2 0 1 8 A N N U A L R E P O R T
About PulteGroup, Inc.
PulteGroup, Inc. (NYSE: PHM), based in Atlanta, Georgia, is one of America’s largest
homebuilding companies with operations in approximately 50 markets throughout the country.
Through its brand portfolio that includes Centex, Pulte Homes, Del Webb, DiVosta Homes and
John Wieland Homes and Neighborhoods, the Company is one of the industry’s most versatile
homebuilders able to meet the needs of multiple buyer groups and respond to changing
consumer demand. PulteGroup conducts extensive research to provide homebuyers with
innovative solutions and consumer inspired homes and communities to make lives better.
For more information about PulteGroup, Inc. and PulteGroup brands, go to www.pultegroup.com;
www.pulte.com; www.centex.com; www.delwebb.com; www.divosta.com and www.jwhomes.com.
Follow PulteGroup, Inc. on Twitter: @PulteGroupNews
LETTER TO THE OWNERS, CUSTOMERS, TEAM MEMBERS AND
BUSINESS PARTNERS OF PULTEGROUP:
2018 was PulteGroup’s best year in well over a decade. 2018 was arguably the most challenging year we
have faced since the current housing recovery began. It is a complex year when you can make these two
statements and have them both be true.
The U.S. housing industry entered 2018 with tremendous momentum and expectations for another year of
double-digit growth, as the fundamental macroeconomic supports of demand remained solidly in place. While
the strong start to 2018 allowed us to deliver outstanding full-year financial results, the operating landscape
changed and became increasingly more competitive as the year progressed.
Review of 2018 Financial Results
Let me begin with 2018 being our best year in over a decade. There is a lot to be proud of in the Company’s
full year operating and financial results, and I am pleased to say that we realized near-term records across a
variety of business metrics. It is important to note that the strong results are a direct reflection of the business
strategies and tactics we have been implementing since the housing recovery began in 2011.
Driven by strong price appreciation and a 10% increase in closings over the prior year, homebuilding
revenues grew by 19% to $10.0 billion, as we generated higher revenues across all product lines: first time,
move up and active adult. We see our ability to serve all buyers as a distinct advantage and believe this
diversification provides the Company unique opportunities over the housing cycle.
Benefitting from a variety of ongoing initiatives targeting margins, overheads and overall business efficiencies,
we successfully leveraged this top-line growth into a 44% increase in pre-tax income. Inclusive of the lower
tax rate provided by the Tax Cuts and Jobs Act of 2017, our net income for 2018 more than doubled over the
prior year to $1.0 billion. Finally, reflecting the impact of our sustained stock repurchase program which
lowered the Company’s year-over-year diluted share count by another 3%, we reported 2018 earnings of
$3.55 per share, a significant increase from 2017 per share earnings of $1.44.
In addition to driving tremendous earnings growth, the gains realized within our homebuilding business
resulted in 2018 cash flow from operations of $1.4 billion. This strong cash flow allowed the Company to end
2018 with $1.1 billion of cash and a net debt-to-total capital of 28.2%, down from 39.4% at the end of 2017.
We also remained disciplined in our deployment of capital in 2018 and allocated available funds consistent
with our stated priorities. For the year, we invested approximately $2.6 billion into the business in the form of
land acquisition and development, including a 13% increase in land acquisition spend to $1.2 billion. We also
returned approximately $400 million to shareholders through share repurchases and dividends and increased
the dividend by 22% beginning in January of 2019.
We believe that the business model we continue to successfully execute is straightforward but powerful. We
seek to invest in high quality projects that we believe can generate appropriate risk-adjusted returns on
invested capital. We then work to efficiently build high quality homes and deliver an outstanding customer
experience. In the end, we use the resulting cash flow to invest back into the business, fund our dividend,
repurchase stock and, when appropriate, pay down debt. Well executed, we believe this disciplined and
balanced approach can provide better returns to our shareholders over the housing cycle.
2018 ANNUAL REPORT | PulteGroup, Inc.
1
LETTER TO THE OWNERS, CUSTOMERS, TEAM MEMBERS AND
BUSINESS PARTNERS OF PULTEGROUP:
The Company delivered outstanding financial results in 2018, but we must not allow this strong performance
to obscure the fact that business conditions grew more challenging and competition became more intense as
the year progressed. More specifically, as mortgage rates rose over the course of 2018, home buyers
became less willing to put new homes under contract.
In absolute numbers, mortgage rates remain low by historic standards and supportive of housing, but I believe
the increase in rates exacerbated affordability challenges that had developed after multiple years of
meaningful home-price appreciation. For some homebuyers, higher rates meant they could no longer qualify
for a mortgage, while others elected to delay their purchase until overall market conditions become more
stable.
The industry now looks to 2019 having every reason to expect the pause in buyer demand can be short lived.
Consumer traffic to new-home communities has remained high, suggesting buyer interest is still strong and
that the market is already working to reset itself. Such underlying strength is consistent with a very favorable
macroeconomic backdrop which includes sustained wage and job growth, record low unemployment, high
consumer confidence and powerful demographics. The industry is also benefitting from years of underbuilding
relative to the ongoing growth in population and household formations.
A Strong Business Platform
As demand slowed during the year, we were often asked about how we would respond and what, if any,
changes we needed to make to our operating model. The strategy and tactics under which we operate were
established with a goal of delivering high returns on invested capital over the housing cycle. As such, it is less
about dramatic changes and more about remaining disciplined as market conditions evolve. Let me explain
how this view is reflected in our business practices.
How we manage our land portfolio is critical to the Company’s short and long-term performance. We continue
to develop our land pipeline with very clear objectives: shorten the duration, accelerate inventory turns,
increase the use of options, reduce market risk and, maybe the most important, be patient. Reflective of this
approach, we have shortened our owned lot supply to 3.9 years in total, and 3.1 years if we exclude legacy
lots in older Del Webb communities. At the same time, we have increased lot options to 40% of our controlled
lot position, and to 55% excluding the Del Webb legacy lots.
We are also investing with a focus on creating a better balance across the buyers we serve. In 2018, our
closings by buyer group were 28% first time, 47% move up and 25% active adult. I believe that having the
composition of our business more closely match that of the markets in which we operate can afford us
opportunities to increase market share, grow our business and reduce risk. To that end, of the approximately
150,000 lots the Company had under control at the end of 2018, 33% were targeted toward first-time buyers,
32% were for move-up buyers and 35% were for active-adult buyers. The resulting change in our closing mix
will be gradual, but given the composition of our land pipeline, the direction is clear.
2
PulteGroup, Inc.
| 2018 ANNUAL REPORT
LETTER TO THE OWNERS, CUSTOMERS, TEAM MEMBERS AND
BUSINESS PARTNERS OF PULTEGROUP:
The mix of buyers we serve will change over time, but we continue to emphasize a build-to-order model in
combination with tightly controlled spec production. Build-to-order allows customers to personalize their home
by selecting the options and lot locations that they value, and for which they are willing to pay. We believe that
our build-to-order approach to the market has been a key contributor to our higher gross margins and higher
overall project returns in recent years. That being said, as the mix of first-time buyer communities increases
within our business, spec production is also likely to rise proportionally as this is a common component of that
business.
Finally, we continue to refine our common plan management platform as we work to build homes more
efficiently and profitably. In 2018, 81% of the 23,107 homes we delivered were part of our common-plan
library. In launching our common-plan platform back in 2011, we wanted to reduce the number of floorplans
we offer, optimize the plans for material content and ease of construction, and then increase the throughput
(unit volume) of each plan. In addition to supporting our current production capabilities, common plans can
make it easier to integrate offsite manufacturing as it develops in the future.
These business-oriented strategies and tactics are important, but I would say that the people-centric initiatives
we are advancing inside our organization are equally vital to the Company’s success. In last year’s letter, I
highlighted that PulteGroup’s employee engagement as measured by Gallup was in the top 5% of all
companies in the world. It is extremely rewarding to report that we repeated this ranking in 2018. Not resting
on our laurels, we have enhanced our employee recruiting, onboarding and training programs, and put in
place new guidelines to purposefully build a more diverse and inclusive culture. Operating in an economy
experiencing record low unemployment, we believe our ongoing investment in people development will
continue to pay dividends.
Well Positioned for the Year Ahead
The estimated 622,000 new homes sold in the U.S. in 2018 marks the twelfth year in a row that industry-wide
sales have failed to reach the 50-year average of 665,000 houses. In other words, we believe the industry
continues to under build relative to the growth in population and household formations. Given such limited
production, even with slower sales in the back half of 2018, government data showed less than seven months
of new home inventory being available for sale heading into 2019.
In addition to a healthy supply dynamic, we see the overall operating environment as supportive of U.S.
housing demand. More specifically, after rising through much of 2018, mortgage rates have fallen and
comments from the Federal Reserve suggest a more measured and thoughtful approach to future rate
increases.
While rates are easing, the job market remains strong with an estimated 130 million people now employed
across the country and unemployment hovering near recent lows of 4%. The strong job market is also likely to
result in a sustained period of wage and income growth which will allow more consumers to purchase a home
and ease some of the affordability challenges which have weighed on demand.
2018 ANNUAL REPORT | PulteGroup, Inc.
3
LETTER TO THE OWNERS, CUSTOMERS, TEAM MEMBERS AND
BUSINESS PARTNERS OF PULTEGROUP:
In conclusion, macro conditions remain strong and can support higher housing demand, but the industry is
experiencing a “pause” in buyer activity that has created a period of uncertainty heading into 2019.
Fortunately, we have built a strong business platform and are operationally and financially well positioned to
compete at any stage of the housing cycle.
PulteGroup’s strong market position reflects the hard work and the disciplined execution of our business plan
by the most talented team of employees in the industry. Our Board of Directors and I want to thank the
5,000-plus employees of PulteGroup who are committed to delivering the best homes and homeownership
experience in the industry. I also want to recognize the support we receive every day from our suppliers, trade
partners and investors, as this too is vital to PulteGroup’s sustained success.
Sincerely,
Ryan Marshall
President and Chief Executive Officer
4
PulteGroup, Inc.
| 2018 ANNUAL REPORT
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
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
(State or other jurisdiction of
incorporation or organization)
38-2766606
(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
Common Shares, par value $0.01
Name of each exchange on which registered
g
New York Stock Exchange
g
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. YES [X] NO [ ]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. YES [ ] NO [X]
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 [ ]
uu
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). Act. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
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.
Large accelerated
filer [X]
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 forff
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 [X]
The aggregate market value of the registrant’s voting shares held by nonaffiliates of the registrant as of June 30, 2018, based on the
closing sale price per share as reported by the New York Stock Exchange on such date, was $8,132,221,388. As of January 24, 2019,
the registrant had 277,142,007 shares of common shares outstanding.
d
Applicable portions of the Proxy Statement for the 2019 Annual Meeting of Shareholders are incorporated by reference in Part III of
this Form.
Documents Incorporated by Reference
PULTEGROUP, INC.
TABLE OF CONTENTS
Item
No.
1
1A
1B
2
3
4
Part I
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
4A
Executive Officers of the Registrant
Part II
5
6
7
Market for the Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
7A
Quantitative and Qualitative Disclosures About Market Risk
8
9
9A
9B
10
11
12
13
14
15
16
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Part III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Certain Relationships and Related Transactions and Director Independence
Principal Accountant Fees and Services
Part IV
Exhibits and Financial Statement Schedules
Form 10-K Summary
Signatures
Page
No.
3
9
15
15
15
15
16
17
19
21
40
42
86
86
88
88
88
88
88
88
89
92
93
2
ITEM I.
BUSINESS
PulteGroup, Inc.
PART I
PulteGroup, Inc. is a Michigan corporation organized in 1956. We are one of the largest homebuilders in the United
States ("U.S."), and our common shares are included in the S&P 500 Index and 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 and insurance brokerage operations.
Homebuilding, our core business, which includes the acquisition and development of land primarily for residential
purposes within the U.S. and the construction of housing on such land, generated 98% of our consolidated revenues in each of
2018, 2017, and 2016. We offer a broad product line to meet the needs of homebuyers in our targeted markets. Through our
brands, which include Centex, Pulte Homes, Del Webb, DiVosta Homes, and John Wieland Homes and Neighborhoods, we
offer a wide variety of home designs, including single-family detached, townhouses, condominiums, and duplexes at different
prices and with varying levels of options and amenities to our major customer groups: first-time, move-up, and active adult.
Over our history, we have delivered nearly 725,000 homes.
As of December 31, 2018, we conducted our operations in 44 markets located throughout 24 states. For reporting
purposes, our Homebuilding operations are aggregated into six reportable segments:
Northeast:
Southeast:
Florida:
Midwest:
Texas:
West:
Connecticut, Maryland, Massachusetts, New Jersey, New York, Pennsylvania, Virginia
Georgia, North Carolina, South Carolina, Tennessee
Florida
Illinois, Indiana, Kentucky, Michigan, Minnesota, Ohio
Texas
Arizona, California, Nevada, New Mexico, Washington
We also have a reportable segment for our financial services operations, which consists principally of mortgage banking,
title, and insurance brokerage operations. Our Financial Services segment operates generally in the same geographic markets as
our Homebuilding segments.
Financial information for each of our reportable business segments is included in Note 3 to our Consolidated Financial
Statements.
Available information
We file annual, quarterly, and current reports, proxy statements, and other information with the Securities and
Exchange Commission (the “SEC”). These filings are available at the SEC’s website at http://www.sec.gov. Our internet
website address is www.pultegroupinc.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange
Act are available free of charge through our website as soon as reasonably practicable after we electronically file them with or
furnish them to the SEC. Our code of ethics for principal officers, our code of ethical business conduct, our corporate
governance guidelines, and the charters of the Audit, Compensation and Management Development, Nominating and
Governance, and Finance and Investment Committees of our Board of Directors are also posted on our website and are
available in print, free of charge, upon request.
3
Homebuilding Operations
Years Ended December 31,
($000’s omitted)
2018
2017
2016
2015
2014
Home sale revenues
Home closings
$ 9,818,445
$ 8,323,984
$ 7,451,315
$ 5,792,675
$ 5,662,171
23,107
21,052
19,951
17,127
17,196
For information and analysis of recent trends in our operations, see Item 7, Management’s Discussion and Analysis of
Financial Condition and Results of Operations.
Our Homebuilding operations are geographically diverse within the U.S. As of December 31, 2018, we operated out of
815 active communities in 44 markets across 24 states. Sales prices of unit closings during 2018 ranged from approximately
$100,000 to over $2,200,000, with 91% falling within the range of $200,000 to $750,000. The average unit selling price in 2018
was $425,000, compared with $395,000 in 2017, $373,000 in 2016, $338,000 in 2015, and $329,000 in 2014. The increase in
average selling price in recent years resulted from a number of factors, including favorable market conditions, a shift in our
sales mix toward move-up homebuyers, and changes in the geographical mix of homes sold. Our average unit selling price
since 2015 was also impacted by our acquisition in January 2016 of substantially all of the assets of JW Homes ("Wieland"), a
brand geared toward move-up homebuyers.
Sales of single-family detached homes, as a percentage of total unit sales, were 85% in 2018, compared with 88% in
2017, 87% in 2016, 86% in 2015, and 86% in 2014. The decrease in the percentage of single-family detached homes in 2018
can be attributed to the geographic mix of homes sold and an increase in the number of our communities in more urban
locations where higher density attached homes are more commonplace.
We believe that national publicly-traded builders have a competitive advantage over local builders through their ability
to: access more reliable and lower cost financing through the capital markets; control and entitle large land positions; gain
better access to scarce labor resources; and achieve greater geographic and product diversification. Among our national
publicly-traded peer group, we believe that builders with broad geographic and product diversity and sustainable capital
positions will benefit from this scale and diversification in any market conditions. Our strategy to enhance shareholder value is
centered around the following operational objectives:
• Drive operational gains and asset efficiency in support of high returns over the housing cycle;
• Shorten the duration of our owned land pipeline to improve returns and reduce risks;
• Maintain disciplined business practices to maximize returns on investment;
• Increase scale within our existing markets by appropriately expanding market share among our primary buyer
groups: first time, move-up, and active adult;
• Focus on building-to-order while maintaining an appropriate balance of speculative homes; and
• Invest capital consistent with our stated priorities: invest in the business, fund our dividend, and routinely return
excess funds to shareholders through share repurchases.
Land acquisition and development
We acquire land primarily for the construction of homes for sale. We select locations for development of homebuilding
communities after completing a feasibility study, which includes, among other things, soil tests, independent environmental
studies and other engineering work, an evaluation of necessary zoning and other governmental entitlements, and extensive
market research that enables us to match the location with our product offering to meet the needs of consumers. We consider
factors such as proximity to developed areas, population and job growth patterns, and, if applicable, estimated development
costs. We frequently manage a portion of the risk of controlling our land positions through the use of land option agreements,
which enable us to defer acquiring portions of properties owned by land sellers until we have determined whether and when to
exercise our option. Our use of land option agreements can serve to reduce the financial risk associated with long-term land
holdings. We typically acquire land with the intent to complete sales of housing units within 24 to 36 months from the date of
opening a community, except in the case of certain Del Webb active adult developments and other large master-planned projects
for which the completion of community build-out requires a longer time period. While our overall supply of controlled land is
in excess of our short-term needs in certain of our markets, some of our controlled land consists of long-term positions that will
4
not be converted to home sales in the near term. Accordingly, we remain active in our pursuit of new land investment. We also
periodically sell select parcels of land to third parties for commercial or other development or if we determine that they do not
fit into our strategic operating plans.
Land is generally purchased after it is zoned and developed, or is ready for development, for our intended use. Where we
develop land, we engage directly in many phases of the development process, including: land and site planning; obtaining
environmental and other regulatory approvals; and constructing roads, sewers, water and drainage facilities, and community
amenities, such as parks, pools, and clubhouses. We use our staff and the services of independent engineers and consultants for
land development activities. Land development work is performed primarily by independent contractors and, when needed,
local government authorities who construct sewer and water systems in some areas. At December 31, 2018, we controlled
149,577 lots, of which 89,530 were owned and 60,047 were under land option agreements.
Sales and marketing
We are dedicated to improving the quality and value of our homes through innovative architectural and community
designs. Analyzing various qualitative and quantitative data obtained through extensive market research, we stratify our
potential customers into well-defined homebuyer groups. Such stratification provides a method for understanding the business
opportunities and risks across the full spectrum of consumer groups in each market. Once the needs of potential homebuyers are
understood, we link our home design and community development efforts to the specific lifestyle of each consumer group.
Through our understanding of each consumer group, we seek to provide homes that better meet the needs and wants of each
homebuyer.
Our homes targeted to first-time homebuyers tend to be smaller with product offerings geared toward lower average
selling prices or higher density. Move-up homebuyers tend to place more of a premium on location and amenities. These
communities typically offer larger homes at higher price points. Through our Del Webb brand, we address the needs of active
adults, to whom we offer both destination communities and “in place” communities, for homebuyers who prefer to remain in
their current geographic area. Many of these active adult communities are age-restricted to the age fifty-five and over
homebuyer and are highly amenitized, offering a variety of features, including golf courses, recreational centers, and
educational classes, to facilitate the homebuyer maintaining an active lifestyle. In order to make the cost of these highly
amenitized communities affordable to the individual homeowner, Del Webb communities tend to be larger than first-time or
move-up homebuyer communities.
During 2018, 28%, 47%, and 25% of our home closings were to first-time, move-up, and active adult customers,
respectively. Our sales mix has shifted slightly in recent years toward the move-up homebuyer where demand has been
stronger. However, we have increased our investment in communities seeking to serve the first-time buyer and expect this buyer
group to become a larger component of our sales mix in the future.
We believe that we are an innovator in home design, and we view our design capabilities as an integral aspect of our
marketing strategy. Our in-house architectural services teams, supplemented by outside consultants, follow a 12-step product
development process to introduce new features and technologies based on customer-validated data. Following this disciplined
process results in distinctive design features, both in exterior facades and interior options and features. We typically offer a
variety of house floor plans and elevations in each community, including potential options and upgrades, such as different
flooring, countertop, fixture, and appliance choices, and design our base house and option packages to meet the needs of our
customers as defined through rigorous market research. Energy efficiency represents an important source of value for new
homes compared with existing homes and represents a key area of focus for our home designs, including high efficiency
heating, ventilation, and air conditioning systems and insulation, low-emissivity windows, solar power in certain geographies,
and other energy-efficient features.
We market our homes to prospective homebuyers through internet listings and link placements, mobile applications,
media advertising, illustrated brochures, and other advertising displays. We have made significant enhancements in our tools
and business practices to adapt our selling efforts to today's tech-enabled customers. This includes our websites
(www.centex.com, www.pulte.com, www.delwebb.com, www.divosta.com, and www.jwhomes.com), which provide tools to help
users find a home that meets their needs, investigate financing alternatives, communicate moving plans, maintain a home, learn
more about us, and communicate directly with us.
Our sales teams consist primarily of commissioned employees, and the majority of our home closings also involve
independent third party sales brokers. Our sales consultants are responsible for guiding the customer through the sales process,
5
including selecting the community, house floor plan, and options that meet the customer's needs. We are committed to industry-
leading customer service through a variety of quality initiatives, including our customer care program, which seeks to ensure
that homebuyers are comfortable at every stage of the process. Fully furnished and landscaped model homes physically located
in our communities, which leverage the expertise of our interior designers, are generally used to showcase our homes and their
distinctive design features. We have also introduced virtual reality walkthroughs of our house floor plans in certain
communities to provide prospective homebuyers a more cost effective means to provide a realistic vision of our homes.
The majority of our homes are sold on a built-to-order basis where we do not begin construction of the home until we
have a signed contract with a customer. However, we also build speculative ("spec") homes in most of our communities, which
allow us to compete more effectively with existing homes available in the market, especially for homebuyers that require a
home within a short time frame. We determine our spec home strategy for each community based on local market factors and
maintain a level of spec home inventory based on our current and planned sales pace and construction cadence for the
community.
Our sales contracts with customers generally require payment of a deposit at the time of contract signing and sometimes
additional deposits upon selection of certain options or upgrade features for their homes. Our sales contracts also typically
include a financing contingency that provides customers with the right to cancel if they cannot obtain mortgage financing at
specified interest rates within a specified period. Our contracts may also include other contingencies, such as the sale of an
existing home. Backlog, which represents orders for homes that have not yet closed, was $3.8 billion (8,722 units) at
December 31, 2018 and $4.0 billion (8,996 units) at December 31, 2017. For orders in backlog, we have received a signed
customer contract and customer deposit, which is refundable in certain instances. Of the orders in backlog at December 31,
2018, substantially all are scheduled to be closed during 2019, though all orders are subject to potential cancellation by or final
ff
negotiations with the customer. In the event of contract cancellation, the majority of our sales contracts stipulate that we haveaa
the right to retain the customer’s deposit, though we may choose to refund the deposit in certain instances.
Construction
The construction of our homes is conducted under the supervision of our on-site construction field managers.
Substantially all of our construction work is performed by independent subcontractors under contracts that establish a specific
scope of work at an agreed-upon price. Using a selective process, we have aligned with what we believe are premier
subcontractors and suppliers to deliver quality throughout all aspects of the house construction process. In addition, our
construction field managers and customer care associates interact with our homebuyers throughout the construction process and
instruct homebuyers on post-closing home maintenance.
Continuous improvement in our house construction process is a key area of focus. We seek to build superior quality
homes while maintaining efficient construction operations by using standard materials and components from a variety of
sources and by using industry and company-specific construction practices. We are improving our product offerings and
production processes through the following programs:
• Common management of house plans to deliver house designs that customers value the most and that can be built at
the highest quality and at an efficient cost;
• Value engineering our house plans to optimize house designs in terms of material content and ease of construction
while still providing a clear value to the customer;
• Utilizing our proprietary construction standards and practices, training of our field leadership and construction
personnel, communication with our suppliers, and auditing our compliance; and
• Working with our suppliers using a data driven, collaborative method to reduce construction costs to what the
associated construction activities or materials “should cost” in the market.
Generally, the construction materials used in our operations are readily available from numerous sources. However, the
cost of certain building materials, especially lumber, steel, concrete, copper, and petroleum-based materials, is influenced by
changes in global commodity prices, national tariffs, and other foreign trade factors. Additionally, the ability to consistently
source qualified labor at reasonable prices remains challenging as labor supply growth has not kept pace with construction
demand. To protect against changes in construction costs, labor and materials costs are generally established prior to or near the
time when related sales contracts are signed with customers. In addition, we leverage our size by actively negotiating for certain
materials on a national or regional basis to minimize costs. We are also working to establish a more integrated system that can
effectively link suppliers, contractors, and the production schedule. However, we cannot determine the extent to which
necessary building materials and labor will be available at reasonable prices in the future.
6
Competition
The housing industry in the U.S. is fragmented and highly competitive. While we are one of the largest homebuilders in
the U.S., our national market share represented only approximately 4% of U.S. new home sales in 2018. In each of our local
markets, there are numerous national, regional, and local homebuilders with whom we compete. Additionally, new home sales
have traditionally represented less than 15% of overall U.S. home sales (new and existing homes). Therefore, we also compete
with sales of existing house inventory and any provider of for sale or rental housing units, including apartment operators. We
compete primarily on the basis of location, price, quality, reputation, design, community amenities, and our customers' overall
sales and homeownership experiences.
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 during 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.
Regulation and environmental matters
Our operations are subject to extensive regulations imposed and enforced by various federal, state, and local governing
aa
authorities. These regulations are complex and include building codes, land zoning and other entitlement restrictions, health and
safety regulations, labor practices, marketing and sales practices, environmental regulations, rules and regulations relating to
mortgage financing and title operations, and various other laws, rules, and regulations. Collectively, these regulations have a
significant impact on the site selection and development of our communities; our house design and construction techniques; our
relationships with customers, employees, suppliers, and subcontractors; and many other aspects of our business. The applicable
governing authorities frequently have broad discretion in administering these regulations, including inspections of our homes
prior to closing with the customer in the majority of municipalities in which we operate. Additionally, we may experience
extended timelines for receiving required approvals from municipalities or other government agencies that can delay our
anticipated development and construction activities in our communities.
Financial Services Operations
We conduct our financial services business, which includes mortgage banking, title, and insurance brokerage
operations, through Pulte Mortgage and other subsidiaries. Pulte Mortgage arranges financing through the origination of
mortgage loans primarily for the benefit of our homebuyers. We are a lender approved by the Federal Housing Administration
("FHA") and Department of Veterans Affairs ("VA") and are a seller/servicer approved by Government National Mortgage
Association ("Ginnie Mae"), Federal National Mortgage Association ("Fannie Mae"), Federal Home Loan Mortgage
Corporation ("Freddie Mac"), and other investors. In our conventional mortgage lending activities, we follow underwriting
guidelines established by Fannie Mae, Freddie Mac, and private investors. We believe that our customers’ use of our in-house
mortgage and title operations provides us with a competitive advantage by enabling more control over the quality of the overall
home buying process for our customers, while also helping us align the timing of the house construction process with our
customers’ financing needs.
Operating through a captive business model targeted to supporting our Homebuilding operations, the business levels of
our Financial Services operations are highly correlated to Homebuilding. Our Homebuilding customers continue to account for
substantially all of our loan production. We originated the mortgage loans of 62% of the homes we closed in 2018, 66% in
2017, 65% in 2016, 65% in 2015, and 61% in 2014. Other home closings are settled via either cash, which typically represent
approximately 20% of home closings, or third party lenders.
In originating mortgage loans, we initially use our own funds, including funds available pursuant to credit agreements
with third parties, and subsequently sell such mortgage loans to third party investors in the secondary market. 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.
7
The mortgage industry in the U.S. is highly competitive. We compete with other mortgage companies and financial
institutions to provide attractive mortgage financing to our homebuyers. We utilize a centralized fulfillment center for our
mortgage operations that performs underwriting, processing, and closing functions. We believe centralizing both the fulfillment
and origination of our loans improves the speed, efficiency, and quality of our mortgage operations, improving our profitability tt
and allowing us to focus on providing attractive mortgage financing opportunities for our customers.
In originating and servicing mortgage loans, we are subject to the rules and regulations of the government-sponsored
investors and other investors that purchase the loans we originate, as well as to those of other government agencies that have
oversight of the government-sponsored investors or consumer lending rules in the U.S. In addition to being affected by changes
in these programs, our mortgage banking business is also affected by many of the same factors that impact our homebuilding
business.
Our mortgage operations may be responsible for losses associated with mortgage loans originated and sold to investors
in the event of errors or omissions relating to representations and warranties made by us that the loans met certain requirements,
including representations as to underwriting standards, the existence of primary mortgage insurance, and the validity of certain
borrower representations in connection with the loan. If a loan is determined to be faulty, we either indemnify the investor for
potential future losses, repurchase the loan from the investor, or reimburse the investor's actual losses.
Our subsidiary title insurance companies serve as title insurance agents and underwriters in select markets by providing
title insurance policies and examination and closing services to buyers of homes we sell. Historically, we have not experienced
significant claims related to our title operations.
Our insurance brokerage operations serve as a broker for home, auto, and other personal insurance policies in select
markets to buyers of homes we sell. All such insurance policies are placed with third party insurance carriers.
Employees
At December 31, 2018, we employed 5,086 people, of which 881 were employed in our Financial Services operations.
Our employees are not represented by any union. Contracted work, however, may be performed by union contractors. We
consider our employee relations to be good.
8
ITEM 1A. RISK FACTORS
Discussion of our business and operations included in this annual report on Form 10-K should be read together with the
risk factors set forth below. They describe various risks and uncertainties to which we are, or may become, subject. These risks
and uncertainties, together with other factors described elsewhere in this report, have the potential to affect our business,
financial condition, results of operations, cash flows, strategies, or prospects in a material and adverse manner.
The homebuilding industry is cyclical and a deterioration in industry conditions or downward changes in general economic
or other business conditions could adversely affect our business or our financial results.
The residential homebuilding industry is sensitive to changes in economic conditions and other factors, such as the level
of employment, consumer confidence, consumer income, availability of financing, and interest rate levels. Adverse changes in
any of these conditions generally, or in the markets where we operate, could decrease demand and pricing for new homes in
these areas or result in customer cancellations of pending contracts, which could adversely affect the number of home deliveries
we make or reduce the prices we can charge for homes, either of which could result in a significant decrease in our revenues
and earnings that could materially and adversely affect our financial condition.
Beginning in 2006 and continuing through 2011, the U.S. housing market was unfavorably impacted by severe weakness
in new home sales attributable to, among other factors, weak consumer confidence, tightened mortgage standards, significant
foreclosure activity, a more challenging appraisal environment, higher than normal unemployment levels, and significant
uncertainty in the global economy. During this period, we incurred significant losses, including impairments of our land
inventory and certain other assets. Since 2011, overall industry new home sales have increased, and we returned to profitability tt
beginning in 2012. However, the recovery in housing demand has been slow by historical standards and the adjustments we
have made to our operating strategy may not be successful if the current housing market were to deteriorate significantly.
Future increases in interest rates, reductions in mortgage availability, or other increases in the effective costs of owning a
home could prevent potential customers from buying our homes and adversely affect our business and financial results.
A large majority of our customers finance their home purchases through mortgage loans, many through Pulte Mortgage.
While mortgage interest rates in recent years have been at or near historic lows, thereby making new homes more affordable,
mortgage loan interest rates have increased recently as the federal funds rate has been increased. Increases in interest rates or
decreases in the availability of mortgage financing could adversely affect the market for new homes. Potential homebuyers may
be less willing or able to pay the increased monthly costs resulting from higher interest rates or to obtain mortgage financing.
Lenders may increase the qualifications needed for mortgages or adjust their terms to address any increased credit risk. Even if
potential customers do not need financing, changes in interest rates and mortgage availability could make it harder for them to
sell their current homes to potential buyers who need financing. These factors could adversely affect the sales or pricing of our
homes and could also reduce the volume or margins in our financial services business. Our financial services business could
also be impacted to the extent we are unable to match interest rates and amounts on loans we have committed to originate
through the various hedging strategies we employ. These developments have had, and may continue to have, a material adverse
effect on the overall demand for new housing and thereby on the results of operations of our business. For example, during
2018, we experienced lower than expected conversions of traffic to signups, especially among first-time and move-up buyers,
beginning in May 2018 when mortgage rates increased.
The liquidity provided by Fannie Mae and Freddie Mac to the mortgage industry is also critical to the housing market.
The impact of the federal government’s conservatorship of Fannie Mae and Freddie Mac on the short-term and long-term
demand for new housing remains unclear. Any limitations or restrictions on the availability of financing by these agencies could
adversely affect interest rates, mortgage financing, and our sales of new homes and mortgage loans. Additionally, the
availability of FHA and VA mortgage financing is an important factor in marketing some of our homes.
Mortgage interest expense and real estate taxes represent significant costs of homeownership, both of which were
historically generally deductible for an individual’s federal and, in some cases, state income taxes. On December 22, 2017, a
law commonly known as the Tax Cuts and Jobs Act (the "Tax Act") was enacted. While the Tax Act lowers the tax rates
applicable to many businesses and individuals, it also, among other things, (i) limits the federal deduction for mortgage interest
so that it only applies to the first $750,000 of a new mortgage (as compared to $1 million under previous tax law), (ii)
introduces a $10,000 cap on the federal deduction for state and local taxes, including real estate taxes, and (iii) eliminates the
federal deduction for interest on certain home equity loans. The Tax Act also increased the standard deduction for individuals.
As a result, fewer individuals are expected to itemize their income tax deductions, which would mitigate the income tax
advantages associated with homeownership for those individuals. The combination of these changes could reduce home
9
ownership affordability and demand, especially in regions with higher housing prices or higher state and local income taxes.
Any further changes in income tax law which eliminates or reduces the income tax benefits associated with home ownership
could have an adverse impact on our business.
Our success depends on our ability to acquire land suitable for residential homebuilding at reasonable prices, in accordance
with our land investment criteria.
The homebuilding industry is highly competitive for suitable land. The availability of finished and partially finished
developed lots and undeveloped land for purchase that meet our internal criteria depends on a number of factors outside our
control, including land availability in general, competition with other homebuilders and land buyers for desirable property,
inflation in land prices, zoning, allowable housing density, and other regulatory requirements. Should suitable lots or land
become less available, the number of homes we may be able to build and sell could be reduced, and the cost of land could be
increased, perhaps substantially, which could adversely impact our results of operations.
Our long-term ability to build homes depends on our acquiring land suitable for residential building at reasonable prices
in locations where we want to build. We experience significant competition for suitable land as a result of land constraints in
many of our markets. As competition for suitable land increases, and as available land is developed, the cost of acquiring
suitable remaining land could rise, and the availability of suitable land at acceptable prices may decline. Any land shortages or
any decrease in the supply of suitable land at reasonable prices could limit our ability to develop new communities or result in
increased land costs. We may not be able to pass through to our customers any increased land costs, which could adversely
impact our revenues, earnings, and margins.
Supply shortages and other risks related to the demand for skilled labor and building materials could increase costs and
delay deliveries.
The homebuilding industry is highly competitive for skilled labor and materials. Labor shortages in certain of our
markets have become more acute in recent years as the supply chain adjusts to industry growth. Additionally, the cost of certain
building materials, especially lumber, steel, concrete, copper, and petroleum-based materials, is influenced by changes in local
and global commodity prices as well as government regulation, such as government-imposed tariffs or trade restrictions on
supplies such as steel and lumber. During 2018, we experienced increases in the prices of some building materials and shortages
of skilled labor in some areas. Increased costs or shortages of skilled labor and/or materials cause increases in construction
costs and/or could cause construction delays. We may not be able to pass on increases in construction costs to customers and
generally are unable to pass on any such increases to customers who have already entered into sales contracts as those sales
contracts generally fix the price of the home at the time the contract is signed, which may be well in advance of the construction
of the home. Sustained increases in construction costs may, over time, erode our margins, and pricing competition may restrict
our ability to pass on any such additional costs, thereby decreasing our margins.
If the market value of our land and homes drops significantly, our profits could decrease and result in write-downs of the
carrying values of land we own.
The market value of land, building lots, and housing inventories can fluctuate significantly as a result of changing market
conditions, and the measures we employ to manage inventory risk may not be adequate to insulate our operations from a severe
drop in inventory values. We acquire land for expansion into new markets and for replacement of land inventory and expansion
within our current markets. If housing demand decreases below what we anticipated when we acquired our inventory, we may
not be able to make profits similar to what we have made in the past, we may experience less than anticipated profits, and/or we
may not be able to recover our costs when we sell and build homes. When market conditions are such that land values are not
appreciating, land option arrangements previously entered into may become less desirable, at which time we may elect to
forego deposits and pre-acquisition costs and terminate the agreement. In the face of adverse market conditions, we may have
substantial inventory carrying costs, we may have to write down our inventory to its fair value, and/or we may have to sell land
or homes at a loss. At times we have been required to record significant write-downs of the carrying value of our land
inventory, and we have elected not to exercise options to purchase land, even though that required us to forfeit deposits and
write-off pre-acquisition costs. For example, we incurred land-related charges totaling $99.4 million and $191.9 million in 2018
and 2017, respectively. Although we have taken efforts to reduce our exposure to costs of that type, a certain amount of
exposure is inherent in the homebuilding business. If market conditions were to deteriorate in the future, we could again be
required to record significant write downs to our land inventory, which would decrease the asset values reflected on our balance
sheet and materially and adversely affect our earnings and our stockholders' equity.
10
We are subject to claims related to mortgage loans we sold in the secondary mortgage market that may be significant.
Our mortgage operations may be responsible for losses arising out of claims associated with mortgage loans originated
and sold to investors in the event of errors or omissions relating to certain representations and warranties made by us that the
loans met certain requirements, including representations as to underwriting standards, the type of collateral, the existence of
primary mortgage insurance, and the validity of certain borrower representations in connection with the loan. To date, the
significant majority of these claims made by investors against our mortgage operations relate to loans originated prior to 2009,
during which inherently riskier loan products became more common in the origination market. We may also be required to
indemnify underwriters that purchased and securitized loans originated by a former subsidiary of Centex Corporation
("Centex"), which we acquired in 2009, for losses incurred by investors in those securitized loans based on similar breaches of
representations and warranties. As of December 31, 2018, our mortgage subsidiaries were defendants in legal proceedings in
which the plaintiffs are seeking indemnification for alleged breaches of representations and warranties made by the mortgage
subsidiaries in the mortgage loan sale agreements and may also be subject to other similar claims for which legal proceedings
had not been instituted as of December 31, 2018.
The resolution of claims related to alleged breaches of these representations and warranties and repurchase claims could
have a material adverse effect on our financial condition, cash flows and results of operations. Given the unsettled litigation,
changes in values of underlying collateral over time, and other uncertainties regarding the ultimate resolution of these claims,
actual costs could differ from our current estimates. Accordingly, there can be no assurance that such reserves will not need to
be increased in the future.
Products supplied to us and work done by subcontractors can expose us to risks that could adversely affect our business.
We rely on subcontractors to perform the actual construction of our homes and, in some cases, to select and obtain
building materials. Despite our detailed specifications and quality control procedures, in some cases, subcontractors may use
improper construction processes or defective materials. Defective products widely used by the homebuilding industry can result
in the need to perform extensive repairs to large numbers of homes. The cost of complying with our warranty obligations may
be significant if we are unable to recover the cost of repairs from subcontractors, materials suppliers, and insurers.
We also can suffer damage to our reputation, and may be exposed to possible liability, if subcontractors fail to comply
with applicable laws, including laws involving actions or matters that are not within our control. When we learn about possibly
improper practices by subcontractors, we attempt to cause the subcontractors to discontinue them and may terminate the use of
such subcontractors. However, attempts at mitigation may not avoid claims against us relating to actions of or matters relating
to our subcontractors.
Adverse capital and credit market conditions may significantly affect our access to capital and cost of capital.
The capital and credit markets can experience significant volatility. We may need credit-related liquidity for the future
development of our business and other capital needs. Without sufficient liquidity, we may not be able to purchase additional
land or develop land, which could adversely affect our financial results. At December 31, 2018, we had cash, cash equivalents,
and restricted cash of $1.1 billion as well as $760.6 million available under our revolving credit facility, net of outstanding
letters of credit. However, our internal sources of liquidity and revolving credit facility may prove to be insufficient, and, in
such case, we may not be able to successfully obtain additional financing on terms acceptable to us, or at all.
Another source of liquidity includes our ability to use letters of credit and surety bonds relating to certain performance-
related obligations and as security for certain land option agreements and 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. At
December 31, 2018, we had outstanding letters of credit and surety bonds totaling $239.4 million and $1.3 billion, respectively.
These letters of credit are generally issued via our unsecured revolving credit facility, which contains certain financial
covenants and other limitations. If we are unable to obtain letters of credit or surety bonds when required, or the conditions
imposed by issuers increase significantly, our liquidity could be adversely affected.
11
Our inability to sell mortgages into the secondary market could significantly reduce our ability to sell homes unless we are
willing to become a long-term investor in loans we originate.
We sell substantially all of the residential mortgage loans we originate within a short period in the secondary mortgage
market. If we were unable to sell loans into the secondary mortgage market or directly to Fannie Mae and Freddie Mac, we
would have to either (a) curtail our origination of residential mortgage loans, which among other things, could significantly
reduce our ability to sell homes, or (b) commit our own funds to long term investments in mortgage loans, which, in addition to
requiring us to deploy substantial amounts of our own funds, could delay the time when we recognize revenues from home
sales on our statements of operations.
Competition for homebuyers could reduce our deliveries or decrease our profitability.
The U.S. housing industry is highly competitive. Homebuilders compete not only for homebuyers, but also for desirable
land, financing, raw materials, skilled management, and labor resources. We compete in each of our markets with numerous
a
national, regional, and local homebuilders on the basis of location, price, quality, reputation, design, community amenities, and
our customers' overall sales and homeownership experiences. This competition with other homebuilders could reduce the
number of homes we deliver or cause us to accept reduced margins to maintain sales volume. Competition can also affect our
ability to procure suitable land, raw materials, and skilled labor at acceptable prices or other terms.
We also compete with resales of existing or foreclosed homes, housing speculators, and available rental housing.
Increased competitive conditions in the residential resale or rental market in the regions where we operate could decrease
demand for new homes or unfavorably impact pricing for new homes.
The loss of the services of members of our senior management or a significant number of our operating employees could
negatively affect our business.
Our success depends upon the skills, experience, and active participation of our senior management, many of whom
have been with the Company for a significant number of years. If we were to lose members of our senior management, we
might not be able to find appropriate replacements on a timely basis, and our operations could be negatively affected. Also, the
loss of a significant number of operating employees in key roles or geographies where we are not able to hire qualified
replacements could have a material adverse effect on our business.
Our income tax provision and tax reserves may be insufficient if a taxing authority is successful in asserting positions that
are contrary to our interpretations and related reserves, if any.
Significant judgment is required in determining our provision for income taxes and our reserves for federal, state, and
local taxes. In the ordinary course of business, there may be matters for which the ultimate outcome is uncertain. Our evaluation
of our tax matters is based on a number of factors, including relevant facts and circumstances, applicable tax law,
correspondence with tax authorities during the course of audits, and effective settlement of audit issues. Although we believe
our approach to determining the tax treatment for such items is appropriate, no assurance can be given that the final tax
authority review will not be materially different than that which is reflected in our income tax provision and related tax
reserves. Such differences could have a material adverse effect on our income tax provision in the period in which such
determination is made and, consequently, on our financial position, cash flows, or net income.
We are periodically audited by various federal, state, and local authorities regarding tax matters. Our current audits are in
various stages of completion; however, no outcome for a particular audit can be determined with certainty prior to the
conclusion of the audit, appeal, and, in some cases, litigation process. As each audit is concluded, adjustments, if any, are
recorded in our financial statements in the period determined. To provide for potential tax exposures, we consider a variety of
factors, including relevant facts and circumstances, applicable tax law, correspondence with taxing authorities, and effective
settlement of audit issues. If these reserves are insufficient upon completion of an audit, there could be an adverse impact on
our financial position, cash flows, and results of operations.
We may not realize our deferred tax assets.
As of December 31, 2018, we had deferred tax assets, net of deferred tax liabilities, of $368.2 million, against which we
provided a valuation allowance of $92.6 million. The ultimate realization of our deferred tax assets is dependent upon
generating future taxable income. While we have recorded valuation allowances against certain of our deferred tax assets, the
valuation allowances are subject to change as facts and circumstances change.
12
Our ability to utilize net operating losses (“NOLs”), built-in losses (“BILs”), and tax credit carryforwards to offset our
future taxable income or income tax would be limited if we were to undergo an “ownership change” within the meaning of
Section 382 of the Internal Revenue Code (the “IRC”). In general, an “ownership change” occurs whenever the percentage of
the stock of a corporation owned by “5-percent shareholders” (within the meaning of Section 382 of the IRC) increases by more
than 50 percentage points over the lowest percentage of the stock of such corporation owned by such “5-percent shareholders”
at any time over the testing period.
An ownership change under Section 382 of the IRC would establish an annual limitation to the amount of NOLs, BILs,
and tax credit carryforwards we could utilize to offset our taxable income or income tax in any single year. The application of
these limitations might prevent full utilization of the deferred tax assets attributable to our NOLs, BILs, and tax credit
carryforwards. To preserve our ability to utilize NOLs, BILs, and other tax benefits in the future without a Section 382
limitation, we adopted a shareholder rights plan, which is triggered upon certain transfers of our securities, and amended our
by-laws to prohibit certain transfers of our securities. Our shareholder rights plan, as amended, expires June 1, 2019, unless our
board of directors and shareholders approve an amendment to extend the term prior thereto. Notwithstanding the foregoing
measures, there can be no assurance that we will not undergo an ownership change within the meaning of Section 382.
Our ability to use certain of Centex's federal losses and credits is limited under Section 382 of the IRC. We do not
believe that the Section 382 limitations will prevent us from utilizing these Centex losses and credits. We do believe that full
utilization of certain state NOL carryforwards will be limited due to Section 382.
The value of our deferred tax assets is also dependent upon the tax rates expected to be in effect at the time taxable
income is expected to be generated. A decrease in enacted corporate tax rates in our major jurisdictions, especially the U.S.
federal corporate tax rate, would decrease the value of our deferred tax assets, which could be material.
We have significant intangible assets. If these assets become impaired, then our profits and shareholders’ equity may be
reduced.
We have significant intangible assets related to business combinations. If the carrying value of intangible assets is
deemed impaired, the carrying value is written down to fair value. This would result in a charge to our earnings. If
management’s expectations of future results and cash flows decrease significantly, impairments of the remaining intangible
assets may occur.
Government regulations could increase the cost and limit the availability of our development and homebuilding projects or
affect our related financial services operations and adversely affect our business or financial results.
Our operations are subject to building, safety, environmental, and other regulations imposed and enforced by various
federal, state, and local governing authorities. New housing developments may also be subject to various assessments for
schools, parks, streets, and other public improvements. These assessments have increased over recent years as other funding
mechanisms have decreased causing local governing authorities to seek greater contributions from homebuilders. All of these
factors can cause an increase in the effective cost of our homes.
We also are subject to a variety of local, state, and federal laws and regulations concerning protection of health, safety,
and the environment. The impact of environmental laws varies depending upon the prior uses of the building site or adjoining
properties and may be greater in areas with less supply where undeveloped land or desirable alternatives are less available.
These matters may result in delays, may cause us to incur substantial compliance, remediation and other costs, and can prohibit
or severely restrict development and homebuilding activity in environmentally sensitive regions or areas. More stringent
requirements could be imposed in the future on homebuilders and developers, thereby increasing the cost of compliance.
Our financial services operations are also subject to numerous federal, state, and local laws and regulations. These
include eligibility requirements for participation in federal loan programs and compliance with consumer lending and similar
requirements such as disclosure requirements, prohibitions against discrimination, and real estate settlement procedures. They
also subject our operations to examination by applicable agencies, pursuant to which those agencies may limit our ability to
provide mortgage financing or title services to potential purchasers of our homes. For our homes to qualify for FHA or VA
mortgages, we must satisfy valuation standards and site, material, and construction requirements of those agencies.
13
Homebuilding is subject to warranty and other claims in the ordinary course of business that can be significant.
As a homebuilder, we are subject to home warranty, construction defect, and other claims arising in the ordinary course
of business. We record warranty and other reserves relating to the homes we sell based on historical experience in our markets
and our judgment of the qualitative risks associated with the types of homes built. We have, and require our subcontractors to
have, general liability, property, errors and omissions, workers compensation, and other business insurance. These insurance
policies protect us against a portion of our risk of loss from claims, subject to certain self-insured per occurrence and aggregate
retentions, deductibles, and available policy limits. 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. We reserve
for costs to cover our self-insured and deductible amounts under these policies and for any costs of claims and lawsuits based
on an analysis of our historical claims, which includes an estimate of claims incurred but not yet reported. Because of the
uncertainties inherent in these matters, we cannot provide assurance that our insurance coverage, our subcontractor
arrangements, and our reserves will be adequate to address all our warranty and construction defect claims in the future.
Contractual indemnities can be difficult to enforce, we may be responsible for applicable self-insured retentions, and some
types of claims may not be covered by insurance or may exceed applicable coverage limits. Additionally, the coverage offered
by and the availability of general liability insurance for construction defects are currently costly and limited. We have
responded to increases in insurance costs and coverage limitations by increasing our self-insured retentions and claim reserves.
There can be no assurance that coverage will not be further restricted or become more costly. Additionally, we are exposed to
counterparty default risk related to our subcontractors, our insurance carriers, and our subcontractors’ insurance carriers.
Natural disasters, severe weather conditions and changing climate patterns could delay deliveries, increase costs, and
decrease demand for new homes in affected areas.
Our homebuilding operations are located in many areas that are subject to natural disasters and severe weather. The
occurrence of natural disasters or severe weather conditions can delay new home deliveries, increase costs by damaging
inventories, reduce the availability of materials, and negatively impact the demand for new homes in affected areas.
Furthermore, if our insurance does not fully cover business interruptions or losses resulting from these events, our earnings,
liquidity, or capital resources could be adversely affected. In 2017 and 2018, several hurricanes caused disruptions in our
Florida, Carolinas, and Houston markets but did not result in a material impact to our results of operations.
In addition, government restrictions, standards, or regulations intended to reduce greenhouse gas emissions or potential
climate change impacts are likely to result in restrictions on land development in certain areas and may increase energy,
transportation, or raw material costs, which could reduce our housing gross profit margins and adversely affect our results of
operations.
Inflation may result in increased costs that we may not be able to recoup.
Inflation can adversely affect us by increasing costs of land, materials, and labor. In addition, significant inflation is often
accompanied by higher interest rates, which may have a negative impact on demand for our homes. In an inflationary
environment, economic conditions and other market factors may make it difficult for us to raise home prices enough to keep up
with the rate of inflation, which would reduce our profit margins. Although the rate of inflation has been historically low for the
last several years, we currently are experiencing increases in the prices of labor and materials above the general inflation rate.
Information technology failures or data security breaches could harm our business.
We use information technology and other computer resources to carry out important operational activities and to
maintain our business records. Our computer systems, including our back-up systems, are subject to damage or interruption
from power outages, computer and telecommunications failures, computer viruses, security breaches (through cyberattacks
from computer hackers and sophisticated organizations), catastrophic events such as fires, tornadoes and hurricanes, and usage
errors by our employees or cyber-attacks or errors by third party vendors who have access to our confidential data, or that of
our customers. While we are continuously working to improve our information technology systems and provide employee
awareness training around phishing, malware, and other cyber risks to enhance our levels of protection, to the extent possible,
against cyber risks and security breaches, and monitor to prevent, detect, address and mitigate the risk of unauthorized access,
misuse, computer viruses and other events that could have an impact on our business, there is no assurance that advances in
computer capabilities, new technologies, methods or other developments will detect or prevent security breaches and safeguard
access to proprietary or confidential information. If our computer systems and our back-up systems are damaged, breached, or
cease to function properly, or if there are intrusions or failures of critical infrastructure such as the power grid or
14
communications systems, we could suffer extended interruptions in our operations or unintentionally allow misappropriation of
proprietary or confidential information (including information about our employees, homebuyers and business partners). Any
such disruption could damage our reputation, result in market value declines, lead to legal proceedings against us by affected
third parties resulting in penalties or fines, and require us to incur significant costs to remediate or otherwise resolve these
issues.
We can be injured by improper acts of persons over whom we do not have control or by the attempt to impose liabilities or
obligations of third parties on us.
Although we expect all of our employees, officers, and directors to comply at all times with all applicable laws, rules,
and regulations, there may be instances in which subcontractors or others through whom we do business engage in practices
that do not comply with applicable laws, regulations, or governmental guidelines. When we learn of practices that do not
comply with applicable laws or regulations, including practices relating to homes, buildings, or multifamily rental properties we
build or finance, we move actively to stop the non-complying practices as soon as possible, and we have taken disciplinary
action regarding employees of ours who were aware of non-complying practices and did not take steps to address them,
including in some instances terminating their employment. However, regardless of the steps we take after we learn of practices
that do not comply with applicable laws or regulations, we can in some instances be subject to fines or other governmental
penalties, and our reputation can be injured, due to the practices' having taken place.
The homes we sell are built by employees of subcontractors and other contract parties. We do not have the ability to
control what these contract parties pay their employees or subcontractors or the work rules they impose on their employees or
subcontractors. However, various governmental agencies are trying to hold contract parties like us responsible for violations of
wage and hour laws and other work-related laws by firms whose employees are performing contracted services. Governmental
rulings or changes in state or local laws that make us responsible for labor practices by our subcontractors could create
substantial exposures for us in situations that are not within our control.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
Our homebuilding and corporate headquarters are located in leased office facilities at 3350 Peachtree Road NE, Suite
150, Atlanta, Georgia 30326. Pulte Mortgage leases its primary office facilities in Englewood, Colorado. We also maintain
various support functions in leased facilities in Tempe, Arizona. Our homebuilding divisions and financial services branches
lease office space in the geographic locations in which they conduct their daily operations.
Because of the nature of our homebuilding operations, significant amounts of property are held as inventory in the
ordinary course. Such properties are not included in response to this Item.
ITEM 3.
LEGAL PROCEEDINGS
We are involved in various legal and governmental proceedings incidental to our continuing business operations, many
involving claims related to certain construction defects. The consequences of these matters are not presently determinable but,
in our opinion, after consulting with legal counsel and taking into account insurance and reserves, the ultimate liability is not
expected to 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 our estimates reflected in the recorded reserves relating
to such matter, we could incur additional charges that could be significant.
ITEM 4. MINE SAFETY DISCLOSURES
This Item is not applicable.
15
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is certain information with respect to our executive officers.
Name
Ryan R. Marshall
Robert T. O'Shaughnessy
Todd N. Sheldon
Harmon D. Smith
Michelle Hairston
James L. Ossowski
Stephen P. Schlageter
Age Position
44
53
51
55
42
50
48
President and Chief Executive Officer
Executive Vice President and Chief Financial Officer
Executive Vice President, General Counsel and Corporate Secretary
Executive Vice President and Chief Operating Officer
Senior Vice President, Human Resources
Senior Vice President, Finance
Senior Vice President, Operations and Strategy
The following is a brief account of the business experience of each officer during the past five years:
Year Became
An Executive
Officer
2012
2011
2017
2011
2018
2013
2018
Mr. Marshall was appointed Chief Executive Officer in September 2016. Previously, he held the positions of President
since February 2016 and Executive Vice President, Homebuilding Operations since May 2014. He served as an Area President
over various geographical markets since 2012.
Mr. O'Shaughnessy was appointed Executive Vice President and Chief Financial Officer in May 2011.
Mr. Sheldon was appointed Executive Vice President, General Counsel and Corporate Secretary in March 2017. Prior to
joining our company, he served as Executive Vice President, General Counsel and Secretary at Americold Realty Trust from
June 2013 to March 2017.
Mr. Smith was appointed Executive Vice President and Chief Operating Office in February 2016 and previously held the
positions of Executive Vice President, Field Operations since May 2014 and Homebuilding Operations and Area President,
Texas since May 2012.
Ms. Hairston was appointed Senior Vice President, Human Resources in April 2018 and previously held the positions of
Area Vice President of Human Resources, for the East and Midwest Areas since May 2015 and Vice President of Human
Resources, Talent Acquisition between May 2015 and September 2016. She served as an Area Vice President, Human
Resources over various geographical markets since 2009.
Mr. Ossowski was appointed Senior Vice President, Finance in February 2017 and previously held the position of Vice
President, Finance and Controller since February 2013.
Mr. Schlageter was appointed Senior Vice President, Operations & Strategy in September 2017 and previously held the
position of Area President over various geographical markets since 2012.
There is no family relationship between any of the officers. Each officer serves at the pleasure of the Board of Directors.
16
PART II
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common shares are listed on the New York Stock Exchange (Symbol: PHM). At January 24, 2019, there were 2,248
shareholders of record.
Issuer Purchases of Equity Securities
Total number
of shares
purchased
Average
price paid
per share
2,431,879
$
2,308,628
358,596
5,099,103
$
23.22
24.72
26.49
24.13
Total number of
shares purchased
as part of publicly
announced plans
or programs
Approximate dollar
value of shares
that may yet be
purchased under
the plans or
programs
($000’s omitted)
2,410,261
2,308,628
358,596
5,077,485
$
$
$
366,446 (1)
309,381 (1)
299,882 (1)
October 1, 2018 to October 31, 2018
November 1, 2018 to November 30, 2018
December 1, 2018 to December 31, 2018
Total
(1)
The Board of Directors approved a share repurchase authorization totaling $1.0 billion in July 2016 and an increase
of $500.0 million to such authorization in January 2018. There is no expiration date for this program, under which
$299.9 million remained available as of December 31, 2018. During 2018, we repurchased 10.9 million shares under
this program.
The information required by this item with respect to equity compensation plans is set forth under Item 12 of this annual
report on Form 10-K and is incorporated herein by reference.
17
Performance Graph
The following line graph compares, for the fiscal years ended December 31, 2014, 2015, 2016, 2017, and 2018, (a) the
yearly cumulative total shareholder return (i.e., the change in share price plus the cumulative amount of dividends, assuming
dividend reinvestment, divided by the initial share price, expressed as a percentage) on PulteGroup’s common shares, with
(b) the cumulative total return of the Standard & Poor’s 500 Stock Index and with (c) the Dow Jones U.S. Select Home
Construction Index. The Dow Jones U.S. Select Home Construction Index is a widely-recognized index comprised primarily of
large national homebuilders. We believe comparison of our shareholder return to this index represents a meaningful analysis for
investors.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG PULTEGROUP, INC., S&P 500 INDEX, AND PEER INDEX
Fiscal Year Ended December 31, 2018
PULTEGROUP, INC.
S&P 500 Index - Total Return
Dow Jones U.S. Select Home Construction
Index
2013
2014
2015
2016
2017
2018
$
100.00
$
106.57
$
90.01
$
94.63
$
173.56
$
137.52
100.00
113.69
115.26
129.05
157.22
150.33
100.00
105.15
110.88
113.34
181.51
125.74
* Assumes $100 invested on December 31, 2013, and the reinvestment of dividends.
18
ITEM 6.
SELECTED FINANCIAL DATA
Set forth below is selected consolidated financial data for each of the past five fiscal years. The selected financial data
should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations
and our Consolidated Financial Statements and Notes thereto included elsewhere in this report.
OPERATING DATA:
Homebuilding:
Revenues
Income before income taxes
Financial Services:
Revenues
Income before income taxes
Consolidated results:
Revenues
Income before income taxes
Income tax (expense) benefit
Net income
PER SHARE DATA:
Net income per share:
Basic
Diluted
Number of shares used in calculation:
Basic
Effect of dilutive securities
Diluted
Shareholders’ equity
Cash dividends declared
Years Ended December 31,
(000’s omitted, except per share data)
2018
2017
2016
2015
2014
$ 9,982,949
$ 8,385,526
$ 7,495,404
$ 5,844,658
$ 5,700,338
$ 1,288,804
$
$
205,382
58,736
$
$
$
865,332
192,160
73,496
$
$
$
860,766
181,126
73,084
$
$
$
757,317
140,445
58,706
$
$
$
635,177
125,638
54,581
$10,188,331
$ 8,577,686
$ 7,676,530
$ 5,985,103
$ 5,825,977
689,758
(215,420)
474,338
1.27
1.26
370,377
3,725
374,102
13.01
0.23
$ 1,347,540
(325,517)
$ 1,022,023
3.56
3.55
283,578
1,287
284,865
$
$
$
$
$
$
$
$
938,828
(491,607)
447,221
1.45
1.44
305,089
1,725
306,814
$
$
$
$
933,850
(331,147)
602,703
1.76
1.75
339,747
2,376
342,123
$
$
$
$
$
$
$
$
816,023
(321,933)
494,090
1.38
1.36
356,576
3,217
359,793
17.39
0.38
$
$
14.60
0.36
$
$
13.63
0.36
$
$
13.63
0.33
$
$
19
December 31,
($000’s omitted)
BALANCE SHEET DATA:
House and land inventory
Total assets
Notes payable
Shareholders’ equity
2018
2017
2016
2015
2014
$
7,253,353
$
7,147,130
$
6,770,655
$
5,450,058
$
4,392,100
10,172,976
3,028,066
4,817,782
9,686,649
3,006,967
4,154,026
10,178,200
3,129,298
4,659,363
9,189,406
2,109,841
4,759,325
8,560,187
1,831,593
4,804,954
OTHER DATA:
Markets, at year-end
Active communities, at year-end
Closings (units)
Net new orders (units)
Backlog (units), at year-end
Average selling price (per unit)
Years Ended December 31,
2018
2017
2016
2015
2014
44
815
23,107
22,833
8,722
47
790
21,052
22,626
8,996
49
726
19,951
20,326
7,422
50
620
17,127
18,008
6,731
49
598
17,196
16,652
5,850
$
425,000
$
395,000
$
373,000
$
338,000
$
329,000
20
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
Favorable demographic a
Favorable demographic and economic conditions, combined with historically low interest rates, have supported the
recovery in U.S. new home sales that began in 2012. During this period, we have made significant investments to acquire and
develop land inventory and open new communities, including opening approximately 250 new communities across our local
markets in each of the last three years. We have grown our investment in the business in a disciplined manner by emphasizing
smaller projects and working to shorten our years of owned land supply, including increasing the use of land option agreements,
which now account for 40% of our controlled lots as compared with 11% at the beginning of 2012. We have also focused our
land investments on closer-in locations where we think demand is more sustainable when the market ultimately moderates. We
have accepted the trade-off of having to pay more for certain land positions where we can be more confident in future
performance. The combination of favorable demand conditions, our investments in new communities, and our focus on gross
margin performance through community location, strategic pricing, and construction efficiencies resulted in growth in our
h
revenues and income before i
ncome taxes each year during the period from 2012 to 2018.
i d f
d i
h
We entered 2018 with a large backlog of new orders, and demand conditions remained favorable through the early part
i d f
i h l
bl h
b kl
h h
di i
d d
d
d
d
f
l
i
f
d
ll
d b
i d
i d
id
j
h b
of 2018, as evidenced by continued growth in new orders during the traditional spring selling season. However, this was
of 2018, as evidenced by continued growth in new orders during the traditional spring selling season. However, this was
followed by an industry-wide softening in demand that began in the second quarter of 2018. To varying degrees, the slowdown
i
f ll
h
has occurred across all major buyer groups and all of our geographies. This slowdown was closely correlated with the rise in
mortgage interest rates that began in May 2018, however, we believe that the broader cause is the affordability challenge that
b li
many prospective buyers continue to face, which has created uncertainty in the industry regarding short-term demand.
d
d
However, many of the fundamentals supporting continued growth in demand, includ
However, many of the fundamentals supporting continued growth in demand, including: a strong employment picture in the
U.S.; high consumer confidence; a supportive, though slightly higher, interest rate environment; and a limited supply of new
and existing homes, remain favorable.
d
l
ff d bili
h
d ll
h
hi h h
d i h h
h ll
d h b
f
d
h i d
l
i h
di
l
h b
d
hi
h
hi
i
h
b
h
d
b
d
h
d
f
f
l
i
i
i
i
i
i
l
i
i
We believe that the actions we have taken over the past few years to shorten the duration of our land inventory,
increase our use of land option agreements, and drive higher margins while maintaining a conservative financial position allow
us to operate effectively in most economic conditions. Additionally, our overall financial condition continues to support
investing in the business while returning excess capital to shareholders. If demand conditions accelerate, we have the
communities and lots available to meet that demand.
21
The following is a summary of our operating results by line of business ($000's omitted, except per share data):
Income before income taxes:
Homebuilding
Financial Services
Income before income taxes
Income tax expense
Net income
Per share data - assuming dilution:
Net income
Years Ended December 31,
2017
2016
2018
$
$
$
1,288,804
58,736
1,347,540
(325,517)
1,022,023
3.55
$
$
$
865,332
73,496
938,828
(491,607)
447,221
1.44
$
$
$
860,766
73,084
933,850
(331,147)
602,703
1.75
• Homebuilding income before income taxes improved each year from 2016 to 2018. Revenues increased each year
and overhead leverage improved. Homebuilding income before income taxes also reflected the following significant
income (expense) items ($000's omitted):
)
Land inventory impairments (see Note 2)
Warranty claim (see Note 11))
Home sale cost of
revenues
Home sale cost of
revenues
2018
(70,965)
2017
(88,952)
2016
(1,074)
—
(12,389)
—
Net realizable value adjustments ("NRV") -
land held for sale (see Note 2))
Land sale cost of
revenues
(11,489)
(83,576)
(1,105)
)
California land sale gains (see Note 3)
)
Insurance reserve adjustments (see Note 11)
Write-offs of insurance receivables (see Note
11))
Restructuring costs from corporate office
relocation and other actions
Write-offs of deposits and pre-acquisition
costs (see Note 2))
Impairments of unconsolidated entities (see
Note 2))
Settlement of disputed land transaction (see
Note 11))
Land sale revenues /
cost of revenues
Selling, general, and
administrative
expenses
Selling, general, and
administrative
expenses
Selling, general, and
administrative
expenses
Other expense, net
Other expense, net
Other expense, net
Other expense, net
26,401
—
—
35,873
97,789
57,132
—
—
(29,624)
—
—
(10,030)
—
(16,992)
—
(11,367)
(11,643)
(17,157)
—
—
(8,017)
—
—
(15,000)
$
(37,172) $
(136,136) $
1,123
For additional information on the above, see the applicable Notes to the Consolidated Financial Statements.
• The decrease in Financial Services income in 2018 compared with 2017 and 2016 was primarily due to a $16.1
million increase in loan origination liabilities in 2018 (see Note 11) combined with a more competitive pricing
environment. Refinance activity has slowed in the mortgage industry, which has increased competition, pressured
loan pricing, and resulted in lower capture rate and reduced margins on our loan originations in 2018. These factors
offset higher revenues driven primarily by higher volumes in the Homebuilding segment.
)
• Our effective tax rate was 24.2%, 52.4%, and 35.5% for 2018, 2017, and 2016, respectively (see Note 8). The
)
effective tax rates for 2018 and 2017 reflect the impact of the Tax Act, which lowered the federal tax rate from 35%
to 21% effective in 2018. Due to the Tax Act's enactment in December 2017, income tax expense for 2017 included
a charge of $172.1 million related to the remeasurement of our deferred tax balances and other effects.
22
Homebuilding Operations
The following is a summary of income before income taxes for our Homebuilding operations ($000’s omitted):
Years Ended December 31,
2018
FY 2018 vs.
FY 2017
2017
FY 2017 vs.
FY 2016
2016
Home sale revenues
Land sale and other revenues (a) (c)
Total Homebuilding revenues
Home sale cost of revenues (b)
Land sale cost of revenues (a)
Selling, general, and administrative expenses
("SG&A") (d)
Other expense, net (e)
Income before income taxes
t
:
pp
Supplemental data
Gross margin from home sales (b)
SG&A % of home sale revenues (d)
Closings (units)
Average selling price
Net new orders (f)(f):
Units
Dollars
Cancellation rate
Active communities at December 31
:
Backlog at December 31
g
$ 9,818,445
18 % $ 8,323,984
164,504
9,982,949
(7,540,937)
(126,560)
(1,012,023)
(14,625)
167 %
61,542
19 %
8,385,526
17 % (6,461,152)
(134,449)
(6)%
14 %
(56)%
(891,581)
(33,012)
865,332
$ 1,288,804
49 % $
12 % $ 7,451,315
40 %
44,089
12 %
7,495,404
16 % (5,587,974)
(32,115)
319 %
(7)%
(42)%
1 % $
(957,150)
(57,399)
860,766
23.2%
10.3%
23,107
425
$
22,833
$ 9,675,529
80 bps
(40) bps
10 %
8 % $
22.4%
10.7%
21,052
395
(260) bps
(210) bps
6 %
6 % $
25.0%
12.8%
19,951
373
22,626
1 %
3 % $ 9,361,534
20,326
11 %
21 % $ 7,753,399
14%
815
3 %
14%
790
9 %
15%
726
8,722
$ 3,836,147
(3)%
8,996
(4)% $ 3,979,064
21 %
7,422
35 % $ 2,941,512
Includes net gains of $26.4 million related to two land sale transactions in California during the year ended
December 31, 2018 (see Note 3).)3
Includes the amortization of capitalized interest; land inventory impairments of $71.0 million in 2018, $89.0 million
in 2017, and $1.1 million in 2016 (see Note 2); and a warranty charge of $12.4 million related to a closed-out
community in 2017 (see Note 11).)1
)2
Includes net realizable value adjustments on land held for sale of $11.5 million, $83.6 million, and $1.1 million in
2018, 2017, and 2016, respectively (see Note 2).)2
Includes write-offs of $29.6 million of insurance receivables associated with the resolution of certain insurance
matters in 2017 (see Note 11); insurance reserve reversals of $35.9 million, $97.8 million and $57.1 million in 2018,
2017, and 2016, respectively (see Note 11); and restructuring costs from corporate office relocation and other
actions of $10.0 million in 2016.
)1
)1
See "Other expense, net" for a table summarizing significant items.
Net new orders excludes backlog acquired from Wieland in January 2016 (see Note 1). 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.
)1
23
Units
Dollars
(a)
(b)
(c)
(d)
(e)
(f)
Home sale revenues
Home sale revenues for 2018 were higher than 2017 by $1.5 billion, or 18%. The increase was attributable to a 10%
increase in closings and an 8% increase in the average selling price. The increase in closings reflects the significant land
investments we have made in recent years and the resulting growth in our active communities combined with the favorable
buyer demand environment that continued into the spring of 2018. The higher average selling prices occurred across the
majority of our markets and reflects shifts in product mix, including a higher mix of move-up homebuyers and an increase in
the mix of closings in Northern California, where our average selling prices are significantly higher than the Company average.
Home sale revenues for 2017 were higher than 2016 by $872.7 million, or 12%. The increase was attributable to a 6%
increase in closings and a 6% increase in the average selling price. The increase in closings reflects the significant land
investments we have made in recent years and the resulting increase in our active communities combined with favorable buyer
demand conditions. The increased closings occurred despite the disruption in our operations caused by Hurricane Harvey in
Houston, Texas, and Hurricane Irma in Florida, as well as permitting and other municipal approval delays in certain
communities. The higher average selling price for 2017 occurred across the majority of our markets and reflected a shift toward
move-up homebuyers.
Home sale gross margins
Home sale gross margins were 23.2% in 2018, compared with 22.4% in 2017 and 25.0% in 2016. Our results in 2018
and 2017 include the effect of the aforementioned land inventory impairments totaling $71.0 million and $89.0 million,
respectively. Excluding such impairments, gross margins remained strong in both 2018 and 2017 relative to historical levels and
reflect a combination of factors, including shifts in community mix and a small increase in the mix of closings in Northern
California in 2018 partially offset by the aforementioned warranty charge of $12.4 million in 2017 related to a closed-out
community in Florida and slightly higher amortized interest costs (1.8% of home sale revenues in 2018 compared with 1.7% in
2017). Gross margins decreased in 2017 compared with 2016 as the result of the aforementioned land inventory impairments
and warranty charge combined with higher house construction and land costs as the supply chain responded to the housing
recovery.
Land sales
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 revenues and their related gains or losses vary
between periods, depending on the timing of land sales and our strategic operating decisions. Land sales contributed net gains
(losses) of $37.9 million, $(72.9) million, and $12.0 million in 2018, 2017, and 2016, respectively. The gains in 2018 resulted
primarily from two land sale transactions in California that contributed $26.4 million. The losses in 2017 resulted primarily
from the aforementioned net realizable value charges of $83.6 million (see Note 2).)
SG&A
SG&A as a percentage of home sale revenues was 10.3% and 10.7% in 2018 and 2017, respectively. The gross dollar
amount of our SG&A increased $120.4 million, or 14%, in 2018 compared with 2017. The improved overhead leverage reflects
volume efficiencies and realized cost efficiencies, as well as the aforementioned insurance reserve reversals of $35.9 million
and $97.8 million in 2018 and 2017, respectively, partially offset by write-offs of $29.6 million in 2017 associated with the
resolution of certain insurance matters (see Note 11). )
SG&A as a percentage of home sale revenues was 10.7% and 12.8% in 2017 and 2016, respectively. The gross dollar
amount of our SG&A decreased $65.6 million, or 7%, in 2017 compared with 2016. SG&A includes the aforementioned
insurance receivable write-offs of $29.6 million in 2017 and general liability insurance reserve reversals of $97.8 million and
$57.1 million in 2017 and 2016, respectively, resulting from favorable claims experience (see Note 11). Excluding these items,
the improvement in our year-over-year SG&A leverage was primarily attributable to cost efficiencies realized in late 2016 that
continued into 2017.
)
24
Other expense, net
Other expense, net includes the following ($000’s omitted):
Write-offs of deposits and pre-acquisition costs (Note 2)
Lease exit and related costs (a)
Amortization of intangible assets (Note 1)
Interest income
Interest expense
Equity in earnings (loss) of unconsolidated entities (Note 4) ) (b)
Miscellaneous, net (c)
t
Total other expense, net
2018
2017
2016
$
$
(16,992) $
(240)
(13,800)
7,593
(618)
2,690
6,742
(14,625) $
(11,367) $
(1,729)
(13,800)
2,537
(503)
(1,985)
(6,165)
(33,012) $
(17,157)
(11,643)
(13,800)
3,236
(686)
8,337
(25,686)
(57,399)
(a)
Lease exit and related costs for 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.
Includes an $8.0 million impairment of an investment in an unconsolidated entity in 2017 (see Note 2).)2
(b)
(c) Miscellaneous, net includes a charge of $15.0 million in 2016 related to the settlement of a disputed land
transaction (see Note 11).)1
Net new orders
Net new orders in units increased 1% in 2018 compared with 2017. The increase resulted primarily from the higher
number of active communities, which increased 3% to 815 at December 31, 2018. Net new orders in dollars increased by 3%
compared with 2017 due to the growth in units combined with the higher average selling price. The cancellation rate (canceled
orders for the period divided by gross new orders for the period) remained stable in 2018 at 14%. Ending backlog units, which
represent orders for homes that have not yet closed, decreased 3% as measured in units and 4% as measured in dollars at
December 31, 2018 compared with December 31, 2017. The higher average sales price when compared to 2017 also
contributed to the higher backlog dollars. Our higher number of active communities combined with the overall demand
environment resulted in a strong start to the year. However, while customer traffic to our communities increased during 2018,
we experienced lower than expected conversions of traffic to signups, especially among first-time and move-up buyers,
beginning in May 2018 when mortgage rates increased, which compounded existing housing affordability issues faced by many
homebuyers.
Net new orders in units increased 11% in 2017 compared with 2016. The increase resulted primarily from the higher
number of active communities, which increased 9% to 790 active communities at December 31, 2017. Net new orders in dollars
increased by 21% compared with 2016 due to the growth in units combined with the higher average selling price. The
cancellation rate (canceled orders for the period divided by gross new orders for the period) decreased in 2017 from 2016 at
14% and 15%, respectively. Ending backlog units, which represent orders for homes that have not yet closed, increased 21% at
December 31, 2017 compared with December 31, 2016 as measured in units and increased 35% over the prior year period as
measured in dollars. The higher average sales price when compared to 2016 also contributed to the higher backlog dollars.
Homes in production
The following is a summary of our homes in production at December 31, 2018 and 2017:
Sold
Unsold
Under construction
Completed
Models
Total
2018
2017
6,245
6,246
2,531
715
3,246
1,216
1,973
637
2,610
1,148
10,707
10,004
25
The number of homes in production at December 31, 2018 was 7% higher compared to December 31, 2017. The increase
in homes under production resulted from a 24% increase in the number of unsold, or "spec", homes, which resulted primarily
from the strategic decision to allow spec production to run higher than in previous periods to ensure access to construction
suppliers and to position communities heading into 2019 ahead of the spring selling season.
Controlled lots
The following is a summary of our lots under control at December 31, 2018 and 2017:
Northeast
Southeast
Florida
Midwest
Texas
West
Total
December 31, 2018
December 31, 2017
Owned
Optioned
Controlled
Owned
Optioned
Controlled
5,813
15,800
18,652
10,097
14,380
24,788
89,530
3,694
11,806
15,855
11,883
11,035
5,774
60,047
9,507
27,606
34,507
21,980
25,415
30,562
149,577
5,194
15,404
18,458
10,612
13,923
25,662
89,253
5,569
11,085
11,887
9,196
8,320
6,099
10,763
26,489
30,345
19,808
22,243
31,761
52,156
141,409
Developed (%)
39%
21%
32%
37%
20%
31%
Of our controlled lots, 89,530 and 89,253 were owned and 60,047 and 52,156 were under land option agreements at
December 31, 2018 and 2017, respectively. While competition for well-positioned land is robust, we continue to pursue
strategic land positions that drive appropriate returns on invested capital. The remaining purchase price under our land option
agreements totaled $2.6 billion at December 31, 2018. 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 $218.6 million, of which $11.2 million is refundable,
at December 31, 2018.
Homebuilding Segment Operations
Our homebuilding operations represent our core business. Homebuilding offers a broad product line to meet the needs of
homebuyers in our targeted markets. As of December 31, 2018, we conducted our operations in 44 markets located throughout
24 states. For reporting purposes, our Homebuilding operations are aggregated into six reportable segments:
Northeast:
Connecticut, Maryland, Massachusetts, New Jersey, New York, Pennsylvania, Virginia
Southeast:
Georgia, North Carolina, South Carolina, Tennessee
Florida:
Midwest:
Texas:
West:
Florida
Illinois, Indiana, Kentucky, Michigan, Minnesota, Ohio
Texas
Arizona, California, Nevada, New Mexico, Washington
We also have a reportable segment for our financial services operations, which consist principally of mortgage banking
and title operations. The Financial Services segment operates generally in the same markets as the Homebuilding segments.
26
The following table presents selected financial information for our reportable Homebuilding segments:
Home sale revenues:
Northeast
Southeast
Florida
Midwest
Texas
West
Income before income taxes (a):
Northeast (b)
Southeast
Florida (c)
Midwest
Texas
West (d)
Other homebuilding (e)
Closings (units):
Northeast
Southeast
Florida
Midwest
Texas
West
Average selling price:
Northeast
Southeast
Florida
Midwest
Texas
West
Operating Data by Segment ($000's omitted)
Years Ended December 31,
2018
FY 2018 vs.
FY 2017
2017
FY 2017 vs.
FY 2016
2016
$
795,211
15 % $
693,624
— % $
696,003
1,740,239
1,911,537
1,492,572
1,296,183
2,582,703
12 %
30 %
4 %
11 %
29 %
1,556,615
1,469,005
1,435,692
1,166,843
2,002,205
5 %
15 %
16 %
13 %
16 %
1,485,809
1,274,237
1,233,110
1,033,387
1,728,769
$ 9,818,445
18 % $ 8,323,984
12 % $ 7,451,315
$
29,629
40 % $
21,190
(74)% $
81,991
202,639
289,418
179,568
193,946
511,828
(118,224)
65 %
39 %
1 %
6 %
123 %
(52)%
$ 1,288,804
49 % $
1,558
4,220
4,771
3,716
4,212
4,630
17 %
9 %
24 %
1 %
3 %
11 %
122,532
208,825
178,231
182,862
229,504
(77,812)
865,332
1,335
3,888
3,861
3,696
4,107
4,165
23,107
10 % $
21,052
$
$
510
412
401
402
308
558
425
(2)% $
3 %
6 %
3 %
8 %
16 %
8 % $
520
400
380
388
284
481
395
(16)%
2 %
48 %
20 %
2 %
(12)%
1 % $
(6)%
— %
12 %
8 %
10 %
3 %
6 %
6 % $
5 %
3 %
8 %
2 %
13 %
6 % $
145,011
205,049
120,159
152,355
225,771
(69,570)
860,766
1,418
3,901
3,441
3,418
3,726
4,047
19,951
491
381
370
361
277
427
373
Includes land-related charges as summarized in the following land-related charges table (see Note 2).)2
(a)
(b) Northeast includes a charge of $15.0 million in 2016 related to the settlement of a disputed land transaction (see
Note 11).)1
Florida includes a warranty charge of $12.4 million in 2017 related to a closed-out community (see Note 11).)1
Includes gains of $26.4 million related to two land sale transactions in California in 2018
(c)
(d)
(e) Other homebuilding includes the amortization of intangible assets, amortization of capitalized interest, and other
items not allocated to the operating segments. Also includes: write-off of $29.6 million of insurance receivables
associated with the resolution of certain insurance matters in 2017; insurance reserve reversals of $35.9 million,
$97.8 million and $57.1 million in 2018, 2017, and 2016, respectively (see Note 11); and costs associated with the
relocation of our corporate headquarters totaling $8.3 million in 2016.
)1
27
The following tables present additional selected financial information for our reportable Homebuilding segments:
Operating Data by Segment ($000's omitted)
Years Ended December 31,
2018
FY 2018 vs.
FY 2017
2017
FY 2017 vs.
FY 2016
2016
Net new orders - units:
Northeast
Southeast
Florida
Midwest
Texas
West
Net new orders - dollars:
Northeast
Southeast
Florida
Midwest
Texas
West
Cancellation rates:
Northeast
Southeast
Florida
Midwest
Texas
West
Unit backlog:
Northeast
Southeast
Florida
Midwest
Texas
West
Backlog dollars:
Northeast
Southeast
Florida
Midwest
Texas
West
1,516
4,114
4,982
3,631
4,278
4,312
22,833
$
799,373
1,721,103
2,029,999
1,492,453
1,332,598
2,300,003
$ 9,675,529
10%
12%
13%
12%
19%
17%
14%
470
1,610
1,889
1,402
1,492
1,859
8,722
4 %
(3)%
21 %
(6)%
4 %
(10)%
1 %
1,460
4,233
4,121
3,876
4,121
4,815
22,626
6 % $
757,679
2 % 1,691,020
27 % 1,594,367
(2)% 1,523,153
10 % 1,214,149
(11)% 2,581,166
3 % $ 9,361,534
12%
12%
12%
11%
18%
16%
14%
512
1,716
1,678
1,487
1,426
2,177
8,996
(8)%
(6)%
13 %
(6)%
5 %
(15)%
(3)%
7%
11%
15%
7%
9%
16%
11%
1,361
3,810
3,585
3,636
3,793
4,141
20,326
12% $
674,066
14% 1,483,139
19% 1,340,181
13% 1,351,828
15% 1,060,217
40% 1,843,968
21% $ 7,753,399
11%
15%
12%
12%
18%
19%
15%
387
1,371
1,418
1,307
1,412
1,527
7,422
32%
25%
18%
14%
1%
43%
21%
$
257,812
2 % $
253,650
34% $
189,595
699,030
800,051
588,420
486,212
1,004,622
$ 3,836,147
(3)%
17 %
— %
8 %
718,166
681,589
588,539
449,797
(22)% 1,287,323
(4)% $ 3,979,064
23%
23%
17%
12%
82%
583,760
556,226
501,079
402,491
708,361
35% $ 2,941,512
28
The following table presents additional selected financial information for our reportable Homebuilding segments:
Land-related charges*:
Northeast
Southeast
Florida
Midwest
Texas
West
Other homebuilding
Operating Data by Segment ($000's omitted)
Years Ended December 31,
2018
2017
2016
$
74,488
$
51,362
$
8,140
1,166
7,361
1,204
5,159
1,928
55,689
9,702
8,917
2,521
56,995
6,726
2,079
3,089
715
3,383
515
8,960
595
$
99,446
$
191,912
$
19,336
* Land-related charges include land impairments, net realizable value adjustments for land held for sale, and write-
offs of deposits and pre-acquisition costs. Other homebuilding consists primarily of write-offs of capitalized interest
resulting from land-related charges. See Notes 2 and 3 to the Consolidated Financial Statements for additional
discussion of these charges.
Northeast:
The length and complexity of the entitlement process in the Northeast had led to a lack of growth in volumes in recent
years, which changed in 2018 with progress in a number of communities. For 2018, Northeast home sale revenues increased
15% compared with 2017 due to a 17% increase in closings, partially offset by a 2% decrease in average selling price. The
higher revenues occurred across the majority of markets, which was partially offset by our exit of the St. Louis market in 2018.
The increased income before income taxes resulted from the higher revenues, partially offset by higher land-related charges and
increased overhead expense. Net new orders increased slightly.
For 2017, Northeast home sale revenues remained flat compared with 2016 due to a 6% decrease in closings offset by
a 6% increase in average selling price. The decrease in closings occurred in the New England and Mid-Atlantic markets, while
the increase in average selling price occurred across all markets. The New England closings decrease was driven primarily by
closings delayed as the result of a fire in an attached product building that was under construction. The decreased income before
income taxes resulted from lower margins and increased SG&A expense across all markets, combined with the aforementioned
land-related charges recognized in the period (see Note 2). Net new orders increased across all markets.
)
Southeast:
For 2018, Southeast home sale revenues increased 12% compared with 2017 due to a 3% increase in the average selling
price combined with a 9% increase in closings. The increase in the average selling price occurred across all markets except
Georgia, while closings increased in Raleigh, Charlotte and Coastal Carolinas. Income before income taxes increased primarily
as a result of higher revenues and reduced land-related charges in 2018. Net new orders decreased 3%, attributable to a majoritytt
of markets.
For 2017, Southeast home sale revenues increased 5% compared with 2016 due to a 5% increase in the average selling
price. The increases in the average selling price occurred across all markets except Georgia, while closings decreased in
Raleigh, Charlotte and Coastal Carolinas, offset by increases in Georgia and Tennessee. Income before income taxes decreased
16% primarily due to the aforementioned land-related charges, partially offset by lower SG&A expense. Net new orders
increased 11%, primarily in Georgia and Raleigh.
29
Florida:
For 2018, Florida home sale revenues increased 30% compared with 2017 due to a 6% increase in the average selling
price combined with a 24% increase in closings. The increased income before income taxes for 2018 resulted primarily from
higher revenues combined with the aforementioned $12.4 million warranty charge in 2017 related to a closed-out community.
Net new orders increased 21% in 2018.
For 2017, Florida home sale revenues increased 15% compared with 2016 due to a 3% increase in the average selling
price combined with a 12% increase in closings. The increased income before income taxes for 2017 resulted primarily from
higher revenues, partially offset by the aforementioned $12.4 million warranty charge in 2017 related to a closed-out
community. Net new orders increased by 15% in 2017. Both closings and new orders increased despite the disruption in our
operations caused by Hurricane Irma.
Midwest:
For 2018, Midwest home sale revenues increased 4% compared with the prior year period due to an 1% increase in
closings combined with an 3% increase in the average selling price. The higher revenues occurred across the majority markets,
partially offset by our decision to exit the St. Louis market in 2017, which we completed in 2018. Income before income taxes
remained consistent with the prior year due to the increased revenues, partially offset by lower margins and higher SG&A
expense. Net new orders decreased across substantially all markets.
For 2017, Midwest home sale revenues increased 16% compared with the prior year period due to a 8% increase in
closings combined with a 8% increase in the average selling price. The higher revenues and increased closings occurred across
all markets. The increased closing volume combined with lower SG&A expense led to a 48% increase in income before income
taxes. Net new orders increased across all markets except for St. Louis, where we announced our decision to exit the market.
Texas:
For 2018, Texas home sale revenues increased 11% compared with the prior year period due to a 3% increase in closings
combined with an 8% increase in the average selling price. The increase in average selling price occurred across all markets,
while the increase in closings occurred across all markets except for Dallas and San Antonio. The higher revenues and higher
closings led to increased income before income taxes. Net new orders increased 4% across all markets except for Houston
which remained flat compared with 2017.
For 2017, Texas home sale revenues increased 13% compared with the prior year period due to a 10% increase in
closings combined with an 2% increase in the average selling price. The increase in average selling price occurred primarily in
Central Texas and San Antonio, while the increase in closings occurred across all markets except for San Antonio. The higher
revenues and higher closings led to increased income before income taxes. Net new orders increased 9% across all markets
except for San Antonio. Both closings and new orders increased despite the disruption in our Houston operations caused by
Hurricane Harvey.
West:
For 2018, West home sale revenues increased 29% compared with the prior year period due to an 11% increase in
closings combined with a 16% increase in the average selling price. The increased revenues occurred across substantially all
markets but were driven primarily by Northern California. The increased revenues contributed to increased income before
income taxes in all markets except New Mexico, with the majority coming from Northern California. Income before income
taxes also benefited from two land sale transactions that resulted in gains totaling $26.4 million as well as the lower land-related
charges. Net new orders decreased by 10% in 2018 compared with 2017, which was primarily concentrated in Northern
California.
For 2017, West home sale revenues increased 16% compared with the prior year period due to a 3% increase in closings
combined with a 13% increase in the average selling price. The increased closings primarily occurred in Southern California,
offset by a decrease in Northern California due to permitting and other municipal approval delays in certain communities. The
increased average selling price occurred across all markets. Income before income taxes slightly increased due to the increased
revenues and reduced overheads, partially offset by the aforementioned land-related charges recognized during the period (see
Note 2). Net new orders increased by 16% in 2017 compared with 2016 due to higher order levels across all markets.
)
30
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 supporting our Homebuilding operations, the business levels of our Financial Services
operations are highly correlated to Homebuilding. Our Homebuilding customers continue to account for substantially all loan
production. We believe that our capture rate, which represents loan originations from our Homebuilding operations as a
percentage of total loan opportunities from our Homebuilding operations, excluding cash closings, is an important metric in
evaluating the effectiveness of our captive mortgage business model. The following table presents selected financial
information for our Financial Services operations ($000’s omitted):
Years Ended December 31,
2018
FY 2018 vs.
FY 2017
2017
FY 2017 vs.
FY 2016
2016
Mortgage operations revenues
$
149,642
2 % $
146,358
3% $
142,262
Title and insurance brokerage revenues
Total Financial Services revenues
Expenses
Other income, net
Income before income taxes
:
Total originations
g
Loans
Principal
55,740
205,382
(147,422)
776
22 %
7 %
24 %
24 %
45,802
192,160
(119,289)
625
18%
6%
10%
18%
38,864
181,126
(108,573)
531
$
58,736
(20)% $
73,496
1% $
73,084
14,464
$ 4,456,360
2 %
14,152
8 % $ 4,127,084
6%
13,373
11% $ 3,706,745
Supplemental data:
pp
Capture rate
Average FICO score
Loan application backlog
:
Funded origination breakdown
g
Government (FHA, VA, USDA)
Other agency
Total agency
Non-agency
Total funded originations
Years Ended December 31,
2018
2017
2016
76.2%
752
79.9%
749
81.2%
750
$ 2,012,340
$ 2,263,803
$ 1,670,160
20%
68%
88%
12%
100%
22%
70%
92%
8%
100%
23%
70%
93%
7%
100%
Revenues
Total Financial Services revenues during 2018 increased 7% compared with 2017. The increase is primarily due to
higher loan origination, title, and insurance brokerage volume resulting from higher volumes in the Homebuilding segment. A
higher average loan size, driven primarily by higher average selling prices in the Homebuilding segment, also contributed to the
higher revenues. These factors were partially offset by the lower capture rate resulting from a more competitive market
environment. Total Financial Services revenues during 2017 increased 6% compared with 2016 due to higher mortgage and title
volumes resulting from increased home closings in the Homebuilding segment, partially offset by lower mortgage revenue per
loan, which were largely attributable to increased competition and pressured loan pricing.
31
Income before income taxes
The decrease in income before income taxes for 2018 as compared with 2017 was primarily due to a $16.1 million
increase in loan origination liabilities in 2018 (see Note 11) combined with a more competitive pricing environment. Refinance
activity has slowed in the mortgage industry, which has increased competition, pressured loan pricing, and resulted in lower
margins on our loan originations in 2018. These factors offset higher revenues driven primarily by higher volumes in the
Homebuilding segment. The increased income before income taxes for 2017 as compared with 2016 resulted from higher
origination volume and an increase in the revenue per loan combined with better overhead leverage and contributions from our
title operations.
)
Income Taxes
Our effective tax rate was 24.2%, 52.4% and 35.5% for 2018, 2017, and 2016, respectively. The effective tax rates for
2018 and 2017 reflect the impact of the Tax Act, which lowered the federal tax rate from 35% to 21% effective in 2018. Due to
the Tax Act's enactment in December 2017, income tax expense for 2017 included a charge of $172.1 million related to the
remeasurement of our deferred tax balances and other effects. The effective tax rate for 2016 included a net benefit related to
the reversal of a portion of our valuation allowance related to a legal entity restructuring along with the resolution of certain
state income tax and other matters.
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 December 31, 2018, we had unrestricted cash and equivalents of $1.1 billion, restricted cash balances of $23.6
million, and $760.6 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.
We retired outstanding debt totaling $82.8 million, $134.7 million, and $986.9 million during 2018, 2017, and 2016,
respectively. Our ratio of debt-to-total capitalization, excluding our Financial Services debt, was 38.6%, which is within our
targeted range of 30.0% to 40.0%, at December 31, 2018.
Unsecured senior notes
In February 2016, we issued $1.0 billion of unsecured senior notes, consisting of $300.0 million of 4.25% senior notes
due March 1, 2021, and $700.0 million of 5.50% senior notes due March 1, 2026. The net proceeds from this senior notes
issuance were used to fund the retirement of $465.2 million of our senior notes that matured in May 2016, with the remaining
net proceeds used for general corporate purposes. In July 2016, we issued an additional $1.0 billion of unsecured senior notes,
consisting of $400.0 million of 4.25% senior notes due March 1, 2021, and $600.0 million of 5% senior notes due January 15,
2027. The net proceeds from the July senior notes issuance were used for general corporate purposes and to pay down
approximately $500.0 million of outstanding debt, including the remainder of a then existing term loan facility. At
December 31, 2018, we had $3.0 billion of unsecured senior notes outstanding with no repayments due until March 2021 when
$700.0 million of notes are scheduled to mature.
Revolving credit facility
In June 2018, we entered into the Second Amended and Restated Credit Agreement ("Revolving Credit Facility") which
replaced the Company's previous credit agreement. The Revolving Credit Facility contains substantially similar terms to the
previous credit agreement and extended the maturity date from June 2019 to June 2023. The Revolving Credit Facility 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, yy
with a sublimit of $500.0 million at December 31, 2018. 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
32
therein. We had no borrowings outstanding and $239.4 million and $235.5 million of letters of credit issued under the
Revolving Credit Facility at December 31, 2018 and 2017, 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 December 31, 2018, we were in compliance with all covenants. Outstanding balances under the
Revolving Credit Facility are guaranteed by certain of our wholly-owned subsidiaries. Our available and unused borrowings
under the Revolving Credit Facility, net of outstanding letters of credit, amounted to $760.6 million and $764.5 million as of
December 31, 2018 and 2017, respectively.
Other notes payable
Certain of our local homebuilding operations are party to non-recourse and limited recourse collateralized notes payable
with third parties that totaled $41.3 million at December 31, 2018. These notes have maturities ranging up to three years, are
secured by the applicable land positions to which they relate, have no recourse to any other assets, and are classified within
notes payable.
Pulte Mortgage
Pulte Mortgage provides mortgage financing for the majority of our home closings by utilizing its own funds and funds
made available pursuant to credit agreements with third parties. Pulte Mortgage uses these resources to finance its lending
activities until the loans are sold in the secondary market, which generally occurs within 30 days.
Pulte Mortgage maintains a master repurchase agreement with third party lenders. In August 2018, Pulte Mortgage
entered into an amended and restated repurchase agreement (the “Repurchase Agreement”) that extended the termination date
to August 2019. The maximum aggregate commitment was $520.0 million during the seasonally high borrowing period from
December 26, 2018 through January 14, 2019. At all other times, the maximum aggregate commitment ranges from $240.0
million to $400.0 million. 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 $348.4 million and $437.8 million outstanding under the Repurchase Agreement at December 31, 2018, and
2017, respectively, and was in compliance with its covenants and requirements as of such dates.
Share repurchase program
In 2013, our Board of Directors authorized and announced a share repurchase program, which was subsequently
increased by $1.0 billion in July 2016 and by $500.0 million in January 2018. We repurchased 10.9 million, 35.4 million, and
30.9 million shares in 2018, 2017, and 2016, respectively, for a total of $294.6 million, $910.3 million, and $600.0 million in
2018, 2017, and 2016, respectively, under this program. At December 31, 2018, we had remaining authorization to repurchase
$299.9 million of common shares.
Dividends
Our declared quarterly cash dividends totaled $108.5 million, $110.0 million, and $122.2 million in 2018, 2017, and
2016, respectively.
Cash flows
g
Operating activities
p
Our net cash provided by operating activities in 2018 was $1.4 billion, compared with net cash provided by operating
activities of $663.1 million and $68.3 million in 2017 and 2016, respectively. Generally, the primary drivers of our cash flow
from operations are profitability and changes in inventory levels and residential mortgage loans available-for-sale. Our positive
cash flow from operations for 2018 was primarily due to our net income of $1.0 billion, which included non-cash land-related
charges of $99.4 million and $362.8 million of deferred income tax expense, supplemented by a $107.3 million reduction in
residential mortgage loans available-for-sale. These factors were partially offset by a net increase in inventories of $50.4 million
resulting from higher levels of spec inventory.
33
Our positive cash flow from operations for 2017 was primarily due to our net income of $447.2 million, which included
$191.9 million in non-cash land-related charges and deferred tax expense of $422.3 million. These were partially offset by a net
increase in inventories of $569.0 million resulting from ongoing land acquisition and development investment to support future
growth combined with additional house inventory to support the higher backlog.
Our negative cash flow from operations for 2016 was primarily due to a net increase in inventories of $897.1 million
resulting from increased land investment, combined with a net increase in residential mortgage loans available-for-sale of $99.5
million.
g
Investing activities
Net cash used in investing activities totaled $41.9 million in 2018, compared with $50.2 million in 2017 and $471.2
million in 2016. The use of cash from investing activities in 2018 was primarily due to $59.0 million of capital expenditures,
which increased from 2017 as the result of new community openings combined with increased expenditures on information
technology solutions. The use of cash from investing activities in 2017 was primarily due to $32.1 million of capital
expenditures and $23.0 million for investments in unconsolidated subsidiaries. The use of cash from investing activities in 2016
was primarily due to the acquisition of certain real estate assets from Wieland (see Note 1).)
g
Financing activities
Net cash used in financing activities was $580.3 million in 2018, compared with $1.0 billion during 2017 and net cash
provided by financing activities of $350.7 million in 2016. The net cash used in financing activities for 2018 resulted primarily
from the repurchase of 10.9 million common shares for $294.6 million under our repurchase authorization, repayments of debt
of $82.8 million, cash dividends of $104.0 million, and net repayments of $89.4 million under the Repurchase Agreement
related to the aforementioned decrease in residential mortgage loans available-for-sale.
Net cash used in financing activities for 2017 resulted primarily from the repurchase of 35.4 million common shares for
$910.3 million under our repurchase authorization, repayments of debt of $134.7 million, and cash dividends of $112.7 million,
partially offset by net borrowings of $106.2 million under the Repurchase Agreement related to a seasonal increase in
residential mortgage loans available-for-sale. Cash provided by financing activities for 2016 resulted primarily from the
proceeds of the unsecured senior notes issuance for $2.0 billion, offset by the repayment of $986.9 million of debt and the
repurchase of 30.9 million common shares for $600.0 million under our repurchase authorization and cash dividends of $124.7
million.
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 to our customers 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.
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 during 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.
34
Contractual Obligations and Commercial Commitments
The following table summarizes our payments under contractual obligations as of December 31, 2018:
Total
2019
Payments Due by Period
($000’s omitted)
2020-2021
2022-2023
After 2023
Contractual obligations:
Notes payable (a)
Operating lease obligations
Total contractual obligations (b)
$
$
4,582,517
113,496
4,696,013
$
$
191,379
24,806
216,185
$
$
1,034,534
35,553
1,070,087
$
$
271,250
27,269
298,519
$
$
3,085,354
25,868
3,111,222
(a)
Represents principal and interest payments related to our senior notes and limited recourse collateralized financing
arrangements.
(b) We do not have any payments due in connection with capital lease or long-term purchase obligations.
We are subject to certain obligations associated with entering into contracts (including land option contracts) for the
purchase, development, and sale of real estate in the routine conduct of our business. Option contracts for the purchase of land
enable us to defer acquiring portions of properties owned by third parties and unconsolidated entities until we have determined
whether to exercise our option, which may serve to reduce our financial risks associated with long-term land holdings. At
December 31, 2018, we had $218.6 million of deposits and pre-acquisition costs, of which $11.2 million is refundable, relating
to option agreements to acquire 60,047 lots with a remaining purchase price of $2.6 billion. We expect to acquire the majority
of such land within the next three years.
We are currently under examination by various taxing jurisdictions and anticipate finalizing the examinations with
certain jurisdictions within the next twelve months. The final outcome of these examinations is not yet determinable. The
statute of limitations for our major tax jurisdictions remains open for examination for tax years January 1, 2005 - January 1,
2018. At December 31, 2018, we had $30.6 million of gross unrecognized tax benefits and $5.8 million of related accrued
interest and penalties.
The following table summarizes our other commercial commitments as of December 31, 2018:
Amount of Commitment Expiration by Period
($000’s omitted)
2020-2021
2022-2023
2019
Total
After 2023
Other commercial commitments:
Guarantor credit facilities (a)
Non-guarantor credit facilities (b)
Total commercial commitments (c)
$
$
1,000,000
520,000
1,520,000
$
$
— $
— $
1,000,000
520,000
520,000
$
—
—
— $
1,000,000
$
$
—
—
—
(a)
(b)
The $1.0 billion in 2022-2023 represents the capacity of our unsecured revolving credit facility, under which no
borrowings were outstanding, and $239.4 million of letters of credit were issued at December 31, 2018.
Represents the capacity of the Repurchase Agreement, of which $348.4 million was outstanding at December 31,
2018. The capacity of $520.0 million was effective through January 14, 2019 after which it ranges from $240.0
million to $400.0 million until its expiration in August 2019.
(c)
The above table excludes an aggregate $1.3 billion of surety bonds, which typically do not have stated expiration
dates.
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 December 31, 2018, we had outstanding
letters of credit of $239.4 million. Our surety bonds generally do not have stated expiration dates; rather, we are released from
35
the bonds as the contractual performance is completed. These bonds, which approximated $1.3 billion at December 31, 2018,
are typically outstanding over a period of approximately three to five years. Because significant construction and development
work has been performed related to the applicable projects but has 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 December 31, 2018, these agreements had an aggregate remaining purchase price of $2.6 billion.
Pursuant to these land option agreements, we provide a deposit to the seller as consideration for the right to purchase land at
different times in the future, usually at predetermined prices.
At December 31, 2018, aggregate outstanding debt of unconsolidated joint ventures was $42.9 million, of which
$42.1 million was related to one joint venture in which we have a 50% interest. In connection with this loan, we and our joint
venture partner provided customary limited recourse guaranties in which our maximum financial loss exposure is limited to our
pro rata share of the debt outstanding. See Note 4 to the Consolidated Financial Statements for additional information.
36
Critical Accounting Policies and Estimates
The accompanying consolidated financial statements were prepared in conformity with U.S. generally accepted
accounting principles. When more than one accounting principle, or the method of its application, is generally accepted, we
select the principle or method that is appropriate in our specific circumstances (see Note 1 to our Consolidated Financial
Statements). Application of these accounting principles requires us to make estimates about the future resolution of existing
uncertainties; as a result, actual results could differ from these estimates. In preparing these consolidated financial statements,
we have made our best estimates and judgments of the amounts and disclosures included in the consolidated financial
statements, giving due regard to materiality.
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 at the home closing date. Little to no estimation is involved in recognizing such revenues.
Land sale 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. Certain land sale contracts may contain unique terms that require management judgment in determining the
appropriate revenue recognition, but the impact of such transactions is generally immaterial.
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. The determination of fair value for certain of these financial instruments requires the use
of estimates and management judgment. 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 for various investors. Servicing fees are based on a contractual
percentage of the outstanding principal balance, or a contracted set fee in the case of certain sub-servicing arrangements, and
are credited to income when related mortgage payments are received or the sub-servicing fees are earned.
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 home 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 $30.8 million at December 31,
2018. Due to uncertainties in the estimation process and the long duration of renewal policies, which can extend years into the
future, actual results could differ from such estimates.
Inventory and cost of revenues
Inventory is stated at cost unless the carrying value is determined to not be recoverable, in which case the affected
inventory is written down to fair value. Cost includes land acquisition, land development, and home construction costs,
including interest, real estate taxes, and certain direct and indirect overhead costs related to development and construction. For
those communities for which construction and development activities have been idled, applicable interest and real estate taxes
are expensed as incurred. Land acquisition and development costs are allocated to individual lots using an average lot cost
determined based on the total expected land acquisition and development costs and the total expected home closings for the
community. The specific identification method is used to accumulate home construction costs.
We capitalize interest cost into homebuilding inventories. Each layer of capitalized interest is amortized over a period
that approximates the average life of communities under development. Interest expense is allocated over the period based on the
timing of home closings.
Cost of revenues includes the construction cost, average lot cost, estimated warranty costs, and closing costs applicable
to the home. Sales commissions are classified within selling, general, and administrative expenses. The construction cost of the
home includes amounts paid through the closing date of the home, plus an accrual for costs incurred but not yet paid, based on
an analysis of budgeted construction costs. This accrual is reviewed for accuracy based on actual payments made after closing
compared with the amount accrued, and adjustments are made if needed. Total community land acquisition and development
37
costs are based on an analysis of budgeted costs compared with actual costs incurred to date and estimates to complete. The
development cycles for our communities range from under one year to in excess of ten years for certain master planned
communities. Adjustments to estimated total land acquisition and development costs for the community affect the amounts
costed for the community’s remaining lots.
We test inventory for impairment when events and circumstances indicate that the undiscounted cash flows estimated to
be generated by the community may be less than its carrying amount. Such indicators include gross margins or sales paces
significantly below expectations, construction costs or land development costs significantly in excess of budgeted amounts,
significant delays or changes in the planned development for the community, and other known qualitative factors. Communities
that demonstrate potential impairment indicators are tested for impairment by comparing the expected undiscounted cash flows
for the community to its carrying value. For those communities whose carrying values exceed the expected undiscounted cash
flows, we determine the fair value of the community and impairment charges are recorded if the fair value of the community’s
inventory is less than its carrying value.
We generally determine the fair value of each community using a combination of discounted cash flow models and
market comparable transactions, where available. These estimated cash flows are significantly impacted by estimates related to
expected average selling prices and sale incentives, expected sales paces, expected land development and construction
timelines, and anticipated land development, construction, and overhead costs. The assumptions used in the discounted cash
flow models are specific to each community. Due to uncertainties in the estimation process, the significant volatility in demand
for new housing, the long life cycles of many communities, and potential changes in our strategy related to certain
communities, actual results could differ significantly from such estimates.
Residential mortgage loans available-for-sale
In accordance with ASC 825, “Financial Instruments” (“ASC 825”), we use the fair value option for our residential
mortgage loans available-for-sale. Election of the fair value option for residential mortgage loans available-for-sale allows a
better offset of the changes in fair values of the loans and the derivative instruments used to economically hedge them without
having to apply complex hedge accounting provisions. Changes in the fair value of these loans are reflected in revenues as they
occur.
Loan origination liabilities
Our mortgage operations may be responsible for losses associated with mortgage loans originated and sold to investors
in the event of errors or omissions relating to representations and warranties made by us that the loans met certain requirements,
including representations as to underwriting standards, the existence of primary mortgage insurance, and the validity of certain
borrower representations in connection with the loan. If a loan is determined to be faulty, we either indemnify the investor for
potential future losses, repurchase the loan from the investor, or reimburse the investor's actual losses. Estimating the required
liability for these potential losses requires a significant level of management judgment. Given the unsettled litigation, changes
in values of underlying collateral over time, and other uncertainties regarding the ultimate resolution of these claims, actual
costs could differ from our current estimates.
Allowance for warranties
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 a liability in the amount of such costs at the time revenue is recognized. Factors that affect our warranty liability include
the number of homes sold, historical and anticipated rates of warranty claims, and the projected cost of claims. We periodically
assess the adequacy of our recorded warranty liability for each geographic market in which we operate and adjust the amounts
as necessary. Actual warranty costs in the future could differ from our estimates.
Income taxes
We evaluate our deferred tax assets each period to determine if a valuation allowance is required based on whether it is
"more likely than not" that some portion of the deferred tax assets would not be realized. The ultimate realization of these
deferred tax assets is dependent upon the generation of sufficient taxable income during future periods. We conduct our
evaluation by considering all available positive and negative evidence. This evaluation considers, among other factors,
historical operating results, forecasts of future profitability, the duration of statutory carryforward periods, and the outlooks for
38
the U.S. housing industry and broader economy. 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 our 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.
t
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 follow the provisions of ASC 740, “Income Taxes” (“ASC 740”),
which prescribes a minimum recognition threshold a tax position is required to meet before being recognized in the financial
statements. Significant judgment is required to evaluate uncertain tax positions. Our evaluations of tax positions consider a
variety of factors, including relevant facts and circumstances, applicable tax law, correspondence with taxing authorities, and
effective settlements of audit issues. Changes in the recognition or measurement of uncertain tax positions could result in
material increases or decreases in income tax expense (benefit) in the period in which the change is made. Interest and penalties
related to income taxes and unrecognized tax benefits are recognized as a component of income tax expense (benefit).
Self-insured risks
At any point in time, we are managing over 1,000 individual claims related to general liability, property, errors and
omission, 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 product revenue is recognized for each
a
home closing and periodically evaluate the recorded liabilities based on actuarial analyses of our historical claims. The actuarial
analyses calculate estimates of the ultimate 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 $737.0 million and $758.8 million at December 31, 2018 and 2017,
respectively, the vast majority of which relate to general liability claims. 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 65% of the total general liability reserves at December 31, 2018 and 2017.
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. Because of the inherent
uncertainty in estimating future losses related to these claims, actual costs could differ significantly from estimated costs. Based
on the actuarial analyses performed, we believe the range of reasonably possible losses related to these claims is $625 million to
$850 million. While this range represents our best estimate of our ultimate liability related to these claims, due to a variety of
factors, including those factors described above, there can be no assurance that the ultimate costs realized by us will fall within
this range.
y
Housing market conditions have been volatile across most of our markets over the past ten years, 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 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, yy
the amount of insurance 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.
rr
Adjustments to reserves are recorded in the period in which the change in estimate occurs. During 2018, 2017, and 2016,
we reduced general liability reserves by $35.9 million, $97.8 million, and $57.1 million, respectively, as a result of changes in
estimates resulting from actual claim experience observed being less than anticipated in previous actuarial projections. The
changes in actuarial estimates were driven by changes in actual claims experience that, in turn, impacted actuarial estimates for
potential future claims. These changes in actuarial estimates did not involve any changes in actuarial methodology but did
impact the development of estimates for future periods, which resulted in adjustments to the IBNR portion of our recorded
liabilities.
ff
In certain instances, we have the ability to recover a portion of our costs under various insurance policies or from
subcontractors or other third parties. Estimates of such amounts are recorded when recovery is considered probable. Our
receivables from insurance carriers totaled $153.0 million and $213.4 million at December 31, 2018 and 2017, respectively. The
39
insurance receivables relate to costs incurred or to be incurred to perform corrective repairs, settle claims with customers, and
other costs related to the continued progression of both known and anticipated future construction defect claims that we believe
to be insured related to previously closed homes. We believe collection of these insurance receivables is probable based on
various factors, including, the legal merits of our positions after review by legal counsel, favorable legal rulings received to
date, the credit quality of our carriers, and our long history of collecting significant amounts of insurance reimbursements under
similar insurance policies related to similar claims, including significant amounts funded by the above carriers under different
policies.
a
While the outcome of these matters 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 to prepay our debt prior to maturity. As a result, interest rate risk and changes in fair value should
not have a significant impact on our fixed-rate debt until we are required or elect to refinance or repurchase such debt.
The following tables set forth the principal cash flows by scheduled maturity, weighted-average interest rates, and
estimated fair value of our debt obligations as of December 31, 2018 and 2017 ($000’s omitted).
As of December 31, 2018 for the
Years ending December 31,
2019
2020
2021
2022
2023
Thereafter
Total
Fair
Value
Rate-sensitive liabilities:
Fixed rate debt
Average interest rate
Variable rate debt (a)
Average interest rate
$
24,088
5.31%
$ 348,949
$
$
9,968
$ 706,720
$
— $
— $ 2,300,000
$3,040,776
$ 2,898,606
3.81%
4.28%
—%
—%
5.90%
5.51%
— $
— $
— $
— $
— $ 348,949
$
348,948
4.41%
—%
—%
—%
—%
—%
4.41%
As of December 31, 2017 for the
Years ending December 31,
2018
2019
2020
2021
2022
Thereafter
Total
Fair
Value
Rate-sensitive liabilities:
Fixed rate debt
Average interest rate
Variable rate debt (a)
Average interest rate
$
508
3.00%
$ 438,657
3.72%
$
$
$
$
8,423
4.07%
701
7.30%
9,539
$ 700,000
$
— $ 2,300,000
$3,018,470
$ 3,262,221
3.98%
4.25%
—%
5.90%
5.50%
— $
— $
— $
— $ 439,358
$
439,358
—%
—%
—%
—%
3.70%
(a) Includes the Pulte Mortgage Repurchase Agreement. There were no amounts outstanding under our Revolving Credit Facility at either December 31, 2018
or 2017.
Derivative instruments and hedging activities
Pulte Mortgage is exposed to market risks from commitments to lend, movements in interest rates, and canceled or
modified commitments to lend. A commitment to lend at a specific interest rate (an interest rate lock commitment) is a
derivative financial instrument (interest rate is locked to the borrower). The interest rate risk continues through the loan closing
and until the loan is sold to an investor. We are generally not exposed to variability in cash flows of derivative instruments for
more than approximately 60 days. In periods of rising interest rates, the length of exposure will generally increase due to
customers locking in an interest rate sooner as opposed to letting the interest rate float. In periods of low or decreasing interest
rates, the length of exposure will also generally increase as customers desire to lock before the possibility of rising rates.
40
In order to reduce these risks, we use other derivative financial instruments, principally cash forward placement contracts
on mortgage-backed securities and whole loan investor commitments, to economically hedge the interest rate lock commitment.
We generally enter into one of the aforementioned derivative financial instruments upon accepting interest rate lock
commitments. Changes in the fair value of interest rate lock commitments and the other derivative financial instruments are
recognized in Financial Services revenues. We do not use any derivative financial instruments for trading purposes.
At December 31, 2018 and 2017, residential mortgage loans available-for-sale had an aggregate fair value of $461.4
million and $570.6 million, respectively. At December 31, 2018 and 2017, we had aggregate interest rate lock commitments of
$285.0 million and $210.9 million, respectively, which were originated at interest rates prevailing at the date of commitment.
Unexpired forward contracts totaled $511.0 million and $522.0 million at December 31, 2018 and 2017, respectively, and
whole loan investor commitments totaled $187.8 million and $203.1 million, respectively, at such dates. Hypothetical changes
in the fair values of our financial instruments arising from immediate parallel shifts in long-term mortgage rates would not be
material to our financial results due to the offsetting nature in the movements in fair value of our financial instruments.
SPECIAL NOTES CONCERNING FORWARD-LOOKING STATEMENTS
As a cautionary note, except for the historical information contained herein, certain matters discussed in Item 7,
Management's Discussion and Analysis of Financial Condition and Results of Operations, and Item 7A, Quantitative and
Qualitative Disclosures About Market Risk, are “forward-looking” statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements are subject to a number of risks, uncertainties and other
factors that could cause our actual results, performance, prospects or opportunities, as well as those of the markets we serve or
intend to serve, to differ materially from those expressed in, or implied by, these statements. You can identify these statements
by the fact that they do not relate to matters of a strictly factual or historical nature and generally discuss or relate to forecasts,
estimates or other expectations regarding future events. Generally, the words “believe,” “expect,” “intend,” “estimate,”
“anticipate,” “plan,” “project,” “may,” “can,” “could,” “might,” "should", “will” and similar expressions identify forward-
looking statements, including statements related to the impairment charge with respect to certain land parcels and the impacts or
effects thereof, expected operating and performing results, planned transactions, planned objectives of management, future
developments or conditions in the industries in which we participate and other trends, developments and uncertainties that may
affect our business in the future.
Such risks, uncertainties and other factors include, among other things: interest rate changes and the availability of
mortgage financing; competition within the industries in which we operate; the availability and cost of land and other raw
materials used by us in our homebuilding operations; the impact of any changes to our strategy in responding to the cyclical
nature of the industry, including any changes regarding our land positions and the levels of our land spend; the availability and
a
cost of insurance covering risks associated with our businesses; shortages and the cost of labor; weather related slowdowns;
slow growth initiatives and/or local building moratoria; governmental regulation directed at or affecting the housing market, thet
homebuilding industry or construction activities; uncertainty in the mortgage lending industry, including revisions to
underwriting standards and repurchase requirements associated with the sale of mortgage loans; the interpretation of or changes
to tax, labor and environmental laws, including, but not limited to the Tax Cuts and Jobs Act which could have a greater impact
on our effective tax rate or the value of our deferred tax assets than we anticipate; economic changes nationally or in our local
markets, including inflation, deflation, changes in consumer confidence and preferences and the state of the market for homes
in general; legal or regulatory proceedings or claims; our ability to generate sufficient cash flow in order to successfully
implement our capital allocation priorities; required accounting changes; terrorist acts and other acts of war; and other factors of
national, regional and global scale, including those of a political, economic, business and competitive nature. See Item 1A –
Risk Factors for a further discussion of these and other risks and uncertainties applicable to our businesses. We undertake no
duty to update any forward-looking statement, whether as a result of new information, future events or changes in our
expectations.
41
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PULTEGROUP, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2018 and 2017
($000’s omitted, except per share data)
ASSETS
Cash and equivalents
Restricted cash
Total cash, cash equivalents, and restricted cash
House and land inventory
Land held for sale
Residential mortgage loans available-for-sale
Investments in unconsolidated entities
Other assets
Intangible assets
Deferred tax assets, net
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Accounts payable, including book overdrafts of $54,381 and $72,800
in 2018 and 2017, respectively
Customer deposits
Accrued and other liabilities
Income tax liabilities
Financial Services debt
Notes payable
Total liabilities
Shareholders’ equity:
Preferred shares, $0.01 par value; 25,000,000 shares authorized, none issued
Common shares, $0.01 par value; 500,000,000 shares authorized,
277,109,507 and 286,752,436 shares issued and outstanding at
December 31, 2018 and 2017, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Total shareholders’ equity
2018
2017
$
$
1,110,088
23,612
1,133,700
7,253,353
36,849
461,354
54,590
830,359
127,192
275,579
$ 10,172,976
$
352,029
254,624
1,360,483
11,580
348,412
3,028,066
5,355,194
$
$
272,683
33,485
306,168
7,147,130
68,384
570,600
62,957
745,123
140,992
645,295
9,686,649
393,815
250,779
1,356,333
86,925
437,804
3,006,967
5,532,623
$
— $
—
2,771
3,201,427
(345)
1,613,929
4,817,782
$ 10,172,976
$
2,868
3,171,542
(445)
980,061
4,154,026
9,686,649
See Notes to Consolidated Financial Statements.
42
PULTEGROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 2018, 2017, and 2016
(000’s omitted, except per share data)
Revenues:
Homebuilding
Home sale revenues
Land sale and other revenues
Financial Services
Total revenues
Homebuilding Cost of Revenues:
Home sale cost of revenues
Land sale cost of revenues
Financial Services expenses
Selling, general, and administrative expenses
Other expense, net
Income before income taxes
Income tax expense
Net income
Net income per share:
Basic
Diluted
Cash dividends declared
Number of shares used in calculation:
Basic
Effect of dilutive securities
Diluted
2018
2017
2016
$
9,818,445
$
8,323,984
$
7,451,315
164,504
9,982,949
205,382
10,188,331
(7,540,937)
(126,560)
(7,667,497)
(147,422)
(1,012,023)
(13,849)
1,347,540
(325,517)
1,022,023
3.56
3.55
0.38
$
$
$
$
61,542
8,385,526
192,160
8,577,686
44,089
7,495,404
181,126
7,676,530
(6,461,152)
(134,449)
(6,595,601)
(5,587,974)
(32,115)
(5,620,089)
(119,289)
(891,581)
(32,387)
938,828
(491,607)
447,221
1.45
1.44
0.36
$
$
$
$
(108,573)
(957,150)
(56,868)
933,850
(331,147)
602,703
1.76
1.75
0.36
$
$
$
$
283,578
1,287
284,865
305,089
1,725
306,814
339,747
2,376
342,123
See Notes to Consolidated Financial Statements.
43
PULTEGROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended December 31, 2018, 2017, and 2016
($000’s omitted)
Net income
Other comprehensive income, net of tax:
Change in value of derivatives
Other comprehensive income
2018
2017
2016
$
1,022,023
$
447,221
$
602,703
100
100
81
81
83
83
Comprehensive income
$
1,022,123
$
447,302
$
602,786
See Notes to Consolidated Financial Statements.
44
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4
PULTEGROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2018, 2017, and 2016
($000’s omitted)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash from operating activities:
2018
2017
2016
$
1,022,023
$
447,221
$
602,703
Deferred income tax expense
Land-related charges
Depreciation and amortization
Share-based compensation expense
Loss on debt retirements
Other, net
Increase (decrease) in cash due to:
Inventories
Residential mortgage loans available-for-sale
Other assets
Accounts payable, accrued and other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Capital expenditures
Investment in unconsolidated subsidiaries
Cash used for business acquisition
Other investing activities, net
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from debt, net of issuance costs
Repayments of debt
Borrowings under revolving credit facility
Repayments under revolving credit facility
Financial Services borrowings (repayments), net
Stock option exercises
Share repurchases
Dividends paid
Net cash provided by (used in) financing activities
Net increase (decrease)
Cash, cash equivalents, and restricted cash at beginning of period
Cash, cash equivalents, and restricted cash at end of period
Supplemental Cash Flow Information:
Interest paid (capitalized), net
Income taxes paid, net
$
$
$
422,307
191,913
50,998
33,683
—
(1,789)
(569,030)
(33,009)
55,099
65,684
663,077
(32,051)
(23,037)
—
4,846
(50,242)
334,787
19,357
54,007
22,228
657
1,614
(897,092)
(99,527)
(45,721)
75,257
68,270
(39,295)
(14,539)
(430,458)
13,100
(471,192)
—
1,995,937
362,777
99,446
49,429
28,290
—
(3,612)
(50,362)
107,330
(64,174)
(101,403)
1,449,744
(59,039)
(1,000)
—
18,097
(41,942)
(8,164)
(82,775)
1,566,000
(134,747)
2,720,000
(1,566,000)
(2,720,000)
(89,393)
6,555
(302,473)
(104,020)
(580,270)
827,532
306,168
106,183
27,720
(916,323)
(112,748)
(1,029,915)
(417,080)
723,248
1,133,700
$
306,168
$
(986,919)
619,000
(619,000)
63,744
5,845
(603,206)
(124,666)
350,735
(52,187)
775,435
723,248
557
89,204
$
$
(942) $
(26,538)
14,875
$
2,743
See Notes to Consolidated Financial Statements.
46
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies
Basis of presentation
PulteGroup, Inc. is one of the largest homebuilders in the 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 and insurance brokerage operations.
The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting
principles and include the accounts of PulteGroup, Inc. and all of its direct and indirect subsidiaries and variable interest
entities in which PulteGroup, Inc. is deemed to be the primary beneficiary. All significant intercompany accounts, transactions,
and balances have been eliminated in consolidation.
Business acquisitions
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. generally accepted accounting principles 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
Effective with our first quarter 2018 reporting, we reclassified customer deposit income from other expense, net to land
sale and other revenues. All prior period amounts have been reclassified to conform to the current presentation.
Subsequent events
We evaluated subsequent events up until the time the financial statements were filed with the Securities and Exchange
Commission ("SEC").
Cash and equivalents
Cash and equivalents include institutional money market investments and time deposits with a maturity of three months
or less when acquired. Cash and equivalents at December 31, 2018 and 2017 also included $40.9 million and $80.3 million,
respectively, of cash from home closings held in escrow for our benefit, typically for less than five days, which are considered
deposits in-transit.
Restricted cash
We maintain certain cash balances that are restricted as to their use, including customer deposits on home sales that are
temporarily restricted by regulatory requirements until title transfers to the homebuyer. Total cash, cash equivalents, and
restricted cash includes restricted cash balances of $23.6 million and $33.5 million at December 31, 2018 and 2017,
respectively.
47
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Investments in unconsolidated entities
We have investments in a number of unconsolidated entities, including joint ventures, with independent third parties.
The equity method of accounting is used for unconsolidated entities over which we have significant influence; generally this
represents ownership interests of at least 20% and not more than 50%. Under the equity method of accounting, we recognize
our proportionate share of the earnings and losses of these entities. Certain of these entities sell land to us. We defer the
recognition of profits from such activities until the time we ultimately sell the related land.
We evaluate our investments in unconsolidated entities for recoverability in accordance with Accounting Standards
Codification (“ASC”) 323, “Investments – Equity Method and Joint Ventures” (“ASC 323”). If we determine that a loss in the
value of the investment is other than temporary, we write down the investment to its estimated fair value. Any such losses are
recorded to equity in (earnings) loss of unconsolidated entities, which is reflected in other expense, net. Due to uncertainties in
the estimation process and the significant volatility in demand for new housing, actual results could differ significantly from
such estimates. See Note 4.
Intangible assets
Goodwill, which represents the cost of acquired businesses in excess of the fair value of the net assets of such businesses
at the acquisition date, was recorded as the result of the Wieland acquisition and totaled $40.4 million at December 31, 2018
and 2017. We assess goodwill for impairment annually in the fourth quarter and if events or changes in circumstances indicate
the carrying amount may not be recoverable.
Intangible assets also include tradenames acquired in connection with the 2016 acquisition of Wieland, the 2009
acquisition of Centex, and the 2001 acquisition of Del Webb, all of which are being amortized over 20-year lives. The acquired
cost and accumulated amortization of our tradenames were $277.0 million and $190.2 million, respectively, at December 31,
2018, and $277.0 million and $176.4 million, respectively, at December 31, 2017. Amortization expense totaled $13.8 million
in 2018, 2017, and 2016, respectively, and is expected to be $13.8 million in 2019, $13.8 million in 2020, $10.4 million in
2021, and $5.7 million in 2022. The ultimate realization of these assets is dependent upon the future cash flows and benefits
that we expect to generate from their use. We assess tradenames for impairment if events or changes in circumstances indicate
the carrying amount may not be recoverable.
Property and equipment, net, and depreciation
Property and equipment are recorded at cost. Maintenance and repair costs are expensed as incurred. Depreciation is
computed by the straight-line method based upon estimated useful lives as follows: office furniture and equipment - 3 to 10
years; leasehold improvements - life of the lease; software and hardware - 3 to 5 years; model park improvements and
furnishings - 1 to 5 years. Property and equipment are included in other assets and totaled $92.9 million net of accumulated
depreciation of $209.3 million at December 31, 2018 and $70.7 million net of accumulated depreciation of $206.5 million at
December 31, 2017. Depreciation expense totaled $35.6 million, $37.2 million, and $40.2 million in 2018, 2017, and 2016,
respectively.
Advertising costs
Advertising costs are expensed to selling, general, and administrative expense as incurred and totaled $51.0 million,
$45.0 million, and $50.7 million, in 2018, 2017, and 2016, respectively.
Employee benefits
We maintain a defined contribution retirement plan that covers substantially all of our employees. Company
contributions to the plan totaled $17.9 million, $15.7 million, and $14.6 million in 2018, 2017, and 2016, respectively.
48
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Other expense, net
Other expense, net consists of the following ($000’s omitted):
Write-offs of deposits and pre-acquisition costs (Note 2)
Lease exit and related costs (a)
Amortization of intangible assets (Note 1)
Interest expense
Interest income
Equity in earnings (loss) of unconsolidated entities (Note 4) ) (b)
Miscellaneous, net (c)
Total other expense, net
$
$
2018
2017
2016
(16,992) $
(240)
(13,800)
(618)
7,593
2,690
7,518
(13,849) $
(11,367) $
(1,729)
(13,800)
(503)
2,537
(1,985)
(5,540)
(32,387) $
(17,157)
(11,643)
(13,800)
(686)
3,236
8,337
(25,155)
(56,868)
(a)
Lease exit and related costs resulted from actions taken to reduce overheads and the substantial completion of our
corporate headquarters relocation from Michigan to Georgia, which began in 2013.
Includes an $8.0 million impairment of an investment in an unconsolidated entity in 2017 (see Note 2).)2
(b)
(c) Miscellaneous, net includes a charge of $15.0 million in 2016 related to the settlement of a disputed land
transaction (see Note 11).)1
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, 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 of our common shares are
considered anti-dilutive and excluded from the diluted earnings per share calculation. Our earnings per share excluded 1.8
million potentially dilutive instruments in 2016. Anti-dilutive shares were immaterial in 2018 and 2017.
In accordance with ASC 260 "Earnings Per Share" ("ASC 260"), the two-class method determines earnings per share for
each class of common share 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):
49
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Numerator:
Net income
Less: earnings distributed to participating securities
Less: undistributed earnings allocated to participating
securities
Numerator for basic earnings per share
Add back: undistributed earnings allocated to participating
securities
Less: undistributed earnings reallocated to participating
securities
Numerator for diluted earnings per share
Denominator:
Basic shares outstanding
Effect of dilutive securities
Diluted shares outstanding
Earnings per share:
Basic
Diluted
Share-based compensation
December 31,
2018
December 31,
2017
December 31,
2016
$
$
$
$
$
1,022,023
(1,208)
(9,984)
1,010,831
$
$
447,221
(1,192)
(3,380)
442,649
$
$
602,703
(1,100)
(3,622)
597,981
9,984
3,380
3,622
(9,939)
1,010,876
$
(3,361)
442,668
$
(3,602)
598,001
283,578
1,287
284,865
305,089
1,725
306,814
339,747
2,376
342,123
3.56
3.55
$
$
1.45
1.44
$
$
1.76
1.75
We measure compensation cost for restricted shares and restricted share units at fair value on the grant date. Fair value is
determined based on the quoted price of our common shares on the grant date. We recognize compensation expense for
restricted shares and restricted share units, the majority of which cliff vest at the end of three years, ratably over the vesting
period. For share-based awards containing performance conditions, we recognize compensation expense ratably over the
vesting period when it is probable that the stated performance targets will be achieved and record cumulative adjustments in the
period in which estimates change. Compensation expense related to our share-based awards is included in selling, general, and
administrative expense, except for a small portion recognized in Financial Services expenses. See Note 7.
Income taxes
The provision for income taxes is calculated using the asset and liability method, under which deferred tax assets and
liabilities are recognized by identifying the temporary differences arising from the different treatment of items for tax and
accounting purposes. In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that
some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is primarily
dependent upon the generation of future taxable income. In determining the future tax consequences of events that have been
recognized in the financial statements or tax returns, judgment is required. Differences between the anticipated and actual
outcomes of these future tax consequences could have a material impact on our consolidated results of operations or financial
position.
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 follow the provisions of ASC 740 which prescribes a
minimum recognition threshold a tax position is required to meet before being recognized in the financial statements.
Significant judgment is required to evaluate uncertain tax positions. Our evaluations of tax positions consider a variety of
factors, including relevant facts and circumstances, applicable tax law, correspondence with taxing authorities, and effective
settlements of audit issues. Changes in the recognition or measurement of uncertain tax positions could result in material
increases or decreases in income tax expense (benefit) in the period in which the change is made. Interest and penalties related
to unrecognized tax benefits are recognized as a component of income tax expense (benefit). See Note 8.
50
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 at the home closing date. Our performance obligation to deliver the agreed-upon home is
generally satisfied in less than one year from the original contract 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 deposit liabilities related to sold but undelivered homes, which totaled $254.6
million and $250.8 million at December 31, 2018 and 2017, 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.
Land sale 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. During 2018, we closed on a number of land sale transactions that generated gains totaling $31.4 million, as the
proceeds from the sales exceeded the cost basis of the land. Substantially all performance obligations related to these
transactions were satisfied at closing.
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 for various investors. Servicing fees are based on a contractual
percentage of the outstanding principal balance and are credited to income when related mortgage payments are received or the
sub-servicing fees are earned.
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
home 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 $30.8 million at December 31, 2018.
Contract assets totaling $27.7 million were recognized on January 1, 2018, in conjunction with the adoption of Accounting
Standards Codification ("ASC") 606, "Revenue from Contracts with Customers" ("ASC 606"). Refer to "New accounting
pronouncements" within
Note 1 for further discussion.
"
Sales incentives
When sales incentives involve a discount on the selling price of the home, we record the discount as a reduction of
revenue at the time of house closing. If the sales incentive requires us to provide a free product or service to the customer, the
cost of the free product or service is recorded as cost of revenues at the time of house closing. This includes the cost related to
optional upgrades and seller-paid financing costs, closing costs, homeowners’ association fees, or merchandise.
Inventory and cost of revenues
Inventory is stated at cost unless the carrying value is determined to not be recoverable, in which case the affected
inventory is written down to fair value. Cost includes land acquisition, land development, and home construction costs,
including interest, real estate taxes, and certain direct and indirect overhead costs related to development and construction. For
those communities for which construction and development activities have been idled, applicable interest and real estate taxes
are expensed as incurred. Land acquisition and development costs are allocated to individual lots using an average lot cost
determined based on the total expected land acquisition and development costs and the total expected home closings for the
community. The specific identification method is used to accumulate home construction costs.
We capitalize interest cost into homebuilding inventories. Each layer of capitalized interest is amortized over a period
that approximates the average life of communities under development. Interest expense is allocated over the period based on
the timing of home closings.
51
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Cost of revenues includes the construction cost, average lot cost, estimated warranty costs, and closing costs applicable
to the home. Sales commissions are classified within selling, general, and administrative expenses. The construction cost of the
home includes amounts paid through the closing date of the home, plus an accrual for costs incurred but not yet paid. Total
community land acquisition and development costs are based on an analysis of budgeted costs compared with actual costs
incurred to date and estimates to complete. The development cycles for our communities range from under one year to in
excess of ten years for certain master planned communities. Adjustments to estimated total land acquisition and development
costs for the community affect the amounts costed for the community’s remaining lots.
We test inventory for impairment when events and circumstances indicate that the undiscounted cash flows estimated to
be generated by the community may be less than its carrying amount. Such indicators include gross margins or sales paces
significantly below expectations, construction costs or land development costs significantly in excess of budgeted amounts,
significant delays or changes in the planned development or strategy for the community, and other known qualitative factors.
Communities that demonstrate potential impairment indicators are tested for impairment by comparing the expected
undiscounted cash flows for the community to its carrying value. For those communities whose carrying values exceed the
expected undiscounted cash flows, we estimate the fair value of the community, and impairment charges are recorded if the fair
value of the community's inventory is less than its carrying value. See Note 2.
Land held for sale
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 held for sale is recorded at the lower of cost or fair
value less costs to sell. In determining the value of land held for sale, we consider recent offers received, prices for land in
recent comparable sales transactions, and other factors. We record net realizable value adjustments for land held for sale within
Homebuilding land sale cost of revenues. See Note 2.
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
may serve to reduce 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. See Note 2.
aa
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 December 31, 2018 or 2017 because we determined that we were not the
primary beneficiary. Our maximum exposure to loss related to these VIEs is generally limited to our deposits and pre-
acquisition costs under the applicable land option agreements. The following provides a summary of our interests in land option
agreements ($000’s omitted):
December 31, 2018
December 31, 2017
Deposits and
Pre-
acquisition
Costs
Remaining
Purchase
Price
Deposits and
Pre-
acquisition
Costs
Remaining
Purchase
Price
Land options with VIEs $
Other land options
$
90,717
127,851
218,568
$
$
1,079,507
1,522,903
2,602,410
$
$
78,889
$
977,480
129,098
1,485,099
207,987
$ 2,462,579
52
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Allowance for warranties
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 10 years. We estimate the costs to be incurred under these warranties and record a liability in the amount of
such costs at the time revenue is recognized (see Note 11).)
Self-insured risks
We maintain, and require the majority of our subcontractors to maintain, general liability insurance coverage, including
coverage for certain construction defects. 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, subject to certain self-insured per occurrence and aggregate retentions, deductibles, and available policy limits.
However, we retain a significant portion of the overall risk for such claims. We reserve for these costs on an undiscounted basis
at the time revenue is recognized for each home closing and evaluate the recorded liabilities based on actuarial analyses of our uu
historical claims, which include estimates of claims incurred but not yet reported. Adjustments to estimated reserves are
recorded in the period in which the change in estimate occurs. In certain instances, we have the ability to recover a portion of
our costs under various insurance policies or from our subcontractors or other third parties. Estimates of such amounts are
recorded when recovery is considered probable. See Note 11.
Residential mortgage loans available-for-sale
Substantially all of the loans originated by us and their related servicing rights are sold in the secondary mortgage
market within a short period of time after origination, generally within 30 days. In accordance with ASC 825, “Financial
Instruments” (“ASC 825”), we use the fair value option to record residential mortgage loans available-for-sale. Election of the
fair value option for these loans allows a better offset of the changes in fair values of the loans and the derivative instruments
used to economically hedge them without having to apply complex hedge accounting provisions. We do not designate any
derivative instruments as hedges or apply the hedge accounting provisions of ASC 815, “Derivatives and Hedging.” See Note
11 for discussion of the risks retained related to mortgage loan originations.
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. At December 31, 2018 and 2017, residential mortgage loans available-for-sale had an aggregate fair value of $461.4
million and $570.6 million, respectively, and an aggregate outstanding principal balance of $444.2 million and $553.5 million,
respectively. The net gain (loss) resulting from changes in fair value of these loans totaled $0.7 million and $(2.2) million for
the years ended December 31, 2018 and 2017, respectively. These changes in fair value were substantially offset by changes in
fair value of the corresponding hedging instruments. Net gains from the sale of mortgages during 2018, 2017, and 2016 were
$111.3 million, $110.9 million, and $109.6 million, respectively, and have been included in Financial Services revenues.
ff
Mortgage servicing rights
We 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 servicing rights for only a short period of time. The
servicing sales contracts provide for the reimbursement of payments made by the purchaser if loans prepay within specified
periods of time, generally within 90 to 120 days after sale. We establish reserves for this exposure at the time the sale is
recorded. Such reserves were immaterial at December 31, 2018 and 2017.
Loans held for investment
We maintain a portfolio of loans that either have been repurchased from investors or were not saleable upon closing. We
have the intent and ability to hold these loans for the foreseeable future or until maturity or payoff. These loans are reviewed
annually for impairment, or when recoverability becomes doubtful. Loans held for investment are included in other assets and
totaled $8.9 million and $11.2 million at December 31, 2018 and 2017, respectively.
53
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Interest income on mortgage loans
Interest income on mortgage loans is recorded in Financial Services revenues, accrued from the date a mortgage loan is
originated until the loan is sold, and totaled $11.3 million, $9.5 million, and $8.0 million in 2018, 2017, and 2016, respectively.
Loans are placed on non-accrual status once they become greater than 90 days past due their contractual terms. Subsequent
payments received are applied according to the contractual terms of the loan. Mortgage discounts are not amortized as interest
income due to the short period the loans are held until sale to third party investors.
Derivative instruments and hedging activities
We are party to interest rate lock commitments ("IRLCs") with customers resulting from our mortgage origination
operations. At December 31, 2018 and 2017, we had aggregate IRLCs of $285.0 million and $210.9 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 December 31, 2018 and 2017, we had
unexpired forward contracts of $511.0 million and $522.0 million, respectively, and whole loan investor commitments of
$187.8 million and $203.1 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 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 location in the Consolidated Balance Sheets are summarized below
($000’s omitted):
Interest rate lock commitments
Forward contracts
Whole loan commitments
New accounting pronouncements
December 31, 2018
December 31, 2017
Other Assets
Other Liabilities
Other Assets
Other Liabilities
$
$
$
9,196
315
393
$
161
7,229
1,111
$
5,990
432
794
9,904
$
8,501
$
7,216
$
407
817
941
2,165
On January 1, 2018, we adopted ASC 606, which is a comprehensive new revenue recognition model that requires
revenue to be recognized in a manner to depict the transfer of goods or services and satisfaction of performance obligations to a
customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. We
applied the modified retrospective method to contracts that were not completed as of January 1, 2018. Results for reporting
periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue
to be reported under the previous accounting standards. We recorded a net increase to opening retained earnings of $22.4
million, net of tax, as of January 1, 2018, due to the cumulative impact of adopting ASC 606, with the impact primarily related
to the recognition of contract assets for insurance brokerage commission renewals. There was not a material impact to revenues
as a result of applying ASC 606 in 2018, and there have not been significant changes to our business processes, systems, or
internal controls as a result of implementing the standard.
54
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
On January 1, 2018, we adopted Accounting Standards Update ("ASU") No. 2016-15, "Statement of Cash Flows
(Topic 230): Classification of Certain Cash Receipts and Cash Payments" ("ASU 2016-15"), on a retrospective basis. ASU
2016-15 addresses several specific cash flow issues. The adoption of ASU 2016-15 had no effect on our financial statements.
ASC 842, "Leases", becomes effective for us for interim and annual periods beginning January 1, 2019. The standard
requires that lease assets and liabilities be recognized on the balance sheet and that key information about leasing arrangements
be disclosed. Upon adoption, we expect to recognize additional lease assets and liabilities of approximately $80 million to
reflect the present value of remaining lease payments under existing leasing arrangements. While the recognition of such lease
assets and liabilities will impact our consolidated balance sheet, we do not expect a material impact on our consolidated
statements of operations or cash flows. We also do not expect significant changes to our business processes, systems, or internal
controls as a result of implementing the standard. We have elected to apply the modified retrospective transition approach, so
financial information will not be updated for periods prior to January 1, 2019.
In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU No. 2016-13, "Financial Instruments -
Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments", 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. The standard 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 havea
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, and applied prospectively. We do not expect
ASU 2017-04 to have a material impact on our financial statements.
2. Inventory and land held for sale
Major components of inventory at December 31, 2018 and 2017 were ($000’s omitted):
Homes under construction
Land under development
Raw land
2018
2017
2,630,158
$
2,421,405
4,129,225
493,970
4,135,814
589,911
7,253,353
$
7,147,130
$
$
In all periods presented, we capitalized all Homebuilding interest costs into inventory because the level of our active
inventory exceeded our debt levels. Activity related to interest capitalized into inventory is as follows ($000’s omitted):
Interest in inventory, beginning of period
Interest capitalized
Interest expensed
Interest in inventory, end of period
Years Ended December 31,
2017
2016
2018
$
$
226,611
$
186,097
$
149,498
172,809
(171,925)
227,495
$
181,719
(141,205)
226,611
$
160,506
(123,907)
186,097
55
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Land-related charges
We recorded the following land-related charges ($000's omitted):
Net realizable value adjustments ("NRV")
- land held for sale
Land impairments
Impairments of unconsolidated entities
Statement of
Operations
Classification
Land sale cost of
revenues
Home sale cost of
revenues
Other expense,
net
2018
2017
2016
$
11,489
$
83,576
$
1,105
70,965
88,952
1,074
—
8,017
—
Write-offs of deposits and pre-acquisition
costs
Other expense,
net
16,992
11,367
17,157
Total land-related charges
$
99,446
$
191,912
$
19,336
Land-related charges have not been a significant broad-based issue since the U.S. housing recovery began in 2012.
However, we experienced changes to facts and circumstances related to specific individual communities in 2018 and 2017 that
elevated such charges.
As explained in Note 1, 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. The NRVs in 2017 were primarily the
result of a plan we announced in May 2017 to sell select non-core and underutilized land parcels following a strategic review of
our land portfolio. As part of that review, we determined that we would sell certain inactive land parcels, representing
approximately 17 communities and 4,600 lots. These land parcels were located in diverse geographic areas and no longer fit
into our strategic plans. The land parcels identified for sale included: land requiring significant additional development spend
that would not yield suitable returns; land in excess of near-term need; and land entitled for certain product types inconsistent
with our primary offerings. As a consequence of the change in strategy with respect to the future use of these land parcels, we
recorded NRVs totaling $81.0 million in the three months ended June 30, 2017, related to inventory with a pre-NRV carrying
value of $151.0 million. An additional $2.6 million of NRVs were recorded throughout 2017 as the result of adjustments to the
aforementioned valuations as the sale process progressed or related to other land parcels we chose to sell. The estimated fair
values of these inactive land parcels that were held for sale were generally based on comparisons to market comparable
transactions, letters of intent, active negotiations with market participants, or similar market-based information supplemented in
certain instances by estimated future net cash flows discounted for inherent risk associated with each underlying asset. The
majority of these parcels were sold to third parties in either 2017 or 2018; such transactions are classified as land sale revenues.
Land impairments relate to communities that are either active or that we intend to eventually open and build out. On a
quarterly basis, we review each of our land positions for potential indicators of impairment and perform detailed impairment
calculations for communities that display indicators of potential impairment.
• In 2018, we received an unfavorable determination related to one of our communities that had been idle while
pursuing entitlements for over 10 years. This unfavorable determination caused a significant reduction in the number
of lots and necessitated certain changes to the expected product offering and land development that, combined with
rising costs and a softening in demand in the applicable local market, resulted in an impairment of $59.2 million.
Impairments for all other communities in 2018 totaled $11.8 million.
• In 2017, our impairments resulted from:
– As part of the May 2017 strategic review, we decided to accelerate the monetization of two communities through
a combination of changing the product offerings and lowering the sales prices within the communities. This
decision resulted in land impairments of $31.5 million in the three months ended June 30, 2017.
– Separately, we recorded an impairment charge of $53.0 million related to one large project. This impairment
resulted from increases in our estimates for future land development and house construction costs combined with
lower pricing and slower sales paces for this project, which is located in an area where competitive conditions
limit our ability to offset our cost increases through higher sales prices. Impairments for all other communities in
2017 totaled $4.5 million.
56
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
We determine the fair value of a community's inventory using a combination of discounted cash flow models and
market comparable transactions, where available. These estimated cash flows are significantly impacted by estimates related to
expected average selling prices, expected sales paces, expected land development and construction timelines, and anticipated
land development, construction, and overhead costs. The assumptions used in the cash flow models are specific to each
community and typically do not assume improvements in market conditions in the near term. The discount rate used in
determining each community's fair value depends on the stage of development of the community and other specific factors that
increase or decrease the inherent risks associated with the community's cash flow streams. Accordingly, determining the fair
value of a community's inventory involves a number of variables, many of which are interrelated. The table below summarizes
certain quantitative unobservable inputs utilized in determining the fair value of impaired communities ($000's omitted):
Fair Value of
Communities
Impaired, Net
of Impairment
Charges
Communities
Impaired
Impairment
Charges
Average
Selling Price
2018
2017
2016
$
8
9
2
$
24,062
19,252
8,920
70,965
88,952
1,074
$287 to $586
$207 to $818
$109 to $563
Quarterly
Sales Pace
(homes)
2 to 11
1 to 11
3 to 5
Discount
Rate
12% to 22%
12% to 25%
12%
Our evaluations for impairments are based on our best estimates of the future cash flows for 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.
Land held for sale
Land held for sale at December 31, 2018 and 2017 was as follows ($000’s omitted):
Land held for sale, gross
Net realizable value reserves
Land held for sale, net
$
$
2018
2017
40,037
(3,188)
36,849
$
$
142,070
(73,686)
68,384
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. Home sale revenues for detached and attached homes were $8.2
billion and $1.6 billion in 2018, $7.3 billion and $1.1 billion in 2017, and $6.5 billion and $1.0 billion in 2016, respectively. For
reporting purposes, our Homebuilding operations are aggregated into six reportable segments:
Northeast:
Southeast:
Florida:
Midwest:
Texas:
West:
Connecticut, Maryland, Massachusetts, New Jersey, New York, Pennsylvania, Virginia
Georgia, North Carolina, South Carolina, Tennessee
Florida
Illinois, Indiana, Kentucky, Michigan, Minnesota, Ohio
Texas
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. The Financial Services segment operates generally in the same markets as the
Homebuilding segments. Evaluation of segment performance is generally based on income before income taxes. Each
reportable segment generally follows the same accounting policies described in Note 1.
57
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Operating Data by Segment ($000’s omitted)
Years Ended December 31,
2017
2016
2018
Revenues:
Northeast
Southeast
Florida
Midwest
Texas
West
Financial Services
Consolidated revenues
Income before income taxes (a):
Northeast (b)
Southeast
Florida (c)
Midwest
Texas
West (d)
Other homebuilding (e)
Financial Services
$
839,700
$
693,877
$
699,718
1,746,161
1,944,170
1,497,389
1,301,004
2,654,525
9,982,949
205,382
1,564,116
1,494,389
1,450,192
1,168,755
2,014,197
8,385,526
192,160
1,492,502
1,285,890
1,235,198
1,035,428
1,746,668
7,495,404
181,126
$ 10,188,331
$
8,577,686
$
7,676,530
$
29,629
$
21,190
$
202,639
289,418
179,568
193,946
511,828
(118,224)
1,288,804
58,736
122,532
208,825
178,231
182,862
229,504
(77,812)
865,332
73,496
81,991
145,011
205,049
120,159
152,355
225,771
(69,570)
860,766
73,084
Consolidated income before income taxes
$
1,347,540
$
938,828
$
933,850
(a)
Includes certain land-related charges (see the following table and Note 2).)2
(b) Northeast includes a charge of $15.0 million in 2016 related to the settlement of a disputed land transaction (see
Note 11).)1
(c)
Florida includes a warranty charge of $12.4 million in 2017 related to a closed-out community (see Note 11).)1
(d) West includes gains of $26.4 million in 2018 related to two land sale transactions in California.
(e) Other homebuilding includes the amortization of intangible assets, amortization of capitalized interest, and other
items not allocated to the operating segments. Also includes: write-off of $29.6 million of insurance receivables
associated with the resolution of certain insurance matters in 2017 (see Note 11); general liability insurance reserve
reversals of $35.9 million, $97.8 million, and $57.1 million in 2018, 2017 and 2016, respectively (see Note 11); and
costs associated with the relocation of our corporate headquarters totaling $8.3 million in 2016.
)1
)1
58
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Operating Data by Segment ($000's omitted)
Years Ended December 31,
2017
2018
2016
Land-related charges*:
Northeast
Southeast
Florida
Midwest
Texas
West
Other homebuilding
$
74,488
$
51,362
$
8,140
1,166
7,361
1,204
5,159
1,928
55,689
9,702
8,917
2,521
56,995
6,726
2,079
3,089
715
3,383
515
8,960
595
$
99,446
$
191,912
$
19,336
* Land-related charges include land impairments, net realizable value adjustments for 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. See Note 2 for additional
discussion of these charges.
Operating Data by Segment ($000's omitted)
Years Ended December 31,
2017
2018
2016
Depreciation and amortization:
Northeast
Southeast
Florida
Midwest
Texas
West
Other homebuilding (a)
Financial Services
$
$
2,093
5,231
4,893
4,271
3,082
6,758
18,908
45,236
4,193
49,429
$
$
2,392
5,117
4,883
4,449
3,301
5,828
21,326
47,296
3,702
50,998
$
$
2,133
5,350
4,955
5,099
3,673
6,739
22,467
50,416
3,591
54,007
(a) Other homebuilding includes amortization of intangible assets.
59
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Northeast
Southeast
Florida
Midwest
Texas
West
Other homebuilding (a)
Financial Services
Northeast
Southeast
Florida
Midwest
Texas
West
Other homebuilding (a)
Financial Services
Northeast
Southeast (a)
Florida
Midwest
Texas
West
Other homebuilding (a)
Financial Services
Operating Data by Segment
($000's omitted)
December 31, 2018
Homes Under
Construction
Land Under
Development
Raw Land
Total
Inventory
Total
Assets
$
$
$
268,900
443,140
467,625
314,442
284,405
805,709
45,937
2,630,158
291,467
676,087
892,669
433,056
427,124
1,131,841
276,981
4,129,225
$
52,245
90,332
85,321
29,908
98,415
118,579
19,170
493,970
$
612,612
1,209,559
1,445,615
777,406
809,944
2,056,129
342,088
7,253,353
—
704,515
1,347,427
1,601,906
849,596
881,629
2,208,092
2,006,825
9,599,990
572,986
$
2,630,158
$
4,129,225
$
493,970
$
7,253,353
$ 10,172,976
December 31, 2017
Homes Under
Construction
Land Under
Development
Raw Land
Total
Inventory
Total
Assets
$
234,413
$
327,599
$
73,574
$
635,586
$
791,511
433,411
359,651
299,896
251,613
798,706
43,715
2,421,405
—
613,626
876,856
476,694
435,018
1,137,940
268,081
4,135,814
—
121,238
109,069
28,482
87,392
147,493
22,663
589,911
—
1,168,275
1,345,576
805,072
774,023
2,084,139
334,459
7,147,130
—
1,287,992
1,481,837
877,282
859,847
2,271,328
1,469,234
9,039,031
647,618
$
2,421,405
$
4,135,814
$
589,911
$
7,147,130
$
9,686,649
December 31, 2016
Homes Under
Construction
Land Under
Development
Raw Land
Total
Inventory
Total
Assets
$
175,253
$
375,899
$
135,447
$
686,599
$
798,369
354,047
309,525
256,649
219,606
580,082
26,097
1,921,259
—
1,921,259
$
$
650,805
683,376
474,287
413,312
1,226,190
248,240
4,072,109
—
4,072,109
$
148,793
183,168
50,302
74,750
159,387
25,440
777,287
—
777,287
$
1,153,645
1,176,069
781,238
707,668
1,965,659
299,777
6,770,655
—
6,770,655
1,243,188
1,330,847
851,457
793,917
2,200,058
2,351,082
9,568,918
609,282
$ 10,178,200
(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.
60
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Investments in unconsolidated entities
We participate in a number of joint ventures with independent third parties. These joint ventures generally purchase,
develop, and sell land, including selling land to us for use in our homebuilding operations. A summary of our joint ventures is
presented below ($000’s omitted):
Investments in joint ventures with limited recourse debt
Investments in joint ventures with debt non-recourse to PulteGroup
Investments in other active joint ventures
Total investments in unconsolidated entities
Total joint venture debt
PulteGroup proportionate share of joint venture debt:
Joint venture debt with limited recourse guaranties
Joint venture debt non-recourse to PulteGroup
PulteGroup's total proportionate share of joint venture debt
December 31,
2018
2017
31,551
$
3,471
19,568
54,590
42,948
21,059
217
21,276
$
$
$
$
37,063
3,567
22,327
62,957
59,544
28,157
700
28,857
$
$
$
$
$
In 2018, 2017, and 2016, we recognized earnings (losses) from unconsolidated joint ventures of $2.7 million, $(2.0)
million, and $8.3 million, respectively. We received distributions from our unconsolidated joint ventures of $12.1 million, $9.4
million, and $10.9 million, in 2018, 2017, and 2016, respectively. We made capital contributions of $1.0 million , $23.0 million
and 14.5 million in 2018, 2017, and 2016, respectively.
At December 31, 2018, aggregate outstanding debt of unconsolidated joint ventures was $42.9 million, of which
$42.1 million was related to one joint venture in which we have a 50% interest. In connection with this loan, we and our joint
venture partner provided customary limited recourse guaranties in which our maximum financial loss exposure is limited to our
pro rata share of the debt outstanding. The limited guaranties include, but are not limited to: (i) completion of certain aspects of
the project; (ii) an environmental indemnity provided to the lender; and (iii) an indemnification of the lender from certain "bad
boy acts" of the joint venture.
The timing of cash flows related to a joint venture and any related financing agreements varies by agreement. If
additional capital contributions are required and approved by the joint venture, we would need to contribute our pro rata portion
of those capital needs in order to not dilute our ownership in the joint ventures. While future capital contributions may be
required, we believe the total amount of such contributions will be limited. Our maximum financial exposure related to joint
ventures is unlikely to exceed the combined investment and limited recourse guaranty totals.
61
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Debt
Our notes payable are summarized as follows ($000’s omitted):
December 31,
2018
2017
4.250% unsecured senior notes due March 2021 (a)
$
700,000
$
5.500% unsecured senior notes due March 2026 (a)
5.000% unsecured senior notes due January 2027 (a)
7.875% unsecured senior notes due June 2032 (a)
6.375% unsecured senior notes due May 2033 (a)
6.000% unsecured senior notes due February 2035 (a)
Net premiums, discounts, and issuance costs (b)
Total senior notes
Other notes payable
Notes payable
Estimated fair value
700,000
600,000
300,000
400,000
300,000
(13,247)
2,986,753
41,313
3,028,066
2,899,143
$
$
$
$
$
$
700,000
700,000
600,000
300,000
400,000
300,000
(13,057)
2,986,943
20,024
3,006,967
3,263,774
(a)
(b)
Redeemable prior to maturity; guaranteed on a senior basis by certain wholly-owned subsidiaries.
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.
The indentures governing the senior notes impose certain restrictions on the incurrence of additional debt along with
other limitations. At December 31, 2018, we were in compliance with all of the covenants and requirements under the senior
notes. Refer to Note 12 for supplemental consolidating financial information of the Company.
In February 2016, we issued $1.0 billion of unsecured senior notes, consisting of $300.0 million of 4.25% senior notes
due March 1, 2021, and $700.0 million of 5.50% senior notes due March 1, 2026. The net proceeds from this senior notes
issuance were used to fund the retirement of $465.2 million of our senior notes that matured in May 2016, with the remaining
net proceeds used for general corporate purposes. In July 2016, we issued an additional $1.0 billion of unsecured senior notes,
consisting of an additional $400.0 million of the 4.25% senior notes due March 1, 2021, and $600.0 million of 5.00% senior
notes due January 15, 2027. The net proceeds from the July senior notes issuance were used for general corporate purposes and
to pay down approximately $500.0 million of outstanding debt, including the remainder of a then existing term loan facility.
The senior notes issued in 2016 are unsecured obligations, and rank equally in right of payment with the existing and future
senior unsecured indebtedness of the Company and each of the guarantors, respectively. The notes are redeemable at our option
at any time up to the date of maturity.
We retired outstanding debt totaling $82.8 million, $134.7 million, and $986.9 million during 2018, 2017, and 2016,
respectively. Certain debt retirements occurred prior to the stated maturity dates and resulted in losses totaling $0.7 million in
2016. Losses on debt repurchase transactions include the write-off of unamortized discounts, premiums, and transaction fees
related to the repurchased debt and are reflected in other expense, net.
Other notes payable include non-recourse and limited recourse collateralized notes with third parties that totaled $41.3
million and $20.0 million at December 31, 2018 and 2017, respectively. These notes have maturities ranging up to three years,
are secured by the applicable land positions to which they relate, and have no recourse to any other assets. The stated interest
rates on these notes range up to 7.57%.
Revolving credit facility
In June 2018, we entered into the Second Amended and Restated Credit Agreement ("Revolving Credit Facility") which
replaced the Company's previous credit agreement. The Revolving Credit Facility contains substantially similar terms to the
previous credit agreement and extended the maturity date from June 2019 to June 2023. The Revolving Credit Facility 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
62
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
provides for the issuance of letters of credit that reduce the available borrowing capacity under the Revolving Credit Facility, yy
with a sublimit of $500.0 million at December 31, 2018. 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. In the event that LIBOR is no longer widely available, the agreement contemplates transitioning to an alternative
widely available market rate agreeable between the parties. We had no borrowings outstanding and $239.4 million and $235.5
million of letters of credit issued under the Revolving Credit Facility at December 31, 2018 and 2017, 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 December 31, 2018, we were in compliance with all covenants. Outstanding balances under the
Revolving Credit Facility are guaranteed by certain of our wholly-owned subsidiaries. Our available and unused borrowings
under the Revolving Credit Facility, net of outstanding letters of credit, amounted to $760.6 million and $764.5 million as of
December 31, 2018 and 2017, respectively.
Pulte Mortgage
Pulte Mortgage maintains a master repurchase agreement with third party lenders. In August 2018, Pulte Mortgage
entered into an amended and restated repurchase agreement (the “Repurchase Agreement”) that extended the maturity date to
August 2019. The maximum aggregate commitment was $520.0 million during the seasonally high borrowing period from
December 26, 2018 through January 14, 2019. Through maturity, the maximum aggregate commitment ranges from $240.0
million to $400.0 million. 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 $348.4 million and $437.8 million outstanding under the Repurchase Agreement at December 31, 2018, and
2017, respectively, and was in compliance with its covenants and requirements as of such dates.
The following is aggregate borrowing information for our mortgage operations ($000’s omitted):
Available credit lines
Unused credit lines
December 31,
2018
$
$
520,000
171,588
$
$
2017
475,000
37,196
Weighted-average interest rate
4.27%
3.55%
6. Shareholders’ equity
Our declared quarterly cash dividends totaled $108.5 million, $110.0 million, and $122.2 million in 2018, 2017, and
2016, respectively. Under a share repurchase program authorized by our Board of Directors, we repurchased 10.9 million, 35.4
million, and 30.9 million shares in 2018, 2017, and 2016, respectively, for a total of $294.6 million, $910.3 million, and $600.0
million in 2018, 2017, and 2016, respectively. At December 31, 2018, we had remaining authorization to repurchase $299.9
million of common shares.
Under our stock-based compensation plans, we accept shares as payment under certain conditions related to stock option
exercises and vesting of restricted shares and share units, generally related to the payment of tax obligations. During 2018,
2017, and 2016, employees surrendered shares valued at $7.9 million, $6.0 million, and $3.2 million, respectively, under these
plans. Such share transactions are excluded from the above noted share repurchase authorization.
63
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. Stock compensation plans
We maintain a stock award plan for both employees and non-employee directors. The plan provides for the grant of a
variety of equity awards, including options (generally non-qualified options), restricted shares, restricted share units ("RSUs"),
and performance shares to key employees (as determined by the Compensation and Management Development Committee of
the Board of Directors) for periods not to exceed ten years. Non-employee directors are awarded an annual distribution of
common shares. Options granted to employees generally vest incrementally over four years and are generally exercisable for
ten years from the vest date. Shares issued upon the exercise of a stock option are from newly issued shares. RSUs represent
the right to receive an equal number of common shares and are converted into common shares upon distribution. Restricted
shares and RSUs generally cliff vest after three years. Both restricted share and RSU holders receive cash dividends during the
vesting period. Performance shares vest upon attainment of the stated performance targets and minimum service requirements
and are converted into common shares upon distribution. As of December 31, 2018, there were 24.4 million shares that
remained available for grant under the plan. Our stock compensation expense for the three years ended December 31, 2018, is
presented below ($000's omitted):
Stock options
Restricted shares (including RSUs and
performance shares)
Long-term incentive plans
2018
2017
2016
$
— $
— $
20,145
24,207
—
18,626
8,145
9,476
3,602
$
28,290
$
33,683
$
22,228
Stock options
A summary of stock option activity for the three years ended December 31, 2018, is presented below (000’s omitted,
except per share data):
2018
2017
2016
Weighted-
Average
Per Share
Exercise
Price
Weighted-
Average
Per Share
Exercise
Price
Shares
Weighted-
Average
Per Share
Exercise
Price
Shares
Shares
Outstanding, beginning of year
1,168
$
Granted
Exercised
Forfeited
Outstanding, end of year
Options exercisable at year end
Weighted-average per share fair value of
options granted during the year
$
—
(605)
—
563
563
—
$
$
11
—
11
—
12
12
3,623
$
—
(2,353)
(102)
1,168
1,168
$
$
12
—
12
28
11
11
6,040
$
—
(498)
(1,919)
3,623
3,623
$
$
19
—
12
34
12
12
$
—
$
—
The following table summarizes information about our options outstanding at December 31, 2018:
Options Outstanding
Weighted-
Average
Remaining
Contract Life
(in years)
Number
Outstanding
(000's omitted)
Options Exercisable
Weighted-
Average
Per Share
Exercise Price
Number
Exercisable
(000's omitted)
Weighted-
Average Per
Share
Exercise Price
71
492
563
2.1
0.8
1.2
$
$
8
12
12
71
492
563
$
$
8
12
12
$0.01 to $10.00
$10.01 to $20.00
64
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
We did not issue any stock options during 2018, 2017, or 2016. As a result, there is no unrecognized compensation cost
related to stock option awards at December 31, 2018. The intrinsic value of a stock option is the amount by which the market
value of the underlying stock exceeds the exercise price of the option. The aggregate intrinsic value of stock options that were
exercised during 2018, 2017, and 2016 was $11.7 million, $31.1 million, and $4.5 million, respectively. As of December 31,
2018, options outstanding, all of which were exercisable, had an intrinsic value of $8.1 million.
Restricted shares (including RSUs and performance shares)
A summary of restricted share activity, including RSUs and performance shares, for the three years ended December 31,
2018, is presented below (000’s omitted, except per share data):
2018
2017
2016
Weighted-
Average
Per Share
Grant Date
Fair Value
Weighted-
Average
Per Share
Grant Date
Fair Value
Shares
Weighted-
Average
Per Share
Grant Date
Fair Value
Shares
Shares
3,271
833
(786)
(244)
3,074
129
$
$
$
19
31
22
22
23
21
2,974
1,251
(775)
(179)
3,271
152
$
$
$
19
21
19
19
19
17
2,576
1,853
(546)
(909)
2,974
123
$
$
$
18
17
20
12
19
15
Outstanding, beginning of
year
Granted
Distributed
Forfeited
Outstanding, end of year
Vested, end of year
During 2018, 2017, and 2016, the total fair value of shares vested during the year was $17.1 million, $15.0 million, and
$11.0 million, respectively. Unamortized compensation cost related to restricted share awards was $19.0 million at
December 31, 2018. These costs will be expensed over a weighted-average period of approximately 2 years. Additionally, there
were 129,115 RSUs outstanding at December 31, 2018, that had vested but had not yet been paid out because the payout date
had been deferred by the holders.
Long-term incentive plans
We maintain long-term incentive plans for senior management and other employees that provide awards based on the
achievement of stated performance targets over three-year periods. Awards are stated in dollars but are settled in common
shares based on the stock price at the end of the performance period. If the share price falls below a floor of $5.00 per share at
the end of the performance period or we do not have a sufficient number of shares available under our stock incentive plans at
the time of settlement, then a portion of each award will be paid in cash. We adjust the liabilities and recognize the expense
associated with the awards based on the probability of achieving the stated performance targets at each reporting period.
Liabilities for these awards totaled $17.0 million and $14.0 million at December 31, 2018 and 2017, respectively.
8. Income taxes
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax
Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including, but not
limited to, the following that impact us: (1) reducing the U.S. federal corporate income tax rate from 35 percent to 21 percent;
(2) eliminating the corporate alternative minimum tax; (3) creating a new limitation on deductible interest expense; (4)
repealing the domestic production activities deduction; (5) limiting the deductibility of certain executive compensation; and (6)
limiting certain other deductions.
The SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for the tax
effects of the Tax Act. SAB 118 provides for a measurement period that should not extend beyond one year from the Tax Act
enactment date for companies to complete the accounting relating to the Tax Act under ASC 740. In accordance with SAB 118,
a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is
complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to
determine a reasonable estimate, it must record a provisional estimate in its financial statements. If a company cannot
65
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
determine a provisional estimate to be included in its financial statements, it should continue to apply ASC 740 on the basis of
the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.
As the result of our initial analysis of the impact of the Tax Act, we recorded a provisional amount of net tax expense of
$172.1 million in 2017 related to the remeasurement of our deferred tax balances and other effects. We completed our
accounting for the income tax effects of the Tax Act in 2018, and no material adjustments were required to the provisional
amounts initially recorded.
Components of current and deferred income tax expense (benefit) are as follows ($000’s omitted):
Current expense (benefit)
Federal
State and other
Deferred expense (benefit)
Federal
State and other
Income tax expense (benefit)
2018
2017
2016
$
$
$
$
$
(44,462) $
7,202
(37,260) $
271,544
91,233
362,777
325,517
$
$
$
81,101
(11,801)
69,300
444,695
(22,388)
422,307
491,607
$
$
$
$
$
9,464
(13,104)
(3,640)
312,288
22,499
334,787
331,147
The following table reconciles the statutory federal income tax rate to the effective income tax rate:
Income taxes at federal statutory rate
State and local income taxes, net of federal tax
Tax accounting method change
Changes in tax laws, including the Tax Act
Deferred tax asset valuation allowance
Tax contingencies
Other
Effective rate
2018
2017
2016
21.0%
35.0%
35.0%
4.0
(2.5)
1.0
0.9
0.1
(0.3)
24.2%
3.1
—
18.3
(1.1)
(1.0)
(1.9)
52.4%
3.3
—
0.5
(2.2)
(1.3)
0.2
35.5%
The 2018 effective tax rate differs from the federal statutory rate primarily due to state income tax expense on current
year earnings, tax benefits due to Internal Revenue Service (IRS) acceptance of a tax accounting method change applicable to
the 2017 tax year, valuation allowances relating to projected utilization of certain state net operating loss carryforwards, and
state tax law changes. The acceptance of the tax accounting method change provided a deferral of profit and acceleration of
certain costs associated with home sales, which resulted in a favorable adjustment in 2018 due to the tax rate reduction in the
Tax Act. The 2017 effective tax rate differs from the federal statutory rate primarily due to the impacts of the Tax Act, state
income tax expense on current year earnings, the favorable resolution of certain state income tax matters, the domestic
production activities deduction, and state tax law changes. The 2016 effective tax rate differs from the federal statutory rate
primarily due to state income taxes, the reversal of a portion of our valuation allowance related to a legal entity restructuring,
the favorable resolution of certain state income tax matters, the impact on our net deferred tax assets due to changes in business
operations and state tax laws, and recognition of energy efficient home credits.
As a result of the adoption of ASU No. 2016-09, excess tax benefits related to equity compensation are recorded as a
component of income tax expense, pursuant to which we recorded a cumulative-effect adjustment to increase retained earnings
and deferred tax assets as of January 1, 2017 by $18.6 million for previously unrecognized excess tax benefits.
66
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Deferred tax assets and liabilities reflect temporary differences arising from the different treatment of items for tax and
accounting purposes. Components of our net deferred tax asset are as follows ($000’s omitted):
Deferred tax assets:
Accrued insurance
Inventory valuation reserves
Other reserves
NOL carryforwards:
Federal
State
Alternative minimum tax credit carryforwards
Energy and other credit carryforwards
Deferred tax liabilities:
Capitalized items, including real estate basis differences,
deducted for tax, net
Deferral of profit on home sales
Intangibles
Valuation allowance
Net deferred tax asset
At December 31,
2018
2017
$
117,682
$
132,495
60,585
27,122
228,959
2,546
5,146
574,535
(1,038)
(188,628)
(16,701)
(206,367)
(92,589)
275,579
$
$
117,133
202,791
78,271
41,282
248,224
54,965
41,763
784,429
(17,895)
(34,769)
(17,860)
(70,524)
(68,610)
645,295
Our federal NOL carryforward deferred tax asset of $27.1 million expires, if unused, between 2031 and 2032. We also
have state NOLs in various jurisdictions which may generally be carried forward up to 20 years, depending on the jurisdiction.
Our NOL carryforward deferred tax assets will expire if unused at various dates as follows: $32.6 million from 2019 to 2023
and $196.4 million from 2024 and thereafter.
We evaluate our deferred tax assets each period to determine if a valuation allowance is required based on whether it is
"more likely than not" that some portion of the deferred tax assets would not be realized. The ultimate realization of these
deferred tax assets is dependent upon the generation of sufficient taxable income during future periods. We conduct our
evaluation by considering all available positive and negative evidence. This evaluation considers, among other factors,
historical operating results, forecasts of future profitability, the duration of statutory carryforward periods, and the outlooks for
the U.S. housing industry and broader economy.
Our ability to use certain of Centex’s federal losses and credits is limited by Section 382 of the Internal Revenue Code.
We do not believe that this limitation will prevent us from utilizing these Centex losses and credits. We do believe that full
utilization of certain state NOL carryforwards will be limited due to Section 382.
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 our 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 $30.6 million and $48.6 million of gross unrecognized tax
benefits at December 31, 2018 and 2017, respectively. If recognized, $19.7 million and $23.4 million, respectively, of these
amounts would impact our effective tax rate. Additionally, we had accrued interest and penalties of $5.8 million and $4.9
million at December 31, 2018 and 2017, respectively.
67
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
It is reasonably possible within the next twelve months that our gross unrecognized tax benefits may decrease by up to
$16.6 million, excluding interest and penalties, primarily due to potential settlements. A reconciliation of the change in the
unrecognized tax benefits is as follows ($000’s omitted):
2018
2017
2016
$
48,604
$
21,502
$
Unrecognized tax benefits, beginning of period
Increases related to tax positions taken during a prior period
Decreases related to tax positions taken during a prior period
Increases related to tax positions taken during the current
period
Decreases related to settlements with taxing authorities
Reductions as a result of a lapse of the applicable statute of
limitations
5,389
(31,850)
8,411
—
—
Unrecognized tax benefits, end of period
$
30,554
$
20,555
(9,665)
18,895
—
38,992
224
(13,218)
114
(707)
(2,683)
48,604
$
(3,903)
21,502
We continue to participate in the Compliance Assurance Process (“CAP”) with the IRS as an alternative to the traditional
IRS examination process. As a result of our participation in CAP, federal tax years 2016 and prior are closed. Tax year 2017 is
expected to close by the second quarter of 2019. We are also currently under examination by various state taxing jurisdictions
and anticipate finalizing certain of the examinations within the next twelve months. The outcome of these examinations is not
yet determinable. The statute of limitations for our major tax jurisdictions remains open for examination for tax years 2005 to
2018.
9. 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
Level 2
Level 3
Fair value determined based on quoted prices in active markets for identical assets or liabilities.
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.
Fair value determined using significant unobservable inputs, such as pricing models, discounted cash flows, or
similar techniques
68
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Our assets and liabilities measured or disclosed at fair value are summarized below ($000’s omitted):
Financial Instrument
Measured at fair value on a recurring basis:
Residential mortgage loans available-for-sale
Interest rate lock commitments
Forward contracts
Whole loan commitments
Measured at fair value on a non-recurring basis:
House and land inventory
Land held for sale
Disclosed at fair value:
Cash and equivalents (including restricted cash)
Financial Services debt
Other notes payable
Senior notes payable
Fair Value
Fair Value
Hierarchy
December 31,
2018
December 31,
2017
Level 2
Level 2
Level 2
Level 2
$
461,354
$
570,600
9,035
(6,914)
(718)
5,583
(385)
(147)
Level 3
Level 2
$
18,253
$
17,813
11,045
8,600
Level 1
Level 2
Level 2
Level 2
$
1,133,700
$
348,412
41,313
306,168
437,804
20,024
2,857,830
3,243,750
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.
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 value included in the above table represent only those
assets whose carrying values were adjusted to fair value as of the respective balance sheet dates. See Note 1 for a more detailed
discussion of the valuation methods used for inventory.
The carrying amounts of cash and equivalents, Financial Services debt, Other notes payable and the Revolving Credit
Facility approximate their fair values due to their short-term nature and floating interest rate terms. The fair values of the Senior
notes payable 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 the senior notes payable was $3.0 billion at both
December 31, 2018 and 2017.
69
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. Other assets and accrued and other liabilities
Other assets are presented below ($000’s omitted):
Accounts and notes receivable:
Insurance receivables (Note 11)
Notes receivable
Other receivables
Prepaid expenses
Deposits and pre-acquisition costs (Note 1)
Property and equipment, net (Note 1)
Income taxes receivable
Other
December 31,
2018
2017
$
152,987
$
213,407
13,850
122,469
289,306
131,523
218,568
92,935
58,090
39,937
16,768
76,309
306,484
116,912
207,987
70,706
6,964
36,070
$
830,359
$
745,123
We record receivables from various parties in the normal course of business, including amounts due from insurance
companies (see Note 11) and municipalities. In certain instances, we may accept consideration for land sales or other
transactions in the form of a note receivable.
)
Accrued and other liabilities are presented below ($000’s omitted):
Self-insurance liabilities (Note 11)
Compensation-related liabilities
Warranty liabilities (Note 11)
Accrued interest
Loan origination liabilities (Note 11)
Other
December 31,
2018
2017
$
737,013
$
161,068
79,154
52,521
50,282
280,445
758,812
134,008
72,709
50,620
34,641
305,543
$
1,360,483
$
1,356,333
70
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
11. Commitments and contingencies
Leases
We lease certain property and equipment under non-cancelable operating leases. The future minimum lease payments
required under operating leases that have initial or remaining non-cancelable terms in excess of one year as of December 31,
2018, are as follows ($000’s omitted):
,
Years Ending December 31,
g
2019
2020
2021
2022
2023
Thereafter
$
24,806
19,407
16,146
14,469
12,800
25,868
Total minimum lease payments
$
113,496
Net rental expense for 2018, 2017, and 2016 was $33.6 million, $30.8 million, and $33.0 million, respectively. Certain
leases contain renewal or purchase options and generally provide that we pay for insurance, taxes, and maintenance.
Loan origination liabilities
Our mortgage operations may be responsible for losses associated with mortgage loans originated and sold to investors
in the event of errors or omissions relating to representations and warranties made by us that the loans met certain requirements,
including representations as to underwriting standards, the existence of primary mortgage insurance, and the validity of certain
borrower representations in connection with the loan. If a loan is determined to be faulty, we either indemnify the investor for
potential future losses, repurchase the loan from the investor, or reimburse the investor's actual losses.
CTX Mortgage Company, LLC ("CTX Mortgage") was the mortgage subsidiary of Centex and ceased originating loans
in December 2009. In the matter Lehman Brothers Holdings, Inc. ("Lehman") in the U.S. Bankruptcy Court in the Southern
District of New York, Lehman has initiated an adversary proceeding against CTX Mortgage seeking indemnity for loans sold to
it by CTX Mortgage prior to 2009. This claim is part of a broader action by Lehman in U.S. Bankruptcy Court against more
than 100 mortgage originators and brokers. On August 13, 2018, the court denied a motion to dismiss filed by CTX Mortgage
and other defendants, and on December 17, 2018, Lehman filed an amended adversary complaint against CTX Mortgage.
Lehman's complaint alleges claims for indemnifiable losses of up to $261 million due from CTX Mortgage. We believe that
CTX Mortgage has meritorious defenses and CTX Mortgage will continue to vigorously defend itself in this matter. We have
recorded a liability for an amount that we consider to be the best estimate within a range of potential losses.
In addition, both CTX Mortgage and Pulte Mortgage sold certain loans originated prior to 2009 to financial institutions for
inclusion in residential mortgage-backed securities or other securitizations issued by such financial institutions. In connection
with such sales, CTX Mortgage and Pulte Mortgage have been put on notice of potential direct and / or third-party claims for
indemnification arising out of litigation relating to certain of these residential mortgage-backed securities or other
securitizations. Neither CTX Mortgage nor Pulte Mortgage is named as a defendant in these actions. We cannot yet quantify
CTX Mortgage's or Pulte Mortgage's potential liability as a result of these indemnification obligations. We do not believe,
however, that these matters will have a material adverse impact on the results of operations, financial position, or cash flows of
the Company.
Estimating the required liability for these potential losses requires a significant level of management judgment. During
2018, we increased our loan origination liabilities by $16.1 million based on settlements or probable settlements of a number of
claims related to loans originated by CTX Mortgage prior to 2009. Reserves provided (released) are reflected in Financial
Services expenses. Changes in these liabilities were as follows ($000's omitted):
71
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Liabilities, beginning of period
Reserves provided (released), net
Payments
Liabilities, end of period
2018
2017
2016
$
$
34,641
16,130
(489)
50,282
$
$
35,114
(50)
(423)
34,641
$
$
46,381
506
(11,773)
35,114
Given the unsettled litigation, changes in values of underlying collateral over time, unpredictable factors inherent in
litigation, and other uncertainties regarding the ultimate resolution of these claims, actual costs could differ from our current
estimates.
Community development and other special district obligations
A community development district or similar development authority (“CDD”) is a unit of local government created under
various state statutes that utilizes the proceeds from the sale of bonds to finance the construction or acquisition of infrastructure
assets of a development. A portion of the liability associated with the bonds, including principal and interest, is assigned to each
parcel of land within the development. This debt is typically paid by subsequent special assessments levied by the CDD on the
landowners. Generally, we are only responsible for paying the special assessments for the period during which we are the
landowner of the applicable parcels.
rr
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 $239.4 million and $1.3 billion, respectively, at December 31, 2018, and
$235.5 million and $1.2 billion, respectively, at December 31, 2017. In the event any such letter of credit or surety bonds is
drawn, we would be obligated to reimburse the issuer of the letter of credit or surety bond. We do not believe that a material
amount, if any, of the letters of credit or surety bonds will be drawn. 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 the applicable projects but has 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.
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 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. During 2016, we settled a contract dispute related to a land
transaction that we terminated over ten years ago in response to a collapse in housing demand. As a result of the settlement, we
recorded a charge of $15.0 million, which is reflected in other expense, net.
aa
72
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Allowance for warranties
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 of
claims. 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):
Warranty liabilities, beginning of period
Reserves provided
Payments
Other adjustments (a)
Warranty liabilities, end of period
2018
2017
2016
72,709
65,567
(64,525)
5,403
79,154
$
$
66,134
50,014
(58,780)
15,341
72,709
$
$
61,179
67,169
(55,892)
(6,322)
66,134
$
$
(a)
Includes a charge of $12.4 million in 2017 related to estimated costs to complete repairs in a closed-out community
in Florida.
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, windows, roofing, and
foundations. The availability of general liability insurance for the homebuilding industry and its subcontractors has become
increasingly limited, and the insurance policies available require companies 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 the captive insurance subsidiaries represent self-insurance of these risks by us. 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 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
omission, 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 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 $737.0 million and $758.8 million at December 31, 2018 and 2017,
respectively, the vast majority of which relate to general liability claims. 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 65% of the total general liability reserves at December 31, 2018 and 2017.
The actuarial analyses that determine the IBNR portion of reserves consider a variety of factors, including the frequency and
73
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 have been volatile across most of our markets over the past fifteen years, 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 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, yy
the amount of insurance 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.
rr
Adjustments to reserves are recorded in the period in which the change in estimate occurs. During 2018, 2017, and 2016,
we reduced reserves, primarily general liability reserves, by $35.9 million, $97.8 million, and $57.1 million respectively, as a
result of changes in estimates resulting from actual claim experience observed being less than anticipated in previous actuarial
projections. The changes in actuarial estimates were driven by changes in actual claims experience that, in turn, impacted
actuarial estimates for potential future claims. These changes in actuarial estimates did not involve any changes in actuarial
methodology but did impact the development of estimates for future periods, which resulted in adjustments to the IBNR portion
of our recorded liabilities. Costs associated with our insurance programs are classified within selling, general, and
administrative expenses.
Changes in these liabilities were as follows ($000's omitted):
Balance, beginning of period
Reserves provided
Adjustments to previously recorded reserves (a)
Payments, net (a)
Balance, end of period
2018
2017
2016
$
758,812
$
831,058
$
924,563
93,156
(35,873)
(79,082)
737,013
$
98,176
(97,789)
(72,633)
758,812
$
97,916
(57,132)
(134,289)
831,058
$
(a)
Includes net changes in amounts expected to be recovered from our insurance carriers, which are recorded to other
assets (see below).
In certain instances, we have the ability to recover a portion of our costs under various insurance policies or from
subcontractors or other third parties. Estimates of such amounts are recorded when recovery is considered probable. As
reflected in Note 10, our receivables from insurance carriers totaled $153.0 million and $213.4 million at December 31, 2018
and 2017, respectively. The insurance receivables relate to costs incurred or to be incurred to perform corrective repairs, settle
claims with customers, and other costs related to the continued progression of both known and anticipated future construction
defect claims that we believe to be insured related to previously closed homes. Given the complexity inherent with resolving
construction defect claims in the homebuilding industry as described above, there generally exists a significant lag between our uu
payment of claims and our reimbursements from applicable insurance carriers. In addition, disputes between homebuilders and
carriers over coverage positions relating to construction defect claims are common. Resolution of claims with carriers involves
the exchange of significant amounts of information and frequently involves legal action.
tt
The majority of the decrease in our insurance receivables during 2018 resulted from cash received from our insurance
carriers. However, in 2017, we recorded write-offs of $29.6 million associated with the resolution of various matters and are
currently the plaintiff in an arbitration proceeding with one of our insurance carriers in regard to $25.0 million of recorded
insurance receivables relating to the applicability of coverage to such costs under its policy. We believe collection of our
recorded insurance receivables is probable based on the legal merits of our positions after review by legal counsel, the high
credit ratings of our carriers, and our long history of collecting significant amounts of insurance reimbursements under similar a
insurance policies related to similar claims. While the outcomes of these matters cannot be predicted with certainty, we do not
74
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
believe that the resolution of such matters will have a material adverse impact on our results of operations, financial position, or
cash flows.
12. Supplemental Guarantor information
All of our senior notes are guaranteed jointly and severally on a senior basis by certain of our wholly-owned
Homebuilding subsidiaries and certain other wholly-owned subsidiaries (collectively, the “Guarantors”). Such guaranties are
full and unconditional. Our subsidiaries comprising the Financial Services segment along with certain other subsidiaries
(collectively, the "Non-Guarantor Subsidiaries") do not guarantee the senior notes. In accordance with Rule 3-10 of Regulation
S-X, supplemental consolidating financial information of the Company, including such information for the Guarantors, is
presented below. Investments in subsidiaries are presented using the equity method of accounting.
ASSETS
Cash and equivalents
Restricted cash
Total cash, cash equivalents, and
restricted cash
House and land inventory
Land held for sale
Residential mortgage loans available-
for-sale
Investments in unconsolidated entities
Other assets
Intangible assets
Deferred tax assets, net
Investments in subsidiaries and
intercompany accounts, net
LIABILITIES AND
SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable, customer deposits,
accrued and other liabilities
Income tax liabilities
Financial Services debt
Notes payable
Total liabilities
Total shareholders’ equity
$
$
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2018
($000’s omitted)
PulteGroup,
Inc.
Unconsolidated
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminating
Entries
Consolidated
PulteGroup,
Inc.
$
— $
906,961
$
203,127
$
— $
1,110,088
22,406
1,206
—
—
—
—
—
—
66,154
—
282,874
7,557,245
7,906,273
929,367
7,157,665
36,849
—
54,045
579,452
127,192
—
500,138
$ 9,384,708
$
204,333
95,688
—
461,354
545
184,753
—
(7,295)
—
—
—
—
—
—
—
—
—
23,612
1,133,700
7,253,353
36,849
461,354
54,590
830,359
127,192
275,579
8,231,342
9,170,720
(16,288,725)
$ (16,288,725) $
—
10,172,976
90,158
$ 1,598,265
$
278,713
$
— $
1,967,136
11,580
—
2,986,753
3,088,491
4,817,782
—
—
40,776
1,639,041
7,745,667
$
7,906,273
$ 9,384,708
$
—
348,412
537
627,662
8,543,058
9,170,720
—
—
—
—
(16,288,725)
$ (16,288,725) $
11,580
348,412
3,028,066
5,355,194
4,817,782
10,172,976
75
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2017
($000’s omitted)
PulteGroup,
Inc.
Unconsolidated
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminating
Entries
Consolidated
PulteGroup,
Inc.
$
— $
125,462
$
147,221
$
— $
—
—
—
—
—
—
9,417
—
646,227
32,339
1,146
157,801
7,053,087
68,384
—
62,415
592,045
140,992
—
148,367
94,043
—
570,600
542
143,661
—
(932)
—
—
—
—
—
—
—
—
—
272,683
33,485
306,168
7,147,130
68,384
570,600
62,957
745,123
140,992
645,295
6,661,638
284,983
$
7,317,282
$ 8,359,707
$
7,300,127
8,256,408
(14,246,748)
$(14,246,748) $
—
9,686,649
$
89,388
$ 1,636,913
$
274,626
$
— $
2,000,927
86,925
—
2,986,943
3,163,256
4,154,026
—
—
16,911
1,653,824
6,705,883
$
7,317,282
$ 8,359,707
$
—
437,804
3,113
715,543
7,540,865
8,256,408
—
—
—
—
(14,246,748)
$(14,246,748) $
86,925
437,804
3,006,967
5,532,623
4,154,026
9,686,649
ASSETS
Cash and equivalents
Restricted cash
Total cash, cash equivalents, and
restricted cash
House and land inventory
Land held for sale
Residential mortgage loans available-
for-sale
Investments in unconsolidated entities
Other assets
Intangible assets
Deferred tax assets, net
Investments in subsidiaries and
intercompany accounts, net
LIABILITIES AND
SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable, customer deposits,
accrued and other liabilities
Income tax liabilities
Financial Services debt
Notes payable
Total liabilities
Total shareholders’ equity
76
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the year ended December 31, 2018
($000’s omitted)
Revenues:
Homebuilding
Home sale revenues
Land sale and other revenues
Financial Services
Homebuilding Cost of Revenues:
Home sale cost of revenues
Land sale cost of revenues
Financial Services expenses
Selling, general, and administrative
expenses
Other expense, net
Intercompany interest
Income (loss) before income taxes and
equity in income (loss) of
subsidiaries
Income tax (expense) benefit
Income (loss) before equity in income
(loss) of subsidiaries
Equity in income (loss) of subsidiaries
Net income (loss)
Other comprehensive income (loss)
PulteGroup,
Inc.
Unconsolidated
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminating
Entries
Consolidated
PulteGroup,
Inc.
$
— $ 9,694,703
$
123,742
$
— $
9,818,445
—
—
—
—
162,012
9,856,715
—
9,856,715
— (7,449,343)
(125,016)
—
— (7,574,359)
(563)
—
—
(580)
(7,835)
(8,415)
2,104
(6,311)
1,028,334
1,022,023
100
(974,858)
(53,765)
—
1,253,170
(304,218)
948,952
73,097
1,022,049
—
2,492
126,234
205,382
331,616
(91,594)
(1,544)
(93,138)
(146,859)
(37,165)
40,496
7,835
102,785
(23,403)
79,382
782,948
862,330
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1,884,379)
(1,884,379)
—
164,504
9,982,949
205,382
10,188,331
(7,540,937)
(126,560)
(7,667,497)
(147,422)
(1,012,023)
(13,849)
—
1,347,540
(325,517)
1,022,023
—
1,022,023
100
Comprehensive income (loss)
$
1,022,123
$ 1,022,049
$
862,330
$ (1,884,379) $
1,022,123
77
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the year ended December 31, 2017
($000’s omitted)
Revenues:
Homebuilding
Home sale revenues
Land sale and other revenues
Financial Services
Homebuilding Cost of Revenues:
Home sale cost of revenues
Land sale cost of revenues
Financial Services expenses
Selling, general, and administrative
expenses
Other expense, net
Intercompany interest
Income (loss) before income taxes and
equity in income (loss) of
subsidiaries
Income tax (expense) benefit
Income (loss) before equity in income
(loss) of subsidiaries
Equity in income (loss) of subsidiaries
Net income (loss)
Other comprehensive income (loss)
PulteGroup,
Inc.
Unconsolidated
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminating
Entries
Consolidated
PulteGroup,
Inc.
$
— $ 8,229,392
$
94,592
$
— $
8,323,984
—
—
—
—
57,711
8,287,103
—
8,287,103
— (6,385,167)
(131,363)
—
— (6,516,530)
(527)
—
—
(482)
(2,485)
(785,266)
(63,050)
—
(2,967)
1,127
921,730
(483,435)
(1,840)
449,061
447,221
81
438,295
58,559
496,854
—
3,831
98,423
192,160
290,583
(75,985)
(3,086)
(79,071)
(118,762)
(106,315)
31,145
2,485
20,065
(9,299)
10,766
226,864
237,630
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(734,484)
(734,484)
—
61,542
8,385,526
192,160
8,577,686
(6,461,152)
(134,449)
(6,595,601)
(119,289)
(891,581)
(32,387)
—
938,828
(491,607)
447,221
—
447,221
81
Comprehensive income (loss)
$
447,302
$
496,854
$
237,630
$
(734,484) $
447,302
78
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the year ended December 31, 2016
($000’s omitted)
Revenues:
Homebuilding
Home sale revenues
Land sale and other revenues
Financial Services
Homebuilding Cost of Revenues:
Home sale cost of revenues
Land sale cost of revenues
Financial Services expenses
Selling, general, and administrative
expenses
Other expense, net
Intercompany interest
Income (loss) before income taxes and
equity in income (loss) of
subsidiaries
Income tax (expense) benefit
Income (loss) before equity in income
(loss) of subsidiaries
Equity in income (loss) of subsidiaries
Net income (loss)
Other comprehensive income (loss)
PulteGroup,
Inc.
Unconsolidated
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminating
Entries
Consolidated
PulteGroup,
Inc.
$
— $ 7,427,757
$
23,558
$
— $
7,451,315
—
—
—
—
41,642
7,469,399
—
7,469,399
— (5,566,653)
(30,156)
—
— (5,596,809)
(533)
—
—
(1,321)
(1,980)
(907,748)
(77,389)
—
(3,301)
1,254
886,920
(312,486)
(2,047)
604,750
602,703
83
574,434
58,078
632,512
—
2,447
26,005
181,126
207,131
(21,321)
(1,959)
(23,280)
(108,040)
(49,402)
21,842
1,980
50,231
(19,915)
30,316
457,716
488,032
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1,120,544)
(1,120,544)
—
44,089
7,495,404
181,126
7,676,530
(5,587,974)
(32,115)
(5,620,089)
(108,573)
(957,150)
(56,868)
—
933,850
(331,147)
602,703
—
602,703
83
Comprehensive income (loss)
$
602,786
$
632,512
$
488,032
$ (1,120,544) $
602,786
79
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING STATEMENT OF CASH FLOWS
For the year ended December 31, 2018
($000’s omitted)
PulteGroup,
Inc.
Unconsolidated
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminating
Entries
Consolidated
PulteGroup,
Inc.
$
494,518
$
791,350
$
163,876
$
— $
1,449,744
Net cash provided by (used in)
operating activities
Cash flows from investing activities:
Capital expenditures
Investment in unconsolidated
subsidiaries
Other investing activities, net
Net cash provided by (used in) investing
activities
Cash flows from financing activities:
—
—
—
—
(51,147)
(7,892)
(1,000)
11,300
—
6,797
(40,847)
(1,095)
Proceeds from debt, net of issuance costs
Repayments of debt
(8,164)
—
—
(81,758)
Borrowings under revolving credit
facility
Repayments under revolving credit
facility
Financial Services borrowings
(repayments), net
Stock option exercises
Share repurchases
Dividends paid
Intercompany activities, net
Net cash provided by (used in)
financing activities
Net increase (decrease)
Cash, cash equivalents, and restricted cash
at beginning of year
Cash, cash equivalents, and restricted cash
at end of year
$
1,566,000
(1,566,000)
—
6,555
(302,473)
(104,020)
(86,416)
(494,518)
—
—
—
—
—
—
—
—
102,821
21,063
771,566
—
(1,017)
—
—
(89,393)
—
—
—
(16,405)
(106,815)
55,966
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(59,039)
(1,000)
18,097
(41,942)
(8,164)
(82,775)
1,566,000
(1,566,000)
(89,393)
6,555
(302,473)
(104,020)
—
(580,270)
827,532
306,168
157,801
148,367
— $
929,367
$
204,333
$
— $
1,133,700
80
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING STATEMENT OF CASH FLOWS
For the year ended December 31, 2017
($000’s omitted)
Net cash provided by (used in)
operating activities
Cash flows from investing activities:
Capital expenditures
Investment in unconsolidated
subsidiaries
Other investing activities, net
Net cash provided by (used in) investing
activities
Cash flows from financing activities:
Proceeds from debt, net of issuance costs
Repayments of debt
Borrowings under revolving credit
facility
Repayments under revolving credit
facility
Financial Services borrowings
(repayments), net
Stock option exercises
Share repurchases
Dividends paid
Intercompany activities, net
Net cash provided by (used in)
financing activities
Net increase (decrease)
Cash, cash equivalents, and restricted cash
at beginning of year
Cash, cash equivalents, and restricted cash
at end of year
$
PulteGroup,
Inc.
Unconsolidated
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminating
Entries
Consolidated
PulteGroup,
Inc.
$
309,757
$
328,163
$
25,157
$
— $
663,077
—
—
—
—
—
(123,000)
2,720,000
(2,720,000)
—
27,720
(916,323)
(112,748)
814,594
(309,757)
—
—
(25,432)
(6,619)
(23,037)
5,778
(42,691)
—
(10,301)
—
—
—
—
—
—
(728,555)
(738,856)
(453,384)
—
(932)
(7,551)
—
(1,446)
—
—
106,183
—
—
—
(86,039)
18,698
36,304
611,185
112,063
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(32,051)
(23,037)
4,846
(50,242)
—
(134,747)
2,720,000
(2,720,000)
106,183
27,720
(916,323)
(112,748)
—
(1,029,915)
(417,080)
723,248
— $
157,801
$
148,367
$
— $
306,168
81
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING STATEMENT OF CASH FLOWS
For the year ended December 31, 2016
($000’s omitted)
PulteGroup,
Inc.
Unconsolidated
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminating
Entries
Consolidated
PulteGroup,
Inc.
$
256,722
$
(102,054) $
(86,398) $
— $
68,270
Net cash provided by (used in)
operating activities
Cash flows from investing activities:
Capital expenditures
Investment in unconsolidated
subsidiaries
Cash used for business acquisitions
Other investing activities, net
Net cash provided by (used in)
investing activities
Cash flows from financing activities:
Financial Services borrowings
(repayments)
Proceeds from debt, net of issuance costs
Repayments of debt
Borrowings under revolving credit
facility
Repayments under revolving credit
facility
Stock option exercises
Share repurchases
Dividends paid
Intercompany activities, net
Net cash provided by (used in)
financing activities
Net increase (decrease)
Cash, cash equivalents, and restricted cash
at beginning of year
Cash, cash equivalents, and restricted cash
at end of year
$
—
—
—
—
—
—
1,991,937
(965,245)
619,000
(619,000)
5,845
(603,206)
(124,666)
(561,387)
(256,722)
—
—
(36,297)
(2,998)
(14,539)
(430,458)
11,189
—
—
1,911
(470,105)
(1,087)
—
4,000
(21,235)
—
—
—
—
—
541,703
524,468
(47,691)
63,744
—
(439)
—
—
—
—
—
19,684
82,989
(4,496)
658,876
116,559
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(39,295)
(14,539)
(430,458)
13,100
(471,192)
63,744
1,995,937
(986,919)
619,000
(619,000)
5,845
(603,206)
(124,666)
—
350,735
(52,187)
775,435
— $
611,185
$
112,063
$
— $
723,248
82
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
13. Quarterly results (unaudited)
UNAUDITED QUARTERLY INFORMATION
(000’s omitted, except per share data)
1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Total (a)
2018
Homebuilding:
Revenues
Cost of revenues (b)
Income before income taxes (c)
Financial Services:
Revenues
Income before income taxes (d)
Consolidated results:
Revenues
Income before income taxes
Income tax expense
Net income
Net income per share:
Basic
Diluted
Number of shares used in calculation:
Basic
Effect of dilutive securities
Diluted
$ 1,924,155
(1,471,488)
210,358
$ 2,516,958
(1,900,316)
388,453
$ 2,597,746
(1,976,220)
365,055
$ 2,944,091
(2,319,473)
324,938
$ 9,982,949
(7,667,497)
1,288,804
$
45,938
$
52,764
$
51,620
$
55,059
$
205,382
13,833
20,717
19,633
4,553
58,736
$ 1,970,093
$ 2,569,722
$ 2,649,366
$ 2,999,150
$ 10,188,331
224,191
(53,440)
170,751
0.59
0.59
409,170
(85,081)
324,089
1.12
1.12
$
$
$
$
$
$
384,688
(95,153)
289,535
1.01
1.01
$
$
$
$
$
$
329,491
(91,842)
237,649
1,347,540
(325,517)
$ 1,022,023
0.84
0.84
$
$
3.56
3.55
286,683
285,276
283,489
278,964
1,343
1,378
1,183
1,248
288,026
286,654
284,672
280,212
283,578
1,287
284,865
(a) Due to rounding, the sum of quarterly results may not equal the total for the year. Additionally, quarterly and year-
to-date computations of per share amounts are made independently.
(b) Cost of revenues includes land inventory impairments of $66.9 million and net realizable value adjustments on land
held for sale of $9.0 million in the 4th Quarter. See Note 2 for a more complete discussion of land-related charges
for the full year.
(c) Homebuilding income before income taxes includes an insurance reserve reversal of $37.9 million in the 2nd
Quarter (see Note 11) and write-offs of pre-acquisition costs of $9.6 million in the 4th Quarter (See
)1
Note 2).)2
(d)
Financial Services income before income taxes includes a charge related to loan origination liabilities of $16.2
million in the 4th Quarter (see Note 11).)1
83
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
UNAUDITED QUARTERLY INFORMATION
(000’s omitted, except per share data)
2017
Homebuilding:
Revenues
Cost of revenues (b)
Income before income taxes (c)
Financial Services:
Revenues
Income before income taxes
Consolidated results:
Revenues
Income before income taxes
Income tax expense
Net income
Net income per share:
Basic
Diluted
Number of shares used in calculation:
Basic
Effect of dilutive securities
Diluted
1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Total (a)
$ 1,588,111
(1,220,906)
125,762
$ 1,974,584
(1,637,536)
103,599
$ 2,084,106
(1,589,728)
250,463
$ 2,738,724
(2,147,431)
385,508
$ 8,385,526
(6,595,601)
865,332
$
41,767
$
47,275
$
46,952
$
56,166
$
192,160
13,503
18,948
17,786
23,259
73,496
$ 1,629,878
139,265
(47,747)
91,518
$
$ 2,021,859
122,547
(21,798)
100,749
$
$ 2,131,058
268,249
(90,710)
177,539
$
$ 2,794,890
408,767
(331,352)
77,415
$
$ 8,577,686
938,828
(491,607)
447,221
$
$
$
0.29
0.28
$
$
0.32
0.32
$
$
0.59
0.58
$
$
0.26
0.26
$
$
1.45
1.44
317,756
2,329
320,085
312,315
298,538
1,565
1,690
313,880
300,228
292,174
1,318
293,492
305,089
1,725
306,814
(a) Due to rounding, the sum of quarterly results may not equal the total for the year. Additionally, quarterly and year-
to-date computations of per share amounts are made independently.
(b) Cost of revenues includes land inventory impairments of $31.5 million and $57.5 million in the 2nd and 4th
Quarters, respectively (see Note 2); net realizable value adjustments on land held for sale of $81.0 million in the
2nd Quarter (see Note 2); and a warranty charge of $12.4 million related to a closed-out community in the 2nd
Quarter (see Note 11).)1
)2
)2
(c) Homebuilding income before income taxes includes an $8.0 million impairment of an investment in an
unconsolidated entity in the 2nd Quarter (see Note 2); write-offs of insurance receivables of $15.0 million, $5.3
million, and $9.3 million for the 1st, 3rd, and 4th Quarters, respectively (see Note 11); and insurance reserve
reversals of $19.8 million and $75.3 million in the 2nd and 4th Quarters, respectively (see Note 11).)1
)2
)1
84
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of PulteGroup, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of PulteGroup, Inc. (the Company) as of December 31, 2018
and 2017, and the related consolidated statements of operations, comprehensive income, shareholders’ equity and cash flows for
each of the three years in the period ended December 31, 2018, and the related notes (collectively referred to as the
“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects,
the financial position of the Company at December 31, 2018 and 2017, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 2018, in conformity with U.S. generally accepted accounting
principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 Framework) and our report dated January 31, 2019 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1973.
Atlanta, Georgia
January 31, 2019
85
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
This Item is not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Management, including our President and Chief Executive Officer and Executive Vice President and Chief Financial
Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31,
2018. Based upon, and as of the date of that evaluation, our President and Chief Executive Officer and Executive Vice President
and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of December 31, 2018.
Internal Control Over Financial Reporting
(a) Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for the preparation and fair presentation of the consolidated financial statements included in
this annual report. The consolidated financial statements have been prepared in conformity with U.S. generally accepted
accounting principles and reflect management’s judgments and estimates concerning events and transactions that are accounted
for or disclosed.
Management is also responsible for establishing and maintaining effective internal control over financial reporting, as
such term is defined in Exchange Act Rule 13a-15(f). Management recognizes that there are inherent limitations in the
effectiveness of any internal control and effective internal control over financial reporting can provide only reasonable
assurance with respect to financial statement preparation. Additionally, because of changes in conditions, the effectiveness of
internal control over financial reporting may vary over time.
In order to ensure that the Company’s internal control over financial reporting is effective, management regularly
assesses such controls and did so most recently for its financial reporting as of December 31, 2018. Management’s assessment
was based on criteria for effective internal control over financial reporting described in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Based on
this assessment, management asserts that the Company has maintained effective internal control over financial reporting as of
December 31, 2018.
Ernst & Young LLP, the independent registered public accounting firm that audited the Company’s consolidated financial
statements included in this annual report, has issued its report on the effectiveness of the Company’s internal control over
financial reporting as of December 31, 2018.
86
(b) Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of PulteGroup, Inc.
Opinion on Internal Control over Financial Reporting
We have audited PulteGroup, Inc.’s internal control over financial reporting as of December 31, 2018, based on criteria
established in Internal Control- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) (the COSO criteria). In our opinion, PulteGroup, Inc. (the Company) maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2018, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2018 and 2017, the related consolidated
statements of operations, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period
ended December 31, 2018, and the related notes and our report dated January 31, 2019 expressed an unqualified opinion
thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual
Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Atlanta, Georgia
January 31, 2019
87
(c)
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting during the quarter ended December 31, 2018
that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
This Item is not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information required by this Item with respect to our executive officers is set forth in Item 4A of this Annual Report on
Form 10-K. Information required by this Item with respect to members of our Board of Directors and with respect to our audit
committee will be contained in the Proxy Statement for the 2019 Annual Meeting of Shareholders (“2019 Proxy Statement”),
which will be filed no later than 120 days after December 31, 2018, under the captions “Election of Directors” and
“Committees of the Board of Directors - Audit Committee” and in the chart disclosing Audit Committee membership and is
incorporated herein by this reference. Information required by this Item with respect to compliance with Section 16(a) of the
Securities Exchange Act of 1934 will be contained in the 2019 Proxy Statement under the caption “Beneficial Security
Ownership - Section 16(a) Beneficial Ownership Reporting Compliance,” and is incorporated herein by this reference.
Information required by this Item with respect to our code of ethics will be contained in the 2019 Proxy Statement under the
caption “Corporate Governance - Governance Guidelines; Code of Ethical Business Conduct; Code of Ethics” and is
incorporated herein by this reference.
Our code of ethics for principal officers, our code of ethical business conduct, our corporate governance guidelines, and
the charters of the Audit, Compensation and Management Development, Nominating and Governance, and Finance and
Investment committees of our Board of Directors are also posted on our website and are available in print, free of charge, upon
request.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item will be contained in the 2019 Proxy Statement under the captions “2018 Executive
Compensation” and “2018 Director Compensation” and is incorporated herein by this reference, provided that the
Compensation and Management Development Committee Report shall not be deemed to be “filed” with this Annual Report on
Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLER MATTERS
Information required by this Item will be contained in the 2019 Proxy Statement under the captions “Beneficial Security
Ownership” and “Equity Compensation Plan Information” and is incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Information required by this Item will be contained in the 2019 Proxy Statement under the captions “Certain
Relationships and Related Transactions” and “Board of Directors Information” and is incorporated herein by this reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information required by this Item will be contained in the 2019 Proxy Statement under the captions “Audit and Non-
Audit Fees” and “Audit Committee Preapproval Policies” and is incorporated herein by reference.
88
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this Annual Report on Form 10-K:
(1)
Financial Statements
Consolidated Balance Sheets at December 31, 2018 and 2017
Consolidated Statements of Operations for the years ended December 31, 2018, 2017, and 2016
Consolidated Statements of Comprehensive Income for the years ended December 31, 2018,
2017, and 2016
Consolidated Statements of Shareholders' Equity for the years ended December 31, 2018, 2017,
and 2016
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017, and 2016
Notes to Consolidated Financial Statements
42
43
44
45
46
47
(2)
Financial Statement Schedules
All schedules are omitted because the required information is not present, is not present in amounts sufficient
to require submission of the schedule, or because the required information is included in the financial
statements or notes thereto.
(3) Exhibits
The following exhibits are filed with this Annual Report on Form 10-K or are incorporated herein by
reference:
Exhibit Number and Descriptionp
(3)
(a) Restated Articles of Incorporation, of PulteGroup, Inc. (Incorporated by reference to Exhibit 3.1 of our
Current Report on Form 8-K, filed with the SEC on August 18, 2009)
(b) Certificate of Amendment to the Articles of Incorporation, dated March 18, 2010 (Incorporated by
reference to Exhibit 3(b) of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2010)
(c) Certificate of Amendment to the Articles of Incorporation, dated May 21, 2010 (Incorporated by reference
to Exhibit 3(c) of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2010)
(d) Amended and Restated By-laws of PulteGroup, Inc. (Incorporated by reference to Exhibit 3.2 of our
Current Report on Form 8-K, filed with the SEC on May 5, 2017)
(e) Certificate of Designation of Series A Junior Participating Preferred Shares, dated August 6, 2009
(Incorporated by reference to Exhibit 3(b) of our Registration Statement on Form 8-A, filed with the SEC
on August 18, 2009)
(4)
(a) Any instrument with respect to long-term debt, where the securities authorized thereunder do not exceed
10% of the total assets of PulteGroup, Inc. and its subsidiaries, has not been filed. The Company agrees to
furnish a copy of such instruments to the SEC upon request.
(b) Amended and Restated Section 382 Rights Agreement, dated as of March 18, 2010, between PulteGroup,
Inc. and Computershare Trust Company, N.A., as rights agent, which includes the Form of Rights
Certificate as Exhibit B thereto (Incorporated by reference to Exhibit 4 of PulteGroup, Inc.’s Registration
Statement on Form 8-A/A, filed with the SEC on March 23, 2010)
(c)
(d)
First Amendment to Amended and Restated Section 382 Rights Agreement, dated as of March 14, 2013,
between PulteGroup, Inc. and Computershare Trust Company, N.A., as rights agent (Incorporated by
reference to Exhibit 4.1 of PulteGroup, Inc.’s Current Report on Form 8-K, filed with the SEC on March
15, 2013)
Second Amendment to Amended and Restated Section 382 Rights Agreement, dated as of March 10, 2016,
between PulteGroup, Inc. and Computershare Trust Company, N.A., as rights agent (Incorporated by
reference to Exhibit 4.1 of PulteGroup, Inc.’s Current Report on Form 8-K, filed with the SEC on March
10, 2016)
89
(10)
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
PulteGroup, Inc. 401(k) Plan (Incorporated by reference to Exhibit 4.3 of our Registration Statement on
Form S-8, No. 333-115570)*
PulteGroup, Inc. 2002 Stock Incentive Plan (Incorporated by reference to our Proxy Statement dated April
3, 2002 and as Exhibit 4.3 of our Registration Statement on Form S-8, No. 333-123223)*
PulteGroup, Inc. 2013 Senior Management Incentive Plan (Incorporated by reference to Exhibit 10.2 of
our Current Report on Form 8-K, filed with the SEC on May 13, 2013)*
PulteGroup, Inc. Long-Term Incentive Program (Incorporated by reference to Exhibit 10.2 of our Current
Report on Form 8-K, filed with the SEC on May 20, 2008)*
Form of PulteGroup, Inc. Long Term Incentive Award Agreement (Incorporated by reference to Exhibit
10.3 of our Current Report on Form 8-K, filed with the SEC on May 20, 2008)*
Form of PulteGroup, Inc. 2008-2010 Grant Acceptance Agreement - Company Performance Measures
(Incorporated by reference to Exhibit 10.4 of our Current Report on Form 8-K, filed with the SEC on May
20, 2008)*
Form of PulteGroup, Inc. 2008-2010 Grant Acceptance Agreement - Individual Performance Measures
(Incorporated by reference to Exhibit 10.5 of our Current Report on Form 8-K, filed with the SEC on May
20, 2008)*
PulteGroup, Inc. 2013 Stock Incentive Plan (Incorporated by reference to Exhibit 10.1 of our Current
Report on Form 8-K, filed with the SEC on May 13, 2013)*
(i) Amendment Number One to the PulteGroup, Inc. 2013 Stock Incentive Plan dated February 10, 2017
(Incorporated by reference to Exhibit 10 of our Quarterly Report on Form 10-Q for the quarter ended
March 31, 2017)*
(j)
(k)
(l)
(m)
(n)
(o)
(p)
(q)
(r)
PulteGroup, Inc. 2004 Stock Incentive Plan (as Amended and Restated as of July 9, 2009) (Incorporated
by reference to Exhibit 10(a) of our Quarterly Report on Form 10-Q for the quarter ended September 30,
2009)*
Form of Restricted Stock Unit Award Agreement (as Amended) under PulteGroup, Inc. 2013 Stock
Incentive Plan (Incorporated by reference to Exhibit 10(k) of our Annual Report on Form 10-K for the
year ended December 31, 2017)*
Form of Restricted Stock Award Agreement (as amended) under PulteGroup, Inc. 2004 Stock Incentive
Plan (Incorporated by reference to Exhibit 10(p) of our Annual Report on Form 10-K for the year ended
December 31, 2013)*
Form of Stock Option Agreement under PulteGroup, Inc. 2002 and 2004 Stock Incentive Plans
(Incorporated by reference to Exhibit 10(s) of our Annual Report on Form 10-K for the year ended
December 31, 2007)*
Form of Stock Option Agreement (as amended) under PulteGroup, Inc. 2002 and 2004 Stock Incentive
Plans (Incorporated by reference to Exhibit 10(t) of our Annual Report on Form 10-K for the year ended
December 31, 2007)*
Form of Performance Share Award Agreement under PulteGroup, Inc. 2004 Stock Incentive Plan
(Incorporated by reference to Exhibit 10(w) of our Annual Report on Form 10-K for the year ended
December 31, 2011 )*
PulteGroup, Inc. Long Term Compensation Deferral Plan (As Amended and Restated Effective January 1,
2004) (Incorporated by reference to Exhibit 10(a) of our Quarterly Report on Form 10-Q for the quarter
ended March 31, 2006)*
PulteGroup, Inc. Deferred Compensation Plan For Non-Employee Directors, as amended and restated
effective as of January 1, 2017 (Incorporated by reference to Exhibit 10(b) of our Quarterly Report on
Form 10-Q for the quarter ended September 30, 2017)*
Assignment and Assumption Agreement dated as of August 18, 2009 between PulteGroup, Inc. and Centex
Corporation (Incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K, filed with the
SEC on August 20, 2009)
90
(s)
(t)
(u)
(v)
Form of Performance Award Agreement under PulteGroup, Inc. 2008 Senior Management Incentive Plan
(Incorporated by reference to Exhibit 10(a) of our Quarterly Report on Form 10-Q for the quarter ended
March 31, 2012)*
PulteGroup, Inc. Executive Severance Policy (Incorporated by reference to Exhibit 10.1 of our Current
Report on Form 8-K, filed with the SEC on February 12, 2013)*
PulteGroup, Inc. Amended Retirement Policy (Effective November 30, 2017) (Incorporated by reference
to Exhibit 10(u) of our Annual Report on Form 10-K for the year ended December 31, 2017)*
Second Amended and Restated Credit Agreement dated June 22, 2018 among PulteGroup, Inc., as
Borrower, Bank of America, N.A., as Administrative Agent, and the other Lenders party thereto
(Incorporated by reference to Exhibit 10.1 of PulteGroup, Inc.'s Current Report on Form 8-K, filed with
the SEC on June 22, 2018)
(w) Amended and Restated Master Repurchase Agreement dated September 4, 2015, among Comerica Bank,
as Agent, Lead Arranger and a Buyer, the other Buyers party hereto and Pulte Mortgage LLC, as Seller
(Incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K, filed with the SEC on
September 8, 2015)
(x)
(y)
(z)
Second Amendment to Amended and Restated Master Repurchase Agreement dated June 24, 2016
(Incorporated by reference to Exhibit 10.1 of PulteGroup, Inc.'s Current Report on Form 8-K, filed with
the SEC on June 29, 2016)
Third Amendment to Amended and Restated Master Repurchase Agreement dated August 15, 2016
(Incorporated by reference to Exhibit 10.1 of PulteGroup, Inc.'s Current Report on Form 8-K, filed with
the SEC on August 17, 2016)
Fourth Amendment to Amended and Restated Master Repurchase Agreement dated December 27, 2016
(Incorporated by reference to Exhibit 10.1 of PulteGroup, Inc.'s Current Report on Form 8-K, filed with
the SEC on December 29, 2016)
(aa) Fifth Amendment to Amended and Restated Master Repurchase Agreement dated August 14, 2017
(Incorporated by reference to Exhibit 10.1 of PulteGroup, Inc.'s Current Report on Form 8-K, filed with
the SEC on August 15, 2017)
(ab) Letter Agreement, dated July 20, 2016, by and between Elliott Associates, L.P., Elliott International, L.P.
and PulteGroup, Inc. (Incorporated by reference to Exhibit 10(d) of PulteGroup, Inc.'s Form 10-Q, filed
with the SEC on July 21, 2016)
(ac) Letter Agreement by and among William J. Pulte (grandson of the founder), William J. Pulte (founder),
William J. Pulte Trust dtd 01/26/90, Joan B. Pulte Trust dtd 01/26/90 and PulteGroup, Inc., dated
September 8, 2016 (Incorporated by reference to Exhibit 10.1 of PulteGroup, Inc.'s Current Report on
Form 8-K, filed with the SEC on September 8, 2016)
(ad) Transition Agreement by and between PulteGroup, Inc. and Richard J. Dugas, Jr., dated September 8, 2016
(Incorporated by reference to Exhibit 10.2 of PulteGroup, Inc.'s Current Report on Form 8-K, filed with
the SEC on September 8, 2016)*
Subsidiaries of the Registrant (Filed herewith)
Consent of Independent Registered Public Accounting Firm (Filed herewith)
Power of Attorney (Filed herewith)
(a) Rule 13a-14(a) Certification by Ryan R. Marshall, President and Chief Executive Officer (Filed herewith)
(b) Rule 13a-14(a) Certification by Robert T. O'Shaughnessy, Executive Vice President and Chief Financial
Officer (Filed herewith)
Certification Pursuant to 18 United States Code § 1350 and Rule 13a-14(b) of the Securities Exchange Act
of 1934 (Furnished herewith)
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
91
(21)
(23)
(24)
(31)
(32)
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
* Indicates a management contract or compensatory plan or arrangement
ITEM 16. FORM 10-K SUMMARY
None.
92
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
PULTEGROUP, INC.
(Registrant)
January 31, 2019
By:
/s/ Robert T. O'Shaughnessy
Robert T. O'Shaughnessy
Executive Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the date indicated:
January 31, 2019
/s/ Ryan R. Marshall
Ryan R. Marshall
/s/ Robert T. O'Shaughnessy
/s/ James L. Ossowski
President and Chief Executive Officer
(Principal Executive Officer) and
Member of Board of Directors
Robert T. O'Shaughnessy
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
James L. Ossowski
Senior Vice President, Finance
(Principal Accounting Officer)
Brian P. Anderson
Member of Board of Directors
Bryce Blair
Non-Executive Chairman of Board of
Directors
Richard W. Dreiling
Member of Board of Directors
Thomas J. Folliard
Member of Board of Directors
Cheryl W. Grisé
Member of Board of Directors
André J. Hawaux
Member of Board of Directors
John R. Peshkin
Scott F. Powers
William J. Pulte
Lila Snyder
Member of Board of Directors
Member of Board of Directors
Member of Board of Directors
Member of Board of Directors
}
}
}
}
}
}
}
}
}
}
/s/ Robert T. O'Shaughnessy
Robert T. O'Shaughnessy
Executive Vice President and
Chief Financial Officer
93
SUBSIDIARIES OF PULTEGROUP, INC.
As of December 31, 2018
EXHIBIT 21
Company Name
Jurisdiction of Formation
Centex LLC
Centex Construction Of New Mexico, LLC
Centex Development Company, L.P.
Centex Homes
Centex Homes, LLC
Centex International II, LLC
Centex Real Estate Company, LLC
Contractors Insurance Company of North America, Inc., a Risk Retention Group
Dean Realty Company
Del Webb California Corp.
Del Webb Communities, Inc.
Del Webb Communities of Illinois, Inc.
Del Webb Corporation
Del Webb Home Construction, Inc.
Del Webb Texas Limited Partnership
Del Webb's Coventry Homes, Inc.
Del Webb's Spruce Creek Communities, Inc.
DiVosta Building, LLC
DiVosta Homes, L.P.
DiVosta Homes Holdings, LLC
DW Homebuilding Co.
Nomas LLC
North American Builders Indemnity Company
PH 19 Corporation
PH 43 LLC
PH 55 LLC
PH Relocation Services LLC
PH1 Corporation
PHNE Business Trust
PN II, Inc.
Potomac Yard Development LLC
Preserve II, Inc.
Pulte Arizona Services, Inc.
Pulte Development Corporation
Pulte Development New Mexico, Inc.
Pulte Diversified Company, LLC
Pulte Home Company, LLC
Pulte Home Corporation of The Delaware Valley
Pulte Homes of California, Inc.
Pulte Homes of Indiana, LLC
Pulte Homes of Michigan LLC
Pulte Homes of Minnesota LLC
Pulte Homes of New England LLC
Pulte Homes of New Mexico, Inc.
Pulte Homes of New York LLC
Pulte Homes of NJ, Limited Partnership
Pulte Homes of Ohio LLC
Nevada
Delaware
Delaware
Nevada
Delaware
Nevada
Nevada
Hawaii
Michigan
Arizona
Arizona
Arizona
Delaware
Arizona
Arizona
Arizona
Arizona
Michigan
Delaware
Delaware
Arizona
Nevada
Hawaii
Michigan
Michigan
Michigan
Michigan
Michigan
Massachusetts
Nevada
Delaware
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
Delaware
Indiana
Michigan
Minnesota
Michigan
Michigan
Delaware
Michigan
Michigan
Pulte Homes of PA, Limited Partnership
Pulte Homes of Texas, L.P.
Pulte Homes of Washington, Inc.
Pulte Homes Tennessee Limited Partnership
Pulte Interiors, LLC
Pulte Land Company, LLC
Pulte Mortgage LLC
Pulte Nevada I LLC
Pulte Payroll Corporation
Pulte Purchasing Corporation
Pulte Realty Holding Company, LLC
Pulte Realty Limited Partnership
Pulte Texas Holdings, LLC
Pulte/BP Murrieta Hills, LLC
Pulte Homes Tennessee, Inc.
RN Acquisition 2 Corp.
Terravita Home Construction Co.
The Jones Company Building Services, LLC
Michigan
Texas
Michigan
Nevada
Michigan
Michigan
Delaware
Delaware
Michigan
Michigan
Michigan
Michigan
Michigan
California
Michigan
Nevada
Arizona
Nevada
Certain subsidiaries have been omitted from this list. Such omitted subsidiaries, when considered in the aggregate as a single
subsidiary, do not constitute a significant subsidiary as defined in Rule 1-02(w) of Regulation S-X.
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements (Form S-3 No. 333-209598, Form S-8 No. 333-115570,
Form S-8 No. 333-123223, Form S-8 No. 333-150961, Form S-8 No. 333-161441 and Form S-8 No. 333-188986) of PulteGroup,
Inc. of our reports dated January 31, 2019, with respect to the consolidated financial statements of PulteGroup, Inc., and the
effectiveness of internal control over financial reporting of PulteGroup, Inc., included in this Annual Report (Form 10-K) of
PulteGroup, Inc. for the year ended December 31, 2018.
EXHIBIT 23
/s/ Ernst & Young LLP
Atlanta, Georgia
January 31, 2019
POWER OF ATTORNEY
EXHIBIT 24
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and appoints each of Ryan R. Marshall,
Robert O’Shaughnessy, Todd N. Sheldon, and James Ossowski, signing singly, his true and lawful attorney-in-fact to:
1. Execute for and on behalf of the undersigned, in the undersigned’s capacity as a director of PulteGroup, Inc. (the “Company”), the
Annual Report on Form 10-K for the fiscal year ending December 31,2018 ("Annual Report"), in accordance with the Securities
Exchange Act of 1934, as amended, and the rules thereunder; and,
2. Do and perform any and all acts for and on behalf of the undersigned which may be necessary or desirable to complete and
execute any such Annual Report, complete and execute any amendment or amendments thereto, and timely file such documents
with the Unites States Securities and Exchange Commission and any stock exchange, stock market or similar authority; and,
3. Take any other action of any type whatsoever in connection with the foregoing which, in the opinion of such attorney-in-fact, may
be of benefit to, and in the best interest of, or legally required by, the undersigned, it being understood that the documents
executed by such attorney-in-fact on behalf of the undersigned pursuant to this Power of Attorney shall be in such form and shall
contain such terms and conditions as such attorney-in-fact may approve in such attorney-in-fact’s discretion.
The undersigned hereby grants to each such attorney-in-fact full power and authority to do and perform any and every act and
thing whatsoever requisite, necessary, or proper to be done in the exercise of any of the rights and powers herein granted, as fully to all
intents and purposes as the undersigned might or could do if personally present, with full power of substitution or revocation, hereby
ratifying and confirming all that such attorney-in-fact, or such attorney-in-fact’s substitute or substitutes, shall lawfully do or cause to
be done by virtue of this power of attorney and the rights and powers herein granted. The undersigned acknowledges that the
foregoing attorneys-in-fact, in serving in such capacity at the request of the undersigned, are not assuming, nor is the Companynn
assuming, any of the undersigned’s responsibilities to comply with any rule of the Securities Exchange Act of 1934, as amended.
This Power of Attorney shall remain in full force and effect until the undersigned is no longer required to sign the Annual
Report on Form 10-K with respect to the undersigned’s role as a director of the Company, unless earlier revoked by the undersigned in
a signed writing delivered to the foregoing attorneys-in-fact.
IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney to be executed as of this 6th day of December,
2018.
/s/ Brian P. Anderson
Brian P. Anderson
/s/ Bryce Blair
Bryce Blair
/s/ Richard W. Dreiling
Richard W. Dreiling
/s/ Thomas J. Folliard
Thomas J. Folliard
/s/ Cheryl W. Grisé
Cheryl W. Grisé
/s/ André J. Hawaux
André J. Hawaux
/s/ John R. Peshkin
John R. Peshkin
/s/ Scott F. Powers
Scott F. Powers
/s/ William J. Pulte
William J. Pulte
/s/ Lila J. Snyder
Lila J. Snyder
I, Ryan R. Marshall, certify that:
CHIEF EXECUTIVE OFFICER'S CERTIFICATION
EXHIBIT 31(a)
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of PulteGroup, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
b.
c.
d.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
a.
b.
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant's internal control over financial reporting.
Date: January 31, 2019
/s/ Ryan R. Marshall
Ryan R. Marshall
President and Chief Executive Officer
I, Robert T. O'Shaughnessy, certify that:
CHIEF FINANCIAL OFFICER'S CERTIFICATION
EXHIBIT 31(b)
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of PulteGroup, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
b.
c.
d.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
a.
b.
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant's internal control over financial reporting.
Date: January 31, 2019
/s/ Robert T. O'Shaughnessy
Robert T. O'Shaughnessy
Executive Vice President and
Chief Financial Officer
Certification
Pursuant to 18 United States Code § 1350 and
Rule 13a-14(b) of the Securities Exchange Act of 1934
EXHIBIT 32
In connection with the Annual Report of PulteGroup, Inc. (the “Company”) on Form 10-K for the period ended December 31,
2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certifies
that to his knowledge:
(1)
(2)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
The information contained in the Report fairly presents, in all material respects, the financial condition and results
of operations of the Company.
Date:
January 31, 2019
/s/ Ryan R. Marshall
Ryan R. Marshall
President and Chief Executive Officer
/s/ Robert T. O'Shaughnessy
Robert T. O'Shaughnessy
Executive Vice President and
Chief Financial Officer
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BOARD OF DIRECTORS, SENIOR LEADERSHIP AND
AREA & DIVISION MANAGEMENT
Brian P. Anderson (1)(4)
Former Chief Financial Officer
Baxter International Inc.
Bryce Blair (5)
Former Chairman of the Board
and Chief Executive Officer
AvalonBay Communities, Inc.
Richard W. Dreiling (2)(3)
Former Chairman of the Board
and Chief Executive Officer
Dollar General Corporation
BOARD OF DIRECTORS
Thomas J. Folliard (1)(4)
Former President and
Chief Executive Officer
CarMax, Inc.
Ryan R. Marshall (4)
President and Chief
Executive Officer
PulteGroup, Inc.
Cheryl W. Grise´ (2)(3)
Former Executive
Vice President
Northeast Utilities (now
Eversource Energy)
Andre´ J. Hawaux (1)(4)
Former Executive Vice
President and Chief
Operating Officer Dick’s
Sporting Goods, Inc.
John R. Peshkin (1)(4)
Founder and Managing
Partner
Vanguard Land, LLC.
Scott F. Powers (2)(3)
Former President and Chief
Executive Officer State
Street Global Advisors
SENIOR LEADERSHIP
William J. Pulte (2)(3)
Chief Executive Officer Pulte
Capital Partners, LLC.
Lila Snyder (1)(4)
Executive Vice President and
President of Commercial
Services
Pitney Bowes, Inc.
(1) Audit Committee Member
(2) Compensation and
Management
Development Committee
Member
(3) Nominating and
Governance Committee
Member
(4) Finance and Investment
Committee Member
(5) Non-Executive Chairman
Ryan R. Marshall
President and Chief Executive
Officer
Michelle Hairston
Senior Vice President,
Human Resources
Brandon K. Jones
Area President, Southeast
Area
Joseph L. Drouin
Vice President, Chief
Information Officer
John J. Chadwick
Executive Vice President and
Chief Operating Officer
James L. Ossowski
Senior Vice President,
Finance
Robert T. O’Shaughnessy
Executive Vice President and
Chief Financial Officer
Stephen P. Schlageter
Senior Vice President,
Operations and Strategy
Todd N. Sheldon
Executive Vice President,
General Counsel and
Corporate Secretary
Anthony W. Barbee
Area President, North Area
Peter J. Keane
Area President, Florida Area
Stephen V. Teodecki
Area President, Texas Area
Scott R. Wright
Area President, West Area
Kimberly M. Hill
Vice President, Tax and
Assistant Secretary
D. Bryce Langen
Vice President and Treasurer
Brien P. O’Meara
Vice President and Controller
Manish M. Shrivastava
Vice President, Chief
Marketing Officer
James P. Zeumer
Vice President, Investor
Relations and Corporate
Communications
Debra W. Still
President and Chief Executive
Officer Pulte Financial
Services
Information Requests
The Company’s annual report to shareholders and proxy statement together contain substantially all the
information presented in the Form 10-K report filed with the Securities and Exchange Commission.
Individuals interested in receiving the annual report, Form 10-K, Form 10-Qs or other printed corporate
literature should email the Investor Relations Department at InvestorRelations@PulteGroup.com.
Investor Inquiries
Shareholders, securities analysts, portfolio managers and others with inquiries about the Company should
contact Jim Zeumer, Vice President of Investor Relations and Corporate Communications, at the corporate
office or call (800) 777-8583. Shareholders with inquiries relating to shareholder records, stock transfers,
change of ownership, and change of address or dividend payments should contact:
Computershare Trust Company N.A.
P.O. Box 30170
College Station, TX 77842-3170
(877) 282-1168
www.computershare.com
Internet Address
Additional information about PulteGroup may be obtained by visiting our website at www.pultegroup.com.
Annual Meeting of the Shareholders
The annual meeting of shareholders of PulteGroup, Inc., will be held at the corporate offices at 5:00 p.m.
(EDT), Wednesday, May 8, 2019, at 3350 Peachtree Rd NE, Atlanta, Georgia 30326.
Common Stock Information
Ticker Symbol: PHM
PulteGroup, Inc., is a component of the S&P 500 Composite Stock Price Index. Common stock of
PulteGroup, Inc. is listed and traded on the New York Stock Exchange, which is the principal market for the
common stock. Option trading in PulteGroup, Inc. is conducted on the Chicago Board of Exchange.
PulteGroup, Inc.
3350 Peachtree Road N.E.
Suite 150
Atlanta, GA 30326
www.pultegroup.com :: www.pulte.com :: www.centex.com :: www.delwebb.com :: www.divosta.com :: www.jwhomes.com