NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies
Basis of presentation
PulteGroup, Inc. is one of the largest homebuilders in the U.S., and our common shares trade 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 consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles and include the accounts of PulteGroup, Inc. and all of its direct and indirect subsidiaries and variable interest entities in which PulteGroup, Inc. is deemed to be the primary beneficiary. All significant intercompany accounts, transactions, and balances have been eliminated in consolidation.
Business acquisitions
We acquired substantially all of the assets of JW Homes ("Wieland") in January 2016, for
$430.5 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 resulted in goodwill of
$40.4 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.
We acquired certain real estate assets from Dominion Homes in August 2014 for
$82.4 million
in cash and the assumption of certain payables related to such assets. The net assets acquired were located primarily in Columbus, Ohio, and Louisville, Kentucky, and included approximately
8,200
lots, including approximately
400
homes in inventory and control of approximately
900
lots through land option contracts. We also assumed a sales order backlog of
622
homes. The acquired net assets were recorded at their estimated fair values. 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. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Reclassifications
In January 2016, we adopted 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 6
.
In December 2016, we early adopted ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash” that requires the statement of cash flows to explain the change during the period in the total of cash, cash equivalents, and amounts described as restricted cash or restricted cash equivalents. Restricted cash and restricted cash equivalents are included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.
Effective with our
fourth
quarter
2016
reporting, we reclassified our unbilled insurance receivables to other assets from accrued and other liabilities. Additionally, we reclassified sales commissions expense from home sale cost of revenues to selling, general, and administrative expenses in order to be more consistent with a majority of our peers. This
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
had the effect of reducing home sale cost of revenues while increasing selling, general, and administrative expenses by the amount of sales commissions, which totaled
$268.3 million
,
$204.9 million
, and
$193.6 million
, or
3.6
percent,
3.5
percent, and
3.4
percent of home sale revenues, for the years ended
December 31, 2016
,
2015
, and
2014
, respectively.
All prior period amounts have been reclassified to conform to the current presentation.
Subsequent events
We evaluated subsequent events up until the time the financial statements were filed with the Securities and Exchange Commission ("SEC").
Cash and equivalents
Cash and equivalents include institutional money market investments and time deposits with a maturity of three months or less when acquired. Cash and equivalents at
December 31, 2016
and
2015
also included
$66.5 million
and
$27.5 million
, respectively, of cash from home closings held in escrow for our benefit, typically for less than five days, which are considered deposits in-transit.
Restricted cash
We maintain certain cash balances that are restricted as to their use, including customer deposits on home sales that are temporarily restricted by regulatory requirements until title transfers to the homebuyer. Total cash, cash equivalents, and restricted cash includes restricted cash balances of
$24.4 million
and
$21.3 million
at
December 31, 2016
and
2015
, respectively.
Investments in unconsolidated entities
We have investments in a number of unconsolidated entities, including joint ventures, with independent third parties. The equity method of accounting is used for unconsolidated entities over which we have significant influence; generally this represents ownership interests of at least 20% and not more than 50%. Under the equity method of accounting, we recognize our proportionate share of the earnings and losses of these entities. Certain of these entities sell land to us. We defer the recognition of profits from such activities until the time we ultimately sell the related land.
We evaluate our investments in unconsolidated entities for recoverability in accordance with Accounting Standards Codification (“ASC”) 323, “Investments – Equity Method and Joint Ventures” (“ASC 323”). If we determine that a loss in the value of the investment is other than temporary, we write down the investment to its estimated fair value. Any such losses are recorded to equity in (earnings) loss of unconsolidated entities. Due to uncertainties in the estimation process and the significant volatility in demand for new housing, actual results could differ significantly from such estimates. See
Note 5
.
Intangible assets
Goodwill, which represents the cost of acquired businesses in excess of the fair value of the net assets of such businesses at the acquisition date, was recorded as the result of the Wieland acquisition and totaled
$40.4 million
at
December 31, 2016
. We assess goodwill for impairment annually in the fourth quarter and if events or changes in circumstances indicate the carrying amount may not be recoverable.
Intangible assets also includes tradenames acquired in connection with the 2016 acquisition of Wieland, the 2009 acquisition of Centex Corporation ("Centex"), and the 2001 acquisition of Del Webb Corporation, all of which are being amortized over
20
-year lives. The acquired cost and accumulated amortization of our tradenames were
$277.0 million
and
$162.6 million
, respectively, at
December 31, 2016
, and
$259.0 million
and
$148.8 million
, respectively, at
December 31, 2015
. Amortization expense totaled
$13.8 million
,
$12.9 million
and
$13.0 million
in
2016
,
2015
, and
2014
, respectively, and is expected to be
$13.8 million
in each of the next five years. The ultimate realization of these assets is dependent upon the future cash flows and benefits that we expect to generate from their use. We assess tradenames for impairment if events or changes in circumstances indicate the carrying amount may not be recoverable.
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Property and equipment, net, and depreciation
Property and equipment are recorded at cost. Maintenance and repair costs are expensed as incurred. Depreciation is computed by the straight-line method based upon estimated useful lives as follows: model home furniture -
two
years; office furniture and equipment -
three
to
ten
years; and leasehold improvements - life of the lease. Property and equipment are included in other assets and totaled
$77.4 million
net of accumulated depreciation of
$192.9 million
at
December 31, 2016
and
$86.3 million
net of accumulated depreciation of
$185.8 million
at
December 31, 2015
. Depreciation expense totaled
$40.2 million
,
$33.3 million
, and
$26.8 million
in
2016
,
2015
, and
2014
, respectively.
Advertising costs
Advertising costs are expensed to selling, general, and administrative expense as incurred and totaled
$50.7 million
,
$45.3 million
, and
$41.8 million
, in
2016
,
2015
, and
2014
, respectively.
Employee benefits
We maintain defined contribution retirement plans that cover substantially all of our employees. Company contributions to the plans totaled
$14.6 million
,
$12.6 million
, and
$12.1 million
in
2016
,
2015
, and
2014
, respectively.
Other expense, net
Other expense, net consists of the following ($000’s omitted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Write-offs of deposits and pre-acquisition costs
(Note 3)
|
$
|
17,157
|
|
|
$
|
5,021
|
|
|
$
|
6,099
|
|
|
657
|
|
|
—
|
|
|
8,584
|
|
Lease exit and related costs
(a)
|
11,643
|
|
|
2,463
|
|
|
9,609
|
|
Amortization of intangible assets
(Note 1)
|
13,800
|
|
|
12,900
|
|
|
13,033
|
|
Equity in (earnings) loss of unconsolidated entities (
Note 5
)
|
(8,337
|
)
|
|
(7,355
|
)
|
|
(8,226
|
)
|
Interest income
|
(3,236
|
)
|
|
(3,107
|
)
|
|
(4,632
|
)
|
Interest expense
|
686
|
|
|
788
|
|
|
849
|
|
Miscellaneous, net
(b)
|
16,444
|
|
|
6,653
|
|
|
1,420
|
|
Total other expense, net
|
$
|
48,814
|
|
|
$
|
17,363
|
|
|
$
|
26,736
|
|
|
|
(a)
|
Lease exit and related costs for
2016
resulted from actions taken to reduce overheads and the substantial completion of our corporate headquarters relocation from Michigan to Georgia, which began in 2013 (see
Note 2
). Costs for
2015
and
2014
are primarily attributable to those same relocation efforts.
|
|
|
(b)
|
Miscellaneous, net includes a charge of
$15.0 million
in
2016
related to the settlement of a disputed land transaction and a charge of
$20.0 million
in
2015
resulting from the Applecross matter (see
Note 12
).
|
Earnings per share
Basic earnings per share is computed by dividing income available to common shareholders (the “Numerator”) by the weighted-average number of common shares, adjusted for 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 share units, and other potentially dilutive instruments. Any stock options that have an exercise price greater than the average market price of our common shares are considered anti-dilutive and excluded from the diluted earnings per share calculation. Our earnings per share excluded
1.8 million
,
3.9 million
, and
6.6 million
potentially dilutive instruments in
2016
,
2015
, and
2014
, respectively.
In accordance with ASC 260 "Earnings Per Share" ("ASC 260"), the two-class method determines earnings per share for each class of common share 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
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
December 31, 2014
|
Numerator:
|
|
|
|
|
|
Net income
|
$
|
602,703
|
|
|
$
|
494,090
|
|
|
$
|
474,338
|
|
Less: earnings distributed to participating securities
|
(1,100
|
)
|
|
(755
|
)
|
|
(583
|
)
|
Less: undistributed earnings allocated to participating securities
|
(3,622
|
)
|
|
(2,448
|
)
|
|
(2,668
|
)
|
Numerator for basic earnings per share
|
$
|
597,981
|
|
|
$
|
490,887
|
|
|
$
|
471,087
|
|
Add back: undistributed earnings allocated to participating securities
|
3,622
|
|
|
2,448
|
|
|
2,668
|
|
Less: undistributed earnings reallocated to participating securities
|
(3,602
|
)
|
|
(2,429
|
)
|
|
(2,643
|
)
|
Numerator for diluted earnings per share
|
$
|
598,001
|
|
|
$
|
490,906
|
|
|
$
|
471,112
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
Basic shares outstanding
|
339,747
|
|
|
356,576
|
|
|
370,377
|
|
Effect of dilutive securities
|
2,376
|
|
|
3,217
|
|
|
3,725
|
|
Diluted shares outstanding
|
342,123
|
|
|
359,793
|
|
|
374,102
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
Basic
|
$
|
1.76
|
|
|
$
|
1.38
|
|
|
$
|
1.27
|
|
Diluted
|
$
|
1.75
|
|
|
$
|
1.36
|
|
|
$
|
1.26
|
|
Share-based compensation
We measure compensation cost for restricted shares and restricted share units at fair value on the grant date. Fair value is determined based on the quoted price of our common shares on the grant date. We recognize compensation expense for restricted shares and restricted share units, the majority of which cliff vest at the end of
three years
, ratably over the vesting period. For share-based awards containing performance conditions, we recognize compensation expense ratably over the vesting period when it is probable that the stated performance targets will be achieved and record cumulative adjustments in the period in which estimates change. Compensation expense related to our share-based awards is included in selling, general, and administrative expense, except for a small portion recognized in Financial Services expenses. See
Note 8
.
Income taxes
The provision for income taxes is calculated using the asset and liability method, under which deferred tax assets and liabilities are recognized by identifying the temporary differences arising from the different treatment of items for tax and accounting purposes. In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is primarily dependent upon the generation of future taxable income. In determining the future tax consequences of events that have been recognized in the financial statements or tax returns, judgment is required. Differences between the anticipated and actual outcomes of these future tax consequences could have a material impact on our consolidated results of operations or financial position.
Unrecognized tax benefits represent the difference between tax positions taken or expected to be taken in a tax return and the benefits recognized for financial statement purposes. We follow the provisions of ASC 740, “Income Taxes” (“ASC 740”), which prescribes a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. Significant judgment is required to evaluate uncertain tax positions. Our evaluations
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
of tax positions consider a variety of factors, including changes in facts or circumstances, changes in law, correspondence with taxing authorities, and effective settlements of audit issues. Changes in the recognition or measurement of uncertain tax positions could result in material increases or decreases in income tax expense (benefit) in the period in which the change is made. Interest and penalties related to unrecognized tax benefits are recognized as a component of income tax expense (benefit). See
Note 9
.
Homebuilding revenue recognition
Homebuilding revenue and related profit are generally recognized when title to and possession of the property are transferred to the buyer. In situations where the buyer’s financing is originated by Pulte Mortgage and the buyer has not made an adequate initial or continuing investment, the profit on such sale is deferred until the sale of the related loan to a third-party investor has been completed. If there is a loss on the sale of the property, the loss on such sale is recognized at the time of closing. The amount of such deferred profits was not material at either
December 31, 2016
or
2015
.
Sales incentives
When sales incentives involve a discount on the selling price of the home, we record the discount as a reduction of revenue at the time of house closing. If the sales incentive requires us to provide a free product or service to the customer, the cost of the free product or service is recorded as cost of revenues at the time of house closing. This includes the cost related to optional upgrades and seller-paid financing costs, closing costs, homeowners’ association fees, or merchandise.
Inventory and cost of revenues
Inventory is stated at cost unless the carrying value is determined to not be recoverable, in which case the affected inventory is written down to fair value. Cost includes land acquisition, land development, and home construction costs, including interest, real estate taxes, and certain direct and indirect overhead costs related to development and construction. For those communities for which construction and development activities have been idled, applicable interest and real estate taxes are expensed as incurred. Land acquisition and development costs are allocated to individual lots using an average lot cost determined based on the total expected land acquisition and development costs and the total expected home closings for the community. The specific identification method is used to accumulate home construction costs.
We capitalize interest cost into homebuilding inventories. Each layer of capitalized interest is amortized over a period that approximates the average life of communities under development. Interest expense is allocated over the period based on the timing of home closings.
Cost of revenues includes the construction cost, average lot cost, estimated warranty costs, and closing costs applicable to the home. Sales commissions are classified within selling, general, and administrative expenses. The construction cost of the home includes amounts paid through the closing date of the home, plus an accrual for costs incurred but not yet paid. Total community land acquisition and development costs are based on an analysis of budgeted costs compared with actual costs incurred to date and estimates to complete. The development cycles for our communities range from under one year to in excess of ten years for certain master planned communities. Adjustments to estimated total land acquisition and development costs for the community affect the amounts costed for the community’s remaining lots.
We test inventory for impairment when events and circumstances indicate that the cash flows estimated to be generated by the community are less than its carrying amount. Such indicators include gross margins or sales paces significantly below expectations, construction costs or land development costs significantly in excess of budgeted amounts, significant delays or changes in the planned development for the community, and other known qualitative factors. Communities that demonstrate potential impairment indicators are tested for impairment by comparing the expected undiscounted cash flows for the community to its carrying value. For those communities whose carrying values exceed the expected undiscounted cash flows, we estimate the fair value of the community, and impairment charges are recorded if the fair value of the community's inventory is less than its carrying value.
We generally determine the fair value of a community's inventory using a combination of discounted cash flow models and market comparable transactions, where available. These estimated cash flows are significantly impacted by estimates related to expected average selling prices, expected sales paces, expected land development and construction timelines, and anticipated land development, construction, and overhead costs. The assumptions used in the discounted cash flow models are specific to each community. Our evaluations for impairments are based on our best estimates of the future cash flows
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
for our communities. Due to uncertainties in the estimation process, the significant volatility in demand for new housing, the long life cycles of many communities, and potential changes in our strategy related to certain communities, actual results could differ significantly from such estimates. See
Note 3
.
Land held for sale
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 held for sale is recorded at the lower of cost or fair value less costs to sell. In determining the value of land held for sale, we consider recent offers received, prices for land in recent comparable sales transactions, and other factors. We record net realizable value adjustments for land held for sale within Homebuilding land sale cost of revenues. See
Note 3
.
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. See
Note 3
.
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
December 31, 2016
or
2015
because we determined that we were not the primary beneficiary. Our maximum exposure to loss related to these VIEs is generally limited to our deposits and pre-acquisition costs under the applicable land option agreements. The following provides a summary of our interests in land option agreements ($000’s omitted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 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
|
$
|
68,527
|
|
|
$
|
849,901
|
|
|
$
|
77,641
|
|
|
$
|
1,064,506
|
|
Other land options
|
126,909
|
|
|
1,252,662
|
|
|
84,478
|
|
|
981,687
|
|
|
$
|
195,436
|
|
|
$
|
2,102,563
|
|
|
$
|
162,119
|
|
|
$
|
2,046,193
|
|
Start-up costs
Costs and expenses associated with opening new communities are expensed to selling, general, and administrative expenses as incurred.
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 10 years. We estimate the costs to be incurred under these warranties and record a liability in the amount of such costs at the time revenue is recognized.
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Self-insured risks
We maintain, and require the majority of our subcontractors to maintain, general liability insurance coverage, including coverage for certain construction defects. 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, subject to certain self-insured per occurrence and aggregate retentions, deductibles, and available policy limits. However, we retain a significant portion of the overall risk for such claims. We reserve for these costs 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, which include estimates of claims incurred but not yet reported. Adjustments to estimated reserves are recorded in the period in which the change in estimate occurs. In certain instances, we have the ability to recover a portion of our costs under various insurance policies or from our subcontractors or other third parties. Estimates of such amounts are recorded when recovery is considered probable. See
Note 12
.
Residential mortgage loans available-for-sale
Substantially all of the loans originated by us and their related servicing rights are sold in the secondary mortgage market within a short period of time after origination, generally within 30 days. In accordance with ASC 825, “Financial Instruments” (“ASC 825”), we use the fair value option to record residential mortgage loans available-for-sale. Election of the fair value option for these loans allows a better offset of the changes in fair values of the loans and the derivative instruments used to economically hedge them without having to apply complex hedge accounting provisions. We do not designate any derivative instruments as hedges or apply the hedge accounting provisions of ASC 815, “Derivatives and Hedging.” See
Note 12
for discussion of the risks retained related to mortgage loan originations.
Expected gains and losses from the sale of residential mortgage loans and their related servicing rights are included in the measurement of written loan commitments that are accounted for at fair value through Financial Services revenues at the time of commitment. Subsequent changes in the fair value of these loans are reflected in Financial Services revenues as they occur. At
December 31, 2016
and
2015
, residential mortgage loans available-for-sale had an aggregate fair value of
$539.5 million
and
$442.7 million
, respectively, and an aggregate outstanding principal balance of
$529.7 million
and
$429.6 million
, respectively. The net gain (loss) resulting from changes in fair value of these loans totaled
$2.8 million
and
$(0.3) million
for the years ended
December 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 during
2016
,
2015
, and
2014
were
$109.6 million
,
$80.8 million
, and
$67.2 million
, respectively, and have been included in Financial Services revenues.
Mortgage servicing rights
We 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 servicing rights for only a short period of time. We recognize the fair value of our rights to service a loan as revenue at the time of entering into an interest rate lock commitment with a borrower. Due to the short period of time the servicing rights are held, we do not amortize the servicing asset. The servicing sales contracts provide for the reimbursement of payments made by the purchaser if loans prepay within specified periods of time, generally within
90
to
120
days after sale. We establish reserves for this liability at the time the sale is recorded. Such reserves were immaterial at
December 31, 2016
and
2015
.
Loans held for investment
We maintain a portfolio of loans that either have been repurchased from investors or were not saleable upon closing. We have the intent and ability to hold these loans for the foreseeable future or until maturity or payoff. These loans are reviewed annually for impairment, or when recoverability becomes doubtful. Loans held for investment are included in other assets and totaled
$8.4 million
and
$7.6 million
at
December 31, 2016
and
2015
, respectively.
Interest income on mortgage loans
Interest income on mortgage loans is recorded in Financial Services revenues, accrued from the date a mortgage loan is originated until the loan is sold, and totaled
$8.0 million
,
$6.9 million
, and
$7.2 million
in
2016
,
2015
, and
2014
, respectively. Loans are placed on non-accrual status once they become greater than
90
days past due their contractual
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
terms. Subsequent payments received are applied according to the contractual terms of the loan. Mortgage discounts are not amortized as interest income due to the short period the loans are held until sale to third party investors.
Mortgage servicing, origination, and commitment fees
Mortgage servicing fees represent fees earned for servicing loans for various investors. Servicing fees are based on a contractual percentage of the outstanding principal balance, or a contracted set fee in the case of certain sub-servicing arrangements, and are credited to income when related mortgage payments are received or the sub-servicing fees are earned. Loan origination costs related to residential mortgage loans available-for-sale are recognized as incurred in Financial Services expenses while the associated mortgage origination fees are recognized in Financial Services revenues as earned, generally upon loan closing.
Title services
Revenues associated with our title operations are recognized within Financial Services revenues as closing services are rendered and title insurance policies are issued, both of which generally occur as each home is closed.
Derivative instruments and hedging activities
We are party to interest rate lock commitments ("IRLCs") with customers resulting from our mortgage origination operations. At
December 31, 2016
and
2015
, we had aggregate IRLCs of
$273.9 million
and
$208.2 million
, respectively, which were originated at interest rates prevailing at the date of commitment. Since we can terminate a loan commitment if the borrower does not comply with the terms of the contract, and some loan commitments may expire without being drawn upon, these commitments do not necessarily represent future cash requirements. We evaluate the creditworthiness of these transactions through our normal credit policies.
We hedge our exposure to interest rate market risk relating to residential mortgage loans available-for-sale and IRLCs using 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, and whole loan investor commitments, which are obligations of an investor to buy loans at a specified price within a specified time period. 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 extend an interest rate lock to a loan applicant until the time the loan is sold to an investor. At
December 31, 2016
and
2015
, we had unexpired forward contracts of
$610.0 million
and
$525.0 million
, respectively, and whole loan investor commitments of
$157.6 million
and
$77.6 million
, respectively. Changes in the fair value of IRLCs 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.
There are no credit-risk-related contingent features within our derivative agreements, and counterparty risk is considered minimal. Gains and losses on IRLCs 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
90
days.
The fair values of derivative instruments and their location in the Consolidated Balance Sheets are summarized below ($000’s omitted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
Other Assets
|
|
Other Liabilities
|
|
Other Assets
|
|
Other Liabilities
|
Interest rate lock commitments
|
$
|
9,194
|
|
|
$
|
501
|
|
|
$
|
5,854
|
|
|
$
|
280
|
|
Forward contracts
|
8,085
|
|
|
1,004
|
|
|
1,178
|
|
|
840
|
|
Whole loan commitments
|
1,135
|
|
|
863
|
|
|
358
|
|
|
345
|
|
|
$
|
18,414
|
|
|
$
|
2,368
|
|
|
$
|
7,390
|
|
|
$
|
1,465
|
|
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
New accounting pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU No. 2014-09, "Revenue from Contracts with Customers". The standard is a comprehensive new revenue recognition model that requires revenue to be recognized in a manner depicting 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. The FASB has also issued a number of updates to this standard. The standard is effective for us for annual and interim periods beginning January 1, 2018, and, at that time, we expect to apply the modified retrospective method of adoption. We continue to evaluate 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. Adoption of ASU 2014-15 as of December 31, 2016, did not impact our financial statements or disclosures.
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 is effective for us for annual and interim periods beginning January 1, 2019, and early adoption is permitted. The standard 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 2016-09"), which includes multiple amendments intended to simplify aspects of share-based payment accounting. ASU 2016-09 will be effective for us for annual and interim periods beginning after January 1, 2017. Amendments to the presentation of employee taxes on the statement of cash flows 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. Amendments to the timing of when excess tax benefits are recognized, 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. Preliminarily, we expect the cumulative-effect adjustment to increase the January 1, 2017, opening retained earnings and deferred tax assets by
$18.6 million
from previously unrecognized excess tax benefits (see
Note 9
). We do not expect the remaining aspects of adopting ASU 2016-09 to have a material impact on our financial statements.
In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13"), which changes the impairment model for most financial assets and certain other instruments from an "incurred loss" approach to a new "expected credit loss" methodology and also requires that credit losses from available-for-sale debt securities be presented as an allowance instead of a write-down. ASU 2016-13 is effective for us for annual and interim periods beginning January 1, 2020, with early adoption permitted, and requires full retrospective application on adoption. We are currently evaluating the impact the standard will have on our financial statements.
In August 2016, the FASB issued ASU No. 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments" ("ASU 2016-15"), which addresses several specific cash flow issues. ASU 2016-15 is effective for us for annual and interim periods beginning January 1, 2018, with early adoption permitted, and requires full retrospective application on adoption. We do not expect ASU 2016-15 to have a material impact on our financial statements.
In January 2017, the FASB issued ASU No. 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment." ("ASU 2017-04"), which removes the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for us for annual and interim periods beginning January 1, 2020, with early adoption permitted, and applied prospectively. We do not expect ASU 2017-04 to have a material impact on our financial statements.
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. Corporate office relocation
In May 2013, we announced our plan to relocate our corporate offices to Atlanta, Georgia, from the previous location in Bloomfield Hills, Michigan. The relocation of operations occurred in phases over time and was substantially complete in 2016. We recorded employee severance, retention, relocation, and related expenses of
$1.0 million
,
$2.0 million
, and
$7.6 million
in
2016
,
2015
, and
2014
, respectively. We also recorded lease exit and asset impairment expenses totaling
$7.3 million
,
$2.3 million
, and
$8.7 million
in
2016
,
2015
, and
2014
, respectively. Severance, retention, relocation, and related expenses are recorded within selling, general, and administrative expense, while lease exit and asset impairment expenses are included in other expense, net.
3. Inventory and land held for sale
Major components of inventory at
December 31, 2016
and
2015
were ($000’s omitted):
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Homes under construction
|
$
|
1,921,259
|
|
|
$
|
1,408,260
|
|
Land under development
|
4,072,109
|
|
|
3,259,066
|
|
Raw land
|
777,287
|
|
|
782,732
|
|
|
$
|
6,770,655
|
|
|
$
|
5,450,058
|
|
In all periods presented, we capitalized all Homebuilding interest costs into inventory because the level of our active inventory exceeded our debt levels. Activity related to interest capitalized into inventory is as follows ($000’s omitted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Interest in inventory, beginning of period
|
$
|
149,498
|
|
|
$
|
167,638
|
|
|
$
|
230,922
|
|
Interest capitalized
|
160,506
|
|
|
120,001
|
|
|
131,444
|
|
Interest expensed
|
(123,907
|
)
|
|
(138,141
|
)
|
|
(194,728
|
)
|
Interest in inventory, end of period
|
$
|
186,097
|
|
|
$
|
149,498
|
|
|
$
|
167,638
|
|
Land-related charges
We recorded the following land-related charges ($000's omitted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Land impairments
|
$
|
1,074
|
|
|
$
|
7,347
|
|
|
$
|
3,911
|
|
Net realizable value adjustments ("NRV") - land held for sale
|
1,105
|
|
|
(901
|
)
|
|
1,158
|
|
Write-offs of deposits and pre-acquisition costs
|
17,157
|
|
|
5,021
|
|
|
6,099
|
|
Total land-related charges
|
$
|
19,336
|
|
|
$
|
11,467
|
|
|
$
|
11,168
|
|
Land held for sale
Land held for sale at
December 31, 2016
and
2015
was as follows ($000’s omitted):
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Land held for sale, gross
|
$
|
38,157
|
|
|
$
|
86,913
|
|
Net realizable value reserves
|
(6,429
|
)
|
|
(5,421
|
)
|
Land held for sale, net
|
$
|
31,728
|
|
|
$
|
81,492
|
|
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. 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. Home sale revenues for detached and attached homes were
$6.5 billion
and
$996.4 million
in
2016
,
$5.0 billion
and
$841.5 million
in
2015
, and
$4.8 billion
and
$885.8 million
in
2014
, respectively. 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. The Financial Services segment operates generally in the same markets as the Homebuilding segments. Evaluation of segment performance is generally based on income before income taxes. Each reportable segment generally follows the same accounting policies described in
Note 1
.
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Data by Segment ($000’s omitted)
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Revenues:
|
|
|
|
|
|
Northeast
|
$
|
696,463
|
|
|
$
|
682,112
|
|
|
$
|
710,859
|
|
Southeast
(a)
|
1,491,270
|
|
|
1,058,089
|
|
|
949,635
|
|
Florida
|
1,284,753
|
|
|
1,019,733
|
|
|
917,956
|
|
Midwest
|
1,234,650
|
|
|
1,020,691
|
|
|
872,241
|
|
Texas
|
1,034,673
|
|
|
845,772
|
|
|
859,165
|
|
West
|
1,745,541
|
|
|
1,214,814
|
|
|
1,386,869
|
|
|
7,487,350
|
|
|
5,841,211
|
|
|
5,696,725
|
|
Financial Services
|
181,126
|
|
|
140,753
|
|
|
125,638
|
|
Consolidated revenues
|
$
|
7,668,476
|
|
|
$
|
5,981,964
|
|
|
$
|
5,822,363
|
|
|
|
|
|
|
|
Income before income taxes:
|
|
|
|
|
|
Northeast
(b)
|
$
|
81,991
|
|
|
$
|
82,616
|
|
|
$
|
103,865
|
|
Southeast
(a)
|
145,011
|
|
|
172,330
|
|
|
156,513
|
|
Florida
|
205,049
|
|
|
196,525
|
|
|
190,441
|
|
Midwest
|
120,159
|
|
|
91,745
|
|
|
78,863
|
|
Texas
|
152,355
|
|
|
121,329
|
|
|
133,005
|
|
West
|
225,771
|
|
|
169,394
|
|
|
254,724
|
|
Other homebuilding
(c)
|
(69,570
|
)
|
|
(76,622
|
)
|
|
(282,234
|
)
|
|
860,766
|
|
|
757,317
|
|
|
635,177
|
|
Financial Services
(d)
|
73,084
|
|
|
58,706
|
|
|
54,581
|
|
Consolidated income before income taxes
|
$
|
933,850
|
|
|
$
|
816,023
|
|
|
$
|
689,758
|
|
|
|
(a)
|
Southeast includes the acquisition in January 2016 of substantially all of the assets of Wieland (see
Note 1
).
|
|
|
(b)
|
Northeast includes a charge of
$15.0 million
in
2016
related to the settlement of a disputed land transaction and a charge of
$20.0 million
in
2015
resulting from the Applecross matter (see
Note 12
).
|
|
|
(c)
|
Other homebuilding includes the amortization of intangible assets, amortization of capitalized interest, and other items not allocated to the operating segments, in addition to: losses on debt retirements of
$0.7 million
and
$8.6 million
in
2016
and
2014
, respectively (see
Note 6
); adjustments to insurance reserves relating to a reversal of
$55.2 million
in
2016
, reversals totaling
$62.2 million
in
2015
, and a charge of
$69.3 million
in
2014
(see
Note 12
); and costs associated with the relocation of our corporate headquarters totaling
$8.3 million
,
$4.4 million
, and
$16.3 million
in
2016
,
2015
, and
2014
, respectively (see
Note 2
).
|
|
|
(d)
|
Financial Services included reductions in loan origination liabilities totaling
$11.8 million
and
$18.6 million
in
2015
and
2014
, respectively (see
Note 12
).
|
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Data by Segment ($000's omitted)
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Land-related charges*:
|
|
|
|
|
|
Northeast
|
$
|
2,079
|
|
|
$
|
3,301
|
|
|
$
|
2,824
|
|
Southeast
|
3,089
|
|
|
3,022
|
|
|
1,826
|
|
Florida
|
715
|
|
|
4,555
|
|
|
487
|
|
Midwest
|
3,383
|
|
|
2,319
|
|
|
2,347
|
|
Texas
|
515
|
|
|
295
|
|
|
321
|
|
West
|
8,960
|
|
|
(2,615
|
)
|
|
1,696
|
|
Other homebuilding
|
595
|
|
|
590
|
|
|
1,667
|
|
|
$
|
19,336
|
|
|
$
|
11,467
|
|
|
$
|
11,168
|
|
|
|
*
|
Land-related charges include land impairments, net realizable value adjustments for land held for sale, and write-offs of deposits and pre-acquisition costs for land option contracts we elected not to pursue. Other homebuilding consists primarily of write-offs of capitalized interest related to such land-related charges. See
Note 1
for additional discussion of these charges.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Data by Segment ($000's omitted)
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Depreciation and amortization:
|
|
|
|
|
|
Northeast
|
$
|
2,133
|
|
|
$
|
1,682
|
|
|
$
|
1,852
|
|
Southeast
|
5,350
|
|
|
3,492
|
|
|
2,666
|
|
Florida
|
4,955
|
|
|
3,536
|
|
|
2,150
|
|
Midwest
|
5,099
|
|
|
5,019
|
|
|
3,153
|
|
Texas
|
3,673
|
|
|
2,928
|
|
|
1,698
|
|
West
|
6,739
|
|
|
5,995
|
|
|
5,263
|
|
Other homebuilding
(a)
|
22,467
|
|
|
20,254
|
|
|
19,548
|
|
|
50,416
|
|
|
42,906
|
|
|
36,330
|
|
Financial Services
|
3,591
|
|
|
3,316
|
|
|
3,534
|
|
|
$
|
54,007
|
|
|
$
|
46,222
|
|
|
$
|
39,864
|
|
|
|
(a)
|
Other homebuilding includes amortization of intangible assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Data by Segment ($000's omitted)
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Equity in (earnings) loss of unconsolidated entities:
|
|
|
|
|
|
Northeast
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
(4,733
|
)
|
Southeast
|
—
|
|
|
—
|
|
|
—
|
|
Florida
|
(10
|
)
|
|
2
|
|
|
(7
|
)
|
Midwest
|
78
|
|
|
(337
|
)
|
|
(481
|
)
|
Texas
|
—
|
|
|
—
|
|
|
—
|
|
West
|
(6,759
|
)
|
|
(5,107
|
)
|
|
(2,422
|
)
|
Other homebuilding
|
(1,117
|
)
|
|
(1,915
|
)
|
|
(583
|
)
|
|
(7,806
|
)
|
|
(7,355
|
)
|
|
(8,226
|
)
|
Financial Services
|
(531
|
)
|
|
—
|
|
|
(182
|
)
|
|
$
|
(8,337
|
)
|
|
$
|
(7,355
|
)
|
|
$
|
(8,408
|
)
|
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Data by Segment
|
|
($000's omitted)
|
|
December 31, 2016
|
|
Homes Under
Construction
|
|
Land Under
Development
|
|
Raw Land
|
|
Total
Inventory
|
|
Total
Assets
|
Northeast
|
$
|
175,253
|
|
|
$
|
375,899
|
|
|
$
|
135,447
|
|
|
$
|
686,599
|
|
|
$
|
798,369
|
|
Southeast
(a)
|
354,047
|
|
|
650,805
|
|
|
148,793
|
|
|
1,153,645
|
|
|
1,243,188
|
|
Florida
|
309,525
|
|
|
683,376
|
|
|
183,168
|
|
|
1,176,069
|
|
|
1,330,847
|
|
Midwest
|
256,649
|
|
|
474,287
|
|
|
50,302
|
|
|
781,238
|
|
|
851,457
|
|
Texas
|
219,606
|
|
|
413,312
|
|
|
74,750
|
|
|
707,668
|
|
|
793,917
|
|
West
|
580,082
|
|
|
1,226,190
|
|
|
159,387
|
|
|
1,965,659
|
|
|
2,200,058
|
|
Other homebuilding
(b)
|
26,097
|
|
|
248,240
|
|
|
25,440
|
|
|
299,777
|
|
|
2,351,082
|
|
|
1,921,259
|
|
|
4,072,109
|
|
|
777,287
|
|
|
6,770,655
|
|
|
9,568,918
|
|
Financial Services
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
609,282
|
|
|
$
|
1,921,259
|
|
|
$
|
4,072,109
|
|
|
$
|
777,287
|
|
|
$
|
6,770,655
|
|
|
$
|
10,178,200
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
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
|
|
|
2,861,197
|
|
|
1,408,260
|
|
|
3,259,066
|
|
|
782,732
|
|
|
5,450,058
|
|
|
8,680,417
|
|
Financial Services
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
508,989
|
|
|
$
|
1,408,260
|
|
|
$
|
3,259,066
|
|
|
$
|
782,732
|
|
|
$
|
5,450,058
|
|
|
$
|
9,189,406
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
Homes Under
Construction
|
|
Land Under
Development
|
|
Raw Land
|
|
Total
Inventory
|
|
Total
Assets
|
Northeast
|
$
|
184,974
|
|
|
$
|
266,229
|
|
|
$
|
106,077
|
|
|
$
|
557,280
|
|
|
$
|
659,224
|
|
Southeast
|
147,506
|
|
|
304,762
|
|
|
117,981
|
|
|
570,249
|
|
|
605,067
|
|
Florida
|
150,743
|
|
|
350,016
|
|
|
112,225
|
|
|
612,984
|
|
|
717,531
|
|
Midwest
|
176,966
|
|
|
326,549
|
|
|
70,266
|
|
|
573,781
|
|
|
624,815
|
|
Texas
|
134,873
|
|
|
250,102
|
|
|
91,765
|
|
|
476,740
|
|
|
528,392
|
|
West
|
270,060
|
|
|
850,629
|
|
|
230,199
|
|
|
1,350,888
|
|
|
1,485,685
|
|
Other homebuilding
(b)
|
19,015
|
|
|
196,762
|
|
|
34,401
|
|
|
250,178
|
|
|
3,518,508
|
|
|
1,084,137
|
|
|
2,545,049
|
|
|
762,914
|
|
|
4,392,100
|
|
|
8,139,222
|
|
Financial Services
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
420,965
|
|
|
$
|
1,084,137
|
|
|
$
|
2,545,049
|
|
|
$
|
762,914
|
|
|
$
|
4,392,100
|
|
|
$
|
8,560,187
|
|
|
|
(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 CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Investments in unconsolidated entities
We participate in a number of joint ventures with independent third parties. These joint ventures generally purchase, develop, and sell land, including selling land to us for use in our homebuilding operations. A summary of our joint ventures is presented below ($000’s omitted):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
Investments in joint ventures with debt non-recourse to PulteGroup
|
$
|
33,436
|
|
|
$
|
23,236
|
|
Investments in other active joint ventures
|
18,011
|
|
|
18,031
|
|
Total investments in unconsolidated entities
|
$
|
51,447
|
|
|
$
|
41,267
|
|
|
|
|
|
Total joint venture debt
|
$
|
4,605
|
|
|
$
|
16,369
|
|
|
|
|
|
PulteGroup proportionate share of joint venture debt:
|
|
|
|
Joint venture debt with limited recourse guaranties
|
$
|
—
|
|
|
$
|
226
|
|
Joint venture debt non-recourse to PulteGroup
|
1,349
|
|
|
6,744
|
|
PulteGroup's total proportionate share of joint venture debt
|
$
|
1,349
|
|
|
$
|
6,970
|
|
In
2016
,
2015
, and
2014
, we recognized income from unconsolidated joint ventures of
$8.3 million
,
$7.4 million
, and
$8.4 million
, respectively (of which
$0.2 million
related to Financial Services in
2014
). We made capital contributions of
$14.5 million
during the year, and received distributions from our unconsolidated joint ventures of
$10.9 million
,
$6.0 million
, and
$13.1 million
, in
2016
,
2015
, and
2014
, respectively. No significant capital contributions occurred during
2015
, and
2014
.
The timing of cash flows related to a joint venture and any related financing agreements varies by agreement. If additional capital contributions are required and approved by the joint venture, we would need to contribute our pro rata portion of those capital needs in order to not dilute our ownership in the joint ventures. While future capital contributions may be required, we believe the total amount of such contributions will be limited. Our maximum financial exposure related to joint ventures is unlikely to exceed the combined investment and limited recourse guaranty totals.
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. Debt
Our senior notes are summarized as follows ($000’s omitted):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
6.500% unsecured senior notes due May 2016
(a)
|
$
|
—
|
|
|
$
|
465,245
|
|
7.625% unsecured senior notes due October 2017
(b)
|
123,000
|
|
|
123,000
|
|
4.250% unsecured senior notes due March 2021
(a)
|
700,000
|
|
|
—
|
|
5.500% unsecured senior notes due March 2026
(a)
|
700,000
|
|
|
—
|
|
5.000% unsecured senior notes due January 2027
(a)
|
600,000
|
|
|
—
|
|
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)
|
(12,984
|
)
|
|
(12,163
|
)
|
Total senior notes
|
$
|
3,110,016
|
|
|
$
|
1,576,082
|
|
Estimated fair value
|
$
|
3,112,297
|
|
|
$
|
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.
|
The indentures governing the senior notes impose certain restrictions on the incurrence of additional debt along with other limitations. At
December 31, 2016
, we were in compliance with all of the covenants and requirements under the senior notes. Our senior note principal maturities are as follows:
2017
-
$123.0 million
;
2018
through
2020
-
$0.0 million
;
2021
-
$700.0 million
; and thereafter -
$2.3 billion
. Refer to
Note 13
for supplemental consolidating financial information of the Company.
In
February 2016
, we issued
$1.0 billion
of senior unsecured notes, consisting of
$300.0 million
of
4.25%
senior notes due
March 1, 2021
, and
$700.0 million
of
5.50%
senior notes due
March 1, 2026
. The net proceeds from this senior notes issuance were used to fund the retirement of
$465.2 million
of our senior notes that matured in May 2016, with the remaining net proceeds used for general corporate purposes. In
July 2016
, we issued an additional
$1.0 billion
of senior unsecured notes, consisting of an additional
$400.0 million
of the
4.25%
senior notes due
March 1, 2021
, and
$600.0 million
of
5.00%
senior notes due
January 15, 2027
. The net proceeds from the July senior notes issuance were used for general corporate purposes and to pay down approximately
$500.0 million
of outstanding debt, including the remainder of the previously existing term loan facility, which resulted in a write-off of
$0.7 million
of remaining debt issuance costs. The senior notes issued in 2016 are 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.
We retired outstanding debt totaling
$965.2 million
,
$238.0 million
, and
$245.7 million
during
2016
,
2015
, and
2014
, respectively. Certain debt retirements occurred prior to the stated maturity dates and resulted in losses totaling
$0.7 million
and
$8.6 million
in
2016
and
2014
, respectively. Losses on debt repurchase transactions include the write-off of unamortized discounts, premiums, and transaction fees related to the repurchased debt and are reflected in other expense, net.
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Revolving credit facility
In June 2016, we entered into an amended and restated senior unsecured revolving credit facility (the “Revolving Credit Facility”) that provided for an increase in our maximum borrowings from
$500.0 million
to
$750.0 million
and extended the maturity date from July 2017 to
June 2019
. The Revolving Credit Facility contains an uncommitted accordion feature that could increase the size of the Revolving Credit Facility to
$1.25 billion
, subject to certain conditions and availability of additional bank commitments. The Revolving Credit Facility also provides for the issuance of letters of credit that reduce the available borrowing capacity under the Revolving Credit Facility with a sublimit of
$375.0 million
at
December 31, 2016
. The interest rate on borrowings under the Revolving Credit Facility may be based on either the LIBOR or Base Rate plus an applicable margin, as defined therein. We had
no
borrowings outstanding and
$219.1 million
and
$191.3 million
of letters of credit issued under the Revolving Credit Facility at
December 31, 2016
and
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
December 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. Our available and unused borrowings under the Revolving Credit Facility, net of outstanding letters of credit, amounted to
$530.9 million
and
$308.7 million
as of
December 31, 2016
and
2015
, respectively.
Limited recourse notes payable
Certain of our local homebuilding operations maintain limited recourse collateralized notes payable with third parties that totaled
$19.3 million
and
$35.3 million
at
December 31, 2016
and
2015
, respectively. These notes have maturities ranging up to
four
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. In
August 2016
, Pulte amended the Repurchase Agreement to extend the effective date to
August 2017
, and adjusted the maximum aggregate commitment amount according to seasonal borrowing capacity needs. In December 2016, Pulte Mortgage again amended its Repurchase Agreement to increase the maximum aggregate commitment amount to cover seasonal borrowing capacity needs. The maximum aggregate commitment was
$360.0 million
during the seasonally high borrowing period from December 27, 2016 through January 12, 2017. At all other times, the maximum aggregate commitment ranges from
$175.0 million
to
$200.0 million
. The purpose of the changes in capacity during the term of the agreement is to lower associated fees during seasonally lower volume periods of mortgage origination activity. Borrowings under the Repurchase Agreement are secured by residential mortgage loans available-for-sale. The Repurchase Agreement contains various affirmative and negative covenants applicable to Pulte Mortgage, including quantitative thresholds related to net worth, net income, and liquidity. Pulte Mortgage had
$331.6 million
and
$267.9 million
outstanding under the Repurchase Agreement at
December 31, 2016
, and
2015
, respectively, and was in compliance with its covenants and requirements as of such dates.
The following is aggregate borrowing information for our mortgage operations ($000’s omitted):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
2015
|
Available credit lines
|
$
|
360,000
|
|
|
$
|
310,000
|
|
Unused credit lines
|
$
|
28,379
|
|
|
$
|
42,123
|
|
Weighted-average interest rate
|
2.89
|
%
|
|
2.65
|
%
|
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. Shareholders’ equity
Our declared quarterly cash dividends totaled
$122.2 million
,
$117.9 million
, and
$86.4 million
in
2016
,
2015
, and
2014
, respectively. Under the share repurchase program authorized by our Board of Directors, we repurchased
30.9 million
,
21.2 million
, and
12.9 million
shares in
2016
,
2015
, and
2014
, respectively, for a total of
$600.0 million
,
$433.7 million
, and
$245.8 million
in
2016
,
2015
, and
2014
, respectively. At
December 31, 2016
, we had remaining authorization to repurchase
$1.0 billion
of common shares.
Under our stock-based compensation plans, we accept shares as payment under certain conditions related to stock option exercises and vesting of restricted shares and share units, generally related to the payment of tax obligations. During
2016
,
2015
, and
2014
, employees surrendered shares valued at
$3.2 million
,
$9.0 million
, and
$7.2 million
, respectively, under these plans. Such share transactions are excluded from the above noted share repurchase authorization.
8. Stock compensation plans
We maintain a stock award plan for both employees and non-employee directors. The plan provides for the grant of a variety of equity awards, including options (generally non-qualified options), restricted shares, performance shares, and restricted share units ("RSUs") to key employees (as determined by the Compensation and Management Development Committee of the Board of Directors) for periods not to exceed
ten
years. Non-employee directors are entitled to an annual distribution of stock options, common shares, or RSUs. All options granted to non-employee directors vest immediately and are exercisable for
ten
years from the grant date. Options granted to employees generally vest incrementally over
four
years and are generally exercisable for
ten
years from the vest date. Restricted shares and RSUs generally cliff vest after
three
years. Restricted share holders have voting rights during the vesting period and both restricted share and RSU holders receive cash dividends during the vesting period. Performance shares vest upon attainment of the stated performance targets and minimum service requirements and are converted into common shares upon distribution. RSUs represent the right to receive an equal number of common shares and are converted into common shares upon distribution. As of
December 31, 2016
, there were
26.0 million
shares that remained available for grant under the plan. Our stock compensation expense for the three years ended
December 31, 2016
, is presented below ($000's omitted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Stock options
|
$
|
—
|
|
|
$
|
37
|
|
|
$
|
121
|
|
Restricted shares (including RSUs and performance shares)
|
18,626
|
|
|
16,852
|
|
|
13,690
|
|
Long-term incentive plans
|
3,602
|
|
|
7,863
|
|
|
15,481
|
|
|
$
|
22,228
|
|
|
$
|
24,752
|
|
|
$
|
29,292
|
|
Stock options
A summary of stock option activity for the three years ended
December 31, 2016
, is presented below (000’s omitted, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Shares
|
|
Weighted-
Average
Per Share
Exercise Price
|
|
Shares
|
|
Weighted-
Average
Per Share
Exercise Price
|
|
Shares
|
|
Weighted-
Average
Per Share
Exercise Price
|
Outstanding, beginning of year
|
6,040
|
|
|
$
|
19
|
|
|
9,370
|
|
|
$
|
23
|
|
|
12,887
|
|
|
$
|
23
|
|
Granted
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Exercised
|
(498
|
)
|
|
12
|
|
|
(904
|
)
|
|
12
|
|
|
(1,422
|
)
|
|
11
|
|
Forfeited
|
(1,919
|
)
|
|
34
|
|
|
(2,426
|
)
|
|
37
|
|
|
(2,095
|
)
|
|
29
|
|
Outstanding, end of year
|
3,623
|
|
|
$
|
12
|
|
|
6,040
|
|
|
$
|
19
|
|
|
9,370
|
|
|
$
|
23
|
|
Options exercisable at year end
|
3,623
|
|
|
$
|
12
|
|
|
6,040
|
|
|
$
|
19
|
|
|
9,265
|
|
|
$
|
23
|
|
Weighted-average per share fair value of
options granted during the year
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
|
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table summarizes information about our options outstanding at
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
|
Number
Outstanding
(000's omitted)
|
|
Weighted-
Average
Remaining
Contract Life
(in years)
|
|
Weighted-
Average
Per Share
Exercise Price
|
|
Number
Exercisable
(000's omitted)
|
|
Weighted-
Average Per
Share
Exercise Price
|
$0.01 to $10.00
|
320
|
|
|
3.8
|
|
$
|
8
|
|
|
320
|
|
|
$
|
8
|
|
$10.01 to $20.00
|
3,205
|
|
|
2.5
|
|
12
|
|
|
3,205
|
|
|
12
|
|
$20.01 to $30.00
|
82
|
|
|
0.4
|
|
27
|
|
|
82
|
|
|
27
|
|
$30.01 to $40.00
|
16
|
|
|
0.1
|
|
35
|
|
|
16
|
|
|
35
|
|
|
3,623
|
|
|
2.6
|
|
$
|
12
|
|
|
3,623
|
|
|
$
|
12
|
|
We did not issue any stock options during 2016, 2015, or 2014. As a result, there is
no
unrecognized compensation cost related to stock option awards at
December 31, 2016
. The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option. The aggregate intrinsic value of stock options that were exercised during
2016
,
2015
, and
2014
was
$4.5 million
,
$9.4 million
, and
$14.1 million
, respectively. As of
December 31, 2016
, options outstanding, all of which were exercisable, had an intrinsic value of
$24.3 million
.
Restricted shares (including RSUs and performance shares)
A summary of restricted share activity, including RSUs and performance shares, for the three years ended
December 31, 2016
, is presented below (000’s omitted, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Shares
|
|
Weighted-
Average
Per Share
Grant Date
Fair Value
|
|
Shares
|
|
Weighted-
Average
Per Share
Grant Date
Fair Value
|
|
Shares
|
|
Weighted-
Average
Per Share
Grant Date
Fair Value
|
Outstanding, beginning of
year
|
2,576
|
|
|
$
|
18
|
|
|
2,890
|
|
|
$
|
15
|
|
|
3,211
|
|
|
$
|
11
|
|
Granted
|
1,853
|
|
|
17
|
|
|
932
|
|
|
22
|
|
|
974
|
|
|
19
|
|
Distributed
|
(546
|
)
|
|
20
|
|
|
(1,090
|
)
|
|
10
|
|
|
(1,019
|
)
|
|
10
|
|
Forfeited
|
(909
|
)
|
|
12
|
|
|
(156
|
)
|
|
19
|
|
|
(276
|
)
|
|
15
|
|
Outstanding, end of year
|
2,974
|
|
|
$
|
19
|
|
|
2,576
|
|
|
$
|
18
|
|
|
2,890
|
|
|
$
|
15
|
|
Vested, end of year
|
123
|
|
|
$
|
15
|
|
|
89
|
|
|
$
|
14
|
|
|
75
|
|
|
$
|
13
|
|
During
2016
,
2015
, and
2014
, the total fair value of shares vested during the year was
$11.0 million
,
$10.2 million
, and
$8.1 million
, respectively. Unamortized compensation cost related to restricted share awards was
$18.4 million
at
December 31, 2016
. These costs will be expensed over a weighted-average period of approximately
2
years. Additionally, there were
122,611
RSUs outstanding at
December 31, 2016
, that had vested but had not yet been paid out because the payout date had been deferred by the holder.
Long-term incentive plans
We maintain long-term incentive plans for senior management and other employees that provide awards based on the achievement of stated performance targets over
three
-year periods. Awards are stated in dollars but are settled in common shares based on the stock price at the end of the performance period. If the share price falls below a floor of
$5.00
per share at the end of the performance period or we do not have a sufficient number of shares available under our stock incentive plans at the time of settlement, then a portion of each award will be paid in cash. We adjust the liabilities and recognize the expense associated with the awards based on the probability of achieving the stated performance targets at each reporting period. Liabilities for these awards totaled
$11.2 million
and
$23.2 million
at
December 31, 2016
and
2015
, respectively.
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. Income taxes
Components of current and deferred income tax expense (benefit) are as follows ($000’s omitted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Current expense (benefit)
|
|
|
|
|
|
Federal
|
$
|
9,464
|
|
|
$
|
8,760
|
|
|
$
|
5,619
|
|
State and other
|
(13,104
|
)
|
|
1,474
|
|
|
(13,968
|
)
|
|
$
|
(3,640
|
)
|
|
$
|
10,234
|
|
|
$
|
(8,349
|
)
|
Deferred expense (benefit)
|
|
|
|
|
|
Federal
|
$
|
312,288
|
|
|
$
|
277,895
|
|
|
$
|
232,969
|
|
State and other
|
22,499
|
|
|
33,804
|
|
|
(9,200
|
)
|
|
$
|
334,787
|
|
|
$
|
311,699
|
|
|
$
|
223,769
|
|
Income tax expense (benefit)
|
$
|
331,147
|
|
|
$
|
321,933
|
|
|
$
|
215,420
|
|
The following table reconciles the statutory federal income tax rate to the effective income tax rate:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Income taxes at federal statutory rate
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
State and local income taxes, net of federal tax
|
3.3
|
|
|
2.8
|
|
|
3.0
|
|
Deferred tax asset valuation allowance
|
(2.2
|
)
|
|
0.4
|
|
|
(6.6
|
)
|
Tax contingencies
|
(1.3
|
)
|
|
0.1
|
|
|
(1.4
|
)
|
Other
|
0.7
|
|
|
1.2
|
|
|
1.2
|
|
Effective rate
|
35.5
|
%
|
|
39.5
|
%
|
|
31.2
|
%
|
Our effective tax rate was
35.5%
,
39.5%
and
31.2%
for
2016
,
2015
, and
2014
respectively. The
2016
effective tax rate differs from the federal statutory rate primarily due to state income taxes, the reversal of a portion of our valuation allowance related to a legal entity restructuring, the favorable resolution of certain state income tax matters, the impact on our net deferred tax assets due to changes in business operations and state tax laws, and recognition of energy efficient home credits. The
2015
effective tax rate exceeds the federal statutory rate primarily due to state income taxes and the impact of changes in business operations and state tax laws to our net deferred tax assets. The
2014
effective tax rate is less than the federal statutory rate primarily due to the reversal of a portion of our valuation allowance related to certain state deferred tax assets, along with the favorable resolution of certain federal and state income tax matters.
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Deferred tax assets and liabilities reflect temporary differences arising from the different treatment of items for tax and accounting purposes. Components of our net deferred tax asset are as follows ($000’s omitted):
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
2016
|
|
2015
|
Deferred tax assets:
|
|
|
|
Accrued insurance
|
$
|
220,823
|
|
|
$
|
237,836
|
|
Non-deductible reserves and other
|
140,987
|
|
|
155,488
|
|
Inventory valuation reserves
|
359,964
|
|
|
476,673
|
|
Net operating loss ("NOL") carryforwards:
|
|
|
|
Federal
|
187,817
|
|
|
367,302
|
|
State
|
224,316
|
|
|
274,686
|
|
Alternative minimum tax credit carryforwards
|
53,917
|
|
|
44,161
|
|
Energy and other credit carryforwards
|
45,673
|
|
|
28,669
|
|
|
1,233,497
|
|
|
1,584,815
|
|
Deferred tax liabilities:
|
|
|
|
Capitalized items, including real estate basis differences,
deducted for tax, net
|
(82,445
|
)
|
|
(39,220
|
)
|
Trademarks and tradenames
|
(36,781
|
)
|
|
(41,664
|
)
|
|
(119,226
|
)
|
|
(80,884
|
)
|
Valuation allowance
|
(64,863
|
)
|
|
(109,052
|
)
|
Net deferred tax asset
|
$
|
1,049,408
|
|
|
$
|
1,394,879
|
|
Our gross federal NOL carryforward is approximately
$536.6 million
and expires between
2030
and
2032
. We also have state NOLs in various jurisdictions which may generally be carried forward from
5
to
20
years, depending on the jurisdiction. The
$44.2 million
reduction in the valuation allowance includes a reduction of
$23.6 million
for NOL carryforwards expiring in 2016. There was no income statement or tax rate impact from the NOL carryforward expirations because there was a corresponding reduction to the state NOL deferred tax asset. The remaining state NOL carryforwards expire if unused at various dates as follows: of the total state deferred tax assets,
$13.4 million
from
2017
to
2021
and
$210.9 million
from
2022
and thereafter. In addition, we have federal energy credit carryforwards that expire, if unused, between
2026
and
2036
and alternative minimum tax credits that can be carried forward indefinitely.
We evaluate our deferred tax assets each period to determine if a valuation allowance is required based on whether it is "more likely than not" that some portion of the deferred tax assets would not be realized. The ultimate realization of these deferred tax assets is dependent upon the generation of sufficient taxable income during future periods. We conduct our evaluation by considering all available positive and negative evidence. This evaluation considers, among other factors, historical operating results, forecasts of future profitability, the duration of statutory carryforward periods, and the outlooks for the U.S. housing industry and broader economy.
Our ability to use certain of Centex’s federal losses and credits is limited by Section 382 of the Internal Revenue Code. We do not believe that this limitation will prevent the Company from utilizing these Centex losses and credits. We do believe that full utilization of certain state NOL carryforwards will be limited due to Section 382.
The accounting for deferred taxes is based upon estimates of future results. Differences between estimated and actual results could result in changes in the valuation of our deferred tax assets that could have a material impact on our consolidated results of operations or financial position. Changes in existing tax laws could also affect actual tax results and the realization of deferred tax assets over time.
As a result of certain realization requirements of ASC 718, the table of deferred tax assets and liabilities does not include
$18.6 million
of deferred tax assets as of
December 31, 2016
that arose directly from tax deductions related to equity compensation greater than compensation recognized for financial reporting. As a result of the adoption of ASU No. 2016-09, we expect the cumulative-effect adjustment to increase the January 1, 2017, opening retained earnings and deferred tax assets by
$18.6 million
from these previously unrecognized excess tax benefits.
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Unrecognized tax benefits represent the difference between tax positions taken or expected to be taken in a tax return and the benefits recognized for financial statement purposes. We had
$21.5 million
and
$39.0 million
of gross unrecognized tax benefits at
December 31, 2016
and
2015
, respectively. If recognized,
$14.0 million
and
$25.5 million
, respectively, of these amounts would impact our effective tax rate. Additionally, we had accrued interest and penalties of
$12.2 million
and
$17.2 million
at
December 31, 2016
and
2015
, respectively.
It is reasonably possible within the next twelve months that our gross unrecognized tax benefits may decrease by up to
$17.4 million
, excluding interest and penalties, primarily due to potential settlements. A reconciliation of the change in the unrecognized tax benefits is as follows ($000’s omitted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Unrecognized tax benefits, beginning of period
|
$
|
38,992
|
|
|
$
|
32,911
|
|
|
$
|
173,310
|
|
Increases related to tax positions taken during a prior period
|
224
|
|
|
5,763
|
|
|
—
|
|
Decreases related to tax positions taken during a prior period
|
(13,218
|
)
|
|
—
|
|
|
(133,883
|
)
|
Increases related to tax positions taken during the current
period
|
114
|
|
|
318
|
|
|
237
|
|
Decreases related to settlements with taxing authorities
|
(707
|
)
|
|
—
|
|
|
(6,753
|
)
|
Reductions as a result of a lapse of the applicable statute of
limitations
|
(3,903
|
)
|
|
—
|
|
|
—
|
|
Unrecognized tax benefits, end of period
|
$
|
21,502
|
|
|
$
|
38,992
|
|
|
$
|
32,911
|
|
We continue to participate in the Compliance Assurance Process (“CAP”) with the IRS as an alternative to the traditional IRS examination process. As a result of our participation in CAP, federal tax years 2014 and prior are closed. Tax year 2015 is expected to close by the second quarter of 2017. We are also currently under examination by various state taxing jurisdictions and anticipate finalizing certain of the examinations within the next twelve months. The final outcome of these examinations is not yet determinable. The statute of limitations for our major tax jurisdictions remains open for examination for tax years
2005
to
2016
.
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. 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
|
December 31,
2016
|
|
December 31,
2015
|
|
|
|
|
|
|
|
Measured at fair value on a recurring basis:
|
|
|
|
|
|
|
Residential mortgage loans available-for-sale
|
|
Level 2
|
|
$
|
539,496
|
|
|
$
|
442,715
|
|
Interest rate lock commitments
|
|
Level 2
|
|
8,693
|
|
|
5,574
|
|
Forward contracts
|
|
Level 2
|
|
7,081
|
|
|
338
|
|
Whole loan commitments
|
|
Level 2
|
|
272
|
|
|
13
|
|
|
|
|
|
|
|
|
Measured at fair value on a non-recurring basis:
|
|
|
|
|
|
|
House and land inventory
|
|
Level 3
|
|
$
|
8,920
|
|
|
$
|
11,052
|
|
|
|
|
|
|
|
|
Disclosed at fair value:
|
|
|
|
|
|
|
Cash and equivalents (including restricted cash)
|
|
Level 1
|
|
$
|
723,248
|
|
|
$
|
775,435
|
|
Financial Services debt
|
|
Level 2
|
|
331,621
|
|
|
267,877
|
|
Term loan
|
|
Level 2
|
|
—
|
|
|
500,000
|
|
Senior notes
|
|
Level 2
|
|
3,112,297
|
|
|
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 value included in the above table represent only those assets whose carrying values were adjusted to fair value as of the respective balance sheet dates. See
Note 1
for a more detailed discussion of the valuation methods used for inventory.
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
$3.1 billion
and
$1.6 billion
, at
December 31, 2016
and
2015
, respectively.
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
11. Other assets and accrued and other liabilities
Other assets are presented below ($000’s omitted):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
Accounts and notes receivable:
|
|
|
|
|
$
|
307,344
|
|
|
$
|
362,680
|
|
Notes receivable
|
29,111
|
|
|
28,288
|
|
Other receivables
|
90,714
|
|
|
81,581
|
|
|
427,169
|
|
|
472,549
|
|
Prepaid expenses
|
106,748
|
|
|
109,113
|
|
Deposits and pre-acquisition costs
(Note 1)
|
195,436
|
|
|
162,119
|
|
|
77,444
|
|
|
86,312
|
|
|
9,272
|
|
|
25,080
|
|
Other
|
41,357
|
|
|
38,172
|
|
|
$
|
857,426
|
|
|
$
|
893,345
|
|
We record receivables from various parties in the normal course of business, including amounts due from insurance companies (see
Note 12
), municipalities, and vendors. In certain instances, we may accept consideration for land sales or other transactions in the form of a note receivable.
Accrued and other liabilities are presented below ($000’s omitted):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
|
$
|
831,058
|
|
|
$
|
924,563
|
|
|
35,114
|
|
|
46,381
|
|
Compensation-related liabilities
|
123,730
|
|
|
124,798
|
|
|
66,134
|
|
|
61,179
|
|
Community development district obligations
(Note 12)
|
8,875
|
|
|
11,964
|
|
Accrued interest
|
50,793
|
|
|
20,541
|
|
Limited recourse notes payable
|
19,282
|
|
|
35,336
|
|
Dividends payable
|
29,102
|
|
|
31,568
|
|
Other
|
284,906
|
|
|
260,453
|
|
|
$
|
1,448,994
|
|
|
$
|
1,516,783
|
|
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
12. Commitments and contingencies
Leases
We lease certain property and equipment under non-cancelable operating leases. The future minimum lease payments required under operating leases that have initial or remaining non-cancelable terms in excess of one year as of
December 31, 2016
, are as follows ($000’s omitted):
|
|
|
|
|
Years Ending December 31,
|
|
2017
|
$
|
25,349
|
|
2018
|
22,280
|
|
2019
|
20,266
|
|
2020
|
13,559
|
|
2021
|
9,188
|
|
Thereafter
|
32,282
|
|
Total minimum lease payments
|
$
|
122,924
|
|
Net rental expense for
2016
,
2015
, and
2014
was
$33.0 million
,
$27.7 million
, and
$25.3 million
, respectively. Certain leases contain renewal or purchase options and generally provide that we pay for insurance, taxes, and maintenance.
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. If a loan is determined to be faulty, we either repurchase the loans from the investors or reimburse the investors' losses (a “make-whole” payment).
Estimating the required liability for these potential losses requires a significant level of management judgment. During
2015
and
2014
, we reduced our loan origination liabilities by net reserve releases of
$11.4 million
and
$18.6 million
, respectively, based on probable settlements of various repurchase requests and existing conditions. Reserves provided (released) are reflected in Financial Services expenses. 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Liabilities, beginning of period
|
$
|
46,381
|
|
|
$
|
58,222
|
|
|
$
|
124,956
|
|
Reserves provided (released), net
|
506
|
|
|
(11,433
|
)
|
|
(18,604
|
)
|
Payments
|
(11,773
|
)
|
|
(408
|
)
|
|
(48,130
|
)
|
Liabilities, end of period
|
$
|
35,114
|
|
|
$
|
46,381
|
|
|
$
|
58,222
|
|
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Community development and other special district obligations
A community development district or similar development authority (“CDD”) is a unit of local government created under various state statutes that utilizes the proceeds from the sale of bonds to finance the construction or acquisition of infrastructure assets of a development. A portion of the liability associated with the bonds, including principal and interest, is assigned to each parcel of land within the development. This debt is typically paid by subsequent special assessments levied by the CDD on the landowners. Generally, we are only responsible for paying the special assessments for the period during which we are the landowner of the applicable parcels. However, in certain limited instances we record a liability for future assessments. At
December 31, 2016
and
2015
, we had
$8.9 million
and
$12.0 million
, respectively, in accrued liabilities for outstanding CDD obligations.
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
$219.1 million
and
$1.1 billion
, respectively, at
December 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 bonds is drawn, we would be obligated to reimburse the issuer of the letter of credit or surety bond. We do not believe that a material amount, if any, of the letters of credit or surety bonds will be drawn. Our surety bonds generally do not have stated expiration dates; rather we are released from the surety bonds as the underlying contractual performance is completed. Because significant construction and development work has been performed related to the applicable projects but has not yet received final acceptance by the respective counterparties, the aggregate amount of surety bonds outstanding is in excess of the projected cost of the remaining work to be performed.
Litigation and regulatory matters
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. During 2016, we settled a contract dispute related to a land transaction that we terminated approximately ten years ago in response to a collapse in housing demand. As a result of the settlement, we recorded a charge of
$15.0 million
, which is reflected in other expense, net.
In September 2012, Applecross Club Operations ("Applecross") filed a complaint for breach of contract and promissory estoppel in
Applecross v. Pulte Homes of PA, et al.
The complaint alleged that we induced Applecross to purchase a golf course from us in 2010 by promising to build over 1,000 residential units in a planned community located outside Philadelphia, Pennsylvania. In September 2015, the jury in the case found in favor of Applecross and awarded damages in the amount of
$20.0 million
. We have appealed the award. However, in light of the jury’s verdict, we recorded a reserve of
$20.0 million
in 2015, which is reflected in other expense, net.
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Warranty liabilities, beginning of period
|
$
|
61,179
|
|
|
$
|
65,389
|
|
|
$
|
63,992
|
|
Reserves provided
|
67,169
|
|
|
52,684
|
|
|
51,348
|
|
Payments
|
(55,892
|
)
|
|
(60,968
|
)
|
|
(47,968
|
)
|
Other adjustments
|
(6,322
|
)
|
|
4,074
|
|
|
(1,983
|
)
|
Warranty liabilities, end of period
|
$
|
66,134
|
|
|
$
|
61,179
|
|
|
$
|
65,389
|
|
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 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 omission, workers compensation, and other business insurance coverage. We reserve for costs associated with such claims (including expected claims management expenses) on an undiscounted basis at the time 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 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.
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
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
values can impact the underlying inputs and trends utilized in the actuarial analyses, which could have a material impact on the recorded reserves. Additionally, the amount of insurance coverage available for each policy period also impacts our recorded reserves. Because of the inherent uncertainty in estimating future losses and the timing of such losses related to these claims, actual costs could differ significantly from estimated costs.
Adjustments to reserves are recorded in the period in which the change in estimate occurs. During
2016
and
2015
, we reduced general liability reserves by
$55.2 million
and
$29.6 million
, respectively, as a result of changes in estimates resulting from actual claim experience observed being less than anticipated in previous actuarial projections. During
2015
, we also recorded a general liability reserve reversal of
$32.6 million
, resulting from a legal settlement relating to plumbing claims initially reported to us in 2008 and for which our recorded liabilities were adjusted over time based on changes in facts and circumstances. These claims ultimately resulted in a class action lawsuit involving a national vendor and numerous other homebuilders, homebuyers, and insurance companies. In
2015
, a global settlement was reached, pursuant to which we funded our agreed upon share of settlement costs, which were significantly lower than our previously estimated exposure. During
2014
, we increased general liability insurance reserves by
$69.3 million
, which was primarily driven by estimated costs associated with siding repairs in certain previously completed communities.
The changes in actuarial estimates in
2016
,
2015
, and
2014
were driven by changes in actual claims experience that, in turn, impacted actuarial estimates for potential future claims. These changes in actuarial estimates did not involve any changes in actuarial methodology but did impact the development of estimates for future periods, which resulted in adjustments to the IBNR portion of our recorded liabilities.
Our recorded reserves for all such claims totaled
$831.1 million
and
$924.6 million
at
December 31, 2016
and
2015
, respectively, the vast majority of which relate to general liability claims. The recorded reserves include loss estimates related to both (i) existing claims and related claim expenses and (ii) IBNR and related claim expenses. Liabilities related to IBNR and related claim expenses represented approximately
70%
and
74%
of the total general liability reserves at
December 31, 2016
and
2015
, respectively. The actuarial analyses we use in the determination of 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 relevant industry data. The actuarial analyses of the reserves also consider historical third party recovery rates and claims management expenses. Costs associated with our insurance programs are classified within selling, general, and administrative expenses. Changes in these liabilities were as follows ($000's omitted):
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Balance, beginning of period
|
$
|
924,563
|
|
|
$
|
995,692
|
|
Net reserves provided
|
40,784
|
|
|
16,085
|
|
Payments, net
(a)
|
(134,289
|
)
|
|
(87,214
|
)
|
Balance, end of period
|
$
|
831,058
|
|
|
$
|
924,563
|
|
(a) Includes net changes in amounts expected to be recovered from our insurance carriers, which are recorded to other assets (see below).
In certain instances, we have the ability to recover a portion of our costs under various insurance policies. Estimates of such amounts are recorded when recovery is considered probable. As reflected in
Note 11
, our receivables from insurance carriers totaled
$307.3 million
and
$362.7 million
at
December 31, 2016
and
2015
, respectively. The insurance receivables relate to costs incurred or to be incurred to perform corrective repairs, settle claims with customers, and other costs related to the continued progression of both known and anticipated future construction defect claims that we believe to be insured related to previously closed homes. Given the complexity inherent with resolving construction defect claims in the homebuilding industry as described above, there generally exists a significant lag between our payment of claims and our reimbursements from applicable insurance carriers. In addition, disputes between homebuilders and carriers over coverage positions relating to construction defect claims are common. Resolution of claims with carriers involves the exchange of significant amounts of information and frequently involves legal action. Currently, we are the plaintiff in litigation with certain of our insurance carriers in regard to
$113.6 million
of recorded insurance receivables relating to the applicability of coverage to such costs under their policies.
We believe collection of these insurance receivables, including those in litigation, is probable based on the legal merits of our positions after review by legal counsel, favorable legal rulings received to date, the credit quality of our carriers, and our long history of collecting significant amounts of insurance reimbursements under similar insurance
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
policies related to similar claims, including significant amounts funded by the above carriers under different policies. 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.
13. 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 CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2016
($000’s omitted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated
|
|
Eliminating
Entries
|
|
Consolidated
PulteGroup,
Inc.
|
|
PulteGroup,
Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Cash and equivalents
|
$
|
—
|
|
|
$
|
588,353
|
|
|
$
|
110,529
|
|
|
$
|
—
|
|
|
$
|
698,882
|
|
Restricted cash
|
—
|
|
|
22,832
|
|
|
1,534
|
|
|
—
|
|
|
24,366
|
|
Total cash, cash equivalents, and
restricted cash
|
—
|
|
|
611,185
|
|
|
112,063
|
|
|
—
|
|
|
723,248
|
|
House and land inventory
|
—
|
|
|
6,707,392
|
|
|
63,263
|
|
|
—
|
|
|
6,770,655
|
|
Land held for sale
|
—
|
|
|
31,218
|
|
|
510
|
|
|
—
|
|
|
31,728
|
|
Residential mortgage loans available-
for-sale
|
—
|
|
|
—
|
|
|
539,496
|
|
|
—
|
|
|
539,496
|
|
Investments in unconsolidated entities
|
105
|
|
|
46,248
|
|
|
5,094
|
|
|
—
|
|
|
51,447
|
|
Other assets
|
12,364
|
|
|
716,923
|
|
|
128,139
|
|
|
—
|
|
|
857,426
|
|
Intangible assets
|
—
|
|
|
154,792
|
|
|
—
|
|
|
—
|
|
|
154,792
|
|
Deferred tax assets, net
|
1,051,351
|
|
|
—
|
|
|
(1,943
|
)
|
|
—
|
|
|
1,049,408
|
|
Investments in subsidiaries and
intercompany accounts, net
|
6,835,075
|
|
|
(376,748
|
)
|
|
6,845,781
|
|
|
(13,304,108
|
)
|
|
—
|
|
|
$
|
7,898,895
|
|
|
$
|
7,891,010
|
|
|
$
|
7,692,403
|
|
|
$
|
(13,304,108
|
)
|
|
$
|
10,178,200
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable, customer deposits,
accrued and other liabilities
|
$
|
94,656
|
|
|
$
|
1,755,756
|
|
|
$
|
191,928
|
|
|
$
|
—
|
|
|
$
|
2,042,340
|
|
Income tax liabilities
|
34,860
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
34,860
|
|
Financial Services debt
|
—
|
|
|
—
|
|
|
331,621
|
|
|
—
|
|
|
331,621
|
|
Senior notes
|
3,110,016
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,110,016
|
|
Total liabilities
|
3,239,532
|
|
|
1,755,756
|
|
|
523,549
|
|
|
—
|
|
|
5,518,837
|
|
Total shareholders’ equity
|
4,659,363
|
|
|
6,135,254
|
|
|
7,168,854
|
|
|
(13,304,108
|
)
|
|
4,659,363
|
|
|
$
|
7,898,895
|
|
|
$
|
7,891,010
|
|
|
$
|
7,692,403
|
|
|
$
|
(13,304,108
|
)
|
|
$
|
10,178,200
|
|
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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
|
|
Total cash, cash equivalents, and
restricted cash
|
—
|
|
|
658,876
|
|
|
116,559
|
|
|
—
|
|
|
775,435
|
|
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
|
|
|
763,630
|
|
|
90,724
|
|
|
—
|
|
|
893,345
|
|
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
|
|
|
$
|
7,565,391
|
|
|
$
|
6,951,342
|
|
|
$
|
(12,288,268
|
)
|
|
$
|
9,189,406
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable, customer deposits,
accrued and other liabilities
|
$
|
70,061
|
|
|
$
|
1,791,395
|
|
|
$
|
169,193
|
|
|
$
|
—
|
|
|
$
|
2,030,649
|
|
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
|
|
|
1,791,395
|
|
|
437,070
|
|
|
—
|
|
|
4,430,081
|
|
Total shareholders’ equity
|
4,759,325
|
|
|
5,773,996
|
|
|
6,514,272
|
|
|
(12,288,268
|
)
|
|
4,759,325
|
|
|
$
|
6,960,941
|
|
|
$
|
7,565,391
|
|
|
$
|
6,951,342
|
|
|
$
|
(12,288,268
|
)
|
|
$
|
9,189,406
|
|
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the year ended
December 31, 2016
($000’s omitted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated
|
|
|
|
Consolidated
PulteGroup,
Inc.
|
|
PulteGroup,
Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminating
Entries
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Homebuilding
|
|
|
|
|
|
|
|
|
|
Home sale revenues
|
$
|
—
|
|
|
$
|
7,427,757
|
|
|
$
|
23,558
|
|
|
$
|
—
|
|
|
$
|
7,451,315
|
|
Land sale revenues
|
—
|
|
|
33,598
|
|
|
2,437
|
|
|
—
|
|
|
36,035
|
|
|
—
|
|
|
7,461,355
|
|
|
25,995
|
|
|
—
|
|
|
7,487,350
|
|
Financial Services
|
—
|
|
|
—
|
|
|
181,126
|
|
|
—
|
|
|
181,126
|
|
|
—
|
|
|
7,461,355
|
|
|
207,121
|
|
|
—
|
|
|
7,668,476
|
|
Homebuilding Cost of Revenues:
|
|
|
|
|
|
|
|
|
|
Home sale cost of revenues
|
—
|
|
|
(5,566,653
|
)
|
|
(21,321
|
)
|
|
—
|
|
|
(5,587,974
|
)
|
Land sale cost of revenues
|
—
|
|
|
(30,156
|
)
|
|
(1,959
|
)
|
|
—
|
|
|
(32,115
|
)
|
|
—
|
|
|
(5,596,809
|
)
|
|
(23,280
|
)
|
|
—
|
|
|
(5,620,089
|
)
|
Financial Services expenses
|
—
|
|
|
(533
|
)
|
|
(108,040
|
)
|
|
—
|
|
|
(108,573
|
)
|
Selling, general, and administrative
expenses
|
—
|
|
|
(907,748
|
)
|
|
(49,402
|
)
|
|
—
|
|
|
(957,150
|
)
|
Other expense, net
|
(1,321
|
)
|
|
(69,345
|
)
|
|
21,852
|
|
|
—
|
|
|
(48,814
|
)
|
Intercompany interest
|
(1,980
|
)
|
|
—
|
|
|
1,980
|
|
|
—
|
|
|
—
|
|
Income (loss) before income taxes and
equity in income (loss) of
subsidiaries
|
(3,301
|
)
|
|
886,920
|
|
|
50,231
|
|
|
—
|
|
|
933,850
|
|
Income tax (expense) benefit
|
1,254
|
|
|
(312,486
|
)
|
|
(19,915
|
)
|
|
—
|
|
|
(331,147
|
)
|
Income (loss) before equity in income
(loss) of subsidiaries
|
(2,047
|
)
|
|
574,434
|
|
|
30,316
|
|
|
—
|
|
|
602,703
|
|
Equity in income (loss) of subsidiaries
|
604,750
|
|
|
58,078
|
|
|
457,716
|
|
|
(1,120,544
|
)
|
|
—
|
|
Net income (loss)
|
602,703
|
|
|
632,512
|
|
|
488,032
|
|
|
(1,120,544
|
)
|
|
602,703
|
|
Other comprehensive income (loss)
|
83
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
83
|
|
Comprehensive income (loss)
|
$
|
602,786
|
|
|
$
|
632,512
|
|
|
$
|
488,032
|
|
|
$
|
(1,120,544
|
)
|
|
$
|
602,786
|
|
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the year ended
December 31, 2015
($000’s omitted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated
|
|
|
|
Consolidated
PulteGroup,
Inc.
|
|
PulteGroup,
Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminating
Entries
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Homebuilding
|
|
|
|
|
|
|
|
|
|
Home sale revenues
|
$
|
—
|
|
|
$
|
5,792,675
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,792,675
|
|
Land sale revenues
|
—
|
|
|
48,536
|
|
|
—
|
|
|
—
|
|
|
48,536
|
|
|
—
|
|
|
5,841,211
|
|
|
—
|
|
|
—
|
|
|
5,841,211
|
|
Financial Services
|
—
|
|
|
1
|
|
|
140,752
|
|
|
—
|
|
|
140,753
|
|
|
—
|
|
|
5,841,212
|
|
|
140,752
|
|
|
—
|
|
|
5,981,964
|
|
Homebuilding Cost of Revenues:
|
|
|
|
|
|
|
|
|
|
Home sale cost of revenues
|
—
|
|
|
(4,235,945
|
)
|
|
—
|
|
|
—
|
|
|
(4,235,945
|
)
|
Land sale cost of revenues
|
—
|
|
|
(35,858
|
)
|
|
—
|
|
|
—
|
|
|
(35,858
|
)
|
|
—
|
|
|
(4,271,803
|
)
|
|
—
|
|
|
—
|
|
|
(4,271,803
|
)
|
Financial Services expenses
|
(313
|
)
|
|
276
|
|
|
(82,010
|
)
|
|
—
|
|
|
(82,047
|
)
|
Selling, general, and administrative
expenses
|
(3
|
)
|
|
(790,818
|
)
|
|
(3,907
|
)
|
|
—
|
|
|
(794,728
|
)
|
Other expense, net
|
(760
|
)
|
|
(17,424
|
)
|
|
821
|
|
|
—
|
|
|
(17,363
|
)
|
Intercompany interest
|
(2,110
|
)
|
|
(7,922
|
)
|
|
10,032
|
|
|
—
|
|
|
—
|
|
Income (loss) before income taxes and
equity in income (loss) of
subsidiaries
|
(3,186
|
)
|
|
753,521
|
|
|
65,688
|
|
|
—
|
|
|
816,023
|
|
Income tax (expense) benefit
|
1,210
|
|
|
(297,485
|
)
|
|
(25,658
|
)
|
|
—
|
|
|
(321,933
|
)
|
Income (loss) before equity in income
(loss) of subsidiaries
|
(1,976
|
)
|
|
456,036
|
|
|
40,030
|
|
|
—
|
|
|
494,090
|
|
Equity in income (loss) of subsidiaries
|
496,066
|
|
|
40,484
|
|
|
411,699
|
|
|
(948,249
|
)
|
|
—
|
|
Net income (loss)
|
494,090
|
|
|
496,520
|
|
|
451,729
|
|
|
(948,249
|
)
|
|
494,090
|
|
Other comprehensive income (loss)
|
81
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
81
|
|
Comprehensive income (loss)
|
$
|
494,171
|
|
|
$
|
496,520
|
|
|
$
|
451,729
|
|
|
$
|
(948,249
|
)
|
|
$
|
494,171
|
|
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the year ended
December 31, 2014
($000’s omitted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated
|
|
Eliminating
Entries
|
|
Consolidated
PulteGroup,
Inc.
|
|
PulteGroup,
Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Homebuilding
|
|
|
|
|
|
|
|
|
|
Home sale revenues
|
$
|
—
|
|
|
$
|
5,662,171
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,662,171
|
|
Land sale revenues
|
—
|
|
|
34,554
|
|
|
—
|
|
|
—
|
|
|
34,554
|
|
|
—
|
|
|
5,696,725
|
|
|
—
|
|
|
—
|
|
|
5,696,725
|
|
Financial Services
|
—
|
|
|
889
|
|
|
124,749
|
|
|
—
|
|
|
125,638
|
|
|
—
|
|
|
5,697,614
|
|
|
124,749
|
|
|
—
|
|
|
5,822,363
|
|
Homebuilding Cost of Revenues:
|
|
|
|
|
|
|
|
|
|
Home sale cost of revenues
|
—
|
|
|
(4,149,674
|
)
|
|
—
|
|
|
—
|
|
|
(4,149,674
|
)
|
Land sale cost of revenues
|
—
|
|
|
(23,748
|
)
|
|
—
|
|
|
—
|
|
|
(23,748
|
)
|
|
—
|
|
|
(4,173,422
|
)
|
|
—
|
|
|
—
|
|
|
(4,173,422
|
)
|
Financial Services expenses
|
(784
|
)
|
|
130
|
|
|
(70,403
|
)
|
|
—
|
|
|
(71,057
|
)
|
Selling, general, and administrative
expenses
|
—
|
|
|
(854,883
|
)
|
|
(6,507
|
)
|
|
—
|
|
|
(861,390
|
)
|
Other expense, net
|
(9,026
|
)
|
|
(16,847
|
)
|
|
(863
|
)
|
|
—
|
|
|
(26,736
|
)
|
Intercompany interest
|
(9,800
|
)
|
|
90
|
|
|
9,710
|
|
|
—
|
|
|
—
|
|
Income (loss) before income taxes and
equity in income (loss) of
subsidiaries
|
(19,610
|
)
|
|
652,682
|
|
|
56,686
|
|
|
—
|
|
|
689,758
|
|
Income tax (expense) benefit
|
7,473
|
|
|
(201,332
|
)
|
|
(21,561
|
)
|
|
—
|
|
|
(215,420
|
)
|
Income (loss) before equity in income
(loss) of subsidiaries
|
(12,137
|
)
|
|
451,350
|
|
|
35,125
|
|
|
—
|
|
|
474,338
|
|
Equity in income (loss) of subsidiaries
|
486,475
|
|
|
38,534
|
|
|
403,505
|
|
|
(928,514
|
)
|
|
—
|
|
Net income (loss)
|
474,338
|
|
|
489,884
|
|
|
438,630
|
|
|
(928,514
|
)
|
|
474,338
|
|
Other comprehensive income (loss)
|
105
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
105
|
|
Comprehensive income (loss)
|
$
|
474,443
|
|
|
$
|
489,884
|
|
|
$
|
438,630
|
|
|
$
|
(928,514
|
)
|
|
$
|
474,443
|
|
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING STATEMENT OF CASH FLOWS
For the year ended
December 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
|
$
|
256,722
|
|
|
$
|
(102,054
|
)
|
|
$
|
(86,398
|
)
|
|
$
|
—
|
|
|
$
|
68,270
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
—
|
|
|
(36,297
|
)
|
|
(2,998
|
)
|
|
—
|
|
|
(39,295
|
)
|
Investment in unconsolidated subsidiaries
|
—
|
|
|
(14,539
|
)
|
|
—
|
|
|
—
|
|
|
(14,539
|
)
|
Cash used for business acquisition
|
—
|
|
|
(430,458
|
)
|
|
—
|
|
|
—
|
|
|
(430,458
|
)
|
Other investing activities, net
|
—
|
|
|
11,189
|
|
|
1,911
|
|
|
—
|
|
|
13,100
|
|
Net cash provided by (used in) investing
activities
|
—
|
|
|
(470,105
|
)
|
|
(1,087
|
)
|
|
—
|
|
|
(471,192
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Financial Services borrowings
(repayments)
|
—
|
|
|
—
|
|
|
63,744
|
|
|
—
|
|
|
63,744
|
|
Proceeds from debt issuance
|
1,991,937
|
|
|
4,000
|
|
|
—
|
|
|
—
|
|
|
1,995,937
|
|
Repayments of debt
|
(965,245
|
)
|
|
(21,235
|
)
|
|
(439
|
)
|
|
—
|
|
|
(986,919
|
)
|
Borrowings under revolving credit facility
|
619,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
619,000
|
|
Repayments under revolving credit facility
|
(619,000
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(619,000
|
)
|
Stock option exercises
|
5,845
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,845
|
|
Share repurchases
|
(603,206
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(603,206
|
)
|
Dividends paid
|
(124,666
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(124,666
|
)
|
Intercompany activities, net
|
(561,387
|
)
|
|
541,703
|
|
|
19,684
|
|
|
—
|
|
|
—
|
|
Net cash provided by (used in)
financing activities
|
(256,722
|
)
|
|
524,468
|
|
|
82,989
|
|
|
—
|
|
|
350,735
|
|
Net increase (decrease)
|
—
|
|
|
(47,691
|
)
|
|
(4,496
|
)
|
|
—
|
|
|
(52,187
|
)
|
Cash, cash equivalents, and restricted cash
at beginning of year
|
—
|
|
|
658,876
|
|
|
116,559
|
|
|
—
|
|
|
775,435
|
|
Cash, cash equivalents, and restricted cash
at end of year
|
$
|
—
|
|
|
$
|
611,185
|
|
|
$
|
112,063
|
|
|
$
|
—
|
|
|
$
|
723,248
|
|
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING STATEMENT OF CASH FLOWS
For the year ended
December 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
|
$
|
185,946
|
|
|
$
|
(430,940
|
)
|
|
$
|
(92,596
|
)
|
|
$
|
—
|
|
|
$
|
(337,590
|
)
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
—
|
|
|
(41,857
|
)
|
|
(3,583
|
)
|
|
—
|
|
|
(45,440
|
)
|
Investment in unconsolidated subsidiaries
|
—
|
|
|
(454
|
)
|
|
—
|
|
|
—
|
|
|
(454
|
)
|
Cash used for business acquisitions
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other investing activities, net
|
—
|
|
|
2,391
|
|
|
8,939
|
|
|
—
|
|
|
11,330
|
|
Net cash provided by (used in) investing
activities
|
—
|
|
|
(39,920
|
)
|
|
5,356
|
|
|
—
|
|
|
(34,564
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Financial Services borrowings
(repayments)
|
—
|
|
|
—
|
|
|
127,636
|
|
|
—
|
|
|
127,636
|
|
Proceeds from debt issuance
|
498,087
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
498,087
|
|
Repayments of debt
|
(237,995
|
)
|
|
(1,198
|
)
|
|
—
|
|
|
—
|
|
|
(239,193
|
)
|
Borrowings under revolving credit facility
|
125,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
125,000
|
|
Repayments under revolving credit facility
|
(125,000
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(125,000
|
)
|
Stock option exercises
|
10,535
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10,535
|
|
Share repurchases
|
(442,738
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(442,738
|
)
|
Dividends paid
|
(115,958
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(115,958
|
)
|
Intercompany activities, net
|
90,959
|
|
|
(27,886
|
)
|
|
(63,073
|
)
|
|
—
|
|
|
—
|
|
Net cash provided by (used in)
financing activities
|
(197,110
|
)
|
|
(29,084
|
)
|
|
64,563
|
|
|
—
|
|
|
(161,631
|
)
|
Net increase (decrease)
|
(11,164
|
)
|
|
(499,944
|
)
|
|
(22,677
|
)
|
|
—
|
|
|
(533,785
|
)
|
Cash, cash equivalents, and restricted cash
at beginning of year
|
11,164
|
|
|
1,158,820
|
|
|
139,236
|
|
|
—
|
|
|
1,309,220
|
|
Cash, cash equivalents, and restricted cash
at end of year
|
$
|
—
|
|
|
$
|
658,876
|
|
|
$
|
116,559
|
|
|
$
|
—
|
|
|
$
|
775,435
|
|
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING STATEMENT OF CASH FLOWS
For the year ended
December 31, 2014
($000’s omitted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated
|
|
|
|
Consolidated
PulteGroup,
Inc.
|
|
PulteGroup,
Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminating
Entries
|
|
Net cash provided by (used in)
operating activities
|
$
|
206,485
|
|
|
$
|
174,293
|
|
|
$
|
(72,897
|
)
|
|
$
|
—
|
|
|
$
|
307,881
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
—
|
|
|
(44,956
|
)
|
|
(3,834
|
)
|
|
—
|
|
|
(48,790
|
)
|
Investment in unconsolidated subsidiaries
|
—
|
|
|
—
|
|
|
(9
|
)
|
|
—
|
|
|
(9
|
)
|
Cash used for business acquisitions
|
—
|
|
|
(82,419
|
)
|
|
—
|
|
|
—
|
|
|
(82,419
|
)
|
Other investing activities, net
|
—
|
|
|
8,274
|
|
|
331
|
|
|
—
|
|
|
8,605
|
|
Net cash provided by (used in)
investing activities
|
—
|
|
|
(119,101
|
)
|
|
(3,512
|
)
|
|
—
|
|
|
(122,613
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Financial Services borrowings (repayments)
|
—
|
|
|
—
|
|
|
34,577
|
|
|
—
|
|
|
34,577
|
|
Repayments of debt
|
(249,765
|
)
|
|
(866
|
)
|
|
—
|
|
|
—
|
|
|
(250,631
|
)
|
Stock option exercises
|
15,627
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
15,627
|
|
Share repurchases
|
(253,019
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(253,019
|
)
|
Dividends paid
|
(75,646
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(75,646
|
)
|
Intercompany activities, net
|
46,419
|
|
|
(87,140
|
)
|
|
40,721
|
|
|
—
|
|
|
—
|
|
Net cash provided by (used in)
financing activities
|
(516,384
|
)
|
|
(88,006
|
)
|
|
75,298
|
|
|
—
|
|
|
(529,092
|
)
|
Net increase (decrease)
|
(309,899
|
)
|
|
(32,814
|
)
|
|
(1,111
|
)
|
|
—
|
|
|
(343,824
|
)
|
Cash, cash equivalents, and restricted cash
at beginning of year
|
321,063
|
|
|
1,191,634
|
|
|
140,347
|
|
|
—
|
|
|
1,653,044
|
|
Cash, cash equivalents, and restricted cash
at end of year
|
$
|
11,164
|
|
|
$
|
1,158,820
|
|
|
$
|
139,236
|
|
|
$
|
—
|
|
|
$
|
1,309,220
|
|
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
14. Quarterly results (unaudited)
UNAUDITED QUARTERLY INFORMATION
(000’s omitted, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st
Quarter
|
|
2nd
Quarter
|
|
3rd
Quarter
|
|
4th
Quarter
|
|
Total
(a)
|
2016
|
|
|
|
|
|
|
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
1,396,730
|
|
|
$
|
1,756,832
|
|
|
$
|
1,894,885
|
|
|
$
|
2,438,903
|
|
|
$
|
7,487,350
|
|
Cost of revenues
|
(1,040,056
|
)
|
|
(1,314,972
|
)
|
|
(1,429,133
|
)
|
|
(1,835,928
|
)
|
|
(5,620,089
|
)
|
Income before income taxes
(b)
|
108,433
|
|
|
172,546
|
|
|
191,063
|
|
|
388,724
|
|
|
860,766
|
|
Financial Services:
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
35,848
|
|
|
$
|
43,082
|
|
|
$
|
48,020
|
|
|
$
|
54,175
|
|
|
$
|
181,126
|
|
Income before income taxes
|
9,780
|
|
|
17,034
|
|
|
21,272
|
|
|
24,997
|
|
|
73,084
|
|
Consolidated results:
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
1,432,578
|
|
|
$
|
1,799,914
|
|
|
$
|
1,942,905
|
|
|
$
|
2,493,078
|
|
|
$
|
7,668,476
|
|
Income before income taxes
|
118,213
|
|
|
189,580
|
|
|
212,335
|
|
|
413,721
|
|
|
933,850
|
|
Income tax expense
|
(34,913
|
)
|
|
(71,820
|
)
|
|
(83,865
|
)
|
|
(140,549
|
)
|
|
(331,147
|
)
|
Net income
|
$
|
83,300
|
|
|
$
|
117,760
|
|
|
$
|
128,470
|
|
|
$
|
273,172
|
|
|
$
|
602,703
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.24
|
|
|
$
|
0.34
|
|
|
$
|
0.37
|
|
|
$
|
0.83
|
|
|
$
|
1.76
|
|
Diluted
|
$
|
0.24
|
|
|
$
|
0.34
|
|
|
$
|
0.37
|
|
|
$
|
0.83
|
|
|
$
|
1.75
|
|
Number of shares used in calculation:
|
|
|
|
|
|
|
|
|
|
Basic
|
347,815
|
|
|
345,240
|
|
|
340,171
|
|
|
325,975
|
|
|
339,747
|
|
Effect of dilutive securities
|
2,662
|
|
|
2,759
|
|
|
2,250
|
|
|
1,834
|
|
|
2,376
|
|
Diluted
|
350,477
|
|
|
347,999
|
|
|
342,421
|
|
|
327,809
|
|
|
342,123
|
|
|
|
(a)
|
Due to rounding, the sum of quarterly results may not equal the total for the year. Additionally, quarterly and year-to-date computations of per share amounts are made independently.
|
|
|
(b)
|
Homebuilding income before income taxes includes a charge of
$15.0 million
in the 3rd Quarter related to the settlement of a disputed land transaction (see
Note 12
) and an adjustment to general liability insurance reserves relating to a reserve reversal of
$55.2 million
in the 4th Quarter.
|
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
UNAUDITED QUARTERLY INFORMATION
(000’s omitted, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st
Quarter
|
|
2nd
Quarter
|
|
3rd
Quarter
|
|
4th
Quarter
|
|
Total
(a)
|
2015
|
|
|
|
|
|
|
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
1,105,700
|
|
|
$
|
1,249,537
|
|
|
$
|
1,467,780
|
|
|
$
|
2,018,194
|
|
|
$
|
5,841,211
|
|
Cost of revenues
|
(816,368
|
)
|
|
(915,151
|
)
|
|
(1,070,231
|
)
|
|
(1,470,053
|
)
|
|
(4,271,803
|
)
|
Income before income taxes
(b)
|
90,748
|
|
|
157,640
|
|
|
164,911
|
|
|
344,019
|
|
|
757,317
|
|
Financial Services:
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
27,598
|
|
|
$
|
30,754
|
|
|
$
|
38,967
|
|
|
$
|
43,434
|
|
|
$
|
140,753
|
|
Income before income taxes
(c)
|
5,057
|
|
|
9,987
|
|
|
14,365
|
|
|
29,296
|
|
|
58,706
|
|
Consolidated results:
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
1,133,298
|
|
|
$
|
1,280,291
|
|
|
$
|
1,506,747
|
|
|
$
|
2,061,628
|
|
|
$
|
5,981,964
|
|
Income before income taxes
|
95,805
|
|
|
167,627
|
|
|
179,276
|
|
|
373,315
|
|
|
816,023
|
|
Income tax expense
|
(40,834
|
)
|
|
(64,303
|
)
|
|
(71,507
|
)
|
|
(145,288
|
)
|
|
(321,933
|
)
|
Net income
|
$
|
54,971
|
|
|
$
|
103,324
|
|
|
$
|
107,769
|
|
|
$
|
228,027
|
|
|
$
|
494,090
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.15
|
|
|
$
|
0.28
|
|
|
$
|
0.31
|
|
|
$
|
0.65
|
|
|
$
|
1.38
|
|
Diluted
|
$
|
0.15
|
|
|
$
|
0.28
|
|
|
$
|
0.30
|
|
|
$
|
0.64
|
|
|
$
|
1.36
|
|
Number of shares used in calculation:
|
|
|
|
|
|
|
|
|
|
Basic
|
366,748
|
|
|
361,009
|
|
|
350,147
|
|
|
348,699
|
|
|
356,576
|
|
Effect of dilutive securities
|
3,362
|
|
|
3,232
|
|
|
3,225
|
|
|
3,047
|
|
|
3,217
|
|
Diluted
|
370,110
|
|
|
364,241
|
|
|
353,372
|
|
|
351,746
|
|
|
359,793
|
|
|
|
(a)
|
Due to rounding, the sum of quarterly results may not equal the total for the year. Additionally, quarterly and year-to-date computations of per share amounts are made independently.
|
|
|
(b)
|
Homebuilding income before income taxes includes reserve reversals resulting from a legal settlement (see
Note 12
)of
$26.9 million
and
$5.7 million
in the 2nd and 3rd Quarters, respectively; a charge of
$20.0 million
in the 3rd Quarter related to the Applecross matter (see
Note 12
); and a reversal of
$29.6 million
relating to decreased general liability insurance reserves in the 4th Quarter.
|
|
|
(c)
|
Financial Services expenses in the 1st Quarter includes a reduction in loan origination liabilities totaling
$11.4 million
.
|