01—Abstract
Summary
Summary of the 10-K filed February 26, 2009. Cited figures are marked; the original filing is the authoritative source.
Pulte Homes, Inc. reported a net loss of $1.47 billiona for fiscal 2008, compared with a net loss of $2.26 billion in 2007 and net income of $687.5 million in 2006.
Homebuilding revenues fell to $6.11 billionb from $9.12 billion in 2007, with home settlement units declining to 21,022 from 27,540. The company recorded land-related charges of $1.5 billion in 2008 and $2.2 billion in 2007, and goodwill impairments of $5.0 million in 2008. Management stated that it expects difficult market conditions to continue to affect the company for at least the near term and that the majority of its markets will remain challenging throughout 2009.
The filing states that the company has recorded a net loss in each quarter since the fourth quarter of 2006. Liquidity was $1.7 billionc in cash and equivalents at December 31, 2008, with no borrowings outstanding under the $1.2 billion unsecured revolving credit facility and $3.2 billion of senior notes outstanding. The company was in compliance with its credit facility covenants at year-end, but the filing warns that further deterioration or additional land-related charges could affect compliance.
The filing also notes that the company anticipates operating under the facility's borrowing base limitation throughout 2009, and that it has no investment-grade ratings from the rating agencies. The Board discontinued the regular quarterly dividend effective in the first quarter of 2009. The company also reduced its active communities to 459 from 636 and its backlog to $631 milliond from $2.5 billion.
Cash flow from operations was $1.22 billion in 2008, roughly unchanged from 2007, driven largely by inventory reductions. The company recorded a federal net operating loss for 2008 that it expects to carry back to 2006, resulting in a federal income tax refund of approximately $362.8 million. Its valuation allowance against deferred tax assets increased to $1.1 billion at year-end.
02—Key points
Key Highlights
- Net loss of $1.47 billion in 2008, compared with a net loss of $2.26 billion in 2007 and net income of $687.5 million in 2006.
- Homebuilding revenues of $6.11 billion in 2008, down from $9.12 billion in 2007; home settlement units fell to 21,022 from 27,540.
- Land-related charges totaled $1.5 billion in 2008 and $2.2 billion in 2007, and the average home selling price was $284,000 versus $322,000 in 2007.
- Cash and equivalents of $1.7 billion at December 31, 2008, with no borrowings under the $1.2 billion unsecured revolving credit facility and $3.2 billion of senior notes outstanding.
- The Board discontinued the regular quarterly dividend effective in the first quarter of 2009.
- Active communities fell to 459 from 636, and ending backlog was $631 million (2,174 units) versus $2.5 billion (7,890 units) a year earlier.
- Management expects challenging market conditions to continue for at least the near term and anticipates operating under the credit facility's borrowing base limitation throughout 2009.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2008filed February 26, 2009Financial Statements
| Revenue | $6.26B |
| SG&A Expenses | $814.51M |
| Interest Expense | $2.91M |
| Net Income | -$1.47B |
| EPS (Basic) | $-5.81 |
| EPS (Diluted) | $-5.81 |
| Shares Outstanding (Basic) | 253.51M |
| Shares Outstanding (Diluted) | 253.51M |
05—Questions
Frequently Asked Questions
Why did Pulte Homes report such a large net loss in 2008?
The filing attributes the loss to lower settlement revenues, lower gross margins from reduced selling prices and higher sales incentives, and significant land-related charges and impairments. Homebuilding gross margin from home sales was negative 10.1% in 2008, and the company recorded $1.2 billion of land and community valuation adjustments and $271.1 million of net realizable value adjustments on land held for sale.
Is Pulte Homes' liquidity adequate to fund operations?
Management states that its operations and borrowing resources are sufficient for current and foreseeable capital requirements, based on its financial condition and credit relationships. However, it notes that it may need to modify its approach if market conditions deteriorate further. The company had $846.7 million of full availability under its credit facility after $353.3 million of letters of credit, and it was in compliance with all covenants at December 31, 2008.
What risks does the credit facility covenant structure pose?
The credit facility requires the company not to exceed a debt-to-total capitalization ratio (49.4% at December 31, 2008, against a 55% requirement) and to meet a tangible net worth minimum, with a cushion of $722 million. Covenant violations, if not waived or cured, could lead to acceleration of borrowings and could also result in a default under the company's $3.2 billion of senior notes. The filing states that further land-related charges or market deterioration could adversely affect compliance.
Why did the company discontinue its dividend?
On November 24, 2008, the Board of Directors discontinued the regular quarterly dividend on the common stock effective in the first quarter of 2009. The filing does not provide a detailed rationale beyond the broader difficult market conditions described throughout the report. Dividends paid in 2008 totaled $41.1 million.
What does the 2008 tax benefit mean for the company?
The company generated a federal net operating loss for 2008 that it will carry back to 2006, resulting in an expected federal income tax refund of approximately $362.8 million. The company also recorded a valuation allowance against deferred tax assets that increased to $1.1 billion at December 31, 2008, reflecting its cumulative pre-tax loss position.
06—Continue