01—Abstract
Summary
Summary of the 10-K filed February 5, 2014. Cited figures are marked; the original filing is the authoritative source.
PulteGroup, Inc. (NYSE: PHM) reported a sharp turnaround in 2013 as home sale revenues rose to $5.42 billiona from $4.55 billion in 2012, with closings up to 17,766 units from 16,505 and an average selling price of $305,000 versus $276,000.
Homebuilding income before income taxes increased to $479.1 millionb from $158.0 million, and home sale gross margin improved to 20.5% from 15.8%. Consolidated net income was $2.62 billion, or $6.72 per diluted share, driven largely by a $2.1 billion income tax benefit from the reversal of substantially all of the valuation allowance against deferred tax assets. Pretax income before that benefit was $527.8 million.
Balance sheet and capital allocation improved meaningfully. Cash and equivalents reached $1.58 billion, senior notes were reduced to $2.06 billionc from $2.51 billion after $461.4 million of early retirements, and the ratio of debt to total capitalization, excluding Financial Services debt, fell to 30.7% from 53.4% as stated in the filing. The company reinstated a quarterly dividend of $0.05 in July 2013 and repurchased $118.1 million of shares under a repurchase authorization increased to $352.3 million.
Net new orders fell 10% to 17,080 units as active communities declined 14% to 577, and backlog ended at $1.9 billiond (5,772 units). Key risks highlighted include exposure to claims on mortgage loans sold in 2006 and 2007, with reserves for self-insurance liabilities of $668.1 million at year-end, rising mortgage interest rates, competition in mortgage lending, and the reliance of future profitability on the realizability of deferred tax assets, which remain subject to Section 382 limitations. The company also announced a relocation of its corporate offices to Atlanta, Georgia, with expected costs of $21 million to $26 million for severance and relocation and $27 million to $32 million for lease termination and exit costs.
02—Key points
Key Highlights
- Home sale revenues rose 19% to $5.42 billion, with closings up 8% to 17,766 units and average selling price up 11% to $305,000.
- Home sale gross margin improved to 20.5% from 15.8%; adjusted home sale gross margin, a non-GAAP measure, was 25.2% versus 20.9% in 2012.
- Net income of $2.62 billion ($6.72 per diluted share) included a $2.1 billion income tax benefit from reversing substantially all of the deferred tax asset valuation allowance; pretax income was $527.8 million.
- Senior notes were reduced by $461.4 million during 2013, bringing the balance to $2.06 billion, and the debt-to-total-capitalization ratio excluding Financial Services debt fell to 30.7% from 53.4%.
- Cash and equivalents increased to $1.58 billion, and the company reinstated a quarterly dividend of $0.05 per share in July 2013, declaring three dividends totaling $0.15 per share for the year.
- Net new orders declined 10% to 17,080 units as active communities fell 14% to 577, while backlog remained at $1.9 billion (5,772 units).
- Remaining exposure includes mortgage loan repurchase and make-whole claims, with the Company's recorded self-insurance reserves at $668.1 million and a corporate headquarters relocation to Atlanta planned for completion by early 2015.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2013filed February 5, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $5.68B$4.82B | +17.8% |
| SG&A Expenses | $568.50M$514.46M | +10.5% |
| Interest Expense | $712K$819K | −13.1% |
| Net Income | $2.62B$206.15M | +1171.0% |
| EPS (Basic) | $6.79$0.54 | +1157.4% |
| EPS (Diluted) | $6.72$0.54 | +1144.4% |
| Shares Outstanding (Basic) | 383.08M381.56M | +0.4% |
| Shares Outstanding (Diluted) | 386.87M384.56M | +0.6% |
05—Questions
Frequently Asked Questions
What drove the large increase in net income in 2013?
Net income rose to $2.62 billion from $206.1 million in 2012, primarily because of a $2.1 billion income tax benefit from reversing substantially all of the valuation allowance against deferred tax assets. Income before income taxes also improved to $527.8 million from $183.6 million, driven by higher home sale revenues and gross margins.
How did the company's homebuilding operations perform?
Homebuilding income before income taxes was $479.1 million, compared with $158.0 million in 2012. Total homebuilding revenues increased to $5.54 billion from $4.66 billion, with home sale gross margin rising to 20.5% from 15.8%. Results were helped by lower loan loss reserves in Financial Services and a higher average selling price.
What is the company's debt and liquidity position at year-end 2013?
Senior notes totaled $2.06 billion at December 31, 2013, down from $2.51 billion a year earlier, after early retirements of $461.4 million. Unrestricted cash and equivalents were $1.6 billion, and the company stated that its operations and borrowing resources were sufficient for current and foreseeable capital requirements. The Financial Services repurchase agreement had $105.7 million outstanding.
What risks remain from the company's past mortgage operations?
The company may be responsible for losses on mortgage loans sold to investors in the event of errors or omissions in representations and warranties, with most losses relating to loans originated in 2006 and 2007. Recorded loan origination liabilities were $125.0 million at year-end 2013, and the company recorded no loss provisions for these in 2013 compared with $49.0 million in 2012. The company also has self-insurance liabilities of $668.1 million, and it noted that claims-related exposure could exceed existing estimates.
What is the outlook for orders and communities?
The company expects net new order volume to moderate in the short term as it maintains a more disciplined land investment strategy and calibrates sales pace to improve margins. Active communities ended the year at 577, down from 670, and the company stated that it has positioned itself to deliver improved long-term returns while continuing to pursue strategic land positions.
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