Guarantor Eliminating Consolidated
Corporation Subsidiaries Subsidiaries Entries Pulte Corporation
----------- ------------ ------------- ----------- -----------------
Cash flows from financing activities:
Payment of long-term debt and bonds ........ $ -- $ -- $ (9,106) $ -- $ (9,106)
Proceeds from borrowings ................... 147,825 7,787 8,571 -- 164,183
Advances (to) from affiliates .............. 6,566 (61,457) 18,396 36,495 --
Stock repurchases .......................... (74,673) -- -- -- (74,673)
Dividends paid ............................. (5,153) -- (17,000) 17,000 (5,153)
Other, net ................................. 7,361 -- 124 -- 7,485
--------- --------- --------- --------- ---------
Net cash provided by (used in)
financing activities ....................... 81,926 (53,670) 985 53,495 82,736
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and
equivalents - continuing operations ........ 81,361 (25,133) (697) -- 55,531
--------- --------- --------- --------- ---------
Discontinued operations:
Cash flows from operating activities:
Income from discontinued operations ........ 2,961 -- (3,659) 3,659 2,961
Change in deferred income taxes ............ 32,495 -- -- -- 32,495
Equity in income of subsidiaries ........... 3,659 -- -- (3,659) --
Change in income taxes ..................... (34,851) -- -- -- (34,851)
Other changes, net ......................... (4,264) -- (5,993) -- (10,257)
Cash flows from investing activities:
Purchase of securities available-for-sale .. -- -- (14,537) -- (14,537)
Principal payments of mortgage-backed
securities .............................. -- -- 34,257 -- 34,257
Net proceeds from sale of investments ...... -- -- 3,211 -- 3,211
Decrease in Covered Assets and FRF
receivables ............................. -- -- 37,019 -- 37,019
Cash flows from financing activities:
Decrease in deposit liabilities ............ -- -- (2,663) -- (2,663)
Repayment of borrowings .................... -- -- (31,560) -- (31,560)
Decrease in FHLB advances .................. -- -- (16,500) -- (16,500)
--------- --------- --------- --------- ---------
Net decrease in cash and equivalents-
discontinued operations .................... -- -- (425) -- (425)
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and
equivalents ................................ 81,361 (25,133) (1,122) -- 55,106
Cash and equivalents at beginning of year ..... 114,585 71,599 6,018 -- 192,202
--------- --------- --------- --------- ---------
Cash and equivalents at end of year ........... $ 195,946 $ 46,466 $ 4,896 $ -- $ 247,308
========= ========= ========= ========= =========
69
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Pulte Corporation
We have audited the accompanying consolidated balance sheets of Pulte
Corporation as of December 31, 1999 and 1998 and the related consolidated
statements of operations and comprehensive income, shareholders' equity and
cash flows for each of the three years in the period ended December 31, 1999.
Our audits also included the financial statement schedule listed in the Index
at Item 14. These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Pulte Corporation at December 31, 1999 and 1998 and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
ERNST & YOUNG LLP
Detroit, Michigan
January 20, 2000
70
PULTE CORPORATION
UNAUDITED QUARTERLY INFORMATION
(000's omitted, except per share data)
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -----
1999
Homebuilding operations:
Sales (settlements) ............................... $666,823 $821,317 $961,740 $1,227,836 $3,677,716
Cost of sales ..................................... 555,688 680,220 791,862 996,071(b) 3,023,841
Income before income taxes ........................ 40,127 61,868 82,114 132,452 316,561
Financial services operations:
Revenues .......................................... $ 14,746 $ 12,423 $ 10,703 $ 12,001 $ 49,873
Income before income taxes ........................ 7,201 5,077 3,539 5,011 20,828
Corporate:
Revenues .......................................... $ 898 $ 412 $ 674 $ 764 $ 2,748
Loss before income taxes .......................... (7,736) (8,911) (9,691) (24,646) (50,984)
Consolidated results:
Revenues .......................................... $682,467 $834,152 $973,117 $1,240,601 $3,730,337
Income from continuing operations
before income taxes .............................. 39,592 58,034 75,962 112,817 286,405
Income taxes (a) .................................. 15,638 20,971 28,485 43,024 108,118
Income from continuing operations ................. 23,954 37,063 47,477 69,793 178,287
Income (loss) from discontinued operations ........ 376 53 (383) (168) (122)
Net income ........................................ 24,330 37,116 47,094 69,625 178,165
Per share data:
Basic:
Income from continuing operations ........... $ .55 $ .86 $ 1.10 $ 1.60 $ 4.12
Income (loss) from discontinued operations .. $ .01 $ -- $ (.01) $-- $ --
Net income .................................. $ .56 $ .86 $ 1.09 $ 1.60 $ 4.12
Weighted average common
shares outstanding ........................ 43,233 43,245 43,248 43,257 43,246
Assuming dilution:
Income from continuing operations ........... $ .54 $ .85 $ 1.08 $ 1.60 $ 4.07
Income (loss) from discontinued operations .. $ .01 $ -- $ (.01) $ -- $ --
Net income .................................. $ .55 $ .85 $ 1.07 $ 1.60 $ 4.07
Adjusted weighted average common
shares and effect of dilutive securities .. 44,047 43,838 43,833 43,630 43,823
(a) During the second quarter, the Company revised its estimate of the
effective tax rate for 1999 to 37.5% from a previously reported
estimate of between 39% and 40%. The reduced income tax rate primarily
relates to a lower effective state tax rate and the favorable
resolution of various state income tax matters.
(b) The 1999 fourth quarter includes approximately $5,000 related to the
favorable revaluation of certain land development and house cost
estimates used throughout the year.
71
PULTE CORPORATION
UNAUDITED QUARTERLY INFORMATION
(000's omitted, except per share data)
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -----
1998
Homebuilding operations:
Sales (settlements) ................................ $ 508,635 $ 663,554 $ 746,680 $ 891,282 $ 2,810,151
Cost of sales ...................................... 430,000 560,056 627,449 741,748 2,359,253
Income before income taxes ......................... 19,759 42,540 47,072 63,975 173,346
Financial services operations:
Revenues ........................................... $ 8,359 $ 11,377 $ 11,286 $ 12,656 $ 43,678
Income before income taxes ......................... 2,388 3,560 4,900 4,346 15,194
Corporate:
Revenues ........................................... $ 3,577 $ 4,766 $ 1,368 $ 2,981 $ 12,692
Loss before income taxes ........................... (4,295) (7,404) (5,308) (5,719) (22,726)
Consolidated results:
Revenues ........................................... $ 520,571 $ 679,697 $ 759,334 $ 906,919 $ 2,866,521
Income from continuing operations
before income taxes ............................... 17,852 38,696 46,664 62,602 165,814
Income taxes ....................................... 6,962 15,090 18,199 24,415 64,666
Income from continuing operations .................. 10,890 23,606 28,465 38,187 101,148
Income from discontinued operations ................ 371 238 91 335 1,035
Net income ......................................... 11,261 23,844 28,556 38,522 102,183
Per share data (a):
Basic:
Income from continuing operations ............ $ .25 $ .55 $ .66 $ .88 $ 2.35
Income from discontinued operations .......... $ 01 $ -- $ -- $ .01 $ .03
Net income ................................... $ .26 $ .55 $ .66 $ .89 $ 2.38
Weighted average common
shares outstanding ......................... 42,588 43,039 43,136 43,166 42,984
Assuming dilution:
Income from continuing operations ............ $ .25 $ .54 $ .64 $ .87 $ 2.30
Income from discontinued operations .......... $ .01 $ -- $ -- $ .01 $ .03
Net income ................................... $ .26 $ .54 $ .64 $ .88 $ 2.33
Adjusted weighted average common shares
and effect of dilutive securities .......... 43,248 43,952 44,280 44,002 43,884
(a) Per share data has been adjusted for a 2 for 1 stock split which was effective June 1, 1998.
72
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
This Item is not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this Item with respect to executive officers of the
Company is set forth in Item 4A. Information required by this Item with
respect to members of the Board of Directors of the Company is contained in
the Proxy Statement for the 2000 Annual Meeting of Shareholders (2000 Proxy
Statement) under the caption "Election of Directors," incorporated herein by
this reference. Additionally, information required by this Item with respect
to compliance with Section 16(a) of the Securities Exchange Act of 1934 is
contained in the 2000 Proxy Statement under the caption "Beneficial Ownership
Reporting Compliance".
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item is contained in the 2000 Proxy Statement
under the caption "Remuneration of Directors and Executive Officers" and
under the caption "Stock Options Granted to Officers by the Company,"
incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMEN
Information required by this Item is contained in the 2000 Proxy Statement
under the caption "Election of Directors," incorporated herein by this
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item is contained in the 2000 Proxy Statement
under the caption "Remuneration of Directors and Executive Officers,"
incorporated herein by this reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following documents are filed as part of this Annual Report on Form
10-K.
(a) Financial Statements and Schedules
(1) Financial Statements Page Herein
-----------
Consolidated Balance Sheets at December 31, 1999 and 1998................... 33
Consolidated Statements of Operations and Other Comprehensive
Income for the years ended December 31, 1999, 1998 and 1997............ 34
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1999, 1998 and 1997........................... 35
Consolidated Statements of Cash Flows for the
years ended December 31, 1999, 1998 and 1997........................... 36
Notes to Consolidated Financial Statements.................................. 38
(2) Financial Statement Schedules
I - Condensed Financial Information of Registrant...................... 78
All other schedules have been omitted since the required information is not
present, is not present in amounts sufficient to require submission of the
schedule or because the required information is included in the financial
statements or notes thereto.
73
(3) EXHIBITS
Page Herein or Incorporated
Exhibit Number and Description by Reference From
- ------------------------------ ---------------------------
(2) and
(10) (a) Assistance Agreement, dated Filed as Exhibit 2 and 10(a)
September 9, 1988, by and to Pulte Corporation's Annual
among The Federal Savings Report on Form 10-K for the
and Loan Insurance Corporation year ended December 31, 1988.
(FSLIC), First Heights, FSA,
Heights of Texas, FSB (Heights
of Texas) and Pulte Diversified
Companies, Inc. (PDCI).
(b) Amendment to Assistance Filed as Exhibit 2 and 10(b) to
Agreement, dated September 23, Pulte Corporation's Annual Report
1988, among the FSLIC, First on Form 10-K for the year ended
Heights, FSA, Heights of Texas December 31, 1988.
and PDCI.
(c) Promissory Notes
(1) Promissory Note No. 1, dated Filed as Exhibit 2 and 10(c) to
September 9, 1988, in the Pulte Corporation's Annual Report
amount of $139,400,000 from on Form 10-K for the year ended
the FSLIC to First Heights. December 31, 1988.
(2) Promissory Note No. 2, dated Filed as Exhibit 2 and 10(c) to
September 9, 1988, in the Pulte Corporation's Annual Report
amount of $172,365,000 from on Form 10-K for the year ended
the FSLIC to First Heights. December 31, 1988.
(3) Receiver's Note No. 3, dated Filed as Exhibit 2 and 10(c) to
September 23, 1988, in the Pulte Corporation's Annual Report
amount of $152,169,750 from on Form 10-K for the year ended
the FSLIC to the FSLIC as December 31, 1988.
receiver for Champion Savings
Association (Champion).
(4) Receiver's Note No. 4, dated Filed as Exhibit 2 and 10(c) to
September 23, 1988, in the Pulte Corporation's Annual Report
amount of $48,527,250 from the on Form 10-K for the year ended
FSLIC to the FSLIC as receiver December 31, 1988.
for Champion.
(d) Regulatory Capital Maintenance Filed as Exhibit 2 and 10(d) to
Agreement, dated September 9, Pulte Corporation's Annual Report
1988, by and among, Pulte on Form 10-K for the year ended
Corporation, PDCI, First Heights, December 31, 1988.
Heights of Texas and the FSLIC.
74
EXHIBITS
Page Herein or Incorporated
Exhibit Number and Description by Reference From
- ------------------------------ ---------------------------
(e) Amendment to Regulatory Capital Filed as Exhibit 2 and 10(e) to
Maintenance Agreement, dated Pulte Corporation's Annual Report
September 23, 1988, among Pulte on Form 10-K for the year ended
Corporation, PDCI, First Heights, December 31, 1988.
Heights of Texas and the FSLIC.
(f) Warranty Agreement, dated as of Filed as Exhibit 2 and 10(f) to
September 9, 1988, between Pulte Corporation's Annual Report
First Heights and the FSLIC. on Form 10-K for the year ended
December 31, 1988.
(g) Receiver's Note Agreement, dated Filed as Exhibit 2 and 10(g) to
September 23, 1988, between the Pulte Corporation's Annual Report
FSLIC, as receiver for Champion on Form 10-K for the year ended
and the FSLIC. December 31, 1988.
(3) (a) Articles of Incorporation, as amended. Filed as Exhibit 19(a) to Pulte
Corporation's Form 10-Q for the
quarter ended June 30, 1988.
(b) By-laws Filed as Exhibit 3(b) to the
Registrant's Registration Statement
on Form S-4 (Registration Statement
No. 33-17223).
(4) (a) Senior Note Indenture among Pulte Filed as Exhibit 4.1 to the
Corporation, certain of its Registrant's Registration Statement
subsidiaries, as Guarantors, and on Form S-3 (Registration Statement
NationsBank of Georgia, National No. 33-71742).
Association, as Trustee,
including Form of Senior
Guarantee, covering Pulte
Corporation's 8.375% unsecured
Senior Notes due 2004
($115,000,000 aggregate principal
amount outstanding) and 7%
unsecured Senior Notes due 2003
($100,000,000 aggregate principal
amount outstanding)
(b) Senior Note Indenture among Pulte Filed as Exhibit (c) 1 to the Registrant's
Corporation, certain of its Current Report on Form 8-K dated October 20,
subsidiaries, as Guarantors, and 1995.
The First National Bank of
Chicago, as Trustee, covering
Pulte Corporation's 7.3%
unsecured Senior Notes due 2005
($125,000,000 aggregate principal
amount outstanding) and 7.625%
unsecured Senior Notes due 2017
($150,000,000 aggregate principal
amount outstanding).
75
EXHIBITS
Page Herein or Incorporated
Exhibit Number and Description by Reference From
- ------------------------------ ---------------------------
(10) Material Contracts
(a) 1983 Key Employees' Stock Filed as Exhibit 10(a) to Pulte Home
Option Plan. Corporation's Annual Report on Form 10-K
for the fiscal year ended December 31,
1983. (1983 Annual Report)
(b) First Amendment to 1983 Key Filed as Exhibit 10(b) to the
Employees' Stock Option Plan Registrant's Registration Statement
on Form S-8 (Registration Statement
No. 33-20052).
(c) 1977 Key Employees' Stock Filed as Exhibit 1(a) to Pulte Home
Option Plan Corporation's Registration
Statement on Form S-8 (Registration
No. 2-59802).
(d) First Amendment to 1977 Key Filed as Exhibit III to Pulte Home
Employees' Stock Option Plan Corporation's Annual Report on
Form 10-K for the year ended
December 31, 1981.
(e) Second Amendment to 1977 Key Filed as Exhibit 10(e) to the
Employees' Stock Option Plan Registrant's Registration Statement
on Form S-8 (Registration Statement
No. 33-20052).
(f) James Grosfeld Consulting Filed as Exhibit 10(g) to Pulte
Agreement April 30, 1990 Corporation's Annual Report on Form 10-K
or the year ended December 31, 1990.
(g) James Grosfeld Agreement Filed as Exhibit 10(h) to Pulte
November 16, 1990 Corporation's Annual Report on Form
10-K for the year ended December 31,
1990.
(h) 1990 Stock Incentive Plan for Filed with the Proxy Statement dated
Key Employees April 3, 1990 and as an exhibit to the
Registrant's Registration Statement on
Form S-8 (Registration Statement
No. 33-40102).
76
EXHIBITS
Page Herein or Incorporated
Exhibit Number and Description by Reference From
- ------------------------------ ---------------------------
(i) James Grosfeld Agreement Filed as Exhibit 10(a) to the Pulte
April 16, 1997 Corporation Report on Form 10-Q for
the quarter ended March 31, 1997.
(j) James Grosfeld Stock Sale Agreement Filed as Exhibit 10(b) to the Pulte
April 16, 1997 Corporation Report on Form 10-Q for
the quarter ended March 31, 1997.
(k) 1994 Stock Incentive Plan for Filed with the Proxy Statement dated
Key Employees March 31, 1994 and as an exhibit to
the Registrant's Registration
Statement on Form S-8 (Registration
Statement No. 33-98944).
(l) Credit Agreement, dated January 5, Filed as Exhibit 10(l) to Pulte
1995, among Pulte Corporation, Corporation's Annual Report on Form
NationsBank, N.A. (Carolinas) as 10-K for the year ended December 31,
Agent for certain lenders 1994.
(m) Fourth Amendment to Credit Agreement, Filed as Exhibit 10(n) to Pulte
dated December 30, 1997, among Pulte Corporation's Annual Report on Form
Corporation and NationsBank, N.A., 10-K for the year ended December 31,
as Agent for certain lenders. 1997.
(n) 1995 Stock Incentive Plan for Filed with the Proxy Statement
Key Employees dated March 31, 1995 and as an exhibit
to the Registrant's Registration
Statement on Form S-8 (Registration
Statement No 33-99218).
(o) 1997 Stock Plan for Nonemployee Filed with Proxy Statement on March 27,
Directors 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).
(p) 364-Day Credit Agreement among Filed as Exhibit 10 to the Pulte
Pulte Corporation as Borrower, Corporation Report on Form 10-Q
the Material Subsidiaries of for the Quarter ended September 30,
Pulte Corporation as Guarantors, 1999.
the Lenders Identified Herein, and Bank
of America, N.A., as Administrative
Agent, dated as of September 15, 1999.
(21) Subsidiaries of the Registrant 82
(23) Consent of Independent Auditors 86
(27) Financial Data Schedule 87
77
PULTE CORPORATION
SCHEDULE I- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Pulte Corporation (the Registrant) is a holding company. The accompanying
financial statements are not the primary consolidated financial statements
since these financial statements present only the accounts of Pulte
Corporation which include its investment in subsidiaries on the equity
method. The primary financial statements of the Company are its consolidated
financial statements.
The net assets of Pulte Home Corporation, Pulte Mortgage Corporation and
First Heights Bank, a federal savings bank, all of which are indirectly
wholly-owned subsidiaries of the registrant are subject to certain
restrictions (see Notes to Consolidated Financial Statements).
Pulte Corporation
Balance Sheets
December 31, 1999 and 1998
($000's omitted)
1999 1998
---- ----
Assets:
Cash and equivalents ................ $ 50 $ 76,555
Investment in subsidiaries, on the
equity method ..................... 1,298,676 1,066,313
Advances receivable - subsidiaries .. 354,211 271,915
Deferred income taxes ............... 57,224 80,385
Other accounts receivable ........... 21,109 17,949
---------- ----------
$1,731,270 $1,513,117
========== ==========
Liabilities and shareholders' equity:
Advances payable - subsidiaries ..... $ 44,966 $ 32,573
Income taxes ........................ 11,769 9,592
Accrued liabilities ................. 86,526 62,014
Unsecured short-term borrowings ..... 7,000 --
Senior notes ........................ 487,690 487,496
---------- ----------
Total liabilities ....... 637,951 591,675
Shareholders' equity ................ 1,093,319 921,442
---------- ----------
$1,731,270 $1,513,117
========== ==========
78
PULTE CORPORATION
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued)
Pulte Corporation
Statements of Income
For the years ended December 31, 1999, 1998 and 1997
($000's omitted)
1999 1998 1997
--------- --------- ---------
Revenues - Interest income ................... $ 681 $ 7,641 $ 2,054
--------- --------- ---------
Expenses - General and administrative ........ 12,416 9,095 15,125
Interest .......................... 26,047 22,750 17,501
Restructuring costs ............... -- -- 3,100
--------- --------- ---------
38,463 31,845 35,726
--------- --------- ---------
Expenses in excess of revenues ............... (37,782) (24,204) (33,672)
Other income (expense) ....................... (3,243) (1,215) 170
--------- --------- ---------
Loss from continuing operations
before income taxes and equity
in net income of subsidiaries ........... (41,025) (25,419) (33,502)
Income tax (benefit) ......................... (22,704) (14,006) (15,255)
--------- --------- ---------
Loss from continuing operations before
equity in net income of subsidiaries ...... (18,321) (11,413) (18,247)
Income (loss) from discontinued operations ... (2,037) (301) 6,620
--------- --------- ---------
Equity in net income (loss) of subsidiaries
Continuing operations ..................... 196,608 112,561 68,047
Discontinued operations ................... 1,915 1,336 (3,659)
--------- --------- ---------
198,523 113,897 64,388
--------- --------- ---------
Net income ................................... $ 178,165 $ 102,183 $ 52,761
========= ========= =========
79
PULTE CORPORATION
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued)
Pulte Corporation
Statements of Cash Flows
For the years ended December 31, 1999, 1998 and 1997
($000's omitted)
1999 1998 1997
--------- --------- ----------
Continuing operations Cash flows from operating activities:
Income from continuing operations ........................ $ 178,287 $ 101,148 $ 49,800
Adjustments to reconcile income from continuing operations
to net cash used in operating activities:
Equity in income of subsidiaries .................... (196,608) (112,561) (68,047)
Amortization ........................................ 194 193 113
Deferred income taxes ............................... 1,599 (2,170) (14,222)
Changes in cash due to:
Accounts receivable and other assets ............. (3,160) 356 (5,445)
Income taxes ..................................... (103,308) (45,645) (8,453)
Accrued liabilities .............................. 22,374 1,138 7,001
--------- --------- ---------
Net cash used in operating activities ....................... (100,622) (57,541) (39,253)
--------- --------- ---------
Cash flows provided by investing activities:
Investment in subsidiaries ............................... (38,678) (48,981) --
Dividends received from subsidiaries ..................... 3,550 132,040 --
Advances (to) from affiliates ............................ 48,465 (172,652) 38,688
Other, net ............................................... -- 15,000 --
--------- --------- ---------
Net cash provided by (used in) investing activities ......... 13,337 (74,593) 38,688
--------- --------- ---------
Cash flows from financing activities:
Dividends paid ........................................... (6,919) (6,456) (5,153)
Advances from affiliates ................................. 9,053 12,247 6,566
Stock repurchases ........................................ -- -- (74,673)
Proceeds from borrowings ................................. 7,000 -- 147,825
Other .................................................... 1,646 6,952 7,361
--------- --------- ---------
Net cash provided by financing activities ................... 10,780 12,743 81,926
--------- --------- ---------
Net increase (decrease) in cash and equivalents-
continuing operations .................................... (76,505) (119,391) 81,361
--------- --------- ---------
Discontinued operations:
Cash flows from operating activities:
Income (loss) from discontinued operations ............... (122) 1,035 2,961
Change in deferred income taxes .......................... 21,562 26,444 32,495
Equity in (income) loss of subsidiaries .................. (1,915) (1,336) 3,659
Amortization and other ................................... 2,037 1,687 (4,264)
Change in income taxes ................................... (21,562) (27,830) (34,851)
--------- --------- ---------
Net cash provided by operating activities ................ -- -- --
--------- --------- ---------
Net increase (decrease) in cash equivalents ................. (76,505) (119,391) 81,361
Cash and equivalents at beginning of year ................... 76,555 195,946 114,585
--------- --------- ---------
Cash and equivalents at end of year ......................... $ 50 $ 76,555 $ 195,946
========= ========= =========
80
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
(Registrant)
March 1, 2000 /s/ Roger A. Cregg /s/ Vincent J. Frees
---------------------------- ------------------------------
Roger A. Cregg Vincent J. Frees
Senior Vice President Vice President and Controller
and Chief Financial Officer (Principal Accounting Officer)
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capabilities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ William J. Pulte Member of Board of Directors March 1, 2000
- ----------------------------
William J. Pulte
/s/ Robert K. Burgess Chairman of the Board, March 1, 2000
- ---------------------------- Chief Executive Officer and
Robert K. Burgess Member of Board of Directors
/s/ Debra Kelly-Ennis Member of Board of Directors March 1, 2000
- ----------------------------
Debra Kelly-Ennis
/s/ David N. McCammon Member of Board of Directors March 1, 2000
- ----------------------------
David N. McCammon
Member of Board of Directors March 1, 2000
- ----------------------------
Patrick J. O'Meara
/s/ Ralph L. Schlosstein Member of Board of Directors March 1, 2000
- ----------------------------
Ralph L. Schlosstein
/s/ Alan E. Schwartz Member of Board of Directors March 1, 2000
- ----------------------------
Alan E. Schwartz
/s/ Francis J. Sehn Member of Board of Directors March 1, 2000
- ----------------------------
Francis J. Sehn
/s/ John J. Shea Member of Board of Directors March 1, 2000
- ----------------------------
John J. Shea
81