e10vk
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2007
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 1-9804
PULTE HOMES, INC.
(Exact name of registrant as specified in its charter)
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MICHIGAN
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38-2766606 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
100 Bloomfield Hills Parkway, Suite 300
Bloomfield Hills, Michigan 48304
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code: (248) 647-2750
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Name of each exchange on which registered |
Common Stock, par value $0.01
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New York Stock Exchange |
Pulte Homes, Inc. 7.375% Senior Notes due 2046
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New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405
of the Securities Act. YES þ NO o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. YES o NO þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES þ NO o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
is not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
(Do
not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). YES o NO þ
The aggregate market value of the registrants voting stock held by nonaffiliates of the
registrant as of June 30, 2007, based on the closing sale price per share as reported by the New
York Stock Exchange on such date, was $4,714,989,510.
As of February 20, 2008, the registrant had 257,522,674 shares of common stock outstanding.
Documents Incorporated by Reference
Applicable portions of the Proxy Statement for the 2008 Annual Meeting of Shareholders are
incorporated by reference in Part III of this Form.
PULTE HOMES, INC.
TABLE OF CONTENTS
2
PART I
ITEM 1. BUSINESS
Pulte Homes, Inc.
Pulte Homes, Inc. is a publicly held holding company whose subsidiaries engage in the
homebuilding and financial services businesses. Pulte Homes, Inc. is a Michigan corporation and
was organized in 1956. Our assets consist principally of the capital stock of our subsidiaries
and our income primarily consists of dividends from our subsidiaries. Our direct subsidiaries
include Pulte Diversified Companies, Inc., Del Webb Corporation (Del Webb), and other
subsidiaries engaged in the homebuilding business. Pulte Diversified Companies, Inc.s
operating subsidiaries include Pulte Home Corporation, Pulte International Corporation
(International), and other subsidiaries engaged in the homebuilding business. We also have a
mortgage banking company, Pulte Mortgage LLC (Pulte Mortgage), which is a subsidiary of Pulte
Home Corporation.
During 2007 and 2006, the U.S. housing market was impacted by a lack of consumer
confidence, decreased housing affordability, and large supplies of resale and new home
inventories and related pricing pressures. During 2007, these conditions continued to
deteriorate and were accompanied by increased foreclosure activity and constraints on the
availability of certain mortgage financing products. These factors contributed to weakened
demand for new homes, slower sales, higher cancellation rates, and increased price discounts and
selling incentives to attract homebuyers compared with recent years when we had experienced
record growth. The combination of these homebuilding industry and related mortgage financing
developments resulted in significant decreases in our revenues and profitability during 2007.
Homebuilding, our core business, is engaged in the acquisition and development of land
principally for residential purposes within the continental United States and Puerto Rico and
the construction of housing on such land targeted for the first-time, first and second move-up,
and active adult home buyers. We have determined our operating segments to be our Areas, which
are aggregated into seven reportable segments based on similarities in the economic and
geographic characteristics of our homebuilding operations. Accordingly, our reportable
homebuilding segments are as follows:
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Northeast:
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Northeast Area includes the following states:
Connecticut, Delaware, Maryland, Massachusetts, New Jersey,
New York, Pennsylvania, Virginia |
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Southeast:
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Southeast Area includes the following states:
Georgia, North Carolina, South Carolina, Tennessee |
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Florida:
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Florida Area includes the following state:
Florida |
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Midwest:
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Great Lakes Area includes the following states:
Colorado, Illinois, Indiana, Kansas, Michigan, Minnesota, Missouri, Ohio |
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Central:
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Texas Area includes the following state:
Texas |
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Southwest:
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Southwest Area includes the following states:
Arizona, Nevada, New Mexico |
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*California:
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Northern California and Southern California Areas include the following state:
California |
* Our homebuilding operations located in Reno, Nevada are reported in the California
segment, while our remaining Nevada homebuilding operations are reported in the Southwest
segment.
We also have one reportable segment for our financial services operations which consists
principally of mortgage banking and title operations conducted through Pulte Mortgage and our
other subsidiaries. Our financial services segment operates generally in the same markets as
our homebuilding segments.
3
Pulte Homes, Inc. (continued)
Financial information, including revenues, income (loss) from continuing operations
before income taxes, valuation adjustments and write-offs, depreciation and amortization,
equity income (loss), total assets, and inventory for each of our business segments is
included in Note 3 of our Consolidated Financial Statements.
Available Information
Our internet website address is www.pulte.com. Our annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports
filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available free
of charge through our website as soon as reasonably practicable after we electronically file
with or furnish them to the Securities and Exchange Commission. Our code of ethics for
principal officers, our corporate governance guidelines and the charters of the Audit,
Compensation, and Nominating and Governance committees of our Board of Directors are also
posted on our website and are available in print, free of charge, upon request.
Homebuilding Operations
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Years Ended December 31, |
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($000s omitted) |
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2007 |
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2006 |
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2005 |
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2004 |
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2003 |
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Homebuilding settlement revenues |
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8,881,509 |
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13,975,387 |
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14,370,667 |
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11,094,617 |
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$ |
8,482,341 |
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Homebuilding settlement units |
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27,540 |
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41,487 |
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45,630 |
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38,612 |
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32,693 |
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Through our brands, which include Pulte Homes, Del Webb, and DiVosta, we offer a wide
variety of home designs including single family detached, townhouses, condominiums, and
duplexes at different prices and with varying levels of options and amenities to all of our
major customer segments: first-time, first and second move-up, and active adult. Over our
58-year history, we have delivered over 500,000 homes.
As of December 31, 2007, our Homebuilding operations offered homes for sale in 636
communities. Sales prices of homes currently offered for sale in 72% of our communities fall
within the range of $100,000 to $400,000 with a 2007 average unit selling price of $322,000,
compared with $337,000 in 2006, $315,000 in 2005, $287,000 in 2004, and $259,000 in 2003.
Sales of single-family detached homes, as a percentage of total unit sales, were 74% in both
2007 and 2006, compared with 72% in 2005, 80% in 2004, and 83% in 2003. The decline in the
percentage of single-family detached homes can be attributed to an increase in sales of
townhouses, condominiums, and duplexes, which are most popular among our first-time and active
adult homebuyers. Our Homebuilding operations are geographically diverse and, as a result,
help to insulate us from demand changes in individual markets. As of December 31, 2007, our
Homebuilding business operated in 51 markets spanning 26 states.
Land acquisition and development
We select locations for development of homebuilding communities after completing extensive
market research, enabling us to match the location and product offering with our targeted
consumer group. We consider factors such as proximity to developed areas, population and job
growth patterns and, if applicable, estimated development costs. We historically have managed
the risk of controlling our land positions through the use of option contracts. We typically
control land with the intent to complete sales of housing units within 24 to 36 months from the
date of opening a community, except in the case of certain Del Webb active adult developments
and other selected large projects for which the completion of community build-out requires a
longer time period due to typically larger project sizes. As a result, land is generally
purchased after it is properly zoned and developed or is ready for development. In addition,
we dispose of owned land not required in the business through sales to appropriate end users.
Where we develop land, we engage directly in many phases of the development process, including
land and site planning, and obtaining environmental and other regulatory approvals, as well as
constructing roads, sewers, water and drainage facilities, and other amenities. We use our
staff and the services of independent engineers and consultants for land development
activities. Land development work is performed primarily by independent contractors and local
government authorities who construct sewer and water systems in some areas. At December 31,
2007, we controlled approximately 157,900 lots, of which 131,400 were owned and 26,500 were
under option agreements.
4
Homebuilding Operations (continued)
Sales and marketing
We are dedicated to improving the quality and value of our homes through innovative
proprietary architectural and community designs and state-of-the-art customer marketing
techniques. Analyzing various qualitative and quantitative data obtained through extensive
market research, we segment our potential customers into well-defined buyer profiles.
Segmentation analysis provides a method for understanding the business opportunities and risks
across the full spectrum of consumer groups in each market. Once the demands of potential
buyers are understood, we link our home design and community development efforts to the specific
lifestyle of each targeted consumer group.
To meet the demands of our various customers, we have established a solid design expertise
for a wide array of product lines. We believe that we are an innovator in the design of our
homes and we view design capacity as an integral aspect of our marketing strategy. Our in-house
architectural services teams and management, supplemented by outside consultants, are successful
in creating distinctive design features, both in exterior facades and interior options and
features. In certain markets our strategy is to offer the complete house in which most
features shown in the home are included in the sales price.
Typically, our sales teams, together with outside sales brokers, are responsible for
guiding the customer through the sales process. We are committed to industry-leading customer
service through a variety of quality initiatives, including our customer care program, which
ensures that homeowners are comfortable at every stage of the building process. Using a
seven-step, interactive process, homeowners are kept informed during their homebuilding and home
owning experience. The steps include (1) a pre-construction meeting with the superintendent;
(2) pre-dry wall frame walk; (3) quality assurance inspection; (4) first homeowner orientation;
(5) 30-day follow-up after the close of the home; (6) three-month follow-up; and (7) an 11-month
quality list after the close of the home. Fully furnished and landscaped model homes are used
to showcase our homes and their distinctive design features. We have success with the
first-time buyer in the low to moderate price range; in such cases, financing under United
States government-insured and guaranteed programs is often used and is facilitated through our
mortgage company. We also enjoy sales to the move-up buyer and, in certain markets, offer
semi-custom homes in higher price ranges.
Through our Del Webb brand, we are better able to address the needs of active adults, among
the fastest growing homebuying segments. We offer both destination communities and in place
communities, for those buyers who prefer to remain in their current geographic area. These
communities, with highly amenitized products such as golf courses, recreational centers and
educational classes, offer the active adult buyer many options to maintain an active lifestyle.
We have received recognition and awards as a result of our achievements as a homebuilder.
In June 2007, Pulte Homes was named among the Top 100 Best Places to Work in IT in
Computerworlds annual rankings. In April 2007, we ranked number 170 on the FORTUNE 500 List.
In addition, our Albuquerque, Central Valley, Chicago (Del Webb), Ft. Myers/Naples, Houston,
Jacksonville, L.A./Ventura, Orlando, Palm Beach (DiVosta), Philadelphia (Del Webb) and Tucson
(Del Webb) operations were recognized for ranking the highest in their markets in the J.D. Power
and Associates® 2007 New Home-Builder Customer Satisfaction Study. Nine of our operations
ranked second in their respective markets, while six operations ranked third. Pulte brands,
which include Pulte Homes, Del Webb, and DiVosta, were surveyed in 26 of the 34 total markets
analyzed. The survey noted customer service, home readiness at the time of closing, and the
companys sales staff as the three factors that most heavily influenced the customers overall
level of satisfaction. This years homebuilder rankings also included new studies which
evaluated homebuyers satisfaction with new-home quality, new-home design, and builder mortgage
origination. Pulte Homes market operations earned top rankings for new-home quality in eight
markets, new-home design in nine markets, and builder mortgage origination in three markets.
Our Homeowner for LifeTM philosophy has increased our business from customers
who have previously owned a Pulte home or have been referred by a Pulte homeowner by ensuring a
positive home buying and home owning experience. We introduce our homes to prospective buyers
through a variety of media advertising, illustrated brochures, Internet listings and link
placements, and other advertising displays. In addition, our websites, www.pulte.com,
www.delwebb.com, and www.divosta.com provide tools to help users find a home that meets their
needs, investigate financing alternatives, communicate moving plans, maintain a home, learn more
about us, and communicate directly with us. Approximately 7.3 million potential customers
visited our websites during 2007.
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Homebuilding Operations (continued)
Construction
The construction process for our homes begins with the in-house design of the homes we sell.
The building phase is conducted under the supervision of our on-site construction
superintendents. The construction work is usually performed by independent contractors under
contracts that, in many instances, cover both labor and materials on a fixed-price basis. In
certain markets, we provide a unique design and production process that is highly efficient, and
results in lower costs, higher overall specification, and increased value to our customers. We
believe that Pulte Preferred Partnerships (P3), an extension of our quality assurance
program, continues to establish new standards for contractor relations. Using a selective
process, we have teamed up with what we believe are premier contractors and suppliers to improve
all aspects of the land development and house construction processes.
We maintain efficient construction operations by using standard materials and components
from a variety of sources and, when possible, by building on contiguous lots. To minimize the
effects of changes in construction costs, the contracting and purchasing of building supplies and
materials generally is negotiated at or near the time when related sales contracts are signed.
In addition, we leverage our size by actively negotiating our materials needs on a national or
regional basis to minimize production component cost. We are also working to establish a more
integrated system that can effectively link suppliers, contractors, and the production schedule
through various strategic business partnerships and e-business initiatives.
We cannot determine the extent to which necessary building materials will be available at
reasonable prices in the future and have, on occasion, experienced shortages of skilled labor in
certain trades and of building materials in some markets.
Competition and other factors
Our operations are subject to building, environmental, and other regulations of various
federal, state, and local governing authorities. For our homes to qualify for Federal Housing
Administration (FHA) or Veterans Administration (VA) mortgages, we must satisfy valuation
standards and site, material, and construction requirements of those agencies. Our compliance
with federal, state, and local laws relating to protection of the environment has had, to date,
no material effect upon capital expenditures, earnings, or competitive position. More stringent
requirements could be imposed in the future on homebuilders and developers, thereby increasing
the cost of compliance.
Our dedication to customer satisfaction is evidenced by our consumer and value-based brand
approach to product development and is something that we believe distinguishes us in the
homebuilding industry and contributes to our long-term competitive advantage. The housing
industry in the United States, however, is highly competitive. In each of our market areas,
there are numerous homebuilders with which we compete. We also compete with the resales of
existing house inventory. Any provider of housing units, for sale or to rent, including
apartment builders, may be considered a competitor. Conversion of apartments to condominiums
further provides certain segments of the population an alternative to traditional housing, as
does manufactured housing. We compete primarily on the basis of price, reputation, design,
location, and quality of our homes. The housing industry is affected by a number of economic and
other factors including: (1) significant national and world events, which impact consumer
confidence; (2) changes in the costs of building materials and labor; (3) changes in interest
rates; (4) changes in other costs associated with home ownership, such as property taxes and
energy costs; (5) various demographic factors; (6) changes in federal income tax laws; (7)
changes in government mortgage financing programs; and (8) availability of sufficient mortgage
capacity. In addition to these factors, our business and operations could be affected by shifts
in demand for new homes.
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Financial Services Operations
We conduct our financial services business, which includes mortgage and title operations,
through Pulte Mortgage and other subsidiaries. Our mortgage bank arranges financing through the
origination of mortgage loans primarily for the benefit of our homebuyers. We also engage in
the sale of such loans and the related servicing rights. We are a lender approved by the FHA
and VA and are a seller/servicer approved by Government National Mortgage Association (GNMA),
Federal National Mortgage Association (FNMA), Federal Home Loan Mortgage Corporation (FHLMC)
and other investors. In our conventional mortgage lending activities, we follow underwriting
guidelines established by FNMA, FHLMC, and private investors.
Our mortgage underwriting, processing and closing functions are centralized in Denver,
Colorado and Charlotte, North Carolina using a mortgage operations center (MOC) concept. We
also use a centralized telephone loan officer concept where loan officers are centrally located
at mortgage application centers (MAC) in Denver and Charlotte. We believe both the MOC and
the MAC improve the speed and efficiency of our mortgage operations, thereby improving our
profitability and allowing us to focus on creating attractive mortgage financing opportunities
for our customers. In 2007, we had a high level of utilization
of our online customer questionnaire. The majority of our customers now send us their data
online to start the mortgage process. Once the questionnaire is received, an interview is
scheduled and the combination of the interview with the data sent online represents
our mortgage application.
In originating mortgage loans, we initially use our own funds and borrowings made available
to us through various credit arrangements. Subsequently, we sell such mortgage loans and
mortgage-backed securities to outside investors.
Our capture rates for 2007, 2006, and 2005 were 92%, 91%, and 89%, respectively. Our
capture rate represents loan originations from our homebuilding business as a percentage of
total loan opportunities from our homebuilding business excluding cash settlements. During
2007, 2006, and 2005, we originated mortgage loans for 76%, 77%, and 75%, respectively, of the
homes we sold. Such originations represented substantially all of our total originations in
each of those years.
We sell our servicing rights monthly on a flow basis through fixed price servicing sales
contracts to reduce the risks inherent in servicing loans. This strategy results in owning the
servicing rights for only a short period of time, which substantially reduces the risk of
impairment with respect to the fair value of these reported assets. The servicing sales
contracts provide for the reimbursement of payments made when loans prepay within specified
periods of time, usually 90 days after sale or securitization.
The mortgage industry in the United States is highly competitive. We compete with other
mortgage companies and financial institutions to provide attractive mortgage financing to our
homebuyers. The Internet is also an important resource for homebuyers in obtaining financing as
a number of companies provide online approval for their customers. These Internet-based
mortgage companies may also be considered competitors.
In originating and servicing mortgage loans, we are subject to rules and regulations of the
FHA, VA, GNMA, FNMA, and FHLMC. In addition to being affected by changes in these programs, our
mortgage banking business is also affected by several of the same factors that impact our
homebuilding business.
Our subsidiary title insurance companies serve as title insurance agents in selected
markets by providing title insurance policies, and examination and closing services to buyers of
homes we sell.
Financial Information About Geographic Areas
We currently operate primarily within the United States. However, we have some
non-operating foreign entities, which are insignificant to our consolidated financial results.
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Discontinued Operations
First Heights
In 2005, we completed the disposal of First Heights, our former bank subsidiary. During the
years ended December 31, 2006 and 2005, results of operations were included in income from
discontinued operations. Income from discontinued operations for the year ended December 31,
2005 included income tax benefits resulting from the favorable resolution of certain tax matters.
We also received payment in December 2005 for a judgment resulting from litigation related to
First Heights 1988 acquisition from the Federal Savings and Loan Insurance Corporation and First
Heights ownership of five failed thrifts. The payment was recorded as income from discontinued
operations.
Mexico Homebuilding Operations
In January 2005, the minority shareholders of Pulte Mexico S. de R.L. de C.V. (Pulte
Mexico) exercised a put option under the terms of a reorganization agreement dated as of
December 31, 2001, to sell their shares to us, the consummation of which resulted in our owning
100% of Pulte Mexico. In March 2005, we purchased 60% of the minority interest of Pulte Mexico
for approximately $18.7 million in cash. In June 2005, we purchased the remaining 40% of the
minority interest of Pulte Mexico for approximately $12.5 million in cash.
In December 2005, we sold substantially all of our Mexico homebuilding operations to a
consortium of purchasers involved in residential and commercial real estate development. We
realized cash of $131.5 million related to the sale. The sale of these operations did not
include our investment in the capital stock of a mortgage company in Mexico as well as various
non-operating entities, which are not considered to be material to our results of operations or
our financial position. For 2007, 2006, and 2005, the Mexico homebuilding operations have been
presented as discontinued operations in our Consolidated Financial Statements.
Argentina
In January 2005, we sold all of our Argentina operations to an Argentine company involved in
residential and commercial real estate development. For the year ended December 31, 2006, loss
from discontinued operations included a provision resulting from a contractual adjustment related
to the disposition.
Other Non-Operating Expenses
Other non-operating expenses, net consists of income and expenses related to corporate
services provided to our subsidiaries. These expenses are incurred for financing, developing,
and implementing strategic initiatives centered on new business development and operating
efficiencies and providing the necessary administrative support associated with being a publicly
traded entity listed on the New York Stock Exchange.
Organization/Employees
All subsidiaries and operating units operate independently with respect to daily operations.
Homebuilding real estate purchases and other significant homebuilding, mortgage banking,
financing activities and similar operating decisions must be approved by the business units
management and/or corporate senior management.
At December 31, 2007, we employed approximately 8,500 people, of which approximately 2,200
people were employed in our vertically-integrated construction operations in our Southwest
reporting segment. Our employees are not represented by any union. Contracted work, however,
may be performed by union contractors. Homebuilding and mortgage banking management personnel
are paid performance bonuses and incentive compensation. Performance bonuses are based on
individual performance while incentive compensation is based on the performance of the applicable
business unit, subsidiary or the Company. Our corporate management personnel are paid incentive
compensation based on our overall performance. Each subsidiary is given autonomy regarding
employment of personnel, although our senior corporate management acts in an advisory capacity in
the employment of subsidiary officers. We consider our employee and contractor relations to be
satisfactory.
8
ITEM 1A. RISK FACTORS
Discussion of our business and operations included in this annual report on Form 10-K
should be read together with the risk factors set forth below. They describe various risks and
uncertainties to which we are, or may become subject. These risks and uncertainties, together
with other factors described elsewhere in this report, have the potential to affect our
business, financial condition, results of operations, cash flows, strategies, or prospects in a
material and adverse manner.
Downward changes in general economic, real estate construction, or other business conditions
could adversely affect our business or our financial results.
The residential homebuilding industry is sensitive to changes in economic conditions and
other factors, such as the level of employment, consumer confidence, consumer income,
availability of financing, and interest rate levels. Adverse changes in any of these conditions
generally, or in the markets where we operate, could decrease demand and pricing for new homes
in these areas or result in customer cancellations of pending contracts, which could adversely
affect the number of home deliveries we make or reduce the prices we can charge for homes,
either of which could result in a decrease in our revenues and earnings and would adversely
affect our financial condition.
The homebuilding industry is currently experiencing an economic down cycle, which has had an
adverse effect on our business and results of operations.
Prior to 2006, land and home prices rose significantly in many of our markets. However,
during 2007 and 2006, the homebuilding industry was impacted by lack of consumer confidence,
decreased housing affordability, and large supplies of resale and new home inventories which
resulted in an industry-wide softening of demand for new homes. As a result of these factors,
we have experienced significant decreases in our revenues and profitability. We have also
incurred substantial impairments of our land and certain other assets. We cannot predict the
duration or the severity of the current market conditions, nor provide any assurances that the
adjustments we have made in our operating strategy to address these conditions will be
successful.
If the market value of our land and homes drops significantly, our profits could decrease.
The market value of land, building lots and housing inventories can fluctuate significantly
as a result of changing market conditions and the measures we employ to manage inventory risk
may not be adequate to insulate our operations from a severe drop in inventory values. We
acquire land for expansion into new markets and for replacement of land inventory and expansion
within our current markets. If housing demand decreases below what we anticipated when we
acquired our inventory, we may not be able to make profits similar to what we have made in the
past, we may experience less than anticipated profits, and/or we may not be able to recover our
costs when we sell and build homes. When market conditions are such that land values are not
appreciating, option arrangements previously entered into may become less desirable, at which
time we may elect to forego deposits and pre-acquisition costs and terminate the agreement. In
the face of adverse market conditions, we may have substantial inventory carrying costs, we may
have to write-down our inventory to its fair value, and/or we may have to sell land or homes at
a loss.
As a result of the changing market conditions in the homebuilding industry which occurred
during 2007 and 2006, we incurred significant land-related charges in 2007 and 2006 resulting
from the write-off of deposit and other related costs related to land transactions we no longer
plan to pursue, net realizable valuation adjustments related to land positions sold or held for
sale, impairments on land assets related to communities under development or to be developed in
the future, and impairments of our investments in unconsolidated joint ventures. It is possible
that the estimated cash flows from these projects may change and could result in a future need
to record additional valuation or net realizable adjustments. Additionally, if conditions in
the homebuilding industry worsen in the future or if our strategy related to certain communities
changes, we may be required to evaluate our assets, including additional projects, for
additional impairments or write-downs, which could result in additional charges that might be
significant.
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Our success depends on our ability to acquire land suitable for residential homebuilding at
reasonable prices, in accordance with our land investment criteria.
The homebuilding industry is highly competitive for suitable land. The availability of
finished and partially finished developed lots and undeveloped land for purchase that meet our
internal criteria depends on a number of factors outside our control, including land
availability in general, competition with other homebuilders and land buyers for desirable
property, inflation in land prices, zoning, allowable housing density, and other regulatory
requirements. Should suitable lots or land become less available, the number of homes we may
be able to build and sell could be reduced, and the cost of land could be increased, perhaps
substantially, which could adversely impact our results of operations.
Our long-term ability to build homes depends on our acquiring land suitable for
residential building at reasonable prices in locations where we want to build. Over the past
few years, we have experienced an increase in competition for suitable land as a result of land
constraints in many of our markets. As competition for suitable land increases, and as
available land is developed, the cost of acquiring suitable remaining land could rise, and the
availability of suitable land at acceptable prices may decline. Any land shortages or any
decrease in the supply of suitable land at reasonable prices could limit our ability to develop
new communities or result in increased land costs. We may not be able to pass through to our
customers any increased land costs, which could adversely impact our revenues, earnings, and
margins.
Future increases in interest rates, reductions in mortgage availability, or increases in the
effective costs of owning a home could prevent potential customers from buying our homes and
adversely affect our business and financial results.
Most of our customers finance their home purchases through our mortgage bank. Interest
rates have been at historical lows for several years. Many homebuyers have also chosen
adjustable rate, interest-only, or other types of mortgages that involve lower initial monthly
payments. As a result, new homes have been more affordable. Increases in interest rates or
decreases in availability of mortgage financing, however, could reduce the market for new
homes. Potential homebuyers may be less willing or able to pay the increased monthly costs or
to obtain mortgage financing that exposes them to interest rate changes. Lenders may increase
the qualifications needed for mortgages or adjust their terms to address any increased credit
risk. Even if potential customers do not need financing, changes in interest rates and
mortgage availability could make it harder for them to sell their current homes to potential
buyers who need financing. These factors could adversely affect the sales or pricing of our
homes and could also reduce the volume or margins in our financial services business.
Beginning in early 2007, the availability of certain mortgage financing products has become
more constrained as the mortgage industry began to more closely scrutinize sub-prime, Alt-A,
and other non-conforming mortgage products. While we do not retain any material risks
associated with the loans we originate, our financial services business could be impacted to
the extent we are unable to match interest rates and amounts on loans we have committed to
originate through the various hedging strategies we employ. Additionally, these developments
have had, and may continue to have, a material adverse effect on the overall demand for new
housing and thereby on the results of operations for our homebuilding business.
In addition, we believe that the availability of FHA and VA mortgage financing is an
important factor in marketing some of our homes. We also believe that the liquidity provided
by Fannie Mae and Freddie Mac to the mortgage industry is important to the housing market. Any
limitations or restrictions on the availability of financing by these agencies could adversely
affect interest rates, mortgage financing, and our sales of new homes and mortgage loans.
Our future growth may require additional capital, which may not be available.
Our operations require significant amounts of cash. We may be required to seek additional
capital, whether from sales of equity or debt or additional bank borrowings, for the future
growth and development of our business. We can give no assurance as to the availability of
such additional capital or, if available, whether it would be on terms acceptable to us.
Moreover, the indentures for most of our outstanding public debt and the covenants of our
revolving credit facility contain provisions that may restrict the debt we may incur in the
future. If we are not successful in obtaining sufficient capital, it could reduce our sales
and may adversely affect our future growth and financial results.
10
Competition for homebuyers could reduce our deliveries or decrease our profitability.
The housing industry in the United States is highly competitive. We compete primarily on
the basis of price, reputation, design, location, and quality of our homes. We compete in each
of our markets with numerous national, regional, and local homebuilders. This competition with
other homebuilders could reduce the number of homes we deliver or cause us to accept reduced
margins in order to maintain sales volume.
We also compete with resales of existing or foreclosed homes, housing speculators, and
available rental housing. Increased competitive conditions in the residential resale or rental
market in the regions where we operate could decrease demand for new homes and increase
cancellations of sales contracts in backlog.
Supply shortages and other risks related to the demand for skilled labor and building materials
could increase costs and delay deliveries.
The homebuilding industry is highly competitive for skilled labor and materials. Increased
costs or shortages of skilled labor and/or lumber, framing, concrete, steel, and other building
materials could cause increases in construction costs and construction delays. The current
national debate related to immigration reform could impact the related laws and regulations in
the markets in which we operate and result in shortages of skilled labor and higher labor and
compliance costs, potentially affecting our ability to complete construction and land
development. We generally are unable to pass on increases in construction costs to those
customers who have already entered into sale contracts as those sales contracts generally fix
the price of the home at the time the contract is signed, which may be well in advance of the
construction of the home. Sustained increases in construction costs may, over time, erode our
margins, and pricing competition for materials and labor may restrict our ability to pass on any
additional costs, thereby decreasing our margins.
Our income tax provision and tax reserves may be insufficient if a taxing authority is
successful in asserting positions that are contrary to our interpretations and related reserves,
if any.
Significant judgment is required in determining our provision for income taxes and our
reserves for federal, state, and local taxes. In the ordinary course of business, there may be
matters for which the ultimate outcome is uncertain. Although we believe our approach to
determining the tax treatment is appropriate, no assurance can be given that the final tax
authority review will not be materially different than that which is reflected in our income tax
provision and related tax reserves. Such differences could have a material adverse effect on
our income tax provision in the period in which such determination is made and, consequently, on
our net income for such period.
From time to time, we are audited by various federal, state, and local authorities
regarding tax matters. Our current audits are in various stages of completion; however, no
outcome for a particular audit can be determined with certainty prior to the conclusion of the
audit, appeal and, in some cases, litigation process. As each audit is concluded, adjustments,
if any, are appropriately recorded in our financial statements in the period determined. To
provide for potential tax exposures, we maintain tax reserves based on reasonable estimates of
potential audit results. However, if the reserves are insufficient upon completion of an audit,
there could be an adverse impact on our financial position and results of operations.
We may not realize our deferred income tax assets.
The ultimate realization of our deferred income tax assets is dependent upon utilization of
taxable income in prior carryback years, generating future taxable income, executing tax
planning strategies, and reversals of existing taxable temporary differences. We have recorded
a valuation allowance against certain deferred income tax assets. The valuation allowance may
fluctuate as conditions change or if we are unable to implement certain tax planning strategies.
An increase in the valuation allowance would reduce the carrying value of the deferred income
tax assets and have an adverse impact on our financial position and results of operations.
Government regulations could increase the cost and limit the availability of our development and
homebuilding projects or affect our related financial services operations and adversely affect
our business or financial results.
Our operations are subject to building, environmental, and other regulations of various
federal, state, and local governing authorities. For our homes to qualify for FHA or VA
mortgages, we must satisfy valuation standards and site, material, and construction requirements
of those agencies. Our compliance with federal, state, and local laws relating to protection of
the environment has had, to date, no material effect upon capital expenditures, earnings, or
competitive position. More stringent requirements could be imposed in the future on
homebuilders and developers, thereby increasing the cost of compliance.
11
New housing developments may be subject to various assessments for schools, parks,
streets, and other public improvements. These can cause an increase in the effective prices
for our homes. In addition, increases in property tax rates by local governmental authorities,
as recently experienced in response to reduced federal and state funding, can adversely affect
the ability of potential customers to obtain financing or their desire to purchase new homes.
We also are subject to a variety of local, state, and federal laws and regulations
concerning protection of health, safety, and the environment. The impact of environmental laws
varies depending upon the prior uses of the building site or adjoining properties and may be
greater in areas with less supply where undeveloped land or desirable alternatives are less
available. These matters may result in delays, may cause us to incur substantial compliance,
remediation and other costs, and can prohibit or severely restrict development and homebuilding
activity in environmentally sensitive regions or areas.
Our financial services operations are also subject to numerous federal, state, and local
laws and regulations. These include eligibility requirements for participation in federal
loan programs and compliance with consumer lending and similar requirements such as disclosure
requirements, prohibitions against discrimination, and real estate settlement procedures.
They may also subject our operations to examination by applicable agencies. These may limit
our ability to provide mortgage financing or title services to potential purchasers of our
homes.
Homebuilding is subject to warranty and liability claims in the ordinary course of business that
can be significant.
As a homebuilder, we are subject to home warranty and construction defect claims arising in
the ordinary course of business. We record warranty and other reserves for the homes we sell
based on historical experience in our markets and our judgment of the qualitative risks
associated with the types of homes built. We have, and require the majority of our
subcontractors to have, general liability, property, errors and omissions, workers compensations,
and other business insurance. These insurance policies protect us against a portion of our risk
of loss from claims, subject to certain self-insured retentions, deductibles, and other coverage
limits. Through our captive insurance subsidiaries, we reserve for costs to cover our
self-insured and deductible amounts under these policies and for any costs of claims and
lawsuits, based on an analysis of our historical claims, which includes an estimate of claims
incurred but not yet reported. Because of the uncertainties inherent to these matters, we cannot
provide assurance that our insurance coverage, our subcontractor arrangements and our reserves
will be adequate to address all our warranty and construction defect claims in the future.
Contractual indemnities can be difficult to enforce, we may be responsible for applicable
self-insured retentions and some types of claims may not be covered by insurance or may exceed
applicable coverage limits. Additionally, the coverage offered by and the availability of
general liability insurance for construction defects are currently limited and costly. We have
responded to the recent increases in insurance costs and coverage limitations by increasing our
self-insured retentions and claim reserves. There can be no assurance that coverage will not be
further restricted and become more costly.
Natural disasters and severe weather conditions could delay deliveries, increase costs, and
decrease demand for new homes in affected areas.
Our homebuilding operations are located in many areas that are subject to natural disasters
and severe weather. The occurrence of natural disasters or severe weather conditions can delay
new home deliveries, increase costs by damaging inventories, reduce the availability of
materials, and negatively impact the demand for new homes in affected areas. Furthermore, if our
insurance does not fully cover business interruptions or losses resulting from these events, our
earnings, liquidity, or capital resources could be adversely affected.
Inflation may result in increased costs that we may not be able to recoup if demand declines.
Inflation can have a long-term impact on us because increasing costs of land, materials, and
labor may require us to increase the sales prices of homes in order to maintain satisfactory
margins. However, inflation is often accompanied by higher interest rates, which have a negative
impact on housing demand, in which case we may not be able to raise home prices sufficiently to
keep up with the rate of inflation and our margins could decrease.
Future terrorist attacks against the United States or increased domestic and international
instability could have an adverse effect on our operations.
A future terrorist attack against the United States could cause a sharp decrease in the
number of new contracts signed for homes and an increase in the cancellation of existing
contracts. Accordingly, adverse developments in the war on terrorism, future terrorist attacks
against the United States, or increased domestic and international instability could adversely
affect our business.
12
ITEM 1B. UNRESOLVED STAFF COMMENTS
This Item is not applicable.
ITEM 2. PROPERTIES
Our homebuilding and corporate headquarters are located at 100 Bloomfield Hills Parkway,
Bloomfield Hills, Michigan 48304, where we lease 155,392 square feet of office space. We lease
54,380 square feet of office space at 1230 West Washington Street, Tempe, Arizona 85281 for
certain corporate and business services. Pulte Mortgages offices are located at 7475 South
Joliet Street, Englewood, Colorado 80112 and 12300 East Arapahoe Road, Centennial, Colorado
80112. We lease approximately 61,436 square feet and 43,050 square feet, respectively, of
office space at these locations. Pulte Mortgage also leases 31,803 square feet of office space
at 3700 Arco Corporate Drive, Charlotte, North Carolina 28273. Our homebuilding markets and
mortgage branch operations generally lease office space for their day-to-day operations.
Because of the nature of our homebuilding operations, significant amounts of property are
held as inventory in the ordinary course of our homebuilding business. Such properties are not
included in response to this Item.
ITEM 3. LEGAL PROCEEDINGS
We are involved in various legal and governmental proceedings incidental to our continuing
business operations, many involving claims related to certain construction defects. The
consequences of these matters are not presently determinable but, in our opinion after
consulting with legal counsel and taking into account insurance and reserves, the ultimate
liability is not expected to have a material adverse impact on our results of operations,
financial position, or cash flows.
In April 2004, we received a request for information from the United States Environmental
Protection Agency (EPA) pursuant to Section 308 of the Clean Water Act. The request seeks
information about storm water discharge practices in connection with homebuilding projects
completed or underway by us. We have provided the EPA with this information. Although the
matter has since been referred to the United States Department of Justice (DOJ) for
enforcement, the EPA has asked that we engage in pre-filing negotiations to resolve the matter
short of litigation. We are actively engaged in these negotiations. If the negotiations fail
and the DOJ alleges that we have violated regulatory requirements applicable to storm water
discharges, the government may seek injunctive relief and penalties. We believe that we have
defenses to any such allegations. At this time, however, we can neither predict the outcome of
this inquiry, nor can we currently estimate the costs that may be associated with its eventual
resolution.
13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
This Item is not applicable.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is certain information with respect to our executive officers.
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|
|
Year Became |
Name |
|
Age |
|
Position |
|
An Officer |
William J. Pulte
|
|
|
75 |
|
|
Chairman of the Board
|
|
|
1956 |
|
Richard J. Dugas, Jr.
|
|
|
42 |
|
|
President and Chief Executive Officer
|
|
|
2002 |
|
Steven C. Petruska
|
|
|
49 |
|
|
Executive Vice President and Chief Operating Officer
|
|
|
2004 |
|
Roger A. Cregg
|
|
|
51 |
|
|
Executive Vice President and Chief Financial Officer
|
|
|
1997 |
|
James R. Ellinghausen
|
|
|
49 |
|
|
Executive Vice President, Human Resources
|
|
|
2005 |
|
Peter J. Keane
|
|
|
42 |
|
|
Senior Vice President, Operations
|
|
|
2006 |
|
Steven M. Cook
|
|
|
49 |
|
|
Vice President, General Counsel and Secretary
|
|
|
2006 |
|
Vincent J. Frees
|
|
|
57 |
|
|
Vice President and Controller
|
|
|
1995 |
|
Gregory M. Nelson
|
|
|
52 |
|
|
Vice President and Assistant Secretary
|
|
|
1993 |
|
Bruce E. Robinson
|
|
|
46 |
|
|
Vice President and Treasurer
|
|
|
1998 |
|
The following is a brief account of the business experience of each officer during the past five
years:
Mr. Pulte was appointed Chairman of the Board in December 2001. He has also served as Chairman
of the Executive Committee of the Board of Directors since January 1999.
Mr. Dugas was appointed President and Chief Executive Officer in July 2003. Prior to that date,
he served as Executive Vice President and Chief Operating Officer. He was appointed Chief
Operating Officer in May 2002 and Executive Vice President in December 2002. Since joining our
company in 1994, he has served in a variety of management positions.
Mr. Petruska was appointed Executive Vice President and Chief Operating Officer in January 2004.
Since joining our company in 1984, he has held a number of management positions. Most recently,
he was the President for both the Arizona Area and Nevada Area operations.
Mr. Cregg was appointed Executive Vice President in May 2003 and was named Chief Financial
Officer effective January 1998.
Mr. Ellinghausen was appointed Executive Vice President, Human Resources in December 2006
and previously held the position of Senior Vice President, Human Resources since April 2005.
Prior to joining our Company, Mr. Ellinghausen held the position of Head of Human Resources for
Bristol-Meyers Squibb Company Worldwide Businesses and was employed by Bristol-Meyers Squibb
Company since 1997.
Mr. Keane was appointed Senior Vice President, Operations, in January 2006. He joined Pulte in
1993 and has served in a variety of management positions, mostly in the Midwest region. Most
recently, he was the President of the Great Lakes Area.
Mr. Cook was appointed Vice President, General Counsel and Secretary in February 2006. Prior to
joining our Company, Mr. Cook most recently held the position of Vice President and Deputy
General Counsel, Corporate, at Sears Holdings Corporation and was employed by Sears, Roebuck and
Co. since 1996.
Mr. Frees has been Vice President and Controller since May 1995.
Mr. Nelson has been Vice President and Assistant Secretary since August 1993.
Mr. Robinson has been Vice President and Treasurer since July 1998.
There is no family relationship between any of the officers. Each officer serves at the
pleasure of the Board of Directors.
14
PART II
|
|
|
ITEM 5. |
|
MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES |
Our common shares are listed on the New York Stock Exchange (Symbol: PHM).
Related Stockholder Matters
The table below sets forth, for the quarterly periods indicated, the range of high and low
closing prices and cash dividends declared per share.
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|
|
|
|
|
|
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|
|
2007 |
|
2006 |
|
|
|
|
|
|
|
|
|
|
Declared |
|
|
|
|
|
|
|
|
|
Declared |
|
|
High |
|
Low |
|
Dividends |
|
High |
|
Low |
|
Dividends |
1st Quarter |
|
$ |
35.10 |
|
|
$ |
25.99 |
|
|
$ |
0.04 |
|
|
$ |
40.72 |
|
|
$ |
36.04 |
|
|
$ |
0.04 |
|
2nd Quarter |
|
|
27.61 |
|
|
|
22.45 |
|
|
|
0.04 |
|
|
|
37.05 |
|
|
|
26.56 |
|
|
|
0.04 |
|
3rd Quarter |
|
|
21.85 |
|
|
|
13.47 |
|
|
|
0.04 |
|
|
|
33.23 |
|
|
|
27.53 |
|
|
|
0.04 |
|
4th Quarter |
|
|
13.68 |
|
|
|
9.08 |
|
|
|
0.04 |
|
|
|
34.80 |
|
|
|
28.29 |
|
|
|
0.04 |
|
At February 20, 2008, there were 1,838 shareholders of record.
Issuer Purchases of Equity Securities (1)
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(d) |
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|
|
Approximate dollar |
|
|
|
|
|
|
|
|
|
|
|
(c) |
|
|
value of shares |
|
|
|
|
|
|
|
|
|
|
|
Total number of |
|
|
that may yet be |
|
|
|
(a) |
|
|
(b) |
|
|
shares purchased |
|
|
purchased under |
|
|
|
Total number |
|
|
Average |
|
|
as part of publicly |
|
|
the plans or |
|
|
|
of shares |
|
|
price paid |
|
|
announced plans |
|
|
programs |
|
|
|
purchased (2) |
|
|
per share (2) |
|
|
or programs |
|
|
($000s omitted) |
|
October 1, 2007 to October 31, 2007 |
|
|
582 |
|
|
$ |
14.15 |
|
|
|
|
|
|
$ |
102,342 |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 1, 2007 to November 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
102,342 |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 1, 2007 to December 31, 2007 |
|
|
87,535 |
|
|
$ |
11.58 |
|
|
|
|
|
|
$ |
102,342 |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
88,117 |
|
|
$ |
11.59 |
|
|
|
|
|
|
$ |
102,342 |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Pursuant to the two $100 million stock repurchase programs authorized and announced by our
Board of Directors in October 2002 and 2005 and the $200 million stock repurchase
authorized and announced in February 2006 (for a total stock repurchase authorization of
$400 million), the Company has repurchased a total of 9,688,900 shares for a total of
$297.7 million. There are no expiration dates for the programs. |
|
(2) |
|
During October and December 2007, a total of 88,117 shares were surrendered by employees
for payment of minimum tax obligations upon the vesting of restricted stock, and were not
repurchased as part of our publicly announced stock repurchase programs. |
Performance Graph
The following line graph compares for the fiscal years ended December 31, 2003, 2004, 2005,
2006, and 2007 (a) the yearly cumulative total shareholder return (i.e. , the change in share
price plus the cumulative amount of dividends, assuming dividend reinvestment, divided by the
initial share price, expressed as a percentage) on Pultes common shares, with (b) the
cumulative total return of the Standard & Poors 500 Stock Index, and with (c) the cumulative
total return on the common stock of publicly-traded peer issuers we deem to be our principal
competitors in the homebuilding line of business (assuming dividend reinvestment and weighted
based on market capitalization at the beginning of each year):
15
Performance Graph (continued)
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG PULTE HOMES, INC. , S&P 500 INDEX, AND PEER INDEX
Fiscal Year Ended December 31, 2007
Assumes Initial Investment of $100
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 |
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
PULTE HOMES INC |
|
|
|
100.00 |
|
|
|
|
196.18 |
|
|
|
|
268.30 |
|
|
|
|
332.10 |
|
|
|
|
280.86 |
|
|
|
|
90.22 |
|
|
|
S&P 500 Index Total Return |
|
|
|
100.00 |
|
|
|
|
128.69 |
|
|
|
|
142.68 |
|
|
|
|
149.69 |
|
|
|
|
173.33 |
|
|
|
|
182.85 |
|
|
|
PEER Only** |
|
|
|
100.00 |
|
|
|
|
217.61 |
|
|
|
|
288.76 |
|
|
|
|
336.34 |
|
|
|
|
266.28 |
|
|
|
|
116.74 |
|
|
|
|
|
|
* |
|
Assumes $100 invested on December 31, 2002, and the reinvestment of dividends. |
|
** |
|
Includes Centex Corporation, D.R. Horton Inc., Hovnanian Enterprises, Inc.,
KB Home, Lennar Corporation, The Ryland Group, Inc., Standard Pacific
Corporation, and Toll Brothers, Inc. |
16
ITEM 6. SELECTED FINANCIAL DATA
Set forth below is selected consolidated financial data for each of the past five fiscal
years. The selected financial data should be read in conjunction with Managements Discussion
and Analysis of Financial Condition and Results of Operations and our Consolidated Financial
Statements and Notes thereto included elsewhere in this report.
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|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
($000s omitted) |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
OPERATING DATA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
9,121,730 |
|
|
$ |
14,075,248 |
|
|
$ |
14,528,236 |
|
|
$ |
11,400,008 |
|
|
$ |
8,701,661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
$ |
(2,509,492 |
) |
|
$ |
1,010,368 |
|
|
$ |
2,298,822 |
|
|
$ |
1,635,580 |
|
|
$ |
1,000,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
134,769 |
|
|
$ |
194,596 |
|
|
$ |
161,414 |
|
|
$ |
112,719 |
|
|
$ |
115,847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
$ |
42,980 |
|
|
$ |
115,460 |
|
|
$ |
70,586 |
|
|
$ |
47,429 |
|
|
$ |
68,846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-operating: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
6,595 |
|
|
$ |
4,564 |
|
|
$ |
4,885 |
|
|
$ |
1,749 |
|
|
$ |
3,281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
$ |
(30,391 |
) |
|
$ |
(43,100 |
) |
|
$ |
(92,394 |
) |
|
$ |
(90,685 |
) |
|
$ |
(75,351 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated results: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
9,263,094 |
|
|
$ |
14,274,408 |
|
|
$ |
14,694,535 |
|
|
$ |
11,514,476 |
|
|
$ |
8,820,789 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
before income taxes |
|
$ |
(2,496,903 |
) |
|
$ |
1,082,728 |
|
|
$ |
2,277,014 |
|
|
$ |
1,592,324 |
|
|
$ |
994,008 |
|
Income taxes (benefit) |
|
|
(222,486 |
) |
|
|
393,082 |
|
|
|
840,126 |
|
|
|
598,751 |
|
|
|
376,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
(2,274,417 |
) |
|
|
689,646 |
|
|
|
1,436,888 |
|
|
|
993,573 |
|
|
|
617,548 |
|
Income (loss) from discontinued
operations(a) |
|
|
18,662 |
|
|
|
(2,175 |
) |
|
|
55,025 |
|
|
|
(7,032 |
) |
|
|
7,086 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(2,255,755 |
) |
|
$ |
687,471 |
|
|
$ |
1,491,913 |
|
|
$ |
986,541 |
|
|
$ |
624,634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PER SHARE DATA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations |
|
$ |
(9.02 |
) |
|
$ |
2.73 |
|
|
$ |
5.62 |
|
|
$ |
3.93 |
|
|
$ |
2.53 |
|
Income (loss) from discontinued
operations (a) |
|
|
0.07 |
|
|
|
(0.01 |
) |
|
|
0.22 |
|
|
|
(0.03 |
) |
|
|
0.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(8.94 |
) |
|
$ |
2.73 |
|
|
$ |
5.84 |
|
|
$ |
3.91 |
|
|
$ |
2.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares
outstanding (000s omitted) |
|
|
252,192 |
|
|
|
252,200 |
|
|
|
255,492 |
|
|
|
252,590 |
|
|
|
244,323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share assuming dilution: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations |
|
$ |
(9.02 |
) |
|
$ |
2.67 |
|
|
$ |
5.47 |
|
|
$ |
3.82 |
|
|
$ |
2.46 |
|
Income (loss) from discontinued
operations (a) |
|
|
0.07 |
|
|
|
(0.01 |
) |
|
|
0.21 |
|
|
|
(0.03 |
) |
|
|
0.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(8.94 |
) |
|
$ |
2.66 |
|
|
$ |
5.68 |
|
|
$ |
3.79 |
|
|
$ |
2.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares
outstanding and effect of dilutive
securities (000s omitted) |
|
|
252,192 |
|
|
|
258,621 |
|
|
|
262,801 |
|
|
|
260,234 |
|
|
|
251,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity |
|
$ |
16.80 |
|
|
$ |
25.76 |
|
|
$ |
23.18 |
|
|
$ |
17.68 |
|
|
$ |
13.78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared |
|
$ |
0.16 |
|
|
$ |
0.16 |
|
|
$ |
0.13 |
|
|
$ |
0.10 |
|
|
$ |
0.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Income (loss) from discontinued operations is comprised of our former thrift operation and
Argentina and Mexico homebuilding operations which have been presented as discontinued
operations for all periods presented. |
17
ITEM 6. SELECTED FINANCIAL DATA (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
($000s omitted) |
|
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
2003 |
BALANCE SHEET DATA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
House and land inventories |
|
$ |
7,027,511 |
|
|
$ |
9,374,335 |
|
|
$ |
8,756,093 |
|
|
$ |
7,241,350 |
|
|
$ |
5,378,125 |
|
Total assets |
|
|
10,225,703 |
|
|
|
13,176,874 |
|
|
|
13,060,860 |
|
|
|
10,406,897 |
|
|
|
8,072,151 |
|
Senior notes |
|
|
3,478,230 |
|
|
|
3,537,947 |
|
|
|
3,386,527 |
|
|
|
2,861,550 |
|
|
|
2,150,972 |
|
Shareholders equity |
|
|
4,320,193 |
|
|
|
6,577,361 |
|
|
|
5,957,342 |
|
|
|
4,522,274 |
|
|
|
3,448,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
2003 |
OTHER DATA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total markets, at year-end |
|
|
51 |
|
|
|
52 |
|
|
|
54 |
|
|
|
45 |
|
|
|
44 |
|
Total active communities |
|
|
636 |
|
|
|
690 |
|
|
|
662 |
|
|
|
626 |
|
|
|
535 |
|
Total
settlements units |
|
|
27,540 |
|
|
|
41,487 |
|
|
|
45,630 |
|
|
|
38,612 |
|
|
|
32,693 |
|
Total net new orders units (a) |
|
|
25,175 |
|
|
|
33,925 |
|
|
|
47,531 |
|
|
|
40,576 |
|
|
|
34,989 |
|
Backlog units, at year-end |
|
|
7,890 |
|
|
|
10,255 |
|
|
|
17,817 |
|
|
|
15,916 |
|
|
|
13,952 |
|
Average unit selling price |
|
$ |
322,000 |
|
|
$ |
337,000 |
|
|
$ |
315,000 |
|
|
$ |
287,000 |
|
|
$ |
259,000 |
|
Gross profit margin
from home sales (b) |
|
|
(5.0 |
)% |
|
|
17.4 |
% |
|
|
23.4 |
% |
|
|
22.6 |
% |
|
|
20.6 |
% |
|
|
|
(a) |
|
Total net new orders-units for the year ended December 31, 2003 does not include 1,051
units of acquired backlog. |
|
(b) |
|
Homebuilding interest expense, which represents the amortization of capitalized
interest, and land and community valuation adjustments are included in homebuilding cost
of sales. |
18
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
During 2007 and 2006, the U.S. housing market was impacted by a lack of consumer
confidence, decreased housing affordability, and large supplies of resale and new home
inventories and related pricing pressures. During 2007, these conditions continued to
deteriorate and were accompanied by increased foreclosure activity and constraints on the
availability of certain mortgage financing products. These factors contributed to weakened
demand for new homes, slower sales, higher cancellation rates, and increased price discounts and
selling incentives to attract homebuyers compared with recent years when we had experienced
record growth. The combination of these homebuilding industry and related mortgage financing
developments resulted in significant decreases in our revenues and profitability during 2007.
Additionally, we incurred total land-related charges of $2 billion and $409.5 million in 2007
and 2006, respectively, which represent significant increases from land-related charges of $30
million in 2005. We also recorded impairments of our investments in unconsolidated joint
ventures totaling $189.9 million and $95.4 million in 2007 and 2006, respectively, and goodwill
impairments of $370 million in 2007.
We continue to operate our business with the expectation that difficult market conditions
will continue to impact us for at least the near term. We expect these trends in our unit
settlements and pricing to continue and the majority of the markets we serve to remain
challenging throughout 2008. We have adjusted our approach to land acquisition and development
and construction practices and continue to shorten our land pipeline, limit land development
expenditures, reduce production volumes, and balance home price and profitability with sales
pace. We are delaying planned land purchases and development spending and have significantly
reduced our total number of controlled lots owned and under option. Additionally, we are
significantly reducing the number of speculative homes put into production. While we will
continue to purchase select land positions where it makes strategic and economic sense to do so,
we currently anticipate minimal investment in new land parcels in the near term. We have also
closely evaluated and made significant reductions in employee headcount and overhead expenses.
In May 2007, we announced a restructuring plan designed to reduce costs and improve ongoing
operating efficiencies, which resulted in related charges of $45.7 million in 2007. Given the
persistence of these difficult market conditions, improving the efficiency of our overhead costs
will continue to be a significant area of focus. We believe that these measures will help to
strengthen our market position and allow us to take advantage of opportunities that may develop
in the future.
Given the continued weakness in new home sales and closings, visibility as to future
earnings performance is limited. Our outlook is tempered with caution, as conditions in many of
the markets we serve across the United States have become increasingly challenging. Our
evaluation for land-related charges recorded to date assumed our best estimates of cash flows
for the communities tested. If conditions in the homebuilding industry worsen in the future or
if our strategy related to certain communities changes, we may be required to evaluate our
assets, including additional projects, for additional impairments or write-downs, which could
result in additional charges that might be significant.
The following is a summary of our operating results for 2007, 2006, and 2005 ($000s
omitted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Pre-tax income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding |
|
$ |
(2,509,492 |
) |
|
$ |
1,010,368 |
|
|
$ |
2,298,822 |
|
Financial Services |
|
|
42,980 |
|
|
|
115,460 |
|
|
|
70,586 |
|
Other non-operating |
|
|
(30,391 |
) |
|
|
(43,100 |
) |
|
|
(92,394 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
before income taxes |
|
|
(2,496,903 |
) |
|
|
1,082,728 |
|
|
|
2,277,014 |
|
Income taxes (benefit) |
|
|
(222,486 |
) |
|
|
393,082 |
|
|
|
840,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
(2,274,417 |
) |
|
|
689,646 |
|
|
|
1,436,888 |
|
Income (loss) from discontinued operations |
|
|
18,662 |
|
|
|
(2,175 |
) |
|
|
55,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(2,255,755 |
) |
|
$ |
687,471 |
|
|
$ |
1,491,913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share data assuming dilution: |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
(9.02 |
) |
|
$ |
2.67 |
|
|
$ |
5.47 |
|
Income (loss) from discontinued operations |
|
|
0.07 |
|
|
|
(0.01 |
) |
|
|
0.21 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(8.94 |
) |
|
$ |
2.66 |
|
|
$ |
5.68 |
|
|
|
|
|
|
|
|
|
|
|
19
Overview (continued)
The following is a comparison of pre-tax income (loss) for 2007, 2006, and 2005:
|
|
Homebuilding pre-tax loss for 2007 was $2.5 billion compared with Homebuilding pre-tax
income of $1 billion and $2.3 billion, respectively, for 2006 and 2005. The pre-tax loss
experienced in 2007 resulted from lower settlement revenues combined with lower gross
margins. In addition, for 2007 and 2006, results of operations were affected by
land-related charges totaling $2 billion and $409.5 million, respectively, and impairments
of our investments in unconsolidated joint ventures of $189.9 million and $95.4 million,
respectively. Gross margins in 2007 were unfavorably impacted by lower selling prices and
increased sales incentives. Land-related charges for 2007 and 2006 consisted of write-offs
of deposits and other related costs for land transactions we no longer plan to pursue
($239.7 million and $151.2 million, respectively), net realizable valuation adjustments
related to land positions sold or held for sale ($199.2 million and $54.6 million,
respectively), and impairments on land assets related to communities under development or
to be developed in the future ($1.6 billion and $203.8 million, respectively). In
addition, we incurred goodwill impairment charges of $370 million in 2007. There were no
significant land-related charges in 2005. |
|
|
|
Pre-tax income from our Financial Services business segment decreased 63% in 2007
compared with 2006 after increasing 64% in 2006 compared with 2005. Pre-tax income for
2006 includes a one-time gain of $31.6 million related to the sale of our investment in Su
Casita, a Mexican mortgage banking company, which occurred in the first quarter of 2006.
The significant decrease in 2007 is also the result of lower loan originations due to
significant decreases in the number of homes closed as well as increased loan loss
reserves. Capture rates were 92%, 91%, and 89% in 2007, 2006, and 2005, respectively. |
|
|
|
Our Other non-operating loss decreased 29% in 2007 compared with 2006 after decreasing
53% in 2006 compared with 2005, due primarily to reductions in compensation-related costs. |
20
Homebuilding Operations
The following table presents a summary of pre-tax income (loss) for our Homebuilding operations ($000s omitted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Home sale revenue (settlements) |
|
$ |
8,881,509 |
|
|
$ |
13,975,387 |
|
|
$ |
14,370,667 |
|
Land sale revenue |
|
|
240,221 |
|
|
|
99,861 |
|
|
|
157,569 |
|
Home cost of sales (a) |
|
|
(9,329,354 |
) |
|
|
(11,544,905 |
) |
|
|
(11,005,591 |
) |
Land cost of sales (b) |
|
|
(418,177 |
) |
|
|
(138,528 |
) |
|
|
(139,377 |
) |
Selling, general, and administrative expenses |
|
|
(1,060,818 |
) |
|
|
(1,136,027 |
) |
|
|
(1,107,816 |
) |
Equity income (loss) (c) |
|
|
(190,383 |
) |
|
|
(95,244 |
) |
|
|
72,604 |
|
Other income (expense), net (d) |
|
|
(632,490 |
) |
|
|
(150,176 |
) |
|
|
(49,234 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax income (loss) |
|
$ |
(2,509,492 |
) |
|
$ |
1,010,368 |
|
|
$ |
2,298,822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit settlements |
|
|
27,540 |
|
|
|
41,487 |
|
|
|
45,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average selling price |
|
$ |
322 |
|
|
$ |
337 |
|
|
$ |
315 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net new orders: |
|
|
|
|
|
|
|
|
|
|
|
|
Units |
|
|
25,175 |
|
|
|
33,925 |
|
|
|
47,531 |
|
Dollars (e) |
|
$ |
7,812,000 |
|
|
$ |
11,253,000 |
|
|
$ |
15,518,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Backlog at December 31: |
|
|
|
|
|
|
|
|
|
|
|
|
Units |
|
|
7,890 |
|
|
|
10,255 |
|
|
|
17,817 |
|
Dollars |
|
$ |
2,510,000 |
|
|
$ |
3,580,000 |
|
|
$ |
6,301,000 |
|
|
|
|
(a) |
|
Includes homebuilding interest expense, which represents the amortization
of capitalized interest. Home cost of sales also includes land and community
valuation adjustments of $1.6 billion, $203.8 million, and $7.7 million for 2007,
2006, and 2005, respectively. |
|
(b) |
|
Includes net realizable value adjustments for land held for sale of
$199.2 million, $54.6 million, and $3.1 million for 2007, 2006, and 2005,
respectively. |
|
(c) |
|
Includes impairments of our investments in unconsolidated joint ventures,
which totaled $189.9 million and $95.4 million for the years ended December 31,
2007 and 2006, respectively. |
|
(d) |
|
Includes the write-off of deposits and other related costs for land
option contracts we no longer plan to pursue of $239.7 million, $151.2 million,
and $19.2 million for 2007, 2006, and 2005, respectively. For 2007, other income
(expense) includes goodwill impairment charges of $370 million. For 2006, other
income (expense) also includes $18.6 million related to the closure of our
production facility in Virginia. |
|
(e) |
|
Net new order dollars represent a composite of new order dollars combined
with other movements of the dollars in backlog related to cancellations and
change orders. |
Home sale revenues for the year ended December 31, 2007 were lower than those for the prior
year by approximately $5.1 billion, or 36%. Unit settlements decreased 34% in 2007 to 27,540
units, compared with 2006 and increased 9% for 2006 to 41,487 units, compared with 2005. The
average selling price for homes closed in 2007, 2006, and 2005 was $322,000, $337,000, and
$315,000, respectively. The changes in average selling price reflect a combination of factors,
including changes in product mix and geographic mix of homes closed during the period as well as
lower market selling prices. The average selling price decreased in the majority of our
Homebuilding segments during 2007.
Homebuilding gross profit margins from home sales in 2007 were negative 5%, compared with
positive 17.4% in 2006. In 2006, homebuilding gross profit margins decreased 600 basis points
from 23.4% in 2005. The significant decreases in gross profit margins that commenced in 2006
and continued into 2007 were attributable to the difficult market conditions and challenging
sales environment where we have realized lower average selling prices and increased sales
incentives related to homes closed during the year. In accordance with SFAS No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets (SFAS 144), we recorded land and community
valuation adjustments of $1.6 billion and $203.8 million in 2007 and 2006, respectively, which
included capitalized interest of $110.8 million and $16 million in 2007 and 2006, respectively.
There were no significant valuation adjustments recorded during the year ended December 31,
2005.
21
Homebuilding Operations (continued)
We acquire land primarily for the construction of our homes for sale to homebuyers. We
select locations for development of homebuilding communities after completing extensive market
research, enabling us to match the location and product offering with our targeted consumer
group. Where we develop land, we engage directly in many phases of the development process,
including land and site planning, obtaining environmental and other regulatory approvals, as well
as constructing roads, sewers, water and drainage facilities, and other amenities. We will often
sell select parcels of land within or adjacent to our communities to retail and commercial
establishments. We also will, on occasion, sell lots within our communities to other
homebuilders. Gross profit from land sales had negative margin contributions of $178 million and
$38.7 million for 2007 and 2006, respectively, compared with a positive margin contribution of
$18.2 million for 2005. Land sale revenues and their related gains/losses may vary significantly
between periods, depending on the timing of land sales. We continue to evaluate our existing
land positions to ensure the most effective use of capital. Land held for disposition was $252.6
million as of December 31, 2007, compared with $465.8 million at December 31, 2006. During 2007
and 2006, we recorded net realizable value adjustments for land held for sale of $199.2 and $54.6
million, respectively. There were no significant net realizable value adjustments in 2005.
For the year ended December 31, 2007, selling, general, and administrative expenses, as a
percentage of home settlement revenues, increased 380 basis points to 11.9% compared with 2006,
after increasing 40 basis points to 8.1% in 2006 compared with 2005. These increases are
attributable primarily to reduced overhead leverage as a result of the significant decrease in
revenues, lower absorption into inventory of overhead costs due to lower construction volume, net
increases in insurance related expenses of $57.7 million and $15.5 million in 2007 and 2006,
respectively, and employee severance benefits, including $32 million of severance benefits
related to the restructuring plan initiated in May 2007.
Equity loss was $190.4 million and $95.2 million for 2007 and 2006, respectively, compared
with equity income of $72.6 million for 2005. The equity losses experienced for 2007 and 2006
included impairments related to investments in unconsolidated joint ventures totaling $189.9
million and $95.4 million, respectively. Additionally, the decrease in 2006 equity income,
compared with the prior year, is also the result of our January 2006 acquisition of the remaining
50% interest in an entity that supplies and installs basic building components and operating
systems. As a result of this acquisition, we own 100% of this entity, which is consolidated in
our financial statements. In 2005, earnings for this investment were recorded in equity income.
In addition, earnings from our 50% investment in a Nevada-based joint venture, related to the
sale of commercial and residential properties, decreased in 2006 as the venture substantially
completed its operations in 2005.
Other income (expense), net includes the write-off of deposits and other related costs
resulting from decisions not to pursue certain land acquisitions and options, insurance-related
expenses and settlements, and other non-operating expenses. The changes in other income
(expense), net are due in part to write-offs of deposit and other related costs during 2007,
2006, and 2005 of $239.7 million, $151.2 million, and $19.2 million, respectively. These
write-offs vary in amount from year to year as we continue to evaluate potential land
acquisitions for the most effective use of capital. Other income (expense), net also includes
goodwill impairment charges of $370 million in 2007 and charges of $2.3 million and $18.5 million
in 2007 and 2006, respectively, related to the closure of a production facility located in
Virginia.
22
Homebuilding Operations (continued)
For 2007, unit net new orders decreased 26% to 25,175 units compared with 2006. For 2006,
unit net new orders decreased 29% to 33,925 units, compared with 2005. Cancellation rates were
33%, 29%, and 17% in 2007, 2006, and 2005, respectively. Most markets experienced a substantial
increase in resale and new home inventory, and this, combined with declining consumer
confidence, decreased housing affordability, increased interest rates, difficulties experienced
by customers in selling their existing homes, and the more restrictive mortgage financing
market, has resulted in higher cancellation rates and reduced net new orders during 2007 and
2006.
The dollar value of net new orders decreased 31% for 2007 compared with 2006 and decreased
27% for 2006 compared with 2005. The average selling price of net new orders decreased 7% to
$310,000 in 2007 after increasing 2% to $332,000 in 2006. At December 31, 2007, we had 636
active selling communities, a decrease of 8% from December 31, 2006. At December 31, 2006, we
had 690 active selling communities, an increase of 4% from December 31, 2005. Ending backlog,
which represents orders for homes that have not yet closed, was 7,890 units at December 31, 2007
with a dollar value of $2.5 billion. Ending backlog was 10,255 units at December 31, 2006 with
a dollar value of $3.6 billion.
At December 31, 2007 and 2006, our Homebuilding operations controlled approximately 157,900
and 232,200 lots, respectively. Approximately 131,400 and 158,800 lots were owned, and
approximately 24,800 and 63,700 lots were under option agreements approved for purchase at
December 31, 2007 and 2006, respectively. In addition, there were approximately 1,700 and 9,700
lots under option agreements, pending approval, at December 31, 2007 and 2006, respectively.
During 2007, we withdrew from land option contracts representing approximately 43,900 lots
valued at $2.4 billion.
The total purchase price related to approved land under option for use by our Homebuilding
operations at future dates approximated $1.5 billion at December 31, 2007. In addition, total
purchase price related to land under option pending approval was valued at approximately $95.1
million at December 31, 2007. Land option agreements, which may be cancelled at our discretion,
may extend over several years and are secured by deposits and advanced costs totaling $226.2
million, of which $3.7 million is refundable. This balance excludes $25.8 million of contingent
payment obligations which may or may not become actual obligations of the Company.
23
Homebuilding Segment Operations
The Homebuilding operations represent our core business. Homebuilding offers a broad
product line to meet the needs of first-time, first and second move-up, and active adult
homebuyers. We have determined our operating segments to be our Areas, which are aggregated into
seven reportable segments based on similarities in the economic and geographic characteristics of
our homebuilding operations. We conduct our operations in 51 markets, located throughout 26
states, and have presented our reportable homebuilding segments as follows:
|
|
|
|
|
Northeast: |
|
Northeast Area includes the following states: |
|
|
|
|
Connecticut, Delaware, Maryland, Massachusetts, New Jersey,
New York, Pennsylvania, Virginia |
|
|
|
|
|
Southeast: |
|
Southeast Area includes the following states: |
|
|
|
|
Georgia, North Carolina, South Carolina, Tennessee |
|
|
|
|
|
Florida: |
|
Florida Area includes the following state: |
|
|
|
|
Florida |
|
|
|
|
|
Midwest: |
|
Great Lakes Area includes the following states: |
|
|
|
|
Colorado, Illinois, Indiana, Kansas, Michigan, Minnesota, Missouri, Ohio |
|
|
|
|
|
Central: |
|
Texas Area includes the following state: |
|
|
|
|
Texas |
|
|
|
|
|
Southwest: |
|
Southwest Area includes the following states: |
|
|
|
|
Arizona, Nevada, New Mexico |
|
|
|
|
|
*California: |
|
Northern California and Southern California Areas include the following state: |
|
|
|
|
California |
|
|
|
* |
|
Our homebuilding operations located in Reno, Nevada are reported in the California segment,
while our Nevada homebuilding operations are reported in the Southwest segment. |
We also have one reportable segment for our financial services operations which consists
principally of mortgage banking and title operations conducted through Pulte Mortgage and our
other subsidiaries. Our Financial Services segment operates generally in the same markets as our
Homebuilding segments.
24
Homebuilding Segment Operations (continued)
The following table presents selected financial information for our homebuilding reporting segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Home sale revenue (settlements) ($000s omitted): |
|
|
|
|
|
|
|
|
|
|
|
|
Northeast |
|
$ |
1,113,805 |
|
|
$ |
1,650,129 |
|
|
$ |
1,856,906 |
|
Southeast |
|
|
1,173,485 |
|
|
|
1,254,337 |
|
|
|
950,792 |
|
Florida |
|
|
1,087,918 |
|
|
|
2,209,864 |
|
|
|
2,247,513 |
|
Midwest |
|
|
1,146,991 |
|
|
|
1,639,940 |
|
|
|
2,055,483 |
|
Central |
|
|
575,541 |
|
|
|
894,450 |
|
|
|
793,273 |
|
Southwest |
|
|
2,316,147 |
|
|
|
3,694,571 |
|
|
|
3,259,913 |
|
California |
|
|
1,467,622 |
|
|
|
2,632,096 |
|
|
|
3,206,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
8,881,509 |
|
|
$ |
13,975,387 |
|
|
$ |
14,370,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes ($000s omitted): |
|
|
|
|
|
|
|
|
|
|
|
|
Northeast |
|
$ |
(149,793 |
) |
|
$ |
127,376 |
|
|
$ |
326,399 |
|
Southeast |
|
|
72,799 |
|
|
|
88,162 |
|
|
|
86,683 |
|
Florida |
|
|
(347,587 |
) |
|
|
381,924 |
|
|
|
475,939 |
|
Midwest |
|
|
(339,193 |
) |
|
|
(90,695 |
) |
|
|
140,232 |
|
Central |
|
|
(121,351 |
) |
|
|
16,038 |
|
|
|
10,560 |
|
Southwest |
|
|
(249,173 |
) |
|
|
714,185 |
|
|
|
745,163 |
|
California |
|
|
(545,369 |
) |
|
|
107,368 |
|
|
|
654,940 |
|
Unallocated (a) |
|
|
(829,825 |
) |
|
|
(333,990 |
) |
|
|
(141,094 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(2,509,492 |
) |
|
$ |
1,010,368 |
|
|
$ |
2,298,822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit settlements: |
|
|
|
|
|
|
|
|
|
|
|
|
Northeast |
|
|
2,573 |
|
|
|
3,489 |
|
|
|
3,909 |
|
Southeast |
|
|
3,990 |
|
|
|
4,504 |
|
|
|
4,127 |
|
Florida |
|
|
4,007 |
|
|
|
7,374 |
|
|
|
8,784 |
|
Midwest |
|
|
3,888 |
|
|
|
5,548 |
|
|
|
7,344 |
|
Central |
|
|
2,623 |
|
|
|
4,815 |
|
|
|
4,959 |
|
Southwest |
|
|
7,318 |
|
|
|
10,548 |
|
|
|
10,237 |
|
California |
|
|
3,141 |
|
|
|
5,209 |
|
|
|
6,270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,540 |
|
|
|
41,487 |
|
|
|
45,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net new orders units: |
|
|
|
|
|
|
|
|
|
|
|
|
Northeast |
|
|
2,447 |
|
|
|
2,813 |
|
|
|
4,019 |
|
Southeast |
|
|
3,563 |
|
|
|
4,632 |
|
|
|
4,888 |
|
Florida |
|
|
4,047 |
|
|
|
4,501 |
|
|
|
8,383 |
|
Midwest |
|
|
3,319 |
|
|
|
5,201 |
|
|
|
7,701 |
|
Central |
|
|
2,371 |
|
|
|
4,323 |
|
|
|
5,776 |
|
Southwest |
|
|
6,609 |
|
|
|
8,365 |
|
|
|
10,723 |
|
California |
|
|
2,819 |
|
|
|
4,090 |
|
|
|
6,041 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,175 |
|
|
|
33,925 |
|
|
|
47,531 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit backlog: |
|
|
|
|
|
|
|
|
|
|
|
|
Northeast |
|
|
791 |
|
|
|
917 |
|
|
|
1,593 |
|
Southeast |
|
|
1,281 |
|
|
|
1,708 |
|
|
|
1,580 |
|
Florida |
|
|
1,252 |
|
|
|
1,212 |
|
|
|
4,085 |
|
Midwest |
|
|
828 |
|
|
|
1,397 |
|
|
|
1,744 |
|
Central |
|
|
870 |
|
|
|
1,122 |
|
|
|
1,614 |
|
Southwest |
|
|
2,010 |
|
|
|
2,719 |
|
|
|
4,902 |
|
California |
|
|
858 |
|
|
|
1,180 |
|
|
|
2,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,890 |
|
|
|
10,255 |
|
|
|
17,817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Unallocated includes amortization of capitalized interest of $315
million, $255.7 million, and $179.6 million for 2007, 2006, and 2005, respectively;
goodwill impairment of $370 million for 2007; and shared services that benefit all
operating segments, the costs of which are not allocated to the operating segments
reported above. |
25
Homebuilding Segment Operations (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Controlled Lots: |
|
|
|
|
|
|
|
|
|
|
|
|
Northeast |
|
|
13,152 |
|
|
|
27,524 |
|
|
|
44,088 |
|
Southeast |
|
|
17,170 |
|
|
|
23,332 |
|
|
|
31,863 |
|
Florida |
|
|
35,348 |
|
|
|
48,640 |
|
|
|
70,434 |
|
Midwest |
|
|
14,098 |
|
|
|
23,082 |
|
|
|
47,414 |
|
Central |
|
|
13,023 |
|
|
|
18,320 |
|
|
|
28,251 |
|
Southwest |
|
|
49,746 |
|
|
|
66,034 |
|
|
|
97,290 |
|
California |
|
|
15,321 |
|
|
|
25,291 |
|
|
|
43,275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
157,858 |
|
|
|
232,223 |
|
|
|
362,615 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and community valuation adjustments
($000s omitted): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Northeast |
|
$ |
116,418 |
|
|
$ |
22,206 |
|
|
$ |
|
|
Southeast |
|
|
17,089 |
|
|
|
1,083 |
|
|
|
|
|
Florida |
|
|
283,919 |
|
|
|
22,715 |
|
|
|
|
|
Midwest |
|
|
240,380 |
|
|
|
73,152 |
|
|
|
7,110 |
|
Central |
|
|
97,615 |
|
|
|
3,269 |
|
|
|
608 |
|
Southwest |
|
|
335,044 |
|
|
|
9,774 |
|
|
|
|
|
California |
|
|
398,717 |
|
|
|
55,569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment land and community valuation adjustments |
|
|
1,489,182 |
|
|
|
187,768 |
|
|
|
7,718 |
|
Corporate and unallocated (a) |
|
|
114,473 |
|
|
|
16,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total valuation adjustments |
|
$ |
1,603,655 |
|
|
$ |
203,768 |
|
|
$ |
7,718 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realizable value adjustments (NRV)
- land held for sale ($000s omitted): |
|
|
|
|
|
|
|
|
|
|
|
|
Northeast |
|
$ |
16,051 |
|
|
$ |
3,204 |
|
|
$ |
|
|
Southeast |
|
|
6,652 |
|
|
|
|
|
|
|
14 |
|
Florida |
|
|
27,633 |
|
|
|
5,596 |
|
|
|
|
|
Midwest |
|
|
103,374 |
|
|
|
29,784 |
|
|
|
314 |
|
Central |
|
|
19,140 |
|
|
|
8,679 |
|
|
|
2,756 |
|
Southwest |
|
|
14,859 |
|
|
|
7,014 |
|
|
|
|
|
California |
|
|
11,538 |
|
|
|
293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total NRV adjustments land held for sale |
|
|
199,247 |
|
|
$ |
54,570 |
|
|
$ |
3,084 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-off of deposits and pre-acquisition
costs ($000s omitted): |
|
|
|
|
|
|
|
|
|
|
|
|
Northeast |
|
$ |
60,863 |
|
|
$ |
33,798 |
|
|
$ |
2,931 |
|
Southeast |
|
|
3,114 |
|
|
|
4,514 |
|
|
|
2,194 |
|
Florida |
|
|
46,763 |
|
|
|
25,108 |
|
|
|
1,119 |
|
Midwest |
|
|
10,940 |
|
|
|
31,644 |
|
|
|
7,590 |
|
Central |
|
|
5,302 |
|
|
|
3,987 |
|
|
|
1,767 |
|
Southwest |
|
|
54,870 |
|
|
|
21,013 |
|
|
|
2,283 |
|
California |
|
|
57,864 |
|
|
|
33,102 |
|
|
|
2,548 |
|
|
|
|
|
|
|
|
|
|
|
Total segment write-off of deposits and
pre-acquisition costs |
|
|
239,716 |
|
|
|
153,166 |
|
|
|
20,432 |
|
Corporate and unallocated |
|
|
|
|
|
|
(1,981 |
) |
|
|
(1,237 |
) |
|
|
|
|
|
|
|
|
|
|
Total write-off of deposits and pre-acquisition costs |
|
$ |
239,716 |
|
|
$ |
151,185 |
|
|
$ |
19,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairments of investments in unconsolidated
joint ventures: |
|
|
|
|
|
|
|
|
|
|
|
|
Southwest |
|
$ |
59,075 |
|
|
$ |
|
|
|
$ |
|
|
California |
|
|
128,303 |
|
|
|
95,400 |
|
|
|
|
|
Corporate and unallocated (b) |
|
|
2,485 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total joint venture impairments |
|
$ |
189,863 |
|
|
$ |
95,400 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Corporate and unallocated includes $110.8 million and $16 million,
respectively, of write-offs of capitalized interest related to land and community valuation
adjustments recorded during the years ended December 31, 2007 and 2006 and $3.7 million of
land and community valuation adjustments related to our Puerto Rico operations for the year
ended December 31, 2007. |
|
(b) |
|
Corporate and unallocated includes impairments of $2.5 million related to
our joint ventures in Puerto Rico. |
26
Homebuilding Segment Operations (continued)
Northeast:
For 2007, Northeast home sale revenues decreased 33% compared with the prior year period
due to a 26% decrease in unit settlements combined with an 8% decrease in the average selling
price, including significant home sale revenue reductions in our Metro New York market. The
loss before income taxes was primarily attributable to this reduction in revenues combined with
a significant decline in gross margin and $193.3 million in impairments and land-related
charges, which resulted in a reduction of approximately 12,800 lots under control. Northeast
recorded impairments and land-related charges of $59.2 million in 2006. Net new orders
decreased 13% compared with 2006 while the cancellation rate increased to 24% compared with 22%
in 2006.
For 2006, Northeast operations experienced weakened demand for new homes primarily as a
result of increases in existing home inventories. Home sale revenues in 2006 decreased 11% due
to an 11% decrease in closings. Average sales prices in 2006 were consistent with 2005. For
2006, operating results were negatively impacted by $59.2 million of impairments and
land-related charges. There were no significant impairments or land-related charges in 2005.
Net new orders for 2006 decreased 30% compared with 2005. During 2006, increased cancellation
rates were attributable to lower new order sign-up activity and increased cancellations in all
markets. Cancellation rates for 2006 were 22% compared with 14% for 2005.
Southeast:
Our Southeast segment continued to contribute positively to operating results in 2007 due
to strength in local demographic factors and a continued shift in our product mix toward higher
price point customers, especially active adult buyers as large active adult communities were
opened in our markets in Georgia and the Carolinas at various points during 2006 and 2007. For
2007, Southeast home sale revenues decreased 6% compared with the prior year period as an 11%
decrease in unit settlements was offset by a 6% increase in the average selling price. Income
before income taxes decreased compared with the prior year period due to $26.9 million in
impairments and land-related charges, which resulted in a reduction of approximately 4,700 lots
under control. Southeast recorded land-related charges of $5.6 million in 2006. Net new orders
declined by 23% compared with 2006 partially due to 2006 including new orders from the
successful openings of our large active adult communities in our Charlotte, Raleigh, and Georgia
markets. The cancellation rate in 2007 was 28% compared with 24% in 2006.
For 2006, Southeast operations contributed positively to our Homebuilding operating
results, evidenced by increased revenues and unit settlements as well as higher average selling
prices and profits compared with prior year periods. The increases in the Southeasts
profitability were attributable to a continued shift in product mix toward the active adult
homebuyer. Additionally, we opened a new large active adult community in Charlotte during 2006.
Southeast home sale revenues increased 32% compared with 2005 due to a 9% increase in unit
settlements combined with a 21% increase in the average selling price. Our Southeast operations
recorded impairments and land-related charges of $5.6 million in 2006. There were no
significant impairments or land-related charges recorded in 2005. Net new orders in 2006
decreased 5% compared with 2005. The reduction in new orders during 2006 contributed to the
increase in cancellation rates. Cancellation rates for 2006 were 24% compared with 18% for
2005.
27
Homebuilding Segment Operations (continued)
Florida:
Our Florida segment continues to be challenged due to the combination of a significant
decrease in demand combined with high levels of new and existing home inventories, especially in
the southern portion of the state. For 2007, Florida home sale revenues decreased 51% compared
with the prior year period due to a 46% decrease in unit settlements combined with a 9% decrease
in the average selling price, including significant home sale revenue reductions in our Orlando
and Southwest Florida markets. The loss before income taxes was primarily attributable to this
reduction in revenues combined with a significant decline in gross margin and $358.3 million in
impairments and land-related charges, which resulted in a reduction of approximately 7,700 lots
under control. Florida recorded impairments and land-related charges of $53.4 million in 2006.
Net new orders declined by 10% due to the difficult market conditions. Cancellation rates for
2007 were 30%, which was comparable to the 2006 cancellation rate of 31%.
During 2006, our Florida operations experienced weakened demand, largely attributable to
increased existing home inventories, especially in Orlando and Naples/Ft. Myers. Florida
experienced high cancellation rates and pricing pressures associated with excess inventories and
aggressive sales incentives offered by competitors. Floridas home sale revenues decreased 2%
compared with 2005, as a 16% decrease in unit settlements was offset by a 17% increase in average
selling price. During 2006, we recorded impairments and land-related charges of $53.4 million.
There were no significant impairments and land-related charges recorded in 2005. Net new orders
for 2006 decreased 46% compared with 2005. For 2006, increased cancellation rates were
attributable to lower new order sign-up activity and increased cancellations in all Florida
markets. For 2006, cancellation rates were approximately 31% compared with 12% for 2005.
Midwest:
Our Midwest segment continues to face difficult local economic conditions in the majority of
its markets. For 2007, Midwest home sale revenues decreased 30% compared with the prior year
period due to a 30% decrease in unit settlements, as all of our Midwest markets experienced home
sale revenue reductions. Average selling prices were flat. The increase in the loss before
income taxes was primarily attributable to this reduction in revenues and $354.7 million in
impairments and land-related charges, which resulted in a reduction of approximately 2,900 lots
under control. Midwest recorded impairments and land-related charges of $134.6 million in the
prior year period. Net new orders declined by 36% due to the difficult market conditions.
Cancellation rates were approximately 26% for 2007 compared with 20% for 2006.
The Midwest operations were one of the most challenged areas in the country in 2006 as
Cleveland and Michigan experienced weakened demand due to difficult local economic conditions.
Midwest home sale revenues decreased 20% compared with 2005 as a 24% decrease in unit settlements
was offset by a 6% increase in average selling price. For 2006, Midwest operating results were
negatively impacted by impairments and land-related charges of $134.6 million. There were no
significant impairments or land-related charges recorded in 2005. During 2006, reduced new order
sign-up activity resulted in higher cancellation rates. Net new orders in 2006 decreased 32%
compared with 2005. For 2006, cancellation rates were approximately 20% compared with 17% for
2005.
Central:
For 2007, Central home sale revenues decreased 36% compared with the prior year period due
to a 46% decrease in unit settlements, as all of our Central markets experienced home sale
revenue reductions. This lower unit volume was partially offset by an 18% increase in average
selling prices. The loss before income taxes was primarily attributable to this reduction in
revenues and $122.1 million in impairments and land-related charges, which resulted in a
reduction of approximately 1,400 lots under control. Central recorded impairments and
land-related charges of $15.9 million in 2006. Net new orders declined by 45% due to the
difficult market conditions. For 2007, cancellation rates were approximately 34% compared with
30% for 2006.
For 2006, Central home sale revenue increased 13% compared with 2006 as a 3% decrease in
unit settlements was offset by a 16% increase in average selling price. Higher average selling
prices realized during 2006 were the result of unit settlements in new communities in Texas.
During 2006, Central operating results were negatively impacted by impairments and land-related
charges of $15.9 million. There were no significant impairments or land-related charges in 2005.
Net new orders for 2006 decreased 25% compared with 2005. For 2006, cancellation rates were
approximately 30% compared with 22% for 2005.
28
Homebuilding Segment Operations (continued)
Southwest:
Market conditions in our Arizona operations deteriorated markedly in 2007 while our Las
Vegas and New Mexico markets remained challenged as well. For 2007, Southwest home sale
revenues decreased 37% compared with the prior year period due to a 31% decrease in unit
settlements combined with a 10% decrease in average selling prices, mostly due to home sale
revenue reductions in our Las Vegas market. The loss before income taxes was primarily
attributable to this decrease in revenues combined with a significant decline in gross margin
and $404.8 million in impairments and land-related charges, which resulted in a reduction of
approximately 7,600 lots under control. In addition, Southwests results include impairments of
$59.1 million related to two unconsolidated joint ventures. Southwest recorded impairments and
land-related charges of $37.8 million in 2006. Net new orders declined by 21% due to the
difficult market conditions. Cancellation rates were approximately 37% for 2007 compared with
35% for 2006.
In 2006, the Southwest operations contributed positively to our Homebuilding operating
results, evidenced by increased revenues, unit settlements and higher average selling prices
compared with 2005. Southwest home sale revenue increased 13% in 2006 due to a 3% increase in
unit settlements combined with a 10% increase in average selling price. However, during 2006,
our Southwest operations recorded impairments and land-related charges of $37.8 million. There
were no significant impairments or land-related charges recorded in 2005. Operating results for
the Southwest segment were positively impacted by our January 2006 acquisition of the remaining
50% interest in an entity that supplies and installs basic building components and operating
systems in both Arizona and Nevada. During 2005, income from this entity was recorded as equity
income and had no impact on segment pre-tax income. Net new orders for 2006 decreased 22%
compared with 2005. During 2006, reduced new order sign-up activity resulted in higher
cancellation rates. For 2006, cancellation rates were approximately 35% compared with 16% for
2005.
California:
Our California operations have been impacted by significantly weakened demand for new
homes, affordability issues, and an excess supply of resale inventory in substantially all of
our markets. For 2007, California home sale revenues decreased 44% compared with the prior year
period due to a 40% decrease in unit settlements combined with an 8% decrease in average selling
prices, as a majority of our California markets experienced home sale revenue reductions. The
loss before income taxes was primarily attributable to this reduction in revenues combined with
a significant decline in gross margin and $468.1 million in impairments and land-related
charges, which resulted in a reduction of approximately 6,900 lots under control. Also included
in Californias results for 2007 is an impairment of $128.3 million related to unconsolidated
joint ventures. In 2006, California recorded impairments and land-related charges of $89
million and a $95.4 million valuation adjustment related to two of our unconsolidated joint
ventures located in Sacramento. Net new orders declined by 31% in 2007 due to the difficult
market conditions. Cancellation rates were approximately 43% for 2007 compared with 36% for
2006.
The California segment was impacted in 2006 by weakened demand for new homes, evidenced by
increased resale inventories and pricing pressures, especially in Sacramento. California home
sale revenues decreased 18% in 2006 due primarily to a 17% decrease in unit settlements.
Average selling prices remained consistent with 2005. In 2006, California recorded impairments
and land-related charges of $89 million and a $95.4 million valuation adjustment related to two
of our unconsolidated joint ventures located in Sacramento. There were no significant
impairments or land-related charges recorded in 2005. During 2006, reduced new order sign-up
activity resulted in higher cancellation rates. Net new orders for 2006 decreased 32% compared
with 2005. For 2006, cancellation rates were approximately 36% compared with 24% for 2005.
29
Financial Services Operations
We conduct our Financial Services business, which includes mortgage and title operations,
through Pulte Mortgage and other subsidiaries. We originate mortgage loans using our own funds or
borrowings made available through various credit arrangements, and then sell such mortgage loans
monthly to outside investors. Also, we sell our servicing rights on a flow basis through fixed
price servicing sales contracts. Due to the short period of time the servicing rights are held,
we do not amortize the servicing asset. Since the servicing rights are recorded based on the
value in the servicing sales contracts, there are no impairment issues related to these assets.
The following table presents selected financial information for our Financial Services
operations ($000s omitted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Net gain from sale of mortgages |
|
$ |
75,539 |
|
|
$ |
110,759 |
|
|
$ |
81,084 |
|
Mortgage origination and servicing fees |
|
|
12,807 |
|
|
|
17,317 |
|
|
|
22,020 |
|
Interest income |
|
|
21,807 |
|
|
|
33,494 |
|
|
|
25,961 |
|
Title services |
|
|
20,802 |
|
|
|
29,833 |
|
|
|
29,496 |
|
Other revenues |
|
|
3,814 |
|
|
|
3,193 |
|
|
|
2,853 |
|
|
|
|
|
|
|
|
|
|
|
Total Financial Services revenues |
|
|
134,769 |
|
|
|
194,596 |
|
|
|
161,414 |
|
Expenses |
|
|
(92,150 |
) |
|
|
(111,468 |
) |
|
|
(93,574 |
) |
Gain on sale of equity investment |
|
|
|
|
|
|
31,635 |
|
|
|
|
|
Equity income |
|
|
361 |
|
|
|
697 |
|
|
|
2,746 |
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
$ |
42,980 |
|
|
$ |
115,460 |
|
|
$ |
70,586 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total originations: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
|
23,404 |
|
|
|
40,269 |
|
|
|
42,994 |
|
|
|
|
|
|
|
|
|
|
|
Principal |
|
$ |
5,336,400 |
|
|
$ |
8,683,500 |
|
|
$ |
8,528,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originations for Pulte customers: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
|
23,272 |
|
|
|
40,117 |
|
|
|
42,302 |
|
|
|
|
|
|
|
|
|
|
|
Principal |
|
$ |
5,309,100 |
|
|
$ |
8,642,900 |
|
|
$ |
8,397,600 |
|
|
|
|
|
|
|
|
|
|
|
Mortgage origination unit volume and principal volume decreased 42% and 39%, respectively,
in 2007 compared with 2006. The decreases in unit and principal volume are due primarily to
lower home settlements in 2007 compared with 2006. This factor was partially offset by an
increase in the capture rate to 92% in 2007 from 91% in 2006 as well as a higher average loan
size. During 2006, mortgage origination unit volume decreased 6% while mortgage origination
principal volume increased 2% compared with 2005. The decrease in unit volume is attributable to
lower home settlements offset by a higher capture rate in 2006 (91%) compared with 2005 (89%),
while the increase in origination principal volume is attributable to a higher average loan size.
Our capture rate represents loan originations from our Homebuilding operations as a percentage
of total loan opportunities from our Homebuilding operations, excluding cash settlements. Our
Homebuilding customers continue to account for substantially all loan production, representing
nearly 100% of Pulte Mortgage unit production for 2007 and 2006 compared with 98% in 2005.
The mortgage industry experienced a significant shift away from adjustable rate mortgages
(ARMs) to fixed rate mortgages during 2007 and 2006. ARMs, which generally have a lower profit
per loan than fixed rate products, represented 8% of total funded origination dollars and 6% of
total funded origination units in 2007 compared with 28% and 22%, respectively, in 2006 and 45%
and 39%, respectively, in 2005. Interest-only mortgages, a component of ARMs, represented 74% of
ARMs origination dollars and 72% of ARMs origination units in 2007 compared with 79% and 81%,
respectively, in 2006 and 65% and 56%, respectively, in 2005. As a result, interest-only
mortgages represented 6%, 22%, and 29% of total funded origination dollars in 2007, 2006, and
2005, respectively.
30
Financial Services Operations (continued)
Our customers average FICO scores for 2007, 2006, and 2005 were 745, 743, and 741,
respectively. Average Combined Loan-to-Value was 82% for both 2007 and 2006 and 81% for 2005.
At December 31, 2007, our loan application backlog was $1.5 billion, compared with $2.1 billion
and $4.2 billion at December 31, 2006 and 2005, respectively.
Based on principal dollars, approximately 4% of the loans we originated during 2007 were
considered sub-prime loans, which we define as first mortgages with FICO scores below 620.
Approximately 14% of 2007 originations were considered Alt-A loans, which we define as non-full
documentation first mortgages with FICO scores of 620 or higher. The remaining 82% of 2007
originations were prime loans, which we define as full documentation first mortgages with FICO
scores of 620 or higher. Because we sell our loans monthly and retain only limited risk for
sold loans for a short period of time, we believe that our Financial Services operations do not
have any material direct risks related to sub-prime and Alt-A loans. However, the availability
of certain mortgage financing products has become more constrained in 2007 as the mortgage
industry is now more closely scrutinizing sub-prime, Alt-A, and other non-conforming mortgage
products. These developments have had and may continue to have a material adverse effect on the
overall demand for new housing and thereby on the results of operations of both our Homebuilding
and Financial Services businesses.
Pre-tax income decreased 63% in 2007 compared with 2006. During 2006, we sold our
investment in Su Casita, a Mexico-based mortgage banking company. As a result of this
transaction, we recognized a pre-tax gain of approximately $31.6 million in 2006. Excluding
this gain, pre-tax income decreased significantly in 2007 compared with 2006, primarily due to
lower originations and increased loan loss reserves. This decrease was partially offset by an
increase in average loan size and the shift in funded product mix toward fixed rate and agency
loans, which are more profitable for us. The percentage of total origination dollars from
brokered loans, which are funded by third party lenders and are therefore less profitable to us,
was comparable in 2007 and 2006.
Pre-tax income increased 64% in 2006 compared with 2005, primarily due to the sale of our
investment in Su Casita. Excluding this gain, pre-tax income increased in 2006 compared with
2005 due to the combination of increased origination principal volume and a shift in product mix
to more profitable loans, including a small decline in the mix from brokered loans.
Interest income in 2007 was 35% lower than in 2006, primarily due to the significant
decrease in loan origination volume offset slightly by higher loan yields. For 2006, interest
income increased 29% compared with 2005, due to the increase in funded origination volume
combined with higher loan yields. Revenues from our title operations decreased 30% in 2007
compared with 2006 due to the decline in loan origination volume and stayed fairly even in 2006
compared with 2005 based on the lack of significant change in origination principal volume.
Expenses decreased significantly in 2007 due to the decrease in volume and reduced headcount
offset by higher loan loss reserves and less leverage of our fixed operating costs.
Since we sell the majority of our loans monthly and retain only limited risk related to the
loans we originate, our overall loan loss reserves have historically not been significant.
During 2007, however, we experienced increases in our loans held for investment, non-performing
portfolio loans, and foreclosed properties as well as higher expected losses on repurchased
loans. As a result, our overall loan loss reserves increased to $11.7 million at December 31,
2007 compared with $1.7 million at December 31, 2006.
We hedge portions of our forecasted cash flow from sales of closed mortgage loans with
derivative financial instruments to minimize the impact of changes in interest rates. We do not
use derivative financial instruments for trading purposes.
31
Other Non-Operating
Other non-operating expenses consists of income and expenses related to corporate services
provided to our subsidiaries. These expenses are incurred for financing, developing, and
implementing strategic initiatives centered on new business development and operating
efficiencies and providing the necessary administrative support associated with being a publicly
traded entity listed on the New York Stock Exchange. Accordingly, these results will vary from
year to year as these strategic initiatives evolve.
The following table presents results of operations ($000s omitted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Net interest (income) expense |
|
$ |
(2,731 |
) |
|
$ |
531 |
|
|
$ |
43,344 |
|
Other expenses, net |
|
|
33,122 |
|
|
|
42,569 |
|
|
|
49,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
$ |
30,391 |
|
|
$ |
43,100 |
|
|
$ |
92,394 |
|
|
|
|
|
|
|
|
|
|
|
Our higher invested cash balances during 2007 resulted in interest income in excess of
amounts expensed compared with net interest expense in 2006. The decrease in net interest
expense in 2006 compared with 2005 was the result of an increase in the amount of interest
capitalized into homebuilding inventory. Changes in other expenses, net for 2007 and 2006
compared with 2005 were primarily due to reductions in compensation-related costs.
Interest capitalized into homebuilding inventory is charged to home cost of sales based on
the cyclical timing of our unit settlements over a period that approximates the average life
cycle of our communities. Interest expensed to homebuilding cost of sales for the years ended
December 31, 2007 and 2006 includes $110.8 and $16 million, respectively, related to land and
community valuation adjustments. Information related to corporate interest capitalized into
homebuilding inventory is as follows ($000s omitted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Interest in homebuilding inventory at beginning of year |
|
$ |
235,596 |
|
|
$ |
229,798 |
|
|
$ |
223,591 |
|
Interest capitalized into homebuilding inventory |
|
|
240,000 |
|
|
|
261,486 |
|
|
|
185,792 |
|
Interest expensed to homebuilding cost of sales |
|
|
(314,998 |
) |
|
|
(255,688 |
) |
|
|
(179,585 |
) |
|
|
|
|
|
|
|
|
|
|
Interest in homebuilding inventory at end of year |
|
$ |
160,598 |
|
|
$ |
235,596 |
|
|
$ |
229,798 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest incurred * |
|
$ |
243,864 |
|
|
$ |
266,561 |
|
|
$ |
234,024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Interest incurred includes interest on our senior debt, short-term borrowings, and
other financing arrangements and excludes interest incurred by our financial services
operations. |
Income Taxes
Our income tax assets and liabilities and related effective tax rate are affected by a
number of factors. Income taxes were provided at an effective tax rate of 8.9%, 36.3%, and 36.9%
for 2007, 2006, and 2005, respectively. The effective tax rate during 2007 was lower than in
prior years primarily due to a $621.9 million non-cash deferred tax valuation allowance.
Excluding the valuation allowance and goodwill impairment charges, the effective tax rate would
have been approximately 38% for 2007.
32
Discontinued Operations
First Heights
In 2005, we completed the disposal of First Heights, our former bank subsidiary. During the
years ended December 31, 2006 and 2005, after-tax income was $189 thousand and $56.5 million,
respectively, and is included in income from discontinued operations. Income from discontinued
operations for the year ended December 31, 2005 includes $7.8 million related to the recognition
of income tax benefits resulting from the favorable resolution of certain tax matters. We also
received payment in December 2005 of a $48.7 million judgment resulting from litigation related
to First Heights 1988 acquisition from the Federal Savings and Loan Insurance Corporation and
First Heights ownership of five failed thrifts. The payment was recorded as income from
discontinued operations.
Mexico Homebuilding Operations
In January 2005, the minority shareholders of Pulte Mexico S. de R.L. de C.V. (Pulte
Mexico) exercised a put option under the terms of a reorganization agreement dated as of
December 31, 2001, to sell their shares to us, the consummation of which resulted in our owning
100% of Pulte Mexico. In March 2005, we purchased 60% of the minority interest of Pulte Mexico
for approximately $18.7 million in cash. In June 2005, we purchased the remaining 40% of the
minority interest of Pulte Mexico for approximately $12.5 million in cash.
In December 2005, we sold substantially all of our Mexico homebuilding operations to a
consortium of purchasers involved in residential and commercial real estate development. We
realized cash of $131.5 million related to the sale. The sale of these operations did not
include our investment in the capital stock of a mortgage company in Mexico as well as various
non-operating entities, which are not considered to be material to the Companys results of
operations or its financial position.
For 2007, 2006, and 2005, the Mexico homebuilding operations have been presented as
discontinued operations in our Consolidated Financial Statements. For 2007, income from
discontinued operations represents $18.7 million in refundable income taxes related to our
investment in our discontinued Mexico homebuilding operations.
Argentina Operations
In January 2005, we sold all of our Argentina operations to an Argentine company involved in
residential and commercial real estate development. For the year ended December 31, 2006, loss
from discontinued operations included a provision of $111 thousand, net of taxes, resulting from
a contractual adjustment related to the disposition.
Liquidity and Capital Resources
We finance our homebuilding land acquisitions, development, and construction activities
by using internally-generated funds and existing credit arrangements. We routinely monitor
current operational requirements and financial market conditions to evaluate the use of
available financing sources, including securities offerings. Based on our current financial
condition and credit relationships, we believe that our operations and borrowing resources
will provide for our current and long-term capital requirements. However, we continue to
evaluate the impact of market conditions on our liquidity and may determine that modifications
are necessary if market conditions continue to deteriorate or if the current difficult market
conditions extend beyond our expectations.
At December 31, 2007, we had cash and equivalents of $1.1 billion and $3.5 billion of
senior notes outstanding. Other financing included non-recourse collateralized financing
totaling $9.4 million. Sources of our working capital include our cash and equivalents, our
committed unsecured revolving credit facility, and Pulte Mortgages committed credit
arrangements.
Our ratio of debt-to-total capitalization, excluding our land-collateralized and Pulte
Mortgage debt, was 44.6% at December 31, 2007, and approximately 35.9% net of cash and
equivalents.
We amended our unsecured revolving credit facility twice during 2007, decreasing the
borrowing capacity from $2.01 billion to $1.86 billion and extending the maturity date from
October 2010 to June 2012. In February 2008, we amended the credit facility again and
decreased the borrowing capacity to $1.6 billion. Under the terms of the credit facility, we
have the capacity to issue letters of credit totaling up to $1.125 billion. Borrowing
availability is reduced by the amount of letters of credit outstanding. The credit facility
includes a borrowing base limitation when we do not have an investment grade senior unsecured
debt rating from at least two of Fitch Ratings, Moodys Investor Service, and Standard and
Poors Corporation. Under the borrowing base limitation, the sum of our senior debt and the
amount drawn on the revolving credit facility may not exceed an amount based on certain
percentages of various categories of our unencumbered inventory and other assets.
33
Liquidity and Capital Resources (continued)
The credit facility contains certain financial covenants. We are required to not exceed a
debt-to-total capitalization ratio of 55%, and we are required to meet a tangible net worth
minimum each quarter. At December 31, 2007, our debt-to-total capitalization ratio (as defined
in the credit facility) was 42.6% while our tangible net worth (as defined in the credit
facility) cushion was $818.5 million after giving effect to the February 2008 amendment. In
the event market conditions deteriorate in the future and result in additional significant
land-related charges, our tangible net worth may come close to or fall below the required
minimum. Violations of any of the covenants in the credit facility, if not cured or waived by
the lenders, could result in an optional maturity date acceleration by the lenders. In the
event this were to occur, we would seek to replace the financing provided by the credit
facility. The credit facility no longer contains an interest coverage ratio covenant that
could create an event of default for us, but if the interest coverage ratio (as defined in the
credit facility) is less than 2 to 1, LIBOR margin and letter of credit pricing under the
credit facility can increase in increments ranging from 0.125% to 0.375% and the debt-to-total
capitalization ratio covenant threshold can decrease in increments of 2.5%. The credit
facilitys uncommitted accordion feature remains unchanged at $2.25 billion. As of December 31,
2007, we had no borrowings outstanding and $1.41 billion available for borrowing under this
facility.
Pulte Mortgage provides mortgage financing for many of our home sales and uses its own
funds and borrowings made available pursuant to various committed and uncommitted credit
arrangements. At December 31, 2007, Pulte Mortgage had committed credit arrangements of $705
million, comprised of a $405 million bank revolving credit facility and a $300 million
asset-backed commercial paper program. Due to the reduced loan origination volume and
unfavorable changes in the asset-backed commercial paper market, Pulte Mortgage amended its
commercial paper program twice during 2007, which, among other things, reduced the capacity
from $550 million to the $300 million available at December 31, 2007. In February 2008, Pulte
Mortgage further amended the commercial paper program to reduce the capacity to $150 million.
After giving effect to the most recent amendment, Pulte Mortgage has committed credit
arrangements of $555 million, comprised of a $405 million bank revolving credit facility and a
$150 million commercial paper program. The credit agreements require Pulte Mortgage to
maintain a consolidated tangible net worth of at least $50 million or eighty-five percent of
the average month-end tangible net worth for the last twelve months of the preceding calendar
year ($52.8 million for 2008) and funded debt cannot exceed 15 times tangible net worth. Pulte
Mortgage had $440.6 million outstanding under its committed credit arrangements at December 31,
2007.
We have experienced downgrades in our credit ratings during 2007 by each of the major
credit rating agencies. While such downgrades do not directly impact our senior notes, they
could increase the cost of borrowing under our unsecured revolving credit facility and limit
our ability to obtain additional financing or refinancing on favorable terms. In the event of
additional downgrades, the lenders under Pulte Mortgages asset-backed commercial paper program
may have the right at their discretion to require early repayment of outstanding balances or
place other restrictions on our ability to utilize the asset-backed commercial paper program.
In the event of such an occurrence, we believe we have capacity through other sources to meet
Pulte Mortgages anticipated financing needs.
Our net cash provided by operating activities in 2007 amounted to $1.2 billion while net
cash used in operating activities was $267.5 million in 2006. For 2005, net cash provided by
operating activities was $18.7 million. The primary drivers of cash flow from operations are
profitability and investments in inventory. In 2007, the net loss was largely attributable to
non-cash asset impairments, including land-related charges, impairments of goodwill and
investments in unconsolidated entities, and a deferred tax valuation allowance. In addition,
we significantly reduced our investments in land inventory in light of the challenging
conditions in the homebuilding industry. In 2006, the reduced profitability compared with 2005
was coupled with significant investments in land inventory. In 2005, net income was offset
primarily by significant investments in land inventory.
Cash used in investing activities was $221.4 million in 2007 compared with $86.7 million
in 2006 and $25.3 million in 2005. The increase in cash used in investing activities during
2007 compared with 2006 resulted primarily from investments of $217.5 million in unconsolidated
entities. The increase in cash used in investing activities in 2006 compared with 2005
resulted primarily from the use of $65.8 million, net of cash acquired, to purchase the
remaining 50% of an entity that installs basic building components and operating systems. In
addition, we received cash of $49.2 million in 2006 for the sale of subsidiaries and equity
investments, primarily resulting from the sale of our Mexico homebuilding operations.
34
Liquidity and Capital Resources (continued)
Net cash used in financing activities totaled $487.6 million and $96.2 million in 2007
and 2006, respectively, compared with net cash provided by financing activities of $700.4
million in 2005. The cash used in financing activities in 2007 and 2006 were largely
attributable to reductions in outstanding borrowings under various credit arrangements as the
result of the lower volumes in our Homebuilding and Financial Services operations.
Offsetting this to some degree in 2007 was a significant reduction in stock repurchases under
our stock repurchase programs. The cash provided by financing activities in 2005 resulted
primarily from increased borrowings under our Pulte Mortgage credit arrangements to fund the
increase in funded loan originations and the issuance of $650 million in senior notes to help
fund additional investments in land inventory.
Pursuant to the two $100 million stock repurchase programs authorized by our Board of
Directors in October 2002 and 2005, and the $200 million stock repurchase authorization in
February 2006 (for a total stock repurchase authorization of $400 million), we have
repurchased a total of 9,688,900 shares for a total of $297.7 million. There were no
repurchases under these programs during 2007. We had remaining authorization to purchase
common stock aggregating $102.3 million at December 31, 2007.
Inflation
We, and the homebuilding industry in general, may be adversely affected during periods
of high inflation because of higher land and construction costs. Inflation may also increase
our financing, labor, and material costs. In addition, higher mortgage interest rates
significantly affect the affordability of permanent mortgage financing to prospective
homebuyers. While we attempt to pass to our customers increases in our costs through
increased sales prices, the current industry conditions have resulted in lower sales prices
in many of our markets. If we are unable to raise sales prices enough to compensate for
higher costs, or if mortgage interest rates increase significantly, affecting our prospective
homebuyers ability to adequately finance home purchases, our revenues, gross margins, and
net income would be adversely affected.
Seasonality
We experience variability in our quarterly results from operations due to the seasonal
nature of the homebuilding industry. Historically, we have experienced significant increases
in revenues and cash flow from operations during the fourth quarter based on the timing of
home settlements.
35
Contractual Obligations and Commercial Commitments
The following table summarizes our payments under contractual obligations as of
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
($000s omitted) |
|
|
|
Total |
|
|
2008 |
|
|
2009-2010 |
|
|
2011-2012 |
|
|
After 2012 |
|
Contractual obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt (a) |
|
$ |
6,408,960 |
|
|
$ |
224,857 |
|
|
$ |
772,008 |
|
|
$ |
1,051,604 |
|
|
$ |
4,360,491 |
|
Operating lease obligations |
|
|
239,537 |
|
|
|
56,118 |
|
|
|
81,714 |
|
|
|
38,888 |
|
|
|
62,817 |
|
Other long-term liabilities (b) |
|
|
10,465 |
|
|
|
4,677 |
|
|
|
4,833 |
|
|
|
955 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations (c) |
|
$ |
6,658,962 |
|
|
$ |
285,652 |
|
|
$ |
858,555 |
|
|
$ |
1,091,447 |
|
|
$ |
4,423,308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Represents our senior notes and related interest payments. |
|
(b) |
|
Represents our non-recourse collateralized financing arrangements and related
interest payments. |
|
(c) |
|
We do not have any payments due in connection with capital lease or purchase
obligations. |
We are subject to the usual obligations associated with entering into contracts
(including option contracts) for the purchase, development, and sale of real estate in the
routine conduct of our business. Option contracts for the purchase of land enable us to
defer acquiring portions of properties owned by third parties and unconsolidated entities
until we are ready to build homes on them. This reduces our financial risks associated with
long-term land holdings. At December 31, 2007, we had agreements to acquire approximately
26,500 homesites through option contracts and unconsolidated entities in which we have
investments. At December 31, 2007, we had $222.5 million of non-refundable option deposits
and advanced costs related to certain of these agreements.
We are subject to U.S. federal income tax as well as income tax of multiple state
jurisdictions. We are also subject to income tax in certain foreign jurisdictions related to
operations previously sold or discontinued. As of December 31, 2007, we had $86.2 million of
gross unrecognized tax benefits and $21.1 million and $12.1 million of related accrued
interest and penalties, respectively. We are currently under examination by various taxing
jurisdictions and anticipate finalizing the examinations with certain jurisdictions within
the next twelve months. However, the final outcome of these examinations is not yet
determinable. The statute of limitations for our major tax jurisdictions remains open for
examination for tax years 1998-2006.
The following table summarizes our other commercial commitments as of December 31,
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Commitment Expiration by Period |
|
|
|
($000s omitted) |
|
|
|
Total |
|
|
2008 |
|
|
2009-20010 |
|
|
2011-2012 |
|
|
After 2012 |
|
Other commercial commitments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor revolving credit facilities (a) |
|
$ |
1,860,000 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,860,000 |
|
|
$ |
|
|
Non-guarantor revolving credit facilities (b) |
|
|
705,000 |
|
|
|
300,000 |
|
|
|
405,000 |
|
|
|
|
|
|
|
|
|
Standby letters of credit (c) |
|
|
46,549 |
|
|
|
39,699 |
|
|
|
6,850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial commitments (d) |
|
$ |
2,611,549 |
|
|
$ |
339,699 |
|
|
$ |
411,850 |
|
|
$ |
1,860,000 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes capacity to issue up to $1.125 billion in standby letters of credit, of
which $447 million was outstanding at December 31, 2007. In February 2008, we
amended the credit facility and decreased the borrowing capacity to $1.6 billion. |
|
(b) |
|
Includes credit facility of $405 million and $300 million asset-backed
commercial paper program. In February 2008, we amended the commercial paper program
to reduce the capacity to $150 million. |
|
(c) |
|
Excludes standby letters of credit issued under the Guarantor revolving credit
facilities. |
|
(d) |
|
Excludes performance and surety bonds of approximately $1.5 billion, which
typically do not have stated expiration dates. |
36
Off-Balance Sheet Arrangements
We use standby letters of credit and performance bonds to guarantee our performance
under various contracts, principally in connection with the development of our projects. The
expiration dates of the letter of credit contracts coincide with the expected completion date
of the related homebuilding projects. If the obligations related to a project are ongoing,
annual extensions of the letters of credit are typically granted on a year-to-year basis. At
December 31, 2007, we had outstanding letters of credit of $493.6 million. Performance bonds
and surety bonds do not have stated expiration dates; rather, we are released from the bonds
as the contractual performance is completed. These bonds, which approximated $1.5 billion at
December 31, 2007, are typically outstanding over a period of approximately 3-5 years. We do
not believe that there will be draws upon any such letters of credit or performance bonds.
In the ordinary course of business, we enter into land option or option type agreements
in order to procure land for the construction of houses in the future. At December 31, 2007,
these agreements totaled approximately $1.6 billion. Pursuant to these land option
agreements, we provide a deposit to the seller as consideration for the right to purchase
land at different times in the future, usually at predetermined prices. If the entity
holding the land under option is a variable interest entity, our deposit represents a
variable interest in that entity. At December 31, 2007, we consolidated certain variable
interest entities with assets totaling $20.8 million.
At December 31, 2007 and 2006, aggregate outstanding debt of unconsolidated joint
ventures was $602.5 million and $935.9 million, respectively. At December 31, 2007 and 2006,
our proportionate share of joint venture debt was approximately $134 million and $312.8
million, respectively. At December 31, 2007 and 2006, we provided non-recourse debt
guarantees for $124.5 million and $304.1 million, respectively, of joint venture debt. In
the case of most joint ventures, we have agreed to indemnify the joint ventures lenders for
certain environmental contingencies, and most guarantee arrangements provide that we are
responsible for our proportionate share of the outstanding debt if the joint venture
voluntarily files for bankruptcy. We would not be responsible under these guarantees unless
the joint venture was unable to meet its contractual borrowing obligations or in instances of
fraud, misrepresentation, or other bad faith actions by us.
For 2007, 2006, and 2005, we recognized equity income (loss) from our unconsolidated
joint ventures of $(190) million, $(62.9) million, and $75.4 million, respectively. The
equity loss recognized during 2007 and 2006 includes land valuation adjustments of $189.9
million and $95.4 million, respectively, which relate to certain of our joint ventures
located in our California and Southwest reportable segments.
Critical Accounting Policies and Estimates
The accompanying consolidated financial statements were prepared in conformity with
United States generally accepted accounting principles. When more than one accounting
principle, or the method of its application, is generally accepted, we select the principle
or method that is appropriate in our specific circumstances (see Note 1 of our Consolidated
Financial Statements). Application of these accounting principles requires us to make
estimates about the future resolution of existing uncertainties; as a result, actual results
could differ from these estimates. In preparing these consolidated financial statements, we
have made our best estimates and judgments of the amounts and disclosures included in the
consolidated financial statements, giving due regard to materiality.
Revenue recognition
Homebuilding Homebuilding revenue and related profit are generally recognized
at the time of the closing of the sale, when title to and possession of the property are
transferred to the buyer. In situations where the buyers financing is originated by Pulte
Mortgage, our wholly-owned mortgage subsidiary, and the buyer has not made an adequate
initial or continuing investment as required by SFAS No. 66, Accounting for Sales of Real
Estate, the profit on such sales is deferred until the sale of the related mortgage loan to
a third-party investor has been completed.
37
Critical Accounting Policies and Estimates (continued)
Financial Services Mortgage servicing fees represent fees earned for servicing
loans for various investors. Servicing fees are based on a contractual percentage of the
outstanding principal balance, or a contracted set fee in the case of certain sub-servicing
arrangements, and are credited to income when related mortgage payments are received. Loan
origination fees, commitment fees, and certain direct loan origination costs are deferred as an
adjustment to the cost of the related mortgage loan until such loan is sold. Gains and losses
from sales of mortgage loans are recognized when the loans are sold. Interest income is accrued
from the date a mortgage loan is originated until the loan is sold. Loans are placed on
non-accrual status once they become greater than 90 days past due their contractual terms.
Subsequent payments received are applied according to the contractual terms of the loan.
Inventory valuation
Inventories are stated at accumulated cost unless certain facts indicate such cost would
not be recovered from the cash flows generated by future disposition. In this instance, such
inventories are measured at fair value in accordance with Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or Disposal of Long Lived Assets (SFAS 144).
Accumulated cost includes costs associated with land acquisition, land development, and home
construction costs, including interest, real estate taxes, and certain direct and indirect
overhead costs related to development and construction.
We capitalize interest cost into homebuilding inventories. Interest capitalized each
quarter is identified as a separate layer in our capitalized interest balance sheet pool. Each
layer of capitalized interest is amortized over a period that approximates the average life of
communities under development. Interest expense is allocated to the quarters over the
amortization period based on the cyclical timing of unit settlements.
Sold units are expensed on a specific identification basis. Under the specific
identification basis, cost of sales includes the construction cost of the home, an average lot
cost based on expected land acquisition and development costs for the project, as well as
closing costs and commissions applicable to the home. Construction cost of the home includes
amounts paid through the closing date of the home, plus an appropriate accrual for costs
incurred but not yet paid, based on an analysis of budgeted construction cost. This accrual is
reviewed for accuracy based on actual payments made after closing compared with the amount
accrued, and adjustments are made if needed. Total project land acquisition and development
costs are based on an analysis of budgeted costs compared with actual costs incurred to date and
estimates to complete. Adjustments to estimated total land acquisition and development costs
for the project affect the amounts costed for the projects remaining lots.
Residential mortgage loans
Residential mortgage loans available-for-sale are stated at the lower of aggregate cost or
market value. Gains and losses from sales of mortgage loans are recognized when the loans are
sold. We hedge our residential mortgage loans available-for-sale. Gains and losses from closed
commitments and futures contracts are matched against the related gains and losses on the sale
of mortgage loans.
Loans held for investment consist of interim financing mortgage loans for certain of our
customers as well as a portfolio of loans that either have been repurchased from investors or
were not saleable upon closing. These loans are carried at cost and reviewed for impairment
when recoverability becomes doubtful.
Goodwill and intangible assets
We have recorded certain intangible assets and goodwill, most of which relate to the Del
Webb merger in 2001. Intangible assets, primarily trademarks and tradenames, were valued using
proven valuation procedures and are amortized over their estimated useful life. Goodwill is
subject to annual impairment testing. The carrying value and ultimate realization of these
assets is dependent upon estimates of future earnings and benefits that we expect to generate
from their use. If our expectations of future results and cash flows decrease significantly,
intangible assets and goodwill may be impaired. If we determine that the carrying value of
intangible assets and goodwill may not be recoverable based upon the existence of one or more
indicators of impairment, we measure impairment based on several accepted valuation methods.
For assets related to ongoing operations, we use a projected undiscounted cash flow method to
determine if impairment exists and then measure impairment using discounted cash flows. For
assets to be disposed of, we assess the fair value of the asset based on current market
conditions for similar assets. For goodwill, we assess fair value by measuring discounted cash
flows of our reporting units and measure impairment as the difference between the resulting
implied fair value of goodwill and the recorded book value. The estimates of useful lives and
expected cash flows require us to make significant judgments regarding future periods that are
subject to some factors outside of our control.
38
Critical Accounting Policies and Estimates (continued)
Allowance for warranties
Home purchasers are provided with warranties against certain building defects. The
specific terms and conditions of those warranties vary geographically. Most warranties cover
different aspects of the homes construction and operating systems for a period of up to ten
years. We estimate the costs to be incurred under these warranties and record a liability in
the amount of such costs at the time product revenue is recognized. Factors that affect our
warranty liability include the number of homes sold, historical and anticipated rates of
warranty claims, and cost per claim. We periodically assess the adequacy of recorded warranty
liabilities and adjust the amounts as necessary. Although we have not made significant
adjustments to the accrual in the past, actual warranty cost in the future could differ from
our current estimate.
Insurance
We have, and require the majority of our subcontractors to have, general liability,
property, errors and omissions, workers compensation, and other business insurance. These
insurance policies protect us against a portion of the risk of loss from claims, subject to
certain self-insured retentions, deductibles, and other coverage limits. Through our captive
insurance subsidiaries, we reserve for costs to cover our self-insured and deductible amounts
under those policies and for any costs of claims and lawsuits, based on an analysis of our
historical claims, which includes an estimate of claims incurred but not yet reported.
We are also self-insured for certain of our medical and dental claims and reserve for
costs to cover our liability for such claims, based on analysis of historical claims, which
include an estimate of claims incurred but not yet reported.
Stock-based compensation
On January 1, 2006, the Company adopted SFAS No. 123(R), Share-Based Payment, which is a
revision of SFAS No. 123 and supersedes APB Opinion No. 25, Accounting for Stock Issued to
Employees, and amends SFAS Statement No. 95, Statement of Cash Flows. We calculate the fair
value of stock options using the Black-Scholes option pricing model. Determining the fair value
of share-based awards at the grant date requires judgment in developing assumptions, which
involve a number of variables. These variables include, but are not limited to, the expected
stock price volatility over the term of the awards, the expected dividend yield and expected
stock option exercise behavior. In addition, we also use judgment in estimating the number of
share-based awards that are expected to be forfeited. The Company adopted SFAS 123(R) using
the modified prospective method of transition. Accordingly, prior periods have not been
restated. The adoption of SFAS 123(R) did not have a significant effect on basic and diluted
earnings per share for the year ended December 31, 2006.
Prior to January 1, 2006, the Company accounted for its stock-based awards under the fair
value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation. The
Company selected the prospective method of adoption as permitted by SFAS No. 148, Accounting
for Stock-Based Compensation Transition and Disclosure. Under the prospective method, the
Company recognized compensation expense on an accelerated basis over the vesting period based
on the fair value provisions of SFAS No. 123.
Income taxes
The Company calculates its provision for income taxes using the asset and liability
method, under which deferred tax assets and liabilities are recognized by identifying the
temporary differences arising from the different treatment of items for tax and accounting
purposes. In assessing the realizability of deferred tax assets, the Company considers whether
it is more likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is primarily dependent upon the
generation of future taxable income during the periods in which those temporary differences
become deductible or carryback to prior tax years. In determining the future tax consequences
of events that have been recognized in the Companys financial statements or tax returns,
judgment is required. Differences between the anticipated and actual outcomes of these future
tax consequences could have a material impact on the Companys consolidated results of
operations or financial position.
New Accounting Pronouncements
See Note 1 to the Consolidated Financial Statements included elsewhere in this Form 10-K.
39
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are subject to interest rate risk on our rate-sensitive financing to the extent
long-term rates decline. The following tables set forth, as of December 31, 2007 and 2006, our
rate-sensitive financing obligations, principal cash flows by scheduled maturity,
weighted-average interest rates, and estimated fair value ($000s omitted).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007 for the |
|
|
Years ended December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There- |
|
|
|
|
|
Fair |
|
|
2008 |
|
2009 |
|
2010 |
|
2011 |
|
2012 |
|
after |
|
Total |
|
Value |
Rate-sensitive liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed interest rate debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior notes |
|
$ |
|
|
|
$ |
338,812 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
698,563 |
|
|
$ |
2,450,000 |
|
|
$ |
3,487,375 |
|
|
$ |
2,962,634 |
|
Average interest rate |
|
|
|
|
|
|
4.88 |
% |
|
|
|
|
|
|
|
|
|
|
7.95 |
% |
|
|
6.24 |
% |
|
|
6.45 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-recourse
collateralized financing |
|
$ |
4,120 |
|
|
$ |
3,490 |
|
|
$ |
890 |
|
|
$ |
890 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
9,390 |
|
|
$ |
9,390 |
|
Average interest rate |
|
|
5.65 |
% |
|
|
5.57 |
% |
|
|
7.25 |
% |
|
|
7.25 |
% |
|
|
|
|
|
|
|
|
|
|
5.93 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006 for the |
|
|
Years ended December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There- |
|
|
|
|
|
Fair |
|
|
2007 |
|
2008 |
|
2009 |
|
2010 |
|
2011 |
|
after |
|
Total |
|
Value |
Rate sensitive liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed interest rate debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior notes |
|
$ |
|
|
|
$ |
|
|
|
$ |
400,000 |
|
|
$ |
|
|
|
$ |
698,563 |
|
|
$ |
2,450,000 |
|
|
$ |
3,548,563 |
|
|
$ |
3,584,523 |
|
Average interest rate |
|
|
|
|
|
|
|
|
|
|
4.88 |
% |
|
|
|
|
|
|
7.95 |
% |
|
|
6.24 |
% |
|
|
6.42 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-recourse
collateralized financing |
|
$ |
19,755 |
|
|
$ |
3,484 |
|
|
$ |
3,650 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
26,889 |
|
|
$ |
26,889 |
|
Average interest rate |
|
|
.31 |
% |
|
|
1.25 |
% |
|
|
2.37 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
.71 |
% |
|
|
|
|
Pulte Mortgage, operating as a mortgage banker, is also subject to interest rate risk.
Interest rate risk begins when we commit to lend money to a customer at agreed-upon terms (i.e.,
commit to lend at a certain interest rate for a certain period of time). The interest rate risk
continues through the loan closing and until the loan is sold to an investor. During 2007 and
2006, this period of interest rate exposure averaged approximately 60 days. In periods of
rising interest rates, the length of exposure will generally increase due to customers locking
in an interest rate sooner as opposed to letting the interest rate float.
We minimize interest rate risk by (i) financing the loans via a variable rate borrowing
agreement tied to LIBOR and A1/P1 commercial paper rates and (ii) hedging our loan commitments
and closed loans through derivative financial instruments. These financial instruments include
cash forward placement contracts on mortgage-backed securities, whole loan investor commitments,
options on treasury future contracts, and options on cash forward placement contracts on
mortgage-backed securities. We do not use any derivative financial instruments for trading
purposes.
Hypothetical changes in the fair values of our financial instruments arising from immediate
parallel shifts in long-term mortgage rates of plus 50, 100, and 150 basis points would not be
material to our financial results.
At December 31, 2007, our aggregate net investment exposed to foreign currency exchange
rate risk includes our remaining non-operating investments in Mexico, which approximated $5
million.
40
SPECIAL NOTES CONCERNING FORWARD-LOOKING STATEMENTS
As a cautionary note, except for the historical information contained herein, certain
matters discussed in Item 1A., Risk Factors, Item 7., Managements Discussion and Analysis of
Financial Condition and Results of Operations and Item 7A., Quantitative and Qualitative
Disclosures About Market Risk, are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 (the Reform Act).
Forward-looking statements give current expectations or forecasts of future events. Words
such as anticipate, expect, intend, plan, believe, seek, estimate, and other words
and terms of similar meaning in connection with discussions of future operating or financial
performance signify forward-looking statements. From time to time, we also may provide oral or
written forward-looking statements in other materials released to the public. Such statements
are made in good faith by us pursuant to the Safe Harbor provisions of the Reform Act. We
undertake no obligation to update publicly or revise any forward-looking statement, whether as a
result of new information, future events, or otherwise.
Such forward-looking statements involve known risks, uncertainties and other factors that
may cause our actual results, performance or achievements to be materially different from our
future results, performance or achievements expressed or implied by the forward-looking
statements. Such factors include, among other things, those set forth under Item 1A. Risk
Factors.
41
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PULTE HOMES, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2007 and 2006
($000s omitted, except share data)
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents |
|
$ |
1,060,311 |
|
|
$ |
551,292 |
|
Unfunded settlements |
|
|
38,714 |
|
|
|
72,597 |
|
House and land inventory |
|
|
7,027,511 |
|
|
|
9,374,335 |
|
Land held for sale |
|
|
252,563 |
|
|
|
465,823 |
|
Land, not owned, under option agreements |
|
|
20,838 |
|
|
|
43,609 |
|
Residential mortgage loans available-for-sale |
|
|
447,089 |
|
|
|
871,350 |
|
Investments in unconsolidated entities |
|
|
105,479 |
|
|
|
150,685 |
|
Goodwill |
|
|
5,654 |
|
|
|
375,677 |
|
Intangible assets, net |
|
|
110,704 |
|
|
|
118,954 |
|
Other assets |
|
|
1,050,934 |
|
|
|
982,034 |
|
Deferred income tax assets |
|
|
105,906 |
|
|
|
170,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
10,225,703 |
|
|
$ |
13,176,874 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable, including book overdrafts of $185,701 and
$280,329 in 2007 and 2006, respectively |
|
$ |
418,637 |
|
|
$ |
576,321 |
|
Customer deposits |
|
|
132,720 |
|
|
|
200,478 |
|
Accrued and other liabilities |
|
|
1,308,554 |
|
|
|
1,403,793 |
|
Collateralized short-term debt, recourse solely to applicable
non-guarantor subsidiary assets |
|
|
440,611 |
|
|
|
814,707 |
|
Income taxes |
|
|
126,758 |
|
|
|
66,267 |
|
Senior notes |
|
|
3,478,230 |
|
|
|
3,537,947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
5,905,510 |
|
|
|
6,599,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity: |
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value; 25,000,000 shares authorized,
none issued |
|
|
|
|
|
|
|
|
Common stock, $0.01 par value; 400,000,000 shares authorized,
257,098,765 and 255,315,408 shares issued and outstanding
at December 31, 2007 and 2006, respectively |
|
|
2,571 |
|
|
|
2,553 |
|
Additional paid-in capital |
|
|
1,362,504 |
|
|
|
1,284,687 |
|
Accumulated other comprehensive loss |
|
|
(4,883 |
) |
|
|
(2,986 |
) |
Retained earnings |
|
|
2,960,001 |
|
|
|
5,293,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
4,320,193 |
|
|
|
6,577,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
10,225,703 |
|
|
$ |
13,176,874 |
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
42
PULTE HOMES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 2007, 2006, and 2005
(000s omitted, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding |
|
$ |
9,121,730 |
|
|
$ |
14,075,248 |
|
|
$ |
14,528,236 |
|
Financial Services |
|
|
134,769 |
|
|
|
194,596 |
|
|
|
161,414 |
|
Other non-operating |
|
|
6,595 |
|
|
|
4,564 |
|
|
|
4,885 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
9,263,094 |
|
|
|
14,274,408 |
|
|
|
14,694,535 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding, principally cost of sales |
|
|
11,440,839 |
|
|
|
12,969,636 |
|
|
|
12,302,018 |
|
Financial Services |
|
|
92,150 |
|
|
|
111,468 |
|
|
|
93,574 |
|
Other non-operating, net |
|
|
36,986 |
|
|
|
47,664 |
|
|
|
97,279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
11,569,975 |
|
|
|
13,128,768 |
|
|
|
12,492,871 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income: |
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of equity investments |
|
|
|
|
|
|
31,635 |
|
|
|
620 |
|
Equity income (loss) |
|
|
(190,022 |
) |
|
|
(94,547 |
) |
|
|
74,730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes |
|
|
(2,496,903 |
) |
|
|
1,082,728 |
|
|
|
2,277,014 |
|
Income taxes (benefit) |
|
|
(222,486 |
) |
|
|
393,082 |
|
|
|
840,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
(2,274,417 |
) |
|
|
689,646 |
|
|
|
1,436,888 |
|
Income (loss) from discontinued operations |
|
|
18,662 |
|
|
|
(2,175 |
) |
|
|
55,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(2,255,755 |
) |
|
$ |
687,471 |
|
|
$ |
1,491,913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share data: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
(9.02 |
) |
|
$ |
2.73 |
|
|
$ |
5.62 |
|
Income (loss) from discontinued operations |
|
|
0.07 |
|
|
|
(0.01 |
) |
|
|
0.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(8.94 |
) |
|
$ |
2.73 |
|
|
$ |
5.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assuming dilution: |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
(9.02 |
) |
|
$ |
2.67 |
|
|
$ |
5.47 |
|
Income (loss) from discontinued operations |
|
|
0.07 |
|
|
|
(0.01 |
) |
|
|
0.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(8.94 |
) |
|
$ |
2.66 |
|
|
$ |
5.68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared |
|
$ |
0.16 |
|
|
$ |
0.16 |
|
|
$ |
0.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares used in calculation: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding |
|
|
252,192 |
|
|
|
252,200 |
|
|
|
255,492 |
|
Assuming dilution: |
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities stock options
and restricted
stock grants |
|
|
|
|
|
|
6,421 |
|
|
|
7,309 |
|
|
|
|
|
|
|
|
|
|
|
Adjusted weighted-average common shares
and effect of dilutive securities |
|
|
252,192 |
|
|
|
258,621 |
|
|
|
262,801 |
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
43
PULTE HOMES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
AND COMPREHENSIVE INCOME
For the years ended December 31, 2007, 2006, and 2005
($000s omitted, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Common |
|
|
Paid-in |
|
|
Unearned |
|
|
Comprehensive |
|
|
Retained |
|
|
|
|
|
|
Stock |
|
|
Capital |
|
|
Compensation |
|
|
Income (Loss) |
|
|
Earnings |
|
|
Total |
|
Shareholders Equity, December 31, 2004 |
|
$ |
2,558 |
|
|
$ |
1,114,739 |
|
|
$ |
(44 |
) |
|
$ |
(14,380 |
) |
|
$ |
3,419,401 |
|
|
$ |
4,522,274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option exercises |
|
|
30 |
|
|
|
31,218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,248 |
|
Tax benefit from stock option exercises and
restricted stock vesting |
|
|
|
|
|
|
34,095 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,095 |
|
Restricted stock awards |
|
|
18 |
|
|
|
(18 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock award amortization |
|
|
|
|
|
|
|
|
|
|
44 |
|
|
|
|
|
|
|
|
|
|
|
44 |
|
Cash dividends declared $0.13 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33,550 |
) |
|
|
(33,550 |
) |
Stock repurchases |
|
|
(36 |
) |
|
|
(16,566 |
) |
|
|
|
|
|
|
|
|
|
|
(126,644 |
) |
|
|
(143,246 |
) |
Stock-based compensation |
|
|
|
|
|
|
45,680 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,680 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,491,913 |
|
|
|
1,491,913 |
|
Change in fair value of derivatives, net of
income tax benefit of $2,481, net of
reclassification for net realized losses on
derivatives of $138 included in net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,048 |
) |
|
|
|
|
|
|
(4,048 |
) |
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,932 |
|
|
|
|
|
|
|
12,932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,500,797 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity, December 31, 2005 |
|
$ |
2,570 |
|
|
$ |
1,209,148 |
|
|
$ |
|
|
|
$ |
(5,496 |
) |
|
$ |
4,751,120 |
|
|
$ |
5,957,342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option exercises |
|
|
13 |
|
|
|
8,337 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,350 |
|
Tax benefit from stock option exercises and
restricted stock vesting |
|
|
|
|
|
|
6,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,696 |
|
Restricted stock awards |
|
|
7 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared $0.16 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40,879 |
) |
|
|
(40,879 |
) |
Stock repurchases |
|
|
(37 |
) |
|
|
(17,653 |
) |
|
|
|
|
|
|
|
|
|
|
(104,605 |
) |
|
|
(122,295 |
) |
Stock-based compensation |
|
|
|
|
|
|
78,166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78,166 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
687,471 |
|
|
|
687,471 |
|
Change in fair value of derivatives, net of
income tax expense of $760, net of
reclassification for net realized losses on
derivatives of $18 included in net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,240 |
|
|
|
|
|
|
|
1,240 |
|
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,270 |
|
|
|
|
|
|
|
1,270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
689,981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity, December 31, 2006 |
|
$ |
2,553 |
|
|
$ |
1,284,687 |
|
|
$ |
|
|
|
$ |
(2,986 |
) |
|
$ |
5,293,107 |
|
|
$ |
6,577,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adoption of FASB Interpretation No. 48 (FIN 48) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31,354 |
) |
|
|
(31,354 |
) |
Stock option exercises |
|
|
7 |
|
|
|
7,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,862 |
|
Tax benefit from stock option exercises and
restricted stock vesting |
|
|
|
|
|
|
523 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
523 |
|
Restricted stock awards |
|
|
13 |
|
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared $0.16 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40,997 |
) |
|
|
(40,997 |
) |
Stock repurchases |
|
|
(2 |
) |
|
|
(1,243 |
) |
|
|
|
|
|
|
|
|
|
|
(5,000 |
) |
|
|
(6,245 |
) |
Stock-based compensation |
|
|
|
|
|
|
70,695 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,695 |
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,255,755 |
) |
|
|
(2,255,755 |
) |
Change in fair value of derivatives, net of
income tax benefit of $1,080, net of
reclassification for net realized gains on
derivatives of $978 included in net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,762 |
) |
|
|
|
|
|
|
(1,762 |
) |
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(135 |
) |
|
|
|
|
|
|
(135 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,257,652 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity, December 31, 2007 |
|
$ |
2,571 |
|
|
$ |
1,362,504 |
|
|
$ |
|
|
|
$ |
(4,883 |
) |
|
$ |
2,960,001 |
|
|
$ |
4,320,193 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
44
PULTE HOMES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2007, 2006, and 2005
($000s omitted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(2,255,755 |
) |
|
$ |
687,471 |
|
|
$ |
1,491,913 |
|
Adjustments to reconcile net income (loss) to net cash flows
provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Write-down of land and deposits and other related costs |
|
|
2,042,618 |
|
|
|
409,523 |
|
|
|
29,997 |
|
Goodwill impairments |
|
|
370,023 |
|
|
|
|
|
|
|
|
|
Gain on sale of equity investments |
|
|
|
|
|
|
(31,635 |
) |
|
|
(620 |
) |
Loss on sale of subsidiaries |
|
|
|
|
|
|
|
|
|
|
13,124 |
|
Amortization and depreciation |
|
|
83,852 |
|
|
|
83,675 |
|
|
|
61,512 |
|
Stock-based compensation expense |
|
|
70,695 |
|
|
|
78,166 |
|
|
|
45,724 |
|
Deferred income taxes |
|
|
73,164 |
|
|
|
(157,832 |
) |
|
|
33,695 |
|
Equity (income) loss from unconsolidated entities |
|
|
190,022 |
|
|
|
94,547 |
|
|
|
(75,350 |
) |
Distributions of earnings from unconsolidated entities |
|
|
4,429 |
|
|
|
6,590 |
|
|
|
86,020 |
|
Other, net |
|
|
2,315 |
|
|
|
2,657 |
|
|
|
(180 |
) |
Increase (decrease) in cash due to: |
|
|
|
|
|
|
|
|
|
|
|
|
Inventories |
|
|
622,359 |
|
|
|
(1,151,972 |
) |
|
|
(1,699,373 |
) |
Residential mortgage loans available-for-sale |
|
|
395,425 |
|
|
|
167,156 |
|
|
|
(341,429 |
) |
Other assets |
|
|
(4,936 |
) |
|
|
98,776 |
|
|
|
(154,531 |
) |
Accounts payable, accrued and other liabilities |
|
|
(396,541 |
) |
|
|
(380,985 |
) |
|
|
477,372 |
|
Income taxes |
|
|
20,585 |
|
|
|
(173,663 |
) |
|
|
50,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
1,218,255 |
|
|
|
(267,526 |
) |
|
|
18,704 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Distributions from unconsolidated entities |
|
|
60,201 |
|
|
|
67,444 |
|
|
|
107,978 |
|
Investments in unconsolidated entities |
|
|
(217,541 |
) |
|
|
(58,229 |
) |
|
|
(161,926 |
) |
Investments in subsidiaries, net of cash acquired |
|
|
|
|
|
|
(65,779 |
) |
|
|
(31,172 |
) |
Increase in loans held for investment |
|
|
(13,728 |
) |
|
|
|
|
|
|
|
|
Proceeds from the sale of subsidiaries and equity investments |
|
|
|
|
|
|
49,216 |
|
|
|
142,866 |
|
Proceeds from the sale of fixed assets |
|
|
19,767 |
|
|
|
19,091 |
|
|
|
5,858 |
|
Capital expenditures |
|
|
(70,116 |
) |
|
|
(98,629 |
) |
|
|
(88,887 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(221,417 |
) |
|
|
(86,886 |
) |
|
|
(25,283 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net borrowings (repayments) under Financial Services
credit arrangements |
|
|
(374,096 |
) |
|
|
(78,294 |
) |
|
|
275,586 |
|
Proceeds from other borrowings |
|
|
|
|
|
|
150,000 |
|
|
|
695,358 |
|
Repayment of other borrowings |
|
|
(74,687 |
) |
|
|
(19,757 |
) |
|
|
(125,000 |
) |
Excess tax benefits from share-based awards |
|
|
523 |
|
|
|
6,696 |
|
|
|
|
|
Issuance of common stock |
|
|
7,862 |
|
|
|
8,350 |
|
|
|
31,248 |
|
Stock repurchases |
|
|
(6,245 |
) |
|
|
(122,295 |
) |
|
|
(143,246 |
) |
Dividends paid |
|
|
(40,997 |
) |
|
|
(40,879 |
) |
|
|
(33,550 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
(487,640 |
) |
|
|
(96,179 |
) |
|
|
700,396 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and equivalents |
|
|
(179 |
) |
|
|
(385 |
) |
|
|
333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and equivalents |
|
|
509,019 |
|
|
|
(450,976 |
) |
|
|
694,150 |
|
Cash and equivalents at beginning of year |
|
|
551,292 |
|
|
|
1,002,268 |
|
|
|
308,118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents at end of year |
|
$ |
1,060,311 |
|
|
$ |
551,292 |
|
|
$ |
1,002,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net of amounts capitalized |
|
$ |
14,533 |
|
|
$ |
17,483 |
|
|
$ |
42,789 |
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid (received), net |
|
$ |
(72,364 |
) |
|
$ |
718,695 |
|
|
$ |
747,325 |
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
45
PULTE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies
Basis of presentation
The consolidated financial statements include the accounts of Pulte Homes, Inc., all of its
direct and indirect subsidiaries (the Company) and variable interest entities in which the
Company is deemed to be the primary beneficiary. The direct subsidiaries of Pulte Homes, Inc.
include Pulte Diversified Companies, Inc., Del Webb Corporation (Del Webb), and other
subsidiaries that are engaged in the homebuilding business. Pulte Diversified Companies, Inc.s
operating subsidiaries include Pulte Home Corporation, Pulte International Corporation
(International), and other subsidiaries that are engaged in the homebuilding business. The
Company also has a mortgage banking company, Pulte Mortgage LLC (Pulte Mortgage), which is a
subsidiary of Pulte Home Corporation.
Use of estimates
The preparation of financial statements in conformity with United States generally accepted
accounting principles requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes. Actual results could
differ from those estimates.
Reclassification
Certain prior period amounts have been reclassified to conform to the current year
presentation.
Foreign currency
The financial statements of the Companys foreign subsidiaries in Argentina and Mexico were
measured using the local currency as the functional currency. Assets and liabilities of these
subsidiaries were translated at exchange rates as of the balance sheet date. Revenues and
expenses were translated at average exchange rates in effect during the year. Realized foreign
currency transaction gains and losses have been included in the Consolidated Statements of
Operations. Realized foreign currency transaction (gains) losses were not significant during
the years ended December 31, 2007 and 2006. For the year ended December 31, 2005, realized
foreign currency transaction gains were $1.6 million and were recorded in income from
discontinued operations.
Cash and equivalents
Cash and equivalents includes commercial paper and time deposits with a maturity of three
months or less when acquired. Additionally, the Company holds cash that is restricted as to its
use. Restricted cash primarily consists of customer deposits on home sales which are
temporarily restricted by regulatory requirements until title transfers to the homebuyer. At
December 31, 2007 and 2006, the balance of restricted cash was $20 million and $17.3 million,
respectively.
Investments in unconsolidated entities
The equity method of accounting is used for joint ventures and associated entities over
which the Company has significant influence; generally this represents partnership equity or
common stock ownership interests of at least 20% and not more than 50%. Under the equity method
of accounting, the Company recognizes its pro rata share of the profits and losses of these
entities. Certain of these entities sell land to the Company. Profits from such activities are
deferred by the Company until the time the related homes are sold.
The cost method of accounting is used for investments in which the Company has less than a
20% ownership interest and does not have the ability to exercise significant influence.
46
PULTE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. Summary of significant accounting policies (continued)
Goodwill
Goodwill, which represents the cost of acquired companies in excess of the fair value of
the net assets at the acquisition date, has been recorded in prior years in connection with
various acquisitions. In accordance with Statement of Financial Accounting Standards
(SFAS) No. 142, annually in the fourth quarter and when events or changes in circumstances
indicate the carrying amount may not be recoverable, management evaluates the recoverability
of goodwill by comparing the carrying value of the Companys reporting units to their fair
value.
Due to a significant deterioration in market conditions, a continuation of significant
impairments and land-related charges, and a steep decline in the market price of the
Companys common stock to a level significantly below its book value, the Company performed a
detailed evaluation of goodwill as of September 30, 2007. Management evaluated the
recoverability of goodwill by comparing the carrying value of the Companys reporting units
to their fair value. Fair value was determined based on discounted future cash flows
supplemented by a market-based assessment of fair value for each reporting unit. These cash
flows are significantly impacted by estimates related to current market valuations, current
and future economic conditions in each of the Companys geographical markets, and the
Companys strategic plans within each of its markets. Due to uncertainties in the estimation
process and the significant volatility in demand for new housing, actual results could differ
significantly from such estimates. Additionally, future changes in any of these factors
could result in future impairments of the remaining goodwill.
The evaluation as of September 30, 2007 resulted in an impairment charge of $335.6
million. During the fourth quarter of 2007, the Company performed its annual goodwill
impairment test and determined that goodwill related to the Florida segment had become
impaired as the result of continued deterioration in market conditions. This resulted in an
additional impairment charge of $34.4 million. The Companys goodwill balances by reporting
segment as of December 31, 2007 and 2006 were as follows ($000s omitted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
|
|
|
|
Balance at |
|
|
|
December 31, |
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
Impairments |
|
|
2007 |
|
Northeast |
|
$ |
2,729 |
|
|
$ |
(2,729 |
) |
|
$ |
|
|
Southeast |
|
|
4,954 |
|
|
|
|
|
|
|
4,954 |
|
Florida |
|
|
34,414 |
|
|
|
(34,414 |
) |
|
|
|
|
Midwest |
|
|
18,316 |
|
|
|
(18,316 |
) |
|
|
|
|
Central |
|
|
4,493 |
|
|
|
(4,493 |
) |
|
|
|
|
Southwest |
|
|
218,966 |
|
|
|
(218,966 |
) |
|
|
|
|
California |
|
|
91,105 |
|
|
|
(91,105 |
) |
|
|
|
|
Financial Services |
|
|
700 |
|
|
|
|
|
|
|
700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total goodwill |
|
$ |
375,677 |
|
|
$ |
(370,023 |
) |
|
$ |
5,654 |
|
|
|
|
|
|
|
|
|
|
|
47
PULTE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. Summary of significant accounting policies (continued)
Intangible assets
Intangible assets consist primarily of trademarks and tradenames acquired in connection
with the 2001 acquisition of Del Webb and are included in the assets of the Companys
Homebuilding operations. These intangible assets were valued at the acquisition date utilizing
proven valuation procedures and are being amortized on a straight-line basis over a 20-year
life. The acquired cost and accumulated amortization of the Companys intangible assets were
$163 million and $52.3 million, respectively, at December 31, 2007 and $163.5 million and $44.5
million, respectively, at December 31, 2006. Amortization expense was $8.2 million in each of
the years ended December 31, 2007, 2006, and 2005. Amortization expense for trademarks and
tradenames is expected to be $8.2 million in each of the next five years.
Intangible assets are reviewed for impairment when events or changes in circumstances
indicate the carrying amount may not be recoverable. If impairment indicators exist, an
assessment of undiscounted future cash flows for the assets related to these intangibles is
evaluated accordingly. If the results of the analysis indicate impairment, the assets are
adjusted to fair market value. During the years ended December 31, 2007, 2006, and 2005, there
were no impairments of intangible assets.
Fixed assets and depreciation
Fixed assets are recorded at cost. Maintenance and repair costs are charged to earnings
as incurred. Depreciation is computed principally by the straight-line method based upon
estimated useful lives as follows: vehicles, three to seven years, model and office furniture,
two to three years, and equipment, three to ten years. Fixed assets are included in Other
Assets and totaled $123.9 million net of accumulated depreciation of $217.1 million at December
31, 2007 and $164.7 million net of accumulated depreciation of $180.2 million at December 31,
2006. Total depreciation expense for the years ended December 31, 2007, 2006, and 2005 was
$75.6 million, $75.4 million, and $53.3 million, respectively.
Advertising cost
The Company expenses advertising costs as incurred. For the years ended December 31,
2007, 2006, and 2005, the Company incurred advertising costs of approximately $104.3 million,
$106 million, and $94.1 million, respectively.
Employee benefits
The Company maintains a defined contribution plan that covers substantially all of the
Companys employees. Company contributions pursuant to the plan were approximately $21
million, $23.5 million, and $19.8 million for the years ended December 31, 2007, 2006, and
2005, respectively.
Insurance
The Company has, and requires the majority of its subcontractors to have, general
liability, property, errors and omissions, workers compensation, and other business insurance.
These insurance policies protect the Company against a portion of its risk of loss from
claims, subject to certain self-insured retentions, deductibles, and other coverage limits.
Through its captive insurance subsidiaries, the Company reserves for costs to cover its
self-insured and deductible amounts under those policies and for any costs of claims and
lawsuits, based on an analysis of the Companys historical claims, which includes an estimate
of claims incurred but not yet reported. The Companys total reserves for such items were
$352.5 million and $215.7 million at December 31, 2007 and 2006, respectively. Expenses,
including estimates for claims not yet reported, were $141.2 million, $89.1 million, and $64.4
million for the years ended December 31, 2007, 2006, and 2005, respectively. The Company
experienced increases in insurance-related expenses in 2007 and 2006 primarily due to the
development of general liability product claims.
Since January 1, 2006, the Company is self-insured for certain of its medical and dental
claims and reserves for costs to cover its liability for such claims, based on analysis of
historical claims, which include an estimate of claims incurred but not yet reported. The
Companys total reserves for such items were $4.2 million and $6.3 million at December 31, 2007
and 2006, respectively.
48
PULTE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. Summary of significant accounting policies (continued)
Earnings per share
Basic earnings per share is computed by dividing income available to common shareholders
(the numerator) by the weighted-average number of common shares, adjusted for non-vested
shares of restricted stock (the denominator) for the period. Computing diluted earnings per
share is similar to computing basic earnings per share, except that the denominator is
increased to include the dilutive effects of options and non-vested shares of restricted stock.
Any options that have an exercise price greater than the average market price are considered
to be anti-dilutive, and are excluded from the diluted earnings per share calculation. For the
year ended December 31, 2007, all stock options and non-vested restricted stock were excluded
from the calculation as they were anti-dilutive due to the net loss recorded during the period.
The Company excluded from the calculation 4,707,900 and 161,109 anti-dilutive outstanding
stock options for the years ended December 31, 2006 and 2005, respectively.
Fair values of financial instruments
The carrying amounts of cash and equivalents approximate their fair values due to their short-term
nature.
The fair value of residential mortgage loans available-for-sale is estimated using quoted
market prices for securities backed by similar loans. Fair value exceeded cost by
approximately $7.9 million and $7.3 million at December 31, 2007 and 2006, respectively.
Carrying amounts for financial derivative instruments reported in the balance sheet
approximate fair value as the amounts reported are based on current market prices. The
estimated fair values of financial instruments were determined by management using available
market information and appropriate valuation methodologies. Considerable judgment is necessary
to interpret the market data and develop the estimated fair value. Accordingly, the estimates
presented are not necessarily indicative of the amounts the Company could realize on
disposition of the financial instruments. Changes in the fair value of these instruments would
not have a significant impact on the Companys results of operations. The use of different
market assumptions and/or estimation methodologies may have a material effect on the estimated
fair value amounts. At December 31, 2007, derivative assets, included in Other Assets in the
Consolidated Balance Sheets, totaled $2.5 million and derivative liabilities, included in
Accrued and Other Liabilities, totaled $4.8 million. At December 31, 2006, derivative assets
totaled $5.2 million and derivative liabilities totaled $3.2 million.
The fair values of senior notes are based on quoted market prices, when available. If
quoted market prices are not available, fair values are based on quoted market prices of
similar issues.
Disclosures about the fair value of financial instruments are based on pertinent
information available to management as of December 31, 2007. Although management is not aware
of any factors that would significantly affect the reasonableness of the fair value amounts,
such amounts were not comprehensively revalued for purposes of these financial statements since
that date and current estimates of fair value may differ significantly from the amounts
presented herein.
Stock-based compensation
Prior to January 1, 2006, the Company accounted for its stock-based awards under the fair
value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation. The
Company selected the prospective method of adoption as permitted by SFAS No. 148, Accounting
for Stock-Based Compensation Transition and Disclosure. Under the prospective method, the
Company recognized compensation expense on an accelerated basis over the vesting period based
on the fair value provisions of SFAS No. 123.
As of January 1, 2006, the Company adopted SFAS No. 123(R), Share-Based Payment, which
is a revision of SFAS No. 123 and supersedes APB Opinion No. 25, Accounting for Stock Issued
to Employees, and amends SFAS Statement No. 95, Statement of Cash Flows. The Company
adopted SFAS 123(R) using the modified prospective method of transition. Accordingly, prior
periods have not been restated. The adoption of SFAS 123(R) did not have a significant effect
on basic and diluted earnings per share for the year ended December 31, 2006.
49
PULTE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. Summary of significant accounting policies (continued)
Stock-based compensation (continued)
Prior to the adoption of SFAS No. 123(R), the Company presented all benefits of the tax
deductions resulting from the exercise of share-based compensation as operating cash flows in
its Consolidated Statements of Cash Flows. SFAS 123(R) requires classification of the
benefits of tax deductions in excess of the compensation cost recognized for those options
(excess tax benefits) as financing cash flows. As a result, the Company classified $523
thousand and $6.7 million of excess tax benefits as financing cash inflows for the years
ended December 31, 2007 and 2006, respectively.
The following table illustrates the effect on net income and earnings per share if the
Company had applied the fair value recognition provisions of SFAS No. 123(R) to all
stock-based employee compensation for the year ended December 31, 2005 (000s omitted, except
per share data):
|
|
|
|
|
Net income, as reported |
|
$ |
1,491,913 |
|
|
|
|
|
|
Add: Stock-based employee compensation expense
included in reported net income, net of related tax
effects |
|
|
14,705 |
|
|
|
|
|
|
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects |
|
|
(16,119 |
) |
|
|
|
|
|
|
|
|
|
Pro forma net income |
|
$ |
1,490,499 |
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
Basic as reported |
|
$ |
5.84 |
|
|
|
|
|
Basic pro forma |
|
$ |
5.83 |
|
|
|
|
|
|
|
|
|
|
Diluted as reported |
|
$ |
5.68 |
|
|
|
|
|
Diluted pro forma |
|
$ |
5.67 |
|
|
|
|
|
The Company also recorded compensation expense for restricted stock awards, net of
related tax effects, of $13.3 million for the year ended December 31, 2005. These amounts
have been excluded from the reconciliation above, as they would have no impact on pro forma
net income presented.
The Company measures compensation cost for its stock options at fair value on the date
of grant and recognizes compensation cost on the graded vesting method over the vesting
period, generally four years. The graded vesting method provides for vesting of portions of
the overall awards at interim dates and results in greater expense in earlier years than the
straight-line method. The fair value of the Companys stock options is determined using the
Black-Scholes valuation model. The fair value of restricted stock is determined based on the
number of shares granted and the quoted price of the Companys common stock. Compensation
expense related to the Companys share-based awards is generally included in selling,
general, and administrative expense within the Companys Consolidated Statements of
Operations.
Restructuring
In response to the challenging operating environment, the Company initiated a
restructuring plan in May 2007 designed to reduce ongoing overhead costs and improve
operating efficiencies. The restructuring included the closure of selected divisional
offices, the disposal of related property and equipment, and a reduction in the Companys
workforce of approximately 1,700 employees. Included below is a summary of charges incurred
related to the restructuring for the year ended December 31, 2007 ($000s omitted):
|
|
|
|
|
|
|
2007 |
|
Employee severance benefits |
|
$ |
32,023 |
|
Asset impairments |
|
|
5,362 |
|
Lease terminations and other exit costs |
|
|
8,320 |
|
|
|
|
|
|
|
$ |
45,705 |
|
|
|
|
|
50
PULTE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. Summary of significant accounting policies (continued)
Restructuring (continued)
Substantially all of these costs have been included in the Consolidated Statements of
Operations within Homebuilding expense. The Company expects cash expenditures related to this
restructuring plan to total approximately $40 million. The majority of these cash
expenditures relates to employee severance benefits and were incurred during 2007. The
remaining cash expenditures will be incurred over the remaining terms of the affected office
leases, some of which continue through 2014. Liabilities related to these exited leases
totaled $6.0 million at December 31, 2007. The restructuring costs related to each of the
Companys reportable segments and were not material to any one segment.
In connection with the closure of its production facility located in Virginia, the
Company recorded an $18.5 million charge during 2006, which primarily includes the write-down
of long-lived assets of $6.7 million, lease termination costs of $10.7 million, and other exit
costs of $1.1 million. These costs have been included in the Consolidated Statements of
Operations within Homebuilding expense. Exit activities related to the plant closure
continued during 2007 resulting in additional charges of $2.3 million. Exit liabilities
related to the closure totaled $7.3 million at December 31, 2007.
New accounting pronouncements
In November 2007, the Securities and Exchange Commission issued Staff Accounting Bulletin
(SAB) No. 109, Written Loan Commitments Recorded at Fair Value Through Earnings. SAB No.
109, which revises and rescinds portions of SAB No. 105, Application of Accounting Principles
to Loan Commitments, specifically states that the expected net future cash flows related to
the associated servicing of a loan should be included in the measurements of all written loan
commitments that are recorded at fair value through earnings. The provisions of SAB 109 are
applicable to written loan commitments issued or modified in fiscal quarters beginning after
December 15, 2007. The Company is currently evaluating the effects of SAB 109 on its
consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities Including an amendment of FASB Statement No. 115 (SFAS
159), which permits entities to measure various financial instruments and certain other items
at fair value at specified election dates. The election must be made at initial recognition
of the financial instrument, and any unrealized gains or losses must be reported at each
reporting date. SFAS 159 is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal years. The Company
is currently evaluating the effects of SFAS 159 on its consolidated financial statements.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which defines
fair value, establishes a framework for measuring fair value in generally accepted accounting
principles and expands disclosures about fair value measurements. SFAS 157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007, and interim
periods within those fiscal years. In February 2008, the FASB
issued FASB Staff
Position FAS 157-2 (FSP FAS 157-2) that delays, by one year, the effective date of SFAS 157 for the majority of
non-financial assets and non-financial liabilities. The Company is still required to adopt SFAS 157 as of January 1, 2008 for certain assets and liabilities of its
Financial Services operations. The Company is currently evaluating the effects of SFAS 157 and
FSP FAS 157-2 on its consolidated financial statements.
In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial
Assets, which provides an approach to simplify efforts to obtain hedge-like (offset)
accounting. This new Statement amends SFAS No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities, with respect to the accounting for
separately recognized servicing assets and servicing liabilities. The Company adopted SFAS 156
effective January 1, 2007. Due to the short period of time the Companys servicing rights are
held, the adoption of SFAS 156 did not have a significant impact on the Companys consolidated
financial statements.
51
PULTE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. Summary of significant accounting policies (continued)
Homebuilding
Revenue recognition
Homebuilding revenue and related profit are generally recognized at the time of the
closing of the sale, when title to and possession of the property are transferred to the
buyer. In situations where the buyers financing is originated by Pulte Mortgage, the
Companys wholly-owned mortgage subsidiary, and the buyer has not made an adequate initial or
continuing investment as required by SFAS No. 66, Accounting for Sales of Real Estate, the
profit on such sales is deferred until the sale of the related mortgage loan to a third-party
investor has been completed. At December 31, 2007 and 2006, the Company had deferred profit
on such sales in the amounts of $3.8 million and $40.7 million, respectively.
Inventories
Inventories are stated at accumulated cost unless certain facts indicate such cost would
not be recovered from the cash flows generated by future disposition. In this instance, such
inventories are measured at fair value in accordance with Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or Disposal of Long Lived Assets (SFAS
144). Accumulated cost includes costs associated with land acquisition, land development,
and home construction costs, including interest, real estate taxes, and certain direct and
indirect overhead costs related to development and construction.
Sold units are expensed on a specific identification basis. Under the specific
identification basis, cost of sales includes the construction cost of the home, an average
lot cost based on expected land acquisition and development costs for the project, as well as
closing costs and commissions applicable to the home. Construction cost of the home includes
amounts paid through the closing date of the home, plus an appropriate accrual for costs
incurred but not yet paid, based on an analysis of budgeted construction cost. This accrual
is reviewed for accuracy based on actual payments made after closing compared with the amount
accrued, and adjustments are made if needed. Total project land acquisition and development
costs are based on an analysis of budgeted costs compared with actual costs incurred to date
and estimates to complete. Adjustments to estimated total land acquisition and development
costs for the project affect the amounts costed for the projects remaining lots.
Land, not owned, under option agreements
In the ordinary course of business, the Company enters into land option agreements in
order to procure land for the construction of homes in the future. Pursuant to these land
option agreements, the Company will provide a deposit to the seller as consideration for the
right to purchase land at different times in the future, usually at predetermined prices.
Under FASB Interpretation No. 46, Consolidation of Variable Interest Entities, as amended
by FIN 46-R issued in December 2003 (collectively referred to as FIN 46), if the entity
holding the land under option is a variable interest entity, the Companys deposit represents
a variable interest in that entity. Creditors of the variable interest entities have no
recourse against the Company.
In applying the provisions of FIN 46, the Company evaluated all land option agreements
and determined that the Company was subject to a majority of the expected losses or entitled
to receive a majority of the expected residual returns under a limited number of these
agreements. As the primary beneficiary under these agreements, the Company is required to
consolidate variable interest entities at a fair value. At December 31, 2007 and 2006, the
Company classified $20.8 million and $43.6 million, respectively, as land, not owned, under
option agreements in the Consolidated Balance Sheets, representing the fair value of land
under contract, including deposits of $169 thousand and $6 million, respectively. The
corresponding liability has been classified within accrued and other liabilities in the
Consolidated Balance Sheets.
Land option agreements that did not require consolidation under FIN 46 at December 31,
2007 and 2006 had a total purchase price of $1.6 billion and $4.3 billion, respectively. In
connection with these agreements, the Company had deposits and advanced costs of $226 million
and $363.5 million, included in Other Assets at December 31, 2007 and 2006, respectively.
Land held for sale
Land held for sale is recorded at the lower of cost or fair value less costs to sell.
52
PULTE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. Summary of significant accounting policies (continued)
Homebuilding (continued)
Allowance for warranties
Home purchasers are provided with warranties against certain building defects. The
specific terms and conditions of those warranties vary geographically. Most warranties cover
different aspects of the homes construction and operating systems for a period of up to ten
years. The Company estimates the costs to be incurred under these warranties and records a
liability in the amount of such costs at the time product revenue is recognized. Factors that
affect the Companys warranty liability include the number of homes sold, historical and
anticipated rates of warranty claims, and cost per claim. The Company periodically assesses
the adequacy of its recorded allowance for warranties and adjusts the amount as necessary.
Changes to the Companys allowance for warranties for the years ended December 31, 2007
and 2006 were as follows ($000s omitted):
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
January 1 |
|
$ |
117,260 |
|
|
$ |
124,371 |
|
|
|
|
|
|
|
|
|
|
Warranty reserves provided |
|
|
71,778 |
|
|
|
164,770 |
|
Payments and other adjustments |
|
|
(98,121 |
) |
|
|
(171,881) |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 |
|
$ |
90,917 |
|
|
$ |
117,260 |
|
|
|
|
|
|
|
|
Start-up costs
Costs and expenses associated with entry into new homebuilding markets and opening new
communities in existing markets are expensed when incurred.
Financial Services
Mortgage servicing rights
The Company records the fair value of its rights to service a mortgage loan on the date
the loan is sold. Fair value is determined based on values in the Companys servicing sales
contract.
The Company sells its servicing rights monthly on a flow basis through fixed price
servicing sales contracts. Due to the short period of time the servicing rights are held, the
Company does not amortize the servicing asset. Furthermore, there are no impairment issues
since the servicing rights are recorded based on the value in the servicing sales contracts.
The servicing sales contracts provide for the reimbursement of payments made by the purchaser
if loans prepay within specified periods of time, usually 90 days after sale or securitization.
The Company establishes reserves for this liability at the time the sale is recorded. Such
reserves totaled $5.1 million and $5.5 million at December 31, 2007 and 2006, respectively, and
are included in accrued and other liabilities. During 2007, 2006, and 2005, total servicing
rights recognized were $46 million, $43.5 million, and $31.7 million, respectively.
Residential mortgage loans available-for-sale
Residential mortgage loans available-for-sale are stated at the lower of aggregate cost or
market value. Unamortized net mortgage discounts totaled $3 million and $6.9 million at
December 31, 2007 and 2006, respectively. These discounts are not amortized as interest
revenue during the period the loans are held for sale.
Gains and losses from sales of mortgage loans are recognized when the loans are sold. The
Company hedges its residential mortgage loans available-for-sale. Gains and losses from closed
commitments and forward contracts are matched against the related gains and losses on the sale
of mortgage loans. During 2007, 2006, and 2005, net gains from the sale of mortgages were
$75.5 million, $110.8 million, and $81.1 million, respectively, which have been included in
Financial Services revenue.
53
PULTE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. Summary of significant accounting policies (continued)
Financial Services (continued)
Loans held for investment
The Company originates interim financing mortgage loans for certain of the Companys
customers and also has a portfolio of loans that either have been repurchased from investors
or were not saleable upon closing. These loans are carried at cost and reviewed for
impairment when recoverability becomes doubtful. Loans held for investment are included in
Other Assets and totaled $42.6 million (net of reserves of $2.9 million) at December 31,
2007.
Interest income on mortgage loans
Interest income is accrued from the date a mortgage loan is originated until the loan is
sold. Loans are placed on non-accrual status once they become greater than 90 days past due
their contractual terms. Subsequent payments received are applied according to the
contractual terms of the loan.
Mortgage servicing, origination, and commitment fees
Mortgage servicing fees represent fees earned for servicing loans for various investors.
Servicing fees are based on a contractual percentage of the outstanding principal balance,
or a contracted set fee in the case of certain sub-servicing, and are credited to income when
related mortgage payments are received. Loan origination fees, commitment fees, and certain
direct loan origination costs on funded loans are deferred as an adjustment to the cost of
the related mortgage loan until such loan is sold.
Title services
Revenues associated with the Companys title operations are recognized as closing
services are rendered and title insurance policies are issued, both of which generally occur
as each home is closed. The Company maintains only limited risk associated with issued title
insurance policies.
Derivative instruments and hedging activities
The Company recognizes all of its derivative instruments as either assets or liabilities
in the balance sheet at fair value. The accounting for changes in the fair value (i.e.,
gains or losses) of a derivative instrument depends on whether it has been designated and
qualifies as part of a hedging relationship and further, on the type of hedging relationship.
For those derivative instruments that are designated and qualify as hedging instruments, the
Company must designate the hedging instrument, based upon the exposure being hedged, as
either a fair value hedge or a cash flow hedge.
For derivative instruments that are designated and qualify as a cash flow hedge (i.e.,
hedging the exposure to variability in expected future cash flows that is attributable to a
particular risk), the effective portion of the gain or loss on the derivative instrument is
reported as a component of other comprehensive income and reclassified into earnings in the
same period or periods during which the hedged transaction affects earnings. For derivative
instruments not designated as hedging instruments, the gain or loss is recognized in current
earnings during the period of change.
Market risks arise from commitments to lend, movements in interest rates and cancelled
or modified commitments to lend. In order to reduce these risks, the Company uses derivative
financial instruments. These financial instruments include cash forward placement contracts
on mortgage-backed securities, whole loan investor commitments, options on treasury futures
contracts, and options on cash forward placement contracts on mortgage-backed securities.
The Company does not use any derivative financial instruments for trading purposes. A
commitment to lend at a specified interest rate is a derivative instrument (interest rate is
locked to the borrower). When the Company commits to lend to the borrower, the Company
enters into one of the aforementioned derivative financial instruments to economically hedge
the rate lock derivative. The changes in the value of the loan commitment and the derivative
financial instrument are recognized in current earnings during the period of change. At
December 31, 2007, commitments by the Company to originate mortgage loans totaled $122.5
million at interest rates prevailing at the date of commitment.
Since the Company can terminate a loan commitment if the borrower does not comply with
the terms of the contract, and some loan commitments may expire without being drawn upon,
these commitments do not necessarily represent future cash requirements. The Company
evaluates the creditworthiness of these transactions through its normal credit policies.
54
PULTE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. Summary of significant accounting policies (continued)
Financial Services (continued)
Derivative instruments and hedging activities (continued)
Cash forward placement contracts on mortgage-backed securities are commitments to either
purchase or sell a specified financial instrument at a specified future date for a specified
price and may be settled in cash, by offsetting the position, or through the delivery of the
financial instrument. Options on treasury futures contracts and options on mortgage-backed
securities grant the purchaser, for a premium payment, the right to either purchase or sell a
specified treasury futures contract or a specified mortgage-backed security, respectively, for
a specified price within a specified period of time or on a specified date from or to the
writer of the option.
Mandatory cash forward contracts on mortgage-backed securities are the predominant
derivative financial instruments used to minimize the market risk during the period from when
the Company extends an interest rate lock to a loan applicant until the time the loan is sold
to an investor. Whole loan investor commitments are obligations of the investor to buy loans
at a specified price within a specified time period. At December 31, 2007, the Company had
unexpired cash forward contracts and whole loan investor commitments of $537.7 million.
Options on cash forward contracts on mortgage-backed securities are used in the same manner as
mandatory cash forward contracts, but provide protection from interest rates rising, while
still allowing an opportunity for profit if interest rates fall. Options on the treasury
futures contracts are used on various loan product types to protect the Company from unexpected
increases, cancellations, or modifications in lending commitments. There were no outstanding
options on treasury futures contracts at December 31, 2007.
The Company enters into derivative instruments to hedge portions of its forecasted cash
flow from sales of mortgage-backed securities. At December 31, 2007, the maximum length of
time that the Company was exposed to the variability in future cash flows of derivative
instruments was approximately 75 days. During the year ended December 31, 2007, the Company
did not recognize any material net gains or losses related to an ineffective portion of the
hedging instrument. In addition, the Company did not recognize any material net gains or
losses during the year ended December 31, 2007 for cash flow hedges that were discontinued
because the forecasted transaction did not occur. At December 31, 2007, the Company expects to
reclassify $1 million, net of taxes, of net losses on derivative instruments from accumulated
other comprehensive income to earnings during the next twelve months as sales of
mortgage-backed securities occur.
55
PULTE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. Inventory and land held for sale
Major components of the Companys inventory at December 31, 2007 and 2006 were ($000s omitted):
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Homes under construction |
|
$ |
2,115,102 |
|
|
$ |
2,606,613 |
|
Land under development |
|
|
3,656,623 |
|
|
|
5,478,244 |
|
Land held for future development |
|
|
1,255,786 |
|
|
|
1,289,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7,027,511 |
|
|
$ |
9,374,335 |
|
|
|
|
|
|
|
|
The Company capitalizes interest cost into homebuilding inventories. Each layer of
capitalized interest is amortized over a period that approximates the average life of
communities under development. Interest expense is allocated over the period based on the
cyclical timing of unit settlements. Interest expense for the years ended December 31, 2007
and 2006 includes $110.8 million and $16 million, respectively, of capitalized interest
related to inventory impairments. For the year ended December 31, 2005, the Company did not
record interest expense related to inventory impairments. Information related to interest
capitalized into homebuilding inventory is as follows ($000s omitted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Interest in inventory at beginning of period |
|
$ |
235,596 |
|
|
$ |
229,798 |
|
|
$ |
223,591 |
|
Interest capitalized |
|
|
240,000 |
|
|
|
261,486 |
|
|
|
185,792 |
|
Interest expensed |
|
|
(314,998 |
) |
|
|
(255,688 |
) |
|
|
(179,585 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest in inventory at end of period |
|
$ |
160,598 |
|
|
$ |
235,596 |
|
|
$ |
229,798 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest incurred * |
|
$ |
243,864 |
|
|
$ |
266,561 |
|
|
$ |
234,024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Interest incurred includes interest on our senior debt, short-term borrowings, and
other financing arrangements and excludes interest incurred by our financial services
operations. |
Land valuation adjustments and write-offs
Impairment of long-lived assets
In accordance with SFAS 144, the Company records valuation adjustments on land inventory
and related communities under development when events and circumstances indicate that they
may be impaired and when the cash flows estimated to be generated by those assets are less
than their carrying amounts. Such indicators include gross margin or sales paces
significantly below expectations, construction costs or land development costs significantly
in excess of budgeted amounts, significant delays or changes in the planned development for
the community, and other known qualitative factors. For communities that are not yet active,
a significant additional consideration includes an evaluation of the regulatory environment
related to the probability, timing, and cost of obtaining necessary approvals from local
municipalities and any potential concessions that may be necessary in order to obtain such
approvals. The Company also considers potential changes to the product offerings in a
community and any alternative strategies for the land, such as the sale of the land either in
whole or in parcels. The weakened market conditions that arose during 2006 persisted through
2007 and resulted in lower than expected net new orders, revenues, and gross margins and
higher than expected cancellation rates during 2007. As a result, a portion of the Companys
land inventory and communities under development demonstrated potential impairment indicators
and were accordingly tested for impairment. As required by SFAS 144, the Company compared
the expected undiscounted cash flows for these communities to their carrying value. For
those communities whose carrying values exceeded the expected undiscounted cash flows, the
Company calculated the fair value of the community. Impairment charges are required to be
recorded if the fair value of the communitys inventory is less than its carrying amount.
The Company determined the fair value of the communitys inventory using a discounted cash
flow model. These estimated cash flows are significantly impacted by estimates related to
expected average selling prices and sale incentives, expected sales paces and cancellation
rates, expected land development construction timelines, and anticipated land development,
construction, and overhead costs. Such estimates must be made for each individual community
and may vary significantly between communities. Due to uncertainties in the estimation
process, the significant volatility in demand for new housing, and the long life cycles of
many communities, actual results could differ significantly from such estimates. The
Companys determination of fair value also requires discounting the estimated cash flows at a
rate commensurate with the inherent risks associated with each of the assets and related
estimated cash flow streams. The discount rate used in determining each communitys fair
value depends on the stage
56
PULTE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. Inventory and land held for sale (continued)
Land valuation adjustments and write-offs (continued)
Impairment of long-lived assets (continued)
of development of the community and other specific factors that increase or decrease the
inherent risks associated with the communitys cash flow streams. For example, communities
that are entitled and near completion will generally require a lower discount rate than
communities that are not entitled and consist of multiple phases spanning several years of
development and construction activity.
The table below provides, as of the date indicated, the number of communities in which the
Company recognized impairment charges, the fair value of those communities at such date (net of
impairment charges), and the amount of impairment charges recognized ($000s omitted).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
Fair Value of |
|
|
|
|
|
|
|
|
|
|
Fair Value of |
|
|
|
|
|
|
|
|
|
|
Communities |
|
|
|
|
|
|
|
|
|
|
Communities |
|
|
|
|
|
|
Number of |
|
|
Impaired, Net |
|
|
|
|
|
|
Number of |
|
|
Impaired, Net |
|
|
|
|
|
|
Communities |
|
|
of Impairment |
|
|
Impairment |
|
|
Communities |
|
|
of Impairment |
|
|
Impairment |
|
Quarter Ended |
|
Impaired |
|
|
Charges |
|
|
Charges |
|
|
Impaired |
|
|
Charges |
|
|
Charges |
|
March 31 |
|
|
35 |
|
|
$ |
161.9 |
|
|
$ |
62.4 |
|
|
|
1 |
|
|
$ |
0.1 |
|
|
$ |
0.1 |
|
June 30 |
|
|
139 |
|
|
|
695.8 |
|
|
|
603.1 |
|
|
|
3 |
|
|
|
9.1 |
|
|
|
9.3 |
|
September 30 |
|
|
169 |
|
|
|
822.4 |
|
|
|
615.9 |
|
|
|
27 |
|
|
|
144.1 |
|
|
|
48.4 |
|
December 31 |
|
|
120 |
|
|
|
483.4 |
|
|
|
322.3 |
|
|
|
53 |
|
|
|
286.0 |
|
|
|
146.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,603.7 |
|
|
|
|
|
|
|
|
|
|
$ |
203.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recorded these valuation adjustments in its Consolidated Statements of
Operations within Homebuilding expense. For the year ended December 31, 2007, the Company
reviewed each of its land positions for potential impairment indicators and performed detailed
impairment calculations for over 400 communities. The discount rate used in the Companys
determination of fair value for the impaired communities ranged from 8% to 21% with an
aggregate average of 12%. The communities impaired during 2007 included approximately 50 of
the Companys long-lived active adult communities. In the event that market conditions or the
Companys operations deteriorate in the future or the current difficult market conditions
extend beyond its expectations, additional impairments may be necessary in the future.
57
PULTE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. Inventory and land held for sale (continued)
Land valuation adjustments and write-offs (continued)
Net realizable value adjustments land held for sale
In accordance with SFAS 144, the Company values long-lived assets held for sale at the
lower of carrying amount or fair value less costs to sell. The Company records these net
realizable value adjustments in its Consolidated Statements of Operations within Homebuilding
expense. As a result of changing market conditions in the real estate industry, a portion of
the Companys land held for sale was written down to net realizable value. During the years
ended December 31, 2007, 2006, and 2005, the Company recognized net realizable value
adjustments related to land held for sale of $199.3 million, $54.6 million, and $3.1 million,
respectively. The Companys land held for sale balance at December 31, 2007 and 2006 was as
follows ($000s omitted):
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Land held for sale, gross |
|
$ |
347,758 |
|
|
$ |
507,134 |
|
Net realizable value reserves |
|
|
(95,195 |
) |
|
|
(41,311 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land held for sale, net |
|
$ |
252,563 |
|
|
$ |
465,823 |
|
|
|
|
|
|
|
|
Write-off of deposits and other related costs
From time to time, the Company writes off certain deposits and other costs related to
land option contracts the Company no longer plans to pursue. Such decisions take into
consideration changes in national and local market conditions, the willingness of land
sellers to modify terms of the related purchase agreement, the timing of required land
takedowns, the availability and best use of necessary incremental capital, and other factors.
The Company wrote off deposits and other related costs in the amount of $239.7 million,
$151.2 million, and $19.2 million during the years ended December 31, 2007, 2006, and 2005,
respectively. The Company records these write-offs of deposits and other related costs for
land option contracts the Company no longer plans to pursue in its Consolidated Statements of
Operations within Homebuilding expense.
58
PULTE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. Segment information
The Companys Homebuilding operating segments are engaged in the acquisition and
development of land primarily for residential purposes within the continental United States
and the construction of housing on such land targeted for first-time, first and second
move-up, and active adult home buyers. Home sale revenues for detached and attached homes
were $6.9 billion and $2 billion in 2007, $11 billion and $3 billion in 2006, and $11.2
billion and $3.2 billion in 2005, respectively.
The Company has determined that its Homebuilding operating segments are its Areas, which
are aggregated into seven reportable segments based on similarities in the economic and
geographic characteristics of the Companys homebuilding operations. During 2007, the
Company realigned the organizational structure for certain of its markets. The operating
data by segment provided in this note have been reclassified to conform to the current
presentation. Accordingly, the Companys reportable Homebuilding segments are as follows:
|
|
|
Northeast:
|
|
Northeast Area includes the following states: |
|
|
Connecticut, Delaware, Maryland, Massachusetts, New Jersey,
New York, Pennsylvania, Virginia |
|
|
|
Southeast:
|
|
Southeast Area includes the following states: |
|
|
Georgia, North Carolina, South Carolina, Tennessee |
|
|
|
Florida:
|
|
Florida Area includes the following state: |
|
|
Florida |
|
|
|
Midwest:
|
|
Great Lakes Area includes the following states: |
|
|
Colorado, Illinois, Indiana, Kansas, Michigan, Minnesota, Missouri, Ohio |
|
|
|
Central:
|
|
Texas Area includes the following state: |
|
|
Texas |
|
|
|
Southwest:
|
|
Southwest Area includes the following states: |
|
|
Arizona, Nevada, New Mexico |
|
|
|
*California:
|
|
Northern California and Southern California Areas include the following state: |
|
|
California |
|
|
|
* |
|
The Companys homebuilding operations located in Reno, Nevada are reported in the California
segment, while its Nevada homebuilding operations are reported in the Southwest segment. |
The Company also has one reportable segment for its financial services operations which
consists principally of mortgage banking and title operations conducted through Pulte Mortgage
and other Company subsidiaries. The Companys Financial Services segment operates generally in
the same markets as the Companys Homebuilding segments.
59
PULTE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. Segment information (continued)
Evaluation of segment performance is based on operating earnings from continuing
operations before provision for income taxes which, for the Homebuilding segments, is
defined as home sales (settlements) and land sale revenues less home cost of sales, land
cost of sales, and certain selling, general, and administrative and other expenses, plus
equity income from unconsolidated entities, which are incurred by or allocated to the
Homebuilding segments. Operating earnings for the Financial Services segment is defined as
revenues less costs associated with the Companys mortgage operations and certain selling,
general, and administrative expenses incurred by or allocated to the Financial Services
segment.
Each reportable segment generally follows the same accounting policies described in
Note 1 Summary of Significant Accounting Policies to the consolidated financial
statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Data by Segment ($000s omitted) |
|
|
|
Years Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Northeast |
|
$ |
1,121,636 |
|
|
$ |
1,663,123 |
|
|
$ |
1,868,900 |
|
Southeast |
|
|
1,175,467 |
|
|
|
1,260,393 |
|
|
|
994,785 |
|
Florida |
|
|
1,180,170 |
|
|
|
2,212,867 |
|
|
|
2,271,050 |
|
Midwest |
|
|
1,189,638 |
|
|
|
1,651,885 |
|
|
|
2,056,707 |
|
Central |
|
|
611,384 |
|
|
|
935,890 |
|
|
|
839,484 |
|
Southwest |
|
|
2,367,597 |
|
|
|
3,700,488 |
|
|
|
3,277,424 |
|
California |
|
|
1,475,838 |
|
|
|
2,650,602 |
|
|
|
3,219,886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Homebuilding |
|
|
9,121,730 |
|
|
|
14,075,248 |
|
|
|
14,528,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services |
|
|
134,769 |
|
|
|
194,596 |
|
|
|
161,414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and unallocated (a) |
|
|
6,595 |
|
|
|
4,564 |
|
|
|
4,885 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated revenues |
|
$ |
9,263,094 |
|
|
$ |
14,274,408 |
|
|
$ |
14,694,535 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before
income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Northeast |
|
$ |
(149,793 |
) |
|
$ |
127,376 |
|
|
$ |
326,399 |
|
Southeast |
|
|
72,799 |
|
|
|
88,162 |
|
|
|
86,683 |
|
Florida |
|
|
(347,587 |
) |
|
|
381,924 |
|
|
|
475,939 |
|
Midwest |
|
|
(339,193 |
) |
|
|
(90,695 |
) |
|
|
140,232 |
|
Central |
|
|
(121,351 |
) |
|
|
16,038 |
|
|
|
10,560 |
|
Southwest |
|
|
(249,173 |
) |
|
|
714,185 |
|
|
|
745,163 |
|
California |
|
|
(545,369 |
) |
|
|
107,368 |
|
|
|
654,940 |
|
Financial Services (b) |
|
|
42,980 |
|
|
|
115,460 |
|
|
|
70,586 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment income (loss) before income taxes |
|
|
(1,636,687 |
) |
|
|
1,459,818 |
|
|
|
2,510,502 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and unallocated (c) |
|
|
(860,216 |
) |
|
|
(377,090 |
) |
|
|
(233,488 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated income (loss) from continuing operations
before income taxes (d) |
|
$ |
(2,496,903 |
) |
|
$ |
1,082,728 |
|
|
$ |
2,277,014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Corporate and unallocated includes interest income earned from
short-term investments of cash and equivalents. |
|
(b) |
|
Financial Services income from continuing operations before income
taxes includes interest expense of $16.5 million, $23.7 million, and $16 million for
2007, 2006, and 2005, respectively, and interest income of $21.8 million, $33.5
million, and $26 million for 2007, 2006, and 2005, respectively. |
|
(c) |
|
Corporate and unallocated includes amortization of capitalized
interest of $315 million, $255.7 million, and $179.6 million for 2007, 2006, and
2005, respectively; goodwill impairment of $370 million for 2007; and shared services
that benefit all operating segments, the costs of which are not allocated to the
operating segments reported above. |
|
(d) |
|
Consolidated income (loss) from continuing operations before income
taxes includes selling, general, and administrative expenses of $1.2 billion, $1.3
billion, and $1.2 billion for 2007, 2006, and 2005, respectively. |
60
PULTE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. Segment information (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation Adjustments and Write-Offs by Segment |
|
|
|
($000s omitted) |
|
|
|
Years Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Land and community valuation adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
Northeast |
|
$ |
116,418 |
|
|
$ |
22,206 |
|
|
$ |
|
|
Southeast |
|
|
17,089 |
|
|
|
1,083 |
|
|
|
|
|
Florida |
|
|
283,919 |
|
|
|
22,715 |
|
|
|
|
|
Midwest |
|
|
240,380 |
|
|
|
73,152 |
|
|
|
7,110 |
|
Central |
|
|
97,615 |
|
|
|
3,269 |
|
|
|
608 |
|
Southwest |
|
|
335,044 |
|
|
|
9,774 |
|
|
|
|
|
California |
|
|
398,717 |
|
|
|
55,569 |
|
|
|
|
|
Corporate and unallocated (a) |
|
|
114,473 |
|
|
|
16,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total valuation adjustments |
|
$ |
1,603,655 |
|
|
$ |
203,768 |
|
|
$ |
7,718 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realizable value adjustments (NRV) land held for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
Northeast |
|
$ |
16,051 |
|
|
$ |
3,204 |
|
|
$ |
|
|
Southeast |
|
|
6,652 |
|
|
|
|
|
|
|
14 |
|
Florida |
|
|
27,633 |
|
|
|
5,596 |
|
|
|
|
|
Midwest |
|
|
103,374 |
|
|
|
29,784 |
|
|
|
314 |
|
Central |
|
|
19,140 |
|
|
|
8,679 |
|
|
|
2,756 |
|
Southwest |
|
|
14,859 |
|
|
|
7,014 |
|
|
|
|
|
California |
|
|
11,538 |
|
|
|
293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total NRV adjustments land held for sale |
|
$ |
199,247 |
|
|
$ |
54,570 |
|
|
$ |
3,084 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-off of deposits and other related costs (b): |
|
|
|
|
|
|
|
|
|
|
|
|
Northeast |
|
$ |
60,863 |
|
|
$ |
33,798 |
|
|
$ |
2,931 |
|
Southeast |
|
|
3,114 |
|
|
|
4,514 |
|
|
|
2,194 |
|
Florida |
|
|
46,763 |
|
|
|
25,108 |
|
|
|
1,119 |
|
Midwest |
|
|
10,940 |
|
|
|
31,644 |
|
|
|
7,590 |
|
Central |
|
|
5,302 |
|
|
|
3,987 |
|
|
|
1,767 |
|
Southwest |
|
|
54,870 |
|
|
|
21,013 |
|
|
|
2,283 |
|
California |
|
|
57,864 |
|
|
|
33,102 |
|
|
|
2,548 |
|
Corporate and unallocated |
|
|
|
|
|
|
(1,981 |
) |
|
|
(1,237 |
) |
|
|
|
|
|
|
|
|
|
|
Total write-off of deposits and other related costs |
|
$ |
239,716 |
|
|
$ |
151,185 |
|
|
$ |
19,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairments of investments in unconsolidated joint ventures: |
|
|
|
|
|
|
|
|
|
|
|
|
Southwest |
|
$ |
59,075 |
|
|
$ |
|
|
|
$ |
|
|
California |
|
|
128,303 |
|
|
|
95,400 |
|
|
|
|
|
Corporate and unallocated (c) |
|
|
2,485 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total joint venture impairments |
|
$ |
189,863 |
|
|
$ |
95,400 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes $110.8 million and $16 million, respectively, of write-offs of
capitalized interest related to land and community valuation adjustments recorded
during the years ended December 31, 2007 and 2006 and $3.7 million of land and
community valuation adjustments related to our Puerto Rico operations. |
|
(b) |
|
Includes settlements related to costs previously in dispute and considered
non-recoverable. |
|
(c) |
|
Includes impairments of $2.5 million related to joint ventures located in
Puerto Rico. |
61
PULTE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. Segment information (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Data by Segment ($000s omitted) |
|
|
|
Years Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Depreciation and amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
Northeast |
|
$ |
4,170 |
|
|
$ |
4,674 |
|
|
$ |
3,382 |
|
Southeast |
|
|
5,255 |
|
|
|
3,169 |
|
|
|
2,185 |
|
Florida |
|
|
11,421 |
|
|
|
10,351 |
|
|
|
6,737 |
|
Midwest |
|
|
5,068 |
|
|
|
5,919 |
|
|
|
4,348 |
|
Central |
|
|
3,406 |
|
|
|
3,705 |
|
|
|
2,611 |
|
Southwest |
|
|
15,531 |
|
|
|
11,657 |
|
|
|
7,411 |
|
California |
|
|
10,547 |
|
|
|
10,342 |
|
|
|
8,110 |
|
Financial Services |
|
|
9,559 |
|
|
|
8,686 |
|
|
|
6,565 |
|
Corporate and unallocated (a) |
|
|
18,895 |
|
|
|
25,172 |
|
|
|
20,163 |
|
|
|
|
|
|
|
|
|
|
|
Consolidated depreciation and amortization |
|
$ |
83,852 |
|
|
$ |
83,675 |
|
|
$ |
61,512 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Corporate and unallocated depreciation and amortization includes depreciation of
corporate fixed assets and amortization of intangible assets. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Data by Segment ($000s omitted) |
|
|
|
Years Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Equity income (loss) (a): |
|
|
|
|
|
|
|
|
|
|
|
|
Northeast |
|
$ |
30 |
|
|
$ |
|
|
|
$ |
466 |
|
Southeast |
|
|
|
|
|
|
|
|
|
|
|
|
Florida |
|
|
|
|
|
|
|
|
|
|
|
|
Midwest |
|
|
|
|
|
|
|
|
|
|
|
|
Central |
|
|
|
|
|
|
|
|
|
|
|
|
Southwest |
|
|
(56,941 |
) |
|
|
(997 |
) |
|
|
20,757 |
|
California |
|
|
(131,254 |
) |
|
|
(95,958 |
) |
|
|
(539 |
) |
Financial Services |
|
|
361 |
|
|
|
32,331 |
|
|
|
2,745 |
|
Corporate and unallocated (b) |
|
|
(2,218 |
) |
|
|
1,712 |
|
|
|
51,921 |
|
|
|
|
|
|
|
|
|
|
|
Consolidated equity income (loss) |
|
$ |
(190,022 |
) |
|
$ |
(62,912 |
) |
|
$ |
75,350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes impairments related to investments in unconsolidated joint
ventures totaling $189.9 million and $95.4 million in 2007 and 2006,
respectively. |
|
(b) |
|
For the year ended December 31, 2005, corporate and unallocated includes
approximately $44.2 million of earnings related to the Companys 50% joint venture
that supplied and installed basic building components and operating systems.
Effective January 2006, the Company exercised its option to purchase the remaining
50% interest in this entity. |
62
PULTE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. Segment information (continued)
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
Inventory |
|
As of December 31, 2007: |
|
|
|
|
|
|
|
|
Northeast |
|
$ |
1,245,240 |
|
|
$ |
1,053,403 |
|
Southeast |
|
|
835,085 |
|
|
|
733,556 |
|
Florida |
|
|
1,223,222 |
|
|
|
1,020,433 |
|
Midwest |
|
|
678,638 |
|
|
|
622,779 |
|
Central |
|
|
426,432 |
|
|
|
345,569 |
|
Southwest |
|
|
2,173,718 |
|
|
|
2,032,818 |
|
California |
|
|
1,190,970 |
|
|
|
1,062,277 |
|
Financial Services |
|
|
559,915 |
|
|
|
|
|
|
|
|
|
|
|
|
Total segment |
|
|
8,333,220 |
|
|
|
6,870,835 |
|
Corporate and unallocated (a) |
|
|
1,892,483 |
|
|
|
156,676 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
10,225,703 |
|
|
$ |
7,027,511 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006: |
|
|
|
|
|
|
|
|
Northeast |
|
$ |
1,530,238 |
|
|
$ |
1,167,454 |
|
Southeast |
|
|
734,001 |
|
|
|
640,199 |
|
Florida |
|
|
1,742,839 |
|
|
|
1,464,691 |
|
Midwest |
|
|
1,239,968 |
|
|
|
1,071,216 |
|
Central |
|
|
651,926 |
|
|
|
536,353 |
|
Southwest |
|
|
2,811,614 |
|
|
|
2,500,739 |
|
California |
|
|
1,953,240 |
|
|
|
1,761,000 |
|
Financial Services |
|
|
951,206 |
|
|
|
|
|
|
|
|
|
|
|
|
Total segment |
|
|
11,615,032 |
|
|
|
9,141,652 |
|
Corporate and unallocated (a) |
|
|
1,561,842 |
|
|
|
232,683 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
13,176,874 |
|
|
$ |
9,374,335 |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Corporate and unallocated primarily includes cash and equivalents;
goodwill and intangibles; land, not owned, under option agreements; capitalized
interest; and other corporate items that are not allocated to the operating
segments. |
4. Discontinued operations
First Heights
In 2005, the Company completed the disposal of First Heights, its former bank subsidiary.
During the years ended December 31, 2006 and 2005, after-tax income was $189 thousand and $56.5
million, respectively, and is included in income from discontinued operations. Income from
discontinued operations for the year ended December 31, 2005 includes $7.8 million related to
the recognition of income tax benefits resulting from the favorable resolution of certain tax
matters. The Company also received payment in December 2005 of a $48.7 million judgment
resulting from litigation related to First Heights 1988 acquisition from the Federal Savings
and Loan Insurance Corporation and First Heights ownership of five failed thrifts. The
payment was recorded as income from discontinued operations.
Mexico Homebuilding Operations
In January 2005, the minority shareholders of Pulte Mexico S. de R.L. de C.V. (Pulte
Mexico) exercised a put option under the terms of a reorganization agreement dated as of
December 31, 2001, to sell their shares to the Company, the consummation of which resulted in
the Company owning 100% of Pulte Mexico. In March 2005, the Company purchased 60% of the
minority interest of Pulte Mexico for approximately $18.7 million in cash. In June 2005, the
Company purchased the remaining 40% of the minority interest of Pulte Mexico for approximately
$12.5 million in cash. The Company assigned approximately $17.6 million of the purchase price
premium to house and land inventory, which was amortized through cost of sales as homes were
sold. The excess of the purchase price over the estimated fair values of the underlying assets
acquired and liabilities assumed, of $5.3 million, was recorded as goodwill.
63
PULTE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Discontinued operations (continued)
Mexico Homebuilding Operations (continued)
In December 2005, the Company sold substantially all of its Mexico homebuilding
operations to a consortium of purchasers involved in residential and commercial real estate
development. The Company realized cash of $131.5 million related to the sale. The sale of
these operations did not include the Companys investment in the capital stock of a mortgage
company in Mexico as well as various non-operating entities, which are not considered to be
material to the Companys results of operations or its financial position.
Revenues of these discontinued operations were $201 million for the year ended December
31, 2005. For the year ended December 31, 2005, discontinued Mexico homebuilding operations
reported total after-tax losses of $1.5 million. For the year ended December 31, 2005, Mexico
reported pre-tax operating income of $4.6 million.
For the year ended December 31, 2005, the Company recognized a pre-tax loss of $6.6
million (after-tax loss of $13.1 million) related to the sale of its Mexico homebuilding
operations. The pre-tax loss on sale includes the accounting recognition of the economic
losses related to accumulated foreign currency translation adjustments of $7.6 million, as
well as the write-off of $5.3 million of goodwill related to the January 2005 acquisition of
the minority shareholder interests. For the year ended December 31, 2005, the Mexico
operations have been presented as discontinued operations in the consolidated financial
statements.
Concurrent with the sale of its Mexico homebuilding operations, the Company elected to
repatriate all of its earnings from its Mexico operations in accordance with the American Jobs
Creation Act of 2004 (Internal Revenue Code Section 965, Temporary Dividends Received
Deduction) and recorded $4.8 million of related income taxes, which have been included in the
Mexico loss on sale from discontinued operations.
For the year ended December 31, 2006, loss from discontinued operations included a
provision of $2.3 million, net of taxes, which resulted from a contractual adjustment related
to the December 2005 disposition of the Companys Mexico homebuilding operations. For the
year ended December 31, 2007, income from discontinued operations represents $18.7 million in
refundable income taxes related to the Companys investment in its discontinued Mexico
homebuilding operations.
Argentina Operations
In January 2005, the Company sold all of its Argentina operations to an Argentine company
involved in residential and commercial real estate development. For the year ended December
31, 2006, loss from discontinued operations included a provision of $111 thousand, net of
taxes, resulting from a contractual adjustment related to the disposition.
64
PULTE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Investments in unconsolidated entities
The Company participates in a number of joint ventures with independent third parties.
Many of these joint ventures purchase, develop, and/or sell land and homes in the United
States and Puerto Rico. A summary of the Companys joint ventures is presented below ($000s
omitted):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
Number of joint ventures with limited recourse guarantees |
|
|
4 |
|
|
|
5 |
|
Number of joint ventures with debt non-recourse to Pulte |
|
|
4 |
|
|
|
3 |
|
Number of other active joint ventures |
|
|
12 |
|
|
|
14 |
|
|
|
|
|
|
|
|
Total number of active joint ventures |
|
|
20 |
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
Investments in joint ventures with limited recourse guarantees |
|
$ |
54,223 |
|
|
$ |
68,361 |
|
Investments in joint ventures with debt non-recourse to Pulte |
|
|
35,767 |
|
|
|
37,743 |
|
Investments in other active joint ventures |
|
|
15,489 |
|
|
|
44,581 |
|
|
|
|
|
|
|
|
Total investments in unconsolidated entities |
|
$ |
105,479 |
|
|
$ |
150,685 |
|
|
|
|
|
|
|
|
|
|
Pultes proportionate share of joint venture debt: |
|
|
|
|
|
|
|
|
Joint venture debt with limited recourse guarantees |
|
$ |
124,529 |
|
|
$ |
304,115 |
|
Joint venture debt non-recourse to Pulte |
|
|
9,442 |
|
|
|
8,639 |
|
|
|
|
|
|
|
|
Pultes total proportionate share of joint venture debt |
|
$ |
133,971 |
|
|
$ |
312,754 |
|
|
|
|
|
|
|
|
|
|
Total joint venture debt |
|
$ |
602,507 |
|
|
$ |
935,888 |
|
The Company has committed through limited recourse guarantees that certain of the joint
ventures will maintain specified loan to value ratios. Certain other joint venture
agreements require the Company to guarantee the completion of a project if the joint venture
does not perform the required development. Additionally, in the case of most joint ventures,
the Company has agreed to indemnify the joint ventures lenders for certain environmental
contingencies, and most guarantee arrangements provide that the Company is responsible for
its proportionate share of the outstanding debt if the joint venture voluntarily files for
bankruptcy. The Company would not be responsible under these guarantees unless the joint
venture was unable to meet its contractual borrowing obligations or in instances of fraud,
misrepresentation, or other bad faith actions by the Company. The Company has made
additional capital contributions to certain joint ventures in order to maintain loan to value
requirements. To date, the Company has not been requested to perform under either the
bankruptcy or environmental guarantees.
In addition to the joint ventures with limited recourse guarantees, the Company has
investments in other unconsolidated entities, some of which have debt. These investments
include the Companys three joint ventures in Puerto Rico, which are in the final stages of
liquidation, as well as other entities, the majority of which are not engaged in homebuilding
activities. The Companys proportionate share of debt associated with these entities totaled
$9.4 million and $8.6 million at December 31, 2007 and 2006, respectively. The Company does
not have any significant financing exposures related to these entities.
During the years ended December 31, 2007 and 2006, the Company made capital
contributions of $217.5 million and $58.2 million, respectively, to its joint ventures and
received capital and earnings distributions of $64.6 million and $74 million, respectively,
from its joint ventures. The significant decline in joint venture debt and the majority of
capital contributions in 2007 are primarily the result of one joint venture in Sacramento,
California to which the Company and the other partners contributed additional capital to
allow the joint venture to fully repay the outstanding debt. This action provided the
Company and the other joint venture partners more flexibility in operating the joint venture.
During 2007, the Company made significant efforts to reduce its exposure to future capital
requirements under its joint venture arrangements, including the actions noted above. If
additional capital infusions are required and approved, the Company would need to contribute
its pro rata portion of those capital needs in order not to dilute its ownership in the joint
ventures. While additional capital contributions may be required in the future, the Company
believes the total amount of such contributions are limited. The Companys financial
exposure related to joint ventures is unlikely to exceed the combined investment and limited
recourse guarantee totals.
65
PULTE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Investments in unconsolidated entities (continued)
The timing of the repayment obligation under the joint venture debt agreements varies by
lender and in certain instances is contingent upon the joint ventures sale of its land
holdings. The Company anticipates making capital contributions to certain of its joint
ventures in early to mid-2008 to repay joint venture debt at original scheduled maturity dates.
The Companys proportionate share of such debt totaled approximately $46 million at December
31, 2007.
For the years ended December 31, 2007, 2006, and 2005, the Company recognized equity
income (loss) from its unconsolidated joint ventures of $(190) million, $(62.9) million, and
$75.4 million, respectively. The equity loss recognized during the years ended December 31,
2007 and 2006 includes impairments related to land valuation adjustments totaling $189.9
million and $95.4 million, respectively.
In January 2006, the Company exercised its option and acquired the remaining 50% interest
in an entity that supplies and installs basic building components and operating systems. The
Companys initial investment was made in January 2004 to secure a dedicated building supply
trade base for its construction activities in Arizona and Nevada. The aggregate stepped
purchase price exceeded the preliminary estimated fair value of the underlying assets acquired
and liabilities assumed by approximately $68 million, which was recorded as goodwill. The
Company accounted for its initial 50% investment under the equity method. Since January 2006,
the Company has consolidated this wholly-owned subsidiary in its financial statements.
In February 2006, Pulte Mortgage sold its investment in Hipotecaria Su Casita (Su
Casita), a Mexico-based mortgage banking company. Remaining shareholders of Su Casita, who
exercised their right of first refusal to acquire the shares, purchased Pulte Mortgages 16.7%
interest for net proceeds of $49.2 million. As a result of this transaction, the Company
recognized a pre-tax gain of $31.6 million in 2006. During February 2005, 25% of the Companys
investment in the capital stock of Su Casita was redeemed for a pre-tax gain of $620 thousand
and the Companys remaining ownership interest of 16.7% was accounted for under the cost
method.
66
PULTE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. Debt
The Companys senior notes at book value are summarized as follows ($000s omitted):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
4.875% unsecured senior notes, issued by Pulte Homes, Inc. due 2009, not
redeemable prior to maturity, guaranteed on a senior basis by Pulte Homes, Inc.
and certain of its 100% owned subsidiaries |
|
|
338,545 |
|
|
|
399,475 |
|
|
|
|
|
|
|
|
|
|
8.125% unsecured senior notes, issued by Pulte Homes, Inc. due 2011, not
redeemable prior to maturity, guaranteed on a senior basis by Pulte Homes, Inc.
and certain of its 100% owned subsidiaries |
|
|
199,614 |
|
|
|
199,492 |
|
|
|
|
|
|
|
|
|
|
7.875% unsecured senior notes, issued by Pulte Homes, Inc. due 2011,
redeemable prior to maturity, guaranteed on a senior basis by Pulte Homes, Inc.
and certain of its 100% owned subsidiaries |
|
|
496,934 |
|
|
|
496,479 |
|
|
|
|
|
|
|
|
|
|
6.25% unsecured senior notes, issued by Pulte Homes, Inc. due 2013,
redeemable prior to maturity, guaranteed on a senior basis by Pulte Homes, Inc.
and certain of its 100% owned subsidiaries |
|
|
298,529 |
|
|
|
298,244 |
|
|
|
|
|
|
|
|
|
|
5.25% unsecured senior notes, issued by Pulte Homes, Inc. due 2014,
redeemable prior to maturity, guaranteed on a senior basis by Pulte Homes, Inc.
and certain of its 100% owned subsidiaries |
|
|
499,790 |
|
|
|
499,756 |
|
|
|
|
|
|
|
|
|
|
5.2% unsecured senior notes, issued by Pulte Homes, Inc. due 2015,
redeemable prior to maturity, guaranteed on a senior basis by Pulte Homes, Inc.
and certain of its 100% owned subsidiaries |
|
|
349,537 |
|
|
|
349,472 |
|
|
|
|
|
|
|
|
|
|
7.625% unsecured senior notes, issued by Pulte Homes, Inc. due 2017, not
redeemable prior to maturity, guaranteed on a senior basis by Pulte Homes, Inc.
and certain of its 100% owned subsidiaries |
|
|
148,940 |
|
|
|
148,831 |
|
|
|
|
|
|
|
|
|
|
7.875% unsecured senior notes, issued by Pulte Homes, Inc. due 2032,
redeemable prior to maturity, guaranteed on a senior basis by Pulte Homes, Inc.
and certain of its 100% owned subsidiaries |
|
|
298,934 |
|
|
|
298,891 |
|
|
|
|
|
|
|
|
|
|
6.375% unsecured senior notes, issued by Pulte Homes, Inc. due 2033,
redeemable prior to maturity, guaranteed on a senior basis by Pulte Homes, Inc.
and certain of its 100% owned subsidiaries |
|
|
398,122 |
|
|
|
398,049 |
|
|
|
|
|
|
|
|
|
|
6.0% unsecured senior notes, issued by Pulte Homes, Inc. due 2035,
redeemable prior to maturity, guaranteed on a senior basis by Pulte Homes, Inc.
and certain of its 100% owned subsidiaries |
|
|
299,285 |
|
|
|
299,258 |
|
|
|
|
|
|
|
|
|
|
7.375% unsecured senior notes, issued by Pulte Homes, Inc. due 2046,
callable at par on or after June 1, 2011, redeemable prior to maturity,
guaranteed on a senior basis by Pulte Homes, Inc.
and certain of its 100% owned subsidiaries |
|
|
150,000 |
|
|
|
150,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total senior notes |
|
$ |
3,478,230 |
|
|
$ |
3,537,947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated fair value |
|
$ |
2,962,634 |
|
|
$ |
3,584,523 |
|
|
|
|
|
|
|
|
Refer to Note 13 for supplemental consolidating financial information of the Company.
Total senior note maturities during the five years after 2007 are as follows: 2008 $0;
2009 $339 million; 2010 $0; 2011 $699 million; 2012 $0; and thereafter $2.5 billion.
67
PULTE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. Debt (continued)
The Company repurchased $61.2 million of its 4.875% senior notes due 2009 during the year
ended December 31, 2007. These repurchases resulted in a net gain of approximately $500
thousand which is included in the Consolidated Statements of Operations within Other
non-operating, net expenses.
In May 2006, the Company sold $150 million of 7.375% senior notes, which mature on June 1,
2046, and are guaranteed by Pulte Homes, Inc. and certain of its 100%-owned subsidiaries.
These notes are unsecured and rank equally with all of the Companys other unsecured and
unsubordinated indebtedness. The notes are redeemable at any time on or after June 1, 2011, at
a redemption price equal to 100% of the principal amount to be redeemed, plus accrued and
unpaid interest thereon to the redemption date. Proceeds from the sale were used to repay the
indebtedness of the Companys revolving credit facility and for general corporate purposes,
including continued investment in the Companys business.
7. Other financing arrangements
Corporate/Homebuilding
The Company amended its unsecured revolving credit facility twice during 2007, decreasing
the borrowing capacity from $2.01 billion to $1.86 billion and extending the maturity date from
October 2010 to June 2012. In February 2008, the Company amended the credit facility again and
decreased the borrowing capacity to $1.6 billion. Under the terms of the credit facility, the
Company has the capacity to issue letters of credit totaling up to $1.125 billion. Borrowing
availability is reduced by the amount of letters of credit outstanding. The credit facility
includes a borrowing base limitation when the Company does not have an investment grade senior
unsecured debt rating from at least two of Fitch Ratings, Moodys Investor Service, and
Standard and Poors Corporation. Under the borrowing base limitation, the sum of the Companys
senior debt and the amount drawn on the revolving credit facility may not exceed an amount
based on certain percentages of various categories of the Companys unencumbered inventory.
The credit facility contains certain financial covenants. The Company is required to not
exceed a debt-to-total capitalization ratio of 55%, and it is also required to meet a tangible
net worth minimum each quarter. The credit facility no longer contains an interest coverage
ratio covenant that could create an event of default for the Company, but if the interest
coverage ratio (as defined in the credit facility) is less than 2 to 1, LIBOR margin and letter
of credit pricing under the credit facility can increase in increments ranging from 0.125% to
0.375% and the debt-to-total capitalization ratio covenant threshold can decrease in increments
of 2.5%. The credit facilitys uncommitted accordion feature remains unchanged at
$2.25 billion. As of December 31, 2007, the Company had no borrowings outstanding and $1.41
billion available for borrowing under this facility.
The following is a summary of aggregate borrowing information related to this facility
($000s omitted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
2005 |
Available credit lines at year-end |
|
$ |
1,860,000 |
|
|
$ |
2,010,000 |
|
|
$ |
1,660,000 |
|
Unused credit lines at year-end (a) |
|
$ |
1,413,000 |
|
|
$ |
1,451,000 |
|
|
$ |
1,168,000 |
|
Maximum amount outstanding at the end of any month (b) |
|
$ |
200,000 |
|
|
$ |
754,000 |
|
|
$ |
47,000 |
|
Average monthly indebtedness (c) |
|
$ |
52,000 |
|
|
$ |
407,000 |
|
|
$ |
22,000 |
|
Range of interest rates during the year |
|
5.56 to |
|
|
5.30 to |
|
|
3.22 to |
|
|
|
|
8.25 |
% |
|
|
8.25 |
% |
|
|
7.00 |
% |
Weighted-average rate at year-end |
|
|
6.51 |
% |
|
|
5.95 |
% |
|
|
5.24 |
% |
|
|
|
(a) |
|
Reduced by letters of credit outstanding of $447 million and $559 million at December
31, 2007 and 2006, respectively. |
|
(b) |
|
Excludes letters of credit outstanding of $486 million for 2007 and $583 million for
2006, respectively. |
|
(c) |
|
Excludes letters of credit outstanding, which averaged $485 million and $573 million
for 2007 and 2006, respectively. |
At December 31, 2007, other financing included non-recourse collateralized financing
arrangements totaling $9.4 million. These financing arrangements have maturities ranging
primarily from one to three years, a weighted-average interest rate of 5.93%, are generally
collateralized by certain land positions, and have no recourse to any other assets. These
arrangements have been classified as Accrued and Other Liabilities in the Consolidated Balance
Sheets.
68
PULTE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. Other financing arrangements (continued)
Financial Services
Notes payable to banks (collateralized short-term debt) are secured by residential
mortgage loans available-for-sale. The carrying amounts of such borrowings approximate fair
value.
Pulte Mortgage supports its operations through the use of a revolving credit facility and
an asset-backed commercial paper program. At December 31, 2007, Pulte Mortgage had committed
credit arrangements of $705 million comprised of a $405 million bank revolving credit facility
which expires May 2009, and a $300 million asset-backed commercial paper program which expires
September 2008. The asset-backed commercial paper program is subject to being withdrawn at the
option of the participating banks if the credit rating on Pultes senior unsecured debt falls
below certain ratings. The credit agreements require Pulte Mortgage to meet a tangible net
worth minimum each month and funded debt cannot exceed 15 times tangible net worth. At
December 31, 2007, Pulte Mortgage had $440.6 million outstanding under its committed credit
arrangements.
Due to reduced origination volume and unfavorable changes in the asset-backed commercial
paper market, Pulte Mortgage amended its commercial paper program twice during 2007, which,
among other things, reduced the amount of capacity from $550 million to $300 million at
December 31, 2007. In February 2008, Pulte Mortgage further amended the commercial paper
program to reduce capacity to $150 million. Due to reduced origination volume, the Company
does not anticipate needing any additional capacity in the near term.
During the three years ended December 31, 2007, Pulte Mortgage provided compensating
balances, in the form of escrows and other custodial funds, in order to further reduce interest
rates.
The following is aggregate borrowing information ($000s omitted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
2005 |
Available credit lines at year-end |
|
$ |
705,000 |
|
|
$ |
955,000 |
|
|
$ |
990,000 |
|
Unused credit lines at year-end |
|
$ |
264,000 |
|
|
$ |
140,000 |
|
|
$ |
97,000 |
|
Maximum amount outstanding at the end of any month |
|
$ |
441,000 |
|
|
$ |
815,000 |
|
|
$ |
893,000 |
|
Average monthly indebtedness |
|
$ |
291,000 |
|
|
$ |
452,000 |
|
|
$ |
423,000 |
|
Range of interest rates during the year |
|
0.53 to |
|
|
0.53 to |
|
|
0.65 to |
|
|
|
|
6.66 |
% |
|
|
6.17 |
% |
|
|
5.12 |
% |
Weighted-average rate at year-end |
|
|
5.47 |
% |
|
|
5.81 |
% |
|
|
4.89 |
% |
8. Shareholders equity
Pursuant to the two $100 million stock repurchase programs authorized by the Board of
Directors in October 2002 and 2005, and the $200 million stock repurchase authorization in
February 2006 (for a total stock repurchase authorization of $400 million), the Company has
repurchased a total of 9,688,900 shares for a total of $297.7 million. At December 31, 2007,
the Company had remaining authorization to purchase $102.3 million of common stock.
Accumulated other comprehensive income (loss)
The accumulated balances related to each component of other comprehensive income (loss)
are as follows ($000s omitted):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
Foreign currency translation adjustments: |
|
|
|
|
|
|
|
|
Mexico |
|
$ |
(451 |
) |
|
$ |
(316 |
) |
Fair value of derivatives, net of income taxes
of $2,717 in 2007 and $1,637 in 2006 |
|
|
(4,432 |
) |
|
|
(2,670 |
) |
|
|
|
|
|
|
|
|
|
$ |
(4,883 |
) |
|
$ |
(2,986 |
) |
|
|
|
|
|
|
|
69
PULTE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. Stock compensation plans and management incentive compensation
The Company has fixed stock option plans for both employees (the Employee Plans) and for
non-employee directors (the Director Plan). Information related to the active plans as of
December 31, 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
Shares Available |
Plan Name |
|
Authorized |
|
For Grant |
Employee Plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pulte Homes, Inc. 2004 Stock Incentive Plan |
|
|
12,000,000 |
|
|
|
4,771,150 |
|
Pulte Homes, Inc. 2002 Stock Incentive Plan |
|
|
12,000,000 |
|
|
|
33,830 |
|
Pulte Corporation 2000 Stock Incentive Plan for Key Employees |
|
|
10,000,000 |
|
|
|
479,736 |
|
The Employee Plans primarily provide for the grant of options (both non-qualified options
and incentive stock options as defined in each respective plan), stock appreciation rights, and
restricted stock to key employees of the Company or its subsidiaries (as determined by the
Compensation Committee of the Board of Directors) for periods not exceeding ten years. Options
granted under the Employee Plans vest incrementally in periods ranging from six months to four
years. Under the Director Plan, non-employee directors are entitled to an annual distribution
of 3,600 shares of common stock and options to purchase an additional 7,000 shares. All
options granted under the Director Plan are non-qualified, vest immediately, and are
exercisable on the date of grant. Options granted under the Director Plan are exercisable for
ten years from the grant date.
A summary of the status of the Companys stock options for the years ended December 31,
2007, 2006, and 2005 is presented below (000s omitted except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Per Share |
|
|
|
|
|
|
Per Share |
|
|
|
|
|
|
Per Share |
|
|
|
Shares |
|
|
Exercise Price |
|
|
Shares |
|
|
Exercise Price |
|
|
Shares |
|
|
Exercise Price |
|
Outstanding, beginning
of year |
|
|
18,237 |
|
|
$ |
21 |
|
|
|
16,850 |
|
|
$ |
19 |
|
|
|
17,802 |
|
|
$ |
15 |
|
Granted |
|
|
2,884 |
|
|
|
12 |
|
|
|
2,451 |
|
|
|
34 |
|
|
|
2,543 |
|
|
|
40 |
|
Exercised |
|
|
(683 |
) |
|
|
(10 |
) |
|
|
(562 |
) |
|
|
(13 |
) |
|
|
(3,136 |
) |
|
|
(10 |
) |
Forfeited |
|
|
(554 |
) |
|
|
(33 |
) |
|
|
(502 |
) |
|
|
(30 |
) |
|
|
(359 |
) |
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of year |
|
|
19,884 |
|
|
$ |
20 |
|
|
|
18,237 |
|
|
$ |
21 |
|
|
|
16,850 |
|
|
$ |
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at
year-end |
|
|
13,471 |
|
|
$ |
17 |
|
|
|
11,972 |
|
|
$ |
14 |
|
|
|
9,937 |
|
|
$ |
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average per share
fair value of options
granted during the year |
|
$ |
4.32 |
|
|
|
|
|
|
$ |
13.90 |
|
|
|
|
|
|
$ |
17.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70
PULTE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. Stock compensation plans and management incentive compensation (continued)
The following table summarizes information about the weighted-average remaining
contractual lives of stock options outstanding and exercisable at December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
Options Exercisable |
|
|
|
|
|
|
Weighted- |
|
Weighted- |
|
|
|
|
|
Weighted- |
Range of |
|
Number |
|
Average |
|
Average |
|
Number |
|
Average |
Per Share |
|
Outstanding |
|
Remaining |
|
Per Share |
|
Exercisable |
|
Per Share |
Exercise Prices |
|
(000s omitted) |
|
Contract Life |
|
Exercise Price |
|
(000s omitted) |
|
Exercise Price |
$ 0.01 to $13.00 |
|
|
10,453 |
|
|
|
5.4 |
|
|
$ |
10 |
|
|
|
7,702 |
|
|
$ |
10 |
|
$13.01 to $20.00 |
|
|
212 |
|
|
|
5.0 |
|
|
$ |
15 |
|
|
|
212 |
|
|
$ |
15 |
|
$20.01 to $31.00 |
|
|
4,854 |
|
|
|
6.4 |
|
|
$ |
24 |
|
|
|
4,404 |
|
|
$ |
24 |
|
$31.01 to $41.00 |
|
|
4,341 |
|
|
|
8.4 |
|
|
$ |
37 |
|
|
|
1,128 |
|
|
$ |
40 |
|
$41.01 to $60.00 |
|
|
24 |
|
|
|
7.7 |
|
|
$ |
43 |
|
|
|
24 |
|
|
$ |
43 |
|
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average assumptions |
|
|
Year Ended December 31, |
|
|
2007 |
|
2006 |
|
2005 |
Expected life of options in years |
|
|
5.5 |
|
|
|
5.2 |
|
|
|
5.6 |
|
Expected stock price volatility |
|
|
40 |
% |
|
|
38.9 |
% |
|
|
40.1 |
% |
Expected dividend yield |
|
|
1.5 |
% |
|
|
0.5 |
% |
|
|
0.4 |
% |
Risk-free interest rate |
|
|
3.4 |
% |
|
|
4.8 |
% |
|
|
4.6 |
% |
The Company has estimated the expected life of its share options using employees
historical exercise behavior and the contractual term of these instruments in determining the
fair value of its share options.
In connection with stock option awards, the Company recognized compensation expense, net
of related tax effects, of $28.2 million, $24.1 million, and $15.6 million for the years ended
December 31, 2007, 2006, and 2005, respectively. Total compensation cost related to non-vested
stock option awards not yet recognized was $27.6 million at December 31, 2007. These costs
will be expensed over a weighted-average period of approximately three years. The aggregate
intrinsic value of both stock options outstanding and exercisable at December 31, 2007 was $7.1
million. The aggregate intrinsic value of stock options that were exercised during 2007,
2006, and 2005 was $8.8 million, $11.7 million, and $90 million, respectively. The aggregate
intrinsic value of a stock option is the amount by which the market value of the underlying
stock exceeds the exercise price of the option.
A summary of the Companys restricted stock activity for the year ended December 31, 2007,
is presented below (000s omitted, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average Per Share |
|
|
Shares |
|
Grant Date Fair Value |
Non-vested at December 31, 2006 |
|
|
3,717 |
|
|
$ |
35.25 |
|
Granted (a) |
|
|
1,616 |
|
|
$ |
19.78 |
|
Vested |
|
|
(689 |
) |
|
$ |
27.44 |
|
Forfeited |
|
|
(309 |
) |
|
$ |
34.95 |
|
|
|
|
|
|
|
|
|
|
Non-vested at December 31, 2007 |
|
|
4,335 |
|
|
$ |
30.75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The weighted-average grant-date fair value for non-vested shares was $36.27 and $38.07
for the years ended December 31, 2006 and 2005, respectively. |
71
PULTE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. Stock compensation plans and management incentive compensation (continued)
The Company awarded 1,615,612, 1,589,357, and 1,761,334 shares of restricted stock to
certain key employees during 2007, 2006, and 2005, respectively, under the Employee Plans.
During 2007, 2006, and 2005, the total fair value of shares vested during the year was $18.9
million, $10.9 million, and $3.5 million, respectively. In connection with the restricted
stock awards, of which a majority cliff vest at the end of three years, the Company recorded
compensation expense, net of related tax effects, of $42.5 million, $25.7 million, and $13.3
million during 2007, 2006, and 2005, respectively. Total compensation cost related to
restricted stock awards not yet recognized was $59.3 million at December 31, 2007. These costs
will be expensed over a weighted-average period of approximately 2.0 years.
The Companys stock option participant agreements provide continued vesting for certain
eligible employees who have achieved a predetermined level of service based on their combined
age and years of service. For awards granted prior to January 1, 2006, the Company recognized
the related compensation cost ratably over the nominal vesting period. For awards granted
after the adoption of SFAS No. 123(R), the Company records the related compensation cost over
the period through the date the employee first achieves the minimum level of service that would
no longer require them to provide services to earn the award. For the years ended December 31,
2007 and 2006, the Company recorded $4.5 million and $4.8 million, respectively, of
compensation expense related to stock option grants made to employees that have achieved this
level of service, as well as those who will achieve this level of service during the vesting
period.
10. Income taxes
Components of current and deferred income tax expense (benefit) for continuing operations
are as follows ($000s omitted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
Deferred |
|
|
Total |
|
Year ended December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
(261,921 |
) |
|
$ |
61,043 |
|
|
$ |
(200,878 |
) |
State and other |
|
|
(33,729 |
) |
|
|
12,121 |
|
|
|
(21,608 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(295,650 |
) |
|
$ |
73,164 |
|
|
$ |
(222,486 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
514,691 |
|
|
$ |
(155,530 |
) |
|
$ |
359,161 |
|
State and other |
|
|
36,223 |
|
|
|
(2,302 |
) |
|
|
33,921 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
550,914 |
|
|
$ |
(157,832 |
) |
|
$ |
393,082 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
749,450 |
|
|
$ |
29,231 |
|
|
$ |
778,681 |
|
State and other |
|
|
56,981 |
|
|
|
4,464 |
|
|
|
61,445 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
806,431 |
|
|
$ |
33,695 |
|
|
$ |
840,126 |
|
|
|
|
|
|
|
|
|
|
|
The following table reconciles the statutory federal income tax rate to the effective
income tax rate for continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
2005 |
Income taxes at federal statutory rate |
|
|
35.00 |
% |
|
|
35.00 |
% |
|
|
35.00 |
% |
Effect of state and local income taxes, net of federal tax |
|
|
3.00 |
|
|
|
1.84 |
|
|
|
2.25 |
|
Domestic production activities deduction |
|
|
|
|
|
|
(1.63 |
) |
|
|
(0.88 |
) |
Deferred tax asset valuation allowance |
|
|
(25.00 |
) |
|
|
|
|
|
|
|
|
Goodwill impairment |
|
|
(4.24 |
) |
|
|
|
|
|
|
|
|
Settlement of state tax issues and other |
|
|
0.15 |
|
|
|
1.09 |
|
|
|
0.53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective rate |
|
|
8.91 |
% |
|
|
36.30 |
% |
|
|
36.90 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
72
PULTE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. Income taxes (continued)
The Companys net deferred tax asset (liability) is as follows ($000s omitted):
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
|
2007 |
|
|
2006 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Capitalized items, principally real estate basis differences,
deducted for tax, net |
|
$ |
(176,995 |
) |
|
$ |
(108,356 |
) |
Trademarks and tradenames |
|
|
(42,068 |
) |
|
|
(45,165 |
) |
|
|
|
|
|
|
|
|
|
|
(219,063 |
) |
|
|
(153,521 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Non-deductible reserves and other |
|
|
237,911 |
|
|
|
192,651 |
|
Inventory valuation reserves |
|
|
689,035 |
|
|
|
129,979 |
|
Net operating loss carryforwards |
|
|
29,907 |
|
|
|
11,359 |
|
|
|
|
|
|
|
|
|
|
|
956,853 |
|
|
|
333,989 |
|
|
|
|
|
|
|
|
Valuation allowance |
|
|
(631,884 |
) |
|
|
(9,950 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset |
|
$ |
105,906 |
|
|
$ |
170,518 |
|
|
|
|
|
|
|
|
The Company has various state net operating losses aggregating $847.9 million that expire
in years 2009 through 2027. Net operating losses are generally available to offset the
Companys taxable income in certain prior and future years.
In accordance with SFAS No. 109, Accounting for Income Taxes (SFAS 109), the Company
evaluates its deferred tax assets, including net operating losses, to determine if a valuation
allowance is required. SFAS 109 requires that companies assess whether a valuation allowance
should be established based on the consideration of all available evidence using a more likely
than not standard. In making such judgments, significant weight is given to evidence that can
be objectively verified. SFAS 109 provides that a cumulative loss in recent years is
significant negative evidence in considering whether deferred tax assets are realizable and
also restricts the amount of reliance on projections of future taxable income to support the
recovery of deferred tax assets. Given the continued downturn in the homebuilding industry
during 2007, resulting in additional inventory impairments, the Company now anticipates being
in a three-year cumulative pre-tax loss position during the years 2006 2008. Therefore,
during the fourth quarter of 2007, the Company recorded a valuation allowance of $621.9 million
against its deferred tax assets. The ultimate realization of these deferred tax assets is
dependent upon the generation of future taxable income during the periods in which those
temporary differences become deductible. Changes in existing tax laws could also affect actual
tax results and the valuation of deferred tax assets over time. The deferred tax assets for
which there are no valuation allowances relate to amounts that are expected to be realized
through net operating loss carry backs to tax year 2006 or through subsequent reversals of
existing taxable temporary differences. The accounting for deferred taxes is based upon an
estimate of future results. Differences between the anticipated and actual outcomes of these
future tax consequences could have a material impact on the Companys consolidated results of
operations or financial position.
The American Jobs Creation Act of 2004 provided a 3% tax deduction on the lesser of
taxable income or qualified domestic production activities income for the years ended December
31, 2006 and 2005. The deduction increases to 6% for years ending after December 31, 2006 and
to 9% for years ending after December 31, 2009. Based on the guidance provided by FASB Staff
Position 109-1, Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax
Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of
2004, this deduction was accounted for as a special deduction under SFAS 109 and reduced
income tax expense for the years ended December 31, 2006 and 2005.
The Company adopted the provisions of FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes (FIN 48), effective January 1, 2007. FIN 48 creates a single
model to address accounting for uncertainty in tax positions and clarifies accounting for
income taxes by prescribing a minimum recognition threshold a tax position is required to meet
before being recognized in the financial statements. FIN 48 also provides guidance on
de-recognition, measurement, classification, interest and penalties, accounting in interim
periods, disclosure, and transition.
73
PULTE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. Income taxes (continued)
The January 1, 2007 adoption of FIN 48 resulted in a $31.4 million increase in income tax
liabilities and a corresponding charge to beginning retained earnings.
As of adoption, the Company had $86.7 million of gross unrecognized tax benefits, all of
which, if recognized, would affect the effective tax rate. Additionally, the Company had $24.5
million of accrued interest and $13.3 million of accrued penalties as of January 1, 2007.
At December 31, 2007 the Company had $86.2 million of gross unrecognized tax benefits, all of
which, if recognized, would affect the effective tax rate. Additionally, the Company had $21.1
million of accrued interest and $12.1 million of accrued penalties at December 31, 2007.
Effective in 2007, the Company recognizes interest and penalties related to income taxes in
income tax expense. Such amounts totaled $7.3 million of income tax benefit in 2007. Interest
related to income taxes was previously included in interest expense.
A reconciliation of the change in the unrecognized tax benefits from January 1, 2007 to
December 31, 2007 is as follows ($000s omitted):
|
|
|
|
|
Balance at January 1, 2007 |
|
$ |
86,663 |
|
|
|
|
|
|
Increases related to tax positions taken during a prior period |
|
|
1,708 |
|
Decreases related to tax positions taken during a prior period |
|
|
(12,135 |
) |
Increases related to tax positions taken during the current period |
|
|
11,610 |
|
Decreases related to settlements with taxing authorities |
|
|
(142 |
) |
Reductions as a result of a lapse of the applicable statute limitations |
|
|
(1,495 |
) |
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007 |
|
$ |
86,209 |
|
|
|
|
|
The Company is currently under examination by various taxing jurisdictions and anticipates
finalizing the examinations with certain jurisdictions within the next twelve months. The final
outcome of these examinations is not yet determinable. The statute of limitations for the
Companys major tax jurisdictions remains open for examination for tax years 1998-2006.
11. Leases
The Company leases certain property and equipment under non-cancelable leases. Office and
equipment leases are generally for terms of three to five years. The future minimum lease
payments required under operating leases that have initial or remaining non-cancelable terms in
excess of one year are as follows ($000s omitted):
|
|
|
|
|
Years Ending December 31, |
|
|
|
|
2008 |
|
$ |
56,118 |
|
2009 |
|
|
48,700 |
|
2010 |
|
|
33,014 |
|
2011 |
|
|
22,242 |
|
2012 |
|
|
16,646 |
|
After 2012 |
|
|
62,817 |
|
|
|
|
|
Total minimum lease payments |
|
$ |
239,537 |
|
|
|
|
|
Net rental expense for the years ended December 31, 2007, 2006, and 2005 was $70.7 million,
$78.5 million, and $73.1 million, respectively. Certain leases contain renewal or purchase
options and generally provide that the Company shall pay for insurance, taxes, and maintenance.
74
PULTE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
12. Commitments and contingencies
In the normal course of business, the Company acquires rights under options or option-type
agreements to purchase land to be used in homebuilding operations at future dates. The total
purchase price applicable to land under option that has been approved for purchase approximated
$1.5 billion and $3.9 billion at December 31, 2007 and 2006, respectively. The total purchase
price applicable to land under option that has not been approved for purchase approximated $95.1
million and $450.3 million at December 31, 2007 and 2006, respectively. At December 31, 2007
and 2006, the Company, in the normal course of business, had outstanding letters of credit and
performance bonds of $2 billion and $2.4 billion, respectively.
The Company could be required to repurchase loans sold to investors that experience early
payment default or that have not been underwritten in accordance with the investor guidelines
(defective loans). The Company, in the normal course of business, also indemnifies investors
for defective loans that they have purchased. The Company assesses the overall risk of loss on
loans that the Company may be required to repurchase and establishes reserves for them. At
December 31, 2007 and 2006, reserves for potential losses on repurchased loans are reflected in
accrued and other liabilities and amounted to $2.1 million and $135 thousand, respectively.
The Company is involved in various litigation incidental to its continuing business
operations. Management does not believe that this litigation will have a material adverse
impact on the results of operations, financial position, or cash flows of the Company.
In April 2004, the Company received a request for information from the United States
Environmental Protection Agency (EPA) pursuant to Section 308 of the Clean Water Act. The
request seeks information about storm water discharge practices in connection with homebuilding
projects completed or underway by the Company. The Company has provided the EPA with this
information. Although the matter has since been referred to the United States Department of
Justice (DOJ) for enforcement, the EPA has asked that the Company engage in pre-filing
negotiations to resolve the matter short of litigation. The Company continues to participate
actively in these negotiations. If the negotiations fail and the DOJ alleges that the Company
has violated regulatory requirements applicable to storm water discharges, the government may
seek injunctive relief and penalties. The Company believes that it has defenses to any such
allegations. At this time, however, the Company can neither predict the outcome of this inquiry
nor can it currently estimate the costs that may be associated with its eventual resolution.
13. Supplemental Guarantor information
At December 31, 2007, Pulte Homes, Inc. had the following outstanding senior note
obligations: (1) $339 million, 4.875% due 2009, (2) $200 million, 8.125%, due 2011, (3) $499
million, 7.875%, due 2011, (4) $300 million, 6.25%, due 2013, (5) $500 million, 5.25%, due 2014,
(6) $350 million, 5.2%, due 2015, (7) $150 million, 7.625%, due 2017, (8) $300 million, 7.875%,
due 2032, (9) $400 million, 6.375%, due 2033, (10) $300 million, 6%, due 2035 and (11) $150
million, 7.375%, due 2046. Such obligations to pay principal, premium, if any, and interest are
guaranteed jointly and severally on a senior basis by Pulte Homes, Inc.s 100%-owned
Homebuilding subsidiaries (collectively, the Guarantors). Such guarantees are full and
unconditional.
Supplemental consolidating financial information of the Company, specifically including
such information for the Guarantors, is presented below. Investments in subsidiaries are
presented using the equity method of accounting. Separate financial statements of the
Guarantors are not provided as the consolidating financial information contained herein provides
a more meaningful disclosure to allow investors to determine the nature of the assets held by,
and the operations of, the combined groups.
75
PULTE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
13. Supplemental Guarantor information (continued)
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2007
($000s omitted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated |
|
|
|
|
|
|
|
|
|
Pulte |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
Eliminating |
|
|
Consolidated |
|
|
|
Homes, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Entries |
|
|
Pulte Homes, Inc. |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents |
|
$ |
|
|
|
$ |
715,411 |
|
|
$ |
344,900 |
|
|
$ |
|
|
|
$ |
1,060,311 |
|
Unfunded settlements |
|
|
|
|
|
|
37,674 |
|
|
|
1,040 |
|
|
|
|
|
|
|
38,714 |
|
House and land inventories |
|
|
|
|
|
|
7,021,018 |
|
|
|
6,493 |
|
|
|
|
|
|
|
7,027,511 |
|
Land held for sale |
|
|
|
|
|
|
252,563 |
|
|
|
|
|
|
|
|
|
|
|
252,563 |
|
Land, not owned, under option agreements |
|
|
|
|
|
|
20,838 |
|
|
|
|
|
|
|
|
|
|
|
20,838 |
|
Residential mortgage loans available-for-
sale |
|
|
|
|
|
|
|
|
|
|
447,089 |
|
|
|
|
|
|
|
447,089 |
|
Investments in unconsolidated entities |
|
|
1,448 |
|
|
|
93,392 |
|
|
|
10,639 |
|
|
|
|
|
|
|
105,479 |
|
Goodwill |
|
|
|
|
|
|
4,954 |
|
|
|
700 |
|
|
|
|
|
|
|
5,654 |
|
Intangible assets |
|
|
|
|
|
|
110,704 |
|
|
|
|
|
|
|
|
|
|
|
110,704 |
|
Other assets |
|
|
307,142 |
|
|
|
629,895 |
|
|
|
113,897 |
|
|
|
|
|
|
|
1,050,934 |
|
Deferred income tax asset |
|
|
82,679 |
|
|
|
48 |
|
|
|
23,179 |
|
|
|
|
|
|
|
105,906 |
|
Investment in subsidiaries |
|
|
8,407,720 |
|
|
|
83,703 |
|
|
|
5,709,912 |
|
|
|
(14,201,335 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
8,798,989 |
|
|
$ |
8,970,200 |
|
|
$ |
6,657,849 |
|
|
$ |
(14,201,335 |
) |
|
$ |
10,225,703 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accrued and other
liabilities |
|
$ |
157,703 |
|
|
$ |
1,354,652 |
|
|
$ |
347,556 |
|
|
$ |
|
|
|
$ |
1,859,911 |
|
Collateralized short-term debt, recourse
solely to applicable non-guarantor
subsidiary assets |
|
|
|
|
|
|
|
|
|
|
440,611 |
|
|
|
|
|
|
|
440,611 |
|
Income taxes |
|
|
126,758 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126,758 |
|
Senior notes |
|
|
3,478,230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,478,230 |
|
Advances (receivable) payable subsidiaries |
|
|
716,105 |
|
|
|
(804,897 |
) |
|
|
88,792 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
4,478,796 |
|
|
|
549,755 |
|
|
|
876,959 |
|
|
|
|
|
|
|
5,905,510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
2,571 |
|
|
|
104 |
|
|
|
578 |
|
|
|
(682 |
) |
|
|
2,571 |
|
Additional paid-in capital |
|
|
1,362,504 |
|
|
|
7,326,496 |
|
|
|
4,944,567 |
|
|
|
(12,271,063 |
) |
|
|
1,362,504 |
|
Accumulated other comprehensive loss |
|
|
(4,883 |
) |
|
|
(1,029 |
) |
|
|
(1,480 |
) |
|
|
2,509 |
|
|
|
(4,883 |
) |
Retained earnings |
|
|
2,960,001 |
|
|
|
1,094,874 |
|
|
|
837,225 |
|
|
|
(1,932,099 |
) |
|
|
2,960,001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
4,320,193 |
|
|
|
8,420,445 |
|
|
|
5,780,890 |
|
|
|
(14,201,335 |
) |
|
|
4,320,193 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
8,798,989 |
|
|
$ |
8,970,200 |
|
|
$ |
6,657,849 |
|
|
$ |
(14,201,335 |
) |
|
$ |
10,225,703 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76
PULTE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
13. Supplemental Guarantor information (continued)
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2006
($000s omitted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated |
|
|
|
|
|
|
|
|
|
Pulte |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
Eliminating |
|
|
Consolidated |
|
|
|
Homes, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Entries |
|
|
Pulte Homes, Inc. |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents |
|
$ |
|
|
|
$ |
318,309 |
|
|
$ |
232,983 |
|
|
$ |
|
|
|
$ |
551,292 |
|
Unfunded settlements |
|
|
|
|
|
|
68,757 |
|
|
|
3,840 |
|
|
|
|
|
|
|
72,597 |
|
House and land inventories |
|
|
|
|
|
|
9,363,933 |
|
|
|
10,402 |
|
|
|
|
|
|
|
9,374,335 |
|
Land held for sale |
|
|
|
|
|
|
465,823 |
|
|
|
|
|
|
|
|
|
|
|
465,823 |
|
Land, not owned, under option agreements |
|
|
|
|
|
|
43,609 |
|
|
|
|
|
|
|
|
|
|
|
43,609 |
|
Residential mortgage loans available-for-sale |
|
|
|
|
|
|
|
|
|
|
871,350 |
|
|
|
|
|
|
|
871,350 |
|
Investments in unconsolidated entities |
|
|
1,448 |
|
|
|
133,195 |
|
|
|
16,042 |
|
|
|
|
|
|
|
150,685 |
|
Goodwill |
|
|
|
|
|
|
374,977 |
|
|
|
700 |
|
|
|
|
|
|
|
375,677 |
|
Intangible assets |
|
|
|
|
|
|
118,954 |
|
|
|
|
|
|
|
|
|
|
|
118,954 |
|
Other assets |
|
|
46,490 |
|
|
|
814,136 |
|
|
|
121,408 |
|
|
|
|
|
|
|
982,034 |
|
Deferred income tax asset |
|
|
155,178 |
|
|
|
65 |
|
|
|
15,275 |
|
|
|
|
|
|
|
170,518 |
|
Investment in subsidiaries |
|
|
10,198,353 |
|
|
|
85,444 |
|
|
|
7,159,877 |
|
|
|
(17,443,674 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
10,401,469 |
|
|
$ |
11,787,202 |
|
|
$ |
8,431,877 |
|
|
$ |
(17,443,674 |
) |
|
$ |
13,176,874 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accrued and other
liabilities |
|
$ |
178,687 |
|
|
$ |
1,692,037 |
|
|
$ |
309,868 |
|
|
$ |
|
|
|
$ |
2,180,592 |
|
Collateralized short-term debt, recourse
solely to applicable non-guarantor
subsidiary assets |
|
|
|
|
|
|
|
|
|
|
814,707 |
|
|
|
|
|
|
|
814,707 |
|
Income taxes |
|
|
66,267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,267 |
|
Senior notes |
|
|
3,537,947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,537,947 |
|
Advances (receivable) payable subsidiaries |
|
|
41,207 |
|
|
|
(144,645 |
) |
|
|
103,438 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
3,824,108 |
|
|
|
1,547,392 |
|
|
|
1,228,013 |
|
|
|
|
|
|
|
6,599,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
2,553 |
|
|
|
103 |
|
|
|
303 |
|
|
|
(406 |
) |
|
|
2,553 |
|
Additional paid-in capital |
|
|
1,284,687 |
|
|
|
7,503,793 |
|
|
|
4,783,751 |
|
|
|
(12,287,544 |
) |
|
|
1,284,687 |
|
Accumulated other comprehensive loss |
|
|
(2,986 |
) |
|
|
978 |
|
|
|
662 |
|
|
|
(1,640 |
) |
|
|
(2,986 |
) |
Retained earnings |
|
|
5,293,107 |
|
|
|
2,734,936 |
|
|
|
2,419,148 |
|
|
|
(5,154,084 |
) |
|
|
5,293,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
6,577,361 |
|
|
|
10,239,810 |
|
|
|
7,203,864 |
|
|
|
(17,443,674 |
) |
|
|
6,577,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
10,401,469 |
|
|
$ |
11,787,202 |
|
|
$ |
8,431,877 |
|
|
$ |
(17,443,674 |
) |
|
$ |
13,176,874 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
PULTE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
13. Supplemental Guarantor information (continued)
CONSOLIDATING STATEMENT OF OPERATIONS
For the year ended December 31, 2007
($000s omitted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated |
|
|
|
|
|
|
|
|
|
Pulte |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
Eliminating |
|
|
Consolidated |
|
|
|
Homes, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Entries |
|
|
Pulte Homes, Inc. |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding |
|
$ |
|
|
|
$ |
9,121,730 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
9,121,730 |
|
Financial Services |
|
|
|
|
|
|
20,802 |
|
|
|
113,967 |
|
|
|
|
|
|
|
134,769 |
|
Other non-operating |
|
|
12 |
|
|
|
3,178 |
|
|
|
3,405 |
|
|
|
|
|
|
|
6,595 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
12 |
|
|
|
9,145,710 |
|
|
|
117,372 |
|
|
|
|
|
|
|
9,263,094 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
|
|
|
|
9,747,531 |
|
|
|
|
|
|
|
|
|
|
|
9,747,531 |
|
Selling, general, and administrative
and other expense |
|
|
32,178 |
|
|
|
1,584,743 |
|
|
|
76,387 |
|
|
|
|
|
|
|
1,693,308 |
|
Financial Services |
|
|
634 |
|
|
|
8,543 |
|
|
|
82,973 |
|
|
|
|
|
|
|
92,150 |
|
Other non-operating, net |
|
|
89,247 |
|
|
|
(34,215 |
) |
|
|
(18,046 |
) |
|
|
|
|
|
|
36,986 |
|
Intercompany interest |
|
|
164,933 |
|
|
|
(164,933 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
286,992 |
|
|
|
11,141,669 |
|
|
|
141,314 |
|
|
|
|
|
|
|
11,569,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity income (loss) |
|
|
|
|
|
|
(187,805 |
) |
|
|
(2,217 |
) |
|
|
|
|
|
|
(190,022 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
before income taxes and equity in
income of subsidiaries |
|
|
(286,980 |
) |
|
|
(2,183,764 |
) |
|
|
(26,159 |
) |
|
|
|
|
|
|
(2,496,903 |
) |
Income taxes (benefit) |
|
|
(20,294 |
) |
|
|
(194,240 |
) |
|
|
(7,952 |
) |
|
|
|
|
|
|
(222,486 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
before equity in income of
subsidiaries |
|
|
(266,686 |
) |
|
|
(1,989,524 |
) |
|
|
(18,207 |
) |
|
|
|
|
|
|
(2,274,417 |
) |
Income (loss) from discontinued operations |
|
|
18,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before equity in net income
of subsidiaries |
|
|
(248,024 |
) |
|
|
(1,989,524 |
) |
|
|
(18,207 |
) |
|
|
|
|
|
|
(2,255,755 |
) |
Equity in net income (loss) of subsidiaries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
(2,007,731 |
) |
|
|
19,013 |
|
|
|
(1,567,843 |
) |
|
|
3,556,561 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
(2,255,755 |
) |
|
$ |
(1,970,511 |
) |
|
$ |
(1,586,050 |
) |
|
$ |
3,556,561 |
|
|
$ |
(2,255,755 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78
PULTE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
13. Supplemental Guarantor information (continued)
CONSOLIDATING STATEMENT OF OPERATIONS
For the year ended December 31, 2006
($000s omitted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated |
|
|
|
|
|
|
|
|
|
Pulte |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
Eliminating |
|
|
Consolidated |
|
|
|
Homes, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Entries |
|
|
Pulte Homes, Inc. |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding |
|
$ |
|
|
|
$ |
14,075,248 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
14,075,248 |
|
Financial Services |
|
|
|
|
|
|
29,833 |
|
|
|
164,763 |
|
|
|
|
|
|
|
194,596 |
|
Other non-operating |
|
|
374 |
|
|
|
2,154 |
|
|
|
2,036 |
|
|
|
|
|
|
|
4,564 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
374 |
|
|
|
14,107,235 |
|
|
|
166,799 |
|
|
|
|
|
|
|
14,274,408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
|
|
|
|
11,683,433 |
|
|
|
|
|
|
|
|
|
|
|
11,683,433 |
|
Selling, general, and administrative
and other expense |
|
|
36,883 |
|
|
|
1,233,381 |
|
|
|
15,939 |
|
|
|
|
|
|
|
1,286,203 |
|
Financial Services |
|
|
697 |
|
|
|
9,913 |
|
|
|
100,858 |
|
|
|
|
|
|
|
111,468 |
|
Other non-operating, net |
|
|
94,324 |
|
|
|
(34,296 |
) |
|
|
(12,364 |
) |
|
|
|
|
|
|
47,664 |
|
Intercompany interest |
|
|
104,193 |
|
|
|
(104,193 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
236,097 |
|
|
|
12,788,238 |
|
|
|
104,433 |
|
|
|
|
|
|
|
13,128,768 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of equity investments |
|
|
|
|
|
|
|
|
|
|
31,635 |
|
|
|
|
|
|
|
31,635 |
|
Equity income (loss) |
|
|
|
|
|
|
(96,259 |
) |
|
|
1,712 |
|
|
|
|
|
|
|
(94,547 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
before income taxes and equity in
income of subsidiaries |
|
|
(235,723 |
) |
|
|
1,222,738 |
|
|
|
95,713 |
|
|
|
|
|
|
|
1,082,728 |
|
Income taxes (benefit) |
|
|
(86,662 |
) |
|
|
443,937 |
|
|
|
35,807 |
|
|
|
|
|
|
|
393,082 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
before equity in income of
subsidiaries |
|
|
(149,061 |
) |
|
|
778,801 |
|
|
|
59,906 |
|
|
|
|
|
|
|
689,646 |
|
Income (loss) from discontinued operations |
|
|
248 |
|
|
|
|
|
|
|
(2,423 |
) |
|
|
|
|
|
|
(2,175 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before equity in net income
of subsidiaries |
|
|
(148,813 |
) |
|
|
778,801 |
|
|
|
57,483 |
|
|
|
|
|
|
|
687,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in net income (loss) of subsidiaries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
838,707 |
|
|
|
59,395 |
|
|
|
448,712 |
|
|
|
(1,346,814 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations |
|
|
(2,423 |
) |
|
|
|
|
|
|
|
|
|
|
2,423 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
836,284 |
|
|
|
59,395 |
|
|
|
448,712 |
|
|
|
(1,344,391 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
687,471 |
|
|
$ |
838,196 |
|
|
$ |
506,195 |
|
|
$ |
(1,344,391 |
) |
|
$ |
687,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79
PULTE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
13. Supplemental Guarantor information (continued)
CONSOLIDATING STATEMENT OF OPERATIONS
For the year ended December 31, 2005
($000s omitted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated |
|
|
|
|
|
|
|
|
|
Pulte |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
Eliminating |
|
|
Consolidated |
|
|
|
Homes, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Entries |
|
|
Pulte Homes, Inc. |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding |
|
$ |
|
|
|
$ |
14,528,236 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
14,528,236 |
|
Financial Services |
|
|
|
|
|
|
29,496 |
|
|
|
131,918 |
|
|
|
|
|
|
|
161,414 |
|
Other non-operating |
|
|
289 |
|
|
|
3,682 |
|
|
|
914 |
|
|
|
|
|
|
|
4,885 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
289 |
|
|
|
14,561,414 |
|
|
|
132,832 |
|
|
|
|
|
|
|
14,694,535 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
|
|
|
|
11,144,968 |
|
|
|
|
|
|
|
|
|
|
|
11,144,968 |
|
Selling, general, and administrative
and other expense |
|
|
18,011 |
|
|
|
1,139,129 |
|
|
|
(90 |
) |
|
|
|
|
|
|
1,157,050 |
|
Financial Services, principally interest |
|
|
2,146 |
|
|
|
8,632 |
|
|
|
82,796 |
|
|
|
|
|
|
|
93,574 |
|
Other non-operating, net |
|
|
128,461 |
|
|
|
(21,545 |
) |
|
|
(9,637 |
) |
|
|
|
|
|
|
97,279 |
|
Intercompany interest |
|
|
162,552 |
|
|
|
(162,552 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
311,170 |
|
|
|
12,108,632 |
|
|
|
73,069 |
|
|
|
|
|
|
|
12,492,871 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of equity investments |
|
|
|
|
|
|
|
|
|
|
620 |
|
|
|
|
|
|
|
620 |
|
Equity income |
|
|
|
|
|
|
66,902 |
|
|
|
7,828 |
|
|
|
|
|
|
|
74,730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
before income taxes and equity in
income of subsidiaries |
|
|
(310,881 |
) |
|
|
2,519,684 |
|
|
|
68,211 |
|
|
|
|
|
|
|
2,277,014 |
|
Income taxes (benefit) |
|
|
(119,172 |
) |
|
|
933,434 |
|
|
|
25,864 |
|
|
|
|
|
|
|
840,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
before equity in income of
subsidiaries |
|
|
(191,709 |
) |
|
|
1,586,250 |
|
|
|
42,347 |
|
|
|
|
|
|
|
1,436,888 |
|
Income (loss) from discontinued operations |
|
|
57,898 |
|
|
|
|
|
|
|
(2,873 |
) |
|
|
|
|
|
|
55,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before equity in net income
of subsidiaries |
|
|
(133,811 |
) |
|
|
1,586,250 |
|
|
|
39,474 |
|
|
|
|
|
|
|
1,491,913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in net income (loss) of subsidiaries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
1,628,597 |
|
|
|
31,163 |
|
|
|
594,348 |
|
|
|
(2,254,108 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations |
|
|
(2,873 |
) |
|
|
|
|
|
|
|
|
|
|
2,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,625,724 |
|
|
|
31,163 |
|
|
|
594,348 |
|
|
|
(2,251,235 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,491,913 |
|
|
$ |
1,617,413 |
|
|
$ |
633,822 |
|
|
$ |
(2,251,235 |
) |
|
$ |
1,491,913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80
PULTE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
13. Supplemental Guarantor information (continued)
CONSOLIDATING STATEMENT OF CASH FLOWS
For the year ended December 31, 2007
($000s omitted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated |
|
|
|
|
|
|
|
|
|
Pulte |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
Eliminating |
|
|
Consolidated |
|
|
|
Homes, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Entries |
|
|
Pulte Homes, Inc. |
|
Net cash provided by (used in) operating
activities |
|
$ |
(747,713 |
) |
|
$ |
1,501,969 |
|
|
$ |
463,999 |
|
|
$ |
|
|
|
$ |
1,218,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions from unconsolidated
entities |
|
|
|
|
|
|
57,154 |
|
|
|
3,047 |
|
|
|
|
|
|
|
60,201 |
|
Investments in unconsolidated entities |
|
|
|
|
|
|
(217,541 |
) |
|
|
|
|
|
|
|
|
|
|
(217,541 |
) |
Dividends received from subsidiaries |
|
|
51 |
|
|
|
24,000 |
|
|
|
|
|
|
|
(24,051 |
) |
|
|
|
|
Investment in subsidiaries |
|
|
(219,304 |
) |
|
|
(4,510 |
) |
|
|
(127,093 |
) |
|
|
350,907 |
|
|
|
|
|
Increase in loans held for investment |
|
|
|
|
|
|
|
|
|
|
(13,728 |
) |
|
|
|
|
|
|
(13,728 |
) |
Proceeds from sale of fixed assets |
|
|
|
|
|
|
19,758 |
|
|
|
9 |
|
|
|
|
|
|
|
19,767 |
|
Capital expenditures |
|
|
|
|
|
|
(66,551 |
) |
|
|
(3,565 |
) |
|
|
|
|
|
|
(70,116 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing
activities |
|
|
(219,253 |
) |
|
|
(187,690 |
) |
|
|
(141,330 |
) |
|
|
326,856 |
|
|
|
(221,417 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net repayments under Financial Services
credit arrangements |
|
|
|
|
|
|
|
|
|
|
(374,096 |
) |
|
|
|
|
|
|
(374,096 |
) |
Repayment of other borrowings |
|
|
(61,189 |
) |
|
|
(13,498 |
) |
|
|
|
|
|
|
|
|
|
|
(74,687 |
) |
Excess tax benefits from share-based
awards |
|
|
523 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
523 |
|
Capital contributions from parent |
|
|
|
|
|
|
153,294 |
|
|
|
197,613 |
|
|
|
(350,907 |
) |
|
|
|
|
Advances (to) from affiliates |
|
|
1,067,012 |
|
|
|
(1,056,922 |
) |
|
|
(10,090 |
) |
|
|
|
|
|
|
|
|
Issuance of common stock |
|
|
7,862 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,862 |
|
Stock repurchases |
|
|
(6,245 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,245 |
) |
Dividends paid |
|
|
(40,997 |
) |
|
|
(51 |
) |
|
|
(24,000 |
) |
|
|
24,051 |
|
|
|
(40,997 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing
activities |
|
|
966,966 |
|
|
|
(917,177 |
) |
|
|
(210,573 |
) |
|
|
(326,856 |
) |
|
|
(487,640 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
and cash equivalents |
|
|
|
|
|
|
|
|
|
|
(179 |
) |
|
|
|
|
|
|
(179 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and
equivalents |
|
|
|
|
|
|
397,102 |
|
|
|
111,917 |
|
|
|
|
|
|
|
509,019 |
|
Cash and equivalents at beginning of year |
|
|
|
|
|
|
318,309 |
|
|
|
232,983 |
|
|
|
|
|
|
|
551,292 |
|
|
|
|
|
|
|
|
|
|
|