2019 ANNUAL REPORT
About PulteGroup, Inc.
PulteGroup, Inc. (NYSE: PHM), based in Atlanta, Georgia, is one of America’s largest homebuilding
companies with operations in more than 40 markets throughout the country. Through its brand
portfolio that includes Centex, Pulte Homes, Del Webb, DiVosta Homes, American West 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’s purpose is building incredible places where people can live their
dreams.
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; www.jwhomes.com;
and www.americanwesthomes.com. Follow PulteGroup, Inc. on Twitter: @PulteGroupNews.
Letter to the Owners, Customers, Team Members and
Business Partners of PulteGroup:
In today’s competitive operating environment, I believe that high-performing companies operate under two
related mandates: advance the organization’s long-term strategic initiatives, while maximizing the current
business opportunities to deliver strong near-term financial results. Without the former, an organization will
eventually flounder. Without the latter, it will face irrelevance or fail. I am pleased to report that in 2019
PulteGroup successfully delivered against both mandates.
Outstanding 2019 Financial Performance
25,000
20,000
Closings
As 2019 progressed, it grew increasingly clear that improved affordability was attracting buyers back into the
market after a slowdown in the back half of 2018. I
feel confident saying that we successfully navigated
this volatile period. In total, the Company closed
23,232 homes for the year and generated $9.9 billion
in home sale revenues which represent levels for
both metrics not seen in more than a decade. The
improved demand environment also allowed us to
finish 2019 with a backlog of 10,507 homes, up 20%
over 2018, putting us in a strong position heading
into 2020.
15,000
10,000
5,000
19,951
17,127
23,107
21,052
23,232
0
2015
2016
2017
2018
2019
Home Sale Revenues ($B)
$12
$10
$8
$6
$9.8
$9.9
$7.5
$8.3
Demand
for more affordably priced homes
represented one of the strongest segments of the
market in 2019, driven primarily by Millennials who
grow
in the homebuying
process. Consistent with our goal of expanding our
affordable business, first-time buyers represented
29% of PulteGroup’s 2019 closings.
increasingly engaged
$5.8
$4
$2
$0
We have been modestly increasing our exposure to
first-time buyers which fits with our strategy of
indexing our business to the broader markets we
In total, we maintain a strong and
serve.
appropriately balanced competitive position across
all buyer groups, as reflected in our 2019 results where 29% of our closings were to first-time buyers, 45%
were to move-up and 26% were to active-adult buyers. We see this diversification and our ability to serve all
buyer groups as a tremendous competitive advantage in the market.
2019
2016
2017
2018
2015
2019 ANNUAL REPORT | PulteGroup, Inc.
1
We continue to manage our business with a focus on delivering high returns over the housing cycle. One of
the key drivers of return is gross margin, and our 2019 gross margin of 23.1% remains among the highest of
all the national builders and an important point of differentiation for PulteGroup. Our high margins reflect
our focus on key processes that span from our high quality lot positions and strategic pricing initiatives to
purchasing and construction efficiencies.
$4.00
$3.00
$2.00
$1.00
$0.00
EPS
$3.55
$3.66
$1.36
$1.75
$1.44
2015
2016
2017
2018
2019
Dropping to the bottom line, I am pleased to report
that our 2019 net income was $1.0 billion, or $3.66
per share. The year-over-year increase in earnings
per share reflects, in part, a reduction in share count
as we continue to return capital to shareholders
through our ongoing share repurchase program. Over
the past five years, we have returned $2.5 billion to
our shareholders through share repurchases and have
bought in one-third of the company since initiating
the program in 2013.
$800
$1,023
$1,200
Share Repurchase & Dividends ($M)
Routinely returning funds to shareholders is part of
our stated capital allocation priorities: 1) invest in our
business; 2) pay our dividend; 3) repurchase stock;
and 4) pay down debt. In alignment with these
priorities, we invested $3.0 billion in land acquisition
and development in 2019 to support the ongoing
growth of our operations. We increased our quarterly
dividend per share by 22% at the beginning of 2019
resulting in $122 million in dividends paid in the year.
We also announced a further 9% increase in our
quarterly dividend payable beginning in 2020. During
the year, we also used available cash to retire $274 million of our bonds that were scheduled to mature in
2021, which helped reduce our debt-to-total capital ratio to 33.6% at year end.
2018
2015
2016
2017
2019
$400
$397
$399
$725
$550
$0
I want to highlight that our 2019 land spend included the acquisition of the homebuilding operations of
American West in Las Vegas. This transaction included the purchase of 1,200 building lots and an option to
purchase an additional 2,300 lots in the future. Along with being very capital efficient, this deal increases our
share of this top 20 housing market. We view this as an outstanding acquisition and reflects the type of deal
we would like to do in the future.
Benefitting from our strong operating results, we generated cash flow from operations of $1.1 billion. Strong
cash flow and our disciplined use of capital resulted in a year-end cash balance of $1.3 billion and a net debt-
to-total capital of 21.7%, down from 28.2% last year.
I can tell you that generating strong cash flows and deleveraging our balance sheet, while simultaneously
investing in the growth of our business, are outcomes that reflect the consistent execution of the business
strategies we initiated in 2011. These strategies focus on returns rather than the industry’s historic emphasis
on volume growth.
2019 ANNUAL REPORT | PulteGroup, Inc.
2
Moving the Company Forward
We have a number of foundational principals, policies and initiatives which are embedded in our organization
and which serve to guide our behavior. These programs address the fundamentals of how we operate our
business, including how we manage our people and culture, how we manage our investment in land, how we
manage the quality of our homebuilding operations, and how we treat our customers. While very much
ingrained in our business, we are always working to further develop and refine our efforts in these areas to
help ensure our ongoing success.
For example, with unemployment rates hovering near historic lows, the competition for talent is fierce. We
firmly believe that maintaining a strong corporate culture and being an employer of choice is critical to our
ability to attract and retain talent. Beyond relying on internal metrics, for the past decade we have used the
Gallup survey to help measure employee engagement. I am proud to say that over the past decade
PulteGroup’s employee engagement score has climbed to rank in the top five percent of companies
worldwide.
In 2019, we went a step further and began working with the Great Place to Work organization to get additional
insights into our culture. Based on our initial work with this organization, it is exciting to report that we were
recognized as a Great Place to Work certified company. The Great Place to Work certification is based on their
30 years of research to quantify the current state of a company’s workplace culture and shows how it
compares to the best in the world.
Gallup and Great Place to Work are just part of a comprehensive approach we take to culture development
and to creating an inclusive work environment where people can be successful. We believe that committed
employees can best deliver the superior quality and customer experience for which PulteGroup brands are
known.
Thanks to the very talented team we have at PulteGroup, we were able to make further progress on
developing a land pipeline that better aligns with our operating and financial strategies. As I discussed
previously, for the past 24 to 36 months our divisions have been investing with an eye toward increasing share
among first-time buyers. With a long-term goal of having approximately 35% of homes delivered be
affordable/first-time, we ended 2019 with 33% of our owned lots targeted to serve these buyers. This is up
from 30% in 2018 and 29% in 2017. We have been purposefully acquiring land positions that can meet buyer
needs while generating required rates of return.
Along with modestly rebalancing our land portfolio, we continue to seek ways to improve its overall efficiency
while lowering market risk. I am pleased to report that we ended 2019 with approximately 158,000 lots under
control, of which 41%, or 65,000 lots, were held via option. This is up from 60,000 lots in 2018 and 52,000
lots held via option in 2017. Optioning land can enhance overall project returns, but it also helps lower risk
by allowing us to terminate or renegotiate deals if business conditions change.
One final initiative that I want to highlight may be our most significant. Long-term shareholders know of our
work to drive construction efficiency by reducing the number and design complexity of the floor plans we
offer. We launched this commonly managed plan platform in 2011 to better standardize our product offering
and simplify our purchasing and construction processes. These common plans have been consumer validated,
optimized for material content and deployed across multiple markets to maximize their frequency of use. The
result: 81% of homes delivered in 2019 were from this commonly managed plan portfolio.
2019 ANNUAL REPORT | PulteGroup, Inc.
3
Taking what we view as the logical next step in our journey to become a more efficient and productive builder,
we acquired Innovative Construction Group (“ICG”), a leading off-site solutions provider focused on single-
family and multifamily wood framed construction in January of 2020. Based in Jacksonville, FL, ICG offers
design services, manufactured wall panels, roof trusses and floor systems, and on-site installation to provide
a full frame shell construction process. ICG will remain a stand-alone operation and continue serving its
existing customer base. We expect this investment to provide direct benefits to our Jacksonville operations
and be an ongoing model to assist in integrating off-site production into other PulteGroup divisions in the
future.
Staying Disciplined
Over the course of 2019, a combination of lower interest rates, better pricing and rising wages worked to
meaningfully improve the overall affordability equation for new homes. In combination with solid economic
growth, low unemployment, favorable demographics and generally high consumer confidence, we see better
affordability as the catalyst to continued homebuyer demand. The result was an increase in homebuying that
drove 2019 U.S. new home sales to approximately 680,000, up from 617,000 in the prior year.
We certainly remain constructive on the overall housing cycle, so it is easy to get excited about the increase
in buyer demand. In the face of such market dynamics, it is more important than ever that we remain
disciplined in our business practices. This means being methodical in our investment process and remaining
balanced in the buyer groups we serve. It also means staying focused on delivering high returns over the
housing cycle and continuing to allocate capital consistent with our stated priorities. In short, it means
continuing to execute our playbook and run the business as we have since the housing recovery began.
At PulteGroup, we build incredible places where people can live their dreams. We take great pride in knowing
that in 2019 we had the opportunity to help over 23,000 families and individuals realize the American dream
of homeownership. This includes six families who received a home through our Built to Honor program that
donates mortgage-free homes to veterans wounded during their time of service. These newest recipients join
a growing community of 56 Built to Honor families to whom we say thank you for your service and sacrifice in
defending this great nation.
In closing, I want to thank our homebuilding, financial services and corporate employees who have worked
tirelessly for our customers, our communities and for each other. I also want to extend a word of thanks to
our suppliers, trade partners and our investors who have provided ongoing support to our Company.
Sincerely,
Ryan Marshall
President and Chief Executive Officer
2019 ANNUAL REPORT | PulteGroup, Inc.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
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
Series A Junior Participating Preferred Share Purchase Rights
Trading Symbol
PHM
Name of each exchange on which registered
New York Stock Exchange
New York Stock Exchange
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
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
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
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files). Act. Yes
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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
Accelerated filer
Non-accelerated filer
Smaller reporting
company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
The aggregate market value of the registrant’s voting shares held by nonaffiliates of the registrant as of June 30, 2019, based on the
closing sale price per share as reported by the New York Stock Exchange on such date, was $8,648,189,224. As of January 23, 2020,
the registrant had 269,975,049 shares of common shares outstanding.
Applicable portions of the Proxy Statement for the 2020 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.
Part I
1
1A
1B
2
3
4
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mine Safety Disclosures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4A
Information About Our Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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.
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15
15
15
16
17
19
21
38
40
85
85
87
87
87
87
87
87
88
91
92
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
2019, 2018, and 2017. 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, John Wieland Homes and Neighborhoods, and
American West 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 750,000 homes.
As of December 31, 2019, we conducted our operations in 42 markets located throughout 23 states. For reporting
purposes, our Homebuilding operations are aggregated into six reportable segments:
Northeast:
Southeast:
Florida:
Midwest:
Texas:
West:
Connecticut, Maryland, Massachusetts, New Jersey, 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 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)
2019
2018
2017
2016
2015
Home sale revenues
$ 9,915,705
$ 9,818,445
$ 8,323,984
$ 7,451,315
$ 5,792,675
Home closings
23,232
23,107
21,052
19,951
17,127
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, 2019, we operated out of
863 active communities in 42 markets across 23 states. Sales prices of unit closings during 2019 ranged from approximately
$100,000 to over $2,300,000, with 92% falling within the range of $200,000 to $750,000. The average unit selling price in 2019
was $427,000, compared with $425,000 in 2018, $395,000 in 2017, $373,000 in 2016, and $338,000 in 2015. The increase in
average selling price in recent years resulted from a number of factors, including favorable market conditions and changes in
the geographical and product 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 2019 and 2018, compared with
88% in 2017, 87% in 2016, and 86% in 2015. The decrease in the percentage of single-family detached homes since 2017 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
not be converted to home sales in the near term. Accordingly, we remain active in our pursuit of new land investment. We also
4
periodically sell select parcels of land to third parties for commercial or other development or if we determine that they no
longer 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, 2019, we controlled
158,262 lots, of which 93,359 were owned and 64,903 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 2019, 29%, 45%, and 26% of our home closings were to first-time, move-up, and
active adult customers, respectively, which reflects a slight increase toward first-time buyers over 2018 consistent with our
increased investment to serve first-time buyers.
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, www.americanwesthomes.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,
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 engaged and satisfied 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
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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 $4.5 billion (10,507 units) at
December 31, 2019 and $3.8 billion (8,722 units) at December 31, 2018. 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,
2019, substantially all are scheduled to be closed during 2020, though all orders are subject to potential cancellation by or final
negotiations with the customer. In the event of contract cancellation, the majority of our sales contracts stipulate that we have
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.
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 3% of U.S. new home sales in 2019. In each of our local
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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
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 for 67% of the homes we closed in 2019, 62% in
2018, 66% in 2017, and 65% in 2016 and 2015. 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.
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
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and origination of our loans improves the speed, efficiency, and quality of our mortgage operations, improving our profitability
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, 2019, we employed 5,245 people, of which 897 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.
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
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.
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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.
Mortgage interest rates in recent years have been at or near historic lows, thereby making new homes more affordable.
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. In December 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) introduced a
$10,000 cap on the federal deduction for state and local taxes, including real estate taxes, and (iii) eliminated 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 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.
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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. 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 2019, 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 drops significantly, our profits could decrease and result in write-downs of the carrying
values of land we own.
The market value of land 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 $27.1 million, $99.4 million, $191.9 million in 2019, 2018, 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.
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, 2019, 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, 2019.
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.
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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.
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, 2019, we had cash, cash equivalents,
and restricted cash of $1.3 billion as well as $737.2 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, 2019, we had outstanding letters of credit and surety bonds totaling $262.8 million and $1.4 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.
Competition for homebuyers could reduce our deliveries or decrease our profitability.
The U.S. housing industry is highly competitive. Homebuilders compete for homebuyers in each of our markets with
numerous 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.
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
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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, 2019, we had deferred tax assets, net of deferred tax liabilities, of $254.1 million, against which we
provided a valuation allowance of $84.0 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.
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, 2022, 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.
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.
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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.
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 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. If defective materials are used, it can result in the need to perform
extensive repairs to large numbers of homes. 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. 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 2019 and 2018, several hurricanes caused disruptions in our south
eastern coastal markets but did not result in a material impact to our results of operations. In addition, while they also did not
have a material impact on our business in 2019, the increased prevalence of forest fires in our western markets have caused
disruptions to our sales operations and development delays. As local governmental authorities and utilities are required to
spend increasing amounts of their resources responding to and remediating weather and climate related events, their ability to
provide approvals and service to new housing communities may be impaired.
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. For
example, as the risk of flooding in coastal and other flood prone areas increases, local governments may increase the
requirements on new home builders for zoning approvals and restrict areas where new homes may be built, resulting in
increased development costs and greater competition for more desirable land parcels.
13
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 certain 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
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 subcontractors, 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 subcontractors and 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.
Negative publicity could negatively impact sales, which could cause our revenues or results of operations to decline.
Our business strategy relies heavily on our reputation and brands, which are critical to our success. Unfavorable media
or investor and analyst reports related to our industry, company, brand, marketing, personnel, operations, business performance,
or prospects may affect our stock price and the performance of our business, regardless of its accuracy or inaccuracy.
Furthermore, the speed at which negative publicity is disseminated has increased dramatically through the use of electronic
communication, including social media outlets, websites and other digital platforms. Our success in maintaining and enhancing
our brand depends on our ability to adapt to this rapidly changing media environment. Adverse publicity or negative
14
commentary from any media outlets could damage our reputation and reduce the demand for our homes, which would
adversely affect our business.
In addition, we can be affected by poor relations with the residents of communities we develop because efforts made
by us to resolve issues or disputes that may arise in connection with the operation or development of their communities, or in
connection with the transition of a homeowners association, could be deemed unsatisfactory by the affected residents and
subsequent actions by these residents could adversely affect sales or our reputation. In addition, we could decide or be required
to make material expenditures related to the settlement of such issues or disputes, which could adversely affect our results of
operations.
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. INFORMATION ABOUT OUR EXECUTIVE OFFICERS
Set forth below is certain information with respect to our executive officers.
Name
Ryan R. Marshall
John Chadwick
Robert T. O'Shaughnessy
Todd N. Sheldon
Michelle Hairston
James L. Ossowski
Stephen P. Schlageter
Age Position
45
58
54
52
43
51
49
President and Chief Executive Officer
Executive Vice President and Chief Operating Officer
Executive Vice President and Chief Financial Officer
Executive Vice President, General Counsel and Corporate Secretary
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
2019
2011
2017
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.
Mr. Chadwick was appointed Executive Vice President and Chief Operating Officer in April 2019 and previously held
the position of 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.
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 23, 2020, there were 2,175
shareholders of record.
Issuer Purchases of Equity Securities
Total number
of shares
purchased (1)
Average
price paid
per share
55,178
$
414,862
294,564
764,604
$
40.27
38.70
39.61
39.16
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)
$
$
$
55,178
414,862
294,564
764,604
553,271 (2)
537,215 (2)
525,548 (2)
October 1, 2019 to October 31, 2019
November 1, 2019 to November 30, 2019
December 1, 2019 to December 31, 2019
Total
(1) During 2019, participants surrendered 0.4 million shares for payment of minimum tax obligations upon the vesting
or exercise of previously granted share-based compensation awards. Such shares were not repurchased as part of our
publicly-announced share repurchase programs and are excluded from the table above.
(2)
The Board of Directors approved a share repurchase authorization totaling $500.0 million in January 2018 and an
increase of $500.0 million to such authorization in May 2019. There is no expiration date for this program, under
which $525.5 million remained available as of December 31, 2019. During 2019, we repurchased 8.4 million shares
for a total of $274.3 million 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, 2015, 2016, 2017, 2018, and 2019, (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, 2019
Comparison
of Cumulative
Total Return Assuming
$100 Investment
as of 12/31/2014
$225.00
$200.00
$175.00
$150.00
$125.00
$100.00
$75.00
$50.00
2014
..,._PULTEGROUP, INC. --s&P 500 Index - Total Rerum --Dow Jones U.S. Select
2017
2016
2015
Home Construction
Index
2018
2019
PULTEGROUP, INC.
S&P 500 Index - Total Return
Dow Jones U.S. Select Home Construction
Index
2014
2015
2016
2017
2018
2019
$
100.00
$
84.46
$
88.79
$
162.86
$
129.04
$
195.28
100.00
101.38
113.51
138.29
132.23
173.86
100.00
105.45
107.79
172.63
119.58
178.89
* Assumes $100 invested on December 31, 2014, 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
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)
2019
2018
2017
2016
2015
$ 9,978,526
$ 9,982,949
$ 8,385,526
$ 7,495,404
$ 5,844,658
$ 1,236,261
$ 1,288,804
$
$
234,431
103,315
$
$
205,382
58,736
$
$
$
865,332
192,160
73,496
$
$
$
860,766
181,126
73,084
$
$
$
757,317
140,445
58,706
$10,212,957
$10,188,331
$ 8,577,686
$ 7,676,530
$ 5,985,103
$ 1,339,576
(322,876)
$ 1,016,700
$ 1,347,540
(325,517)
$ 1,022,023
3.67
3.66
$
$
3.56
3.55
274,495
802
275,297
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
13.63
0.33
20.20
0.45
$
$
17.39
0.38
$
$
14.60
0.36
$
$
13.63
0.36
$
$
19
December 31,
($000’s omitted)
BALANCE SHEET DATA:
House and land inventory
Total assets
Notes payable
Shareholders’ equity
2019
2018
2017
2016
2015
$
7,680,614
$
7,253,353
$
7,147,130
$
6,770,655
$
5,450,058
10,715,597
10,172,976
2,765,040
5,458,180
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
OTHER DATA:
Markets, at year-end
Average active communities
Closings (units)
Net new orders (units)
Backlog (units), at year-end
Average selling price (per unit)
Years Ended December 31,
2019
2018
2017
2016
2015
42
863
23,232
24,977
10,507
44
832
23,107
22,833
8,722
47
779
21,052
22,626
8,996
49
705
19,951
20,326
7,422
50
618
17,127
18,008
6,731
$
427,000
$
425,000
$
395,000
$
373,000
$
338,000
20
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
Favorable demographic and economic conditions, combined with the recently improving affordability of housing, have
supported the ongoing recovery in U.S. new home sales that began in 2012. In recent years, we have made significant
investments to acquire and develop land inventory and open new communities. 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 41% 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, strategic pricing, and construction efficiencies resulted in growth in our revenues each year
during the period from 2012 to 2019.
We entered 2019 in the midst of an industry-wide softening in demand that began in mid-2018. To varying degrees, the
slowdown occurred across all major buyer groups and substantially all of our geographies. This slowdown was correlated with
an increase in mortgage interest rates, which contributed to ongoing affordability challenges confronting many prospective
buyers. As a result, we entered 2019 with a smaller backlog than the year before. However, demand improved in mid-2019 as
we experienced increased traffic to our communities and higher new order volume relative to the same period in 2018. The
improvement continued through the remainder of 2019, especially among first-time buyers, in part due to improving
affordability driven by increasing wages, slower price appreciation, and a decline in mortgage interest rates. Based on these
favorable economic factors and our investments in new communities, we were able to generate a 9% increase in new orders and
a 20% increase in ending backlog in 2019 compared with 2018. While the slow start to 2019 resulted in our full year closings
and home sale revenues each increasing only 1% over 2018, we still delivered higher earnings per share in 2019 compared with
2018.
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 daily execution of our business 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, including completion of the following capital
activities in 2019:
Increased our quarterly dividend by 9% to $0.12 per share;
• Continued to invest in new communities, as reflected in the increase to 863 average active communities;
• Acquired the homebuilding operations of American West located in Las Vegas, Nevada, for $163.7 million;
•
• Repurchased $274.3 million of common shares;
•
• Completed a tender offer to retire $274.0 million of our unsecured senior notes maturing in 2021.
Increased our share repurchase authorization by $500.0 million; and
21
The following tables and related discussion set forth key operating and financial data for our Homebuilding and
Financial Services operations as of and for the fiscal years ended December 31, 2019 and 2018. For similar operating and
financial data and discussion of our fiscal 2018 results compared to our fiscal 2017 results, refer to Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” under Part II of our annual report on Form 10-K for
the fiscal year ended December 31, 2018, which was filed with the SEC on January 31, 2019.
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,
2019
2018
$
$
$
1,236,261
103,315
1,339,576
(322,876)
1,016,700
3.66
$
$
$
1,288,804
58,736
1,347,540
(325,517)
1,022,023
3.55
• Homebuilding income before income taxes remained strong in 2019. 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
Net realizable value adjustments ("NRV") - land
held for sale (see Note 2)
Land sale cost of
revenues
California land sale gains (see Note 3)
Insurance reserve adjustments (see Note 11)
Land sale revenues /
cost of revenues
Selling, general, and
administrative
expenses
2019
$
(8,617) $
2018
(70,965)
(14,800)
—
(5,368)
(11,489)
—
26,401
49,437
35,873
Write-offs of insurance receivables (see Note 11) Selling, general, and
(22,617)
—
administrative
expenses
Write-offs of deposits and pre-acquisition costs
(see Note 2)
Other expense, net
(13,116)
(16,992)
$
(15,081) $
(37,172)
For additional information on the above, see the applicable Notes to the Consolidated Financial Statements.
• The increase in Financial Services income in 2019 compared with 2018 was primarily the result of higher volumes,
which largely resulted from an improved capture rate and margin per loan, as well as a $16.1 million increase in loan
origination liabilities in 2018 (see Note 11). Interest rates generally declined during 2019, which led to a less
competitive mortgage environment contributing to improved capture rate and higher gains from sales of mortgages.
• Our effective tax rate was 24.1% and 24.2%, for 2019 and 2018, respectively (see Note 8).
22
Homebuilding Operations
The following is a summary of income before income taxes for our Homebuilding operations ($000’s omitted):
Home sale revenues
Land sale and other revenues (a)
Total Homebuilding revenues
Home sale cost of revenues (b)
Land sale cost of revenues (a) (c)
Selling, general, and administrative expenses
("SG&A") (d)
Other expense, net (e)
Income before income taxes
Supplemental data:
Gross margin from home sales (b)
SG&A % of home sale revenues (d)
Closings (units)
Average selling price
Net new orders:
Units
Dollars
Cancellation rate
Average active communities
Backlog at December 31:
Units
Dollars
Years Ended December 31,
2019
FY 2019 vs.
FY 2018
2018
$ 9,915,705
1 % $ 9,818,445
62,821
9,978,526
(7,628,700)
(56,098)
(1,044,337)
(13,130)
$ 1,236,261
23.1%
10.5%
23,232
427
$
24,977
$ 10,615,363
14%
863
(62)%
164,504
9,982,949
— %
1 % (7,540,937)
(126,560)
(56)%
(10)%
3 % (1,012,023)
(14,625)
(4)% $ 1,288,804
(10) bps
20 bps
1 %
0 % $
23.2%
10.3%
23,107
425
9 %
22,833
10 % $ 9,675,529
4 %
14%
832
10,507
$ 4,535,805
8,722
20 %
18 % $ 3,836,147
(a)
(b)
(c)
(d)
Includes net gains of $26.4 million related to two land sale transactions in California in 2018 (see Note 3).
Includes the amortization of capitalized interest; land inventory impairments of $8.6 million and $71.0 million in
2019 and 2018, respectively (see Note 2); and warranty charges of $14.8 million related to a closed-out community
in 2019 (see Note 11).
Includes net realizable value adjustments on land held for sale of $5.4 million and $11.5 million in 2019 and 2018,
respectively (see Note 2).
Includes insurance reserve reversals of $49.4 million and $35.9 million in 2019 and 2018, respectively, and write-
offs of insurance receivables of $22.6 million in 2019 (see Note 11).
(e)
See "Other expense, net" for a table summarizing significant items (see Note 1).
23
Home sale revenues
Home sale revenues for 2019 were higher than 2018 by $97.3 million, or 1%. The increase was attributable to a 1%
increase in closings. The increase in revenues is attributable to an improved demand environment in the majority of our markets
starting in mid-2019 substantially offset by lower revenues in our Northern California Division, which reflects the completion,
or near completion, of several high-performing communities combined with moderating demand in that market.
Home sale gross margins
Home sale gross margins were 23.1% in 2019, compared with 23.2% in 2018. Our results in 2019 and 2018 include the
effect of the aforementioned land inventory impairments totaling $8.6 million and $71.0 million, respectively. Excluding such
impairments, gross margins remained strong in both 2019 and 2018 relative to historical levels and reflect a combination of
factors, including shifts in community mix and the aforementioned warranty charge of $14.8 million in 2019 related to a closed-
out community in the Southeast. The pricing environment in many of our markets allowed us to effectively manage pressure in
house and land costs, though sales discounts have increased moderately in response to the affordability issues faced by
homebuyers and our increased use of speculative inventory. Amortized interest costs increased in dollar terms but remained
consistent with the prior year as a percentage of revenue at 1.8%.
Land sale and other revenues
We periodically elect to sell parcels of land to third parties in the event such assets no longer fit into our strategic
operating plans or are zoned for commercial or other development. Land sale 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
of $6.7 million and $37.9 million in 2019 and 2018, respectively. The gains in 2018 resulted primarily from two land sale
transactions in California that contributed $26.4 million.
SG&A
SG&A as a percentage of home sale revenues was 10.5% and 10.3% in 2019 and 2018, respectively. The gross dollar
amount of our SG&A increased $32.3 million, or 3%, in 2019 compared with 2018. The increase is primarily attributable to
higher headcount as order volumes increased in the second half of 2019, increased information technology spend, operating
costs associated with the American West transaction, higher model home costs, and insurance receivable write-offs of $22.6
million in 2019 in connection with policy settlement negotiations with certain of our carriers (see Note 11).
Other expense, net
Other expense, net includes the following ($000’s omitted):
Write-offs of deposits and pre-acquisition costs (Note 2)
Loss on debt retirement (Note 5)
Amortization of intangible assets (Note 1)
Interest income
Interest expense
Equity in earnings (loss) of unconsolidated entities (Note 4)
Miscellaneous, net
Total other expense, net
2019
2018
(13,116) $
(4,927)
(14,200)
16,739
(584)
747
2,211
(13,130) $
(16,992)
(76)
(13,800)
7,593
(618)
2,690
6,578
(14,625)
$
$
24
Net new orders
Net new orders in units increased 9% in 2019 compared with 2018. The increase resulted from the higher number of
active communities, which increased 4% to 863 in 2019, and a strengthening market in the back half of 2019. Net new orders in
dollars increased by 10% compared with 2018. The increase is a result of improved demand which began in the second quarter
of 2019 and continued through the remainder of the year, especially among first-time buyers, in part due to improving
affordability driven by increasing wages, slower price appreciation, and a decline in mortgage interest rates. The cancellation
rate (canceled orders for the period divided by gross new orders for the period) remained stable in 2019 at 14%. Ending backlog
units, which represent orders for homes that have not yet closed, increased 20% as measured in units and 18% as measured in
dollars at December 31, 2019 compared with December 31, 2018. The increase is primarily attributable to increased demand
relating to the continued strength in the housing market.
Homes in production
The following is a summary of our homes in production at December 31, 2019 and 2018:
Sold
Unsold
Under construction
Completed
Models
Total
2019
2018
7,423
6,245
2,672
685
3,357
1,342
2,531
715
3,246
1,216
12,122
10,707
The number of homes in production at December 31, 2019 was 13% higher compared to December 31, 2018. The
increase in homes under production resulted primarily from the higher backlog.
Controlled lots
The following is a summary of our lots under control at December 31, 2019 and 2018:
Northeast
Southeast
Florida
Midwest
Texas
West
Total
December 31, 2019
December 31, 2018
Owned
Optioned
Controlled
Owned
Optioned
Controlled
4,999
16,174
20,281
10,016
16,256
25,633
93,359
4,240
12,802
17,802
12,027
10,573
7,459
64,903
9,239
28,976
38,083
22,043
26,829
33,092
158,262
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
Developed (%)
39%
22%
32%
39%
21%
32%
Of our controlled lots, 93,359 and 89,530 were owned and 64,903 and 60,047 were under land option agreements at
December 31, 2019 and 2018, respectively. While competition for well-positioned land is robust, we continue to pursue
strategic land investments that we believe can achieve appropriate risk-adjusted returns on invested capital. The remaining
purchase price under our land option agreements totaled $3.2 billion at December 31, 2019. 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 $299.4 million, of
which $11.0 million is refundable, at December 31, 2019.
25
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, 2019, we conducted our operations in 42 markets located throughout
23 states. For reporting purposes, our Homebuilding operations are aggregated into six reportable segments:
Northeast:
Connecticut, Maryland, Massachusetts, New Jersey, Pennsylvania, Virginia
Southeast:
Georgia, North Carolina, South Carolina, Tennessee
Florida:
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
Southeast (b)
Florida
Midwest
Texas
West (c)
Other homebuilding (d)
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,
FY 2019 vs.
FY 2018
2018
2019
$
771,349
(3)% $
795,211
1,673,670
2,068,422
1,485,370
1,384,533
2,532,361
(4)%
8 %
— %
7 %
(2)%
1,740,239
1,911,537
1,492,572
1,296,183
2,582,703
$ 9,915,705
1 % $ 9,818,445
$
116,221
292 % $
29,629
175,763
309,596
184,438
195,751
386,361
(131,869)
$ 1,236,261
1,443
3,982
5,045
3,583
4,528
4,651
(13)%
7 %
3 %
1 %
(25)%
202,639
289,418
179,568
193,946
(12)%
511,828
(118,224)
(4)% $ 1,288,804
(7)%
(6)%
6 %
(4)%
8 %
— %
1,558
4,220
4,771
3,716
4,212
4,630
23,232
1 % $
23,107
$
$
535
420
410
415
306
544
427
5 % $
2 %
2 %
3 %
(1)%
(3)%
0 % $
510
412
401
402
308
558
425
Includes land-related charges as summarized in the following land-related charges table (see Note 2).
Southeast includes a warranty charge of $14.8 million in 2019 related to a closed-out community (see Note 11).
Includes gains of $26.4 million related to two land sale transactions in California in 2018.
(a)
(b)
(c)
(d) 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 $22.6 million of insurance receivables
associated with the resolution of certain insurance matters in 2019; insurance reserve reversals of $49.4 million and
$35.9 million in 2019 and 2018, respectively (see Note 11).
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,
FY 2019 vs.
FY 2018
2019
2018
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
1,562
4,237
5,462
3,721
4,886
5,109
24,977
$
861,234
1,758,110
2,246,631
1,548,927
1,489,188
2,711,273
$10,615,363
11%
11%
12%
12%
17%
16%
14%
589
1,865
2,306
1,540
1,850
2,357
10,507
3%
3%
10%
2%
14%
18%
9%
1,516
4,114
4,982
3,631
4,278
4,312
22,833
8% $
799,373
2% 1,721,103
11% 2,029,999
4% 1,492,453
12% 1,332,598
18% 2,300,003
10% $ 9,675,529
10%
12%
13%
12%
19%
17%
14%
470
1,610
1,889
1,402
1,492
1,859
8,722
25%
16%
22%
10%
24%
27%
20%
$
347,696
35% $
257,812
12%
22%
11%
22%
699,030
800,051
588,420
486,212
18% 1,004,622
18% $ 3,836,147
783,469
978,261
651,977
590,868
1,183,534
$ 4,535,805
28
The following table presents additional selected financial information for our reportable Homebuilding segments:
Operating Data by Segment
($000's omitted)
Years Ended December 31,
2019
2018
$
1,122
$
74,488
15,697
2,811
2,581
1,151
2,568
1,171
8,140
1,166
7,361
1,204
5,159
1,928
$
27,101
$
99,446
Land-related charges*:
Northeast
Southeast
Florida
Midwest
Texas
West
Other homebuilding
* 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:
For 2019, Northeast home sale revenues decreased 3% compared with 2018 due to a 7% decrease in closings, partially
offset by a 5% increase in average selling price, reflecting lower results in the Northeast Corridor. The increased income before
income taxes resulted primarily from the $74.5 million of land charges taken in 2018. Net new orders increased 3%, which is
attributable primarily to New England and Mid-Atlantic.
Southeast:
For 2019, Southeast home sale revenues decreased 4% compared with 2018 due to a 6% decrease in closings partially
offset by a 2% increase in average selling price. The decrease in closings and increase in average selling price occurred across
substantially all of our markets. Income before income taxes decreased 13% primarily as a result of lower gross margin, which
stemmed partly from charges of $14.8 million related to estimated costs to complete repairs in a closed-out community. Net
new orders increased 3%, which is attributable to a majority of our markets.
Florida:
For 2019, Florida home sale revenues increased 8% compared with 2018 due to a 6% increase in closings combined with
a 2% increase in average selling price. The increase in closings and average selling price were attributable to the majority of our
markets. The increased income before income taxes for 2019 resulted primarily from higher revenues and improved gross
margin. Net new orders increased 10%, which is attributable to all of our markets.
Midwest:
For 2019, Midwest home sale revenues decreased slightly compared with the prior year period due to a 4% decrease in
closings partially offset by a 3% increase in the average selling price. The decrease in closings occurred across the majority of
our markets while the increase in average selling price occurred across the majority of our markets. Income before income taxes
increased 3% primarily as a result of improved gross margins. Net new orders increased 2% across the majority of our markets.
29
Texas:
For 2019, Texas home sale revenues increased 7% compared with the prior year period due to an 8% increase in closings
partially offset by a 1% decrease in the average selling price. The increase in closings occurred in all of our markets except
Houston. Houston closings were impacted by the timing of new communities as overall demand remains strong. Income before
income taxes increased slightly as a result of higher closings offset by lower margins compared to 2018. Net new orders
increased 14%, which is attributable to all of our markets.
West:
For 2019, West home sale revenues decreased 2% compared with the prior year period due to a 3% decrease in the
average selling price partially offset by a slight increase in closings. The decreased revenues were concentrated in Northern
California, which resulted from the completion, or near completion, of several high performing communities combined with
moderating demand in that market. Income before income taxes decreased 25% primarily as the result of lower volumes and
profitability in Northern California in 2019 as well as two significant land sale gains totaling $26.4 million in 2018. Net new
orders increased by 18% in 2019 compared with 2018 with significant increases in Las Vegas, which benefited from the
American West acquisition in April 2019, and Arizona.
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,
FY 2019 vs.
FY 2018
2018
2019
Mortgage revenues
Title services revenues
Insurance brokerage commissions
Total Financial Services revenues
Expenses
Other income, net
Income before income taxes
Total originations:
Loans
Principal
$
169,917
14 % $
149,642
51,836
12,678
234,431
(130,770)
(346)
13 %
28 %
14 %
(11)%
(145)%
45,865
9,875
205,382
(147,422)
776
$
103,315
76 % $
58,736
15,821
9 %
14,464
$ 4,976,973
12 % $ 4,456,360
30
Supplemental data:
Capture rate
Average FICO score
Loan application backlog
Funded origination breakdown:
Government (FHA, VA, USDA)
Other agency
Total agency
Non-agency
Total funded originations
Years Ended December 31,
2019
2018
82.4%
751
76.2%
752
$ 2,804,017
$ 2,012,340
20%
71%
90%
10%
100%
20%
68%
88%
12%
100%
Revenues
Total Financial Services revenues during 2019 increased 14% compared with 2018. The increase occurred primarily as
the result of higher volumes, which largely resulted from an improved capture rate and improved margin per loan. Interest rates
generally declined during 2019, which led to a less competitive mortgage environment contributing to improved capture rate
and higher gains from sales of mortgages.
Income before income taxes
The increase in income before income taxes for 2019 as compared with 2018 was due primarily to higher volume,
higher revenue per loan, and improved expense leverage. Additionally, 2018 included a $16.1 million increase in loan
origination liabilities (see Note 11).
Income Taxes
Our effective tax rate was 24.1% and 24.2% for 2019 and 2018, respectively. Each year's rate differs from the federal
statutory rate primarily due to state income tax expense.
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, 2019, we had unrestricted cash and equivalents of $1.2 billion, restricted cash balances of $33.5
million, and $737.2 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 $310.0 million and $82.8 million during 2019 and 2018, respectively. Our ratio of
debt-to-total capitalization, excluding our Financial Services debt, was 33.6%, which is within our targeted range of 30.0% to
40.0%, at December 31, 2019.
Unsecured senior notes
During 2019, we completed a tender offer to retire $274.0 million of our unsecured senior notes maturing in 2021. At
December 31, 2019, we had $2.7 billion of unsecured senior notes outstanding with no repayments due until March 2021 when
$426.0 million of notes are scheduled to mature.
31
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 $53.4 million at December 31, 2019. 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.
Revolving credit facility
In June 2018, we entered into the Second Amended and Restated Credit Agreement ("Revolving Credit Facility"), which
matures in 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, with a sublimit of $500.0 million at December 31, 2019. 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. We had no borrowings outstanding and $262.8 million
and $239.4 million of letters of credit issued under the Revolving Credit Facility at December 31, 2019 and 2018, 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, 2019, 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 $737.2 million and $760.6 million as of
December 31, 2019 and 2018, respectively.
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 2019, Pulte Mortgage
entered into an amended and restated repurchase agreement (the “Repurchase Agreement”) to extend the termination date to
July 2020. The maximum aggregate commitment was $375.0 million during the seasonally high borrowing period from
December 26, 2019 through January 13, 2020. At all other times, the maximum aggregate commitment ranges from $220.0
million to $270.0 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 $326.6 million and $348.4 million outstanding under the Repurchase Agreement at December 31, 2019, and
2018, respectively, and was in compliance with its covenants and requirements as of such dates.
Share repurchase program
We repurchased 8.4 million, and 10.9 million shares in 2019 and 2018, respectively, for a total of $274.3 million and
$294.6 million in 2019 and 2018, respectively, under this program. In 2018, our Board of Directors authorized a $500.0 million
share repurchase program and approved an increase of $500.0 million in May 2019. At December 31, 2019, we had remaining
authorization to repurchase $525.5 million of common shares.
Dividends
Our declared quarterly cash dividends totaled $124.4 million and $108.5 million in 2019 and 2018, respectively.
32
Cash flows
Operating activities
Our net cash provided by operating activities in 2019 was $1.1 billion, compared with net cash provided by operating
activities of $1.4 billion in 2018. 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 2019 was
primarily due to our net income of $1.0 billion, which included non-cash land-related charges of $27.1 million and $105.4
million of deferred income tax expense. These factors were partially offset by a net increase in inventories of $237.7 million
and a $48.3 million increase in 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.
Investing activities
Net cash used in investing activities totaled $226.2 million in 2019, compared with $41.9 million in 2018. The 2019 cash
outflows primarily reflect our acquisition of American West in April 2019 for $163.7 million as well as $58.1 million related to
our ongoing capital expenditures in new communities and information technology applications. The use of cash from investing
activities in 2018 was primarily due to $59.0 million of capital expenditures for new community openings combined with
expenditures on information technology applications.
Financing activities
Net cash used in financing activities was $733.6 million in 2019 compared with $580.3 million during 2018. The net
cash used in financing activities for 2019 resulted primarily from the repurchase of 8.4 million common shares for $274.3
million under our repurchase authorization, repayments of debt of $310.0 million, and cash dividends of $122.4 million.
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.
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.
33
Contractual Obligations and Commercial Commitments
The following table summarizes our payments under contractual obligations as of December 31, 2019:
Payments Due by Period
($000’s omitted)
2020
2021-2022
2023-2024 After 2024
Total
Contractual obligations:
Notes payable (a)
Operating lease obligations
Total contractual obligations (b)
$
$
176,435
18,995
195,430
$
$
739,009
39,128
778,137
$
$
271,250
28,983
300,233
$ 3,016,853
22,476
$ 3,039,329
$ 4,203,547
109,582
$ 4,313,129
(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, 2019, we had $299.4 million of deposits and pre-acquisition costs, of which $11.0 million is refundable, relating
to option agreements to acquire 64,903 lots with a remaining purchase price of $3.2 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 2015 to 2019. At December 31,
2019, we had $40.3 million of gross unrecognized tax benefits and $6.5 million of related accrued interest and penalties.
The following table summarizes our other commercial commitments as of December 31, 2019:
Amount of Commitment Expiration by Period
($000’s omitted)
2020
2021-2022
2023-2024 After 2024
Total
Other commercial commitments:
Guarantor credit facilities (a)
Non-guarantor credit facilities (b)
Total commercial commitments (c)
$
— $
— $1,000,000
375,000
—
—
$ 375,000
$
— $1,000,000
$
$
— $1,000,000
—
375,000
— $1,375,000
(a)
(b)
The $1.0 billion in 2023-2024 represents the capacity of our unsecured revolving credit facility, under which no
borrowings were outstanding, and $262.8 million of letters of credit were issued at December 31, 2019.
Represents the capacity of the Repurchase Agreement, of which $326.6 million was outstanding at December 31,
2019. The capacity of $375.0 million was effective through January 13, 2020 after which it ranges from $220.0
million to $270.0 million until its expiration in July 2020.
(c)
The above table excludes an aggregate $1.4 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, 2019, we had outstanding
letters of credit of $262.8 million. Our surety bonds generally do not have stated expiration dates; rather, we are released from
the bonds as the contractual performance is completed. These bonds, which approximated $1.4 billion at December 31, 2019,
34
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, 2019, these agreements had an aggregate remaining purchase price of $3.2 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.
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 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 $35.1 million at December 31,
2019. 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.
35
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
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, 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
36
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
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.
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
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 $709.8 million and $737.0 million at December 31, 2019 and 2018,
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 68% and 65% of the total general liability reserves at December 31, 2019 and
2018, respectively. The actuarial analyses that determine the IBNR portion of reserves consider a variety of factors, including
the frequency and severity of losses, which are based on our historical claims experience supplemented by industry data. The
actuarial analyses of the reserves also consider historical third party recovery rates and claims management expenses. 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 $600 million to $800 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.
Volatility in both national and local housing market 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, 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.
Adjustments to reserves are recorded in the period in which the change in estimate occurs. During 2019 and 2018, we
reduced general liability reserves by $49.4 million and $35.9 million, respectively, as a result of changes in estimates resulting
37
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.
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 $118.4 million and $153.0 million at December 31, 2019 and 2018, 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. 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.
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, 2019 and 2018 ($000’s omitted).
As of December 31, 2019 for the
Years ending December 31,
2020
2021
2022
2023
2024
Thereafter
Total
Fair
Value
$
21,327
$ 447,712
$
10,295
$
— $
— $ 2,300,000
$2,779,334
$ 3,152,046
2.09%
4.17%
0.39%
—%
—%
5.90%
5.57%
$ 326,573
$
— $
— $
— $
— $
— $ 326,573
$
326,573
3.59%
—%
—%
—%
—%
—%
3.59%
As of December 31, 2018 for the
Years ending December 31,
2019
2020
2021
2022
2023
Thereafter
Total
Fair
Value
$
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%
Rate-sensitive liabilities:
Fixed rate debt
Average interest rate
Variable rate debt (a)
Average interest rate
Rate-sensitive liabilities:
Fixed rate debt
Average interest rate
Variable rate debt (a)
Average interest rate
(a) Includes the Pulte Mortgage Repurchase Agreement. There were no borrowings outstanding under our Revolving Credit Facility at either December 31,
2019 or 2018.
38
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.
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, 2019 and 2018, residential mortgage loans available-for-sale had an aggregate fair value of $509.0
million and $461.4 million, respectively. At December 31, 2019 and 2018, we had aggregate interest rate lock commitments of
$255.3 million and $285.0 million, respectively, which were originated at interest rates prevailing at the date of commitment.
Unexpired forward contracts totaled $518.2 million and $511.0 million at December 31, 2019 and 2018, respectively, and
whole loan investor commitments totaled $200.7 million and $187.8 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 any impairment charge 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
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, the
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 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.
39
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PULTEGROUP, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2019 and 2018
($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 $51,827 and $54,381 at
December 31, 2019 and 2018, 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,
270,235,297 and 277,109,507 shares issued and outstanding at
December 31, 2019 and 2018, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Total shareholders’ equity
2019
2018
$
$
1,217,913
33,543
1,251,456
1,110,088
23,612
1,133,700
7,680,614
24,009
508,967
59,766
895,686
124,992
170,107
$ 10,715,597
7,253,353
36,849
461,354
54,590
830,359
127,192
275,579
$ 10,172,976
$
$
435,916
294,427
1,399,368
36,093
326,573
2,765,040
5,257,417
352,029
254,624
1,360,483
11,580
348,412
3,028,066
5,355,194
$
— $
—
2,702
3,235,149
(245)
2,220,574
5,458,180
$ 10,715,597
2,771
3,201,427
(345)
1,613,929
4,817,782
$ 10,172,976
See Notes to Consolidated Financial Statements.
40
PULTEGROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 2019, 2018, and 2017
(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
2019
2018
2017
$
9,915,705
$
9,818,445
$
8,323,984
62,821
9,978,526
234,431
164,504
9,982,949
205,382
10,212,957
10,188,331
(7,628,700)
(56,098)
(7,684,798)
(130,770)
(1,044,337)
(13,476)
1,339,576
(322,876)
1,016,700
3.67
3.66
0.45
$
$
$
$
(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
(6,461,152)
(134,449)
(6,595,601)
(119,289)
(891,581)
(32,387)
938,828
(491,607)
447,221
1.45
1.44
0.36
274,495
802
275,297
283,578
1,287
284,865
305,089
1,725
306,814
See Notes to Consolidated Financial Statements.
41
PULTEGROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended December 31, 2019, 2018, and 2017
($000’s omitted)
Net income
Other comprehensive income, net of tax:
Change in value of derivatives
Other comprehensive income
2019
2018
2017
$
1,016,700
$
1,022,023
$
447,221
100
100
100
100
81
81
Comprehensive income
$
1,016,800
$
1,022,123
$
447,302
See Notes to Consolidated Financial Statements.
42
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S
PULTEGROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2019, 2018, and 2017
($000’s omitted)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash from operating activities:
2019
2018
2017
$
1,016,700
$
1,022,023
$
447,221
105,438
362,777
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 (used in) operating activities
Cash flows from investing activities:
Capital expenditures
Investments in unconsolidated entities
Business acquisition
Other investing activities, net
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Debt issuance costs
Repayments of notes payable
Borrowings under revolving credit facility
Repayments under revolving credit facility
Financial Services borrowings (repayments), net
Stock option exercises
Share repurchases
Cash paid for shares withheld for taxes
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
$
$
$
27,101
53,999
28,368
4,927
1,155
(237,741)
(48,261)
(15,125)
140,984
1,077,545
(58,119)
(9,515)
(163,724)
5,129
(226,229)
—
(309,985)
—
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(21,841)
6,399
(274,333)
(11,450)
(122,350)
(733,560)
117,756
1,133,700
99,446
49,429
28,290
76
(3,688)
(50,362)
107,330
(64,174)
(101,400)
1,449,747
(59,039)
(1,000)
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(41,942)
(89,393)
6,555
(294,566)
(7,910)
(104,020)
(580,273)
827,532
306,168
422,307
191,913
50,998
33,683
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(1,789)
(569,030)
(33,009)
55,099
65,687
663,080
(32,051)
(23,037)
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4,846
(50,242)
106,183
27,720
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(5,995)
(112,748)
(1,029,918)
(417,080)
723,248
306,168
(8,164)
(82,775)
1,566,000
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137,119
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See Notes to Consolidated Financial Statements.
44
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
In April 2019, we acquired certain assets of American West, located in Las Vegas, Nevada, for $163.7 million. The assets
acquired included approximately 1,200 finished lots and control of approximately 2,300 additional lots through land option
agreements. The acquired assets were recorded at their estimated fair values, including $12.0 million associated with the
American West 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.
In January 2020, we acquired substantially all of the operations of Innovative Construction Group, an offsite
construction framing company located in Jacksonville, Florida. This acquisition is not expected to have a material impact on
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
Certain prior period amounts have been reclassified to conform to the current year presentation.
Subsequent events
We evaluated subsequent events up until the time the financial statements were filed with the Securities and Exchange
Commission ("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, 2019 and 2018 also included $6.2 million and $40.9 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 $33.5 million and $23.6 million at December 31, 2019 and 2018,
respectively.
45
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, totaled $40.4 million at December 31, 2019 and 2018. 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 acquisitions and totaled $84.6 million, net of
accumulated amortization of $204.4 million, at December 31, 2019, and $86.8 million, net of accumulated amortization of
$190.2 million, at December 31, 2018. Such tradenames are generally being amortized over 20-year lives. Amortization
expense totaled $14.2 million in 2019 and $13.8 million in 2018 and 2017, respectively, and is expected to be $14.4 million in
2020, $11.0 million in 2021 and $6.3 million each year from 2022 - 2024. 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
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 $111.7 million net of accumulated
depreciation of $218.9 million at December 31, 2019 and $92.9 million net of accumulated depreciation of $209.3 million at
December 31, 2018. Depreciation expense totaled $39.8 million, $35.6 million, and $37.2 million in 2019, 2018, and 2017,
respectively.
Advertising costs
Advertising costs are expensed to selling, general, and administrative expense as incurred and totaled $53.9 million,
$51.0 million, and $45.0 million, in 2019, 2018, and 2017, respectively.
Employee benefits
We maintain a defined contribution retirement plan that covers substantially all of our employees. Company
contributions to the plan totaled $19.1 million, $17.9 million, and $15.7 million in 2019, 2018, and 2017, respectively.
46
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)
Amortization of intangible assets (Note 1)
Loss on debt retirement (Note 5)
Interest income
Interest expense
Equity in earnings (loss) of unconsolidated entities (Note 4) (a)
Miscellaneous, net
Total other expense, net
$
$
2019
2018
2017
(13,116) $
(14,200)
(4,927)
16,739
(584)
747
1,865
(13,476) $
(16,992) $
(13,800)
(76)
7,593
(618)
2,690
7,354
(13,849) $
(11,367)
(13,800)
—
2,537
(503)
(1,985)
(7,269)
(32,387)
(a)
Includes an $8.0 million impairment of an investment in an unconsolidated entity in 2017 (see Note 2).
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 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. Anti-dilutive shares were immaterial in 2019, 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 units and deferred shares
are considered participating securities. The following table presents a reconciliation of the numerator used in our earnings per
common share calculation ($000's omitted):
Numerator:
Net income
Less: earnings distributed to participating securities
Less: undistributed earnings allocated to participating
securities
Numerator for basic earnings per share
Add: undistributed earnings allocated to participating
securities
Less: undistributed earnings reallocated to participating
securities
Numerator for diluted earnings per share
Share-based compensation
December 31,
2019
December 31,
2018
December 31,
2017
$
$
$
1,016,700
(1,228)
(9,143)
1,006,329
$
$
1,022,023
(1,208)
(9,984)
1,010,831
$
$
447,221
(1,192)
(3,380)
442,649
9,143
9,984
3,380
(9,117)
1,006,355
$
(9,939)
1,010,876
$
(3,361)
442,668
We measure compensation cost for share-based compensation on the grant date. Fair value for restricted share units is
determined based on the quoted price of our common shares on the grant date. We recognize compensation expense for
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
47
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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.
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 at the home closing date. Home sale contract assets consist of cash from home closings held in escrow for
our benefit, typically for less than five days, which are considered deposits in-transit and classified as cash. Contract liabilities
include customer deposit liabilities related to sold but undelivered homes, which totaled $294.4 million and $254.6
million at December 31, 2019 and 2018, respectively. Substantially all of our home sales are scheduled to close and be recorded
to revenue within one year from the date of receiving a customer deposit. See Note 11 for information on warranties and
related obligations.
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.
Financial services revenues - Loan origination fees, commitment fees, and 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 $35.1 million and $30.8
million at December 31, 2019 and 2018, respectively. 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.
48
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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.
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. 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
49
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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.
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, 2019 or 2018 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, 2019
December 31, 2018
Deposits and
Pre-
acquisition
Costs
Remaining
Purchase
Price
Deposits and
Pre-
acquisition
Costs
Remaining
Purchase
Price
Land options with VIEs $
Other land options
$
123,775
175,662
299,437
$
$
1,466,585
1,755,377
3,221,962
$
$
90,717
$ 1,079,507
127,851
1,522,903
218,568
$ 2,602,410
Warranty liabilities
Home buyers 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 (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
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" ("ASC
815"). 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, 2019 and 2018, residential mortgage loans available-for-sale had an aggregate fair value of $509.0
million and $461.4 million, respectively, and an aggregate outstanding principal balance of $494.1 million and $444.2 million,
respectively. The net gain (loss) resulting from changes in fair value of these loans totaled $(0.6) million and $0.7 million for
50
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
the years ended December 31, 2019 and 2018, 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 2019, 2018, and 2017 were
$129.4 million, $111.3 million, and $110.9 million, respectively, and have been included in Financial Services revenues.
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, 2019 and 2018.
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 $9.7 million, $11.3 million, and $9.5 million in 2019, 2018, and 2017, 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, 2019 and 2018, we had aggregate IRLCs of $255.3 million and $285.0 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, 2019 and 2018, we had
unexpired forward contracts of $518.2 million and $511.0 million, respectively, and whole loan investor commitments of
$200.7 million and $187.8 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
December 31, 2019
December 31, 2018
Other Assets
Other Liabilities
Other Assets
Other Liabilities
$
$
8,351
$
149
$
9,196
$
299
880
1,372
284
315
393
9,530
$
1,805
$
9,904
$
161
7,229
1,111
8,501
51
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
New accounting pronouncements
We adopted ASU No. 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-
Based Payment Accounting" ("ASU 2016-09"), effective January 1, 2017. Excess tax benefits or deficiencies for stock-based
compensation are now reflected in the Consolidated Statements of Operations as a component of income tax expense, whereas
previously they were recognized in equity. We have also elected to account for forfeitures as they occur, rather than estimate
expected forfeitures. As a result of adopting ASU 2016-09, we applied the modified retrospective approach and recorded a
cumulative-effect adjustment that increased our retained earnings and deferred tax assets as of January 1, 2017 by $18.6
million, as a result of previously unrecognized excess tax benefits (see Note 8). Additionally, the impact of recognizing excess
tax benefits and deficiencies in the consolidated statement of operations resulted in a $7.7 million reduction in our income tax
expense for 2017. The remaining aspects of adopting ASU 2016-09 did not have a material impact on our financial statements.
On January 1, 2018, we adopted ASC 606, 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 and there have not been significant changes to our business processes, systems, or internal controls
as a result of implementing the standard.
On January 1, 2019, we adopted Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842)” (“ASU
2016-02”) and related amendments using a modified retrospective approach with an effective date as of January 1, 2019. ASU
2016-02 requires leases with durations greater than 12 months to be recorded on balance sheet in our consolidated financial
statements. Prior year financial statements were not required to be recast under the new standard and, therefore, have not been
reflected as such in our consolidated financial statements. We elected the package of transition practical expedients, which
allowed us to carry forward our historical assessment of (1) whether contracts are or contain leases, (2) lease classification, and
(3) initial direct costs. The adoption of ASU 2016-02 had no impact on retained earnings. See Note 11 “Leases” for additional
information about this adoption.
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" ("ASU 2016-13"), which changes the
impairment model for most financial assets and certain other instruments from an "incurred loss" approach to a new "expected
credit loss" methodology. The standard is effective for us for annual and interim periods beginning January 1, 2020. We are
currently evaluating the impact the standard will have on our financial statements and do not expect a material impact on our
financial statements.
In January 2017, the FASB issued ASU No. 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the
Accounting for Goodwill Impairment" ("ASU 2017-04"), which removes the requirement to perform a hypothetical purchase
price allocation to measure goodwill impairment. A goodwill impairment will now be the amount by which a reporting unit’s
carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for us for annual
and interim periods beginning January 1, 2020, and will be applied prospectively. We do not expect ASU 2017-04 to have a
material impact on our financial statements.
In December 2019, the FASB issued ASU No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for
Income Taxes" ("ASU 2019-12"), which is intended to simplify various aspects related to accounting for income taxes. ASU
2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to
improve consistent application. ASU 2019-12 is effective for the Company beginning January 1, 2021. The Company is
currently evaluating the impact of the adoption of ASU 2019-12 on its financial statements.
52
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. Inventory and land held for sale
Major components of inventory at December 31, 2019 and 2018 were ($000’s omitted):
Homes under construction
Land under development
Raw land
2019
2018
2,899,016
$
2,630,158
4,347,107
434,491
4,129,225
493,970
7,680,614
$
7,253,353
$
$
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,
2018
2017
2019
$
$
227,495
$
226,611
$
186,097
164,114
(181,226)
210,383
$
172,809
(171,925)
227,495
$
181,719
(141,205)
226,611
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
2019
2018
2017
$
5,368
$
11,489
$
83,576
8,617
70,965
88,952
—
—
8,018
Write-offs of deposits and pre-acquisition
costs
Other expense,
net
13,116
16,992
11,367
Total land-related charges
$
27,101
$
99,446
$
191,913
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 higher level of 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
53
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 2019, we recorded impairment charges of $8.6 million relating to a number of communities where we experienced
slower sales paces and lower average selling prices.
• 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.
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
Impairment
Charges
Communities
Impaired
2019
2018
2017
5
8
9
$
$
$
12,589
24,062
19,252
$
$
$
8,617
70,965
88,952
Average
Selling Price
$284 to $550
$287 to $586
$207 to $818
Quarterly
Sales Pace
(homes)
1 to 6
2 to 11
1 to 11
Discount
Rate
12% to 14%
12% to 22%
12% to 25%
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.
54
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 $8.3
billion and $1.6 billion in 2019, $8.2 billion and $1.6 billion in 2018, and $7.3 billion and $1.1 billion in 2017, respectively. For
reporting purposes, our Homebuilding operations are aggregated into six reportable segments:
Northeast:
Southeast:
Florida:
Midwest:
Texas:
West:
Connecticut, Maryland, Massachusetts, New Jersey, 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.
Operating Data by Segment ($000’s omitted)
Years Ended December 31,
2018
2019
2017
Revenues:
Northeast
Southeast
Florida
Midwest
Texas
West
Financial Services
Consolidated revenues
Income before income taxes (a):
Northeast
Southeast (b)
Florida (b)
Midwest
Texas
West (c)
Other homebuilding (d)
Financial Services
$
797,963
$
839,700
$
693,877
1,684,655
2,074,194
1,495,037
1,389,211
2,537,466
9,978,526
234,431
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
$ 10,212,957
$ 10,188,331
$
8,577,686
$
116,221
$
29,629
$
175,763
309,596
184,438
195,751
386,361
(131,869)
1,236,261
103,315
202,639
289,418
179,568
193,946
511,828
(118,224)
1,288,804
58,736
21,190
122,532
208,825
178,231
182,862
229,504
(77,812)
865,332
73,496
Consolidated income before income taxes
$
1,339,576
$
1,347,540
$
938,828
(a)
(b)
Includes certain land-related charges (see the following table and Note 2).
Includes warranty charges totaling $14.8 million in 2019 related to a closed-out community in Southeast and $12.4
million in 2017 related to a closed-out community in Florida (see Note 11).
(c) West includes gains of $26.4 million in 2018 related to two land sale transactions in California.
55
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(d) Other homebuilding includes the amortization of intangible assets, amortization of capitalized interest, and other
items not allocated to the operating segments. Also included are write-offs of insurance receivables associated with
the resolution of certain insurance matters totaling $22.6 million and $29.6 million in 2019 and 2017, respectively
(see Note 11), and general liability insurance reserve reversals of $49.4 million, $35.9 million, and $97.8 million in
2019, 2018 and 2017, respectively (see Note 11).
Operating Data by Segment ($000's omitted)
Years Ended December 31,
2018
2019
2017
Land-related charges*:
Northeast
Southeast
Florida
Midwest
Texas
West
Other homebuilding
$
1,122
$
74,488
$
15,697
2,811
2,581
1,151
2,568
8,140
1,166
7,361
1,204
5,159
1,171
27,101
$
1,928
99,446
$
$
51,362
55,689
9,702
8,917
2,521
56,996
6,726
191,913
* 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,
2018
2019
2017
Depreciation and amortization:
Northeast
Southeast
Florida
Midwest
Texas
West
Other homebuilding (a)
Financial Services
$
$
1,962
4,448
5,775
4,417
3,423
9,317
19,553
48,895
5,104
53,999
$
$
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
(a) Other homebuilding includes amortization of intangible assets.
56
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
Operating Data by Segment
($000's omitted)
December 31, 2019
Homes Under
Construction
Land Under
Development
Raw Land
Total
Inventory
Total
Assets
$
345,644
$
242,666
$
25,098
$
613,408
$
698,661
430,008
539,895
315,822
343,230
881,551
42,866
2,899,016
—
724,258
894,716
464,733
447,707
1,289,255
283,772
4,347,107
—
72,804
99,228
31,881
84,926
105,606
14,948
434,491
—
1,227,070
1,533,839
812,436
875,863
2,276,412
341,586
1,354,086
1,700,198
886,889
949,236
2,538,803
1,953,440
7,680,614
10,081,313
—
634,284
$
2,899,016
$
4,347,107
$
434,491
$
7,680,614
$ 10,715,597
December 31, 2018
Homes Under
Construction
Land Under
Development
Raw Land
Total
Inventory
Total
Assets
$
268,900
$
291,467
$
52,245
$
612,612
$
704,515
443,140
467,625
314,442
284,405
805,709
45,937
2,630,158
—
676,087
892,669
433,056
427,124
1,131,841
276,981
4,129,225
—
90,332
85,321
29,908
98,415
118,579
19,170
493,970
—
1,209,559
1,445,615
777,406
809,944
2,056,129
342,088
7,253,353
—
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
(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.
57
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Investments in unconsolidated entities
We participate in a number of joint ventures and other investments with independent third parties. These entities
generally purchase, develop, and sell land, including selling land to us for use in our homebuilding operations. A summary of
our investments in such entities 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 unconsolidated entities
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,
2019
2018
39,527
$
3,655
16,584
59,766
775
$
$
— $
205
205
$
31,551
3,471
19,568
54,590
42,948
21,059
217
21,276
$
$
$
$
$
In 2019, 2018, and 2017, we recognized earnings (losses) from unconsolidated joint ventures of $0.7 million, $2.7
million, and $(2.0) million, respectively. We received distributions from our unconsolidated joint ventures of $5.1 million,
$12.1 million, and $9.4 million, in 2019, 2018, and 2017, respectively. We made capital contributions of $9.5 million, $1.0
million and $23.0 million in 2019, 2018, and 2017, respectively.
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.
58
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Debt
Our notes payable are summarized as follows ($000’s omitted):
4.250% unsecured senior notes due March 2021 (a)
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
December 31,
2019
2018
$
425,954
$
700,000
600,000
300,000
400,000
300,000
(14,295)
2,711,659
53,381
2,765,040
3,152,046
$
$
$
$
$
$
700,000
700,000
600,000
300,000
400,000
300,000
(13,247)
2,986,753
41,313
3,028,066
2,899,143
(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, 2019, we were in compliance with all of the covenants and requirements under the senior
notes. Refer to Note 12 for supplemental consolidating financial information.
Other notes payable include non-recourse and limited recourse collateralized notes with third parties that totaled $53.4
million and $41.3 million at December 31, 2019 and 2018, 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 8.00%.
We retired outstanding debt totaling $310.0 million, $82.8 million, and $134.7 million during 2019, 2018, and 2017,
respectively. The retirements in 2019 included a tender offer to retire $274.0 million of our unsecured senior notes maturing in
2021 which resulted in a loss of $4.9 million, which included the write-off of debt issuance costs, unamortized discounts and
premiums, and transaction fees related to the repurchased debt, and is reflected in other expense, net.
Revolving credit facility
We maintain a revolving credit facility ("Revolving Credit Facility") maturing in June 2023 that has a maximum
borrowing capacity of $1.0 billion and contains an uncommitted accordion feature that could increase the capacity to $1.5
billion, subject to certain conditions and availability of additional bank commitments. The Revolving Credit Facility also
provides for the issuance of letters of credit that reduce the available borrowing capacity under the Revolving Credit Facility,
with a sublimit of $500.0 million at December 31, 2019. 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 $262.8 million and $239.4
million of letters of credit issued under the Revolving Credit Facility at December 31, 2019 and 2018, 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, 2019, 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 $737.2 million and $760.6 million as of
December 31, 2019 and 2018, respectively.
59
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Pulte Mortgage
Pulte Mortgage maintains a master repurchase agreement with third party lenders. In August 2019, Pulte Mortgage
entered into an amended and restated repurchase agreement (the “Repurchase Agreement”) that extended the maturity date to
July 2020. The maximum aggregate commitment was $375.0 million during the seasonally high borrowing period from
December 26, 2019 through January 13, 2020. At all other times, the maximum aggregate commitment ranges from $220.0
million to $270.0 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 $326.6 million and $348.4 million outstanding under the Repurchase Agreement at December 31, 2019, and
2018, 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,
2019
$
$
375,000
48,427
$
$
2018
520,000
171,588
Weighted-average interest rate
4.16%
4.27%
6. Shareholders’ equity
Our declared quarterly cash dividends totaled $124.4 million, $108.5 million, and $110.0 million in 2019, 2018, and
2017, respectively. Under a share repurchase program authorized by our Board of Directors, we repurchased 8.4 million, 10.9
million, and 35.4 million shares in 2019, 2018, and 2017, respectively, for a total of $274.3 million, $294.6 million, and $910.3
million in 2019, 2018, and 2017, respectively. At December 31, 2019, we had remaining authorization to repurchase $525.5
million of common shares.
Under our stock 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 2019,
2018, and 2017, employees surrendered shares valued at $11.5 million, $7.9 million, and $6.0 million, respectively, under these
plans. Such share transactions are excluded from the above noted share repurchase authorization.
60
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. RSUs
generally cliff vest after three years. 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, 2019, there were 23.6 million shares that remained available for grant under the plan.
Our stock compensation expense for the three years ended December 31, 2019, is presented below ($000's omitted):
RSUs and performance shares
Long-term incentive plans
2019
21,538
2018
20,145
$
2017
24,207
$
6,830
8,145
9,476
28,368
$
28,290
$
33,683
$
$
Stock options
A summary of stock option activity for the three years ended December 31, 2019, is presented below (000’s omitted,
except per share data):
2019
2018
2017
Weighted-
Average
Per Share
Exercise
Price
Weighted-
Average
Per Share
Exercise
Price
Shares
Weighted-
Average
Per Share
Exercise
Price
Shares
Shares
563
$
—
(547)
—
16
16
$
$
12
—
12
—
8
8
1,168
$
—
(605)
—
563
563
$
$
11
—
11
—
12
12
3,623
$
—
(2,353)
(102)
1,168
1,168
$
$
12
—
12
28
11
11
Outstanding, beginning of year
Granted
Exercised
Forfeited
Outstanding, end of year
Options exercisable at year end
We did not issue any stock options during 2019, 2018, or 2017. As a result, there is no unrecognized compensation cost
related to stock option awards at December 31, 2019. 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 2019, 2018, and 2017 was $10.5 million, $11.7 million, and $31.1 million, respectively. As of December 31,
2019, options outstanding, all of which were exercisable, had an intrinsic value of $0.5 million and an exercise price of $8.
61
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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,
2019, is presented below (000’s omitted, except per share data):
2019
2018
2017
Weighted-
Average
Per Share
Grant Date
Fair Value
Shares
Weighted-
Average
Per Share
Grant Date
Fair Value
Shares
Weighted-
Average
Per Share
Grant Date
Fair Value
Shares
3,074
$
932
(1,181)
(144)
2,681
153
$
$
23
27
17
26
26
20
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
Outstanding, beginning of
year
Granted
Distributed
Forfeited
Outstanding, end of year
Vested, end of year
During 2019, 2018, and 2017, the total fair value of shares vested during the year was $20.0 million, $17.1 million, and
$15.0 million, respectively. Unamortized compensation cost related to restricted share awards was $19.7 million at
December 31, 2019. These costs will be expensed over a weighted-average period of approximately 2 years. Additionally, there
were 0.2 million RSUs outstanding at December 31, 2019, 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 $15.0 million and $17.0 million at December 31, 2019 and 2018, respectively.
62
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. Income taxes
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)
2019
2018
2017
$
$
$
$
$
196,186
21,252
217,438
74,700
30,738
105,438
322,876
$
$
$
$
$
(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
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
2019
2018
2017
21.0%
21.0%
35.0%
3.7
—
0.2
(0.4)
(0.1)
(0.3)
24.1%
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%
In December 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 made 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 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. As the result of the Tax Act, we recorded net tax expense of $172.1 million in 2017 related to the remeasurement of
our deferred tax balances and other effects.
The 2019 and 2018 effective tax rates utilize the reduced 21% tax rate due to the Tax Act while the 2017 effective tax
rate utilizes the prior 35% tax rate but reflects the revaluation of deferred taxes due to the Tax Act’s enactment.
The 2019 effective tax rate differs from the federal statutory rate primarily due to state income tax expense on current
year earnings, changes in valuation allowances relating to projected utilization of certain state net operating loss carryforwards,
and state tax law changes. 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 on
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 remeasurement of deferred taxes resulting from the enactment 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.
63
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
NOL carryforwards:
Federal
State
Tax credits
Deferred tax liabilities:
Deferred income
Intangibles and other
Valuation allowance
Net deferred tax asset
At December 31,
2019
2018
$
142,515
$
97,585
64,373
12,962
200,710
8,648
526,793
144,225
132,495
50,237
27,122
228,959
7,692
590,730
(228,186)
(44,547)
(272,733)
(83,953)
170,107
$
(195,596)
(26,966)
(222,562)
(92,589)
275,579
$
Our federal NOL carryforward deferred tax asset of $13.0 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 state NOL carryforward deferred tax assets will expire if unused at various dates as follows: $35.9 million from 2020 to
2024 and $164.8 million from 2025 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.
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 $40.3 million and $30.6 million of gross unrecognized tax
benefits at December 31, 2019 and 2018, respectively. If recognized, $21.6 million and $19.7 million, respectively, of these
amounts would impact our effective tax rate. Additionally, we had accrued interest and penalties of $6.5 million and $5.8
million at December 31, 2019 and 2018, respectively.
It is reasonably possible within the next twelve months that our gross unrecognized tax benefits may decrease by up to
$23.0 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):
64
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2019
2018
2017
Unrecognized tax benefits, beginning of period
$
30,554
$
48,604
$
Increases related to positions taken during a prior period
Decreases related to positions taken during a prior period
Increases related to positions taken during the current period
Decreases related to settlements with taxing authorities
Decreases related to lapse of the applicable statute of limitations
2,376
(7,918)
16,332
(1,044)
—
5,389
(31,850)
8,411
—
—
Unrecognized tax benefits, end of period
$
40,300
$
30,554
$
21,502
20,555
(9,665)
18,895
—
(2,683)
48,604
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 2017 and prior are closed. Tax year 2018 is
expected to close by the first quarter of 2020. 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 2015 to 2019.
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
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
65
Fair Value
Fair Value
Hierarchy
December 31,
2019
December 31,
2018
Level 2
Level 2
Level 2
Level 2
Level 3
Level 2
Level 1
Level 2
Level 2
Level 2
$
$
$
508,967
8,202
(1,073)
596
461,354
9,035
(6,914)
(718)
9,979
$
4,193
18,253
17,813
$
1,251,456
$
1,133,700
326,573
53,381
3,098,665
348,412
41,313
2,857,830
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 values included in the above table represent only those
assets whose carrying values were adjusted to fair value during the quarterly period ended 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 $2.8 billion and $3.0 billion
at December 31, 2019 and 2018, respectively.
10. Other assets and accrued and other liabilities
Other assets are presented below ($000’s omitted):
Accounts and notes receivable:
Insurance receivables (Note 11)
Other receivables
Prepaid expenses
Deposits and pre-acquisition costs (Note 1)
Property and equipment, net (Note 1)
Right-of-use assets (Note 11) (a)
Income taxes receivable
Other
December 31,
2019
2018
$
118,366
$
129,781
248,147
123,220
299,437
111,713
70,029
2,285
40,855
152,987
136,319
289,306
131,523
218,568
92,935
—
58,090
39,937
$
895,686
$
830,359
(a)
Right-of-use assets have no balance at December 31, 2018 as a result of the Company's adoption of ASU 2016-02
using a modified retrospective approach with an effective date of January 1, 2019 (Note 11).
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.
66
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Accrued and other liabilities are presented below ($000’s omitted):
Self-insurance liabilities (Note 11)
Compensation-related liabilities
Lease liabilities (Note 11) (a)
Warranty liabilities (Note 11)
Accrued interest
Loan origination liabilities (Note 11)
Other
December 31,
2019
2018
$
709,798
$
171,533
91,408
91,389
48,483
25,159
261,598
$
1,399,368
$
737,013
161,068
—
79,154
52,521
50,282
280,445
1,360,483
(a)
Lease liabilities have no balance at December 31, 2018 as a result of the Company's adoption of ASU 2016-02
using a modified retrospective approach with an effective date of January 1, 2019 (Note 11).
11. Commitments and contingencies
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 $261.0 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 and both CTX Mortgage and Pulte Mortgage have a pending litigation matter relating to such claims. 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):
67
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Liabilities, beginning of period
Reserves provided (released), net
Payments
Liabilities, end of period
2019
2018
2017
$
$
50,282
(225)
(24,898)
25,159
$
$
34,641
$
16,130
(489)
50,282
$
35,114
(50)
(423)
34,641
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.
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 $262.8 million and $1.4 billion, respectively, at December 31, 2019, and
$239.4 million and $1.3 billion, respectively, at December 31, 2018. 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.
68
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Warranty liabilities
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 in warranty liabilities were as follows ($000’s omitted):
Warranty liabilities, beginning of period
Reserves provided
Payments
Other adjustments (a)
Warranty liabilities, end of period
2019
2018
2017
$
$
79,154
60,818
(75,635)
27,052
91,389
$
$
72,709
65,567
(64,525)
5,403
79,154
$
$
66,134
50,014
(58,780)
15,341
72,709
(a)
Includes charges totaling $14.8 million in 2019 related to a closed-out community in Southeast and $12.4 million in
2017 related to 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 $709.8 million and $737.0 million at December 31, 2019 and 2018,
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 68% and 65% of the total general liability reserves at December 31, 2019 and
2018, respectively. The actuarial analyses that determine the IBNR portion of reserves consider a variety of factors, including
the frequency and severity of losses, which are based on our historical claims experience supplemented by industry data. The
actuarial analyses of the reserves also consider historical third party recovery rates and claims management expenses.
Volatility in both national and local housing market 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
69
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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, 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.
Adjustments to reserves are recorded in the period in which the change in estimate occurs. During 2019, 2018, and 2017,
we reduced reserves, primarily general liability reserves, by $49.4 million, $35.9 million, and $97.8 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
2019
2018
2017
$
$
737,013
83,209
(49,437)
(60,987)
709,798
$
$
758,812
93,156
(35,873)
(79,082)
737,013
$
$
831,058
98,176
(97,789)
(72,633)
758,812
(a)
Includes net changes in amounts expected to be recovered from our insurance carriers, which are recorded in 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 $118.4 million and $153.0 million at December 31, 2019
and 2018, 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
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.
In 2019 and 2017, we recorded write-offs of $22.6 million and $29.6 million, respectively, in connection with policy
settlement negotiations with certain of our carriers. 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 insurance policies related to similar claims.
While the outcomes 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.
Leases
We lease certain office space and equipment for use in our operations. We recognize lease expense for these leases on
a straight-line basis over the lease term and combine lease and non-lease components for all leases. Right-of-use ("ROU")
assets and lease liabilities are recorded on the balance sheet for all leases with an expected term of at least one year. Some
leases include one or more options to renew. The exercise of lease renewal options is generally at our discretion. The
depreciable lives of ROU assets and leasehold improvements are limited to the expected lease term. Certain of our lease
agreements include rental payments based on a pro-rata share of the lessor’s operating costs which are variable in nature. Our
lease agreements do not contain any residual value guarantees or material restrictive covenants.
70
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ROU assets are classified within other assets on the balance sheet, while lease liabilities are classified within accrued
and other liabilities. Leases with an initial term of 12 months or less are not recorded on the balance sheet. ROU assets and
lease liabilities were $70.0 million and $91.4 million, respectively, at December 31, 2019. During 2019, we recorded an
additional $17.6 million of lease liabilities under operating leases. Payments on lease liabilities during 2019 totaled $23.4
million.
Lease expense includes costs for leases with terms in excess of one year as well as short-term leases with terms of less
than one year. Our total lease expense was $36.4 million, $33.6 million, and $30.8 million during 2019, 2018, and 2017,
respectively. Our total lease expense in 2019 is inclusive of variable lease costs of $6.7 million and short-term lease costs of
$9.6 million. Sublease income was de minimis. The future minimum lease payments required under our leases as of
December 31, 2019 were as follows ($000's omitted):
Years Ending December 31,
2020
$
2021
2022
2023
2024
Thereafter
Total lease payments (a)
Less: Interest (b)
Present value of lease liabilities (c)
$
18,995
20,523
18,605
17,306
11,677
22,476
109,582
18,174
91,408
(a) Lease payments include options to extend lease terms that are reasonably certain of being exercised and
exclude $6.0 million of legally binding minimum lease payments for leases signed but not yet commenced at
December 31, 2019.
(b) Our leases do not provide a readily determinable implicit rate. Therefore, we must estimate our discount
rate for such leases to determine the present value of lease payments at the lease commencement date.
(c) The weighted average remaining lease term and weighted average discount rate used in calculating our
lease liabilities were 6.1 years and 5.8%, respectively, at December 31, 2019.
71
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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.
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2019
($000’s omitted)
PulteGroup,
Inc.
Unconsolidated
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminating
Entries
Consolidated
PulteGroup,
Inc.
$
— $ 1,026,743
$
191,170
$
— $
1,217,913
—
—
—
—
—
—
8,172
—
182,461
31,328
2,215
1,058,071
7,554,662
24,009
—
59,266
688,996
124,992
—
193,385
125,952
—
508,967
500
198,518
—
(12,354)
—
—
—
—
—
—
—
—
33,543
1,251,456
7,680,614
24,009
508,967
59,766
895,686
124,992
170,107
8,103,191
1,081,472
9,279,403
$
8,293,824
$ 10,591,468
$
10,294,371
(18,464,066)
$ (18,464,066) $
—
10,715,597
$
87,892
36,093
$ 1,781,893
—
$
—
2,711,659
2,835,644
5,458,180
—
53,381
1,835,274
8,756,194
259,926
—
326,573
—
586,499
9,707,872
$
8,293,824
$ 10,591,468
$
10,294,371
$
— $
—
—
—
—
(18,464,066)
$ (18,464,066) $
2,129,711
36,093
326,573
2,765,040
5,257,417
5,458,180
10,715,597
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
72
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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
—
—
—
—
—
—
66,154
—
282,874
22,406
1,206
929,367
7,157,665
36,849
—
54,045
579,452
127,192
—
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
7,557,245
500,138
$
7,906,273
$ 9,384,708
$
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
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
73
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the year ended December 31, 2019
($000’s omitted)
PulteGroup,
Inc.
Unconsolidated
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminating
Entries
Consolidated
PulteGroup,
Inc.
$
— $ 9,725,421
$
190,284
$
— $
9,915,705
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)
—
—
—
—
61,282
9,786,703
—
9,786,703
— (7,485,268)
(54,143)
—
— (7,539,411)
(483)
—
—
(5,423)
(8,194)
(994,262)
(46,490)
—
(13,617)
3,404
1,206,057
(289,102)
1,539
191,823
234,431
426,254
(143,432)
(1,955)
(145,387)
(130,287)
(50,075)
38,437
8,194
147,136
(37,178)
109,958
962,865
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(2,110,400)
(2,110,400)
—
62,821
9,978,526
234,431
10,212,957
(7,628,700)
(56,098)
(7,684,798)
(130,770)
(1,044,337)
(13,476)
—
1,339,576
(322,876)
1,016,700
—
1,016,700
100
916,955
120,622
(10,213)
1,026,913
1,016,700
100
1,037,577
1,072,823
—
—
Comprehensive income (loss)
$
1,016,800
$ 1,037,577
$
1,072,823
$ (2,110,400) $
1,016,800
74
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
75
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
76
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATING STATEMENT OF CASH FLOWS
For the year ended December 31, 2019
($000’s omitted)
PulteGroup,
Inc.
Unconsolidated
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminating
Entries
Consolidated
PulteGroup,
Inc.
$
195,371
$
858,338
$
23,836
$
— $
1,077,545
Net cash provided by (used in)
operating activities
Cash flows from investing activities:
Capital expenditures
Investment in unconsolidated
subsidiaries
Cash used for business acquisition
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
Cash paid for shares withheld for taxes
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
$
—
—
—
—
—
—
(280,259)
—
—
—
6,399
(274,333)
(11,450)
(122,350)
486,622
(195,371)
—
—
(48,899)
(9,220)
(8,807)
(163,724)
3,337
(708)
—
1,792
(218,093)
(8,136)
—
(29,189)
—
—
—
—
—
—
—
(482,352)
(511,541)
128,704
—
(537)
—
—
(21,841)
—
—
—
—
(4,270)
(26,648)
(10,948)
929,367
204,333
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(58,119)
(9,515)
(163,724)
5,129
(226,229)
—
(309,985)
—
—
(21,841)
6,399
(274,333)
(11,450)
(122,350)
—
(733,560)
117,756
1,133,700
— $ 1,058,071
$
193,385
$
— $
1,251,456
77
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.
$
494,521
$
791,350
$
163,876
$
— $
1,449,747
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:
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
Cash paid for shares withheld for taxes
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
—
—
—
—
—
(51,147)
(7,892)
(1,000)
—
11,300
—
—
6,797
(40,847)
(1,095)
(8,164)
—
—
(81,758)
—
—
—
—
—
—
—
102,821
21,063
771,566
1,566,000
(1,566,000)
—
6,555
(294,566)
(7,910)
(104,020)
(86,416)
(494,521)
—
—
—
(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
(294,566)
(7,910)
(104,020)
—
(580,273)
827,532
306,168
157,801
148,367
$
— $
929,367
$
204,333
$
— $
1,133,700
78
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
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
Cash paid for shares withheld for taxes
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.
$
309,760
$
328,163
$
25,157
$
— $
663,080
—
—
—
—
—
—
—
(123,000)
2,720,000
(2,720,000)
27,720
(910,331)
(5,995)
(112,748)
814,594
(309,760)
—
—
(25,432)
(6,619)
(23,037)
—
5,778
—
—
(932)
(42,691)
(7,551)
—
—
(10,301)
106,183
—
(1,446)
—
—
—
—
—
—
(728,555)
(738,856)
(453,384)
—
—
—
—
—
—
(86,039)
18,698
36,304
611,185
112,063
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(32,051)
(23,037)
—
4,846
(50,242)
106,183
—
(134,747)
2,720,000
(2,720,000)
27,720
(910,331)
(5,995)
(112,748)
—
(1,029,918)
(417,080)
723,248
— $
157,801
$
148,367
$
— $
306,168
79
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)
2019
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
$ 1,952,831
(1,494,841)
204,294
$ 2,433,028
(1,874,369)
295,698
$ 2,645,550
(2,035,972)
333,862
$ 2,947,116
(2,279,615)
402,407
$ 9,978,526
(7,684,798)
1,236,261
$
43,862
$
55,957
$
64,815
$
69,797
$
234,431
12,409
25,078
32,284
33,544
103,315
$ 1,996,693
$ 2,488,985
$ 2,710,365
$ 3,016,913
$ 10,212,957
216,703
(49,946)
166,757
0.59
0.59
$
$
$
$
$
$
320,776
(79,735)
241,041
0.86
0.86
366,146
(93,042)
273,104
0.99
0.99
$
$
$
$
$
$
435,951
(100,153)
335,798
1,339,576
(322,876)
$ 1,016,700
1.23
1.22
$
$
3.67
3.66
277,637
276,652
272,992
270,843
274,495
1,003
932
640
632
802
278,640
277,584
273,632
271,475
275,297
(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 a warranty charge related to a closed-out community of $9.0 million during the 3rd
Quarter (See Note 11).
(c) Homebuilding income before income taxes includes insurance reserve reversals of $12.8 million and $31.1 million
during the 2nd and 4th Quarters, respectively; and write-offs of insurance receivables of $11.6 million and $12.6
million in the 1st and 2nd Quarters, respectively.
80
PULTEGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
UNAUDITED QUARTERLY INFORMATION
(000’s omitted, except per share data)
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
1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Total (a)
$ 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
224,191
(53,440)
170,751
$
$ 2,569,722
409,170
(85,081)
324,089
$
$ 2,649,366
384,688
(95,153)
289,535
$
$ 2,999,150
329,491
(91,842)
237,649
$
$10,188,331
1,347,540
(325,517)
$ 1,022,023
$
$
0.59
0.59
$
$
1.12
1.12
$
$
1.01
1.01
$
$
0.84
0.84
$
$
3.56
3.55
286,683
1,343
288,026
285,276
283,489
1,378
1,183
286,654
284,672
278,964
1,248
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 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 Note 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).
81
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors 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, 2019
and 2018, 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, 2019, 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, 2019 and 2018, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 2019, 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, 2019, 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 30, 2020 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.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that
were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as
a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit
matters or on the accounts or disclosures to which they relate.
82
Self-insured Risks
Description of the Matter The Company’s reserves for self-insured risks totaled $709.8 million at December 31,
How We Addressed the
Matter in Our Audit
2019, of which the majority relates to incurred but not reported (“IBNR”) losses
associated with exposures to construction defects on homes previously sold. As
discussed in Notes 1 and 11 of the consolidated financial statements, the Company
reserves for costs associated with construction defect claims (including IBNR losses
and expected claims management expense) based on actuarial analyses of the
Company’s historical claims activity. The actuarial analyses that determine the IBNR
reserves consider a variety of factors, which principally include the frequency and
severity of losses.
Auditing the Company’s IBNR reserve for construction defects is complex due to the
significant measurement uncertainty associated with the estimate, the use of various
actuarial methods, and management’s application of significant judgment. In addition,
the reserve estimate is sensitive to significant management assumptions, including the
frequency and severity assumptions used in the computation of the IBNR reserve and
loss development factors for reported claims.
We obtained an understanding, evaluated the design, and tested the operating
effectiveness of the Company’s controls that address the risks of material misstatement
relating to the measurement and valuation of the IBNR reserve. For example, we tested
controls over management’s review of the significant actuarial assumptions and the data
inputs used by management when estimating IBNR losses.
To test the IBNR reserve associated with construction defects exposures, our audit
procedures included, among others, testing the completeness and accuracy of the
underlying claims data used in management’s estimation calculations and reviewing the
Company’s reinsurance contracts by policy year to assess the Company’s self-insured
retentions, deductibles, and coverage limits, which represent inputs to the actuarial
models. Furthermore, we involved our actuarial specialists to assist in our assessment of
the methodologies used by management to estimate the IBNR reserve. We compared
the Company's self-insurance reserve (inclusive of the IBNR estimate) to a range
developed by our actuarial specialists based on independently selected assumptions.
Land Impairments
Description of the Matter At December 31, 2019, the Company’s house and land inventory was $7.7 billion. As
more fully described in Notes 1 and 2 to the consolidated financial statements, the
Company assesses each community to identify indicators of potential impairment.
When an indicator of potential impairment is identified, the Company evaluates the
recoverability of the community by comparing the expected undiscounted cash flows
for the community to its carrying value. For any community whose carrying value
exceeds the expected undiscounted cash flows, the Company estimates the fair value of
the community, and impairment charges are recorded if the carrying value of the
community exceeds its fair value. The Company recognized impairment charges of
$8.6 million for the year ended December 31, 2019.
Auditing the Company's projected future undiscounted cash flows and fair value for a
community involves subjectivity as estimates of such cash flows and the determination
of fair values are sensitive to significant assumptions such as expected average selling
prices; expected sales paces; and anticipated land development, construction, and
overhead costs specific to each community, as well as the discount rate used in
determining a community’s fair value.
83
How We Addressed the
Matter in Our Audit
We obtained an understanding, evaluated the design, and tested the operating
effectiveness of controls over the Company’s processes used to estimate the
undiscounted cash flows and fair values of its communities with indicators of potential
impairment and to determine the measurement of any related impairment charges. For
example, we tested controls over the appropriateness of the assumptions and the
completeness and accuracy of the data that management used in the undiscounted cash
flow and fair value models.
Our testing of the Company’s undiscounted cash flow models, fair value
determinations, and impairment charges included, among other audit procedures,
assessing the methodologies used, evaluating the completeness and accuracy of the data
used by management in its analysis, and evaluating the significant assumptions used by
management to project future cash flows and estimate fair values. We also compared
community data to the Company’s accounting records and recalculated the Company’s
estimated future cash flows.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1973.
Atlanta, GA
January 30, 2020
84
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,
2019. 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, 2019.
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, 2019. 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, 2019.
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, 2019.
85
(b) Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors 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, 2019, 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, 2019, 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, 2019 and 2018, 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, 2019, and the related notes and our report dated January 30, 2020 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, GA
January 30, 2020
86
(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, 2019
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 2020 Annual Meeting of Shareholders (“2020 Proxy Statement”),
which will be filed no later than 120 days after December 31, 2019, 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 2020 Proxy Statement under the caption “Delinquent Section 16(a)
Reports,” and is incorporated herein by this reference. Information required by this Item with respect to our code of ethics will
be contained in the 2020 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 2020 Proxy Statement under the captions “2019 Executive
Compensation” and “2019 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 2020 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 2020 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 2020 Proxy Statement under the captions “Audit and Non-
Audit Fees” and “Audit Committee Preapproval Policies” and is incorporated herein by reference.
87
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, 2019 and 2018
Consolidated Statements of Operations for the years ended December 31, 2019, 2018, and 2017
Consolidated Statements of Comprehensive Income for the years ended December 31, 2019,
2018, and 2017
Consolidated Statements of Shareholders' Equity for the years ended December 31, 2019, 2018,
and 2017
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018, and 2017
Notes to Consolidated Financial Statements
40
41
42
43
44
45
(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 Description
(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)
88
(10)
(e)
Third Amendment to Amended and Restated Section 382 Rights Agreement, dated as of March 7, 2019,
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 7,
2019)
(f) Description of the Registrant's Securities (Filed herewith)
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
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. 2019 Senior Management Incentive Plan (Incorporated by reference to Exhibit 10.1 of
our Current Report on Form 8-K, filed with the SEC on February 8, 2019)*
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)*
(j) 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)*
(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 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)*
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)*
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)*
89
(s)
(t)
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)
(u) 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)
(v)
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)
(w) 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)
(x)
(y)
(z)
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)
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)
Sixth Amendment to Amended and Restated Master Repurchase Agreement dated August 3, 2018
(Incorporated by reference to Exhibit 10.1 of PulteGroup, Inc.'s Current Report on Form 8-K, filed with
the SEC on August 9, 2018)
(aa) Ninth Amendment to Amended and Restated Master Repurchase Agreement dated August 1, 2019
(Incorporated by reference to Exhibit 10.1 of PulteGroup, Inc.'s Current Report on Form 8-K, filed with
the SEC on August 5, 2019)
(ab) Tenth Amendment to Amended and Restated Master Repurchase Agreement dated August 7, 2019
(Incorporated by reference to Exhibit 10.1 of PulteGroup, Inc.'s Current Report on Form 8-K, filed with
the SEC on August 9, 2019)
(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)
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Cover Page Interactive Data File (embedded within the Inline XBRL document)
* Indicates a management contract or compensatory plan or arrangement
ITEM 16. FORM 10-K SUMMARY
None.
91
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 30, 2020
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 30, 2020
/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
92
DESCRIPTION OF THE REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934
Exhibit 4(f)
PulteGroup, Inc., a Michigan corporation (the “Company”), has two classes of securities registered pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”): Common Shares, $0.01 par
value per share (“Common Shares”) and Series A Junior Participating Preferred Share Purchase Rights (the
“Preferred Rights”). The Common Shares are listed on The New York Stock Exchange under the ticker symbol
“PHM”. Computershare Trust Company, N.A. is the transfer agent and registrar for the Common Shares. Prior to the
distribution date (as such term is defined below), the Preferred Rights are associated with the Common Shares, are
evidenced by Common Share certificates and are transferable with and only with the underlying Common Shares.
The following is a description of the rights of our Common Shares and Preferred Rights and related provisions of the
Company’s Restated Articles of Incorporation (the “Articles”), Amended and Restated By-laws (the “By-laws”),
applicable Michigan law, Certificate of Designation of Series A Junior Participating Preferred Shares (“Certificate of
Designation”) and that certain Amended and Restated Section 382 Rights Agreement (as amended as of March 14,
2013, March 10, 2016 and March 7, 2019, the “Rights Plan”) by and between the Company and Computershare
Trust Company, N.A., as rights agent. This description is qualified in its entirety by, and should be read in
conjunction with, the Articles, the By-laws, applicable Michigan law, the Certificate of Designation and the Rights
Plan.
DESCRIPTION OF COMMON SHARES
Authorized Capital Stock
The Company’s authorized capital stock consists of 500,000,000 Common Shares and 25,000,000 Preferred Shares,
$0.01 par value (the “Preferred Shares”). As of December 31, 2019, 270,235,297 Common Shares were issued and
outstanding and no Preferred Shares were issued or outstanding.
Fully Paid and Nonassessable
All of the outstanding Common Shares are fully paid and nonassessable and are not subject to further calls or
assessments by us.
Voting Rights
The holders of Common Shares are entitled to one vote per share on all matters to be voted on by such holders.
Holders of Common Shares are not entitled to cumulative voting rights. Other than as provided in the Articles or
pursuant to applicable law and subject to the voting rights of any holders of Preferred shares, if an action is to be
taken by vote of the shareholders, it shall be authorized by a majority of the votes cast by the holders of Common
Shares entitled to vote on the action in all matters other than the election of directors for which the number of
nominees exceeds the number of directors to be elected.
Dividends
The holders of Common Shares are entitled to receive such dividends, if any, as may be declared from time to time
by the Company’s board of directors (the “Board”) in its discretion from funds legally available therefor, subject to
the rights of any holders of our Preferred Shares to receive such dividends.
Right to Receive Liquidation Distributions
Upon liquidation, dissolution or winding-up, the holders of Common Shares are entitled to share ratably in any
assets remaining available for distribution after the satisfaction in full of the prior rights of creditors, including
holders of our indebtedness, and the aggregate liquidation preference of any Preferred Shares then outstanding.
No Preemptive or Similar Rights
Our Common Shares have no preemptive or other subscription rights, and there are no conversion rights or
redemption or sinking fund provisions with respect to such Common Shares.
Preferred Shares
Our Board has authority to divide the 25,000,000 authorized Preferred Shares into series and to fix the rights and
preferences of any series so established. Variations between different series may be created by the Board with
respect to such matters as voting rights, rate of dividend, priority of payment, rights of accumulation, redemption or
signing fund terms, preferences upon liquidation or dissolution, conversion rights and any other preferences or
rights.
If we offer Preferred Shares in the future, the Board will determine the terms of such shares, including the following,
where applicable:
•
•
the designation of the shares and the number of shares that constitute the series;
the dividend rate (or the method of calculating dividends), if any, on the shares of the series and the priority
as to payment of dividends with respect to other classes or series of our shares of capital stock;
• whether dividends will be cumulative or non-cumulative and, if cumulative, the date from which dividends
on the Preferred Shares will accumulate;
•
the dividend periods (or the method of calculating the dividend periods);
• whether and the extent to which such Preferred Shares shall be entitled to participate in dividends with
•
•
shares of any other series or class of stock;
the voting rights of the Preferred Shares, if any;
the liquidation preference and the priority as to payment of the liquidation preference with respect to other
classes or series of our capital stock and any other rights of the shares of the class or series upon our
liquidation, dissolution or winding-up;
• whether or not the shares of the series will be convertible into or exchangeable for securities and, if so, the
security into which they are convertible or exchangeable and the terms and conditions of conversion or
exchange, including the conversion or exchange price or the manner of determining it;
• whether or not and on what terms the shares of the series will be subject to redemption or repurchase at our
option;
• whether the Preferred Shares of the series will be listed on a national securities exchange or quoted on an
automated quotation system;
•
federal income tax considerations; and
•
the other material terms, rights and privileges and any qualifications, limitations or restrictions of the rights
or privileges of the series.
DESCRIPTION OF PREFERRED RIGHTS
Each Preferred Right entitles its holder, under the circumstances described below, to purchase from us one one-
thousandth of a Series A Preferred Share (as defined below) at a purchase price of $50 per right, subject to
adjustment.
Series A Preferred Shares
Of our 25,000,000 authorized Preferred Shares, our Board has designated 500,000 shares as “Series A Junior
Participating Preferred Shares” (the “Series A Preferred Shares”).
Ranking
The Series A Preferred Shares will rank junior to all other series of our Preferred Shares as to payment of dividends
and the distribution of assets, whether or not upon our dissolution, liquidation or winding up, unless the terms of any
such series provides otherwise.
Dividends
Subject to the rights of any senior-ranking shares, commencing upon the first quarterly dividend payment date after
the first issuance of shares of Series A Preferred Shares, holders of our Series A Preferred Shares are entitled to
receive quarterly dividends in an amount per share equal to the greater of (i) $1.00 per share or (ii) subject to certain
adjustment provisions, 1000 times the aggregate per share amount of all cash dividends plus 1000 times the
aggregate per share amount of all non-cash dividends or other distributions (other than a dividend payable in
Common Shares or a subdivision of outstanding Common Shares (by reclassification or otherwise) (collectively,
“common share adjustments”)) declared on Common Shares since the immediately preceding quarterly dividend
payment date or, with respect to the first quarterly dividend payment date, since the first issuance of any shares of
Series A Preferred Shares, all subject to adjustment in the event of a declaration of a common-share-dividend on our
Common Shares or a subdivision or combination of our outstanding shares.
Dividends shall begin to accrue and be cumulative on outstanding Series A Preferred Shares from the quarterly
dividend payment date immediately following the date of issue of such Series A Preferred Shares, unless such shares
are issued prior to the record date for the first quarterly dividend payment date, in which case dividends on such
shares shall begin to accrue from the date such shares are issued, or unless such shares are issued on a quarterly
dividend payment date or a date after the record date for a quarterly dividend and before such quarterly dividend
payment date, in either of which events such dividends will begin to accrue and be cumulative from such quarterly
dividend payment date. Accrued but unpaid dividends on the Series A Preferred Shares will not bear interest.
Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Shares are in
arrears, until all such arrears, whether or not declared, have been paid in full, we may not:
•
•
•
declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire
any Common Shares or other shares ranking junior to the Series A Preferred Shares;
declare or pay dividends on or make any other distributions on any shares ranking equally with the Series A
Preferred Shares, except dividends paid ratably on the Series A Preferred Shares and all such equal-ranking
shares on which dividends are payable or in arrears;
redeem or purchase or otherwise acquire any shares ranking equally with the Series A Preferred Shares,
except such redemption, purchase or acquisition is done in exchange for shares of our capital stock ranking
junior to the Series A Preferred Shares; or
•
purchase or otherwise acquire any Series A Preferred Shares or any shares ranking equally with the Series A
Preferred Shares, except in accordance with a purchase offer made to all holders of such shares upon such
terms as our Board determines in good faith will result in fair and equitable treatment among such shares.
Voting
Holders of Series A Preferred Shares are entitled to 1000 votes per share held (subject to adjustment for common
share adjustments). Except as otherwise provided by law or the Certificate of Designation, holders of Series A
Preferred Shares will be entitled to vote collectively as a single class with holders of Common Shares on all matters
submitted to a vote of our shareholders. In addition, at any time dividends on any Series A Preferred Shares are in
arrears in an amount equal to six quarterly dividends, holders of Series A Preferred Shares and holders of our other
outstanding Preferred Shares, if any, with dividends in arrears in an amount equal to six quarterly dividends, voting
as a class, irrespective of series, will have the right to elect two directors to our Board. Holders of Series A Preferred
Shares will cease to be entitled to participate in such election when all accrued and unpaid dividends on all
outstanding Series A Preferred Shares for all previous quarterly dividend periods and for the current quarterly
dividend period have been declared and paid or set apart for payment.
Liquidation
In the event of our liquidation, dissolution or winding up, the holders of Series A Preferred Shares shall be entitled to
receive a liquidation payment in an amount per Series A Preferred Share equal to $1,000, plus all accrued and unpaid
dividends and distributions on such share, whether or not declared, to the date of such payment (the “Series A
Liquidation Preference”). After payment of the full amount of the Series A Liquidation Preference to which they are
entitled, holders of Series A Preferred Shares shall not receive any additional distributions unless holders of our
Common Shares have received an amount per share (the “Common Adjustment”) equal to the quotient obtained by
dividing (i) the Series A Liquidation Preference by (ii) 1,000 (as adjusted for common share adjustments). After we
have paid the full amount of the Series A Liquidation Preference and the Common Adjustment to all entitled holders,
holders of Series A Preferred Shares and holders of Common Shares shall share ratably in our remaining assets. If
our available assets are insufficient to pay the Series A Liquidation Preference and the liquidation preference of all
other series of our Preferred Shares, if any, ranking equally with the Series A Preferred Shares, then we shall
distribute our remaining assets ratably to the holders of Series A Preferred Shares and such other preferred shares in
proportion to their respective liquidation preferences.
Redemption
The Series A Preferred Shares are not redeemable.
Protection Against Adverse Amendments
Our Articles of Incorporation may not be amended in any manner that would materially alter or change the powers,
preferences or special rights of the Series A Preferred Shares without the affirmative vote of the holders of a
majority of the outstanding Series A Preferred Shares, voting separately as a class.
Rights Plan
On March 18, 2010, we entered into the Rights Plan with Computershare Trust Company, N.A., as rights agent,
which amended and restated that certain Section 382 Rights Agreement, dated as of March 5, 2009, as amended as
of April 7, 2009 and as of September 24, 2009 (collectively, the “Original Rights Agreement”), between the
Company and Computershare Trust Company, N.A., as rights agent. Our Board had previously declared a dividend
distribution of one Preferred Right for each outstanding Common Share to shareholders of record at the close of
business on March 16, 2009, pursuant to the Original Rights Agreement.
Our Board adopted the Rights Plan in an effort to protect shareholder value by attempting to protect against a
possible limitation on our ability to use our net operating loss carryforwards (the “NOLs”) and certain other tax
benefits to reduce potential future U.S. federal income tax obligations. If we experience an “ownership change,” as
defined in Section 382 of the Code and the regulations thereunder, our ability to fully utilize the NOLs and certain
other tax benefits on an annual basis will be substantially limited, and the timing of the usage of the NOLs and such
other benefits could be substantially delayed, which could therefore significantly impair the value of those assets.
The Rights Plan is intended to act as a deterrent to any person or group, together with its affiliates and associates,
being or becoming the beneficial owner of 4.9% or more of our (i) Common Shares, (ii) Preferred Shares (other than
Preferred Shares described in Section 1504(a)(4) of the Code), and (iii) any other interest in us that would be treated
as “stock” pursuant to Treasury Regulation § 1.382-2T(f)(18) (collectively, “covered securities”).
The following general summary of the Rights Plan is qualified in its entirety by reference to the Rights Plan, which
is filed as an exhibit to the registration statement of which this prospectus forms a part.
The Rights. Each Preferred Right entitles its holder, under the circumstances described below, to purchase from us
one one-thousandth of a Series A Preferred Share at a purchase price of $50 per Preferred Right, subject to
adjustment. Our Common Shares issued while the Rights Plan is in effect will be issued with Preferred Rights
attached.
Acquiring Person. Under the Rights Plan, an “acquiring person” is any person or group, who or which, together with
its affiliates and associates, becomes a beneficial owner of 4.9% or more of our covered securities, other than solely
as a result of (a) a reduction in the amount of our covered securities outstanding; (b) the exercise of any options,
warrants, rights or similar interests (including restricted shares) granted by us to our directors, officers and
employees; (c) any unilateral grant of any of our covered securities by us or (d) any issuance of our covered
securities by us or any share dividend, share split or similar transaction effected by us in which all holders of our
covered securities are treated equally.
A person shall be deemed to be a “beneficial owner” of, shall be deemed to have “beneficial ownership” and shall be
deemed to “beneficially own” any securities which such person directly owns, or would be deemed to constructively
own, pursuant to Section 382 of the Code and the regulations promulgated thereunder.
The term “acquiring person,” however, does not include:
•
us, any of our subsidiaries, any employee benefit plan or other compensation arrangement of ours or of any
of our subsidiaries, or any entity organized, appointed or established by us or any of our subsidiaries for or
pursuant to the terms of any such plan or compensation arrangement;
•
any exempted person (as defined below);
• William J. Pulte, any spouse of William J. Pulte, any descendant of William J. Pulte or the spouse of any
such descendant, the estate of any of the foregoing or any trust or other arrangement for the benefit of any
of the foregoing or any charitable organization established by any of the foregoing (the “Pulte Family”);
•
•
•
any group which includes any member or members of the Pulte Family if a majority of the covered
securities of such group are beneficially owned by a member or members of the Pulte Family;
any person or group who becomes the beneficial owner of 4.9% or more of our covered securities as a
result of an exempted transaction (as defined below);
any person whom or which our Board in good faith determines has inadvertently acquired beneficial
ownership of 4.9% or more of our covered securities, so long as such person promptly enters into, and
delivers to us, an irrevocable commitment to divest as promptly as practicable, and thereafter divests as
promptly as practicable a sufficient number of our covered securities so that such person would no longer
be a beneficial owner of 4.9% or more of our covered securities; or
•
any affiliate, associate or stockholder of Centex Corporation, or the general partners, limited partners or
members of such stockholders who would have been an acquiring person solely as a result of the execution,
delivery or performance of the merger agreement between us and Centex or certain voting agreements
relating to such merger until such time that such person acquires beneficial ownership of additional covered
securities of ours.
Our Board may, in its sole discretion, exempt any person or group who would otherwise be an acquiring person from
being deemed an acquiring person for purposes of the Rights Plan if it determines at any time prior to the time at
which the Preferred Rights are no longer redeemable that the beneficial ownership of such person or group would
not jeopardize, endanger or limit (in timing or amount) the availability of our NOLs and other tax benefits. Any such
person or group is an “exempted person” under the Rights Plan. Our Board, in its sole discretion, may subsequently
make a contrary determination and such person would then become an acquiring person.
An “exempted transaction” is a transaction that our Board determines, in its sole discretion, is an exempted
transaction and, unlike the determination of an exempted person, such determination is irrevocable.
Separation from Common Shares. Initially, the Preferred Rights will be associated with our Common Shares and
evidenced by Common Share certificates, which will contain a notation incorporating the Rights Plan by reference,
and will be transferable with and only with the underlying Common Shares. Subject to certain exceptions, the
Preferred Rights become exercisable and trade separately from our Common Shares only upon the “distribution
date,” which occurs upon the earlier of:
•
•
10 days following a public announcement that a person or group of persons has become an acquiring
person or such earlier date as a majority of our Board becomes aware of the existence of an acquiring
person (the “share acquisition date”) (unless, prior to the expiration of our right to redeem the Preferred
Rights, such person or group is determined by our Board to be an “exempted person”; in which case the
share acquisition date will be deemed not to have occurred); or
10 business days (or later date if determined by our Board prior to such time as any person or group
becomes an acquiring person) following the commencement of a tender offer or exchange offer which, if
consummated, would result in a person or group becoming an acquiring person.
Until the distribution date, the surrender for transfer of any of outstanding Common Shares will also constitute the
transfer of the Preferred Rights associated with those shares.
As soon as practicable after the distribution date, separate certificates or book-entry statements will be mailed to
holders of record of Common Shares as of the close of business on the distribution date. From and after the
distribution date, the separate Preferred Rights certificates or book-entry statements alone will represent the
Preferred Rights. Except as otherwise provided in the Rights Plan, only Common Shares issued prior to the
distribution date will be issued with Preferred Rights.
Expiration. The Preferred Rights are not exercisable until the distribution date and, unless earlier redeemed or
exchanged by us as described below, will expire upon the earliest of:
•
•
•
the close of business on June 1, 2022 (the “Expiration Date”);
the time at which the Preferred Rights are redeemed;
the time at which the Preferred Rights are exchanged;
•
•
the close of business on the effective date of the repeal of Section 382 or any successor statute if our Board
determines that the Rights Plan is no longer necessary or desirable for the preservation of certain tax
benefits; and
the close of business on the first day of our taxable year to which our Board determines that certain tax
benefits may not be carried forward.
Effects of Triggering Event. If a person or group becomes an acquiring person (a “flip-in event”), each holder of a
Preferred Right (other than any acquiring person and certain transferees of an acquiring person, whose Preferred
Rights automatically become null and void) will have the right to receive, upon exercise, Common Shares having a
value equal to two times the exercise price of the Preferred Right. If an insufficient number of Common Shares are
available for issuance, then our Board is required to substitute cash, reduction in the exercise price, property or other
securities of ours for our Common Shares. The Preferred Rights may not be exercised following a flip-in event while
we have the ability to cause the Preferred Rights to be redeemed, as described below.
For example, at an exercise price of $50 per Preferred Right, each Preferred Right not owned by an acquiring person
(or by certain transferees thereof) following a flip-in event would entitle its holder to purchase $100 worth of our
Common Shares (or other consideration, as noted above) for $50. Assuming that our Common Shares had a per
share value of $15 at that time, the holder of each valid Preferred Right would be entitled to purchase approximately
6.7 Common Shares for $50.
Exchange. At any time after there is an acquiring person and prior to the acquisition by the acquiring person of 50%
or more of our outstanding Common Shares, our Board may exchange the Preferred Rights (other than Preferred
Rights owned by the acquiring person and certain transferees thereof which will have become void), in whole or in
part, at an exchange ratio of one Common Share, or, at its option, one one-thousandth of a Series A Preferred Share
(or of a share of a class or series of our Preferred Shares having equivalent rights, preferences and privileges
(“equivalent preferred shares”)), per Preferred Right (subject to adjustment).
Adjustments. The exercise price payable, and the number of Preferred Shares or other securities or property issuable,
upon exercise of the Preferred Rights are subject to adjustment from time to time to prevent dilution:
With certain exceptions, no adjustment in the exercise price will be required until cumulative adjustments amount to
at least 1% of the exercise price. No fractional Series A Preferred Shares will be issued, and, in lieu thereof, an
adjustment in cash will be made based on the market price of the Series A Preferred Shares on the last trading day
prior to the date of exercise.
Redemption. In general, we may redeem the Preferred Rights in whole, but not in part, at a price of $0.001 per
Preferred Right (subject to adjustment and payable in cash, Common Shares or other consideration deemed
appropriate by our Board) at any time until the earlier of (i) ten days following the share acquisition date and (ii) the
Expiration Date. Immediately upon the action of our Board authorizing any redemption, the Preferred Rights will
terminate, and the only right of the holders of Preferred Rights will be to receive the redemption price.
Shareholder Rights; Tax Effects. Until a Preferred Right is exercised, its holder will have no rights as our
shareholder, including, without limitation, the right to vote, the right to receive dividends or liquidation rights.
Similarly, the Preferred Rights are not convertible and no preemptive rights or sinking fund provisions apply to the
Preferred Rights. While the distribution of the Preferred Rights will not result in the recognition of taxable income
by us or our shareholders, shareholders may, depending upon the circumstances, recognize taxable income after a
flip-in event.
Amendment. The terms of the Preferred Rights may be amended by our Board without the consent of the holders of
the Preferred Rights, including, without limitation, to extend the Expiration Date of the Rights Plan and to increase
or decrease the purchase price. Once there is an acquiring person, however, no amendment can adversely affect the
interests of the holders of the Preferred Rights.
Transfer Restrictions
Our By-laws contain certain restrictions on the direct or indirect transfer of (i) Common Shares, (ii) Preferred Shares
(other than Preferred Shares described in Section 1504(a)(4) of the Internal Revenue Code of 1986, as amended (the
“Code”)), (iii) warrants, rights or options (including options within the meaning of Sections 1.382-2T(h)(4)(v) and
1.382-4 of the regulations promulgated under the Code by the United States Department of the Treasury (“Treasury
Regulations”)) to purchase our securities and (iv) any interest in us that would be treated as “stock” pursuant to
Treasury Regulation § 1.382-2T(f)(18). The restrictions are designed to prohibit any such transfers that could limit
or impair our ability to use our net operating loss carryforwards, capital loss forwards, general business credit
carryforwards, alternative minimum tax credit forwards, foreign tax credit carryforwards, and similar tax benefits
(collectively, the “tax benefits”).
Specifically, subject to certain limited exceptions, the transfer restrictions prohibit any such transfers (including the
creation or grant of an option) to the extent that, as a result of such transfer (or any series of transfers of which such
transfer is a part), either (i) any person or group of persons would become the owner of 4.9% or more of our
outstanding Common Shares, whether directly or indirectly, or (ii) the percentage ownership of an existing 4.9%-or-
more holder of our outstanding Common Shares would increase. For purposes of the transfer restrictions, a person’s
ownership of Common Shares is regarded as including shares such person would be deemed to constructively own
or which otherwise would be aggregated with shares owned by such person under Section 382 of the Code, and the
Treasury Regulations thereunder.
The transfer restrictions will remain in effect until (i) the repeal of Section 382 of the Code or any successor law if
our Board determines that the transfer restrictions are no longer necessary for the preservation of the tax benefits, (ii)
the beginning of a taxable year of ours to which Board determines that no tax benefits may be carried forward or (iii)
such date as our Board shall fix as the expiration date of the transfer restrictions.
The transferee of any such prohibited transfer will not be recognized as our shareholder for any purpose whatsoever
in respect of the shares which are the subject of the prohibited transfer (such shares, the “excess shares”). Until the
excess shares are acquired by another person in a transfer that is not prohibited, the purported transferee will not be
entitled with respect to such excess shares to any rights as our shareholder, including the right to vote such excess
shares and to receive dividends or distributions, whether liquidating or otherwise, in respect of such excess shares, if
any, and the excess shares will be deemed to remain with the transferor unless and until the excess shares are
transferred in a manner permitted under our By-laws.
As a condition to the registration of the transfer of any shares, any person who is a beneficial, legal or record holder
of any shares, and any proposed transferee and any person controlling, controlled by or under common control with
the proposed transferee, shall provide such information as we may request from time to time to determine
compliance with these transfer restrictions or the status of our tax benefits.
Depositary Shares
We may elect to offer fractional Preferred Shares rather than full shares. If so, we will issue “depositary receipts” for
these “depositary shares.” Each depositary share will represent a fraction of a share of a particular series of Preferred
Shares. If we offer depositary shares pursuant to these provisions in the future, the applicable prospectus supplement
will describe the terms of the depository shares and the underlying Preferred Shares to which the depositary shares
relate.
Voting Rights
Our Articles require, in addition to any vote required by law, the affirmative vote of the holders of at least 69.3% of
the shares voting at a meeting of shareholders in connection with (a) any merger or consolidation of the Company or
any subsidiary with any “Interested Shareholder,” as defined therein, or any corporation which is, or after the merger
or consolidation would be, an “Affiliate,” as defined therein, of an Interested Shareholder that was an Interested
Shareholder prior to the transaction; (b) certain transfers to any Interested Shareholder or Affiliate of an Interested
Shareholder, other than the Company or any of our subsidiaries, of any of our assets or any subsidiary which have an
aggregate book value of 10% or more of consolidated net worth; (c) certain transfers by us or any subsidiary of
“Equity Securities,” as defined therein, of the Company or any subsidiary which have an aggregate market value of
5% or more of the total market value of our outstanding shares to any Interested Shareholder or Affiliate of an
Interested Shareholder, other than us or our subsidiaries (subject to certain exceptions); (d) the adoption of any plan
or proposal for our liquidation or dissolution proposed by or on behalf of an Interested Shareholder or any Affiliate
of an Interested Shareholder; (e) any reclassification of securities or recapitalization of the Company, or any merger,
consolidation or share exchange by us with any of our subsidiaries which has the effect of increasing the
proportionate amount of the outstanding shares of any class of our Equity Securities or Equity Securities of any
subsidiary which is directly or indirectly owned by an Interested Shareholder or any Affiliate of an Interested
Shareholder (each of the Transactions referred to in clauses (a) through (e), a “Business Combination”); or (f) any
agreement, contract or arrangement providing for one or more of the foregoing. An “Interested Shareholder”
generally includes any beneficial owner of 10% or more of the voting power of the Company or any Affiliate of ours
that at any time within the two year period prior to the date in question was the beneficial owner of 10% or more of
the voting power of the Company.
The foregoing supermajority vote is not required if (i) the Board approves such Business Combination and either the
Interested Shareholder has been an Interested Shareholder continuously for at least two years prior to the date of the
Board approval or such proposed transaction was approved by the Board prior to the time the Interested Shareholder
became an Interested Shareholder or (ii) a majority of the outstanding stock of such other corporation is owned by us
or our subsidiaries.
The foregoing supermajority provisions may only be amended by the affirmative vote of 69.3% of the shares voting
on the proposed amendment at a meeting of shareholders, in addition to any vote otherwise required by law.
Certain Anti-Takeover Effects and Provisions of our Articles and By-laws
Number of Directors; Filing Vacancies; Removal
Our Charter provides that the number of directors will be between three and fifteen directors and our Board will fix
the exact number of directors to comprise our Board. A director may only be removed by vote of the holders of a
majority of the shares entitled to vote at an election of directors. Additionally, any vacancy on the Board may only
be filled by a majority of the remaining directors then in office, whether or not less than a quorum, or by a sole
remaining director. These provisions have the effect of making it difficult for a potential acquirer to gain control of
our Board.
Special Meetings
Our By-laws provide that special meetings may be called only by the Board, our President or our Secretary, or by
such persons upon a request in writing signed by a majority of the Board or by the holders of not less than twenty
percent of the capital stock of the Company issued and outstanding and entitled to vote thereat. This provision may
delay consideration of a shareholder proposal until the Company’s next annual meeting unless a special meeting is
called pursuant to our By-laws.
Proxy Access and Advance Notice of Shareholder Nominations
Our By-laws have proxy access and advance notice procedures for shareholders to make nominations of candidates
for election as directors. No business other than that stated in the notice for such meeting shall be transacted at any
meeting without the unanimous consent of all the shareholder entitled to vote thereat. Our By-laws govern
shareholder nominations of candidates for election as directors except with respect to the rights of holders of our
Preferred Shares.
Under our By-laws, any shareholder entitled to vote in the election of directors may nominate one or more persons
for election as directors at a meeting if written notice or notice by electronic transmission of such shareholder’s
intent to make such nomination or nominations has been given, either by personal delivery or by United States mail,
postage prepaid, to the Corporate Secretary of the Company not later than 60 days in advance of such meeting
(except that, if public disclosure of the meeting is made less than 70 days prior to the meeting, the notice need only
be received within 10 days following such public disclosure). Each such notice must be accompanied by a written
consent of each proposed nominee to being named in the proxy statement as a nominee and to serving as a director if
elected, together with a written representation that such person currently intends to serve as a director for the term
for which he or she is standing for election and must set forth:
(i) as to each person whom the shareholder proposes to nominate for election as a director: (1) the name,
age, business address and residence address of the person; (2) the principal occupation or employment of
the person; (3) the class and number of common shares of the Company which are owned beneficially or of
record by such person; and (4) any other information relating to the person that would be required to be
disclosed in solicitations of proxies for election of directors, or is otherwise required, pursuant to Section
14 of the Exchange Act; and
(ii) as to the shareholder giving the notice: (1) the name and address, as they appear on the Company’s
books, of such shareholder and the name and address of the beneficial owner, if any, on whose behalf the
nomination is made; (2) the class and number of Common Shares which are owned beneficially or of
record by such shareholder or such beneficial owner on the date of such shareholder’s notice; (3) whether
and the extent to which any hedging or other similar transaction, agreement, arrangement or understanding
has been entered into by or on behalf of such shareholder or beneficial owner with respect to any Common
Share; (4) a description of all arrangements or understandings between such shareholder or such beneficial
owner and each proposed nominee and any other person or persons (including their names) pursuant to
which the nomination(s) are to be made by such shareholder; (5) a representation that such shareholder
intends to appear in person or by proxy at the annual meeting to nominate the persons named in its notice;
and (6) any other information relating to such shareholder or such beneficial owner that would be required
to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of
proxies for election of directors pursuant to Section 14 of the Exchange Act.
In addition and pursuant our By-laws, a shareholder, or group of up to 20 shareholders, that has owned continuously
for at least three years Common Shares representing an aggregate of at least 3% of the Company’s outstanding
Common Shares, may nominate and include in the Company’s proxy materials director nominees constituting up to
20% of the Company’s Board of Directors, provided that the shareholder(s) and nominee(s) satisfy the requirements
in the By-laws. A notice of such nomination must be provided to the Secretary of the Company not less than one
hundred twenty nor more than one hundred fifty days in advance of the date which is the anniversary of the date the
Company’s proxy statement was released to security holders in connection with the previous year’s annual meeting,
except where information or documents are required to be provided after the date the notice is first submitted, as set
forth in the By-laws, or, if the date of the applicable annual meeting has been changed by more than thirty days from
the date contemplated at the time of the previous year’s proxy statement, not less than ninety days before the date of
the applicable annual meeting, or, if later, the tenth day following the day on which notice of the date of the annual
meeting was mailed or public disclosure of the date of the annual meeting, whichever occurs first, and in no event
shall the adjournment or postponement of an annual meeting, or the announcement thereof, commence a new time
period (or extend any time period) for the giving of the notice. In addition, the Company may solicit against a
shareholder nominee included in the proxy statement and, in certain circumstances, may omit a nominee from its
proxy statement.
The nominating notice must provide certain information specified in the By-laws, including, without limitation:
•
documentary evidence verifying and certifying that, the nominating shareholder owns, and has
continuously owned for the preceding three years, the minimum number of shares required, and the
nominating shareholder’s agreement to provide documentary evidence verifying and certifying the
nominating shareholder’s continuous ownership of the minimum number of shares through the record date;
•
•
•
•
•
•
•
an undertaking to provide immediate notice if the nominating shareholder ceases to own the minimum
number of shares prior to the date of the annual meeting;
a copy of the Schedule 14N (or any successor form) relating to the shareholder nominee, completed and
filed with the Securities and Exchange Commission by the nominating shareholder as applicable, in
accordance with Securities and Exchange Commission rules;
the written consent of each shareholder nominee to being named in the Company’s proxy statement, form
of proxy and ballot as a nominee and to serving as a director if elected;
a written notice of the nomination of such shareholder nominee that includes additional information,
agreements, representations and warranties by the nominating shareholder or each member of a nominating
group;
an executed agreement pursuant to which the nominating shareholder or each member of a nominating
group agrees to a number of specified covenants and other provisions;
an executed questionnaire provided by the Company’s Secretary upon request, which must be submitted
within ten days of the nominating shareholder’s first submission of the nomination notice; and
an executed agreement, which must be submitted within ten days of the nominating shareholder’s first
submission of the nomination notice, by the shareholder nominee with respect to certain representations,
warranties and covenants.
Certain Provisions of the Michigan Business Corporation Act
Chapter 7A of the Michigan Business Corporation Act (“MBCA”) may affect attempts to acquire control of the
Company. Pursuant to our Articles of Incorporation, we have expressly elected not to be subject to the provisions of
Chapter 7A of the MBCA; however, the Board may terminate this election in whole or in part by action of the
majority of directors then in office. Chapter 7A applies to “Business Combinations,” defined to include, among other
transactions, certain mergers, substantial sales of assets or securities and recapitalizations between covered Michigan
business corporations or their subsidiaries and an “Interested Shareholder” (generally a beneficial owner of 10% or
more of the voting power of the Company’s outstanding voting stock). In general, Chapter 7A requires, for any
Business Combination, an advisory statement from the Board, the approval of holders of at least 90% of each class
of the shares entitled to vote and the approval of holders of at least two-thirds of such voting shares not held by the
Interested Shareholder, its affiliates and associates. These requirements do not apply, however, where the Interested
Shareholder satisfies certain “fair price,” form of consideration and other requirements and at least five years have
elapsed after the person involved became an Interested Shareholder. Our Board has the power to elect to be subject
to Chapter 7A as to specifically identified or unidentified Interested Shareholders.
SUBSIDIARIES OF PULTEGROUP, INC.
As of December 31, 2019
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 Limited Holding Co.
Del Webb Texas Limited Partnership
Del Webb's Coventry Homes, 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
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
Pulte Homes of PA, Limited Partnership
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
Massachusetts
Nevada
Delaware
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
Delaware
Indiana
Michigan
Minnesota
Michigan
Michigan
Delaware
Michigan
Michigan
Michigan
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.
Texas
Michigan
Nevada
Michigan
Michigan
Delaware
Delaware
Michigan
Michigan
Michigan
Michigan
Michigan
California
Michigan
Nevada
Arizona
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 30, 2020, 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, 2019.
EXHIBIT 23
/s/ Ernst & Young LLP
Atlanta, Georgia
January 30, 2020
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 31,2019 ("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 Company
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 the dates set forth below.
/s/ Brian P. Anderson
Brian P. Anderson
December 31, 2019
/s/ Bryce Blair
Bryce Blair
December 19, 2019
/s/ Richard W. Dreiling
Richard W. Dreiling
December 18, 2019
/s/ Thomas J. Folliard
Thomas J. Folliard
December 18, 2019
/s/ Cheryl W. Grisé
Cheryl W. Grisé
December 19, 2019
/s/ André J. Hawaux
André J. Hawaux
December 19, 2019
/s/ John R. Peshkin
John R. Peshkin
December 18, 2019
/s/ Scott F. Powers
Scott F. Powers
December 18, 2019
/s/ William J. Pulte
William J. Pulte
December 31, 2019
/s/ Lila J. Snyder
Lila J. Snyder
January 5, 2020
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 30, 2020
/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 30, 2020
/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,
2019, 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 30, 2020
/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
BOARD OF DIRECTORS, SENIOR LEADERSHIP AND
AREA MANAGEMENT
BOARD OF DIRECTORS
SENIOR LEADERSHIP
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
Thomas J. Folliard (1)(4)
Former President and Chief Executive Officer
CarMax, Inc.
Cheryl W. Grisé (2)(3)
Former Executive Vice President
Northeast Utilities (now Eversource Energy)
André J. Hawaux (1)(4)
Former Executive Vice President and Chief Operating Officer
Dick’s Sporting Goods, Inc.
Ryan R. Marshall (4)
President and Chief Executive Officer
PulteGroup, 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
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.
Ryan R. Marshall
President and Chief Executive Officer
Michelle Hairston
Senior Vice President, Human Resources
Robert T. O’Shaughnessy
Executive Vice President and Chief Financial Officer
Todd N. Sheldon
Executive Vice President, General Counsel and Corporate
Secretary
John J. Chadwick
Executive Vice President and Chief Operating Officer
James L. Ossowski
Senior Vice President, Finance
Stephen P. Schlageter
Senior Vice President, Operations and Strategy
Anthony W. Barbee
Area President, North Area
Brandon K. Jones
Area President, Southeast Area
Peter J. Keane
Area President, Florida Area
Stephen V. Teodecki
Area President, Texas Area
Scott R. Wright
Area President, West Area
Joseph L. Drouin
Vice President, Chief Information Officer
Kimberly M. Hill
Vice President, Tax and Assistant Secretary
D. Bryce Langen
Vice President and Treasurer
(1) Audit Committee Member
(2) Compensation and Management Development
Brien P. O’Meara
Vice President and Controller
Committee Member
(3) Nominating and Governance Committee Member
(4) Finance and Investment Committee Member
(5) Non-Executive Chairman
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 1:00 p.m.
(EDT), Thursday, May 7, 2020, 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 :: www.americanwesthomes.com