-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OuJQ8kQHp0pblbU1RZ4bb8ycctICFP1gOx7+EsQ02kgz9HrpsuAzvx7Mr9oCaWAe 7HTq3+infr1DM+Qnuideeg== 0000889697-00-000039.txt : 20000307 0000889697-00-000039.hdr.sgml : 20000307 ACCESSION NUMBER: 0000889697-00-000039 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000302 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PULTE CORP CENTRAL INDEX KEY: 0000822416 STANDARD INDUSTRIAL CLASSIFICATION: OPERATIVE BUILDERS [1531] IRS NUMBER: 382766606 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-09804 FILM NUMBER: 560016 BUSINESS ADDRESS: STREET 1: 33 BLOOMFIELD HILLS PKWY STE 200 CITY: BLOOMFIELD HILLS STATE: MI ZIP: 48304 BUSINESS PHONE: 2486472750 FORMER COMPANY: FORMER CONFORMED NAME: PHM CORP DATE OF NAME CHANGE: 19920703 10-K 1 ============================================================================== 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 ---------------- PULTE CORPORATION (Exact name of registrant as specified in its charter) MICHIGAN 38-2766606 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 33 Bloomfield Hills 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. ============================================================================== 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 EX-21 2 PULTE CORPORATION EXHIBIT 21 - SUBSIDIARIES OF THE REGISTRANT Pulte Corporation (the Company) owns 100% of the capital stock of Pulte Diversified Companies, Inc. (PDCI), Pulte Financial Companies, Inc. (PFCI), Radnor Homes, Inc. and PC/Palm Beach, Inc., all Michigan corporations, and 100% of PB Venture L.L.C. and Pulte Land Company, LLC, both Michigan limited liability companies, North American Builders Indemnity Company, a Colorado corporation, Marquette Title Insurance Company, a Vermont corporation and RN Acquisition 2 Corp., a Nevada corporation. The Company is a member of the following limited liability companies: Place of Percentage Entity Name Formation Ownership ----------- --------- ----------- Grayhaven Estates Limited, L.L.C. Michigan 49% City Homes Development L.L.C. Michigan 50% Shorepointe Village Homes, L.L.C. Michigan 31.5% Detroit City Homes L.L.C Michigan 45% PDCI owns 100% of the capital stock of Pulte International Corporation, Pulte Home Corporation (Pulte), American Title of the Palm Beaches Corporation and Riverwalk Commerce Acquisition Corp., all Michigan corporations, First Heights Bank, a federal savings bank, DiVosta and Company, Inc., a Florida corporation and Pulte Michigan Services, LLC., a Michigan limited liability company. PDCI owns 96% of American Title of the Palm Beaches, Ltd., a Florida limited partnership. Pulte International Corporation owns 100% of the capital stock of Pulte International Mexico, Inc., Pulte International Caribbean Corp., Pulte Chile Corporation, Pulte SA Corporation, Pulte Argentina Corporation and Pulte SRL Corporation, all Michigan corporations. Pulte International-Mexico, Inc. and Pulte own 99.99% and .01%, respectively, of the capital stock of Controladora PHC, S.A. De C.V. (Controladora), a Mexican corporation. Pulte International Mexico, Inc. owns .7% of Nantar, S. De R.L. De C.V., a Mexican limited liability company and 1% of Pulte Internacional Mexico S. De R.L. De C.V., a Mexican corporation. Controladora owns 99.3% of Nantar, S. De R.L. De C.V., a Mexican limited liability company, 99% of Pulte Internacional Mexico S. De R.L. De C.V., a Mexican corporation, and 66.67% of Condak-Pulte S. De R.L. De C.V., 50% of CIV-Pulte S. De R.L. De C.V., 50% of Sand-Pulte S. De R.L. De C.V and 50% of DRT-Pulte, all Mexican joint ventures. Pulte International Caribbean Corp. owns 100% of the capital stock of Pulte International Building Corporation, a Michigan corporation. Pulte Chile Corporation owns 99% and Pulte SA Corporation owns 1% of Pulte de Chile Limitada, a Chilean limited partnership. Pulte Chile Corporation owns 99.9% and Pulte SA Corporation owns .1% of Residencias del Norte Limitada, a Chilean limited liability company. American Title of the Palm Beaches Corporation owns 4% of American Title of the Palm Beaches, Ltd., a Florida limited partnership. DiVosta and Company, Inc. owns 100% of the capital stock of Abacoa Homes, Inc., DiVosta Homes, Inc., Florida Building Products, Inc., Florida Club Homes, Inc., Hammock Reserve Development Company, Island Walk Development Company, RiverWalk of the Palm Beaches Development Company, Inc., SunCo Building Corporation, Village Walk Development Company, Inc., and DiVosta Home Sales, Inc., all Florida corporations. PFCI owns 100% of the capital stock of Guaranteed Mortgage Corporation III, a Michigan corporation. Radnor Homes, Inc. owns 25.6% and RN Acquisition 2 Corp. owns 74.4% of Pulte Homes Tennessee Limited Partnership, a Nevada limited partnership. 82 PULTE CORPORATION EXHIBIT 21 - SUBSIDIARIES OF THE REGISTRANT (continued) PC/Palm Beach, Inc. owns 50% of Florida Investment Venture, a general partnership. PB Venture L.L.C. owns 100% of PC/BRE Venture L.L.C., a Delaware limited liability company. PC/BRE Venture L.L.C. owns 100% of PC/BRE Development L.L.C., PC/BRE Whitney Oaks L.L.C., PC/BRE Winfield L.L.C. and PC/BRE Springfield L.L.C., all Delaware limited liability companies, and 40% of the capital stock of Springfield Realty Corporation, a Michigan corporation. PC/BRE Springfield L.L.C. owns 88% of Springfield Golf Resort, L.L.C., an Arizona limited liability company. Pulte owns 100% of the capital stock of the following subsidiaries: Place of Incorporation/ Company Name Formation ------------ -------------- Pulte Mortgage Corporation (1)............................ Delaware Pulte Homes of Michigan Corporation (2)................... Michigan Palmville Development Corp. .............................. Michigan Ceiba Homes Inc. ......................................... Michigan Gurabo Homes, Inc. ....................................... Michigan Salinas Homes, Inc. ...................................... Michigan Salinas Builders, Inc. ................................... Michigan Dean Realty Company (3)................................... Michigan Pulte Development Corporation............................. Michigan Lexington Oaks Golf Club, Inc. ........................... Florida Preserve I, Inc. (4)...................................... Michigan Preserve II, Inc. (4)..................................... Michigan Pulte Homes of Minnesota Corporation...................... Minnesota PBW Corporation (8)....................................... Michigan Wil Corporation (8)....................................... Michigan Homesite Solutions Corp................................... Michigan Pulte Home Corporation of The Delaware Valley (7)......... Michigan Pulte Homes of South Carolina, Inc. (5)................... Michigan Pulte Lifestyle Communities, Inc.......................... Michigan Pulte Payroll Corporation................................. Michigan PHC Title Corporation (9)................................. Michigan PQL Realty Corporation.................................... Michigan Pulte Land Development Corporation........................ Michigan TVM Corporation (6)....................................... Michigan James T. Lynch, Inc....................................... Texas Pulte Homes of Greater Kansas City, Inc................... Michigan PN I, Inc. (10)........................................... Nevada PN II, Inc. (10).......................................... Nevada PHT Title Corporation (13)................................ Michigan Residential Building Systems LLC.......................... Michigan Frederick Holding Corp.................................... Michigan Pulte Home Corporation of New England (12)................ Michigan Carr's Grant LLC.......................................... Maryland 83 PULTE CORPORATION EXHIBIT 21 - SUBSIDIARIES OF THE REGISTRANT (continued) 1) Pulte Mortgage Corporation owns 100% of the capital stock of PCIC Corporation, a Michigan corporation, Joliet Mortgage Reinsurance Company, a Vermont corporation and 22.9% of the capital stock of Hipotecaria Su Casita, S.A. De C.V., a Mexican corporation. 2) Pulte Homes of Michigan Corporation owns 100% of the capital stock of Gulf Partners, Inc., Sean/Christopher Homes, Inc., and Pulte-IN Corporation, all Michigan corporations, 100% of the capital stock of Pulte Homes of Ohio Corporation, an Ohio corporation and 1% of Haggerty Hills Limited Partnership, a Michigan limited partnership. Sean/Christopher Homes, Inc. and Pulte-IN Corporation each own 50% of Sean/Christopher Homes, LLC, an Indiana limited liability company. Gulf Partners, Inc. owns 99% of Haggerty Hills Limited Partnership, a Michigan limited partnership. 3) Dean Realty Company owns 100% of the capital stock of Pulte Real Estate Company, a Florida corporation. 4) Preserve I, Inc. owns 99% and Preserve II, Inc. owns 1% of The Preserve Limited Partnership, a Maryland limited partnership. 5) Pulte Homes of South Carolina, Inc. owns 100% of the capital stock of Great American Homes, Inc. and SC Warranty Corporation, both Michigan corporations. 6) TVM Corporation owns 63% of PHM Title Agency L.L.C., a Delaware limited liability company. 7) Pulte Home Corporation of The Delaware Valley owns 50% of P&H Clinton Partnership. 8) PBW Corporation owns 1% and Wil Corporation owns 99% of Wilben II Limited Partnership, a Maryland limited partnership. PBW Corporation owns 5% and Wil Corporation owns 95% of Wilben, LLLP, a Maryland limited partnership. PBW Corporation and Wil Corporation each own 50% of One Willowbrook L.L.C., a Maryland limited liability company. Wil Corporation owns 100% of Harrison Hills, LLC, a Maryland limited liability company. 9) PHC Title Corporation owns 80% of Pulte Title Agency of Minnesota, L.L.C., a Minnesota limited liability company and 99% of PHT Title Agency, L.P., a Texas limited partnership. PHC Title Corporation also owns 49% of Pulte Title Agency of Ohio, LLC, an Ohio limited liability company and 49% of Pulte Title Agency of Michigan L.L.C., a Michigan limited liability company. 10) PN I, Inc., owns .1% and PN II, Inc. owns 99.9% of Pulte Homes of Texas, L.P, and Devtex Land, L.P., both Texas limited partnership. 12) Pulte Home Corporation of New England owns 99% of Willow Brook Associates Limited Partnership, a Massachusetts limited partnership and 100% of Forest Hills Development of Mass. LLC, a Michigan limited liability company. 13) PHT Title Corporation owns 1% of PHT Title Agency, L.P., a Texas limited partnership. 84 PULTE CORPORATION EXHIBIT 21 - SUBSIDIARIES OF THE REGISTRANT (continued) Pulte is a member of the following entities: Place of Percentage Entity Name Formation Ownership ----------- --------- --------- Ashgrove Plantation L.L.C..................... Virginia 34.44% Buildinvest Limited Partnership............... Maryland 33.33% Crosland/Piper Glen Ltd. Partnership.......... N. Carolina 31.37% Crosland/Wynfield Forest Limited Partnership.. N. Carolina 28.57% Quantrell Mews, L.L.C......................... Virginia 20.00% Springfield Realty Corporation................ Michigan 60.00% 85 EX-23 3 PULTE CORPORATION EXHIBIT 23 - CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-8 No. 33-20052, Form S-8 No. 2-59802, Form S-8 No. 33-40102, Form S-8 No. 33-98944 and Form S-8 No. 33-99218) and the related Prospectuses of Pulte Corporation for the registration of shares of its common stock of our report dated January 20, 2000, with respect to the consolidated financial statements and schedule of Pulte Corporation included in this Annual Report (Form 10-K) for the year ended December 31, 1999. ERNST & YOUNG LLP Detroit, Michigan March 1, 2000 86 EX-27 4
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1999 AND FOR THE YEAR THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 51,718 0 53,544 0 1,792,733 0 0 0 2,596,797 0 525,965 433 0 0 1,092,886 2,596,797 3,677,716 3,730,337 3,023,841 3,450,748 0 0 56,815 286,405 108,118 178,287 (122) 0 0 178,165 4.12 4.07 Bonds are comprised of senior notes. Relates to homebuilding operations. 87
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