Attached files

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EX-31.B - EXHIBIT 31.B CFO CERTIFICATION - PULTEGROUP INC/MI/exhibit31bcfocertification.htm
EX-32 - EXHIBIT 32 - PULTEGROUP INC/MI/exhibit32-certification331.htm
EX-31.A - EXHIBIT 31.A - CEO CERTIFICATION - PULTEGROUP INC/MI/exhibit31aceocertification.htm
EX-10.A - EXHIBIT 10.A RSU AGREEMENT 2013 (AMENDED) - PULTEGROUP INC/MI/exhibit10arsuagreementamen.htm

______________________________________________________________________________________________________

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2016

or

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-9804 

PULTEGROUP, INC.
(Exact name of registrant as specified in its charter) 
MICHIGAN
 
38-2766606
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)

3350 Peachtree Road NE, Suite 150
Atlanta, Georgia 30326
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (404) 978-6400

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  [X]   NO  [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES  [X]   NO  [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer  [X]
  
Accelerated filer  [ ]
  
Non-accelerated filer [ ]  
  
Smaller reporting company [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  
YES [ ]  NO  [X]

Number of shares of common stock outstanding as of April 15, 2016: 346,032,239 ______________________________________________________________________________________________________

1


PULTEGROUP, INC.
INDEX

 
 
Page
No.
PART I
 
 
 
 
Item 1
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2
 
 
 
Item 3
 
 
 
Item 4
 
 
 
PART II
 
 
 
Item 2
 
 
 
Item 6
 
 
 
 
 


2


PART I. FINANCIAL INFORMATION

Item 1.      Financial Statements

PULTEGROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
($000’s omitted)
 
 
March 31,
2016
 
December 31,
2015
 
(Unaudited)
 
(Note)
ASSETS
 
 
 
 
 
 
 
Cash and equivalents
$
995,696

 
$
754,161

Restricted cash
22,419

 
21,274

House and land inventory
6,202,479

 
5,450,058

Land held for sale
85,017

 
81,492

Residential mortgage loans available-for-sale
290,578

 
442,715

Investments in unconsolidated entities
53,090

 
41,267

Other assets
686,163

 
660,835

Intangible assets
163,185

 
110,215

Deferred tax assets, net
1,344,853

 
1,394,879

 
$
9,843,480

 
$
8,956,896

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
Liabilities:
 
 
 
Accounts payable
$
331,932

 
$
327,725

Customer deposits
223,692

 
186,141

Accrued and other liabilities
1,294,892

 
1,284,273

Income tax liabilities
33,460

 
57,050

Financial Services debt
118,614

 
267,877

Term loan
498,817

 
498,423

Senior notes
2,568,546

 
1,576,082

 
5,069,953

 
4,197,571

Shareholders' equity
4,773,527

 
4,759,325

 
$
9,843,480

 
$
8,956,896


Note: The Condensed Consolidated Balance Sheet at December 31, 2015 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.


See accompanying Notes to Condensed Consolidated Financial Statements.


3


PULTEGROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(000’s omitted, except per share data)
(Unaudited)
 
 
Three Months Ended
 
March 31,
 
2016
 
2015
Revenues:
 
 
 
Homebuilding
 
 
 
Home sale revenues
$
1,394,243

 
$
1,088,158

Land sale revenues
2,487

 
17,542

 
1,396,730

 
1,105,700

Financial Services
35,848

 
27,598

Total revenues
1,432,578

 
1,133,298

 
 
 
 
Homebuilding Cost of Revenues:
 
 
 
Home sale cost of revenues
1,089,329

 
841,145

Land sale cost of revenues
2,028

 
13,378

 
1,091,357

 
854,523

Financial Services expenses
26,119

 
22,541

Selling, general, and administrative expenses
191,015

 
161,312

Other expense (income), net
5,874

 
(883
)
Income before income taxes
118,213

 
95,805

Income tax expense
34,913

 
40,834

Net income
$
83,300

 
$
54,971

 
 
 
 
Per share:
 
 
 
Basic earnings
$
0.24

 
$
0.15

Diluted earnings
$
0.24

 
$
0.15

Cash dividends declared
$
0.09

 
$
0.08

 
 
 
 
Number of shares used in calculation:



Basic
347,815

 
366,748

Effect of dilutive securities
2,662

 
3,362

Diluted
350,477

 
370,110




See accompanying Notes to Condensed Consolidated Financial Statements.


4


PULTEGROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(000’s omitted)
(Unaudited)

 
Three Months Ended
 
March 31,
 
2016
 
2015
Net income
$
83,300

 
$
54,971

 
 
 
 
Other comprehensive income, net of tax:
 
 
 
Change in value of derivatives
21

 
21

Other comprehensive income
21

 
21

 
 
 
 
Comprehensive income
$
83,321

 
$
54,992





See accompanying Notes to Condensed Consolidated Financial Statements.


5



PULTEGROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(000's omitted, except per share data)
(Unaudited)
 
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
Income
(Loss)
 
Retained
Earnings
 
Total
Shares
 
$
 
Shareholders' Equity, January 1, 2016
349,149

 
$
3,491

 
$
3,093,802

 
$
(609
)
 
$
1,662,641

 
$
4,759,325

Stock option exercises
4

 

 
52

 

 

 
52

Share issuances, net of cancellations
456

 
4

 
8,852

 

 

 
8,856

Dividends declared

 

 

 

 
(31,459
)
 
(31,459
)
Share repurchases
(3,226
)
 
(32
)
 

 

 
(52,713
)
 
(52,745
)
Share-based compensation

 

 
6,635

 

 

 
6,635

Excess tax benefits (deficiencies) from share-based awards

 

 
(458
)
 

 

 
(458
)
Net income

 

 

 

 
83,300

 
83,300

Other comprehensive income

 

 

 
21

 

 
21

Shareholders' Equity, March 31, 2016
346,383

 
$
3,463

 
$
3,108,883

 
$
(588
)
 
$
1,661,769

 
$
4,773,527

 
 
 
 
 
 
 
 
 
 
 
 
Shareholders' Equity, January 1, 2015
369,459

 
$
3,695

 
$
3,072,996

 
$
(690
)
 
$
1,728,953

 
$
4,804,954

Stock option exercises
564

 
6

 
6,590

 

 

 
6,596

Share issuances, net of cancellations
358

 
3

 
7,420

 

 

 
7,423

Dividends declared

 

 

 

 
(29,449
)
 
(29,449
)
Share repurchases
(4,954
)
 
(50
)
 

 

 
(107,905
)
 
(107,955
)
Share-based compensation

 

 
5,662

 

 

 
5,662

Excess tax benefits (deficiencies) from share-based awards

 

 
(229
)
 

 

 
(229
)
Net income

 

 

 

 
54,971

 
54,971

Other comprehensive income

 

 

 
21

 

 
21

Shareholders' Equity, March 31, 2015
365,427

 
$
3,654

 
$
3,092,439

 
$
(669
)
 
$
1,646,570

 
$
4,741,994



See accompanying Notes to Condensed Consolidated Financial Statements.

6


PULTEGROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($000’s omitted)
(Unaudited)
 
Three Months Ended
 
March 31,
 
2016
 
2015
Cash flows from operating activities:
 
 
 
Net income
$
83,300

 
$
54,971

Adjustments to reconcile net income to net cash from operating activities:
 
 
 
Deferred income tax expense
50,026

 
40,805

Depreciation and amortization
13,113

 
11,062

Share-based compensation expense
9,355

 
8,280

Other, net
4,447

 
4,810

Increase (decrease) in cash due to:
 
 
 
Restricted cash
(1,145
)
 
(1,686
)
Inventories
(381,910
)
 
(230,993
)
Residential mortgage loans available-for-sale
151,886

 
119,976

Other assets
(25,133
)
 
(3,830
)
Accounts payable, accrued and other liabilities
31,999

 
(28,792
)
Net cash provided by (used in) operating activities
(64,062
)
 
(25,397
)
Cash flows from investing activities:
 
 
 
Capital expenditures
(9,460
)
 
(14,517
)
Cash used for business acquisition
(430,011
)
 

Other investing activities, net
(12,281
)
 
4,632

Net cash used in investing activities
(451,752
)
 
(9,885
)
Cash flows from financing activities:
 
 
 
Proceeds from debt issuance
991,575

 

Repayments of debt
(702
)
 

Borrowings under revolving credit facility
220,000

 

Repayments under revolving credit facility
(220,000
)
 

Financial Services borrowings (repayments)
(149,263
)
 
(72,678
)
Stock option exercises
52

 
6,596

Share repurchases
(52,745
)
 
(107,955
)
Dividends paid
(31,568
)
 
(29,616
)
Net cash provided by (used in) financing activities
757,349

 
(203,653
)
Net increase (decrease) in cash and equivalents
241,535

 
(238,935
)
Cash and equivalents at beginning of period
754,161

 
1,292,862

Cash and equivalents at end of period
$
995,696

 
$
1,053,927

 
 
 
 
Supplemental Cash Flow Information:
 
 
 
Interest paid (capitalized), net
$
(23,124
)
 
$
(21,412
)
Income taxes paid (refunded), net
$
1,212

 
$
(1,997
)
See accompanying Notes to Condensed Consolidated Financial Statements.

7

PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)





1. Basis of presentation

PulteGroup, Inc. is one of the largest homebuilders in the United States ("U.S."), and our common stock trades on the New York Stock Exchange under the ticker symbol “PHM”. Unless the context otherwise requires, the terms "PulteGroup", the "Company", "we", "us", and "our" used herein refer to PulteGroup, Inc. and its subsidiaries. While our subsidiaries engage primarily in the homebuilding business, we also have mortgage banking operations, conducted principally through Pulte Mortgage LLC (“Pulte Mortgage”), and title operations.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal, recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the full year. These financial statements should be read in conjunction with our consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2015.

Business acquisition

We acquired substantially all of the assets of JW Homes ("Wieland") in January 2016, for approximately $430 million in cash and the assumption of certain payables related to such assets. The acquired net assets were located in Atlanta, Charleston, Charlotte, Nashville, and Raleigh, and included approximately 7,000 lots, including 375 homes in inventory, and control of approximately 1,300 lots through land option contracts. We also assumed a sales order backlog of 317 homes. The acquired net assets were recorded at their estimated fair values and provisionally resulted in goodwill of $38.3 million and separately identifiable intangible assets of $18.0 million comprised of the John Wieland Homes and Neighborhoods tradename, which is being amortized over a 20-year life. The acquisition of these assets was not material to our results of operations or financial condition.

Use of estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current year presentation, including the adoption in January 2016 of Accounting Standards Update ("ASU") 2015-03, “Interest - Imputation of Interest,” which changes the presentation of debt issuance costs in the balance sheet from an asset to a direct reduction of the carrying amount of the related debt. The adoption of this guidance resulted in the reclassification of applicable unamortized debt issuance costs from other assets to senior notes and term loan. See Note 4.

Subsequent events

We evaluated subsequent events up until the time the financial statements were filed with the Securities and Exchange Commission ("SEC").


8

PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



Other expense (income), net

Other expense (income), net consists of the following ($000’s omitted): 
 
Three Months Ended
March 31,
2016
 
2015
Write-off of deposits and pre-acquisition costs
$
3,041

 
$
1,869

Amortization of intangible assets
3,450

 
3,225

Interest income
(923
)
 
(1,099
)
Interest expense
174

 
187

Equity in earnings of unconsolidated entities
(170
)
 
(1,107
)
Miscellaneous, net
302

 
(3,958
)
 
$
5,874

 
$
(883
)

Earnings per share

Basic earnings per share is computed by dividing income available to common shareholders (the “Numerator”) by the weighted-average number of common shares outstanding, adjusted for unvested shares (the “Denominator”) for the period. Computing diluted earnings per share is similar to computing basic earnings per share, except that the Denominator is increased to include the dilutive effects of stock options, unvested restricted shares and restricted share units, and other potentially dilutive instruments. Any stock options that have an exercise price greater than the average market price are considered to be anti-dilutive and are excluded from the diluted earnings per share calculation. Our diluted earnings per share calculation excluded 2.3 million and 4.8 million potentially dilutive instruments, including stock options, unvested restricted shares and restricted share units for the three months ended March 31, 2016 and 2015, respectively.    

In accordance with ASC 260 "Earnings Per Share", the two-class method determines earnings per share for each class of common stock and participating securities according to an earnings allocation formula that adjusts the Numerator for dividends or dividend equivalents and participation rights in undistributed earnings. Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are participating securities and, therefore, are included in computing earnings per share pursuant to the two-class method. Our outstanding restricted share awards, restricted share units, and deferred shares are considered participating securities. The following table presents the earnings per common share (000's omitted, except per share data):

9

PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



 
Three Months Ended
March 31,
2016
 
2015
Numerator:
 
 
 
Net income
$
83,300

 
$
54,971

Less: earnings distributed to participating securities
(285
)
 
(188
)
Less: undistributed earnings allocated to participating securities
(404
)
 
(166
)
Numerator for basic earnings per share
$
82,611

 
$
54,617

Add back: undistributed earnings allocated to participating securities
404

 
166

Less: undistributed earnings reallocated to participating securities
(401
)
 
(165
)
Numerator for diluted earnings per share
$
82,614

 
$
54,618

 
 
 
 
Denominator:
 
 
 
Basic shares outstanding
347,815

 
366,748

Effect of dilutive securities
2,662

 
3,362

Diluted shares outstanding
350,477

 
370,110

 
 
 
 
Earnings per share:
 
 
 
Basic
$
0.24

 
$
0.15

Diluted
$
0.24

 
$
0.15


Residential mortgage loans available-for-sale

Substantially all of the loans originated by us are sold in the secondary mortgage market within a short period of time after origination, generally within 30 days. At March 31, 2016 and December 31, 2015, residential mortgage loans available-for-sale had an aggregate fair value of $290.6 million and $442.7 million, respectively, and an aggregate outstanding principal balance of $279.4 million and $429.6 million, respectively. The net gain resulting from changes in fair value of these loans totaled $1.0 million and $0.1 million for the three months ended March 31, 2016 and 2015, respectively. These changes in fair value were substantially offset by changes in fair value of the corresponding hedging instruments. Net gains from the sale of mortgages were $21.5 million and $16.2 million for the three months ended March 31, 2016 and 2015, respectively.

Derivative instruments and hedging activities

We are party to interest rate lock commitments with customers resulting from our mortgage origination operations. At March 31, 2016 and December 31, 2015, we had aggregate interest rate lock commitments of $257.3 million and $208.2 million, respectively, which were originated at interest rates prevailing at the date of commitment.

We are also party to forward contracts on mortgage-backed securities, which are commitments to either purchase or sell a specified financial instrument at a specified future date for a specified price. Forward contracts on mortgage-backed securities are the predominant derivative financial instruments we use to minimize market risk during the period from the time we execute an interest rate lock until the time the loan is sold to an investor. We also use whole loan investor commitments, which are obligations of the investor to buy loans at a specified price within a specified time period. At March 31, 2016 and December 31, 2015, we had unexpired forward contracts of $469.7 million and $525.0 million, respectively, and whole loan investor commitments of $38.0 million and $77.6 million, respectively. Changes in the fair value of interest rate lock commitments and other derivative financial instruments are recognized in Financial Services revenues, and the fair values are reflected in other assets or other liabilities, as applicable.


10

PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



There are no credit-risk-related contingent features within our derivative agreements, and counterparty risk is considered minimal. Gains and losses on interest rate lock commitments and residential mortgage loans available-for-sale are substantially offset by corresponding gains or losses on forward contracts on mortgage-backed securities and whole loan investor commitments. We are generally not exposed to variability in cash flows of derivative instruments for more than approximately 60 days. The fair values of derivative instruments and their locations in the Condensed Consolidated Balance Sheets are summarized below ($000’s omitted):
 
 
March 31, 2016
 
December 31, 2015
 
Other Assets
 
Accrued and Other Liabilities
 
Other Assets
 
Accrued and Other Liabilities
Interest rate lock commitments
$
9,032

 
$
133

 
$
5,854

 
$
280

Forward contracts
167

 
3,340

 
1,178

 
840

Whole loan commitments
72

 
167

 
358

 
345

 
$
9,271

 
$
3,640

 
$
7,390

 
$
1,465


New accounting pronouncements

In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers" ("ASU 2014-09"). The standard is a comprehensive new revenue recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date", which delayed the effective date by one year. As a result, the standard is effective for us for annual and interim periods beginning January 1, 2018 and allows for full retrospective or modified retrospective methods of adoption. We are currently evaluating the impact that the standard will have on our financial statements.

In August 2014, the FASB issued ASU No. 2014-15, “Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern” (“ASU 2014-15”), which requires management to evaluate, at each annual and interim reporting period, whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern and provide related disclosures. ASU 2014-15 is effective for annual and interim reporting periods beginning January 1, 2017 and is not expected to have a material impact on our financial statements.

In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)" ("ASU 2016-02"), which amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets. ASU 2016-02 will be effective for annual reporting periods beginning after December 15, 2018, and early adoption is permitted. ASU 2016-02 requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. We are currently evaluating the impact that the standard will have on our financial statements.

In March 2016, the FASB issued ASU No. 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting" ("ASU 2019-09"), which includes multiple amendments intended to simplify aspects of share-based payment accounting. ASU 2016-09 will be effective for annual reporting periods beginning after December 15, 2016, and early adoption is permitted. Amendments to the timing of when excess tax benefits are recognized, minimum statutory withholding requirements, and forfeitures will be applied using a modified retrospective transition method through a cumulative-effect adjustment to equity as of the beginning of the period of adoption. Amendments to the presentation of employee taxes paid on the statement of cash flows when an employer withholds shares to meet the minimum statutory withholding requirement will be applied retrospectively, and amendments requiring the recognition of excess tax benefits and tax deficiencies in the income statement are to be applied prospectively. We are currently evaluating the impact that the standard will have on our financial statements.


11

PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



2. Inventory

Major components of inventory were as follows ($000’s omitted): 
 
March 31,
2016
 
December 31,
2015
Homes under construction
$
1,821,322

 
$
1,408,260

Land under development
3,568,201

 
3,259,066

Raw land
812,956

 
782,732

 
$
6,202,479

 
$
5,450,058


We capitalize interest cost into inventory during the active development and construction of our communities. In all periods presented, we capitalized all Homebuilding interest costs into inventory because the level of our active inventory exceeded our debt levels. Information related to interest capitalized into inventory is as follows ($000’s omitted):
 
Three Months Ended
 
March 31,
 
2016
 
2015
Interest in inventory, beginning of period
$
149,498

 
$
167,638

Interest capitalized
35,284

 
30,803

Interest expensed
(26,129
)
 
(31,554
)
Interest in inventory, end of period
$
158,653

 
$
166,887


Land option agreements

We enter into land option agreements in order to procure land for the construction of homes in the future. Pursuant to these land option agreements, we generally provide a deposit to the seller as consideration for the right to purchase land at different times in the future, usually at predetermined prices. Such contracts enable us to defer acquiring portions of properties owned by third parties or unconsolidated entities until we have determined whether and when to exercise our option, which reduces our financial risks associated with long-term land holdings. Option deposits and pre-acquisition costs (such as environmental testing, surveys, engineering, and entitlement costs) are capitalized if the costs are directly identifiable with the land under option, the costs would be capitalized if we owned the land, and acquisition of the property is probable. Such costs are reflected in other assets and are reclassified to inventory upon taking title to the land. We write off deposits and pre-acquisition costs when it becomes probable that we will not go forward with the project or recover the capitalized costs. Such decisions take into consideration changes in local market conditions, the timing of required land purchases, the availability and best use of necessary incremental capital, and other factors. We record any such write-offs of deposits and pre-acquisition costs within other expense, net.

If an entity holding the land under option is a variable interest entity ("VIE"), our deposit represents a variable interest in that entity. No VIEs required consolidation at either March 31, 2016 or December 31, 2015 because we determined that we were not the VIE's primary beneficiary. Our maximum exposure to loss related to these VIEs is generally limited to our deposits and pre-acquisition costs under the land option agreements. The following provides a summary of our interests in land option agreements as of March 31, 2016 and December 31, 2015 ($000’s omitted): 
 
March 31, 2016
 
December 31, 2015
 
Deposits and
Pre-acquisition
Costs
 
Remaining Purchase
Price
 
Deposits and
Pre-acquisition
Costs
 
Remaining Purchase
Price
Land options with VIEs
$
91,777

 
$
1,152,369

 
$
77,641

 
$
1,064,506

Other land options
91,254

 
1,134,743

 
84,478

 
981,687

 
$
183,031

 
$
2,287,112

 
$
162,119

 
$
2,046,193


12

PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



3. Segment information

Our Homebuilding operations are engaged in the acquisition and development of land primarily for residential purposes within the U.S. and the construction of housing on such land. For reporting purposes, our Homebuilding operations are aggregated into six reportable segments:
Northeast:
 
Connecticut, Maryland, Massachusetts, New Jersey, New York, Pennsylvania, Virginia
Southeast:
 
Georgia, North Carolina, South Carolina, Tennessee
Florida:
 
Florida
Midwest:
 
Illinois, Indiana, Kentucky, Michigan, Minnesota, Missouri, Ohio
Texas:
 
Texas
West:
 
Arizona, California, Nevada, New Mexico, Washington

We also have a reportable segment for our Financial Services operations, which consist principally of mortgage banking and title operations and operate generally in the same markets as the Homebuilding segments.
 
Operating Data by Segment
($000’s omitted)
 
Three Months Ended
 
March 31,
 
2016
 
2015
Revenues:
 
 
 
Northeast
$
118,654

 
$
111,153

Southeast (a)
294,426

 
185,788

Florida
269,841

 
203,062

Midwest
189,892

 
178,652

Texas
213,292

 
177,499

West
310,625

 
249,546

 
1,396,730

 
1,105,700

Financial Services
35,848

 
27,598

Consolidated revenues
$
1,432,578

 
$
1,133,298

 
 
 
 
Income before income taxes:
 
 
 
Northeast
$
9,590

 
$
9,527

Southeast (a)
19,770

 
24,624

Florida
40,302

 
33,224

Midwest
5,620

 
1,180

Texas
28,517

 
22,791

West
33,507

 
31,079

Other homebuilding (b)
(28,873
)
 
(31,677
)
 
108,433

 
90,748

Financial Services
9,780

 
5,057

Consolidated income before income taxes
$
118,213

 
$
95,805


(a)
Southeast includes the acquisition in January 2016 of substantially all of the assets of Wieland (see Note 1).
(b)
Other homebuilding includes the amortization of intangible assets, amortization of capitalized interest, and other items not allocated to the operating segments.

13

PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



 
 
Operating Data by Segment
 
($000's omitted)
 
March 31, 2016
 
Homes Under
Construction
 
Land Under
Development
 
Raw Land
 
Total
Inventory
 
Total
Assets
Northeast
$
178,697

 
$
293,122

 
$
122,359

 
$
594,178

 
$
724,862

Southeast (a)
374,347

 
544,577

 
203,394

 
1,122,318

 
1,274,358

Florida
253,262

 
630,859

 
80,526

 
964,647

 
1,079,826

Midwest
257,042

 
413,194

 
68,931

 
739,167

 
801,961

Texas
217,893

 
353,206

 
97,754

 
668,853

 
757,559

West
517,537

 
1,139,387

 
215,118

 
1,872,042

 
2,074,250

Other homebuilding (b)
22,544

 
193,856

 
24,874

 
241,274

 
2,773,441

 
1,821,322

 
3,568,201

 
812,956

 
6,202,479

 
9,486,257

Financial Services

 

 

 

 
357,223

 
$
1,821,322

 
$
3,568,201

 
$
812,956

 
$
6,202,479

 
$
9,843,480

 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
 
Homes Under
Construction
 
Land Under
Development
 
Raw Land
 
Total
Inventory
 
Total
Assets
Northeast
$
163,173

 
$
292,631

 
$
121,522

 
$
577,326

 
$
688,610

Southeast (a)
196,456

 
367,577

 
139,246

 
703,279

 
765,933

Florida
227,910

 
574,092

 
97,185

 
899,187

 
1,013,543

Midwest
197,738

 
414,386

 
68,918

 
681,042

 
734,834

Texas
191,424

 
317,702

 
107,737

 
616,863

 
691,342

West
413,208

 
1,094,112

 
222,920

 
1,730,240

 
1,924,958

Other homebuilding (b)
18,351

 
198,566

 
25,204

 
242,121

 
2,628,687

 
1,408,260

 
3,259,066

 
782,732

 
5,450,058

 
8,447,907

Financial Services

 

 

 

 
508,989

 
$
1,408,260

 
$
3,259,066

 
$
782,732

 
$
5,450,058

 
$
8,956,896

 
(a)
Southeast includes the acquisition in January 2016 of substantially all of the assets of Wieland (see Note 1).
(b)
Other homebuilding primarily includes cash and equivalents, capitalized interest, intangibles, deferred tax assets, and other corporate items that are not allocated to the operating segments.
 

14

PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)




4. Debt

Senior notes

Our senior notes are summarized as follows ($000’s omitted):
 
March 31,
2016
 
December 31,
2015
6.500% unsecured senior notes due May 2016 (a)
465,245

 
465,245

7.625% unsecured senior notes due October 2017 (b)
123,000

 
123,000

4.250% unsecured senior notes due March 2021 (a)
300,000

 

5.500% unsecured senior notes due March 2026 (a)
700,000

 

7.875% unsecured senior notes due June 2032 (a)
300,000

 
300,000

6.375% unsecured senior notes due May 2033 (a)
400,000

 
400,000

6.000% unsecured senior notes due February 2035 (a)
300,000

 
300,000

Net premiums, discounts, and issuance costs (c)
(19,699
)
 
(12,163
)
Total senior notes
$
2,568,546

 
$
1,576,082

Estimated fair value
$
2,663,408

 
$
1,643,651


(a)
Redeemable prior to maturity; guaranteed on a senior basis by certain wholly-owned subsidiaries.
(b)
Not redeemable prior to maturity; guaranteed on a senior basis by certain wholly-owned subsidiaries.
(c)
The carrying value of senior notes reflects the impact of premiums, discounts, and issuance costs that are amortized to interest cost over the respective terms of the senior notes. As discussed in Note 1, we adopted ASU 2015-03 in January 2016. We applied the new guidance retrospectively to all prior periods presented in the financial statements to conform to the 2016 presentation. As a result, $10.3 million of debt issuance costs at December 31, 2015, were reclassified from other assets to a reduction in senior notes.

On February 25, 2016, we issued $1.0 billion of senior unsecured notes, consisting of $300 million of 4.25% senior notes due March 1, 2021, and $700 million of 5.50% senior notes due March 1, 2026. Similar to the other senior note series reflected in the above table, these notes are irrevocably and unconditionally guaranteed on a senior basis, jointly and severally, by certain of our wholly-owned subsidiaries. The notes and the guarantees are senior unsecured obligations and rank equally in right of payment with the existing and future senior unsecured indebtedness of the Company and each of the guarantors, respectively. The notes are redeemable at our option at any time up to the date of maturity.

Revolving credit facility

We maintain a senior unsecured revolving credit facility (the “Revolving Credit Facility”) that matures in July 2017.  The Revolving Credit Facility provides for maximum borrowings of $500.0 million and contains an uncommitted accordion feature that could increase the size of the Revolving Credit Facility to $1.0 billion, subject to certain conditions and availability of additional bank commitments.  The Revolving Credit Facility also provides for the issuance of letters of credit that reduce available borrowing capacity under the Revolving Credit Facility and may total no more than the greater of: (i) 50% of the size of the facility or (ii) $300.0 million in the aggregate. The interest rate on borrowings under the Revolving Credit Facility may be based on either the London Interbank Offered Rate ("LIBOR") or a base rate plus an applicable margin, as defined.  We had no borrowings outstanding and $213.4 million and $191.3 million of letters of credit issued under the Revolving Credit Facility at March 31, 2016 and December 31, 2015, respectively.

The Revolving Credit Facility contains financial covenants that require us to maintain a minimum Tangible Net Worth, a minimum Interest Coverage Ratio, and a maximum Debt-to-Capitalization Ratio (as each term is defined in the Revolving Credit Facility). As of March 31, 2016, we were in compliance with all covenants. Outstanding balances under the Revolving Credit Facility are guaranteed by certain of our wholly-owned subsidiaries.


15

PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)




Term loan

On September 30, 2015, we entered into a senior unsecured $500.0 million term loan agreement (the “Term Loan”) with an initial maturity date of January 3, 2017, which can be extended at our option up to 12 months. The interest rate on the Term Loan may be based on either LIBOR or a base rate plus an applicable margin, as defined. Borrowings are interest only with the principal being due at the maturity date and are guaranteed by certain of our wholly-owned subsidiaries. The Term Loan contains customary affirmative and negative covenants for loans of this type, including the same financial covenants as under the Revolving Credit Facility. As of March 31, 2016, we were in compliance with all covenants.

Limited recourse notes payable

Certain of our local homebuilding operations maintain limited recourse collateralized notes payable with third parties that totaled $36.3 million at March 31, 2016 and $35.3 million at December 31, 2015. These notes have maturities ranging up to six years, are collateralized by the land positions to which they relate, have no recourse to any other assets, and are classified within accrued and other liabilities. The stated interest rates on these notes range up to 5.00%.

Pulte Mortgage

Pulte Mortgage maintains a master repurchase agreement (the “Repurchase Agreement”) with third party lenders that expires in September 2016. The Repurchase Agreement's borrowing capacity was $310.0 million through January 18, 2016, after which it decreased to $175.0 million through July 28, 2016, after which it increases to $200.0 million. The purpose for the changes in capacity during the term of the agreement is to lower associated fees during seasonally lower volume periods of mortgage origination activity. Borrowings under the Repurchase Agreement are secured by residential mortgage loans available-for-sale. The Repurchase Agreement contains various affirmative and negative covenants applicable to Pulte Mortgage, including quantitative thresholds related to net worth, net income, and liquidity. Pulte Mortgage had $118.6 million and $267.9 million outstanding under the Repurchase Agreement at March 31, 2016 and December 31, 2015, respectively, and was in compliance with all of its covenants and requirements as of such dates.


16

PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



5. Shareholders’ equity

During the three months ended March 31, 2016, we declared cash dividends totaling $31.5 million and repurchased 3.1 million shares under our repurchase authorization for a total of $50.0 million. At March 31, 2016, we had remaining authorization to repurchase $554.8 million of common shares. During the three months ended March 31, 2015, we declared cash dividends totaling $29.4 million and repurchased 4.6 million shares under our repurchase authorization for a total of $99.6 million.

Under our share-based compensation plans, we accept shares as payment under certain conditions related to stock option exercises and vesting of shares, generally related to the payment of minimum tax obligations. During the three months ended March 31, 2016 and 2015, employees surrendered shares valued at $2.7 million and $8.3 million, respectively, under these plans. Such share transactions are excluded from the above noted share repurchase authorization.

6. Income taxes

Our effective tax rate for the three months ended March 31, 2016 and 2015 was 29.5%, and 42.6%, respectively. Our effective tax rate for the current year differed from the federal statutory tax rate primarily due to the favorable resolution of certain state income tax matters.  For the prior year, our effective tax rate differed from the federal statutory tax rate primarily due to state income taxes and an adjustment to deferred taxes due to changes in state laws and business operations. 

At March 31, 2016 and December 31, 2015, we had deferred tax assets, net of deferred tax liabilities and valuation allowance, of $1.3 billion and $1.4 billion, respectively. The accounting for deferred taxes is based upon estimates of future results.  Differences between estimated and actual results could result in changes in the valuation of deferred tax assets that could have a material impact on our consolidated results of operations or financial position. Changes in existing tax laws could also affect actual tax results and the realization of deferred tax assets over time. 

Unrecognized tax benefits represent the difference between tax positions taken or expected to be taken in a tax return and the benefits recognized for financial statement purposes. At March 31, 2016 and December 31, 2015, we had $22.5 million and $39.0 million, respectively, of gross unrecognized tax benefits and $11.8 million and $17.2 million, respectively, of related accrued interest and penalties. It is reasonably possible within the next twelve months that our gross unrecognized tax benefits may decrease by up to $18.5 million, excluding interest and penalties, primarily due to expirations of certain statutes of limitations and potential settlements.

We are currently under examination by the IRS and various state taxing jurisdictions and anticipate finalizing certain examinations within the next twelve months. The final outcome of these examinations is not yet determinable. The statutes of limitation for our major tax jurisdictions generally remain open for examination for tax years 2005 to 2016.


17

PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



7. Fair value disclosures

ASC 820, “Fair Value Measurements and Disclosures,” provides a framework for measuring fair value in generally accepted accounting principles and establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The fair value hierarchy can be summarized as follows: 
Level 1
 
Fair value determined based on quoted prices in active markets for identical assets or liabilities.
 
 
Level 2
 
Fair value determined using significant observable inputs, generally either quoted prices in active markets for similar assets or liabilities or quoted prices in markets that are not active.
 
 
Level 3
 
Fair value determined using significant unobservable inputs, such as pricing models, discounted cash flows, or similar techniques.

Our assets and liabilities measured or disclosed at fair value are summarized below ($000’s omitted): 
Financial Instrument
 
Fair Value
Hierarchy
 
Fair Value
March 31,
2016
 
December 31,
2015
 
 
 
 
 
 
 
Measured at fair value on a recurring basis:
 
 
 
 
 
 
Residential mortgage loans available-for-sale
 
Level 2
 
$
290,578

 
$
442,715

Interest rate lock commitments
 
Level 2
 
8,899

 
5,574

Forward contracts
 
Level 2
 
(3,173
)
 
338

Whole loan commitments
 
Level 2
 
(95
)
 
13

 
 
 
 
 
 
 
Measured at fair value on a non-recurring basis:
 
 
 
 
 
 
House and land inventory
 
Level 3
 
$

 
$
11,052

 
 
 
 
 
 
 
Disclosed at fair value:
 
 
 
 
 
 
Cash and equivalents (including restricted cash)
 
Level 1
 
$
1,018,115

 
$
775,435

Financial Services debt
 
Level 2
 
118,614

 
267,877

Term loan
 
Level 2
 
500,000

 
500,000

Senior notes
 
Level 2
 
2,663,408

 
1,643,651


Fair values for agency residential mortgage loans available-for-sale are determined based on quoted market prices for comparable instruments. Fair values for non-agency residential mortgage loans available-for-sale are determined based on purchase commitments from whole loan investors and other relevant market information available to management. Fair values for interest rate lock commitments, including the value of servicing rights, are based on market prices for similar instruments. Forward contracts on mortgage-backed securities are valued based on market prices for similar instruments. Fair values for whole loan investor commitments are based on market prices for similar instruments from the specific whole loan investor.

Certain assets are required to be recorded at fair value on a non-recurring basis when events and circumstances indicate that the carrying value may not be recoverable. The non-recurring fair values included in the above table represent only those assets whose carrying values were adjusted to fair value as of the respective balance sheet dates.

The carrying amounts of cash and equivalents, Financial Services debt, the Term Loan, and the Revolving Credit Facility approximate their fair values due to their short-term nature and floating interest rate terms. The fair values of senior notes are based on quoted market prices, when available. If quoted market prices are not available, fair values are based on quoted market prices of similar issues. The carrying value of senior notes was $2.6 billion and $1.6 billion at March 31, 2016 and December 31, 2015, respectively.

18

PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



8. Commitments and contingencies

Loan origination liabilities

Our mortgage operations may be responsible for losses associated with mortgage loans originated and sold to investors in the event of errors or omissions relating to representations and warranties made by us that the loans met certain requirements, including representations as to underwriting standards, the existence of primary mortgage insurance, and the validity of certain borrower representations in connection with the loan. Determining the liabilities for anticipated losses requires a significant level of management judgment. Given the ongoing volatility in the mortgage industry, changes in values of underlying collateral over time, and other uncertainties regarding the ultimate resolution of these claims, actual costs could differ from our current estimates. Changes in these liabilities were as follows ($000's omitted):
 
Three Months Ended
 
March 31,
 
2016
 
2015
Liabilities, beginning of period
$
46,381

 
$
58,222

Reserves provided (released), net
866

 
58

Payments
(154
)
 
(54
)
Liabilities, end of period
$
47,093

 
$
58,226


Letters of credit and surety bonds

In the normal course of business, we post letters of credit and surety bonds pursuant to certain performance-related obligations, as security for certain land option agreements, and under various insurance programs. The majority of these letters of credit and surety bonds are in support of our land development and construction obligations to various municipalities, other government agencies, and utility companies related to the construction of roads, sewers, and other infrastructure. We had outstanding letters of credit and surety bonds totaling $213.4 million and $1.1 billion, respectively, at March 31, 2016, and $191.3 million and $1.0 billion, respectively, at December 31, 2015. In the event any such letter of credit or surety bond is drawn, we would be obligated to reimburse the issuer of the letter of credit or surety bond. We do not believe that a material amount, if any, of the letters of credit or surety bonds will be drawn. Our surety bonds generally do not have stated expiration dates; rather we are released from the surety bonds as the underlying contractual performance is completed. Because significant construction and development work has been performed related to projects that have not yet received final acceptance by the respective counterparties, the aggregate amount of surety bonds outstanding is in excess of the projected cost of the remaining work to be performed.

Litigation and regulatory matters

We are involved in various litigation and legal claims in the normal course of our business operations, including actions brought on behalf of various classes of claimants. We are also subject to a variety of local, state, and federal laws and regulations related to land development activities, house construction standards, sales practices, mortgage lending operations, employment practices, and protection of the environment. As a result, we are subject to periodic examination or inquiry by various governmental agencies that administer these laws and regulations.

We establish liabilities for legal claims and regulatory matters when such matters are both probable of occurring and any potential loss is reasonably estimable. We accrue for such matters based on the facts and circumstances specific to each matter and revise these estimates as the matters evolve. In such cases, there may exist an exposure to loss in excess of any amounts currently accrued. In view of the inherent difficulty of predicting the outcome of these legal and regulatory matters, we generally cannot predict the ultimate resolution of the pending matters, the related timing, or the eventual loss. While the outcome of such contingencies cannot be predicted with certainty, we do not believe that the resolution of such matters will have a material adverse impact on our results of operations, financial position, or cash flows. However, to the extent the liability arising from the ultimate resolution of any matter exceeds the estimates reflected in the recorded reserves relating to such matter, we could incur additional charges that could be significant.




19

PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



Allowance for warranties

Home purchasers are provided with a limited warranty against certain building defects, including a one-year comprehensive limited warranty and coverage for certain other aspects of the home’s construction and operating systems for periods of up to and in limited instances exceeding 10 years. We estimate the costs to be incurred under these warranties and record liabilities in the amount of such costs at the time product revenue is recognized. Factors that affect our warranty liabilities include the number of homes sold, historical and anticipated rates of warranty claims, and the cost per claim. We periodically assess the adequacy of the warranty liabilities for each geographic market in which we operate and adjust the amounts as necessary. Actual warranty costs in the future could differ from the current estimates. Changes to warranty liabilities were as follows ($000’s omitted):
 
Three Months Ended
 
March 31,
 
2016
 
2015
Warranty liabilities, beginning of period
$
61,360

 
$
65,389

Reserves provided
12,319

 
8,841

Payments
(12,743
)
 
(16,829
)
Warranty liabilities, end of period
$
60,936

 
$
57,401


Self-insured risks

We maintain, and require our subcontractors to maintain, general liability insurance coverage. We also maintain builders' risk, property, errors and omissions, workers compensation, and other business insurance coverage. These insurance policies protect us against a portion of the risk of loss from claims. However, we retain a significant portion of the overall risk for such claims either through policies issued by our captive insurance subsidiaries or through our own self-insured per occurrence and aggregate retentions, deductibles, and claims in excess of available insurance policy limits.

Our general liability insurance includes coverage for certain construction defects. While construction defect claims can relate to a variety of circumstances, the majority of our claims relate to alleged problems with siding, plumbing, foundations and other concrete work, windows, roofing, and heating, ventilation and air conditioning systems. The availability of general liability insurance for the homebuilding industry and its subcontractors has become increasingly limited, and the insurance policies available require companies to maintain significant per occurrence and aggregate retention levels. In certain instances, we may offer our subcontractors the opportunity to purchase insurance through one of our captive insurance subsidiaries or participate in a project-specific insurance program provided by us. Policies issued by the captive insurance subsidiaries represent self-insurance of these risks by us. This self-insured exposure is limited by reinsurance policies that we purchase. General liability coverage for the homebuilding industry is complex, and our coverage varies from policy year to policy year. Our insurance coverage generally requires a per occurrence deductible up to an overall aggregate retention level. Beginning with the first dollar, amounts paid to satisfy insured claims apply to our per occurrence and aggregate retention obligations. Any amounts incurred in excess of the occurrence or aggregate retention levels are covered by insurance up to our purchased coverage levels. Our insurance policies, including the captive insurance subsidiaries' reinsurance policies, are maintained with highly-rated underwriters for whom we believe counterparty default risk is not significant.

At any point in time, we are managing over 1,000 individual claims related to general liability, property, errors and omissions, workers compensation, and other business insurance coverage. We reserve for costs associated with such claims (including expected claims management expenses) on an undiscounted basis at the time revenue is recognized for each home closing and evaluate the recorded liabilities based on actuarial analyses of our historical claims. The actuarial analyses calculate estimates of the ultimate net cost of all unpaid losses, including estimates for incurred but not reported losses ("IBNR"). IBNR represents losses related to claims incurred but not yet reported plus development on reported claims.

Our recorded reserves for all such claims totaled $693.0 million and $692.1 million at March 31, 2016 and December 31, 2015, respectively, the vast majority of which relates to general liability claims. The recorded reserves include loss estimates related to both (i) existing claims and related claim expenses and (ii) IBNR and related claim expenses. Liabilities related to IBNR and related claim expenses represented approximately 65% of the total general

20

PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



liability reserves at both March 31, 2016 and December 31, 2015. The actuarial analyses that determine the IBNR portion of reserves consider a variety of factors, including the frequency and severity of losses, which are based on our historical claims experience supplemented by industry data. The actuarial analyses of the reserves also consider historical third party recovery rates and claims management expenses.

Housing market conditions have been volatile across most of our markets over the past ten years, and we believe such conditions can affect the frequency and cost of construction defect claims. Additionally, IBNR estimates comprise the majority of our liability and are subject to a high degree of uncertainty due to a variety of factors, including changes in claims reporting and resolution patterns, third party recoveries, insurance industry practices, the regulatory environment, and legal precedent. State regulations vary, but construction defect claims are reported and resolved over an extended period often exceeding ten years. Changes in the frequency and timing of reported claims and estimates of specific claim values can impact the underlying inputs and trends utilized in the actuarial analyses, which could have a material impact on the recorded reserves. Additionally, the amount of insurance coverage available for each policy period also impacts our recorded reserves. Because of the inherent uncertainty in estimating future losses related and the timing of such losses related to these claims, actual costs could differ significantly from estimated costs. Adjustments to reserves are recorded in the period in which the change in estimate occurs.

Costs associated with our insurance programs are classified within selling, general, and administrative expenses. Changes in these liabilities were as follows ($000's omitted):
 
Three Months Ended
 
March 31,
 
2016
 
2015
Balance, beginning of period
$
692,053

 
$
710,245

Reserves provided, net
19,751

 
15,832

Payments
(18,824
)
 
(5,310
)
Balance, end of period
$
692,980

 
$
720,767


In certain instances, we have the ability to recover a portion of our costs under various insurance policies or from subcontractors or other third parties. Estimates of such amounts are recorded when recovery is considered probable. Such receivables are recorded in other assets and totaled $135.8 million and $130.2 million at March 31, 2016 and December 31, 2015, respectively. The increase in insurance receivables resulted from the continued progression of insured construction defect claims. Given the complexity inherent with resolving construction defect claims in the homebuilding industry as described above, there generally exists a significant lag between our payment of claims and related reimbursements. Additionally, we are the plaintiff in litigation with certain of our insurance carriers relating to a large portion of the insurance receivables balance. We believe collection of these insurance receivables is probable based on the legal merits of our positions, favorable legal rulings received to date, and our long history of collecting significant amounts of insurance reimbursements related to similar claims. While the outcome of these matters cannot be predicted with certainty, we do not believe that the resolution of such matters will have a material adverse impact on our results of operations, financial position, or cash flows.

9. Supplemental Guarantor information

All of our senior notes are guaranteed jointly and severally on a senior basis by certain of our wholly-owned Homebuilding subsidiaries and certain other wholly-owned subsidiaries (collectively, the “Guarantors”). Such guaranties are full and unconditional. Our subsidiaries, comprising the Financial Services segment along with certain other subsidiaries (collectively, the "Non-Guarantor Subsidiaries"), do not guarantee the senior notes. In accordance with Rule 3-10 of Regulation S-X, supplemental consolidating financial information of the Company, including such information for the Guarantors, is presented below. Investments in subsidiaries are presented using the equity method of accounting.



21

PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



 CONDENSED CONSOLIDATING BALANCE SHEET
MARCH 31, 2016
($000’s omitted)
 
Unconsolidated
 
Eliminating
Entries
 
Consolidated
PulteGroup,
Inc.
 
PulteGroup,
Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
ASSETS
 
 
 
 
 
 
 
 
 
Cash and equivalents
$

 
$
937,248

 
$
58,448

 
$

 
$
995,696

Restricted cash

 
20,937

 
1,482

 

 
22,419

House and land inventory

 
6,160,236

 
42,243

 

 
6,202,479

Land held for sale

 
84,507

 
510

 

 
85,017

Residential mortgage loans available-
       for-sale

 

 
290,578

 

 
290,578

Investments in unconsolidated entities
97

 
48,234

 
4,759

 

 
53,090

Other assets
23,002

 
522,693

 
140,468

 

 
686,163

Intangible assets

 
163,185

 

 

 
163,185

Deferred tax assets, net
1,342,225

 

 
2,628

 

 
1,344,853

Investments in subsidiaries and
       intercompany accounts, net
6,597,500

 
(754,237
)
 
6,491,667

 
(12,334,930
)
 

 
$
7,962,824

 
$
7,182,803

 
$
7,032,783

 
$
(12,334,930
)
 
$
9,843,480

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable, customer deposits,
       accrued and other liabilities
$
88,474

 
$
1,569,237

 
$
192,805

 
$

 
$
1,850,516

Income tax liabilities
33,460

 

 

 

 
33,460

Financial Services debt

 

 
118,614

 

 
118,614

Term loan
498,817

 





 
498,817

Senior notes
2,568,546

 

 

 

 
2,568,546

Total liabilities
3,189,297

 
1,569,237

 
311,419

 

 
5,069,953

Total shareholders’ equity
4,773,527

 
5,613,566

 
6,721,364

 
(12,334,930
)
 
4,773,527

 
$
7,962,824

 
$
7,182,803

 
$
7,032,783

 
$
(12,334,930
)
 
$
9,843,480



22

PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2015
($000’s omitted)
 
Unconsolidated
 
Eliminating
Entries
 
Consolidated
PulteGroup,
Inc.
 
PulteGroup,
Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
ASSETS
 
 
 
 
 
 
 
 
 
Cash and equivalents
$

 
$
638,602

 
$
115,559

 
$

 
$
754,161

Restricted cash

 
20,274

 
1,000

 

 
21,274

House and land inventory

 
5,450,058

 

 

 
5,450,058

Land held for sale

 
80,458

 
1,034

 

 
81,492

Residential mortgage loans available-
       for-sale

 

 
442,715

 

 
442,715

Investments in unconsolidated entities
93

 
36,499

 
4,675

 

 
41,267

Other assets
38,991

 
531,120

 
90,724

 

 
660,835

Intangible assets

 
110,215

 

 

 
110,215

Deferred tax assets, net
1,392,251

 
11

 
2,617

 

 
1,394,879

Investments in subsidiaries and
       intercompany accounts, net
5,529,606

 
465,644

 
6,293,018

 
(12,288,268
)
 

 
$
6,960,941

 
$
7,332,881

 
$
6,951,342

 
$
(12,288,268
)
 
$
8,956,896

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable, customer deposits,
       accrued and other liabilities
$
70,061

 
$
1,558,885

 
$
169,193

 
$

 
$
1,798,139

Income tax liabilities
57,050

 

 

 

 
57,050

Financial Services debt

 

 
267,877

 

 
267,877

Term loan
498,423

 

 

 

 
498,423

Senior notes
1,576,082

 

 

 

 
1,576,082

Total liabilities
2,201,616

 
1,558,885

 
437,070

 

 
4,197,571

Total shareholders’ equity
4,759,325

 
5,773,996

 
6,514,272

 
(12,288,268
)
 
4,759,325

 
$
6,960,941

 
$
7,332,881

 
$
6,951,342

 
$
(12,288,268
)
 
$
8,956,896



23

PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
For the three months ended March 31, 2016
($000’s omitted)
 
Unconsolidated
 
 
 
Consolidated
PulteGroup, 
Inc.
 
PulteGroup,
Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminating
Entries
 
Revenues:
 
 
 
 
 
 
 
 
 
Homebuilding
 
 
 
 
 
 
 
 
 
Home sale revenues
$

 
$
1,393,259

 
$
984

 
$

 
$
1,394,243

Land sale revenues

 
2,010

 
477

 

 
2,487

 

 
1,395,269

 
1,461

 

 
1,396,730

Financial Services

 

 
35,848

 

 
35,848

 

 
1,395,269

 
37,309

 

 
1,432,578

Homebuilding Cost of Revenues:
 
 
 
 
 
 
 
 
 
Home sale cost of revenues

 
1,087,165

 
2,164

 

 
1,089,329

Land sale cost of revenues

 
1,643

 
385

 

 
2,028

 

 
1,088,808

 
2,549

 

 
1,091,357

Financial Services expenses

 
123

 
25,996

 

 
26,119

Selling, general, and administrative
       expenses

 
187,581

 
3,434

 

 
191,015

Other expense (income), net
170

 
9,676

 
(3,972
)
 

 
5,874

Intercompany interest
510

 
2,184

 
(2,694
)
 

 

Income (loss) before income taxes and
       equity in income (loss) of
       subsidiaries
(680
)
 
106,897

 
11,996

 

 
118,213

Income tax expense (benefit)
(263
)
 
30,568

 
4,608

 

 
34,913

Income (loss) before equity in income
       (loss) of subsidiaries
(417
)
 
76,329

 
7,388

 

 
83,300

Equity in income (loss) of subsidiaries
83,717

 
7,010

 
111,918

 
(202,645
)
 

Net income (loss)
83,300

 
83,339

 
119,306

 
(202,645
)
 
83,300

Other comprehensive income
21

 

 

 

 
21

Comprehensive income (loss)
$
83,321

 
$
83,339

 
$
119,306

 
$
(202,645
)
 
$
83,321



24

PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
For the three months ended March 31, 2015
($000’s omitted)
 
Unconsolidated
 
 
 
Consolidated
PulteGroup, 
Inc.
 
PulteGroup,
Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminating
Entries
 
Revenues:
 
 
 
 
 
 
 
 
 
Homebuilding
 
 
 
 
 
 
 
 
 
Home sale revenues
$

 
$
1,088,158

 
$

 
$

 
$
1,088,158

Land sale revenues

 
17,542

 

 

 
17,542

 

 
1,105,700

 

 

 
1,105,700

Financial Services

 

 
27,598

 

 
27,598

 

 
1,105,700

 
27,598

 

 
1,133,298

Homebuilding Cost of Revenues:
 
 
 
 
 
 
 
 
 
Home sale cost of revenues

 
841,145

 

 

 
841,145

Land sale cost of revenues

 
13,378

 

 

 
13,378

 

 
854,523

 

 

 
854,523

Financial Services expenses
187

 
(168
)
 
22,522

 

 
22,541

Selling, general, and administrative
       expenses

 
160,828

 
484

 

 
161,312

Other expense (income), net
174

 
(708
)
 
(349
)
 

 
(883
)
Intercompany interest
7,723

 
(5,422
)
 
(2,301
)
 

 

Income (loss) before income taxes and
       equity in income (loss) of
       subsidiaries
(8,084
)
 
96,647

 
7,242

 

 
95,805

Income tax expense (benefit)
(3,072
)
 
41,097

 
2,809

 

 
40,834

Income (loss) before equity in income
       (loss) of subsidiaries
(5,012
)
 
55,550

 
4,433

 

 
54,971

Equity in income (loss) of subsidiaries
59,983

 
4,337

 
52,063

 
(116,383
)
 

Net income (loss)
54,971

 
59,887

 
56,496

 
(116,383
)
 
54,971

Other comprehensive income
21

 

 

 

 
21

Comprehensive income (loss)
$
54,992

 
$
59,887

 
$
56,496

 
$
(116,383
)
 
$
54,992



25

PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



CONSOLIDATING STATEMENT OF CASH FLOWS
For the three months ended March 31, 2016
($000’s omitted)
 
Unconsolidated
 
 
 
Consolidated
PulteGroup, Inc.
 
PulteGroup,
Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminating
Entries
 
Net cash provided by (used in)
   operating activities
$
41,058

 
$
(255,994
)
 
$
150,874

 
$

 
$
(64,062
)
Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Capital expenditures

 
(8,918
)
 
(542
)
 

 
(9,460
)
Cash used for business acquisitions