What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2022-02-07 compared with 2021-02-02 · 148 added, 274 removed, 903 unchanged (32% of the section changed)

52 unchanged sentences

Selling, general, and administrative expenses ( 1,208,698 ) ( 1,011,442 ) ( 1,044,337 )

Loss on debt retirement ( 61,469 ) — ( 4,927 )

Goodwill impairment — ( 20,190 ) —

33 unchanged sentences

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

Cumulative effect of accounting change (see Note 1 )

— — — — 22,411 22,411

Stock option exercises 547 5 6,394 — — 6,399

7 unchanged sentences

Shareholders' equity, December 31, 2019 270,235 $ 2,702 $ 3,235,149 $ ( 245 ) $ 2,220,574 $ 5,458,180

Cumulative effect of accounting change (see Note 1 )

— — — — ( 735 ) ( 735 )

Stock option exercises 15 1 110 — — 111

7 unchanged sentences

Shareholders' equity, December 31, 2020 266,464 $ 2,665 $ 3,261,412 $ ( 145 ) $ 3,306,057 $ 6,569,989

Cumulative effect of accounting change (see Note 1 )

— — — — ( 735 ) ( 735 )

Stock option exercises 1 — 11 — — 11

18 unchanged sentences

Land-related charges 12,302 20,305 27,101

Loss on debt retirement 61,469 — 4,927

Goodwill impairment — 20,190 —

1 unchanged sentence

Share-based compensation expense 36,745 32,843 28,368

Loss on debt retirements — 4,927 76

Other, net ( 13,504 ) ( 1,112 ) 1,155

13 unchanged sentences

Cash flows from financing activities:

Debt issuance costs — — ( 8,164 )

Repayments of notes payable ( 836,893 ) ( 65,267 ) ( 309,985 )

7 unchanged sentences

Net cash used in financing activities ( 1,678,559 ) ( 295,616 ) ( 733,560 )

Net increase 1,380,779 117,756 827,532

Net increase (decrease) ( 798,670 ) 1,380,779 117,756

Cash, cash equivalents, and restricted cash at beginning of period 2,632,235 1,251,456 1,133,700

23 unchanged sentences

The acquisition of these assets was not material to our results of operations or financial condition.

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 $ 83.3 million was paid in January 2020 while additional payments of $ 10.4 million will be settled in 2021 and 2022, respectively.

On January 24, 2020, we acquired the operations of Innovative Construction Group ("ICG"), an offsite construction framing company located in Jacksonville, Florida, for $ 104 million, of which $ 83.3 million was paid in January 2020 with additional payments of $ 10.4 million in each of 2021 and 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.

5 unchanged sentences

Actual results could differ from those estimates.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current year presentation.

Subsequent events

4 unchanged sentences

Restricted cash

We maintain certain cash balances that are restricted as to their use, including customer deposits on home sales that are temporarily restricted by regulatory requirements in certain states until title transfers to the homebuyer.

Total cash, cash

PULTEGROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Total cash, cash equivalents, and restricted cash includes restricted cash balances of $ 50.0 million and $ 33.5 million at December 31, 2020 and 2019, respectively.

equivalents, and restricted cash includes restricted cash balances of $ 54.5 million and $ 50.0 million at December 31, 2021 and 2020, respectively.

Investments in unconsolidated entities

5 unchanged sentences

We defer the recognition of profits from such activities until the time we ultimately sell the related land.

We evaluate our investments in unconsolidated entities for recoverability in accordance with ASC 323, “Investments – Equity Method and Joint Ventures” (“ASC 323”).

We evaluate our investments in unconsolidated entities for recoverability in accordance with ASC 323, “Investments – Equity Method and Joint Ventures”.

If we determine that a loss in the value of the investment is other than temporary, we write down the investment to its estimated fair value.

2 unchanged sentences

Intangible assets

Goodwill, which represents the cost of acquired businesses in excess of the fair value of the net assets of such businesses at the acquisition date, totaled $ 68.9 million and $ 40.4 million at December 31, 2020 and 2019, respectively.

Goodwill, which represents the cost of acquired businesses in excess of the fair value of the net assets of such businesses at the acquisition date, totaled $ 68.9 million at both December 31, 2021 and 2020.

We assess goodwill for impairment annually in the fourth quarter and if events or changes in circumstances indicate the carrying amount may not be recoverable.

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.

In accordance with ASC 350, "Intangibles", 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 of fair value.

18 unchanged sentences

Advertising costs

Advertising costs are expensed to selling, general, and administrative expense as incurred and totaled $ 47.2 million, $ 40.3 million, and $ 53.9 million, in 2021, 2020, and 2019, respectively.

PULTEGROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Advertising costs are expensed to selling, general, and administrative expense as incurred and totaled $ 40.3 million, $ 53.9 million, and $ 51.0 million, in 2020, 2019, and 2018, respectively.

Employee benefits

8 unchanged sentences

( 16,502 ) ( 19,685 ) ( 14,200 )

Loss on debt retirement ( Note 5 )

— ( 4,927 ) ( 76 )

Interest income 1,953 6,837 16,739

6 unchanged sentences

Basic earnings per share is computed by dividing income available to common shareholders (the “Numerator”) by the weighted-average number of common shares, adjusted for unvested shares, (the “Denominator”), for the period.

Computing diluted earnings per share is similar to computing basic earnings per share, except that the Denominator is increased to include the dilutive effects of stock options, unvested restricted share units, and other potentially dilutive instruments.

Any stock options that have an exercise price greater than the average market price of our common shares are considered anti-dilutive and excluded from the diluted earnings per share calculation.

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 unvested restricted share units and other potentially dilutive instruments.

Anti-dilutive shares were immaterial in 2021, 2020, and 2019.

In accordance with ASC 260 "Earnings Per Share" ("ASC 260"), the two-class method determines earnings per share for each class of common share and participating securities according to an earnings allocation formula that adjusts the Numerator for dividends or dividend equivalents and participation rights in undistributed earnings.

In accordance with ASC 260 "Earnings Per Share", the two-class method determines earnings per share for each class of common share and participating securities according to an earnings allocation formula that adjusts the Numerator for dividends or dividend equivalents and participation rights in undistributed earnings.

Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are participating securities and, therefore, are included in computing earnings per share pursuant to the two-class method.

10 unchanged sentences

Share-based compensation

PULTEGROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

We measure compensation cost for share-based compensation on the grant date.

1 unchanged sentence

We recognize compensation expense for restricted share units, the majority of which cliff vest at the end of three years , ratably over the vesting period.

For share-based awards containing performance conditions, we recognize compensation expense ratably over the vesting period when it is probable that the stated performance targets will be achieved and record cumulative adjustments in the period in which estimates change.

PULTEGROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

estimates change.

Compensation expense related to our share-based awards is included in selling, general, and administrative expense, except for a small portion recognized in Financial Services expenses.

Forfeitures of share-based awards are recognized as a reduction of expense as incurred.

The provision for income taxes is calculated using the asset and liability method, under which deferred tax assets and liabilities are recognized by identifying the temporary differences arising from the different treatment of items for tax and accounting purposes.

5 unchanged sentences

Unrecognized tax benefits represent the difference between tax positions taken or expected to be taken in a tax return and the benefits recognized for financial statement purposes.

We follow the provisions of ASC 740 which prescribes a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements.

We follow the provisions of ASC 740, "Income Taxes", which prescribes a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements.

Significant judgment is required to evaluate uncertain tax positions.

18 unchanged sentences

Servicing fees are based on a contractual percentage of the outstanding principal balance and are credited to income when related mortgage payments are received or the sub-servicing fees are earned.

PULTEGROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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.

1 unchanged sentence

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 $ 44.3 million and $ 38.5 million at December 31, 2021 and 2020, respectively.

Contract assets totaling $ 27.7 million were recognized on January 1, 2018, in conjunction with the adoption of Accounting Standards Codification ("ASC") 606, "Revenue from Contracts with Customers" ("ASC 606").

Refer to " New accounting pronouncements" within Note 1 for further discussion.

PULTEGROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Sales incentives

25 unchanged sentences

We record net realizable value adjustments for land held for sale within Homebuilding land sale cost of revenues.

PULTEGROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Land option agreements

5 unchanged sentences

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.

Such decisions take into

PULTEGROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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.

27 unchanged sentences

Substantially all of the loans originated by us and their related servicing rights are sold in the secondary mortgage market within a short period of time after origination, generally within 30 days.

In accordance with ASC 825, “Financial Instruments” (“ASC 825”), we use the fair value option to record residential mortgage loans available-for-sale.

Election of the fair value option for these loans allows a better offset of the changes in fair values of the loans and the derivative instruments used to economically

PULTEGROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

hedge them without having to apply complex hedge accounting provisions.

We do not designate any derivative instruments as hedges or apply the hedge accounting provisions of ASC 815, “Derivatives and Hedging" ("ASC 815").

In accordance with ASC 825, “Financial Instruments”, we use the fair value option to record residential mortgage loans available-for-sale.

Election of the fair value option for these loans allows a better offset of the changes in fair values of the loans and the derivative instruments used to economically hedge them without having to apply complex hedge accounting provisions.

We do not designate any derivative instruments as hedges or apply the hedge accounting provisions of ASC 815, “Derivatives and Hedging".

See Note 11 for discussion of the risks retained related to mortgage loan originations.

2 unchanged sentences

At December 31, 2021 and 2020, residential mortgage loans available-for-sale had an aggregate fair value of $ 947.1 million and $ 565.0 million, respectively, and an aggregate outstanding principal balance of $ 924.5 million and $ 539.1 million, respectively.

The net gain (loss) resulting from changes in fair value of these loans totaled $( 1.2 ) million , $( 0.6 ) million, and $ 0.7 million for the years ended December 31, 2020, 2019, and 2018, respectively.

These changes in fair value were substantially offset by changes in fair value of the corresponding hedging instruments.

These changes in fair value were substantially offset by changes in fair value of the corresponding derivative

PULTEGROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Net gains from the sale of mortgages during 2021, 2020, and 2019 were $ 251.3 million, $ 247.3 million, and $ 129.4 million, respectively, and have been included in Financial Services revenues .

22 unchanged sentences

We are generally not exposed to variability in cash flows of derivative instruments for more than approximately 60 days.

PULTEGROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The fair values of derivative instruments and their location in the Consolidated Balance Sheets are summarized below ($000’s omitted):

5 unchanged sentences

$ 9,723 $ 1,373 $ 16,848 $ 6,621

PULTEGROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Credit losses

1 unchanged sentence

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 December 31, 2020, we reported $ 176.2 million of assets in-scope under Accounting Standards Codification 326, "Financial Instruments - Credit Losses" ("ASC 326").

At December 31, 2021 and 2020, we reported $ 208.4 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.

2 unchanged sentences

New accounting pronouncements

On January 1, 2018, we adopted ASC 606, a comprehensive new revenue recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services and satisfaction of performance obligations to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services.

We applied the modified retrospective method to contracts that were not completed as of January 1, 2018.

Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported under the previous accounting standards.

We recorded a net increase to opening retained earnings of $ 22.4 million, net of tax, as of January 1, 2018, due to the cumulative impact of adopting ASC 606, with the impact primarily related to the recognition of contract assets for insurance brokerage commission renewals.

There was not a material impact to revenues as a result of applying ASC 606 and there have not been significant changes to our business processes, systems, or internal controls as a result of implementing the standard.

On January 1, 2019, we adopted Accounting Standards Update (“ASU”) No.

2016-02, “Leases (Topic 842)” (“ASU 2016-02”) and related amendments using a modified retrospective approach with an effective date as of January 1, 2019.

ASU 2016-02 requires leases with durations greater than 12 months to be recorded on balance sheet in our consolidated financial statements.

Prior year financial statements were not required to be recast under the new standard and, therefore, have not been reflected as such in our consolidated financial statements.

We elected the package of transition practical expedients, which allowed us to carry forward our historical assessment of (1) whether contracts are or contain leases, (2) lease classification, and (3) initial direct costs.

The adoption of ASU 2016-02 had no impact on retained earnings.

See Note 11 “Leases” for additional information about this adoption.

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.

2 unchanged sentences

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.

On January 1, 2020, we adopted ASU No.

2017-04, "Intangibles - Goodwill and Other (Topic 350):

1 unchanged sentence

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.

The standard was followed in the previously mentioned assessment of the ICG goodwill.

On January 1, 2019, we adopted Accounting Standards Update (“ASU”) No.

2016-02, “Leases (Topic 842)” (“ASU 2016-02”) and related amendments using a modified retrospective approach with an effective date as of January 1, 2019.

ASU 2016-02 requires leases with durations greater than 12 months to be recorded on balance sheet in our consolidated financial statements.

The adoption of ASU 2016-02 had no impact on retained earnings.

See Note 11 “Leases” for additional information about this adoption.

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848)”, as amended by ASU 2021-01 in January 2021, which provides optional expedients and exceptions for applying U.S.

GAAP to contracts, hedging relationships, and other transactions affected by the cessation of the London Interbank Offered Rate ("LIBOR") or by another reference rate expected to be discontinued.

The guidance was effective beginning March 12, 2020 and can be applied prospectively through December 31, 2022.

We are currently evaluating the effect that such new guidance will have on our consolidated financial statements and related disclosures, but do not expect that the adoption will have a material impact on our consolidated financial statements or related disclosures.

PULTEGROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

In December 2019, the FASB issued ASU No.

2019-12, "Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes" ("ASU 2019-12"), which is intended to simplify various aspects related to accounting for income taxes.

ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application.

ASU 2019-12 is effective for the Company beginning January 1, 2021.

We do not expect ASU 2019-12 to have a material impact on our financial statements.

Inventory and land held for sale

19 unchanged sentences

Total land-related charges $ 12,302 $ 20,305 $ 27,101

Land-related charges have not been a significant broad-based issue since the U.S.

housing recovery began in 2012.

However, we experienced changes to facts and circumstances related to specific individual communities in 2018 that elevated such charges.

Land impairments relate to communities that are either active or that we intend to eventually open and build out.

On a quarterly basis, we review each of our land positions for potential indicators of impairment and perform detailed impairment calculations for communities that display indicators of potential impairment.

• In 2020 and 2019, we recorded impairment charges of $ 7.0 million and $ 8.6 million, respectively, relating to a number of communities where we experienced slower sales paces and lower average selling prices.

• In 2018, we received an unfavorable determination related to one of our communities that had been idle while pursuing entitlements for over 10 years.

This unfavorable determination caused a significant reduction in the number of lots and

PULTEGROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

necessitated certain changes to the expected product offering and land development that, combined with rising costs and a softening in demand in the applicable local market, resulted in an impairment of $ 59.2 million.

Impairments for all other communities in 2018 totaled $ 11.8 million.

We determine the fair value of a community's inventory using a combination of discounted cash flow models and market comparable transactions, where available.

These estimated cash flows are significantly impacted by estimates related to expected average selling prices, expected sales paces, expected land development and construction timelines, and anticipated land development, construction, and overhead costs.

The assumptions used in the cash flow models are specific to each community and typically do not assume improvements in market conditions in the near term.

The discount rate used in determining each community's fair value depends on the stage of development of the community and other specific factors that increase or decrease the inherent risks associated with the community's cash flow streams.

Accordingly, determining the fair value of a community's inventory involves a number of variables, many of which are interrelated.

The table below summarizes certain quantitative unobservable inputs utilized in determining the fair value of impaired communities ($000's omitted):

Communities Impaired Fair Value of Communities Impaired, Net of Impairment Charges Impairment Charges Average Selling Price Quarterly Sales Pace (homes) Discount Rate

2020 3 $ 15,641 $ 7,044 $ 305 to $ 878

2019 5 $ 10,702 $ 8,617 $ 284 to $ 550

2018 8 $ 24,062 $ 70,695 $ 287 to $ 586

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

Due to uncertainties in the estimation process, the significant volatility in demand for new housing, the long life cycles of certain of our communities, and potential changes in our strategy related to certain communities, actual results could differ significantly from such estimates.

PULTEGROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Segment information

6 unchanged sentences

Illinois, Indiana, Kentucky, Michigan, Minnesota, Ohio

Arizona, California, Nevada, New Mexico, Washington

Arizona, California, Colorado, Nevada, New Mexico, Washington

PULTEGROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

We also have a reportable segment for our Financial Services operations, which consist principally of mortgage banking, title, and insurance brokerage operations.

21 unchanged sentences

Texas 322,979 242,383 195,751

424,803 386,361 511,828

Other homebuilding (e)

West 594,976 424,803 386,361

Other homebuilding (d)

( 134,405 ) ( 96,201 ) ( 131,869 )

3 unchanged sentences

(a) Includes certain land-related charges (see the following table and Note 2 ).

(b) Includes warranty charges totaling $ 14.8 million in 2019 related to a closed-out community in Southeast (see Note 11 ).

(b) Includes warranty charges totaling $ 14.8 million in 2019 related to a closed-out community (see Note 11 ).

(d) Other homebuilding includes the amortization of intangible assets, amortization of capitalized interest, and other items not allocated to the operating segments.

Also included are insurance reserve reversals of $ 81.1 million, $ 93.4 million, and $ 49.4 million in 2021, 2020 and 2019, respectively, partially offset by reserves against insurance receivables of $ 17.8 million and $ 22.6 million in 2020 and 2019, respectively (see Note 11 ) and a loss on debt retirement of $ 61.5 million in 2021 (see Note 5 ).

PULTEGROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(d) West includes gains of $26.4 million in 2018 related to two land sale transactions in California.

(e) Other homebuilding includes the amortization of intangible assets, amortization of capitalized interest, and other items not allocated to the operating segments.

Also included are write-offs of insurance receivables associated with the resolution of certain insurance matters totaling $ 22.6 million in 2019 (see Note 11 ), and general liability insurance reserve reversals of $ 93.4 million, $ 49.4 million, and $ 35.9 million in 2020, 2019 and 2018, respectively (see Note 11 ).

Operating Data by Segment ($000's omitted)

23 unchanged sentences

West 11,898 11,450 9,317

Other homebuilding (a)

26,459 19,553 18,908

Other homebuilding 24,811 26,459 19,553

64,249 61,109 48,895

1 unchanged sentence

$ 69,953 $ 66,081 $ 53,999

(a) Other homebuilding includes amortization of intangible assets .

PULTEGROUP, INC.

7 unchanged sentences

Northeast $ 285,975 $ 246,128 $ 17,554 $ 549,657 $ 644,019

Southeast (a)

465,950 645,408 69,937 1,181,295 1,296,382

Southeast 604,310 537,072 67,815 1,209,197 1,362,852

943,110 866,266 289,388 2,098,764 2,545,457

2 unchanged sentences

West 1,235,457 1,191,834 227,850 2,655,141 2,955,283

Other homebuilding (c)

Other homebuilding (b)

48,039 276,511 16,936 341,486 2,314,839

7 unchanged sentences

Northeast $ 342,737 $ 203,561 $ 68,865 $ 615,163 $ 712,205

Southeast (a)

Southeast 465,950 645,408 69,937 1,181,295 1,296,382

638,394 921,962 116,709 1,677,065 1,967,788

Florida 539,895 894,716 99,228 1,533,839 1,700,198

Midwest 364,839 424,169 18,173 807,181 911,984

1 unchanged sentence

West 874,673 1,212,730 142,380 2,229,783 2,519,724

Other homebuilding (c)

Other homebuilding (b)

45,891 270,595 15,652 332,138 3,149,871

2 unchanged sentences

$ 3,086,740 $ 4,137,318 $ 497,740 $ 7,721,798 $ 12,205,498

(a) Southeast includes goodwill of $ 40.4 million at December 31, 2020 and 2019.

(b) Florida includes goodwill of $ 28.6 million at December 31, 2020, net of a goodwill impairment charge of $ 20.2 million recorded during 2020.

(c) 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.

PULTEGROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(a) Florida includes goodwill of $ 28.6 million at December 31, 2021 and 2020, net of a goodwill impairment charge of $ 20.2 million recorded during 2020.

(b) 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.

Investments in unconsolidated entities

5 unchanged sentences

We made capital contributions to our unconsolidated joint ventures of $ 101.6 million, $ 0.8 million, and $ 9.5 million in 2021, 2020, and 2019, respectively.

The timing of cash flows related to a joint venture and any related financing agreements varies by agreement.

At December 31, 2021, aggregate outstanding debt of unconsolidated joint ventures was $ 63.9 million, of which $ 41.0 million was related to one joint venture in which we have a 50% interest.

In connection with this loan, we and our joint venture partner provided customary limited recourse guaranties in which our maximum financial loss exposure is limited to our pro rata share of the debt outstanding.

The limited guaranties include, but are not limited to:

(i) completion of certain aspects of the project;

PULTEGROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(ii) an environmental indemnity provided to the lender;

and (iii) indemnification rights of the lender from certain specified acts and omissions of the joint venture.

The timing of cash flows related to a joint venture and any related financing agreements varies by agreement (see Note 5 ).

If additional capital contributions are required and approved by the joint venture, we would need to contribute our pro rata portion of those capital needs in order to not dilute our ownership in the joint ventures.

28 unchanged sentences

The stated interest rates on these notes range up to 6 %.

Such notes payable issued to acquire land inventory totaled $ 50.9 million, $ 52.0 million, and $ 41.8 million in 2021, 2020, and 2019, respectively.

We retired outstanding debt totaling $ 836.9 million, $ 65.3 million, and $ 310.0 million during 2021, 2020, and 2019, respectively.

The retirements in 2019 included a tender offer to retire $ 274.0 million of our unsecured senior notes maturing in 2021 which resulted in a loss of $ 4.9 million, which included the write-off of debt issuance costs, unamortized discounts and premiums, and transaction fees related to the repurchased debt, and which is reflected in other expense, net.

In January 2021, the Company announced a tender offer expected to be completed in February 2021 for up to $ 300 million of our senior notes scheduled to mature in 2026 and 2027.

PULTEGROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The retirements in 2021 included a tender offer to retire $ 200.0 million and $ 100.0 million of our unsecured notes scheduled to mature in 2026 and 2027, respectively.

We also retired $ 274.0 million of unsecured senior notes pursuant to a tender offer in 2019.

The retirements in 2021 and 2019 resulted in losses of $ 61.5 million and $ 4.9 million, respectively, which included the write-off of debt issuance costs, unamortized discounts and premiums, and transaction fees related to the repurchased debt, and which is reflected in other expense, net.

Revolving credit facility

1 unchanged sentence

The Revolving Credit Facility also provides for the issuance of letters of credit that reduce the available borrowing capacity under the Revolving Credit Facility, with a sublimit of $ 500.0 million at December 31, 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.

The interest rate on borrowings under the Revolving Credit Facility may be based on

PULTEGROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

either the London Interbank Offered Rate ("LIBOR") or a base rate plus an applicable margin, as defined therein.

In the event that LIBOR is no longer widely available, the agreement contemplates transitioning to an alternative widely available market rate agreeable between the parties.

7 unchanged sentences

Financial Services debt

Pulte Mortgage maintains a master repurchase agreement with third party lenders (the "Repurchase Agreement") that matures in July 2021.

Pulte Mortgage maintains a master repurchase agreement with third party lenders (the "Repurchase Agreement") that matures on July 28, 2022.

The maximum aggregate commitment was $ 650.0 million during the seasonally high borrowing period from December 27, 2021 through January 13, 2022.

At all other times, the maximum aggregate commitment ranges from $ 460.0 million to $ 550.0 million.

The purpose of the changes in capacity during the term of the agreement is to lower associated fees during seasonally lower volume periods of mortgage origination activity.

Borrowings under the Repurchase Agreement are secured by residential mortgage loans available-for-sale.

6 unchanged sentences

Shareholders’ equity

Our declared quarterly cash dividends totaled $ 135.1 million, $ 124.4 million, and $ 108.5 million in 2020, 2019, and 2018, respectively.

We declared quarterly cash dividends totaling $ 148.1 million, $ 135.1 million, and $ 124.4 million in 2021, 2020, and 2019, respectively.

Under a share repurchase program authorized by our Board of Directors, we repurchased 17.7 million, 4.5 million, and 8.4 million shares in 2021, 2020, and 2019, respectively, for a total of $ 897.3 million, $ 170.7 million, and $ 274.3 million in 2021, 2020, and 2019, respectively.

At December 31, 2021, we had remaining authorization to repurchase $ 457.6 million of common shares.

This share repurchase authorization was increased by $1.0 billion on January 31, 2022.

Under our stock compensation plans, we accept shares as payment under certain conditions related to stock option exercises and vesting of restricted shares and share units, generally related to the payment of tax obligations.

1 unchanged sentence

Such share transactions are excluded from the above noted share repurchase authorization.

PULTEGROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Stock compensation plans

We maintain a stock award plan for both employees and non-employee directors.

The plan provides for the grant of a variety of equity awards, including options (generally non-qualified options), restricted share units ("RSUs"), and performance shares to key employees (as determined by the Compensation and Management Development Committee of the Board of Directors) for periods not to exceed ten years .

The plan provides for the grant of a variety of equity awards, including options (generally non-qualified options), restricted share units ("RSUs"), and performance units to key employees (as determined by the Compensation and Management Development Committee of the Board of Directors) for periods not to exceed ten years .

Non-employee directors are awarded an annual distribution of common shares.

Options granted to employees generally vest incrementally over four years and are generally exercisable for ten years from the vest date.

Options granted to employees generally vest over four years and are generally exercisable for ten years from the vest date.

RSUs represent the right to receive an equal number of common shares and are converted into common shares upon distribution.

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RSU holders receive cash dividends during the vesting period.

Performance shares vest upon attainment of the stated performance targets and minimum service requirements and are converted into common shares upon distribution.

Performance shares vest upon attainment of the stated performance targets and minimum service requirements and are converted into common shares upon

PULTEGROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

distribution.

As of December 31, 2021, there were 22.6 million shares that remained available for grant under the plan.

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Stock options

A summary of stock option activity is presented below (000’s omitted, except per share data):

2020 2019 2018

Shares Weighted-

Price Shares Weighted-

Outstanding, beginning of year 16 $ 8 563 $ 12 1,168 $ 11

Granted — — — — — —

Exercised ( 15 ) 8 ( 547 ) 12 ( 605 ) 11

Forfeited — — — — — —

Outstanding, end of year 1 $ 8 16 $ 8 563 $ 12

Options exercisable at year end 1 $ 8 16 $ 8 563 $ 12

We did not issue any stock options during 2020, 2019, or 2018.

We did not issue any stock options during 2021, 2020, or 2019 and stock options outstanding at December 31, 2021, 2020, and 2019 were de minimis.

As a result, there is no unrecognized compensation cost related to stock option awards at December 31, 2021.

The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option.

The aggregate intrinsic value of stock options that were exercised during 2020, 2019, and 2018 was $ 0.4 million, $ 10.5 million, and $ 11.7 million, respectively.

RSUs and performance shares

A summary of RSUs and performance shares is presented below (000’s omitted, except per share data):

PULTEGROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The aggregate intrinsic value of stock options that were exercised during 2019 was $ 10.5 million and was de minimis in 2021 and 2020.

RSUs and performance units

A summary of RSUs and performance units is presented below (000’s omitted, except per share data):

2021 2020 2019

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Outstanding, end of year 1,995 $ 39 2,001 $ 33 2,528 $ 26

Vested, end of year 184 $ 24 153 $ 20 129 $ 21

During 2021, 2020, and 2019, the total fair value of shares vested during the year was $ 30.5 million, $ 43.3 million, and $ 32.1 million, respectively.

Unamortized compensation cost related to restricted share awards was $ 27.9 million at December 31, 2021.

These costs will be expensed over a weighted-average period of approximately 2 years.

Additionally, there were 0.2 million RSUs outstanding at December 31, 2020, that had vested but had not yet been paid out because the payout date had been deferred by the holders.

These costs will be expensed over a weighted-average period of approximately two years .

Additionally, there were 0.2 million deferred shares at December 31, 2021, that had vested but had not yet been paid out because the payout date had been deferred by the holders.

Long-term incentive plans

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Liabilities for these awards totaled $ 22.6 million and $ 19.1 million at December 31, 2021 and 2020, respectively.

PULTEGROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Components of current and deferred income tax expense (benefit) are as follows ($000’s omitted):

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Income tax expense (benefit) $ 563,525 $ 321,855 $ 322,876

PULTEGROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following table reconciles the statutory federal income tax rate to the effective income tax rate:

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State and local income taxes, net of federal tax 3.3 3.3 3.7

Tax accounting method change — — ( 2.5 )

Federal tax credits ( 1.2 ) ( 4.8 ) ( 0.2 )

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Effective rate 22.5 % 18.6 % 24.1 %

The 2020 effective tax rate differs from the federal statutory rate primarily due to benefits associated with the federal energy efficient home credits and changes in valuation allowances relating to projected utilization of certain state net operating loss ("NOL") carryforwards, partially offset by state income tax expense on current year earnings.

Income tax expense for 2020 includes a benefit of $ 82.0 million associated with the extension of federal energy efficient home credits, including $ 56.8 million related to homes closed in prior open tax years.

This provision, which had previously expired in 2017, has been extended to apply to homes closed through December 31, 2021.

The 2021 and 2020 effective tax rates differ from the federal statutory rate primarily due to state income tax expense and benefits associated with federal energy efficient home credits, and changes in valuation allowances relating to projected utilization of certain state net operating loss ("NOL") carryforwards.

Income tax expense for 2021 and 2020 includes benefits associated with the extension of federal energy efficient home credits, including $ 56.8 million in 2020 related to homes closed in prior open tax years.

This provision, which had previously expired in 2017, was extended to apply to homes closed through December 31, 2021.

The 2019 effective tax rate differs from the federal statutory rate primarily due to state income tax expense on current year earnings, changes in valuation allowances relating to projected utilization of certain state NOL carryforwards, and state tax law changes.

The 2018 effective tax rate differs from the federal statutory rate primarily due to state income tax expense on current year earnings, tax benefits due to Internal Revenue Service ("IRS") acceptance of a tax accounting method change applicable to the 2017 tax year, valuation allowances relating to projected utilization of certain NOL carryforwards, and state tax law changes.

The acceptance of the tax accounting method change provided a deferral of profit on home sales, which resulted in a favorable adjustment in 2018 due to the tax rate reduction in the Tax Act.

Deferred tax assets and liabilities reflect temporary differences arising from the different treatment of items for tax and accounting purposes.

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Inventory valuation reserves 62,806 78,518

State NOL carryforwards 144,746 184,046

Other 73,506 64,030

NOL carryforwards:

Federal — 12,962

State 184,046 200,710

Tax credits 5,344 8,648

413,444 462,297

4 unchanged sentences

Valuation allowance ( 25,165 ) ( 69,813 )

Net deferred tax asset $ 32,719 $ 170,107

Net deferred tax asset (liability) $ ( 26,481 ) $ 32,719

PULTEGROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

We have state NOLs in various jurisdictions which may generally be carried forward up to 20 years, depending on the jurisdiction.

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$ 28.6 million from 2022 to 2026 and $ 116.1 million from 2027 and thereafter.

PULTEGROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

We evaluate our deferred tax assets each period to determine if a valuation allowance is required based on whether it is "more likely than not" that some portion of the deferred tax assets would not be realized.

The ultimate realization of these deferred tax assets is dependent upon the generation of sufficient taxable income during future periods.

We conduct our evaluation by considering all available positive and negative evidence.

This evaluation considers, among other factors, historical operating results, forecasts of future profitability, the duration of statutory carryforward periods, and the outlooks for the U.S.

We conduct our evaluation by considering all available positive and negative evidence, including, among other factors, historical operating results, forecasts of future profitability, the duration of statutory carryforward periods, and the outlooks for the U.S.

housing industry and broader economy.

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Decreases related to settlements with taxing authorities — ( 7,465 ) ( 1,044 )

Decreases related to lapse of the applicable statute of limitations ( 1,118 ) — —

Unrecognized tax benefits, end of period $ 22,536 $ 30,855 $ 40,300

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The statute of limitations for our major tax jurisdictions remains open for examination for tax years 2017 to 2021.

PULTEGROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Fair value disclosures

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Level 3 Fair value determined using significant unobservable inputs, such as pricing models, discounted cash flows, or similar techniques

PULTEGROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Our assets and liabilities measured or disclosed at fair value are summarized below ($000’s omitted):

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House and land inventory Level 3 $ — $ 582

Land held for sale Level 2 — 4,193

Disclosed at fair value:

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If quoted market prices are not available, fair values are based on quoted market prices of similar issues .

The carrying value of the senior notes payable was $ 2.7 billion at both December 31, 2020 and 2019.

The carrying value of the senior notes payable was $ 2.0 billion and $ 2.7 billion at December 31, 2021 and 2020, respectively.

PULTEGROUP, INC.

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228,314 210,217

Prepaid expenses 128,472 123,220

Deposits and pre-acquisition costs (Note 1)

404,922 291,864

Prepaid expenses 159,683 128,472

Property and equipment, net (Note 1)

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Compensation-related liabilities 261,096 218,013

Lease liabilities ( Note 11 )

91,365 91,408

Warranty liabilities (Note 11)

107,117 82,744

Lease liabilities ( Note 11 )

92,663 91,365

Accrued interest 42,591 50,950

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Estimating the required liability for these potential losses requires a significant level of management judgment.

During 2020 and 2018, we increased our loan origination liabilities by $ 26.4 million and $ 16.1 million, respectively, based on settlements of a number of claims related to loans originated prior to 2009.

During 2020, we increased our loan origination liabilities by $ 26.4 million based on settlements of a number of claims related to loans originated prior to 2009.

Reserves provided (released) are reflected in Financial Services expenses.

C hanges in these liabilities were as follows ($000's omitted):

Changes in these liabilities were as follows ($000's omitted):

2021 2020 2019

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This debt is typically paid by subsequent special assessments levied by the CDD on the landowners.

Generally, we are only responsible for paying the special assessments for the period during which we are the landowner of the applicable parcels and reflect our estimated obligations as part of our land development budgets.

Generally, we are only responsible for paying the special assessments for the period during which we are the landowner of the applicable parcels and include our estimated obligations as part of our land development budgets.

Letters of credit and surety bonds

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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

We are involved in litigation and legal claims in the normal course of our business operations, including actions brought on behalf of various classes of claimants.

PULTEGROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

practices, and protection of the environment.

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.

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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.

However, we retain a significant portion of the overall risk for such claims either through our own self-insured per occurrence and aggregate retentions, deductibles, policies issued by our captive insurance subsidiaries, and any potential claims in excess of available insurance policy limits.

Our general liability insurance includes coverage for certain construction defects.

While construction defect claims can relate to a variety of circumstances, the majority of our claims relate to alleged problems with siding, windows, roofing, and foundations.

The availability of general liability insurance for the homebuilding industry and its subcontractors has become increasingly limited, and the insurance policies available require companies to maintain significant per occurrence and aggregate retention levels.

In certain instances, we may offer our subcontractors the opportunity to purchase insurance through one of our captive insurance subsidiaries or participate in a project-specific insurance program provided by us.

Policies issued by the captive insurance subsidiaries represent self-insurance of these risks by us.

While construction defect claims may relate to a variety of issues, the majority of our claims relate to alleged problems with siding, windows, roofing, and foundations.

The availability of general liability insurance for the homebuilding industry and its subcontractors has become increasingly limited, and the insurance policies available require companies to retain significant per occurrence and aggregate retention levels.

In certain instances, we may offer our subcontractors the opportunity to purchase general liability insurance through one of our captive insurance subsidiaries or participate in a project-specific insurance program.

Policies issued by our captive insurance subsidiaries represent self-insurance of these risks by us.

This self-insured exposure is limited by reinsurance policies that we purchase.

General liability coverage for the homebuilding industry is complex, and our coverage varies from policy year to policy year.

Our insurance coverage requires a per occurrence deductible up to an overall aggregate retention level.

Beginning with the first dollar, amounts paid to satisfy insured claims apply to our per occurrence and aggregate retention obligations.

Any amounts incurred in excess of the occurrence or aggregate retention levels are covered by insurance up to our purchased coverage levels.

Our insurance policies, including the captive insurance subsidiaries' reinsurance policies, are maintained with highly-rated underwriters for whom we believe counterparty default risk is not significant.

At any point in time, we are managing over 1,000 individual claims related to general liability, property, errors and omission, workers compensation, and other business insurance coverage.

We reserve for costs associated with such claims (including expected claims management expenses) on an undiscounted basis at the time revenue is recognized for each home closing and evaluate the recorded liabilities based on actuarial analyses of our historical claims.

The actuarial analyses calculate estimates

Our insurance coverage requires a per occurrence retention up to an overall aggregate amount.

Amounts paid to resolve insured claims apply to our per occurrence and aggregate retention obligations.

Any amounts incurred in excess of the occurrence or aggregate retention levels are covered by insurance up to the purchased coverage levels.

Our insurance policies, including the captive insurance subsidiaries' reinsurance policies, are maintained with highly-rated carriers for whom we believe counterparty default risk is not significant.

At any point in time, we are managing approximately 1,000 individual claims related to general liability, property, errors and omission, workers compensation, and other business insurance coverage.

We reserve for costs associated with these claims (including expected claims management expenses) on an undiscounted basis at the time revenue is recognized for each home closing and evaluate the recorded liabilities based on actuarial analyses of our historical claims.

The actuarial analyses calculate

PULTEGROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

of the ultimate net cost of all unpaid losses, including estimates for incurred but not reported losses ("IBNR").

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.

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The recorded reserves include loss estimates related to both (i) existing claims and related claim expenses and (ii) IBNR and related claim expenses.

Liabilities related to IBNR and related claim expenses represented approximately 68 % of the total general liability reserves at both December 31, 2020 and 2019.

Liabilities related to IBNR and related claim expenses represented approximately 70 % and 68 % of the total general liability reserves at December 31, 2021 and 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.

Volatility in both national and local housing market conditions can affect the frequency and cost of construction defect claims.

Volatility in both national and local housing market conditions may affect the frequency and cost of construction defect claims.

Additionally, IBNR estimates comprise the majority of our liability and are subject to a high degree of uncertainty due to a variety of factors, including changes in claims reporting and resolution patterns, third party recoveries, insurance industry practices, the regulatory environment, and legal precedent.

State regulations vary, but construction defect claims are reported and resolved over an extended period often exceeding ten years.

State regulations vary, but construction defect claims are reported and resolved over an extended time period often exceeding ten years.

Changes in the frequency and timing of reported claims and estimates of specific claim values can impact the underlying inputs and trends utilized in the actuarial analyses, which could have a material impact on the recorded reserves.

Additionally, the amount of insurance coverage available for each policy period also impacts our recorded reserves.

Because of the inherent uncertainty in estimating future losses and the timing of such losses related to these claims, actual costs could differ significantly from estimated costs.

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The insurance receivables relate to costs incurred or to be incurred to perform corrective repairs, settle claims with customers, and other costs related to the continued progression of both known and anticipated future construction defect claims that we believe to be insured related to previously closed homes.

Given the complexity inherent with resolving construction defect claims in the homebuilding industry as described above, there generally exists a significant lag between our payment of claims and our reimbursements from applicable insurance carriers.

Given the complexity inherent with resolving construction defect claims in the homebuilding industry as described above, there typically is a significant lag between our payment of claims and our reimbursements from applicable insurance carriers.

In addition, disputes between homebuilders and carriers over coverage positions relating to construction defect claims are common.

Resolution of claims with carriers involves the exchange of significant amounts of information and frequently involves legal action.

Resolution of claims with carriers takes time, involves the exchange of significant amounts of information, and frequently involves legal action.

PULTEGROUP, INC.

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We recorded an additional $ 16.2 million and $ 13.0 million of lease liabilities under operating leases during 2021 and 2020, respectively.

Payments on lease liabilities during 2020 and 2019 and totaled $ 19.8 million and $ 23.4 million, respectively.

Payments on lease liabilities during 2021 and 2020 totaled $ 20.8 million and $ 19.8 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.

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(c) The weighted average remaining lease term and weighted average discount rate used in calculating our lease liabilities were 5.3 years and 5.5 %, respectively, at December 31, 2021.

PULTEGROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Quarterly results (unaudited)

UNAUDITED QUARTERLY INFORMATION

(000’s omitted, except per share data)

Quarter Total (a)

Homebuilding:

Revenues $ 2,240,430 $ 2,498,979 $ 2,848,086 $ 3,086,418 $ 10,673,913

Cost of revenues ( 1,709,879 ) ( 1,900,250 ) ( 2,152,243 ) ( 2,320,077 ) ( 8,082,449 )

Income before income taxes (b)

244,218 396,585 420,103 481,151 1,542,057

Financial Services:

Revenues $ 54,550 $ 94,802 $ 106,871 $ 105,945 $ 362,169

Income before income taxes (c)

19,551 60,424 64,064 42,599 186,637

Consolidated results:

Revenues $ 2,294,980 $ 2,593,781 $ 2,954,957 $ 3,192,363 $ 11,036,082

Income before income taxes 263,769 457,009 484,167 523,750 1,728,694

Income tax expense (d)

( 60,058 ) ( 108,389 ) ( 67,769 ) ( 85,639 ) ( 321,855 )

Net income $ 203,711 $ 348,620 $ 416,398 $ 438,111 $ 1,406,839

Net income per share:

Basic $ 0.75 $ 1.29 $ 1.54 $ 1.62 $ 5.19

Diluted $ 0.74 $ 1.29 $ 1.54 $ 1.62 $ 5.18

Number of shares used in calculation:

Basic 270,000 268,324 268,363 267,561 268,553

Effect of dilutive securities 1,218 701 598 666 861

Diluted 271,218 269,025 268,961 268,227 269,414

(a) Due to rounding, the sum of quarterly results may not equal the total for the year.

Additionally, quarterly and year-to-date computations of per share amounts are made independently.

(b) Homebuilding income before income taxes includes a goodwill impairment charge of $ 20.2 million during the 1st Quarter (see Note 1 );

insurance reserve reversals of $ 93.4 million, of which $ 60.7 million and $ 34.1 million occurred during the 2nd and 4th Quarter, respectively (see Note 11 );

and reserves against insurance receivables of $ 17.8 million during the 4th Quarter.

(c) Financial Services income before income taxes includes $ 26.4 million of mortgage repurchase reserve charges, of which $ 22.0 million occurred during the 4th Quarter (see Note 11 ).

(d) Income tax expense includes energy efficient homes tax credits of $ 82.0 million, of which $ 53.2 million and $ 24.0 million occurred during the 3rd and 4th Quarter, respectively (see Note 8 ).

PULTEGROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

UNAUDITED QUARTERLY INFORMATION

(000’s omitted, except per share data)

Quarter Total (a)

Homebuilding:

Revenues $ 1,952,831 $ 2,433,028 $ 2,645,550 $ 2,947,116 $ 9,978,526

Cost of revenues (b)

( 1,494,841 ) ( 1,874,369 ) ( 2,035,972 ) ( 2,279,615 ) ( 7,684,798 )

Income before income taxes (c)

204,294 295,698 333,862 402,407 1,236,261

Financial Services:

Revenues $ 43,862 $ 55,957 $ 64,815 $ 69,797 $ 234,431

Income before income taxes 12,409 25,078 32,284 33,544 103,315

Consolidated results:

Revenues $ 1,996,693 $ 2,488,985 $ 2,710,365 $ 3,016,913 $ 10,212,957

Income before income taxes 216,703 320,776 366,146 435,951 1,339,576

Income tax expense ( 49,946 ) ( 79,735 ) ( 93,042 ) ( 100,153 ) ( 322,876 )

Net income $ 166,757 $ 241,041 $ 273,104 $ 335,798 $ 1,016,700

Net income per share:

Basic $ 0.59 $ 0.86 $ 0.99 $ 1.23 $ 3.67

Diluted $ 0.59 $ 0.86 $ 0.99 $ 1.22 $ 3.66

Number of shares used in calculation:

Basic 277,637 276,652 272,992 270,843 274,495

Effect of dilutive securities 1,003 932 640 632 802

Diluted 278,640 277,584 273,632 271,475 275,297

(a) Due to rounding, the sum of quarterly results may not equal the total for the year.

Additionally, quarterly and year-to-date computations of per share amounts are made independently.

(b) Cost of revenues includes a warranty charge related to a close-out community of $ 14.8 million, of which $ 9.0 million occurred during the 3rd Quarter (see Note 11 ).

(c) Homebuilding income before income taxes includes an insurance reserve reversal of $ 12.8 million and $ 31.1 million during the 2nd and 4th Quarters, respectively;

and write-offs of insurance receivables of $ 11.6 million and $ 12.6 million in the 1st and 2nd Quarters, respectively (see Note 11 ).

Report of Independent Registered Public Accounting Firm

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosures to which it relates.

Self-insured Risks

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We compared the Company's self-insurance reserve (inclusive of the IBNR estimate) to a range developed by our actuarial specialists based on independently selected assumptions.

Land Impairments

Description of the Matter At December 31, 2020, the Company’s house and land inventory was $7.7 billion.

As more fully described in Notes 1 and 2 to the consolidated financial statements, the Company assesses each community to identify indicators of potential impairment.

When an indicator of potential impairment is identified, the Company evaluates the recoverability of the community by comparing the expected undiscounted cash flows for the community to its carrying value.

For any community whose carrying value exceeds the expected undiscounted cash flows, the Company estimates the fair value of the community, and impairment charges are recorded if the carrying value of the community exceeds its fair value.

The Company recognized impairment charges of $7.0 million for the year ended December 31, 2020.

Auditing the Company's projected future undiscounted cash flows for a community involves subjectivity as estimates of such cash flows are sensitive to significant assumptions such as expected average selling prices and anticipated land development and house construction costs specific to each community.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s processes used to estimate the undiscounted cash flows of its communities with indicators of potential impairment.

For example, we tested controls over the appropriateness of the assumptions and the completeness and accuracy of the data that management used in the undiscounted cash flow models.

Our testing of the Company’s undiscounted cash flow models included, among other audit procedures, assessing the methodologies used, evaluating the completeness and accuracy of the data used by management in its analysis, and evaluating the significant assumptions used by management to project future cash flows.

We also compared community data to the Company’s accounting records and recalculated the Company’s estimated future cash flows.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 1973.

Atlanta, Georgia

February 7, 2022

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data