-----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, AlkbaQosP3CA1TdtPa6siV+jA0eZroHfyoWsTXQnGwBTnx+ulzmKBUSCJXGn7Nt+ mHA1nR/mg9ijk6IuS7zcPw== 0000889697-98-000110.txt : 19980317 0000889697-98-000110.hdr.sgml : 19980317 ACCESSION NUMBER: 0000889697-98-000110 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980313 SROS: NYSE 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: 98565218 BUSINESS ADDRESS: STREET 1: 33 BLOOMFIELD HILLS PKWY STE 200 CITY: BLOOMFIELD HILLS STATE: MI ZIP: 48304 BUSINESS PHONE: 8106472750 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, 1997 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 [ ]. Aggregate market value of voting stock held by nonaffiliates of the registrant as of January 31, 1998: $676,209,187 Number of shares of common stock outstanding as of January 31, 1998: 21,295,505 Documents Incorporated by Reference Applicable portions of the Proxy Statement for the 1998 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......................................................... 8 3 Legal Proceedings.................................................. 8 4 Submission of Matters to a Vote of Security Holders................ 9 4A Executive Officers of the Registrant............................... 9 Part II 5 Market for the Registrant's Common Equity and Related Stockholder Matters............................................. 11 6 Selected Financial Data............................................ 11 7 Management's Discussion and Analysis of Financial Condition and Results of Operations............................. 14 8 Financial Statements and Supplementary Data........................ 24 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............................................ 64 Part III 10 Directors and Executive Officers of the Registrant................. 64 11 Executive Compensation............................................. 64 12 Security Ownership of Certain Beneficial Owners and Management..... 64 13 Certain Relationships and Related Transactions..................... 64 Part IV 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K........................................................ 64 Signatures............................................................. 72 2 PART I ITEM 1. BUSINESS Pulte Corporation Pulte Corporation (the Company) is the publicly held parent corporation of the Pulte Home Corporation (Pulte) group of companies. The Company is a holding company and 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 direct subsidiaries consist of Pulte Financial Companies, Inc. (PFCI) and Pulte Diversified Companies, Inc. (PDCI). PDCI's direct subsidiaries are Pulte and First Heights Bank, a federal savings bank (First Heights). Pulte Mortgage Corporation (Pulte Mortgage) is a direct subsidiary of Pulte. The Company conducts operations in two primary business segments: homebuilding, through Pulte and its homebuilding subsidiaries, and financial services, principally through the Company's mortgage banking subsidiary (Pulte Mortgage) and to a limited extent by its financing subsidiary (PFCI). The Company's thrift subsidiary, First Heights, has been classified as discontinued operations. (See Note 3 of Notes to Consolidated Financial Statements.) Homebuilding Operations 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. Nearly tripling both its housing sales (settlements) and net new orders since 1990, Pulte continued the distinction it earned in 1996 as the nation's largest homebuilder with 1997 sales of over 15,300 homes and nearly 190,000 homes since its inception. Additionally, during 1996, Pulte was recognized as "America's Best Builder" by the National Association of Home Builders, the industry's trade association, and by Builder Magazine, one of the industry's leading trade publications. The Company believes that its customer-focused approach has allowed it to quickly identify and target emerging niches, including the mature buyer (home buyers age 50 and over) and affordable housing segments. Initiatives focusing on affordable housing, most notably the Canterbury Community concept (affordable site-built homes), are currently offered or under way in 30 communities within ten markets nationwide. As of December 31, 1997, Pulte offered homes for sale in 396 communities at sales prices ranging from $45,000 to over $600,000. Sales prices of homes currently offered for sale in 77% of Pulte's communities fall within the range of $75,000 to $225,000 with a 1997 average unit selling price of $162,000. Sales of single-family detached homes, as a percentage of total unit sales, were 78%, 77% and 73% in 1997, 1996 and 1995, respectively. As of December 31, 1997, Pulte operated in 41 markets within the following geographic areas and Puerto Rico: Pulte Home East: Mid-Atlantic Region Delaware, Maryland, Massachusetts, New Jersey, Pennsylvania, Rhode Island, Virginia Southeast Region Georgia, North Carolina, South Carolina Florida Region Florida Pulte Home Central: Great Lakes Region Indiana, Michigan, Missouri, Ohio, Kansas Midwest Region Illinois, Minnesota, Wisconsin Texas Region Texas Pulte Home West: Southwest Region Arizona, Nevada Rocky Mountain Region Colorado, Utah California Region California 3 The following table sets forth for-sale housing unit sales (settlements), average sales prices, net new orders and backlog of orders (any of which may be canceled):
Years ended December 31, ---------------------------------------------------- 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- Unit settlements: Pulte Home East ............................... 7,550 7,007 5,591 4,737 3,913 Pulte Home Central ............................ 4,385 4,589 4,403 3,577 3,432 Pulte Home West ............................... 3,387 3,017 2,451 2,828 2,453 -------- -------- -------- -------- -------- Total unit settlements ........................... 15,322 14,613 12,445 11,142 9,798 ======== ======== ======== ======== ======== Average sales price .............................. $162,000 $159,000 $155,000 $147,000 $139,000 ======== ======== ======== ======== ======== Net new orders - units: Pulte Home East ............................... 7,492 7,128 6,243 4,592 4,165 Pulte Home Central ............................ 4,421 4,282 4,943 3,410 3,420 Pulte Home West ............................... 3,575 2,989 2,634 2,559 2,665 -------- -------- -------- -------- -------- Total net new orders ............................. 15,488 14,399 13,820 10,561 10,250 ======== ======== ======== ======== ======== Markets, end of year ............................. 41 41 39 32 26 ======== ======== ======== ======== ======== Active communities, end of year .................. 396 392 351 294 239 ======== ======== ======== ======== ======== At December 31, ---------------------------------------------------- 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- Backlog - units: Pulte Home East ............................... 1,715 1,773 1,652 1,000 1,145 Pulte Home Central ............................ 1,016 980 1,287 747 914 Pulte Home West ............................... 883 695 723 540 809 -------- -------- -------- -------- -------- Total backlog ................................. 3,614 3,448 3,662 2,287 2,868 ======== ======== ======== ======== ======== Backlog, in thousands of dollars ................. $644,000 $596,000 $602,000 $387,000 $420,000 ======== ======== ======== ======== ======== Backlog average sales price ...................... $178,000 $173,000 $164,000 $169,000 $146,000 ======== ======== ======== ======== ========
Unit sales (settlements) and net new orders in any year are strongly influenced by local, regional and national market economic conditions. Land Acquisition and Development Locations for development 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 mature buyer developments for which the completion of housing unit sales may require 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 land owned 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, 1997, Pulte owned approximately 28,700 lots in communities in which homes are being constructed. In addition, Pulte had approximately 20,200 lots under option. 4 Sales and Marketing Pulte is dedicated to improving the quality and value of its homes through proprietary innovative 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 customer segments, 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, flooring, carpet and appliances, with the buyer having selection options as to the type of flooring and carpet. Typically, Pulte's own 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 Pulte Mortgage. 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 also are obtained through referrals from other Pulte customers. Also, Pulte maintains market and specific community information in its internet home page which can be reached at http://www.pulte.com. Construction Pulte normally designs the homes it sells and builds such homes 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 attempts to maintain efficient 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. 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. A Pulte subsidiary, Builders' Supply and Lumber Co., Inc. (BSL), operates facilities in the greater metropolitan Washington, D.C., area, Charlotte, Raleigh, Atlanta, Orlando and North East, Maryland, which provide building materials to certain Pulte operating divisions as well as unaffiliated customers. On February 13, 1998, the Company announced that it had entered into an agreement to sell BSL. This sale is subject to financing and other customary conditions and is expected to close during the first quarter of 1998. Competition and Other Factors Pulte employs a consumer-products orientation based upon customer satisfaction and value-based brand recognition it believes is unique in the home building industry and a significant factor in 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 5 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 well as 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 and local 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 Pulte Mortgage is a mortgage bank which arranges financing through the origination of mortgage loans primarily for the benefit of buyers of Pulte's homes, but also to the general public, and engages in the sale of such loans and the related servicing rights. Pulte Mortgage 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, Pulte Mortgage generally follows underwriting guidelines established by FNMA and FHLMC. During 1996, Pulte Mortgage reorganized its operations by centralizing its mortgage underwriting, processing and closing functions in Denver, Colorado, through the implementation of a mortgage operations center (MOC) concept. Additionally, during 1997, Pulte Mortgage began a centralized telephone loan officer concept which moved the loan officers from field branches to a mortgage application center (MAC) located in Denver. Thus the principal field contacts for the mortgage customers are Pulte's sales representatives who forward the loan application to the MAC. The MAC loan officer calls the customer to complete the loan application and then forwards it to the MOC for processing. Pulte Mortgage believes both the MOC and the MAC will improve the speed and efficiency of its mortgage operations, thus improving profitability and allowing it to focus on creating mortgage opportunities with Pulte customers. In originating mortgage loans, Pulte Mortgage initially uses its own funds and borrowings made available to it pursuant to various credit arrangements. Subsequently, Pulte Mortgage sells such mortgage loans and mortgage-backed securities to outside investors. During the years ended December 31, 1997, 1996 and 1995, Pulte Mortgage originated mortgage loans for 50%, 49% and 49%, respectively, of the homes sold by Pulte. Such originations represented 81%, 72% and 62%, respectively, of Pulte Mortgage funded originations. Approximately 34%, 38% and 50% of the total loans originated by Pulte Mortgage during the years ended December 31, 1997, 1996 and 1995, respectively, were insured by the FHA or partially guaranteed by the VA. Prior to 1994, Pulte Mortgage had retained most of the servicing rights related to mortgage loans it had originated and, thus, accepted the risks inherent in servicing. Beginning in 1994, Pulte Mortgage changed its strategy to sell originated mortgage servicing on a flow basis. In addition, during the second half of 1994 and first half of 1995, Pulte Mortgage sold a significant portion of its core mortgage servicing portfolio. At December 31, 1997, the outstanding balance of Pulte Mortgage's owned servicing portfolio was $305,000,000 (2,786 loans) as compared with $394,000,000 (3,744 loans) and $368,000,000 (3,852 loans) at December 31, 1996 and 1995, respectively. At December 31, 1997, approximately 38% of such servicing portfolio was insured by the FHA or partially guaranteed by the VA, compared to 32% at December 31, 1996. 6 The mortgage industry in the United States is highly competitive. Pulte Mortgage competes with other mortgage companies and financial institutions to provide attractive mortgage financing to both Pulte customers and the general public. Pulte Mortgage, in originating and servicing mortgage loans, is subject to rules and regulations of the FHA, VA, GNMA, FNMA, and FHLMC. Other Financial Subsidiaries Other financing activities are conducted by the limited purpose subsidiaries of PFCI. Such subsidiaries previously engaged in the acquisition of mortgage loans and mortgage-backed securities from Pulte Mortgage and unrelated parties financed principally through long-term bonds which are secured only by such mortgage loans and mortgage-backed securities. At December 31, 1997, one bond series with a principal amount of $37,413,000 remained outstanding. Such bonds are the obligations of the applicable PFCI issuer subsidiary; they are neither obligations of, nor guaranteed by, the Company, PDCI, Pulte, Pulte Mortgage or PFCI. (See Management's Discussion and Analysis of Financial Condition and Results of Operations - Other Financial Subsidiaries and Note 5 of Notes to Consolidated Financial Statements.) Discontinued Operations During 1994, the Company announced its strategy to exit the thrift industry and increase its focus on homebuilding and related mortgage banking. First Heights sold substantially all of its bank branches and related liabilities (primarily deposits), plus certain other assets. The sale was completed during the fourth quarter of 1994. Accordingly, such operations have been presented as discontinued. Included in the sale were assets, primarily consumer and commercial loans, of $116,886,000 and liabilities, primarily deposits, of $1,205,047,000. To provide liquidity for the sale, First Heights liquidated its investment portfolios and its single-family residential loan portfolio and borrowed $127,000,000 from the Federal Deposit Insurance Corporaiton (FDIC). One remaining retail branch office continues to operate in Houston. First Heights is subject to regulation by the Office of Thrift Supervision (OTS) and the FDIC. Specific regulations include, among others, capital maintenance requirements, liquidity maintenance requirements, limitations on the growth of total liabilities, limitations on the type and amount of its investments, restrictions on transactions with affiliates, and limitations on dividends paid to PDCI. (See Management's Discussion and Analysis of Financial Condition and Results of Operations - Discontinued Operations, and Note 3 of Notes to Consolidated Financial Statements.) The Company is engaged in litigation with the FDIC and the United States in connection with its thrift activities. (See Item 3 - Legal Proceedings). Corporate Corporate is a nonoperating segment that is comprised of the Company and PDCI, both of which are holding companies. Its primary purpose is to support the operations of the Company's subsidiaries as the internal source of financing and by implementing and nurturing to maturity strategic initiatives centered around new business development and improving operating efficiencies. Examples of past and present strategic initiatives include: o international expansion into Mexico and pursuit of additional international opportunities; o affordable housing opportunities, through the use of manufactured and/or modular housing products and development of communities for such products; and o non-traditional building components and business initiatives. Corporate assets include equity investments in its subsidiaries, short-term financial instruments and affiliate advances. Its 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 its subsidiaries' operations and investigating strategic initiatives. 7 Organization/Employees All subsidiaries and operating units operate in an autonomous fashion with respect to day-to-day operations. All homebuilding real estate purchases and other significant homebuilding, mortgage banking, financing activities and similar operating decisions must be approved by business unit and/or senior corporate management. At December 31, 1997, the Company employed approximately 4,300 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 based on individual performance and incentive compensation 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 6 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 corporate offices are located at 33 Bloomfield Hills Parkway, Suite 200, Bloomfield Hills, Michigan, 48304, where 37,529 square feet of office space is leased. Pulte Mortgage's and PFCI's corporate offices are located at 6061 South Willow Drive, Greenwood Village, Colorado, 80111. At this location, 47,400 square feet of office space is leased. Pulte homebuilding markets and Pulte Mortgage branch operations generally lease office space for their day-to-day operations. Pulte's subsidiary which provides building materials owns three warehouses totaling 196,000 square feet and leases 77,000 square feet of warehouse space in metropolitan Washington, D.C., leases a 91,000 square foot warehouse facility in Charlotte, owns a 112,000 square foot warehouse facility in Atlanta, leases a 100,000 square foot warehouse facility in Raleigh, owns a 47,000 square foot warehouse facility in Orlando and leases 109,000 square feet of warehouse space in North East, Maryland. 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. First Heights' administrative offices and it remaining retail branch office are located in leased space at 2050 North Loop West, Suite 201, Houston, Texas 77018. 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 two lawsuits relating to First Heights' 1988 acquisition from the Federal Savings and Loan Insurance Corporation (FSLIC), and First Heights' ownership of, five failed Texas thrifts. The first lawsuit (the "District Court Case") was filed on July 7, 1995 in the United States District Court, Eastern District of Michigan, by the Federal Deposit Insurance Corporation (FDIC) against the Company, PDCI and First Heights (collectively, the "Pulte Parties"). The second lawsuit (the "Court of Federal Claims Case") was filed on December 26, 1996 in the United States Court of Federal Claims (Washington, D.C.) by the Pulte Parties against the United States. In the District Court Case, the FDIC seeks a declaration of rights and other relief related to the assistance agreement entered into between First Heights and the FSLIC. The FDIC is the successor to FSLIC. The FDIC and the Pulte Parties disagree about the proper interpretation of provisions in the assistance agreement which provide for sharing of certain tax benefits achieved in connection with First Heights' 1988 acquisition and ownership of the five failed Texas thrifts. The District Court Case also includes certain other claims relating to the foregoing, including claims resulting from the Company's and First Heights' amendment of a tax sharing and allocation agreement between the Company and First Heights. The Pulte Parties dispute the FDIC's claims and believe that a proper interpretation of the assistance agreement limits the FDIC's participation in the tax benefits. The Pulte Parties have filed an answer and a counterclaim, seeking, among other things, 8 a declaration that the FDIC has breached the assistance agreement in numerous respects. On December 24, 1996, the Pulte Parties voluntarily dismissed without prejudice certain of their claims in the District Court Case and on December 26, 1996, initiated the Court of Federal Claims Case. The Court of Federal Claims Case contains similar claims as those that were voluntarily dismissed from the District Court Case. In their complaint, the Pulte Parties assert breaches of contract on the part of the United States in connection with the enactment of section 13224 of the Omnibus Budget Reconciliation Act of 1993. That provision repealed portions of the tax benefits that the Pulte Parties claim they were entitled to under the contract to acquire the failed Texas thrifts. The Pulte Parties also assert certain other claims concerning the contract, including claims that the United States (through the FDIC as receiver) has improperly attempted to amend the failed thrifts' pre-acquisition tax returns and that this attempt was made in an effort to deprive the Pulte Parties of tax benefits they had contracted for, and that the enactment of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 breached the Government's obligation not to require contributions of capital greater than those required by the contract. On March 5, 1998, the Company reported that an opinion and order had been issued by the United States District Court (the "Court") which resolved by summary judgment four of the interpretational issues which had been raised in the District Court Case. On three issues, the Court ruled in favor of the FDIC, and on one issue, the Court ruled in favor of the Company. The Company vigorously disagrees with the Court's ruling in favor of the FDIC and intends to appeal if these rulings become part of any final judgment. If the Company were unsuccessful on appeal and if all other issues in such litigation were resolved in favor of the FDIC, the Company would, at such time, take an after-tax charge against discontinued operations in an amount which would range from a nominal amount to as much as $40,000,000. The Company does not believe that the claims in the Court of Federal Claims Case are affected by the rulings in the District Court Case. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS This Item is not applicable. 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, 1997.
Year Became Name Age Position An Officer - ---- --- -------- ---------- William J. Pulte 65 Chairman of the Board 1956 Robert K. Burgess 53 President and Chief Executive Officer 1984 Mark J. O'Brien 54 Executive Vice President and Chief Operating Officer 1997 Roger A. Cregg 41 Senior Vice President 1997 Michael D. Hollerbach 44 Executive Vice President and Chief Financial Officer 1989 William J. Crombie 50 Senior Vice President 1989 Michael A. O'Brien 45 Senior Vice President 1993 Vincent J. Frees 47 Vice President and Controller 1995 Gregory M. Nelson 42 Vice President 1993 John R. Stoller 49 Vice President, General Counsel and Secretary 1990 James A. Weissenborn 40 Vice President and Treasurer 1993
9 The following is a brief account of the business experience during the past five years through December 31, 1997 of each officer: Mr. Pulte was appointed Chairman of the Board in January 1991 and Co-Chairman of the Executive Committee in April 1990. Previously, Mr. Pulte was Chairman of the Executive Committee of the Board of Directors. Mr. Pulte served as Chief Executive Officer from January 1991 through December 1992. He has been a Director of the Company since 1956. Mr. Burgess has been President since October 1985. In addition, Mr. Burgess was appointed Chief Executive Officer in January 1993. He has been a Director of the Company since 1985. Mr. Mark O'Brien was appointed Executive Vice President and Chief Operating Officer in August 1997. Prior to that date, Mr. O'Brien served in various capacities with Company subsidiaries, most recently as President of Pulte Home East, an operating unit of Pulte. Mr. Cregg was appointed Senior Vice President in December 1997 and 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. Hollerbach had been Executive Vice President and Chief Financial Officer from June 1993 through January 1998, at which time Mr. Hollerbach left the Company. He was previously Senior Vice President since July 1989. He had been a Director of the Company from January 1993 through January 1998. Mr. Crombie has been Senior Vice President since June 1993. From November 1989 to June 1993, he was Senior Vice President-Finance and Chief Financial Officer. Mr. Michael O'Brien became Senior Vice President in December 1994. From December 1993 to November 1994, he was Vice President. From 1989 to November 1993, Mr. O'Brien served as Vice President-Human Resources of Pepsi-Cola, Inc. 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. From 1988 to August 1993, he was Director of Taxes. He has also been a Vice President of Pulte since 1988. Mr. Nelson joined the Company in January 1982. Mr. Stoller joined the Company in August 1990. In October 1990, he was appointed Vice President and General Counsel. Prior to joining the Company, Mr. Stoller served as Vice President, General Counsel and Secretary of BetaWest Properties, Inc., a commercial real estate development subsidiary of US WEST, Inc. Effective January 1, 1994, Mr. Stoller became Secretary of the Company. Mr. Weissenborn had been Vice President and Treasurer from August 1993 through January 1998, at which time Mr. Weissenborn left the Company. From March 1989 to August 1993, he served as Executive Vice President and Chief Financial Officer of First Heights. There is no family relationship between any of the officers. Each officer serves at the pleasure of the Board of Directors. 10 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.
1997 1996 --------------------------------- -------------------------------- Declared Declared High Low Dividends High Low Dividends ---- --- --------- ---- --- --------- 1st Quarter $34.75 $29.25 $.06 $34.63 $25.75 $.06 2nd Quarter 35.50 27.25 .06 29.63 24.75 .06 3rd Quarter 41.38 33.75 .06 27.50 24.00 .06 4th Quarter 42.50 34.44 .06 31.75 25.25 .06
At December 31, 1997, there were 704 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.
Year Ended December 31, ------------------------------------------------------------------------ 1997 1996 1995 1994 1993 ------------ ----------- ----------- ----------- ----------- OPERATING DATA: ($000's omitted) Homebuilding: Sales (settlements)...................... $ 2,479,171 $ 2,319,734 $ 1,934,403 $ 1,637,306 $ 1,363,278 =========== =========== =========== =========== =========== Income before income taxes, extraordinary item and cumulative effect of change in accounting principle.................. $ 113,601(A) $ 114,061 $ 84,462 $ 94,479 $ 78,456 =========== =========== =========== =========== =========== (A) Includes one-time restructuring charge of $14,800. Financial services: Revenues................................. $ 34,038 $ 50,197 $ 74,105 $ 107,799 $ 121,847 =========== =========== =========== =========== =========== Income before income taxes, extraordinary item and cumulative effect of change in accounting principle.................. $ 5,350(B) $ 14,690 $ 18,436 $ 21,569 $ 22,608 =========== =========== =========== =========== =========== (B) Includes one-time restructuring charge of $2,100. Corporate: Revenues................................. $ 10,782 $ 14,352 $ 20,632 $ 10,808 $ 5,675 =========== =========== =========== =========== =========== Loss before income taxes, extraordinary item and cumulative effect of change in accounting principle.................. $ (37,976)(C) $ (26,288) $ (20,874) $ (12,460) $ (10,025) =========== =========== =========== =========== =========== (C) Includes one-time restructuring charge of $3,100.
11 ITEM 6. SELECTED FINANCIAL DATA (continued)
Year Ended December 31, ------------------------------------------------------------------------ 1997 1996 1995 1994 1993 ------------ ------------ ------------ ------------ ------------ ($000's omitted) Consolidated results: Revenues $ 2,523,991 $ 2,384,283 $ 2,029,140 $ 1,755,913 $ 1,490,800 ============ ============ ============ ============ ============ Income from continuing operations before income taxes, extraordinary item and cumulative effect of change in accounting principle 80,975(D) 102,463 82,024 103,588 91,039 Income taxes 31,175 39,252 33,185 41,219 35,583 ------------ ------------ ------------ ------------ ------------ Income from continuing operations before extraordinary item and cumulative effect of change in accounting principle 49,800 63,211 48,839 62,369 55,456 Income from discontinued operations 2,961 116,432 9,507 102,988 22,309 ------------ ------------ ------------ ------------ ------------ Income before extraordinary item and cumulative effect of change in accounting principle 52,761 179,643 58,346 165,357 77,765 Extraordinary loss from early extinguishment of debt -- -- -- (2,589) (3,397) Cumulative effect of change in accounting for income taxes -- -- -- -- 5,000 ------------ ------------ ------------ ------------ ------------ Net income $ 52,761 $ 179,643 $ 58,346 $ 162,768 $ 79,368 ============ ============ ============ ============ ============ (D) Includes one-time restructuring charge of $20,000. NOTE: The earnings per share 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 and the impact of Statement No. 128, see Notes to Consolidated Financial Statements beginning on page 29.
Year Ended December 31, ------------------------------------------------------------------------- 1997 1996 1995 1994 1993 ------------ ------------ ------------ ------------ ------------ PER SHARE DATA Earnings per share: Income from continuing operations before extraordinary item and cumulative effect of change in accounting principle $ 2.29 (A) $ 2.54 $ 1.80 $ 2.26 $ 2.02 Income from discontinued operations... .14 4.67 .35 3.74 .81 ------------ ------------ ------------ ------------ ------------ Income before extraordinary item and cumulative effect of change in accounting principle................ 2.43 (A) 7.21 2.15 6.00 2.83 Extraordinary item.................... -- -- -- (.09) (.12) Cumulative effect of change in accounting for income taxes......... -- -- -- -- .18 ------------ ------------ ------------ ------------ ------------ Net income............................ $ 2.43 (A) $ 7.21 $ 2.15 $ 5.91 $ 2.89 ============ ============ ============ ============ ============ Weighted-average common shares outstanding (000's omitted)......... 21,755 24,926 27,074 27,556 27,479 ============ ============ ============ ============ ============ (A) Earnings per share amounts include $ .56 per share attributable to one-time restructuring charge, net of income taxes.
12 ITEM 6. SELECTED FINANCIAL DATA (continued)
Year Ended December 31, ------------------------------------------------------------------------- 1997 1996 1995 1994 1993 ------------ ------------ ------------ ------------ ------------ PER SHARE DATA (continued) Earnings per share - assuming dilution: Income from continuing operations before extraordinary item and cumulative effect of change in accounting principle $ 2.27 (A) $ 2.51 $ 1.78 $ 2.24 $ 1.99 Income from discontinued operations... .13 4.63 .35 3.70 .80 ------------ ------------ ------------ ------------ ------------ Income before extraordinary item and cumulative effect of change in accounting principle................ 2.40 (A) 7.14 2.13 5.94 2.79 Extraordinary item.................... -- -- -- (.09) (.12) Cumulative effect of change in accounting for income taxes......... -- -- -- -- .18 ------------ ------------ ------------ ------------ ------------ Net income............................ $ 2.40 (A) $ 7.14 $ 2.13 $ 5.85 $ 2.85 ============ ============ ============ ============ ============ Weighted-average common shares outstanding and effect of dilutive securities (000's omitted).......... 21,954 25,152 27,422 27,854 27,913 ============ ============ ============ ============ ============ Shareholders' equity..................... $ 38.21 $ 35.65 $ 28.16 $ 25.88 $ 20.19 ============ ============ ============ ============ ============ Cash dividends declared.................. $ .24 $ .24 $ .24 $ .24 $ .24 ============ ============ ============ ============ ============ (A) Earnings per share amounts include $ .56 per share attributable to one-time restructuring charge, net of income taxes.
December 31, ----------------------------------------------------------------------- 1997 1996 1995 1994 1993 -------------- ------------ ------------ ------------ ------------ ($000's omitted) BALANCE SHEET DATA: House and land inventories............... $ 1,141,952 $ 1,017,262 $ 859,735 $ 752,369 $ 567,187 Total assets............................. 2,150,765 1,985,141 2,047,515 1,941,355 3,810,890 Total long-term indebtedness............. 650,169 541,505 743,828 714,645 1,354,617 Shareholders' equity..................... 812,837 829,273 761,003 710,589 556,314 Year Ended December 31, --------------------------------------------------------------------- 1997 1996 1995 1994 1993 ------------ ------------ ------------ ------------ ------------ OTHER DATA: Domestic homebuilding operations: Total markets, at year end............ 41 41 39 32 26 Total active communities, at year end. 396 392 351 294 239 Total settlements - units............. 15,322 14,613 12,445 11,142 9,798 Total net new orders - units.......... 15,488 14,339 13,820 10,561 10,250 Backlog units, at year end............ 3,614 3,448 3,662 2,287 2,868 Average unit selling price............ $ 162,000 $ 159,000 $ 155,000 $ 147,000 $ 139,000 Gross profit margin................... 14.9% 14.8% 14.5% 15.4% 15.3% Pulte and Pulte-affiliate settlements - units: Domestic.............................. 15,322 14,613 12,445 11,142 9,978 Mexico joint ventures................. 1,651 415 651 313 - Retail manufactured housing........... 75 60 11 - - ------------ ------------ ------------ ------------ ----------- Total Pulte and Pulte-affiliate settlements - units............... 17,048 15,088 13,107 11,455 9,798 ============ ============ ============ ============ ===========
13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ($000's omitted, except per share data) A summary of the Company's operating results by business segment for the years ended December 31, 1997, 1996 and 1995 is as follows:
Year Ended December 31, ----------------------------------------- 1997 1996 1995 ---------- ---------- --------- Pre-tax income (loss), before restructuring costs: Homebuilding operations................................... $ 128,401 $ 114,061 $ 84,462 ---------- ---------- --------- Financial Services operations: Mortgage banking........................................ 7,566 3,360 13,930 Financing activities.................................... (116) 11,330 4,506 ---------- ---------- --------- Total Financial Services................................ 7,450 14,690 18,436 ---------- ---------- --------- Corporate................................................. (34,876) (26,288) (20,874) ---------- ---------- --------- Income from continuing operations before income taxes and restructuring costs................................... 100,975 102,463 82,024 Restructuring costs........................................... 20,000 -- -- ---------- ---------- --------- Income from continuing operations before income taxes......... 80,975 102,463 82,024 Income taxes ................................................. 31,175 39,252 33,185 ---------- ---------- --------- Income from continuing operations............................ 49,800 63,211 48,839 Income from discontinued operations........................... 2,961 116,432 9,507 ---------- ---------- --------- Net income.................................................... $ 52,761 $ 179,643 $ 58,346 ========== ========== ========= Per share data - assuming dilution: Income from continuing operations before restructuring costs, net of income taxes.............................. $ 2.83 $ 2.51 $ 1.78 Restructuring costs, net of income taxes.................. (.56) -- -- ---------- ---------- --------- Income from continuing operations......................... $ 2.27 $ 2.51 $ 1.78 Income from discontinued operations....................... .13 4.63 .35 ---------- ---------- --------- Net income................................................ $ 2.40 $ 7.14 $ 2.13 ========== ========== =========
A comparison of pre-tax income (loss) for the years ended December 31, 1997, 1996 and 1995 is as follows: o Pre-tax income, before restructuring costs, of the Company's 1997 homebuilding operations increased $14,340, or 13%, over 1996 which had reflected an increase in pre-tax income of $29,599, or 35%, from 1995 levels. These increases were primarily the result of greater volume of unit settlements over each previous year, coupled with improvements in gross profit margin, partially offset by leveraged increases in selling, general and administrative expenses. o Pre-tax income, before restructuring costs, of the Company's mortgage banking operations increased $4,206, or 125%, during 1997. This is due to lower operating expenses resulting from the conversion to centralized loan processing during 1996. Results for 1995 include $10,148 of gains from sale of core servicing rights; no sales occurred during 1996. o Pre-tax income, before restructuring costs, of the Company's financing activities decreased $11,446 during 1997. This is due to gains from the sale of collateral during 1996. No such sales occurred in 1997. The $6,824 increase in pre-tax income in 1996 over 1995 relates to the amount of gains recognized from the sales of collateral. o Pre-tax loss, before restructuring costs, from corporate operations for 1997 increased $8,588 over 1996 principally as a result of higher net interest expense. In 1996, pre-tax loss from corporate operations increased $5,414 due to higher interest expense and increased expenses associated with the Company's strategic operating initiatives. o During 1997, the Company recorded a one-time restructuring charge of $20,000 associated with its corporate reorganization. This charge was to cover costs associated with severance, asset impairment and other charges. o Income from discontinued operations increased during 1996 as a result of recognizing $110,000 of tax benefits associated with net operating losses. 14 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) ($000's omitted) Restructuring: Since 1994, the Company's domestic homebuilding operations had been organized as four operating companies, Pulte Home North, South, Central and West. This organization enabled the Company to pursue its desired level of geographic growth and market penetration. It also allowed the Company to facilitate corporate direction, capital allocation, and risk management policies, while allowing it to remain close to its customers. During early 1997, the Company combined Pulte Home North and South, creating Pulte Home East, to provide additional overhead leverage. During August 1997, the Company announced that it was reorganizing its corporate operations to enable the Company to take better advantage of its size, talent base and competitive strengths. The reorganization was designed to accomplish the following: o Strengthen management focus on key customer groups and generate increased operating efficiencies. o Create a new position of Executive Vice President and Chief Operating Officer with responsibility for all of the Company's homebuilding operations. o Replace the Company's existing homebuilding structure comprised of three geographically-based operating companies with a structure focused more closely on specific customer segments: domestic homebuilding, Active Adult (mature buyer), and international. o Evaluate and strategically deploy capital investment in homebuilding operations. o Structure the Company's mortgage banking operations to better support homebuilding operations and improve operating performance. o Right-size the workforce on a company-wide basis. In conjunction with this reorganization, a pre-tax charge of $20,000 was recorded during the fourth quarter. This charge included $11,787 of separation and other costs for approximately 150 employees, $7,000 of asset impairments and $1,213 of other costs, principally for office leases. The after-tax effect of this charge was $12,300 or $.56 per diluted share. The following table displays the status of the liabilities accrued for the corporate restructuring as of December 31, 1997.
1997 Reserve Uses Original ------------------------------ Balance at Type of Cost Reserve Cash Non-cash December 31 - ------------ ------------- ------------- ------------- ------------ Homebuilding operations: Employee separation and other $ 6,900 $ (843) $ -- $ 6,057 Asset impairments 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 ============= ============= ============= =============
It is anticipated that a substantial portion of the remaining accrual for restructuring costs will be utilized during 1998. The Company believes that, beginning in 1998, it will realize annual savings of approximately $10,000 as a result of the implementation of the restructuring plan. 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) ($000's omitted) Homebuilding Operations: The following table presents selected data for Pulte for the years ended December 31, 1997, 1996 and 1995:
Year Ended December 31, ---------------------------------------- 1997 1996 1995 ----------- ----------- ----------- Unit settlements: Pulte Home East................................... 7,550 7,007 5,591 Pulte Home Central................................ 4,385 4,589 4,403 Pulte Home West................................... 3,387 3,017 2,451 ----------- ----------- ----------- 15,322 14,613 12,445 =========== =========== =========== Net new orders - units: Pulte Home East................................... 7,492 7,128 6,243 Pulte Home Central................................ 4,421 4,282 4,943 Pulte Home West................................... 3,575 2,989 2,634 ----------- ----------- ----------- 15,488 14,399 13,820 =========== =========== =========== Net new orders - dollars............................... $ 2,527,000 $ 2,313,000 $ 2,149,000 =========== =========== =========== Backlog at December 31 - units: Pulte Home East................................... 1,715 1,773 1,652 Pulte Home Central................................ 1,016 980 1,287 Pulte Home West................................... 883 695 723 ----------- ----------- ----------- 3,614 3,448 3,662 =========== =========== =========== Backlog at December 31 - dollars....................... $ 644,000 $ 596,000 $ 602,000 =========== =========== =========== Revenues............................................... $ 2,479,171 $ 2,319,734 $ 1,934,403 Cost of sales.......................................... (2,110,532) (1,975,826) (1,653,567) Selling, general and administrative expenses........... (227,480) (215,300) (183,564) Interest (A)........................................... (18,503) (17,216) (13,106) Other income, net...................................... 5,745 2,669 296 ----------- ----------- ----------- Pre-tax income before restructuring costs.............. $ 128,401 $ 114,061 $ 84,462 Restructuring costs.................................... (14,800) -- -- ------------ ----------- ----------- Pre-tax income......................................... $ 113,601 $ 114,061 $ 84,462 =========== =========== =========== Average sales price.................................... $ 162 $ 159 $ 155 =========== =========== =========== Note (A): The Company capitalizes interest cost into homebuilding inventories and charges the interest to homebuilding interest expense when the related inventories are closed.
The following is a summary of the number of communities active as of each respective date: December 31, 1997................................ 396 September 30, 1997............................... 423 June 30, 1997.................................... 428 March 31, 1997................................... 406 December 31, 1996................................ 392
16 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) ($000's omitted) Homebuilding Operations (continued): Pulte conducts its domestic homebuilding operations through 40 markets located throughout 25 states, as well as Puerto Rico, which are organized into nine geographic regions. No one individual market operation represented more than 10% of total Pulte net new orders, unit settlements or revenues during 1997. Net new orders for 1997 increased for the eighth consecutive year to a Company-record 15,488 units, an 8% increase over 1996's 14,399 unit orders. Strong contributions to net new order growth were noted during 1997 from Pulte markets in its Southeast, Texas, Southwest and California regions, partially offset by declines in its Mid-Atlantic and Florida regions. Approximately one-half of this increase in net new orders is attributable to Pulte's Canterbury Communities in the Southeast and Southwest. Canterbury Communities is Pulte's site-built, affordable housing product offering. Net new orders for 1996 increased 4% (to 14,399 units) over 1995's level which, in turn, had increased 31% over the previous year's net new orders. This result is attributable to increased net new orders for Pulte markets located in its Florida (up 29%), Southeast (up 51%) and Southwest (up 24%) regions, offset by a 38% decline in net new orders in markets in its Midwest region. Units in backlog at December 31, 1997, increased 5% to 3,614 units from 3,448 units at December 31, 1996, while sales value in backlog ($644,000) increased 8% over the year earlier period ($596,000). This compares with 3,662 units ($602,000) at December 31, 1995. Unit settlements increased 5% to 15,322 units during 1997. This follows a 17% increase in units settled during 1996 over 1995. Pulte regions contributing significantly to 1997's increased unit settlements were Southeast, Southwest, California and Great Lakes. Contributions from these regions were muted somewhat by the performance of Pulte's Mid-Atlantic, Midwest and Florida regions. Approximately one-half of this increase in unit settlements is attributable to Pulte's Canterbury Communities in the Southeast and Southwest. During 1996, strong contributions in unit settlement growth were noted in Pulte's Florida, Southeast, Southwest, Texas, California and Great Lakes regions, as well as from its Active Adult product offerings. During 1996, unit settlements were supported by the brisk net new order pace established in the latter half of 1995 which carried through the first four months of 1996. Revenues also increased during 1997 to $2,479,171, a 7% increase over 1996 revenues which, in turn, had increased 20% over 1995 revenues. The average home sales price increased from $155 in 1995 to $159 in 1996 and $162 in the current year. Gross margins improved to 14.9% in 1997 from 14.8% in 1996 and 14.5% in 1995. The improvement in gross margins from 1996 to 1997 and 1995 to 1996 is due in part to Pulte's ongoing process improvement initiatives focused on lowering house costs through improved operational efficiencies. Additionally, during 1995, gross margins were negatively impacted by competitive market conditions and excess industry inventory levels. The level of demand for new housing experienced during the latter half of 1995 and the first four months of 1996 resulted in improved gross margins for units settled during 1996 as compared to 1995. Pulte anticipates that it will continue to realize gross margin improvement as the benefits of its efforts in materials supply chain management and in streamlining of operational processes begin to have a more pronounced effect on each of its market operations. Selling, general and administrative expenses increased from $215,300 for the year ended December 31, 1996, to $227,480 for the year ended December 31, 1997. This represents an increase of 6% on an absolute dollar basis. However, as a percentage of sales, 1997 overhead decreased to 9.2%, a 10 basis point improvement over 1996 and a 30 basis point improvement over 1995. Pulte anticipates that it will continue to improve overhead leverage as a result of the reorganization of its homebuilding operations during 1997. Other income, net, includes gains on land sales, the pre-tax results of Builders' Supply & Lumber Co., Inc. (BSL) and other homebuilding-related expenses. For 1997, the increase in other income, net, from 1996 was principally the result of a $4,200 improvement in the operating results of BSL, approximately $2,900 of proceeds from the settlement of certain litigation, and a $1,700 net increase in profits from land sales reduced by nearly $6,700 relating to asset impairment adjustments taken on under-performing projects. The increase in other income, net, for 1996 over 1995 resulted from increased profits on land sales during the year. 17 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) ($000's omitted) Homebuilding Operations (continued): In addition, as previously discussed, during the fourth quarter of 1997 the Company incurred a one-time restructuring charge associated with reorganizing its business operations. Restructuring costs of $14,800 charged to homebuilding operations includes $6,900 of employee separation and other costs, $7,000 of asset impairment adjustments and pre-acquisition cost and land option deposit write-offs for active or proposed communities which are to be exited and $900 of other costs, principally associated with office lease cancellations. Information related to interest in inventory is as follows:
Year Ended December 31, ------------------------------------------ 1997 1996 1995 ----------- ----------- ----------- Interest in inventory at beginning of year...... $ 12,846 $ 12,261 $ 8,053 Interest capitalized............................ 20,376 17,801 17,314 Interest expensed............................... (18,503) (17,216) (13,106) ----------- ----------- ----------- Interest in inventory at end of year............ $ 14,719 $ 12,846 $ 12,261 =========== =========== ===========
On February 13, 1998, the Company announced that it had entered into an agreement to sell BSL. No significant gain or loss is expected from the sale. This all-cash sale is subject to financing and other customary conditions and is expected to close during the first quarter of 1998. Financial Services Operations: Mortgage Banking Operations: During the first quarter of 1997, the Company changed the name of its mortgage banking operation from ICM Mortgage Corporation to Pulte Mortgage Corporation (Pulte Mortgage). The following table presents selected production data for Pulte Mortgage:
Years Ended December 31, ------------------------------------ 1997 1996 1995 ---------- ---------- ---------- Total originations: Loans ...................... 10,167 10,709 11,234 ========== ========== ========== Principal .................. $1,256,000 $1,278,000 $1,270,000 ========== ========== ========== Funded originations: Loans ...................... 9,377 9,947 9,820 ========== ========== ========== Principal .................. $1,146,000 $1,168,000 $1,084,000 ========== ========== ========== Originations for Pulte customers: Loans ...................... 7,597 7,194 6,058 ========== ========== ========== Principal .................. $ 960,000 $ 895,000 $ 731,000 ========== ========== ==========
Mortgage origination volume for 1997 decreased 2% from the previous year. This follows a relatively flat performance during 1996 from 1995 levels. However, Pulte Mortgage's continued emphasis on capturing a higher percentage of Pulte unit settlements in their common markets has resulted in a 7% increase in mortgage origination volume for Pulte customers during 1997 and a 31% increase in similar origination volume since 1995. Pulte customers represented over 81% of all funded mortgages originated by Pulte Mortgage during 1997. This compares with 72% and 62% for 1996 and 1995, respectively. On July 1, 1995, Pulte Mortgage adopted Statement of Financial Accounting Standards (SFAS) No. 122, Accounting for Mortgage Servicing Rights, which requires a mortgage banking enterprise to recognize as separate assets the servicing rights for mortgage loans regardless of the manner in which those servicing rights are acquired. A mortgage banking enterprise that acquired mortgage servicing rights through either the purchase or origination of mortgage loans and sells or securitizes those loans with servicing rights retained, must allocate the total cost of the mortgage loans to the mortgage servicing rights and the loans (without the mortgage servicing rights) based on their relative fair values. 18 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) ($000's omitted) Financial Services Operations (continued): Mortgage Banking Operations (continued): The effect of this allocation results in a lower cost basis for the mortgage loan resulting in a larger gain when the loan is sold. Effective January 1, 1997, SFAS No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, superseded SFAS No. 122 with no material impact on the financial statements. During 1997, pricing and marketing gains decreased $107 compared to 1996, while 1996 saw an increase of $9,269 over 1995. The decrease in 1997 was due to lower volume of servicing retained originations as compared with 1996 while the increase in 1996 was due to higher volume of servicing retained originations as compared with 1995. During 1995, prior to the adoption of SFAS No. 122, Pulte Mortgage recorded pre-tax gains on sales of its core mortgage servicing portfolio of $10,148. In addition, as part of its normal operations, Pulte Mortgage recorded gains on sales of non-core mortgage servicing rights of $9,566 during 1995. The sale of the core mortgage servicing portfolio and the ongoing sale of servicing rights on a flow basis are the result of repositioning Pulte Mortgage to concentrate on its primary business of providing mortgage financing for Pulte's homebuyers. Pulte Mortgage expects to continue to sell mortgage servicing rights as part of its normal operations on a three to five month lag from the time of origination. Servicing fee income for 1997 decreased to $750 from $926 in 1996 due to the lower volume of servicing retained originations in 1997. Servicing fee income decreased $505 during 1996 from 1995 primarily as a result of the sales of core mortgage servicing portfolio discussed above. Mortgage origination fees increased $235 or 7% during 1997 as a result of increases in miscellaneous fees charged for originated loans. Mortgage origination fees decreased $1,092 or 24% during 1996 due to a decrease in the amount of non-funded originations compared with the previous year. Net interest income decreased $1,274 during 1997 as compared with 1996, and by $816 in 1996 as compared to 1995. These declines are primarily due to dividends in excess of current earnings paid by Pulte Mortgage to its parent, Pulte, throughout 1997, 1996 and 1995, and a flattening of the yield curve during 1997. During 1997, Pulte Mortgage's operating expenses, excluding $2,100 of restructuring costs (primarily employee separation and other costs), decreased $5,290, or 23%, from 1996. These reductions of expenses are the result of Pulte Mortgage's centralization of its mortgage underwriting, processing and closing functions in Denver, Colorado, through implementation of a mortgage operations center (MOC) during 1996. Additionally, during 1997, Pulte Mortgage began a centralized telephone loan officer concept which moved the loan officers from field branches to a mortgage applications center (MAC) located in Denver. Thus, the principal field contacts for the mortgage customers are Pulte's sales representatives who forward the loan application to the MAC. The MAC loan officer calls the customer to complete the loan application and then forwards it to the MOC for processing. Pulte Mortgage believes that this new process will speed up the loan approval process while lowering its total cost from application to closing. During 1997, three markets were transferred to the MAC. In 1995, Pulte Mortgage acquired a minority ownership interest in a Mexican mortgage banking company, Su Casita. Su Casita is a limited purpose financial institution under Mexican law, licensed to originate and service home mortgage loans. Pulte Mortgage's investment was made to facilitate the Company's homebuilding joint ventures in Mexico. For 1997, Pulte Mortgage's equity in the earnings of Su Casita was $557, of which $503 represented operating earnings and $54 represented its share of foreign currency gains. During 1996, Pulte Mortgage's equity in the earnings of Su Casita was $225. At December 31, 1997, Pulte Mortgage's investment in Su Casita approximated $1,500. At December 31, 1997, loan application backlog was $294,000 compared with $246,000 at December 31, 1996 and $334,000 at December 31, 1995. 19 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) ($000's omitted) Financial Services Operations (continued): Other Financial Subsidiaries PFCI's pre-tax operating income decreased $11,446 during 1997 over the prior year. This decrease was primarily the result of the 1996 recognition of gains on sales of collateral aggregating $11,069; no such sales occurred during 1997. In addition, 1996's pre-tax income benefited from the reversal of a provision for foreclosure-related losses of $1,078. Pre-tax operating income for 1996 increased $6,824 from 1995. This increase was primarily the result of gains on sales of collateral which aggregated $11,069 during 1996 as compared to $4,003 in 1995. Corporate: Corporate is a non-operating business segment whose primary purpose is to support the operations of the Company's subsidiaries as the internal source of financing and by implementing and maturing strategic initiatives centered on new business development and improving operating efficiencies. The Company views this corporate function as a form of research and development, a prelude to adding these initiatives to existing business segments or necessitating the creation of new business segments. As a result, the corporate segment's operating results will vary from quarter to quarter as these strategic initiatives evolve. The following table presents corporate results of operations for the years ended December 31, 1997, 1996 and 1995:
Year Ended December 31, ------------------------------------ 1997 1996 1995 ----------- ----------- ---------- Net interest expense............................... $ 14,079 $ 6,055 $ 1,000 Other corporate expenses, net...................... 20,797 20,233 19,874 ----------- ----------- ---------- Loss before income taxes and restructuring costs... 34,876 26,288 20,874 Restructuring costs................................ 3,100 -- -- ----------- ----------- ---------- Loss before income taxes........................... $ 37,976 $ 26,288 $ 20,874 =========== =========== ==========
The increased loss for 1997 as compared with 1996 is due primarily to increased net interest expense as a result of the utilization of approximately $174,000 of available funds and, to a lesser extent, draws on the Company's unsecured revolving credit arrangement to reacquire nearly 6.2 million shares of the Company's common stock during 1996 and the first four months of 1997. In addition, as discussed above, during the fourth quarter of 1997 the Company incurred a one-time charge associated with restructuring its business operations. The restructuring charge of $3,100 included in the Corporate business segment primarily relates to cost of employee severance. The increased loss for 1996 as compared with 1995 is due to greater net interest expense as a result of the issuance of $125,000 of 7.3% unsecured Senior Notes in the fourth quarter of 1995 and additional administrative expenses related to the Company's strategic operating initiatives, partially offset by a decrease in the loss recognized from the Company's Mexico operations primarily as a result of the stabilization of the Mexican Peso. On October 8, 1997, the Company and Fleetwood Enterprises, Inc. (Fleetwood) announced that they would jointly form a new corporation, Expression Homes, that would own and operate manufactured housing retail centers. However, dramatic changes occurred in the manufactured housing industry associated with the rapid consolidation of retail distribution. The rapid pace with which retailers were being acquired, and the resulting increase in the cost of these businesses, made it more difficult for Expression Homes to meet the Company's objectives with regards to market penetration and financial returns. Accordingly, on February 17, 1998, Fleetwood agreed to acquire the Company's 51% ownership interest in Expression Homes and the Company's retail manufactured housing sales center in Raleigh, North Carolina. The sale is anticipated to close during the first quarter of 1998. The Company currently anticipates recognizing a pre-tax gain from this sale in the range of approximately $4,000 to $6,000. 20 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) ($000's omitted) Corporate (continued): Pulte conducts its Mexico homebuilding operations through three joint venture investments owned by a foreign subsidiary. In January 1996, the Company's Monterrey joint venture partner assigned its interest in the joint venture to the Company. The Company's net investment in the Monterrey venture approximated $2,000 as of December 31, 1997. The Company intends to liquidate the Monterrey assets in the normal course of business. The Company's Juarez joint venture is currently developing communities in the cities of Juarez, Chihuahua, Nuevo Laredo, Reynosa and Matamoros. Additionally, during 1996, the Company announced that its Juarez joint venture had entered into two separate agreements to construct homes in Mexico; one with Delphi Automotive Systems, a division of General Motors Corporation (GM) and one with Sony Magneticos de Mexico, S.A. de C.V., an affiliate of Sony Electronics, Inc. (Sony). The Company's Juarez joint venture realized its first unit settlements under the GM contract during the fourth quarter of 1997. The Company's net investment in the Juarez joint venture approximated $25,000 as of December 31, 1997. Also during 1996, the Company entered into a joint venture to build 20 middle income housing units in Mexico City, all of which are sold, but 17 units remain to close during the first quarter of 1998. The Company's net investment in this joint venture approximated $600 as of December 31, 1997. During 1997, the Company recorded a loss of $1,700 related to its Mexico operations, as compared with losses of $1,700 and $5,800 in 1996 and 1995, respectively. Included in such results is the Company's share of joint venture foreign currency losses which amounted to $600, $100 and $2,300 for the years ended December 31, 1997, 1996 and 1995, respectively. The $1,100 operating loss sustained in 1997 was principally the result of increased overhead levels necessitated by the increase in development activity associated with performance under the housing agreements with GM and Sony. In November 1997, the Company entered into a fixed-price agreement with Minera Escondida Limitada, a Broken Hill Proprietary Company subsidiary, to manage the construction of approximately 800 employee residential units in two phases in Antofagasta, Chile. This project represents the Company's entry into the Chilean market, and allows it to participate with another large, international company. The Company accounts for the operating results of this project using percentage of completion. The Company's net investment in this project, maintained within a wholly-owned foreign subsidiary, approximated $900 at December 31, 1997. Discontinued Operations: For the years ended December 31, 1997, 1996 and 1995, discontinued thrift operations resulted in income of $2,961 (including income tax benefit of $2,356), $6,432 (including income tax benefit of $1,076) and $9,507 (net of income taxes of $157), respectively. Additionally, 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. Certainty of realization of this amount is not anticipated in the near term, is dependent upon various factors, and the actual amount realized might be more or less than the amount recorded. Liquidity And Capital Resources: Continuing Operations: The Company's net cash used in operating activities decreased from $64,225 in 1996 to $35,174 in 1997. This is principally due to a decrease in the level of net cash investment in inventories as compared to 1996. Net cash provided by investing activities decreased from $207,582 in 1996 to $7,969 in 1997 primarily as a result of reduced net proceeds from the sale of mortgage-backed securities of PFCI. The Company's net cash from financing activities increased from a use of cash of $245,959 in 1996 to a source of cash of $82,736 in 1997. This resulted from an approximately $173,000 decrease in the amount of PFCI's mortgage-backed bonds redeemed during 1997 and an increase in new borrowings during 1997, primarily due to the issuance of $150,000 of unsecured Senior Notes in the fourth quarter of 1997. 21 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) ($000's omitted) Liquidity And Capital Resources: Continuing Operations: At December 31, 1997, the Company had cash and equivalents of $245,156 and total long-term indebtedness of $650,169. The Company's total indebtedness includes $487,303 of unsecured senior notes, $22,405 of unsecured senior subordinated debentures, other Pulte non-recourse and recourse debt of $37,192 and $30,427, respectively, $35,420 of First Heights' advances, $37,413 of mortgage-backed bonds payable for PFCI and $9 of capital lease obligations for Pulte Mortgage. In October 1997, pursuant to the universal shelf registrations filed in September 1995 and October 1997, the Company issued $150,000, 7.625% unsecured Senior Notes, due 2017, which are guaranteed by Pulte and certain wholly-owned subsidiaries of Pulte. The Company used a portion of the net proceeds of the sale of the Senior Notes to repay the outstanding borrowings under its unsecured revolving credit facility which bore a variety of floating interest rates. The remaining net proceeds from the sale of the Senior Notes were added to the Company's general funds to be used for general corporate purposes which may include, but are not limited to, capital contributions to the Company's subsidiaries to strengthen such subsidiaries' continuing operations and to fund acquisitions. The Company believes it has adequate financial resources and sufficient credit facilities to meet its current working capital needs. Sources of the Company's working capital include its cash and equivalents, its $240,000 committed unsecured revolving credit facility, and other committed and uncommitted credit lines, which at December 31, 1997, consisted of $20,000 and $250,000 related to Pulte and Pulte Mortgage operations, respectively. Over the next twelve months, management anticipates that homebuilding and corporate working capital requirements, as well as cash payments associated with the Company's restructuring, will be principally funded with internally generated funds and the previously mentioned credit facilities. The Company routinely monitors current operational requirements and financial market conditions to evaluate the utilization of available financing sources, including securities offerings. The Company finances its land acquisitions, development and construction activities from internally generated funds and existing credit agreements. The Company had a maximum borrowing of $126,000 under its $240,000 unsecured revolving credit facility during 1997. There was no outstanding balance at December 31, 1997. Pulte Mortgage provides mortgage financing for many of Pulte's home sales and uses its own funds and borrowings made available pursuant to various committed and uncommitted credit arrangements which, at December 31, 1997, amounted to $250,000, an amount deemed adequate to cover foreseeable needs. There were approximately $128,170 of borrowings outstanding under the $250,000 (Pulte Mortgage) arrangement at December 31, 1997. Mortgage loans originated by Pulte Mortgage are subsequently sold, principally to outside investors. The Company anticipates that there will be adequate mortgage financing available for purchasers of its homes. In the fourth quarter of 1994, the Company initiated a share repurchase program with the intention of enhancing shareholder value by utilizing excess corporate capital to acquire its shares at favorable prices and increasing leverage. As of the date of the most recent share reacquisition, April 16, 1997, the Company had utilized in excess of $188,000 of available cash and, to a lesser extent, funds drawn on its unsecured revolving credit facility to reacquire 6,847,800 shares, or nearly 25% of the common stock outstanding prior to the inception of this program. Management does not anticipate making additional share repurchases in the foreseeable future. Discontinued Operations: Since its acquisition of First Heights, the Company's income taxes have been significantly impacted by its thrift operations, principally because payments received from the FRF are exempt from federal income taxes. The Company's thrift assets are subject to regulatory restrictions and are not available for general corporate purposes. The final liquidation and wind-down of the Company's thrift operations is dependent on the final resolution of outstanding matters with the Federal Deposit Insurance Corporation (FDIC), manager of FRF. The Company is currently negotiating with the FDIC and is involved in litigation with the FDIC. Although there is no certainty as to the time of resolution of these matters, the Company believes that they might be resolved within the next twelve months. At December 31, 1997, the Company had a remaining investment in First Heights of approximately $26,100. 22 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) ($000's omitted) Information Technology and Year 2000 Compliance An integral part of our operating strategy is to provide Pulte management and employees the information systems needed to support the Company's current operations and future growth. Investments totaling $4,600 and $3,200 in 1997 and 1996, respectively, have resulted in substantial progress 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. The Company anticipates that it will invest approximately an additional $7,000 in the development and implementation of its management information systems in 1998. A critical component of this integrated systems effort involves replacement of the Company's existing accounting system, which will substantially resolve its Year 2000 exposure as well as significantly enhance the financial management capabilities of its operational managers. Investment in this financial component includes Year 2000 compliant accounting software package selection and licensing amortization. The Company expects to complete system development and pilot implementation, with enterprise-wide roll out scheduled for completion in early 1999. The Company has evaluated all essential homebuilding supplier/contractor relationships and has concluded that there are no significant risks associated with Year 2000 issues impacting operations. The Company's mortgage banking operation has also completed a comprehensive Year 2000 risk assessment for both internal information systems and external relationships. Plans are being implemented to bring all critical information systems into compliance. The Company does not expect the cost for such compliance to have a material impact on operating results or financial condition. In 1997, the Company also completed implementation of a company-wide telecommunications network to enhance sharing of timely business information across all markets and provide the pathway for future operational support of the integrated systems strategy. All components of this new information technology environment are fully compliant with Year 2000 processing requirements. Taken together, the Company believes that its substantial past and current investments in these information technology initiatives will provide the foundation necessary to support and enhance operations in the years to come. In October 1997, the Accounting Standards Executive Committee (AcSEC) of the American Institute of Certified Public Accountants (AICPA) approved Statement of Position 98-1 (SOP 98-1), "Accounting for the Costs of Software Developed or Obtained for Internal Use". This SOP would require internal costs (i.e., salaries and related benefits and interest cost) to be capitalized during the application development stage for internal-use software. In its effort to develop the systems discussed above, the Company has expensed similar costs to operations as they have been incurred. In December 1997, AcSEC received clearance from the Financial Accounting Standards Board to issue SOP 98-1 subject to certain proposed changes. AcSEC expects to issue the final SOP during March 1998 with adoption allowed on a prospective basis, applicable to costs incurred after January 1, 1998. The Company has not yet determined what impact this SOP might have upon its adoption. However, the Company does not expect that adoption of this SOP will have a material effect on the financial position or results of operations of the Company. Special Notes Concerning Forward-looking Statements: Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, "Restructuring", contains certain forward-looking statements relating to the possible impact of a one-time restructuring charge. These forward-looking statements are based on current expectations and include various assumptions. Such assumptions principally relate to achieving estimated cost reductions as a result of realigning senior operating and corporate staff roles and responsibilities while maintaining work flow in the areas affected. The failure of such assumptions to be realized may cause the actual restructuring charge and annual cost savings to differ materially from the estimates set forth herein. As an additional 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, are "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such matters involve risks and uncertainties, including changes in economic conditions and interest rates, increases in raw material and labor costs, weather conditions, and general competitive factors, that may cause actual results to differ materially. 23 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA PULTE CORPORATION CONSOLIDATED BALANCE SHEETS December 31, 1997 and 1996 ($000's omitted, except share data)
ASSETS 1997 1996 ----------- ----------- Cash and equivalents................................................. $ 245,156 $ 189,625 Unfunded settlements................................................. 69,768 73,896 House and land inventories........................................... 1,141,952 1,017,262 Mortgage-backed and related securities............................... 39,467 47,113 Residential mortgage loans and other securities available-for-sale... 185,018 170,443 Other assets......................................................... 249,125 215,040 Deferred income taxes................................................ 109,339 127,686 Discontinued operations.............................................. 110,940 144,076 ----------- ----------- $ 2,150,765 $ 1,985,141 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Accounts payable and accrued liabilities, including book overdrafts of $84,623 and $85,827 in 1997 and 1996, respectively.......... $ 497,733 $ 439,578 Collateralized short-term debt, recourse solely to applicable subsidiary assets.............................................. 162,707 154,136 Mortgage-backed bonds, recourse solely to applicable subsidiary assets......................................................... 37,413 45,304 Income taxes...................................................... 13,001 12,930 Subordinated debentures and senior notes.......................... 546,900 391,175 Discontinued operations........................................... 80,174 112,745 ----------- ----------- Total liabilities.............................................. 1,337,928 1,155,868 ----------- ----------- Shareholders' Equity: Preferred stock, $.01 par value; 25,000,000 shares authorized, none issued Common stock, $.01 par value; 100,000,000 shares authorized, 21,272,530 and 23,261,655 shares issued and outstanding at December 31, 1997 and 1996, respectively ...................... 213 233 Additional paid-in capital........................................ 61,835 57,516 Unrealized gains on securities available-for-sale, net of income taxes of $1,056 and $982 in 1997 and 1996, respectively........ 1,687 1,474 Retained earnings................................................. 749,102 770,050 ----------- ----------- Total shareholders' equity..................................... 812,837 829,273 ----------- ----------- $ 2,150,765 $ 1,985,141 =========== =========== See notes to Consolidated Financial Statements.
24 PULTE CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS For the years ended December 31, 1997, 1996 and 1995 ($000's omitted, except per share data)
1997 1996 1995 ----------- ----------- ----------- Revenues: Homebuilding..................................................... $ 2,479,171 $ 2,319,734 $ 1,934,403 Mortgage banking and financing: Interest and other............................................. 34,038 50,197 54,391 Gain on sale of servicing...................................... -- -- 19,714 Corporate, principally interest.................................. 10,782 14,352 20,632 ----------- ----------- ----------- Total revenues................................... 2,523,991 2,384,283 2,029,140 ----------- ----------- ----------- Expenses: Homebuilding, principally cost of sales.......................... 2,350,770 2,205,673 1,849,941 Mortgage banking and financing, principally interest ............ 26,588 35,507 55,669 Corporate, net................................................... 45,658 40,640 41,506 Restructuring costs.............................................. 20,000 -- -- ----------- ----------- ----------- Total expenses................................... 2,443,016 2,281,820 1,947,116 ----------- ----------- ----------- Income from continuing operations before income taxes ............... 80,975 102,463 82,024 Income taxes ........................................................ 31,175 39,252 33,185 ----------- ----------- ----------- Income from continuing operations.................................... 49,800 63,211 48,839 Income from discontinued operations.................................. 2,961 116,432 9,507 ----------- ----------- ----------- Net income........................................................... $ 52,761 $ 179,643 $ 58,346 =========== =========== =========== Per share data: Basic: Income from continuing operations.............................. $ 2.29 $ 2.54 $ 1.80 Income from discontinued operations............................ 0.14 4.67 .35 ----------- ----------- ----------- Net income..................................................... $ 2.43 $ 7.21 $ 2.15 =========== =========== =========== Assuming dilution: Income from continuing operations.............................. $ 2.27 $ 2.51 $ 1.78 Income from discontinued operations............................ .13 4.63 .35 ----------- ----------- ----------- Net income..................................................... $ 2.40 $ 7.14 $ 2.13 =========== =========== =========== Cash dividends declared.......................................... $ .24 $ .24 $ .24 =========== =========== =========== Number of shares used in calculation: Basic: Weighted-average common shares outstanding.................. 21,755 24,926 27,074 Assuming dilution: Effect of dilutive securities - stock options............... 199 226 348 ----------- ----------- ----------- Adjusted weighted-average common shares and effect of dilutive securities......................... 21,954 25,152 27,422 =========== =========== =========== See notes to Consolidated Financial Statements.
25 PULTE CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY For the years ended December 31, 1997, 1996 and 1995 ($000's omitted)
Additional Common Paid-in Unrealized Retained Stock Capital Gains Earnings Total ------ --------- ---------- -------- ----- Shareholders' Equity, January 1, 1995 $ 275 $ 75,595 $ -- $ 634,719 $ 710,589 Exercise of stock options.................. 1 2,040 -- -- 2,041 Cash dividends declared.................... -- -- -- (6,489) (6,489) Change in unrealized gains on securities available-for-sale, net of income taxes of $5,482.................. -- -- 8,223 -- 8,223 Stock repurchases.......................... (6) (11,701) -- -- (11,707) Net income ................................ -- -- -- 58,346 58,346 ---------- ----------- ---------- --------- --------- Shareholders' Equity, December 31, 1995 270 65,934 8,223 686,576 761,003 Exercise of stock options.................. 1 894 -- -- 895 Cash dividends declared.................... -- -- -- (5,958) (5,958) Change in unrealized gains on securities available-for-sale, net of income taxes of $4,500............................... -- -- (6,749) -- (6,749) Stock repurchases.......................... (38) (9,312) -- (90,211) (99,561) Net income................................. -- -- -- 179,643 179,643 ---------- ----------- ---------- --------- --------- 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.................... -- -- (5,153) (5,153) Change in unrealized gains on securities available-for-sale, net of income taxes of $74.................................. -- -- 213 -- 213 Stock repurchases.......................... (24) (6,093) -- (68,556) (74,673) Net income................................. -- -- -- 52,761 52,761 ---------- ----------- ---------- --------- --------- Shareholders' Equity, December 31, 1997 $ 213 $ 61,835 $ 1,687 $ 749,102 $ 812,837 ========== =========== ========== ========= ========= See notes to Consolidated Financial Statements.
26 PULTE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31, 1997, 1996 and 1995 ($000's omitted)
1997 1996 1995 ---------- --------- -------- Continuing operations: Cash flows from operating activities: Income from continuing operations............................. $ 49,800 $ 63,211 $ 48,839 Adjustments to reconcile income from continuing operations to net cash flows used in operating activities: Amortization, depreciation and other........................ 7,813 6,747 6,338 Deferred income taxes....................................... (14,222) (9,517) (11,070) Gain on sale of securities.................................. -- (11,069) (4,003) Increase (decrease) in cash due to: Inventories............................................... (124,690) (157,527) (107,366) Residential mortgage loans available-for-sale............. (14,576) 7,859 (40,928) Other assets.............................................. (37,931) (64,626) (35,627) Accounts payable and accrued liabilities.................. 60,580 59,158 49,939 Income taxes.............................................. 38,052 41,539 38,124 ---------- --------- -------- Net cash used in operating activities............................. (35,174) (64,225) (55,754) ---------- --------- -------- Cash flows from investing activities: Proceeds from exchange of securities held-to-maturity......... -- 12,282 14,114 Proceeds from sale of securities available-for-sale........... -- 175,686 48,370 Principal payments on mortgage-backed securities.............. 7,933 19,892 47,667 Decrease in funds held by trustee............................. 17 4,348 1,911 Other, net.................................................... 19 (4,626) 1,035 ---------- --------- -------- Net cash provided by investing activities......................... 7,969 207,582 113,097 ---------- --------- -------- Cash flows from financing activities: Payment of long-term debt and bonds........................... (9,106) (181,841) (107,543) Proceeds from borrowings...................................... 164,183 40,709 200,163 Repayment of borrowings....................................... -- -- (470) Stock repurchases............................................. (74,673) (99,561) (11,707) Dividends paid................................................ (5,153) (5,958) (6,489) Other, net.................................................... 7,485 692 1,338 ---------- --------- -------- Net cash provided by (used in) financing activities............... 82,736 (245,959) 75,292 ---------- --------- -------- Net increase (decrease) in cash and equivalents-continuing operations............................. $ 55,531 $(102,602) $132,635 ---------- --------- -------- See notes to Consolidated Financial Statements.
27 PULTE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) For the years ended December 31, 1997, 1996 and 1995 ($000's omitted)
1997 1996 1995 ---------- ---------- --------- Discontinued operations: Cash flows from operating activities: Income from discontinued operations........................... $ 2,961 $ 116,432 $ 9,507 Change in deferred income taxes............................... 32,495 (38,321) 18,280 Change in income taxes........................................ (34,851) (72,755) (18,123) Other changes, net ........................................... (10,257) (14,218) 7,742 Cash flows from investing activities: Purchase of securities available-for-sale..................... (14,537) (42,209) (70,052) Principal payments of mortgage-backed securities.............. 34,257 43,735 31,857 Net proceeds from sale of investments and loans............... 3,211 4,514 -- Decrease in Covered Assets and FSLIC Resolution Fund (FRF) receivables................................................. 37,019 37,438 35,929 Increase in loans receivable.................................. -- (419) -- Cash flows from financing activities: Increase (decrease) in deposit liabilities.................... (2,663) 3,404 (128,542) Repayment of borrowings....................................... (31,560) (31,560) (31,560) Increase (decrease) in FHLB advances.......................... (16,500) (6,400) 26,000 ---------- ---------- ----------- Net decrease in cash and equivalents- discontinued operations....................................... (425) (359) (118,962) ---------- ---------- ----------- Net increase (decrease) in cash and equivalents................... 55,106 (102,961) 13,673 Cash and equivalents at beginning of year......................... 192,202 295,163 281,490 ---------- ---------- ----------- Cash and equivalents at end of year............................... $ 247,308 $ 192,202 $ 295,163 ========== ========== =========== Cash - continuing operations...................................... $ 245,156 $ 189,625 $ 292,227 Cash - discontinued operations.................................... 2,152 2,577 2,936 ---------- ---------- ----------- $ 247,308 $ 192,202 $ 295,163 ========== ========== =========== Supplemental disclosure of cash flow information- cash paid during the year for: Interest, net of amount capitalized: Continuing operations.................................... $ 19,920 $ 25,312 $ 27,861 Discontinued operations.................................. 2,590 2,279 11,728 ---------- --------- ----------- $ 22,510 $ 27,591 $ 39,589 ========== ========= =========== Income taxes................................................ $ 5,821 $ 7,152 $ 6,099 ========== ========= =========== See notes to Consolidated Financial Statements.
28 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 consist of Pulte Financial Companies, Inc. (PFCI) and Pulte Diversified Companies, Inc. (PDCI). PDCI's direct subsidiaries are Pulte Home Corporation (Pulte) and First Heights Bank, fsb (First Heights). Pulte Mortgage Corporation (Pulte Mortgage), formerly known as ICM Mortgage Corporation, is a direct subsidiary of Pulte. The Company's continuing operations include its homebuilding (Pulte) and financial services subsidiaries, which include Pulte Mortgage (mortgage banking) and PFCI (financing). The Company's thrift subsidiary, First Heights, has been classified as discontinued operations (see Note 3). The Company's financial reporting segments consist of Homebuilding (Pulte), Financial Services (Mortgage Banking and Financing operations) and Corporate. The Company's homebuilding operations comprise the most substantial part of its business, with over 90% of consolidated revenues contributed by Pulte's homebuilding divisions and subsidiaries. Pulte Mortgage's principal function is providing mortgage financing services for Pulte customers. PFCI, through its subsidiaries, previously engaged in the acquisition of mortgages and mortgage-backed securities financed by the issuance of long-term bonds which are secured by such mortgage loans and mortgage-backed securities. Corporate is comprised of the Company and PDCI, both of which are holding companies. Its primary purpose is to support the operations of the Company's subsidiaries as the internal source of financing and to implement and nurture to maturity strategic initiatives centered around new business development and improving operating efficiencies. Certain 1996 and 1995 classifications have been changed to conform with the 1997 presentation. Segment information New Segment Reporting Standard In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information (Statement 131), which is effective for years beginning after December 15, 1997. Statement 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. Statement 131 is effective for financial statements for fiscal years beginning after December 15, 1997, and therefore the Company will adopt the new requirements retroactively in 1998. Management has not completed its review of Statement 131, but does not anticipate that the adoption of this statement will have a significant effect on the Company's reported segments. 29 PULTE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) ($000's omitted) Segment information (continued) Homebuilding: Homebuilding operations include the homebuilding divisions and subsidiaries of Pulte. These operations consist principally of the construction and sale of detached and attached single-family residential homes in 41 markets within the following geographic areas and Puerto Rico: Pulte Home East: Mid-Atlantic Region Delaware, Maryland, Massachusetts, New Jersey, Pennsylvania, Rhode Island, Virginia Southeast Region Georgia, North Carolina, South Carolina Florida Region Florida Pulte Home Central: Great Lakes Region Indiana, Michigan, Missouri, Ohio, Kansas Midwest Region Illinois, Minnesota, Wisconsin Texas Region Texas Pulte Home West: Southwest Region Arizona, Nevada Rocky Mountain Region Colorado, Utah California Region California PULTE HOME CORPORATION STATEMENTS OF OPERATIONS For the years ended December 31, 1997, 1996 and 1995
1997 1996 1996 ----------- ----------- ----------- Revenues: Sales (settlements): Homebuilding.......................................... $ 2,479,171 $ 2,319,734 $ 1,934,403 Corporate............................................. 7,182 6,728 1,300 ----------- ----------- ----------- 2,486,353 2,326,462 1,935,703 ----------- ----------- ----------- Costs and expenses: Homebuilding: Cost of sales......................................... 2,110,532 1,975,826 1,653,567 Selling, general and administrative expenses.......... 227,480 215,300 183,564 Interest (A).......................................... 18,503 17,216 13,106 Other (income), net................................... (5,745) (2,669) (296) Restructuring costs................................... 14,800 -- -- Corporate................................................ 11,555 12,207 5,964 ----------- ----------- ----------- Total costs and expenses................................. 2,377,125 2,217,880 1,855,905 ----------- ----------- ----------- Income before income taxes .............................. $ 109,228 $ 108,582 $ 79,798 =========== =========== =========== Note (A): The Company capitalizes interest cost into homebuilding inventories and charges the interest to homebuilding interest expense when the related inventories are closed.
30 PULTE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) ($000's omitted)
PULTE HOME CORPORATION BALANCE SHEETS December 31, 1997 and 1996 ASSETS 1997 1996 ----------- ----------- Current assets: Cash and equivalents.......................................... $ 46,466 $ 71,599 Unfunded settlements.......................................... 69,768 73,896 Inventories: Homes under construction.................................... 307,036 285,720 Models...................................................... 35,578 31,321 Land under development and improved lots.................... 799,338 700,221 ----------- ----------- Total inventories............................................. 1,141,952 1,017,262 Other current assets.......................................... 124,509 101,512 ----------- ----------- Total current assets...................................... 1,382,695 1,264,269 Investment in unconsolidated mortgage banking subsidiary *....... 11,890 23,425 Land held for sale and future development........................ 24,984 37,655 Other assets, net................................................ 39,523 39,804 ----------- ----------- $ 1,459,092 $ 1,365,153 =========== =========== LIABILITIES AND SHAREHOLDER'S EQUITY Current liabilities: Notes and land contracts payable, principally limited recourse.......................................... $ 30,427 $ 21,438 Accounts payable.............................................. 215,012 195,403 Accrued liabilities........................................... 144,958 140,639 Due affiliates*............................................... 61,994 123,451 ----------- ----------- Total current liabilities.................................. 452,391 480,931 Long-term debt................................................... 59,597 51,810 ----------- ----------- Total liabilities................................................ 511,988 532,741 Shareholder's equity*............................................ 947,104 832,412 ----------- ----------- $ 1,459,092 $ 1,365,153 ========== =========== * Certain intersegment transactions and balances are eliminated in consolidation and have no effect on consolidated earnings or equity.
31 PULTE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) ($000's omitted) Mortgage Banking: Pulte Mortgage, a wholly-owned subsidiary of Pulte, is a mortgage bank which arranges financing through the origination of mortgages to both Pulte homebuyers and the general public. It operates generally in the same markets and geographic areas in which Pulte's homebuilding divisions are located. Pulte Mortgage's servicing portfolio aggregated $305,000 and $394,000 at December 31, 1997 and 1996, respectively.
PULTE MORTGAGE CORPORATION STATEMENTS OF OPERATIONS For the years ended December 31, 1997, 1996 and 1995 1997 1996 1995 ------- -------- --------- Revenues: Mortgage servicing and origination fees......... $ 4,515 $ 4,450 $ 6,047 Net gain from sale of mortgages................. 18,205 18,312 9,318 Interest and other.............................. 7,096 8,333 7,845 Earnings from equity investment................. 557 225 -- Net gain from sale of servicing rights.......... -- -- 19,714 ------- -------- --------- Total revenues............................... 30,373 31,320 42,924 ------- -------- --------- Expenses: General and administrative...................... 17,403 22,693 25,112 Foreclosure related loss reversals.............. -- (100) (180) Interest........................................ 5,404 5,367 4,062 Restructuring costs............................. 2,100 -- -- ------- -------- --------- Total expenses............................... 24,907 27,960 28,994 ------- -------- --------- Income before income taxes......................... $ 5,466 $ 3,360 $ 13,930 ======= ======== =========
32 PULTE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) ($000's omitted)
PULTE MORTGAGE CORPORATION BALANCE SHEETS December 31, 1997 and 1996 ASSETS 1997 1996 ---------- --------- Current assets: Cash and equivalents....................................... $ 1,082 $ 1,469 Residential mortgage loans available-for-sale.............. 185,018 170,443 Foreclosure related assets, net............................ 684 473 Capitalized servicing rights............................... 4,334 6,122 Receivables................................................ 5,893 4,904 ---------- --------- Total current assets..................................... 197,011 183,411 Other assets, net............................................. 3,569 3,780 ---------- --------- $ 200,580 $ 187,191 ========== ========= LIABILITIES AND SHAREHOLDER'S EQUITY Current liabilities: Notes and drafts payable to banks.......................... $ 162,707 $ 154,136 Accounts payable and accrued liabilities................... 25,973 9,522 Current portion of long-term financing obligations........ 4 98 ---------- --------- Total current liabilities................................ 188,684 163,756 Long-term financing obligations............................... 5 10 ---------- --------- Total liabilities............................................. 188,689 163,766 Shareholder's equity*......................................... 11,891 23,425 ---------- --------- $ 200,580 $ 187,191 ========== ========= * Certain intersegment transactions and balances are eliminated in consolidation and have no effect on consolidated earnings or equity.
33 PULTE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) ($000's omitted) Financing: The Company's financing operations are conducted by limited purpose subsidiaries of PFCI. Prior to 1989, PFCI subsidiaries engaged in the acquisition of mortgage loans and mortgage-backed securities financed principally through the issuance of long-term bonds secured by such mortgage loans and mortgage-backed securities. Since 1989, the PFCI subsidiaries have been liquidating their collateral portfolios and related bonds outstanding. At December 31, 1997, one bond series with a principal amount of $37,413 remained outstanding. These bonds are expected to be redeemed, and the related collateral sold, by the end of 1998.
PULTE FINANCIAL COMPANIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS For the years ended December 31, 1997, 1996 and 1995 1997 1996 1995 --------- --------- --------- Revenues: Interest, including amortization of net mortgage discounts........................................... $ 3,665 $ 8,568 $ 27,178 Gain on sale of mortgage-backed securities and other -- 10,309 4,003 --------- --------- --------- Total revenues................................... 3,665 18,877 31,181 --------- --------- --------- Expenses: Interest, including amortization of debt discounts and issue costs......................................... 3,688 8,256 26,740 Foreclosure related loss reversals.................... -- (1,078) (404) General and administrative............................ 93 369 339 --------- --------- --------- Total expenses................................... 3,781 7,547 26,675 --------- --------- --------- Income (loss) before income taxes....................... $ (116) $ 11,330 $ 4,506 ========= ========= ========= CONSOLIDATED BALANCE SHEETS December 31, 1997 and 1996 ASSETS 1997 1996 --------- --------- Cash and equivalents........................................ $ 1 $ 2 Funds held by trustee....................................... 977 994 Mortgage-backed securities.................................. 39,466 47,113 Accrued interest receivable and other....................... 1,648 1,856 --------- --------- $ 42,092 $ 49,965 ========= ========= LIABILITIES AND SHAREHOLDER'S EQUITY Liabilities: Bonds payable*............................................ $ 37,413 $ 45,304 Accrued liabilities, primarily interest................... 1,733 1,771 --------- --------- Total liabilities........................................... 39,146 47,075 Shareholder's equity**...................................... 2,946 2,890 --------- --------- $ 42,092 $ 49,965 ========= ========= * Bonds payable are the obligations of the applicable PFCI issuer subsidiary; they are neither the obligations of, nor guaranteed by, the Company, PDCI, Pulte, Pulte Mortgage or PFCI. (See Note 6.) ** Certain intersegment transactions and balances are eliminated in consolidation and have no effect on consolidated earnings or equity.
34 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 Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, are included in Note 6. Foreign investments The Company has investments in Mexico which are accounted for using the equity method. Effective for periods ended after October 1, 1996, the Company has remeasured the financial statements of its foreign equity investments from the original functional currency (Peso) to the Company's reporting currency (U.S. Dollar) due to Mexico's highly inflationary economy. Accordingly, the Company translates the assets, liabilities and equity of its foreign equity investments at the rates of exchange in effect at each reporting period. Revenues and expenses are translated using monthly average exchange rates. Gains and losses from (1) translation of the financial statements of the Company's foreign equity investments and (2) foreign currency transactions are included in expense in the accompanying statements of operations. Foreign currency translation and transaction losses aggregated $600, $100 and $2,300 for the years ended December 31, 1997, 1996 and 1995, respectively. During 1997, the Company recorded a loss of $1,700 related to its Mexico operations, as compared with losses of $1,700 and $5,800 in 1996 and 1995, respectively. The Company's aggregate net investment in Mexico is approximately $27,600 as of December 31, 1997. The Company maintains a foreign subsidiary which is performing under a fixed-price agreement entered into during 1997 with a large, international company to manage the construction of approximately 800 residential units in two phases in Antofagasta, Chile. The Company accounts for the operating results of this project using percentage of completion. The Company's net investment in this foreign subsidiary approximated $900 at December 31, 1997. Pulte Mortgage maintains a minority ownership interest in a Mexican mortgage banking company which is accounted for using the equity method of accounting. Pulte Mortgage has also remeasured the financial statements of its foreign equity investment from the original functional currency (Peso) to Pulte Mortgage's reporting currency (U.S. Dollar) due to Mexico's highly inflationary economy. For 1997, Pulte Mortgage's equity in the earnings of its investment was $557, of which $503 represented operating earnings and $54 represented its share of foreign currency gains. During 1996, Pulte Mortgage's equity in the earnings of its investment was $225. At December 31, 1997, Pulte Mortgage's investment approximated $1,500. 35 PULTE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) ($000's omitted) Income per share In 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings Per Share. Statement 128 replaced the calculation of primary and fully-diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. Earnings per share amounts, both basic and diluted, are disclosed for all periods presented and, where appropriate, have been restated to conform to the Statement 128 requirements. 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 cash equivalents approximate their fair values due to their short-term nature. The carrying amounts of mortgage-backed bonds approximate their fair values. The bonds are expected to be redeemed during 1998. 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, 1997. 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, 1997, 1996 and 1995, the Company incurred advertising costs of approximately $24,700, $21,900 and $18,900, respectively. Employee benefits The Company maintains the Pulte Corporation Savings and Retirement Plan 401(k) (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 $2,200, $2,300 and $2,100 for the years ended December 31, 1997, 1996 and 1995, respectively. 36 PULTE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) ($000's omitted) Long-lived assets During the first quarter of 1996, the Company adopted SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. SFAS No. 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The adoption of the provisions of SFAS No. 121 did not have a material effect on the Company's financial position or results of operations for the year ended December 31, 1996. 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 $20,376, $17,801 and $17,314 and expensed to homebuilding interest expense $18,503, $17,216 and $13,106 in 1997, 1996 and 1995, respectively. Mortgage Banking: Mortgage servicing rights The Company conducts its mortgage banking activities through Pulte Mortgage, whose primary business consists of providing residential mortgage loan originations and related services to Pulte customers. In May 1995, the FASB issued SFAS No. 122, Accounting for Mortgage Servicing Rights (Statement 122). Under Statement 122, the costs associated with originating a mortgage loan are to be allocated to the mortgage servicing rights based on its fair value relative to the mortgage loan, as a whole. Accordingly, under SFAS No. 122, the capitalized origination costs of the loan are reduced by the amount allocated to the mortgage servicing rights. Effective January 1, 1997, the Company adopted SFAS No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, which superseded SFAS No. 122. There was no material impact on the financial statements as a result of this adoption. 37 PULTE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) ($000's omitted) Mortgage servicing rights (continued) The consolidated balance sheets include the following amounts of capitalized mortgage servicing rights from originated mortgage loans as of December 31, 1997 and 1996:
1997 1996 ---------- ---------- Conventional fixed rate loans....... $ 2,371 $ 4,039 Government fixed rate loans......... 1,200 1,059 Government variable rate loans...... 763 1,024 ---------- ---------- $ 4,334 $ 6,122 ========== ==========
Mortgage loans Residential mortgage loans available-for-sale are stated at the lower of cost or aggregate market value. Unamortized net mortgage discounts totaled $1,382 and $1,614 at December 31, 1997 and 1996, respectively. Gains and losses from the sale of mortgage loans are recognized when the loans are sold. Pulte Mortgage hedges its residential mortgage loans available-for-sale by commitments in the cash forward market (see Note 11). Gains and losses from closed commitments and futures contracts are matched against the related gains and losses on the sale of mortgage loans. Revenues Mortgage servicing fees represent fees earned for servicing loans for various investors, including affiliates. 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. Financing: Mortgage-backed securities PFCI adopted SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, on January 1, 1994. Based on prepayment experience of certain subsidiaries since that time, PFCI elected to classify its portfolio of Government National Mortgage Association (GNMA) securities as available-for-sale beginning September 30, 1995. As available-for-sale, such securities are reported at fair value with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity, net of income taxes. 38 PULTE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) ($000's omitted) 3. 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. 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 $103,010 and $131,579 at December 31, 1997 and 1996, respectively. The notes had a weighted average interest rate of 5.4% and 5.8% at December 31, 1997 and 1996, respectively. The notes are due in September 1998, and bear interest at rates indexed to the Texas Cost of Funds plus a spread. The notes are subject to annual prepayments, which are 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 since 1992. 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 1994, the Company announced its strategy to exit the thrift industry and increase its focus on housing and related mortgage banking. First Heights sold substantially all of its bank branches and related liabilities (primarily deposits), plus certain other assets. One remaining retail branch office continues to operate in Houston. The sale was completed during the fourth quarter of 1994. Accordingly, such operations are being presented as discontinued. 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 Federal Deposit Insurance Corporation (FDIC) acting in its capacity as manager of FRF. 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 matures in September 1998. As discussed in Note 10, 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. Income from the Company's discontinued thrift operations for the years ended December 31, 1997, 1996 and 1995 is summarized as follows:
Year Ended December 31, ------------------------------------ 1997 1996 1995 ----------- ----------- ---------- Discontinued thrift operations........... $ 2,961 $ 6,432 $ 9,507 Tax benefit of net operating losses...... -- 110,000 -- ----------- ----------- ---------- $ 2,961 $ 116,432 $ 9,507 =========== =========== ==========
Revenues of discontinued operations were $5,077, $12,164 and $20,919 for the years ended December 31, 1997, 1996 and 1995, respectively. For the years ended December 31, 1997, 1996 and 1995, discontinued thrift operations resulted in income of $2,961 (including income tax benefit of $2,356), $6,432 (including income tax benefit of $1,076) and $9,507 (net of income taxes of $157), 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. Certainty of realization of this amount is not anticipated in the near term, is dependent upon various factors, and the actual amount realized might be more or less than the amount recorded. 39 PULTE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) ($000's omitted) Assets and liabilities of discontinued operations were as follows:
At December 31, ------------------------ 1997 1996 ---------- ---------- Assets: Cash and equivalents............................................... $ 2,152 $ 2,577 Mortgage-backed and related securities............................. 18,620 45,601 Accounts and notes receivable-FRF, less LAN of $32,320 and $63,880 at December 31, 1997 and 1996 respectively.............. 89,922 95,120 Assets covered by FRF.............................................. -- 261 Other assets....................................................... 246 517 ---------- ---------- $ 110,940 $ 144,076 ========== ========== Liabilities: Deposits, with interest rates ranging from 4% to 6% in 1996........ $ 37,462 $ 40,125 Accrued expenses and other liabilities............................. 39,612 49,018 FHLB advances...................................................... 3,100 19,600 Excess of acquired net assets over cost............................ -- 4,002 ---------- ---------- $ 80,174 $ 112,745 ========== ==========
The fair value of financial instruments approximates carrying value at December 31, 1997 and 1996. 4. Short-term credit arrangements Short-term financing for the Company on an operating segment basis is as follows: Corporate/Homebuilding At December 31, 1997, the Company, PDCI and Pulte jointly have a $240,000 unsecured revolving bank credit arrangement under which a variety of interest rates are available to the Company. The credit arrangement expires January 5, 2000. The credit arrangement contains customary covenants, none of which significantly restrict the operations of the Company. The Company also has two $10,000 uncommitted bank credit arrangements. The Company did not borrow under its credit arrangements in 1996. The following is aggregate borrowing information:
1997 1996 1995 ---------- ---------- ---------- Unused credit lines at year-end................................ $ 260,000 $ 260,000 $ 260,000 Maximum amount outstanding at the end of any month............. $ 126,000 $ - $ 10,000 Average monthly indebtedness................................... $ 7,642 $ - $ 1,177 Range of interest rates during the year........................ 5.49 to - 6.26 to 8.50% 9.00% Weighted average daily interest rate........................... 6.41% - 6.68%
40 PULTE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) ($000's omitted) Mortgage Banking Notes and drafts 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, 1997, Pulte Mortgage had committed bank credit lines of $150,000 and discretionary credit lines of $100,000. The bank credit agreements require Pulte Mortgage to pay a fee for the committed credit lines. During 1997, 1996 and 1995, Pulte Mortgage provided compensating balances, in the form of 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, Pulte Mortgage is required to maintain a minimum tangible net worth of $10,000. The following is aggregate borrowing information:
1997 1996 1995 --------- --------- --------- Unused credit lines at year-end................................ $ 121,830 $ 153,966 $ 244,543 Maximum amount outstanding at the end of any month............. $ 153,170 $ 121,034 $ 140,457 Average monthly indebtedness................................... $ 91,158 $ 93,881 $ 91,653 Range of interest rates during the year........................ .06 to .0625 to .425 to 7.55% 7.68% 9.00% Weighted average daily interest rate........................... 5.99% 5.97% 7.10% Weighted average rate at year-end.............................. 6.48% 6.25% 6.30%
5. Long-term debt Long-term debt is summarized as follows:
At December 31, ------------------------ 1997 1996 --------- -------- Corporate 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 12........... $ 99,760 $ 99,720 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 12............... 114,774 114,739 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 12............... 124,917 124,906 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 12............... 147,852 Homebuilding 10.125% unsecured senior subordinated debentures, issued by Pulte, due 1999............................................................... 22,405 22,405 Other non-recourse debt, minimum annual principal payments required, maturing at various times through 2002, interest rates ranging from 5% to 16%......................................................... 37,192 29,405 --------- -------- $ 546,900 $391,175 ========= ======== Estimated fair value...................................................... $ 572,280 $393,874 ========= ======== 41 PULTE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) (000's omitted) Total Corporate and Homebuilding long-term debt maturities and mandatory annual sinking fund payments during the five years subsequent to 1997 are as follows: 1998 - $14,726; 1999 - $31,605; 2000 - $5,562; 2001 - $4,841; 2002 - $2,501 and thereafter $362. Financing Bonds payable at December 31, 1997 and 1996 consist of one bond issue with a stated interest rate of 9%. The bond series is secured by separate pools of mortgage-backed securities. Timing of bond retirements is dependent upon mortgage payments and reinvestment rates. Under provisions of the bond indentures, funds held by the trustees are restricted so as to assure the payment of principal and interest on the bonds to the extent of such funds. Such long-term borrowings are the obligations of the applicable PFCI issuer subsidiary and are neither the obligations of, nor guaranteed by, the Company, PDCI, Pulte, Pulte Mortgage or PFCI. 6. Stock compensation plans and management incentive compensation The Company has three fixed stock option plans. All three 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. The following is a brief description of each plan: o The Pulte Corporation 1995 Stock Incentive Plan for Key Employees (1995 Plan) authorized the issuance of up to 2,000 shares of common stock. On March 6, 1995, grants of 1,658 variable stock options principally priced at $26 to $42 per share were awarded and subsequently canceled. On December 13, 1995, grants of 1,687 fixed stock options were awarded at prices not less than the fair market value at the time of the grant. The first 50% of these stock options vested on January 1, 1998, with 25% of the stock options vesting on each of January 1, 1999 and January 1, 2000. As of December 31, 1997, 541 stock options remain available for grant. o The Pulte Corporation 1994 Stock Incentive Plan for Key Employees (1994 Plan) authorized the issuance of up to 1,000 shares of common stock. On January 21, 1997, grants of 45 stock options with an exercise price of $31 per share were awarded, of which 7 stock options were subsequently canceled during 1997. On October 31, 1997, an additional 90 stock options were granted with an exercise price of $37 per share. All stock options granted during 1997 vest annually in 25% increments beginning two years from the date of the respective grant. On May 10, 1996, grants of 30 stock options with an exercise price of $28 per share were awarded. These options also vest annually in 25% increments beginning May 10, 1998. On January 17, 1995, grants of 250 stock options with an exercise price of $27 per share were awarded. These stock options also vest annually in 25% increments beginning January 17, 1997. As of December 31, 1997, 486 stock options remain available for grant. o The Pulte Corporation 1990 Stock Incentive Plan for Key Employees (1990 Plan) authorized the issuance of up to 800 shares of common stock. On October 31, 1997, grants of 54 stock options with an exercise price of $37 per share were awarded. These stock options vest annually in 25% increments beginning October 31, 1999. On January 16, 1996, grants of 47 stock options with an exercise price of $31 per share were awarded. These stock options also vest annually in 25% increments beginning January 16, 1998. Additionally, on January 17, 1995, grants of 21 stock options with an exercise price of $27 per share were awarded. These stock options also vest annually in 25% increments beginning January 17, 1997. As of December 31, 1997, 25 stock options remain available for grant. 42 PULTE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) (000's omitted, except per share data) A summary of the status of the Company's three fixed stock option plans as of December 31, 1997, 1996 and 1995 and changes during the years ending on those dates is presented below:
1997 1996 1995 ------------------------ ------------------------ ------------------------ 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.. 3,075 $ 32 3,042 $ 32 1,270 $ 26 Granted......................... 189 35 77 30 3,616 35 Exercised....................... (385) 18 (44) 14 (114) 9 Forfeited....................... (336) 35 -- -- (1,730) 36 ------ ------- ------- Outstanding, end of year........ 2,543 $ 34 3,075 $ 32 3,042 $ 32 ====== ======= ======= Options exercisable at year-end. 477 545 311 ====== ======= ======= Weighted-average per share fair value of options granted during the year...... $14.78 $ 11.12 $ 12.42 ====== ======= =======
The following table summarizes information about fixed stock options outstanding at December 31, 1997:
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 - --------------- -------------- ------------- -------------- -------------- -------------- $ 9 40 2.6 years $ 9 40 $ 9 12 to 17 41 3.3 16 41 16 27 to 32 587 6.3 29 278 30 34 to 42 1,875 7.8 37 136 41
The Company applies APB Opinion No. 25 and related Interpretations in accounting for its three fixed stock option plans. 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. Under SFAS No. 123, compensation cost for the Company's three stock-based compensation plans would be determined based on the fair value at the grant dates for awards under those plans. Accordingly, for the years ended December 31, 1997, 1996 and 1995, the Company's income from continuing operations, net income and earnings per share would have been reduced to the pro forma amounts indicated below: 43 PULTE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) ($000's omitted, except per share data)
1997 1996 1995 ----------- ----------- ----------- Income from continuing operations: As reported.......................................... $ 49,800 $ 63,211 $ 48,839 =========== =========== =========== Pro forma............................................ $ 45,455 $ 57,771 $ 48,220 =========== =========== =========== Net income: As reported.......................................... $ 52,761 $ 179,643 $ 58,346 =========== =========== =========== Pro forma............................................ $ 48,416 $ 174,203 $ 57,727 =========== =========== =========== Per share data: Basic: Income from continuing operations: As reported.......................................... $ 2.29 $ 2.54 $ 1.80 =========== =========== =========== Pro forma............................................ $ 2.09 $ 2.32 $ 1.78 =========== =========== =========== Net income: As reported......................................... $ 2.43 $ 7.21 $ 2.15 =========== =========== =========== Pro forma........................................... $ 2.23 $ 6.99 $ 2.13 =========== =========== =========== Assuming dilution: Income from continuing operations: As reported.......................................... $ 2.27 $ 2.51 $ 1.78 =========== =========== =========== Pro forma............................................ $ 2.07 $ 2.32 $ 1.76 =========== =========== =========== Net income: As reported......................................... $ 2.40 $ 7.14 $ 2.13 =========== =========== =========== Pro forma........................................... $ 2.21 $ 6.93 $ 2.11 =========== =========== ===========
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 1997, 1996 and 1995, respectively: weighted-average dividend yields of .46%, .80% and .77%, expected volatility of 29.44%, 29.85% and 32.14%, weighted-average risk-free interest rates of 5.88%, 5.87% and 5.92%, and weighted-average expected lives of 6.5 years, 6.5 years and 6.9 years. Pro forma income from continuing operations, net income and earnings per share were significantly affected by the large option grant on December 13, 1995, which is not expected to be indicative of the size of annual awards, and by the manner in which compensation expense associated with stock options is recognized over the vesting periods of each award. Based upon stock options outstanding at December 31, 1997, 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, 1998, 1999 and 2000 is $2,442, $1,309 and $316, respectively. 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, 1997, 1996 and 1995, the Company's total current cash incentive compensation was $17,500, $17,900 and $15,900, respectively. In addition, commencing January 1, 1996, the Company adopted 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, 1997, 1996, the Company accrued $3,900 and $3,300, respectively, relating to this plan. 44 PULTE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) ($000's omitted, except per share data) 7. Income taxes The Company's net deferred tax asset (liability) is as follows:
At December 31, ------------------------- 1997 1996 -------- ---------- Deferred tax liabilities: Continuing operations: Capitalized items deducted for tax, net..................... $ (6,658) $ (5,954) Discontinued operations: Market losses deducted for tax, and other................... (512) (353) Equity adjustment: Unrealized gains on securities.............................. (1,056) (982) -------- --------- (8,226) (7,289) -------- --------- Deferred tax assets: Continuing operations: Non-deductible reserves and other........................... 49,901 34,975 Discontinued operations: Net operating loss carryforwards............................ 43,212 75,922 AMT credit carryforwards.................................... 15,642 13,734 Acquired tax loss carryforwards............................. 5,524 5,524 Purchase accounting adjustments............................. -- 1,465 Non-deductible reserves and other........................... 3,286 3,346 Amortization................................................ -- 9 -------- --------- 117,565 134,975 -------- --------- Net deferred tax asset ..................................... $109,339 $ 127,686 ======== =========
Net operating loss carryforwards expire in 2006. The acquired tax loss carryforwards expire in the years 1999 through 2002. Components of current and deferred income tax expense (benefit) of continuing operations are as follows:
Current Deferred Total ------- -------- ----- 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 ========= ======== ========= Year ended December 31, 1996 Federal.................................... $ 43,319 $ (8,627) $ 34,692 State and other............................ 5,450 (890) 4,560 --------- -------- --------- $ 48,769 $ (9,517) $ 39,252 ========= ======== ========= Year ended December 31, 1995 Federal.................................... $ 38,922 $ (9,885) $ 29,037 State and other............................ 5,333 (1,185) 4,148 --------- -------- --------- $ 44,255 $(11,070) $ 33,185 ========= ======== =========
The following table reconciles the statutory federal income tax rate to the effective income tax rate for continuing operations:
1997 1996 1995 ------- ------ ------ Income taxes at federal statutory rate........................ 35.0% 35.0% 35.0% Effect of state and local income taxes, net of federal tax.... 5.0 5.0 5.5 Settlement of state tax issues and other...................... (1.5) (1.7) -- ------ ------ ------ Effective rate................................................ 38.5% 38.3% 40.5% ====== ====== ======
45 PULTE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) ($000's omitted) 8. 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: Year Ending December 31, 1998...................................... $ 14,976 1999...................................... 10,742 2000...................................... 8,018 2001...................................... 5,750 2002...................................... 2,565 After 2002................................ 1,497 ----------- Total minimum lease payments $ 43,548 ===========
Net rental expense for the years ended December 31, 1997, 1996 and 1995, was $17,617, $16,539 and $13,064, respectively. Certain leases contain purchase options and generally provide that the Company shall pay for insurance, taxes and maintenance. 9. Restructuring Since 1994, the Company's domestic homebuilding operations had been organized as four operating companies, Pulte Home North, South, Central and West. This organization enabled the Company to pursue its desired level of geographic growth and market penetration. It also allowed the Company to facilitate corporate direction, capital allocation, and risk management policies, while allowing it to remain close to its customers. During early 1997, the Company combined Pulte Home North and South, creating Pulte Home East, to provide additional overhead leverage. During August 1997, the Company announced that it was reorganizing its corporate operations to enable the Company to take better advantage of its size, talent base and competitive strengths. The reorganization was designed to accomplish the following: o Strengthen management focus on key customer groups and generate increased operating efficiencies. o Create a new position of Executive Vice President and Chief Operating Officer with responsibility for all of the Company's homebuilding operations. o Replace the Company's existing homebuilding structure comprised of three geographically-based operating companies with a structure focused more closely on specific customer segments: domestic homebuilding, Active Adult (mature buyer), and international. o Evaluate and strategically deploy capital investment in homebuilding operations. o Structure the Company's mortgage banking operations to better support homebuilding operations and improve operating performance. o Right-size the workforce on a company-wide basis. In conjunction with this reorganization, a pre-tax charge of $20,000 was recorded during the fourth quarter. This charge included $11,787 of separation and other costs for approximately 150 employees, $7,000 of asset impairments and $1,213 of other costs, principally for office leases. The after-tax effect of this charge was $12,300 or $.56 per diluted share. 46 PULTE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) ($000's omitted) The following table displays the status of the liabilities accrued for the corporate restructuring as of December 31, 1997.
1997 Reserve Uses Original ------------------------------ Balance at Type of Cost Reserve Cash Non-cash December 31 - ------------ ------------- ------------- ------------- ------------ Homebuilding operations: Employee separation and other $ 6,900 $ (843) $ -- $ 6,057 Asset impairments 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 ============= ============= ============= =============
It is anticipated that a substantial portion of the remaining accrual for restructuring costs will be utilized during 1998. 10. 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, 1997 approximated $562,000 ($429,000 at December 31, 1996). At December 31, 1997, Pulte, in the normal course of business, had outstanding letters of credit and performance bonds of $134,148 and $114,685, respectively. In addition, Pulte Mortgage and PFCI had outstanding letters of credit on Pulte's behalf aggregating $2,178. The Company is involved in various litigation incidental to its business. Management believes that none of this litigation will have a material adverse impact on the results of operations or financial position of the Company. First Heights-Related Litigation The Company is a party to two lawsuits relating to First Heights' 1988 acquisition from the Federal Savings and Loan Insurance Corporation (FSLIC), and First Heights' ownership of, five failed Texas thrifts. The first lawsuit (the "District Court Case") was filed on July 7, 1995 in the United States District Court, Eastern District of Michigan, by the Federal Deposit Insurance Corporation (FDIC) against the Company, PDCI and First Heights (collectively, the "Pulte Parties"). The second lawsuit (the "Court of Federal Claims Case") was filed on December 26, 1996 in the United States Court of Federal Claims (Washington, D.C.) by the Pulte Parties against the United States. In the District Court Case, the FDIC seeks a declaration of rights and other relief related to the assistance agreement entered into between First Heights and the FSLIC. The FDIC is the successor to FSLIC. The FDIC and the Pulte Parties disagree about the proper interpretation of provisions in the assistance agreement which provide for sharing of certain tax benefits achieved in connection with First Heights' 1988 acquisition and ownership of the five 47 PULTE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) ($000's omitted) failed Texas thrifts. The District Court Case also includes certain other claims relating to the foregoing, including claims resulting from the Company's and First Heights' amendment of a tax sharing and allocation agreement between the Company and First Heights. The Pulte Parties dispute the FDIC's claims and believe that a proper interpretation of the assistance agreement limits the FDIC's participation in the tax benefits. The Pulte Parties have filed an answer and a counterclaim, seeking, among other things, a declaration that the FDIC has breached the assistance agreement in numerous respects. On December 24, 1996, the Pulte Parties voluntarily dismissed without prejudice certain of their claims in the District Court Case and on December 26, 1996, initiated the Court of Federal Claims Case. The Court of Federal Claims Case contains similar claims as those that were voluntarily dismissed from the District Court Case. In their complaint, the Pulte Parties assert breaches of contract on the part of the United States in connection with the enactment of section 13224 of the Omnibus Budget Reconciliation Act of 1993. That provision repealed portions of the tax benefits that the Pulte Parties claim they were entitled to under the contract to acquire the failed Texas thrifts. The Pulte Parties also assert certain other claims concerning the contract, including claims that the United States (through the FDIC as receiver) has improperly attempted to amend the failed thrifts pre-acquisition tax returns and that this attempt was made in an effort to deprive the Pulte Parties of tax benefits they had contracted for, and that the enactment of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 breached the Government's obligation not to require contributions of capital greater than those required by the contract. Management believes that the First Heights related litigation will not have a material adverse impact on the results of operations or financial position of the Company. On March 5, 1998, the Company reported that an opinion and order had been issued by the United States District Court (the "Court") which resolved by summary judgment four of the interpretational issues which had been raised in the District Court Case. On three issues, the Court ruled in favor of the FDIC, and on one issue, the Court ruled in favor of the Company. The Company vigorously disagrees with the Court's ruling in favor of the FDIC and intends to appeal if these rulings become part of any final judgment. If the Company were unsuccessful on appeal and if all other issues in such litigation were resolved in favor of the FDIC, the Company would, at such time, take an after-tax charge against discontinued operations in an amount which would range from a nominal amount to as much as $40,000. The Company does not believe that the claims in the Court of Federal Claims Case are affected by the rulings in the District Court Case. 11. Financial instruments, including those with off-balance sheet risk Pulte Mortgage, in the normal course of business to meet the financing needs of its customers and reduce its own exposure to fluctuations in interest rates, uses derivative financial instruments with off-balance sheet risk. These financial instruments include cash forward placement contracts, mortgage-backed security forward contracts, options on treasury future contracts, and options on mortgage-backed security forwards. Pulte Mortgage does not use any derivative financial instruments for trading purposes. Mortgage-backed security forwards are commitments to either purchase or sell a financial instrument at a specific future date for a specified price and may be settled in cash or through delivery of the financial instrument. Option contracts are contracts that grant the purchaser, for a premium payment, the right to either purchase or sell a financial instrument at a specified price within a specified period of time or on a specified date from or to the writer of the option. Forward and futures contracts are used to modify the repricing characteristics of interest-earning assets and loan commitments, while options are used to limit the temporary impact of interest rate fluctuations in the value of loans held for sale and loan commitments. Mandatory and optional forward commitments are used by Pulte Mortgage to hedge its interest rate exposure during the period from when Pulte Mortgage extends an interest rate lock to a loan applicant until the time the loan is sold to an investor. 48 PULTE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) ($000's omitted) Since Pulte Mortgage 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 Pulte Mortgage. Pulte Mortgage evaluates the creditworthiness of these transactions through its normal credit policies. The following are Pulte Mortgage's loan commitments:
Fair Commitment Market Interest Expiration Amount Value Rates Dates ---------- ------ -------- ---------- At December 31, 1997: Loan commitments to borrowers $45,661 $45,763 5.0 to January 1998- 8.38% May 1998 At December 31, 1996: Loan commitments to borrowers $41,796 $41,625 5.0 to January 1997- 9.25% May 1997
Pulte Mortgage 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, Pulte Mortgage would not receive the cash to which it would otherwise be entitled under the conditions of the agreement. Pulte Mortgage manages credit risk by entering into agreements with only large national investment bankers with primary dealer status and with permanent investors, all of whom meet Pulte Mortgage's established credit underwriting standards. 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 Pulte Mortgage. The table below summarizes, by class, the contractual amounts of Pulte Mortgage's derivative financial instruments.
Fair Contract Market Interest Expiration Amount Value Rates Dates -------- ------ -------- ---------- At December 31, 1997: Sell Securities........... $190,250 $189,004 5.0 to January 1998- 7.5% March 1998 At December 31, 1996: Sell Securities........... $181,500 $181,651 5.0 to January 1997- 8.0% March 1997
Realized gains or losses on derivative financial instruments are recognized in net gain from sale of mortgages in the period settlement occurs. 12. Supplemental Guarantor Information In September 1995, the Company filed a universal shelf registration of up to $250,000 of debt or equity securities, of which $125,000 of 7.3% unsecured Senior Notes were issued in October 1995. In addition, the Company previously issued $100,000, 7%, and $115,000, 8.375%, unsecured Senior Notes under a previous shelf registration. In October 1997, the Company registered an additional $25,000 of debt securities for an offering pursuant to Rule 462(b) of the Securities Act of 1933, as amended, and issued $150,000 of 7.625% unsecured Senior Notes, due 2017, pursuant to the September 1995 and October 1997 universal shelf registrations. Such obligations to pay principal, premium, if any, and interest are guaranteed jointly and severally on a senior basis by Pulte, all of Pulte's wholly-owned homebuilding subsidiaries and Builders' Supply & Lumber Co., Inc., which is a Pulte wholly-owned subsidiary (collectively, the Guarantors). Such guarantees are full and unconditional. The principal non-Guarantors include PDCI, Pulte Mortgage, First Heights, and PFCI. See Note 1 for additional information on the Company's Guarantor and non-Guarantor subsidiaries. 49 PULTE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) ($000's omitted) 12. Supplemental Guarantor Information (continued) Supplemental consolidating financial information of the Company, specifically including such information for the Guarantors, is presented below. Investments in subsidiaries are presented using the equity method of accounting. Separate financial statements of the Guarantors are not provided because management has concluded that the segment information provides sufficient detail to allow investors to determine the nature of the assets held by and the operations of the combined groups. CONSOLIDATING BALANCE SHEET DECEMBER 31, 1997
Unconsolidated ------------------------------------------ Pulte Guarantor Non-Guarantor Eliminating Consolidated Corporation Subsidiaries Subsidiaries Entries Pulte Corporation ----------- ------------ -------------- ------------ ----------------- ASSETS Cash and equivalents ..................... $ 195,946 $ 46,466 $ 2,744 $ -- $ 245,156 Unfunded settlements ..................... -- 69,768 -- -- 69,768 House and land inventories ............... -- 1,141,952 -- -- 1,141,952 Mortgage-backed and related securities ... -- -- 39,467 -- 39,467 Residential mortgage loans and other securities available-for-sale ......... -- -- 185,018 -- 185,018 Land held for sale and future development -- 24,984 -- -- 24,984 Other assets ............................. 18,305 164,032 41,804 -- 224,141 Deferred income taxes .................... 110,395 -- (1,056) -- 109,339 Discontinued operations .................. -- -- 110,940 -- 110,940 Investment in subsidiaries ............... 970,897 11,890 995,248 (1,978,035) -- Advances receivable - subsidiaries ....... 100,663 -- 20,517 (121,180) -- ----------- ----------- ----------- ----------- ----------- $ 1,396,206 $ 1,459,092 $ 1,394,682 $(2,099,215) $ 2,150,765 =========== =========== =========== =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Accounts payable and accrued liabilities ........................... $ 58,470 $ 390,397 $ 48,866 $ -- $ 497,733 Collateralized short-term debt, recourse solely to applicable subsidiary assets -- -- 162,707 -- 162,707 Mortgage-backed bonds, recourse solely to applicable subsidiary assets -- -- 37,413 -- 37,413 Income taxes ............................. 13,001 -- -- -- 13,001 Subordinated debentures and senior notes ................................. 487,303 59,597 -- -- 546,900 Discontinued operations .................. -- -- 80,174 -- 80,174 Advances payable - subsidiaries .......... 24,595 61,994 34,591 (121,180) -- ----------- ----------- ----------- ----------- ----------- Total liabilities .................. 583,369 511,988 363,751 (121,180) 1,337,928 ----------- ----------- ----------- ----------- ----------- Shareholders' Equity: Common stock ............................. 213 -- 7,805 (7,805) 213 Additional paid-in capital ............... 61,835 364,945 543,434 (908,379) 61,835 Unrealized gains on securities available-for-sale .................... 1,687 -- 1,687 (1,687) 1,687 Retained earnings ........................ 749,102 582,159 478,005 (1,060,164) 749,102 ----------- ----------- ----------- ----------- ----------- Total shareholders' equity ......... 812,837 947,104 1,030,931 (1,978,035) 812,837 ----------- ----------- ----------- ----------- ----------- $ 1,396,206 $ 1,459,092 $ 1,394,682 $(2,099,215) $ 2,150,765 =========== =========== =========== =========== ===========
50 PULTE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) ($000's omitted) 12. Supplemental Guarantor Information (continued) CONSOLIDATING BALANCE SHEET DECEMBER 31, 1996
Unconsolidated ------------------------------------------ Pulte Guarantor Non-Guarantor Eliminating Consolidated Corporation Subsidiaries Subsidiaries Entries Pulte Corporation ----------- ------------ -------------- ---------- ----------------- ASSETS Cash and equivalents ..................... $ 114,585 $ 71,599 $ 3,441 $ -- $ 189,625 Unfunded settlements ..................... -- 73,896 -- -- 73,896 House and land inventories ............... -- 1,017,262 -- -- 1,017,262 Mortgage-backed and related securities ... -- -- 47,113 -- 47,113 Residential mortgage loans and other securities available-for-sale ......... -- -- 170,443 -- 170,443 Land held for sale and future development -- 37,655 -- -- 37,655 Other assets ............................. 12,860 140,489 24,036 -- 177,385 Deferred income taxes .................... 128,668 -- (982) -- 127,686 Discontinued operations .................. -- -- 144,076 -- 144,076 Investment in subsidiaries ............... 859,866 23,425 878,540 (1,761,831) -- Advances receivable - subsidiaries ....... 139,351 827 17,246 (157,424) -- ----------- ----------- ----------- ----------- ----------- $ 1,255,330 $ 1,365,153 $ 1,283,913 $(1,919,255) $ 1,985,141 =========== =========== =========== =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Accounts payable and accrued liabilities ........................... $ 51,731 $ 357,480 $ 30,367 $ -- $ 439,578 Collateralized short-term debt, recourse solely to applicable subsidiary assets -- -- 154,136 -- 154,136 Mortgage-backed bonds, recourse solely to applicable subsidiary assets -- -- 45,304 -- 45,304 Income taxes ............................. 12,930 -- -- -- 12,930 Subordinated debentures and senior notes ................................. 339,365 51,810 -- -- 391,175 Discontinued operations .................. 4,002 -- 108,743 -- 112,745 Advances payable - subsidiaries .......... 18,029 123,451 15,944 (157,424) -- ----------- ----------- ----------- ----------- ----------- Total liabilities .................. 426,057 532,741 354,494 (157,424) 1,155,868 ----------- ----------- ----------- ----------- ----------- Shareholders' Equity: Common stock .......................... 233 -- 7,804 (7,804) 233 Additional paid-in capital ............ 57,516 319,091 508,538 (827,629) 57,516 Unrealized gains on securities available-for-sale .................. 1,474 -- 1,474 (1,474) 1,474 Retained earnings ..................... 770,050 513,321 411,603 (924,924) 770,050 ----------- ----------- ----------- ----------- ----------- Total shareholders' equity ......... 829,273 832,412 929,419 (1,761,831) 829,273 ----------- ----------- ----------- ----------- ----------- $ 1,255,330 $ 1,365,153 $ 1,283,913 $(1,919,255) $ 1,985,141 =========== =========== =========== =========== ===========
51 PULTE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) ($000's omitted) 12. 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 ................. -- 240,238 -- -- 240,238 Mortgage banking and financing, principally interest .............. -- -- 26,588 -- 26,588 Corporate, net ...................... 32,456 11,555 1,647 -- 45,658 Restructuring costs ................. 3,100 14,800 2,100 -- 20,000 ---------- ---------- ---------- ---------- ---------- Total expenses .................. 35,556 2,377,125 30,335 -- 2,443,016 ---------- ---------- ---------- ---------- ---------- Income (loss) from continuing operations before income taxes and equity in net income of subsidiaries .............. (33,502) 109,228 5,249 -- 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) 65,560 2,487 -- 49,800 Income from discontinued operations .... 6,620 -- (3,659) -- 2,961 ---------- ---------- ---------- ---------- ---------- Income before equity in net income of subsidiaries ..................... (11,627) 65,560 (1,172) -- 52,761 ---------- ---------- ---------- ---------- ---------- Equity in net income of subsidiaries: Continuing operations ............... 68,047 3,279 65,560 (136,886) -- Discontinued operations ............. (3,659) -- -- 3,659 -- ---------- ---------- ---------- ---------- ---------- 64,388 3,279 65,560 (133,227) -- ---------- ---------- ---------- ---------- ---------- Net income ...................... $ 52,761 $ 68,839 $ 64,388 $ (133,227) $ 52,761 ========== ========== ========== ========== ==========
52 PULTE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) ($000's omitted) 12. Supplemental Guarantor Information (continued) CONSOLIDATING STATEMENT OF OPERATIONS For the year ended December 31, 1996
Unconsolidated ---------------------------------------- Pulte Guarantor Non-Guarantor Eliminating Consolidated Corporation Subsidiaries Subsidiaries Entries Pulte Corporation ----------- ------------ ------------- ---------- ----------------- Revenues: Homebuilding ........................ $ -- $2,319,734 $ -- $ -- $2,319,734 Mortgage banking and financing, interest and other ................ -- -- 50,197 -- 50,197 Corporate, principally interest ..... 6,724 6,728 900 -- 14,352 ---------- ---------- ---------- ---------- ---------- Total revenues .................. 6,724 2,326,462 51,097 -- 2,384,283 ---------- ---------- ---------- ---------- ---------- Expenses: Homebuilding: Cost of sales ..................... -- 1,975,826 -- -- 1,975,826 Selling, general and administrative and other expense ................. -- 229,847 -- -- 229,847 Mortgage banking and financing, principally interest .............. -- -- 35,507 -- 35,507 Corporate, net ...................... 25,931 12,207 2,502 -- 40,640 ---------- ---------- ---------- ---------- ---------- Total expenses .................. 25,931 2,217,880 38,009 -- 2,281,820 ---------- ---------- ---------- ---------- ---------- Income (loss) from continuing operations before income taxes and equity in net income of subsidiaries .............. (19,207) 108,582 13,088 -- 102,463 Income taxes (benefit) ................. (10,234) 43,485 6,001 -- 39,252 ---------- ---------- ---------- ---------- ---------- Income (loss) from continuing operations before equity in net income of subsidiaries ........................ (8,973) 65,097 7,087 -- 63,211 Income from discontinued operations .... 106,120 -- 10,312 -- 116,432 ---------- ---------- ---------- ---------- ---------- Income before equity in net income of subsidiaries ..................... 97,147 65,097 17,399 -- 179,643 ---------- ---------- ---------- ---------- ---------- Equity in net income of subsidiaries: Continuing operations ............... 72,184 2,016 65,097 (139,297) -- Discontinued operations ............. 10,312 -- -- (10,312) -- ---------- ---------- ---------- ---------- ---------- 82,496 2,016 65,097 (149,609) -- ---------- ---------- ---------- ---------- ---------- Net income ...................... $ 179,643 $ 67,113 $ 82,496 $ (149,609) $ 179,643 ========== ========== ========== ========== ==========
53 PULTE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) ($000's omitted) 12. Supplemental Guarantor Information (continued) CONSOLIDATING STATEMENT OF OPERATIONS For the year ended December 31, 1995
Unconsolidated ----------------------------------------- Pulte Guarantor Non-Guarantor Eliminating Consolidated Corporation Subsidiaries Subsidiaries Entries Pulte Corporation ----------- ------------ ------------- ---------- ----------------- Revenues: Homebuilding........................... $ - $ 1,934,403 $ - $ - $ 1,934,403 Mortgage banking and financing: Interest and other................... - - 54,391 - 54,391 Gain on sale of servicing............ - - 19,714 - 19,714 Corporate, principally interest........ 17,709 1,300 1,623 - 20,632 ----------- ----------- ----------- ---------- ----------- Total revenues..................... 17,709 1,935,703 75,728 - 2,029,140 ----------- ----------- ----------- ---------- ----------- Expenses: Homebuilding: Cost of sales........................ - 1,653,567 - - 1,653,567 Selling, general and administrative and other expense.................... - 196,374 - - 196,374 Mortgage banking and financing, principally interest................. - - 55,669 - 55,669 Corporate, net......................... 26,987 5,964 8,555 - 41,506 ----------- ----------- ----------- ---------- ----------- Total expenses.................... 26,987 1,855,905 64,224 - 1,947,116 ----------- ----------- ----------- ---------- ----------- Income (loss) from continuing operations before income taxes and equity in net income of subsidiaries................. (9,278) 79,798 11,504 - 82,024 Income taxes (benefit).................... (5,702) 31,919 6,968 - 33,185 ----------- ----------- ----------- ---------- ----------- Income (loss) from continuing operations before equity in net income of subsidiaries........................... (3,576) 47,879 4,536 - 48,839 Income from discontinued operations....... 4,715 - 4,792 - 9,507 ----------- ----------- ----------- ---------- ----------- Income before equity in net income of subsidiaries........................ 1,139 47,879 9,328 - 58,346 ----------- ----------- ----------- ---------- ----------- Equity in net income of subsidiaries: Continuing operations.................. 52,415 8,358 47,879 (108,652) - Discontinued operations................ 4,792 - - (4,792) - ----------- ----------- ----------- ---------- ----------- 57,207 8,358 47,879 (113,444) - ----------- ----------- ----------- ---------- ----------- Net income........................ $ 58,346 $ 56,237 $ 57,207 $ (113,444) $ 58,346 =========== =========== =========== ========== ===========
54 PULTE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) ($000's omitted) 12. 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 $ 68,839 $ 68,047 $(136,886) $ 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) (3,279) (65,560) 136,886 -- Amortization, depreciation and other ........................... 113 7,247 453 -- 7,813 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) (18,494) -- (37,931) Accounts payable and accrued liabilities .................. 7,001 32,917 20,622 -- 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 Decrease in funds held by trustee ....... -- -- 17 -- 17 Dividends received from subsidiaries .... -- 17,000 -- (17,000) -- Advances to affiliates .................. 38,688 827 (3,020) (36,495) -- Other, net .............................. -- -- 19 -- 19 --------- --------- --------- --------- --------- Net cash provided by investing activities .. $ 38,688 $ 17,827 $ 4,949 $ (53,495) $ 7,969 --------- --------- --------- --------- ---------
55 PULTE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) ($000's omitted) 12. 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 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 Increase 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 ========= ========= ========= ========= =========
56 PULTE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) ($000's omitted) 12. Supplemental Guarantor Information (continued) CONSOLIDATING STATEMENT OF CASH FLOWS For the year ended December 31, 1996
Unconsolidated ----------------------------------------- Pulte Guarantor Non-Guarantor Eliminating Consolidated Corporation Subsidiaries Subsidiaries Entries Pulte Corporation ----------- ------------ ------------- ---------- ----------------- Continuing operations: Cash flows from operating activities: Income from continuing operations ......... $ 63,211 $ 67,113 $ 72,184 $(139,297) $ 63,211 Adjustments to reconcile income from continuing operations to net cash flows provided by (used in) operating activities: Equity in income of subsidiaries .... (72,184) (2,016) (65,097) 139,297 -- Amortization, depreciation and other ............................. 85 6,107 555 -- 6,747 Deferred income taxes ............... (9,517) -- -- -- (9,517) Gain on sale of securities .......... -- -- (11,069) -- (11,069) Increase (decrease) in cash due to: Inventories ....................... -- (157,527) -- -- (157,527) Residential mortgage loans available-for-sale ............. -- -- 7,859 -- 7,859 Other assets ...................... (7,963) (64,806) 8,143 -- (64,626) Accounts payable and accrued liabilities .................... 6,534 56,490 (3,866) -- 59,158 Income taxes ...................... (7,868) 43,485 5,922 -- 41,539 --------- --------- --------- --------- --------- Net cash provided by (used in) operating activities ...................... (27,702) (51,154) 14,631 -- (64,225) --------- --------- --------- --------- --------- Cash flows from investing activities: Proceeds from exchange of securities held-to-maturity ........................ -- -- 12,282 -- 12,282 Proceeds from sale of securities available- for-sale ................................ -- -- 175,686 -- 175,686 Principal payments of mortgage-backed securities .............................. -- -- 19,892 -- 19,892 Decrease in funds held by trustee ......... -- -- 4,348 -- 4,348 Dividends received from subsidiaries ...... 30,000 22,000 -- (52,000) -- Investment in subsidiaries ................ (1,524) -- -- 1,524 -- Advances to affiliates .................... (2,054) 2,608 (2,782) 2,228 -- Other, net ................................ -- -- (4,626) -- (4,626) --------- --------- --------- --------- --------- Net cash provided by investing activities .... $ 26,422 $ 24,608 $ 204,800 $ (48,248) $ 207,582 --------- --------- --------- --------- ---------
57 PULTE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) ($000's omitted) 12. Supplemental Guarantor Information (continued) CONSOLIDATING STATEMENT OF CASH FLOWS (continued) For the year ended December 31, 1996
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 ..... $ -- $ -- $(181,841) $ -- $(181,841) Proceeds from borrowings ................ -- 27,133 13,576 -- 40,709 Capital contributions from parent ....... -- -- 1,524 (1,524) -- Advances from affiliates ................ -- -- 2,228 (2,228) -- Stock repurchases ....................... (99,561) -- -- -- (99,561) Dividends paid .......................... (5,958) -- (52,000) 52,000 (5,958) Other, net .............................. 602 -- 90 -- 692 --------- --------- --------- --------- --------- Net cash provided by (used in) financing activities .............................. (104,917) 27,133 (216,423) 48,248 (245,959) --------- --------- --------- --------- --------- Net increase (decrease) in cash and equivalents - continuing operations ..... (106,197) 587 3,008 -- (102,602) --------- --------- --------- --------- --------- Discontinued operations: Cash flows from operating activities: Income from discontinued operations ..... 116,432 -- 10,312 (10,312) 116,432 Change in deferred income taxes ......... (38,321) -- -- -- (38,321) Equity in income of subsidiaries ........ (10,312) -- -- 10,312 -- Changes in income taxes ................. (72,755) -- -- -- (72,755) Other changes, net ...................... 4,956 -- (19,174) -- (14,218) Cash flows from investing activities: Purchase of securities available-for-sale -- -- (42,209) -- (42,209) Principal payments of mortgage-backed securities ............................ -- -- 43,735 -- 43,735 Net proceeds from sale of investments ... -- -- 4,514 -- 4,514 Decrease in Covered Assets and FRF receivables ........................... -- -- 37,438 -- 37,438 Decrease in loans receivable ............ -- -- (419) -- (419) Cash flows from financing activities: Increase in deposit liabilities ......... -- -- 3,404 -- 3,404 Repayment of borrowings ................. -- -- (31,560) -- (31,560) Decrease in FHLB advances ............... -- -- (6,400) -- (6,400) --------- --------- --------- --------- --------- Net decrease in cash and equivalents- discontinued operations ................. -- -- (359) -- (359) --------- --------- --------- --------- --------- Net increase (decrease) in cash and equivalents ............................. (106,197) 587 2,649 -- (102,961) Cash and equivalents at beginning of year .. 220,782 71,012 3,369 -- 295,163 --------- --------- --------- --------- --------- Cash and equivalents at end of year ........ $ 114,585 $ 71,599 $ 6,018 $ -- $ 192,202 ========= ========= ========= ========= =========
58 PULTE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) ($000's omitted) 12. Supplemental Guarantor Information (continued) CONSOLIDATING STATEMENT OF CASH FLOWS For the year ended December 31, 1995
Unconsolidated ----------------------------------------- Pulte Guarantor Non-Guarantor Eliminating Consolidated Corporation Subsidiaries Subsidiaries Entries Pulte Corporation ----------- ------------ ------------ ---------- ----------------- Continuing operations: Cash flows from operating activities: Income from continuing operations ......... $ 48,839 $ 56,237 $ 52,415 $(108,652) $ 48,839 Adjustments to reconcile income from continuing operations to net cash flows used in operating activities: Equity in income of subsidiaries .... (52,415) (8,358) (47,879) 108,652 -- Amortization, depreciation and ...... other ............................. 77 5,027 1,234 -- 6,338 Deferred income taxes ............... (11,070) -- -- -- (11,070) Gain on sale of securities .......... -- -- (4,003) -- (4,003) Increase (decrease) in cash due to: Inventories ....................... -- (107,366) -- -- (107,366) Residential mortgage loans available-for-sale ............. -- -- (40,928) -- (40,928) Other assets ...................... (2,105) (30,154) (3,368) -- (35,627) Accounts payable and accrued liabilities .................... 1,447 31,755 16,737 -- 49,939 Income taxes ...................... (731) 31,919 6,936 -- 38,124 --------- --------- --------- --------- --------- Net cash used in operating activities ........ (15,958) (20,940) (18,856) -- (55,754) --------- --------- --------- --------- --------- Cash flows from investing activities: Proceeds from exchange of securities held-to-maturity ........................ -- -- 14,114 -- 14,114 Proceeds from sale of securities available- for-sale ................................ -- -- 48,370 -- 48,370 Principal payments of mortgage-backed securities .............................. -- -- 47,667 -- 47,667 Decrease in funds held by trustee ......... -- -- 1,911 -- 1,911 Dividends received from subsidiaries ...... 10,652 40,000 -- (50,652) -- Investment in subsidiaries ................ (3,057) -- -- 3,057 -- Advances to affiliates .................... 5,907 (5,977) -- 70 -- Other, net ................................ -- 1,423 (388) -- 1,035 --------- --------- --------- --------- --------- Net cash provided by investing activities .... $ 13,502 $ 35,446 $ 111,674 $ (47,525) $ 113,097 --------- --------- --------- --------- ---------
59 PULTE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) ($000's omitted) 12. Supplemental Guarantor Information (continued) CONSOLIDATING STATEMENT OF CASH FLOWS (continued) For the year ended December 31, 1995
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 ..... $ -- $ -- $(107,543) $ -- $(107,543) Proceeds from borrowings ................ 124,894 9,916 65,353 -- 200,163 Repayment of borrowings ................. -- -- (470) -- (470) Capital contributions from parent ....... -- -- 3,057 (3,057) -- Advances from affiliates ................ -- 3,043 (2,973) (70) -- Stock repurchases ....................... (11,707) -- -- -- (11,707) Dividends paid .......................... (6,489) -- (50,652) 50,652 (6,489) Other, net .............................. 994 -- 344 -- 1,338 --------- --------- --------- --------- --------- Net cash provided by (used in) financing activities .............................. 107,692 12,959 (92,884) 47,525 75,292 --------- --------- --------- --------- --------- Net increase (decrease) in cash and equivalents - continuing operations ..... 105,236 27,465 (66) -- 132,635 --------- --------- --------- --------- --------- Discontinued operations: Cash flows from operating activities: Income from discontinued operations ..... 9,507 -- 4,792 (4,792) 9,507 Change in deferred income taxes ......... 18,280 -- -- -- 18,280 Equity in income of subsidiaries ........ (4,792) -- -- 4,792 -- Changes in income taxes ................. (18,123) -- -- -- (18,123) Other changes, net ...................... (4,872) -- 12,614 -- 7,742 Cash flows from investing activities: Purchase of securities available-for-sale -- -- (70,052) -- (70,052) Principal payments of mortgage-backed securities ............................ -- -- 31,857 -- 31,857 Decrease in Covered Assets and FRF receivables ........................... -- -- 35,929 -- 35,929 Cash flows from financing activities: Decrease in deposit liabilities ......... -- -- (128,542) -- (128,542) Repayment of borrowings ................. -- -- (31,560) -- (31,560) Decrease in FHLB advances ............... -- -- 26,000 -- 26,000 --------- --------- --------- --------- --------- Net decrease in cash and equivalents- discontinued operations ................. -- -- (118,962) -- (118,962) --------- --------- --------- --------- --------- Net increase (decrease) in cash and equivalents ............................. 105,236 27,465 (119,028) -- 13,673 Cash and equivalents at beginning of year .. 115,546 43,547 122,397 -- 281,490 --------- --------- --------- --------- --------- Cash and equivalents at end of year ........ $ 220,782 $ 71,012 $ 3,369 $ -- $ 295,163 ========= ========= ========= ========= =========
60 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, 1997 and 1996 and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1997. 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 generally accepted auditing standards. 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, 1997 and 1996 and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. 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. As discussed in the Notes to Consolidated Financial Statements, in 1995 the Company changed its method of accounting for mortgage servicing. ERNST & YOUNG LLP Detroit, Michigan January 21, 1998, except for the last paragraph of Note 10 as to which the date is March 5, 1998. 61 PULTE CORPORATION UNAUDITED QUARTERLY INFORMATION ($000's omitted, except per share data)
1st 2nd 3rd 4th Quarter Quarter Quarter Quarter Total ------- ------- ------- ------- ----- 1997 Homebuilding operations: Sales (settlements) ........................... $ 423,215 $ 567,135 $ 657,265 $ 831,556 $ 2,479,171 Cost of sales ................................. 360,005 484,509 559,061 706,957 2,110,532 Income before income taxes .................... 8,997 28,252 36,562 39,790(A) 113,601(B) Financial services operations: Revenues ...................................... $ 6,727 $ 6,925 $ 9,808 $ 10,578 $ 34,038 Income before income taxes .................... 164 439 3,045 1,702(B) 5,350(B) Corporate: Revenues ...................................... $ 1,758 $ 2,255 $ 2,818 $ 3,951 $ 10,782 Loss before income taxes ...................... (7,154) (8,087) (9,419) (13,316)(C) (37,976)(C) Consolidated results: Revenues ...................................... $ 431,700 $ 576,315 $ 669,891 $ 846,085 $ 2,523,991 Income from continuing operations before income taxes .......................... 2,007 20,604 30,188 28,176(D) 80,975(D) Income taxes .................................. 773 7,932 11,623 10,847 31,175 Income from continuing operations ............. 1,234 12,672 18,565 17,329 49,800 Income (loss) from discontinued operations .... 1,003 1,201 1,145 (388) 2,961 Net income .................................... 2,237 13,873 19,710 16,941 52,761 Per share data: Basic: Income from continuing operations ........ $ .05 $ .59 $ .88 $ .82(E) $ 2.29(E) Income from discontinued operations ...... .04 .06 .05 (.02) .14 Net income ............................... .09 .65 .93 .80 2.43(G) Weighted average common shares outstanding ..................... 23,296 21,382 21,137 21,237 21,755 Assuming dilution: Income from continuing operations ........ $ .05 $ .59 $ .87 $ .81(F) $ 2.27(G) Income from discontinued operations ...... .04 .06 .05 (.02) .13 Net income ............................... .09 .65 .92 .79 2.40(G) Adjusted weighted average common shares and effect of dilutive securities 23,468 21,382 21,370 21,472 21,954 Note: The earnings per share amounts for the first 3 quarters of 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 and the impact of Statement No. 128, see Notes to Consolidated Financial Statements beginning on page 29. (A) Includes one-time restructuring charge of $14,800 (B) Includes one-time restructuring charge of $2,100 (B) Includes one-time restructuring charge of $3,100 (D) Includes one-time restructuring charge of $20,000 (E) Earnings per share amounts are after $.58 per share attritutable to one-time restructuring charge, net of income taxes (F) Earnings per share amounts are after $.57 per share attritutable to one-time restructuring charge, net of income taxes (G) Earnings per share amounts are after $.56 per share attritutable to one-time restructuring charge, net of income taxes
62 PULTE CORPORATION UNAUDITED QUARTERLY INFORMATION ($000's omitted, except per share data)
1st 2nd 3rd 4th Quarter Quarter Quarter Quarter Total ------- ------- ------- ------- ----- 1996 Homebuilding operations: Sales (settlements) ........................... $ 411,331 $ 568,672 $ 613,722 $ 726,009 $ 2,319,734 Cost of sales ................................. 350,780 486,349 520,841 617,856 1,975,826 Income before income taxes .................... 8,568 28,223 33,435 43,835 114,061 Financial services operations: Revenues ...................................... $ 16,133 $ 15,096 $ 9,247 $ 9,721 $ 50,197 Income before income taxes .................... 4,838 5,909 1,332 2,611 14,690 Corporate: Revenues ...................................... $ 5,055 $ 4,588 $ 2,203 $ 2,506 $ 14,352 Loss before income taxes ...................... (4,792) (6,581) (7,350) (7,565) (26,288) Consolidated results: Revenues ...................................... $ 432,519 $ 588,356 $ 625,172 $ 738,236 $ 2,384,283 Income from continuing operations before income taxes .......................... 8,614 27,551 27,417 38,881 102,463 Income taxes .................................. 3,506 11,150 10,994 13,602 39,252 Income from continuing operations ............. 5,108 16,401 16,423 25,279 63,211 Income from discontinued operations ........... 1,972 1,793 111,208 1,459 116,432 Net income .................................... 7,080 18,194 127,631 26,738 179,643 Per share data: Basic: Income from continuing operations ........ $ .19 $ .64 $ .69 $ 1.08 $ 2.54 Income from discontinued operations ...... .07 .07 4.64 .06 4.67 Net income ............................... .26 .71 5.33 1.14 7.21 Weighted average common shares outstanding ..................... 26,983 25,491 23,944 23,315 24,926 Assuming dilution: Income from continuing operations ........ $ .19 $ .64 $ .68 $ 1.08 $ 2.51 Income from discontinued operations ...... .07 .07 4.61 .06 4.63 Net income ............................... .26 .71 5.29 1.14 7.14 Adjusted weighted average common shares and effect of dilutive securities 27,250 25,703 24,141 23,542 25,152 Note: The earnings per share amounts for 1996 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 and the impact of Statement No. 128, see Notes to Consolidated Financial Statements beginning on page 29.
63 PART III ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE This Item is not applicable. 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 1998 Annual Meeting of Shareholders (1998 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 1998 Proxy Statement under the caption "Beneficial Ownership Reporting Compliance". ITEM 11. EXECUTIVE COMPENSATION Information required by this Item is contained in the 1998 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 MANAGEMENT Information required by this Item is contained in the 1998 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 1998 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, 1997 and 1996......... 24 Consolidated Statements of Operations for the years ended December 31, 1997, 1996 and 1995............................. 25 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1997, 1996 and 1995................. 26 Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995............. 27 Notes to Consolidated Financial Statements........................ 29 (2) Financial Statement Schedules I - Condensed Financial Information of Registrant............... 69
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. 64
(3) Exhibits Index 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 Agreement, Filed as Exhibit 2 and 10(b) to dated September 23, 1988, among Pulte Corporation's Annual Report the FSLIC, First Heights, FSA, on Form 10-K for the year ended Heights of Texas and PDCI. December 31, 1988. (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, 1988, Pulte Corporation's Annual Report by and among, Pulte Corporation, on Form 10-K for the year ended PDCI, First Heights, Heights of Texas December 31, 1988. and the FSLIC.
65
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 and on Form 10-K for the year ended 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 subsidiaries, Registrant's Registration Statement as Guarantors, and NationsBank of on Form S-3 (Registration Statement Georgia, National Association, as Trustee, No. 33-71742). 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 Corporation, Filed as Exhibit (c) 1 to the certain of its subsidiaries, as Guarantors, and Registrant's Current Report on Form 8-K and The First National Bank of Chicago, dated October 20, 1995. 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).
66
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 for 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). (i) James Grosfeld Amendment and Filed as Exhibit 10(i) to Pulte Extension to Consulting Corporation's Annual Report on Form Agreement December 30, 1992. 10-K for the year ended December 31, 1992.
67
EXHIBITS Page Herein or Incorporated Exhibit Number and Description by Reference From - ------------------------------ ----------------- (j) James Grosfeld Agreement Filed as Exhibit 10(a) to the Pulte Corporation April 16, 1997 Report on Form 10-Q for the quarter ended March 31, 1997. (k) Stock Sale Agreement Filed as Exhibit 10(b) to the Pulte Corporation April 16, 1997 Report on Form 10-Q for the quarter ended March 31, 1997. (l) 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). (m) Credit Agreement, dated Filed as Exhibit 10(l) to Pulte January 5, 1995, among Pulte Corporation's Annual Report on Form 10-K Corporation, NationsBank, N.A. for the year ended December 31, 1994. (Carolinas) as Agent for certain lenders (n) Fourth Amendment to Credit Agreement, dated December 30, 1997, among Pulte Corporation and NationsBank, N.A., as Agent for certain lenders. (o) 1995 Stock Incentive Plan for Filed with the Proxy Statement dated Key Employees March 31, 1995 and as an exhibit to the Registrant's Registration Statement on Form S-8 (Registration Statement No 33-99218). (11) Statement Regarding Computation of Per Share Earnings 73 (21) Subsidiaries of the Registrant 74 (23) Consent of Independent Auditors 77 (27) Financial Data Schedule
Reports on Form 8-K Filed During the Fourth Quarter of 1997: Form 8-K dated October 6, 1997 Item 5. Other Events Disclosed that indenture supplements were entered into with (1) The Bank of New York concerning $100,000,000 aggregated principal amount of 7% senior notes of the Company due 2003, and $115,000,000 aggregated principal amount of 8-3/8% senior notes of the Company due 2004 and (2) The First National Bank of Chicago concerning $125,000,000 aggregated principal amount of 7.3% senior notes of the Company due 2005. Form 8-K dated October 15, 1997 Item 5. Other Events Disclosed that, on October 9, 1997, the Company began circulating a prospectus supplement (to prospectus dated September 29, 1995) concerning $150,000,000 aggregate principal amount of 7 5/8% senior notes of the Company due October 15, 2017. 68 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, indirectly wholly-owned subsidiaries of Pulte Corporation are subject to certain restrictions (see Notes to Consolidated Financial Statements). Pulte Corporation Balance Sheets December 31, 1997 and 1996 ($000's omitted)
1997 1996 ---- ---- Assets: Cash and equivalents............................................. $ 195,946 $ 114,585 Investment in subsidiaries, on the equity method ................. 970,897 859,866 Advances receivable - subsidiaries ............................... 100,663 139,351 Deferred income taxes ............................................ 110,395 128,668 Other accounts receivable ........................................ 18,305 12,860 ---------- ---------- $1,396,206 $1,255,330 ========== ========== Liabilities and shareholders' equity: Advances payable - subsidiaries.................................. $ 24,595 $ 18,029 Income taxes ..................................................... 13,001 12,930 Accrued liabilities .............................................. 58,470 51,731 Senior notes ..................................................... 487,303 339,365 Discontinued operations .......................................... -- 4,002 ---------- ---------- Total liabilities ..................................... 583,369 426,057 Shareholders' equity ............................................. 812,837 829,273 ---------- ---------- $1,396,206 $1,255,330 ========== ==========
69 PULTE CORPORATION SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT - (continued) Pulte Corporation Statements of Income For the years ended December 31, 1997, 1996 and 1995 ($000's omitted)
1997 1996 1995 ---- ---- ---- Revenues - Interest income.................................. $ 2,054 $ 6,724 $ 17,709 -------- --------- --------- Expenses - General and administrative....................... 15,125 13,761 10,423 Interest ........................................ 17,501 12,045 16,983 Restructuring costs.............................. 3,100 -- -- -------- --------- --------- 35,726 25,806 27,406 -------- --------- --------- Expenses in excess of revenues................................ (33,672) (19,082) (9,697) Other income (expense)........................................ 170 (125) 419 -------- --------- --------- Loss from continuing operations before income taxes, and equity in net income of subsidiaries................... (33,502) (19,207) (9,278) Income tax (benefit).......................................... (15,255) (10,234) (5,702) -------- --------- --------- Loss from continuing operations before equity in net income of subsidiaries..................................... (18,247) (8,973) (3,576) -------- --------- --------- Income from discontinued operations........................... 6,620 106,120 4,715 -------- --------- --------- Equity in net income of subsidiaries Continuing operations...................................... 68,047 72,184 52,415 Discontinued operations.................................... (3,659) 10,312 4,792 -------- --------- --------- 64,388 82,496 57,207 -------- --------- --------- Net income.................................................... $ 52,761 $ 179,643 $ 58,346 ======== ========= =========
70 PULTE CORPORATION SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT - (continued) Pulte Corporation Statements of Cash Flows For the years ended December 31, 1997, 1996 and 1995 ($000's omitted)
1997 1996 1995 ---- ---- ---- Continuing operations Cash flows from operating activities: Income from continuing operations ........................ $ 49,800 $ 63,211 $ 48,839 Adjustments to reconcile income from continuing operations to net cash used in operating activities: Equity in income of subsidiaries ..................... (68,047) (72,184) (52,415) Amortization ......................................... 113 85 77 Deferred income taxes ................................ (14,222) (9,517) (11,070) Changes in cash due to: Accounts receivable and other assets ............... (5,445) (7,963) (2,105) Income taxes ....................................... (8,453) (7,868) (731) Accrued liabilities ................................ 7,001 6,534 1,447 --------- --------- --------- Net cash used in operating activities ....................... (39,253) (27,702) (15,958) --------- --------- --------- Cash flows provided by investing activities: Investment in subsidiaries ............................... -- (1,524) (3,057) Dividends received from subsidiaries ..................... -- 30,000 10,652 Advances to (from) affiliates ............................ 38,688 (2,054) 5,907 --------- --------- --------- Net cash provided by investing activities ................... 38,688 26,422 13,502 --------- --------- --------- Cash flows from financing activities: Dividends paid ........................................... (5,153) (5,958) (6,489) Advances from affiliates ................................. 6,566 -- -- Stock repurchases ........................................ (74,673) (99,561) (11,707) Proceeds from issuance of senior notes ................... 147,825 -- 124,894 Other .................................................... 7,361 602 994 --------- --------- --------- Net cash provided by (used in) financing activities ......... 81,926 (104,917) 107,692 --------- --------- --------- Net increase (decrease) in cash and equivalents - continuing operations .................................... 81,361 (106,197) 105,236 --------- --------- --------- Discontinued operations: Cash flows from operating activities: Income from discontinued operations ...................... 2,961 116,432 9,507 Change in deferred income taxes .......................... 32,495 (38,321) 18,280 Equity in income of subsidiaries ......................... 3,659 (10,312) (4,792) Amortization and other ................................... (4,264) 4,956 (4,872) Change in income taxes ................................... (34,851) (72,755) (18,123) --------- --------- --------- Net cash provided by operating activities ................ -- -- -- --------- --------- --------- Net increase (decrease) in cash and equivalents ............. 81,361 (106,197) 105,236 Cash and equivalents at beginning of year ................... 114,585 220,782 115,546 --------- --------- --------- Cash and equivalents at end of year ......................... $ 195,946 $ 114,585 $ 220,782 ========= ========= =========
71 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 12, 1998 /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 Chairman of the Board of Directors March 12, 1998 - ----------------------------- and Member of Board of Directors William J. Pulte /s/ Robert K. Burgess President, Chief Executive Officer March 12, 1998 - ----------------------------- and Member of Board of Directors Robert K. Burgess /s/ Debra Kelly-Ennis Member of Board of Directors March 12, 1998 - ----------------------------- Debra Kelly-Ennis /s/ David N. McCammon Member of Board of Directors March 12, 1998 - ----------------------------- David N. McCammon /s/ Francis J. Sehn Member of Board of Directors March 12, 1998 - ----------------------------- Francis J. Sehn /s/ Ralph L. Schlosstein Member of Board of Directors March 12, 1998 - ----------------------------- Ralph L. Schlosstein /s/ Alan E. Schwartz Member of Board of Directors March 12, 1998 - ----------------------------- Alan E. Schwartz /s/ John J. Shea Member of Board of Directors March 12, 1998 - ----------------------------- John J. Shea
72 EX-11 2 PULTE CORPORATION EXHIBIT 11 - STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS (000's omitted, except per share data)
Years ended December 31, ---------------------------------------------------- 1997 1996 1995 1994 1993 ----- ----- ---- ----- ----- Basic: Numerator: Net income .................................. $ 52,761 $179,643 $ 58,346 $162,768 $ 79,368 ======== ======== ======== ======== ======== Denominator: Weighted average common shares outstanding .. 21,755 24,926 27,074 27,556 27,479 ======== ======== ======== ======== ======== Net income per share ........................ $ 2.43 $ 7.21 $ 2.15 $ 5.91 $ 2.89 ======== ======== ======== ======== ======== Assuming dilution: Numerator: Net income .................................. $ 52,761 $179,643 $ 58,346 $162,768 $ 79,368 ======== ======== ======== ======== ======== Denominator: Weighted average common shares outstanding .. 21,755 24,926 27,074 27,556 27,479 Effect of dilutive securities - stock options 199 226 348 298 434 -------- -------- -------- -------- -------- Total ..................................... 21,954 25,152 27,422 27,854 27,913 ======== ======== ======== ======== ======== Net income per share ........................ $ 2.40 $ 7.14 $ 2.13 $ 5.85 $ 2.85 ======== ======== ======== ======== ========
73 EX-21 3 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) P-F Corporation, PCIC Corporation, Pulte Chile Corporation, Pulte SA Corporation and Oakton Building Corporation, all Michigan corporations, and 100% of the capital stock of North American Builders Indemnity Company, a Colorado corporation. PDCI owns 100% of the capital stock of Pulte Home Corporation (Pulte) and WPB Acquisition Corporation, both Michigan corporations, and 100% of the capital stock of First Heights Bank, a federal savings bank (First Heights). First Heights owns 100% of the capital stock of First Heights Investment Corporation, a Texas corporation. Pulte owns 100% of the capital stock of the following subsidiaries:
Place of Company Name Incorporation ------------ ------------- 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 Cambridge Software, Inc. ............................................ Michigan Pulte Development Corporation........................................ Michigan Builders' Supply & Lumber Co., Inc. ................................. Michigan PHM Realty, Inc. .................................................... Florida Raleigh Classic Homes, Inc. ......................................... North Carolina Charlotte Classic Homes, Inc. ....................................... North Carolina Greensboro Classic Homes, Inc........................................ North Carolina Preserve I, Inc. (4)................................................. Michigan Preserve II, Inc. (4)................................................ Michigan Pulte Home Corporation of Massachusetts (8).......................... Michigan Pulte Homes of Minnesota Corporation................................. Minnesota PBW Corporation (9).................................................. Michigan Wil Corporation (9).................................................. Michigan Canterbury Communities, Inc. (5)..................................... Michigan Pulte Home Caribbean Corporation..................................... Michigan Pulte Home Corporation of The Delaware Valley........................ Michigan Pulte Homes of South Carolina, Inc. (6).............................. Michigan Pulte Lifestyle Communities, Inc..................................... Michigan Pulte Payroll Corporation............................................ Michigan PHC Title Corporation (10)........................................... Michigan PQL Realty Corporation............................................... Michigan Pulte Land Development Corporation................................... Michigan Springfield Golf Club, Inc. (11)..................................... Michigan Springfield Realty Corporation....................................... Michigan TVM Corporation (7).................................................. Michigan James T. Lynch, Inc.................................................. Texas Pulte Homes of Greater Kansas City, Inc.............................. Michigan Pulte Nevada I, Inc. (12)............................................ Nevada Pulte Nevada II, Inc. (12)........................................... Nevada SRC Utilities, Inc................................................... Maryland PHT Title Corporation (13)........................................... Michigan 74 Pulte owns .01% of the capital stock of Controladora PHC, S.A. De C.V., a Mexican corporation. 1) Pulte Mortgage Corporation owns 100% of the capital stock of ICM Mortgage Corporation, a Michigan Corporation and 22.69% 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, 49% of Grayhaven Estates Limited, L.L.C., a Michigan limited liability company, 1% of the capital stock of Haggerty Hills Limited Partnership, a Michigan limited partnership and 31.5% of Shorepointe Village Homes, L.L.C., a Michigan limited partnership (with Grayhaven Estates Limited, L.L.C. also owning 51%), Sean/Christopher Homes, Inc.and Pulte-IN Corporation each own 50% of the capital stock of Sean/Christopher Homes, LLC, an Indiana limited liability company. Gulf Partners, Inc. owns 99% of the capital stock 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) Canterbury Communities, Inc. owns 100% of the capital stock of Canterbury Diversified Building Corporation and Canterbury Finance Corporation, both Michigan corporations. 6) Pulte Homes of South Carolina, Inc. owns 100% of the capital stock of Great American Homes, Inc. and SC Warranty Corporation, both Michigan corporations. 7) TVM Corporation owns 63% of PHM Title Agency L.L.C., a Delaware limited liability company. 8) Pulte Home Corporation of Massachusetts owns 99% of Willow Brook Associates Limited Partnership, a Massachusetts limited partnership. 9) PBW Corporation owns 1% and Wil Corporation owns 99% of Wilben II Limited Partnership, a Maryland limited partnership. 10) 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.. 11) Springfield Golf Club, Inc. owns 90% of Springfield Golf Resort, L.L.C., an Arizona limited liability company. 12) Pulte Nevada I, Inc. owns 1% and Pulte Nevada II, Inc. owns 99% of Pulte Homes of Texas, L.P., a Texas limited partnership 13) PHT Title Corporation owns 1% of PHT Title Agency, L.P., a Texas limited partnership.
75 PULTE CORPORATION EXHIBIT 21 - SUBSIDIARIES OF THE REGISTRANT (Continued) Pulte is a member of the following partnerships:
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 28.60% Quantrell Mews, L.L.C......................... Virginia 20.00%
PFCI owns 100% of the capital stock Guaranteed Mortgage Corporation III, a Michigan corporation. P-F Corporation owns 51% of Expression Homes Corporation, a Delaware corporation. Pulte Chile Corporation owns 99% and Pulte SA Corporation owns 1% of Pulte de Chile Limitada, a Chilean limited partnership and Residencias del Norte S.A., a Chilean corporation. Oakton Building Corporation owns 99.99% of Controladora PHC, S.A. De C.V. (Controladora), a Mexican corporation, and 23.33% of Nantar, S. De R.L. De C.V., a Mexican limited liability company. Controladora owns 76.67% of Nantar, S. De R.L. De C.V., a Mexican limited liability company, and 50% of Condak-Pulte S. De R.L. De C.V., 50% of CIV-Pulte and 50% of Sand-Pulte S. De R.L. De C.V, all Mexican joint ventures. 76 EX-23 4 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 21, 1998, except for the last paragraph of Note 10 as to which the date is March 5, 1998, with respect to the consolidated financial statements and schedule of Pulte Corporation included in this Annual Report on Form 10-K for the year ended December 31, 1997 filed with the Securities and Exchange Commission. ERNST & YOUNG LLP Detroit, Michigan March 9, 1998 77 EX-27 5
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997 AND FOR THE YEAR THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 245,156 0 69,768 0 1,141,952 0 0 0 2,150,765 0 509,708 213 0 0 812,624 2,150,765 2,479,171 2,523,991 2,110,532 2,443,016 0 0 18,503 80,975 31,175 49,800 2,961 0 0 52,761 2.43 2.40 Bonds are comprised of subordinated debentures and senior notes. Relates to homebuilding operations. Relates to homebuilding operations. The Company capitalizes interest cost into homebuilding inventories and charges the interest to homebuilding interest expense when the related inventories are closed.
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