Item 1. Financial Statements
PULTEGROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
($000’s omitted)
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
December 31,
2015
|
|
(Unaudited)
|
|
(Note)
|
ASSETS
|
|
|
|
|
|
|
|
Cash and equivalents
|
$
|
995,696
|
|
|
$
|
754,161
|
|
Restricted cash
|
22,419
|
|
|
21,274
|
|
House and land inventory
|
6,202,479
|
|
|
5,450,058
|
|
Land held for sale
|
85,017
|
|
|
81,492
|
|
Residential mortgage loans available-for-sale
|
290,578
|
|
|
442,715
|
|
Investments in unconsolidated entities
|
53,090
|
|
|
41,267
|
|
Other assets
|
686,163
|
|
|
660,835
|
|
Intangible assets
|
163,185
|
|
|
110,215
|
|
Deferred tax assets, net
|
1,344,853
|
|
|
1,394,879
|
|
|
$
|
9,843,480
|
|
|
$
|
8,956,896
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
Accounts payable
|
$
|
331,932
|
|
|
$
|
327,725
|
|
Customer deposits
|
223,692
|
|
|
186,141
|
|
Accrued and other liabilities
|
1,294,892
|
|
|
1,284,273
|
|
Income tax liabilities
|
33,460
|
|
|
57,050
|
|
Financial Services debt
|
118,614
|
|
|
267,877
|
|
Term loan
|
498,817
|
|
|
498,423
|
|
Senior notes
|
2,568,546
|
|
|
1,576,082
|
|
|
5,069,953
|
|
|
4,197,571
|
|
Shareholders' equity
|
4,773,527
|
|
|
4,759,325
|
|
|
$
|
9,843,480
|
|
|
$
|
8,956,896
|
|
Note: The Condensed Consolidated Balance Sheet at
December 31, 2015
has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.
See accompanying Notes to Condensed Consolidated Financial Statements.
PULTEGROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(000’s omitted, except per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
|
|
2016
|
|
2015
|
Revenues:
|
|
|
|
Homebuilding
|
|
|
|
Home sale revenues
|
$
|
1,394,243
|
|
|
$
|
1,088,158
|
|
Land sale revenues
|
2,487
|
|
|
17,542
|
|
|
1,396,730
|
|
|
1,105,700
|
|
Financial Services
|
35,848
|
|
|
27,598
|
|
Total revenues
|
1,432,578
|
|
|
1,133,298
|
|
|
|
|
|
Homebuilding Cost of Revenues:
|
|
|
|
Home sale cost of revenues
|
1,089,329
|
|
|
841,145
|
|
Land sale cost of revenues
|
2,028
|
|
|
13,378
|
|
|
1,091,357
|
|
|
854,523
|
|
Financial Services expenses
|
26,119
|
|
|
22,541
|
|
Selling, general, and administrative expenses
|
191,015
|
|
|
161,312
|
|
Other expense (income), net
|
5,874
|
|
|
(883
|
)
|
Income before income taxes
|
118,213
|
|
|
95,805
|
|
Income tax expense
|
34,913
|
|
|
40,834
|
|
Net income
|
$
|
83,300
|
|
|
$
|
54,971
|
|
|
|
|
|
Per share:
|
|
|
|
Basic earnings
|
$
|
0.24
|
|
|
$
|
0.15
|
|
Diluted earnings
|
$
|
0.24
|
|
|
$
|
0.15
|
|
Cash dividends declared
|
$
|
0.09
|
|
|
$
|
0.08
|
|
|
|
|
|
Number of shares used in calculation:
|
|
|
|
Basic
|
347,815
|
|
|
366,748
|
|
Effect of dilutive securities
|
2,662
|
|
|
3,362
|
|
Diluted
|
350,477
|
|
|
370,110
|
|
See accompanying Notes to Condensed Consolidated Financial Statements.
PULTEGROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(000’s omitted)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
|
|
2016
|
|
2015
|
Net income
|
$
|
83,300
|
|
|
$
|
54,971
|
|
|
|
|
|
Other comprehensive income, net of tax:
|
|
|
|
Change in value of derivatives
|
21
|
|
|
21
|
|
Other comprehensive income
|
21
|
|
|
21
|
|
|
|
|
|
Comprehensive income
|
$
|
83,321
|
|
|
$
|
54,992
|
|
See accompanying Notes to Condensed Consolidated Financial Statements.
PULTEGROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(000's omitted, except per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional
Paid-in
Capital
|
|
Accumulated
Other
Comprehensive
Income
(Loss)
|
|
Retained
Earnings
|
|
Total
|
Shares
|
|
$
|
|
Shareholders' Equity, January 1, 2016
|
349,149
|
|
|
$
|
3,491
|
|
|
$
|
3,093,802
|
|
|
$
|
(609
|
)
|
|
$
|
1,662,641
|
|
|
$
|
4,759,325
|
|
Stock option exercises
|
4
|
|
|
—
|
|
|
52
|
|
|
—
|
|
|
—
|
|
|
52
|
|
Share issuances, net of cancellations
|
456
|
|
|
4
|
|
|
8,852
|
|
|
—
|
|
|
—
|
|
|
8,856
|
|
Dividends declared
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(31,459
|
)
|
|
(31,459
|
)
|
Share repurchases
|
(3,226
|
)
|
|
(32
|
)
|
|
—
|
|
|
—
|
|
|
(52,713
|
)
|
|
(52,745
|
)
|
Share-based compensation
|
—
|
|
|
—
|
|
|
6,635
|
|
|
—
|
|
|
—
|
|
|
6,635
|
|
Excess tax benefits (deficiencies) from share-based awards
|
—
|
|
|
—
|
|
|
(458
|
)
|
|
—
|
|
|
—
|
|
|
(458
|
)
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
83,300
|
|
|
83,300
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
21
|
|
|
—
|
|
|
21
|
|
Shareholders' Equity, March 31, 2016
|
346,383
|
|
|
$
|
3,463
|
|
|
$
|
3,108,883
|
|
|
$
|
(588
|
)
|
|
$
|
1,661,769
|
|
|
$
|
4,773,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' Equity, January 1, 2015
|
369,459
|
|
|
$
|
3,695
|
|
|
$
|
3,072,996
|
|
|
$
|
(690
|
)
|
|
$
|
1,728,953
|
|
|
$
|
4,804,954
|
|
Stock option exercises
|
564
|
|
|
6
|
|
|
6,590
|
|
|
—
|
|
|
—
|
|
|
6,596
|
|
Share issuances, net of cancellations
|
358
|
|
|
3
|
|
|
7,420
|
|
|
—
|
|
|
—
|
|
|
7,423
|
|
Dividends declared
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(29,449
|
)
|
|
(29,449
|
)
|
Share repurchases
|
(4,954
|
)
|
|
(50
|
)
|
|
—
|
|
|
—
|
|
|
(107,905
|
)
|
|
(107,955
|
)
|
Share-based compensation
|
—
|
|
|
—
|
|
|
5,662
|
|
|
—
|
|
|
—
|
|
|
5,662
|
|
Excess tax benefits (deficiencies) from share-based awards
|
—
|
|
|
—
|
|
|
(229
|
)
|
|
—
|
|
|
—
|
|
|
(229
|
)
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
54,971
|
|
|
54,971
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
21
|
|
|
—
|
|
|
21
|
|
Shareholders' Equity, March 31, 2015
|
365,427
|
|
|
$
|
3,654
|
|
|
$
|
3,092,439
|
|
|
$
|
(669
|
)
|
|
$
|
1,646,570
|
|
|
$
|
4,741,994
|
|
See accompanying Notes to Condensed Consolidated Financial Statements.
PULTEGROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($000’s omitted)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
|
|
2016
|
|
2015
|
Cash flows from operating activities:
|
|
|
|
Net income
|
$
|
83,300
|
|
|
$
|
54,971
|
|
Adjustments to reconcile net income to net cash from operating activities:
|
|
|
|
Deferred income tax expense
|
50,026
|
|
|
40,805
|
|
Depreciation and amortization
|
13,113
|
|
|
11,062
|
|
Share-based compensation expense
|
9,355
|
|
|
8,280
|
|
Other, net
|
4,447
|
|
|
4,810
|
|
Increase (decrease) in cash due to:
|
|
|
|
Restricted cash
|
(1,145
|
)
|
|
(1,686
|
)
|
Inventories
|
(381,910
|
)
|
|
(230,993
|
)
|
Residential mortgage loans available-for-sale
|
151,886
|
|
|
119,976
|
|
Other assets
|
(25,133
|
)
|
|
(3,830
|
)
|
Accounts payable, accrued and other liabilities
|
31,999
|
|
|
(28,792
|
)
|
Net cash provided by (used in) operating activities
|
(64,062
|
)
|
|
(25,397
|
)
|
Cash flows from investing activities:
|
|
|
|
Capital expenditures
|
(9,460
|
)
|
|
(14,517
|
)
|
Cash used for business acquisition
|
(430,011
|
)
|
|
—
|
|
Other investing activities, net
|
(12,281
|
)
|
|
4,632
|
|
Net cash used in investing activities
|
(451,752
|
)
|
|
(9,885
|
)
|
Cash flows from financing activities:
|
|
|
|
Proceeds from debt issuance
|
991,575
|
|
|
—
|
|
Repayments of debt
|
(702
|
)
|
|
—
|
|
Borrowings under revolving credit facility
|
220,000
|
|
|
—
|
|
Repayments under revolving credit facility
|
(220,000
|
)
|
|
—
|
|
Financial Services borrowings (repayments)
|
(149,263
|
)
|
|
(72,678
|
)
|
Stock option exercises
|
52
|
|
|
6,596
|
|
Share repurchases
|
(52,745
|
)
|
|
(107,955
|
)
|
Dividends paid
|
(31,568
|
)
|
|
(29,616
|
)
|
Net cash provided by (used in) financing activities
|
757,349
|
|
|
(203,653
|
)
|
Net increase (decrease) in cash and equivalents
|
241,535
|
|
|
(238,935
|
)
|
Cash and equivalents at beginning of period
|
754,161
|
|
|
1,292,862
|
|
Cash and equivalents at end of period
|
$
|
995,696
|
|
|
$
|
1,053,927
|
|
|
|
|
|
Supplemental Cash Flow Information:
|
|
|
|
Interest paid (capitalized), net
|
$
|
(23,124
|
)
|
|
$
|
(21,412
|
)
|
Income taxes paid (refunded), net
|
$
|
1,212
|
|
|
$
|
(1,997
|
)
|
See accompanying Notes to Condensed Consolidated Financial Statements.
PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of presentation
PulteGroup, Inc. is one of the largest homebuilders in the United States ("U.S."), and our common stock trades on the New York Stock Exchange under the ticker symbol “PHM”. Unless the context otherwise requires, the terms "PulteGroup", the "Company", "we", "us", and "our" used herein refer to PulteGroup, Inc. and its subsidiaries. While our subsidiaries engage primarily in the homebuilding business, we also have mortgage banking operations, conducted principally through Pulte Mortgage LLC (“Pulte Mortgage”), and title operations.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal, recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the full year. These financial statements should be read in conjunction with our consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended
December 31, 2015
.
Business acquisition
We acquired substantially all of the assets of JW Homes ("Wieland") in January 2016, for approximately $
430 million
in cash and the assumption of certain payables related to such assets. The acquired net assets were located in Atlanta, Charleston, Charlotte, Nashville, and Raleigh, and included approximately
7,000
lots, including
375
homes in inventory, and control of approximately
1,300
lots through land option contracts. We also assumed a sales order backlog of
317
homes. The acquired net assets were recorded at their estimated fair values and provisionally resulted in goodwill of
$38.3 million
and separately identifiable intangible assets of
$18.0 million
comprised of the John Wieland Homes and Neighborhoods tradename, which is being amortized over a
20
-year life. The acquisition of these assets was not material to our results of operations or financial condition.
Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current year presentation, including the adoption in January 2016 of Accounting Standards Update ("ASU") 2015-03, “Interest - Imputation of Interest,” which changes the presentation of debt issuance costs in the balance sheet from an asset to a direct reduction of the carrying amount of the related debt. The adoption of this guidance resulted in the reclassification of applicable unamortized debt issuance costs from other assets to senior notes and term loan. See
Note 4
.
Subsequent events
We evaluated subsequent events up until the time the financial statements were filed with the Securities and Exchange Commission ("SEC").
PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Other expense (income), net
Other expense (income), net consists of the following ($000’s omitted):
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
March 31,
|
2016
|
|
2015
|
Write-off of deposits and pre-acquisition costs
|
$
|
3,041
|
|
|
$
|
1,869
|
|
Amortization of intangible assets
|
3,450
|
|
|
3,225
|
|
Interest income
|
(923
|
)
|
|
(1,099
|
)
|
Interest expense
|
174
|
|
|
187
|
|
Equity in earnings of unconsolidated entities
|
(170
|
)
|
|
(1,107
|
)
|
Miscellaneous, net
|
302
|
|
|
(3,958
|
)
|
|
$
|
5,874
|
|
|
$
|
(883
|
)
|
Earnings per share
Basic earnings per share is computed by dividing income available to common shareholders (the “Numerator”) by the weighted-average number of common shares outstanding, adjusted for unvested shares (the “Denominator”) for the period. Computing diluted earnings per share is similar to computing basic earnings per share, except that the Denominator is increased to include the dilutive effects of stock options, unvested restricted shares and restricted share units, and other potentially dilutive instruments. Any stock options that have an exercise price greater than the average market price are considered to be anti-dilutive and are excluded from the diluted earnings per share calculation. Our diluted earnings per share calculation excluded
2.3 million
and
4.8 million
potentially dilutive instruments, including stock options, unvested restricted shares and restricted share units for the
three months ended
March 31, 2016
and
2015
, respectively.
In accordance with ASC 260 "Earnings Per Share", the two-class method determines earnings per share for each class of common stock and participating securities according to an earnings allocation formula that adjusts the Numerator for dividends or dividend equivalents and participation rights in undistributed earnings. Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are participating securities and, therefore, are included in computing earnings per share pursuant to the two-class method. Our outstanding restricted share awards, restricted share units, and deferred shares are considered participating securities. The following table presents the earnings per common share (000's omitted, except per share data):
PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
March 31,
|
2016
|
|
2015
|
Numerator:
|
|
|
|
Net income
|
$
|
83,300
|
|
|
$
|
54,971
|
|
Less: earnings distributed to participating securities
|
(285
|
)
|
|
(188
|
)
|
Less: undistributed earnings allocated to participating securities
|
(404
|
)
|
|
(166
|
)
|
Numerator for basic earnings per share
|
$
|
82,611
|
|
|
$
|
54,617
|
|
Add back: undistributed earnings allocated to participating securities
|
404
|
|
|
166
|
|
Less: undistributed earnings reallocated to participating securities
|
(401
|
)
|
|
(165
|
)
|
Numerator for diluted earnings per share
|
$
|
82,614
|
|
|
$
|
54,618
|
|
|
|
|
|
Denominator:
|
|
|
|
Basic shares outstanding
|
347,815
|
|
|
366,748
|
|
Effect of dilutive securities
|
2,662
|
|
|
3,362
|
|
Diluted shares outstanding
|
350,477
|
|
|
370,110
|
|
|
|
|
|
Earnings per share:
|
|
|
|
Basic
|
$
|
0.24
|
|
|
$
|
0.15
|
|
Diluted
|
$
|
0.24
|
|
|
$
|
0.15
|
|
Residential mortgage loans available-for-sale
Substantially all of the loans originated by us are sold in the secondary mortgage market within a short period of time after origination, generally within
30 days
. At
March 31, 2016
and
December 31, 2015
, residential mortgage loans available-for-sale had an aggregate fair value of
$290.6 million
and
$442.7 million
, respectively, and an aggregate outstanding principal balance of
$279.4 million
and
$429.6 million
, respectively. The net gain resulting from changes in fair value of these loans totaled
$1.0 million
and
$0.1 million
for the
three months ended
March 31, 2016
and
2015
, respectively. These changes in fair value were substantially offset by changes in fair value of the corresponding hedging instruments. Net gains from the sale of mortgages were
$21.5 million
and
$16.2 million
for the
three months ended
March 31, 2016
and
2015
, respectively.
Derivative instruments and hedging activities
We are party to interest rate lock commitments with customers resulting from our mortgage origination operations. At
March 31, 2016
and
December 31, 2015
, we had aggregate interest rate lock commitments of
$257.3 million
and
$208.2 million
, respectively, which were originated at interest rates prevailing at the date of commitment.
We are also party to forward contracts on mortgage-backed securities, which are commitments to either purchase or sell a specified financial instrument at a specified future date for a specified price. Forward contracts on mortgage-backed securities are the predominant derivative financial instruments we use to minimize market risk during the period from the time we execute an interest rate lock until the time the loan is sold to an investor. We also use whole loan investor commitments, which are obligations of the investor to buy loans at a specified price within a specified time period. At
March 31, 2016
and
December 31, 2015
, we had unexpired forward contracts of
$469.7 million
and
$525.0 million
, respectively, and whole loan investor commitments of
$38.0 million
and
$77.6 million
, respectively. Changes in the fair value of interest rate lock commitments and other derivative financial instruments are recognized in Financial Services revenues, and the fair values are reflected in other assets or other liabilities, as applicable.
PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
There are no credit-risk-related contingent features within our derivative agreements, and counterparty risk is considered minimal. Gains and losses on interest rate lock commitments and residential mortgage loans available-for-sale are substantially offset by corresponding gains or losses on forward contracts on mortgage-backed securities and whole loan investor commitments. We are generally not exposed to variability in cash flows of derivative instruments for more than approximately
60
days. The fair values of derivative instruments and their locations in the Condensed Consolidated Balance Sheets are summarized below ($000’s omitted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
|
Other Assets
|
|
Accrued and Other Liabilities
|
|
Other Assets
|
|
Accrued and Other Liabilities
|
Interest rate lock commitments
|
$
|
9,032
|
|
|
$
|
133
|
|
|
$
|
5,854
|
|
|
$
|
280
|
|
Forward contracts
|
167
|
|
|
3,340
|
|
|
1,178
|
|
|
840
|
|
Whole loan commitments
|
72
|
|
|
167
|
|
|
358
|
|
|
345
|
|
|
$
|
9,271
|
|
|
$
|
3,640
|
|
|
$
|
7,390
|
|
|
$
|
1,465
|
|
New accounting pronouncements
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers" ("ASU 2014-09"). The standard is a comprehensive new revenue recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date", which delayed the effective date by one year. As a result, the standard is effective for us for annual and interim periods beginning January 1, 2018 and allows for full retrospective or modified retrospective methods of adoption. We are currently evaluating the impact that the standard will have on our financial statements.
In August 2014, the FASB issued ASU No. 2014-15, “Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern” (“ASU 2014-15”), which requires management to evaluate, at each annual and interim reporting period, whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern and provide related disclosures. ASU 2014-15 is effective for annual and interim reporting periods beginning January 1, 2017 and is not expected to have a material impact on our financial statements.
In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)" ("ASU 2016-02"), which amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets. ASU 2016-02 will be effective for annual reporting periods beginning after December 15, 2018, and early adoption is permitted. ASU 2016-02 requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. We are currently evaluating the impact that the standard will have on our financial statements.
In March 2016, the FASB issued ASU No. 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting" ("ASU 2019-09"), which includes multiple amendments intended to simplify aspects of share-based payment accounting. ASU 2016-09 will be effective for annual reporting periods beginning after December 15, 2016, and early adoption is permitted. Amendments to the timing of when excess tax benefits are recognized, minimum statutory withholding requirements, and forfeitures will be applied using a modified retrospective transition method through a cumulative-effect adjustment to equity as of the beginning of the period of adoption. Amendments to the presentation of employee taxes paid on the statement of cash flows when an employer withholds shares to meet the minimum statutory withholding requirement will be applied retrospectively, and amendments requiring the recognition of excess tax benefits and tax deficiencies in the income statement are to be applied prospectively. We are currently evaluating the impact that the standard will have on our financial statements.
PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. Inventory
Major components of inventory were as follows ($000’s omitted):
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
December 31,
2015
|
Homes under construction
|
$
|
1,821,322
|
|
|
$
|
1,408,260
|
|
Land under development
|
3,568,201
|
|
|
3,259,066
|
|
Raw land
|
812,956
|
|
|
782,732
|
|
|
$
|
6,202,479
|
|
|
$
|
5,450,058
|
|
We capitalize interest cost into inventory during the active development and construction of our communities. In all periods presented, we capitalized all Homebuilding interest costs into inventory because the level of our active inventory exceeded our debt levels. Information related to interest capitalized into inventory is as follows ($000’s omitted):
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
|
|
2016
|
|
2015
|
Interest in inventory, beginning of period
|
$
|
149,498
|
|
|
$
|
167,638
|
|
Interest capitalized
|
35,284
|
|
|
30,803
|
|
Interest expensed
|
(26,129
|
)
|
|
(31,554
|
)
|
Interest in inventory, end of period
|
$
|
158,653
|
|
|
$
|
166,887
|
|
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 reduces 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 expense, net.
If an entity holding the land under option is a variable interest entity ("VIE"), our deposit represents a variable interest in that entity. No VIEs required consolidation at either
March 31, 2016
or
December 31, 2015
because we determined that we were not the VIE's primary beneficiary. Our maximum exposure to loss related to these VIEs is generally limited to our deposits and pre-acquisition costs under the land option agreements. The following provides a summary of our interests in land option agreements as of
March 31, 2016
and
December 31, 2015
($000’s omitted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
|
Deposits and
Pre-acquisition
Costs
|
|
Remaining Purchase
Price
|
|
Deposits and
Pre-acquisition
Costs
|
|
Remaining Purchase
Price
|
Land options with VIEs
|
$
|
91,777
|
|
|
$
|
1,152,369
|
|
|
$
|
77,641
|
|
|
$
|
1,064,506
|
|
Other land options
|
91,254
|
|
|
1,134,743
|
|
|
84,478
|
|
|
981,687
|
|
|
$
|
183,031
|
|
|
$
|
2,287,112
|
|
|
$
|
162,119
|
|
|
$
|
2,046,193
|
|
PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. Segment information
Our Homebuilding operations are engaged in the acquisition and development of land primarily for residential purposes within the U.S. and the construction of housing on such land. For reporting purposes, our Homebuilding operations are aggregated into six reportable segments:
|
|
|
|
Northeast:
|
|
Connecticut, Maryland, Massachusetts, New Jersey, New York, Pennsylvania, Virginia
|
Southeast:
|
|
Georgia, North Carolina, South Carolina, Tennessee
|
Florida:
|
|
Florida
|
Midwest:
|
|
Illinois, Indiana, Kentucky, Michigan, Minnesota, Missouri, Ohio
|
Texas:
|
|
Texas
|
West:
|
|
Arizona, California, Nevada, New Mexico, Washington
|
We also have a reportable segment for our Financial Services operations, which consist principally of mortgage banking and title operations and operate generally in the same markets as the Homebuilding segments.
|
|
|
|
|
|
|
|
|
|
Operating Data by Segment
($000’s omitted)
|
|
Three Months Ended
|
|
March 31,
|
|
2016
|
|
2015
|
Revenues:
|
|
|
|
Northeast
|
$
|
118,654
|
|
|
$
|
111,153
|
|
Southeast
(a)
|
294,426
|
|
|
185,788
|
|
Florida
|
269,841
|
|
|
203,062
|
|
Midwest
|
189,892
|
|
|
178,652
|
|
Texas
|
213,292
|
|
|
177,499
|
|
West
|
310,625
|
|
|
249,546
|
|
|
1,396,730
|
|
|
1,105,700
|
|
Financial Services
|
35,848
|
|
|
27,598
|
|
Consolidated revenues
|
$
|
1,432,578
|
|
|
$
|
1,133,298
|
|
|
|
|
|
Income before income taxes:
|
|
|
|
Northeast
|
$
|
9,590
|
|
|
$
|
9,527
|
|
Southeast
(a)
|
19,770
|
|
|
24,624
|
|
Florida
|
40,302
|
|
|
33,224
|
|
Midwest
|
5,620
|
|
|
1,180
|
|
Texas
|
28,517
|
|
|
22,791
|
|
West
|
33,507
|
|
|
31,079
|
|
Other homebuilding
(b)
|
(28,873
|
)
|
|
(31,677
|
)
|
|
108,433
|
|
|
90,748
|
|
Financial Services
|
9,780
|
|
|
5,057
|
|
Consolidated income before income taxes
|
$
|
118,213
|
|
|
$
|
95,805
|
|
|
|
(a)
|
Southeast includes the acquisition in January 2016 of substantially all of the assets of Wieland (see
Note 1
).
|
|
|
(b)
|
Other homebuilding includes the amortization of intangible assets, amortization of capitalized interest, and other items not allocated to the operating segments.
|
PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Data by Segment
|
|
($000's omitted)
|
|
March 31, 2016
|
|
Homes Under
Construction
|
|
Land Under
Development
|
|
Raw Land
|
|
Total
Inventory
|
|
Total
Assets
|
Northeast
|
$
|
178,697
|
|
|
$
|
293,122
|
|
|
$
|
122,359
|
|
|
$
|
594,178
|
|
|
$
|
724,862
|
|
Southeast
(a)
|
374,347
|
|
|
544,577
|
|
|
203,394
|
|
|
1,122,318
|
|
|
1,274,358
|
|
Florida
|
253,262
|
|
|
630,859
|
|
|
80,526
|
|
|
964,647
|
|
|
1,079,826
|
|
Midwest
|
257,042
|
|
|
413,194
|
|
|
68,931
|
|
|
739,167
|
|
|
801,961
|
|
Texas
|
217,893
|
|
|
353,206
|
|
|
97,754
|
|
|
668,853
|
|
|
757,559
|
|
West
|
517,537
|
|
|
1,139,387
|
|
|
215,118
|
|
|
1,872,042
|
|
|
2,074,250
|
|
Other homebuilding
(b)
|
22,544
|
|
|
193,856
|
|
|
24,874
|
|
|
241,274
|
|
|
2,773,441
|
|
|
1,821,322
|
|
|
3,568,201
|
|
|
812,956
|
|
|
6,202,479
|
|
|
9,486,257
|
|
Financial Services
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
357,223
|
|
|
$
|
1,821,322
|
|
|
$
|
3,568,201
|
|
|
$
|
812,956
|
|
|
$
|
6,202,479
|
|
|
$
|
9,843,480
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Homes Under
Construction
|
|
Land Under
Development
|
|
Raw Land
|
|
Total
Inventory
|
|
Total
Assets
|
Northeast
|
$
|
163,173
|
|
|
$
|
292,631
|
|
|
$
|
121,522
|
|
|
$
|
577,326
|
|
|
$
|
688,610
|
|
Southeast
(a)
|
196,456
|
|
|
367,577
|
|
|
139,246
|
|
|
703,279
|
|
|
765,933
|
|
Florida
|
227,910
|
|
|
574,092
|
|
|
97,185
|
|
|
899,187
|
|
|
1,013,543
|
|
Midwest
|
197,738
|
|
|
414,386
|
|
|
68,918
|
|
|
681,042
|
|
|
734,834
|
|
Texas
|
191,424
|
|
|
317,702
|
|
|
107,737
|
|
|
616,863
|
|
|
691,342
|
|
West
|
413,208
|
|
|
1,094,112
|
|
|
222,920
|
|
|
1,730,240
|
|
|
1,924,958
|
|
Other homebuilding
(b)
|
18,351
|
|
|
198,566
|
|
|
25,204
|
|
|
242,121
|
|
|
2,628,687
|
|
|
1,408,260
|
|
|
3,259,066
|
|
|
782,732
|
|
|
5,450,058
|
|
|
8,447,907
|
|
Financial Services
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
508,989
|
|
|
$
|
1,408,260
|
|
|
$
|
3,259,066
|
|
|
$
|
782,732
|
|
|
$
|
5,450,058
|
|
|
$
|
8,956,896
|
|
|
|
(a)
|
Southeast includes the acquisition in January 2016 of substantially all of the assets of Wieland (see
Note 1
).
|
|
|
(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.
|
PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. Debt
Senior notes
Our senior notes are summarized as follows ($000’s omitted):
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
December 31,
2015
|
6.500% unsecured senior notes due May 2016
(a)
|
465,245
|
|
|
465,245
|
|
7.625% unsecured senior notes due October 2017
(b)
|
123,000
|
|
|
123,000
|
|
4.250% unsecured senior notes due March 2021
(a)
|
300,000
|
|
|
—
|
|
5.500% unsecured senior notes due March 2026
(a)
|
700,000
|
|
|
—
|
|
7.875% unsecured senior notes due June 2032
(a)
|
300,000
|
|
|
300,000
|
|
6.375% unsecured senior notes due May 2033
(a)
|
400,000
|
|
|
400,000
|
|
6.000% unsecured senior notes due February 2035
(a)
|
300,000
|
|
|
300,000
|
|
Net premiums, discounts, and issuance costs
(c)
|
(19,699
|
)
|
|
(12,163
|
)
|
Total senior notes
|
$
|
2,568,546
|
|
|
$
|
1,576,082
|
|
Estimated fair value
|
$
|
2,663,408
|
|
|
$
|
1,643,651
|
|
|
|
(a)
|
Redeemable prior to maturity; guaranteed on a senior basis by certain wholly-owned subsidiaries.
|
|
|
(b)
|
Not redeemable prior to maturity; guaranteed on a senior basis by certain wholly-owned subsidiaries.
|
|
|
(c)
|
The carrying value of senior notes reflects the impact of premiums, discounts, and issuance costs that are amortized to interest cost over the respective terms of the senior notes. As discussed in
Note 1
, we adopted ASU 2015-03 in January 2016. We applied the new guidance retrospectively to all prior periods presented in the financial statements to conform to the 2016 presentation. As a result,
$10.3 million
of debt issuance costs at
December 31, 2015
, were reclassified from other assets to a reduction in senior notes.
|
On
February 25, 2016
, we issued
$1.0 billion
of senior unsecured notes, consisting of
$300 million
of
4.25%
senior notes due
March 1, 2021
, and
$700 million
of
5.50%
senior notes due
March 1, 2026
. Similar to the other senior note series reflected in the above table, these notes are irrevocably and unconditionally guaranteed on a senior basis, jointly and severally, by certain of our wholly-owned subsidiaries. The notes and the guarantees are senior unsecured obligations and rank equally in right of payment with the existing and future senior unsecured indebtedness of the Company and each of the guarantors, respectively. The notes are redeemable at our option at any time up to the date of maturity.
Revolving credit facility
We maintain a senior unsecured revolving credit facility (the “Revolving Credit Facility”) that matures in July 2017. The Revolving Credit Facility provides for maximum borrowings of
$500.0 million
and contains an uncommitted accordion feature that could increase the size of the Revolving Credit Facility to
$1.0 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 available borrowing capacity under the Revolving Credit Facility and may total no more than the greater of: (i)
50%
of the size of the facility or (ii)
$300.0 million
in the aggregate. The interest rate on borrowings under the Revolving Credit Facility may be based on either the London Interbank Offered Rate ("LIBOR") or a base rate plus an applicable margin, as defined. We had
no
borrowings outstanding and
$213.4 million
and
$191.3 million
of letters of credit issued under the Revolving Credit Facility at
March 31, 2016
and
December 31, 2015
, respectively.
The Revolving Credit Facility contains financial covenants that require us to maintain a minimum Tangible Net Worth, a minimum Interest Coverage Ratio, and a maximum Debt-to-Capitalization Ratio (as each term is defined in the Revolving Credit Facility). As of
March 31, 2016
, we were in compliance with all covenants. Outstanding balances under the Revolving Credit Facility are guaranteed by certain of our wholly-owned subsidiaries.
PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Term loan
On September 30, 2015, we entered into a senior unsecured
$500.0 million
term loan agreement (the “Term Loan”) with an initial maturity date of January 3, 2017, which can be extended at our option up to 12 months. The interest rate on the Term Loan may be based on either LIBOR or a base rate plus an applicable margin, as defined. Borrowings are interest only with the principal being due at the maturity date and are guaranteed by certain of our wholly-owned subsidiaries. The Term Loan contains customary affirmative and negative covenants for loans of this type, including the same financial covenants as under the Revolving Credit Facility. As of
March 31, 2016
, we were in compliance with all covenants.
Limited recourse notes payable
Certain of our local homebuilding operations maintain limited recourse collateralized notes payable with third parties that totaled
$36.3 million
at
March 31, 2016
and
$35.3 million
at
December 31, 2015
. These notes have maturities ranging up to
six
years, are collateralized by the land positions to which they relate, have no recourse to any other assets, and are classified within accrued and other liabilities. The stated interest rates on these notes range up to
5.00%
.
Pulte Mortgage
Pulte Mortgage maintains a master repurchase agreement (the “Repurchase Agreement”) with third party lenders that expires in
September 2016
. The Repurchase Agreement's borrowing capacity was
$310.0 million
through January 18, 2016, after which it decreased to
$175.0 million
through July 28, 2016, after which it increases to
$200.0 million
. The purpose for 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. Pulte Mortgage had
$118.6 million
and
$267.9 million
outstanding under the Repurchase Agreement at
March 31, 2016
and
December 31, 2015
, respectively, and was in compliance with all of its covenants and requirements as of such dates.
PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. Shareholders’ equity
During the
three months ended
March 31, 2016
, we declared cash dividends totaling
$31.5 million
and repurchased
3.1 million
shares under our repurchase authorization for a total of
$50.0 million
. At
March 31, 2016
, we had remaining authorization to repurchase
$554.8 million
of common shares. During the
three months ended
March 31, 2015
, we declared cash dividends totaling
$29.4 million
and repurchased
4.6 million
shares under our repurchase authorization for a total of
$99.6 million
.
Under our share-based compensation plans, we accept shares as payment under certain conditions related to stock option exercises and vesting of shares, generally related to the payment of minimum tax obligations. During the
three months ended
March 31, 2016
and
2015
, employees surrendered shares valued at
$2.7 million
and
$8.3 million
, respectively, under these plans. Such share transactions are excluded from the above noted share repurchase authorization.
6. Income taxes
Our effective tax rate for the
three months ended
March 31, 2016
and 2015 was
29.5%
, and
42.6%
, respectively. Our effective tax rate for the current year differed from the federal statutory tax rate primarily due to the favorable resolution of certain state income tax matters. For the prior year, our effective tax rate differed from the federal statutory tax rate primarily due to state income taxes and an adjustment to deferred taxes due to changes in state laws and business operations.
At
March 31, 2016
and December 31, 2015, we had deferred tax assets, net of deferred tax liabilities and valuation allowance, of
$1.3 billion
and
$1.4 billion
, respectively. 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 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. At
March 31, 2016
and December 31, 2015, we had
$22.5 million
and
$39.0 million
, respectively, of gross unrecognized tax benefits and
$11.8 million
and
$17.2 million
, respectively, of related accrued interest and penalties. It is reasonably possible within the next twelve months that our gross unrecognized tax benefits may decrease by up to
$18.5 million
, excluding interest and penalties, primarily due to expirations of certain statutes of limitations and potential settlements.
We are currently under examination by the IRS and various state taxing jurisdictions and anticipate finalizing certain examinations within the next twelve months. The final outcome of these examinations is not yet determinable. The statutes of limitation for our major tax jurisdictions generally remain open for examination for tax years
2005
to
2016
.
PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. Fair value disclosures
ASC 820, “Fair Value Measurements and Disclosures,” provides a framework for measuring fair value in generally accepted accounting principles and establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The fair value hierarchy can be summarized as follows:
|
|
|
|
Level 1
|
|
Fair value determined based on quoted prices in active markets for identical assets or liabilities.
|
|
|
Level 2
|
|
Fair value determined using significant observable inputs, generally either quoted prices in active markets for similar assets or liabilities or quoted prices in markets that are not active.
|
|
|
Level 3
|
|
Fair value determined using significant unobservable inputs, such as pricing models, discounted cash flows, or similar techniques.
|
Our assets and liabilities measured or disclosed at fair value are summarized below ($000’s omitted):
|
|
|
|
|
|
|
|
|
|
|
|
Financial Instrument
|
|
Fair Value
Hierarchy
|
|
Fair Value
|
March 31,
2016
|
|
December 31,
2015
|
|
|
|
|
|
|
|
Measured at fair value on a recurring basis:
|
|
|
|
|
|
|
Residential mortgage loans available-for-sale
|
|
Level 2
|
|
$
|
290,578
|
|
|
$
|
442,715
|
|
Interest rate lock commitments
|
|
Level 2
|
|
8,899
|
|
|
5,574
|
|
Forward contracts
|
|
Level 2
|
|
(3,173
|
)
|
|
338
|
|
Whole loan commitments
|
|
Level 2
|
|
(95
|
)
|
|
13
|
|
|
|
|
|
|
|
|
Measured at fair value on a non-recurring basis:
|
|
|
|
|
|
|
House and land inventory
|
|
Level 3
|
|
$
|
—
|
|
|
$
|
11,052
|
|
|
|
|
|
|
|
|
Disclosed at fair value:
|
|
|
|
|
|
|
Cash and equivalents (including restricted cash)
|
|
Level 1
|
|
$
|
1,018,115
|
|
|
$
|
775,435
|
|
Financial Services debt
|
|
Level 2
|
|
118,614
|
|
|
267,877
|
|
Term loan
|
|
Level 2
|
|
500,000
|
|
|
500,000
|
|
Senior notes
|
|
Level 2
|
|
2,663,408
|
|
|
1,643,651
|
|
Fair values for agency residential mortgage loans available-for-sale are determined based on quoted market prices for comparable instruments. Fair values for non-agency residential mortgage loans available-for-sale are determined based on purchase commitments from whole loan investors and other relevant market information available to management. Fair values for interest rate lock commitments, including the value of servicing rights, are based on market prices for similar instruments. Forward contracts on mortgage-backed securities are valued based on market prices for similar instruments. Fair values for whole loan investor commitments are based on market prices for similar instruments from the specific whole loan investor.
Certain assets are required to be recorded at fair value on a non-recurring basis when events and circumstances indicate that the carrying value may not be recoverable. The non-recurring fair values included in the above table represent only those assets whose carrying values were adjusted to fair value as of the respective balance sheet dates.
The carrying amounts of cash and equivalents, Financial Services debt, the Term Loan, and the Revolving Credit Facility approximate their fair values due to their short-term nature and floating interest rate terms. The fair values of senior notes are based on quoted market prices, when available. If quoted market prices are not available, fair values are based on quoted market prices of similar issues. The carrying value of senior notes was
$2.6 billion
and
$1.6 billion
at
March 31, 2016
and
December 31, 2015
, respectively.
PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
8. Commitments and contingencies
Loan origination liabilities
Our mortgage operations may be responsible for losses associated with mortgage loans originated and sold to investors in the event of errors or omissions relating to representations and warranties made by us that the loans met certain requirements, including representations as to underwriting standards, the existence of primary mortgage insurance, and the validity of certain borrower representations in connection with the loan. Determining the liabilities for anticipated losses requires a significant level of management judgment. Given the ongoing volatility in the mortgage industry, changes in values of underlying collateral over time, and other uncertainties regarding the ultimate resolution of these claims, actual costs could differ from our current estimates. Changes in these liabilities were as follows ($000's omitted):
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
|
|
2016
|
|
2015
|
Liabilities, beginning of period
|
$
|
46,381
|
|
|
$
|
58,222
|
|
Reserves provided (released), net
|
866
|
|
|
58
|
|
Payments
|
(154
|
)
|
|
(54
|
)
|
Liabilities, end of period
|
$
|
47,093
|
|
|
$
|
58,226
|
|
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
$213.4 million
and
$1.1 billion
, respectively, at
March 31, 2016
, and
$191.3 million
and
$1.0 billion
, respectively, at
December 31, 2015
. In the event any such letter of credit or surety bond 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 projects that have 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
We are involved in various litigation and legal claims in the normal course of our business operations, including actions brought on behalf of various classes of claimants. We are also subject to a variety of local, state, and federal laws and regulations related to land development activities, house construction standards, sales practices, mortgage lending operations, employment practices, and protection of the environment. As a result, we are subject to periodic examination or inquiry by various governmental agencies that administer these laws and regulations.
We establish liabilities for legal claims and regulatory matters when such matters are both probable of occurring and any potential loss is reasonably estimable. We accrue for such matters based on the facts and circumstances specific to each matter and revise these estimates as the matters evolve. In such cases, there may exist an exposure to loss in excess of any amounts currently accrued. In view of the inherent difficulty of predicting the outcome of these legal and regulatory matters, we generally cannot predict the ultimate resolution of the pending matters, the related timing, or the eventual loss. While the outcome of such contingencies cannot be predicted with certainty, we do not believe that the resolution of such matters will have a material adverse impact on our results of operations, financial position, or cash flows. However, to the extent the liability arising from the ultimate resolution of any matter exceeds the estimates reflected in the recorded reserves relating to such matter, we could incur additional charges that could be significant.
PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Allowance for warranties
Home purchasers are provided with a limited warranty against certain building defects, including a one-year comprehensive limited warranty and coverage for certain other aspects of the home’s construction and operating systems for periods of up to and in limited instances exceeding
10
years. We estimate the costs to be incurred under these warranties and record liabilities in the amount of such costs at the time product revenue is recognized. Factors that affect our warranty liabilities include the number of homes sold, historical and anticipated rates of warranty claims, and the cost per claim. 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. Changes to warranty liabilities were as follows ($000’s omitted):
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
|
|
2016
|
|
2015
|
Warranty liabilities, beginning of period
|
$
|
61,360
|
|
|
$
|
65,389
|
|
Reserves provided
|
12,319
|
|
|
8,841
|
|
Payments
|
(12,743
|
)
|
|
(16,829
|
)
|
Warranty liabilities, end of period
|
$
|
60,936
|
|
|
$
|
57,401
|
|
Self-insured risks
We maintain, and require our subcontractors to maintain, general liability insurance coverage. We also maintain builders' risk, property, errors and omissions, workers compensation, and other business insurance coverage. These insurance policies protect us against a portion of the risk of loss from claims. However, we retain a significant portion of the overall risk for such claims either through policies issued by our captive insurance subsidiaries or through our own self-insured per occurrence and aggregate retentions, deductibles, and claims in excess of available insurance policy limits.
Our general liability insurance includes coverage for certain construction defects. While construction defect claims can relate to a variety of circumstances, the majority of our claims relate to alleged problems with siding, plumbing, foundations and other concrete work, windows, roofing, and heating, ventilation and air conditioning systems. The availability of general liability insurance for the homebuilding industry and its subcontractors has become increasingly limited, and the insurance policies available require companies to maintain significant per occurrence and aggregate retention levels. In certain instances, we may offer our subcontractors the opportunity to purchase insurance through one of our captive insurance subsidiaries or participate in a project-specific insurance program provided by us. Policies issued by the captive insurance subsidiaries represent self-insurance of these risks by us. This self-insured exposure is limited by reinsurance policies that we purchase. General liability coverage for the homebuilding industry is complex, and our coverage varies from policy year to policy year. Our insurance coverage generally requires a per occurrence deductible up to an overall aggregate retention level. Beginning with the first dollar, amounts paid to satisfy insured claims apply to our per occurrence and aggregate retention obligations. Any amounts incurred in excess of the occurrence or aggregate retention levels are covered by insurance up to our purchased coverage levels. Our insurance policies, including the captive insurance subsidiaries' reinsurance policies, are maintained with highly-rated underwriters for whom we believe counterparty default risk is not significant.
At any point in time, we are managing over
1,000
individual claims related to general liability, property, errors and omissions, 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 revenue is recognized for each home closing and evaluate the recorded liabilities based on actuarial analyses of our historical claims. The actuarial analyses calculate estimates of the ultimate net 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
$693.0 million
and
$692.1 million
at
March 31, 2016
and
December 31, 2015
, respectively, the vast majority of which relates 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
65%
of the total general
PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
liability reserves at both
March 31, 2016
and
December 31, 2015
. 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.
Housing market conditions have been volatile across most of our markets over the past ten years, and we believe such 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 related 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.
Costs associated with our insurance programs are classified within selling, general, and administrative expenses. Changes in these liabilities were as follows ($000's omitted):
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
|
|
2016
|
|
2015
|
Balance, beginning of period
|
$
|
692,053
|
|
|
$
|
710,245
|
|
Reserves provided, net
|
19,751
|
|
|
15,832
|
|
Payments
|
(18,824
|
)
|
|
(5,310
|
)
|
Balance, end of period
|
$
|
692,980
|
|
|
$
|
720,767
|
|
In certain instances, we have the ability to recover a portion of our costs under various insurance policies or from subcontractors or other third parties. Estimates of such amounts are recorded when recovery is considered probable. Such receivables are recorded in other assets and totaled
$135.8 million
and
$130.2 million
at March 31, 2016 and December 31, 2015, respectively. The increase in insurance receivables resulted from the continued progression of insured construction defect claims. Given the complexity inherent with resolving construction defect claims in the homebuilding industry as described above, there generally exists a significant lag between our payment of claims and related reimbursements. Additionally, we are the plaintiff in litigation with certain of our insurance carriers relating to a large portion of the insurance receivables balance. We believe collection of these insurance receivables is probable based on the legal merits of our positions, favorable legal rulings received to date, and our long history of collecting significant amounts of insurance reimbursements related to similar claims. While the outcome of these matters cannot be predicted with certainty, we do not believe that the resolution of such matters will have a material adverse impact on our results of operations, financial position, or cash flows.
9. Supplemental Guarantor information
All of our senior notes are guaranteed jointly and severally on a senior basis by certain of our wholly-owned Homebuilding subsidiaries and certain other wholly-owned subsidiaries (collectively, the “Guarantors”). Such guaranties are full and unconditional. Our subsidiaries, comprising the Financial Services segment along with certain other subsidiaries (collectively, the "Non-Guarantor Subsidiaries"), do not guarantee the senior notes. In accordance with Rule 3-10 of Regulation S-X, supplemental consolidating financial information of the Company, including such information for the Guarantors, is presented below. Investments in subsidiaries are presented using the equity method of accounting.
PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
CONDENSED CONSOLIDATING BALANCE SHEET
MARCH 31, 2016
($000’s omitted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated
|
|
Eliminating
Entries
|
|
Consolidated
PulteGroup,
Inc.
|
|
PulteGroup,
Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Cash and equivalents
|
$
|
—
|
|
|
$
|
937,248
|
|
|
$
|
58,448
|
|
|
$
|
—
|
|
|
$
|
995,696
|
|
Restricted cash
|
—
|
|
|
20,937
|
|
|
1,482
|
|
|
—
|
|
|
22,419
|
|
House and land inventory
|
—
|
|
|
6,160,236
|
|
|
42,243
|
|
|
—
|
|
|
6,202,479
|
|
Land held for sale
|
—
|
|
|
84,507
|
|
|
510
|
|
|
—
|
|
|
85,017
|
|
Residential mortgage loans available-
for-sale
|
—
|
|
|
—
|
|
|
290,578
|
|
|
—
|
|
|
290,578
|
|
Investments in unconsolidated entities
|
97
|
|
|
48,234
|
|
|
4,759
|
|
|
—
|
|
|
53,090
|
|
Other assets
|
23,002
|
|
|
522,693
|
|
|
140,468
|
|
|
—
|
|
|
686,163
|
|
Intangible assets
|
—
|
|
|
163,185
|
|
|
—
|
|
|
—
|
|
|
163,185
|
|
Deferred tax assets, net
|
1,342,225
|
|
|
—
|
|
|
2,628
|
|
|
—
|
|
|
1,344,853
|
|
Investments in subsidiaries and
intercompany accounts, net
|
6,597,500
|
|
|
(754,237
|
)
|
|
6,491,667
|
|
|
(12,334,930
|
)
|
|
—
|
|
|
$
|
7,962,824
|
|
|
$
|
7,182,803
|
|
|
$
|
7,032,783
|
|
|
$
|
(12,334,930
|
)
|
|
$
|
9,843,480
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable, customer deposits,
accrued and other liabilities
|
$
|
88,474
|
|
|
$
|
1,569,237
|
|
|
$
|
192,805
|
|
|
$
|
—
|
|
|
$
|
1,850,516
|
|
Income tax liabilities
|
33,460
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
33,460
|
|
Financial Services debt
|
—
|
|
|
—
|
|
|
118,614
|
|
|
—
|
|
|
118,614
|
|
Term loan
|
498,817
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
498,817
|
|
Senior notes
|
2,568,546
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,568,546
|
|
Total liabilities
|
3,189,297
|
|
|
1,569,237
|
|
|
311,419
|
|
|
—
|
|
|
5,069,953
|
|
Total shareholders’ equity
|
4,773,527
|
|
|
5,613,566
|
|
|
6,721,364
|
|
|
(12,334,930
|
)
|
|
4,773,527
|
|
|
$
|
7,962,824
|
|
|
$
|
7,182,803
|
|
|
$
|
7,032,783
|
|
|
$
|
(12,334,930
|
)
|
|
$
|
9,843,480
|
|
PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2015
($000’s omitted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated
|
|
Eliminating
Entries
|
|
Consolidated
PulteGroup,
Inc.
|
|
PulteGroup,
Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Cash and equivalents
|
$
|
—
|
|
|
$
|
638,602
|
|
|
$
|
115,559
|
|
|
$
|
—
|
|
|
$
|
754,161
|
|
Restricted cash
|
—
|
|
|
20,274
|
|
|
1,000
|
|
|
—
|
|
|
21,274
|
|
House and land inventory
|
—
|
|
|
5,450,058
|
|
|
—
|
|
|
—
|
|
|
5,450,058
|
|
Land held for sale
|
—
|
|
|
80,458
|
|
|
1,034
|
|
|
—
|
|
|
81,492
|
|
Residential mortgage loans available-
for-sale
|
—
|
|
|
—
|
|
|
442,715
|
|
|
—
|
|
|
442,715
|
|
Investments in unconsolidated entities
|
93
|
|
|
36,499
|
|
|
4,675
|
|
|
—
|
|
|
41,267
|
|
Other assets
|
38,991
|
|
|
531,120
|
|
|
90,724
|
|
|
—
|
|
|
660,835
|
|
Intangible assets
|
—
|
|
|
110,215
|
|
|
—
|
|
|
—
|
|
|
110,215
|
|
Deferred tax assets, net
|
1,392,251
|
|
|
11
|
|
|
2,617
|
|
|
—
|
|
|
1,394,879
|
|
Investments in subsidiaries and
intercompany accounts, net
|
5,529,606
|
|
|
465,644
|
|
|
6,293,018
|
|
|
(12,288,268
|
)
|
|
—
|
|
|
$
|
6,960,941
|
|
|
$
|
7,332,881
|
|
|
$
|
6,951,342
|
|
|
$
|
(12,288,268
|
)
|
|
$
|
8,956,896
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable, customer deposits,
accrued and other liabilities
|
$
|
70,061
|
|
|
$
|
1,558,885
|
|
|
$
|
169,193
|
|
|
$
|
—
|
|
|
$
|
1,798,139
|
|
Income tax liabilities
|
57,050
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
57,050
|
|
Financial Services debt
|
—
|
|
|
—
|
|
|
267,877
|
|
|
—
|
|
|
267,877
|
|
Term loan
|
498,423
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
498,423
|
|
Senior notes
|
1,576,082
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,576,082
|
|
Total liabilities
|
2,201,616
|
|
|
1,558,885
|
|
|
437,070
|
|
|
—
|
|
|
4,197,571
|
|
Total shareholders’ equity
|
4,759,325
|
|
|
5,773,996
|
|
|
6,514,272
|
|
|
(12,288,268
|
)
|
|
4,759,325
|
|
|
$
|
6,960,941
|
|
|
$
|
7,332,881
|
|
|
$
|
6,951,342
|
|
|
$
|
(12,288,268
|
)
|
|
$
|
8,956,896
|
|
PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
For the
three months ended
March 31, 2016
($000’s omitted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated
|
|
|
|
Consolidated
PulteGroup,
Inc.
|
|
PulteGroup,
Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminating
Entries
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Homebuilding
|
|
|
|
|
|
|
|
|
|
Home sale revenues
|
$
|
—
|
|
|
$
|
1,393,259
|
|
|
$
|
984
|
|
|
$
|
—
|
|
|
$
|
1,394,243
|
|
Land sale revenues
|
—
|
|
|
2,010
|
|
|
477
|
|
|
—
|
|
|
2,487
|
|
|
—
|
|
|
1,395,269
|
|
|
1,461
|
|
|
—
|
|
|
1,396,730
|
|
Financial Services
|
—
|
|
|
—
|
|
|
35,848
|
|
|
—
|
|
|
35,848
|
|
|
—
|
|
|
1,395,269
|
|
|
37,309
|
|
|
—
|
|
|
1,432,578
|
|
Homebuilding Cost of Revenues:
|
|
|
|
|
|
|
|
|
|
Home sale cost of revenues
|
—
|
|
|
1,087,165
|
|
|
2,164
|
|
|
—
|
|
|
1,089,329
|
|
Land sale cost of revenues
|
—
|
|
|
1,643
|
|
|
385
|
|
|
—
|
|
|
2,028
|
|
|
—
|
|
|
1,088,808
|
|
|
2,549
|
|
|
—
|
|
|
1,091,357
|
|
Financial Services expenses
|
—
|
|
|
123
|
|
|
25,996
|
|
|
—
|
|
|
26,119
|
|
Selling, general, and administrative
expenses
|
—
|
|
|
187,581
|
|
|
3,434
|
|
|
—
|
|
|
191,015
|
|
Other expense (income), net
|
170
|
|
|
9,676
|
|
|
(3,972
|
)
|
|
—
|
|
|
5,874
|
|
Intercompany interest
|
510
|
|
|
2,184
|
|
|
(2,694
|
)
|
|
—
|
|
|
—
|
|
Income (loss) before income taxes and
equity in income (loss) of
subsidiaries
|
(680
|
)
|
|
106,897
|
|
|
11,996
|
|
|
—
|
|
|
118,213
|
|
Income tax expense (benefit)
|
(263
|
)
|
|
30,568
|
|
|
4,608
|
|
|
—
|
|
|
34,913
|
|
Income (loss) before equity in income
(loss) of subsidiaries
|
(417
|
)
|
|
76,329
|
|
|
7,388
|
|
|
—
|
|
|
83,300
|
|
Equity in income (loss) of subsidiaries
|
83,717
|
|
|
7,010
|
|
|
111,918
|
|
|
(202,645
|
)
|
|
—
|
|
Net income (loss)
|
83,300
|
|
|
83,339
|
|
|
119,306
|
|
|
(202,645
|
)
|
|
83,300
|
|
Other comprehensive income
|
21
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
21
|
|
Comprehensive income (loss)
|
$
|
83,321
|
|
|
$
|
83,339
|
|
|
$
|
119,306
|
|
|
$
|
(202,645
|
)
|
|
$
|
83,321
|
|
PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
For the
three months ended
March 31, 2015
($000’s omitted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated
|
|
|
|
Consolidated
PulteGroup,
Inc.
|
|
PulteGroup,
Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminating
Entries
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Homebuilding
|
|
|
|
|
|
|
|
|
|
Home sale revenues
|
$
|
—
|
|
|
$
|
1,088,158
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,088,158
|
|
Land sale revenues
|
—
|
|
|
17,542
|
|
|
—
|
|
|
—
|
|
|
17,542
|
|
|
—
|
|
|
1,105,700
|
|
|
—
|
|
|
—
|
|
|
1,105,700
|
|
Financial Services
|
—
|
|
|
—
|
|
|
27,598
|
|
|
—
|
|
|
27,598
|
|
|
—
|
|
|
1,105,700
|
|
|
27,598
|
|
|
—
|
|
|
1,133,298
|
|
Homebuilding Cost of Revenues:
|
|
|
|
|
|
|
|
|
|
Home sale cost of revenues
|
—
|
|
|
841,145
|
|
|
—
|
|
|
—
|
|
|
841,145
|
|
Land sale cost of revenues
|
—
|
|
|
13,378
|
|
|
—
|
|
|
—
|
|
|
13,378
|
|
|
—
|
|
|
854,523
|
|
|
—
|
|
|
—
|
|
|
854,523
|
|
Financial Services expenses
|
187
|
|
|
(168
|
)
|
|
22,522
|
|
|
—
|
|
|
22,541
|
|
Selling, general, and administrative
expenses
|
—
|
|
|
160,828
|
|
|
484
|
|
|
—
|
|
|
161,312
|
|
Other expense (income), net
|
174
|
|
|
(708
|
)
|
|
(349
|
)
|
|
—
|
|
|
(883
|
)
|
Intercompany interest
|
7,723
|
|
|
(5,422
|
)
|
|
(2,301
|
)
|
|
—
|
|
|
—
|
|
Income (loss) before income taxes and
equity in income (loss) of
subsidiaries
|
(8,084
|
)
|
|
96,647
|
|
|
7,242
|
|
|
—
|
|
|
95,805
|
|
Income tax expense (benefit)
|
(3,072
|
)
|
|
41,097
|
|
|
2,809
|
|
|
—
|
|
|
40,834
|
|
Income (loss) before equity in income
(loss) of subsidiaries
|
(5,012
|
)
|
|
55,550
|
|
|
4,433
|
|
|
—
|
|
|
54,971
|
|
Equity in income (loss) of subsidiaries
|
59,983
|
|
|
4,337
|
|
|
52,063
|
|
|
(116,383
|
)
|
|
—
|
|
Net income (loss)
|
54,971
|
|
|
59,887
|
|
|
56,496
|
|
|
(116,383
|
)
|
|
54,971
|
|
Other comprehensive income
|
21
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
21
|
|
Comprehensive income (loss)
|
$
|
54,992
|
|
|
$
|
59,887
|
|
|
$
|
56,496
|
|
|
$
|
(116,383
|
)
|
|
$
|
54,992
|
|
PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
CONSOLIDATING STATEMENT OF CASH FLOWS
For the
three months ended
March 31, 2016
($000’s omitted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated
|
|
|
|
Consolidated
PulteGroup, Inc.
|
|
PulteGroup,
Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminating
Entries
|
|
Net cash provided by (used in)
operating activities
|
$
|
41,058
|
|
|
$
|
(255,994
|
)
|
|
$
|
150,874
|
|
|
$
|
—
|
|
|
$
|
(64,062
|
)
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
—
|
|
|
(8,918
|
)
|
|
(542
|
)
|
|
—
|
|
|
(9,460
|
)
|
Cash used for business acquisitions
|
—
|
|
|
(430,011
|
)
|
|
—
|
|
|
—
|
|
|
(430,011
|
)
|
Other investing activities, net
|
(3
|
)
|
|
(12,731
|
)
|
|
453
|
|
|
—
|
|
|
(12,281
|
)
|
Net cash provided by (used in)
investing activities
|
(3
|
)
|
|
(451,660
|
)
|
|
(89
|
)
|
|
—
|
|
|
(451,752
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Proceeds from debt issuance
|
991,575
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
991,575
|
|
Repayments of debt
|
—
|
|
|
(702
|
)
|
|
—
|
|
|
—
|
|
|
(702
|
)
|
Borrowings under revolving credit facility
|
220,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
220,000
|
|
Repayments under revolving credit facility
|
(220,000
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(220,000
|
)
|
Financial Services borrowings (repayments)
|
—
|
|
|
—
|
|
|
(149,263
|
)
|
|
—
|
|
|
(149,263
|
)
|
Stock option exercises
|
52
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
52
|
|
Share repurchases
|
(52,745
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(52,745
|
)
|
Dividends paid
|
(31,568
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(31,568
|
)
|
Intercompany activities, net
|
(948,369
|
)
|
|
1,007,002
|
|
|
(58,633
|
)
|
|
—
|
|
|
—
|
|
Net cash provided by (used in)
financing activities
|
(41,055
|
)
|
|
1,006,300
|
|
|
(207,896
|
)
|
|
—
|
|
|
757,349
|
|
Net increase (decrease) in cash and
equivalents
|
—
|
|
|
298,646
|
|
|
(57,111
|
)
|
|
—
|
|
|
241,535
|
|
Cash and equivalents at beginning of
period
|
—
|
|
|
638,602
|
|
|
115,559
|
|
|
—
|
|
|
754,161
|
|
Cash and equivalents at end of period
|
$
|
—
|
|
|
$
|
937,248
|
|
|
$
|
58,448
|
|
|
$
|
—
|
|
|
$
|
995,696
|
|
PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
CONSOLIDATING STATEMENT OF CASH FLOWS
For the
three months ended
March 31, 2015
($000’s omitted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated
|
|
|
|
Consolidated
PulteGroup, Inc.
|
|
PulteGroup,
Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminating
Entries
|
|
Net cash provided by (used in)
operating activities
|
$
|
87,624
|
|
|
$
|
(203,566
|
)
|
|
$
|
90,545
|
|
|
$
|
—
|
|
|
$
|
(25,397
|
)
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
—
|
|
|
(13,489
|
)
|
|
(1,028
|
)
|
|
—
|
|
|
(14,517
|
)
|
Other investing activities, net
|
3,710
|
|
|
5
|
|
|
917
|
|
|
—
|
|
|
4,632
|
|
Net cash provided by (used in) investing
activities
|
3,710
|
|
|
(13,484
|
)
|
|
(111
|
)
|
|
—
|
|
|
(9,885
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Financial Services borrowings (repayments)
|
—
|
|
|
—
|
|
|
(72,678
|
)
|
|
—
|
|
|
(72,678
|
)
|
Stock option exercises
|
6,596
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,596
|
|
Share repurchases
|
(107,955
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(107,955
|
)
|
Dividends paid
|
(29,616
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(29,616
|
)
|
Intercompany activities, net
|
32,187
|
|
|
56,487
|
|
|
(88,674
|
)
|
|
—
|
|
|
—
|
|
Net cash provided by (used in)
financing activities
|
(98,788
|
)
|
|
56,487
|
|
|
(161,352
|
)
|
|
—
|
|
|
(203,653
|
)
|
Net increase (decrease) in cash and
equivalents
|
(7,454
|
)
|
|
(160,563
|
)
|
|
(70,918
|
)
|
|
—
|
|
|
(238,935
|
)
|
Cash and equivalents at beginning of
period
|
7,454
|
|
|
1,157,307
|
|
|
128,101
|
|
|
—
|
|
|
1,292,862
|
|
Cash and equivalents at end of period
|
$
|
—
|
|
|
$
|
996,744
|
|
|
$
|
57,183
|
|
|
$
|
—
|
|
|
$
|
1,053,927
|
|
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview
Industry-wide new home sales continue to pace well below historical averages, though improving demand conditions in the overall U.S. housing market continued through the first quarter of 2016. We remain pleased with the overall demand for new homes, which continues along a sustained, but slow recovery path supported by an improving economy, favorable demographics, ongoing employment and wage gains, low interest rates, a limited supply of new homes, and the gradual release of pent-up demand. Within this environment, we remain focused on driving additional gains in construction and asset efficiency to deliver higher returns on invested capital. Consistent with our positive market view and long-term business strategy, we expect to use our capital to support future growth while consistently returning funds to shareholders through dividends and share repurchases.
We have looked toward 2016 as a year where we would begin adding volume growth to the efficiency gains we have achieved in recent years. 2016 has gotten off to a strong start as prior investments are allowing us to grow the business, as evidenced by net new order dollars increasing
24%
in the first quarter, as compared to the prior year, and our backlog increasing by
31%
to
$3.4 billion
as of March 31, 2016, while also continuing to realize strong gross margin performance through our focus on community locations, strategic pricing, and construction efficiencies.
Our new community openings will continue at an elevated level in 2016. While we have experience opening new communities, starting up new communities can present a challenge in today's environment where entitlement and land development delays are common. We have grown our investment in the business in a disciplined manner by emphasizing smaller projects and working to shorten our years of land supply while expanding our use of land option agreements when possible. We have also focused our land investments on closer-in locations where we think demand is more sustainable when the market ultimately moderates. We have accepted the trade-off of having to pay more for certain land positions where we can be more confident in the future performance.
The following is a summary of our operating results by line of business ($000's omitted, except per share data):
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
|
|
2016
|
|
2015
|
Income before income taxes:
|
|
|
|
Homebuilding
|
$
|
108,433
|
|
|
$
|
90,748
|
|
Financial Services
|
9,780
|
|
|
5,057
|
|
Income before income taxes
|
118,213
|
|
|
95,805
|
|
Income tax expense
|
34,913
|
|
|
40,834
|
|
Net income
|
$
|
83,300
|
|
|
$
|
54,971
|
|
Per share data - assuming dilution:
|
|
|
|
Net income
|
$
|
0.24
|
|
|
$
|
0.15
|
|
|
|
•
|
Homebuilding income before income taxes for the three months ended
March 31, 2016
increased compared with the prior year period as the result of higher revenues stemming from increased volume and a higher average selling price. The revenue increase was partially offset by lower gross margins and higher overhead costs, both of which were partially attributable to the assets acquired from Wieland in January 2016 (see
Note 1
).
|
|
|
•
|
Financial Services income before income taxes for the
three months ended
March 31, 2016
increased compared with the prior year period due to an increase in origination volume combined with higher revenues per loan.
|
|
|
•
|
Our effective tax rate for the
three months ended
March 31, 2016
was
29.5%
, which includes the favorable resolution of certain state income tax matters, compared to
42.6%
for the same period in 2015, which reflected an adjustment to deferred taxes due to changes in state laws and business operations.
|
Homebuilding Operations
The following presents selected financial information for our Homebuilding operations ($000’s omitted):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
|
|
2016
|
|
2016 vs. 2015
|
|
2015
|
Home sale revenues
|
$
|
1,394,243
|
|
|
28
|
%
|
|
$
|
1,088,158
|
|
Land sale revenues
|
2,487
|
|
|
(86
|
)%
|
|
17,542
|
|
Total Homebuilding revenues
|
1,396,730
|
|
|
26
|
%
|
|
1,105,700
|
|
Home sale cost of revenues
(a)
|
1,089,329
|
|
|
30
|
%
|
|
841,145
|
|
Land sale cost of revenues
|
2,028
|
|
|
(85
|
)%
|
|
13,378
|
|
Selling, general, and administrative
expenses ("SG&A")
|
191,015
|
|
|
18
|
%
|
|
161,312
|
|
Other expense (income), net
|
5,925
|
|
|
(771
|
)%
|
|
(883
|
)
|
Income before income taxes
|
$
|
108,433
|
|
|
19
|
%
|
|
$
|
90,748
|
|
Supplemental data
:
|
|
|
|
|
|
Gross margin from home sales
|
21.9
|
%
|
|
(80 bps)
|
|
|
22.7
|
%
|
SG&A as a percentage of home
sale revenues
|
13.7
|
%
|
|
(110 bps)
|
|
|
14.8
|
%
|
Closings (units)
|
3,945
|
|
|
17
|
%
|
|
3,365
|
|
Average selling price
|
$
|
353
|
|
|
9
|
%
|
|
$
|
323
|
|
Net new orders
(b)
:
|
|
|
|
|
|
Units
|
5,652
|
|
|
10
|
%
|
|
5,139
|
|
Dollars
|
$
|
2,113,973
|
|
|
24
|
%
|
|
$
|
1,708,390
|
|
Cancellation rate
|
13
|
%
|
|
|
|
11
|
%
|
Active communities at March 31
|
709
|
|
|
16
|
%
|
|
613
|
|
Backlog at March 31:
|
|
|
|
|
|
Units
|
8,755
|
|
|
15
|
%
|
|
7,624
|
|
Dollars
|
$
|
3,359,157
|
|
|
31
|
%
|
|
$
|
2,564,092
|
|
|
|
(a)
|
Includes the amortization of capitalized interest.
|
|
|
(b)
|
Net new orders excludes backlog acquired from Wieland in January 2016. 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 the
three months ended
March 31, 2016
were higher than the prior year period by
$306.1 million
. The
28%
increase
was attributable to a
9%
increase
in average selling price and a
17%
increase
in closings, both of which include the assets acquired from Wieland during the quarter. Such assets contributed 5% to the growth in revenue, including 3% to the growth in closings and 1% to the increase in average selling price. Excluding the assets acquired from Wieland, the
increase
in closings reflects the significant investments we are making in opening new communities. The higher average selling price reflects an ongoing shift toward move-up buyers, the inclusion of luxury homes offered in Wieland communities, and generally stable market conditions.
Home sale gross margins
Home sale gross margins were
21.9%
for the
three months ended
March 31, 2016
, compared to
22.7%
for the
three months ended
March 31, 2015
. The assets acquired from Wieland contributed 80 basis points to this decrease, primarily as the result of required fair value adjustments associated with the acquired homes in production and related lots. Gross margins remain strong relative to historical levels and reflect a combination of factors, including shifts in community mix, relatively stable pricing conditions, and lower amortized interest costs (1.9% and 2.9% for the
three months ended
March 31, 2016
and 2015, respectively), offset by higher house construction and land costs. The lower amortized interest costs resulted from the reduction in our outstanding debt in recent years. We anticipate that our amortized interest costs as a percentage of revenues will remain below 2015 levels for the remainder of 2016, even after consideration of our recently completed offering of senior notes (see
Note 4
).
Land sales
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 sale revenues and their related gains or losses vary between periods, depending on the timing of land sales and our strategic operating decisions. Land sales had margin contributions of
$0.5 million
and
$4.2 million
for the
three months ended
March 31, 2016
and 2015, respectively.
SG&A
SG&A as a percentage of home sale revenues was
13.7%
for the
three months ended
March 31, 2016
, compared with
14.8%
for the
three months ended
March 31, 2015
. The gross dollar amount of our SG&A increased
$29.7 million
, or
18%
, for the
three months ended
March 31, 2016
compared to the
three months ended
March 31, 2015
. This increase in gross dollar SG&A is in line with the increase in closings and reflects the addition of field resources to manage increasing production volumes. Additionally, SG&A for the
three months ended
March 31, 2016
reflects the impact of transaction ($4.0 million) and integration costs associated with the assets acquired from Wieland in January 2016.
Equity in earnings of unconsolidated entities
Equity in earnings of unconsolidated entities was
$0.2 million
and
$1.1 million
for the
three months ended
March 31, 2016
and 2015, respectively. The majority of our unconsolidated entities represent land development joint ventures. As a result, the timing of income and losses varies between periods depending on the timing of transactions and circumstances specific to each entity.
Other expense, net
Other expense, net includes the following ($000’s omitted):
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
March 31,
|
2016
|
|
2015
|
Write-off of deposits and pre-acquisition costs
|
$
|
3,041
|
|
|
$
|
1,869
|
|
Amortization of intangible assets
|
3,450
|
|
|
3,225
|
|
Interest income
|
(923
|
)
|
|
(1,099
|
)
|
Interest expense
|
174
|
|
|
187
|
|
Equity in earnings of unconsolidated entities
|
(170
|
)
|
|
(1,107
|
)
|
Miscellaneous, net
|
353
|
|
|
(3,958
|
)
|
|
$
|
5,925
|
|
|
$
|
(883
|
)
|
Net new orders
Net new orders
increased
10%
in units and
24%
in dollars for the
three months ended
March 31, 2016
, compared with the
three months ended
March 31, 2015
. The assets acquired from Wieland in January 2016 contributed 3% and 4%, respectively, to this growth. Excluding the Wieland assets, our growth in net new order units resulted from the higher number of active communities while the growth in net new order dollars was also impacted by the higher average selling price. The cancellation rate (canceled orders for the period divided by gross new orders for the period) was
13%
and
11%
for the
three months ended
March 31, 2016
and 2015, respectively. Ending backlog units and dollars, which represent orders for homes that have not yet closed,
increased
15%
and
31%
, respectively, at
March 31, 2016
compared with
March 31, 2015
, as a result of the higher net new order volume. The growth in backlog dollars was also impacted by the higher average selling price.
Homes in production
The following is a summary of our homes in production at
March 31, 2016
and
March 31, 2015
:
|
|
|
|
|
|
|
|
March 31,
2016
|
|
March 31,
2015
|
Sold
|
5,778
|
|
|
4,355
|
|
Unsold
|
|
|
|
Under construction
|
1,630
|
|
|
687
|
|
Completed
|
501
|
|
|
345
|
|
|
2,131
|
|
|
1,032
|
|
Models
|
1,079
|
|
|
987
|
|
Total
|
8,988
|
|
|
6,374
|
|
The number of homes in production at
March 31, 2016
was
41%
higher than at
March 31, 2015
due to a number of factors, including the higher net new order volume and backlog and a decision to purposefully increase the number of unsold homes under construction ("spec homes"). The increase in spec homes reflects our intention to achieve a more even production cycle over the course of 2016 compared with 2015. Though inventory levels will fluctuate throughout the year, we expect our overall level of spec starts to moderate over the year. As part of our inventory management strategies, we will continue to maintain reasonable inventory levels relative to demand in each of our markets.
Controlled lots
The following is a summary of our lots under control at
March 31, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
|
Owned
|
|
Optioned
|
|
Controlled
|
|
Owned
|
|
Optioned
|
|
Controlled
|
Northeast
|
6,324
|
|
|
4,555
|
|
|
10,879
|
|
|
6,361
|
|
|
4,114
|
|
|
10,475
|
|
Southeast
(a)
|
16,924
|
|
|
8,980
|
|
|
25,904
|
|
|
11,161
|
|
|
7,933
|
|
|
19,094
|
|
Florida
|
21,447
|
|
|
8,819
|
|
|
30,266
|
|
|
21,230
|
|
|
9,636
|
|
|
30,866
|
|
Midwest
|
13,011
|
|
|
7,284
|
|
|
20,295
|
|
|
13,093
|
|
|
6,985
|
|
|
20,078
|
|
Texas
|
13,739
|
|
|
7,671
|
|
|
21,410
|
|
|
13,308
|
|
|
7,052
|
|
|
20,360
|
|
West
|
31,135
|
|
|
5,763
|
|
|
36,898
|
|
|
30,766
|
|
|
6,440
|
|
|
37,206
|
|
Total
|
102,580
|
|
|
43,072
|
|
|
145,652
|
|
|
95,919
|
|
|
42,160
|
|
|
138,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed (%)
|
28
|
%
|
|
15
|
%
|
|
24
|
%
|
|
28
|
%
|
|
12
|
%
|
|
23
|
%
|
|
|
(a)
|
Southeast includes the acquisition of substantially all of the assets of Wieland in January 2016 (see
Note 1
).
|
Of our controlled lots,
102,580
and
95,919
were owned and
43,072
and
42,160
were controlled under land option agreements at
March 31, 2016
and
December 31, 2015
, respectively. While competition for well-positioned land is robust, we continue to pursue strategic land positions that drive appropriate returns on invested capital. The remaining purchase price under our land option agreements totaled
$2.3 billion
at
March 31, 2016
. These land option agreements, which generally may be canceled at our discretion and in certain cases extend over several years, are secured by deposits and pre-acquisition costs totaling
$183.0 million
at
March 31, 2016
, of which
$7.6 million
is refundable.
Homebuilding Segment Operations
As of
March 31, 2016
, we conducted our operations in
48
markets located throughout
25
states. For reporting purposes, our Homebuilding operations are aggregated into six reportable segments:
|
|
|
|
Northeast:
|
|
Connecticut, Maryland, Massachusetts, New Jersey, New York, Pennsylvania, Virginia
|
Southeast:
|
|
Georgia, North Carolina, South Carolina, Tennessee
|
Florida:
|
|
Florida
|
Midwest:
|
|
Illinois, Indiana, Kentucky, Michigan, Minnesota, Missouri, Ohio
|
Texas:
|
|
Texas
|
West:
|
|
Arizona, California, Nevada, New Mexico, Washington
|
The following tables present selected financial information for our reportable Homebuilding segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Data by Segment ($000's omitted)
|
|
Three Months Ended
|
|
March 31,
|
|
2016
|
|
2016 vs. 2015
|
|
2015
|
Home sale revenues:
|
|
|
|
|
|
Northeast
|
$
|
118,654
|
|
|
8
|
%
|
|
$
|
109,763
|
|
Southeast
(a)
|
293,424
|
|
|
58
|
%
|
|
185,788
|
|
Florida
|
269,701
|
|
|
33
|
%
|
|
202,540
|
|
Midwest
|
189,147
|
|
|
6
|
%
|
|
177,874
|
|
Texas
|
212,692
|
|
|
21
|
%
|
|
176,446
|
|
West
|
310,625
|
|
|
32
|
%
|
|
235,747
|
|
|
$
|
1,394,243
|
|
|
28
|
%
|
|
$
|
1,088,158
|
|
Income (loss) before income taxes:
|
|
|
|
|
|
Northeast
|
$
|
9,590
|
|
|
1
|
%
|
|
$
|
9,527
|
|
Southeast
(a)
|
19,770
|
|
|
(20
|
)%
|
|
24,624
|
|
Florida
|
40,302
|
|
|
21
|
%
|
|
33,224
|
|
Midwest
|
5,620
|
|
|
376
|
%
|
|
1,180
|
|
Texas
|
28,517
|
|
|
25
|
%
|
|
22,791
|
|
West
|
33,507
|
|
|
8
|
%
|
|
31,079
|
|
Other homebuilding
(b)
|
(28,873
|
)
|
|
(9
|
)%
|
|
(31,677
|
)
|
|
$
|
108,433
|
|
|
19
|
%
|
|
$
|
90,748
|
|
Closings (units):
|
|
|
|
|
|
Northeast
|
262
|
|
|
6
|
%
|
|
248
|
|
Southeast
(a)
|
826
|
|
|
35
|
%
|
|
612
|
|
Florida
|
745
|
|
|
24
|
%
|
|
601
|
|
Midwest
|
552
|
|
|
(3
|
)%
|
|
569
|
|
Texas
|
775
|
|
|
4
|
%
|
|
746
|
|
West
|
785
|
|
|
33
|
%
|
|
589
|
|
|
3,945
|
|
|
17
|
%
|
|
3,365
|
|
Average selling price:
|
|
|
|
|
|
Northeast
|
$
|
453
|
|
|
2
|
%
|
|
$
|
443
|
|
Southeast
(a)
|
355
|
|
|
17
|
%
|
|
304
|
|
Florida
|
362
|
|
|
7
|
%
|
|
337
|
|
Midwest
|
343
|
|
|
10
|
%
|
|
313
|
|
Texas
|
274
|
|
|
16
|
%
|
|
237
|
|
West
|
396
|
|
|
(1
|
)%
|
|
400
|
|
|
$
|
353
|
|
|
9
|
%
|
|
$
|
323
|
|
|
|
(a)
|
Southeast includes the acquisition of substantially all of the assets of Wieland in January 2016 (see
Note 1
).
|
|
|
(b)
|
Other homebuilding includes the amortization of intangible assets, amortization of capitalized interest, and other items not allocated to the operating segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Data by Segment ($000's omitted)
|
|
Three Months Ended
|
|
March 31,
|
|
2016
|
|
2016 vs. 2015
|
|
2015
|
Net new orders - units:
|
|
|
|
|
|
Northeast
|
378
|
|
|
(14
|
)%
|
|
437
|
|
Southeast
(a)
|
1,052
|
|
|
12
|
%
|
|
938
|
|
Florida
|
923
|
|
|
1
|
%
|
|
911
|
|
Midwest
|
994
|
|
|
30
|
%
|
|
763
|
|
Texas
|
1,121
|
|
|
—
|
%
|
|
1,117
|
|
West
|
1,184
|
|
|
22
|
%
|
|
973
|
|
|
5,652
|
|
|
10
|
%
|
|
5,139
|
|
Net new orders - dollars:
|
|
|
|
|
|
Northeast
|
$
|
187,277
|
|
|
(5
|
)%
|
|
$
|
196,256
|
|
Southeast
(a)
|
396,328
|
|
|
34
|
%
|
|
295,106
|
|
Florida
|
338,685
|
|
|
3
|
%
|
|
330,255
|
|
Midwest
|
362,141
|
|
|
32
|
%
|
|
274,555
|
|
Texas
|
306,578
|
|
|
13
|
%
|
|
271,993
|
|
West
|
522,964
|
|
|
54
|
%
|
|
340,225
|
|
|
$
|
2,113,973
|
|
|
24
|
%
|
|
$
|
1,708,390
|
|
Cancellation rates:
|
|
|
|
|
|
Northeast
|
10
|
%
|
|
|
|
10
|
%
|
Southeast
(a)
|
12
|
%
|
|
|
|
7
|
%
|
Florida
|
11
|
%
|
|
|
|
9
|
%
|
Midwest
|
10
|
%
|
|
|
|
12
|
%
|
Texas
|
16
|
%
|
|
|
|
13
|
%
|
West
|
14
|
%
|
|
|
|
14
|
%
|
|
13
|
%
|
|
|
|
11
|
%
|
Unit backlog:
|
|
|
|
|
|
Northeast
|
560
|
|
|
(14
|
)%
|
|
650
|
|
Southeast
(a)
|
1,689
|
|
|
31
|
%
|
|
1,294
|
|
Florida
|
1,452
|
|
|
11
|
%
|
|
1,312
|
|
Midwest
|
1,531
|
|
|
11
|
%
|
|
1,382
|
|
Texas
|
1,691
|
|
|
3
|
%
|
|
1,644
|
|
West
|
1,832
|
|
|
37
|
%
|
|
1,342
|
|
|
8,755
|
|
|
15
|
%
|
|
7,624
|
|
Backlog dollars:
|
|
|
|
|
|
Northeast
|
$
|
280,155
|
|
|
(7
|
)%
|
|
$
|
302,469
|
|
Southeast
(a)
|
689,334
|
|
|
68
|
%
|
|
410,351
|
|
Florida
|
559,266
|
|
|
17
|
%
|
|
477,682
|
|
Midwest
|
555,354
|
|
|
19
|
%
|
|
466,718
|
|
Texas
|
469,546
|
|
|
15
|
%
|
|
406,971
|
|
West
|
805,502
|
|
|
61
|
%
|
|
499,901
|
|
|
$
|
3,359,157
|
|
|
31
|
%
|
|
$
|
2,564,092
|
|
|
|
(a)
|
Southeast includes the acquisition of substantially all of the assets of Wieland in January 2016 (see
Note 1
).
|
Northeast
For the
first
quarter of
2016
, Northeast home sale revenues
increased
8%
compared with the prior year period due to a
2%
increase
in the average selling price combined with a
6%
increase
in closings. The
increase
in average selling price was mainly in the Northeast Corridor and New England. The
increase
in closings occurred mainly in Northeast Corridor, while New England decreased. Net new orders
decreased
14%
, primarily in New England and Northeast Corridor.
Southeast
For the
first
quarter of
2016
, the Southeast was significantly impacted by the acquisition of substantially all of the assets of Wieland in January 2016 (see
Note 1
). Southeast home sale revenues
increased
58%
compared with the prior year as the result of increases in closings and average selling prices of
35%
and
17%
, respectively. These increases are largely due to contributions from the assets acquired from Wieland. Excluding those closings, revenues still increased significantly compared with the prior year, and occurred across all operating divisions. Income before income taxes
decreased
20%
as result of transaction ($4.0 million) and integration costs associated with the assets acquired from Wieland. Net new orders
increased
12%
, primarily due to the assets acquired from Wieland.
Florida
For the
first
quarter of
2016
, Florida home sale revenues
increased
33%
compared with the prior year period due to a
24%
increase
in closings combined with a
7%
increase
in the average selling price. The average selling price increased across all divisions. Income before income taxes
increased
due to improved overhead leverage and higher revenues. Net new orders remained flat overall.
Midwest
For the
first
quarter of
2016
, Midwest home sale revenues
increased
6%
compared with the prior year period due to a
10%
increase
in average selling price, partially offset by a
3%
decrease
in closings. The
increase
in average selling price was concentrated mainly in Michigan, Illinois, and St. Louis while the
decrease
in closings was attributable primarily to Columbus and Kentucky. The
increased
revenues led to an
increase
in income before income taxes. Net new orders
increased
30%
on a 6% increase in active communities. Net new orders
increased
across all divisions with the exception of Michigan.
Texas
For the
first
quarter of
2016
, Texas home sale revenues
increased
21%
compared with the prior year period due to a
4%
increase
in closings combined with a
16%
increase
in the average selling price. The higher average selling price was broad-based across all divisions, while the increased closings occurred primarily in Dallas. The increased revenues and closings led to an
increase
in income before income taxes of
25%
. Net new orders remained flat year over year with an increase in Dallas that resulted primarily from a higher community count offset by softer demand in Houston and San Antonio.
West
For the
first
quarter of
2016
, West home sale revenues
increased
32%
compared with the prior year period due to a
33%
increase
in closings, offset by a
1%
decrease
in average selling price. The increased closings were mainly in Northern California and Arizona. Income before income taxes
increased
by
8%
due to higher revenues offset by lower gross margins. Net new orders
increased
22%
partially due to a 10% increase in active communities. Net new orders increased in all divisions except for small declines in Southern California and New Mexico.
Financial Services Operations
We conduct our Financial Services operations, which include mortgage and title 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. Substantially all of the loans we originate are sold in the secondary market within a short period of time after origination, generally within 30 days. We also sell the servicing rights for the loans we originate through fixed price servicing sales contracts to reduce the risks and costs inherent in servicing loans. This strategy results in owning the loans and related servicing rights for only a short period of time. Operating as a captive business model primarily targeted to supporting our Homebuilding operations, the business levels of our Financial Services operations are highly correlated to Homebuilding. Our Homebuilding customers continue to account for substantially all loan production. We believe that our capture rate, which represents loan originations from our Homebuilding operations as a percentage of total loan opportunities from our Homebuilding operations, excluding cash closings, is an important metric in evaluating the effectiveness of our captive mortgage business model. The following tables present selected financial information for our Financial Services operations ($000's omitted):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
|
|
2016
|
|
2016 vs. 2015
|
|
2015
|
Mortgage operations revenues
|
$
|
28,316
|
|
|
28
|
%
|
|
$
|
22,113
|
|
Title services revenues
|
7,532
|
|
|
37
|
%
|
|
5,485
|
|
Total Financial Services revenues
|
35,848
|
|
|
30
|
%
|
|
27,598
|
|
Expenses
|
26,119
|
|
|
16
|
%
|
|
22,541
|
|
Other expense (income), net
|
(51
|
)
|
|
100
|
%
|
|
—
|
|
Income before income taxes
|
$
|
9,780
|
|
|
93
|
%
|
|
$
|
5,057
|
|
Total originations
:
|
|
|
|
|
|
Loans
|
2,548
|
|
|
20
|
%
|
|
2,116
|
|
Principal
|
$
|
666,647
|
|
|
29
|
%
|
|
$
|
514,788
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
|
|
2016
|
|
2015
|
Supplemental data:
|
|
|
|
Capture rate
|
81.1
|
%
|
|
81.6
|
%
|
Average FICO score
|
749
|
|
|
750
|
|
Loan application backlog
|
$
|
1,793,635
|
|
|
$
|
1,424,004
|
|
Funded origination breakdown:
|
|
|
|
FHA
|
10
|
%
|
|
11
|
%
|
VA
|
11
|
%
|
|
13
|
%
|
USDA
|
1
|
%
|
|
1
|
%
|
Other agency
|
71
|
%
|
|
69
|
%
|
Total agency
|
93
|
%
|
|
94
|
%
|
Non-agency
|
7
|
%
|
|
6
|
%
|
Total funded originations
|
100
|
%
|
|
100
|
%
|
Revenues
Total Financial Services revenues for the
three months ended
March 31, 2016
increased
30%
compared to the prior year period. These changes were primarily related to higher loan origination volume resulting from higher volumes in the Homebuilding segment combined with higher revenues per loan, which were attributable to a higher average loan size combined with a modest improvement in loan pricing. While loan pricing has come under pressure in recent months as industry refinancing volume has receded, the overall pricing environment for new originations remains favorable.
Income before income taxes
Income before income taxes for the
three months ended
March 31, 2016
increased
93%
compared to the prior year period. This increase resulted primarily from the
30%
increase in revenues and better overhead leverage as expenses only increased
16%
.
Income Taxes
Our effective tax rate for the
three months ended
March 31, 2016
was
29.5%
, which includes the favorable resolution of certain state income tax matters, compared to
42.6%
for the same period in 2015, which reflected an adjustment to deferred taxes due to changes in state laws and business operations.
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 other available financing sources, including revolving bank credit and securities offerings, and may determine that modifications to our financing are appropriate.
At
March 31, 2016
, we had unrestricted cash and equivalents of
$995.7 million
, senior notes of
$2.6 billion
, and borrowings of
$498.8 million
under a term loan (net of discounts and issuance costs). We also had restricted cash balances of
$22.4 million
. 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. We monitor our investments with each bank and do not believe our cash and equivalents are exposed to any material risk of loss. However, there can be no assurances that losses of principal balance on our cash and equivalents will not occur.
Our ratio of debt to total capitalization, excluding our Financial Services debt, was
39.1%
at
March 31, 2016
.
Senior unsecured notes
On
February 25, 2016
, we issued
$1.0 billion
of senior unsecured notes, consisting of
$300 million
of
4.25%
senior notes due
March 1, 2021
, and
$700 million
of
5.50%
senior notes due
March 1, 2026
. The net proceeds from the senior notes will be used to fund the retirement of
$465.2 million
of our senior notes maturing in May 2016, with the remaining net proceeds to be used for general corporate purposes.
Revolving credit facility
We maintain a senior unsecured revolving credit facility (the “Revolving Credit Facility”) that matures in July 2017. The Revolving Credit Facility provides for maximum borrowings of
$500.0 million
and contains an uncommitted accordion feature that could increase the size of the Revolving Credit Facility to
$1.0 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 available borrowing capacity under the Revolving Credit Facility and may total no more than the greater of: (i)
50%
of the size of the facility or (ii)
$300.0 million
in the aggregate. The interest rate on borrowings under the Revolving Credit Facility may be based on either the London Interbank Offered Rate ("LIBOR") or a base rate plus an applicable margin, as defined. We had
no
borrowings outstanding and
$213.4 million
and
$191.3 million
of letters of credit issued under the Revolving Credit Facility at
March 31, 2016
and
December 31, 2015
, respectively.
The Revolving Credit Facility contains financial covenants that require us to maintain a minimum Tangible Net Worth, a minimum Interest Coverage Ratio, and a maximum Debt-to-Capitalization Ratio (as each term is defined in the Revolving
Credit Facility). As of
March 31, 2016
, we were in compliance with all covenants. Outstanding balances under the Revolving Credit Facility are guaranteed by certain of our wholly-owned subsidiaries.
Term loan
On September 30, 2015, we entered into a senior unsecured
$500.0 million
term loan agreement (the “Term Loan”) with an initial maturity date of January 3, 2017, which can be extended at our option up to 12 months. The interest rate on the Term Loan may be based on either LIBOR or a base rate plus an applicable margin, as defined. Borrowings are interest only with the principal being due at the maturity date and are guaranteed by certain of our wholly-owned subsidiaries. The Term Loan contains customary affirmative and negative covenants for loans of this type, including the same financial covenants as under the Revolving Credit Facility. As of
March 31, 2016
, we were in compliance with all covenants.
Limited recourse notes payable
Certain of our local homebuilding operations maintain limited recourse collateralized notes payable with third parties that totaled
$36.3 million
at
March 31, 2016
and
$35.3 million
at
December 31, 2015
. These notes have maturities ranging up to
six
years, are collateralized by the applicable land positions to which they relate, have no recourse to any other assets, and are classified within accrued and other liabilities. The stated interest rates on these notes range up to
5.00%
.
Pulte Mortgage
Pulte Mortgage maintains a master repurchase agreement (the “Repurchase Agreement”) with third party lenders that expires in
September 2016
. The Repurchase Agreement's borrowing capacity was
$310.0 million
through January 18, 2016, after which it decreased to
$175.0 million
through July 28, 2016, after which it increases to
$200.0 million
. The purpose for 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. Pulte Mortgage had
$118.6 million
and
$267.9 million
outstanding under the Repurchase Agreement at
March 31, 2016
and
December 31, 2015
, respectively, and was in compliance with all of its covenants and requirements as of such dates.
Dividends and share repurchase program
During the
three months ended
March 31, 2016
, we declared cash dividends totaling
$31.5 million
and repurchased
3.1 million
shares under our repurchase authorization for a total of
$50.0 million
. Such repurchases are reflected as reductions of common stock and retained earnings. At
March 31, 2016
, we had remaining authorization to repurchase
$554.8 million
of common shares.
Cash flows
Operating activities
Our net cash used in operating activities for the
three months ended
March 31, 2016
was
$64.1 million
, compared with net cash used in operating activities of
$25.4 million
for the
three months ended
March 31, 2015
. Generally, the primary drivers of our cash flow from operations are profitability and changes in inventory levels. The negative cash flow from operations for the
three months ended
March 31, 2016
was primarily due to a net increase in inventories of
$381.9 million
resulting from an increase in land acquisition and development investment, combined with a seasonal build of house inventory. These uses of cash were partially offset by our pretax income of
$118.2 million
combined with a seasonal reduction of
$151.9 million
in residential mortgage loans available-for-sale.
Our negative cash flow from operations for the
three months ended
March 31, 2015
, was primarily due to a net increase in inventories of
$231.0 million
resulting from increased investment, partially offset by our pretax income of
$95.8 million
combined with a seasonal reduction of
$120.0 million
in residential mortgage loans available-for-sale.
Investing activities
Investing activities are generally not a significant source or use of cash for us. Net cash used by investing activities for the
three months ended
March 31, 2016
was
$451.8 million
, compared with net cash used by investing activities of
$9.9 million
for the
three months ended
March 31, 2015
. The cash used in investing activities for the
three months ended
March 31, 2016
was primarily due to the acquisition of certain real estate assets from Wieland (see
Note 1
).
Financing activities
Net cash provided by financing activities for the
three months ended
March 31, 2016
totaled
$757.3 million
, compared with net cash used in financing activities of
$203.7 million
for the
three months ended
March 31, 2015
. The net cash provided by financing activities for the
three months ended
March 31, 2016
resulted primarily from the proceeds of the senior unsecured notes issuance for
$991.6 million
, offset by a reduction due to the repurchase of
3.1 million
common shares for
$50.0 million
under our repurchase authorization, payment of
$31.6 million
in cash dividends, and net repayments of
$149.3 million
for borrowings under the Repurchase Agreement related to a seasonal reduction in residential mortgage loans available-for-sale. Net cash used in financing activities for the
three months ended
ended
March 31, 2015
resulted primarily from repayments of
$72.7 million
for borrowings under the Repurchase Agreement and the repurchase of
4.6 million
common shares for
$99.6 million
under our repurchase authorization.
Inflation
We, and the homebuilding industry in general, may be adversely affected during periods of inflation because of higher land and construction costs. Inflation may also increase our financing costs. In addition, higher mortgage interest rates affect the affordability of our products to prospective homebuyers. While we attempt to pass on to our customers increases in our costs through increased sales prices, market forces may limit our ability to do so. If we are unable to raise sales prices enough to compensate for higher costs, or if mortgage interest rates increase significantly, our revenues, gross margins, and net income could be adversely affected.
Seasonality
Although significant changes in market conditions have impacted our seasonal patterns in the past and could do so again, we historically experience 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.
Contractual Obligations and Commercial Commitments
We issued
$1.0 billion
of senior unsecured notes in February 2016. The repayment terms are described in
Note 4
. There have been no other material changes to our contractual obligations from those disclosed in our "Contractual Obligations and Commercial Commitments" contained in Item 7,
Management's Discussion and Analysis of Financial Condition and Results of Operation
s included in our Annual Report on Form 10-K for the year ended
December 31, 2015
.
Off-Balance Sheet Arrangements
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
March 31, 2016
, we had outstanding letters of credit totaling
$213.4 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
$1.1 billion
at
March 31, 2016
, are typically outstanding over a period of approximately three to five years. Because significant construction and development work has been performed related to projects that have 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
March 31, 2016
, these agreements had an aggregate remaining purchase price of
$2.3 billion
. 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.
At
March 31, 2016
, aggregate outstanding debt of unconsolidated joint ventures was
$12.7 million
, of which our proportionate share was
$5.1 million
. Of this amount, we provided limited recourse guaranties for less than
$0.3 million
at
March 31, 2016
.
Critical Accounting Policies and Estimates
There have been no significant changes to our critical accounting policies and estimates during the
three months ended
March 31, 2016
compared with those contained in Item 7,
Management's Discussion and Analysis of Financial Condition and Results of Operations
included in our Annual Report on Form 10-K for the year ended
December 31, 2015
.