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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
 OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021

or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934



Commission File Number 1-9804

PULTEGROUP, INC.
(Exact name of registrant as specified in its charter) 
Michigan 38-2766606
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
3350 Peachtree Road NE, Suite 150
Atlanta, Georgia 30326
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: 404 978-6400
Securities registered pursuant to Section 12(b) of the Act:
Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Shares, par value $0.01   PHM   New York Stock Exchange
Series A Junior Participating Preferred Share Purchase Rights
New York Stock Exchange

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  [X]   No  [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer    Accelerated Filer    Non-accelerated Filer    Smaller Reporting Company Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  
Yes No
Number of common shares outstanding as of April 20, 2021: 262,966,121
1


PULTEGROUP, INC.
TABLE OF CONTENTS

Page
No.
PART I  
Item 1
3
4
5
6
7
8
Item 2
 
Item 3
Item 4
PART II
Item 1
Item 1A
Item 2
Item 6
 




2


PART I. FINANCIAL INFORMATION

Item 1.      Financial Statements

PULTEGROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
($000’s omitted)
 
March 31,
2021
December 31,
2020
(Unaudited)
ASSETS
Cash and equivalents $ 1,579,586  $ 2,582,205 
Restricted cash 64,468  50,030 
Total cash, cash equivalents, and restricted cash 1,644,054  2,632,235 
House and land inventory 7,975,211  7,721,798 
Land held for sale 31,796  27,962 
Residential mortgage loans available-for-sale 495,049  564,979 
Investments in unconsolidated entities 39,558  35,562 
Other assets 969,437  923,270 
Intangible assets 158,432  163,425 
Deferred tax assets, net 132,204  136,267 
$ 11,445,741  $ 12,205,498 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Accounts payable $ 404,564  $ 511,321 
Customer deposits 589,634  449,474 
Deferred tax liabilities 110,884  103,548 
Accrued and other liabilities 1,352,629  1,407,043 
Financial Services debt 270,819  411,821 
Notes payable 2,031,937  2,752,302 
4,760,467  5,635,509 
Shareholders' equity 6,685,274  6,569,989 
$ 11,445,741  $ 12,205,498 




See accompanying Notes to Condensed Consolidated Financial Statements.

3


PULTEGROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(000’s omitted, except per share data)
(Unaudited)
 
Three Months Ended
March 31,
2021 2020
Revenues:
Homebuilding
Home sale revenues $ 2,596,510  $ 2,221,503 
Land sale and other revenues 27,159  18,927 
2,623,669  2,240,430 
Financial Services 106,122  54,550 
Total revenues 2,729,791  2,294,980 
Homebuilding Cost of Revenues:
Home sale cost of revenues (1,935,635) (1,694,865)
Land sale and other cost of revenues (24,636) (15,014)
(1,960,271) (1,709,879)
Financial Services expenses (39,674) (34,949)
Selling, general, and administrative expenses (271,686) (263,669)
Loss on debt retirement (61,469) — 
Goodwill impairment —  (20,190)
Other expense, net (2,639) (2,524)
Income before income taxes 394,052  263,769 
Income tax expense (89,945) (60,058)
Net income $ 304,107  $ 203,711 
Per share:
Basic earnings $ 1.14  $ 0.75 
Diluted earnings $ 1.13  $ 0.74 
Cash dividends declared $ 0.14  $ 0.12 
Number of shares used in calculation:
Basic 265,407  270,000 
Effect of dilutive securities 605  1,218 
Diluted 266,012  271,218 



See accompanying Notes to Condensed Consolidated Financial Statements.

4


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

Three Months Ended
March 31,
2021 2020
Net income $ 304,107  $ 203,711 
Other comprehensive income, net of tax:
Change in value of derivatives 25  25 
Other comprehensive income 25  25 
Comprehensive income $ 304,132  $ 203,736 




See accompanying Notes to Condensed Consolidated Financial Statements.

5



PULTEGROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(000's omitted)
(Unaudited)
  Common Stock Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income
(Loss)
Retained
Earnings
Total
Shares $
Shareholders' equity, December 31, 2020 266,464  $ 2,665  $ 3,261,412  $ (145) $ 3,306,057  $ 6,569,989 
Stock option exercises —  11  —  —  11 
Share issuances 505  4,176  —  —  4,181 
Dividends declared —  —  —  —  (37,325) (37,325)
Share repurchases (3,333) (34) —  —  (153,669) (153,703)
Cash paid for shares withheld for taxes —  —  —  —  (10,566) (10,566)
Share-based compensation 8,555  —  —  8,555 
Net income —  —  —  —  304,107  304,107 
Other comprehensive income —  —  —  25  —  25 
Shareholders' equity, March 31, 2021 263,637  $ 2,636  $ 3,274,154  $ (120) $ 3,408,604  $ 6,685,274 
Shareholders' equity, December 31, 2019 270,235  $ 2,702  $ 3,235,149  $ (245) $ 2,220,574  $ 5,458,180 
Cumulative effect of accounting change (see Note 1)
—  —  —  —  (735) (735)
Stock option exercises —  51  —  —  51 
Share issuances 738  4,088  —  —  4,095 
Dividends declared —  —  —  —  (32,609) (32,609)
Share repurchases (2,825) (28) —  —  (95,648) (95,676)
Cash paid for shares withheld for taxes —  —  —  —  (14,838) (14,838)
Share-based compensation —  —  8,187  —  —  8,187 
Net income —  —  —  —  203,711  203,711 
Other comprehensive income —  —  —  25  —  25 
Shareholders' equity, March 31, 2020 268,149  $ 2,681  $ 3,247,475  $ (220) $ 2,280,455  $ 5,530,391 

See accompanying Notes to Condensed Consolidated Financial Statements.

6


PULTEGROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($000’s omitted)
(Unaudited)
Three Months Ended
March 31,
2021 2020
Cash flows from operating activities:
Net income $ 304,107  $ 203,711 
Adjustments to reconcile net income to net cash from operating activities:
Deferred income tax expense 11,391  19,955 
Land-related charges 1,368  9,729 
Loss on debt retirement 61,469  — 
Goodwill impairment —  20,190 
Depreciation and amortization 17,142  15,149 
Share-based compensation expense 11,630  11,479 
Other, net (687) (903)
Increase (decrease) in cash due to:
Inventories (243,947) (189,364)
Residential mortgage loans available-for-sale 69,930  145,113 
Other assets (54,303) (3,534)
Accounts payable, accrued and other liabilities (1,352) (26,910)
Net cash provided by (used in) operating activities 176,748  204,615 
Cash flows from investing activities:
Capital expenditures (14,752) (20,139)
Investments in unconsolidated entities (8,169) (663)
Distributions of capital from unconsolidated entities 5,000  6,500 
Business acquisition (10,400) (83,200)
Other investing activities, net 698  1,706 
Net cash provided by (used in) investing activities (27,623) (95,796)
Cash flows from financing activities:
Repayments of notes payable (794,435) (9,245)
Borrowings under revolving credit facility —  700,000 
Financial Services borrowings (repayments), net (141,002) (56,573)
Stock option exercises 11  50 
Share repurchases (153,703) (95,676)
Cash paid for shares withheld for taxes (10,566) (14,838)
Dividends paid (37,611) (32,740)
Net cash provided by (used in) financing activities (1,137,306) 490,978 
Net increase (decrease) in cash, cash equivalents, and restricted cash (988,181) 599,797 
Cash, cash equivalents, and restricted cash at beginning of period 2,632,235  1,251,456 
Cash, cash equivalents, and restricted cash at end of period $ 1,644,054  $ 1,851,253 
Supplemental Cash Flow Information:
Interest paid (capitalized), net $ 17,368  $ 14,019 
Income taxes paid (refunded), net $ 15,574  $ 5,540 
See accompanying Notes to Condensed Consolidated Financial Statements.
7


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

1. Basis of presentation

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

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal, recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the full year. These financial statements should be read in conjunction with our consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020.

Use of estimates

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

Subsequent events

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 $83.2 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 ASC 350, 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. 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 short period of time between the acquisition and the March 31, 2020 valuation date.
8


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

Other expense, net consists of the following ($000’s omitted): 
Three Months Ended
March 31,
2021 2020
Write-offs of deposits and pre-acquisition costs $ (1,368) $ (4,332)
Amortization of intangible assets (4,992) (4,557)
Interest income 631  3,807 
Interest expense (135) (797)
Equity in earnings of unconsolidated entities 827  567 
Miscellaneous, net 2,398  2,788 
Total other expense, net $ (2,639) $ (2,524)

Revenue recognition

Home sale revenues - Home sale revenues and related profit are generally recognized when title to and possession of the home are transferred to the buyer, and our performance obligation to deliver the agreed-upon home is generally satisfied at the home closing date. 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 $589.6 million and $449.5 million at March 31, 2021 and December 31, 2020, 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.

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. Land sales are generally outright sales of specified land parcels with cash consideration due on the closing date, which is generally when performance obligations are satisfied. Revenues related to our construction services operations are generally recognized as materials are delivered and installation services are provided.

Financial Services revenues - Loan origination fees, commitment fees, and certain direct loan origination costs are recognized as incurred. Expected gains and losses from the sale of residential mortgage loans and their related servicing rights are included in the measurement of written loan commitments that are accounted for at fair value through Financial Services revenues at the time of commitment. Subsequent changes in the fair value of these loans are reflected in Financial Services revenues as they occur. Interest income is accrued from the date a mortgage loan is originated until the loan is sold. Mortgage servicing fees represent fees earned for servicing loans. Servicing fees are based on a contractual percentage of the outstanding principal balance and are credited to income when related mortgage payments are received.

Revenues associated with our title operations are recognized as closing services are rendered and title insurance policies are issued, both of which generally occur as each home is closed. 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 $39.4 million and $38.5 million at March 31, 2021 and December 31, 2020, respectively.

Earnings per share

Basic earnings per share is computed by dividing income available to common shareholders (the “Numerator”) by the weighted-average number of common shares outstanding, adjusted for unvested shares (the “Denominator”) for the period. Computing diluted earnings per share is similar to computing basic earnings per share, except that the Denominator is increased to include the dilutive effects of stock options, unvested restricted share units, and other potentially dilutive instruments. Any stock options that have an exercise price greater than the average market price are considered to be anti-dilutive and are excluded from the diluted earnings per share calculation.
9


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

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. The following table presents the earnings per common share (000's omitted, except per share data):
Three Months Ended
March 31,
2021 2020
Numerator:
Net income $ 304,107  $ 203,711 
Less: earnings distributed to participating securities (298) (273)
Less: undistributed earnings allocated to participating securities (2,154) (1,537)
Numerator for basic earnings per share $ 301,655  $ 201,901 
Add back: undistributed earnings allocated to participating securities 2,154  1,537 
Less: undistributed earnings reallocated to participating securities (2,149) (1,530)
Numerator for diluted earnings per share $ 301,660  $ 201,908 
Denominator:
Basic shares outstanding 265,407  270,000 
Effect of dilutive securities 605  1,218 
Diluted shares outstanding 266,012  271,218 
Earnings per share:
Basic $ 1.14  $ 0.75 
Diluted $ 1.13  $ 0.74 

Residential mortgage loans available-for-sale

Substantially all of the loans originated by us are sold in the secondary mortgage market within a short period of time after origination, generally within 30 days. At March 31, 2021 and December 31, 2020, residential mortgage loans available-for-sale had an aggregate fair value of $495.0 million and $565.0 million, respectively, and an aggregate outstanding principal balance of $481.5 million and $539.1 million, respectively. Net gains from the sale of mortgages were $77.4 million and $30.9 million in the three months ended March 31, 2021 and 2020, 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 March 31, 2021 and December 31, 2020, we had aggregate IRLCs of $598.0 million and $367.2 million, respectively, which were originated at interest rates prevailing at the date of commitment. Since we can terminate a loan commitment if the borrower does not comply with the terms of the contract, and some loan commitments may expire without being drawn upon, these commitments do not necessarily represent future cash requirements. We evaluate the creditworthiness of these transactions through our normal credit policies.

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
10


PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
investor to buy loans at a specified price within a specified time period. 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, 2021 and December 31, 2020, we had unexpired forward contracts of $887.0 million and $686.4 million, respectively, and whole loan investor commitments of $160.5 million and $169.6 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. We are generally not exposed to variability in cash flows of derivative instruments for more than approximately 60 days. The fair values of derivative instruments and their locations in the Condensed Consolidated Balance Sheets are summarized below ($000’s omitted):

 
  March 31, 2021 December 31, 2020
  Other Assets Accrued and Other Liabilities Other Assets Accrued and Other Liabilities
Interest rate lock commitments $ 17,374  $ 126  $ 16,179  $ 18 
Forward contracts 14,011  295  501  5,937 
Whole loan commitments 1,499  132  168  666 
$ 32,884  $ 553  $ 16,848  $ 6,621 

Credit losses

We are exposed to credit losses primarily through our vendors and insurance carriers. 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 March 31, 2021 and December 31, 2020, we reported $186.4 million and $176.2 million of assets in-scope under Accounting Standards Codification 326, "Financial Instruments - Credit Losses" ("ASC 326"). 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 March 31, 2021.

New accounting pronouncements

On January 1, 2021, we adopted ASU No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes" ("ASU 2019-12"), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. 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 a new "expected credit loss" methodology. We adopted ASC 326 using the modified retrospective transition method. The amendment 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.

11


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

Major components of inventory were as follows ($000’s omitted): 
March 31,
2021
December 31,
2020
Homes under construction $ 3,594,406  $ 3,086,740 
Land under development 3,913,349  4,137,318 
Raw land 467,456  497,740 
$ 7,975,211  $ 7,721,798 

We capitalize interest cost into inventory during the active development and construction of our communities. In all periods presented, we capitalized substantially all Homebuilding interest costs into inventory because the level of our active inventory exceeded our debt levels. Information related to interest capitalized into inventory is as follows ($000’s omitted):
Three Months Ended
  March 31,
  2021 2020
Interest in inventory, beginning of period $ 193,409  $ 210,383 
Interest capitalized 34,627  39,913 
Interest expensed (34,684) (36,871)
Interest in inventory, end of period $ 193,352  $ 213,425 

Land option agreements

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

If an entity holding the land under option is a variable interest entity ("VIE"), our deposit represents a variable interest in that entity. No VIEs required consolidation at either March 31, 2021 or December 31, 2020 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 March 31, 2021 and December 31, 2020 ($000’s omitted):

 
  March 31, 2021 December 31, 2020
  Deposits and
Pre-acquisition
Costs
Remaining Purchase
Price
Deposits and
Pre-acquisition
Costs
Remaining Purchase
Price
Land options with VIEs $ 142,771  $ 1,844,131  $ 126,900  $ 1,586,551 
Other land options 177,049  2,460,589  164,964  2,187,017 
$ 319,820  $ 4,304,720  $ 291,864  $ 3,773,568 
12


PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Land-related charges

We recorded the following land-related charges ($000's omitted):
Three Months Ended
  March 31,
  Statement of Operations Classification 2021 2020
Land impairments Home sale cost of revenues $ —  $ 5,386 
Net realizable value ("NRV") adjustments - land held for sale Land sale and other cost of revenues —  11 
Write-offs of deposits and pre-acquisition costs Other expense, net 1,368  4,332 
$ 1,368  $ 9,729 

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. 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.

3. Segment information

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

We also have a reportable segment for our Financial Services operations, which consist principally of mortgage banking, title, and insurance brokerage operations that operate generally in the same markets as the Homebuilding segments.
13


PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Operating Data by Segment
($000’s omitted)
  Three Months Ended
March 31,
  2021 2020
Revenues:
Northeast $ 176,467  $ 162,434 
Southeast 436,779  382,394 
Florida 625,241  506,689 
Midwest 366,814  292,169 
Texas 374,121  344,738 
West 644,247  552,006 
2,623,669  2,240,430 
Financial Services 106,122  54,550 
Consolidated revenues $ 2,729,791  $ 2,294,980 
Income (loss) before income taxes:
Northeast $ 25,894  $ 18,609 
Southeast 71,322  54,744 
Florida (a)
101,208  55,333 
Midwest 52,864  31,462 
Texas 65,648  53,595 
West 98,832  67,255 
Other homebuilding (b)
(88,064) (36,780)
327,704  244,218 
Financial Services 66,348  19,551 
Consolidated income before income taxes $ 394,052  $ 263,769 

(a)Includes goodwill impairment charge totaling $20.2 million (see Note 1) in the three months ended March 31, 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 a loss on debt retirement of $61.5 million in the three months ended March 31, 2021 (see Note 4).
14


PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Operating Data by Segment
($000’s omitted)
Three Months Ended
March 31,
2021 2020
Land-related charges (a):
Northeast $ 116  $ 4,753 
Southeast 456  748 
Florida 131  522 
Midwest 54  777 
Texas 527  656 
West 84  1,529 
Other homebuilding —  744 
$ 1,368  $ 9,729 

(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.

  Operating Data by Segment
($000's omitted)
March 31, 2021
  Homes Under
Construction
Land Under
Development
Raw Land Total
Inventory
Total
Assets
Northeast $ 384,606  $ 236,846  $ 41,641  $ 663,093  $ 766,691 
Southeast 532,643  623,668  74,107  1,230,418  1,346,886 
Florida 733,612  890,080  83,806  1,707,498  2,036,755 
Midwest 421,833  389,098  16,556  827,487  949,539 
Texas 413,218  417,342  114,603  945,163  1,040,459 
West 1,053,317  1,123,844  122,283  2,299,444  2,582,835 
Other homebuilding (a)
55,177  232,471  14,460  302,108  2,073,987 
3,594,406  3,913,349  467,456  7,975,211  10,797,152 
Financial Services —  —  —  —  648,589 
$ 3,594,406  $ 3,913,349  $ 467,456  $ 7,975,211  $ 11,445,741 
15


PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
  Operating Data by Segment
($000's omitted)
  December 31, 2020
  Homes Under
Construction
Land Under
Development
Raw Land Total
Inventory
Total
Assets
Northeast $ 342,737  $ 203,561  $ 68,865  $ 615,163  $ 712,205 
Southeast 465,950  645,408  69,937  1,181,295  1,296,382 
Florida 638,394  921,962  116,709  1,677,065  1,967,788 
Midwest 364,839  424,169  18,173  807,181  911,984 
Texas 354,256  458,893  66,024  879,173  955,436 
West 874,673  1,212,730  142,380  2,229,783  2,519,724 
Other homebuilding (a)
45,891  270,595  15,652  332,138  3,149,871 
3,086,740  4,137,318  497,740  7,721,798  11,513,390 
Financial Services —  —  —  —  692,108 
$ 3,086,740  $ 4,137,318  $ 497,740  $ 7,721,798  $ 12,205,498 
 
(a)Other homebuilding primarily includes cash and equivalents, capitalized interest, intangibles, deferred tax assets, and other corporate items that are not allocated to the operating segments.

4. Debt

Notes payable

Our notes payable are summarized as follows ($000’s omitted):
  March 31,
2021
December 31,
2020
4.250% unsecured senior notes due March 2021 (a)
$ —  $ 425,954 
5.500% unsecured senior notes due March 2026 (a)
500,000  700,000 
5.000% unsecured senior notes due January 2027 (a)
500,000  600,000 
7.875% unsecured senior notes due June 2032 (a)
300,000  300,000 
6.375% unsecured senior notes due May 2033 (a)
400,000  400,000 
6.000% unsecured senior notes due February 2035 (a)
300,000  300,000 
Net premiums, discounts, and issuance costs (b)
(12,222) (13,750)
Total senior notes 1,987,778  2,712,204 
Other notes payable 44,159  40,098 
Notes payable $ 2,031,937  $ 2,752,302 
Estimated fair value $ 2,507,209  $ 3,415,662 

(a)Redeemable prior to maturity; guaranteed on a senior basis by certain wholly-owned subsidiaries.
(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 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.
16


PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Other notes payable include non-recourse and limited recourse secured notes with third parties that totaled $44.2 million and $40.1 million at March 31, 2021 and December 31, 2020, 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 any other assets. The stated interest rates on these notes range up to 5.17%.
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 March 31, 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. As a result, we had no borrowings outstanding at both March 31, 2021 and December 31, 2020, and $235.7 million and $249.7 million of letters of credit issued under the Revolving Credit Facility at March 31, 2021 and December 31, 2020, respectively.

The Revolving Credit Facility contains financial covenants that require us to maintain a minimum Tangible Net Worth, a minimum Interest Coverage Ratio, and a maximum Debt-to-Capitalization Ratio (as each term is defined in the Revolving Credit Facility). As of March 31, 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 $764.3 million and $750.3 million at March 31, 2021 and December 31, 2020, respectively.

Financial Services debt

Pulte Mortgage maintains a master repurchase agreement with third party lenders (the "Repurchase Agreement") that matures on July 29, 2021. The maximum aggregate commitment was $280.0 million at March 31, 2021 and increases to $375.0 million on May 25, 2021, which continues through maturity. The purpose of the changes in capacity during the term of the agreement is to lower associated fees during seasonally lower volume periods of mortgage origination activity. Borrowings under the Repurchase Agreement are secured by residential mortgage loans available-for-sale. The Repurchase Agreement contains various affirmative and negative covenants applicable to Pulte Mortgage, including quantitative thresholds related to net worth, net income, and liquidity. Pulte Mortgage had $270.8 million and $411.8 million outstanding under the Repurchase Agreement at March 31, 2021 and December 31, 2020, respectively, and was in compliance with all of its covenants and requirements as of such dates.

5. Shareholders’ equity

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. For the three months ended March 31, 2020, we declared cash dividends totaling $32.6 million and repurchased 2.8 million shares under our repurchase authorization for $95.7 million. At March 31, 2021, we had remaining authorization to repurchase $201.2 million of common shares. On April 26, 2021, the Board of Directors approved an additional share repurchase authorization of $1.0 billion.

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 three months ended March 31, 2021 and 2020, participants surrendered shares valued at $10.6 million and $14.8 million, respectively, under these plans. Such share transactions are excluded from the above noted share repurchase authorization.

6. Income taxes

Our effective tax rate in the three months ended March 31, 2021 and March 31, 2020 was 22.8% in each period. Our effective tax rate differs from the federal statutory rate primarily due to state tax expense partially offset by benefits associated with federal energy efficient home credits and equity compensation.

17


PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
At March 31, 2021 and December 31, 2020, we had deferred tax assets, net of deferred tax liabilities and valuation allowance, of $21.3 million and $32.7 million, respectively. The accounting for deferred taxes is based upon estimates of future results. Differences between estimated and actual results could result in changes in the valuation of deferred tax assets that could have a material impact on our consolidated results of operations or financial position. Changes in existing tax laws could also affect actual tax results and the realization of deferred tax assets over time.

Unrecognized tax benefits represent the difference between tax positions taken or expected to be taken in a tax return and the benefits recognized for financial statement purposes. We had $33.5 million and $30.9 million of gross unrecognized tax benefits at March 31, 2021 and December 31, 2020, respectively. Additionally, we had accrued interest and penalties of $3.2 million and $2.8 million at March 31, 2021 and December 31, 2020, respectively.

7. Fair value disclosures

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

Our assets and liabilities measured or disclosed at fair value are summarized below ($000’s omitted): 
Financial Instrument Fair Value
Hierarchy
Fair Value
March 31,
2021
December 31,
2020
Measured at fair value on a recurring basis:
Residential mortgage loans available-for-sale Level 2 $ 495,049  $ 564,979 
Interest rate lock commitments Level 2 17,248  16,161 
Forward contracts Level 2 13,716  (5,436)
Whole loan commitments Level 2 1,367  (498)
Measured at fair value on a non-recurring basis:
House and land inventory Level 3 $ —  $ 582 
Disclosed at fair value:
Cash, cash equivalents, and restricted cash Level 1 $ 1,644,054  $ 2,632,235 
Financial Services debt Level 2 270,819  411,821 
Senior notes payable Level 2 2,463,050  3,375,564 
Other notes payable Level 2 44,159  40,098 

Fair values for agency residential mortgage loans available-for-sale are determined based on quoted market prices for comparable instruments. Fair values for non-agency residential mortgage loans available-for-sale are determined based on purchase commitments from whole loan investors and other relevant market information available to management. Fair values for interest rate lock commitments, including the value of servicing rights, and forward contracts on mortgage-backed securities are valued based on 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.
18


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

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. The fair values of senior notes are based on quoted market prices, when available. If quoted market prices are not available, fair values are based on quoted market prices of similar issues. The carrying value of senior notes was $2.0 billion and $2.7 billion at March 31, 2021 and December 31, 2020, respectively.

8. Commitments and contingencies

Letters of credit and surety bonds

In the normal course of business, we post letters of credit and surety bonds pursuant to certain performance-related obligations, as security for certain land option agreements, and under various insurance programs. The majority of these letters of credit and surety bonds are in support of our land development and construction obligations to various municipalities, other government agencies, and utility companies related to the construction of roads, sewers, and other infrastructure. We had outstanding letters of credit and surety bonds totaling $235.7 million and $1.6 billion, respectively, at March 31, 2021, and $249.7 million and $1.5 billion, respectively, at December 31, 2020. 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. Our surety bonds generally do not have stated expiration dates; rather we are released from the surety bonds as the underlying contractual performance is completed. Because significant construction and development work has been performed related to projects that have not yet received final acceptance by the respective counterparties, the aggregate amount of surety bonds outstanding is in excess of the projected cost of the remaining work to be performed. We do not believe that a material amount, if any, of the letters of credit or surety bonds will be drawn.

Litigation and regulatory matters

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

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

Product warranty

Home purchasers are provided with a limited warranty against certain building defects, including a one-year comprehensive limited warranty and coverage for certain other aspects of the home’s construction and operating systems for periods of up to and, in limited instances, exceeding 10 years. We estimate the costs to be incurred under these warranties and record liabilities in the amount of such costs at the time product revenue is recognized. Factors that affect our warranty liabilities include the number of homes sold, historical and anticipated rates of warranty claims, and the projected cost per claim. We periodically assess the adequacy of the warranty liabilities for each geographic market in which we operate and adjust the amounts as necessary. Actual warranty costs in the future could differ from the current estimates. Changes to warranty liabilities were as follows ($000’s omitted):
19


PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Three Months Ended
March 31,
2021 2020
Warranty liabilities, beginning of period $ 82,744  $ 91,389 
Reserves provided 17,344  15,039 
Payments (15,493) (18,276)
Other adjustments (788) 243 
Warranty liabilities, end of period $ 83,807  $ 88,395 

Self-insured risks

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

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

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

Our recorded reserves for all such claims totaled $653.1 million and $641.8 million at March 31, 2021 and December 31, 2020, 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 67% and 68% of the total general liability reserves at March 31, 2021 and December 31, 2020, 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. The actuarial analyses of the reserves also consider historical third party recovery rates and claims management expenses.

Housing market conditions can be volatile, and we believe such conditions can affect the frequency and cost of construction defect claims. Additionally, IBNR estimates comprise the majority of our liability and are subject to a high degree of uncertainty due to a variety of factors, including changes in claims reporting and resolution patterns, third party recoveries, insurance industry practices, the regulatory environment, and legal precedent. State regulations vary, but construction defect claims are typically reported and resolved over an extended period, often exceeding ten years. Changes in the frequency and timing of reported claims and estimates of specific claim values can impact the underlying inputs and trends utilized in the actuarial analyses, which could have a material impact on the recorded reserves. Additionally, the amount of insurance
20


PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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.
Costs associated with our insurance programs are classified within selling, general, and administrative expenses. Changes in these liabilities were as follows ($000's omitted):
Three Months Ended
March 31,
2021 2020
Balance, beginning of period $ 641,779  $ 709,798 
Reserves provided 19,542  18,449 
Adjustments to previously recorded reserves (6,082) 1,300 
Payments, net (a)
(2,171) (10,375)
Balance, end of period $ 653,068  $ 719,172 

(a)    Includes net changes in amounts expected to be recovered from our insurance carriers, which are recorded in other assets (see below).

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 $73.8 million and $69.5 million at March 31, 2021 and December 31, 2020, respectively. 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. Given the complexity inherent with resolving construction defect claims in the homebuilding industry described above, there generally exists a significant lag between our payment of claims and our reimbursements from applicable insurance carriers or third parties. In addition, disputes between homebuilders and insurance carriers or third parties over coverage positions relating to construction defect claims are common. Resolution of claims involves the exchange of significant amounts of information and frequently involves legal action.

Leases

We lease certain office space and equipment for use in our operations. We recognize lease expense for these leases on a straight-line basis over the lease term and combine lease and non-lease components for all leases. Right-of-use ("ROU") assets and lease liabilities are recorded on the balance sheet for all leases with an expected term of at least one year. Some leases include one or more options to renew. The exercise of lease renewal options is generally at our discretion. The depreciable lives of ROU assets and leasehold improvements are limited to the expected lease term. Certain of our lease agreements include rental payments based on a pro-rata share of the lessor’s operating costs which are variable in nature. Our lease agreements do not contain any residual value guarantees or material restrictive covenants.
    
ROU assets are classified within other assets on the balance sheet, while lease liabilities are classified within accrued and other liabilities. Leases with an initial term of 12 months or less are not recorded on the balance sheet. ROU assets and lease liabilities were $69.0 million and $88.3 million at March 31, 2021, respectively, and $71.3 million and $91.4 million at December 31, 2020, respectively. In the three months ended March 31, 2021 and 2020, we recorded an additional $1.1 million and $9.6 million of lease liabilities under operating leases, respectively. Payments on lease liabilities in the three months ended March 31, 2021 and 2020, totaled $5.3 million and $5.9 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. In the three months ended March 31, 2021 and 2020, our total lease expense was $10.2 million and $9.9 million, respectively, inclusive of variable lease costs of $1.9 million during both periods, as well as short-term lease costs of $2.9 million and $2.2 million, respectively. Sublease income was de minimis.




21


PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The future minimum lease payments required under our leases as of March 31, 2021 were as follows ($000's omitted):
Years Ending December 31,
2021 (a)
$ 15,969 
2022 22,646 
2023 20,567 
2024 14,374 
2025 9,521 
Thereafter 19,578 
Total lease payments (b)
102,655 
Less: Interest (c)
14,324 
Present value of lease liabilities (d)
$ 88,331 

(a)Remaining payments are for the nine months ending December 31, 2021.
(b)Lease payments include options to extend lease terms that are reasonably certain of being exercised. There were $1.7 million of legally binding minimum lease payments for leases signed but not yet commenced at March 31, 2021.
(c)Our leases do not provide a readily determinable implicit rate. Therefore, we must estimate our discount rate for such leases to determine the present value of lease payments at the lease commencement date.
(d)The weighted average remaining lease term and weighted average discount rate used in calculating our lease liabilities were 5.4 years and 5.6%, respectively, at March 31, 2021.
22


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

We continue to experience very strong demand for our products as new orders increased 31% in the first quarter of 2021 compared with the prior year period, including significant increases across each of our first-time, move-up, and active adult buyer groups and in substantially all of our geographical markets. The higher 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.

While home closings increased 12% in the first quarter of 2021 compared with the prior year period, the increase continues to lag the growth in new orders in recent periods. This has combined to result in a 50% year-over-year increase in our order backlog. In part, this is the result of the normal timeline between receiving an order and delivering a home. However, we have also experienced periodic disruptions in our 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 in many of our markets. We are also facing cost pressures related to labor and materials, especially lumber, although we have been and believe we will continue to be able to increase pricing to offset the majority of such cost increases due to the 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 will last. Therefore, the unpredictability of the current economic and public health conditions will continue to evolve. However, all of our operations are now functioning at effectively full capacity subject to health and safety protocols, and, with expectations for a material acceleration in economic growth as the pandemic continues to recede, we remain optimistic about future housing demand and our ability to continue expanding our business.

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
  March 31,
  2021 2020
Income before income taxes:
Homebuilding $ 327,704  $ 244,218 
Financial Services 66,348  19,551 
Income before income taxes 394,052  263,769 
Income tax expense (89,945) (60,058)
Net income $ 304,107  $ 203,711 
Per share data - assuming dilution:
Net income $ 1.13  $ 0.74 
Homebuilding income before income taxes in the three months ended March 31, 2021 increased 34% compared with the same period in 2020 primarily due to increased closings, higher gross margins, and improved overhead leverage. This increase is partially offset by a loss on debt retirement of $61.5 million in the three months ended March 31, 2021 (see Note 4). A goodwill impairment charge of $20.2 million was recorded in the three months ended March 31, 2020 (see Note 1).
Financial Services income before income taxes in the three months ended March 31, 2021 increased 239% compared with the same period in 2020 as the result of higher volumes, which largely resulted from increased homebuilding volumes combined with an improved capture rate and margin per loan.
Our effective tax rate in the three months ended March 31, 2021 and 2020 was 22.8%.

23


Homebuilding Operations

The following presents selected financial information for our Homebuilding operations ($000’s omitted):
Three Months Ended
  March 31,
  2021 2021 vs. 2020 2020
Home sale revenues $ 2,596,510  17  % $ 2,221,503 
Land sale and other revenues 27,159  43  % 18,927 
Total Homebuilding revenues 2,623,669  17  % 2,240,430 
Home sale cost of revenues (a)
(1,935,635) 14  % (1,694,865)
Land sale and other cost of revenues (24,636) 64  % (15,014)
Selling, general, and administrative
  expenses ("SG&A")
(271,686) % (263,669)
Loss on debt retirement (61,469) (b) — 
Goodwill impairment —  (b) (20,190)
Other expense, net (2,539) % (2,474)
Income before income taxes $ 327,704  34  % $ 244,218 
Supplemental data:
Gross margin from home sales 25.5  % 180 bps 23.7  %
SG&A as a percentage of home
  sale revenues
10.5  % (140) bps 11.9  %
Closings (units) 6,044  12  % 5,373 
Average selling price $ 430  % $ 413 
Net new orders (c):
Units 9,852  31  % 7,495 
Dollars $ 4,630,317  42  % $ 3,268,749 
Cancellation rate % 13  %
Average active communities 837  (4) % 873 
Backlog at March 31:
Units 18,966  50  % 12,629 
Dollars $ 8,826,989  58  % $ 5,583,051 

(a)Includes the amortization of capitalized interest.
(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 in the three months ended March 31, 2021 were higher than the prior year period by $375.0 million. This 17% increase was attributable to a 12% increase in closings combined with a 4% increase in average selling price. The increase in closings was primarily the result of favorable demand conditions. 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 entering 2021. 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 an increase in the mix of first-time buyer homes, which typically carry a lower sales price.




24


Home sale gross margins

Home sale gross margins were 25.5% in the three months ended March 31, 2021 compared to 23.7% in the three months ended March 31, 2020. Gross margins in the three months ended March 31, 2021 remained higher than recent 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 related to lumber remain at or near historical highs, and we are experiencing higher costs related to other materials, labor, and land acquisition and development, we have been able to more than offset these cost increases through price increases and improved operational efficiency.

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. 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 $2.5 million in the three months ended March 31, 2021 compared to $3.9 million in the three months ended March 31, 2020.

SG&A

SG&A as a percentage of home sale revenues was 10.5% in the three months ended March 31, 2021 compared with 11.9% in the three months ended March 31, 2020. The gross dollar amount of our SG&A increased $8.0 million in the three months ended March 31, 2021 compared to March 31, 2020. The change in gross dollars in the three months ended March 31, 2021 resulted primarily from the higher production volume in the three months ended March 31, 2021 compared to the same period in 2020. The improvement in SG&A as a percentage of home sale revenues is primarily attributable to leverage gained from the higher revenues. We experienced lower insurance costs in the three months ended March 31, 2021 relative to the prior year period, but that was offset by higher incentive compensation accruals due to the Company's strong operating performance.

Other expense, net

Other expense, net includes the following ($000’s omitted):
Three Months Ended
March 31,
2021 2020
Write-offs of deposits and pre-acquisition costs $ (1,368) $ (4,332)
Amortization of intangible assets (4,992) (4,557)
Interest income 631  3,807 
Interest expense (135) (797)
Equity in earnings of unconsolidated entities 827  567 
Miscellaneous, net 2,498  2,838 
Total other expense, net $ (2,539) $ (2,474)

Net new orders

Net new orders in units increased 31% while net new orders in dollars increased 42% in the three months ended March 31, 2021 as compared with the prior year period. The higher net new order volume in 2021 reflects favorable demand conditions as discussed above. The cancellation rate (canceled orders for the period divided by gross new orders for the period) was 8% in the three months ended March 31, 2021, compared to 13% for the same period in 2020. Ending backlog, which represents orders for homes that have not yet closed, increased 58% at March 31, 2021 compared with March 31, 2020. As discussed above, the higher backlog is primarily attributable to increased new orders, but we have also experienced production delays that have contributed to longer cycle times.



25


Homes in production

The following is a summary of our homes in production:
March 31,
2021
March 31,
2020
Sold 12,930  8,955 
Unsold
Under construction 1,675  2,491 
Completed 123  642 
1,798  3,133 
Models 1,248  1,357 
Total 15,976  13,445 

The number of homes in production at March 31, 2021 was 19% higher than at March 31, 2020. The increase in homes under production is the result of the significant increase in demand and the resulting increase in the backlog of sold homes, coupled with slightly elongated cycle times due to supply chain delays for certain materials and labor and obtaining necessary approvals, permits, and inspections from local municipalities. Lower unsold inventory reflects the strong demand environment.

Controlled lots

The following is a summary of our lots under control at March 31, 2021 and December 31, 2020:
March 31, 2021 December 31, 2020
Owned Optioned Controlled Owned Optioned Controlled
Northeast 5,074  3,969  9,043  4,956  4,001  8,957 
Southeast 15,298  22,130  37,428  15,051  18,248  33,299 
Florida 19,824  28,717  48,541  20,737  24,396  45,133 
Midwest 9,915  17,389  27,304  9,728  14,734  24,462 
Texas 17,913  16,066  33,979  15,923  17,841  33,764 
West 25,930  11,468  37,398  24,968  9,769  34,737 
Total 93,954  99,739  193,693  91,363  88,989  180,352 
Developed (%) 42  % 16  % 29  % 43  % 16  % 30  %

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. Additionally, we continue to increase the percentage of our lots that are controlled via land option agreement. 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 $4.3 billion at March 31, 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 $319.8 million, of which $15.6 million is refundable at March 31, 2021.

26


Homebuilding Segment Operations

As of March 31, 2021, we conducted our operations in 40 markets located throughout 23 states. For reporting purposes, our Homebuilding operations are aggregated into six reportable segments:

 
Northeast: Connecticut, Maryland, Massachusetts, New Jersey, Pennsylvania, Virginia
Southeast: Georgia, North Carolina, South Carolina, Tennessee
Florida: Florida
Midwest: Illinois, Indiana, Kentucky, Michigan, Minnesota, Ohio
Texas: Texas
West: Arizona, California, 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
  March 31,
  2021 2021 vs. 2020 2020
Home sale revenues:
Northeast $ 176,417  % $ 162,380 
Southeast 436,267  14  % 382,141 
Florida 600,942  23  % 490,028 
Midwest 365,778  26  % 290,933 
Texas 373,261  % 344,508 
West 643,845  17  % 551,513 
$ 2,596,510  17  % $ 2,221,503 
Income (loss) before income taxes (a):
Northeast $ 25,894  39  % $ 18,609 
Southeast 71,322  30  % 54,744 
Florida (b)
101,208  83  % 55,333 
Midwest 52,864  68  % 31,462 
Texas 65,648  22  % 53,595 
West 98,832  47  % 67,255 
Other homebuilding (c)
(88,064) (139) % (36,780)
$ 327,704  34  % $ 244,218 
(a)Includes land-related charges as summarized in the below table.
(b)Includes goodwill impairment charge totaling $20.2 million in the three months ended March 31, 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 a loss on debt retirement of $61.5 million in the three months ended March 31, 2021 (see Note 4).
 
27


Operating Data by Segment ($000's omitted)
Three Months Ended
March 31,
2021 2021 vs. 2020 2020
Closings (units):
Northeast 317  % 310 
Southeast 1,054  14  % 928 
Florida 1,420  17  % 1,210 
Midwest 839  19  % 708 
Texas 1,225  % 1,128 
West 1,189  % 1,089 
6,044  12  % 5,373 
Average selling price:
Northeast $ 557  % $ 524 
Southeast 414  % 412 
Florida 423  % 405 
Midwest 436  % 411 
Texas 305  —  % 305 
West 542  % 506 
$ 430  % $ 413 
Net new orders - units:
Northeast 608  36  % 448 
Southeast 1,561  37  % 1,141 
Florida 2,404  43  % 1,685 
Midwest 1,561  53  % 1,019 
Texas 1,892  25  % 1,509 
West 1,826  % 1,693 
9,852  31  % 7,495 
Net new orders - dollars:
Northeast $ 351,240  37  % $ 256,013 
Southeast 708,295  49  % 473,880 
Florida 1,134,296  64  % 692,717 
Midwest 706,430  58  % 446,357 
Texas 630,291  38  % 455,789 
West 1,099,765  17  % 943,993 
$ 4,630,317  42  % $ 3,268,749 
28


Operating Data by Segment ($000's omitted)
Three Months Ended
March 31,
2021 2021 vs. 2020 2020
Cancellation rates:
Northeast % 13  %
Southeast % 11  %
Florida % 12  %
Midwest % 11  %
Texas 11  % 17  %
West 10  % 14  %
% 13  %
Unit backlog:
Northeast 1,244 71  % 727
Southeast 2,847 37  % 2,078
Florida 4,638 67  % 2,781
Midwest 2,921 58  % 1,851
Texas 3,720 67  % 2,231
West 3,596 21  % 2,961
18,966 50  % 12,629
Backlog dollars:
Northeast $ 736,146 67  % $ 441,330
Southeast 1,302,937 49  % 875,208
Florida 2,161,220 83  % 1,180,950
Midwest 1,331,288 65  % 807,401
Texas 1,238,121 76  % 702,149
West 2,057,277 31  % 1,576,013
$ 8,826,989 58  % $ 5,583,051


29


Operating Data by Segment
($000’s omitted)
Three Months Ended
March 31,
2021 2020
Land-related charges (a):
Northeast $ 116  $ 4,753 
Southeast 456  748 
Florida 131  522 
Midwest 54  777 
Texas 527  656 
West 84  1,529 
Other homebuilding —  744 
$ 1,368  $ 9,729 
(a)    Land-related charges include land inventory 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. Other homebuilding consists primarily of write-offs of capitalized interest related to such land-related charges.
Northeast     

For the first quarter of 2021, Northeast home sale revenues increased by 9% when compared with the prior year period due to a 2% increase in closings combined with a 6% increase in average selling price. The increase in closings and average selling price was mixed among markets. Income before income taxes increased 39% primarily as a result of the increased revenues, as well as improved gross margins and overhead management which occurred across the majority of markets. Net new orders increased across all markets.

Southeast

For the first quarter of 2021, Southeast home sale revenues increased 14% compared with the prior year period as the result of a 14% increase in closings combined with a 1% increase in average selling price. The increase in closings and average selling price occurred across the majority of markets. Income before income taxes increased 30% primarily due to the increased revenues, as well as improved gross margins and improved overhead management which occurred across the majority of markets. Net new orders increased across all markets.

Florida

For the first quarter of 2021, Florida home sale revenues increased 23% compared with the prior year period due to a 17% increase in closings combined with a 4% increase in the average selling price. The increased closings occurred across all markets while the increase in average selling price occurred across the majority of markets. Income before income taxes increased 83% due to the increased revenues, as well as improved margins. Net new orders increased across all markets.

Midwest

For the first quarter of 2021, Midwest home sale revenues increased 26% compared with the prior year period due to a 19% increase in closings combined with a 6% increase in average selling price. The increase in closings and average selling price occurred across substantially all markets. Income before income taxes increased 68% primarily due to the increased revenues, as well as improved overhead management and gross margins across all markets. Net new orders increased across all markets.

Texas

For the first quarter of 2021, Texas home sale revenues increased 8% compared with the prior year period due to a 9% increase in closings partially offset by a slight decrease in average selling price. The increase in closings occurred across all markets except Austin due to timing issues. Our Texas operations were unfavorably impacted in March 2021 by power outages resulting from severe weather conditions, but the impact primarily represented delayed activity and was not material. Income before
30


income taxes increased 22% primarily due to the increased revenues, as well as price improved overhead management and gross margins. Net new orders increased across all markets.

West
    
For the first quarter of 2021, West home sale revenues increased 17% compared with the prior year period due to a 9% increase in closings combined with a 7% increase in average selling price. The increase in closings and average selling prices was mixed among markets. Income before income taxes increased 47% primarily due to the increased revenues, as well as improved overhead management and gross margins across all markets. 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 and other subsidiaries. In originating mortgage loans, we initially use our own funds, including funds available pursuant to credit agreements 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. We also sell the servicing rights for the loans we originate through fixed price servicing sales contracts to reduce the risks and costs inherent in servicing loans. This strategy results in owning the loans and related servicing rights for only a short period of time. 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. The following tables present selected financial information for our Financial Services operations ($000's omitted):
Three Months Ended
  March 31,
  2021 2021 vs. 2020 2020
Mortgage revenues $ 89,040  119  % $ 40,734 
Title services revenues 14,333  17  % 12,202 
Insurance brokerage commissions 2,749  70  % 1,614 
Total Financial Services revenues 106,122  95  % 54,550 
Expenses (39,674) 14  % (34,949)
Other income (expense), net (100) (a) (50)
Income before income taxes $ 66,348  239  % $ 19,551 
Total originations:
Loans 4,708  22  % 3,870 
Principal $ 1,564,668  29  % $ 1,213,266 

(a)Percentage not meaningful

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  Three Months Ended
March 31,
  2021 2020
Supplemental data:
Capture rate 88.3  % 86.8  %
Average FICO score 751  751 
Funded origination breakdown:
Government (FHA, VA, USDA) 21  % 21  %
Other agency 74  % 71  %
Total agency 95  % 92  %
Non-agency % %
Total funded originations 100  % 100  %

Revenues

Total Financial Services revenues in the three months ended March 31, 2021 increased 95% compared with the comparable prior year period as the result of increased homebuilding volumes combined with an improved capture rate and improved margin per loan. Mortgage interest rates continued at or near historically low levels in the three months ended March 31, 2021, which contributed to the higher margin per loan as continued demand for refinancing production within the mortgage industry resulted in a favorable pricing environment for new originations.

Income before income taxes

Income before income taxes in the three months ended March 31, 2021 increased 239% compared with the same period in 2020 as the result of higher revenues and margins and improved expense leverage.

Income Taxes

Our effective tax rate in the three months ended March 31, 2021 and 2020 was 22.8% in each period. The 2021 tax rate includes a larger benefit for federal energy efficient home credits compared to a higher equity compensation benefit in the 2020 tax rate.

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 March 31, 2021, we had unrestricted cash and equivalents of $1.6 billion, restricted cash balances of $64.5 million, and $764.3 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 23.3% at March 31, 2021, as compared with 29.5% at December 31, 2020.

Unsecured senior notes

We had $2.0 billion and $2.7 billion of unsecured senior notes outstanding at March 31, 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.

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In the three months ended March 31, 2021, we retired $200.0 million and $100.0 million of our unsecured notes maturing in 2026 and 2027, respectively, through a previously announced 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 related to the repurchased debt. We also retired $426.0 million of senior notes scheduled to mature in March 2021.

Other notes payable

Other notes payable include non-recourse and limited recourse secured notes with third parties that totaled $44.2 million and $40.1 million at March 31, 2021 and December 31, 2020, respectively. These notes have maturities ranging up to three years, are secured by the applicable land positions to which they relate, and generally do not have recourse to other assets. The stated interest rates on these notes range up to 5.17%.

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 March 31, 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. As a result, we had no borrowings outstanding at either March 31, 2021 or December 31, 2020, and $235.7 million and $249.7 million of letters of credit issued under the Revolving Credit Facility at March 31, 2021 and December 31, 2020, respectively.

The Revolving Credit Facility contains financial covenants that require us to maintain a minimum Tangible Net Worth, a minimum Interest Coverage Ratio, and a maximum Debt-to-Capitalization Ratio (as each term is defined in the Revolving Credit Facility). As of March 31, 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 $764.3 million and $750.3 million at March 31, 2021 and December 31, 2020, respectively.

Financial Services debt

Pulte Mortgage maintains a master repurchase agreement with third party lenders (the "Repurchase Agreement") that matures on July 29, 2021. The maximum aggregate commitment was $280.0 million at March 31, 2021 and increases to $375.0 million on May 25, 2021, which continues through maturity. The purpose of the changes in capacity during the term of the agreement is to lower associated fees during seasonally lower volume periods of mortgage origination activity. Borrowings under the Repurchase Agreement are secured by residential mortgage loans available-for-sale. The Repurchase Agreement contains various affirmative and negative covenants applicable to Pulte Mortgage, including quantitative thresholds related to net worth, net income, and liquidity. Pulte Mortgage had $270.8 million and $411.8 million outstanding under the Repurchase Agreement at March 31, 2021 and December 31, 2020, respectively, and was in compliance with all of its covenants and requirements as of such dates.

Dividends and share repurchase program

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 totaling $153.7 million. At March 31, 2021, we had remaining authorization to repurchase $201.2 million of common shares. On April 26, 2021, the Board of Directors approved an increase to our share repurchase authorization to $1.0 billion.
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Cash flows

Operating activities

Net cash provided by operating activities in the three months ended March 31, 2021 was $176.7 million, compared with net cash provided by operating activities of $204.6 million in the three months ended March 31, 2020. 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 in the 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, and 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.

Net cash provided by operating activities in the three months ended March 31, 2020 was $204.6 million. The positive cash flow from operations in the three months ended March 31, 2020 was primarily due to our net income of $203.7 million, which included various non-cash items, and a seasonal $145.1 million reduction in residential mortgage loans available-for-sale, partially offset by a net increase in inventories of $189.4 million resulting from a seasonal build of house inventory.

Investing activities

Net cash used in investing activities in the three months ended March 31, 2021 was $27.6 million, compared with net cash used in investing activities of $95.8 million in the three months ended March 31, 2020. Cash outflows in 2021 primarily reflected a $10.4 million deferred payment related to the acquisition of ICG, as well as capital expenditures of $14.8 million related to our ongoing investments in new communities and information technology applications.

Net cash used in investing activities in the three months ended March 31, 2020 was $95.8 million. These cash outflows primarily reflected our acquisition of ICG in January 2020 for $83.2 million, as well as capital expenditures of $20.1 million related to our ongoing investments in new communities and information technology applications.

Financing activities

Net cash used in financing activities in the three months ended March 31, 2021 totaled $1.1 billion, compared with net cash provided by financing activities of $491.0 million in the three months ended March 31, 2020. The net cash used in financing activities 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.

Net cash provided by financing activities in the three months ended March 31, 2020 resulted primarily from borrowings of $700.0 million on our Revolving Credit Facility, partially offset by the repurchase of 2.8 million common shares for $95.7 million under our repurchase authorization, repayments of debt totaling $9.2 million, payments of $32.7 million in cash dividends, and net repayments of $56.6 million for borrowings under the Repurchase Agreement related to a seasonal reduction in residential mortgage loans available-for-sale.

Inflation

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.

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Seasonality

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. We generally experience increases in revenues and cash flow from operations in the fourth quarter based on the timing of home closings. This seasonal activity increases our working capital requirements in our third and fourth quarters to support our home production and loan origination volumes. 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 results in the three months ended March 31, 2021 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 Operations, 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 scheduled to mature in March 2021, March 2026, and January 2027, respectively.

Supplemental Guarantor Financial Information

As of March 31, 2021, 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.

All of our unsecured senior notes and the Revolving Credit Facility are fully and unconditionally guaranteed, on a joint and several basis, by certain subsidiaries of PulteGroup, Inc. ("Guarantors" or "Guarantor Subsidiaries"). Each of the Guarantor Subsidiaries is 100% owned, directly or indirectly, by PulteGroup, Inc. Our subsidiaries associated with our financial services operations and certain other subsidiaries do not guarantee the unsecured senior notes or the Revolving Credit Facility (collectively, "Non-Guarantor Subsidiaries"). The guarantees are senior unsecured obligations of each Guarantor and rank equal with all existing and future senior debt of such Guarantor and senior to all subordinated debt of such Guarantor. The guarantees are effectively subordinated to any secured debt of such Guarantor to the extent of the value of the assets securing such debt.

A court could void or subordinate any Guarantor’s guarantee under the fraudulent conveyance laws if existing or future creditors of any such Guarantor were successful in establishing that such Guarantor:

(a) incurred the guarantee with the intent of hindering, delaying or defrauding creditors; or

(b) received less than reasonably equivalent value or fair consideration in return for incurring the guarantee and, in the case of any one of the following is also true at the time thereof:

such Guarantor was insolvent or rendered insolvent by reason of the issuance of the incurrence of the guarantee;
the incurrence of the guarantee left such Guarantor with an unreasonably small amount of capital or assets to carry on its business;
such Guarantor intended to, or believed that it would, incur debts beyond its ability to pay as they mature;
such Guarantor was a defendant in an action for money damages, or had a judgment for money damages docketed against it, if the judgment is unsatisfied after final judgment.

The measures of insolvency for purposes of determining whether a fraudulent conveyance occurred would vary depending upon the laws of the relevant jurisdiction and upon the valuation assumptions and methodology applied by the court. However, in general, a court would deem a company insolvent if:

the sum of its debts, including contingent and unliquidated liabilities, was greater than the fair saleable value of all of its assets;
the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or
it could not pay its debts as they became due.

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The guarantees of the senior notes contain a provision to limit each Guarantor’s liability to the maximum amount that it could incur without causing the incurrence of obligations under its guarantee to be a fraudulent transfer. However, under recent case law, this provision may not be effective to protect such guarantee from being voided under fraudulent transfer law or otherwise determined to be unenforceable. If a court were to find that the incurrence of a guarantee was a fraudulent transfer or conveyance, the court could void the payment obligations under that guarantee, could subordinate that guarantee to presently existing and future indebtedness of the Guarantor or could require the holders of the senior notes to repay any amounts received with respect to that guarantee. In the event of a finding that a fraudulent transfer or conveyance occurred, you may not receive any repayment on the senior notes.

Finally, as a court of equity, a bankruptcy court may subordinate the claims in respect of the guarantees to other claims against us under the principle of equitable subordination if the court determines that (1) the holder of senior notes engaged in some type of inequitable conduct, (2) the inequitable conduct resulted in injury to our other creditors or conferred an unfair advantage upon the holders of senior notes and (3) equitable subordination is not inconsistent with the provisions of the bankruptcy code.

On the basis of historical financial information, operating history and other factors, we believe that each of the Guarantors, after giving effect to the issuance of the guarantees when such guarantees were issued, was not insolvent, did not have unreasonably small capital for the business in which it engaged and did not and has not incurred debts beyond its ability to pay such debts as they mature. We cannot assure you, however, as to what standard a court would apply in making these determinations or that a court would agree with our conclusions in this regard.

The following tables present summarized financial information for PulteGroup, Inc. and the Guarantor Subsidiaries on a combined basis after intercompany transactions and balances have been eliminated among PulteGroup, Inc. and the Guarantor Subsidiaries, as well as their investment in and equity in earnings from the Non-Guarantor Subsidiaries ($000’s omitted):

PulteGroup, Inc. and Guarantor Subsidiaries
Summarized Balance Sheet Data
ASSETS March 31, 2021
Cash, cash equivalents, and restricted cash $1,576,132
House and land inventory 7,853,155 
Total assets 10,457,595 
LIABILITIES
Accounts payable, customer deposits,
       accrued and other liabilities
$2,101,041
Notes payable 2,031,937 
Amount due to Non-Guarantor Subsidiaries 61,227 
Total liabilities 4,246,464 

Three Months Ended
Summarized Statement of Operations Data March 31, 2021
Revenues $2,536,892
Cost of revenues 1,889,395 
Selling, general, and administrative expenses 264,252 
Income before income taxes 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 March 31, 2021, we had outstanding letters of credit totaling $235.7 million. Our surety bonds generally do not have stated expiration dates; rather, we are released from the bonds as the
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contractual performance is completed. These bonds, which approximated $1.6 billion at March 31, 2021, 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, 2021, these agreements had an aggregate remaining purchase price of $4.3 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.

Critical Accounting Policies and Estimates

There have been no significant changes to our critical accounting policies and estimates in the three months ended March 31, 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.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Quantitative disclosure
We are subject to market risk on our debt instruments primarily due to fluctuations in interest rates. We utilize both fixed-rate and variable-rate debt. For fixed-rate debt, changes in interest rates generally affect the fair value of the debt instrument but not our earnings or cash flows. Conversely, for variable-rate debt, changes in interest rates generally do not affect the fair value of the debt instrument but could affect our earnings and cash flows. Except in very limited circumstances, we do not have an obligation t