01—Abstract
Summary
Summary of the 10-K filed February 25, 2008. Cited figures are marked; the original filing is the authoritative source.
Pulte Homes, Inc. (now PulteGroup, Inc.) reported a sharp downturn for fiscal 2007.
Homebuilding settlement revenues fell to $8.88 billiona from $13.98 billion in 2006, and settlement units dropped to 27,540 from 41,487. Homebuilding posted a pre-tax loss of $2.51 billion, compared with pre-tax income of $1.01 billion in 2006. Consolidated net loss was $2.26 billion, or $(8.94) per diluted share, versus net income of $687.5 million in 2006.
The company attributed the results to weakened demand, higher cancellation rates, and increased price discounts and incentives, along with $2.0 billionb in land-related charges, $370 million of goodwill impairments, and $189.9 million of joint venture impairments. Balance sheet and liquidity were significantly affected. Total assets declined to $10.23 billion from $13.18 billion, and shareholders' equity fell to $4.32 billion from $6.58 billion.
The company recorded a $621.9 millionc non-cash deferred tax valuation allowance, which drove the effective tax benefit rate to 8.9%. Cash and equivalents rose to $1.06 billion at year-end, and senior notes totaled $3.48 billion. Net cash from operating activities was $1.22 billion, driven largely by inventory reductions.
The company's credit facility borrowing capacity was reduced to $1.6 billiond in February 2008, and management said it expects challenging market conditions to continue throughout 2008. The filing also discloses an ongoing EPA Clean Water Act inquiry relating to storm water discharge practices, for which the company cannot currently estimate costs. Management also reported that it had reduced its land option commitments significantly, withdrawing from option contracts covering approximately 43,900 lots during 2007, and that it expects minimal new land investment in the near term.
02—Key points
Key Highlights
- Homebuilding settlement revenues were $8.88 billion in 2007, down from $13.98 billion in 2006, on 27,540 units versus 41,487 units.
- Homebuilding pre-tax loss was $2.51 billion in 2007, compared with pre-tax income of $1.01 billion in 2006.
- Net loss was $2.26 billion, or $(8.94) per diluted share, compared with net income of $687.5 million, or $2.66 per diluted share, in 2006.
- Land-related charges totaled $2 billion in 2007, and goodwill impairment charges were $370 million.
- A $621.9 million non-cash deferred tax valuation allowance was recorded in the fourth quarter of 2007, reducing the effective tax rate to 8.9%.
- Cash and equivalents were $1.06 billion at December 31, 2007, and senior notes outstanding were $3.48 billion.
- Average unit selling price fell to $322,000 in 2007 from $337,000 in 2006, and gross profit margin from home sales was negative 5.0% versus positive 17.4% in 2006.
03—Questions
Frequently Asked Questions
What drove the large loss in 2007?
The filing attributes the loss to weakened demand for new homes, slower sales, higher cancellation rates, and increased price discounts and selling incentives. These factors led to $2 billion in land-related charges, $370 million in goodwill impairments, $189.9 million in joint venture impairments, and a $621.9 million deferred tax valuation allowance.
How did the company's liquidity position change?
Cash and equivalents increased to $1.06 billion at year-end from $551.3 million in 2006, while operating cash flow was $1.22 billion, largely from reduced inventory investment. The company amended its unsecured revolving credit facility in February 2008, reducing borrowing capacity to $1.6 billion, and Pulte Mortgage reduced its commercial paper program capacity to $150 million.
What does management expect for 2008?
Management stated that it expects difficult market conditions to continue to impact the company for at least the near term and that the majority of its markets will remain challenging throughout 2008. It currently anticipates minimal investment in new land parcels in the near term and continues to reduce overhead and production volumes.
Did the company continue paying dividends and repurchasing shares?
The company declared cash dividends of $0.16 per share in 2007, the same as in 2006, at $0.04 per quarter. No share repurchases were made under its programs during 2007, leaving $102.3 million of remaining repurchase authorization at December 31, 2007.
Are there any significant legal or regulatory matters disclosed?
The filing discloses an EPA request for information under the Clean Water Act regarding storm water discharge practices. The matter has been referred to the Department of Justice, and the company is engaged in pre-filing negotiations. The company believes it has defenses but cannot currently predict the outcome or estimate the costs of resolution.
04—Continue