What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-05 compared with 2023-02-06 · 150 added, 143 removed, 368 unchanged (44% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our home sales revenues increased 18% in 2022 compared to 2021, while our gross margins increased 330 bps.

These results were driven by increases in selling prices in response to robust consumer demand in 2021 and early 2022, when the majority of the homes closed in 2022 were placed under contract with customers.

However, the strength of new home demand rapidly declined starting in the second quarter of 2022 as the Federal Reserve increased benchmark interest rates in response to inflation, which, in turn, drove national mortgage and other interest rates higher, impacting home affordability and consumer sentiment.

These increases in interest rates, along with ongoing high inflation, waning consumer confidence, and other macroeconomic factors, have tempered new home demand in all of our markets.

As a result, net new orders declined 27% for the year ended 2022 compared to 2021.

This decline was concentrated in the back half of the year, with net new orders declining 28% and 41% in the third and fourth quarters, respectively, compared with the same periods in 2021.

As a result, our order backlog in units decreased 32% from December 31, 2021 to December 31, 2022.

In addition to lower new orders, our order cancellation rate also increased significantly in the second half of 2022, ending the year with a fourth quarter cancellation rate of 32% compared with 11% in the fourth quarter of 2021.

Supply chain constraints that began after the onset of the COVID-19 pandemic have continued to limit the availability of certain materials and construction labor, which, combined with delays in municipal approvals and inspections, continue to pressure production cycle times of the homes we are constructing.

The time required to construct a home was approximately two months longer in 2022 compared with 2021.

The noted supply chain and labor issues have led to significant cost pressures in almost all areas of our business, but especially related to construction labor and materials.

For example, lumber experienced heightened volatility during 2022, evidenced by a nearly 75% decrease from its early 2022 peak to its price on December 31, 2022.

Despite these challenges, pricing remained elevated in 2022 overall as average selling prices increased 17% compared to 2021.

In 2021 and the first half of 2022, we were able to increase pricing to offset the majority of such cost increases, but pricing may be significantly more challenged in the near term given the lower demand for new homes.

In response to the significant shift in market conditions in 2022, we have slowed the pace of our housing starts, have increased sales incentives, and are taking additional pricing actions in the majority of our communities.

We are updating the underwriting for each of our land option contracts prior to buying additional land and have made decisions in recent months to terminate a number of land option agreements, which resulted in write-offs of deposits and pre-acquisition costs totaling $63.6 million in 2022.

We plan to work with our trade partners to update the costs for materials, labor, and services to reflect current market conditions and will adjust our overhead cost structure as necessary to align with demand.

Despite these challenges, we remain focused on taking a measured approach to our capital allocation strategy in response to the current operating environment.

Accordingly, we are focused on protecting liquidity and closely managing our cash flows, including the following planned actions:

– Limiting our investment in land acquisition and development spend in 2023;

– Updating the underwriting on each of our land option contracts prior to buying additional land;

– Continuing our focus on increasing our lot optionality within our land pipeline for increased flexibility;

– Maintaining a sufficient level of spec inventory in response to buyer preference to close in 30 to 90 days;

– Taking a more opportunistic approach to share buybacks;

The demand for new homes declined beginning in mid-2022 as the Federal Reserve repeatedly increased benchmark interest rates in response to inflation, which, in turn, drove national mortgage and other interest rates higher and negatively impacted home affordability and consumer sentiment.

Despite the higher mortgage interest rates that continued through most of 2023, demand for new homes began to strengthen in early 2023, weakened in the fall with continued mortgage interest rate volatility, and then gained momentum to end the year as mortgage interest rates moderated.

For the full year, we experienced an increase in our net new orders of 23% in 2023 from 2022.

The overall demand for new homes strengthened as the result of a continuing limited supply of existing home inventories in combination with the market adjusting to the higher interest rate environment.

While affordability challenges for housing remain due to the higher interest rates, cost increases, and general inflation in recent years, we have responded by adjusting sales prices where necessary and focusing sales incentives on closing cost incentives, especially mortgage interest rate buydowns, which have supported the increase in our net new orders.

Additionally, the rate of customer order cancellations that spiked in 2022 in response to inflation and interest rate increases has now normalized to historical levels.

Supply chain constraints that began after the onset of the COVID-19 pandemic improved in 2022 and 2023, which has contributed to a shortening of our production cycle times.

The time required to construct a home was approximately six weeks shorter at the end of 2023 compared to the end of 2022, and we experienced sequential improvement throughout 2023.

However, production cycle times remain elevated versus our historical norms as the availability of certain materials and construction labor remain challenged along with ongoing, though lessened, delays in municipal approvals and inspections.

Despite the recent improvements, the noted supply chain and labor issues have led to significant cost pressures in almost all areas of our business, but especially labor and materials costs related to the development of our land inventory and the construction of our homes.

Lumber, in particular, has experienced heightened volatility in recent years.

Due to the length of our construction cycle times, there is a lag between when such cost changes occur and when they impact our operating results.

During 2023 and 2022, through a combination of cost reduction initiatives, construction pacing and sales strategies which took advantage of periods of strong consumer demand, we were able to largely offset the majority of such cost increases through the sales prices of our homes.

As the business slowed in the second half of 2022, we adjusted business practices to support a consistent cadence of house starts and an appropriate inventory of quick move-in homes as we focused on turning our assets and delivering high returns on investment.

By achieving an effective balance of price and pace, we realized strong revenues and earnings in 2023.

Within an evolving macroeconomic environment, consumers across all buyer segments and price points continued to demonstrate a strong desire for homeownership.

As a result, we increased our housing starts throughout 2023.

As interest rates continued to increase during 2023, buyer demand slowed slightly but strengthened again during the fourth quarter as a result of a recent decrease in mortgage interest rates.

We remain focused on taking a measured approach to our capital allocation strategy to effectively respond to future volatility in demand.

Accordingly, we are focused on protecting liquidity and closely managing our cash flows while also continuing to focus on shareholder returns, including the following actions:

– Increasing our lot optionality within our land pipeline for increased flexibility;

– Producing sufficient levels of spec inventory (houses without customer orders) to service buyers seeking to close within 30 to 90 days;

– Maintaining a focus on shareholder return through share buybacks and dividends, including a 25% increase in our dividends from $0.16 to $0.20 per share effective with our January 2024 dividend payment;

– Taking an opportunistic approach to repurchasing debt;

– Maintaining ample liquidity.

We expect that the more challenging environment for new residential housing will continue through at least 2023 and will result in lower revenues and profitability during those periods.

Despite these conditions, there remains a housing shortage across the United States, and we are confident in our ability to navigate this environment and to position the Company to take advantage of opportunities as they arise.

Although higher mortgage interest rates may persist for some time, the supply of both new and existing homes for sale remains limited, and demographics supporting housing demand remain favorable.

We remain confident in our ability to navigate this environment and to position the Company to take advantage of opportunities as they arise and support future growth.

The following tables and related discussion set forth key operating and financial data for our Homebuilding and Financial Services operations as of and for the fiscal years ended December 31, 2023 and 2022.

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Net income $ 11.72 $ 11.01

• Homebuilding income before income taxes increased 45% in 2022, primarily as the result of a 17% higher average selling price combined with a 330 bps increase in gross margin due to the robust consumer demand environment in 2021 and early 2022 when the majority of the homes closed in 2022 were placed under contract with the customers.

• Financial Services income before income taxes decreased 40% in 2022 compared with 2021 primarily as the result of a lower capture rate and revenue per loan due to increased competitiveness in the mortgage industry in 2022.

• Our effective income tax rate was 23.9% and 22.5% for 2022 and 2021, respectively.

The higher effective tax rate in 2022 was primarily due to changes in valuation allowances relating to projected utilization of certain state net operating loss carryforwards (see Note 8 ).

Homebuilding Operations

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2023 FY 2023 vs.

Home sale revenues $ 15,774,135 18 % $ 13,376,812

Home sale revenues (a)

$ 15,598,707 — % $ 15,548,119

Land sale and other revenues 142,116 (1) % 143,144

Total Homebuilding revenues 15,740,823 — % 15,691,263

Home sale cost of revenues (a)

Home sale cost of revenues (a) (b)

(11,030,206) 1 % (10,867,879)

Land sale and other cost of revenues (124,607) 4 % (119,906)

Selling, general, and administrative expenses ("SG&A") (1,381,222) 14 % (1,208,698)

Loss on debt retirement — (b) (61,469)

Other expense, net (c)

(14,928) (b) (3,081)

Selling, general, and administrative expenses ("SG&A") (c)

(1,312,642) (5) % (1,381,222)

Equity income from unconsolidated entities (d)

3,506 (e) 49,403

Gain on debt retirement 663 (e) —

Other income (expense), net (f)

38,538 (e) (64,331)

Income before income taxes $ 3,316,075 — % $ 3,307,328

Supplemental data:

Gross margin from home sales (a)

Gross margin from home sales (a) (b)

29.3 % (80) bps 30.1 %

SG&A % of home sale revenues 8.8 % (20) bps 9.0 %

SG&A % of home sale revenues (a) (c)

8.4 % (50) bps 8.9 %

Closings (units) 28,603 (2) % 29,111

Average selling price $ 542 17 % $ 463

Net new orders:

Average selling price (a)

$ 545 2 % $ 534

Net new orders (g) :

Units 28,580 23 % 23,277

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Dollars $ 7,319,714 (5) % $ 7,674,068

(a) Includes the amortization of capitalized interest.

(b) Percentage not meaningful.

(a) All periods reflect the reclassification of closing cost incentives from home sale cost of revenues to home sale revenues ( Note 1 ).

(b) Includes the amortization of capitalized interest.

(d) Equity income from unconsolidated entities includes a gain of $49.1 million in 2022 related to a property sale in an unconsolidated entity in Northern California.

(e) Percentage not meaningful.

(f) See "Other income (expense), net" for a table summarizing significant items ( Note 1 ).

(g) Net new order dollars represent a composite of new order dollars combined with other movements of the dollars in backlog related to cancellations and change orders.

Home sale revenues

Home sale revenues for 2022 were higher than 2021 by $2.4 billion, or 18%.

The increase was attributable to a 17% increase in average selling price combined with a 1% increase in closings.

The increase in average selling price reflects the impact of pricing actions taken in response to robust consumer demand in 2021 and early 2022 when the majority of the homes that closed in 2022 were placed under contract with customers, partially offset by an increase in the mix of first-time buyer homes, which typically carry a lower sales price.

The year-over-year increase in average selling price occurred in substantially all of our markets.

Home sale revenues for 2023 were higher than 2022 by $50.6 million.

The increase was attributable to a 2% increase in average selling price partially offset by a 2% decrease in closings.

The increase in average selling price reflected the impact of continued consumer demand and persistent inflation, partially offset by an increase in the mix of first-time buyer homes, which typically carry a lower sales price, and higher sales incentives in substantially all of our markets.

The year-over-year increase in average selling price occurred in the majority of our markets.

The decrease in closings during 2023 was primarily attributable to 2022 benefiting from a larger beginning backlog due to heightened demand during 2021 combined with a sharp decrease in net new orders in the fourth quarter of 2022 in response to the aforementioned sharp increase in mortgage interest rates.

Home sale gross margins

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Gross margins remained strong in both 2023 and 2022 relative to historical levels.

Gross margins reflect the robust consumer demand that existed in 2021 and early 2022 when the majority of the homes that closed were placed under contract with customers, combined with limited supplies of new and existing housing inventory.

This resulted in a strong pricing environment, which allowed us to offset increases in house and land costs through pricing actions in 2022.

Generally, we were able to maintain pricing to substantially offset increases in house and land costs as a result of continued consumer demand combined with the low supply of new and existing homes for sale.

Land sale and other revenues

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Land sales and other revenues contributed income of $17.5 million and $23.2 million in 2023 and 2022, respectively.

Income in 2021 included a gain of $12.9 million related to a land sale transaction in California that had been in the entitlement process for a number of years.

SG&A as a percentage of home sale revenues was 8.4% and 8.9% in 2023 and 2022, respectively.

The gross dollar amount of our SG&A increased $172.5 million, or 14%, in 2022 compared with 2021.

This increase resulted primarily from higher sales commissions expense due to the higher revenues, increased headcount, and other overhead costs to support the increased number of homes in production.

These results also reflect insurance reserve reversals of $65.0 million and $81.1 million in 2022 and 2021, respectively, based on favorable claims experience in recent years relative to historical expectations.

Other expense, net

Other expense, net includes the following ($000’s omitted):

The gross dollar amount of our SG&A decreased $68.6 million, or 5%, in 2023 compared with 2022.

This decrease is primarily attributable to lower insurance costs as a result of favorable claims experience partially offset by other overhead costs to support the higher number of active communities.

Other income (expense), net

Other income (expense), net includes the following ($000’s omitted):

Write-offs of deposits and pre-acquisition costs (Note 2)

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Interest expense (469) (284)

Equity in earnings of unconsolidated entities ( Note 4 )

50,680 17,200

Miscellaneous, net 11,524 8,659

Total other expense, net $ (14,928) $ (3,081)

The higher write-offs of deposits and pre-acquisition costs in 2022 occurred primarily in the second half of 2022 as we made decisions to terminate a number of land option agreements due to the aforementioned lower consumer demand in recent months.

Equity in earnings of unconsolidated entities reflects our share of earnings from joint ventures and other investments with independent third parties, and varies between periods based on the performance of the underlying investments.

The 2022 results included a gain of $49.1 million related to a property sale in an unconsolidated entity in Northern California.

Total other income (expense), net $ 38,538 $ (64,331)

Interest income increased significantly in 2023 as the result of significantly higher returns on invested cash balances due to the elevated interest rate environment.

Net new orders

Net new orders in units decreased 27% in 2022 compared with 2021, while net new orders in dollars decreased by 17% compared with 2021.

The lower new order volume began in mid-2022 as the market responded to increased affordability

challenges resulting from a historic increase in mortgage interest rates, increases in the price of homes, and the impact of inflationary pressures in the broader economy.

Likewise, the annual cancellation rate (canceled orders for the period divided by gross new orders for the period) increased significantly to 19% in 2022 compared to 9% in 2021, including a fourth quarter cancellation rate of 32% compared with 11% in the fourth quarter of 2021.

Ending backlog dollars, which represents orders for homes that have not yet closed, decreased 22% in 2022 compared with 2021 as the result of the lower net new orders.

Net new orders in units increased 23% in 2023 compared with 2022, while net new orders in dollars increased by 12% compared with 2022.

The increased net new order volume in 2023 was primarily due to improved demand combined with better availability of quick move-in speculative homes.

Net new orders in dollars increased a smaller amount than the increase in units as the result of both an increase in the mix of first-time buyer homes, which typically carry a lower sales price, and higher sales incentives in substantially all of our markets.

The annual cancellation rate (canceled orders for the period divided by gross new orders for the period) decreased to 16% in 2023 compared to 19% in 2022.

Cancellation rates began to increase in mid-2022 as the market responded to increased home affordability challenges resulting from a historic increase in mortgage interest rates, increases in the price of homes, and the impact of inflationary pressures in the broader economy.

Ending backlog dollars, which

represents orders for homes that have not yet closed, decreased 5% in 2023 compared with 2022, as a result of improved production cycle times.

Homes in production

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The number of homes in production at December 31, 2023 was 5% lower compared to December 31, 2022.

This decrease is primarily attributable to the lower number of sold homes as a result of decreased new orders and higher cancellations.

This decrease was partially offset by a higher level of unsold homes, or speculative homes, under construction, which reflects our strategic decision to increase housing starts of speculative units in response to the noted supply chain challenges and to have product available that can close quickly for customers that are concerned about potentially higher mortgage interest rates.

The higher cancellation rate in 2022 also contributed to the increase in unsold inventory.

This decrease resulted from the lower order backlog caused by the lower number of sold homes and higher cancellations in the second half of 2022 following the significant increase in mortgage interest rates.

This decrease was partially offset by an increased number of completed unsold homes, which reflected our strategic decision to increase starts of speculative units in response to buyer demand for quick move-in homes.

Controlled lots

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Developed (%) 45 % 18 % 31 % 43 % 16 % 30 %

While competition for well-positioned land remains robust, we continue to pursue land investments that we believe can achieve appropriate risk-adjusted returns on invested capital.

We also continue to seek to maintain a high percentage of our lots that are controlled via land option agreements as 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 reduces our financial risks associated with long-term land holdings.

However, the percentage of lots controlled via land option agreements decreased in 2022 as the result of our decision to terminate a number of pending transactions.

While competition for well-positioned land is robust, we have continued to pursue land investments that we believe can achieve appropriate risk-adjusted returns on invested capital.

We have also continued to seek to maintain a high percentage of our lots that are controlled via land option agreements as 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 reduces our financial risks associated with long-term land holdings.

The remaining purchase price under our land option agreements totaled $6.4 billion at December 31, 2023.

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Illinois, Indiana, Kentucky, Michigan, Minnesota, Ohio

Arizona, California, Colorado, Nevada, New Mexico, Washington

We also have a reportable segment for our financial services operations, which consist principally of mortgage banking, title, and insurance brokerage operations.

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.

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2023 FY 2023 vs.

Home sale revenues:

Home sale revenues (a) :

Northeast $ 969,107 (9) % $ 1,062,764

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$ 15,598,707 — % $ 15,548,119

Income before income taxes (a) :

Income before income taxes (b) :

Northeast $ 218,159 (11) % $ 244,233

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419,635 (39) % 687,403

Other homebuilding (c)

Other homebuilding (d)

87,231 204 % (84,110)

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28,603 (2) % $ 29,111

Average selling price:

Average selling price (a) :

Northeast $ 684 4 % $ 658

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$ 545 2 % $ 534

(a) Includes land-related charges as summarized in the following land-related charges table (see Notes 2 and 3 ).

(b) West includes a gain of $49.1 million related to a property sale in an unconsolidated entity in Northern California.

(c) Other homebuilding includes the amortization of intangible assets, amortization of capitalized interest, and other items not allocated to the operating segments.

Also includes:

insurance reserve reversals of $65.0 million and $81.1 million in 2022 and 2021, respectively (see Note 11 ), and a loss on debt retirement of $61.5 million in 2021 (see Note 5 ).

(a) All periods reflect the reclassification of closing cost incentives to home sale revenues from home sale cost of revenues ( Note 1 ).

(b) Includes land-related charges as summarized in the following land-related charges table ( Notes 2 and 3 ).

(c) West includes a gain of $49.1 million in 2022 related to a property sale in an unconsolidated entity in Northern California.

(d) Other homebuilding includes corporate interest income, the amortization of intangible assets, the amortization of capitalized interest, and other items not allocated to the operating segments.

Also includes insurance reserve reversals of $130.8 million and $65.0 million in 2023 and 2022, respectively ( Note 11 ).

The following table presents additional selected financial information for our reportable Homebuilding segments:

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See Notes 2 and 3 to the Consolidated Financial Statements for additional discussion of these charges.

For 2022, Northeast home sale revenues decreased 4% compared with 2021 due to an 18% decrease in closings partially offset by a 16% increase in average selling price.

The decrease in closings and increase in average selling price occurred across all markets.

Income before income taxes increased 13% primarily due to improved gross margins across the majority of markets.

Net new orders decreased across all markets.

For 2022, Southeast home sale revenues increased 25% compared with 2021 due to a 3% increase in closings combined with a 22% increase in average selling price.

The increase in closings occurred across the majority of markets while the increase in average selling price occurred across all markets.

Income before income taxes increased 66% primarily due to increased revenues, as well as improved gross margins across all markets.

Net new orders decreased across all markets.

For 2023, Northeast home sale revenues decreased 9% compared with 2022 due to a 12% decrease in closings partially offset by a 4% increase in average selling price.

The decrease in closings occurred across the majority of markets, while the increase in average selling price occurred across all markets.

Income before income taxes decreased 11%, primarily due to decreased closings and revenues in the Northeast Corridor.

Net new orders increased across all markets.

For 2023, Southeast home sale revenues decreased 3% compared with 2022 due to a 5% decrease in average selling price partially offset by a 2% increase in closings.

The decrease in average selling price and increase in closings occurred across the majority of markets.

Income before income taxes decreased 10%, primarily due to decreased revenues and gross margins across the majority of markets.

Net new orders increased across the majority of markets.

For 2023, Florida home sale revenues increased 22% compared with 2022 due to a 12% increase in closings combined with a 9% increase in average selling price.

The increase in closings occurred across the majority of markets while the increase in average selling price occurred across all markets.

Income before income taxes increased 60% due to increased revenues, as well as improved gross margins across all markets.

Net new orders decreased across the majority of markets.

For 2022, Midwest home sale revenues increased 17% compared with 2021 due to a 4% increase in closings combined with a 13% increase in average selling price.

The increase in closings occurred across the majority of markets while the increase in average selling price occurred across all markets.

Income before income taxes increased 26% primarily due to increased revenues, as well as improved gross margins across substantially all markets.

Net new orders decreased across all markets.

For 2022, Texas home sale revenues increased 24% compared with 2021 due to a 1% increase in closings combined with a 22% increase in the average selling price.

The increase in closings occurred across the majority of markets while the increase in average selling price occurred across all markets.

Income before income taxes increased 44% primarily due to increased revenues, as well as improved gross margins across substantially all markets.

Net new orders decreased across the majority of markets.

For 2022, West home sale revenues increased 9% compared with 2021 primarily due to a 12% increase in the average selling price partially offset by a 2% decrease in closings.

Income before income taxes increased 29%, primarily due to increased revenues and gross margins across all markets.

Net new orders increased across the majority of markets.

For 2023, Midwest home sale revenues decreased 9% compared with 2022 due to a 14% decrease in closings partially offset by a 5% increase in average selling price.

The decrease in closings occurred across the majority of markets while the increase in average selling price occurred across all markets.

Income before income taxes increased 16% primarily due to increased revenues, as well as improved gross margins, which were mixed among markets.

Results for 2022 included a gain of $49.1 million related to a property sale in an unconsolidated entity in Northern California, while the 2021 results included a gain of $12.9 million related to a land sale transaction in California that had been in the entitlement process for a number of years.

Net new orders decreased across all markets.

Income before income taxes increased 1%, primarily due to the increase in average selling price across all markets, partially offset by the closing volume decline across the majority of markets.

Net new orders increased across all markets.

For 2023, Texas home sale revenues decreased 6% compared with 2022 due to a 7% decrease in closings partially offset by a 1% increase in average selling price.

The decrease in closings occurred across all markets while the increase in average selling price occurred across the majority of markets.

Income before income taxes decreased 16%, primarily due to decreased revenues and gross margins across all markets.

Net new orders increased across the majority of markets.

For 2023, West home sale revenues decreased 7% compared with 2022 primarily due to a 4% decrease in closings combined with a 4% decrease in average selling price.

The decrease in closings and average selling price occurred across the majority of markets.

Income before income taxes decreased 39%, primarily due to decreased revenues and gross margins across the majority of markets.

Results for 2022 also included a gain of $49.1 million related to a property sale in an unconsolidated entity in Northern California.

Net new orders increased across all markets.

Financial Services Operations

We conduct our Financial Services operations, which include mortgage banking, title, and insurance brokerage operations, through Pulte Mortgage and other subsidiaries.

We conduct our Financial Services operations, which include mortgage banking, title, and insurance agency operations, through Pulte Mortgage and other subsidiaries.

In originating mortgage loans, we initially use our own funds, including funds available pursuant to credit agreements with third parties.

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Title services revenues 85,462 7 % 80,198

Insurance brokerage commissions 24,586 62 % 15,161

Insurance agency commissions 32,679 33 % 24,586

Total Financial Services revenues 320,755 3 % 311,716

Expenses (187,280) 4 % (180,696)

Other income (expense), net 1,210 (a) 671

Equity income from unconsolidated entities 1,055 (17) % 1,277

Other expense, net (1,338) (a) (67)

Income before income taxes $ 133,192 1 % $ 132,230

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Total funded originations 100 % 100 %

The demand for refinancing within the mortgage industry waned in 2021 and throughout 2022 as mortgage interest rates began to rise, which led to an increase in competition among lenders and lower margins per loan.

As a result, total Financial Services revenues during 2022 decreased 20% compared with 2021.

These factors were partially offset by a higher average loan amount as the result of the higher average selling price within Homebuilding.

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 decrease in income before income taxes for 2022 as compared with 2021 was primarily due to a lower capture rate and revenue per loan due to increased competitiveness in the mortgage industry in 2022.

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.

Our effective income tax rate was 24.6% and 23.9% for 2023 and 2022, respectively.

The higher effective tax rate in 2022 was primarily due to changes in valuation allowances relating to projected utilization of certain state net operating loss carryforwards in 2022 (see Note 8 ).

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

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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).

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.

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.

For the next twelve 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.

The elongation of our production cycle has required a greater investment of cash in our homes under production.

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.

Within the next twelve months, we need to repay or refinance Pulte Mortgage's master repurchase agreement with third-party lenders (the "Repurchase Agreement").

While we intend to refinance the Repurchase Agreement prior to its maturity, there can be no assurances that the Repurchase Agreement can be renewed or replaced on commercially reasonable terms upon its expiration.

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 comes due in 2026.

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.

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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.

During 2021, we retired $426.0 million of senior notes at their scheduled maturity date and also accelerated the retirement of $200.0 million and $100.0 million of our unsecured notes scheduled to mature in 2026 and 2027, respectively, through a cash tender offer.

The tender offer resulted in a loss of $61.5 million, which included the write-off of debt issuance costs, unamortized discounts and premiums, and transaction fees.

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 four years, are secured by the applicable land positions to which they relate, and generally have no recourse to other assets.

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%.

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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.

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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.

Pulte Mortgage maintains the Repurchase Agreement, which matures on July 27, 2023.

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,

At all other times, the maximum aggregate commitment ranges from $360.0 million to $500.0 million.

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.

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The Repurchase Agreement contains various affirmative and negative covenants applicable to Pulte Mortgage, including quantitative thresholds related to net worth, net income, and liquidity.

Pulte Mortgage had $586.7 million and $626.1 million

outstanding under the Repurchase Agreement at December 31, 2022 and 2021, respectively, and was in compliance with its covenants and requirements as of such dates.

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 $143.1 million and $148.1 million in 2022 and 2021, respectively, and repurchased 24.2 million and 17.7 million shares in 2022 and 2021, respectively, for a total of $1.1 billion and $897.3 million in 2022 and 2021, respectively.

On January 31, 2022, the Board of Directors increased our share repurchase authorization by $1.0 billion.

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

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Operating activities

Net cash provided by operating activities in 2022 was $668.5 million, compared with net cash provided by operating activities of $1.0 billion in 2021.

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 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 was also favorably impacted by a $266.3 million decrease in residential mortgage loans available-for-sale.

Net cash provided by operating activities in 2021 was primarily due to our net income of $1.9 billion, which was partially offset by a $1.3 billion increase in inventories which was primarily attributable to higher house inventory in production, resulting from higher sales activity and extended production cycle times combined with higher investment in land inventory to support future growth.

Cash flow from operations was also favorably impacted by an increase of $395.3 million in customer deposits resulting from the higher order backlog but unfavorably impacted by an increase of $382.8 million in residential mortgage loans available-for-sale, resulting from higher loan originations to support revenue growth.

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

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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 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.

Net cash used in financing activities for 2021 resulted primarily from the repurchase of 17.7 million common shares for $897.3 million under our repurchase authorization, repayments of debt of $836.9 million, and cash dividends of $147.8 million, partially offset by net Financial Services borrowings of $214.3 million.

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.

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.

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(a) incurred the guarantee with the intent of hindering, delaying or defrauding creditors;

(b) received less than reasonably equivalent value or fair consideration in return for incurring the guarantee and, in the case of and any one of the following is also true at the time thereof:

(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;

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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 assure you, 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.

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.

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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 Account Policies".

For a discussion of all of our significant accounting policies, refer to Note 1 , "Summary of Significant Accounting Policies".

Inventory and cost of revenues

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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.

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.

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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.

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.

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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.

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

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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.

The changes in actuarial estimates were driven by changes in actual claims experience that, in turn, impacted actuarial estimates for potential future

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.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis