PulteGroup (PHM) 10-K risk factor changes: FY2018 vs FY2017

[removed: The] [added: 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 [removed: results.][added: results.]

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 [added: significant] decrease in our revenues and earnings that could [added: materially and] adversely affect our financial condition.

[removed: If] [added: If] the market value of our land and homes drops significantly, our profits could decrease and result in write-downs of the carrying values of land we [removed: own.][added: own.]

When market conditions are such that land values are not appreciating, [added: 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.

Although we have taken efforts to reduce our exposure to costs of that type, a certain amount of exposure is inherent in [removed: our] [added: 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 [added: materially and] adversely affect our earnings and our stockholders' equity.

[removed: Supply] [added: Supply] shortages and other risks related to the demand for skilled labor and building materials could increase costs and delay [removed: deliveries.][added: deliveries.]

Labor shortages in certain of our markets have become more acute in recent years as the supply chain adjusts to [removed: uneven] 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 [removed: regulation.][added: regulation, such as government-imposed tariffs or trade restrictions on supplies such as steel and lumber.]

During [removed: 2017,] [added: 2018,] we experienced increases in the prices of some building materials and shortages of skilled labor in some areas.

Increased costs or shortages of skilled labor and/or materials [removed: could] cause increases in construction costs and/or [added: could cause] construction delays.

[removed: Products] [added: Products] supplied to us and work done by subcontractors can expose us to risks that could adversely affect our [removed: business.][added: business.]

We rely on subcontractors to perform the actual construction of our [removed: homes,] [added: homes] and, in some cases, to select and obtain building materials.

The cost of complying with our warranty obligations may be significant if we are unable to recover the cost of repairs from subcontractors, materials [removed: suppliers] [added: suppliers,] and insurers.

[removed: Our] [added: Our] success depends on our ability to acquire land suitable for residential homebuilding at reasonable prices, in accordance with our land investment [removed: criteria.][added: criteria.]

[removed: We] [added: We] are subject to claims related to mortgage loans we sold in the secondary mortgage market that may be [removed: significant.][added: significant.]

Our mortgage operations may be responsible for losses [added: 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 [removed: losses] [added: claims made by investors against our mortgage operations] relate to loans originated [removed: in 2006 and 2007,] [added: prior to 2009,] during which [removed: period] inherently riskier loan products became more common in the origination market.

Given the [removed: ongoing volatility in the mortgage industry,] [added: 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.

[removed: Future] [added: 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 [removed: results.][added: results.]

Potential homebuyers may be less willing or able to pay the increased monthly costs [added: resulting from higher interest rates] or to obtain mortgage financing.

Even if potential customers do not need financing, changes in interest rates and mortgage availability could make it harder for them to [added: sell their current homes to potential buyers who need financing.]

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 [removed: for] [added: of] our [removed: homebuilding] business.

Mortgage interest expense and real estate taxes represent significant costs of homeownership, both of which [removed: are] [added: were historically] generally deductible for an individual’s federal and, in some cases, state income taxes.

While the Tax Act lowers the tax rates applicable to many businesses and individuals, it also, among other things, (i) limits the federal deduction for mortgage interest so that it only applies to the first $750,000 of a new mortgage (as compared to $1 million under previous tax law), (ii) introduces a $10,000 cap on the federal deduction for state and local taxes, including real estate taxes, and (iii) eliminates the federal deduction for interest on [added: certain] home equity loans.

[removed: Adverse] [added: Adverse] capital and credit market conditions may significantly affect our access to capital and cost of [removed: capital.][added: capital.]

At December 31, [removed: 2017,] [added: 2018,] we had cash, cash equivalents, and restricted cash of [removed: $306.2 million] [added: $1.1 billion] as well as [removed: $764.5] [added: $760.6] million available under our revolving credit facility, net of outstanding letters of credit.

However, our internal sources of liquidity and revolving credit facility may prove to be insufficient, [removed: and] [added: 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 [removed: pursuant] [added: relating] to certain performance-related obligations and as security for certain land option agreements and insurance programs.

At December 31, [removed: 2017,] [added: 2018,] we had outstanding letters of credit and surety bonds totaling [removed: $235.5] [added: $239.4] million and [removed: $1.2] [added: $1.3] billion, respectively.

If we are unable to obtain letters of credit or surety bonds when required, or the conditions imposed by issuers increase significantly, our [removed: financial condition and results of operations] [added: liquidity] could be adversely affected.

[removed: Competition] [added: Competition] for homebuyers could reduce our deliveries or decrease our [removed: profitability.][added: profitability.]

[removed: The] [added: The] loss of the services of members of our senior management or a significant number of our operating employees could negatively affect our [removed: business.][added: business.]

[removed: Our] [added: 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 [removed: any.][added: any.]

Our evaluation of our tax matters is based on a number of factors, including [removed: changes in] [added: relevant] facts [removed: or] [added: and] circumstances, [removed: changes in] [added: applicable] tax law, correspondence with tax authorities during the course of audits, and effective settlement of audit issues.

To provide for potential tax exposures, we consider a variety of factors, including [removed: changes in] [added: relevant] facts [removed: or] [added: and] circumstances, [removed: changes in] [added: applicable tax] law, correspondence with taxing authorities, and effective settlement of audit issues.

[removed: We] [added: We] may not realize our deferred tax [removed: assets.][added: assets.]

As of December 31, [removed: 2017,] [added: 2018,] we had deferred tax assets, net of deferred tax liabilities, of [removed: $713.9] [added: $368.2] million, against which we provided a valuation allowance of [removed: $68.6] [added: $92.6] million.

[removed: We] [added: We] have significant intangible assets.

If these assets become impaired, then our profits and shareholders’ equity may be [removed: reduced.][added: reduced.]

While mortgage interest rates in recent years have been at or near historic lows, thereby making new homes more affordable, mortgage loan interest rates have increased recently as the federal funds rate has been increased.

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 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.

For example, we incurred land-related charges totaling $99.4 million and $191.9 million in 2018 and 2017, respectively.

As of December 31, 2018, our mortgage subsidiaries were defendants in legal proceedings in which the plaintiffs are seeking indemnification for alleged breaches of representations and warranties made by the mortgage subsidiaries in the mortgage loan sale agreements and may also be subject to other similar claims for which legal proceedings had not been instituted as of December 31, 2018.

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.

These assessments have increased over recent years as other funding mechanisms have decreased causing local governing authorities to seek greater contributions from homebuilders.

In addition, government restrictions, standards, or regulations intended to reduce greenhouse gas emissions or potential climate change impacts are likely to result in restrictions on land development in certain areas and may increase energy, transportation, or raw material costs, which could reduce our housing gross profit margins and adversely affect our results of operations.

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

Mortgage interest rates have remained near historical lows for several years, which has made new homes more affordable.

sell their current homes to potential buyers who need financing.

Any changes to income tax laws by the federal government or a state government to eliminate or substantially reduce these income tax deductions, as has been considered from time to time, would increase the after-tax cost of owning a home.

While the ultimate impact of the Tax Act is not known, these tax changes may raise the overall cost of home ownership in certain of our existing or future communities, lessen the perceived financial benefits of home ownership, or otherwise reduce demand for our homes.

Increases in real estate taxes by local governmental authorities also increase the cost of homeownership.

Any such increases to the cost of homeownership could adversely impact the demand for and sales prices of new homes.

The Tax Act enacted on December 22, 2017, makes broad and complex changes to the U.S. tax code, including, but not limited to, the following that impact us: (1) reducing the U.S. federal corporate income tax rate from 35 percent to 21 percent; (2) eliminating the corporate alternative minimum tax (“AMT”) and changing how existing AMT credits can be realized; (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.

While we continue to evaluate the effects of the Tax Act, we have recorded a net tax expense of $172.1 million in 2017 related to the remeasurement of our deferred tax balance and other effects.

We expect that the Tax Act will have a favorable impact on our financial results beginning in 2018.

In the absence of guidance on various uncertainties and ambiguities in the application of certain provisions of the Tax Act, we will use what we believe are reasonable interpretations and assumptions in applying the Tax Act.

However, it is possible that the IRS could issue subsequent guidance or take positions in an audit that differ from our prior interpretations and assumptions, which could have a material adverse effect on our cash tax liabilities, results of operations, or financial condition.

Because of the

[removed: Overview][added: Overview]

We have grown our investment in the business in a disciplined manner by emphasizing smaller projects and working to shorten our years of [added: owned] land supply, including [added: increasing] the use of land option [removed: agreements when possible.][added: agreements, which now account for 40% of our controlled lots as compared with 11% at the beginning of 2012.]

| | [removed: Years] [added: Years] Ended December [removed: 31,] [added: 31,] | | | | | | | | | | |

| | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | |

| Homebuilding | $ | [removed: 865,332] [added: 1,288,804] | | | $ | [removed: 860,766] [added: 865,332] | | | $ | [removed: 757,317] [added: 860,766] | |

| Financial Services | [removed: 73,496] [added: 58,736] | | | | [removed: 73,084] [added: 73,496] | | | | [removed: 58,706] [added: 73,084] | | |

| Income before income taxes | [removed: 938,828] [added: 1,347,540] | | | | [removed: 933,850] [added: 938,828] | | | | [removed: 816,023] [added: 933,850] | | |

| Income tax expense | [removed: (491,607] [added: (325,517] | | ) | | [removed: (331,147] [added: (491,607] | | ) | | [removed: (321,933] [added: (331,147] | | ) |

| Net income | $ | [removed: 447,221] [added: 1,022,023] | | | $ | [removed: 602,703] [added: 447,221] | | | $ | [removed: 494,090] [added: 602,703] | |

| Net income | $ | [removed: 1.44] [added: 3.55] | | | $ | [removed: 1.75] [added: 1.44] | | | $ | [removed: 1.36] [added: 1.75] | |

| • | Homebuilding income before income taxes improved each year from [removed: 2015] [added: 2016] to [removed: 2017.] [added: 2018.] Revenues increased each year and overhead leverage [removed: improved, which offset declines in gross margin percentage.] [added: improved.] Homebuilding income before income taxes also reflected the following significant income (expense) items ($000's omitted): |

| | | | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | |

| Land inventory impairments (see [Note [removed: 2](#sB0D64520B510717A1A287CF217084B2C))] [added: 2](#sE0F0AFDDA661C435C3BBCFAC712A6783))] | Home sale cost of revenues | | [removed: (88,952] [added: (70,965] | | ) | | [removed: (1,074] [added: (88,952] | | ) | | [removed: (7,347] [added: (1,074] | | ) |

| Warranty claim (see [Note [removed: 11](#sE3B487D74A5741B049157CF216CC01A4))] [added: 11](#s08405A1748BF8D18F622CFAC734D9F79))] | Home sale cost of revenues | | [removed: (12,389] [added: —] | | [removed: )] | | [removed: —] [added: (12,389] | | [added: )] | | — | | |

| Net realizable value adjustments ("NRV") - land held for sale (see [Note [removed: 2](#sB0D64520B510717A1A287CF217084B2C))] [added: 2](#sE0F0AFDDA661C435C3BBCFAC712A6783))] | Land sale cost of revenues | | [removed: (83,576] [added: (11,489] | | ) | | [removed: (1,105] [added: (83,576] | | ) | | [removed: 901] [added: (1,105] | | [added: )] |

| Insurance reserve adjustments (see [Note [removed: 11](#sE3B487D74A5741B049157CF216CC01A4))] [added: 11](#s08405A1748BF8D18F622CFAC734D9F79))] | Selling, [removed: general] [added: general,] and administrative expenses | | [removed: 95,120] [added: 35,873] | | | | [removed: 55,243] [added: 97,789] | | | | [removed: 62,183] [added: 57,132] | | |

| Write-offs of insurance receivables (see [Note [removed: 11](#sE3B487D74A5741B049157CF216CC01A4))] [added: 11](#s08405A1748BF8D18F622CFAC734D9F79))] | Selling, [removed: general] [added: general,] and administrative expenses | | [removed: (29,624] [added: —] | | [removed: )] | | [removed: —] [added: (29,624] | | [added: )] | | — | | |

| Restructuring costs from corporate office relocation and other actions | Selling, [removed: general] [added: general,] and administrative expenses | | — | | | | [removed: (10,030] [added: —] | | [removed: )] | | [removed: (3,826] [added: (10,030] | | ) |

| Other expense, net | | — | | | | [removed: (11,643] [added: —] | | [removed: )] | | [removed: (2,463] [added: (11,643] | | ) | |

| Write-offs of deposits and pre-acquisition costs (see [Note [removed: 2](#sB0D64520B510717A1A287CF217084B2C))] [added: 2](#sE0F0AFDDA661C435C3BBCFAC712A6783))] | Other expense, net | | [removed: (11,367] [added: (16,992] | | ) | | [removed: (17,157] [added: (11,367] | | ) | | [removed: (5,021] [added: (17,157] | | ) |

| Impairments of unconsolidated entities (see [Note [removed: 2](#sB0D64520B510717A1A287CF217084B2C))] [added: 2](#sE0F0AFDDA661C435C3BBCFAC712A6783))] | Other expense, net | | [removed: (8,017] [added: —] | | [removed: )] | | [removed: —] [added: (8,017] | | [added: )] | | — | | |

| [removed: Applecross matter] [added: Settlement of disputed land transaction] (see [Note [removed: 11](#sE3B487D74A5741B049157CF216CC01A4))] [added: 11](#s08405A1748BF8D18F622CFAC734D9F79))] | Other expense, net | | — | | | | — | | | | [removed: (20,000] [added: (15,000] | | ) |

| • | The [removed: increase] [added: decrease] in Financial Services income in [removed: 2017] [added: 2018] compared with [removed: 2016] [added: 2017] and [removed: 2015] [added: 2016] was primarily due to [removed: an] [added: a $16.1 million] increase in [removed: mortgage] [added: loan] origination [removed: volume resulting from higher volumes] [added: liabilities] in [removed: the Homebuilding segment, partially offset by lower revenue per loan as] [added: 2018 (see [Note 11](#s08405A1748BF8D18F622CFAC734D9F79)) combined with a more competitive pricing environment. Refinance activity has slowed in] the mortgage [removed: origination market] [added: industry, which] has [removed: become more competitive. During 2015, we] [added: increased competition, pressured loan pricing, and resulted in lower capture rate and] reduced [added: margins on] our loan [removed: origination liabilities] [added: originations in 2018. These factors offset higher revenues driven primarily] by [removed: $11.4 million, which favorably impacted Financial Services income. See [Note 11](#sE3B487D74A5741B049157CF216CC01A4).] [added: higher volumes in the Homebuilding segment.] |

[removed: Homebuilding Operations][added: Homebuilding Operations]

| | [removed: Years] [added: Years] Ended December [removed: 31,] [added: 31,] | | | | | | | | | | | | | | | | |

| | [removed: 2017] [added: 2018] | | | | [removed: FY 2017] [added: FY 2018] vs. FY [removed: 2016] [added: 2017] | | | [removed: 2016] [added: 2017] | | | | [removed: FY 2016] [added: FY 2017] vs. FY [removed: 2015] [added: 2016] | | | [removed: 2015] [added: 2016] | | |

| Home sale revenues | $ | [removed: 8,323,984] [added: 9,818,445] | | | [removed: 12] [added: 18] | % | | $ | [removed: 7,451,315] [added: 8,323,984] | | | [removed: 29] [added: 12] | % | | $ | [removed: 5,792,675] [added: 7,451,315] | |

| Home sale cost of revenues [removed: (a)] [added: *(b)*] | [removed: (6,461,152] [added: (7,540,937] | | ) | | [removed: 16] [added: 17] | % | | [removed: (5,587,974] [added: (6,461,152] | | ) | | [removed: 32] [added: 16] | % | | [removed: (4,235,945] [added: (5,587,974] | | ) |

| Land sale cost of revenues [removed: (b)] [added: *(a)*] | [removed: (134,449] [added: (126,560] | | ) | | [removed: 319] [added: (6] | [removed: %] [added: )%] | | [removed: (32,115] [added: (134,449] | | ) | | [removed: (10] [added: 319] | [removed: )%] [added: %] | | [removed: (35,858] [added: (32,115] | | ) |

| Selling, general, and administrative expenses ("SG&A") [removed: (c)] [added: *(d)*] | [removed: (891,581] [added: (1,012,023] | | ) | | [removed: (7] [added: 14] | [removed: )%] [added: %] | | [removed: (957,150] [added: (891,581] | | ) | | [removed: 20] [added: (7] | [removed: %] [added: )%] | | [removed: (794,728] [added: (957,150] | | ) |

[removed: | Other] [added: *Other] expense, [removed: net (d) | (28,576 | | ) | | (42 | )% | | (49,345 | | ) | | 184 | % | | (17,363 | | ) |][added: net*]

| Income before income taxes | $ | [removed: 865,332] [added: 1,288,804] | | | [removed: 1] [added: 49] | % | | $ | [removed: 860,766] [added: 865,332] | | | [removed: 14] [added: 1] | % | | $ | [removed: 757,317] [added: 860,766] | |

| [removed: Supplemental data:] [added: Supplemental data:] | | | | | | | | | | | | | | | | | |

| Gross margin from home sales [removed: (a)] [added: *(b)*] | [removed: 22.4] [added: 23.2] | | % | | [removed: (260)] [added: 80] bps | | | [removed: 25.0] [added: 22.4] | | % | | [removed: (190)] [added: (260)] bps | | | [removed: 26.9] [added: 25.0] | | % |

| SG&A % of home sale revenues [removed: (c)] [added: *(d)*] | [removed: 10.7] [added: 10.3] | | % | | [removed: (210)] [added: (40)] bps | | | [removed: 12.8] [added: 10.7] | | % | | [removed: (90)] [added: (210)] bps | | | [removed: 13.7] [added: 12.8] | | % |

| Closings (units) | [removed: 21,052] [added: 23,107] | | | | [removed: 6] [added: 10] | % | | [removed: 19,951] [added: 21,052] | | | | [removed: 16] [added: 6] | % | | [removed: 17,127] [added: 19,951] | | |

| Average selling price | $ | [removed: 395] [added: 425] | | | [removed: 6] [added: 8] | % | | $ | [removed: 373] [added: 395] | | | [removed: 10] [added: 6] | % | | $ | [removed: 338] [added: 373] | |

| Net new orders [removed: (e):] [added: *(f)*:] | | | | | | | | | | | | | | | | | |

| Units | [removed: 22,626] [added: 22,833] | | | | [removed: 11] [added: 1] | % | | [removed: 20,326] [added: 22,626] | | | | [removed: 13] [added: 11] | % | | [removed: 18,008] [added: 20,326] | | |

| Dollars | $ | [removed: 9,361,534] [added: 9,675,529] | | | [removed: 21] [added: 3] | % | | $ | [removed: 7,753,399] [added: 9,361,534] | | | [removed: 23] [added: 21] | % | | $ | [removed: 6,305,380] [added: 7,753,399] | |

Favorable demographic and economic conditions, combined with historically low interest rates, have supported the recovery in U.S. new home sales that began in 2012.

During this period, we have made significant investments to acquire and develop land inventory and open new communities, including opening approximately 250 new communities across our local markets in each of the last three years.

The combination of favorable demand conditions, our investments in new communities, and our focus on gross margin performance through community location, strategic pricing, and construction efficiencies resulted in growth in our revenues and income before income taxes each year during the period from 2012 to 2018.

We entered 2018 with a large backlog of new orders, and demand conditions remained favorable through the early part of 2018, as evidenced by continued growth in new orders during the traditional spring selling season.

However, this was followed by an industry-wide softening in demand that began in the second quarter of 2018.

To varying degrees, the slowdown has occurred across all major buyer groups and all of our geographies.

This slowdown was closely correlated with the rise in mortgage interest rates that began in May 2018, however, we believe that the broader cause is the affordability challenge that many prospective buyers continue to face, which has created uncertainty in the industry regarding short-term demand.

However, many of the fundamentals supporting continued growth in demand, including: a strong employment picture in the U.S.; high consumer confidence; a supportive, though slightly higher, interest rate environment; and a limited supply of new and existing homes, remain favorable.

We believe that the actions we have taken over the past few years to shorten the duration of our land inventory, increase our use of land option agreements, and drive higher margins while maintaining a conservative financial position allow us to operate effectively in most economic conditions.

Additionally, our overall financial condition continues to support investing in the business while returning excess capital to shareholders.

If demand conditions accelerate, we have the communities and lots available to meet that demand.

| California land sale gains (see [Note 3](#s06DDDCE9E8706C61A3B8CFAC71397715)) | Land sale revenues / cost of revenues | | 26,401 | | | | — | | | | — | | |

| | | | $ | (37,172 | ) | | $ | (136,136 | ) | | $ | 1,123 | |

| • | Our effective tax rate was 24.2%, 52.4%, and 35.5% for 2018, 2017, and 2016, respectively (see [Note 8](#sAA228A4519F4C3F4BCB4CFAC72A185A0)). The effective tax rates for 2018 and 2017 reflect the impact of the Tax Act, which lowered the federal tax rate from 35% to 21% effective in 2018. Due to the Tax Act's enactment in December 2017, income tax expense for 2017 included a charge of $172.1 million related to the remeasurement of our deferred tax balances and other effects. |

| Land sale and other revenues *(a) (c)* | 164,504 | | | | 167 | % | | 61,542 | | | | 40 | % | | 44,089 | | |

| Total Homebuilding revenues | 9,982,949 | | | | 19 | % | | 8,385,526 | | | | 12 | % | | 7,495,404 | | |

| *(a)* | *Includes net gains of* *$26.4 million* *related to two land sale transactions in California during the* *year ended* *December 31, 2018* *(see* [*Note 3*](#s06DDDCE9E8706C61A3B8CFAC71397715)*).* |

| *(e)* | *See "Other expense, net" for a table summarizing significant items.* |

The increase in closings reflects the significant land investments we have made in recent years and the resulting growth in our active communities combined with the favorable buyer demand environment that continued into the spring of 2018.

The higher average selling prices occurred across the majority of our markets and reflects shifts in product mix, including a higher mix of move-up homebuyers and an increase in the mix of closings in Northern California, where our average selling prices are significantly higher than the Company average.

Excluding such impairments, gross margins remained strong in both 2018 and 2017 relative to historical levels and reflect a combination of factors, including shifts in community mix and a small increase in the mix of closings in Northern California in 2018 partially offset by the aforementioned warranty charge of $12.4 million in 2017 related to a closed-out community in Florida and slightly higher amortized interest costs (1.8% of home sale revenues in 2018 compared with 1.7% in 2017).

Gross margins decreased in 2017 compared with 2016 as the result of the aforementioned land inventory impairments and warranty charge combined with higher house construction and land costs as the supply chain responded to the housing recovery.

The gains in 2018 resulted primarily from two land sale transactions in California that contributed $26.4 million.

*SG&A*

The improved overhead leverage reflects volume efficiencies and realized cost efficiencies, as well as the aforementioned insurance reserve reversals of $35.9 million and $97.8 million in 2018 and 2017, respectively, partially offset by write-offs of $29.6 million in 2017 associated with the resolution of certain insurance matters (see [Note 11](#s08405A1748BF8D18F622CFAC734D9F79)).

| Miscellaneous, net *(c)* | 6,742 | | | | (6,165 | | ) | | (25,686 | | ) |

Net new orders in dollars increased by 3% compared with 2017 due to the growth in units combined with the higher average selling price.

The cancellation rate (canceled orders for the period divided by gross new orders for the period) remained stable in 2018 at 14%.

Ending backlog units, which represent orders for homes that have not yet closed, decreased 3% as measured in units and 4% as measured in dollars at December 31, 2018 compared with December 31, 2017.

Our higher number of active communities combined with the overall demand environment resulted in a strong start to the year.

However, while customer traffic to our communities increased during 2018, we experienced lower than expected conversions of traffic to signups, especially among first-time and move-up buyers, beginning in May 2018 when mortgage rates increased, which compounded existing housing affordability issues faced by many homebuyers.

| | | 2018 | | | 2017 | |

| | | 3,246 | | | 2,610 | |

The increase in homes under production resulted from a 24% increase in the number of unsold, or "spec", homes, which resulted primarily from the strategic decision to allow spec production to run higher than in previous periods to ensure access to construction suppliers and to position communities heading into 2019 ahead of the spring selling season.

| Total | | 89,530 | | | 60,047 | | | 149,577 | | | 89,253 | | | 52,156 | | | 141,409 | |

| *(a)* | *Includes land-related charges as summarized in the following land-related charges table (see* [*Note 2*](#sE0F0AFDDA661C435C3BBCFAC712A6783)*).* |

| *(d)* | *Includes gains of* *$26.4 million* *related to two land sale transactions in California in* *2018* |

| | | 2018 | | | | FY 2018 vs. FY 2017 | | | 2017 | | | | FY 2017 vs. FY 2016 | | | 2016 | | |

| | | 14 | | % | | | | | 14 | | % | | | | | 15 | | % |

| | | Years Ended December 31, | | | | | | | | | | |

Demand conditions continued to improve in the overall U.S. housing market in 2017.

Although the recovery in housing demand has been slow by historical standards, the growth in demand for new homes is being supported by job creation, high consumer confidence, a supportive interest rate environment, and a limited supply of new homes.

Within this environment, we remain focused on driving additional gains in construction and asset efficiency to deliver higher returns on invested capital.

Consistent with our positive market view and long-term business strategy, we expect to use our capital to support future growth while consistently returning funds to shareholders through dividends and share repurchases.

The nature of the homebuilding industry results in a lag between when investments made in land acquisition and development yield new community openings and related home closings.

Our focus continues to be on adding volume growth to the efficiency gains we have achieved in recent years.

Our prior investments are allowing us to grow the business, as evidenced by 11% growth in net new orders and a 12% increase in home sale revenues to $8.3 billion.

We achieved this growth while also maintaining our focus on gross margin performance through community location, strategic pricing, and construction efficiencies.

During 2017, we opened approximately 250 new communities across our local markets as a result of increased land investment over the last few years.

This volume of new community openings can present a challenge in today's environment where entitlement and land development delays are common.

Leveraging our increased land investments, we expect to open a similar number of new communities in 2018 as in 2017, which we expect will help our volume grow in 2018.

Our financial position provided flexibility to increase our investments in future communities while also returning funds to shareholders through dividends and expanded share repurchases.

Specifically, we accomplished the following in 2017:

| | |

| --- | --- |

| • | Continued land investment spending to support future growth, which contributed to a 12% increase in home sale revenues; |

| • | Committed to a plan we announced in May 2017 to sell select non-core and underutilized land parcels following a strategic review of our land portfolio (see [Note 2](#sB0D64520B510717A1A287CF217084B2C) to the Consolidated Financial Statements); |

| • | Ended the year with a debt to total capitalization ratio of 42.0%, which is slightly above our targeted range of 30.0% to 40.0%, and a cash, cash equivalents, and restricted cash balance of $306.2 million with no borrowings outstanding under our unsecured revolving credit agreement; |

| • | Maintained our quarterly dividend at $0.09 per share; and |

| • | Repurchased $910.3 million of shares under our share repurchase plan. |

| Settlement of disputed land transaction (see [Note 11](#sE3B487D74A5741B049157CF216CC01A4)) | Other expense, net | | — | | | | (15,000 | | ) | | — | | |

| | | | $ | (138,805 | ) | | $ | (766 | ) | | $ | 24,427 | |

| • | Our effective tax rate was 52.4%, 35.5% and 39.5% for 2017, 2016, and 2015, respectively. The effective tax rate for 2017 reflects the impact of the Tax Act, enacted on December 22, 2017. In connection with our initial analysis of the impact of the Tax Act, we have recorded a provisional amount of net tax expense of $172.1 million in the year ended December 31, 2017 related to the remeasurement of our deferred tax balance and other effects. See [Note 8](#s2E19ABF5B58A5307A6807CF216863AD5). |

| Land sale revenues | 57,106 | | | | 58 | % | | 36,035 | | | | (26 | )% | | 48,536 | | |

| Total Homebuilding revenues | 8,381,090 | | | | 12 | % | | 7,487,350 | | | | 28 | % | | 5,841,211 | | |

| (d) | Includes an $8.0 million impairment of an investment in an unconsolidated entity in 2017 (see [Note 2](#sB0D64520B510717A1A287CF217084B2C)); $15.0 million in 2016 related to the settlement of a disputed land transaction; $20.0 million in 2015 resulting from the Applecross matter (see [Note 11](#sE3B487D74A5741B049157CF216CC01A4)); and restructuring costs from corporate office relocation and other actions of $11.6 million and $2.5 million in 2016 and 2015, respectively. See "Other expense, net" for a table summarizing other significant items. |

These increases reflect the impact of communities acquired from Wieland during the period, which contributed 6% to the growth in revenue, 4% to the growth in closings and 1% to the increase in average selling price.

Excluding the communities acquired from Wieland, the increase in closings reflects the significant investments we made in opening new communities combined with improved demand.

The increase in average selling price reflected a shift in our revenue mix toward move-up homebuyers.

Combined, these factors reduced gross margin in 2017 by 120 basis points.

The assets acquired from Wieland contributed 60 basis points to the decrease in 2016, primarily as the result of required fair value adjustments associated with the acquired homes in production and related lots.

Gross margins remain strong relative to historical levels and reflect a combination of factors, including shifts in community mix, relatively stable pricing conditions in 2017 following strong pricing conditions in 2016 and 2015, and lower amortized interest costs (1.7%, 1.7%, and 2.4% of home sale revenues in 2017, 2016, and 2015, respectively) combined with higher house construction and land costs as the supply chain has responded to the housing recovery.

SG&A

SG&A included general liability insurance reserve reversals of $55.2 million and $62.2 million in 2016 and 2015, respectively (see [Note 11](#sE3B487D74A5741B049157CF216CC01A4)).

Excluding these items, the improvement in our year-over-year SG&A leverage was even greater.

The increase in gross dollar SG&A reflects the addition of field resources and other variable costs related to increased production volumes combined with higher costs related to healthcare and professional fees.

Additionally, SG&A for 2016 reflects the impact of transaction and integration costs associated with the assets acquired from Wieland in January 2016 (see [Note 1](#s33096762227EEBC7A5B17CF216C2527D)).

| Miscellaneous, net (c) | 1,729 | | | | 17,632 | | | | 6,653 | | |

| (a) | Lease exit and related costs for 2016 and 2015 resulted from actions taken to reduce overheads and the substantial completion of our corporate headquarters relocation from Michigan to Georgia, which began in 2013. |

The communities acquired from Wieland contributed to this growth in units by 4%.

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, [removed: 2017] [added: 2018] and [removed: 2016] [added: 2017] ($000’s omitted).

| | [removed: As] [added: As] of December 31, 2017 for the Years ending December [removed: 31,] [added: 31,] | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| | [removed: 2018] [added: 2018] | | | | [removed: 2019] [added: 2019] | | | | [removed: 2020] [added: 2020] | | | | [removed: 2021] [added: 2021] | | | | [removed: 2022] [added: 2022] | | | | [removed: Thereafter] [added: Thereafter] | | | | [removed: Total] [added: Total] | | | | [removed: Fair Value] [added: Fair Value] | | |

| [removed: Rate-sensitive liabilities:] [added: Rate-sensitive liabilities:] | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Variable rate debt [removed: (a)] [added: *(a)*] | $ | 438,657 | | | $ | 701 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 439,358 | | | $ | 439,358 | |

| Average interest rate | 3.72 | | % | | [removed: 7.3] [added: 7.30] | | % | | — | | % | | — | | % | | — | | % | | — | | % | | [removed: 3.7] [added: 3.70] | | % | | | | |

| | [removed: As] [added: As] of December 31, [removed: 2016] [added: 2018] for the Years ending December [removed: 31,] [added: 31,] | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| | [removed: 2017] [added: 2019] | | | | [removed: 2018] [added: 2020] | | | | [removed: 2019] [added: 2021] | | | | [removed: 2020] [added: 2022] | | | | [removed: 2021] [added: 2023] | | | | [removed: Thereafter] [added: Thereafter] | | | | [removed: Total] [added: Total] | | | | [removed: Fair Value] [added: Fair Value] | | |

| Average interest rate | [removed: 2.89] [added: 4.41] | | % | | — | | % | | — | | % | | — | | % | | — | | % | | — | | % | | [removed: 2.89] [added: 4.41] | | % | | | | |

[removed: (a)] [added: *(a)] Includes the Pulte Mortgage Repurchase Agreement.

There were no amounts outstanding under our Revolving Credit Facility at [removed: either December] [added: either* *December] 31, [removed: 2017 or 2016.][added: 2018* *or* *2017.*]

[removed: Derivative] [added: *Derivative] instruments and hedging [removed: activities][added: activities*]

At December 31, [removed: 2017] [added: 2018] and [removed: 2016,] [added: 2017,] residential mortgage loans available-for-sale had an aggregate fair value of [removed: $570.6] [added: $461.4] million and [removed: $539.5] [added: $570.6] million, respectively.

At December 31, [removed: 2017] [added: 2018] and [removed: 2016,] [added: 2017,] we had aggregate interest rate lock commitments of [removed: $210.9] [added: $285.0] million and [removed: $273.9] [added: $210.9] million, respectively, which were originated at interest rates prevailing at the date of commitment.

Unexpired forward contracts totaled [removed: $522.0] [added: $511.0] million and [removed: $610.0] [added: $522.0] million at December 31, [removed: 2017] [added: 2018] and [removed: 2016,] [added: 2017,] respectively, and whole loan investor commitments totaled [removed: $203.1] [added: $187.8] million and [removed: $157.6] [added: $203.1] million, respectively, at such dates.

[added: 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.

[removed: SPECIAL] [added: SPECIAL] NOTES CONCERNING FORWARD-LOOKING [removed: STATEMENTS][added: STATEMENTS]

As a cautionary note, except for the historical information contained herein, certain matters discussed in Item [removed: 2, Management's] [added: 7, *Management's] Discussion and Analysis of Financial Condition and Results of [removed: Operations,] [added: Operations,*] and Item [removed: 3, Quantitative] [added: 7A, *Quantitative] and Qualitative Disclosures About Market [removed: Risk,] [added: Risk*,] are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995.

See [Item 1A – Risk [removed: Factors](#s935A8DD3C7BDC8E58ACD7CF236C9DF85)] [added: Factors](#s300A51BCAA2E60D32A9ECFACA0BAF275)] for a further discussion of these and other risks and uncertainties applicable to our businesses.

| Fixed rate debt | $ | 24,088 | | | $ | 9,968 | | | $ | 706,720 | | | $ | — | | | $ | — | | | $ | 2,300,000 | | | $ | 3,040,776 | | | $ | 2,898,606 | |

| Average interest rate | 5.31 | | % | | 3.81 | | % | | 4.28 | | % | | — | | % | | — | | % | | 5.90 | | % | | 5.51 | | % | | | | |

| Variable rate debt *(a)* | $ | 348,949 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 348,949 | | | $ | 348,948 | |

| Rate-sensitive liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Fixed rate debt | $ | 134,482 | | | $ | — | | | $ | 3,900 | | | $ | 3,900 | | | $ | 700,000 | | | $ | 2,300,000 | | | $ | 3,142,282 | | | $ | 3,131,579 | |

| Average interest rate | 7.12 | | % | | — | | % | | 5.00 | | % | | 5.00 | | % | | 4.25 | | % | | 7.19 | | % | | 5.58 | | % | | | | |

| Variable rate debt (a) | $ | 331,621 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 331,621 | | | $ | 331,621 | |

Hypothetical changes

[removed: UNITED STATES][added: UNITED STATES]

[removed: SECURITIES] [added: SECURITIES] AND EXCHANGE [removed: COMMISSION][added: COMMISSION]

[removed: FORM 10-K][added: FORM 10-K]

\[X\] [removed: ANNUAL] [added: ANNUAL] REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF [removed: 1934][added: 1934]

[removed: For] [added: For] the fiscal year [removed: ended December] [added: ended December] 31, [removed: 2017][added: 2018]

\[ \] [removed: TRANSITION] [added: TRANSITION] REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF [removed: 1934][added: 1934]

[removed: Commission] [added: Commission] File Number [removed: 1-9804][added: 1-9804]

[removed: PULTEGROUP, INC.][added: PULTEGROUP, INC.]

| [removed: MICHIGAN] [added: MICHIGAN] | | [removed: 38-2766606] [added: 38-2766606] |

[removed: 3350] [added: 3350] Peachtree Road NE, Suite [removed: 150][added: 150]

[removed: Atlanta,] [added: Atlanta,] Georgia [removed: 30326][added: 30326]

[removed: Registrant’s] [added: Registrant’s] telephone number, including area code: (404) [removed: 978-6400][added: 978-6400]

| [removed: Title] [added: Title] of each [removed: class] [added: class] | | [removed: Name] [added: Name] of each exchange on which [removed: registered] [added: registered] |

[removed: NONE][added: NONE]

Indicate by check mark whether the registrant has submitted electronically [removed: and posted on its corporate Web site, if any,] every Interactive Data File required to be submitted [removed: and posted] 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 [removed: and post] such files).

The aggregate market value of the registrant’s voting shares held by nonaffiliates of the registrant as of June 30, [removed: 2017,] [added: 2018,] based on the closing sale price per share as reported by the New York Stock Exchange on such date, was [removed: $7,393,482,685.][added: $8,132,221,388.]

[removed: Documents] [added: Documents] Incorporated by [removed: Reference][added: Reference]

Applicable portions of the Proxy Statement for the [removed: 2018] [added: 2019] Annual Meeting of Shareholders are incorporated by reference in Part III of this Form.

[removed: TABLE] [added: TABLE] OF [removed: CONTENTS][added: CONTENTS]

| [removed: Item No.] [added: Item No.] | | [removed: Page No.] [added: Page No.] |

[removed: | | [Part I](#sA69F613A85A8A81D8DE87CF23622DAE0) | |][added: PART I]

[removed: | 1 | [Business](#s4DF96751BD81A69D72F17CF236669447) | [3](#s4DF96751BD81A69D72F17CF236669447) |][added: BUSINESS]

| 1A | [Risk [removed: Factors](#s935A8DD3C7BDC8E58ACD7CF236C9DF85)] [added: Factors](#s300A51BCAA2E60D32A9ECFACA0BAF275)] | [removed: [9](#s935A8DD3C7BDC8E58ACD7CF236C9DF85)] [added: [9](#s300A51BCAA2E60D32A9ECFACA0BAF275)] |

| 1B | [Unresolved Staff [removed: Comments](#s8F022B0017EF7C99032D7CF2370D7124)] [added: Comments](#sC69D0627645B6511C874CFACA0D961EA)] | [removed: [15](#s8F022B0017EF7C99032D7CF2370D7124)] [added: [15](#sC69D0627645B6511C874CFACA0D961EA)] |

| 3 | [Legal [removed: Proceedings](#s57B4483FF3E72B71B3FD7CF23760342B)] [added: Proceedings](#sA2C37BC8AD8D0AE97ED4CFACA12795DF)] | [removed: [15](#s57B4483FF3E72B71B3FD7CF23760342B)] [added: [15](#sA2C37BC8AD8D0AE97ED4CFACA12795DF)] |

| 4 | [Mine Safety [removed: Disclosures](#s9BDF0C9B59545B55F5027CF2376F019F)] [added: Disclosures](#sB549B703A4D88FEED8F3CFACA1565B59)] | [removed: [15](#s9BDF0C9B59545B55F5027CF2376F019F)] [added: [15](#sB549B703A4D88FEED8F3CFACA1565B59)] |

| 4A | [Executive Officers of the [removed: Registrant](#s0A8E41D206F27DF544E77CF237A111E6)] [added: Registrant](#sE97CBDB7C4B0450D631FCFACA1753E79)] | [removed: [16](#s0A8E41D206F27DF544E77CF237A111E6)] [added: [16](#sE97CBDB7C4B0450D631FCFACA1753E79)] |

| 5 | [Market for the Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity [removed: Securities](#s23D5EBFF982A7E907B077CF2187AC8A8)] [added: Securities](#s4081492F16BF56FB5312CFAC7001A51F)] | [removed: [17](#s23D5EBFF982A7E907B077CF2187AC8A8)] [added: [17](#s4081492F16BF56FB5312CFAC7001A51F)] |

| 6 | [Selected Financial [removed: Data](#s6F1B20487A900F3977DF7CF23843A95D)] [added: Data](#sD530E83CEBFA4BE1FF80CFACA202DDF6)] | [removed: [19](#s6F1B20487A900F3977DF7CF23843A95D)] [added: [19](#sD530E83CEBFA4BE1FF80CFACA202DDF6)] |

| 7 | [Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations](#s5D5780CA86B15267AC397CF2386C478B)] [added: Operations](#s895FE0EE215B1A050E40CFAC7C94EE13)] | [removed: [21](#s5D5780CA86B15267AC397CF2386C478B)] [added: [21](#s895FE0EE215B1A050E40CFAC7C94EE13)] |

| 7A | [Quantitative and Qualitative Disclosures About Market [removed: Risk](#s9E0ADCF82CA7F7E72E1E7CF2187AC8DB)] [added: Risk](#sA1E2D5106921A3EBA72ECFAC700160F9)] | [removed: [41](#s9E0ADCF82CA7F7E72E1E7CF2187AC8DB)] [added: [40](#sA1E2D5106921A3EBA72ECFAC700160F9)] |

| 8 | [Financial Statements and Supplementary [removed: Data](#sB7F51AA3B0AD48DDEE397CF23B6395C6)] [added: Data](#s4983FDF265997693A503CFACA3F6375F)] | [removed: [43](#sB7F51AA3B0AD48DDEE397CF23B6395C6)] [added: [42](#s4983FDF265997693A503CFACA3F6375F)] |

| 9 | [Changes in and Disagreements with Accountants on Accounting and Financial [removed: Disclosure](#s8D41CEC72E6CAB0DCEB47CF2411B11A6)] [added: Disclosure](#s04BE29BBF9F041C761DFCFACA9F1A97F)] | [removed: [87](#s8D41CEC72E6CAB0DCEB47CF2411B11A6)] [added: [86](#s04BE29BBF9F041C761DFCFACA9F1A97F)] |

| 9A | [Controls and [removed: Procedures](#s50948076975700032A3A7CF24133455D)] [added: Procedures](#s9C4220D631AACD42F7B0CFACAA2079B3)] | [removed: [87](#s50948076975700032A3A7CF24133455D)] [added: [86](#s9C4220D631AACD42F7B0CFACAA2079B3)] |

| 9B | [Other [removed: Information](#sC311465DC5E5CD6667FF7CF2416E5E7E)] [added: Information](#sC23461E41B6FEEFE5C91CFACAA3F3418)] | [removed: [89](#sC311465DC5E5CD6667FF7CF2416E5E7E)] [added: [88](#sC23461E41B6FEEFE5C91CFACAA3F3418)] |

| | [removed: [Part III](#s420D49B0AD5782D110BE7CF2418762A3)] [added: [Part III](#s67C1C1A035931D19AE85CFACAA7E3BBC)] | |

| 10 | [Directors, Executive Officers and Corporate [removed: Governance](#s4810A5013E6E143248B27CF241CB5978)] [added: Governance](#s3F643290520C7E125836CFACAA9D30FB)] | [removed: [89](#s4810A5013E6E143248B27CF241CB5978)] [added: [88](#s3F643290520C7E125836CFACAA9D30FB)] |

| 11 | [Executive [removed: Compensation](#s4BF9375D82FD9C848B967CF241DA9085)] [added: Compensation](#s35FBA9790E8E9BF1C61FCFACAACCFA71)] | [removed: [89](#s4BF9375D82FD9C848B967CF241DA9085)] [added: [88](#s35FBA9790E8E9BF1C61FCFACAACCFA71)] |

| 12 | [Security Ownership of Certain Beneficial Owners and Management and Related Shareholder [removed: Matters](#s8376EAB0F2F4475058157CF2421EAADE)] [added: Matters](#sBEB03DB69EF326A626EDCFACAAEBF746)] | [removed: [89](#s8376EAB0F2F4475058157CF2421EAADE)] [added: [88](#sBEB03DB69EF326A626EDCFACAAEBF746)] |

| 13 | [Certain Relationships and Related Transactions and Director [removed: Independence](#s0DEFCCBCD66207B15C167CF2422DB2B8)] [added: Independence](#sD761129B7969CE5A4CF1CFACAB1A6C89)] | [removed: [89](#s0DEFCCBCD66207B15C167CF2422DB2B8)] [added: [88](#sD761129B7969CE5A4CF1CFACAB1A6C89)] |

OR

As of January 24, 2019, the registrant had 277,142,007 shares of common shares outstanding.

PULTEGROUP, INC.

| 2 | [Properties](#sDC779D6340F9A06F8A42CFACA108192A) | [15](#sDC779D6340F9A06F8A42CFACA108192A) |

| | [Part II](#sB7CC08DD625A10E9FDEECFACA1B4B433) | |

| | [Part IV](#sF7D0572F04A342966718CFACAB78A42B) | |

| | [Signatures](#s10C35023E9559F912EE2CFACABE5E7E1) | [93](#s10C35023E9559F912EE2CFACABE5E7E1) |

PulteGroup, Inc.

We file annual, quarterly, and current reports, proxy statements, and other information with the Securities and Exchange Commission (the “SEC”).

These filings are available at the SEC’s website at http://www.sec.gov.

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*.

The decrease in the percentage of single-family detached homes in 2018 can be attributed to the geographic mix of homes sold and an increase in the number of our communities in more urban locations where higher density attached homes are more commonplace.

not be converted to home sales in the near term.

During 2018, 28%, 47%, and 25% of our home closings were to first-time, move-up, and active adult customers, respectively.

However, we have increased our investment in communities seeking to serve the first-time buyer and expect this buyer group to become a larger component of our sales mix in the future.

Our sales teams consist primarily of commissioned employees, and the majority of our home closings also involve independent third party sales brokers.

including selecting the community, house floor plan, and options that meet the customer's needs.

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.

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.

Generally, the construction materials used in our operations are readily available from numerous sources.

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.

Our Homebuilding customers continue to account for substantially all of our loan production.

Other home closings are settled via either cash, which typically represent approximately 20% of home closings, or third party lenders.

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.

10-K 1 a201710-k.htm 10-K 2017

OR

As of February 1, 2018, the registrant had 286,465,036 shares of common shares outstanding.

| 2 | [Properties](#s909706372944F430D50B7CF2371C84F0) | [15](#s909706372944F430D50B7CF2371C84F0) |

| | [Part II](#sF18C7D05C388BD9B2FBA7CF237C3F711) | |

| | [Part IV](#s1BA079B3DE86AED910087CF242814665) | |

| | [Signatures](#sB22E4E8792662B104A927CF242D45767) | [94](#sB22E4E8792662B104A927CF242D45767) |

After several years of declining sales volume, new home sales in the U.S. increased in 2012 for the first time since 2005, beginning a multi-year recovery in demand.

This trend continued in 2017 as new home sales in the U.S. rose 8% over 2016 to approximately 608,000 homes, approximately double the number from 2011, the bottom of the most recent housing downturn.

Additionally, mortgage interest rates remain near historic lows and the overall inventory of homes available for sale, especially new homes, remains low.

Although the recovery in housing demand has been slow by historical standards, the improved demand environment and actions we have taken to improve business performance have contributed to significant increases in our income before income taxes for the period 2013 - 2017.

In the short-term, we expect that overall market conditions will continue to improve but that improvements will occur unevenly across our markets.

The increase in the percentage of single-family detached homes can be attributed to a shift in our business toward move-up homebuyers, who tend to prefer detached homes.

In the normal course of business, we periodically sell land not required by our homebuilding operations.

| | | | |

| --- | --- | --- | --- |

| | First-Time | Move-Up | Active Adult |

| Portion of home closings: | | | |

| 2017 | 30% | 45% | 25% |

| 2013 | 35% | 34% | 31% |

This shift in U.S. housing demand occurred primarily due to financial challenges facing the first-time homebuyer, despite a generally recovering U.S. economy, including the overhang of consumer debt, especially student loans related to higher education, and a more restrictive mortgage lending environment.

However, the first-time homebuyer has

historically played a major role in new housing, and we believe that our first-time homebuyer volume has been increasing recently and will continue to increase in coming years.

We are also working to establish a more integrated

Such originations represented substantially all of our total originations in each of those years.

Our capture rate, which we define as loan originations from our homebuilding business as a percentage of total loan opportunities from our homebuilding business excluding cash settlements, was 80% in 2017, 81% in 2016, 83% in 2015, 80% in 2014, and 80% in 2013.

and costs inherent in servicing loans.

Financial Information About Geographic Areas

Substantially all of our operations are located within the U.S. We have some non-operating foreign subsidiaries and affiliates, which are insignificant to our consolidated financial results.

All subsidiaries and operating units operate independently with respect to daily operations.

Homebuilding real estate purchases and other significant homebuilding, mortgage banking, financing activities, and similar operating decisions must be approved by the business unit’s management and/or corporate senior management.

Our local and corporate management personnel are paid incentive compensation, which is generally based on a combination of individual performance and the performance of the applicable business unit or the Company.

Each business unit is given a level of autonomy regarding employment of personnel, subject to adherence to our established policies and procedures, and our senior corporate management acts in an advisory capacity in the employment of subsidiary officers.

We also maintain various support functions in leased facilities in Tempe, [removed: Arizona, and Bloomfield Hills, Michigan.][added: Arizona.]

| [removed: Name] [added: Name] | | [removed: Age] [added: Age] | | [removed: Position] [added: Position] | | [removed: Year Became An] [added: Year Became An] Executive [removed: Officer] [added: Officer] |

| Ryan R. Marshall | | [removed: 43] [added: 44] | | President and Chief Executive Officer | | 2012 |

| Robert T. O'Shaughnessy | | [removed: 52] [added: 53] | | Executive Vice President and Chief Financial Officer | | 2011 |

| Harmon D. Smith | | [removed: 54] [added: 55] | | Executive Vice President and Chief Operating Officer | | 2011 |

| Todd N. Sheldon | | [removed: 50] [added: 51] | | Executive Vice President, General Counsel and Corporate Secretary | | 2017 |

| James L. Ossowski | | [removed: 49] [added: 50] | | Senior Vice President, Finance | | 2013 |

Previously, he held the [removed: position] [added: positions] of President since February 2016 and Executive Vice President, Homebuilding Operations since May 2014.

He served as an Area President over various geographical markets since [removed: 2006.][added: 2012.]

Prior to joining our company, he served as Executive Vice President, General Counsel and Secretary at Americold [removed: Logistics] [added: Realty Trust] from June 2013 to March [removed: 2017 and in various legal positions at SuperValu from February 2008 to May 2013, most recently as Executive Vice President, General Counsel and Secretary.][added: 2017.]

Mr. Ossowski was appointed Senior Vice President, Finance in February 2017 and previously held the [removed: positions] [added: position] of Vice President, Finance and Controller since February [removed: 2013 and Vice President, Finance - Homebuilding Operations since August 2010.][added: 2013.]

[removed: PART II][added: PART II]

| Michelle Hairston | | 42 | | Senior Vice President, Human Resources | | 2018 |

| Stephen P. Schlageter | | 48 | | Senior Vice President, Operations and Strategy | | 2018 |

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. 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.

| James R. Ellinghausen | | 59 | | Executive Vice President, Human Resources | | 2005 |

He was appointed Area President, Southeast in November 2012; Area President, Florida in May 2012; and Division President, South Florida in 2006.

Mr. Ellinghausen was appointed Executive Vice President, Human Resources in December 2006.

At [removed: February 1, 2018,] [added: January 24, 2019,] there were [removed: 2,325] [added: 2,248] shareholders of record.

[removed: Issuer] [added: Issuer] Purchases of Equity [removed: Securities][added: Securities]

| (1) | The Board of Directors approved a share repurchase authorization totaling $1.0 billion in July [removed: 2016,] [added: 2016 and an increase] of [added: $500.0 million to such authorization in January 2018. There is no expiration date for this program, under] which [removed: $94.4] [added: $299.9] million remained available as of December 31, [removed: 2017.] [added: 2018.] During [removed: 2017,] [added: 2018,] we repurchased [removed: 35.4] [added: 10.9] million shares under this program. [removed: In January 2018, the Board of Directors approved an increase of $500.0 million to our share repurchase authorization. There is no expiration date for this program.] |

The information required by this item with respect to equity compensation plans is set forth under [Item [removed: 12](#s8376EAB0F2F4475058157CF2421EAADE)] [added: 12](#sBEB03DB69EF326A626EDCFACAAEBF746)] of this annual report on Form 10-K and is incorporated herein by reference.

[removed: Performance Graph][added: Performance Graph]

The following line graph compares, for the fiscal years ended December 31, [removed: 2013,] 2014, 2015, 2016, [removed: and] 2017, [added: and 2018,] (a) the yearly cumulative total shareholder return (i.e., the change in share price plus the cumulative amount of dividends, assuming dividend reinvestment, divided by the initial share price, expressed as a percentage) on PulteGroup’s common shares, with (b) the cumulative total return of the Standard & Poor’s 500 Stock [removed: Index,] [added: Index] and with (c) the Dow Jones U.S. Select Home Construction Index.

[removed: COMPARISON] [added: COMPARISON] OF FIVE YEAR CUMULATIVE TOTAL [removed: RETURN*][added: RETURN*]

[removed: AMONG] [added: AMONG] PULTEGROUP, INC., S&P 500 INDEX, AND PEER [removed: INDEX][added: INDEX]

[removed: Fiscal] [added: Fiscal] Year [removed: Ended December] [added: Ended December] 31, [removed: 2017][added: 2018]

[removed: ][added: ]

| | | [removed: 2012] [added: 2013] | | | | [removed: 2013] [added: 2014] | | | | [removed: 2014] [added: 2015] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2016] [added: 2017] | | | | [removed: 2017] [added: 2018] | | |

| Dow Jones U.S. Select Home Construction Index | | 100.00 | | | | [removed: 118.41] [added: 105.15] | | | | [removed: 124.50] [added: 110.88] | | | | [removed: 131.29] [added: 113.34] | | | | [removed: 134.20] [added: 181.51] | | | | [removed: 214.93] [added: 125.74] | | |

* Assumes $100 invested on December 31, [removed: 2012,] [added: 2013,] and the reinvestment of dividends.

| October 1, 2018 to October 31, 2018 | 2,431,879 | | | $ | 23.22 | | | 2,410,261 | | | $ | 366,446 | | (1) |

| November 1, 2018 to November 30, 2018 | 2,308,628 | | | 24.72 | | | | 2,308,628 | | | $ | 309,381 | | (1) |

| December 1, 2018 to December 31, 2018 | 358,596 | | | 26.49 | | | | 358,596 | | | $ | 299,882 | | (1) |

| Total | 5,099,103 | | | $ | 24.13 | | | 5,077,485 | | | | | | |

| PULTEGROUP, INC. | | $ | 100.00 | | | $ | 106.57 | | | $ | 90.01 | | | $ | 94.63 | | | $ | 173.56 | | | $ | 137.52 | |

| S&P 500 Index - Total Return | | 100.00 | | | | 113.69 | | | | 115.26 | | | | 129.05 | | | | 157.22 | | | | 150.33 | | |

Related Shareholder Matters

The table below sets forth, for the quarterly periods indicated, the range of high and low intraday sales prices for our common shares and dividend per share information:

| | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | December 31, 2017 | | | | | | | | | | | | December 31, 2016 | | | | | | | | | | |

| | High | | | | Low | | | | Declared Dividend | | | | High | | | | Low | | | | Declared Dividend | | |

| 1st Quarter | $ | 24.05 | | | $ | 18.18 | | | $ | 0.09 | | | $ | 18.82 | | | $ | 14.61 | | | $ | 0.09 | |

| 2nd Quarter | 24.73 | | | | 21.41 | | | | 0.09 | | | | 19.80 | | | | 16.60 | | | | 0.09 | | |

| 3rd Quarter | 27.51 | | | | 23.81 | | | | 0.09 | | | | 22.40 | | | | 19.04 | | | | 0.09 | | |

| 4th Quarter | 34.60 | | | | 26.68 | | | | 0.09 | | | | 20.66 | | | | 17.69 | | | | 0.09 | | |

| October 1, 2017 to October 31, 2017 | 281,900 | | | $ | 29.76 | | | 281,900 | | | $ | 336,561 | | (1) |

| November 1, 2017 to November 30, 2017 | 2,423,700 | | | 32.23 | | | | 2,423,700 | | | $ | 258,455 | | (1) |

| December 1, 2017 to December 31, 2017 | 4,877,262 | | | 33.71 | | | | 4,865,706 | | | $ | 94,441 | | (1) |

| Total | 7,582,862 | | | $ | 33.09 | | | 7,571,306 | | | | | | |

| PULTEGROUP, INC. | | $ | 100.00 | | | $ | 113.15 | | | $ | 120.58 | | | $ | 101.85 | | | $ | 107.07 | | | $ | 196.37 | |

| S&P 500 Index - Total Return | | 100.00 | | | | 132.39 | | | | 150.51 | | | | 152.59 | | | | 170.84 | | | | 208.14 | | |

| | [removed: Years] [added: Years] Ended December 31, (000’s omitted, except per share [removed: data)] [added: data)] | | | | | | | | | | | | | | | | | | |

| | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | | | [removed: 2013] [added: 2014] | | |

| [removed: OPERATING DATA:] [added: OPERATING DATA:] | | | | | | | | | | | | | | | | | | | |

| [removed: Homebuilding:] [added: Homebuilding:] | | | | | | | | | | | | | | | | | | | |

| Income before income taxes | $ | [removed: 865,332] [added: 1,288,804] | | | $ | [removed: 860,766] [added: 865,332] | | | $ | [removed: 757,317] [added: 860,766] | | | $ | [removed: 635,177] [added: 757,317] | | | $ | [removed: 479,113] [added: 635,177] | |

| [removed: Financial Services:] [added: Financial Services:] | | | | | | | | | | | | | | | | | | | |

| Revenues | $ | [removed: 192,160] [added: 205,382] | | | $ | [removed: 181,126] [added: 192,160] | | | $ | [removed: 140,753] [added: 181,126] | | | $ | [removed: 125,638] [added: 140,445] | | | $ | [removed: 140,951] [added: 125,638] | |

| Income before income taxes | $ | [removed: 73,496] [added: 58,736] | | | $ | [removed: 73,084] [added: 73,496] | | | $ | [removed: 58,706] [added: 73,084] | | | $ | [removed: 54,581] [added: 58,706] | | | $ | [removed: 48,709] [added: 54,581] | |

| [removed: Consolidated results:] [added: Consolidated results:] | | | | | | | | | | | | | | | | | | | |

| Income before income taxes | $ | [removed: 938,828] [added: 1,347,540] | | | $ | [removed: 933,850] [added: 938,828] | | | $ | [removed: 816,023] [added: 933,850] | | | $ | [removed: 689,758] [added: 816,023] | | | $ | [removed: 527,822] [added: 689,758] | |

| Income tax (expense) benefit | [removed: (491,607] [added: (325,517] | | ) | | [removed: (331,147] [added: (491,607] | | ) | | [removed: (321,933] [added: (331,147] | | ) | | [removed: (215,420] [added: (321,933] | | ) | | [removed: 2,092,294] [added: (215,420] | | [added: )] |

| Net income | $ | [removed: 447,221] [added: 1,022,023] | | | $ | [removed: 602,703] [added: 447,221] | | | $ | [removed: 494,090] [added: 602,703] | | | $ | [removed: 474,338] [added: 494,090] | | | $ | [removed: 2,620,116] [added: 474,338] | |

| [removed: PER] [added: PER] SHARE [removed: DATA:] [added: DATA:] | | | | | | | | | | | | | | | | | | | |

| [removed: Net] [added: Net] income per [removed: share:] [added: share:] | | | | | | | | | | | | | | | | | | | |

| Basic | $ | [removed: 1.45] [added: 3.56] | | | $ | [removed: 1.76] [added: 1.45] | | | $ | [removed: 1.38] [added: 1.76] | | | $ | [removed: 1.27] [added: 1.38] | | | $ | [removed: 6.79] [added: 1.27] | |

| Diluted | $ | [removed: 1.44] [added: 3.55] | | | $ | [removed: 1.75] [added: 1.44] | | | $ | [removed: 1.36] [added: 1.75] | | | $ | [removed: 1.26] [added: 1.36] | | | $ | [removed: 6.72] [added: 1.26] | |

| [removed: Number] [added: Number] of shares used in [removed: calculation:] [added: calculation:] | | | | | | | | | | | | | | | | | | | |

| Basic | [removed: 305,089] [added: 283,578] | | | | [removed: 339,747] [added: 305,089] | | | | [removed: 356,576] [added: 339,747] | | | | [removed: 370,377] [added: 356,576] | | | | [removed: 383,077] [added: 370,377] | | |

| Effect of dilutive securities | [removed: 1,725] [added: 1,287] | | | | [removed: 2,376] [added: 1,725] | | | | [removed: 3,217] [added: 2,376] | | | | [removed: 3,725] [added: 3,217] | | | | [removed: 3,789] [added: 3,725] | | |

| Diluted | [removed: 306,814] [added: 284,865] | | | | [removed: 342,123] [added: 306,814] | | | | [removed: 359,793] [added: 342,123] | | | | [removed: 374,102] [added: 359,793] | | | | [removed: 386,866] [added: 374,102] | | |

| [removed: Shareholders’ equity] [added: Shareholders’ equity] | $ | [removed: 14.49] [added: 17.39] | | | $ | 14.60 | | | $ | 13.63 | | | $ | [removed: 13.01] [added: 13.63] | | | $ | [removed: 12.19] [added: 13.01] | |

| [removed: Cash] [added: Cash] dividends [removed: declared] [added: declared] | $ | [removed: 0.36] [added: 0.38] | | | $ | 0.36 | | | $ | [removed: 0.33] [added: 0.36] | | | $ | [removed: 0.23] [added: 0.33] | | | $ | [removed: 0.15] [added: 0.23] | |

| | [removed: December 31, ($000’s omitted)] [added: December 31, ($000’s omitted)] | | | | | | | | | | | | | | | | | | |

| [removed: BALANCE] [added: BALANCE] SHEET [removed: DATA:] [added: DATA:] | | | | | | | | | | | | | | | | | | | |

| House and land inventory | $ | [removed: 7,147,130] [added: 7,253,353] | | | $ | [removed: 6,770,655] [added: 7,147,130] | | | $ | [removed: 5,450,058] [added: 6,770,655] | | | $ | [removed: 4,392,100] [added: 5,450,058] | | | $ | [removed: 3,978,561] [added: 4,392,100] | |

| Total assets | [removed: 9,686,649] [added: 10,172,976] | | | | [removed: 10,178,200] [added: 9,686,649] | | | | [removed: 9,189,406] [added: 10,178,200] | | | | [removed: 8,560,187] [added: 9,189,406] | | | | [removed: 8,719,886] [added: 8,560,187] | | |

| Notes payable | [removed: 3,006,967] [added: 3,028,066] | | | | [removed: 3,129,298] [added: 3,006,967] | | | | [removed: 2,109,841] [added: 3,129,298] | | | | [removed: 1,831,593] [added: 2,109,841] | | | | [removed: 2,051,431] [added: 1,831,593] | | |

| Shareholders’ equity | [removed: 4,154,026] [added: 4,817,782] | | | | [removed: 4,659,363] [added: 4,154,026] | | | | [removed: 4,759,325] [added: 4,659,363] | | | | [removed: 4,804,954] [added: 4,759,325] | | | | [removed: 4,648,952] [added: 4,804,954] | | |

| | [removed: Years] [added: Years] Ended December [removed: 31,] [added: 31,] | | | | | | | | | | | | | | | | | | |

| [removed: OTHER DATA:] [added: OTHER DATA:] | | | | | | | | | | | | | | | | | | | |

| Markets, at year-end | [removed: 47] [added: 44] | | | | [removed: 49] [added: 47] | | | | [removed: 50] [added: 49] | | | | [removed: 49] [added: 50] | | | | [removed: 48] [added: 49] | | |

| Active communities, at year-end | [removed: 790] [added: 815] | | | | [removed: 726] [added: 790] | | | | [removed: 620] [added: 726] | | | | [removed: 598] [added: 620] | | | | [removed: 577] [added: 598] | | |

| Closings (units) | [removed: 21,052] [added: 23,107] | | | | [removed: 19,951] [added: 21,052] | | | | [removed: 17,127] [added: 19,951] | | | | [removed: 17,196] [added: 17,127] | | | | [removed: 17,766] [added: 17,196] | | |

| Net new orders (units) | [removed: 22,626] [added: 22,833] | | | | [removed: 20,326] [added: 22,626] | | | | [removed: 18,008] [added: 20,326] | | | | [removed: 16,652] [added: 18,008] | | | | [removed: 17,080] [added: 16,652] | | |

| Backlog (units), at year-end | [removed: 8,996] [added: 8,722] | | | | [removed: 7,422] [added: 8,996] | | | | [removed: 6,731] [added: 7,422] | | | | [removed: 5,850] [added: 6,731] | | | | [removed: 5,772] [added: 5,850] | | |

| Average selling price (per unit) | $ | [removed: 395,000] [added: 425,000] | | | $ | [removed: 373,000] [added: 395,000] | | | $ | [removed: 338,000] [added: 373,000] | | | $ | [removed: 329,000] [added: 338,000] | | | $ | [removed: 305,000] [added: 329,000] | |

| Revenues | $ | 9,982,949 | | | $ | 8,385,526 | | | $ | 7,495,404 | | | $ | 5,844,658 | | | $ | 5,700,338 | |

| Revenues | $ | 10,188,331 | | | $ | 8,577,686 | | | $ | 7,676,530 | | | $ | 5,985,103 | | | $ | 5,825,977 | |

| | 2018 | | | | 2017 | | | | 2016 | | | | 2015 | | | | 2014 | | |

| | 2018 | | | | 2017 | | | | 2016 | | | | 2015 | | | | 2014 | | |

| Revenues | $ | 8,381,090 | | | $ | 7,487,350 | | | $ | 5,841,211 | | | $ | 5,696,725 | | | $ | 5,538,644 | |

| Revenues | $ | 8,573,250 | | | $ | 7,668,476 | | | $ | 5,981,964 | | | $ | 5,822,363 | | | $ | 5,679,595 | |

| Gross margin from home sales (a) | 22.4 | | % | | 25.0 | | % | | 26.9 | | % | | 26.7 | | % | | 24.1 | | % |

| | |

| --- | --- |

| (a) | Homebuilding interest expense, which represents the amortization of capitalized interest, and land impairment charges are included in home sale cost of revenues. |

[removed: PULTEGROUP, INC.][added: PULTEGROUP, INC.]

[removed: CONSOLIDATED] [added: CONSOLIDATED] BALANCE [removed: SHEETS][added: SHEETS]

[removed: December] [added: December] 31, [removed: 2017 and 2016][added: 2018 and 2017]

[removed: ($000’s] [added: ($000’s] omitted, except per share [removed: data)][added: data)]

| | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | | [added: | 2016 | | |]

| [removed: ASSETS] [added: ASSETS] | | | | | | | |

| Cash and equivalents | $ | [removed: 272,683] [added: 1,110,088] | | | $ | [removed: 698,882] [added: 272,683] | |

| Restricted cash | [removed: 33,485] [added: 23,612] | | | | [removed: 24,366] [added: 33,485] | | |

| Total cash, cash equivalents, and restricted cash | [removed: 306,168] [added: 1,133,700] | | | | [removed: 723,248] [added: 306,168] | | |

| House and land inventory | [removed: 7,147,130] [added: 7,253,353] | | | | [removed: 6,770,655] [added: 7,147,130] | | |

| Land held for sale | [removed: 68,384] [added: 36,849] | | | | [removed: 31,728] [added: 68,384] | | |

| Residential mortgage loans available-for-sale | [removed: 570,600] [added: 461,354] | | | | [removed: 539,496] [added: 570,600] | | |

| Investments in unconsolidated entities | [removed: 62,957] [added: 54,590] | | | | [removed: 51,447] [added: 62,957] | | |

| Other assets | [removed: 745,123] [added: 830,359] | | | | [removed: 857,426] [added: 745,123] | | |

| Intangible assets | [removed: 140,992] [added: 127,192] | | | | [removed: 154,792] [added: 140,992] | | |

| Deferred tax assets, net | [removed: 645,295] [added: 275,579] | | | | [removed: 1,049,408] [added: 645,295] | | |

| [removed: LIABILITIES] [added: LIABILITIES] AND SHAREHOLDERS’ [removed: EQUITY] [added: EQUITY] | | | | | | | |

| Accounts payable, including book overdrafts of [removed: $72,800] [added: $54,381] and [removed: $99,690] [added: $72,800] in [removed: 2017] [added: 2018] and [removed: 2016,] [added: 2017,] respectively | $ | [removed: 393,815] [added: 352,029] | | | $ | [removed: 405,455] [added: 393,815] | |

| Customer deposits | [removed: 250,779] [added: 254,624] | | | | [removed: 187,891] [added: 250,779] | | |

| Accrued and other liabilities | [removed: 1,356,333] [added: 1,360,483] | | | | [removed: 1,429,712] [added: 1,356,333] | | |

| Income tax liabilities | [removed: 86,925] [added: 11,580] | | | | [removed: 34,860] [added: 86,925] | | |

| Financial Services debt | [removed: 437,804] [added: 348,412] | | | | [removed: 331,621] [added: 437,804] | | |

| Notes payable | [removed: 3,006,967] [added: 3,028,066] | | | | [removed: 3,129,298] [added: 3,006,967] | | |

| Total liabilities | [removed: 5,532,623] [added: 5,355,194] | | | | [removed: 5,518,837] [added: 5,532,623] | | |

| Common shares, $0.01 par value; 500,000,000 shares authorized, [removed: 286,752,436] [added: 277,109,507] and [removed: 319,089,720] [added: 286,752,436] shares issued and outstanding at December 31, [removed: 2017] [added: 2018] and [removed: 2016,] [added: 2017,] respectively | [removed: 2,868] [added: 2,771] | | | | [removed: 3,191] [added: 2,868] | | |

| Additional paid-in capital | [removed: 3,171,542] [added: 3,201,427] | | | | [removed: 3,116,490] [added: 3,171,542] | | |

| Accumulated other comprehensive loss | [removed: (445] [added: (345] | | ) | | [removed: (526] [added: (445] | | ) |

| Retained earnings | [removed: 980,061] [added: 1,613,929] | | | | [removed: 1,540,208] [added: 980,061] | | |

| Total shareholders’ equity | [removed: 4,154,026] [added: 4,817,782] | | | | [removed: 4,659,363] [added: 4,154,026] | | |

[removed: CONSOLIDATED] [added: CONSOLIDATED] STATEMENTS OF [removed: OPERATIONS][added: OPERATIONS]

[removed: For] [added: For] the years [removed: ended December] [added: ended December] 31, [removed: 2017, 2016, and 2015][added: 2018, 2017, and 2016]

[removed: (000’s] [added: (000’s] omitted, except per share [removed: data)][added: data)]

| | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | |

| [removed: Revenues:] [added: Revenues:] | | | | | | | | | | | |

| Home sale revenues | $ | [removed: 8,323,984] [added: 9,818,445] | | | $ | [removed: 7,451,315] [added: 8,323,984] | | | $ | [removed: 5,792,675] [added: 7,451,315] | |

| Financial Services | [removed: 192,160] [added: 205,382] | | | | [removed: 181,126] [added: 192,160] | | | | [removed: 140,753] [added: 181,126] | | |

| [removed: Homebuilding] [added: Homebuilding] Cost of [removed: Revenues:] [added: Revenues:] | | | | | | | | | | | |

| Home sale cost of revenues | [removed: (6,461,152] [added: (7,540,937] | | ) | | [removed: (5,587,974] [added: (6,461,152] | | ) | | [removed: (4,235,945] [added: (5,587,974] | | ) |

| Land sale cost of revenues | [removed: (134,449] [added: (126,560] | | ) | | [removed: (32,115] [added: (134,449] | | ) | | [removed: (35,858] [added: (32,115] | | ) |

| | [removed: (6,595,601] [added: (7,667,497] | | ) | | [removed: (5,620,089] [added: (6,595,601] | | ) | | [removed: (4,271,803] [added: (5,620,089] | | ) |

| | $ | 10,172,976 | | | $ | 9,686,649 | |

| | $ | 10,172,976 | | | $ | 9,686,649 | |

PULTEGROUP, INC.

| Land sale and other revenues | 164,504 | | | | 61,542 | | | | 44,089 | | |

| | 9,982,949 | | | | 8,385,526 | | | | 7,495,404 | | |

| Total revenues | 10,188,331 | | | | 8,577,686 | | | | 7,676,530 | | |

PULTEGROUP, INC.

For the years ended December 31, 2018, 2017, and 2016

| Net income | $ | 1,022,023 | | | $ | 447,221 | | | $ | 602,703 | |

PULTEGROUP, INC.

For the years ended December 31, 2018, 2017, and 2016

(000’s omitted)

| Cumulative effect of accounting change (see [Note 1](#s59771C84F75F74BABEB4CFAC70BC21C2)) | — | | | — | | | | — | | | | — | | | | 22,411 | | | | 22,411 | | |

| Dividends declared | — | | | — | | | | — | | | | — | | | | (108,489 | | ) | | (108,489 | | ) |

| Share repurchases | (11,182 | ) | | (112 | | ) | | (284 | | ) | | — | | | | (302,077 | | ) | | (302,473 | | ) |

| Net income | — | | | — | | | | — | | | | — | | | | 1,022,023 | | | | 1,022,023 | | |

| Shareholders' Equity, December 31, 2018 | 277,110 | | | $ | 2,771 | | | $ | 3,201,427 | | | $ | (345 | ) | | $ | 1,613,929 | | | $ | 4,817,782 | |

PULTEGROUP, INC.

For the years ended December 31, 2018, 2017, and 2016

| Net income | $ | 1,022,023 | | | $ | 447,221 | | | $ | 602,703 | |

PULTEGROUP, INC.

1.

Effective with our first quarter 2018 reporting, we reclassified customer deposit income from other expense, net to land sale and other revenues.

PULTEGROUP, INC.

PULTEGROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

| Miscellaneous, net *(c)* | 7,518 | | | | (5,540 | | ) | | (25,155 | | ) |

Anti-dilutive shares were immaterial in 2018 and 2017.

PULTEGROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

| Net income | $ | 1,022,023 | | | $ | 447,221 | | | $ | 602,703 | |

| Basic | $ | 3.56 | | | $ | 1.45 | | | $ | 1.76 | |

| Diluted | $ | 3.55 | | | $ | 1.44 | | | $ | 1.75 | |

PULTEGROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Our performance obligation to deliver the agreed-upon home is generally satisfied in less than one year from the original contract date.

Home sale contract assets consist of cash from home closings held in escrow for our benefit, typically for less than five days, which are considered deposits in-transit and classified as cash.

Contract liabilities include customer deposit liabilities related to sold but undelivered homes, which totaled $254.6 million and $250.8 million at December 31, 2018 and 2017, respectively.

Substantially all of our home sales are scheduled to close and be recorded to revenue within one year from the date of receiving a customer deposit.

Land sale revenues - We periodically elect to sell parcels of land to third parties in the event such assets no longer fit into our strategic operating plans or are zoned for commercial or other development.

| | $ | 9,686,649 | | | $ | 10,178,200 | |

| | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Land sale revenues | 57,106 | | | | 36,035 | | | | 48,536 | | |

| | 8,381,090 | | | | 7,487,350 | | | | 5,841,211 | | |

| Total revenues | 8,573,250 | | | | 7,668,476 | | | | 5,981,964 | | |

| Shareholders' Equity, December 31, 2014 | 369,459 | | | $ | 3,695 | | | $ | 3,072,996 | | | $ | (690 | ) | | $ | 1,728,953 | | | $ | 4,804,954 | |

| Dividends declared | — | | | — | | | | 8 | | | | — | | | | (117,881 | | ) | | (117,873 | | ) |

| Share repurchases | (21,642 | ) | | (217 | | ) | | — | | | | — | | | | (442,521 | | ) | | (442,738 | | ) |

| Net income | — | | | — | | | | — | | | | — | | | | 494,090 | | | | 494,090 | | |

1.

Effective with our fourth quarter 2017 reporting, we reclassified limited recourse notes payable to notes payable from accrued and other liabilities and also reclassified certain timing differences between deferred tax assets and deferred tax liabilities.

| Miscellaneous, net (c) | 1,104 | | | | 17,101 | | | | 6,653 | | |

| | |

| --- | --- |

In situations where the homebuyer’s financing is originated by Pulte Mortgage and the homebuyer has not made an adequate initial or continuing investment, the profit on such sale is deferred until the sale of the related loan to a third-party investor has been completed.

If there is a loss on the sale of the property, the loss on such sale is recognized at the time of closing.

The amount of such deferred profits was not material at either December 31, 2017 or 2016.

Our evaluations for impairments are based on our best estimates of the future cash flows for our communities.

| | $ | 207,987 | | | $ | 2,462,579 | | | $ | 195,436 | | | $ | 2,102,563 | |

Start-up costs

Costs and expenses associated with opening new communities are expensed to selling, general, and administrative expenses as incurred.

Mortgage servicing, origination, and commitment fees

Loan origination costs related to residential mortgage loans available-for-sale are recognized as incurred in Financial Services expenses while the associated mortgage origination fees are recognized in Financial Services revenues as earned, generally upon loan closing.

We recognize the fair value of our rights to service a loan as revenue at the time of entering into an interest rate lock commitment with a borrower.

Due to the short period of time the servicing rights are held, we do not amortize the servicing asset.

These loans are reviewed

Title services

| | $ | 7,216 | | | $ | 2,165 | | | $ | 18,414 | | | $ | 2,368 | |

In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU No. 2014-09, "Revenue from Contracts with Customers" ("ASU 2014-09").

The FASB has also issued a number of updates to this standard.

We have substantially completed our evaluation of the impact of adopting the new revenue standard.

Based on our assessment, we do not expect the adoption of ASU 2014-09 to have a material impact on our financial statements.

In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)" ("ASU 2016-02"), which amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets.

The standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief.

We continue to evaluate the full impact of the new standard, including the impact on our business processes, systems, and internal controls.

We adopted ASU No. 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting" ("ASU 2016-09"), effective January 1, 2017.

Excess tax benefits or deficiencies for stock-based compensation are now reflected in the Consolidated Statements of Operations as a component of income tax expense, whereas previously they were recognized in equity.

We have also elected to account for forfeitures as they occur, rather than estimate expected forfeitures.

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.

[removed: Disclosure] [added: Disclosure] Controls and [removed: Procedures][added: 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, [removed: 2017.][added: 2018.]

Based upon, and as of the date of that evaluation, our President and Chief Executive Officer and Executive Vice President and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of December 31, [removed: 2017.][added: 2018.]

[removed: Internal] [added: Internal] Control Over Financial [removed: Reporting][added: Reporting]

| [removed: (a)] [added: (a)] | [removed: Management’s] [added: Management’s] Annual Report on Internal Control Over Financial [removed: Reporting] [added: Reporting] |

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, [removed: 2017.][added: 2018.]

Based on this assessment, management asserts that the Company has maintained effective internal control over financial reporting as of December 31, [removed: 2017.][added: 2018.]

Ernst & Young LLP, the independent registered public accounting firm that audited the Company’s consolidated financial statements included in this annual report, has issued its report on the effectiveness of the Company’s internal control over financial reporting as of December 31, [removed: 2017.][added: 2018.]

| [removed: (b)] [added: (b)] | [removed: Report] [added: Report] of Independent Registered Public Accounting [removed: Firm] [added: Firm] |

[removed: Opinion] [added: Opinion] on Internal Control over Financial [removed: Reporting][added: Reporting]

We have audited PulteGroup, Inc.’s internal control over financial reporting as of December 31, [removed: 2017,] [added: 2018,] based on criteria established in Internal Control- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria).

In our opinion, PulteGroup, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, [removed: 2017,] [added: 2018,] based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of [removed: PulteGroup, Inc.] [added: the Company] as of December 31, [removed: 2017 and 2016,] [added: 2018] and [added: 2017,] the related consolidated statements of operations, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, [removed: 2017 of] [added: 2018, and] the [removed: Company] [added: related notes] and our report dated [removed: February 7, 2018] [added: January 31, 2019] expressed an unqualified opinion thereon.