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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2002
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-9804
PULTE HOMES, INC.
(Exact name of registrant as specified in its charter)
| MICHIGAN (State or other jurisdiction of incorporation or organization) | 38-2766606 (I.R.S. Employer 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
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days.
YES 
NO
Number of shares of common stock outstanding as of April 30, 2002: 60,875,831
Total pages: 27
Listing of exhibits: 26
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PULTE HOMES, INC.
INDEX
| Page No. | ||||
PART I FINANCIAL INFORMATION | ||||
Item 1 Financial Statements (Unaudited) | ||||
| Condensed Consolidated Balance Sheets, March 31, 2002 and December 31, 2001 | 3 | |||
| Consolidated Statements of Income, for the Three Months Ended March 31, 2002 and 2001 | 4 | |||
| Consolidated Statements of Shareholders’ Equity, for the Three Months Ended March 31, 2002 and 2001 | 5 | |||
| Consolidated Statements of Cash Flows, for the Three Months Ended March 31, 2002 and 2001 | 6 | |||
| Notes to Condensed Consolidated Financial Statements | 7 | |||
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations | 18 | |||
Item 3 Quantitative and Qualitative Disclosures About Market Risk | 26 | |||
PART II OTHER INFORMATION | ||||
Item 6 Exhibits and Reports on Form 8-K | 26 | |||
SIGNATURES | 27 | |||
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PULTE HOMES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
($000’s omitted)
| March 31, | December 31, | ||||||||||
| 2002 | 2001 | ||||||||||
| (Unaudited) | (Note) | ||||||||||
ASSETS | |||||||||||
| Cash and equivalents | $ | 59,772 | $ | 72,144 | |||||||
| Unfunded settlements | 28,374 | 69,631 | |||||||||
| House inventory | 869,002 | 875,690 | |||||||||
| Land inventory | 3,103,285 | 2,958,073 | |||||||||
| Residential mortgage loans available-for-sale | 279,062 | 431,735 | |||||||||
| Goodwill | 307,693 | 307,693 | |||||||||
| Intangible assets, net of accumulated amortization of $5,433 and $3,396 in 2002 and 2001, respectively | 157,567 | 159,604 | |||||||||
| Other assets | 762,787 | 772,687 | |||||||||
| Deferred income taxes | 40,486 | 67,019 | |||||||||
| Total assets | $ | 5,608,028 | $ | 5,714,276 | |||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||
| Liabilities: | |||||||||||
| Accounts payable and accrued liabilities, including book overdrafts of $111,508 and $119,229 in 2002 and 2001, respectively | $ | 1,099,293 | $ | 1,155,702 | |||||||
| Unsecured short-term borrowings | 125,000 | 110,000 | |||||||||
| Collateralized short-term debt, recourse solely to applicable non-guarantor subsidiary assets | 261,256 | 413,675 | |||||||||
| Income taxes | 23,424 | 35,370 | |||||||||
| Subordinated notes and senior notes | 1,722,605 | 1,722,864 | |||||||||
| Total liabilities | 3,231,578 | 3,437,611 | |||||||||
| Shareholders’ equity | 2,376,450 | 2,276,665 | |||||||||
| $ | 5,608,028 | $ | 5,714,276 | ||||||||
Note: The balance sheet at December 31, 2001 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.
See accompanying Notes to Condensed Consolidated Financial Statements.
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PULTE HOMES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(000’s omitted, except per share data)
(Unaudited)
| For The Three Months Ended | ||||||||||||
| March 31, | ||||||||||||
| 2002 | 2001 | |||||||||||
Revenues: | ||||||||||||
| Homebuilding | $ | 1,355,605 | $ | 825,047 | ||||||||
| Financial services | 23,024 | 14,711 | ||||||||||
| Corporate | 112 | 717 | ||||||||||
| Total revenues | 1,378,741 | 840,475 | ||||||||||
Expenses: | ||||||||||||
| Homebuilding, principally cost of sales | 1,243,014 | 760,302 | ||||||||||
| Financial services | 11,712 | 9,112 | ||||||||||
| Corporate, net | 15,166 | 10,259 | ||||||||||
| Total expenses | 1,269,892 | 779,673 | ||||||||||
Other income: | ||||||||||||
| Equity in income of joint ventures | 3,685 | 2,806 | ||||||||||
| Income from continuing operations before income taxes | 112,534 | 63,608 | ||||||||||
| Income taxes | 43,894 | 24,489 | ||||||||||
| Income from continuing operations | 68,640 | 39,119 | ||||||||||
| (Loss) income from discontinued operations | (528 | ) | 252 | |||||||||
| Net income | $ | 68,112 | $ | 39,371 | ||||||||
Per share data: | ||||||||||||
| Basic: | ||||||||||||
| Income from continuing operations | $ | 1.15 | $ | .94 | ||||||||
| (Loss) income from discontinued operations | (.01 | ) | .01 | |||||||||
| Net income | $ | 1.14 | $ | .95 | ||||||||
| Assuming dilution: | ||||||||||||
| Income from continuing operations | $ | 1.12 | $ | .91 | ||||||||
| (Loss) income from discontinued operations | (.01 | ) | .01 | |||||||||
| Net income | $ | 1.11 | $ | . 92 | ||||||||
| Cash dividends declared | $ | .04 | $ | . 04 | ||||||||
| Number of shares used in calculation: | ||||||||||||
| Basic: | ||||||||||||
| Weighted-average common shares outstanding | 59,863 | 41,795 | ||||||||||
| Assuming dilution: | ||||||||||||
| Effect of dilutive securities — stock options | 1,609 | 1,204 | ||||||||||
| Adjusted weighted-average common shares and effect of dilutive securities | 61,472 | 42,999 | ||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
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PULTE HOMES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
($000’s omitted)
(Unaudited)
| Accumulated | |||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||
| Additional | Comprehensive | ||||||||||||||||||||||||
| Common | Paid-in | Unearned | Income | Retained | |||||||||||||||||||||
| Stock | Capital | Compensation | (Loss) | Earnings | Total | ||||||||||||||||||||
Shareholders’ Equity, December 31, 2001 | $ | 592 | $ | 862,881 | $ | (3,859 | ) | $ | (13,969 | ) | $ | 1,431,020 | $ | 2,276,665 | |||||||||||
| Stock option exercise | 13 | 39,978 | — | — | — | 39,991 | |||||||||||||||||||
| Restricted stock award | 2 | 11,316 | (11,318 | ) | — | — | — | ||||||||||||||||||
| Restricted stock award amortization | — | — | 1,092 | — | — | 1,092 | |||||||||||||||||||
| Cash dividends declared | — | — | — | — | (2,422 | ) | (2,422 | ) | |||||||||||||||||
| Comprehensive income (loss): | |||||||||||||||||||||||||
| Net income | — | — | — | — | 68,112 | 68,112 | |||||||||||||||||||
| Change in fair value of derivatives, net of income taxes of ($655) | — | — | — | 1,040 | — | 1,040 | |||||||||||||||||||
| Foreign currency translation adjustments, net of income taxes of $5,316 | — | — | — | (8,028 | ) | — | (8,028 | ) | |||||||||||||||||
| Total comprehensive income | 61,124 | ||||||||||||||||||||||||
Shareholders’ Equity, March 31, 2002 | $ | 607 | $ | 914,175 | $ | (14,085 | ) | $ | (20,957 | ) | $ | 1,496,710 | $ | 2,376,450 | |||||||||||
Shareholders’ Equity, December 31, 2000 | $ | 416 | $ | 109,593 | $ | — | $ | 185 | $ | 1,137,737 | $ | 1,247,931 | |||||||||||||
| Stock option exercise | 4 | 10,406 | — | — | — | 10,410 | |||||||||||||||||||
| Restricted stock award | 1 | 5,557 | (5,558 | ) | — | — | — | ||||||||||||||||||
| Restricted stock award amortization | — | — | 308 | — | — | 308 | |||||||||||||||||||
| Cash dividends declared | — | — | — | — | (1,695 | ) | (1,695 | ) | |||||||||||||||||
| Comprehensive income (loss): | |||||||||||||||||||||||||
| Net income | — | — | — | — | 39,371 | 39,371 | |||||||||||||||||||
| Change in fair value of derivatives, net of income taxes of ($13) | — | — | — | (27 | ) | — | (27 | ) | |||||||||||||||||
| Foreign currency translation adjustments, net of income taxes of ($377) | — | — | — | (687 | ) | — | (687 | ) | |||||||||||||||||
| Total comprehensive income | 38,657 | ||||||||||||||||||||||||
Shareholders’ Equity, March 31, 2001 | $ | 421 | $ | 125,556 | $ | (5,250 | ) | $ | (529 | ) | $ | 1,175,413 | $ | 1,295,611 | |||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
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PULTE HOMES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($000’s omitted)
(Unaudited)
| For The Three Months Ended | ||||||||||||
| March 31, | ||||||||||||
| 2002 | 2001 | |||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net income | $ | 68,112 | $ | 39,371 | ||||||||
| Adjustments to reconcile net income to net cash flows provided by (used in) operating activities: | ||||||||||||
| Amortization, depreciation and other | 10,988 | 5,045 | ||||||||||
| Deferred income taxes | 26,533 | 13,808 | ||||||||||
| Increase (decrease) in cash due to: | ||||||||||||
| Inventories | (88,174 | ) | (198,690 | ) | ||||||||
| Residential mortgage loans available-for-sale | 153,226 | 39,131 | ||||||||||
| Other assets | 53,008 | 4,845 | ||||||||||
| Accounts payable and accrued liabilities | (132,846 | ) | (59,783 | ) | ||||||||
| Income taxes | 3,635 | (6,659 | ) | |||||||||
| Net cash provided by (used in) operating activities | 94,482 | (162,932 | ) | |||||||||
| Cash flows from investing activities: | ||||||||||||
| Increase in covered assets and FRF receivables | — | (1,055 | ) | |||||||||
| Other, net | 2,801 | (831 | ) | |||||||||
| Net cash provided by (used in) investing activities | 2,801 | (1,886 | ) | |||||||||
| Cash flows from financing activities: | ||||||||||||
| Proceeds from borrowings | 31,198 | 214,244 | ||||||||||
| Repayment of borrowings | (154,622 | ) | (39,439 | ) | ||||||||
| Issuance of common stock | 24,365 | 7,675 | ||||||||||
| Dividends paid | (2,422 | ) | (1,695 | ) | ||||||||
| Other, net | (8,174 | ) | (609 | ) | ||||||||
| Net cash (used in) provided by financing activities | (109,655 | ) | 180,176 | |||||||||
| Net (decrease) increase in cash and equivalents | (12,372 | ) | 15,358 | |||||||||
| Cash and equivalents at beginning of period | 72,144 | 183,985 | ||||||||||
| Cash and equivalents at end of period | $ | 59,772 | $ | 199,343 | ||||||||
| Supplemental disclosure of cash flow information—cash paid during the period for: | ||||||||||||
| Interest, net of amounts capitalized | $ | 15,601 | $ | (1,969 | ) | |||||||
| Income taxes | $ | 12,592 | $ | 15,482 | ||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
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PULTE HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of presentation and significant accounting policies
| The condensed consolidated financial statements include the accounts of Pulte Homes, Inc. (the “Company” or “Pulte”), and all of its significant subsidiaries. The Company’s direct subsidiaries include Pulte Diversified Companies, Inc. (PDCI), Del Webb Corporation (Del Webb), and other subsidiaries, that are engaged in the homebuilding business. PDCI’s operating subsidiaries include Pulte Home Corporation (PHC), Pulte International Corporation (International) and other subsidiaries, which are engaged in the homebuilding business. PDCI’s non-operating thrift subsidiary, First Heights Bank, fsb (First Heights), is classified as a discontinued operation. The Company also has a mortgage banking company, Pulte Mortgage Company (PMC), that is a subsidiary of PHC. | |
| The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2002, are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. These financial statements should be read in conjunction with the Company’s consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2001. |
| Certain amounts related to non-recourse notes payable, land sales, joint ventures and title operations previously reported in the 2001 financial statements and notes thereto were reclassified to conform to the 2002 presentation. |
| Effective January 1, 2002, the Company reorganized its structure within Mexico to create a single company, Pulte Mexico. Under the new ownership structure, these operations, which were primarily conducted through joint ventures, have been combined into Pulte Mexico and are 63.8% owned by International. Results for 2002 include joint venture operations for one month and operations as a consolidated entity for two months, as the Mexican operations report on a one-month lag. |
| Intangible assets |
| Intangible assets, which consist of certain trademarks and tradenames, resulted from the acquisition of Del Webb in 2001. The determination of the value of these intangible assets was performed by independent appraisers and advisors utilizing proven valuation procedures. These intangible assets are routinely reviewed for impairment indicators or when events and circumstances warrant. If impairment indicators exist, an assessment of undiscounted future cash flows for the assets related to these intangibles are evaluated accordingly. If the results of the analysis indicate impairment, the assets are adjusted to fair market value. Trademarks and tradenames are amortized on a straight-line basis over a 20-year life. |
| New Accounting Pronouncements |
| In June 2001, the Financial Accounting Standards Board (FASB) issued Statements of Financial Accounting Standards (SFAS) No. 141, “Business Combinations,” and No. 142, “Goodwill and Other Intangible Assets,” effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill will no longer be amortized but will be subject to annual impairment tests in accordance with SFAS No. 142. Other intangible assets will continue to be amortized over their useful lives. |
| Goodwill represents the cost of acquired companies in excess of the fair value of net assets at acquisition date. The majority of the goodwill recorded resulted from the acquisition of Del Webb in 2001 and was allocated to the homebuilding segment. Goodwill is reviewed by management for impairment annually, or whenever events or changes in circumstances indicate the carrying amount may not be recoverable. |
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PULTE HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of presentation and significant accounting policies (continued)
| New Accounting Pronouncements (continued) |
| Effective January 1, 2002, the Company adopted the nonamortization provisions of SFAS No. 142 related to the goodwill existing at June 30, 2001. The following table sets forth reported net income and earnings per share, as adjusted to exclude goodwill amortization expense: |
| Year ended December 31, | Three Months | ||||||||||||||||
| Ended March | |||||||||||||||||
| 2001 | 2000 | 1999 | March 31, 2001 | ||||||||||||||
| Net income, as reported ($000’s omitted) | $ | 301,393 | $ | 188,513 | $ | 178,165 | $ | 39,371 | |||||||||
| Net income, as adjusted ($000’s omitted) | $ | 305,555 | $ | 192,675 | $ | 182,307 | $ | 40,412 | |||||||||
| Per share data, as reported: | |||||||||||||||||
| Basic | $ | 6.14 | $ | 4.56 | $ | 4.12 | $ | .95 | |||||||||
| Diluted | $ | 5.99 | $ | 4.47 | $ | 4.07 | $ | .92 | |||||||||
| Per share data, as adjusted | |||||||||||||||||
| Basic | $ | 6.22 | $ | 4.66 | $ | 4.22 | $ | .97 | |||||||||
| Diluted | $ | 6.07 | $ | 4.57 | $ | 4.16 | $ | .94 | |||||||||
| During the second quarter of 2002, the Company will finalize the first of the required impairment tests of goodwill as of January 1, 2002. The Company does not expect the effect of these tests to be material to the earnings or financial position of the Company. |
| In October 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” effective for fiscal years beginning after December 15, 2001. This standard supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,” and provides a single accounting model for long-lived assets to be disposed of. SFAS No. 144 provides guidance on differentiating between assets held and used and assets to be disposed of. Assets to be disposed of would be classified as held for sale (and depreciation would cease) when management, having the authority to approve the action, commits to a plan to sell the asset(s) meeting all required criteria. The Company adopted this statement on January 1, 2002, which did not have a material effect on its earnings or financial position. |
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PULTE HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. Segment information
| The Company has three reportable segments: Homebuilding, Financial Services and Corporate. |
| The Company’s Homebuilding segment consists of the following two business units: |
| • | Domestic Homebuilding, the Company’s core business, is engaged in the acquisition and development of land primarily for residential purposes within the continental United States and the construction of housing on such land targeted for first-time, first and second move-up and active adult home buyer groups. | ||
| • | International Homebuilding is primarily engaged in the acquisition and development of land principally for residential purposes and the construction of housing on such land in Mexico, Puerto Rico and Argentina. |
| The Company’s Financial Services segment consists principally of mortgage banking operations conducted through PMC and its subsidiaries. |
| Corporate is a non-operating business segment whose primary purpose is to support the operations of the Company’s subsidiaries as the internal source of financing, to develop and implement strategic initiatives centered on new business development and operating efficiencies, and to provide the necessary administrative functions to support the Company as a publicly traded entity. |
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PULTE HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
2. Segment information (continued)
| Operating Data by Segment ($000's omitted) | ||||||||||
| For The Three Months Ended | ||||||||||
| March 31, | ||||||||||
| 2002 | 2001 | |||||||||
| Revenues: | ||||||||||
| Homebuilding | $ | 1,355,605 | $ | 825,047 | ||||||
| Financial Services | 23,024 | 14,711 | ||||||||
| Corporate | 112 | 717 | ||||||||
| Total revenues | 1,378,741 | 840,475 | ||||||||
| Cost of sales: | ||||||||||
| Homebuilding | 1,079,986 | 662,724 | ||||||||
| Selling, general and administrative: | ||||||||||
| Homebuilding | 149,798 | 88,802 | ||||||||
| Financial Services | 10,126 | 6,803 | ||||||||
| Corporate | 3,139 | 2,474 | ||||||||
| Total selling, general and administrative | 163,063 | 98,079 | ||||||||
| Interest: | ||||||||||
| Homebuilding | 8,523 | 5,940 | ||||||||
| Financial Services | 1,586 | 2,309 | ||||||||
| Corporate | 9,554 | 6,366 | ||||||||
| Total interest | 19,663 | 14,615 | ||||||||
| Other expense, net: | ||||||||||
| Homebuilding | 4,707 | 2,836 | ||||||||
| Corporate | 2,473 | 1,419 | ||||||||
| Total other expense, net | 7,180 | 4,255 | ||||||||
| Total costs and expenses | 1,269,892 | 779,673 | ||||||||
| Equity in income of joint ventures: | ||||||||||
| Homebuilding | 2,743 | 1,733 | ||||||||
| Financial Services | 942 | 1,073 | ||||||||
| Total equity in income of joint ventures | 3,685 | 2,806 | ||||||||
| Income (loss) before income taxes: | ||||||||||
| Homebuilding | 115,334 | 66,478 | ||||||||
| Financial services | 12,254 | 6,672 | ||||||||
| Corporate | (15,054 | ) | (9,542 | ) | ||||||
| Total income before income taxes | $ | 112,534 | $ | 63,608 | ||||||
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PULTE HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
2. Segment information (continued)
| Asset Data by Segment ($000's omitted) | |||||||||||||||||
| Financial | |||||||||||||||||
| Homebuilding | Services | Corporate | Total | ||||||||||||||
At March 31, 2002: | |||||||||||||||||
| Inventory | $ | 3,972,287 | $ | — | $ | — | $ | 3,972,287 | |||||||||
| Identifiable assets | 5,180,036 | 322,722 | 105,270 | $ | 5,608,028 | ||||||||||||
At December 31, 2001: | |||||||||||||||||
| Inventory | $ | 3,833,763 | $ | — | $ | — | $ | 3,833,763 | |||||||||
| Identifiable assets | 5,060,583 | 485,297 | 168,396 | $ | 5,714,276 | ||||||||||||
3. Supplemental Guarantor information ($000’s omitted)
| The Company has the following outstanding senior note obligations: (1) $175,000, 9.5%, due 2003, (2) $100,000, 7%, due 2003, (3) $112,000, 8.375%, due 2004, (4) $125,000, 7.3%, due 2005, (5) $200,000, 8.125%, due 2011, (6) $500,000, 7.875%, due 2011 and (7) $150,000, 7.625%, due 2017. Such obligations to pay principal, premium, if any, and interest are guaranteed jointly and severally on a senior basis by the Company’s wholly-owned Domestic Homebuilding subsidiaries (collectively, the Guarantors). Del Webb has the following outstanding senior subordinated note obligations: (1) $69,810, 9%, due 2006, (2) $166,418, 9.375%, due 2009 and (3) $114,469, 10.25%, due 2010. Such obligations to pay principal, premium, (if any) and interest are guaranteed jointly and severally on a senior subordinated basis by the Guarantors. Such guarantees are full and unconditional. The principal non-Guarantors include PDCI, Pulte International Corporation, PMC and First Heights. |
| Supplemental consolidating financial information of the Company, specifically including such information for the Guarantors, is presented below. Investments in subsidiaries are presented using the equity method of accounting. Separate financial statements of the Guarantors are not provided as the consolidating financial information contained herein provides a more meaningful disclosure to allow investors to determine the nature of the assets held by and the operations of the combined groups. |
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PULTE HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
3. Supplemental Guarantor information (continued)
CONDENSED CONSOLIDATING BALANCE SHEET
MARCH 31, 2002
($000’s omitted)
| Unconsolidated | |||||||||||||||||||||
| Consolidated | |||||||||||||||||||||
| Pulte | Guarantor | Non-Guarantor | Eliminating | Pulte | |||||||||||||||||
| Homes, Inc. | Subsidiaries | Subsidiaries | Entries | Homes, Inc. | |||||||||||||||||
ASSETS | |||||||||||||||||||||
| Cash and equivalents | $ | — | $ | 44,435 | $ | 15,337 | $ | — | $ | 59,772 | |||||||||||
| Unfunded settlements | — | 37,804 | (9,430 | ) | — | 28,374 | |||||||||||||||
| House and land inventories | — | 3,852,574 | 119,713 | — | 3,972,287 | ||||||||||||||||
| Residential mortgage loans available-for-sale | — | — | 279,062 | — | 279,062 | ||||||||||||||||
| Land held for sale | — | 248,383 | — | — | 248,383 | ||||||||||||||||
| Goodwill | — | 306,993 | 700 | — | 307,693 | ||||||||||||||||
| Intangible assets | — | 157,567 | — | — | 157,567 | ||||||||||||||||
| Other assets | 54,211 | 387,408 | 72,785 | — | 514,404 | ||||||||||||||||
| Deferred income taxes | 40,486 | — | — | — | 40,486 | ||||||||||||||||
| Investment in subsidiaries | 2,160,545 | 790,481 | 1,635,031 | (4,586,057 | ) | — | |||||||||||||||
| Advances receivable — subsidiaries | 1,786,082 | 270,684 | 46,037 | (2,102,803 | ) | — | |||||||||||||||
| $ | 4,041,324 | $ | 6,096,329 | $ | 2,159,235 | $ | (6,688,860 | ) | $ | 5,608,028 | |||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||
| Accounts payable and accrued liabilities | $ | 119,151 | $ | 869,424 | $ | 110,718 | $ | — | $ | 1,099,293 | |||||||||||
| Unsecured short-term borrowings | 125,000 | — | — | — | 125,000 | ||||||||||||||||
| Collateralized short-term debt, recourse solely to applicable non-guarantor subsidiary assets | — | — | 261,256 | — | 261,256 | ||||||||||||||||
| Income taxes | 23,409 | 15 | — | — | 23,424 | ||||||||||||||||
| Subordinated notes and senior notes | 1,354,548 | 368,057 | — | — | 1,722,605 | ||||||||||||||||
| Advances payable — subsidiaries | 42,766 | 1,759,547 | 300,490 | (2,102,803 | ) | — | |||||||||||||||
| Total liabilities | 1,664,874 | 2,997,043 | 672,464 | (2,102,803 | ) | 3,231,578 | |||||||||||||||
| Shareholders’ equity | 2,376,450 | 3,099,286 | 1,486,771 | (4,586,057 | ) | 2,376,450 | |||||||||||||||
| $ | 4,041,324 | $ | 6,096,329 | $ | 2,159,235 | $ | (6,688,860 | ) | $ | 5,608,028 | |||||||||||
12
Table of Contents
PULTE HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
3. Supplemental Guarantor information (continued)
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2001
($000’s omitted)
| Unconsolidated | |||||||||||||||||||||
| Pulte | Guarantor | Non-Guarantor | Eliminating | Consolidated | |||||||||||||||||
| Homes, Inc. | Subsidiaries | Subsidiaries | Entries | Pulte Homes, Inc. | |||||||||||||||||
ASSETS | |||||||||||||||||||||
| Cash and equivalents | $ | 15,621 | $ | 33,643 | $ | 22,880 | $ | — | $ | 72,144 | |||||||||||
| Unfunded settlements | — | 73,126 | (3,495 | ) | — | 69,631 | |||||||||||||||
| House and land inventories | — | 3,796,092 | 37,671 | — | 3,833,763 | ||||||||||||||||
| Residential mortgage loans available-for-sale- | — | — | 431,735 | — | 431,735 | ||||||||||||||||
| Land held for sale | — | 231,397 | — | — | 231,397 | ||||||||||||||||
| Goodwill | — | 306,993 | 700 | — | 307,693 | ||||||||||||||||
| Intangible assets | — | 159,604 | — | — | 159,604 | ||||||||||||||||
| Other assets | 53,369 | 381,610 | 106,311 | — | 541,290 | ||||||||||||||||
| Deferred income taxes | 78,199 | (11,225 | ) | 45 | — | 67,019 | |||||||||||||||
| Investment in subsidiaries | 2,089,940 | 84,416 | 1,594,789 | (3,769,145 | ) | — | |||||||||||||||
| Advances receivable — subsidiaries | 1,729,832 | 932,092 | 42,639 | (2,704,563 | ) | — | |||||||||||||||
| $ | 3,966,961 | $ | 5,987,748 | $ | 2,233,275 | $ | (6,473,708 | ) | $ | 5,714,276 | |||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||
| Accounts payable and accrued liabilities | $ | 132,300 | $ | 950,486 | $ | 72,916 | $ | — | $ | 1,155,702 | |||||||||||
| Unsecured short-term borrowings | 110,000 | — | — | — | 110,000 | ||||||||||||||||
| Collateralized short-term debt, recourse solely to applicable non-guarantor subsidiary assets | — | — | 413,675 | — | 413,675 | ||||||||||||||||
| Income taxes | 59,397 | (24,027 | ) | — | — | 35,370 | |||||||||||||||
| Subordinated notes and senior notes | 1,354,290 | 368,574 | — | — | 1,722,864 | ||||||||||||||||
| Advances payable — subsidiaries | 34,309 | 2,474,025 | 196,229 | (2,704,563 | ) | — | |||||||||||||||
| Total liabilities | 1,690,296 | 3,769,058 | 682,820 | (2,704,563 | ) | 3,437,611 | |||||||||||||||
| Shareholders’ equity | 2,276,665 | 2,218,690 | 1,550,455 | (3,769,145 | ) | 2,276,665 | |||||||||||||||
| $ | 3,966,961 | $ | 5,987,748 | $ | 2,233,275 | $ | (6,473,708 | ) | $ | 5,714,276 | |||||||||||
13
Table of Contents
PULTE HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
3. Supplemental Guarantor information (continued)
CONSOLIDATING STATEMENT OF OPERATIONS
For the three months ended March 31, 2002
($000’s omitted)
| Unconsolidated | ||||||||||||||||||||||
| Consolidated | ||||||||||||||||||||||
| Pulte | Guarantor | Non-Guarantor | Eliminating | Pulte | ||||||||||||||||||
| Homes, Inc. | Subsidiaries | Subsidiaries | Entries | Homes, Inc. | ||||||||||||||||||
Revenues: | ||||||||||||||||||||||
| Homebuilding | $ | — | $ | 1,333,236 | $ | 22,369 | $ | — | $ | 1,355,605 | ||||||||||||
| Financial services | — | 3,044 | 19,980 | — | 23,024 | |||||||||||||||||
| Corporate | 102 | 10 | — | — | 112 | |||||||||||||||||
| Total revenues | 102 | 1,336,290 | 42,349 | — | 1,378,741 | |||||||||||||||||
Expenses: | ||||||||||||||||||||||
| Homebuilding: | ||||||||||||||||||||||
| Cost of sales | — | 1,062,157 | 17,829 | — | 1,079,986 | |||||||||||||||||
| Selling, general and administrative and other expense | 3,346 | 152,588 | 7,094 | — | 163,028 | |||||||||||||||||
| Financial services | — | 975 | 10,737 | — | 11,712 | |||||||||||||||||
| Corporate, net | 13,065 | 1,996 | 105 | — | 15,166 | |||||||||||||||||
| Total expenses | 16,411 | 1,217,716 | 35,765 | — | 1,269,892 | |||||||||||||||||
Other Income: | ||||||||||||||||||||||
| Equity in income of joint ventures | — | 549 | 3,136 | — | 3,685 | |||||||||||||||||
| Income (loss) from continuing operations before income taxes and equity in income of subsidiaries | (16,309 | ) | 119,123 | 9,720 | — | 112,534 | ||||||||||||||||
| Income taxes (benefit) | (7,357 | ) | 46,562 | 4,689 | — | 43,894 | ||||||||||||||||
| Income (loss) from continuing operations before equity in income of subsidiaries | (8,952 | ) | 72,561 | 5,031 | — | 68,640 | ||||||||||||||||
| Loss from discontinued operations | (528 | ) | — | — | — | (528 | ) | |||||||||||||||
| Income (loss) before equity in income of subsidiaries | (9,480 | ) | 72,561 | 5,031 | — | 68,112 | ||||||||||||||||
| Equity in income of subsidiaries — continuing operations | 77,592 | 6,126 | 36,237 | (119,955 | ) | — | ||||||||||||||||
| Net income | $ | 68,112 | $ | 78,687 | $ | 41,268 | $ | (119,955 | ) | $ | 68,112 | |||||||||||
14
Table of Contents
PULTE HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
3. Supplemental Guarantor information (continued)
CONSOLIDATING STATEMENT OF OPERATIONS
For the three months ended March 31, 2001
($000’s omitted)
| Unconsolidated | ||||||||||||||||||||||
| Consolidated | ||||||||||||||||||||||
| Pulte | Guarantor | Non-Guarantor | Eliminating | Pulte | ||||||||||||||||||
| Homes, Inc. | Subsidiaries | Subsidiaries | Entries | Homes, Inc. | ||||||||||||||||||
Revenues: | ||||||||||||||||||||||
| Homebuilding | $ | — | $ | 813,523 | $ | 11,524 | $ | — | $ | 825,047 | ||||||||||||
| Financial services | — | 1,544 | 13,167 | — | 14,711 | |||||||||||||||||
| Corporate | 29 | 688 | — | — | 717 | |||||||||||||||||
| Total revenues | 29 | 815,755 | 24,691 | — | 840,475 | |||||||||||||||||
Expenses: | ||||||||||||||||||||||
| Homebuilding: | ||||||||||||||||||||||
| Cost of sales | — | 652,491 | 10,233 | — | 662,724 | |||||||||||||||||
| Selling, general and administrative and other expense | 648 | 95,143 | 1,787 | — | 97,578 | |||||||||||||||||
| Financial services | — | 489 | 8,623 | — | 9,112 | |||||||||||||||||
| Corporate, net | 8,963 | 1,747 | (451 | ) | — | 10,259 | ||||||||||||||||
| Total expenses | 9,611 | 749,870 | 20,192 | — | 779,673 | |||||||||||||||||
Other Income: | ||||||||||||||||||||||
| Equity in income (loss) of joint ventures | — | (70 | ) | 2,876 | — | 2,806 | ||||||||||||||||
| Income (loss) from continuing operations before income taxes and equity in income of subsidiaries | (9,582 | ) | 65,815 | 7,375 | — | 63,608 | ||||||||||||||||
| Income taxes (benefit) | (4,163 | ) | 25,427 | 3,225 | — | 24,489 | ||||||||||||||||
| Income (loss) from continuing operations before equity in income of subsidiaries | (5,419 | ) | 40,388 | 4,150 | — | 39,119 | ||||||||||||||||
| Income (loss) from discontinued operations | (328 | ) | — | 580 | — | 252 | ||||||||||||||||
| Income (loss) before equity in income of subsidiaries | (5,747 | ) | 40,388 | 4,730 | — | 39,371 | ||||||||||||||||
| Equity in income of subsidiaries: | ||||||||||||||||||||||
| Continuing operations | 44,538 | 3,379 | 41,818 | (89,735 | ) | — | ||||||||||||||||
| Discontinued operations | 580 | — | — | (580 | ) | — | ||||||||||||||||
| 45,118 | 3,379 | 41,818 | (90,315 | ) | — | |||||||||||||||||
| Net income | $ | 39,371 | $ | 43,767 | $ | 46,548 | $ | (90,315 | ) | $ | 39,371 | |||||||||||
15
Table of Contents
PULTE HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
3. Supplemental Guarantor information (continued)
CONSOLIDATING STATEMENT OF CASH FLOWS
For the three months ended March 31, 2002
($000’s omitted)
| Unconsolidated | |||||||||||||||||||||||
| Consolidated | |||||||||||||||||||||||
| Pulte | Guarantor | Non-Guarantor | Eliminating | Pulte | |||||||||||||||||||
| Homes, Inc. | Subsidiaries | Subsidiaries | Entries | Homes, Inc. | |||||||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||||||||
| Net income | $ | 68,112 | $ | 78,687 | $ | 41,268 | $ | (119,955 | ) | $ | 68,112 | ||||||||||||
| Adjustments to reconcile net income to net cash flows provided by (used in) operating activities: | |||||||||||||||||||||||
| Equity in income of subsidiaries | (77,592 | ) | (6,126 | ) | (36,237 | ) | 119,955 | — | |||||||||||||||
| Amortization, depreciation and other | 1,350 | 9,695 | (57 | ) | — | 10,988 | |||||||||||||||||
| Deferred income taxes | 26,533 | — | — | — | 26,533 | ||||||||||||||||||
| Increase (decrease) in cash due to: | |||||||||||||||||||||||
| Inventories | — | (88,700 | ) | 526 | — | (88,174 | ) | ||||||||||||||||
| Residential mortgage loans available-for-sale | — | — | 153,226 | — | 153,226 | ||||||||||||||||||
| Other assets | (842 | ) | 36,581 | 17,269 | — | 53,008 | |||||||||||||||||
| Accounts payable and accrued liabilities | (13,150 | ) | (95,578 | ) | (24,118 | ) | — | (132,846 | ) | ||||||||||||||
| Income taxes | (59,614 | ) | 59,379 | 3,870 | — | 3,635 | |||||||||||||||||
| Net cash provided by (used in) operating activities | (55,203 | ) | (6,062 | ) | 155,747 | — | 94,482 | ||||||||||||||||
| Cash flows from investing activities: | |||||||||||||||||||||||
| Dividends received from subsidiaries | — | 10,000 | — | (10,000 | ) | — | |||||||||||||||||
| Investment in subsidiary | — | (328 | ) | — | 328 | — | |||||||||||||||||
| Advances to affiliates | (5,818 | ) | (25,581 | ) | (11,741 | ) | 43,140 | — | |||||||||||||||
| Other, net | — | (1,186 | ) | 3,987 | — | 2,801 | |||||||||||||||||
| Net cash provided by (used in) investing activities | (5,818 | ) | (17,095 | ) | (7,754 | ) | 33,468 | 2,801 | |||||||||||||||
| Cash flows from financing activities: | |||||||||||||||||||||||
| Proceeds from borrowings | 15,000 | 16,198 | — | — | 31,198 | ||||||||||||||||||
| Repayment of borrowings | — | — | (154,622 | ) | — | (154,622 | ) | ||||||||||||||||
| Capital contributions from parent | — | — | 328 | (328 | ) | — | |||||||||||||||||
| Advances from affiliates | 8,457 | 17,751 | 16,932 | (43,140 | ) | — | |||||||||||||||||
| Issuance of common stock | 24,365 | — | — | — | 24,365 | ||||||||||||||||||
| Dividends paid | (2,422 | ) | — | (10,000 | ) | 10,000 | (2,422 | ) | |||||||||||||||
| Other, net | — | — | (8,174 | ) | — | (8,174 | ) | ||||||||||||||||
| Net cash provided by (used in) financing activities | 45,400 | 33,949 | (155,536 | ) | (33,468 | ) | (109,655 | ) | |||||||||||||||
| Net increase (decrease) in cash and equivalents | (15,621 | ) | 10,792 | (7,543 | ) | — | (12,372 | ) | |||||||||||||||
| Cash and equivalents at beginning of period | 15,621 | 33,643 | 22,880 | — | 72,144 | ||||||||||||||||||
| Cash and equivalents at end of period | $ | — | $ | 44,435 | $ | 15,337 | $ | — | $ | 59,772 | |||||||||||||
16
Table of Contents
PULTE HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
3. Supplemental Guarantor information (continued)
CONSOLIDATING STATEMENT OF CASH FLOWS
For the three months ended March 31, 2001
($000’s omitted)
| Unconsolidated | |||||||||||||||||||||||
| Consolidated | |||||||||||||||||||||||
| Pulte | Guarantor | Non-Guarantor | Eliminating | Pulte | |||||||||||||||||||
| Homes, Inc. | Subsidiaries | Subsidiaries | Entries | Homes, Inc. | |||||||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||||||||
| Net income | $ | 39,371 | $ | 43,767 | $ | 46,548 | $ | (90,315 | ) | $ | 39,371 | ||||||||||||
| Adjustments to reconcile net income to net cash flows provided by (used in) operating activities: | |||||||||||||||||||||||
| Equity in income of subsidiaries | (45,118 | ) | (3,379 | ) | (41,818 | ) | 90,315 | — | |||||||||||||||
| Amortization, depreciation and other | 432 | 4,297 | 316 | — | 5,045 | ||||||||||||||||||
| Deferred income taxes | 13,808 | — | — | — | 13,808 | ||||||||||||||||||
| Increase (decrease) in cash due to: | |||||||||||||||||||||||
| Inventories | — | (189,506 | ) | (9,184 | ) | — | (198,690 | ) | |||||||||||||||
| Residential mortgage loans available-for-sale | — | — | 39,131 | — | 39,131 | ||||||||||||||||||
| Other assets | (6,822 | ) | 21,885 | (10,218 | ) | — | 4,845 | ||||||||||||||||
| Accounts payable and accrued liabilities | 16,754 | (65,664 | ) | (10,873 | ) | — | (59,783 | ) | |||||||||||||||
| Income taxes | (34,303 | ) | 25,427 | 2,217 | — | (6,659 | ) | ||||||||||||||||
| Net cash provided by (used in) operating activities | (15,878 | ) | (163,173 | ) | 16,119 | — | (162,932 | ) | |||||||||||||||
| Cash flows from investing activities: | |||||||||||||||||||||||
| Increase in covered assets and FRF receivables | — | — | (1,055 | ) | — | (1,055 | ) | ||||||||||||||||
| Dividends received from subsidiaries | 100,000 | 1,000 | 100,000 | (201,000 | ) | — | |||||||||||||||||
| Investment in subsidiary | — | (216 | ) | (12,568 | ) | 12,784 | — | ||||||||||||||||
| Advances to affiliates | (320,550 | ) | (391 | ) | (22,959 | ) | 343,900 | — | |||||||||||||||
| Other, net | (714 | ) | 104 | (221 | ) | — | (831 | ) | |||||||||||||||
| Net cash provided by (used in) investing activities | (221,264 | ) | 497 | 63,197 | 155,684 | (1,886 | ) | ||||||||||||||||
| Cash flows from financing activities: | |||||||||||||||||||||||
| Proceeds from borrowings | 198,782 | 9,729 | 5,733 | — | 214,244 | ||||||||||||||||||
| Repayment of borrowings | — | (6,666 | ) | (32,773 | ) | — | (39,439 | ) | |||||||||||||||
| Capital contributions from parent | — | — | 12,784 | (12,784 | ) | — | |||||||||||||||||
| Advances from affiliates | 32,380 | 299,908 | 11,612 | (343,900 | ) | — | |||||||||||||||||
| Issuance of common stock | 7,675 | — | — | — | 7,675 | ||||||||||||||||||
| Dividends paid | (1,695 | ) | (100,000 | ) | (101,000 | ) | 201,000 | (1,695 | ) | ||||||||||||||
| Other, net | — | — | (609 | ) | — | (609 | ) | ||||||||||||||||
| Net cash provided by (used in) financing activities | 237,142 | 202,971 | (104,253 | ) | (155,684 | ) | 180,176 | ||||||||||||||||
| Net increase (decrease) in cash and equivalents | — | 40,295 | (24,937 | ) | — | 15,358 | |||||||||||||||||
| Cash and equivalents at beginning of period | — | 133,860 | 50,125 | — | 183,985 | ||||||||||||||||||
| Cash and equivalents at end of period | $ | — | $ | 174,155 | $ | 25,188 | $ | — | $ | 199,343 | |||||||||||||
17
Table of Contents
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview:
A summary of our operating results by business segment for the three-month periods ended March 31, 2002 and 2001 is as follows ($000’s omitted, except per share data):
| Three Months Ended | |||||||||
| March 31, | |||||||||
| 2002 | 2001 | ||||||||
| Pre-tax income (loss): | |||||||||
| Homebuilding operations | $ | 115,334 | $ | 66,478 | |||||
| Financial Services operations | 12,254 | 6,672 | |||||||
| Corporate | (15,054 | ) | (9,542 | ) | |||||
| Pre-tax income from continuing operations | 112,534 | 63,608 | |||||||
| Income taxes | 43,894 | 24,489 | |||||||
| Income from continuing operations | 68,640 | 39,119 | |||||||
| (Loss) income from discontinued operations | (528 | ) | 252 | ||||||
| Net income | $ | 68,112 | $ | 39,371 | |||||
| Per share data — assuming dilution: | |||||||||
| Income from continuing operations | $ | 1.12 | $ | .91 | |||||
| (Loss) income from discontinued operations | (.01 | ) | .01 | ||||||
| Net income | $ | 1.11 | $ | .92 | |||||
A comparison of pre-tax income (loss) for the three-month periods ended March 31, 2002 and 2001 is as follows:
| • | Pre-tax income of our homebuilding business segment increased 73%, due to the improvement in Domestic Homebuilding operations, which benefited from the acquired operations of Del Webb. Domestic average unit selling price increased 11% to $238,000 and gross margins improved 20 basis points. | |
| • | Pre-tax income of our financial services business segment increased to $12,254,000, as compared with $6,672,000 for the comparable 2001 period. Higher volumes and stable interest rates contributed to this increase. | |
| • | Pre-tax loss in our corporate business segment increased $5,512,000 from the three month period ended March 31, 2001. Increases in net interest expense and other corporate expenditures result from the merger with Del Webb. |
18
Table of Contents
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Homebuilding Operations:
Our homebuilding operations are organized into two distinct business units, Domestic and International.
| • | Domestic Homebuilding operations are conducted in 43 markets, located throughout 25 states. Domestic Homebuilding offers a broad product line to meet the needs of first-time, first and second move-up and active adult homebuyers. | |
| • | International Homebuilding operations are conducted through subsidiaries of Pulte International Corporation in Mexico, Puerto Rico and Argentina. International Homebuilding product offerings focus on the demand of first-time buyers and social interest housing in Mexico and Puerto Rico. Housing for middle-to-upper income consumer groups is also available in Puerto Rico and Argentina. We have agreements in place with multi-national corporations to provide social interest housing in Mexico. |
Certain operating data relating to our joint ventures and homebuilding operations for the three months ended March 31, 2002 and 2001, are as follows ($000’s omitted):
| Three Months Ended | |||||||||||
| March 31, | |||||||||||
| 2002 | 2001 | ||||||||||
| Pulte/Pulte-affiliate Homebuilding settlement revenues: | |||||||||||
| Domestic | $ | 1,309,588 | $ | 805,796 | |||||||
| International | 46,822 | 49,932 | |||||||||
| Total Homebuilding | $ | 1,356,410 | $ | 855,728 | |||||||
| Pulte/Pulte-affiliate Homebuilding pre-tax income (loss): | |||||||||||
| Domestic | $ | 115,851 | $ | 65,345 | |||||||
| International | (517 | ) | 1,133 | ||||||||
| Total Homebuilding | $ | 115,334 | $ | 66,478 | |||||||
| Pulte/Pulte-affiliate settlements—units: | |||||||||||
| Domestic | 5,502 | 3,768 | |||||||||
| International: | |||||||||||
| Pulte | 721 | 89 | |||||||||
| Pulte-affiliated entities | 921 | 1,685 | |||||||||
| Total International | 1,642 | 1,774 | |||||||||
| Total Pulte and Pulte-affiliate settlements—units | 7,144 | 5,542 | |||||||||
19
Table of Contents
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Homebuilding Operations (continued):
Domestic Homebuilding:
The Domestic Homebuilding business unit represents our core business. Operations are conducted in 43 markets, located throughout 25 states, and are organized geographically as follows:
| Northeast: | Connecticut, Delaware, Maryland, Massachusetts, New Jersey, New York, Pennsylvania, Rhode Island, Virginia | |
| Southeast: | Florida, Georgia, North Carolina, South Carolina, Tennessee | |
| Midwest: | Illinois, Indiana, Kansas, Michigan, Minnesota, Ohio | |
| Central: | Colorado, Texas | |
| West: | Arizona, California, Nevada |
Our metropolitan Phoenix operations accounted for 11% of Domestic Homebuilding unit net new orders, 13% of Domestic Homebuilding unit settlements and 12% of Domestic Homebuilding settlement revenues for the three-month period ended March 31, 2002. No other individual market represented more than 10% of total Domestic Homebuilding unit net new orders, unit settlements or revenues for the three-month periods ended March 31, 2002 or 2001.
The following table presents selected unit information for our Domestic Homebuilding operations:
| Three Months Ended | |||||||||
| March 31, | |||||||||
| 2002 | 2001 | ||||||||
| Unit settlements: | |||||||||
| Northeast | 416 | 393 | |||||||
| Southeast | 1,676 | 1,609 | |||||||
| Midwest | 702 | 448 | |||||||
| Central | 718 | 632 | |||||||
| West | 1,990 | 686 | |||||||
| 5,502 | 3,768 | ||||||||
| Net new orders—units: | |||||||||
| Northeast | 794 | 532 | |||||||
| Southeast | 2,230 | 2,533 | |||||||
| Midwest | 1,300 | 1,103 | |||||||
| Central | 1,284 | 1,354 | |||||||
| West | 2,480 | 933 | |||||||
| 8,088 | 6,455 | ||||||||
| Net new orders—dollars ($000’s omitted) | $ | 2,004,000 | $ | 1,399,000 | |||||
| Backlog at March 31—units: | |||||||||
| Northeast | 1,209 | 949 | |||||||
| Southeast | 3,113 | 3,065 | |||||||
| Midwest | 1,973 | 1,562 | |||||||
| Central | 1,469 | 1,536 | |||||||
| West | 3,500 | 1,052 | |||||||
| 11,264 | 8,164 | ||||||||
| Backlog at March 31—dollars ($000’s omitted) | $ | 2,812,000 | $ | 1,900,000 | |||||
20
Table of Contents
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Homebuilding Operations (continued):
Domestic Homebuilding (continued):
Net new orders increased 25% to a record 8,088 units in 2002, from 6,455 in 2001. This increase is due to the inclusion of the Del Webb operations, which contributed almost 1,800 units in 2002. Unit settlements also set a record for the quarter at 5,502 units, an increase of 46%. In addition to an increase of 4% in unit settlements for the traditional Pulte operations, Del Webb contributed nearly 1,600 units. The average selling price for homes closed during the quarter increased to $238,000 in 2002 from $214,000 in 2001. Changes in average selling price reflect a number of factors, including changes in market selling prices and the mix of product closed during a period. The increase in 2002 benefited from Del Webb product offerings, which sold for an average $267,000 per home. Ending backlog, which represents orders for homes that have not yet closed, grew to 11,264 units, including 3,395 Del Webb units. The dollar value of backlog was up 48% to over $2.8 billion.
The following table presents a summary of pre-tax income for our Domestic Homebuilding operations for the three months ended March 31, 2002 and 2001 ($000’s omitted):
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2002 | 2001 | |||||||
| Home sale revenue (settlements) | $ | 1,309,588 | $ | 805,796 | ||||
| Land sale revenue | 23,648 | 7,727 | ||||||
| Home cost of sales | (1,046,925 | ) | (645,770 | ) | ||||
| Land cost of sales | (15,232 | ) | (6,721 | ) | ||||
| Selling, general and administrative expense | (142,795 | ) | (86,202 | ) | ||||
| Interest † | (8,523 | ) | (5,940 | ) | ||||
| Other expense, net | (3,910 | ) | (3,545 | ) | ||||
| Pre-tax income | $ | 115,851 | $ | 65,345 | ||||
| Average sales price | $ | 238 | $ | 214 | ||||
†We capitalize interest cost into homebuilding inventories and charge the interest to homebuilding interest expense over a period that approximates the average life cycle of our communities.
Homebuilding gross profit margins increased to 20.1% for the three-month period ended March 31, 2002, compared to 19.9%, in the same period of the prior year. This increase is attributable to continued strong customer demand, positive home pricing and product and geographic mix. Purchase accounting adjustments associated with the merger reduced gross margin by approximately $1.7 million, or 10 basis points in 2002. As a percentage of home settlement revenues, selling, general and administrative expense increased 20 basis points over the first quarter of 2001 reflecting the inclusion of Del Webb expenses in 2002.
We consider land development one of our core competencies. This includes the development and entitlement of certain land positions for sale primarily to other homebuilders, as well as to retail and commercial establishments. Land sales increased over the prior year due to the addition of the Del Webb operations. Revenues and their related gains/losses may vary significantly between periods, depending on the timing of future land sales. We continue to rationalize certain existing land positions to ensure the most effective use of invested capital.
Our Domestic Homebuilding operations controlled approximately 114,800 lots at March 31, 2002, of which approximately 81,400 lots were owned and approximately 33,400 lots were controlled through option agreements. At March 31, 2001, we controlled approximately 73,700 lots, of which approximately 43,200 lots were owned, and approximately 30,500 lots were controlled through option agreements.
Domestic Homebuilding inventory at March 31, 2002, was approximately $3.8 billion of which $2.9 billion is related to land and land development. At March 31, 2001, Domestic Homebuilding inventory approximated $2.0 billion, of which $1.4 billion was related to land and land development.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Homebuilding Operations (continued):
Domestic Homebuilding (continued):
Included in other assets is approximately $240.5 million in land held for disposition as of March 31, 2002, as compared to $123.6 million in the prior year.
In addition, there were approximately 23,800 lots valued at $663 million under option at March 31, 2002, pending approval, that are under review and evaluation for future use by our Domestic Homebuilding operations. This compared to 28,900 lots valued at $577 million at March 31, 2001.
International Homebuilding:
International Homebuilding operations are primarily conducted through subsidiaries of Pulte International Corporation in Mexico, Puerto Rico and Argentina.
Mexico Effective January 1, 2002, Pulte International reorganized its structure within Mexico to create a single company, Pulte Mexico, which ranks as one of the largest builders in the country. Prior to the reorganization, these operations were conducted primarily through five joint ventures throughout Mexico. Under the new ownership structure, which combines these entities, we own 63.8% of Pulte Mexico and have consolidated Pulte Mexico into our financial statements. The new operating structure facilitates growth, enables operating leverage and improves efficiencies through standardized systems and procedures.
Puerto Rico Operations in Puerto Rico are primarily conducted through International’s 100%-owned subsidiary, Pulte International Caribbean Corporation. Desarrolladores Urbanos (Canovanas), S.E., its Puerto Rican joint venture, is developing 121 acres located in Metropolitan San Juan.
Argentina Operations in Argentina, which are based in the greater Buenos Aires area, are conducted through Pulte SRL, International’s 100%-owned Argentine subsidiary.
The following table presents selected financial data for our International Homebuilding operations for the three months ended March 31, 2002 and 2001 ($000’s omitted):
| Three Months Ended | ||||||||||
| March 31, | ||||||||||
| 2002 | 2001 | |||||||||
| Revenues | $ | 22,369 | $ | 11,524 | ||||||
| Cost of sales | (17,829 | ) | (10,233 | ) | ||||||
| Selling, general and administrative expense | (7,003 | ) | (2,600 | ) | ||||||
| Other income (expense), net | (776 | ) | 442 | |||||||
| Minority interest | 380 | — | ||||||||
| Equity in income of joint ventures | 2,342 | 2,000 | ||||||||
| Pre-tax (loss) income | $ | (517 | ) | $ | 1,133 | |||||
| Unit settlements: | ||||||||||
| Pulte | 721 | 89 | ||||||||
| Pulte-affiliated entities | 921 | 1,685 | ||||||||
| Total Pulte and Pulte-affiliates | 1,642 | 1,774 | ||||||||
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Homebuilding Operations (continued):
International Homebuilding (continued):
Increased revenues in 2002 are due to the opening of operations in Argentina and the consolidation of the Mexican operations for two months of 2002. Previously, the Mexican operations, whose results are reported on a one-month lag, were operated through joint ventures and therefore not consolidated. Results for 2002 include joint venture operations for one month and operations as a consolidated entity for two months, as the Mexican operations report on a one-month lag. Revenues from the Mexican operations amounted to $18 million while Argentina contributed revenues of $4 million in 2002. Revenues in 2001 reflect our Puerto Rican operations. The loss of $517,000 can be attributed to operating losses in Argentina and Puerto Rico. In addition, 2001 results benefited from a $500,000 land sale gain.
Our Argentine operations recorded a $19,000 transaction loss as the value of the Argentine peso continued to fluctuate following the Argentine government’s decision to de-link its valuation from the U. S. Dollar. We also recorded a foreign currency translation loss of $9,166,000, net of income taxes of $6,049,000, as a component of other comprehensive income during the first quarter of 2002. It remains unclear at this time how the Argentine financial and currency markets will be impacted for the remainder of 2002 or how the current economic situation may affect customer home buying attitudes and the homebuilding business in general. Our remaining net investment in Argentina at March 31, 2002, which is exposed to such risks, approximated $12.4 million.
Financial Services Operations:
We conduct our financial services operations principally through Pulte Mortgage Corporation (PMC), our mortgage banking subsidiary. Pre-tax income of our financial services operations for the three-month periods ended March 31, 2002 and 2001, was $12,254,000 and $6,672,000, respectively. This increase was due to higher production volume and favorable interest rates.
The following table presents mortgage origination data for PMC:
| Three Months Ended | |||||||||
| March 31, | |||||||||
| 2002 | 2001 | ||||||||
| Total originations: | |||||||||
| Loans | 4,226 | 3,258 | |||||||
| Principal ($000’s omitted) | $ | 671,800 | $ | 489,100 | |||||
| Originations for Pulte customers: | |||||||||
| Loans | 3,773 | 2,302 | |||||||
| Principal ($000’s omitted) | $ | 564,600 | $ | 365,300 | |||||
Mortgage origination principal volume for the quarter ended March 31, 2002, increased 37% over 2001, which benefited from an increase in the capture rate from 70% to 75%, an increased average loan size and the inclusion of Del Webb’s mortgage operations, which accounted for approximately 21% of the increase. Origination unit volume increased 30% due to the same factors. Our Domestic Homebuilding customers continue to account for the majority of total loan production, representing 89% of total PMC unit production for 2002, compared with 71% in 2001. Refinancings represented 7% of total loan production in 2002, compared with 13% in 2001. At March 31, 2002, loan application backlog increased 18% to over $1 billion as compared to $847 million at March 31, 2001. Income from our title operations, which were reclassified from Homebuilding to Financial Services, increased to $2,217,000 for the three months ended March 31, 2002, from $1,220,000 in 2001. The increase in pre-tax income in 2002 was also driven by a $4,071,000 increase in gains on sale of mortgages and a $2,264,000 increase in net interest income. These increases were primarily due to increased production volume and a favorable interest rate environment.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Financial Services Operations (continued)
The Company hedges portions of its forecasted cash flow from sales of closed mortgage loans with derivative financial instruments. In accordance with SFAS No. 133, the Company did not recognize any net gains or losses related to the ineffective portion of the hedging instrument excluded from the assessment of hedge effectiveness during the quarter ended March 31, 2002. In addition, the Company did not recognize any net gains or losses during the quarter ended March 31, 2002, for cash flow hedges that were discontinued because it is probable that the original forecasted transaction will not occur. At March 31, the Company expects to reclassify $448,000, net of taxes, of net gains on derivative instruments from accumulated other comprehensive income to earnings during the next twelve months from sales of closed mortgage loans.
Corporate:
Corporate is a non-operating business segment whose primary purpose is to support the operations of our subsidiaries as the internal source of financing, to develop and implement strategic initiatives centered on new business development and operating efficiencies, and to provide the administrative support associated with being a publicly traded entity. As a result, the corporate segment’s operating results will vary from quarter to quarter as these strategic initiatives evolve.
The following table presents results of operations for this segment for the three months ended March 31, 2002 and 2001 ($000’s omitted):
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2002 | 2001 | |||||||
| Net interest expense | $ | 9,442 | $ | 5,649 | ||||
| Other corporate expenses, net | 5,612 | 3,893 | ||||||
| Loss before income taxes | $ | 15,054 | $ | 9,542 | ||||
Pre-tax loss of our corporate business segment increased $5,512,000 from the three month period ended March 31, 2001. The increase in pre-tax loss for the quarter reflects an increase of approximately $1,700,000 in other corporate expenses, net and an increase of approximately $3,800,000 in net interest expense. The increase in other corporate expenses, net is due to an increase in various general and administrative expenses as a result of the Del Webb merger. The increase in net interest expense, which is net of interest capitalized into inventory, is attributable to a higher debt balance as a result of the Del Webb merger. Interest incurred for the three months ended March 31, 2002 and 2001, excluding interest incurred by the Company’s financial services operations was $39,100,000 and $16,300,000, respectively.
Corporate net interest expense is net of amounts capitalized into homebuilding inventories. Interest is amortized to homebuilding interest expense over a period that approximates the average life cycle of our communities. Interest in inventory at March 31, 2002, increased primarily as a result of higher levels of indebtedness and the addition of the Del Webb properties, which have a longer life cycle. Information related to Corporate interest capitalized into inventory is as follows ($000’s omitted):
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2002 | 2001 | |||||||
| Interest in inventory at beginning of period | $ | 68,595 | $ | 24,202 | ||||
| Interest capitalized | 29,501 | 9,927 | ||||||
| Interest expensed | (8,523 | ) | (5,940 | ) | ||||
| Interest in inventory at end of period | $ | 89,573 | $ | 28,189 | ||||
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Liquidity and Capital Resources:
The Company’s net cash provided by operating activities amounted to $94.5 million compared to a use of cash of $162.9 million in the prior year. This change was primarily driven by an increase in net income, a smaller decrease in cash due to inventories and a larger decrease in PMC’s holdings of residential mortgage loans available-for-sale than in the prior year. Net cash provided by investing activities of $2.8 million was comparable to last year’s use of $1.9 million. Net cash used in financing activities of $109.7 million in 2002 primarily represents a higher level of repayments on PMC’s revolving credit facilities than in the prior year. Net cash provided by financing activities of $180.2 million in 2001 was primarily due to the issuance of $200 million senior notes in February 2001.
We finance our homebuilding land acquisitions, development and construction activities from internally generated funds and existing credit agreements. We had $125 million outstanding under our $560 million unsecured revolving credit facilities at March 31, 2002. PMC provides mortgage financing for many of our home sales and uses its own funds and borrowings made available pursuant to various committed and uncommitted credit arrangements which, at March 31, 2002, amounted to $400 million, an amount deemed adequate to cover foreseeable needs. There were approximately $261 million of borrowings outstanding under the $400 million PMC arrangements at March 31, 2002. Mortgage loans originated by PMC are subsequently sold, principally to outside investors. We anticipate that there will be adequate mortgage financing available for purchasers of our homes.
Our income tax liabilities are affected by a number of factors. We anticipate that our effective tax rate for 2002 will approximate 39%.
At March 31, 2002, we had cash and equivalents of $59.8 million and total long-term indebtedness of $1.7 billion. Sources of our working capital at March 31, 2002, include our cash and equivalents, our $560 million committed unsecured revolving credit facilities and PMC’s $400 million revolving credit facilities. Our debt-to-total capitalization, excluding our non-guarantor asset secured borrowings, was approximately 44% as of March 31, 2002. We expect to manage our debt-to-total capitalization to the 40% level by the end of 2002. It is our intent to exercise, over time, the early call provisions of the senior subordinated notes issued by Del Webb, as allowed under these notes. We routinely monitor current operational requirements and financial market conditions to evaluate the use of available financial sources, including securities offerings.
In April 2002, we filed a $1 billion mixed securities shelf registration (Form S-3) with the Securities and Exchange Commission. Under this shelf registration we may sell up to $1 billion in various debt and equity securities. Net proceeds from the sale of these securities will be used for general corporate purposes, which may include debt repayments, capital expenditures, acquisitions or share repurchases.
Inflation:
The Company and the homebuilding industry in general, may be adversely affected during periods of high inflation, because of higher land and construction costs. Inflation also increases the Company’s financing, labor and material costs. In addition, higher mortgage interest rates significantly affect the affordability of permanent mortgage financing to prospective homebuyers. The Company attempts to pass through to its customers any increases in its costs through increased sales prices and, to date, inflation has not had a material adverse effect on the Company’s results of operations. However, there is no assurance that inflation will not have a material adverse impact on the Company’s future results of operations.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative disclosure:
There were no material changes in our market risk during the three months ended March 31, 2002.
Qualitative disclosure:
This information can be found on page 28 of Part II, of Item 7A.,Quantitative and Qualitative Disclosures about Market Risk,of our Annual Report on Form 10-K for the fiscal year ended December 31, 2001, and is incorporated herein by reference.
SPECIAL NOTES CONCERNING FORWARD-LOOKING STATEMENTS:
As a cautionary note, except for the historical information contained herein, certain matters discussed in Item 7., “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 7A., “Quantitative and Qualitative Disclosures About Market Risk,” are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such matters involve risks and uncertainties, including:
| • | our exposure to certain market risks, changes in economic conditions, tax and interest rates, foreign currency exchange rates, increases in raw material and labor costs, issues and timing surrounding land entitlement and development, weather conditions, government regulations and environmental matters, as well as, general competitive factors, that may cause actual results to differ materially; and | |
| • | our ability to integrate the acquired business operations of Del Webb, including Del Webb’s activities, management and corporate culture, with our own, and our ability to develop and manage large-scale active adult communities which differ from our historical homebuilding business. |
PART II. OTHER INFORMATION
Item 6. Exhibits and Report on Form 8-K
(a) Exhibits
None.
(b) Report on Form 8-K
On April 25, 2002, we filed a Current Report on Form 8-K that included a press release dated April 23, 2002, which provided updated financial and other information.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| PULTE HOMES, INC |
 Roger A. Cregg Senior Vice President and Chief Financial Officer (Principal Financial Officer) |
 Vincent J. Frees Vice President and Controller (Principal Accounting Officer) |
| Date: May 9, 2002 |
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