What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-04-28 compared with 2021-10-26 · 108 added, 197 removed, 489 unchanged (38% of the section changed)

3 unchanged sentences

($000’s omitted)

September 30,

2022 December 31,

24 unchanged sentences

(000’s omitted, except per share data)

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

Three Months Ended

Home sale revenues $ 3,070,313 $ 2,596,510

10 unchanged sentences

Loss on debt retirement — ( 61,469 )

Goodwill impairment — — — ( 20,190 )

Other expense, net ( 2,138 ) ( 2,639 )

13 unchanged sentences

($000’s omitted)

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

Three Months Ended

Net income $ 454,723 $ 304,107

7 unchanged sentences

(000's omitted)

Common Stock Additional

Capital Accumulated

2 unchanged sentences

Earnings Total

Shareholders' equity, June 30, 2021 260,067 $ 2,600 $ 3,280,779 $ ( 95 ) $ 3,675,184 $ 6,958,468

Share issuances 1 — — — — —

Dividends declared — — — — ( 36,166 ) ( 36,166 )

Share repurchases ( 5,102 ) ( 50 ) — — ( 260,550 ) ( 260,600 )

Cash paid for shares withheld for taxes — — — — ( 35 ) ( 35 )

Share-based compensation — — 4,511 — — 4,511

Net income — — — — 475,549 475,549

Other comprehensive income — — — 25 — 25

Shareholders' equity, September 30, 2021 254,966 $ 2,550 $ 3,285,290 $ ( 70 ) $ 3,853,982 $ 7,141,752

Shareholders' equity, December 31, 2021 249,326 $ 2,493 $ 3,290,791 $ ( 45 ) $ 4,196,276 $ 7,489,515

Stock option exercises 1 — 11 — — 11

Share issuances 586 6 6,024 — — 6,030

5 unchanged sentences

Other comprehensive income — — — 25 — 25

Shareholders' equity, September 30, 2021 254,966 $ 2,550 $ 3,285,290 $ ( 70 ) $ 3,853,982 $ 7,141,752

PULTEGROUP, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(000's omitted)

Common Stock Additional

Shareholders' equity, March 31, 2022 239,622 $ 2,396 $ 3,309,912 $ ( 20 ) $ 4,100,976 $ 7,413,264

Capital Accumulated

2 unchanged sentences

Earnings Total

Shareholders' equity, June 30, 2020 268,178 $ 2,682 $ 3,252,568 $ ( 195 ) $ 2,596,613 $ 5,851,668

Stock option exercises 1 — 12 — — 12

Dividends declared — — — — ( 32,446 ) ( 32,446 )

Share-based compensation — — 4,358 — — 4,358

Net income — — — — 416,398 416,398

Other comprehensive income — — — 25 — 25

Shareholders' equity, September 30, 2020 268,179 $ 2,682 $ 3,256,938 $ ( 170 ) $ 2,980,565 $ 6,240,015

Shareholders' equity, December 31, 2020 266,464 $ 2,665 $ 3,261,412 $ ( 145 ) $ 3,306,057 $ 6,569,989

Cumulative effect of accounting change (see Note 1 )

— — — — ( 735 ) ( 735 )

Stock option exercises 1 — 11 — — 11

6 unchanged sentences

Other comprehensive income — — — 25 — 25

Shareholders' equity, September 30, 2020 268,179 $ 2,682 $ 3,256,938 $ ( 170 ) $ 2,980,565 $ 6,240,015

Shareholders' equity, March 31, 2021 263,637 $ 2,636 $ 3,274,154 $ ( 120 ) $ 3,408,604 $ 6,685,274

See accompanying Notes to Condensed Consolidated Financial Statements.

PULTEGROUP, INC.

1 unchanged sentence

($000’s omitted)

Nine Months Ended

September 30,

Three Months Ended

Cash flows from operating activities:

4 unchanged sentences

Loss on debt retirement — 61,469

Goodwill impairment — 20,190

Depreciation and amortization 16,181 17,142

6 unchanged sentences

Accounts payable, accrued and other liabilities 117,650 ( 1,352 )

Net cash provided by (used in) operating activities 548,225 1,266,625

Net cash provided by operating activities 207,666 176,748

Cash flows from investing activities:

4 unchanged sentences

Other investing activities, net ( 199 ) 698

Net cash provided by (used in) investing activities ( 86,468 ) ( 107,179 )

Net cash used in investing activities ( 47,966 ) ( 27,623 )

Cash flows from financing activities:

Repayments of notes payable — ( 794,435 )

Borrowings under revolving credit facility — 700,000

Repayments under revolving credit facility — ( 700,000 )

Financial Services borrowings (repayments), net 64,684 ( 77,527 )

Financial Services repayments, net ( 229,985 ) ( 141,002 )

Stock option exercises — 11

2 unchanged sentences

Dividends paid ( 37,796 ) ( 37,611 )

Net cash provided by (used in) financing activities ( 1,469,341 ) ( 296,694 )

Net increase (decrease) in cash, cash equivalents, and restricted cash ( 1,007,584 ) 862,752

Net cash used in financing activities ( 781,395 ) ( 1,137,306 )

Net decrease in cash, cash equivalents, and restricted cash ( 621,695 ) ( 988,181 )

Cash, cash equivalents, and restricted cash at beginning of period 1,833,565 2,632,235

25 unchanged sentences

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

Business acquisition

On January 24, 2020, we acquired the operations of Innovative Construction Group ("ICG"), an offsite construction framing company located in Jacksonville, Florida, for $ 104.0 million, of which $ 83.3 million and $ 10.4 million was paid in January 2020 and 2021, respectively, while an additional payment of $ 10.4 million will be settled in 2022.

The acquired net assets were recorded at their estimated fair values, including intangible assets of $ 27.8 million associated with customer relationships and $ 1.8 million associated with the ICG tradename, which are being amortized over seven - and five-year useful lives, respectively, and $ 48.7 million of goodwill.

The acquisition of these assets was not material to our results of operations or financial condition.

Goodwill impairment

In accordance with Accounting Standards Codification ("ASC") 350, "Intangibles - Goodwill and Other", management evaluates the recoverability of goodwill by comparing the carrying value of the Company’s reporting units to their fair value.

Fair value is determined using accepted valuation methods, including the use of discounted cash flows supplemented by market-based assessments of fair value.

As a result of the significant decline in equity market valuations that occurred during the period between our acquisition of ICG in January 2020 and March 31, 2020, we determined that an event-driven goodwill impairment test was appropriate for the ICG goodwill, which resulted in an impairment totaling $ 20.2 million in the first quarter of 2020.

This impairment was not the result of any unique factors specific to ICG's operations but, rather, reflected the broad-based declines in the market capitalizations of publicly-traded construction companies in the period of time between the acquisition and the March 31, 2020 valuation date.

Restructuring costs

We recorded severance expense of $ 10.3 million in the three months ended June 30, 2020 as we took actions to reduce overhead expenses in response to lower demand in March through May of 2020 resulting from the COVID-19 pandemic.

PULTEGROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Other expense, net

Other expense, net consists of the following ($000’s omitted):

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

Three Months Ended

Write-offs of deposits and pre-acquisition costs $ ( 3,510 ) $ ( 1,368 )

8 unchanged sentences

Home sale contract assets consist of cash from home closings held in escrow for our benefit, typically for less than five days, which are considered deposits in-transit and classified as cash.

Contract liabilities include customer deposits related to sold but undelivered homes, which totaled $ 823.5 million and $ 449.5 million at September 30, 2021 and December 31, 2020, respectively.

Contract liabilities include customer deposits related to sold but undelivered homes, which totaled $ 998.9 million and $ 844.8 million at March 31, 2022 and December 31, 2021, respectively.

Substantially all of our home sales are scheduled to close and be recorded to revenue within one year from the date of receiving a customer deposit.

See Note 8 for information on warranties and related obligations.

PULTEGROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Land sale and other revenues - We periodically elect to sell parcels of land to third parties in the event such assets no longer fit into our strategic operating plans or are zoned for commercial or other development.

9 unchanged sentences

Insurance brokerage commissions relate to commissions on homeowner and other insurance policies placed with third party carriers through various agency channels.

Our performance obligations for policy renewal commissions are considered satisfied upon issuance of the initial policy, and related contract assets for estimated future renewal commissions are included in other assets and totaled $ 41.6 million and $ 38.5 million at September 30, 2021 and December 31, 2020, respectively.

Our performance obligations for policy renewal commissions are considered satisfied upon issuance of the initial policy, and related contract assets for estimated future renewal commissions are included in other assets and totaled $ 47.2 million and $ 44.3 million at March 31, 2022 and December 31, 2021, respectively.

Earnings per share

1 unchanged sentence

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 unvested restricted share units and other potentially dilutive instruments.

PULTEGROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In accordance with ASC 260, "Earnings Per Share", the two-class method determines earnings per share for each class of common stock and participating securities according to an earnings allocation formula that adjusts the Numerator for dividends or dividend equivalents and participation rights in undistributed earnings.

In accordance with Accounting Standards Codification ("ASC") 260, "Earnings Per Share", the two-class method determines earnings per share for each class of common stock and participating securities according to an earnings allocation formula that adjusts the Numerator for dividends or dividend equivalents and participation rights in undistributed earnings.

Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are participating securities and, therefore, are included in computing earnings per share pursuant to the two-class method.

Our outstanding restricted share units and deferred shares are considered participating securities.

Certain of our outstanding restricted share units and deferred shares are considered participating securities.

The following table presents the earnings per common share (000's omitted, except per share data):

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

PULTEGROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended

Net income $ 454,723 $ 304,107

13 unchanged sentences

Substantially all of the loans originated by us are sold in the secondary mortgage market within a short period of time after origination, generally within 30 days.

At September 30, 2021 and December 31, 2020, residential mortgage loans available-for-sale had an aggregate fair value of $ 601.4 million and $ 565.0 million, respectively, and an aggregate outstanding principal balance of $ 586.4 million and $ 539.1 million, respectively.

Net gains from the sale of mortgages were $ 58.4 million and $ 76.6 million for the three months ended September 30, 2021 and 2020, respectively, and $ 192.6 million and $ 173.8 million for the nine months ended September 30, 2021 and 2020, respectively, and have been included in Financial Services revenues.

At March 31, 2022 and December 31, 2021, residential mortgage loans available-for-sale had an aggregate fair value of $ 510.3 million and $ 947.1 million, respectively, and an aggregate outstanding principal balance of $ 512.7 million and $ 924.5 million, respectively.

Net gains from the sale of mortgages were $ 52.4 million and $ 77.4 million for the three months ended March 31, 2022 and 2021, respectively, and have been included in Financial Services revenues.

Derivative instruments and hedging activities

We are party to interest rate lock commitments ("IRLCs") with customers resulting from our mortgage origination operations.

At September 30, 2021 and December 31, 2020, we had aggregate IRLCs of $ 521.5 million and $ 367.2 million, respectively, which were originated at interest rates prevailing at the date of commitment.

At March 31, 2022 and December 31, 2021, we had aggregate IRLCs of $ 981.9 million and $ 337.9 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.

1 unchanged sentence

We hedge our exposure to interest rate market risk relating to residential mortgage loans available-for-sale and IRLCs using forward contracts on mortgage-backed securities, which are commitments to either purchase or sell a specified financial instrument at a specified future date for a specified price, and whole loan investor commitments, which are obligations of an investor to buy loans at a specified price within a specified time period.

Forward contracts on mortgage-backed securities are

PULTEGROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

the predominant derivative financial instruments we use to minimize market risk during the period from the time we extend an interest rate lock to a loan applicant until the time the loan is sold to an investor.

At September 30, 2021 and December 31, 2020, we had unexpired forward contracts of $ 843.0 million and $ 686.4 million, respectively, and whole loan investor commitments of $ 235.5 million and $ 169.6 million, respectively.

Forward contracts on mortgage-backed securities are the predominant derivative financial instruments we use to minimize market risk during the period from the time we extend an interest rate lock to a loan applicant until the time the loan is sold to an investor.

At March 31, 2022 and December 31, 2021, we had unexpired forward contracts of $ 1.2 billion and $ 903.0 million, respectively, and whole loan investor commitments of $ 254.3 million and $ 310.0 million, respectively.

Changes in the fair value of IRLCs and other derivative financial instruments are recognized in Financial Services revenues, and the fair values are reflected in other assets or other liabilities, as applicable.

There are no credit-risk-related contingent features within our derivative agreements, and counterparty risk is considered minimal.

Gains and losses on IRLCs and residential mortgage loans available-for-sale are substantially offset by corresponding gains or losses on forward contracts on mortgage-backed securities and whole loan investor commitments.

Gains and losses on IRLCs and residential mortgage loans available-for-sale are substantially offset by corresponding

PULTEGROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

gains or losses on forward contracts on mortgage-backed securities and whole loan investor commitments.

We are generally not exposed to variability in cash flows of derivative instruments for more than approximately 60 days.

The fair values of derivative instruments and their locations in the Condensed Consolidated Balance Sheets are summarized below ($000’s omitted):

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Other Assets Accrued and Other Liabilities Other Assets Accrued and Other Liabilities

6 unchanged sentences

We assess and monitor each counterparty’s ability to pay amounts owed by considering contractual terms and conditions, the counterparty’s financial condition, macroeconomic factors, and business strategy.

At September 30, 2021 and December 31, 2020, we reported $ 194.5 million and $ 176.2 million, respectively, of assets in-scope under ASC 326, "Financial Instruments - Credit Losses" ("ASC 326").

At March 31, 2022 and December 31, 2021, we reported $ 198.0 million and $ 208.4 million, respectively, of assets in-scope under ASC 326, "Financial Instruments - Credit Losses".

These assets consist primarily of insurance receivables, contract assets related to insurance brokerage commissions, and vendor rebate receivables.

Counterparties associated with these assets are generally highly rated.

Allowances on the aforementioned in-scope assets were not material as of September 30, 2021.

Allowances on the aforementioned in-scope assets were not material as of March 31, 2022.

New accounting pronouncements

4 unchanged sentences

Our adoption of ASU 2019-12 did not have a material impact on our financial statements.

On January 1, 2020, we adopted ASC 326, which changed the impairment model for most financial assets and certain other instruments from an "incurred loss" approach to an "expected credit loss" methodology.

We adopted ASC 326 using the modified retrospective transition method.

ASC 326 requires entities to consider a broader range of information to estimate expected credit losses, which may result in earlier recognition of losses.

Our adoption of ASC 326 resulted in a $ 0.7 million decrease to retained earnings as of January 1, 2020.

In January 2017, the FASB issued ASU No.

2017-04, "Intangibles - Goodwill and Other (Topic 350):

Simplifying the Accounting for Goodwill Impairment", which removed the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment.

Under the new standard, goodwill impairment is determined by evaluating the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.

We adopted the standard for annual and interim periods beginning January 1, 2020, and the standard was followed in the previously mentioned assessment of the ICG goodwill.

PULTEGROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848)”, as amended by ASU 2021-01 in January 2021, which provides optional expedients and exceptions for applying U.S.

GAAP to contracts, hedging relationships, and other transactions affected by the cessation of the London Interbank Offered Rate ("LIBOR") or by another reference rate expected to be discontinued.

The guidance was effective beginning March 12, 2020 and can be applied prospectively through December 31, 2022.

We are currently evaluating the effect that such new guidance will have on our consolidated financial statements and related disclosures, but do not expect that the adoption will have a material impact on our consolidated financial statements or related disclosures.

Major components of inventory were as follows ($000’s omitted):

September 30,

2022 December 31,

6 unchanged sentences

Information related to interest capitalized into inventory is as follows ($000’s omitted):

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

PULTEGROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended

Interest in inventory, beginning of period $ 160,756 $ 193,409

11 unchanged sentences

We record any such write-offs of deposits and pre-acquisition costs within other expense, net.

During the three months ended March 31, 2022 and 2021, we recorded $ 3.5 million and $ 1.4 million, respectively, of such charges.

If an entity holding the land under option is a variable interest entity ("VIE"), our deposit represents a variable interest in that entity.

No VIEs required consolidation at either September 30, 2021 or December 31, 2020 because we determined that we were not the VIEs' primary beneficiary.

No VIEs required consolidation at either March 31, 2022 or December 31, 2021 because we determined that we were not the VIEs' primary beneficiary.

Our maximum exposure to loss related to these VIEs is generally limited to our deposits and pre-acquisition costs under the land option agreements.

The following provides a summary of our interests in land option agreements as of September 30, 2021 and December 31, 2020 ($000’s omitted):

PULTEGROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021 December 31, 2020

The following provides a summary of our interests in land option agreements as of March 31, 2022 and December 31, 2021 ($000’s omitted):

March 31, 2022 December 31, 2021

Pre-acquisition

7 unchanged sentences

Land-related charges

We recorded the following land-related charges ($000's omitted):

Three Months Ended Nine Months Ended

September 30, 2021 September 30, 2020

Statement of Operations Classification 2021 2020 2021 2020

Land impairments Home sale cost of revenues $ — $ 54 $ — $ 5,440

Net realizable value ("NRV") adjustments - land held for sale Land sale and other cost of revenues — 2 19 155

Write-offs of deposits and pre-acquisition costs Other expense, net 3,567 1,692 6,801 8,335

$ 3,567 $ 1,748 $ 6,820 $ 13,930

Our evaluations for land impairments, NRV adjustments, and write-offs of deposits and pre-acquisition costs are based on our best estimates of the future cash flows of our communities.

Our evaluations for land impairments, net realizable value adjustments, and write-offs of deposits and pre-acquisition costs are based on our best estimates of the future cash flows of our communities.

Due to uncertainties in the estimation process, the significant volatility in demand for new housing, the long life cycles of certain of our communities, and potential changes in our strategy related to certain communities, actual results could differ significantly from such estimates.

PULTEGROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Segment information

5 unchanged sentences

Illinois, Indiana, Kentucky, Michigan, Minnesota, Ohio

Arizona, California, Nevada, New Mexico, Washington

Arizona, California, Colorado, Nevada, New Mexico, Washington

We also have a reportable segment for our Financial Services operations, which consist principally of mortgage banking, title, and insurance brokerage operations that operate generally in the same markets as the Homebuilding segments.

PULTEGROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Operating Data by Segment

($000’s omitted)

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

Three Months Ended

Northeast $ 164,331 $ 176,467

10 unchanged sentences

Southeast 126,132 71,322

133,642 106,394 382,682 258,991

Florida 160,694 101,208

Midwest 64,701 52,864

1 unchanged sentence

West 133,311 98,832

Other homebuilding (b)

Other homebuilding (a)

( 36,653 ) ( 88,064 )

2 unchanged sentences

Consolidated income before income taxes $ 599,893 $ 394,052

(a) Includes goodwill impairment charge totaling $ 20.2 million (see Note 1 ) in the nine months ended September 30, 2020.

(b) Other homebuilding includes the amortization of intangible assets and capitalized interest and other items not allocated to the operating segments.

Other homebuilding also includes insurance adjustments of $ 53.7 million and $ 59.4 million in the nine months ended September 30, 2021 and 2020, respectively (see Note 8 ).

Other homebuilding also includes a loss on debt retirement of $ 61.5 million in the nine months ended September 30, 2021 (see Note 4 ).

(a) Other homebuilding includes the amortization of intangible assets and capitalized interest and other items not allocated to the other segments.

Other homebuilding also includes a loss on debt retirement of $ 61.5 million in the three months ended March 31, 2021 (see Note 4 ).

PULTEGROUP, INC.

2 unchanged sentences

($000’s omitted)

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

Three Months Ended

Land-related charges (a) :

4 unchanged sentences

Texas 239 527

West 602 170 667 1,844

Other homebuilding — —

$ 3,510 $ 1,368

(a) Land-related charges include land impairments, NRV adjustments on land held for sale, and write-offs of deposits and pre-acquisition costs for land option contracts we elected not to pursue.

(a) Land-related charges include land impairments, net realizable value adjustments on land held for sale, and write-offs of deposits and pre-acquisition costs for land option contracts we elected not to pursue.

Operating Data by Segment

($000's omitted)

September 30, 2021

March 31, 2022

Construction Land Under

34 unchanged sentences

Our notes payable are summarized as follows ($000’s omitted):

September 30,

2022 December 31,

1 unchanged sentence

$ 500,000 $ 500,000

5.500 % unsecured senior notes due March 2026 (a)

500,000 700,000

5.000 % unsecured senior notes due January 2027 (a)

15 unchanged sentences

(b) The carrying value of senior notes reflects the impact of premiums, discounts, and issuance costs that are amortized to interest cost over the respective terms of the senior notes.

In the nine months ended September 30, 2021, we accelerated the retirement of $ 200.0 million and $ 100.0 million of our unsecured notes scheduled to mature in 2026 and 2027, respectively, through a cash tender offer.

In the three months ended March 31, 2021, we retired $ 426.0 million of senior notes at their scheduled maturity date and also accelerated the retirement of $ 200.0 million and $ 100.0 million of our unsecured notes scheduled to mature in 2026 and 2027, respectively, through a cash tender offer.

The retirement resulted in a loss of $ 61.5 million, which includes the write-off of debt issuance costs, unamortized discounts and premiums, and transaction fees.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Other notes payable include notes with third parties that totaled $ 71.4 million and $ 40.1 million at September 30, 2021 and December 31, 2020, respectively.

These notes have maturities ranging up to four years , are secured by the applicable land positions, and generally have no recourse to other assets.

Other notes payable

Other notes payable include non-recourse and limited recourse notes with third parties that totaled $ 40.9 million and $ 40.2 million at March 31, 2022 and December 31, 2021, respectively.

These notes have maturities ranging up to three years , are secured by the applicable land positions to which they relate, and generally have no recourse to other assets.

The stated interest rates on these notes range up to 6 %.

Such notes payable issued to acquire land inventory totaled $ 0.7 million and $ 12.4 million in the three months ended March 31, 2022 and 2021, respectively.

Revolving credit facility

We maintain a revolving credit facility (the "Revolving Credit Facility") maturing in June 2023 that has a maximum borrowing capacity of $ 1.0 billion and contains an uncommitted accordion feature that could increase the capacity to $ 1.5 billion, subject to certain conditions and availability of additional bank commitments.

The Revolving Credit Facility also provides for the issuance of letters of credit that reduce the available borrowing capacity under the Revolving Credit Facility, with a sublimit of $ 500.0 million at September 30, 2021.

The interest rate on borrowings under the Revolving Credit Facility may be based on either the London Interbank Offered Rate ("LIBOR") or a base rate plus an applicable margin, as defined therein.

As a precautionary measure during the initial phase of the COVID-19 pandemic, we made the decision in March 2020 to draw $ 700.0 million under the Revolving Credit Facility.

In June 2020, we repaid the full outstanding balance of $ 700.0 million.

We had no borrowings outstanding at either September 30, 2021 or December 31, 2020, and $ 282.3 million and $ 249.7 million of letters of credit issued under the Revolving Credit Facility at September 30, 2021 and December 31, 2020, respectively.

We had no borrowings outstanding at either March 31, 2022 or December 31, 2021, and $ 289.9 million and $ 298.8 million of letters of credit issued under the Revolving Credit Facility at March 31, 2022 and December 31, 2021, respectively.

The Revolving Credit Facility contains financial covenants that require us to maintain a minimum Tangible Net Worth, a minimum Interest Coverage Ratio, and a maximum Debt-to-Capitalization Ratio (as each term is defined in the Revolving Credit Facility).

As of September 30, 2021, we were in compliance with all covenants.

Our available and unused borrowings under the Revolving Credit Facility, net of outstanding letters of credit, amounted to $ 717.7 million and $ 750.3 million at September 30, 2021 and December 31, 2020, respectively.

As of March 31, 2022, we were in compliance with all covenants.

Our available and unused borrowings under the Revolving Credit Facility, net of outstanding letters of credit, amounted to $ 710.1 million and $ 701.2 million at March 31, 2022 and December 31, 2021, respectively.

Joint venture debt

At March 31, 2022, aggregate outstanding debt of unconsolidated joint ventures was $ 64.7 million, of which $ 41.0 million was related to one joint venture in which we have a 50 % interest.

In connection with this loan, we and our joint venture partner provided customary limited recourse guaranties in which our maximum financial loss exposure is limited to our pro rata share of the debt outstanding.

Financial Services debt

Pulte Mortgage maintains a master repurchase agreement with third party lenders (as amended, the "Repurchase Agreement") that matures on July 28, 2022.

The maximum aggregate commitment was $ 580.0 million at September 30, 2021, which will increase to $ 650.0 million during the seasonally high borrowing period from December 27, 2021 through January 13, 2022.

At all other times, the maximum aggregate commitment ranges from $ 460.0 million to $ 550.0 million.

The maximum aggregate commitment was $ 460.0 million at March 31, 2022 and increases to $ 550.0 million on June 27, 2022, which will then continue through maturity.

Borrowings under the Repurchase Agreement are secured by residential mortgage loans available-for-sale.

The Repurchase Agreement contains various affirmative and negative covenants applicable to Pulte Mortgage, including quantitative thresholds related to net worth, net income, and liquidity.

Pulte Mortgage had $ 476.5 million and $ 411.8 million outstanding under the Repurchase Agreement at September 30, 2021 and December 31, 2020, respectively, and was in compliance with all of its covenants and requirements as of such dates.

Pulte Mortgage had $ 396.1 million and $ 626.1 million outstanding under the Repurchase Agreement at March 31, 2022 and December 31, 2021, respectively, and was in compliance with all of its covenants and requirements as of such dates.

Shareholders’ equity

In the nine months ended September 30, 2021, we declared cash dividends totaling $ 110.3 million and repurchased 12.0 million shares under our repurchase authorization for $ 614.3 million.

In the nine months ended September 30, 2020, we declared cash dividends totaling $ 97.5 million and repurchased 2.8 million shares under our repurchase authorization for $ 95.7 million.

On April 26, 2021, the Board of Directors approved an additional share repurchase authorization of $ 1.0 billion.

At September 30, 2021, we had remaining authorization to repurchase $ 740.6 million of common shares.

In the three months ended March 31, 2022, we declared cash dividends totaling $ 36.5 million and repurchased 10.3 million shares under our repurchase authorization for $ 500.0 million.

In the three months ended March 31, 2021, we declared cash dividends totaling $ 37.3 million and repurchased 3.3 million shares under our repurchase authorization for $ 153.7 million.

On January 31, 2022, the Board of Directors increased our share repurchase authorizations by $ 1.0 billion.

At March 31, 2022, we had remaining authorization to repurchase $ 957.6 million of common shares.

Under our share-based compensation plans, we accept shares as payment under certain conditions related to stock option exercises and vesting of shares, generally related to the payment of minimum tax obligations.

In the nine months ended September 30, 2021 and 2020, participants surrendered shares valued at $ 10.6 million and $ 14.9 million, respectively, under these plans.

In the three months ended March 31, 2022 and 2021, participants surrendered shares valued at $ 13.6 million and $ 10.6 million, respectively, under these plans.

Such share transactions are excluded from the above noted share repurchase authorization.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Our effective tax rate for the three and nine months ended September 30, 2021 was 23.3 % and 22.4 %, respectively, compared to 14.0 % and 19.6 %, respectively, for the same periods in 2020.

Our effective tax rate for each of these periods differs from the federal statutory rate primarily due to state income tax expense and benefits associated with federal energy efficient home credits.

Income tax expense for the three and nine months ended September 30, 2020 includes benefits of $ 53.2 million and $ 58.0 million, respectively, associated with the extension of federal energy efficient homes tax credits, including to homes closed in prior open tax years.

The effective tax rate for the nine months ended September 30, 2021 also reflects a reduction in valuation allowances relating to projected utilization of certain state net operating loss carryforwards.

At September 30, 2021 and December 31, 2020, we had net deferred tax assets of $ 19.9 million and $ 32.7 million, respectively.

Our effective tax rate in the three months ended March 31, 2022 was 24.2 % compared to 22.8 % for the same period in 2021.

Our effective tax rate for each of these periods differs from the federal statutory rate primarily due to state income tax expense.

The 2021 tax rate also included a benefit for federal energy efficient home credits, which expired at December 31, 2021.

At March 31, 2022 and December 31, 2021, we had net deferred tax liabilities of $ 39.9 million and $ 26.5 million, respectively.

The accounting for deferred taxes is based upon estimates of future results.

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Unrecognized tax benefits represent the difference between tax positions taken or expected to be taken in a tax return and the benefits recognized for financial statement purposes.

We had $ 23.9 million and $ 30.9 million of gross unrecognized tax benefits at September 30, 2021 and December 31, 2020, respectively.

Additionally, we had accrued interest and penalties of $ 4.0 million and $ 2.8 million at September 30, 2021 and December 31, 2020, respectively.

We had $ 22.7 million and $ 22.5 million of gross unrecognized tax benefits at March 31, 2022 and December 31, 2021, respectively.

Additionally, we had accrued interest and penalties of $ 3.1 million and $ 2.9 million at March 31, 2022 and December 31, 2021, respectively.

Fair value disclosures

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Financial Instrument Fair Value

Hierarchy Fair Value

September 30,

2022 December 31,

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Whole loan commitments Level 2 974 380

Measured at fair value on a non-recurring basis:

House and land inventory Level 3 $ — $ 582

Disclosed at fair value:

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Fair values for non-agency residential mortgage loans available-for-sale are determined based on purchase commitments from whole loan investors and other relevant market information available to management.

Fair values for IRLCs, including the value of servicing rights, and forward contracts on mortgage-backed securities are valued based on market prices for similar instruments.

Fair values for IRLCs, including the value of servicing rights, and forward contracts on mortgage-backed securities are valued based on

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

market prices for similar instruments.

Fair values for whole loan commitments are based on market prices for similar instruments from the specific whole loan investor.

Certain assets are required to be recorded at fair value on a non-recurring basis when events and circumstances indicate that the carrying value may not be recoverable.

The non-recurring fair values included in the above table represent only those assets whose carrying values were adjusted to fair value as of the respective balance sheet dates.

The carrying amounts of cash and equivalents, Financial Services debt and other notes payable approximate their fair values due to their short-term nature and/or floating interest rate terms.

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If quoted market prices are not available, fair values are based on quoted market prices of similar issues.

The carrying value of senior notes was $ 2.0 billion and $ 2.7 billion at September 30, 2021 and December 31, 2020, respectively.

The carrying value of senior notes was $ 2.0 billion at both March 31, 2022 and December 31, 2021 .

Commitments and contingencies

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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 $ 282.3 million and $ 1.8 billion, respectively, at September 30, 2021 and $ 249.7 million and $ 1.5 billion, respectively, at December 31, 2020.

We had outstanding letters of credit and surety bonds totaling $ 289.9 million and $ 1.9 billion, respectively, at March 31, 2022 and $ 298.8 million and $ 1.8 billion, respectively, at December 31, 2021.

In the event any such letter of credit or surety bond is drawn, we would be obligated to reimburse the issuer of the letter of credit or surety bond.

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We do not believe that a material amount, if any, of the letters of credit or surety bonds will be drawn.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Litigation and regulatory matters

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Changes to warranty liabilities were as follows ($000’s omitted):

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended

Warranty liabilities, beginning of period $ 107,117 $ 82,744

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General liability coverage for the homebuilding industry is complex, and our coverage varies from policy year to policy year.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Our insurance coverage requires a per occurrence deductible up to an overall aggregate retention level.

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IBNR represents losses related to claims incurred but not yet reported plus development on reported claims.

Our recorded reserves for all such claims totaled $ 624.7 million and $ 641.8 million at September 30, 2021 and December 31, 2020, respectively.

Our recorded reserves for all such claims totaled $ 644.3 million and $ 627.1 million at March 31, 2022 and December 31, 2021, respectively.

The recorded reserves include loss estimates related to both (i) existing claims and related claim expenses and (ii) IBNR and related claim expenses.

Liabilities related to IBNR and related claim expenses represented approximately 70 % and 68 % of the total general liability reserves at September 30, 2021 and December 31, 2020, respectively.

Liabilities related to IBNR and related claim expenses represented approximately 69 % and 70 % of the total general liability reserves at March 31, 2022 and December 31, 2021, respectively.

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.

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Changes in the frequency and timing of reported claims and estimates of specific claim values can impact the underlying inputs and trends utilized in the actuarial analyses, which could have a material impact on the recorded reserves.

Additionally, the amount of insurance coverage available for each policy period also impacts our recorded reserves.

Additionally, the amount of insurance

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

coverage available for each policy period also impacts our recorded reserves.

Because of the inherent uncertainty in estimating future losses and the timing of such losses related to these claims, actual costs could differ significantly from estimated costs.

Adjustments to reserves are recorded in the period in which the change in estimate occurs.

We reduced general liability reserves by $ 56.6 million and $ 59.4 million in the nine months ended September 30, 2021 and 2020, respectively, as a result of changes in estimates resulting from actual claim experience being less than anticipated in previous actuarial projections.

The changes in actuarial estimates were driven by changes in actual claims experience that, in turn, impacted actuarial estimates for potential future claims.

These changes in actuarial estimates did not involve any changes in actuarial methodology but did impact the development of estimates for future periods, which resulted in adjustments to the IBNR portion of our recorded liabilities.

Costs associated with our insurance programs are classified within selling, general, and administrative expenses.

Changes in these liabilities were as follows ($000's omitted):

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

Three Months Ended

Balance, beginning of period $ 627,067 $ 641,779

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Estimates of anticipated recoveries of our costs under various insurance policies or from subcontractors or other third parties are recorded when recovery is considered probable.

Such receivables are recorded in other assets and totaled $ 67.8 million and

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

$ 69.5 million at September 30, 2021 and December 31, 2020, respectively.

Such receivables are recorded in other assets and totaled $ 57.5 million at both March 31, 2022 and December 31, 2021.

Those receivables relate to costs incurred to perform corrective repairs, settle claims with customers, and other costs related to the continued progression of construction defect claims that we believe are insured.

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Leases with an initial term of 12 months or less are not recorded on the balance sheet.

ROU assets and lease liabilities were $ 78.0 million and $ 96.9 million at September 30, 2021, respectively, and $ 71.3 million and $ 91.4 million at December 31, 2020, respectively.

In the three and nine months ended September 30, 2021, we recorded an additional $ 2.1 million and $ 15.2 million of lease liabilities under operating leases, respectively, and $ 13.0 million in the nine months ended September 30, 2020.

Payments on lease liabilities in the three and nine months ended September 30, 2021 totaled $ 5.1 million and $ 15.6 million, respectively, and $ 4.8 million and $ 14.8 million in the comparable prior year periods.

ROU assets and lease liabilities were $ 71.0 million and $ 88.5 million at March 31, 2022, respectively, and $ 74.3 million and $ 92.7 million at December 31, 2021, respectively.

In the three months ended March 31, 2022 and 2021, we recorded an additional $ 0.5 million and $ 1.1 million, respectively, of lease liabilities under operating leases.

Payments on lease liabilities in the three months ended March 31, 2022 and March 31, 2021 totaled $ 5.5 million and $ 5.3 million, respectively.

Lease expense includes costs for leases with terms in excess of one year as well as short-term leases with terms of less than one year.

For the three and nine months ended September 30, 2021, our total lease expense was $ 10.6 million and $ 31.2 million, respectively, and $ 9.6 million and $ 28.2 million in the comparable prior year periods.

Our total lease expense is inclusive of variable lease costs of $ 1.6 million and $ 5.6 million for the three and nine months ended September 30, 2021, respectively, and $ 1.5 million and $ 4.9 million in the comparable prior year periods, as well as short-term lease costs of $ 3.7 million and $ 9.7 million for the three and nine months ended September 30, 2021, respectively, and $ 2.6 million and $ 6.6 million in the comparable prior year periods.

In the three months ended March 31, 2022 and 2021, our total lease expense was $ 12.9 million and $ 10.2 million, respectively, inclusive of variable lease costs of $ 2.2 million and $ 1.9 million, respectively, as well as short-term lease costs of $ 5.1 million and $ 2.9 million, respectively.

Sublease income was de minimis.

The future minimum lease payments required under our leases as of September 30, 2021 were as follows ($000's omitted):

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The future minimum lease payments required under our leases as of March 31, 2022 were as follows ($000's omitted):

Years Ending December 31,

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Present value of lease liabilities (d)

(a) Remaining payments are for the three months ended December 31, 2021.

(b) Lease payments include options to extend lease terms that are reasonably certain of being exercised.

There were $ 3.0 million of legally binding minimum lease payments for leases signed but not yet commenced at September 30, 2021.

(a) Remaining payments are for the nine months ending December 31, 2022.

(b) Lease payments include options to extend lease terms that are reasonably certain of being exercised and exclude $ 3.1 million of legally binding minimum lease payments for leases signed but not yet commenced at March 31, 2022.

Therefore, we must estimate our discount rate for such leases to determine the present value of lease payments at the lease commencement date.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(d) The weighted average remaining lease term and weighted average discount rate used in calculating our lease liabilities were 5.4 years and 5.53 %, respectively, at September 30, 2021.

(d) The weighted average remaining lease term and weighted average discount rate used in calculating our lease liabilities were 5.2 years and 5.5 %, respectively, at March 31, 2022.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements