PHM 09/30/2012 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 September 30, 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) 
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):
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 October 19, 2012: 386,317,678

______________________________________________________________________________________________________



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)
 
 
September 30,
2012
 
December 31,
2011
 
(Unaudited)
 
(Note)
ASSETS
 
 
 
 
 
 
 
Cash and equivalents
$
1,563,651

 
$
1,083,071

Restricted cash
76,730

 
101,860

House and land inventory
4,470,571

 
4,636,468

Land held for sale
129,523

 
135,307

Land, not owned, under option agreements
11,054

 
24,905

Residential mortgage loans available-for-sale
263,378

 
258,075

Investments in unconsolidated entities
30,794

 
35,988

Income taxes receivable
28,282

 
27,154

Other assets
414,074

 
420,444

Intangible assets
152,523

 
162,348

 
$
7,140,580

 
$
6,885,620

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
Liabilities:
 
 
 
Accounts payable, including book overdrafts of $38,076 and $48,380 in 2012 and 2011,
      respectively
$
210,332

 
$
196,447

Customer deposits
122,144

 
46,960

Accrued and other liabilities
1,380,941

 
1,411,941

Income tax liabilities
202,280

 
203,313

Financial Services debt
103,000

 
—

Senior notes
2,999,837

 
3,088,344

 
5,018,534

 
4,947,005

 
 
 
 
Shareholders' equity
2,122,046

 
1,938,615

 
 
 
 
 
$
7,140,580

 
$
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.


3


PULTEGROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(000’s omitted, except per share data)
(Unaudited)
 
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
Revenues:
 
 
 
 
 
 
 
Homebuilding
 
 
 
 
 
 
 
Home sale revenues
$
1,232,704

 
$
1,101,368

 
$
3,070,895

 
$
2,783,602

Land sale revenues
22,623

 
12,659

 
69,770

 
19,023

 
1,255,327

 
1,114,027

 
3,140,665

 
2,802,625

Financial Services
47,264

 
27,904

 
112,367

 
71,720

Total revenues
1,302,591

 
1,141,931

 
3,253,032

 
2,874,345

 
 
 
 
 
 
 
 
Homebuilding Cost of Revenues:
 
 
 
 
 
 
 
Home sale cost of revenues
1,023,704

 
947,817

 
2,605,249

 
2,422,525

Land sale cost of revenues
21,061

 
(2,935
)
 
62,069

 
1,782

 
1,044,765

 
944,882

 
2,667,318

 
2,424,307

Financial Services expenses
20,578

 
19,306

 
62,914

 
78,832

Selling, general and administrative expenses
125,191

 
121,553

 
372,691

 
402,379

Other expense (income), net
7,453

 
259,187

 
24,570

 
274,765

Interest income
(1,219
)
 
(1,122
)
 
(3,582
)
 
(3,704
)
Interest expense
201

 
322

 
616

 
990

Equity in (earnings) loss of unconsolidated entities
(284
)
 
303

 
(3,836
)
 
(1,999
)
Income (loss) before income taxes
105,906

 
(202,500
)
 
132,341

 
(301,225
)
Income tax expense (benefit)
(10,727
)
 
(73,202
)
 
(15,062
)
 
(77,016
)
Net income (loss)
$
116,633

 
$
(129,298
)
 
$
147,403

 
$
(224,209
)
 
 
 
 
 
 
 
 
Net income (loss) per share:
 
 
 
 
 
 
 
Basic
$
0.31

 
$
(0.34
)
 
$
0.39

 
$
(0.59
)
Diluted
$
0.30

 
$
(0.34
)
 
$
0.38

 
$
(0.59
)
 
 
 
 
 
 
 
 
Number of shares used in calculation:
 
 
 
 
 
 
 
Basic
381,355

 
380,025

 
380,839

 
379,785

Effect of dilutive securities
3,215

 
—

 
2,036

 
—

Diluted
384,570

 
380,025

 
382,875

 
379,785




See accompanying Notes to Condensed Consolidated Financial Statements.


4


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

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
Net income (loss)
$
116,633

 
$
(129,298
)
 
$
147,403

 
$
(224,209
)
 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Change in fair value of derivatives
58

 
64

 
173

 
137

Foreign currency translation adjustments
—

 
—

 
—

 
(51
)
Other comprehensive income (loss)
58

 
64

 
173

 
86

 
 
 
 
 
 
 
 
Comprehensive income (loss)
$
116,691

 
$
(129,234
)
 
$
147,576

 
$
(224,123
)




See accompanying Notes to Condensed Consolidated Financial Statements.


5


PULTEGROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(000's omitted)
(Unaudited)
 
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 option exercises
2,403

 
24

 
27,408

 
—

 
—

 
27,432

Stock awards, net of cancellations
1,316

 
13

 
(13
)
 
—

 
—

 
—

Stock repurchases
(104
)
 
(1
)
 
(813
)
 
—

 
(147
)
 
(961
)
Stock-based compensation
—

 

 
9,384

 
—

 
—

 
9,384

Net income (loss)
—

 
—

 
—

 
—

 
147,403

 
147,403

Other comprehensive income (loss)
—

 
—

 
—

 
173

 
—

 
173

Shareholders' Equity, September 30, 2012
386,223

 
$
3,862

 
$
3,022,206

 
$
(1,133
)
 
$
(902,889
)
 
$
2,122,046

 
 
 
 
 
 
 
 
 
 
 
 
Shareholders' Equity, January 1, 2011
382,028

 
$
3,820

 
$
2,972,919

 
$
(1,519
)
 
$
(840,053
)
 
$
2,135,167

Stock awards, net of cancellations
1,020

 
10

 
(10
)
 
—

 
—

 
—

Stock repurchases
(267
)
 
(2
)
 
(2,081
)
 
—

 
62

 
(2,021
)
Stock-based compensation
—

 
—

 
14,444

 
—

 
—

 
14,444

Net income (loss)
—

 
—

 
—

 
—

 
(224,209
)
 
(224,209
)
Other comprehensive income (loss)
—

 
—

 
—

 
86

 
—

 
86

Shareholders' Equity, September 30, 2011
382,781

 
$
3,828

 
$
2,985,272

 
$
(1,433
)
 
$
(1,064,200
)
 
$
1,923,467



See accompanying Notes to Condensed Consolidated Financial Statements.

6


PULTEGROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($000’s omitted)
(Unaudited)
 
Nine Months Ended
 
September 30,
 
2012
 
2011
Cash flows from operating activities:
 
 
 
Net income (loss)
$
147,403

 
$
(224,209
)
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
12,623

 
11,419

Goodwill impairments
—

 
240,541

Depreciation and amortization
22,278

 
24,629

Stock-based compensation expense
14,368

 
14,444

Equity in (earnings) loss of unconsolidated entities
(3,836
)
 
(1,999
)
Distributions of earnings from unconsolidated entities
7,223

 
5,042

Loss on debt repurchases
—

 
3,537

Other, net
5,254

 
2,741

Increase (decrease) in cash due to:
 
 
 
Restricted cash
(966
)
 
690

Inventories
160,973

 
(174,231
)
Residential mortgage loans available-for-sale
(5,275
)
 
2,182

Other assets
(1,612
)
 
108,202

Accounts payable, accrued and other liabilities
63,832

 
(99,674
)
Income tax liabilities
(1,033
)
 
(73,280
)
Net cash provided by (used in) operating activities
421,232

 
(159,966
)
Cash flows from investing activities:
 
 
 
Distributions from unconsolidated entities
2,696

 
4,388

Investments in unconsolidated entities
(1,266
)
 
(3,749
)
Net change in loans held for investment
736

 
449

Change in restricted cash related to letters of credit
26,096

 
(89,385
)
Proceeds from the sale of fixed assets
4,705

 
9,449

Capital expenditures
(10,597
)
 
(15,162
)
Net cash provided by (used in) investing activities
22,370

 
(94,010
)
Cash flows from financing activities:
 
 
 
Financial Services borrowings (repayments)
103,000

 
—

Other borrowings (repayments)
(92,493
)
 
(68,351
)
Issuance of common stock
27,432

 
—

Stock repurchases
(961
)
 
(2,021
)
Net cash provided by (used in) financing activities
36,978

 
(70,372
)
Net increase (decrease) in cash and equivalents
480,580

 
(324,348
)
Cash and equivalents at beginning of period
1,083,071

 
1,483,390

Cash and equivalents at end of period
$
1,563,651

 
$
1,159,042

 
 
 
 
Supplemental Cash Flow Information:
 
 
 
Interest paid (capitalized), net
$
(28,072
)
 
$
(29,457
)
Income taxes paid (refunded), net
$
(12,901
)
 
$
(5,665
)
See accompanying Notes to Condensed Consolidated Financial Statements.

7


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 September 30, 2012 and December 31, 2011 also included $17.0 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.

8

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): 
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
Write-offs of deposits and pre-acquisition costs
$
893

 
$
2,296

 
$
1,798

 
$
6,628

Loss on debt retirements
—

 
—

 
—

 
3,537

Lease exit and related costs (a)
152

 
114

 
6,312

 
6,301

Amortization of intangible assets
3,275

 
3,275

 
9,825

 
9,825

Goodwill impairments
—

 
240,541

 
—

 
240,541

Miscellaneous expense (income), net
3,133

 
12,961

 
6,635

 
7,933

 
$
7,453

 
$
259,187

 
$
24,570

 
$
274,765


(a)
Excludes $2.5 million of lease exit costs classified within Financial Services expenses during the nine months ended September 30, 2012. Such amounts were immaterial during the three months ended September 30, 2012 and the three and nine months ended September 30, 2011. See Note 2.

The goodwill impairments recorded in the three and nine months ended September 30, 2011 reflect the write-off of the remaining goodwill associated with our merger with Centex Corporation ("Centex") in August 2009.

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 September 30, 2012 and December 31, 2011 ($000’s omitted): 
 
September 30,
2012
 
December 31, 2011
Notes receivable, gross
$
78,758

 
$
78,834

Allowance for credit losses
(43,953
)
 
(41,647
)
Notes receivable, net
$
34,805

 
$
37,187


We also record other receivables from various parties in the normal course of business, including amounts due from municipalities, insurance carriers, 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

9

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


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. Earnings per share excludes 12.0 million and 18.8 million stock options and other potentially dilutive instruments for the three and nine months ended September 30, 2012, respectively. All stock options, non-vested restricted stock, and other potentially dilutive instruments were excluded from the calculation for the three and nine months ended September 30, 2011 due to the net loss recorded during the periods.

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. Historically, we have canceled a considerable number of land option agreements, which has resulted in 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 September 30, 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 $11.1 million and $24.9 million at September 30, 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 September 30, 2012 and December 31, 2011 ($000’s omitted): 
 
September 30, 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
$
2,721

 
$
3,607

 
$
3,607

 
$
2,781

 
$
5,957

 
$
3,837

Unconsolidated VIEs
23,290

 
262,395

 
—

 
21,180

 
240,958

 
—

Other land option
    agreements
36,609

 
553,289

 
7,447

 
33,086

 
451,079

 
21,068

 
$
62,620

 
$
819,291

 
$
11,054

  
$
57,047

 
$
697,994

 
$
24,905



10

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


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, which 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 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 a 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 September 30, 2012 and December 31, 2011, residential mortgage loans available-for-sale had an aggregate fair value of $263.4 million and $258.1 million, respectively, and an aggregate outstanding principal balance of $248.0 million and $248.2 million, respectively. The net gain (loss) resulting from changes in fair value of these loans totaled $0.9 million and $0.8 million for the three months ended September 30, 2012 and 2011, respectively, and $0.6 million and $(0.6) million for the nine months ended September 30, 2012 and 2011, 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 $33.9 million and $16.1 million for the three months ended September 30, 2012 and 2011, respectively, and $76.9 million and $41.2 million for the nine months ended September 30, 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 are included in accrued and other liabilities and were immaterial at September 30, 2012 and December 31, 2011. Servicing rights recognized in Financial Services revenues totaled $4.8 million and $1.9 million during the three months ended September 30, 2012 and 2011, respectively, and $13.3 million and $10.6 million during the nine months ended September 30, 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 September 30, 2012 and December 31, 2011, we had interest rate lock commitments in the total amount of $273.5 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.



11

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


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 September 30, 2012 and December 31, 2011, we had unexpired forward contracts of $481.6 million and $311.5 million, respectively, and whole loan investor commitments of $3.0 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.

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):
 
 
September 30, 2012
 
December 31, 2011
 
Other Assets
 
Other Liabilities
 
Other Assets
 
Other Liabilities
Interest rate lock commitments
$
14,409

 
$
6

 
$
3,552

 
$
1

Forward contracts
381

 
8,855

 
44

 
3,514

Whole loan commitments
12

 
7

 
52

 
41

 
$
14,802

 
$
8,868

 
$
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.



12

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


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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
Employee severance benefits
$
56

 
$
663

 
$
1,501

 
$
9,195

Lease exit costs
179

 
101

 
8,008

 
6,401

Other
—

 
—

 
807

 
11

 
$
235

 
$
764

 
$
10,316

 
$
15,607


Of the total restructuring costs reflected in the above table, $2.5 million and $1.1 million are classified within Financial Services expense for the nine months ended September 30, 2012 and 2011, respectively. Such amounts were immaterial for the three months ended September 30, 2012 and 2011. All other employee severance benefits are included within selling, general and administrative expense, while all other lease exit and other restructuring costs are included in other expense (income), net. The remaining liability for employee severance benefits and exited leases totaled $0.3 million and $28.8 million, respectively, at September 30, 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.

3. Inventory and land held for sale

Major components of inventory were as follows ($000’s omitted): 
 
September 30,
2012
 
December 31,
2011
Homes under construction
$
1,358,227

 
$
1,210,717

Land under development
2,444,553

 
2,610,501

Raw land
667,791

 
815,250

 
$
4,470,571

 
$
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 included capitalized interest related to inventory impairments of $1.9 million and $1.0 million, for the three months ended September 30, 2012 and 2011, respectively, and $4.9 million and $2.3 million for the nine months ended September 30, 2012 and 2011, respectively. We capitalized all Homebuilding interest costs into inventory because the level of our active inventory exceeded our debt levels.


13

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


Information related to interest capitalized into inventory is as follows ($000’s omitted):
 
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
Interest in inventory, beginning of period
$
358,451

 
$
358,806

 
$
355,068

 
$
323,379

Interest capitalized
50,730

 
55,230

 
153,369

 
167,367

Interest expensed
(57,155
)
 
(48,693
)
 
(156,411
)
 
(125,403
)
Interest in inventory, end of period
$
352,026

 
$
365,343

 
$
352,026

 
$
365,343

Interest incurred*
$
50,730

 
$
55,230

 
$
153,369

 
$
167,367


*
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 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 September 30, 2012, we reviewed each of our land positions for potential impairment indicators and performed detailed impairment calculations for 6 communities. As discussed above, determining the fair value of a community's inventory involves a number of variables, many of which are interrelated.


14

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


The table below summarizes certain quantitative unobservable inputs utilized in determining the fair value of impaired communities at September 30, 2012:
Unobservable input
Range
Average selling price ($000s)
$139
-
$234
Sales pace per quarter (units)
2
-
9
Discount rate
12%

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

June 30
4

 
16,311

 
2,796

 
6

 
6,665

 
3,300

September 30
4

 
6,172

 
2,263

 
3

 
6,416

 
1,494

 
 
 
 
 
$
9,573

 
 
 
 
 
$
4,897


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 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 September 30, 2012 and 2011, we recognized net realizable value adjustments of $0.2 million and $0.1 million, respectively. Such adjustments totaled $1.3 million and $(0.1) million during the nine months ended September 30, 2012 and 2011, respectively. We record these net realizable value adjustments within Homebuilding land sale cost of revenues.
Land held for sale was as follows ($000’s omitted):
 
 
September 30,
2012
 
December 31,
2011
Land held for sale, gross
$
175,256

 
$
190,099

Net realizable value reserves
(45,733
)
 
(54,792
)
Land held for sale, net
$
129,523

 
$
135,307



15

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


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 such 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 $0.9 million and $2.3 million during the three months ended September 30, 2012 and 2011, respectively, and $1.8 million and $6.6 million during the nine months ended September 30, 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.

16

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


 
 
Operating Data by Segment
($000’s omitted)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
Revenues:
 
 
 
 
 
 
 
Northeast
$
194,732

 
$
196,834

 
$
502,813

 
$
459,154

Southeast
194,654

 
182,828

 
496,244

 
492,764

Florida
165,621

 
160,171

 
439,665

 
411,225

Texas
179,581

 
182,689

 
471,648

 
467,223

North
277,297

 
206,671

 
666,458

 
513,503

Southwest
243,442

 
184,834

 
563,837

 
458,756

 
1,255,327

 
1,114,027

 
3,140,665

 
2,802,625

Financial Services
47,264

 
27,904

 
112,367

 
71,720

Consolidated revenues
$
1,302,591

 
$
1,141,931

 
$
3,253,032

 
$
2,874,345

 
 
 
 
 
 
 
 
Income (loss) before income taxes:
 
 
 
 
 
 
 
Northeast
$
20,303

 
$
(55
)
 
$
42,940

 
$
845

Southeast
21,227

 
14,995

 
40,724

 
28,547

Florida
23,723

 
17,716

 
46,530

 
23,823

Texas
18,807

 
12,352

 
34,704

 
23,487

North
26,494

 
1,903

 
38,281

 
(9,973
)
Southwest
27,882

 
31,542

 
41,817

 
21,472

Other homebuilding (a)
(59,257
)
 
(289,579
)
 
(162,230
)
 
(382,382
)
 
79,179

 
(211,126
)
 
82,766

 
(294,181
)
Financial Services (b)
26,727

 
8,626

 
49,575

 
(7,044
)
Consolidated income (loss) before
  income taxes
$
105,906

 
$
(202,500
)
 
$
132,341

 
$
(301,225
)

(a)
Other homebuilding includes the amortization of intangible assets and capitalized interest, goodwill impairments, and other costs not allocated to the operating segments.
(b)
Financial Services income (loss) before income taxes includes interest income of $1.6 million and $4.1 million for the three and nine months ended September 30, 2012, respectively, and $1.4 million and $3.4 million for the three and nine months ended September 30, 2011, respectively.

 

17

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


 
Land-Related Charges by Segment
($000's omitted)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
Land and community valuation adjustments:
 
 
 
 
 
 
 
Northeast
$
—

 
$
4

 
$
535

 
$
4

Southeast
—

 
522

 
—

 
791

Florida
—

 
—

 
—

 
—

Texas
—

 
—

 
—

 
—

North
385

 
—

 
2,373

 
1,818

Southwest
—

 
—

 
1,810

 
—

Other homebuilding (a)
1,878

 
968

 
4,855

 
2,284

 
$
2,263

 
$
1,494

 
$
9,573

 
$
4,897

Net realizable value adjustments (NRV) - land held
   for sale:
 
 
 
 
 
 
 
Northeast
$
—

 
$
—

 
$
—

 
$
—

Southeast
69

 
—

 
350

 
—

Florida
11

 
—

 
49

 
—

Texas
154

 
143

 
412

 
143

North
29

 
—

 
94

 
(249
)
Southwest
(14
)
 
—

 
347

 
—

 
$
249

 
$
143

 
$
1,252

 
$
(106
)
Write-off of deposits and pre-acquisition costs:
 
 
 
 
 
 
 
Northeast
$
727

 
$
199

 
$
815

 
$
2,157

Southeast
46

 
334

 
589

 
567

Florida
69

 
—

 
80

 
118

Texas
21

 
103

 
70

 
164

North
13

 
557

 
156

 
1,732

Southwest
17

 
1,103

 
88

 
1,890

 
$
893

 
$
2,296

 
$
1,798

 
$
6,628

Total land-related charges
$
3,405

 
$
3,933

 
$
12,623

 
$
11,419


(a)
Primarily write-offs of capitalized interest related to land and community valuation adjustments.

18

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


 
Operating Data by Segment
 
($000's omitted)
 
September 30, 2012
 
Homes Under
Construction
 
Land Under
Development
 
Raw Land
 
Total
Inventory
 
Total
Assets
Northeast
$
246,930

 
$
435,850

 
$
108,996

 
$
791,776

 
$
930,644

Southeast
168,184

 
291,330

 
116,376

 
575,890

 
602,319

Florida
148,264

 
304,433

 
103,374

 
556,071

 
629,877

Texas
155,783

 
271,519

 
57,901

 
485,203

 
552,183

North
295,685

 
364,635

 
42,370

 
702,690

 
763,149

Southwest
282,137

 
502,953

 
172,721

 
957,811

 
1,031,975

Other homebuilding (a)
61,244

 
273,833

 
66,053

 
401,130

 
2,324,646

 
1,358,227

 
2,444,553

 
667,791

 
4,470,571

 
6,834,793

Financial Services
—

 
—

 
—

 
—

 
305,787

 
$
1,358,227

 
$
2,444,553

 
$
667,791

 
$
4,470,571

 
$
7,140,580

 
 
 
 
 
 
 
 
 
 
 
December 31, 2011
 
Homes Under
Construction
 
Land Under
Development
 
Raw Land
 
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.
 

19

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):
 
 
September 30,
2012
 
December 31,
2011
Investments in joint ventures with debt non-recourse to PulteGroup
$
12,049

 
$
11,453

Investments in other active joint ventures
18,745

 
24,535

Total investments in unconsolidated entities
$
30,794

 
$
35,988

 
 
 
 
Total joint venture debt
$
8,279

 
$
11,107

 
 
 
 
PulteGroup proportionate share of joint venture debt:
 
 
 
Joint venture debt with limited recourse guaranties
$
1,054

 
$
1,202

Joint venture debt non-recourse to PulteGroup
896

 
2,009

PulteGroup's total proportionate share of joint venture debt
$
1,950

 
$
3,211


We recognized (income) expense from unconsolidated joint ventures of $(0.3) million and $0.3 million during the three months ended September 30, 2012 and 2011, respectively, and $(3.8) million and $(2.0) million during the nine months ended September 30, 2012 and 2011, respectively. During the nine months ended September 30, 2012 and 2011, we made capital contributions of $1.3 million and $3.7 million, respectively, and received capital and earnings distributions of $9.9 million and $9.4 million, respectively.

The timing of cash obligations under the joint venture and any related financing agreements varies by agreement. 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 September 30, 2012, we had remaining authorization to purchase $102.3 million of common stock. There have been no repurchases under our 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 nine months ended September 30, 2012 and 2011, we repurchased $1.0 million and $2.0 million, respectively, of shares from employees under these plans. Such repurchases are excluded from the above noted stock repurchase authorization.


20

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


7. Income taxes

 Our income tax expense (benefit) for the three and nine months ended September 30, 2012 was $(10.7) million and $(15.1) million, respectively, compared with $(73.2) million and $(77.0) million for the three and nine months ended September 30, 2011, respectively. The income tax benefit for the three and nine months ended September 30, 2012 and 2011 resulted primarily from the favorable resolution of certain federal and state income tax matters. 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 income or loss.

We had income taxes receivable of $28.3 million and $27.2 million at September 30, 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 September 30, 2012 and December 31, 2011, we had net deferred tax assets of $2.5 billion. The ultimate realization of these deferred tax assets is dependent upon the generation of sufficient 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.  Based on our evaluation, we fully reserved the net deferred tax assets due to the uncertainty of realizing such deferred tax assets. 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.

We continue to analyze all available positive and negative evidence in determining the continuing need for a valuation allowance. This evaluation considers, among other factors, historical operating results, forecasts of future profitability, and the duration of statutory carryforward periods. One of the primary pieces of negative evidence we consider is the significant losses we have incurred in recent years. Other negative evidence includes ongoing weakness in the overall U.S. economy and uncertainties regarding the future demand for new housing. However, we earned a profit before income taxes for the nine months ended September 30, 2012 and have seen significant increases in new orders, backlog, and home sale gross margin. If current business trends continue, including continued improvements in the homebuilding industry, and we continue to be profitable, we believe that there could be sufficient positive evidence to support reducing a large portion of the valuation allowance during 2013.

As a result of our merger with Centex in August 2009, our ability to use certain of Centex’s pre-ownership change NOL carryforwards 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. We do not believe that the Section 382 limitation will prevent the Company from using Centex’s pre-ownership change NOL carryforwards and built-in losses or deductions.

At September 30, 2012, we had $168.1 million of gross unrecognized tax benefits and $33.6 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 $27.8 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 2003 to 2012.



21

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


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.

Our assets and liabilities measured or disclosed at fair value are summarized below ($000’s omitted): 

Financial Instrument
 
Fair Value
Hierarchy
 
Fair Value
September 30,
2012
 
December 31,
2011
 
 
 
 
 
 
 
Measured at fair value on a recurring basis:
 
 
 
 
 
 
Residential mortgage loans available-for-sale
 
Level 2
 
$
263,378

 
$
258,075

Interest rate lock commitments
 
Level 2
 
14,403

 
3,551

Forward contracts
 
Level 2
 
(8,474
)
 
(3,470
)
Whole loan commitments
 
Level 2
 
5

 
11

 
 
 
 
 
 
 
Measured at fair value on a non-recurring basis:
 
 
 
 
 
 
Loans held for investment
 
Level 2
 
$
1,578

 
$
2,324

House and land inventory
 
Level 3
 
6,172

 
23,766

 
 
 
 
 
 
 
Disclosed at fair value:
 
 
 
 
 
 
Cash and equivalents (including restricted cash)
 
Level 1
 
$
1,640,381

 
$
1,184,931

Financial Services debt
 
Level 2
 
103,000

 
—

Senior notes
 
Level 2
 
3,118,116

 
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 and Financial Services debt 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.


22

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


9. Debt

Our senior notes are summarized as follows ($000’s omitted):
 
September 30,
2012
 
December 31,
2011
5.45% unsecured senior notes due August 2012 (b)
$
—

 
$
96,795

6.25% unsecured senior notes due February 2013 (b)
62,722

 
62,677

5.125% unsecured senior notes due October 2013 (b)
118,174

 
117,197

5.25% unsecured senior notes due January 2014 (b)
255,896

 
255,882

5.70% unsecured senior notes due May 2014 (b)
314,038

 
311,900

5.20% unsecured senior notes due February 2015 (b)
207,935

 
207,906

5.25% unsecured senior notes due June 2015 (b)
273,568

 
270,551

6.50% unsecured senior notes due May 2016 (b)
471,026

 
469,147

7.625% unsecured senior notes due October 2017 (a)
149,454

 
149,373

7.875% unsecured senior notes due June 2032 (b)
299,141

 
299,108

6.375% unsecured senior notes due May 2033 (b)
398,473

 
398,418

6.00% unsecured senior notes due February 2035 (b)
299,410

 
299,390

7.375% unsecured senior notes due June 2046 (b)
150,000

 
150,000

Total senior notes – carrying value (c)
$
2,999,837

 
$
3,088,344

Estimated fair value
$
3,118,116

 
$
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.

Debt retirement

We retired $96.4 million of senior notes at their scheduled maturity dates during the three and nine months ended September 30, 2012. During the nine months ended September 30, 2011, we retired $13.9 million of senior notes at their scheduled maturity dates. We also retired $53.0 million of senior notes prior to their scheduled maturity dates, which resulted in losses totaling $3.5 million. Such losses included the write-off of unamortized discounts, premiums, and transaction fees and are reflected in other expense (income), net.

On October 24, 2012, we announced a tender offer to repurchase up to $1.0 billion of senior notes with maturity dates ranging from 2013 to 2016. The tender offer will be completed in November 2012. These senior notes are currently trading above par value. Accordingly, we expect to record a loss upon repurchasing the tendered notes in the fourth quarter of 2012. The amount of the loss will depend upon the amount of senior notes repurchased and the prices paid for such notes but will not have a material effect on our financial position.

Letter of credit facilities

We maintain separate cash-collateralized letter of credit agreements with a number of financial institutions. Letters of credit totaling $57.1 million and $83.2 million were outstanding under these agreements at September 30, 2012 and December 31, 2011, respectively. Under these agreements, we are required to maintain deposits with the respective financial institutions in amounts approximating the letters of credit outstanding. Such deposits are included in restricted cash.


23

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


We also maintain an unsecured letter of credit facility with a bank that expires in June 2014. This facility originally permitted the issuance of up to $200.0 million of letters of credit for general corporate purposes in support of any wholly-owned subsidiary. We voluntarily reduced the capacity of this facility to $150.0 million effective July 2, 2012. At September 30, 2012 and December 31, 2011, letters of credit of $133.6 million and $152.7 million, respectively, were outstanding under this facility.

Financial Services

Pulte Mortgage provides mortgage financing for the majority of our home closings utilizing its own funds and funds made available pursuant to credit agreements with third parties or through intercompany borrowings. Pulte Mortgage uses these resources to finance its lending activities until the mortgage loans are sold to third party investors, generally within 30 days.

On September 28, 2012, Pulte Mortgage entered into a Master Repurchase Agreement (the “Repurchase Agreement”). The Repurchase Agreement provides for loan purchases of up to $150.0 million, subject to certain sublimits, and expires on September 27, 2013. 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. At September 30, 2012, Pulte Mortgage had $103.0 million outstanding under the Repurchase Agreement.

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.


24

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


Our current estimates assume that claim volumes will not decline to pre-2009 levels until after 2013. Given the ongoing volatility in the mortgage industry, our lack of visibility into the current status of the review process of loans by investors, the claim volumes we continue to experience, and uncertainties 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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
Liabilities, beginning of period
$
120,711

 
$
97,836

 
$
128,330

 
$
93,057

Reserves provided
—

 
—

 
—

 
19,347

Payments
(2,089
)
 
(3,105
)
 
(9,708
)
 
(17,673
)
Liabilities, end of period
$
118,622

 
$
94,731

 
$
118,622

 
$
94,731


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 September 30, 2012 and December 31, 2011, we had recorded $35.7 million and $38.4 million, respectively, in accrued liabilities for outstanding CDD obligations. During the nine months ended September 30, 2011, we repurchased at a discount prior to their maturity CDD obligations with an aggregate principal balance of $26.6 million in order to improve the future financial performance of the related communities. The discount of $5.2 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 or nine months ended September 30, 2012.


25

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


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 $190.7 million and $1.1 billion at September 30, 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 drawn upon, 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.

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 projected 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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
Warranty liabilities, beginning of period
$
64,364

 
$
70,521

 
$
68,025

 
$
80,195

Reserves provided
12,593

 
11,858

 
32,014

 
30,966

Payments
(10,976
)
 
(12,705
)
 
(34,336
)
 
(40,914
)
Other adjustments
(1,453
)
 
(827
)
 
(1,175
)
 
(1,400
)
Warranty liabilities, end of period
$
64,528

 
$
68,847

 
$
64,528

 
$
68,847



26

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


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, 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 periodically 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. These estimates comprise 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 $723.8 million at September 30, 2012, 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 79% of the total general liability reserves at September 30, 2012. 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 reserves are recorded in the period in which the change in estimate occurs. Because the majority of our 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 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. Costs associated with our insurance programs are classified within selling, general, and administrative expenses.


27

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


Changes in these liabilities were as follows ($000's omitted):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
Balance, beginning of period
$
733,042

 
$
759,714

 
$
739,029

 
$
787,918

Reserves provided
15,557

 
14,790

 
37,772

 
42,000

Payments
(24,773
)
 
(18,104
)
 
(52,975
)
 
(73,518
)
Balance, end of period
$
723,826

 
$
756,400

 
$
723,826

 
$
756,400


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.    

28

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


 CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 2012
($000’s omitted)
 
Unconsolidated
 
Eliminating
Entries
 
Consolidated
PulteGroup,
Inc.
 
PulteGroup,
Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
ASSETS
 
 
 
 
 
 
 
 
 
Cash and equivalents
$
143,561

 
$
1,337,123

 
$
82,967

 
$
—

 
$
1,563,651

Restricted cash
57,103

 
4,958

 
14,669

 
—

 
76,730

House and land inventory
—

 
4,466,440

 
4,131

 
—

 
4,470,571

Land held for sale
—

 
129,523

 
—

 
—

 
129,523

Land, not owned, under option
       agreements
—

 
11,054

 
—

 
—

 
11,054

Residential mortgage loans available-
       for-sale
—

 
—

 
263,378

 
—

 
263,378

Securities purchased under agreements
       to resell
90

 
—

 
(90
)
 
—

 
—

Investments in unconsolidated entities
1,529

 
26,119

 
3,146

 
—

 
30,794

Income taxes receivable
28,282

 
—