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The following is the 2016 statement of cash flows for PulteGroup, Inc.

PULTE HOMES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the 12 months ended December 31

($ thousands)

2016

2015

2014

Cash flows from operating activities:

Net income

$ 602,703

$ 494,090

$ 474,338

Adjustments to reconcile net income to net cash from

operating activities:

Deferred income tax expense

334,787

311,699

223,769

Write-down of land and pre-acquisition costs

19,357

11,467

11,168

Depreciation and amortization

54,007

46,222

39,864

Stock-based compensation expense

22,228

24,752

29,292

Loss on debt retirements

657

8,584

Other, net

1,614

(4,865

)

(2,566

)

Increase (decrease) in cash due to:

Inventories

(897,092

)

(917,298

)

(337,939

)

Residential mortgage loans available-for-sale

(99,527

)

(104,609

)

(53,734

)

Other assets

(45,721

)

(175,150

)

(46,249

)

Accounts payable and other liabilities

75,257

(23,898

)

(38,646

)

Net cash provided by (used in) operating activities

68,270

(337,590

)

307,881

Cash flows from investing activities:

Capital expenditures

(39,295

)

(45,440

)

(48,790

)

Investment in unconsolidated subsidiaries

(14,539

)

(454

)

(9

)

Cash used for business acquisition

(430,458

)

(82,419

)

Other investing activities, net

13,100

11,330

8,605

Net cash used in investing activities

(471,192

)

(34,564

)

(122,613

)

Cash flows from financing activities:

Proceeds from debt issuance

1,995,937

498,087

Repayments of debt

(986,919

)

(239,193

)

(250,631

)

Borrowings under revolving credit facility

619,000

125,000

Repayments under revolving credit facility

(619,000

)

(125,000

)

Financial services borrowings

63,744

127,636

34,577

Stock option exercises

5,845

10,535

15,627

Share repurchases

(603,206

)

(442,738

)

(253,019

)

Dividends paid

(124,666

)

(115,958

)

(75,646

)

Net cash provided by (used in) financing activities

350,735

(161,631

)

(529,092

)

Net increase (decrease)

(52,187

)

(533,785

)

(343,824

)

Cash and equivalents at beginning of period

775,435

1,309,220

1,653,044

Cash and equivalents at end of period

$ 723,248

$ 775,435

$1,309,220

Required:

a.

In determining operating cash flow in 2016, the company includes share-based compensation expense of $22,228 thousand. Why does the company add this amount?

b.

The operating section in 2016 includes an increase in cash of $75,257 for “Accounts payable, accrued and other liabilities.” Explain this reconciling item.

c.

Does the composition of PulteGroup’s cash flow statement present a “healthy” picture? Explain.

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