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Basis of Presentation | 9 Months Ended
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Sep. 30, 2017
Accounting Policies [Abstract] |
Basis of presentation | 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 have mortgage banking operations, conducted principally through Pulte Mortgage LLC (“Pulte Mortgage”), and title operations. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with 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, 2016. Business acquisition We acquired substantially all of the assets of JW Homes ("Wieland") in January 2016 for $430.5 million in cash and the assumption of certain payables related to such assets. The acquired net assets were located in Atlanta, Charleston, Charlotte, Nashville, and Raleigh, and included approximately 7,000 lots, including 375 homes in inventory, and control of approximately 1,300 lots through land option contracts. We also assumed a sales order backlog of 317 homes. The acquired net assets were recorded at their estimated fair values and resulted in goodwill of $40.4 million and separately identifiable intangible assets of $18.0 million comprised of the John Wieland Homes and Neighborhoods tradename, which is being amortized over a 20-year life. The acquisition of these assets was not material to our results of operations or financial condition. 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. Reclassifications Certain prior period amounts have been reclassified to conform to the current year presentation. Subsequent events We evaluated subsequent events up until the time the financial statements were filed with the Securities and Exchange Commission (the "SEC"). Other expense, net Other expense, net consists of the following ($000’s omitted):
| Three Months Ended |  | Nine Months Ended
September 30, |  | September 30,
2017 |  | 2016 |  | 2017 |  | 2016
Write-offs of deposits and pre-acquisition costs (Note 2) | $ | 2,680 |  |  | $ | 2,541 |  |  | $ | 9,397 |  |  | $ | 12,996 |
Lease exit and related costs (a) | 219 |  |  | 4,644 |  |  | 624 |  |  | 10,589 |
Amortization of intangible assets | 3,450 |  |  | 3,450 |  |  | 10,350 |  |  | 10,350 |
Interest income | (485 | ) |  | (887 | ) |  | (1,917 | ) |  | (2,659 | )
Interest expense | 101 |  |  | 165 |  |  | 371 |  |  | 526 |
Equity in loss (earnings) of unconsolidated entities (b) | (415 | ) |  | (485 | ) |  | 4,154 |  |  | (4,489 | )
Miscellaneous, net (c) | (307 | ) |  | 14,189 |  |  | 2,358 |  |  | 15,089 |
Total other expense, net | $ | 5,243 |  |  | $ | 23,617 |  |  | $ | 25,337 |  |  | $ | 42,402 |
(a) | Lease exit and related costs for the three and nine months ended September 30, 2016, resulted from actions taken to reduce overheads and the substantial completion of our corporate headquarters relocation from Michigan to Georgia, which began in 2013.
(b) | Includes an $8.0 million impairment of an investment in an unconsolidated entity in the nine months ended September 30, 2017 (see Note 2).
(c) | Miscellaneous, net includes a charge of $15.0 million related to the settlement of a disputed land transaction for the three and nine months ended September 30, 2016 (see Note 8).
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 shares, 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. Our diluted earnings per share calculation excluded potentially dilutive instruments, including stock options and unvested restricted share units, totaling 0.1 million for both the three and nine months ended September 30, 2017, and 2.3 million for both the three and nine months ended September 30, 2016. In accordance with ASC 260 "Earnings Per Share", the two-class method determines earnings per share for each class of common stock and participating securities according to an earnings allocation formula that adjusts the Numerator for dividends or dividend equivalents and participation rights in undistributed earnings. 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 awards, restricted share units, and deferred shares are considered participating securities. The following table presents the earnings per common share (000's omitted, except per share data):
| Three Months Ended |  | Nine Months Ended
September 30, |  | September 30,
2017 |  | 2016 |  | 2017 |  | 2016
Numerator: |  |  |  |  |  |  |
Net income | $ | 177,539 |  |  | $ | 128,470 |  |  | $ | 369,807 |  |  | $ | 329,530 |
Less: earnings distributed to participating securities | (294 | ) |  | (269 | ) |  | (899 | ) |  | (836 | )
Less: undistributed earnings allocated to participating securities | (1,645 | ) |  | (870 | ) |  | (2,837 | ) |  | (1,764 | )
Numerator for basic earnings per share | $ | 175,600 |  |  | $ | 127,331 |  |  | $ | 366,071 |  |  | $ | 326,930 |
Add back: undistributed earnings allocated to participating securities | 1,645 |  |  | 870 |  |  | 2,837 |  |  | 1,764 |
Less: undistributed earnings reallocated to participating securities | (1,636 | ) |  | (865 | ) |  | (2,820 | ) |  | (1,751 | )
Numerator for diluted earnings per share | $ | 175,609 |  |  | $ | 127,336 |  |  | $ | 366,088 |  |  | $ | 326,943 |
Denominator: |  |  |  |  |  |  |
Basic shares outstanding | 298,538 |  |  | 340,171 |  |  | 309,453 |  |  | 344,383 |
Effect of dilutive securities | 1,690 |  |  | 2,250 |  |  | 1,861 |  |  | 2,557 |
Diluted shares outstanding | 300,228 |  |  | 342,421 |  |  | 311,314 |  |  | 346,940 |
Earnings per share: |  |  |  |  |  |  |
Basic | $ | 0.59 |  |  | $ | 0.37 |  |  | $ | 1.18 |  |  | $ | 0.95 |
Diluted | $ | 0.58 |  |  | $ | 0.37 |  |  | $ | 1.18 |  |  | $ | 0.94 |
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 September 30, 2017 and December 31, 2016, residential mortgage loans available-for-sale had an aggregate fair value of $364.7 million and $539.5 million, respectively, and an aggregate outstanding principal balance of $352.7 million and $529.7 million, respectively. The net gain (loss) resulting from changes in fair value of these loans totaled $0.7 million and $(1.0) million for the three months ended September 30, 2017 and 2016, respectively, and $(3.4) million and $0.3 million for the nine months ended September 30, 2017 and 2016, respectively. These changes in fair value were substantially offset by changes in the fair value of corresponding hedging instruments. Net gains from the sale of mortgages were $27.1 million and $30.1 million for the three months ended September 30, 2017 and 2016, respectively, and $80.1 million and $77.4 million for the nine months ended September 30, 2017 and 2016, respectively, and have been included in Financial Services revenues. Derivative instruments and hedging activities We are party to interest rate lock commitments ("IRLCs") with customers resulting from our mortgage origination operations. At September 30, 2017 and December 31, 2016, we had aggregate IRLCs of $346.6 million and $273.9 million, respectively, which were originated at interest rates prevailing at the date of commitment. Since we can terminate a loan commitment if the borrower does not comply with the terms of the contract, and some loan commitments may expire without being drawn upon, these commitments do not necessarily represent future cash requirements. 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 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 September 30, 2017 and December 31, 2016, we had unexpired forward contracts of $532.0 million and $610.0 million, respectively, and whole loan investor commitments of $137.8 million and $157.6 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):
| September 30, 2017 |  | December 31, 2016
| Other Assets |  | Accrued and Other Liabilities |  | Other Assets |  | Accrued and Other Liabilities
Interest rate lock commitments | $ | 10,434 |  |  | $ | 400 |  |  | $ | 9,194 |  |  | $ | 501 |
Forward contracts | 1,124 |  |  | 607 |  |  | 8,085 |  |  | 1,004 |
Whole loan commitments | 237 |  |  | 826 |  |  | 1,135 |  |  | 863 |
| $ | 11,795 |  |  | $ | 1,833 |  |  | $ | 18,414 |  |  | $ | 2,368 |
New accounting pronouncements In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU No. 2014-09, "Revenue from Contracts with Customers" ("ASU 2014-09"). The standard is a comprehensive new revenue recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. The FASB has also issued a number of updates to this standard. The standard is effective for us for annual and interim periods beginning January 1, 2018, and, at that time, we expect to apply the modified retrospective method of adoption. We have been actively engaged in discussions with the FASB and within our industry and continue to assess all potential effects of adopting the standard. We do not expect significant changes to our business processes, systems, or internal controls as a result of adopting the standard. We also do not expect the adoption of ASU 2014-09 to have a material impact on our financial statements. However, we continue to evaluate the impact of the revised disclosure requirements. In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)" ("ASU 2016-02"), which amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets. ASU 2016-02 is effective for us for annual and interim periods beginning January 1, 2019, and early adoption is permitted. The standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. While the recognition of right-of-use assets and related liabilities will have a material effect on our consolidated balance sheets, we do not expect a material impact on our consolidated statement of operations. We continue to evaluate the full impact of the new standard, including the impact on our business processes, systems, and internal controls. We adopted ASU No. 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting" ("ASU 2016-09") effective January 1, 2017. Excess tax benefits or deficiencies for stock-based compensation are now reflected in the Consolidated Statements of Operations as a component of income tax expense, whereas previously they were recognized in equity. We have also elected to account for forfeitures as they occur, rather than estimate expected forfeitures. As a result of adopting ASU 2016-09, we applied the modified retrospective approach and recorded a cumulative-effect adjustment that increased our retained earnings and deferred tax assets as of January 1, 2017 by $18.6 million, respectively, as a result of previously unrecognized excess tax benefits (see Note 6). Additionally, the impact of recognizing excess tax benefits and deficiencies in the income statement resulted in a $5.4 million reduction in our income tax expense for the nine months ended September 30, 2017. The remaining aspects of adopting ASU 2016-09 did not have a material impact on our financial statements. In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13"), which changes the impairment model for most financial assets and certain other instruments from an "incurred loss" approach to a new "expected credit loss" methodology and also requires that credit losses from available-for-sale debt securities be presented as an allowance instead of a write-down. ASU 2016-13 is effective for us for annual and interim periods beginning January 1, 2020, with early adoption permitted, and requires full retrospective application on adoption. We are currently evaluating the impact the standard will have on our financial statements. In August 2016, the FASB issued ASU No. 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments" ("ASU 2016-15"), which addresses several specific cash flow issues. ASU 2016-15 is effective for us for annual and interim periods beginning January 1, 2018, with early adoption permitted, and requires full retrospective application on adoption. We do not expect ASU 2016-15 to have a material impact on our financial statements. In January 2017, the FASB issued ASU No. 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment" ("ASU 2017-04"), which removes the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for us for annual and interim periods beginning January 1, 2020, with early adoption permitted. We do not expect ASU 2017-04 to have a material impact on our financial statements. In February 2017, the FASB issued ASU No. 2017-05, "Other Income - Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets (Subtopic 610-20)" ("ASU 2017-05"). ASU 2017-05 updates the definition of an "in substance nonfinancial asset" and clarifies the derecognition guidance for nonfinancial assets to conform with the new revenue recognition standard. The effective date and transition methods of ASU 2017-05 are aligned with ASU 2014-09 described above. We are currently evaluating the impact that the standard will have on our financial statements.

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- Definition The entire disclosure for the basis of presentation and significant accounting policies concepts. Basis of presentation describes the underlying basis used to prepare the financial statements (for example, US Generally Accepted Accounting Principles, Other Comprehensive Basis of Accounting, IFRS). Accounting policies describe all significant accounting policies of the reporting entity. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI http://asc.fasb.org/topic&trid=2122369 + Details
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