PHM 03/31/2012 10-Q
______________________________________________________________________________________________________
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, 2012
[ ] 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)
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| | |
MICHIGAN | | 38-2766606 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
100 Bloomfield Hills Parkway, Suite 300
Bloomfield Hills, Michigan 48304
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (248) 647-2750
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):
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| | | | | | |
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 Act). YES [ ] NO [X]
Number of shares of common stock outstanding as of April 20, 2012: 383,649,300
______________________________________________________________________________________________________
PULTEGROUP, INC.
INDEX
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PART I | | |
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Item 1 | | |
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Item 2 | | |
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Item 3 | | |
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Item 4 | | |
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PART II | | |
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Item 2 | | |
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Item 6 | | |
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PULTEGROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
($000’s omitted)
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| | | | | | | |
| March 31, 2012 | | December 31, 2011 |
| (Unaudited) | | (Note) |
ASSETS | | | |
| | | |
Cash and equivalents | $ | 1,211,735 |
| | $ | 1,083,071 |
|
Restricted cash | 89,869 |
| | 101,860 |
|
House and land inventory | 4,584,416 |
| | 4,636,468 |
|
Land held for sale | 136,232 |
| | 135,307 |
|
Land, not owned, under option agreements | 26,121 |
| | 24,905 |
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Residential mortgage loans available-for-sale | 184,164 |
| | 258,075 |
|
Investments in unconsolidated entities | 34,146 |
| | 35,988 |
|
Income taxes receivable | 29,673 |
| | 27,154 |
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Other assets | 404,014 |
| | 420,444 |
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Intangible assets | 159,073 |
| | 162,348 |
|
| $ | 6,859,443 |
| | $ | 6,885,620 |
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| | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | |
| | | |
Liabilities: | | | |
Accounts payable, including book overdrafts of $33,650 and $48,380 in 2012 and 2011, respectively | $ | 170,609 |
| | $ | 196,447 |
|
Customer deposits | 71,580 |
| | 46,960 |
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Accrued and other liabilities | 1,382,330 |
| | 1,411,941 |
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Income tax liabilities | 215,150 |
| | 203,313 |
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Senior notes | 3,090,946 |
| | 3,088,344 |
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| 4,930,615 |
| | 4,947,005 |
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| | | |
Shareholders' equity | 1,928,828 |
| | 1,938,615 |
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| | | |
| $ | 6,859,443 |
| | $ | 6,885,620 |
|
Note: The Condensed Consolidated Balance Sheet at December 31, 2011 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.
See accompanying Notes to Condensed Consolidated Financial Statements.
PULTEGROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(000’s omitted, except per share data)
(Unaudited)
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| | | | | | | |
| Three Months Ended |
| March 31, |
| 2012 | | 2011 |
Revenues: | | | |
Homebuilding | | | |
Home sale revenues | $ | 813,786 |
| | $ | 782,471 |
|
Land sale revenues | 38,398 |
| | 1,296 |
|
| 852,184 |
| | 783,767 |
|
Financial Services | 28,852 |
| | 21,435 |
|
Total revenues | 881,036 |
| | 805,202 |
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| | | |
Homebuilding Cost of Revenues: | | | |
Home sale cost of revenues | 712,166 |
| | 685,030 |
|
Land sale cost of revenues | 33,397 |
| | 930 |
|
| 745,563 |
| | 685,960 |
|
Financial Services expenses | 22,009 |
| | 20,473 |
|
Selling, general and administrative expenses | 123,314 |
| | 142,446 |
|
Other expense (income), net | 6,619 |
| | 3,910 |
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Interest income | (1,199 | ) | | (1,437 | ) |
Interest expense | 217 |
| | 351 |
|
Equity in (earnings) loss of unconsolidated entities | (1,996 | ) | | (1,109 | ) |
Income (loss) before income taxes | (13,491 | ) | | (45,392 | ) |
Income tax expense (benefit) | (1,825 | ) | | (5,866 | ) |
Net income (loss) | $ | (11,666 | ) | | $ | (39,526 | ) |
| | | |
Net income (loss) per share: | | | |
Basic | $ | (0.03 | ) | | $ | (0.10 | ) |
Diluted | $ | (0.03 | ) | | $ | (0.10 | ) |
| | | |
Number of shares used in calculation: | | | |
Basic | 380,502 |
| | 379,544 |
|
Diluted | 380,502 |
| | 379,544 |
|
See accompanying Notes to Condensed Consolidated Financial Statements.
PULTEGROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(000’s omitted)
(Unaudited)
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| | | | | | | |
| Three Months Ended |
| March 31, |
| 2012 | | 2011 |
Net income (loss) | $ | (11,666 | ) | | $ | (39,526 | ) |
| | | |
Other comprehensive income (loss), net of tax: | | | |
Change in fair value of derivatives | 57 |
| | 9 |
|
Foreign currency translation adjustments | — |
| | (51 | ) |
Other comprehensive income (loss) | 57 |
| | (42 | ) |
| | | |
Comprehensive income (loss) | $ | (11,609 | ) | | $ | (39,568 | ) |
See accompanying Notes to Condensed Consolidated Financial Statements.
PULTEGROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(000's omitted)
(Unaudited)
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| | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-in Capital | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings (Accumulated Deficit) | | Total |
Shares | | $ | |
Shareholders' Equity, January 1, 2012 | 382,608 |
| | $ | 3,826 |
| | $ | 2,986,240 |
| | $ | (1,306 | ) | | $ | (1,050,145 | ) | | $ | 1,938,615 |
|
Stock awards, net of cancellations | 1,134 |
| | 11 |
| | (11 | ) | | — |
| | — |
| | — |
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Stock repurchases | (93 | ) | | (1 | ) | | (727 | ) | | — |
| | (117 | ) | | (845 | ) |
Stock-based compensation | — |
| | — |
| | 2,667 |
| | — |
| | — |
| | 2,667 |
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Net income (loss) | — |
| | — |
| | — |
| | — |
| | (11,666 | ) | | (11,666 | ) |
Other comprehensive income (loss) | — |
| | — |
| | — |
| | 57 |
| | — |
| | 57 |
|
Shareholders' Equity, March 31, 2012 | 383,649 |
| | $ | 3,836 |
| | $ | 2,988,169 |
| | $ | (1,249 | ) | | $ | (1,061,928 | ) | | $ | 1,928,828 |
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| | | | | | | | | | | |
Shareholders' Equity, January 1, 2011 | 382,028 |
| | $ | 3,820 |
| | $ | 2,972,919 |
| | $ | (1,519 | ) | | $ | (840,053 | ) | | $ | 2,135,167 |
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Stock awards, net of cancellations | 910 |
| | 9 |
| | (9 | ) | | — |
| | — |
| | — |
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Stock repurchases | (129 | ) | | (1 | ) | | (1,002 | ) | | — |
| | 34 |
| | (969 | ) |
Stock-based compensation | — |
| | — |
| | 5,510 |
| | — |
| | — |
| | 5,510 |
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Net income (loss) | — |
| | — |
| | — |
| | — |
| | (39,526 | ) | | (39,526 | ) |
Other comprehensive income (loss) | — |
| | — |
| | — |
| | (42 | ) | | — |
| | (42 | ) |
Shareholders' Equity, March 31, 2011 | 382,809 |
| | $ | 3,828 |
| | $ | 2,977,418 |
| | $ | (1,561 | ) | | $ | (879,545 | ) | | $ | 2,100,140 |
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See accompanying Notes to Condensed Consolidated Financial Statements.
PULTEGROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($000’s omitted)
(Unaudited)
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| | | | | | | |
| Three Months Ended |
| March 31, |
| 2012 | | 2011 |
Cash flows from operating activities: | | | |
Net income (loss) | $ | (11,666 | ) | | $ | (39,526 | ) |
Adjustments to reconcile net income (loss) to net cash flows provided by (used in) operating activities: | | | |
Write-down of land and deposits and pre-acquisition costs | 5,896 |
| | 726 |
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Depreciation and amortization | 7,393 |
| | 8,970 |
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Stock-based compensation expense | 3,719 |
| | 5,510 |
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Equity in (earnings) loss of unconsolidated entities | (1,996 | ) | | (1,109 | ) |
Distributions of earnings from unconsolidated entities | 3,518 |
| | 411 |
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Other, net | 103 |
| | 781 |
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Increase (decrease) in cash due to: | | | |
Restricted cash | 53 |
| | 864 |
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Inventories | 45,969 |
| | (10,315 | ) |
Residential mortgage loans available-for-sale | 74,073 |
| | 32,292 |
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Other assets | 10,257 |
| | 79,383 |
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Accounts payable, accrued and other liabilities | (34,466 | ) | | (122,825 | ) |
Income tax liabilities | 11,837 |
| | (4,803 | ) |
Net cash provided by (used in) operating activities | 114,690 |
| | (49,641 | ) |
Cash flows from investing activities: | | | |
Distributions from unconsolidated entities | — |
| | 1,021 |
|
Investments in unconsolidated entities | (49 | ) | | (1,968 | ) |
Net change in loans held for investment | 293 |
| | 255 |
|
Change in restricted cash related to letters of credit | 11,938 |
| | (109,667 | ) |
Proceeds from the sale of fixed assets | 4,475 |
| | 2,441 |
|
Capital expenditures | (3,758 | ) | | (6,128 | ) |
Net cash provided by (used in) investing activities | 12,899 |
| | (114,046 | ) |
Cash flows from financing activities: | | | |
Net borrowings (repayments) of other borrowings | 1,920 |
| | (13,312 | ) |
Stock repurchases | (845 | ) | | (969 | ) |
Net cash provided by (used in) financing activities | 1,075 |
| | (14,281 | ) |
Net increase (decrease) in cash and equivalents | 128,664 |
| | (177,968 | ) |
Cash and equivalents at beginning of period | 1,083,071 |
| | 1,483,390 |
|
Cash and equivalents at end of period | $ | 1,211,735 |
| | $ | 1,305,422 |
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| | | |
Supplemental Cash Flow Information: | | | |
Interest paid (capitalized), net | $ | (22,808 | ) | | $ | (23,833 | ) |
Income taxes paid (refunded), net | $ | (11,142 | ) | | $ | (2,922 | ) |
See accompanying Notes to Condensed Consolidated Financial Statements.
PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Summary of significant accounting policies
Basis of presentation
PulteGroup, Inc. is one of the largest homebuilders in the United States, 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 United States generally accepted accounting principles 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 United States generally accepted accounting principles 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, 2011.
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.
Reclassification
Certain prior period amounts have been reclassified to conform to the current year 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 March 31, 2012 and December 31, 2011 also included $19.3 million and $13.0 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. Restricted cash consists primarily of deposits maintained with financial institutions under certain cash-collateralized letter of credit agreements (see Note 9). The remaining balances relate to certain other accounts with restrictions, including customer deposits on home sales that are temporarily restricted by regulatory requirements until title transfers to the homebuyer.
PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Other expense (income), net
Other expense (income), net consists of the following ($000’s omitted):
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| | | | | | | |
| Three Months Ended |
| March 31, |
| 2012 | | 2011 |
Write-offs of deposits and pre-acquisition costs | $ | 739 |
| | $ | 623 |
|
Lease exit and related costs (a) | 2,359 |
| | (82 | ) |
Amortization of intangible assets | 3,275 |
| | 3,275 |
|
Miscellaneous expense (income), net | 246 |
| | 94 |
|
| $ | 6,619 |
| | $ | 3,910 |
|
| |
(a) | Excludes $2.4 million of lease exit costs classified within Financial Services expense during the three months ended March 31, 2012. Such costs were immaterial during the three months ended March 31, 2011. See Note 2. |
Notes receivable
In certain instances, we may accept consideration for land sales or other transactions in the form of a note receivable. The counterparties for these transactions are generally land developers or other real estate investors. We consider the creditworthiness of the counterparty when evaluating the relative risk and return involved in pursuing the applicable transaction. Due to the unique facts and circumstances surrounding each receivable, we assess the need for an allowance on an individual basis. Factors considered as part of this assessment include the counterparty's payment history, the value of any underlying collateral, communications with the counterparty, knowledge of the counterparty's financial condition and plans, and the current and expected economic environment. Allowances are recorded in other expense (income), net when it becomes likely that some amount will not be collectible. Such receivables are reported net of allowance for credit losses within other assets. Notes receivable are written off when it is determined that collection efforts will no longer be pursued. Interest income is recognized as earned.
The following represents our notes receivable and related allowance for credit losses at March 31, 2012 and December 31, 2011 ($000’s omitted):
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| | | | | | | |
| March 31, 2012 | | December 31, 2011 |
Notes receivable, gross | $ | 78,579 |
| | $ | 78,834 |
|
Allowance for credit losses | (44,091 | ) | | (41,647 | ) |
Notes receivable, net | $ | 34,488 |
| | $ | 37,187 |
|
We also record other receivables from various parties in the normal course of business, including amounts due from municipalities, insurance companies, and vendors. Such receivables are generally non-interest bearing and non-collateralized, payable either on demand or upon the occurrence of a specified event, and are generally reported in other assets. See Residential mortgage loans available-for-sale in Note 1 for a discussion of our receivables related to mortgage operations. Earnings per share
Basic earnings per share is computed by dividing income (loss) available to common shareholders (the “numerator”) by the weighted-average number of common shares, adjusted for non-vested shares of restricted stock (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, non-vested restricted stock, 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. Due to the net loss recorded during the periods, all stock options, non-vested restricted stock, and other potentially dilutive instruments were excluded from the calculation for the three months ended March 31, 2012 and 2011.
Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are
PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
participating securities and, therefore, are included in computing earnings per share pursuant to the two-class method. The two-class method determines earnings per share for each class of common stock and participating securities according to dividends or dividend equivalents and their respective participation rights in undistributed earnings. Although our outstanding restricted stock and restricted stock units are considered participating securities, there were no earnings attributable to restricted shareholders during the three months ended March 31, 2012 or 2011.
Land, not owned, under option agreements
In the ordinary course of business, 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. Under ASC 810, “Consolidation” (“ASC 810”), if the entity holding the land under option is a variable interest entity (“VIE”), our deposit represents a variable interest in that entity. If we are determined to be the primary beneficiary of the VIE, then we are required to consolidate the VIE.
Only a portion of our land option agreements are with entities considered VIEs. In evaluating whether there exists a need to consolidate a VIE, we take into consideration that the VIE is generally protected from the first dollar of loss under our land option agreement due to our deposit. Likewise, the VIE's gains are generally capped based on the purchase price within the land option agreement. However, we generally have little control or influence over the operations of these VIEs due to our lack of an equity interest in them. Additionally, creditors of the VIE have no recourse against us, and we do not provide financial or other support to these VIEs other than as stipulated in the land option agreements. 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. In recent years, we have canceled a significant number of land option agreements, which has resulted in significant write-offs of the related deposits and pre-acquisition costs but did not expose us to the overall risks or losses of the applicable VIEs. No VIEs required consolidation under ASC 810 at either March 31, 2012 or December 31, 2011.
Additionally, we determined that certain land option agreements represent financing arrangements pursuant to ASC 470-40, “Accounting for Product Financing Arrangements” (“ASC 470-40”), even though we generally have no obligation to pay these future amounts. As a result, we recorded $26.1 million and $24.9 million at March 31, 2012 and December 31, 2011, respectively, to land, not owned, under option agreements with a corresponding increase to accrued and other liabilities. Such amounts represent the remaining purchase price under the land option agreements, some of which are with VIEs, in the event we exercise the purchase rights under the agreements.
The following provides a summary of our interests in land option agreements as of March 31, 2012 and December 31, 2011 ($000’s omitted):
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| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2012 | | December 31, 2011 |
| Deposits and Pre-acquisition Costs | | Remaining Purchase Price | | Land, Not Owned, Under Option Agreements | | Deposits and Pre-acquisition Costs | | Remaining Purchase Price | | Land, Not Owned, Under Option Agreements |
Consolidated VIEs | $ | 3,208 |
| | $ | 12,193 |
| | $ | 4,461 |
| | $ | 2,781 |
| | $ | 5,957 |
| | $ | 3,837 |
|
Unconsolidated VIEs | 21,121 |
| | 231,010 |
| | — |
| | 21,180 |
| | 240,958 |
| | — |
|
Other land option agreements | 32,026 |
| | 456,211 |
| | 21,660 |
| | 33,086 |
| | 451,079 |
| | 21,068 |
|
| $ | 56,355 |
| | $ | 699,414 |
| | $ | 26,121 |
| | $ | 57,047 |
| | $ | 697,994 |
| | $ | 24,905 |
|
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. In accordance with ASC 825, “Financial Instruments” (“ASC 825”), we use the fair value option for 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.” Fair values for agency residential mortgage loans
PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
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. See Note 10 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 interest rate lock 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 March 31, 2012 and December 31, 2011, residential mortgage loans available-for-sale had an aggregate fair value of $184.2 million and $258.1 million, respectively, and an aggregate outstanding principal balance of $177.5 million and $248.2 million, respectively. The net gain (loss) resulting from changes in fair value of these loans totaled $0.5 million for both the three months ended March 31, 2012 and 2011. 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 $19.0 million and $12.8 million during the three months ended March 31, 2012 and 2011, respectively, and have been included in Financial Services revenues.
Mortgage servicing rights
We sell the servicing rights for the loans we originate on a flow basis 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 mortgage 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 March 31, 2012 and December 31, 2011 and are included in accrued and other liabilities. Servicing rights recognized in Financial Services revenues totaled $4.7 million and $4.9 million during the three months ended March 31, 2012 and 2011, respectively.
Derivative instruments and hedging activities
We are exposed to market risks from commitments to lend, movements in interest rates, and canceled or modified commitments to lend. A commitment to lend at a specific interest rate (an interest rate lock commitment) is a derivative financial instrument (interest rate is locked to the borrower). In order to reduce these risks, we use other derivative financial instruments to economically hedge the interest rate lock commitment. The principal derivative instruments we use to hedge this risk are forward contracts on mortgage-backed securities and whole loan investor commitments. We enter into these derivative financial instruments based upon our portfolio of interest rate lock commitments and closed loans. We do not use any derivative financial instruments for trading purposes.
Fair values for interest rate lock commitments, including the value of servicing rights, are based on market prices for similar instruments. At March 31, 2012 and December 31, 2011, we had interest rate lock commitments in the total amount of $137.2 million and $97.6 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.
Forward contracts on mortgage-backed securities are commitments to either purchase or sell a specified financial instrument at a specified future date for a specified price and may be settled in cash, by offsetting the position, or through the delivery of the financial instrument. Forward contracts on mortgage-backed securities are the predominant derivative financial instruments we use to minimize the 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. Forward contracts on mortgage-backed securities are valued based on market prices for similar instruments. 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. Fair values for whole loan investor commitments are based on market prices for similar instruments from the specific whole loan investor. At March 31, 2012 and December 31, 2011, we had unexpired forward contracts of $277.0 million and $311.5 million, respectively, and whole loan investor commitments of $1.7 million and $1.6 million, respectively. Changes in the fair value of interest rate lock commitments and other derivative financial instruments are recognized in Financial Services revenues, and the fair values are reflected in other assets or other liabilities, as applicable.
PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(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 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 value of derivative instruments and their location in the Condensed Consolidated Balance Sheet is summarized below ($000’s omitted):
|
| | | | | | | | | | | | | | | |
| March 31, 2012 | | December 31, 2011 |
| Other Assets | | Other Liabilities | | Other Assets | | Other Liabilities |
Interest rate lock commitments | $ | 4,707 |
| | $ | 3 |
| | $ | 3,552 |
| | $ | 1 |
|
Forward contracts | 788 |
| | 307 |
| | 44 |
| | 3,514 |
|
Whole loan commitments | 14 |
| | 60 |
| | 52 |
| | 41 |
|
| $ | 5,509 |
| | $ | 370 |
| | $ | 3,648 |
| | $ | 3,556 |
|
New accounting pronouncements
In May 2011, the FASB issued Accounting Standards Update No. 2011-04, “Fair Value Measurement” (“ASU 2011-04”), which amended Accounting Standards Codification (ASC) 820 to clarify existing guidance and minimize differences between U.S. GAAP and International Financial Reporting Standards (IFRS). ASU 2011-04 requires entities to provide information about valuation techniques and unobservable inputs used in Level 3 fair value measurements and provide additional disclosures for classes of assets and liabilities disclosed at fair value. We adopted ASU 2011-04 as of January 1, 2012, which did not have a material impact on our financial statements.
In June 2011, the FASB issued Accounting Standards Update No. 2011-05, “Statement of Comprehensive Income” (“ASU 2011-05”), which requires entities to present net income and other comprehensive income in either a single continuous statement or in two separate, but consecutive, statements of net income and other comprehensive income. ASU 2011-05 was effective for our fiscal year beginning January 1, 2012. The standard did not impact our reported results of operations but did impact our financial statement presentation. We now present items of other comprehensive income in the Statement of Consolidated Comprehensive Income rather than in the Statement of Shareholders' Equity.
2. Restructuring
In response to the challenging operating environment in recent years, we have taken a series of actions designed to reduce ongoing operating costs and improve operating efficiencies. As a result of these actions, we incurred total restructuring charges as summarized below ($000’s omitted):
|
| | | | | | | |
| Three Months Ended |
| March 31, |
| 2012 | | 2011 |
Employee severance benefits | $ | 195 |
| | $ | 3,031 |
|
Lease exit costs | 4,749 |
| | (51 | ) |
Other | — |
| | (3 | ) |
| $ | 4,944 |
| | $ | 2,977 |
|
Of the total restructuring costs reflected in the above table, $2.4 million and $0.5 million are classified within Financial Services expenses for the three months ended March 31, 2012 and 2011, respectively. All other employee severance benefits are included within selling, general and administrative expense while lease exit and other costs are included in other expense (income), net. The remaining liability for employee severance benefits and exited leases totaled $0.7 million and $31.1 million, respectively, at March 31, 2012 and $2.6 million and $29.7 million, respectively, at December 31, 2011. Substantially all of the remaining liability for employee severance benefits will be paid within the next year, while cash expenditures related to the remaining liability for lease exit costs will be incurred over the remaining terms of the applicable office leases, which generally extend several years. The restructuring costs relate to various reportable segments and did not materially impact the comparability of any one segment.
PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
3. Inventory and land held for sale
Major components of inventory were as follows ($000’s omitted):
|
| | | | | | | |
| March 31, 2012 | | December 31, 2011 |
Homes under construction | $ | 1,182,038 |
| | $ | 1,210,717 |
|
Land under development | 2,674,484 |
| | 2,610,501 |
|
Land held for future development | 727,894 |
| | 815,250 |
|
| $ | 4,584,416 |
| | $ | 4,636,468 |
|
We capitalize interest cost into inventory during the active development and construction of our communities. Each layer of capitalized interest is amortized over a period that approximates the average life of communities under development. Interest expense is recorded based on the cyclical timing of home closings. Interest expensed to Homebuilding cost of revenues for the three months ended March 31, 2012 and 2011 included $0.8 million and $0.1 million, respectively, of capitalized interest related to inventory impairments. 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, |
| 2012 | | 2011 |
Interest in inventory, beginning of period | $ | 355,068 |
| | $ | 323,379 |
|
Interest capitalized | 51,323 |
| | 56,191 |
|
Interest expensed | (47,186 | ) | | (34,816 | ) |
Interest in inventory, end of period | $ | 359,205 |
| | $ | 344,754 |
|
Interest incurred* | $ | 51,323 |
| | $ | 56,191 |
|
| |
* | Homebuilding interest incurred includes interest on senior debt and certain other financing arrangements. |
Land valuation adjustments and write-offs
Impairment of inventory
In accordance with ASC 360, “Property, Plant, and Equipment” (“ASC 360”), we record valuation adjustments on land inventory and related communities under development when events and circumstances indicate that they may be impaired and when the cash flows estimated to be generated by those assets are less than their carrying amounts. Such indicators include gross margin 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. For communities that are not yet active, a significant additional consideration includes an evaluation of the probability, timing, and cost of obtaining necessary approvals from local municipalities and any potential concessions that may be necessary in order to obtain such approvals. We also consider potential changes to the product offerings in a community and any alternative strategies for the land, such as the sale of the land either in whole or in parcels. Communities that demonstrate potential impairment indicators are tested for impairment. We compare the expected undiscounted cash flows for these communities to their carrying value. For those communities whose carrying values exceed the expected undiscounted cash flows, we calculate the fair value of the community in accordance with ASC 360. Impairment charges are required to be recorded if the fair value of the community's inventory is less than its carrying value.
We determine the fair value of a community's inventory using a combination of market comparable land transactions, where available, and discounted cash flow models. 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 tested for impairment and typically do not assume improvements in
PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
market conditions in the near term. Due to uncertainties in the estimation process, the significant volatility in demand for new housing, and the long life cycles of many communities, actual results could differ significantly from such estimates. Our determination of fair value also requires discounting the estimated cash flows at a rate commensurate with the inherent risks associated with each of the assets and related estimated cash flow streams. The discount rate used in determining each community's fair value depends on the stage of development of the community and other specific factors that increase or decrease the inherent risks associated with the community's cash flow streams. For example, communities that are entitled and near completion will generally be assigned a lower discount rate than communities that are not entitled and consist of multiple phases spanning several years of development and construction activity.
During the three months ended March 31, 2012, we reviewed each of our land positions for potential impairment indicators and performed detailed impairment calculations for approximately 10 communities. As discussed above, determining the fair value of a community's inventory involves a number of variables, many of which are interrelated. The table below summarizes certain quantitative unobservable inputs utilized in determining the fair value of impaired communities at March 31, 2012:
|
| | | |
Unobservable input | Range |
Average selling price ($000s) | $198 | - | $420 |
Sales pace per quarter (units) | 4 | - | 7 |
Discount rate | 12% | - | 16% |
The table below provides, as of the date indicated, the number of communities for which we recognized impairment charges, the fair value of those communities at such date (net of impairment charges), and the amount of impairment charges recognized ($000’s omitted):
|
| | | | | | | | | | | | | | | | | | | | | |
| 2012 | | 2011 |
Quarter Ended | Number of Communities Impaired | | Fair Value of Communities Impaired, Net of Impairment Charges | | Impairment Charges | | Number of Communities Impaired | | Fair Value of Communities Impaired, Net of Impairment Charges | | Impairment Charges |
March 31 | 4 |
| | $ | 7,468 |
| | $ | 4,514 |
| | 1 |
| | $ | 483 |
| | $ | 103 |
|
We recorded these valuation adjustments within Homebuilding home sale cost of revenues.
Our evaluations for impairments recorded to date were based on our best estimates of the future cash flows for our communities. However, if conditions in the homebuilding industry or our local markets worsen in the future, if the current difficult market conditions extend beyond our expectations, or if our strategy related to certain communities changes, we may be required to evaluate our assets for further impairments or write-downs, which could result in future charges that might be significant.
Net realizable value adjustments – land held for sale
We acquire land primarily for the construction of homes for sale to customers but may periodically elect to sell select parcels of land to third parties for commercial or other development. Additionally, we may determine that certain land assets no longer fit into our strategic operating plans. Assuming the criteria in ASC 360 are met, we classify such land as land held for sale.
Land held for sale is valued at the lower of carrying value or net realizable value (fair value less costs to sell). In determining the net realizable value of land held for sale, we consider recent offers received, prices for land in recent comparable sales transactions, and other factors. During the three months ended March 31, 2012, we recognized net realizable value adjustments of $0.6 million. There were no net realizable value adjustments during the three months ended March 31, 2011. We record these net realizable value adjustments within Homebuilding land sale cost of revenues.
PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Land held for sale was as follows ($000’s omitted):
|
| | | | | | | |
| March 31, 2012 | | December 31, 2011 |
Land held for sale, gross | $ | 184,250 |
| | $ | 190,099 |
|
Net realizable value reserves | (48,018 | ) | | (54,792 | ) |
Land held for sale, net | $ | 136,232 |
| | $ | 135,307 |
|
Write-off of deposits and pre-acquisition costs
We write off deposits and pre-acquisition costs related to land option contracts 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 willingness of land sellers to modify terms of the related purchase agreements, the timing of required land takedowns, the availability and best use of necessary incremental capital, and other factors. We wrote off (net of recoveries) deposits and pre-acquisition costs in the amount of $0.7 million and $0.6 million during the three months ended March 31, 2012 and 2011, respectively. We record these write-offs of deposits and pre-acquisition costs within other expense (income), net.
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. For reporting purposes, our Homebuilding operations are aggregated into six reportable segments. During 2011, we realigned our organizational structure and reportable segment presentation. As part of the change in presentation, we removed the "Other non-operating" distinction. Amounts previously classified within "Other non-operating" have been reclassified to "Other homebuilding." Accordingly, the segment information provided in this note has been reclassified to conform to the current presentation for all periods presented.
|
| | |
Northeast: | | Connecticut, Delaware, Maryland, Massachusetts, New Jersey, New York, Pennsylvania, Rhode Island, Virginia |
Southeast: | | Georgia, North Carolina, South Carolina, Tennessee |
Florida: | | Florida |
Texas: | | Texas |
North: | | Illinois, Indiana, Michigan, Minnesota, Missouri, Northern California, Ohio, Oregon, Washington |
Southwest: | | Arizona, Colorado, Hawaii, Nevada, New Mexico, Southern California |
We also have one 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 - "Summary of Significant Accounting Policies" to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2011.
PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
|
| | | | | | | |
| Operating Data by Segment ($000’s omitted) |
| Three Months Ended |
| March 31, |
| 2012 | | 2011 |
Revenues: | | | |
Northeast | $ | 140,334 |
| | $ | 126,311 |
|
Southeast | 133,408 |
| | 142,555 |
|
Florida | 123,998 |
| | 116,774 |
|
Texas | 130,191 |
| | 131,156 |
|
North | 186,156 |
| | 134,139 |
|
Southwest | 138,097 |
| | 132,832 |
|
| 852,184 |
| | 783,767 |
|
Financial Services | 28,852 |
| | 21,435 |
|
Consolidated revenues | $ | 881,036 |
| | $ | 805,202 |
|
| | | |
Income (loss) before income taxes: | | | |
Northeast | $ | 6,496 |
| | $ | (495 | ) |
Southeast | 5,013 |
| | 4,152 |
|
Florida | 5,503 |
| | 99 |
|
Texas | 7,046 |
| | 3,878 |
|
North | 3,141 |
| | (5,161 | ) |
Southwest | (941 | ) | | (5,063 | ) |
Other homebuilding (a) | (46,610 | ) | | (43,775 | ) |
| (20,352 | ) | | (46,365 | ) |
Financial Services (b) | 6,861 |
| | 973 |
|
Consolidated income (loss) before income taxes | $ | (13,491 | ) | | $ | (45,392 | ) |
| |
(a) | Other homebuilding includes the amortization of intangible assets and capitalized interest and other costs not allocated to the operating segments. |
| |
(b) | Financial Services income (loss) before income taxes includes interest income of $1.2 million and $1.0 million for the three months ended March 31, 2012 and 2011, respectively. |
PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
|
| | | | | | | |
| Land-Related Charges by Segment ($000's omitted)
|
| Three Months Ended |
| March 31, |
| 2012 | | 2011 |
Land and community valuation adjustments: | | | |
Northeast | $ | — |
| | $ | — |
|
Southeast | — |
| | 41 |
|
Florida | — |
| | — |
|
Texas | — |
| | — |
|
North | 1,890 |
| | — |
|
Southwest | 1,810 |
| | — |
|
Other homebuilding (a) | 814 |
| | 62 |
|
| $ | 4,514 |
| | $ | 103 |
|
Net realizable value adjustments (NRV) - land held for sale: | | | |
Northeast | $ | — |
| | $ | — |
|
Southeast | 285 |
| | — |
|
Florida | 38 |
| | — |
|
Texas | — |
| | — |
|
North | (119 | ) | | — |
|
Southwest | 439 |
| | — |
|
| $ | 643 |
| | $ | — |
|
Write-off of deposits and pre-acquisition costs: | | | |
Northeast | $ | 51 |
| | $ | 263 |
|
Southeast | 555 |
| | 205 |
|
Florida | 11 |
| | — |
|
Texas | 25 |
| | 13 |
|
North | 97 |
| | 62 |
|
Southwest | — |
| | 80 |
|
| $ | 739 |
| | $ | 623 |
|
Total land-related charges | $ | 5,896 |
| | $ | 726 |
|
| |
(a) | Primarily write-offs of capitalized interest related to land and community valuation adjustments. |
PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | |
| Operating Data by Segment |
| ($000's omitted) |
| March 31, 2012 |
| Homes Under Construction | | Land Under Development | | Land Held for Future Development | | Total Inventory | | Total Assets |
Northeast | $ | 223,600 |
| | $ | 472,547 |
| | $ | 115,042 |
| | $ | 811,189 |
| | $ | 955,827 |
|
Southeast | 165,451 |
| | 310,318 |
| | 122,021 |
| | 597,790 |
| | 623,150 |
|
Florida | 136,848 |
| | 325,395 |
| | 103,392 |
| | 565,635 |
| | 636,887 |
|
Texas | 132,932 |
| | 291,496 |
| | 75,263 |
| | 499,691 |
| | 558,512 |
|
North | 256,753 |
| | 384,737 |
| | 61,831 |
| | 703,321 |
| | 785,103 |
|
Southwest | 219,935 |
| | 605,801 |
| | 180,039 |
| | 1,005,775 |
| | 1,090,411 |
|
Other homebuilding (a) | 46,519 |
| | 284,190 |
| | 70,306 |
| | 401,015 |
| | 1,996,631 |
|
| 1,182,038 |
| | 2,674,484 |
| | 727,894 |
| | 4,584,416 |
| | 6,646,521 |
|
Financial Services | — |
| | — |
| | — |
| | — |
| | 212,922 |
|
| $ | 1,182,038 |
| | $ | 2,674,484 |
| | $ | 727,894 |
| | $ | 4,584,416 |
| | $ | 6,859,443 |
|
| | | | | | | | | |
| December 31, 2011 |
| Homes Under Construction | | Land Under Development | | Land Held for Future Development | | Total Inventory | | Total Assets |
Northeast | $ | 237,722 |
| | $ | 457,010 |
| | $ | 119,549 |
| | $ | 814,281 |
| | $ | 957,844 |
|
Southeast | 166,302 |
| | 315,208 |
| | 123,209 |
| | 604,719 |
| | 626,506 |
|
Florida | 137,900 |
| | 321,841 |
| | 110,040 |
| | 569,781 |
| | 637,418 |
|
Texas | 136,325 |
| | 294,814 |
| | 77,125 |
| | 508,264 |
| | 568,974 |
|
North | 268,011 |
| | 360,202 |
| | 91,260 |
| | 719,473 |
| | 803,174 |
|
Southwest | 216,067 |
| | 577,656 |
| | 216,554 |
| | 1,010,277 |
| | 1,099,058 |
|
Other homebuilding (a) | 48,390 |
| | 283,770 |
| | 77,513 |
| | 409,673 |
| | 1,904,847 |
|
| 1,210,717 |
| | 2,610,501 |
| | 815,250 |
| | 4,636,468 |
| | 6,597,821 |
|
Financial Services | — |
| | — |
| | — |
| | — |
| | 287,799 |
|
| $ | 1,210,717 |
| | $ | 2,610,501 |
| | $ | 815,250 |
| | $ | 4,636,468 |
| | $ | 6,885,620 |
|
| |
(a) | Other homebuilding primarily includes capitalized interest, cash and equivalents, income taxes receivable, intangibles, and other corporate items that are not allocated to the operating segments. |
PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
5. Investments in unconsolidated entities
We participate in a number of joint ventures with independent third parties. Many of these joint ventures purchase, develop, and/or sell land and homes in the U.S. and Puerto Rico. A summary of our joint ventures is presented below ($000’s omitted):
|
| | | | | | | |
| March 31, 2012 | | December 31, 2011 |
Investments in joint ventures with debt non-recourse to PulteGroup | $ | 11,496 |
| | $ | 11,453 |
|
Investments in other active joint ventures | 22,650 |
| | 24,535 |
|
Total investments in unconsolidated entities | $ | 34,146 |
| | $ | 35,988 |
|
| | | |
Total joint venture debt | $ | 11,022 |
| | $ | 11,107 |
|
| | | |
PulteGroup proportionate share of joint venture debt: | | | |
Joint venture debt with limited recourse guaranties | $ | 1,156 |
| | $ | 1,202 |
|
Joint venture debt non-recourse to PulteGroup | 2,061 |
| | 2,009 |
|
PulteGroup's total proportionate share of joint venture debt | $ | 3,217 |
| | $ | 3,211 |
|
We recognized (income) expense from unconsolidated joint ventures of $(2.0) million and $(1.1) million during the three months ended March 31, 2012 and 2011, respectively. During the three months ended March 31, 2012 and 2011, we made capital contributions of $0.0 million and $2.0 million, respectively, and received capital and earnings distributions of $3.5 million and $1.4 million, respectively.
The timing of cash obligations under the joint venture and any related financing agreements varies by agreement and in certain instances is contingent upon the joint venture's sale of its land holdings. If additional capital contributions are required and approved, 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 loss exposure related to joint ventures is unlikely to exceed the combined investment and limited recourse guaranty totals.
6. Shareholders’ equity
At March 31, 2012, we had remaining authorization to purchase $102.3 million of common stock. There have been no repurchases under authorized stock repurchase programs since 2006.
Under our stock-based compensation plans, we accept shares as payment under certain conditions related to stock option exercises and vesting of restricted stock, generally related to the payment of minimum tax obligations. During the three months ended March 31, 2012 or 2011, we repurchased $0.8 million and $1.0 million, respectively, of shares from employees under these plans. Such repurchases are excluded from the above noted stock repurchase authorization.
PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
7. Income taxes
Our income tax expense (benefit) for the three months ended March 31, 2012 and 2011 was $(1.8) million and $(5.9) million, respectively. Due to the effects of changes in unrecognized tax benefits and the valuation allowance recorded against our deferred tax assets, our effective tax rates in 2012 and 2011 are not correlated to the amount of pretax loss. The income tax benefits for the three months ended March 31, 2012 and 2011 resulted primarily from the favorable resolution of certain federal and state income tax matters.
We had income taxes receivable of $29.7 million and $27.2 million at March 31, 2012 and December 31, 2011, respectively, which related primarily to amended federal and state income tax returns.
In accordance with ASC 740, "Income Taxes" ("ASC 740"), the Company evaluates its deferred tax assets to determine if a valuation allowance is required. At March 31, 2012 and December 31, 2011, we had net deferred tax assets of $2.5 billion. Based on our evaluation in accordance with ASC 740, we fully reserved the net deferred tax assets due to the uncertainty of realizing such deferred tax assets. The ultimate realization of these deferred tax assets is dependent upon the generation of taxable income during future periods. Changes in existing tax laws could also affect actual tax results and the valuation of deferred tax assets over time. The accounting for deferred taxes is based upon an estimate of future results. Differences between the estimated and actual results could have a material impact on our consolidated results of operations or financial position. To the extent that our results of operations improve, our deferred tax asset valuation allowance may be reduced.
As a result of our merger with Centex Corporation ("Centex") in August 2009, our ability to use certain of Centex’s pre-ownership change NOLs and built-in losses or deductions is limited by Section 382 of the Internal Revenue Code. Our Section 382 limitation is approximately $67.4 million per year for NOLs, losses realized on built-in loss assets that are sold within 60 months of the ownership change (i.e. before August 2014), and certain deductions. The limitation may result in a significant portion of Centex’s pre-ownership change NOL carryforwards and future recognized built-in losses or deductions not being available for use by the Company.
At March 31, 2012 we had $179.3 million of gross unrecognized tax benefits and $39.2 million of accrued interest and penalties. We are currently under examination by the IRS and 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. It is reasonably possible, within the next twelve months, that unrecognized tax benefits may decrease by up to $19.1 million, excluding interest and penalties, primarily due to expirations of certain statutes of limitations and potential settlements. The statute of limitations for our major tax jurisdictions remains open for examination for tax years 1998 to 2012.
8. 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. |
PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
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, 2012 | | December 31, 2011 |
| | | | | | |
Measured at fair value on a recurring basis: | | | | | | |
Residential mortgage loans available-for-sale | | Level 2 | | $ | 184,164 |
| | $ | 258,075 |
|
Interest rate lock commitments | | Level 2 | | 4,704 |
| | 3,551 |
|
Forward contracts | | Level 2 | | 481 |
| | (3,470 | ) |
Whole loan commitments | | Level 2 | | (46 | ) | | 11 |
|
| | | | | | |
Measured at fair value on a non-recurring basis: | | | | | | |
Loans held for investment | | Level 2 | | $ | 1,896 |
| | $ | 2,324 |
|
House and land inventory | | Level 3 | | 7,468 |
| | 23,766 |
|
| | | | | | |
Disclosed at fair value: | | | | | | |
Cash and equivalents (including restricted cash) | | Level 1 | | $ | 1,301,604 |
| | $ | 1,184,931 |
|
Senior notes | | Level 2 | | 3,030,286 |
| | 2,765,151 |
|
See Note 1 regarding the fair value of mortgage loans available-for-sale and derivative instruments and hedging activities. 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 table above represent only those assets whose carrying values were adjusted to fair value in the current quarter. We measured certain loans held for investment at fair value since the cost of the loans exceeded their fair value. Fair value of the loans was determined based on the fair value of the underlying collateral. For inventory, see Note 3 for a more detailed discussion of the valuation methods used. The carrying amounts of cash and equivalents approximate their fair values due to their short-term nature. 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.
PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
9. Debt
Our senior notes are summarized as follows ($000’s omitted):
|
| | | | | | | |
| March 31, 2012 | | December 31, 2011 |
5.45% unsecured senior notes due August 2012 (b) | $ | 96,634 |
| | $ | 96,795 |
|
6.25% unsecured senior notes due February 2013 (b) | 62,692 |
| | 62,677 |
|
5.125% unsecured senior notes due October 2013 (b) | 117,522 |
| | 117,197 |
|
5.25% unsecured senior notes due January 2014 (b) | 255,887 |
| | 255,882 |
|
5.70% unsecured senior notes due May 2014 (b) | 312,613 |
| | 311,900 |
|
5.20% unsecured senior notes due February 2015 (b) | 207,916 |
| | 207,906 |
|
5.25% unsecured senior notes due June 2015 (b) | 271,557 |
| | 270,551 |
|
6.50% unsecured senior notes due May 2016 (b) | 469,774 |
| | 469,147 |
|
7.625% unsecured senior notes due October 2017 (a) | 149,400 |
| | 149,373 |
|
7.875% unsecured senior notes due June 2032 (b) | 299,119 |
| | 299,108 |
|
6.375% unsecured senior notes due May 2033 (b) | 398,436 |
| | 398,418 |
|
6.00% unsecured senior notes due February 2035 (b) | 299,396 |
| | 299,390 |
|
7.375% unsecured senior notes due June 2046 (b) | 150,000 |
| | 150,000 |
|
Total senior notes – carrying value (c) | $ | 3,090,946 |
| | $ | 3,088,344 |
|
Estimated fair value | $ | 3,030,286 |
| | $ | 2,765,151 |
|
| |
(a) | Not redeemable prior to maturity; guaranteed on a senior basis by certain wholly-owned subsidiaries. |
| |
(b) | Redeemable prior to maturity, guaranteed on a senior basis by certain wholly-owned subsidiaries. |
| |
(c) | The recorded carrying value reflects the impact of various discounts and premiums that are amortized to interest cost over the respective terms of the senior notes. |
Letter of credit facilities
As a cost-saving measure and to provide increased operational flexibility, we voluntarily terminated our $250.0 million unsecured revolving credit facility ("the Credit Facility") effective March 30, 2011. The Credit Facility was scheduled to expire in June 2012 and was being used solely to issue letters of credit. No borrowings were outstanding under the Credit Facility during 2011. We did not pay any penalties as a result of the termination. The termination of the Credit Facility also:
| |
• | released $250.0 million of cash required to be maintained in liquidity reserve accounts; and |
| |
• | resulted in expense of $1.3 million related to the write-off of unamortized issuance costs, which is included within selling, general, and administrative expenses during the three months ended March 31, 2011. |
In connection with the termination of the Credit Facility, we entered into separate cash-collateralized letter of credit agreements with a number of financial institutions. These agreements provide capacity to issue letters of credit totaling up to $190.0 million, the majority of which is uncommitted. Letters of credit totaling $71.3 million and $83.2 million were outstanding under these agreements at March 31, 2012 and December 31, 2011, respectively. Under these agreements, we are required to maintain deposits with these financial institutions in amounts approximating the letters of credit outstanding. Such deposits are included in restricted cash.
We also maintain an unsecured letter of credit facility with a bank that expires in June 2014. This facility permits the issuance of up to $200.0 million of letters of credit for general corporate purposes in support of any wholly-owned subsidiary. At March 31, 2012 and December 31, 2011, $148.0 million and $152.7 million, respectively, of letters of credit were outstanding under this facility.
PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Financial Services
Pulte Mortgage provides mortgage financing for many of our home closings utilizing its own funds and funds available pursuant to a repurchase agreement with the Company. Pulte Mortgage uses these resources to finance its lending activities until the mortgage loans are sold to third party investors, generally within 30 days.
10. 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 that the loans sold meet 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 determined to be at fault, we either repurchase the loans from the investors or reimburse the investors' losses (a “make-whole” payment).
We sell substantially all of the loans we originate to investors in the secondary market within a short period of time after origination. Historically, our overall losses relating to this risk were not significant. Beginning in 2009, however, we experienced a significant increase in losses as a result of the high level of loan defaults and related losses in the mortgage industry and increasing aggressiveness by investors in presenting such claims to us. To date, the significant majority of these losses relates to loans originated in 2006 and 2007, during which period inherently riskier loan products became more common in the mortgage origination market. In 2006 and 2007, we originated $39.5 billion of loans, excluding loans originated by Centex's former subprime loan business sold by Centex in 2006. Because we generally do not retain the servicing rights to the loans we originate, information regarding the current and historical performance, credit quality, and outstanding balances of such loans is limited. Estimating these loan origination liabilities is further complicated by uncertainties surrounding numerous external factors, such as various macroeconomic factors (including unemployment rates and changes in home prices), actions taken by third parties, including the parties servicing the loans, and the U.S. federal government in its dual capacity as regulator of the U.S. mortgage industry and conservator of the government-sponsored enterprises commonly known as Fannie Mae and Freddie Mac, which own or guarantee the majority of mortgage loans in the U.S.
Most requests received to date relate to make-whole payments on loans that have been foreclosed, generally after a portion of the loan principal had been paid down, which reduces our exposure. Requests undergo extensive analysis to confirm the exposure, attempt to cure the identified defect, and, when necessary, determine our liability. We establish liabilities for such anticipated losses based upon, among other things, the level of current unresolved repurchase requests, the volume of estimated probable future repurchase requests, our ability to cure the defects identified in the repurchase requests, and the severity of the estimated loss upon repurchase. Determining these estimates and the resulting liability requires a significant level of management judgment. We are generally able to cure or refute over 60% of the requests received from investors such that repurchases or make-whole payments are not required. For those requests requiring repurchases or make-whole payments, actual loss severities generally approximate 50% of the outstanding principal balance.
Our current estimates assume that claim volumes will not decline to pre-2009 levels until after 2013. Given the volatility in the mortgage industry and the uncertainty regarding the ultimate resolution of these claims, it is reasonably possible that future losses may exceed our current estimates. Changes in these liabilities were as follows ($000's omitted):
|
| | | | | | | |
| Three Months Ended |
| March 31, |
| 2012 | | 2011 |
Liabilities, beginning of period | $ | 128,330 |
| | $ | 93,057 |
|
Provision for losses | — |
| | — |
|
Settlements | (4,810 | ) | | (10,597 | ) |
Liabilities, end of period | $ | 123,520 |
| | $ | 82,460 |
|
PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
We entered into an agreement in conjunction with the wind down of Centex's mortgage operations, which ceased loan origination activities in December 2009, that provides a guaranty for one major investor of loans originated by Centex. This guaranty provides that we will honor the potential repurchase obligations of Centex's mortgage operations related to breaches of representations and warranties in the origination of a certain pool of loans. Other than with respect to this pool of loans, our contractual repurchase obligations are limited to our mortgage subsidiaries, which are included in non-guarantor subsidiaries (see Note 11 for a discussion of non-guarantor subsidiaries). The mortgage subsidiary of Centex also sold loans to a bank for inclusion in residential mortgage-backed securities (“RMBSs”) issued by the bank. In connection with these sales, Centex's mortgage subsidiary entered into agreements pursuant to which it may be required to indemnify the bank for losses incurred by investors in the RMBSs arising out of material errors or omissions in certain information provided by the mortgage subsidiary relating to the loans and loan origination process. The bank has notified us that it has been named defendant in two lawsuits alleging various violations of federal and state securities laws asserting that untrue statements of material fact were included in the registration statements used to market the sale of two RMBS transactions, which included $162 million of loans originated by Centex's mortgage subsidiary. The plaintiffs seek unspecified compensatory and/or rescissory damages on behalf of persons who purchased the securities. Neither Centex's mortgage subsidiary nor the Company is named as a defendant in these actions. These actions are in their preliminary stage, and we cannot yet quantify Centex's mortgage subsidiary's potential liability as a result of these indemnification obligations. We do not believe, however, that these matters will have a material adverse impact on the results of operations, financial position, or cash flows of the Company. We are aware of six other RMBS transactions with such indemnity provisions that include an aggregate $116 million of loans, however, we are not aware of any current or threatened legal proceedings regarding those transactions.
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 in which we are the landowner of the applicable parcels. However, in certain limited instances we record a liability for future assessments that are fixed or determinable for a fixed or determinable period in accordance with ASC 970-470, “Real Estate Debt”. At March 31, 2012 and December 31, 2011, we had recorded $37.4 million and $38.4 million, respectively, in accrued liabilities for outstanding CDD obligations. During the three months ended March 31, 2011, we repurchased at a discount prior to their maturity CDD obligations with an aggregate principal balance of $27.5 million in order to improve the future financial performance of the related communities. The discount of $5.3 million was recognized as a reduction of cost of revenues over the lives of the applicable communities, which will extend for several years. There were no repurchases during the three months ended March 31, 2012.
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 $219.3 million and $1.2 billion at March 31, 2012, respectively, and $235.9 million and $1.2 billion at December 31, 2011, respectively. In the event any such letter of credit or surety bond is called, 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 called. Our surety bonds generally do not have stated expiration dates. Rather, we are released from the surety bonds as the underlying performance is completed and accepted by the applicable counterparty. 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.
PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
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.
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 ten years. We estimate the costs to be incurred under these warranties and record liabilities in the amount of such costs within Homebuilding home sale revenues 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, |
| 2012 | | 2011 |
Warranty liabilities, beginning of period | $ | 68,025 |
| | $ | 80,195 |
|
Warranty reserves provided | 7,851 |
| | 9,089 |
|
Payments | (11,521 | ) | | (14,007 | ) |
Other adjustments | 65 |
| | (623 | ) |
Warranty liabilities, end of period | $ | 64,420 |
| | $ | 74,654 |
|
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 higher 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 to participate in a project-specific insurance program provided by the Company. Policies issued by the captive insurance subsidiaries represent self-insurance of these risks by the Company. 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. We are self-insured for a per occurrence deductible,
PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
which is capped at an overall aggregate retention level. Beginning with the first dollar, amounts paid on insured claims satisfy 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 relating to legal fees, expert fees, and claims handling expenses) on an undiscounted basis at the time product revenue is recognized for each home closing and evaluate the recorded liabilities based on actuarial analyses of our historical claims. The actuarial analyses calculate an estimate 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. These estimates make up a significant portion 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. 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.
Our recorded reserves for all such claims totaled $740.0 million and $774.8 million at March 31, 2012 and 2011, 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 78% of the total general liability reserves at March 31, 2012 and 2011. 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.
Adjustments to estimated reserves are recorded in the period in which the change in estimate occurs. Because the majority of our recorded reserves relates to IBNR, adjustments to reserve amounts for individual existing claims generally do not impact the recorded reserves materially. However, changes in the frequency and timing of reported claims and the 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. Because of the inherent uncertainty in estimating future losses related to these claims, actual costs could differ significantly from estimated costs. Changes in these liabilities were as follows ($000's omitted):
|
| | | | | | | |
| Three Months Ended |
| March 31, |
| 2012 | | 2011 |
Balance, beginning of period | $ | 741,383 |
| | $ | 785,562 |
|
Reserves provided | 12,978 |
| | 14,924 |
|
Payments | (14,337 | ) | | (25,734 | ) |
Balance, end of period | $ | 740,024 |
| | $ | 774,752 |
|
The reserves provided reflected in the above table are classified within selling, general, and administrative expenses.
11. Supplemental Guarantor information
All of our senior notes are guaranteed jointly and severally on a senior basis by each of the Company's wholly-owned Homebuilding subsidiaries and certain other wholly-owned subsidiaries (collectively, the “Guarantors”). Such guaranties are full and unconditional. 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. Separate financial statements of the Guarantors are not provided as the consolidating financial information contained herein provides a more meaningful disclosure to allow investors to determine the nature of the assets held by, and the operations of, the combined groups.
PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
CONDENSED CONSOLIDATING BALANCE SHEET
MARCH 31, 2012
($000’s omitted)
|
| | | | | | | | | | | | | | | | | | | |
| Unconsolidated | | Eliminating Entries | | Consolidated PulteGroup, Inc. |
| PulteGroup, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | |
ASSETS | | | | | | | | | |
Cash and equivalents | $ | 129,287 |
| | $ | 998,732 |
| | $ | 83,716 |
| | $ | — |
| | $ | 1,211,735 |
|
Restricted cash | 71,261 |
| | 3,755 |
| | 14,853 |
| | — |
| | 89,869 |
|
House and land inventory | — |
| | 4,580,285 |
| | 4,131 |
| | — |
| | 4,584,416 |
|
Land held for sale | — |
| | 136,232 |
| | — |
| | — |
| | 136,232 |
|
Land, not owned, under option agreements | — |
| | 26,121 |
| | — |
| | — |
| | 26,121 |
|
Residential mortgage loans available- for-sale | — |
| | — |
| | 184,164 |
| | — |
| | 184,164 |
|
Securities purchased under agreements to resell | 54,513 |
| | — |
| | (54,513 | ) | | — |
| | — |
|
Investments in unconsolidated entities | 1,529 |
| | 29,914 |
| | 2,703 |
| | — |
| | 34,146 |
|
Income taxes receivable | 29,673 |
| | — |
| | — |
| | — |
| | 29,673 |
|
Other assets | 20,010 |
| | 350,709 |
| | 33,295 |
| | — |
| | 404,014 |
|
Intangible assets | — |
| | 159,073 |
| | — |
| | — |
| | 159,073 |
|
Deferred income tax assets | (15,517 | ) | | 23 |
| | 15,494 |
| | — |
| | — |
|
Investments in subsidiaries and intercompany accounts, net | 5,029,795 |
| | 6,756,981 |
| | 6,069,822 |
| | (17,856,598 | ) | | — |
|
| $ | 5,320,551 |
| | $ | 13,041,825 |
| | $ | 6,353,665 |
| | $ | (17,856,598 | ) | | $ | 6,859,443 |
|
LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | | | | |
Liabilities: | | | | | | | | | |
Accounts payable, customer deposits, accrued and other liabilities | $ | 85,627 |
| | $ | 1,273,759 |
| | $ | 265,133 |
| | $ | — |
| | $ | 1,624,519 |
|
Income tax liabilities | 215,150 |
| | — |
| | — |
| | — |
| | 215,150 |
|
Senior notes | 3,090,946 |
| | — |
| | — |
| | — |
| | 3,090,946 |
|
Total liabilities | 3,391,723 |
| | 1,273,759 |
| | 265,133 |
| | — |
| | 4,930,615 |
|
Total shareholders’ equity | 1,928,828 |
| | 11,768,066 |
| | 6,088,532 |
| | (17,856,598 | ) | | 1,928,828 |
|
| $ | 5,320,551 |
| | $ | 13,041,825 |
| | $ | 6,353,665 |
| | $ | (17,856,598 | ) | | $ | 6,859,443 |
|
PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2011
($000’s omitted)
|
| | | | | | | | | | | | | | | | | | | |
| Unconsolidated | | Eliminating Entries | | Consolidated PulteGroup, Inc. |
| PulteGroup, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | |
ASSETS | | | | | | | | | |
Cash and equivalents | $ | 119,287 |
| | $ | 875,561 |
| | $ | 88,223 |
| | $ | — |
| | $ | 1,083,071 |
|
Restricted cash | 83,199 |
| | 3,255 |
| | 15,406 |
| | — |
| | 101,860 |
|
House and land inventory | — |
| | 4,632,337 |
| | 4,131 |
| | — |
| | 4,636,468 |
|
Land held for sale | — |
| | 135,307 |
| | — |
| | — |
| | 135,307 |
|
Land, not owned, under option agreements | — |
| | 24,905 |
| | — |
| | — |
| | 24,905 |
|
Residential mortgage loans available- for-sale | — |
| | — |
| | 258,075 |
| | — |
| | 258,075 |
|
Securities purchased under agreements to resell | 127,327 |
| | — |
| | (127,327 | ) | | — |
| | — |
|
Investments in unconsolidated entities | 1,527 |
| | 31,836 |
| | 2,625 |
| | — |
| | 35,988 |
|
Income taxes receivable | 27,154 |
| | — |
| | — |
| | — |
| | 27,154 |
|
Other assets | 20,983 |
| | 364,747 |
| | 34,714 |
| | — |
| | 420,444 |
|
Intangible assets | — |
| | 162,348 |
| | — |
| | — |
| | 162,348 |
|
Deferred income tax assets | (15,517 | ) | | 23 |
| | 15,494 |
| | — |
| | — |
|
Investments in subsidiaries and intercompany accounts, net | 4,937,002 |
| | 6,533,838 |
| | 6,366,758 |
| | (17,837,598 | ) | | — |
|
| $ | 5,300,962 |
| | $ | 12,764,157 |
| | $ | 6,658,099 |
| | $ | (17,837,598 | ) | | $ | 6,885,620 |
|
LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | | | | |
Liabilities: | | | | | | | | | |
Accounts payable, customer deposits, accrued and other liabilities | $ | 70,690 |
| | $ | 1,310,972 |
| | $ | 273,686 |
| | $ | — |
| | $ | 1,655,348 |
|
Income tax liabilities | 203,313 |
| | — |
| | — |
| | — |
| | 203,313 |
|
Senior notes | 3,088,344 |
| | — |
| | — |
| | — |
| | 3,088,344 |
|
Total liabilities | 3,362,347 |
| | 1,310,972 |
| | 273,686 |
| | — |
| | 4,947,005 |
|
Total shareholders’ equity | 1,938,615 |
| | 11,453,185 |
| | 6,384,413 |
| | (17,837,598 | ) | | 1,938,615 |
|
| $ | 5,300,962 |
| | $ | 12,764,157 |
| | $ | 6,658,099 |
| | $ | (17,837,598 | ) | | $ | 6,885,620 |
|
PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the three months ended March 31, 2012
($000’s omitted)
|
| | | | | | | | | | | | | | | | | | | |
| Unconsolidated | | | | Consolidated PulteGroup, Inc. |
| PulteGroup, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminating Entries | |
Revenues: | | | | | | | | | |
Homebuilding | | | | | | | | | |
Home sale revenues | $ | — |
| | $ | 813,786 |
| | $ | — |
| | $ | — |
| | $ | 813,786 |
|
Land sale revenues | — |
| | 38,398 |
| | — |
| | — |
| | 38,398 |
|
| — |
| | 852,184 |
| | — |
| | — |
| | 852,184 |
|
Financial Services | — |
| | 373 |
| | 28,479 |
| | — |
| | 28,852 |
|
| — |
| | 852,557 |
| | 28,479 |
| | — |
| | 881,036 |
|
Homebuilding Cost of Revenues: | | | | | | | | | |
Home sale cost of revenues | — |
| | 712,166 |
| | — |
| | — |
| | 712,166 |
|
Land sale cost of revenues | — |
| | 33,397 |
| | — |
| | — |
| | 33,397 |
|
| — |
| | 745,563 |
| | — |
| | — |
| | 745,563 |
|
Financial Services expenses | 65 |
| | 114 |
| | 21,830 |
| | — |
| | 22,009 |
|
Selling, general and administrative expenses | — |
| | 122,407 |
| | 907 |
| | — |
| | 123,314 |
|
Other expense (income), net | (19 | ) | | 6,291 |
| | 347 |
| | — |
| | 6,619 |
|
Interest income | (62 | ) | | (1,113 | ) | | (24 | ) | | — |
| | (1,199 | ) |
Interest expense | 217 |
| | — |
| | — |
| | — |
| | 217 |
|
Intercompany interest | 109,133 |
| | (105,892 | ) | | (3,241 | ) | | — |
| | — |
|
Equity in (earnings) loss of unconsolidated entities | (2 | ) | | (1,916 | ) | | (78 | ) | | — |
| | (1,996 | ) |
Income (loss) before income taxes and equity in income (loss) of subsidiaries | (109,332 | ) | | 87,103 |
| | 8,738 |
| | — |
| | (13,491 | ) |
Income tax expense (benefit) | 29,191 |
| | (5,744 | ) | | (25,272 | ) | | — |
| | (1,825 | ) |
Income (loss) before equity in income (loss) of subsidiaries | (138,523 | ) | | 92,847 |
| | 34,010 |
| | — |
| | (11,666 | ) |
Equity in income (loss) of subsidiaries | 126,857 |
| | 34,483 |
| | 50,131 |
| | (211,471 | ) | | — |
|
Net income (loss) | (11,666 | ) | | 127,330 |
| | 84,141 |
| | (211,471 | ) | | (11,666 | ) |
Other comprehensive income (loss) | 57 |
| | — |
| | — |
| | — |
| | 57 |
|
Comprehensive income (loss) | $ | (11,609 | ) | | $ | 127,330 |
| | $ | 84,141 |
| | $ | (211,471 | ) | | $ | (11,609 | ) |
PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the three months ended March 31, 2011
($000’s omitted)
|
| | | | | | | | | | | | | | | | | | | |
| Unconsolidated | | | | Consolidated PulteGroup, Inc. |
| PulteGroup, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminating Entries | |
Revenues: | | | | | | | | | |
Homebuilding | | | | | | | | | |
Home sale revenues | $ | — |
| | $ | 782,471 |
| | $ | — |
| | $ | — |
| | $ | 782,471 |
|
|