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Revenues
Total Financial Services revenues during 2023 increased 3% compared with 2022 as the result of higher earned title premiums and insurance commissions.
Income before income taxes
The increase in income before income taxes for 2023 as compared with 2022 was primarily attributable to higher title and insurance revenues partially offset by higher overhead expenses.
Income Taxes
Our effective income tax rate was 24.6% and 23.9% for 2023 and 2022, respectively. Our effective tax rate for each of these periods differs from the federal statutory rate primarily due to state income tax expense.
Liquidity and Capital Resources
We finance our land acquisition, development, and construction activities and financial services operations using internally-generated funds, supplemented by credit arrangements with third parties and capital market financing. We routinely monitor current and expected operational requirements and financial market conditions to evaluate accessing available financing sources, including revolving bank credit and securities offerings.
At December 31, 2023, we had unrestricted cash and equivalents of $1.8 billion, restricted cash balances of $42.6 million, and $937.3 million available under our Revolving Credit Facility (as defined below). Our ratio of debt-to-total capitalization, excluding our Financial Services debt, was 15.9% at December 31, 2023 as compared with 18.7% at December 31, 2022.
We follow a diversified investment approach for our cash and equivalents by maintaining such funds with a broad portfolio of banks within our group of relationship banks in high quality, highly liquid, short-term deposits and investments, which helps mitigate banking concentration risk. In response to recent volatility in the banking system, we have shifted a larger percentage of our cash and equivalents to money market funds to reduce the balances held in bank accounts.
For the next 12 months, we expect our principal demand for funds will be for the acquisition and development of land inventory, construction of house inventory, and operating expenses, including our general and administrative expenses. Though we experienced significant improvement in 2023, the elongation of our production cycle in recent years has required a greater investment of cash in our homes under production. Additionally, we plan to continue our dividend payments and repurchases of common stock. In August 2024, we need to repay or refinance Pulte Mortgage's master repurchase agreement with third-party lenders (as amended, the "Repurchase Agreement"). While we intend to refinance the Repurchase Agreement, there can be no assurances that the Repurchase Agreement can be renewed or replaced on commercially reasonable terms upon its expiration. However, we believe we have adequate liquidity to meet Pulte Mortgage's anticipated financing needs. Beyond the next twelve months, we will need to repay or refinance our Revolving Credit Facility, which matures in June 2027, and our unsecured
senior notes, the next tranche of which becomes due in 2026. We may from time to time repurchase our unsecured senior notes through open market purchases, privately negotiated transactions, or otherwise.
We believe that our current cash position and other available financing resources, coupled with our ongoing operating activities, will provide sufficient liquidity to fund our business needs over the next twelve months and beyond. To the extent the sources of capital described above are insufficient to meet our needs, we may also conduct additional public offerings of our securities, refinance debt, dispose of certain assets to fund our operating activities, or draw on existing or new debt facilities.
Unsecured senior notes
At December 31, 2023, we had $1.9 billion of unsecured senior notes outstanding with no repayments due until March 2026, when $455.4 million of notes are scheduled to mature.
At December 31, 2022, we had $2.0 billion of unsecured senior notes outstanding with no repayments due until March 2026, when $500.0 million of notes were scheduled to mature.
During the twelve months ended 2023, we completed open market repurchases of $44.6 million and $56.1 million of our unsecured senior notes scheduled to mature in 2026 and 2027, respectively.
Other notes payable
Other notes payable include non-recourse and limited recourse secured notes with third parties that totaled $71.0 million at December 31, 2023. These notes have maturities ranging up to six years, are secured by the applicable land positions to which they relate, and generally have no recourse to other assets. The stated interest rates on these notes range up to 6%.
Joint venture debt
At December 31, 2023, aggregate outstanding debt of unconsolidated joint ventures was $73.5 million, of which $33.2 million related to one joint venture in which we have a 50% interest. In connection with this loan, we and our joint venture partner provided customary limited recourse guaranties in which our maximum financial loss exposure is limited to our pro rata share of the debt outstanding.
Revolving credit facility
We maintain a revolving credit facility ("Revolving Credit Facility") maturing in June 2027 that has a maximum borrowing capacity of $1.3 billion and contains an uncommitted accordion feature that could increase the capacity to $1.8 billion, subject to certain conditions and availability of additional bank commitments. The Revolving Credit Facility also provides for the issuance of letters of credit that reduce the available borrowing capacity under the Revolving Credit Facility, up to the maximum borrowing capacity. The interest rate on borrowings under the Revolving Credit Facility may be based on either the Secured Overnight Financing Rate or a base rate plus an applicable margin, as defined therein. The Revolving Credit Facility contains financial covenants that require us to maintain a minimum Tangible Net Worth and a maximum Debt-to-Capitalization Ratio (as each term is defined in the Revolving Credit Facility). As of December 31, 2023, we were in compliance with all covenants. Outstanding balances under the Revolving Credit Facility are guaranteed by certain of our wholly-owned subsidiaries.
At December 31, 2023, we had no borrowings outstanding, $312.7 million of letters of credit issued, and $937.3 million of remaining capacity under the Revolving Credit Facility. At December 31, 2022, we had no borrowings outstanding, $303.4 million of letters of credit issued, and $946.6 million of remaining capacity under the Revolving Credit Facility.
Financial Services debt
Pulte Mortgage provides mortgage financing for the majority of our home closings by utilizing its own funds and funds made available pursuant to credit agreements with third parties. Pulte Mortgage uses these resources to finance its lending activities until the loans are sold in the secondary market, which generally occurs within 30 days.
In August 2023, Pulte Mortgage entered into the Repurchase Agreement, which matures on August 14, 2024. The Repurchase Agreement replaced a substantially similar agreement that previously existed with different lenders. The maximum aggregate commitment was $850.0 million during the seasonally high borrowing period from December 27, 2023 through January 15,
2024. Thereafter, the maximum aggregate commitment ranges from $600.0 million to $700.0 million. The Repurchase Agreement also contains an accordion feature that could increase the commitment by $50.0 million above its active commitment level. The purpose of the changes in capacity during the term of the agreement is to lower associated fees during seasonally lower volume periods of mortgage origination activity. Borrowings under the Repurchase Agreement are secured by residential mortgage loans available-for-sale. The Repurchase Agreement contains various affirmative and negative covenants applicable to Pulte Mortgage, including quantitative thresholds related to net worth, net income, and liquidity. At December 31, 2023, Pulte Mortgage had $499.6 million outstanding at a weighted average interest rate of 7.15%, and $350.4 million of remaining capacity under the Repurchase Agreement. At December 31, 2022, Pulte Mortgage had $586.7 million outstanding at a weighted average interest rate of 5.39% and $213.3 million of remaining capacity under the Repurchase Agreement. Pulte Mortgage was in compliance with all of its covenants and requirements as of such dates.
Dividends and share repurchase program
We declared quarterly cash dividends totaling $149.8 million and $143.1 million in 2023 and 2022, respectively, and repurchased 13.8 million and 24.2 million shares in 2023 and 2022, respectively, for a total of $1.0 billion and $1.1 billion in 2023 and 2022, respectively. On April 24, 2023, the Board of Directors increased our share repurchase authorization by $1.0 billion. At December 31, 2023, we had remaining authorization to repurchase $382.9 million of common shares. On January 29, 2024, the Board of Directors increased our on January 29, 2024 share repurchase authorization by $1.5 billion.
Contractual obligations
We are a party to many contractual obligations involving commitments to make payments to third parties. These obligations impact our short-term and long-term liquidity and capital resource needs. Certain contractual obligations are reflected on the Consolidated Balance Sheet as of December 31, 2023, while others are considered future commitments. Our contractual obligations primarily consist of long-term debt and related interest payments, purchase obligations related to expected acquisitions and development of land, operating leases, and obligations under our various compensation and benefit plans.
We use letters of credit and surety bonds to guarantee our performance under various contracts, principally in connection with the development of our homebuilding 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, 2023, we had outstanding letters of credit of $312.7 million. Our surety bonds generally do not have stated expiration dates; rather, we are released from the bonds as the contractual performance is completed. These bonds, which approximated $2.4 billion at December 31, 2023, are typically outstanding over a period of approximately three to five years. Because significant construction and development work has been performed related to the applicable projects but has not yet received final acceptance by the respective counterparties, the aggregate amount of surety bonds outstanding is in excess of the projected cost of the remaining work to be performed.
In the ordinary course of business, we enter into land option agreements in order to procure land for the construction of houses in the future. At December 31, 2023, these agreements had an aggregate remaining purchase price of $6.4 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. At December 31, 2023, outstanding deposits totaled $405.4 million, of which $16.3 million is refundable.
For further information regarding our primary obligations, refer to Note 5, "Debt" and Note 11, "Commitments and Contingencies" to the Consolidated Financial Statements included elsewhere in this Annual Report on 10-K for amounts outstanding as of December 31, 2023, related to debt and commitments and contingencies, respectively.
Cash flows
Operating activities
Net cash provided by operating activities in 2023 was $2.2 billion, compared with net cash provided by operating activities of $668.5 million in 2022. Generally, the primary drivers of our cash flow from operations are profitability and changes in inventory levels and residential mortgage loans available-for-sale, each of which experiences seasonal fluctuations. Our positive cash flow from operations for 2023 was primarily due to our net income of $2.6 billion, which was partially offset by a $354.0 million net increase in inventories primarily attributable to investment in land inventory.
Net cash provided by operating activities in 2022 was primarily due to our net income of $2.6 billion, which was partially offset by a $2.3 billion net increase in inventories primarily attributable to higher house inventory in production resulting from more unsold units and extended production cycle times combined with investment in land inventory. Cash flow from operations in 2022 was also favorably impacted by a $266.3 million decrease in residential mortgage loans available-for-sale.
Investing activities
Net cash used in investing activities totaled $129.1 million in 2023, compared with $171.7 million in 2022. The 2023 cash outflows primarily reflect $23.4 million of investments in unconsolidated entities primarily in support of our land development activities and capital expenditures of $92.2 million related to our ongoing investment in new communities, construction operations, and certain information technology applications.
Net cash used in investing activities in 2022 primarily reflected $64.7 million of investments in unconsolidated entities primarily in support of our land development activities and capital expenditures of $112.7 million related to our ongoing investment in new communities, construction operations, and certain information technology applications.
Financing activities
Net cash used in financing activities was $1.3 billion in 2023 compared with $1.2 billion during 2022. The net cash used in financing activities for 2023 resulted primarily from the repurchase of 13.8 million common shares for $1.0 billion under our repurchase authorization, cash dividends of $142.5 million, and repayments of debt of $123.3 million.
Net cash used in financing activities for 2022 resulted primarily from the repurchase of 24.2 million common shares for $1.1 billion under our repurchase authorization and cash dividends of $144.1 million.
Seasonality
Although significant changes in market conditions have impacted our seasonal patterns in the past and could do so again, we have historically experienced variability in our quarterly results from operations due to the seasonal nature of the homebuilding industry. We generally experience increases in revenues and cash flow from operations during the fourth quarter based on the timing of home closings. This seasonal activity increases our working capital requirements in our third and fourth quarters to support our home production and loan origination volumes. As a result of the seasonality of our operations, our quarterly results of operations are not necessarily indicative of the results that may be expected for the full year. Additionally, given the disruption in economic activity caused by the COVID-19 pandemic, supply chain challenges, increase in mortgage interest rates, and other macroeconomic factors, our quarterly results in 2023 and 2022 are not necessarily indicative of results that may be achieved in the future.
Supplemental Guarantor Financial Information
As of December 31, 2023 PulteGroup, Inc. had outstanding $1.9 billion principal amount of unsecured senior notes due at dates from March 2026 through February 2035 and no amounts outstanding on its Revolving Credit Facility.
All of our unsecured senior notes and the Revolving Credit Facility are fully and unconditionally guaranteed, on a joint and several basis, by certain subsidiaries of PulteGroup, Inc. ("Guarantors" or "Guarantor Subsidiaries"). Each of the Guarantor Subsidiaries is 100% owned, directly or indirectly, by PulteGroup, Inc. Our subsidiaries associated with our financial services operations and certain other subsidiaries do not guarantee the unsecured senior notes or the Revolving Credit Facility (collectively, "Non-Guarantor Subsidiaries"). The guarantees are senior unsecured obligations of each Guarantor and rank equal with all existing and future senior debt of such Guarantor and senior to all subordinated debt of such Guarantor. The guarantees are effectively subordinated to any secured debt of such Guarantor to the extent of the value of the assets securing such debt.
A court could void or subordinate any Guarantor’s guarantee under the fraudulent conveyance laws if existing or future creditors of any such Guarantor were successful in establishing that such Guarantor:
(a) incurred the guarantee with the intent of hindering, delaying or defrauding creditors; or
(b) received less than reasonably equivalent value or fair consideration in return for incurring the guarantee and, in the case of any one of the following is also true at the time thereof:
•such Guarantor was insolvent or rendered insolvent by reason of the issuance of the incurrence of the guarantee;
•the incurrence of the guarantee left such Guarantor with an unreasonably small amount of capital or assets to carry on its business;
•such Guarantor intended to, or believed that it would, incur debts beyond its ability to pay as they mature;
•such Guarantor was a defendant in an action for money damages, or had a judgment for money damages docketed against it, if the judgment is unsatisfied after final judgment.
The measures of insolvency for purposes of determining whether a fraudulent conveyance occurred would vary depending upon the laws of the relevant jurisdiction and upon the valuation assumptions and methodology applied by the court. However, in general, a court would deem a company insolvent if:
•the sum of its debts, including contingent and unliquidated liabilities, was greater than the fair saleable value of all of its assets;
•the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or
•it could not pay its debts as they became due.
The guarantees of the senior notes contain a provision to limit each Guarantor’s liability to the maximum amount that it could incur without causing the incurrence of obligations under its guarantee to be a fraudulent transfer. However, under recent case law, this provision may not be effective to protect such guarantee from being voided under fraudulent transfer law or otherwise determined to be unenforceable. If a court were to find that the incurrence of a guarantee was a fraudulent transfer or conveyance, the court could void the payment obligations under that guarantee, could subordinate that guarantee to presently existing and future indebtedness of the Guarantor or could require the holders of the senior notes to repay any amounts received with respect to that guarantee. In the event of a finding that a fraudulent transfer or conveyance occurred, holders may not receive any repayment on the senior notes.
Finally, as a court of equity, a bankruptcy court may subordinate the claims in respect of the guarantees to other claims against us under the principle of equitable subordination if the court determines that (1) the holder of senior notes engaged in some type of inequitable conduct, (2) the inequitable conduct resulted in injury to our other creditors or conferred an unfair advantage upon the holders of senior notes and (3) equitable subordination is not inconsistent with the provisions of the bankruptcy code.
On the basis of historical financial information, operating history and other factors, we believe that each of the Guarantors, after giving effect to the issuance of the guarantees when such guarantees were issued, was not insolvent, did not have unreasonably small capital for the business in which it engaged and did not and has not incurred debts beyond its ability to pay such debts as they mature. We cannot provide assurance, however, as to what standard a court would apply in making these determinations or that a court would agree with our conclusions in this regard.
The following tables present summarized financial information for PulteGroup, Inc. and the Guarantor Subsidiaries on a combined basis after intercompany transactions and balances have been eliminated among PulteGroup, Inc. and the Guarantor Subsidiaries, as well as their investment in and equity in earnings from the Non-Guarantor Subsidiaries ($000’s omitted):
| | | | | | | | | | | |
| PulteGroup, Inc. and Guarantor Subsidiaries |
| Summarized Balance Sheet Data | December 31, |
| ASSETS | 2023 | | 2022 |
| Cash, cash equivalents, and restricted cash | $ | 1,471,293 | | | $ | 786,073 | |
| House and land inventory | 11,474,861 | | | 10,925,830 | |
| Amount due from Non-Guarantor Subsidiaries | 839,673 | | | 674,898 | |
| Total assets | 14,451,614 | | | 13,074,398 | |
| | | |
| | | |
| LIABILITIES | | | |
Accounts payable, customer deposits,
accrued and other liabilities | $ | 2,810,832 | | | $ | 2,785,286 | |
| Notes payable | 1,962,218 | | | 2,045,527 | |
|
| Total liabilities | 5,078,696 | | | 5,049,079 | |
| | | | | | | | | | | |
| Years Ended December 31, |
| Summarized Statement of Operations Data | 2023 | | 2022 |
| Revenues | $ | 15,447,595 | | | $ | 15,416,191 | |
| Cost of revenues | 10,895,197 | | | 10,764,667 | |
| Selling, general, and administrative expenses | 1,312,645 | | | 1,330,994 | |
| Income before income taxes | 3,334,858 | | | 3,245,925 | |
Critical Accounting Estimates
The preparation of the Company's financial statements in conformity with U.S. generally accepted accounting principles and the discussion and analysis of its financial condition and operating results requires management to make estimates and assumptions, including estimates about the future resolution of existing uncertainties that affect the amounts reported. As a result, actual results could differ from these estimates. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances. We believe the following critical accounting estimates reflect the more significant judgments and estimates used in the preparation of our consolidated financial statements. For a discussion of all of our significant accounting policies, refer to Note 1, "Summary of Significant Accounting Policies".
Inventory and cost of revenues
Cost of revenues includes the construction cost, average lot cost, estimated warranty costs, and closing costs applicable to the home. The construction cost of the home includes amounts paid through the closing date of the home, plus an accrual for costs incurred but not yet paid, based on an analysis of budgeted construction costs. This accrual is reviewed for accuracy based on actual payments made after closing compared with the amount accrued, and adjustments are made if needed. Land acquisition and development costs are allocated to individual lots using an average lot cost determined based on the total expected land acquisition and development costs and the total expected home closings for the community. Total community land acquisition and development costs are based on an analysis of budgeted costs compared with actual costs incurred to date and estimates to complete. The development cycles for our communities range from under one year to in excess of 10 years for certain master planned communities. Adjustments to estimated total land acquisition and development costs for the community affect the amounts costed for the community’s remaining lots.
We test inventory for impairment when events and circumstances indicate that the undiscounted cash flows estimated to be generated by the community may be less than its carrying amount. Such indicators include gross margins 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. Communities that demonstrate potential impairment indicators are tested for impairment by comparing the expected undiscounted cash flows for the community to its carrying value. For those communities whose carrying values exceed the expected undiscounted cash
flows, we determine the fair value of the community and impairment charges are recorded if the fair value of the community’s inventory is less than its carrying value.
We generally determine the fair value of each community using a combination of discounted cash flow models and market comparable transactions, where available. These estimated cash flows are significantly impacted by estimates related to expected average selling prices, expected sales paces, expected land development and construction timelines, and anticipated land development, construction, and overhead costs. The assumptions used in the discounted cash flow models are specific to each community. Due to uncertainties in the estimation process, the significant volatility in demand for new housing, the long life cycles of many communities, and potential changes in our strategy related to certain communities, actual results could differ significantly from such estimates.
Generally, a community must have projected gross margin percentages in the single digits or lower to potentially fail the undiscounted cash flow step and proceed to the fair value step. Our overall gross margin realized during 2023 and our average gross margin in backlog at December 31, 2023 both exceeded 28%, and we have only a small minority of communities with gross margins below 10%. However, in the event of an extended economic slowdown that leads to moderate or significant decreases in the price of new homes in certain geographic or buyer submarkets, we could have a larger number of communities that begin to approach these levels such that more detailed impairment analyses would be necessary, and the resulting impairments could be material. Additionally, we have $704.2 million of deposits and pre-acquisition costs at December 31, 2023 related to option agreements to acquire additional land. In the event of an extended economic slowdown, we could elect to cancel a large portion of such land option agreements, which would generally result in the write-off of the related deposits and pre-acquisition costs.
Self-insured risks
At any point in time, we are managing numerous individual claims related to general liability, property, errors and omission, workers compensation, and other business insurance coverage. We reserve for costs associated with such claims (including expected claims management expenses) on an undiscounted basis at the time product revenue is recognized for each home closing and periodically evaluate the recorded liabilities based on actuarial analyses of our historical claims. The actuarial analyses calculate estimates of the ultimate cost of all unpaid losses, including estimates for incurred but not reported losses ("IBNR"). IBNR represents losses related to claims incurred but not yet reported plus development on reported claims.
Our recorded reserves for all such claims totaled $563.1 million and $635.9 million at December 31, 2023 and 2022, respectively, the vast majority of which relate to general liability claims. The recorded reserves include loss estimates related to both (i) existing claims and related claim expenses and (ii) IBNR and related claim expenses. Liabilities related to IBNR and related claim expenses represented approximately 77% and 74% of the total general liability reserves at December 31, 2023 and 2022, respectively. The actuarial analyses that determine the IBNR portion of reserves consider a variety of factors, including the frequency and severity of losses, which are based on our historical claims experience supplemented by industry data. The actuarial analyses of the reserves also consider historical third party recovery rates and claims management expenses. Because of the inherent uncertainty in estimating future losses related to these claims, actual costs could differ significantly from estimated costs. Based on the actuarial analyses performed, we believe the range of reasonably possible losses related to these claims is $475 million to $650 million. While this range represents our best estimate of our ultimate liability related to these claims, due to a variety of factors, including those factors described above, there can be no assurance that the ultimate costs realized by us will fall within this range.
Volatility in both national and local housing market conditions can affect the frequency and cost of construction defect claims. Additionally, IBNR estimates comprise the majority of our liability and are subject to a high degree of uncertainty due to a variety of factors, including changes in claims reporting and resolution patterns, third party recoveries, insurance industry practices, the regulatory environment, and legal precedent. State regulations vary, but construction defect claims are reported and resolved over an extended period often exceeding ten years. Changes in the frequency and timing of reported claims and estimates of specific claim values can impact the underlying inputs and trends utilized in the actuarial analyses, which could have a material impact on the recorded reserves. Additionally, the amount of insurance coverage available for each policy period also impacts our recorded reserves. Because of the inherent uncertainty in estimating future losses and the timing of such losses related to these claims, actual costs could differ significantly from estimated costs.
Adjustments to reserves are recorded in the period in which the change in estimate occurs. During 2023 and 2022, we reduced general liability reserves by $130.8 million and $65.0 million, respectively, as a result of changes in estimates resulting from actual claim experience observed being less than anticipated in previous actuarial projections. The changes in actuarial estimates were driven by changes in actual claims experience that, in turn, impacted actuarial estimates for potential future
claims. These changes in actuarial estimates did not involve any changes in actuarial methodology but did impact the development of estimates for future periods, which resulted in adjustments to the IBNR portion of our recorded liabilities. There were no material adjustments to individual claims. Rather, the adjustments reflect an overall lower level of losses related to construction defect claims in recent years as compared with our previous experience. We attribute this favorable experience to a variety of factors, including improved construction techniques, rising home values, and increased participation from our subcontractors in resolving claims.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are subject to market risk on our debt instruments primarily due to fluctuations in interest rates. We utilize both fixed-rate and variable-rate debt. For fixed-rate debt, changes in interest rates generally affect the fair value of the debt instrument but not our earnings or cash flows. Conversely, for variable-rate debt, changes in interest rates generally do not affect the fair value of the debt instrument but could affect our earnings and cash flows. Except in very limited circumstances, we do not have an obligation to prepay our debt prior to maturity. As a result, interest rate risk and changes in fair value should not have a significant impact on our fixed-rate debt until we are required or elect to refinance or repurchase such debt.
The following tables set forth the principal cash flows by scheduled maturity, weighted-average interest rates, and estimated fair value of our debt obligations as of December 31, 2023 and 2022 ($000’s omitted).
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| | As of December 31, 2023 for the
Years Ended December 31, |
| | 2024 | | 2025 | | 2026 | | 2027 | | 2028 | | Thereafter | | Total | | Fair
Value |
| Rate-sensitive liabilities: | | | | | | | | | | | | | | | |
| Fixed rate debt | $ | 48,111 | | | $ | 6,240 | | | $ | 463,359 | | | $ | 443,875 | | | $ | 4,340 | | | $ | 1,004,340 | | | $ | 1,970,265 | | | $ | 2,080,187 | |
| Average interest rate | 2.98 | % | | 1.22 | % | | 5.44 | % | | 5.00 | % | | — | % | | 6.68 | % | | 5.89 | % | | |
| | | | | | | | | | | | | | | |
Variable rate debt (a) | $ | 499,627 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 499,627 | | | $ | 499,267 | |
| Average interest rate | 7.15 | % | | — | % | | — | % | | — | % | | — | % | | — | % | | 7.15 | % | | |
| | | | | | | | | | | | | | | |
| | As of December 31, 2022 for the
Years Ended December 31, |
| | 2023 | | 2024 | | 2025 | | 2026 | | 2027 | | Thereafter | | Total | | Fair
Value |
| Rate-sensitive liabilities: | | | | | | | | | | | | | | | |
| Fixed rate debt | $ | 20,841 | | | $ | 30,792 | | | $ | — | | | $ | 503,595 | | | $ | 500,000 | | | $ | 1,000,000 | | | $ | 2,055,228 | | | $ | 2,079,218 | |
| Average interest rate | 2.45 | % | | 4.72 | % | | — | % | | 5.49 | % | | 5.00 | % | | 6.71 | % | | 5.92 | % | | |
| | | | | | | | | | | | | | | |
Variable rate debt (a) | $ | 586,711 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 586,711 | | | $ | 586,711 | |
| Average interest rate | 5.39 | % | | — | % | | — | % | | — | % | | — | % | | — | % | | 5.39 | % | | |
(a) Includes the Pulte Mortgage Repurchase Agreement. There were no borrowings outstanding under our Revolving Credit Facility at either December 31, 2023 or 2022.
Derivative instruments and hedging activities
Pulte Mortgage is exposed to market risks from commitments to lend, movements in interest rates, and canceled or modified commitments to lend. A commitment to lend at a specific interest rate (an interest rate lock commitment ("IRLC")) is a derivative financial instrument (interest rate is locked to the borrower). The interest rate risk continues through the loan closing and until the loan is sold to an investor. We are generally not exposed to variability in cash flows of derivative instruments for more than approximately 90 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. In periods of low interest rates, the length of exposure will also generally increase as customers desire to lock before the possibility of rising rates.
In order to reduce these risks, we use derivative financial instruments, principally cash forward contracts on mortgage-backed securities and whole loan investor commitments, to economically hedge the IRLC. We generally enter into one of the aforementioned derivative financial instruments upon accepting IRLCs. Changes in the fair value of IRLCs and the other derivative financial instruments are recognized in Financial Services revenues. We do not use any derivative financial instruments for trading purposes.
At December 31, 2023 and 2022, residential mortgage loans available-for-sale had an aggregate fair value of $516.1 million and $677.2 million, respectively. At December 31, 2023 and 2022, we had aggregate IRLCs of $404.7 million and $653.2 million, respectively, which were originated at interest rates prevailing at the date of commitment. Unexpired forward contracts totaled $745.0 million and $1.0 billion at December 31, 2023 and 2022, respectively, and whole loan investor commitments totaled $207.9 million and $285.9 million, respectively, at such dates. Hypothetical changes in the fair values of our financial instruments arising from immediate parallel shifts in long-term mortgage rates would not be material to our financial results due to the offsetting nature in the movements in fair value of our financial instruments.
SPECIAL NOTES CONCERNING FORWARD-LOOKING STATEMENTS
As a cautionary note, except for the historical information contained herein, certain matters discussed in Item 7, Management's 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. Such forward-looking statements are subject to a number of risks, uncertainties and other factors that could cause our actual results, performance, prospects or opportunities, as well as those of the markets we serve or intend to serve, to differ materially from those expressed in, or implied by, these statements. You can identify these statements by the fact that they do not relate to matters of a strictly factual or historical nature and generally discuss or relate to forecasts, estimates or other expectations regarding future events. Generally, the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “plan,” “project,” “may,” “can,” “could,” “might,” “should,” “will” and similar expressions identify forward-looking statements, including statements related to any potential impairment charges and the impacts or effects thereof, expected operating and performing results, planned transactions, planned objectives of management, future developments or conditions in the industries in which we participate and other trends, developments and uncertainties that may affect our business in the future.
Such risks, uncertainties and other factors include, among other things: interest rate changes and the availability of mortgage financing; the impact of any changes to our strategy in responding to the cyclical nature of the industry or deteriorations in industry changes or downward changes in general economic or other business conditions, including any changes regarding our land positions and the levels of our land spend; economic changes nationally or in our local markets, including inflation, deflation, changes in consumer confidence and preferences and the state of the market for homes in general; labor supply shortages and the cost of labor; the availability and cost of land and other raw materials used by us in our homebuilding operations; a decline in the value of the land and home inventories we maintain and resulting possible future writedowns of the carrying value of our real estate assets; competition within the industries in which we operate; governmental regulation directed at or affecting the housing market, the homebuilding industry or construction activities, slow growth initiatives and/or local building moratoria; the availability and cost of insurance covering risks associated with our businesses, including warranty and other legal or regulatory proceedings or claims; damage from improper acts of persons over whom we do not have control or attempts to impose liabilities or obligations of third parties on us; weather related slowdowns; the impact of climate change and related governmental regulation; adverse capital and credit market conditions, which may affect our access to and cost of capital; the insufficiency of our income tax provisions and tax reserves, including as a result of changing laws or interpretations; the potential that we do not realize our deferred tax assets; our inability to sell mortgages into the secondary market; uncertainty in the mortgage lending industry, including revisions to underwriting standards and repurchase requirements associated with the sale of mortgage loans, and related claims against us; risks related to information technology failures or data security issues; failure to retain key personnel; the disruptions associated with the COVID-19 pandemic (or another epidemic or pandemic or similar public threat or fear of such an event), and the measures taken to address it; the effect of cybersecurity incidents and threats; and other factors of national, regional and global scale, including those of a political, economic, business and competitive nature. See Item 1A – Risk Factors for a further discussion of these and other risks and uncertainties applicable to our businesses. We undertake no duty to update any forward-looking statement, whether as a result of new information, future events or changes in our expectations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PULTEGROUP, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2023 and 2022
($000’s omitted, except per share data)
| | | | | | | | | | | |
| 2023 | | 2022 |
| ASSETS | | | |
| Cash and equivalents | $ | | | | $ | | |
| Restricted cash | | | | | |
| Total cash, cash equivalents, and restricted cash | | | | | |
| House and land inventory | | | | | |
| Land held for sale | | | | | |
| Residential mortgage loans available-for-sale | | | | | |
| Investments in unconsolidated entities | | | | | |
| Other assets | | | | | |
| Goodwill | | | | | |
| Intangible assets | | | | | |
| Deferred tax assets | | | | | |
| $ | | | | $ | | |
| | | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | | | |
| Liabilities: | | | |
Accounts payable, including book overdrafts of $ and $ at December 31, 2023 and 2022, respectively | $ | | | | $ | | |
| Customer deposits | | | | | |
|
| Deferred tax liabilities | | | | | |
Accrued and other liabilities | | | | | |
| Financial Services debt | | | | | |
|
| Notes payable | | | | | |
| Total liabilities | | | | | |
| Shareholders’ equity: | | | |
Preferred shares, $ par value; shares authorized, issued | $ | | | | $ | | |
Common shares, $ par value; shares authorized, and shares issued and outstanding at December 31, 2023 and 2022, respectively | | | | | |
| Additional paid-in capital | | | | | |
|
| Retained earnings | | | | | |
| Total shareholders’ equity | | | | | |
| $ | | | | $ | | |
See Notes to Consolidated Financial Statements.
PULTEGROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 2023, 2022, and 2021
(000’s omitted, except per share data)
| | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
| Revenues: | | | | | |
| Homebuilding | | | | | |
| Home sale revenues | $ | | | | $ | | | | $ | | |
| Land sale and other revenues | | | | | | | | |
| | | | | | | | |
| Financial Services | | | | | | | | |
| Total revenues | | | | | | | | |
| | | | | |
| Homebuilding Cost of Revenues: | | | | | |
| Home sale cost of revenues | () | | | () | | | () | |
| Land sale and other cost of revenues | () | | | () | | | () | |
| () | | | () | | | () | |
| | | | | |
| Financial Services expenses | () | | | () | | | () | |
| Selling, general, and administrative expenses | () | | | () | | | () | |
| Equity income from unconsolidated entities, net | | | | | | | | |
| Gain (loss) on debt retirement | | | | | | | () | |
| |
| Other income (expense), net | | | | () | | | () | |
| Income before income taxes | | | | | | | | |
| Income tax expense | () | | | () | | | () | |
| Net income | $ | | | | $ | | | | $ | | |
| | | | | |
| Net income per share: | | | | | |
| Basic | $ | | | | $ | | | | $ | | |
| Diluted | $ | | | | $ | | | | $ | | |
| Cash dividends declared | $ | | | | $ | | | | $ | | |
| | | | | |
| Number of shares used in calculation: | | | | | |
| Basic | | | | | | | | |
| Effect of dilutive securities | | | | | | | | |
| Diluted | | | | | | | | |
See Notes to Consolidated Financial Statements.
PULTEGROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended December 31, 2023, 2022, and 2021
($000’s omitted)
| | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
| Net income | $ | | | | $ | | | | $ | | |
| | | | | |
| Other comprehensive income, net of tax: | | | | | |
| Change in value of derivatives | | | | | | | | |
| |
| Other comprehensive income | | | | | | | | |
| | | | | |
| Comprehensive income | $ | | | | $ | | | | $ | | |
See Notes to Consolidated Financial Statements.
PULTEGROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
For the years ended December 31, 2023, 2022, and 2021
(000’s omitted)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Shares | | Additional
Paid-in
Capital | | Accumulated
Other
Comprehensive
Income
(Loss) | | Retained
Earnings | | Total |
| Shares | | $ | |
| Shareholders' equity, December 31, 2020 | | | | $ | | | | $ | | | | $ | () | | | $ | | | | $ | | |
| | | | | | | |
| Stock option exercises | | | | — | | | | | | — | | | — | | | | |
| Share issuances | | | | | | | | | | — | | | — | | | | |
| Dividends declared | — | | | — | | | — | | | — | | | () | | | () | |
| Share repurchases | () | | | () | | | — | | | — | | | () | | | () | |
| | | | | | | |
| Cash paid for shares withheld for taxes | — | | | — | | | — | | | — | | | () | | | () | |
| Share-based compensation | — | | | — | | | | | | — | | | — | | | | |
| Net income | — | | | — | | | — | | | — | | | | | | | |
| Other comprehensive income | — | | | — | | | — | | | | | | — | | | | |
| Shareholders' equity, December 31, 2021 | | | | $ | | | | $ | | | | $ | () | | | $ | | | | $ | | |
| | | | | | | |
| Share issuances | | | | | | | | | | — | | | — | | | | |
| Dividends declared | — | | | — | | | — | | | — | | | () | | | () | |
| Share repurchases | () | | | () | | | — | | | — | | | () | | | () | |
| | | | | | | |
| Cash paid for shares withheld for taxes | — | | | — | | | — | | | — | | | () | | | () | |
| Share-based compensation | — | | | — | | | | | | — | | | — | | | | |
| Net income | — | | | — | | | — | | | — | | | | | | | |
| Other comprehensive income | — | | | — | | | — | | | | | | — | | | | |
| Shareholders' equity, December 31, 2022 | | | | $ | | | | $ | | | | $ | — | | | $ | | | | $ | | |
| | | | | | | |
| | | | | | | |
| Share issuances | | | | | | | | | | — | | | — | | | | |
| Dividends declared | — | | | — | | | — | | | — | | | () | | | () | |
| Share repurchases | () | | | () | | | — | | | — | | | () | | | () | |
| Excise tax on share repurchases | — | | | — | | | — | | | — | | | () | | | () | |
| Cash paid for shares withheld for taxes | — | | | — | | | — | | | — | | | () | | | () | |
| Share-based compensation | — | | | — | | | | | | — | | | — | | | | |
| Net income | — | | | — | | | — | | | — | | | | | | | |
| | | | | | | |
| Shareholders' equity, December 31, 2023 | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
See Notes to Consolidated Financial Statements.
PULTEGROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2023, 2022, and 2021
($000’s omitted)
| | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
| Cash flows from operating activities: | | | | | |
| Net income | $ | | | | $ | | | | $ | | |
| Adjustments to reconcile net income to net cash from operating activities: | | | | | |
| Deferred income tax expense | | | | | | | | |
| Land-related charges | | | | | | | | |
| (Gain) loss on debt retirement | () | | | | | | | |
| |
| Depreciation and amortization | | | | | | | | |
| Equity income from unconsolidated entities | () | | | () | | | () | |
| Distributions of earnings from unconsolidated entities | | | | | | | | |
| Share-based compensation expense | | | | | | | | |
| Other, net | () | | | | | | | |
| Increase (decrease) in cash due to: | | | | | |
| Inventories | () | | | () | | | () | |
| Residential mortgage loans available-for-sale | | | | | | | () | |
| Other assets | () | | | () | | | () | |
| Accounts payable, accrued and other liabilities | () | | | () | | | | |
| Net cash provided by operating activities | | | | | | | | |
| Cash flows from investing activities: | | | | | |
| |
| Capital expenditures | () | | | () | | | () | |
| Investments in unconsolidated entities | () | | | () | | | () | |
| Distributions of capital from unconsolidated entities | | | | | | | | |
| Business acquisition | | | | () | | | () | |
| Other investing activities, net | () | | | () | | | | |
| Net cash used in investing activities | () | | | () | | | () | |
| Cash flows from financing activities: | | | | | |
| Repayments of notes payable | () | | | () | | | () | |
| Borrowings under revolving credit facility | | | | | | | | |
| Repayments under revolving credit facility | | | | () | | | | |
| Financial Services borrowings (repayments), net | () | | | () | | | | |
| Debt issuance costs | () | | | () | | | | |
| Proceeds from liabilities related to consolidated inventory not owned | | | | | | | | |
| Payments related to consolidated inventory not owned | () | | | () | | | | |
| Stock option exercises | | | | | | | | |
| Share repurchases | () | | | () | | | () | |
| Cash paid for shares withheld for taxes | () | | | () | | | () | |
| Dividends paid | () | | | () | | | () | |
| Net cash used in financing activities | () | | | () | | | () | |
| Net increase (decrease) | | | | () | | | () | |
| Cash, cash equivalents, and restricted cash at beginning of period | | | | | | | | |
| Cash, cash equivalents, and restricted cash at end of period | $ | | | | $ | | | | $ | | |
| | | | | |
| Supplemental Cash Flow Information: | | | | | |
| Interest paid (capitalized), net | $ | | | | $ | | | | $ | | |
| Income taxes paid, net | $ | | | | $ | | | | $ | | |
See Notes to Consolidated Financial Statements.
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
million and $ million for the years ended December 31, 2022 and 2021, respectively.
Subsequent events
Cash and equivalents
million and $ million, respectively, of cash from home closings held in escrow for our benefit, typically for less than five days, which are considered deposits in-transit.
Restricted cash
Investments in unconsolidated entities
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Intangible assets
million at both December 31, 2023 and 2022. We assess goodwill for impairment annually in the fourth quarter and if events or changes in circumstances indicate the carrying amount may not be recoverable.
Intangible assets consist of primarily of tradenames acquired in connection with acquisitions and totaled $ million, net of accumulated amortization of $ million, at December 31, 2023, and $ million, net of accumulated amortization of $ million, at December 31, 2022. Such tradenames are generally being amortized over lives. Amortization expense totaled $ million, $ million, and $ million in 2023, 2022 and 2021, respectively, and is expected to be $ million in 2024, $ million in 2025, $ million in 2026, $ million in 2027, and $ million in 2028. The ultimate realization of these assets is dependent upon the future cash flows and benefits that we expect to generate from their use. We assess intangibles for impairment if events or changes in circumstances indicate the carrying amount may not be recoverable.
Property and equipment
to years; leasehold improvements - life of the lease; software and hardware - to years; model park improvements and furnishings - to years. Property and equipment are included in other assets and totaled $ million net of accumulated depreciation of $ million at December 31, 2023 and $ million net of accumulated depreciation of $ million at December 31, 2022. Depreciation expense totaled $ million, $ million, and $ million in 2023, 2022, and 2021, respectively.
Advertising costs
million, $ million, and $ million, in 2023, 2022, and 2021, respectively.
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Other income (expense), net
) | | $ | () | | | $ | () | |
Amortization of intangible assets (Note 1) | () | | | () | | | () | |
| Interest income | | | | | | | | |
| Interest expense | () | | | () | | | () | |
| Miscellaneous, net | | | | | | | | |
| Total other income (expense), net | $ | | | | $ | () | | | $ | () | |
Earnings per share
.
| | $ | | | | $ | | | | Less: earnings distributed to participating securities | () | | | () | | | () | |
| Less: undistributed earnings allocated to participating securities | () | | | () | | | () | |
| Numerator for basic earnings per share | $ | | | | $ | | | | $ | | |
| Add: undistributed earnings allocated to participating securities | | | | | | | | |
| Less: undistributed earnings reallocated to participating securities | () | | | () | | | () | |
| Numerator for diluted earnings per share | $ | | | | $ | | | | $ | | |
| |
| |
| |
| |
| |
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Income taxes
million and $ million at December 31, 2023 and 2022, respectively. Substantially all of our home sales are scheduled to close and be recorded to revenue within one year from the date of receiving a customer deposit. See Note 11 for information on warranties and related obligations.
Land sale and other revenues - We periodically elect to sell parcels of land to third parties in the event such assets no longer fit into our strategic operating plans or are zoned for commercial or other development. Land sales are generally outright sales of specified land parcels with cash consideration due on the closing date, which is generally when performance obligations are satisfied. Other revenues related to our construction services operations are generally recognized as materials are delivered and installation services are provided.
Financial services revenues - Loan origination fees, commitment fees, and discount points are recognized upon loan origination. Expected gains and losses from the sale of residential mortgage loans and their related servicing rights are included in the measurement of interest rate lock commitments ("IRLCs") that are accounted for at fair value through Financial Services revenues at the time of commitment. Subsequent changes in the fair value of IRLCs and residential mortgage available for sale are reflected in Financial Services revenues as they occur. Interest income is accrued from the date a mortgage loan is originated until the loan is sold. Mortgage servicing fees represent fees earned for servicing loans until the loans are sold. Servicing fees are based on a contractual percentage of the outstanding principal balance and are credited to income when related mortgage payments are received.
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
million and $ million at December 31, 2023 and 2022, respectively.
Sales incentives
Inventory and cost of revenues
Cost of revenues includes the construction cost, average lot cost, and estimated warranty costs applicable to the home. Sales commissions are classified within selling, general, and administrative expenses. The construction cost of the home includes amounts paid through the closing date of the home, plus an accrual for costs incurred but not yet paid. Total community land acquisition and development costs are based on an analysis of budgeted costs compared with actual costs incurred to date and estimates to complete. The development cycles for our communities range from under one year to in excess of ten years for certain master planned communities. Adjustments to estimated total land acquisition and development costs for the community affect the amounts costed for the community’s remaining lots.
Land held for sale
.
Warranty liabilities
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Self-insured risks
Residential mortgage loans available-for-sale
million and $ million, respectively, and an aggregate outstanding principal balance of $ million and $ million, respectively. These changes in fair value were substantially offset by changes in fair value of the corresponding derivative instruments. Net gains from the sale of mortgages during 2023, 2022, and 2021 were $ million, $ million, and $ million, respectively, and have been included in Financial Services revenues.
Interest income on mortgage loans
million, $ million, and $ million in 2023, 2022, and 2021, respectively. Loans are placed on non-accrual status once they become greater than days past due their contractual terms. Subsequent payments received are applied according to the contractual terms of the loan. Mortgage discounts are not amortized as interest income due to the short period the loans are held until sale to third party investors.
Derivative instruments and hedging activities
million and $ million, respectively, which were originated at interest rates prevailing at the date of commitment. Since we can terminate a loan commitment if the borrower does not comply with the terms of the
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
days.
| | $ | | | | $ | | | | $ | | |
| Forward contracts | | | | | | | | | | | |
| Whole loan commitments | | | | | | | | | | | |
| $ | | | | $ | | | | $ | | | | $ | | |
Credit losses
Our assets exposed to credit losses consist primarily of insurance receivables, contract assets related to insurance agency commissions, accounts receivable, and vendor rebate receivables. Counterparties associated with these assets are generally highly rated. Allowances on the aforementioned assets were not material as of December 31, 2023.
In November 2023, the Financial Accounting Standards Board ("FASB") issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures" ("ASU 2023-07"), which requires expanded disclosure of significant segment expenses and other segment items on an annual and interim basis. ASU 2023-07 is effective for us for annual periods beginning after January 1, 2024 and interim periods beginning after January 1, 2025. We are currently evaluating the impact ASU 2023-07 will have on our financial statement disclosures.
In December 2023, FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures" ("ASU 2023-09"), which requires expanded disclosure of our income rate reconciliation and income taxes paid. ASU 2023-09 is effective for us for annual periods beginning after January 1, 2025. We are currently evaluating the impact ASU 2023-09 will have on our financial statement disclosures.
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2.
| | $ | | | | Land under development | | | | | |
| Raw land | | | | | |
Consolidated inventory not owned (a) | | | | | |
| $ | | | | $ | | |
(a) Consolidated inventory not owned includes land sold to third parties for which the Company retains a repurchase option.
.
| | $ | | | | $ | | | | Interest capitalized | | | | | | | | |
| Interest expensed | () | | | () | | | () | |
| Interest in inventory, end of period | $ | | | | $ | | | | $ | | |
Land option agreements
We enter into land option agreements in order to procure land for the construction of homes in the future. Pursuant to these land option agreements, we generally provide a deposit to the seller as consideration for the right to purchase land at different times in the future, usually at predetermined prices. Such contracts enable us to defer acquiring portions of properties owned by third parties or unconsolidated entities until we have determined whether and when to exercise our option, which may serve to reduce our financial risks associated with long-term land holdings. Option deposits and pre-acquisition costs (such as environmental testing, surveys, engineering, and entitlement costs) are capitalized if the costs are directly identifiable with the land under option, the costs would be capitalized if we owned the land, and acquisition of the property is probable. Such costs are reflected in other assets and are reclassified to inventory upon taking title to the land. We write off deposits and pre-acquisition costs when it becomes probable that we will not go forward with the project or recover the capitalized costs. Such decisions take into consideration changes in local market conditions, the timing of required land purchases, the availability and best use of necessary incremental capital, and other factors. We record any such write-offs of deposits and pre-acquisition costs within other income (expense), net. See Note 1.
If an entity holding the land under option is a variable interest entity (“VIE”), our deposit represents a variable interest in that entity. VIEs required consolidation at either December 31, 2023 or 2022 because we determined that we were not the primary beneficiary. Our maximum exposure to loss related to these VIEs is generally limited to our deposits and pre-acquisition costs under the applicable land option agreements. The following provides a summary of our interests in land option agreements ($000’s omitted):
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
| | $ | | | | $ | | | | $ | | | | Other land options | | | | | | | | | | | |
| $ | | | | $ | | | | $ | | | | $ | | |
Land-related charges
| | $ | | | | $ | | | | Land impairments | Home sale cost of revenues | | | | | | | | | |
| | | |
| Write-offs of deposits and pre-acquisition costs | Other income (expense), net | | | | | | | | | |
| Total land-related charges | | | $ | | | | $ | | | | $ | | |
Our evaluations for land-related charges are based on our best estimates of the future cash flows for our communities. Due to uncertainties in the estimation process, the significant volatility in demand for new housing, the long life cycles of certain of our communities, and potential changes in our strategy related to certain communities, actual results could differ significantly from such estimates.
3.
billion and $ billion in 2023, $ billion and $ billion in 2022, and $ billion and $ billion in 2021, respectively. For reporting purposes, our Homebuilding operations are aggregated into reportable segments:
| | | | | | | | |
| Northeast: | | Connecticut, Maryland, Massachusetts, New Jersey, Pennsylvania, Virginia |
| Southeast: | | Georgia, North Carolina, South Carolina, Tennessee |
| Florida: | | Florida |
| Midwest: | | Illinois, Indiana, Kentucky, Michigan, Minnesota, Ohio |
| Texas: | | Texas |
| West: | | Arizona, California, Colorado, Nevada, New Mexico, Oregon, Utah, Washington |
We also have a reportable segment for our Financial Services operations, which consist principally of mortgage banking, title, and insurance agency operations. The Financial Services segment operates generally in the same markets as the Homebuilding segments. Evaluation of segment performance is generally based on income before income taxes. Each reportable segment generally follows the same accounting policies described in Note 1.
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
| | $ | | | | $ | | | | Southeast | | | | | | | | |
| Florida | | | | | | | | |
| Midwest | | | | | | | | |
| Texas | | | | | | | | |
| West | | | | | | | | |
| | | | | | | | |
| Financial Services | | | | | | | | |
| Consolidated revenues | $ | | | | $ | | | | $ | | |
| | | | | |
Income before income taxes (a)(b): | | | | | |
| Northeast | $ | | | | $ | | | | $ | | |
| Southeast | | | | | | | | |
| Florida | | | | | | | | |
| Midwest | | | | | | | | |
| Texas | | | | | | | | |
West (c) | | | | | | | | |
Other homebuilding (d) | | | | () | | | () | |
| | | | | | | | |
| Financial Services | | | | | | | | |
| Consolidated income before income taxes | $ | | | | $ | | | | $ | | |
(a)All periods reflect the reclassification of closing cost incentives to home sale revenues from home sale cost of revenues (Note 1). (b)Includes certain land-related charges (see the following table and Note 2). (c) West includes a gain of $ million related to a property sale in an unconsolidated entity in 2022.
(d) Other homebuilding includes the amortization of intangible assets, amortization of capitalized interest, and other items not allocated to the operating segments. Also included are insurance reserve reversals of $ million, $ million, and $ million in 2023, 2022 and 2021, respectively, partially offset by a loss on debt retirement of $ million in 2021 (Note 5).
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
| | $ | | | | $ | | | | Southeast | | | | | | | | |
| Florida | | | | | | | | |
| Midwest | | | | | | | | |
| Texas | | | | | | | | |
| West | | | | | | | | |
| Other homebuilding | | | | | | | | |
| $ | | | | $ | | | | $ | | |
* Land-related charges include land impairments, NRV adjustments for land held for sale, and write-offs of deposits and pre-acquisition costs for land option contracts we elected not to pursue. See Note 2 for additional discussion of these charges.
| | $ | | | | $ | | | | Southeast | | | | | | | | |
| Florida | | | | | | | | |
| Midwest | | | | | | | | |
| Texas | | | | | | | | |
| West | | | | | | | | |
| Other homebuilding | | | | | | | | |
| | | | | | | | |
| Financial Services | | | | | | | | |
| $ | | | | $ | | | | $ | | |
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
| | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | Southeast | | | | | | | | | | | | | | | | | |
Florida (a) | | | | | | | | | | | | | | | | | |
| Midwest | | | | | | | | | | | | | | | | | |
| Texas | | | | | | | | | | | | | | | | | |
| West | | | | | | | | | | | | | | | | | |
Other homebuilding (b) | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Financial Services | | | | | | | | | | | | | | | | | |
| $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| | | | | | | | | | | |
| | December 31, 2022 |
| | Homes Under
Construction | | Land Under
Development | | Raw Land | | Consolidated Inventory Not Owned | | Total
Inventory | | Total
Assets |
| Northeast | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| Southeast | | | | | | | | | | | | | | | | | |
Florida (a) | | | | | | | | | | | | | | | | | |
| Midwest | | | | | | | | | | | | | | | | | |
| Texas | | | | | | | | | | | | | | | | | |
| West | | | | | | | | | | | | | | | | | |
Other homebuilding (b) | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Financial Services | | | | | | | | | | | | | | | | | |
| $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
(a)Florida includes goodwill of $ million, net of cumulative impairment charges of $ million.
(b)Other homebuilding primarily includes cash and equivalents, capitalized interest, intangibles, deferred tax assets, and other corporate items that are not allocated to the operating segments. Other homebuilding also includes goodwill of $ million.
4.
million and $ million at December 31, 2023 and 2022, respectively. In 2023, 2022, and 2021, we recognized earnings from unconsolidated joint ventures of $ million , $ million , and $ million, respectively. We received distributions of capital from our unconsolidated joint ventures of $ million, $ million, and $ million in 2023, 2022, and 2021, respectively. We made capital contributions to our unconsolidated joint ventures of $ million, $ million, and $ million in 2023, 2022, and 2021, respectively.
At December 31, 2023, aggregate outstanding debt of unconsolidated joint ventures was $ million, of which $ million related to one joint venture in which we have a 50% interest. In connection with this loan, we and our joint venture partner
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5.
% unsecured senior notes due March 2026 (a)$ | | | | $ | | | % unsecured senior notes due January 2027 (a) | | | | | |
% unsecured senior notes due June 2032 (a) | | | | | |
% unsecured senior notes due May 2033 (a) | | | | | |
% unsecured senior notes due February 2035 (a) | | | | | |
Net premiums, discounts, and issuance costs (b) | () | | | () | |
| Total senior notes | $ | | | | $ | | |
| Other notes payable | | | | | |
| Notes payable | $ | | | | $ | | |
| Estimated fair value | $ | | | | $ | | |
(a)Redeemable prior to maturity; guaranteed on a senior basis by certain wholly-owned subsidiaries.
.
The indentures governing the senior notes impose certain restrictions on the incurrence of additional debt along with other limitations. At December 31, 2023, we were in compliance with all of the covenants and requirements under the senior notes.
We retired outstanding debt totaling $ million, $ million, and $ million during 2023, 2022, and 2021, respectively. The retirements in 2023 included open market repurchases of $ million and $ million of our unsecured senior notes scheduled to mature in 2026 and 2027, respectively. The retirements in 2021 included a tender offer to retire $ million and $ million of our unsecured notes scheduled to mature in 2026 and 2027, respectively. The retirement in 2021 resulted in a loss of $ million that included the write-off of debt issuance costs, unamortized discounts and premiums, and transaction fees related to the repurchased debt and which is reflected in other income (expense), net.
Other notes payable
Other notes payable include non-recourse and limited recourse collateralized notes with third parties that totaled $ million and $ million at December 31, 2023 and 2022, respectively. These notes have maturities ranging up to , are secured by the applicable land positions to which they relate, and generally have no recourse to any other assets. The stated interest rates on these notes range up to %. We recorded inventory through seller financing of $ million, $ million, and $ million in 2023, 2022, and 2021, respectively.
Revolving credit facility
We maintain a revolving credit facility ("Revolving Credit Facility") maturing in June 2027 that has a maximum borrowing capacity of $ billion and contains an uncommitted accordion feature that could increase the capacity to $ billion, subject to certain conditions and availability of additional bank commitments. The Revolving Credit Facility also provides for the issuance of letters of credit that reduce the available borrowing capacity under the Revolving Credit Facility, up to the
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Financial Services debt
In August 2023, Pulte Mortgage entered into a master repurchase agreement (the "Repurchase Agreement"), which matures on August 14, 2024. The Repurchase Agreement replaced a substantially similar agreement that previously existed with different lenders. The maximum aggregate commitment was $ million during the seasonally high borrowing period from December 27, 2023 through January 15, 2024. At all other times, the maximum aggregate commitment ranges from $ million to $ million. The Repurchase Agreement also contains an accordion feature that could increase the commitment by $ million above its active commitment level. The purpose of the changes in capacity during the term of the agreement is to lower associated fees during seasonally lower volume periods of mortgage origination activity. Borrowings under the Repurchase Agreement are secured by residential mortgage loans available-for-sale. The Repurchase Agreement contains various affirmative and negative covenants applicable to Pulte Mortgage, including quantitative thresholds related to net worth, net income, and liquidity. At December 31, 2023, Pulte Mortgage had $ million outstanding at a weighted average interest rate of %, and $ million of remaining capacity under the Repurchase Agreement. At December 31, 2022, Pulte Mortgage had $ million outstanding at a weighted average interest rate of % and $ million of remaining capacity under the Repurchase Agreement. Pulte Mortgage was in compliance with its covenants and requirements as of such dates.
6.
million, $ million, and $ million in 2023, 2022, and 2021, respectively. Under a share repurchase program authorized by our Board of Directors, we repurchased million, million, and million shares in 2023, 2022, and 2021, respectively, for a total of $ billion, $ billion, and $ million in 2023, 2022, and 2021, respectively. On April 24, 2023, the Board of Directors increased our share repurchase authorization by $ billion. At December 31, 2023, we had remaining authorization to repurchase $ million of common shares. On January 29, 2024, the Board of Directors increased our share repurchase authorization by $ billion.
Under our stock compensation plans, we accept shares as payment under certain conditions related to stock option exercises and vesting of restricted shares and share units, generally related to the payment of tax obligations. During 2023, 2022, and 2021, employees surrendered shares valued at $ million, $ million, and $ million, respectively, under these plans. Such share transactions are excluded from the above noted share repurchase authorization.
7.
. Non-employee directors are awarded an annual distribution of common shares. RSUs represent the right to receive an equal number of common shares and are converted into common shares upon distribution. Time-based RSUs generally cliff vest after , and RSU holders earn cash or accrued dividends during the vesting period. Performance-based RSUs vest upon attainment of the stated performance targets and minimum service requirements and are converted into common shares upon distribution. As of December 31, 2023, there were million shares that remained available for grant under the plan. | | $ | | | | $ | | | | Other long-term incentive plans | | | | | | | | |
| $ | | | | $ | | | | $ | | |
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
| | $ | | | | | | | $ | | | | | | | $ | | | | Granted | | | | | | | | | | | | | | | | | |
| Distributed | () | | | | | | () | | | | | | () | | | | |
| Forfeited | () | | | | | | () | | | | | | () | | | | |
| Outstanding, end of year | | | | $ | | | | | | | $ | | | | | | | $ | | |
During 2023, 2022, and 2021, the total fair value of shares vested during the year was $ million, $ million, and $ million, respectively. Unamortized compensation cost related to share awards was $ million at December 31, 2023. These costs will be expensed over a weighted-average period of approximately . Additionally, there were million deferred shares at December 31, 2023, that had vested but had not yet been paid out because the payout date had been deferred by the holders.
Other long-term incentive plans
We maintain long-term incentive plans for senior management and other employees that provide awards based on the achievement of stated performance targets over periods. Awards are denominated in either restricted stock units or dollars that are settled in common shares based on the stock price at the end of the performance period. We recognize the expense associated with the awards based on the probability of achieving the stated performance targets at each reporting period.
8.
| | $ | | | | $ | | | | State and other | | | | | | | | |
| $ | | | | $ | | | | $ | | |
| Deferred expense | | | | | |
| Federal | $ | | | | $ | | | | $ | | |
| State and other | | | | | | | | |
| $ | | | | $ | | | | $ | | |
| Income tax expense | $ | | | | $ | | | | $ | | |
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
% | | | % | | | % | | State and local income taxes, net of federal tax | | | | | | | | |
| |
| Federal tax credits | () | | | () | | | () | |
| |
| Deferred tax asset valuation allowance | | | | | | | () | |
| |
| Other | | | | | | | | |
| Effective rate | | % | | | % | | | % |
The effective tax rates differ from the federal statutory rate primarily due to state income tax expense, benefits associated with federal energy efficient home credits, and changes in valuation allowances relating to projected utilization of certain state net operating loss ("NOL") carryforwards.
Deferred tax assets and liabilities reflect temporary differences arising from the different treatment of items for tax and accounting purposes.
| | $ | | | | Inventory valuation reserves | | | | | |
|
|
| Capitalized inventory expenses | | | | | |
| State NOL carryforwards | | | | | |
| Other | | | | | |
|
| | | | | |
| Deferred tax liabilities: | | | |
| Deferred income | () | | | () | |
| Fixed assets and intangibles | () | | | () | |
| Other | () | | | () | |
| () | | | () | |
| Valuation allowance | () | | | () | |
| Net deferred tax liability | $ | () | | | $ | () | |
We have state NOLs in various jurisdictions that may generally be carried forward up to years, depending on the jurisdiction. Our state NOL carryforward deferred tax assets will expire if unused at various dates as follows: $ million from 2024 to 2028 and $ million from 2029 and thereafter.
We evaluate our deferred tax assets each period to determine if a valuation allowance is required based on whether it is "more likely than not" that some portion of the deferred tax assets would not be realized. The ultimate realization of these deferred tax assets is dependent upon the generation of sufficient taxable income during future periods. We conduct our evaluation by considering all available positive and negative evidence, including, among other factors, historical operating results, forecasts of future profitability, the duration of statutory carryforward periods, and the outlooks for the U.S. housing industry and broader economy.
The accounting for deferred taxes is based upon estimates of future results. Differences between estimated and actual results could result in changes in the valuation of our deferred tax assets that could have a material impact on our consolidated results of operations or financial position. Changes in existing tax laws could also affect actual tax results and the realization of deferred tax assets over time.
Unrecognized tax benefits represent the difference between tax positions taken or expected to be taken in a tax return and the benefits recognized for financial statement purposes. We had $ million and $ million of gross unrecognized tax benefits at December 31, 2023 and 2022, respectively. If recognized, $ million and $ million, respectively, of these
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
We do not expect the total amount of gross unrecognized tax benefits to increase or decrease by a material amount within the next twelve months.
| | $ | | | | $ | | | | Increases related to positions taken during a prior period | | | | | | | | |
| Decreases related to positions taken during a prior period | | | | () | | | () | |
| Increases related to positions taken during the current period | | | | | | | | |
| |
| Decreases related to lapse of the applicable statute of limitations | () | | | () | | | () | |
| Unrecognized tax benefits, end of period | $ | | | | $ | | | | $ | | |
We continue to participate in the Compliance Assurance Process (“CAP”) with the IRS as an alternative to the traditional IRS examination process. Through the CAP program, we work with the IRS to achieve tax compliance by resolving issues prior to filing the tax return. We are also currently under examination by state taxing jurisdictions and anticipate finalizing certain of the examinations within the next twelve months. The outcome of these examinations is not yet determinable, and we are not aware of unrecorded liabilities. The statute of limitations for our major tax jurisdictions generally remains open for examination for tax years 2019 to 2023.
9.
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
| | $ | | | | IRLCs | | Level 2 | | | | | | |
| Forward contracts | | Level 2 | | () | | | () | |
| Whole loan commitments | | Level 2 | | () | | | | |
| | | | | | |
| Measured at fair value on a non-recurring basis: | | | | | | |
| House and land inventory | | Level 3 | | $ | | | | $ | | |
| | |
| | | | | | |
| Disclosed at fair value: | | | | | | |
| Cash and equivalents (including restricted cash) | | Level 1 | | $ | | | | $ | | |
| Financial Services debt | | Level 2 | | | | | | |
| | |
| Senior notes payable | | Level 2 | | | | | | |
| Other notes payable | | Level 2 | | | | | | |
. The carrying value of the senior notes payable was $ billion at December 31, 2023 and $ billion at December 31, 2022.
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10.
| | $ | | | | Other receivables | | | | | |
| | | | | |
Deposits and pre-acquisition costs (Note 1) | | | | | |
| Prepaid expenses | | | | | |
| | | | | |
| | | | | |
| Income taxes receivable | | | | | |
| Other | | | | | |
| $ | | | | $ | | |
.
| | $ | | | | Compensation-related liabilities | | | | | |
| Land development and construction liabilities | | | | | |
Liabilities related to consolidated inventory not owned (Note 2) | | | | | |
| | | | | |
| | | | | |
| Income tax liabilities | | | | | |
| | | | | |
| Accrued interest | | | | | |
| | | | | |
Other (a) | | | | | |
| $ | | | | $ | | |
(a)Other liabilities primarily include liabilities associated with property taxes, forward contracts on mortgage-backed securities, and other miscellaneous liabilities.
11.
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Given the unsettled claims, changes in values of underlying collateral over time, and other uncertainties regarding the ultimate resolution of known and potential claims, actual costs could differ from our current estimates.
Letters of credit and surety bonds
In the normal course of business, we post letters of credit and surety bonds pursuant to certain performance-related obligations, as security for certain land option agreements, and under various insurance programs. The majority of these letters of credit and surety bonds are in support of our land development and construction obligations to various municipalities, other government agencies, and utility companies related to the construction of roads, sewers, and other infrastructure. We had outstanding letters of credit and surety bonds totaling $ million and $ billion, respectively, at December 31, 2023, and $ million and $ billion, respectively, at December 31, 2022. In the event any such letter of credit or surety bonds is drawn, we would be obligated to reimburse the issuer of the letter of credit or surety bond. We do not believe that a material amount, if any, of the letters of credit or surety bonds will be drawn. Our surety bonds generally do not have stated expiration dates; rather, we are released from the surety bonds as the underlying contractual performance is completed. Because significant construction and development work has been performed related to the applicable projects but has not yet received final acceptance by the respective counterparties, the aggregate amount of surety bonds outstanding is in excess of the projected cost of the remaining work to be performed.
Litigation and regulatory matters
Warranty liabilities
Factors that affect our warranty liabilities include the number of homes sold, historical and anticipated rates of warranty claims, and the projected cost of claims. We periodically assess the adequacy of the warranty liabilities for each geographic market in which we operate and adjust the amounts as necessary. Actual warranty costs in the future could differ from the current estimates.
| | $ | | | | $ | | | | Reserves provided | | | | | | | | |
| Payments | () | | | () | | | () | |
| Other adjustments | | | | | | | | |
| Warranty liabilities, end of period | $ | | | | $ | | | | $ | | |
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Volatility in both national and local housing market conditions may affect the frequency and cost of construction defect claims. Additionally, IBNR estimates comprise the majority of our liability and are subject to a high degree of uncertainty due to a variety of factors, including changes in claims reporting and resolution patterns, third party recoveries, insurance industry practices, the regulatory environment, and legal precedent. State regulations vary, but construction defect claims are reported and resolved over an extended time period often exceeding ten years. Changes in the frequency and timing of reported claims and estimates of specific claim values can impact the underlying inputs and trends utilized in the actuarial analyses, which could have a material impact on the recorded reserves. Because of the inherent uncertainty in estimating future losses and the timing of such losses related to these claims, actual costs could differ significantly from estimated costs.
Adjustments to reserves are recorded in the period in which the change in estimate occurs. During 2023, 2022, and 2021, we reduced reserves, primarily general liability reserves, by $ million, $ million, and $ million, respectively, as a result of changes in estimates resulting from actual claim experience observed being less than anticipated in previous actuarial projections. The changes in actuarial estimates were driven by changes in actual claims experience that, in turn, impacted actuarial estimates for potential future claims. These changes in actuarial estimates did not involve any significant changes in actuarial methodology but did impact the development of estimates for future periods, which resulted in adjustments to the IBNR portion of our recorded liabilities. There were no material adjustments to individual claims. Rather, the adjustments reflect an overall lower level of losses related to construction defect claims in recent years as compared with our previous experience. We attribute the favorable experience in more recent years to a variety of factors, including improved construction techniques, rising home values, and increased participation from our subcontractors in resolving claims. Costs associated with
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
| | $ | | | | $ | | | | Reserves provided | | | | | | | | |
| Adjustments to previously recorded reserves | () | | | () | | | () | |
Payments, net (a) | () | | | () | | | () | |
| Balance, end of period | $ | | | | $ | | | | $ | | |
(a)Includes net changes in amounts expected to be recovered from our insurance carriers, which are recorded in other assets (see below).
Estimates of anticipated recoveries of our costs under various insurance policies or from subcontractors or other third parties are recorded when recovery is considered probable. Such receivables are recorded in other assets and totaled $ million and $ million at December 31, 2023 and 2022, respectively. The insurance receivables relate to costs incurred or to be incurred to perform corrective repairs, settle claims with customers, and other costs related to the continued progression of both known and anticipated future construction defect claims that we believe to be insured related to previously closed homes. Given the complexity inherent with resolving construction defect claims in the homebuilding industry, there generally exists a significant lag between our payment of claims and our reimbursements from applicable insurance carriers or third parties.
Leases
We lease certain office space and equipment for use in our operations. We recognize lease expense for these leases on a straight-line basis over the lease term and combine lease and non-lease components for all leases. Right-of-use ("ROU") assets and lease liabilities are recorded on the balance sheet for all leases with an expected term of at least one year. Some leases include one or more options to renew. The exercise of lease renewal options is generally at our discretion. The depreciable lives of ROU assets and leasehold improvements are limited to the expected lease term. Certain of our lease agreements include rental payments based on a pro-rata share of the lessor’s operating costs, which are variable in nature. Our lease agreements do not contain any residual value guarantees or material restrictive covenants.
ROU assets are classified within other assets on the balance sheet, while lease liabilities are classified within accrued and other liabilities. Leases with an initial term of 12 months or less are not recorded on the balance sheet. ROU assets and lease liabilities were $ million and $ million, respectively, at December 31, 2023, and $ million and $ million, respectively, at December 31, 2022. We recorded an additional $ million and $ million of lease liabilities under operating leases during 2023 and 2022, respectively. Payments on lease liabilities during 2023, 2022, and 2021 totaled $ million, $ million, and $ million respectively.
Lease expense includes costs for leases with terms in excess of one year as well as short-term leases with terms of less than one year. Our total lease expense was $ million, $ million, and $ million during 2023, 2022, and 2021, respectively. Our total lease expense in 2023, 2022, and 2021 is inclusive of variable lease costs of $ million, $ million, and $ million respectively, and short-term lease costs of $ million, $ million, and $ million, respectively. Sublease income was de minimis.
| | 2025 | | |
| 2026 | | |
| 2027 | | |
| 2028 | | |
| Thereafter | | |
Total lease payments (a) | | |
Less: Interest (b) | () | |
Present value of lease liabilities (c) | $ | | |
(a) Lease payments include options to extend lease terms that are reasonably certain of being exercised and exclude $ million of legally binding minimum lease payments for leases signed but not yet commenced at December 31, 2023.
(b) Our leases do not provide a readily determinable implicit rate. Therefore, we must estimate our discount rate for such leases to determine the present value of lease payments at the lease commencement date.
(c) The weighted average remaining lease term and weighted average discount rate used in calculating our lease liabilities were years and %, respectively, at December 31, 2023.
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of PulteGroup, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of PulteGroup, Inc. (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 5, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosures to which it relates.
| | | | | |
| Self-insured Risks
|
| |
| Description of the Matter | The Company’s reserves for self-insured risks totaled $563.1 million at December 31, 2023, of which the majority relates to incurred but not reported (IBNR) losses associated with exposures to construction defects on previously closed homes. As discussed in Notes 1 and 11 of the consolidated financial statements, the Company reserves for costs associated with construction defect claims (including IBNR losses and expected claims management expense) based on actuarial analyses of the Company’s historical claims activity. The actuarial analyses that determine the IBNR reserves consider a variety of factors, which principally include the frequency and severity of losses.
Auditing the Company’s IBNR reserve for construction defects is complex due to the significant measurement uncertainty associated with the estimate, the use of various actuarial methods, and management’s application of significant judgment. In addition, the reserve estimate is sensitive to significant management assumptions, including the frequency and severity assumptions used in the computation of the IBNR reserve and loss development factors for reported claims. |
| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’s controls that address the risks of material misstatement relating to the measurement and valuation of the IBNR reserve. For example, we tested controls over management’s review of the significant actuarial assumptions and the data inputs used by management when estimating IBNR losses.
To test the IBNR reserve associated with construction defects exposures, our audit procedures included, among others, testing the completeness and accuracy of the underlying claims data used in the actuarial analyses. Furthermore, we involved our actuarial specialists to assist in our assessment of the methodologies used by management to estimate the IBNR reserve. We compared the Company's self-insurance reserve (inclusive of the IBNR estimate) to a range developed by our actuarial specialists based on independently selected assumptions. |
/s/
We have served as the Company’s auditor since 1973.
February 5, 2024
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
This Item is not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Management, including our President and Chief Executive Officer and Executive Vice President and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2023. Based upon, and as of the date of that evaluation, our President and Chief Executive Officer and Executive Vice President and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of December 31, 2023.
Internal Control Over Financial Reporting
(a)Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for the preparation and fair presentation of the consolidated financial statements included in this annual report. The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles and reflect management’s judgments and estimates concerning events and transactions that are accounted for or disclosed.
Management is also responsible for establishing and maintaining effective internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Management recognizes that there are inherent limitations in the effectiveness of any internal control and effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Additionally, because of changes in conditions, the effectiveness of internal control over financial reporting may vary over time.
In order to ensure that the Company’s internal control over financial reporting is effective, management regularly assesses such controls and did so most recently for its financial reporting as of December 31, 2023. Management’s assessment was based on criteria for effective internal control over financial reporting described in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Based on this assessment, management asserts that the Company has maintained effective internal control over financial reporting as of December 31, 2023.
Ernst & Young LLP, the independent registered public accounting firm that audited the Company’s consolidated financial statements included in this annual report, has issued its report on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2023.
(b)Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of PulteGroup, Inc.
Opinion on Internal Control over Financial Reporting
We have audited PulteGroup, Inc.’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, PulteGroup, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and our report dated February 5, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Atlanta, Georgia
February 5, 2024
(c)Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting during the quarter ended December 31, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
As disclosed in the Company's Current Report on Form 8-K filed on May 5, 2023, the shareholders of the Company approved, on an advisory basis, the frequency of future advisory votes regarding the compensation of the Company's named executive officers, with 174,791,547 shares voted for "1 year", 1,946,838 shares voted for "2 years", 8,264,801 shares voted for "3 years", and 90,931 abstentions. In light of the results of the vote as noted above, the Board of Directors of the Company recommended and, consistent with the shareholder vote, has decided that the advisory vote on executive compensation be held on an annual basis.
On January 31, 2024, the Compensation Committee (the “Compensation Committee”) of our Board of Directors (the “Board”) approved an amendment and restatement of the PulteGroup, Inc. Executive Severance Policy, effective January 31, 2024 (as amended and restated, the “Amended Severance Policy”), in order to, among other things, (i) remove a provision providing for prorated vesting of performance-based equity awards upon a Qualifying Termination of Employment (as defined in the Amended Severance Policy); and (ii) provide that a participant who experience a Qualifying Termination of Employment within two years following a Change in Control (as defined in the Amended Severance Policy) will receive an amount equal to 1/12 of his or her target bonus multiplied by the severance multiple applicable to such participant under the Amended Severance Policy. The foregoing description of the Amended Severance Policy is not complete and is qualified in its entirety by reference to the Amended Severance Policy filed herewith as Exhibit 10(p) and incorporated herein by reference.
Also, on January 31, 2024, the Compensation Committee approved the PulteGroup, Inc. Amended Retirement Policy, effective for grants on or after January 31, 2024 (the “Amended Retirement Policy”), in order to provide that, (i) following a participant’s Qualifying Retirement (as defined in the Amended Retirement Policy), 100% of a participant’s outstanding RSU awards will continue to vest in accordance with the original vesting schedule as if such participant had remained employed with the Company through each vesting date, instead of 50% of a participant’s outstanding RSUs vesting immediately upon such Qualifying Retirement, and (ii) any performance-based equity awards will vest based on actual performance during the performance period with no pro-ration, except that any performance-based equity awards granted in the same calendar year of a participant’s Qualifying Retirement will be forfeited. The foregoing description of the Amended Retirement Policy is not complete and is qualified in its entirety by reference to the Amended Retirement Policy filed herewith as Exhibit 10(r) and incorporated herein by reference.
Finally, on January 31, 2024, the Board approved a form of indemnification agreement (the “Indemnification Agreement”) to be entered into by and between the Company and each of its directors and officers to provide for rights to indemnification and advancement of expenses generally consistent with the Company’s Amended and Restated By-Laws, which provide for mandatory indemnification and advancement of expenses to the fullest extent permitted by the Michigan Business Corporation Act for directors and officers of the Company. The foregoing description of the Indemnification Agreement is not complete and is qualified in its entirety by reference to the Indemnification Agreement filed herewith as Exhibit 10(s) and incorporated herein by reference.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
This Item is not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information required by this Item with respect to our executive officers is set forth in Part I, Item 1 of this Annual Report on Form 10-K. Information required by this Item with respect to members of our Board of Directors and with respect to our Audit Committee will be contained in the Proxy Statement for the 2024 Annual Meeting of Shareholders (“2024 Proxy Statement”), which will be filed no later than 120 days after December 31, 2023, under the captions “Election of Directors” and “Committees of the Board of Directors - Audit Committee” and in the chart disclosing Audit Committee membership and is incorporated herein by this reference. Information required by this Item with respect to our code of ethics will be contained in
the 2024 Proxy Statement under the caption “Corporate Governance - Governance Guidelines; Code of Ethical Business Conduct; Code of Ethics; Prohibition on Hedging” and is incorporated herein by this reference.
Our code of ethics for our principal executive officer, principal financial officer, principal accounting officer and persons performing similar functions, our code of ethical business conduct, our corporate governance guidelines, and the charters of the Audit, Compensation and Management Development, Nominating and Governance, and Finance and Investment committees of our Board of Directors are also posted on our website and are available in print, free of charge, upon request.
ITEM 11.EXECUTIVE COMPENSATION
Information required by this Item will be contained in the 2024 Proxy Statement under the captions "Compensation Discussion and Analysis", "Compensation and Management Development Committee Report", "2023 Executive Compensation" and "2023 Director Compensation" and is incorporated herein by this reference, provided that the Compensation and Management Development Committee Report shall not be deemed to be “filed” with this Annual Report on Form 10-K.
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information required by this Item will be contained in the 2024 Proxy Statement under the captions “Beneficial Security Ownership” and “Equity Compensation Plan Information” and is incorporated herein by this reference.
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Information required by this Item will be contained in the 2024 Proxy Statement under the captions “Certain Relationships and Related Transactions” and “Board of Directors Information” and is incorporated herein by this reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information required by this Item will be contained in the 2024 Proxy Statement under the captions “Audit and Non-Audit Fees” and “Audit Committee Preapproval Policies” and is incorporated herein by reference.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this Annual Report on Form 10-K:
(1) Financial Statements
(2)Financial Statement Schedules
All schedules are omitted because the required information is not present, is not present in amounts sufficient to require submission of the schedule, or because the required information is included in the financial statements or notes thereto.
(3) Exhibits
The following exhibits are filed with this Annual Report on Form 10-K or are incorporated herein by reference:
Exhibit Number and Description
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| Brian P. Anderson | | | Member of Board of Directors | } | | |
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| Bryce Blair | | | Member of Board of Directors | } | | |
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| Thomas J. Folliard | | | Non-Executive Chairman of Board of Directors | } | | /s/ Robert T. O'Shaughnessy |
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| Cheryl W. Grisé | | | Member of Board of Directors | } | | Robert T. O'Shaughnessy |
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| André J. Hawaux | | | Member of Board of Directors | } | | Executive Vice President and
Chief Financial Officer |
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| J. Phillip Holloman | | | Member of Board of Directors | } | |
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| John R. Peshkin | | | Member of Board of Directors | } | |
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| Scott F. Powers | | | Member of Board of Directors | } | | |
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| Lila Snyder | | | Member of Board of Directors | } | | |
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