Pulte Homes Reports Third Quarter 2006 Financial Results

BLOOMFIELD HILLS, Mich., Oct. 25 /PRNewswire-FirstCall/ -- Pulte Homes announced today financial results for its third quarter and nine months ended September 30, 2006. For the quarter, income from continuing operations declined 50% to $191.5 million, compared with $382.4 million for the prior year third quarter. Third quarter earnings from continuing operations of $.74 per diluted share represents a decrease of 49%, compared with prior year earnings of $1.45 per diluted share. Consolidated revenues for the quarter were $3.6 billion, a decline of 6% from prior year revenues of $3.8 billion.

"The operating landscape for new home sales remained challenging during the third quarter, as high inventory levels, affordability issues, elevated cancellation rates and a general lack of buyer confidence continued to weigh on new home demand," said Richard J. Dugas, Jr., President and CEO of Pulte Homes. "In response to these more difficult market conditions, we continue to shorten our land pipeline, reduce production volumes and to balance home price and profitability with sales pace."

Third Quarter Results

Revenues from homebuilding settlements in the third quarter decreased 6% to $3.5 billion, compared with $3.7 billion last year. The change in revenue for the quarter reflects a 6% increase in average selling price to $335,000, offset by an 11% decrease in closings to 10,440 homes. The increase in average selling price primarily reflects geographic changes in the mix of homes closed during the period.

Third quarter homebuilding pretax income declined 54% to $286.1 million, compared with prior year pretax income of $619.4 million. Pretax income for the period reflects a 670 basis point decline in gross margins to 17.1%, combined with a 70-basis point increase in SG&A as a percentage of home sale revenues. Homebuilding pretax income for the third quarter of 2006 is inclusive of approximately $87.7 million of charges resulting from adjustments to land inventory and land held for sale, and the write-off of deposits and pre-acquisition costs associated with land transactions the Company no longer plans to pursue. These charges reduced reported pretax margins by approximately 250 basis points.

Net new home orders for the third quarter were 7,299 homes, valued at $2.4 billion, which represent declines of 39% and 40%, respectively, from prior year third-quarter results. Pulte Homes' backlog as of September 30, 2006, was valued at $5.8 billion (16,375 homes), compared with a value of $8.0 billion (23,666 homes) last year.

The Company's financial services operations reported a 12% increase in third quarter pretax income to $21.4 million, as the business benefited from a positive mix of mortgage products and a more favorable interest rate environment. Mortgage capture rate for the quarter was 91%, compared with 89% for the same quarter last year.

Nine Month Results

For the nine months ended September 30, 2006, Pulte Homes' income from continuing operations was $697.9 million, compared with prior year income from continuing operations of $905.2 million. Earnings from continuing operations for the first nine months were $2.70 per diluted share, a decrease of 22% from prior year earnings of $3.44 per diluted share. Consolidated revenues for the period were $9.9 billion, up from $9.6 billion for the first nine months of last year.

Revenues from homebuilding settlements for the period were $9.7 billion, an increase of 4% over the prior year. Higher revenues for the period resulted from a 7% increase in average selling price to $335,000, partially offset by a 3% decrease in the number of homes closed to 28,921. The increase in average selling price for the period reflects a combination of price increases and a change in the mix of product closed during the period.

Nine month homebuilding pretax income declined 29% to $1.04 billion, compared with prior year pretax income of $1.48 billion. Pretax margins as a percentage of home settlement revenues for the period decreased 500 basis points to 10.8%, reflecting a 380 basis point decline in gross margins from home sales, and lower land profitability. Homebuilding pretax income for the first nine months is inclusive of approximately $155 million of charges resulting from adjustments to land inventory and land held for sale, and the write-off of deposits and pre-acquisition costs associated with land transactions the Company no longer plans to pursue.

For the first nine months, Pulte's financial services operations reported pretax income of $85.8 million, compared with $44.7 million in the prior year. In addition, results reflect a first-quarter gain of approximately $31.6 million from the sale by Pulte Mortgage LLC of its investment in a Mexico- based mortgage-banking company.

Guidance Update

"We continue to operate with the expectation that business conditions remain difficult for at least the near term and, as a result, that additional charges are still possible if conditions erode further. Given the ongoing weakness in new home sales and closings, visibility as to future earnings performance is limited, but at this time we estimate fourth quarter earnings in the range of $.30 to $.70 per diluted share, inclusive of potential pretax land-related charges of up to $150 million," said Dugas. "While these charges are not a certainty, we think it is appropriate to incorporate the potential impact into our near-term guidance."

A conference call discussing Pulte Homes' third quarter results will be held Thursday, October 26, 2006 at 8:30 a.m. Eastern Time, and web cast live via Pulte.com. Interested investors can access the call via the Company's home page at http://www.pulte.com/ .

Certain statements in this release constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such factors include, among other things, (1) general economic and business conditions; (2) interest rate changes and the availability of mortgage financing; (3) the relative stability of debt and equity markets; (4) competition; (5) the availability and cost of land and other raw materials used by the Company in its homebuilding operations; (6) the availability and cost of insurance covering risks associated with the Company's business; (7) shortages and the cost of labor; (8) weather related slowdowns; (9) slow growth initiatives and/or local building moratoria; (10) governmental regulation, including the interpretation of tax, labor and environmental laws; (11) changes in consumer confidence and preferences; (12) required accounting changes; (13) terrorist acts and other acts of war; and (14) other factors over which the Company has little or no control. See the Company's Annual Report on Form 10-K and Annual Report to Shareholders for the year ended December 31, 2005 and other public filings with the Securities and Exchange Commission for a further discussion of these and other risks and uncertainties applicable to Pulte's business. Pulte undertakes no duty to update any forward-looking statement whether as a result of new information, future events or changes in Pulte's expectations.

About Pulte Homes

Pulte Homes, Inc., , based in Bloomfield Hills, Mich., is a FORTUNE 150 company with operations in 53 markets and 27 states. In 2005, the company delivered 45,630 homes in the U.S. and generated consolidated revenues of $14.7 billion. During its 56-year history, the company has constructed more than 450,000 homes. In 2006, Pulte Homes operations received the most awards in the J.D. Power and Associates(R) New Home-Builder Customer Satisfaction Study(sm), marking the seventh-straight year Pulte achieved this distinction among America's largest homebuilding companies. Under its Del Webb brand, Pulte is the nation's largest builder of active adult communities for people age 55 and better. Its DiVosta brand is renowned in Florida for its Built Solid(TM) building system and distinctive master-planned communities featuring a town-center concept. Pulte Mortgage LLC is a nationwide lender and offers Pulte customers a wide variety of loan products and superior customer service.

Websites: http://www.pulte.com/ ; http://www.delwebb.com/ ; http://www.divosta.com/

Pulte Homes, Inc. Condensed Consolidated Results Of Operations (000's omitted, except per share data) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, ------------------ ------------------ 2006 2005 2006 2005 ------ ------ ------ ------ CONSOLIDATED RESULTS: Revenues: Homebuilding $3,513,776 $3,750,669 $9,746,583 $9,450,393 Financial Services 49,609 42,383 134,933 108,917 Other non-operating 574 1,120 3,986 3,625 ---------- ---------- ---------- ---------- Total Revenues $3,563,959 $3,794,172 $9,885,502 $9,562,935 ========== ========== ========== ========== Pretax income (loss): Homebuilding $286,057 $619,392 $1,044,462 $1,478,363 Financial Services 21,377 19,043 85,777 44,653 Other non-operating (11,920) (24,733) (29,456) (76,595) ---------- ---------- ---------- ---------- Income from continuing operations before income taxes 295,514 613,702 1,100,783 1,446,421 Income taxes (104,064) (231,285) (402,836) (541,270) ---------- ---------- ---------- ---------- Income from continuing operations $191,450 $382,417 $697,947 $905,151 Income(loss)from discontinued operations (1,231) 13,004 (2,064) 12,223 ---------- ---------- ---------- ---------- Net income $190,219 $395,421 $695,883 $917,374 ========== ========== ========== ========== EARNINGS PER SHARE - ASSUMING DILUTION: Income from continuing operations $.74 $1.45 $2.70 $3.44 Income(loss) from discontinued operations - .05 (.01) .05 ---------- ---------- ---------- ---------- Net income $.74 $1.50 $2.69 $3.49 ========== ========== ========== ========== Shares used in per share calculations 257,215 263,908 258,953 262,812 ========== ========== ========== ========== Pulte Homes, Inc. Condensed Consolidated Balance Sheets ($000's omitted) September 30, December 31, September 30, 2006 2005 2005 (Unaudited) (Unaudited) ------------ ------------ ------------ ASSETS Cash and equivalents $94,633 $1,002,268 $209,437 Unfunded settlements 84,778 156,663 96,269 House and land inventory 10,826,766 8,756,093 9,180,972 Land held for sale 447,414 257,724 186,038 Land, not owned, under option agreements 59,108 76,671 88,243 Residential mortgage loans available-for-sale 579,172 1,038,506 554,900 Investment in unconsolidated entities 249,448 301,613 289,771 Goodwill 377,040 307,693 307,693 Intangible assets, net 121,017 127,204 129,267 Other assets 1,076,847 1,023,739 1,241,167 ------------ ------------ ------------ $13,916,223 $13,048,174 $12,283,757 ============ ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Accounts payable, accrued and other liabilities $2,477,401 $2,584,060 $2,629,943 Unsecured short-term borrowings 754,300 - - Collateralized short-term debt, recourse solely to applicable subsidiary assets 533,846 893,001 461,740 Income taxes 45,610 219,504 213,606 Deferred income tax liability - 7,740 - Senior notes and subordinated notes 3,537,592 3,386,527 3,511,170 ------------ ------------ ------------ Total Liabilities 7,348,749 7,090,832 6,816,459 Shareholders' Equity 6,567,474 5,957,342 5,467,298 ------------ ------------ ------------ $13,916,223 $13,048,174 $12,283,757 ============ ============ ============ Pulte Homes, Inc. Segment Data ($000's omitted) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, ------------------ ------------------ 2006 2005 2006 2005 ------ ------ ------ ------ HOMEBUILDING: Home sales (settlements) $3,498,499 $3,725,537 $9,692,293 $9,343,544 Land sales 15,277 25,132 54,290 106,849 --------- --------- --------- --------- Homebuilding Revenues 3,513,776 3,750,669 9,746,583 9,450,393 Home cost of sales (2,899,981) (2,839,913) (7,733,989) (7,101,734) Land cost of sales (18,709) (23,704) (72,313) (97,990) Selling, general & administrative expense (279,223) (272,158) (829,376) (793,916) Other income (expense), net (29,806) 4,498 (66,443) 21,610 --------- --------- --------- --------- Pretax income $286,057 $619,392 $1,044,462 $1,478,363 ========= ========= ========= ========= FINANCIAL SERVICES: Pretax income $21,377 $19,043 $85,777 $44,653 ========= ========= ========= ========= OTHER NON-OPERATING: Pretax loss: Net interest income (expense) $(1,338) $(12,213) $1,321 $(40,863) Other expense, net (10,582) (12,520) (30,777) (35,732) --------- --------- --------- --------- Total Other non-operating $(11,920) $(24,733) $(29,456) $(76,595) ========= ========= ========= ========= Pulte Homes, Inc. Business Operating Data ($000's omitted) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, ------------------ ------------------ 2006 2005 2006 2005 ------ ------ ------ ------ Homebuilding settlement revenues $3,498,499 $3,725,537 $9,692,293 $9,343,544 ========== ========== ========== ========== Unit settlements: Northeast 900 1,003 2,435 2,409 Southeast 2,896 3,427 8,418 8,710 Midwest 1,331 1,638 3,179 3,686 Central 1,617 1,726 4,674 4,190 West 3,696 3,953 10,215 10,965 ---------- ---------- ---------- ---------- 10,440 11,747 28,921 29,960 ========== ========== ========== ========== Average selling price $335 $317 $335 $312 ========== ========== ========== ========== Unit net new orders: Northeast 672 1,066 2,190 3,322 Southeast 1,639 3,284 7,649 10,718 Midwest 1,163 1,670 3,596 4,899 Central 1,227 2,185 4,709 6,096 West 2,598 3,857 9,335 12,675 ---------- ---------- ---------- ---------- 7,299 12,062 27,479 37,710 ========== ========== ========== ========== Unit net new orders -- dollars $2,396,000 $3,994,000 $9,200,000 $12,233,000 =========== ========== ========== =========== Unit backlog: Northeast 1,348 2,396 Southeast 4,896 7,313 Midwest 1,804 2,490 Central 2,252 2,983 West 6,075 8,484 ---------- ---------- 16,375 23,666 ========== ========== Dollars in backlog $5,809,000 $8,043,000 ========== ========== Pulte Homes, Inc. Business Operating Data, continued ($000's omitted) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, ------------------- ------------------- 2006 2005 2006 2005 ------ ------ ------ ------ MORTGAGE ORIGINATIONS: Origination volume 10,052 10,985 27,641 28,022 =========== =========== =========== =========== Origination principal $2,154,600 $2,163,100 $5,921,400 $5,481,700 =========== =========== =========== =========== Capture rate percentage 91.1% 88.8% 90.5% 88.5% =========== =========== =========== =========== Pulte Homes, Inc. Supplemental Information ($000's omitted) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, ------------------- ------------------- 2006 2005 2006 2005 ------ ------ ------ ------ Interest expense: Homebuilding (included in home cost of sales) $65,217 $49,431 $162,285 $121,078 Financial Services 6,651 4,166 16,798 10,236 Other non-operating 1,912 13,333 2,665 44,488 ------- ------- -------- -------- Total interest expense $73,780 $66,930 $181,748 $175,802 ======= ======= ======== ======== Depreciation & amortization $20,522 $16,112 $58,509 $44,810 ======= ======= ======== ======== Company Contacts Investors: James Zeumer (248) 433-4597 email: jim.zeumer@pulte.com Media: Mark Marymee (248) 433-4648 email: mark.marymee@pulte.com