What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-04-28 compared with 2021-10-26 · 170 added, 231 removed, 271 unchanged (60% of the section changed)

Management's Discussion and Analysis of Financial Condition and Results of Operations

We continue to experience strong demand for our products as new orders increased 12% over the prior year for the nine months ended September 30, 2021.

While new orders were 17% lower than the prior year for the three months ended September 30, 2021, the decrease was driven primarily by a 14% reduction in community count in combination with Company actions to strategically manage the pace of sales to better align with current production levels.

The favorable demand for new housing has been driven by mortgage interest rates near historical lows, a limited supply of new and existing home inventory, an increased appeal for homeownership and single-family living, and a desire among some buyers to exit more densely populated urban centers or to relocate from higher cost geographical regions.

As a result, our order backlog increased 33% in units and 56% in dollars as of September 30, 2021 over the prior year.

Home closings increased 9% and 14% in the three and nine months ended September 30, 2021, respectively, compared with the prior year periods.

The higher closing volume is despite significant disruption in the homebuilding supply chain, including the availability of certain materials and construction labor combined with delays in municipal approvals and inspections, which has elongated the production cycle of the homes we are constructing.

While we are working with our supply partners, have increased our speculative housing starts, and have hired additional construction and customer service employees, our production cycle times have extended in the majority of our markets due to the challenges referenced above.

Due to these supply chain challenges, we are moderating lot releases and the pace of new orders in the majority of our communities in order to balance sales volume and production capacity to reduce backlog durations.

We believe these conditions will continue to impact our industry for at least the next few quarters.

We are also facing cost pressures related to labor and materials, due in large part to a shortage of workers and supply chain challenges resulting from ongoing effects of the COVID-19 pandemic and other macroeconomic factors.

Specifically, the cost of lumber more than quadrupled from mid-2020 to mid-2021.

While the cost of lumber has declined significantly since peaking in May 2021, it remains elevated compared to historical norms, and the availability of certain wood products, including roof and floor trusses and oriented strand boards, remains challenged.

The overall US housing market remained strong in the first quarter and registered continued growth in new home demand and pricing, driven primarily by:

an extremely limited supply of new and existing home inventory, an increased appeal for homeownership and single-family living, positive demographic trends, along with low unemployment levels and resulting wage growth.

These improvements occurred despite a significant increase in mortgage interest rates during the period.

The rising cost of housing, inflation in the broader economy, and increases in mortgage interest rates have placed additional pressure on overall housing affordability.

However, while affordability has become more challenged, the cost of new housing continues to compete well with the cost of rental housing.

In the current environment, we continued to experience strong demand for our products in the first quarter of 2022.

While new orders were 19% lower than the prior year period, the decrease was driven primarily by a 7% reduction in community count in combination with Company actions to strategically manage the pace of sales to better align with current production levels.

As a result, our order backlog increased 5% in units and 31% in dollars as of March 31, 2022 over the prior year period.

Due to the increasing level of new homebuilding activity in the US, coupled with impacts on the US supply chain and construction and municipal workforces due to the COVID-19 pandemic, the availability of certain materials and construction labor, combined with delays in municipal approvals and inspections, have elongated the production cycle of the homes we are constructing.

While we are working with our supply partners, have significantly increased our speculative housing starts, and have hired additional construction and customer service employees, our production cycle times have extended in substantially all of our markets.

The time required to construct a home was approximately eight weeks longer in the three months ended March 31, 2022, as compared with the prior year period and approximately one week longer than the fourth quarter of 2021.

Due to these supply chain and labor challenges, we are moderating lot releases and the pace of new orders in the majority of our communities in order to balance sales volume and production capacity to reduce backlog durations as well as to protect gross margins in the face of inflationary cost pressures.

Despite the production challenges in the current operating environment, we were able to achieve closing volume consistent with last year.

We believe these conditions will continue to impact our industry for the remainder of 2022.

The noted supply chain and labor issues are also leading to significant cost pressures in almost all areas of our business, but especially related to construction labor and materials.

Specifically, the cost of lumber continues to be extremely volatile and remains elevated compared to historical norms.

Additionally, the availability of certain wood products, including roof and floor trusses and oriented strand boards, remains challenged.

We also continue to experience significant challenges with the cost and availability of windows, siding, and appliances, among other supply categories.

To date, we have been, and believe we will continue to be, able to increase pricing to offset the majority of such cost increases due to ongoing high consumer demand.

To date, we have been, and believe we will continue to be, able to increase pricing to offset the majority of such cost increases due to expected ongoing high consumer demand.

Despite the development of vaccines and more effective treatments for the physical impacts of COVID-19, there are no reliable estimates of how long the COVID-19 pandemic, or its related impacts on overall economic conditions or the global supply chain, will last.

As a result, the unpredictability of the current economic and public health conditions will continue to evolve.

The unpredictability of current economic conditions will also continue to evolve due to disruptions occurring as a result of the military conflict in Ukraine and related sanctions or other actions against Russia imposed by the U.S.

and other countries.

However, all of our operations continue to function at effectively full capacity subject to health and safety protocols, and we remain optimistic about future housing demand and our ability to continue expanding our business.

Due to the higher demand and long municipal entitlement timelines, the number of our active communities continues to decrease as we close communities at a pace faster than we are opening new ones.

While we have increased our investments in land acquisition and development, we expect that the number of our active communities will not begin to increase meaningfully until 2022.

Due to the strength of current demand and extending municipal entitlement timelines, the number of our active communities decreased in 2021 as we sold out communities at a pace faster than we opened new ones.

We have increased our investments in land acquisition and development and expect that the number of our active communities will begin to increase as we proceed through 2022.

Consolidated Operations

The following is a summary of our operating results by line of business ($000's omitted, except per share data):

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

Three Months Ended

Income before income taxes:

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Net income $ 1.83 $ 1.13

• Homebuilding income before income taxes for the three and nine months ended September 30, 2021 increased 36% and 40%, respectively, compared with the same periods in 2020, respectively.

The results are primarily the result of increased closings, higher gross margins, and improved overhead leverage in 2021.

The results also include

insurance adjustments of $53.7 million for the nine months ended September 30, 2021, compared to $59.4 million for the nine months ended September 30, 2020 (see Note 8 ).

This benefit in 2020 was partially offset by severance expense of $10.4 million for the nine months ended September 30, 2020, and a goodwill impairment charge totaling $20.2 million ( see Note 1 ) in the nine months ended September 30, 2020.

Results for the nine months ended September 30, 2021 also include a loss on debt retirement of $61.5 million (see Note 4 ).

• Financial Services income before income taxes for the three months ended September 30, 2021 decreased 24% compared to the same period in 2020, primarily as a result of increased competition in 2021 resulting in lower revenue per loan.

For the nine months ended September 30, 2021, Financial Services income before income taxes increased 16% compared with the same period in 2020 as a result of higher volumes, which largely resulted from increased homebuilding volumes, partially offset by the lower revenue per loan.

• 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 in 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.

• Homebuilding income before income taxes in the three months ended March 31, 2022 increased 71% compared with the same period in 2021, primarily as the result of a significantly higher average selling price and gross margin.

Results for the three months ended March 31, 2021 also include a loss on debt retirement of $61.5 million (see Note 4 ).

• Financial Services income before income taxes in the three months ended March 31, 2022 decreased 39% compared to the same period in 2021, primarily as the result of a lower capture rate and revenue per loan due to increased competitiveness in the mortgage industry in 2022.

• Our effective tax rate in the three months ended March 31, 2022 and 2021 was 24.2% and 22.8%, respectively.

Our effective tax rate for each of these periods differs from the federal statutory rate primarily due to state income tax expense, while the 2021 tax rate also included benefits associated with federal energy efficient home credits, which expired at December 31, 2021.

Homebuilding Operations

The following presents selected financial information for our Homebuilding operations ($000’s omitted):

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2021 vs.

Three Months Ended

2022 2022 vs.

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Selling, general, and administrative

expenses ("SG&A") (b)

(320,506) 18 % (271,257) (864,478) 18 % (731,785)

Loss on debt retirement — (c) — (61,469) (c) —

Goodwill impairment — (c) — — (c) (20,190)

expenses ("SG&A") (329,022) 21 % (271,686)

Loss on debt retirement — (b) (61,469)

Other expense, net (2,074) (18) % (2,539)

1 unchanged sentence

Supplemental data:

Gross margin from home sales 26.5 % 200 bps 24.5 % 26.2 % 210 bps 24.1 %

Gross margin from home sales 29.0 % 350 bps 25.5 %

SG&A as a percentage of home

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Average selling price $ 508 18 % $ 430

Net new orders (d) :

Net new orders (c) :

Units 7,971 (19) % 9,852

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Average active communities 777 (7) % 837

Backlog at September:

Backlog at March 31:

Units 19,935 5 % 18,966

1 unchanged sentence

(a) Includes the amortization of capitalized interest.

(b) 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 ), and severance expense of $10.4 million in the nine months ended September 30, 2020.

(d) Net new order dollars represent a composite of new order dollars combined with other movements of the dollars in backlog related to cancellations and change orders.

(b) Percentage not meaningful.

(c) Net new order dollars represent a composite of new order dollars combined with other movements of the dollars in backlog related to cancellations and change orders.

Home sale revenues

Home sale revenues for the three and nine months ended September 30, 2021 were higher than the prior year periods by $500.6 million and $1.6 billion, respectively.

For the three months ended September 30, 2021, the 18% increase was attributable to a 9% increase in closings combined with an 8% increase in average selling price.

For the nine months ended September 30, 2021, the 22% increase was attributable to a 14% increase in closings combined with a 7% increase in average selling price.

The increase in closings was primarily the result of favorable demand conditions, including a large backlog of orders.

Beginning in March 2020, the COVID-19 pandemic began to unfavorably impact the demand environment.

However, demand improved significantly beginning in June 2020 and has remained favorable.

The higher average selling price reflects the impact

of pricing actions taken in response to the higher demand as well as increased input costs, partially offset by a small increase in the mix of first-time buyer homes, which typically carry a lower sales price.

Home sale revenues in the three months ended March 31, 2022 were higher than the prior year period by $473.8 million.

This 18% increase resulted from an 18% increase in average selling price, which reflects the impact of pricing actions taken in response to ongoing robust consumer demand, partially offset by a small increase in the mix of first-time buyer homes, which typically carry a lower sales price.

The year-over-year increase in average selling price occurred in substantially all of our markets.

Home sale gross margins

Home sale gross margins were 26.5% and 26.2% for the three and nine months ended September 30, 2021, respectively, compared to 24.5% and 24.1% for the three and nine months ended September 30, 2020, respectively.

Gross margins for the three and nine months ended September 30, 2021 remained higher than prior year levels and reflect a combination of factors, including:

strong consumer demand, the low mortgage interest rate environment, and limited supplies of new and existing housing inventory.

As a result, the pricing environment remains strong, which has allowed us to effectively manage pressure in house and land costs through pricing actions.

While costs remain elevated, we have been able to more than offset these cost increases through price increases.

Additionally, while speculative home sales (homes started prior to receipt of a customer order) remain the minority of our operations, the current environment is providing opportunities for additional pricing and relative margin gains related to such homes.

Home sale gross margins were 29.0% in the three months ended March 31, 2022 compared to 25.5% in the three months ended March 31, 2021.

Gross margins reflect the robust consumer demand combined with limited supplies of new and existing housing inventory.

As a result, the pricing environment remained strong, and has allowed us to offset pressure in house and land costs through pricing actions.

Land sale and other revenues

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Land sale and other revenues and their related gains or losses vary between periods, depending on the timing of land sales and our strategic operating decisions.

Land sales and other revenues contributed income of $15.6 million and $20.0 million for the three and nine months ended September 30, 2021, respectively, compared to $3.7 million and $14.5 million for the three and nine months ended September 30, 2020, respectively.

Income in the three and nine months ended September 30, 2021 included a gain of $12.9 million related to a land sale transaction in California that had been in the entitlement process for a number of years.

SG&A as a percentage of home sale revenues was 9.6% and 9.4% for the three and nine months ended September 30, 2021, respectively, compared with 9.6% and 9.7% for the three and nine months ended September 30, 2020, respectively.

The gross dollar amount of our SG&A increased $49.2 million, or 18%, for the three months ended September 30, 2021 compared to September 30, 2020, and increased $132.7 million, or 18%, for the nine months ended September 30, 2021 compared to September 30, 2020.

The change in gross dollars in 2021 resulted from the higher production volume primarily as the result of higher sales commissions expense.

The improvement in year-to-date SG&A as a percentage of home sale revenues is primarily attributable to leverage gained from the higher revenues.

This overhead leverage was partially offset in 2021 by higher headcount to support the increased production volume as well as higher incentive compensation accruals due to the Company's strong operating performance.

The nine months ended September 30, 2020 also included severance expense of $10.3 million as we took actions in the second quarter of 2020 to reduce overhead expenses due to the disruption caused by the early stages of the COVID-19 pandemic.

Land sales and other revenues contributed income of $1.2 million for the three months ended March 31, 2022 compared to $2.5 million for the three months ended March 31, 2021.

SG&A as a percentage of home sale revenues was 10.7% in the three months ended March 31, 2022 compared with 10.5% for the three months ended March 31, 2021.

The gross dollar amount of our SG&A increased $57.3 million, or 21%, for the three months ended March 31, 2022 compared to March 31, 2021.

The increase in gross dollars in 2022 resulted primarily from higher headcount to support the increased number of homes in production and future growth.

Other expense, net

Other expense, net includes 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)

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Net new orders

Net new orders in units decreased 17% while net new orders in dollars increased 4% for the three months ended September 30, 2021 as compared with the prior year period.

Net new orders in units increased 12% while net new orders in dollars increased 32% for the nine months ended September 30, 2021 as compared with the prior year period.

The net new order volume in 2021 reflects favorable demand conditions partially offset by a lower community count, as more fully discussed above.

The cancellation rate (canceled orders for the period divided by gross new orders for the period) was 10% and 8% for the three and nine months ended September 30, 2021, respectively, and 12% and 15% for the same periods in 2020.

Ending backlog dollars, which represents orders for homes that have not yet closed, increased 56% at September 30, 2021 compared with September 30, 2020.

Net new orders in units decreased 19% while net new orders in dollars increased 2% for the three months ended March 31, 2022 as compared with the prior year period.

The decrease in net new order volume in 2022 is due primarily to a 7% decrease in our average community count and Company actions to intentionally moderate sales pace, as more fully discussed above.

The cancellation rate (canceled orders for the period divided by gross new orders for the period) was 9% for the three months ended March 31, 2022, and 8% for the same period in 2021.

Ending backlog dollars, which represents orders for homes that have not yet closed, increased 31% at March 31, 2022 compared with March 31, 2021, as the result of higher average selling prices coupled with elongated production cycle times, as more fully discussed above.

Homes in production

The following is a summary of our homes in production:

September 30,

2021 September 30,

2022 March 31,

Sold 16,088 12,930

3 unchanged sentences

Total 22,545 15,976

The number of homes in production at September 30, 2021 was 57% higher than at September 30, 2020.

The increase in homes under production is the result of the significant increase in demand, coupled with elongated cycle times due to supply chain delays for certain materials and labor and obtaining necessary approvals, permits, and inspections from local municipalities.

The higher level of unsold homes, or speculative homes, under construction reflects a conscious decision to increase our housing starts of speculative units in response to the noted supply chain challenges and to meet demand.

The lower unsold completed inventory reflects our ability to sell these speculative units given the strong demand environment.

The number of homes in production at March 31, 2022 was 41% higher than at March 31, 2021.

The increase in homes under production is the result of the strong demand environment combined with elongated cycle times, as more fully discussed above, due to supply chain delays for certain materials and labor and obtaining necessary approvals, permits, and inspections from local municipalities.

The significantly higher level of unsold homes, or speculative homes, under construction reflects our strategic decision to increase housing starts of speculative units in response to the noted supply chain challenges and to meet demand.

The lower unsold completed inventory for the first quarter of 2022 as compared to the prior year period reflected our ability to sell speculative units given the strong demand environment in the first quarter of 2022.

Controlled lots

The following is a summary of our lots under control at September 30, 2021 and December 31, 2020:

September 30, 2021 December 31, 2020

The following is a summary of our lots under control at March 31, 2022 and December 31, 2021:

March 31, 2022 December 31, 2021

Owned Optioned Controlled Owned Optioned Controlled

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Total 112,216 122,326 234,542 109,078 119,218 228,296

48 % 52 % 100 % 48 % 52 % 100 %

Developed (%) 38 % 16 % 27 % 38 % 13 % 25 %

While competition for well-positioned land is robust, we continue to pursue land investments that we believe can achieve appropriate risk-adjusted returns on invested capital and have increased our controlled lot count as the result of the strong demand environment.

Additionally, we continue to seek to increase the percentage of our lots that are controlled via land option agreement.

Additionally, we continue to seek to increase the percentage of our lots that are controlled via land option agreements.

Such contracts enable us to defer acquiring portions of properties owned by third parties or unconsolidated entities until we have determined whether and when to exercise our option, which reduces our financial risks associated with long-term land holdings.

The remaining purchase price under our land option agreements totaled $5.3 billion at September 30, 2021.

These land option agreements generally may be canceled at our discretion and in certain cases extend over several years.

Our maximum exposure related to these land option agreements is generally limited to our deposits and pre-acquisition costs, which totaled $354.3 million, of which $19.4 million is refundable, at September 30, 2021.

The remaining purchase price under our land option agreements totaled $6.0 billion at March 31, 2022.

Homebuilding Segment Operations

As of September 30, 2021, we conducted our operations in 40 markets located throughout 23 states.

As of March 31, 2022, we conducted our operations in over 40 markets located throughout 24 states.

For reporting purposes, our Homebuilding operations are aggregated into six reportable segments:

2 unchanged sentences

Illinois, Indiana, Kentucky, Michigan, Minnesota, Ohio

Arizona, California, Nevada, New Mexico, Washington

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

The following tables present selected financial information for our reportable Homebuilding segments:

Operating Data by Segment ($000's omitted)

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2021 vs.

Three Months Ended

2022 2022 vs.

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Southeast 126,132 77 % 71,322

133,642 26 % 106,394 382,682 48 % 258,991

Florida 160,694 59 % 101,208

Midwest 64,701 22 % 52,864

1 unchanged sentence

West 133,311 35 % 98,832

Other homebuilding (c)

Other homebuilding (b)

(36,653) (58) % (88,064)

1 unchanged sentence

(a) Includes land-related charges as summarized in the table below.

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

(c) 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 ).

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

Operating Data by Segment ($000's omitted)

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2021 vs.

Three Months Ended

2022 2022 vs.

32 unchanged sentences

Operating Data by Segment ($000's omitted)

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2021 vs.

Three Months Ended

2022 2022 vs.

6 unchanged sentences

West 11 % 10 %

10 % 12 % 8 % 15 %

Unit backlog:

16 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 — —

2 unchanged sentences

Other homebuilding consists primarily of write-offs of capitalized interest related to such land-related charges.

For the third quarter of 2021, Northeast home sale revenues increased by 13% when compared with the prior year period due to a 10% increase in closings combined with a 2% increase in average selling price.

The increase in closings occurred across all markets, while the increase in average selling price was mixed among markets.

Income before income taxes increased 35% primarily due to increased revenues, as well as improved gross margins and overhead management which occurred across the majority of markets.

Net new orders decreased across the majority of markets.

For the nine months ended September 30, 2021, Northeast home sale revenues increased by 35% when compared with the prior year period due to a 29% increase in closings combined with a 4% increase in average selling price.

The increase in closings and average selling price occurred across the majority of markets.

Income before income taxes increased 72% primarily due to increased revenues, as well as improved gross margins which occurred across all markets and improved overhead management which occurred across the majority of markets.

Net new orders increased across the majority of markets.

For the third quarter of 2021, Southeast home sale revenues increased 36% compared with the prior year period as the result of a 21% increase in closings combined with a 12% increase in average selling price.

The increase in closings occurred across the majority of markets, while the increase in average selling price occurred across all markets.

Income before income taxes increased 58% primarily due to increased revenues, as well as improved gross margins and improved overhead management which occurred across the majority of markets.

For the first quarter of 2022, Northeast home sale revenues decreased by 7% when compared with the prior year period due to a 17% decrease in closings partially offset by a 13% increase in average selling price.

The decrease in closings was primarily due to the timing of projects in our Mid-Atlantic operations, while the increase in average selling price occurred across all markets.

Income before income taxes increased 6% primarily due to higher gross margins.

Net new orders decreased across all markets.

For the nine months ended September 30, 2021, Southeast home sale revenues increased 21% compared with the prior year period as the result of a 14% increase in closings combined with a 7% increase in average selling price.

The increase in closings and average selling price occurred across all markets.

Income before income taxes increased 39% primarily due to increased revenues, as well as improved gross margins which occurred across the majority of markets.

Net new orders increased across all markets.

For the third quarter of 2021, Florida home sale revenues increased 17% compared with the prior year period due to a 5% increase in closings combined with an 11% increase in the average selling price.

The increase in closings occurred across the majority of markets, while the increase in average selling price occurred across all markets.

Income before income taxes increased 26% primarily due to increased revenues, as well as improved gross margins and improved overhead management which occurred across the majority of markets.

Net new orders decreased across all markets except North Florida.

For the nine months ended September 30, 2021, Florida home sale revenues increased 25% compared with the prior year period due to a 15% increase in closings combined with an 9% increase in the average selling price.

The increase in closings and average selling price occurred across all markets.

Income before income taxes increased 48% primarily due to increased revenues, as well as improved gross margins and improved overhead management which occurred across all markets, combined with the impact of a goodwill impairment charge of $20.2 million in the nine months ended September 30, 2020 (see Note 1 ).

Net new orders increased across all markets.

For the third quarter of 2021, Midwest home sale revenues increased 23% compared with the prior year period due to a 18% increase in closings combined with a 4% increase in average selling price.

The increase in closings occurred across all markets, while the increase in average selling price occurred across the majority of markets.

Income before income taxes increased 16% primarily due to increased revenues, as well as improved gross margins and improved overhead management which occurred across the majority of markets.

For the first quarter of 2022, Southeast home sale revenues increased 21% when compared with the prior year period due to a 24% increase in average selling price partially offset by a 3% decrease in closings.

The decrease in closings was primarily due to the timing of projects in our South Carolina operations, while the increase in average selling price occurred across all markets.

Income before income taxes increased 77% primarily due to increased revenues, as well as improved gross margins across all markets.

Net new orders decreased across the majority of markets.

For the nine months ended September 30, 2021, Midwest home sale revenues increased 28% compared with the prior year period due to a 22% increase in closings combined with a 5% increase in average selling price.

The increase in closings occurred across all markets, while the increase in average selling price occurred across the majority of markets.

Income before income taxes increased 42% primarily due to increased revenues as well as improved gross margins which occurred the majority of markets.

Net new orders increased across all markets.

For the third quarter of 2021, Texas home sale revenues increased 15% compared with the prior year period due to a 10% increase in closings combined with a 5% increase in average selling price.

For the first quarter of 2022, Florida home sale revenues increased 23% when compared with the prior year period due to a 1% increase in closings combined with a 22% increase in the average selling price.

The increase in closings was mixed among markets, while the increase in average selling price occurred across all markets.

Income before income taxes increased 59% primarily due to increased revenues, as well as improved gross margins across all markets.

Net new orders decreased across all markets.

For the first quarter of 2022, Midwest home sale revenues increased 23% when compared with the prior year period due to a 13% increase in closings combined with a 10% increase in average selling price.

The increase in closings and average selling price occurred across the majority of markets.

Income before income taxes increased 10% primarily due to increased revenues, as well as improved gross margins and improved overhead management which occurred across the majority of markets.

Income before income taxes increased 22% primarily due to higher revenues and gross margins.

Net new orders decreased across the majority of markets.

For the first quarter of 2022, Texas home sale revenues increased 19% when compared with the prior year period due to a 20% increase in average selling price partially offset by a 1% decrease in closings.

The higher average selling price occurred across all markets.

Income before income taxes increased 28% primarily due to higher revenues and gross margins across the majority of markets.

Net new orders decreased across all markets.

For the nine months ended September 30, 2021, Texas home sale revenues increased 18% compared with the prior year period due to a 15% increase in closings combined with a 2% increase in the average selling price.

The increase in closings occurred across the majority of markets, while the increase in average selling price occurred in all markets.

Income before income taxes increased 24% primarily due to increased revenues, as well as improved gross margins and improved overhead management, which occurred across the majority of markets.

Net new orders decreased across all markets except Dallas and Austin.

For the third quarter of 2021, West home sale revenues increased 8% compared with the prior year period due to a 14% increase in average selling price partially offset by a 5% decrease in closings.

The decrease in closings occurred across the majority of markets, while the increase in average selling price occurred across the majority of markets.

Income before income taxes increased 42% primarily due to increased revenues, improved overhead management and gross margins across the majority of markets, and gains of $12.9 million related to a land sale transaction in California .

For the first quarter of 2022, West home sale revenues increased 16% when compared with the prior year period due to an 18% increase in average selling price partially offset by a 2% decrease in closings.

The increase in average selling price occurred across all markets.

Income before income taxes increased 35% primarily due to increased revenues and gross margins across the majority of markets.

Net new orders decreased across the majority of markets.

For the nine months ended September 30, 2021, West home sale revenues increased 15% compared with the prior year period due to a 4% increase in closings combined with an 10% increase in average selling price.

The increase in closings and average selling price occurred across the majority of markets.

Income before income taxes increased 44% primarily due to increased revenues, improved overhead management and gross margins across all markets, and gains of $12.9 million related to a land sale transaction in California.

Net new orders increased across the majority of markets.

Financial Services Operations

We conduct our Financial Services operations, which include mortgage banking, title, and insurance brokerage operations, through Pulte Mortgage LLC ("Pulte Mortgage") and other subsidiaries.

In originating mortgage loans, we initially use our own funds, including funds available pursuant to credit agreements with third parties.

In originating mortgage loans, we initially use our own funds, including funds available pursuant to a credit agreement with third parties.

Substantially all of the loans we originate are sold in the secondary market within a short period of time after origination, generally within 30 days.

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Operating as a captive business model primarily targeted to support our Homebuilding operations, the business levels of our Financial Services operations are highly correlated to Homebuilding, as Homebuilding customers continue to account for substantially all of its business.

We believe that our mortgage capture rate, which represents loan originations from our Homebuilding operations as a percentage of total loan opportunities, excluding cash closings, from our Homebuilding operations is an important metric in evaluating the effectiveness of our captive mortgage business model.

We believe that our mortgage capture rate, which represents loan originations from our Homebuilding operations as a percentage of total loan opportunities from our Homebuilding operations, excluding cash closings, is an important metric in evaluating the effectiveness of our captive mortgage business model.

The following tables present selected financial information for our Financial Services operations ($000's omitted):

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2021 vs.

Three Months Ended

2022 2022 vs.

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Expenses (43,486) 10 % (39,674)

Other income (expense), net (8) (a) — 731 (a) (50)

Other income (expense), net (64) (a) (100)

Income before income taxes $ 40,593 (39) % $ 66,348

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(a) Percentage not meaningful

Nine Months Ended

September 30,

Three Months Ended

Supplemental data:

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Total funded originations 100 % 100 %

Mortgage interest rates have been at or near historically low levels through 2020 and the first nine months of 2021.

In the three and nine months ended September 30, 2021, loan margins are lower than the prior year periods due to competition driven by a reduction in refinance volume within the mortgage industry, which has lowered gains from the sale of mortgages in the secondary market.

Total Financial Services revenues for the three months ended September 30, 2021 decreased 14% compared with the same period in 2020 primarily as a result of lower revenue per loan due to this increased competition, partially offset by higher loan origination volume resulting from Homebuilder volume growth.

Financial Services revenues for the nine months ended September 30, 2021 increased 13% compared with the same period in 2020 primarily as a result of higher loan origination volume due to Homebuilder volume growth, partially offset by lower revenue per loan.

The demand for refinancing within the mortgage industry waned in 2021 and into 2022 as mortgage interest rates began to rise, which led to an increase in competition among lenders and lower margins per loan.

As a result, total Financial Services revenues for the three months ended March 31, 2022 decreased 21% compared with the same period in 2021.

The decrease occurred as the result of a decrease in the number of loans originated due to the lower capture rate combined with lower revenue per loan resulting from the competitive lending environment.

These factors were partially offset by a higher average loan amount as the result of the higher average selling price within Homebuilding.

Income before income taxes

Income before income taxes for the three months ended September 30, 2021 decreased 24% compared to the same period in 2020, primarily as a result of lower revenue per loan, partially offset by higher volume.

For the nine months ended September 30, 2021, income before income taxes increased 16% compared with the same period in 2020 as the result of higher volume, partially offset by lower revenue per loan.

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.

The 2020 effective tax rates are lower than the 2021 effective tax rates for the same periods primarily due to federal energy efficient home credits.

Income before income taxes for the three months ended March 31, 2022 decreased 39% compared to the same period in 2021, primarily as a result of the lower revenue per loan.

Our effective income tax rate was 24.2% and 22.8% for March 31, 2022 and 2021, respectively.

The 2022 effective tax rate is higher than the 2021 effective tax rate for the same period primarily due to the benefit of federal energy efficient home credits in 2021, which expired at December 31, 2021.

Liquidity and Capital Resources

We finance our land acquisition, development, and construction activities and financial services operations using internally-generated funds, supplemented by credit arrangements with third parties and capital market financing.

We routinely monitor current and expected operational requirements and financial market conditions to evaluate accessing other available financing sources, including revolving bank credit and securities offerings.

At September 30, 2021, we had unrestricted cash and equivalents of $1.6 billion, restricted cash balances of $56.3 million, and $717.7 million available under our Revolving Credit Facility.

We routinely monitor current and expected operational requirements and financial market conditions to evaluate accessing available financing sources, including revolving bank credit and securities offerings.

At March 31, 2022, we had unrestricted cash and equivalents of $1.1 billion, restricted cash balances of $66.9 million, and $710.1 million available under our Revolving Credit Facility.

We follow a diversified investment approach for our cash and equivalents by maintaining such funds with a broad portfolio of banks within our group of relationship banks in high quality, highly liquid, short-term deposits and investments.

Given the financial resources available to us, we believe that we have adequate liquidity to continue funding our operations for the foreseeable future.

Our ratio of debt to total capitalization, excluding our Financial Services debt, was 22.4% at September 30, 2021, as compared with 29.5% at December 31, 2020.

Our ratio of debt-to-total capitalization, excluding our Financial Services debt, was 21.5% at March 31, 2022, as compared with 21.3% at December 31, 2021.

For the next twelve months, we expect our principal demand for funds will be for the acquisition and development of land inventory, construction of house inventory, and operating expenses, including our general and administrative expenses.

The elongation of our production cycle has required a greater investment of cash in our homes under production.

Additionally, we plan to continue our dividend payments and repurchases of common stock.

Within the next twelve months, we need to repay or refinance Pulte Mortgage's master repurchase agreement.

Beyond the next twelve months, we will need to repay or refinance our revolving credit facility, which matures in June 2023, and our unsecured senior notes, the next tranche of which becomes due in 2026.

We believe that our current cash position and other available financing resources, coupled with our ongoing operating activities, will provide sufficient liquidity to fund our business needs over the next twelve months and beyond.

To the extent the sources of capital described above are insufficient to meet our needs, we may also conduct additional public offerings of our securities, refinance debt, dispose of certain assets to fund our operating activities, or draw on existing or new debt facilities.

Unsecured senior notes

We had $2.0 billion and $2.7 billion of unsecured senior notes outstanding at September 30, 2021 and December 31, 2020, respectively, with no repayments due until March 2026, when $500.0 million of unsecured senior notes are scheduled to mature.

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.

We had $2.0 billion of unsecured senior notes outstanding at both March 31, 2022 and December 31, 2021 with no repayments due until March 2026, when $500.0 million of unsecured senior notes are scheduled to mature.

In the three months ended March 31, 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.

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.

We also retired $426.0 million of senior notes at their scheduled maturity date.

In the three months ended March 31, 2021, we also retired $426.0 million of senior notes at their scheduled maturity date.

Other notes payable

Other notes payable include non-recourse and limited recourse secured 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 to which they relate, and generally have no recourse to other assets.

Other notes payable include non-recourse and limited recourse secured 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%.

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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.

While there can be no assurances that the Repurchase Agreement can be renewed or replaced on commercially reasonable terms upon its expiration, we believe we have adequate liquidity to meet Pulte Mortgage's anticipated financing needs.

Dividends and share repurchase program

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.

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 approved an additional share repurchase authorization of $1.0 billion.

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

Contractual Obligations

We are a party to many contractual obligations involving commitments to make payments to third parties.

These obligations impact our short-term and long-term liquidity and capital resource needs.

Certain contractual obligations are reflected on the Consolidated Balance Sheet as of March 31, 2022, while others are considered future commitments.

Our contractual obligations primarily consist of long-term debt and related interest payments, purchase obligations related to expected acquisitions and development of land, operating leases, and obligations under our various compensation and benefit plans.

We use letters of credit and surety bonds to guarantee our performance under various contracts, principally in connection with the development of our homebuilding projects.

The expiration dates of the letter of credit contracts coincide with the expected completion date of the related homebuilding projects.

If the obligations related to a project are ongoing, annual extensions of the letters of credit are typically granted on a year-to-year basis.

At March 31, 2022, we had outstanding letters of credit totaling $289.9 million.

Our surety bonds generally do not have stated expiration dates;

rather, we are released from the bonds as the contractual performance is completed.

These bonds, which approximated $1.9 billion at March 31, 2022, are typically outstanding over a period of approximately three to five years.

Because significant construction and development work has been performed related to projects that have not yet received final acceptance by the respective counterparties, the aggregate amount of surety bonds outstanding is in excess of the projected cost of the remaining work to be performed.

In the ordinary course of business, we enter into land option agreements in order to procure land for the construction of houses in the future.

At March 31, 2022, these agreements had an aggregate remaining purchase price of $6.0 billion.

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.

At March 31, 2022, outstanding deposits totaled $265.4 million, of which $20.4 million is refundable.

For further information regarding our primary obligations, refer to Note 4 and Note 8 to the Consolidated Financial Statements included elsewhere in this Quarterly Report on 10-Q for amounts outstanding as of March 31, 2022 related to debt and commitments and contingencies, respectively.

Operating activities

Net cash provided by operating activities for the nine months ended September 30, 2021 was $548.2 million.

Net cash provided by operating activities in the three months ended March 31, 2022 was $207.7 million.

Generally, the primary drivers of our cash flow from operations are profitability and changes in the levels of inventory and residential mortgage loans available-for-sale, each of which experiences seasonal fluctuations.

The positive cash flow from operations for the nine months ended September 30, 2021 was primarily due to our net income of $1.3 billion, which included various non-cash items including a loss on debt retirement of $61.5 million, partially offset by a net increase in inventories of $1.1 billion, which was primarily attributable to higher house inventory in production resulting from higher sales activity and extended production cycle times combined with higher investment in land inventory to support future growth.

Net cash provided by operating activities for the nine months ended September 30, 2020 was $1.3 billion.

The positive cash flow from operations for the nine months ended September 30, 2020 was primarily due to our net income of $968.7 million, which included various non-cash items, a seasonal $108.2 million decrease in residential mortgage loans available-for-sale, and a net decrease in inventories of $84.3 million.

The decrease in inventories resulted from our deliberate efforts to reduce inventory spend, especially land acquisition and development spend, during the second quarter of 2020 in response to the COVID-19 pandemic.

While a seasonal increase in house inventory partially offset the reduced land expenditures, the size of the seasonal increase was lower as we tightly managed production levels during the second quarter of 2020.

The positive cash flow from operations for the three months ended March 31, 2022 was primarily due to our net income of $454.7 million along with a seasonal $436.9 million decrease in residential mortgage loans available for sale, partially offset by a net increase in inventories of $814.8 million, which was primarily attributable to higher house inventory in production resulting from the higher order backlog combined with investment in land inventory to support future growth.

Net cash provided by operating activities in the three months ended March 31, 2021 was $176.7 million.

The positive cash flow from operations in three months ended March 31, 2021 was primarily due to our net income of $304.1 million, which included various non-cash items including a loss on debt retirement of $61.5 million,combined with a seasonal $69.9 million decrease in residential mortgage loans available-for-sale, partially offset by a net increase in inventories of $243.9 million, which was primarily attributable to higher house inventory in production resulting from the higher order backlog.

Investing activities

Net cash used in investing activities for the nine months ended September 30, 2021 was $86.5 million.

These cash outflows primarily reflected a $10.4 million deferred payment related to the acquisition of Innovative Construction Group ("ICG"), $35.8 million of investments in unconsolidated entities, as well as capital expenditures of $52.1 million related to our ongoing investments in new communities and certain information technology applications.

These outflows were partially offset by distributions from unconsolidated entities of $11.5 million.

Net cash used in investing activities for the nine months ended September 30, 2020 was $107.2 million.

These cash outflows primarily reflected our acquisition of ICG in January 2020 for $83.3 million, as well as capital expenditures of $46.9 million related to our ongoing investments in new communities and certain information technology applications.

These outflows were partially offset by distributions from unconsolidated entities of $19.9 million.

Net cash used in investing activities in the three months ended March 31, 2022 was $48.0 million.

These cash outflows primarily reflected a $10.4 million deferred payment related to the 2020 acquisition of Innovative Construction Group ("ICG"),

as well as capital expenditures of $30.7 million related to our ongoing investments in new communities, facilities, and certain information technology applications.

Net cash used in investing activities in the three months ended March 31, 2021 was $27.6 million.

These cash outflows in 2021 primarily reflected a $10.4 million deferred payment related to the 2020 acquisition of ICG, as well as capital expenditures of $14.8 million related to our ongoing investments in new communities and information technology applications.

Financing activities

Net cash used in financing activities for the nine months ended September 30, 2021 totaled $1.5 billion.

These cash outflows resulted primarily from the repurchase of 12.0 million common shares for $614.3 million under our share repurchase authorization, repayments of debt totaling $797.4 million, and payments of $111.7 million in cash dividends.

These outflows were partially offset by net borrowings of $64.7 million under the Repurchase Agreement to support higher loan originations resulting from growth in home closing volume.

Net cash used in financing activities for the nine months ended September 30, 2020 totaled $296.7 million.

These cash outflows resulted primarily from the repurchase of 2.8 million common shares for $95.7 million under our share repurchase authorization, repayments of debt totaling $11.0 million, payments of $97.8 million in cash dividends, and net repayments of $77.5 million for borrowings under the Repurchase Agreement.

We, and the homebuilding industry in general, may be adversely affected during periods of inflation because of higher land and construction costs.

Inflation may also increase our financing costs.

In addition, higher mortgage interest rates affect the affordability of our products to prospective homebuyers.

While we attempt to pass on increases in our costs through increased sales prices, market forces may limit our ability to do so.

If we are unable to raise sales prices enough to compensate for higher costs, or if mortgage interest rates increase significantly, our revenues, gross margins, and net income could be adversely affected.

Net cash used in financing activities in the three months ended March 31, 2022 totaled $781.4 million.

These cash outflows resulted primarily from the repurchase of 10.3 million common shares for $500.0 million under our share repurchase authorization, payments of $37.8 million in cash dividends, and net repayments of $230.0 million under the Repurchase Agreement related to a seasonal reduction in residential mortgage loans available-for-sale.

Net cash used in financing activities in the three months ended March 31, 2021 totaled $1.1 billion.

These cash outflows in the three months ended March 31, 2021 resulted primarily from the repurchase of 3.3 million common shares for $153.7 million under our share repurchase authorization, repayments of debt totaling $794.4 million, payments of $37.6 million in cash dividends, and net repayments of $141.0 million for borrowings under the Repurchase Agreement related to a seasonal reduction in residential mortgage loans available-for-sale.

Although significant changes in market conditions have impacted our seasonal patterns in the past and could do so again, we historically experience variability in our quarterly results from operations due to the seasonal nature of the homebuilding industry.

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As a result of the seasonality of our operations, our quarterly results of operations are not necessarily indicative of the results that may be expected for the full year.

Additionally, given the disruption in economic activity caused by the COVID-19 pandemic, our quarterly results for 2021 and 2020 are not necessarily indicative of results that may be achieved in the future.

Contractual Obligations and Commercial Commitments

There have been no material changes to our contractual obligations from those disclosed in our "Contractual Obligations and Commercial Commitments" contained in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operation s, included in our Annual Report on Form 10-K for the year ended December 31, 2020, with the exception of the retirement of $426 million, $200 million, and $100 million of unsecured senior notes previously scheduled to mature in March 2021, March 2026, and January 2027, respectively.

Additionally, given the disruption in economic activity caused by the COVID-19 pandemic, supply chain challenges, and other macroeconomic factors, our quarterly results for 2022 and 2021 are not necessarily indicative of results that may be achieved in the future.

Supplemental Guarantor Financial Information

As of September 30, 2021, PulteGroup, Inc.

As of March 31, 2022, PulteGroup, Inc.

had outstanding $2.0 billion principal amount of unsecured senior notes due at dates from March 2026 through February 2035 and no amounts outstanding on its Revolving Credit Facility.

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Summarized Balance Sheet Data

ASSETS September 30, 2021 December 31, 2020

ASSETS March 31, 2022 December 31, 2021

Cash, cash equivalents, and restricted cash $1,115,527 $1,598,328

House and land inventory 9,677,985 8,859,163

Amount due from Non-Guarantor Subsidiaries — 278,531

Total assets 12,004,377 11,658,352

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Total liabilities 5,114,073 4,986,491

Nine Months Ended

September 30,

Three Months Ended

Summarized Statement of Operations Data 2022 2021

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Income before income taxes 543,227 315,600

Off-Balance Sheet Arrangements

We use letters of credit and surety bonds to guarantee our performance under various contracts, principally in connection with the development of our homebuilding projects.

The expiration dates of the letter of credit contracts coincide with the expected completion date of the related homebuilding projects.

If the obligations related to a project are ongoing, annual extensions of the letters of credit are typically granted on a year-to-year basis.

At September 30, 2021, we had outstanding letters of credit totaling $282.3 million.

Our surety bonds generally do not have stated expiration dates;

rather, we are released from the bonds as the contractual performance is completed.

These bonds, which approximated $1.8 billion at September 30, 2021, are typically outstanding over a period of approximately three to five years.

In the ordinary course of business, we enter into land option agreements in order to procure land for the construction of houses in the future.

At September 30, 2021, these agreements had an aggregate remaining purchase price of $5.3 billion.

Critical Accounting Policies and Estimates

There have been no significant changes to our critical accounting policies and estimates in the nine months ended September 30, 2021 compared with those contained in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2020.

Critical Accounting Estimates

There have been no significant changes to our critical accounting estimates in the three months ended March 31, 2022 compared with those contained in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2021.

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 2. Management’s Discussion and Analysis