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

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

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

OF THE SECURITIES EXCHANGE ACT OF 1934



Commission File Number 1-9804

PULTEGROUP, INC.
(Exact name of registrant as specified in its charter) 
Michigan38-2766606
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
3350 Peachtree Road NE, Suite 150
Atlanta,Georgia30326
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code:404978-6400
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Shares, par value $0.01 PHM New York Stock Exchange
Series A Junior Participating Preferred Share Purchase Rights
New York Stock Exchange

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer  Accelerated Filer  Non-accelerated Filer   Smaller Reporting CompanyEmerging 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).  
YesNo
Number of common shares outstanding as of April 20, 2021: 262,966,121
1


PULTEGROUP, INC.
TABLE OF CONTENTS

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




2


PART I. FINANCIAL INFORMATION

Item 1.      Financial Statements

PULTEGROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
($000’s omitted)
 
March 31,
2021
December 31,
2020
(Unaudited)
ASSETS
Cash and equivalents$1,579,586 $2,582,205 
Restricted cash64,468 50,030 
Total cash, cash equivalents, and restricted cash1,644,054 2,632,235 
House and land inventory7,975,211 7,721,798 
Land held for sale31,796 27,962 
Residential mortgage loans available-for-sale495,049 564,979 
Investments in unconsolidated entities39,558 35,562 
Other assets969,437 923,270 
Intangible assets158,432 163,425 
Deferred tax assets, net132,204 136,267 
$11,445,741 $12,205,498 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Accounts payable$404,564 $511,321 
Customer deposits589,634 449,474 
Deferred tax liabilities110,884 103,548 
Accrued and other liabilities1,352,629 1,407,043 
Financial Services debt270,819 411,821 
Notes payable2,031,937 2,752,302 
4,760,467 5,635,509 
Shareholders' equity6,685,274 6,569,989 
$11,445,741 $12,205,498 




See accompanying Notes to Condensed Consolidated Financial Statements.

3


PULTEGROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(000’s omitted, except per share data)
(Unaudited)
 
Three Months Ended
March 31,
20212020
Revenues:
Homebuilding
Home sale revenues$2,596,510 $2,221,503 
Land sale and other revenues27,159 18,927 
2,623,669 2,240,430 
Financial Services106,122 54,550 
Total revenues2,729,791 2,294,980 
Homebuilding Cost of Revenues:
Home sale cost of revenues(1,935,635)(1,694,865)
Land sale and other cost of revenues(24,636)(15,014)
(1,960,271)(1,709,879)
Financial Services expenses(39,674)(34,949)
Selling, general, and administrative expenses(271,686)(263,669)
Loss on debt retirement(61,469) 
Goodwill impairment (20,190)
Other expense, net(2,639)(2,524)
Income before income taxes394,052 263,769 
Income tax expense(89,945)(60,058)
Net income$304,107 $203,711 
Per share:
Basic earnings$1.14 $0.75 
Diluted earnings$1.13 $0.74 
Cash dividends declared$0.14 $0.12 
Number of shares used in calculation:
Basic265,407 270,000 
Effect of dilutive securities605 1,218 
Diluted266,012 271,218 



See accompanying Notes to Condensed Consolidated Financial Statements.

4


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

Three Months Ended
March 31,
20212020
Net income$304,107 $203,711 
Other comprehensive income, net of tax:
Change in value of derivatives25 25 
Other comprehensive income25 25 
Comprehensive income$304,132 $203,736 




See accompanying Notes to Condensed Consolidated Financial Statements.

5



PULTEGROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(000's omitted)
(Unaudited)
 Common StockAdditional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income
(Loss)
Retained
Earnings
Total
Shares$
Shareholders' equity, December 31, 2020266,464 $2,665 $3,261,412 $(145)$3,306,057 $6,569,989 
Stock option exercises1 — 11 — — 11 
Share issuances505 5 4,176 — — 4,181 
Dividends declared— — — — (37,325)(37,325)
Share repurchases(3,333)(34)— — (153,669)(153,703)
Cash paid for shares withheld for taxes— — — — (10,566)(10,566)
Share-based compensation8,555 — — 8,555 
Net income— — — — 304,107 304,107 
Other comprehensive income— — — 25 — 25 
Shareholders' equity, March 31, 2021263,637 $2,636 $3,274,154 $(120)$3,408,604 $6,685,274 
Shareholders' equity, December 31, 2019270,235 $2,702 $3,235,149 $(245)$2,220,574 $5,458,180 
Cumulative effect of accounting change (see Note 1)
— — — — (735)(735)
Stock option exercises1 — 51 — — 51 
Share issuances738 7 4,088 — — 4,095 
Dividends declared— — — — (32,609)(32,609)
Share repurchases(2,825)(28)— — (95,648)(95,676)
Cash paid for shares withheld for taxes— — — — (14,838)(14,838)
Share-based compensation— — 8,187 — — 8,187 
Net income— — — — 203,711 203,711 
Other comprehensive income— — — 25 — 25 
Shareholders' equity, March 31, 2020268,149 $2,681 $3,247,475 $(220)$2,280,455 $5,530,391 

See accompanying Notes to Condensed Consolidated Financial Statements.

6


PULTEGROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($000’s omitted)
(Unaudited)
Three Months Ended
March 31,
20212020
Cash flows from operating activities:
Net income$304,107 $203,711 
Adjustments to reconcile net income to net cash from operating activities:
Deferred income tax expense11,391 19,955 
Land-related charges1,368 9,729 
Loss on debt retirement61,469  
Goodwill impairment 20,190 
Depreciation and amortization17,142 15,149 
Share-based compensation expense11,630 11,479 
Other, net(687)(903)
Increase (decrease) in cash due to:
Inventories(243,947)(189,364)
Residential mortgage loans available-for-sale69,930 145,113 
Other assets(54,303)(3,534)
Accounts payable, accrued and other liabilities(1,352)(26,910)
Net cash provided by (used in) operating activities176,748 204,615 
Cash flows from investing activities:
Capital expenditures(14,752)(20,139)
Investments in unconsolidated entities(8,169)(663)
Distributions of capital from unconsolidated entities5,000 6,500 
Business acquisition(10,400)(83,200)
Other investing activities, net698 1,706 
Net cash provided by (used in) investing activities(27,623)(95,796)
Cash flows from financing activities:
Repayments of notes payable(794,435)(9,245)
Borrowings under revolving credit facility 700,000 
Financial Services borrowings (repayments), net(141,002)(56,573)
Stock option exercises11 50 
Share repurchases(153,703)(95,676)
Cash paid for shares withheld for taxes(10,566)(14,838)
Dividends paid(37,611)(32,740)
Net cash provided by (used in) financing activities(1,137,306)490,978 
Net increase (decrease) in cash, cash equivalents, and restricted cash(988,181)599,797 
Cash, cash equivalents, and restricted cash at beginning of period2,632,235 1,251,456 
Cash, cash equivalents, and restricted cash at end of period$1,644,054 $1,851,253 
Supplemental Cash Flow Information:
Interest paid (capitalized), net$17,368 $14,019 
Income taxes paid (refunded), net$15,574 $5,540 
See accompanying Notes to Condensed Consolidated Financial Statements.
7


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

1. Basis of presentation

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

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

Use of estimates

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

Subsequent events

We evaluated subsequent events up until the time the financial statements were filed with the Securities and Exchange Commission (the "SEC").

Business acquisition

On January 24, 2020, we acquired the operations of Innovative Construction Group ("ICG"), an offsite construction framing company located in Jacksonville, Florida, for $104.0 million, of which $83.2 million and $10.4 million was paid in January 2020 and 2021, respectively, while an additional payment of $10.4 million will be settled in 2022. The acquired net assets were recorded at their estimated fair values, including intangible assets of $27.8 million associated with customer relationships and $1.8 million associated with the ICG tradename, which are being amortized over seven- and five-year useful lives, respectively, and $48.7 million of goodwill. The acquisition of these assets was not material to our results of operations or financial condition.

Goodwill impairment

In accordance with ASC 350, management evaluates the recoverability of goodwill by comparing the carrying value of the Company’s reporting units to their fair value. Fair value is determined using accepted valuation methods, including the use of discounted cash flows supplemented by market-based assessments. As a result of the significant decline in equity market valuations that occurred during the period between our acquisition of ICG in January 2020 and March 31, 2020, we determined that an event-driven goodwill impairment test was appropriate for the ICG goodwill, which resulted in an impairment totaling $20.2 million in the first quarter of 2020. This impairment was not the result of any unique factors specific to ICG's operations but, rather, reflected the broad-based declines in the market capitalizations of publicly-traded construction companies in the short period of time between the acquisition and the March 31, 2020 valuation date.
8


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

Other expense, net consists of the following ($000’s omitted): 
Three Months Ended
March 31,
20212020
Write-offs of deposits and pre-acquisition costs$(1,368)$(4,332)
Amortization of intangible assets(4,992)(4,557)
Interest income631 3,807 
Interest expense(135)(797)
Equity in earnings of unconsolidated entities827 567 
Miscellaneous, net2,398 2,788 
Total other expense, net$(2,639)$(2,524)

Revenue recognition

Home sale revenues - Home sale revenues and related profit are generally recognized when title to and possession of the home are transferred to the buyer, and our performance obligation to deliver the agreed-upon home is generally satisfied at the home closing date. Home sale contract assets consist of cash from home closings held in escrow for our benefit, typically for less than five days, which are considered deposits in-transit and classified as cash. Contract liabilities include customer deposits related to sold but undelivered homes, which totaled $589.6 million and $449.5 million at March 31, 2021 and December 31, 2020, respectively. Substantially all of our home sales are scheduled to close and be recorded to revenue within one year from the date of receiving a customer deposit. See Note 8 for information on warranties and related obligations.

Land sale and other revenues - We periodically elect to sell parcels of land to third parties in the event such assets no longer fit into our strategic operating plans or are zoned for commercial or other development. Land sales are generally outright sales of specified land parcels with cash consideration due on the closing date, which is generally when performance obligations are satisfied. Revenues related to our construction services operations are generally recognized as materials are delivered and installation services are provided.

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

Revenues associated with our title operations are recognized as closing services are rendered and title insurance policies are issued, both of which generally occur as each home is closed. Insurance brokerage commissions relate to commissions on homeowner and other insurance policies placed with third party carriers through various agency channels. Our performance obligations for policy renewal commissions are considered satisfied upon issuance of the initial policy, and related contract assets for estimated future renewal commissions are included in other assets and totaled $39.4 million and $38.5 million at March 31, 2021 and December 31, 2020, respectively.

Earnings per share

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


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

In accordance with Accounting Standards Codification ("ASC") 260, "Earnings Per Share", the two-class method determines earnings per share for each class of common stock and participating securities according to an earnings allocation formula that adjusts the Numerator for dividends or dividend equivalents and participation rights in undistributed earnings. Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are participating securities and, therefore, are included in computing earnings per share pursuant to the two-class method. Our outstanding restricted share units and deferred shares are considered participating securities. The following table presents the earnings per common share (000's omitted, except per share data):
Three Months Ended
March 31,
20212020
Numerator:
Net income$304,107 $203,711 
Less: earnings distributed to participating securities(298)(273)
Less: undistributed earnings allocated to participating securities(2,154)(1,537)
Numerator for basic earnings per share$301,655 $201,901 
Add back: undistributed earnings allocated to participating securities2,154 1,537 
Less: undistributed earnings reallocated to participating securities(2,149)(1,530)
Numerator for diluted earnings per share$301,660 $201,908 
Denominator:
Basic shares outstanding265,407 270,000 
Effect of dilutive securities605 1,218 
Diluted shares outstanding266,012 271,218 
Earnings per share:
Basic$1.14 $0.75 
Diluted$1.13 $0.74 

Residential mortgage loans available-for-sale

Substantially all of the loans originated by us are sold in the secondary mortgage market within a short period of time after origination, generally within 30 days. At March 31, 2021 and December 31, 2020, residential mortgage loans available-for-sale had an aggregate fair value of $495.0 million and $565.0 million, respectively, and an aggregate outstanding principal balance of $481.5 million and $539.1 million, respectively. Net gains from the sale of mortgages were $77.4 million and $30.9 million in the three months ended March 31, 2021 and 2020, respectively, and have been included in Financial Services revenues.

Derivative instruments and hedging activities

We are party to interest rate lock commitments ("IRLCs") with customers resulting from our mortgage origination operations. At March 31, 2021 and December 31, 2020, we had aggregate IRLCs of $598.0 million and $367.2 million, respectively, which were originated at interest rates prevailing at the date of commitment. Since we can terminate a loan commitment if the borrower does not comply with the terms of the contract, and some loan commitments may expire without being drawn upon, these commitments do not necessarily represent future cash requirements. We evaluate the creditworthiness of these transactions through our normal credit policies.

We hedge our exposure to interest rate market risk relating to residential mortgage loans available-for-sale and IRLCs using forward contracts on mortgage-backed securities, which are commitments to either purchase or sell a specified financial instrument at a specified future date for a specified price, and whole loan investor commitments, which are obligations of an
10


PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
investor to buy loans at a specified price within a specified time period. Forward contracts on mortgage-backed securities are the predominant derivative financial instruments we use to minimize market risk during the period from the time we extend an interest rate lock to a loan applicant until the time the loan is sold to an investor. At March 31, 2021 and December 31, 2020, we had unexpired forward contracts of $887.0 million and $686.4 million, respectively, and whole loan investor commitments of $160.5 million and $169.6 million, respectively. Changes in the fair value of IRLCs and other derivative financial instruments are recognized in Financial Services revenues, and the fair values are reflected in other assets or other liabilities, as applicable.

There are no credit-risk-related contingent features within our derivative agreements, and counterparty risk is considered minimal. Gains and losses on IRLCs and residential mortgage loans available-for-sale are substantially offset by corresponding gains or losses on forward contracts on mortgage-backed securities and whole loan investor commitments. We are generally not exposed to variability in cash flows of derivative instruments for more than approximately 60 days. The fair values of derivative instruments and their locations in the Condensed Consolidated Balance Sheets are summarized below ($000’s omitted):

 
 March 31, 2021December 31, 2020
 Other AssetsAccrued and Other LiabilitiesOther AssetsAccrued and Other Liabilities
Interest rate lock commitments$17,374 $126 $16,179 $18 
Forward contracts14,011 295 501 5,937 
Whole loan commitments1,499 132 168 666 
$32,884 $553 $16,848 $6,621 

Credit losses

We are exposed to credit losses primarily through our vendors and insurance carriers. We assess and monitor each counterparty’s ability to pay amounts owed by considering contractual terms and conditions, the counterparty’s financial condition, macroeconomic factors, and business strategy.

At March 31, 2021 and December 31, 2020, we reported $186.4 million and $176.2 million of assets in-scope under Accounting Standards Codification 326, "Financial Instruments - Credit Losses" ("ASC 326"). These assets consist primarily of insurance receivables, contract assets related to insurance brokerage commissions, and vendor rebate receivables. Counterparties associated with these assets are generally highly rated. Allowances on the aforementioned in-scope assets were not material as of March 31, 2021.

New accounting pronouncements

On January 1, 2021, we adopted ASU No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes" ("ASU 2019-12"), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. Our adoption of ASU 2019-12 did not have a material impact on our financial statements.

On January 1, 2020, we adopted ASC 326, which changed the impairment model for most financial assets and certain other instruments from an "incurred loss" approach to a new "expected credit loss" methodology. We adopted ASC 326 using the modified retrospective transition method. The amendment requires entities to consider a broader range of information to estimate expected credit losses, which may result in earlier recognition of losses. Our adoption of ASC 326 resulted in a $0.7 million decrease to retained earnings as of January 1, 2020.

In January 2017, the FASB issued ASU No. 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment", which removed the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. Under the new standard, goodwill impairment is determined by evaluating the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. We adopted the standard for annual and interim periods beginning January 1, 2020, and the standard was followed in the previously mentioned assessment of the ICG goodwill.

11


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

Major components of inventory were as follows ($000’s omitted): 
March 31,
2021
December 31,
2020
Homes under construction$3,594,406 $3,086,740 
Land under development3,913,349 4,137,318 
Raw land467,456 497,740 
$7,975,211 $7,721,798 

We capitalize interest cost into inventory during the active development and construction of our communities. In all periods presented, we capitalized substantially all Homebuilding interest costs into inventory because the level of our active inventory exceeded our debt levels. Information related to interest capitalized into inventory is as follows ($000’s omitted):
Three Months Ended
 March 31,
 20212020
Interest in inventory, beginning of period$193,409 $210,383 
Interest capitalized34,627 39,913 
Interest expensed(34,684)(36,871)
Interest in inventory, end of period$193,352 $213,425 

Land option agreements

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

If an entity holding the land under option is a variable interest entity ("VIE"), our deposit represents a variable interest in that entity. No VIEs required consolidation at either March 31, 2021 or December 31, 2020 because we determined that we were not the VIEs' primary beneficiary. Our maximum exposure to loss related to these VIEs is generally limited to our deposits and pre-acquisition costs under the land option agreements. The following provides a summary of our interests in land option agreements as of March 31, 2021 and December 31, 2020 ($000’s omitted):

 
 March 31, 2021December 31, 2020
 Deposits and
Pre-acquisition
Costs
Remaining Purchase
Price
Deposits and
Pre-acquisition
Costs
Remaining Purchase
Price
Land options with VIEs$142,771 $1,844,131 $126,900 $1,586,551 
Other land options177,049 2,460,589 164,964 2,187,017 
$319,820 $4,304,720 $291,864 $3,773,568 
12


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

We recorded the following land-related charges ($000's omitted):
Three Months Ended
 March 31,
 Statement of Operations Classification20212020
Land impairmentsHome sale cost of revenues$ $5,386 
Net realizable value ("NRV") adjustments - land held for saleLand sale and other cost of revenues 11 
Write-offs of deposits and pre-acquisition costsOther expense, net1,368 4,332 
$1,368 $9,729 

Our evaluations for land impairments, NRV adjustments, and write-offs of deposits and pre-acquisition costs are based on our best estimates of the future cash flows of our communities. Due to uncertainties in the estimation process, the significant volatility in demand for new housing, the long life cycles of certain of our communities, and potential changes in our strategy related to certain communities, actual results could differ significantly from such estimates.

3. Segment information

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

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


PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Operating Data by Segment
($000’s omitted)
 Three Months Ended
March 31,
 20212020
Revenues:
Northeast$176,467 $162,434 
Southeast436,779 382,394 
Florida625,241 506,689 
Midwest366,814 292,169 
Texas374,121 344,738 
West644,247 552,006 
2,623,669 2,240,430 
Financial Services106,122 54,550 
Consolidated revenues$2,729,791 $2,294,980 
Income (loss) before income taxes:
Northeast$25,894 $18,609 
Southeast71,322 54,744 
Florida (a)
101,208 55,333 
Midwest52,864 31,462 
Texas65,648 53,595 
West98,832 67,255 
Other homebuilding (b)
(88,064)(36,780)
327,704 244,218 
Financial Services66,348 19,551 
Consolidated income before income taxes$394,052 $263,769 

(a)Includes goodwill impairment charge totaling $20.2 million (see Note 1) in the three months ended March 31, 2020.
(b)Other homebuilding includes the amortization of intangible assets and capitalized interest and other items not allocated to the operating segments. Other homebuilding also includes a loss on debt retirement of $61.5 million in the three months ended March 31, 2021 (see Note 4).
14


PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Operating Data by Segment
($000’s omitted)
Three Months Ended
March 31,
20212020
Land-related charges (a):
Northeast$116 $4,753 
Southeast456 748 
Florida131 522 
Midwest54 777 
Texas527 656 
West84 1,529 
Other homebuilding 744 
$1,368 $9,729 

(a)    Land-related charges include land impairments, NRV adjustments on land held for sale, and write-offs of deposits and pre-acquisition costs for land option contracts we elected not to pursue.

 Operating Data by Segment
($000's omitted)
March 31, 2021
 Homes Under
Construction
Land Under
Development
Raw LandTotal
Inventory
Total
Assets
Northeast$384,606 $236,846 $41,641 $663,093 $766,691 
Southeast532,643 623,668 74,107 1,230,418 1,346,886 
Florida733,612 890,080 83,806 1,707,498 2,036,755 
Midwest421,833 389,098 16,556 827,487 949,539 
Texas413,218 417,342 114,603 945,163 1,040,459 
West1,053,317 1,123,844 122,283 2,299,444 2,582,835 
Other homebuilding (a)
55,177 232,471 14,460 302,108 2,073,987 
3,594,406 3,913,349 467,456 7,975,211 10,797,152 
Financial Services    648,589 
$3,594,406 $3,913,349 $467,456 $7,975,211 $11,445,741 
15


PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 Operating Data by Segment
($000's omitted)
 December 31, 2020
 Homes Under
Construction
Land Under
Development
Raw LandTotal
Inventory
Total
Assets
Northeast$342,737 $203,561 $68,865 $615,163 $712,205 
Southeast465,950 645,408 69,937 1,181,295 1,296,382 
Florida638,394 921,962 116,709 1,677,065 1,967,788 
Midwest364,839 424,169 18,173 807,181 911,984 
Texas354,256 458,893 66,024 879,173 955,436 
West874,673 1,212,730 142,380 2,229,783 2,519,724 
Other homebuilding (a)
45,891 270,595 15,652 332,138 3,149,871 
3,086,740 4,137,318 497,740 7,721,798 11,513,390 
Financial Services    692,108 
$3,086,740 $4,137,318 $497,740 $7,721,798 $12,205,498 
 
(a)Other homebuilding primarily includes cash and equivalents, capitalized interest, intangibles, deferred tax assets, and other corporate items that are not allocated to the operating segments.

4. Debt

Notes payable

Our notes payable are summarized as follows ($000’s omitted):
 March 31,
2021
December 31,
2020
4.250% unsecured senior notes due March 2021 (a)
$ $425,954 
5.500% unsecured senior notes due March 2026 (a)
500,000 700,000 
5.000% unsecured senior notes due January 2027 (a)
500,000 600,000 
7.875% unsecured senior notes due June 2032 (a)
300,000 300,000 
6.375% unsecured senior notes due May 2033 (a)
400,000 400,000 
6.000% unsecured senior notes due February 2035 (a)
300,000 300,000 
Net premiums, discounts, and issuance costs (b)
(12,222)(13,750)
Total senior notes1,987,778 2,712,204 
Other notes payable44,159 40,098 
Notes payable$2,031,937 $2,752,302 
Estimated fair value$2,507,209 $3,415,662 

(a)Redeemable prior to maturity; guaranteed on a senior basis by certain wholly-owned subsidiaries.
(b)The carrying value of senior notes reflects the impact of premiums, discounts, and issuance costs that are amortized to interest cost over the respective terms of the senior notes.
In the three months ended March 31, 2021, we accelerated the retirement of $200.0 million and $100.0 million of our unsecured notes scheduled to mature in 2026 and 2027, respectively, through a cash tender offer. The retirement resulted in a loss of $61.5 million, which includes the write-off of debt issuance costs, unamortized discounts and premiums, and transaction fees.
16


PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Other notes payable include non-recourse and limited recourse secured notes with third parties that totaled $44.2 million and $40.1 million at March 31, 2021 and December 31, 2020, respectively. These notes have maturities ranging up to three years, are secured by the applicable land positions to which they relate, and generally have no recourse to any other assets. The stated interest rates on these notes range up to 5.17%.
Revolving credit facility

We maintain a revolving credit facility (the "Revolving Credit Facility") maturing in June 2023 that has a maximum borrowing capacity of $1.0 billion and contains an uncommitted accordion feature that could increase the capacity to $1.5 billion, subject to certain conditions and availability of additional bank commitments. The Revolving Credit Facility also provides for the issuance of letters of credit that reduce the available borrowing capacity under the Revolving Credit Facility, with a sublimit of $500.0 million at March 31, 2021. The interest rate on borrowings under the Revolving Credit Facility may be based on either the London Interbank Offered Rate ("LIBOR") or a base rate plus an applicable margin, as defined therein. As a precautionary measure during the initial phase of the COVID-19 pandemic, we made the decision in March 2020 to draw $700.0 million under the Revolving Credit Facility. In June 2020, we repaid the full outstanding balance of $700.0 million. As a result, we had no borrowings outstanding at both March 31, 2021 and December 31, 2020, and $235.7 million and $249.7 million of letters of credit issued under the Revolving Credit Facility at March 31, 2021 and December 31, 2020, respectively.

The Revolving Credit Facility contains financial covenants that require us to maintain a minimum Tangible Net Worth, a minimum Interest Coverage Ratio, and a maximum Debt-to-Capitalization Ratio (as each term is defined in the Revolving Credit Facility). As of March 31, 2021, we were in compliance with all covenants. Our available and unused borrowings under the Revolving Credit Facility, net of outstanding letters of credit, amounted to $764.3 million and $750.3 million at March 31, 2021 and December 31, 2020, respectively.

Financial Services debt

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

5. Shareholders’ equity

In the three months ended March 31, 2021, we declared cash dividends totaling $37.3 million and repurchased 3.3 million shares under our repurchase authorization for $153.7 million. For the three months ended March 31, 2020, we declared cash dividends totaling $32.6 million and repurchased 2.8 million shares under our repurchase authorization for $95.7 million. At March 31, 2021, we had remaining authorization to repurchase $201.2 million of common shares. On April 26, 2021, the Board of Directors approved an additional share repurchase authorization of $1.0 billion.

Under our share-based compensation plans, we accept shares as payment under certain conditions related to stock option exercises and vesting of shares, generally related to the payment of minimum tax obligations. In the three months ended March 31, 2021 and 2020, participants surrendered shares valued at $10.6 million and $14.8 million, respectively, under these plans. Such share transactions are excluded from the above noted share repurchase authorization.

6. Income taxes

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

17


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

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

7. Fair value disclosures

ASC 820, “Fair Value Measurements and Disclosures,” provides a framework for measuring fair value in generally accepted accounting principles and establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The fair value hierarchy can be summarized as follows: 
Level 1Fair value determined based on quoted prices in active markets for identical assets or liabilities.
Level 2Fair value determined using significant observable inputs, generally either quoted prices in active markets for similar assets or liabilities or quoted prices in markets that are not active.
Level 3Fair 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 InstrumentFair Value
Hierarchy
Fair Value
March 31,
2021
December 31,
2020
Measured at fair value on a recurring basis:
Residential mortgage loans available-for-saleLevel 2$495,049 $564,979 
Interest rate lock commitmentsLevel 217,248 16,161 
Forward contractsLevel 213,716 (5,436)
Whole loan commitmentsLevel 21,367 (498)
Measured at fair value on a non-recurring basis:
House and land inventoryLevel 3$ $582 
Disclosed at fair value:
Cash, cash equivalents, and restricted cashLevel 1$1,644,054 $2,632,235 
Financial Services debtLevel 2270,819 411,821 
Senior notes payableLevel 22,463,050 3,375,564 
Other notes payableLevel 244,159 40,098 

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


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

Certain assets are required to be recorded at fair value on a non-recurring basis when events and circumstances indicate that the carrying value may not be recoverable. The non-recurring fair values included in the above table represent only those assets whose carrying values were adjusted to fair value as of the respective balance sheet dates.

The carrying amounts of cash and equivalents, Financial Services debt and other notes payable approximate their fair values due to their short-term nature and/or floating interest rate terms. The fair values of senior notes are based on quoted market prices, when available. If quoted market prices are not available, fair values are based on quoted market prices of similar issues. The carrying value of senior notes was $2.0 billion and $2.7 billion at March 31, 2021 and December 31, 2020, respectively.

8. Commitments and contingencies

Letters of credit and surety bonds

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

Litigation and regulatory matters

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

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

Product warranty

Home purchasers are provided with a limited warranty against certain building defects, including a one-year comprehensive limited warranty and coverage for certain other aspects of the home’s construction and operating systems for periods of up to and, in limited instances, exceeding 10 years. We estimate the costs to be incurred under these warranties and record liabilities in the amount of such costs at the time product revenue is recognized. Factors that affect our warranty liabilities include the number of homes sold, historical and anticipated rates of warranty claims, and the projected cost per claim. We periodically assess the adequacy of the warranty liabilities for each geographic market in which we operate and adjust the amounts as necessary. Actual warranty costs in the future could differ from the current estimates. Changes to warranty liabilities were as follows ($000’s omitted):
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PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Three Months Ended
March 31,
20212020
Warranty liabilities, beginning of period$82,744 $91,389 
Reserves provided17,344 15,039 
Payments(15,493)(18,276)
Other adjustments(788)243 
Warranty liabilities, end of period$83,807 $88,395 

Self-insured risks

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

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

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

Our recorded reserves for all such claims totaled $653.1 million and $641.8 million at March 31, 2021 and December 31, 2020, respectively. The recorded reserves include loss estimates related to both (i) existing claims and related claim expenses and (ii) IBNR and related claim expenses. Liabilities related to IBNR and related claim expenses represented approximately 67% and 68% of the total general liability reserves at March 31, 2021 and December 31, 2020, respectively. The actuarial analyses that determine the IBNR portion of reserves consider a variety of factors, including the frequency and severity of losses, which are based on our historical claims experience supplemented by industry data. The actuarial analyses of the reserves also consider historical third party recovery rates and claims management expenses.

Housing market conditions can be volatile, and we believe such conditions can affect the frequency and cost of construction defect claims. Additionally, IBNR estimates comprise the majority of our liability and are subject to a high degree of uncertainty due to a variety of factors, including changes in claims reporting and resolution patterns, third party recoveries, insurance industry practices, the regulatory environment, and legal precedent. State regulations vary, but construction defect claims are typically reported and resolved over an extended period, often exceeding ten years. Changes in the frequency and timing of reported claims and estimates of specific claim values can impact the underlying inputs and trends utilized in the actuarial analyses, which could have a material impact on the recorded reserves. Additionally, the amount of insurance
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PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
coverage available for each policy period also impacts our recorded reserves. Because of the inherent uncertainty in estimating future losses and the timing of such losses related to these claims, actual costs could differ significantly from estimated costs. Adjustments to reserves are recorded in the period in which the change in estimate occurs.
Costs associated with our insurance programs are classified within selling, general, and administrative expenses. Changes in these liabilities were as follows ($000's omitted):
Three Months Ended
March 31,
20212020
Balance, beginning of period$641,779 $709,798 
Reserves provided19,542 18,449 
Adjustments to previously recorded reserves(6,082)1,300 
Payments, net (a)
(2,171)(10,375)
Balance, end of period$653,068 $719,172 

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

Estimates of anticipated recoveries of our costs under various insurance policies or from subcontractors or other third parties are recorded when recovery is considered probable. Such receivables are recorded in other assets and totaled $73.8 million and $69.5 million at March 31, 2021 and December 31, 2020, respectively. Those receivables relate to costs incurred to perform corrective repairs, settle claims with customers, and other costs related to the continued progression of construction defect claims that we believe are insured. Given the complexity inherent with resolving construction defect claims in the homebuilding industry described above, there generally exists a significant lag between our payment of claims and our reimbursements from applicable insurance carriers or third parties. In addition, disputes between homebuilders and insurance carriers or third parties over coverage positions relating to construction defect claims are common. Resolution of claims involves the exchange of significant amounts of information and frequently involves legal action.

Leases

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

Lease expense includes costs for leases with terms in excess of one year as well as short-term leases with terms of less than one year. In the three months ended March 31, 2021 and 2020, our total lease expense was $10.2 million and $9.9 million, respectively, inclusive of variable lease costs of $1.9 million during both periods, as well as short-term lease costs of $2.9 million and $2.2 million, respectively. Sublease income was de minimis.




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PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The future minimum lease payments required under our leases as of March 31, 2021 were as follows ($000's omitted):
Years Ending December 31,
2021 (a)
$15,969 
202222,646 
2023<