PulteGroup, Inc. — FY 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012. The filing also reports unaudited fourth-quarter results. PulteGroup is a U.S. homebuilder operating through Pulte Homes, Centex and Del Webb, with mortgage and title services.
Financial performance
Amounts are in millions of dollars except per-share data, percentages and unit counts.
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Total revenue | $4,820 | $4,137 |
| Home sale revenue | $4,552 | $3,951 |
| Income (loss) before taxes | $183.6 | $(310.3) |
| Net income (loss) | $206.1 | $(210.4) |
| Diluted earnings (loss) per share | $0.54 | $(0.55) |
| Home sale gross margin | 15.8% | 12.8% |
| Operating cash flow | $760.1 | $17.3 |
- Home sale revenue rose 15%, reflecting 8% more closings and a 7% higher average selling price ($276,000 versus $259,000). Closings increased 8% to 16,505.
- Adjusted home sale gross margin, a non-GAAP measure excluding land valuation adjustments and capitalized-interest amortization, was 20.9%, versus 17.9%.
- Net income included a $22.6 million income tax benefit; the effective tax rate was negative 12.3%. The company maintained a full valuation allowance against its net deferred tax assets.
- Cash and equivalents were $1.405 billion, plus $72.0 million restricted cash. House and land inventory was $4.214 billion, down from $4.636 billion.
- Senior notes had a $2.510 billion carrying value, down from $3.088 billion. Financial Services debt was $138.8 million. Debt to total capitalization, excluding Financial Services debt, was 53.4%, or 32.1% net of cash and equivalents including restricted cash.
- Shareholders’ equity was $2.190 billion. No dividends were declared in 2012 or 2011.
Fourth-quarter results
Q4 2012 revenue was $1.567 billion and net income was $58.7 million. Homebuilding pretax income was $75.2 million and included $32.1 million of debt-retirement losses. Financial Services recorded a $24.0 million pretax loss, including $49.0 million of additional loan-origination reserves.
Material changes versus prior periods
- PulteGroup returned to annual profitability after losses in 2011 and 2010. Homebuilding pretax results improved to $158.0 million from a $275.8 million loss; Financial Services improved to $25.6 million income from a $34.5 million loss.
- Net new orders rose 25% to 19,039 units despite 4% fewer active communities. Year-end backlog increased 65% to 6,458 homes, valued at $1.932 billion, from $1.060 billion. The cancellation rate fell to 15% from 19%.
- Operating cash flow increased to $760.1 million, primarily from net income and a $455.2 million reduction in inventory. The company used $618.8 million of cash for debt repayments and retirements and reduced senior notes by $592.4 million.
- Land-related charges declined to $17.2 million from $35.8 million; no goodwill impairment was recorded in 2012, compared with $240.5 million in 2011. Debt-retirement losses increased to $32.1 million from $5.6 million.
- Financial Services revenue increased 56% to $160.9 million, supported by increased loan volume and improved pricing. Its capture rate rose to 81.9% from 78.5%.
Outlook, risks and unusual items
- Management said it expected 2013 to be a better year for U.S. housing than 2012, while emphasizing that recovery remained uncertain and uneven. Priorities include improving inventory turns, allocating capital by risk, strategic pricing, reducing construction costs and controlling overhead.
- Key risks include housing demand and home prices, mortgage availability and interest rates, land and construction costs, labor and material shortages, regulation, and the possibility of further inventory impairments.
- Mortgage repurchase and make-whole exposure remains uncertain. The recorded loan-origination liability was $164.3 million at year-end; 2012 provisions were $49.0 million. Management stated future losses could exceed estimates.
- Self-insurance reserves were $721.3 million, mainly for general liability and construction-defect claims. Management’s estimated reasonably possible loss range was $650 million to $800 million; actual costs could differ materially.
- The company had $179.2 million of letters of credit and approximately $1.0 billion of surety bonds outstanding. Land option agreements carried a remaining purchase price of $923.4 million, generally with cancellation rights, and $70.1 million of deposits and pre-acquisition costs.
- Gross unrecognized tax benefits were $170.4 million, with $31.5 million of accrued interest and penalties. Management said continued profitability and market improvement could support reducing a large portion of the deferred-tax valuation allowance during 2013; this was conditional, not a firm forecast.
- Auditors issued unqualified opinions on the financial statements and internal control over financial reporting. The filing reported effective disclosure controls and internal controls.
Important facts for investors to verify
- Whether order, backlog and cancellation trends translated into completed closings and sustained margins after 2012.
- Whether cash generation was repeatable as land development and inventory investment increased, and whether leverage declined.
- The adequacy and development of mortgage repurchase liabilities and self-insurance reserves, including construction-defect claims.
- The timing and amount of any deferred-tax valuation allowance release, and the usability of tax attributes subject to Section 382 and state expiration limits.
- Liquidity and refinancing needs around the $138.8 million mortgage repurchase facility, which expired in September 2013, and scheduled senior-note maturities.