01—Abstract
Summary
Summary of the 10-K filed February 6, 2013. Cited figures are marked; the original filing is the authoritative source.
PulteGroup, Inc. (NYSE: PHM), one of the largest homebuilders in the United States, returned to profitability in 2012 as its homebuilding and financial services operations both improved.
Net income was $206.1 milliona, or $0.54 per diluted share, compared with a net loss of $210.4 million in 2011. Homebuilding pre-tax income was $158.0 million versus a loss of $275.8 million in 2011, helped by lower land-related charges ($17.2 million versus $35.8 million), lower goodwill impairments (none in 2012 versus $240.5 million in 2011), and higher home sale gross margins of 15.8%, up from 12.8%. Home closings rose 8% to 16,505 units, net new orders rose 25% to 19,039 units, and ending backlog grew 65% to 6,458 units, at an average selling price of $276,000.
Cash generation was strong. Net cash provided by operating activities was $760.1 millionb, aided by a $455.2 million reduction in inventories, and cash and equivalents rose to $1.40 billion at year-end. The company retired $592.4 million of senior notes during 2012, reducing senior notes to $2.51 billion, and recorded $32.1 million of losses on debt retirements.
The ratio of debt to total capitalization, excluding Financial Services debt, was 53.4%c, which management describes as above its desired target. No dividends were declared in 2012 or 2011. The filing also highlights ongoing risks.
Shareholders' equity was $2.19 billiond, but the company carries a full valuation allowance of $2.47 billion against its net deferred tax assets, and it estimates a range of $650 million to $800 million for reasonably possible losses on general liability construction defect claims, against recorded reserves of $721.3 million. Loan origination liabilities rose to $164.3 million, with reserve provisions of $49.0 million in 2012. Management expects 2013 to be a better year for U.S. housing than 2012, while noting that the timing of a broad, sustainable recovery remains uncertain.
02—Key points
Key Highlights
- Returned to profitability: net income of $206.1 million ($0.54 per diluted share) in 2012, versus a net loss of $210.4 million in 2011.
- Homebuilding income before income taxes of $158.0 million, compared with a $275.8 million loss in 2011; revenues rose 16% to $4.66 billion.
- Home sale gross margin improved to 15.8% from 12.8%; adjusted home sale gross margin reached 20.9%.
- Net new orders increased 25% to 19,039 units; ending backlog rose 65% to 6,458 units ($1.93 billion).
- Operating cash flow of $760.1 million, driven by a $455.2 million inventory reduction; cash and equivalents of $1.40 billion at year-end.
- Retired $592.4 million of senior notes in 2012, leaving $2.51 billion outstanding; debt-to-capitalization was 53.4% excluding Financial Services debt, above management's target.
- Ongoing contingent exposure: $721.3 million of general liability reserves and loan origination liabilities of $164.3 million, with a reasonably possible loss range of $650 million to $800 million on construction defect claims.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2012filed February 6, 2013Financial Statements
FY2012 against FY2011
| Line item | FY2012FY2011 | Change |
|---|---|---|
| Revenue | $4.82B$4.14B | +16.5% |
| SG&A Expenses | $514.46M$519.58M | −1.0% |
| Interest Expense | $819K$1.31M | −37.6% |
| Net Income | $206.15M-$210.39M | +198.0% |
| EPS (Basic) | $0.54$-0.55 | +198.2% |
| EPS (Diluted) | $0.54$-0.55 | +198.2% |
| Shares Outstanding (Basic) | 381.56M379.88M | +0.4% |
| Shares Outstanding (Diluted) | 384.56M379.88M | +1.2% |
05—Questions
Frequently Asked Questions
Why did PulteGroup return to profitability in 2012?
The filing attributes the turnaround to higher home sale revenues ($4.55 billion, up 15%), an increase in home sale gross margin to 15.8% from 12.8%, and better overhead leverage, with SG&A falling to 11.3% of home sale revenues from 13.2%. The company also recorded no goodwill impairments in 2012, compared with $240.5 million in 2011, and land-related charges fell to $17.2 million from $35.8 million.
How strong is the company's demand and backlog heading into 2013?
Net new orders rose 25% to 19,039 units in 2012, and the cancellation rate improved to 15% from 19%. Ending backlog was 6,458 units ($1.93 billion) at December 31, 2012, up 65% in units from 3,924 units a year earlier. Substantially all backlog is scheduled to close during 2013, though all orders remain subject to cancellation.
What are the main balance sheet and capital risks?
Debt-to-capitalization, excluding Financial Services debt, was 53.4%, which management says remains above its target, and the company is pursuing leverage reduction. Senior notes totaled $2.51 billion, with the next principal maturity of $398.9 million in 2014. The company holds a $2.47 billion valuation allowance against deferred tax assets, and the Section 382 limitation on Centex's pre-merger NOLs is approximately $67.4 million per year.
What legal and warranty exposures could affect future results?
The company records $721.3 million of self-insurance reserves, mainly for general liability construction defect claims, and estimates a reasonably possible loss range of $650 million to $800 million. Its mortgage operations also carry loan origination liabilities of $164.3 million, and management says future losses may exceed current estimates. Separately, it is indemnifying a bank in connection with two RMBS lawsuits involving $162 million of loans originated by Centex's mortgage subsidiary.
Does the company pay dividends or repurchase shares?
No. The company did not declare any dividends in 2012 or 2011, and future dividends will depend on earnings, capital requirements, and financial condition. It made no repurchases under its stock repurchase programs since 2006, leaving $102.3 million of remaining authorization at December 31, 2012.
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