UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June 30, 2018~~March 31, 2019

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-9804

PULTEGROUP, INC.

(Exact name of registrant as specified in its charter)



MICHIGAN		38-2766606
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

3350 Peachtree Road NE, Suite 150

Atlanta, Georgia 30326

(Address of principal executive offices) (Zip Code)

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

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

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~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 ~~and post~~ such files). YES [X] NO [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer [X]	Accelerated filer [ ]	Non-accelerated filer [ ]	Smaller reporting company [ ]	Emerging growth company [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES [ ] NO [X]

Number of common shares outstanding as of April 18, 2019: 277,137,113~~July 19, 2018: 284,018,567 ______________________________________________________________________________________________________~~

PULTEGROUP, INC.

TABLE OF CONTENTS



		Page No.
PART I	FINANCIAL INFORMATION

Item 1	Financial Statements

	Condensed Consolidated Balance Sheets at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018	3

	Consolidated Statements of Operations for the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 and 2018 ~~and 2017~~	4

	Consolidated Statements of Comprehensive Income for the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 and 2018 ~~and 2017~~	5

	Consolidated Statements of Shareholders' Equity for the ~~six~~three months ended ~~June 30,~~March 31, 2019 and 2018 ~~and 2017~~	6

	Consolidated Statements of Cash Flows for the ~~six~~three months ended ~~June 30,~~March 31, 2019 and 2018 ~~and 2017~~	7

	Notes to Condensed Consolidated Financial Statements	8

Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	3330

Item 3	Quantitative and Qualitative Disclosures About Market Risk	4843

Item 4	Controls and Procedures	4944

PART II	OTHER INFORMATION	5045

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	5045

Item 6	Exhibits	5146

	Signatures	5247

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

PULTEGROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

($000’s omitted)


	June 30, 2018		December 31, 2017		March 31, 2019		December 31, 2018
	(Unaudited)		(Note)		(Unaudited)
ASSETS

Cash and equivalents	$	367,091	$	272,683	$	1,055,457	$	1,110,088
Restricted cash	34,824		33,485		25,496		23,612
Total cash, cash equivalents, and restricted cash	401,915		306,168		1,080,953		1,133,700
House and land inventory	7,499,665		7,147,130		7,506,543		7,253,353
Land held for sale	77,941		68,384		39,431		36,849
Residential mortgage loans available-for-sale	369,634		570,600		326,995		461,354
Investments in unconsolidated entities	61,718		62,957		55,725		54,590
Other assets	759,230		745,123		823,066		830,359
Intangible assets	134,092		140,992		123,742		127,192
Deferred tax assets, net	511,381		645,295		250,881		275,579
	$	9,815,576	$	9,686,649	$	10,207,336	$	10,172,976

LIABILITIES AND SHAREHOLDERS’ EQUITY

Liabilities:
Accounts payable	$	399,330	$	393,815	$	444,322	$	352,029
Customer deposits	354,968		250,779		294,548		254,624
Accrued and other liabilities	1,242,349		1,356,333		1,270,367		1,360,483
Income tax liabilities	22,484		86,925		18,108		11,580
Financial Services debt	264,043		437,804		222,139		348,412
Notes payable	3,005,690		3,006,967		3,024,413		3,028,066
	5,288,864		5,532,623		5,273,897		5,355,194
Shareholders' equity	4,526,712		4,154,026		4,933,439		4,817,782
	$	9,815,576	$	9,686,649	$	10,207,336	$	10,172,976

~~Note: The Condensed Consolidated Balance Sheet at~~ ~~December 31, 2017~~ has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.

See accompanying Notes to Condensed Consolidated Financial Statements.

PULTEGROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(000’s omitted, except per share data)

(Unaudited)


	Three Months Ended						Six Months Ended						Three Months Ended
	June 30,						June 30,						March 31,
	2018			2017			2018			2017			2019			2018
Revenues:
Homebuilding
Home sale revenues	$	2,450,054		$	1,965,641		$	4,361,652		$	3,551,063		$	1,949,856		$	1,911,598
Land sale and other revenues	66,904			8,944			79,461			11,632			2,975			12,557
	2,516,958			1,974,585			4,441,113			3,562,695			1,952,831			1,924,155
Financial Services	52,764			47,275			98,702			89,042			43,862			45,938
Total revenues	2,569,722			2,021,860			4,539,815			3,651,737			1,996,693			1,970,093

Homebuilding Cost of Revenues:
Home sale cost of revenues	(1,862,133		)	(1,549,937		)	(3,322,073		)	(2,767,615		)	(1,492,791		)	(1,459,940		)
Land sale cost of revenues	(38,183		)	(87,599		)	(49,731		)	(90,827		)	(2,050		)	(11,548		)
	(1,900,316		)	(1,637,536		)	(3,371,804		)	(2,858,442		)	(1,494,841		)	(1,471,488		)

Financial Services expenses	(32,224		)	(28,478		)	(64,436		)	(56,846		)	(31,449		)	(32,213		)
Selling, general, and administrative expenses	(226,056		)	(216,211		)	(466,950		)	(452,479		)	(252,727		)	(240,893		)
Other expense, net	(1,956		)	(17,088		)	(3,263		)	(22,157		)	(973		)	(1,308		)
Income before income taxes	409,170			122,547			633,362			261,813			216,703			224,191
Income tax expense	(85,081		)	(21,798		)	(138,521		)	(69,545		)	(49,946		)	(53,440		)
Net income	$	324,089		$	100,749		$	494,841		$	192,268		$	166,757		$	170,751

Per share:
Basic earnings	$	1.12		$	0.32		$	1.72		$	0.60		$	0.59		$	0.59
Diluted earnings	$	1.12		$	0.32		$	1.71		$	0.60		$	0.59		$	0.59
Cash dividends declared	$	0.09		$	0.09		$	0.18		$	0.18		$	0.11		$	0.09

Number of shares used in calculation:
Basic	285,276			312,315			285,976			315,021			277,637			286,683
Effect of dilutive securities	1,378			1,565			1,088			1,946			1,003			1,343
Diluted	286,654			313,880			287,064			316,967			278,640			288,026

See accompanying Notes to Condensed Consolidated Financial Statements.

PULTEGROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

($000’s omitted)

(Unaudited)


	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
	2018		2017		2018		2017		2019		2018
Net income	$	324,089	$	100,749	$	494,841	$	192,268	$	166,757	$	170,751

Other comprehensive income, net of tax:
Change in value of derivatives	30		20		50		41		25		21
Other comprehensive income	30		20		50		41		25		21

Comprehensive income	$	324,119	$	100,769	$	494,891	$	192,309	$	166,782	$	170,772

See accompanying Notes to Condensed Consolidated Financial Statements.

PULTEGROUP, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(000's ~~omitted, except per share data)~~omitted)

(Unaudited)


	Common Stock					Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total			Common Stock					Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total
	Shares		$			Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total			Shares		$			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total
Shareholders' Equity, January 1, 2018	286,752		$	2,868		$	3,171,542		$	(445	)	$	980,061		$	4,154,026
Shareholders' Equity, December 31, 2018																		277,110		$	2,771		$	3,201,427	$	(345	)	$	1,613,929		$	4,817,782
Stock option exercises																		118		1			1,444		—			—			1,445
Share issuances, net of cancellations																		1,337		12			5,792		—			—			5,804
Dividends declared																		—		—			—		—			(30,831		)	(30,831		)
Share repurchases																		(1,309	)	(13		)	—		—			(35,340		)	(35,353		)
Share-based compensation																		—		—			7,810		—			—			7,810
Net income																		—		—			—		—			166,757			166,757
Other comprehensive income																		—		—			—		25			—			25
Shareholders' Equity, March 31, 2019																		277,256		$	2,771		$	3,216,473	$	(320	)	$	1,714,515		$	4,933,439

Shareholders' Equity, December 31, 2017																		286,752		$	2,868		$	3,171,542	$	(445	)	$	980,061		$	4,154,026
Cumulative effect of accounting change (see Note 1)	—		—			—			—			22,411			22,411			—		—			—		—			22,411			22,411
Stock option exercises	434		4			4,463			—			—			4,467			284		3			2,720		—			—			2,723
Share issuances, net of cancellations	870		8			3,475			—			—			3,483			783		8			3,477		—			—			3,485
Dividends declared						—			—			(51,966		)	(51,966		)	—		—			—		—			(26,051		)	(26,051		)
Share repurchases	(3,694	)	(37		)	(284		)	—			(112,170		)	(112,491		)	(1,941	)	(20		)	—		—			(59,471		)	(59,491		)
Share-based compensation	—		—			11,891			—			—			11,891			—		—			6,782		—			—			6,782
Net income	—		—			—			—			494,841			494,841			—		—			—		—			170,751			170,751
Other comprehensive income	—		—			—			50			—			50			—		—			—		21			—			21
Shareholders' Equity, June 30, 2018	284,362		$	2,843		$	3,191,087		$	(395	)	$	1,333,177		$	4,526,712

Shareholders' Equity, January 1, 2017	319,090		$	3,191		$	3,116,490		$	(526	)	$	1,540,208		$	4,659,363
Cumulative effect of accounting change	—		—			(406		)	—			18,643			18,237
Stock option exercises	1,378		14			15,952			—			—			15,966
Share issuances, net of cancellations	729		10			3,554			—			—			3,564
Dividends declared	—		—			—			—			(56,941		)	(56,941		)
Share repurchases	(17,498	)	(178		)	—			—			(405,641		)	(405,819		)
Share-based compensation	—		—			17,323			—			—			17,323
Net income	—		—			—			—			192,268			192,268
Other comprehensive income	—		—			—			41			—			41
Shareholders' Equity, June 30, 2017	303,699		$	3,037		$	3,152,913		$	(485	)	$	1,288,537		$	4,444,002
Shareholders' Equity, March 31, 2018																		285,878		$	2,859		$	3,184,521	$	(424	)	$	1,087,701		$	4,274,657

See accompanying Notes to Condensed Consolidated Financial Statements.

PULTEGROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

($000’s omitted)

(Unaudited)


	Six Months Ended						Three Months Ended
	June 30,						March 31,
	2018			2017			2019			2018
Cash flows from operating activities:
Net income	$	494,841		$	192,268		$	166,757		$	170,751
Adjustments to reconcile net income to net cash from operating activities:
Deferred income tax expense	126,991			80,841			24,690			23,479
Land-related charges	5,841			129,108			2,979			3,419
Depreciation and amortization	24,161			26,023			13,210			11,890
Share-based compensation expense	16,162			20,871			9,019			8,451
Other, net	(2,803		)	(1,536		)	(39		)	(793		)
Increase (decrease) in cash due to:
Inventories	(281,362		)	(486,393		)	(259,865		)	(237,169		)
Residential mortgage loans available-for-sale	199,623			172,943			134,217			185,147
Other assets	15,822			15,309			64,533			(9,246		)
Accounts payable, accrued and other liabilities	(51,694		)	26,892			3,408			13,084
Net cash provided by (used in) operating activities	547,582			176,326			158,909			169,013
Cash flows from investing activities:
Capital expenditures	(33,059		)	(16,892		)	(16,070		)	(15,428		)
Investments in unconsolidated entities	(1,000		)	(17,832		)	(1,289		)	(1,000		)
Other investing activities, net	6,915			3,143			291			452
Net cash used in investing activities	(27,144		)	(31,581		)
Net cash provided by (used in) investing activities							(17,068		)	(15,976		)
Cash flows from financing activities:
Repayments of debt	(82,432		)	(2,153		)	(3,605		)	(451		)
Borrowings under revolving credit facility	1,566,000			110,000			—			768,000
Repayments under revolving credit facility	(1,566,000		)	(110,000		)	—			(768,000		)
Financial Services borrowings (repayments)	(173,761		)	(177,918		)	(126,273		)	(190,852		)
Debt issuance costs	(8,090		)	—
Stock option exercises	4,467			15,966			1,445			2,723
Share repurchases	(112,491		)	(405,819		)	(35,353		)	(59,491		)
Dividends paid	(52,384		)	(58,214		)	(30,802		)	(26,347		)
Net cash provided by (used in) financing activities	(424,691		)	(628,138		)	(194,588		)	(274,418		)
Net increase (decrease)	95,747			(483,393		)
Net increase (decrease) in cash, cash equivalents, and restricted cash							(52,747		)	(121,381		)
Cash, cash equivalents, and restricted cash at beginning of period	306,168			723,248			1,133,700			306,168
Cash, cash equivalents, and restricted cash at end of period	$	401,915		$	239,855		$	1,080,953		$	184,787

Supplemental Cash Flow Information:
Interest paid (capitalized), net	$	(387	)	$	(2,359	)	$	17,164		$	30,109
Income taxes paid (refunded), net	$	77,077		$	(10,980	)	$	(30,850	)	$	631

See accompanying Notes to Condensed Consolidated Financial Statements.

PULTEGROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Basis of presentation

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

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal, recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the full year. These financial statements should be read in conjunction with our consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

Use of estimates

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

~~Reclassifications~~

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

Subsequent events

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

Other expense, net

Other expense, net consists of the following ($000’s omitted):


	Three Months Ended						Six Months Ended						Three Months Ended
	June 30,						June 30,						March 31,
	2018			2017			2018			2017			2019			2018
Write-offs of deposits and pre-acquisition costs	$	(1,652	)	$	(5,063	)	$	(4,261	)	$	(6,718	)	$	(2,917	)	$	(2,609	)
Amortization of intangible assets	(3,450		)	(3,450		)	(6,900		)	(6,900		)	(3,450		)	(3,450		)
Interest income	835			599			1,399			1,432			4,949			564
Interest expense	(165		)	(134		)	(308		)	(271		)	(144		)	(143		)
Equity in earnings (losses) of unconsolidated entities (a)	265			(5,763		)	1,226			(4,569		)
Equity in earnings of unconsolidated entities													37			961
Miscellaneous, net	2,211			(3,277		)	5,581			(5,131		)	552			3,369
Total other expense, net	$	(1,956	)	$	(17,088	)	$	(3,263	)	$	(22,157	)	$	(973	)	$	(1,308	)


~~(a)~~	~~Includes an $8.0 million impairment of an investment in an unconsolidated entity in the three and six months ended June 30, 2017 (see~~ ~~Note 2~~).

PULTEGROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Revenue recognition

Home sale revenues - Home sale revenues and related profit are generally recognized when title to and possession of the home are transferred to the buyer at the home closing date. Our performance obligation to deliver the agreed-upon home is generally satisfied in less than one year from the original contract date. Home sale contract assets consist of cash from home closings held in escrow for our benefit, typically for less than five days, which are considered deposits in-transit and classified as cash. Contract liabilities include customer deposit liabilities related to sold but undelivered homes, which totaled ~~355.0~~$294.5 million and ~~250.8~~$254.6 million at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively. Substantially all of our home sales are scheduled to close and be recorded to revenue within one year from the date of receiving a customer deposit. See Note 8 for information on warranties and related obligations.

Land sale revenues - We periodically elect to sell parcels of land to third parties in the event such assets no longer fit into our strategic operating plans or are zoned for commercial or other development. Land sales are generally outright sales of specified land parcels with cash consideration due on the closing date, which is generally when performance obligations are satisfied. During the three and six months ended June 30, 2018, we closed on a number of land sale transactions that generated gains totaling $27.3 million, as the proceeds from the sales exceeded the cost basis of the land. All performance obligations related to these transactions were satisfied at closing.

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

Revenues associated with our title operations are recognized as closing services are rendered and title insurance policies are issued, both of which generally occur as each home is closed. Insurance brokerage commissions relate to commissions on homeowner and other insurance policies placed with third party carriers through various agency channels. Our performance obligations for policy renewal commissions are satisfied upon issuance of the initial ~~policy. The~~policy, and related contract assets for estimated future renewal commissions are included in other assets and totaled ~~$29.8~~$31.4 million at June 30, 2018. Contract assets totaling $27.7 million were recognized on January 1, 2018, in conjunction with the adoption of Accounting Standards Codification 606, "Revenue from Contracts with Customers" ("ASC 606"). Refer to "~~New accounting pronouncements"~~ ~~within~~ ~~Note 1~~ ~~for further discussion.~~March 31, 2019.

Earnings per share

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

In accordance with ~~ASC~~Accounting Standards Codification ("ASC") 260, "Earnings Per Share", the two-class method determines earnings per share for each class of common stock and participating securities according to an earnings allocation formula that adjusts the Numerator for dividends or dividend equivalents and participation rights in undistributed earnings. Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are participating securities and, therefore, are included in computing earnings per share pursuant to the two-class method. Our outstanding restricted share awards, restricted share units, and deferred shares are considered participating securities. The following table presents the earnings per common share (000's omitted, except per share data):

PULTEGROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


	Three Months Ended						Six Months Ended						Three Months Ended
	June 30,						June 30,						March 31,
	2018			2017			2018			2017			2019			2018
Numerator:
Net income	$	324,089		$	100,749		$	494,841		$	192,268		$	166,757		$	170,751
Less: earnings distributed to participating securities	(300		)	(300		)	(595		)	(605		)	(308		)	(296		)
Less: undistributed earnings allocated to participating securities	(3,284		)	(772		)	(2,584		)	(1,330		)	(1,410		)	(1,622		)
Numerator for basic earnings per share	$	320,505		$	99,677		$	491,662		$	190,333		$	165,039		$	168,833
Add back: undistributed earnings allocated to participating securities	3,284			772			2,584			1,330			1,410			1,622
Less: undistributed earnings reallocated to participating securities	(3,268		)	(768		)	(2,575		)	(1,322		)	(1,407		)	(1,614		)
Numerator for diluted earnings per share	$	320,521		$	99,681		$	491,671		$	190,341		$	165,042		$	168,841

Denominator:
Basic shares outstanding	285,276			312,315			285,976			315,021			277,637			286,683
Effect of dilutive securities	1,378			1,565			1,088			1,946			1,003			1,343
Diluted shares outstanding	286,654			313,880			287,064			316,967			278,640			288,026

Earnings per share:
Basic	$	1.12		$	0.32		$	1.72		$	0.60		$	0.59		$	0.59
Diluted	$	1.12		$	0.32		$	1.71		$	0.60		$	0.59		$	0.59

Residential mortgage loans available-for-sale

Substantially all of the loans originated by us are sold in the secondary mortgage market within a short period of time after origination, generally within 30 days. At ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, residential mortgage loans available-for-sale had an aggregate fair value of ~~$369.6~~$327.0 million and ~~$570.6~~$461.4 million, respectively, and an aggregate outstanding principal balance of ~~$359.2~~$315.5 million and ~~$553.5~~$444.2 million, respectively. The net gain (loss) resulting from changes in fair value of these loans totaled ~~$(0.2)~~$(1.1) million and ~~$(2.2)~~$(0.1) million for the three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017, respectively, and $(0.3) million and $(4.1) million for the six months ended June 30, 2018 and 2017,~~ respectively. These changes in fair value were substantially offset by changes in the fair value of corresponding hedging instruments. Net gains from the sale of mortgages were ~~$29.2~~$24.0 million and ~~$27.7~~$27.0 million for the three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017,~~ respectively, and ~~$56.2 million and $52.9 million for the six months ended June 30, 2018 and 2017, respectively, and have been~~are included in Financial Services revenues.

Derivative instruments and hedging activities

We are party to interest rate lock commitments ("IRLCs") with customers resulting from our mortgage origination operations. At ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, we had aggregate IRLCs of ~~$426.5~~$356.9 million and ~~$210.9~~$285.0 million, respectively, which were originated at interest rates prevailing at the date of commitment. Since we can terminate a loan commitment if the borrower does not comply with the terms of the contract, and some loan commitments may expire without being drawn upon, these commitments do not necessarily represent future cash requirements. We evaluate the creditworthiness of these transactions through our normal credit policies.

We hedge our exposure to interest rate market risk relating to residential mortgage loans available-for-sale and IRLCs using forward contracts on mortgage-backed securities, which are commitments to either purchase or sell a specified financial instrument at a specified future date for a specified price, and whole loan investor commitments, which are obligations of an investor to buy loans at a specified price within a specified time period. Forward contracts on mortgage-backed securities are the predominant derivative financial instruments we use to minimize market risk during the period from the time we extend an interest rate lock to a loan applicant until the time the loan is sold to an investor. At ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, we had unexpired forward contracts of ~~$568.0~~$498.0 million and ~~$522.0~~$511.0 million, respectively, and whole loan investor commitments of

~~PULTEGROUP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

~~$186.7~~ $146.4 million and ~~$203.1~~$187.8 million, respectively. Changes in the fair value of IRLCs and other derivative financial instruments are recognized in Financial Services revenues, and the fair values are reflected in other assets or other liabilities, as applicable.

PULTEGROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

There are no credit-risk-related contingent features within our derivative agreements, and counterparty risk is considered minimal. Gains and losses on IRLCs and residential mortgage loans available-for-sale are substantially offset by corresponding gains or losses on forward contracts on mortgage-backed securities and whole loan investor commitments. We are generally not exposed to variability in cash flows of derivative instruments for more than approximately 60 days.

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


	June 30, 2018				December 31, 2017				March 31, 2019				December 31, 2018
	Other Assets		Accrued and Other Liabilities		Other Assets		Accrued and Other Liabilities		Other Assets		Accrued and Other Liabilities		Other Assets		Accrued and Other Liabilities
Interest rate lock commitments	$	12,139	$	505	$	5,990	$	407	$	11,629	$	297	$	9,196	$	161
Forward contracts	189		2,429		432		817		234		4,107		315		7,229
Whole loan commitments	721		315		794		941		329		614		393		1,111
	$	13,049	$	3,249	$	7,216	$	2,165	$	12,192	$	5,018	$	9,904	$	8,501

New accounting pronouncements

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. Prior year financial statements were not recast under the new standard and, therefore, have not been reflected as such on our balance sheet. ASU 2016-02 requires leases with durations greater than 12 months to be recorded on the balance sheet. We elected the package of transition practical expedients, which allowed us to carryforward 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 8 “Leases” for additional information about this adoption.

On January 1, 2018, we adopted ASC 606, "Revenue from Contracts with Customers", which ~~is a comprehensive new revenue recognition model that~~ requires revenue to be recognized in a manner to depict the transfer of goods or services and satisfaction of performance obligations to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. We applied the modified retrospective method to contracts that were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported under the previous accounting standards. We recorded a net increase to opening retained earnings of $22.4 million, net of tax, as of January 1, 2018, due to the cumulative impact of adopting ASC 606, with the impact primarily related to the recognition of contract assets for insurance brokerage commission renewals. There was not a material impact to revenues as a result of applying ASC 606, ~~for the six months ended June 30, 2018,~~ and there ~~have not been~~were no significant changes to our business processes, systems, or internal controls as a result of implementing the standard.

We adopted Accounting Standards Update ("ASU") No. 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments" ("ASU 2016-15"), as of January 1, 2018, on a retrospective basis. The ASU addresses several specific cash flow issues. The adoption of ASU 2016-15 had no effect on our financial statements.

In ~~February~~June 2016, the Financial Accounting Standards Board ("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. ASU 2016-02 is effective for us for annual and interim periods beginning January 1, 2019, and early adoption is permitted. The standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application. While the recognition of right-of-use assets and related liabilities will have a material effect on our consolidated balance sheets, we do not expect a material impact on our consolidated statements of operations. The FASB also issued ASU No. 2018-01, "Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842", which provides guidance on specific transition issues. We continue to evaluate the full impact of the new standards, including the impact on our business processes, systems, and internal controls.

~~In June 2016, the FASB~~ issued ASU No. 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" ~~("ASU 2016-13")~~, which changes the impairment model for most financial assets and certain other instruments from an "incurred loss" approach to a new "expected credit loss" ~~methodology and also requires that credit losses from available-for-sale debt securities be presented as an allowance instead of a write-down. ASU 2016-13~~methodology. The standard is effective for us for annual and interim periods beginning January 1, 2020, with early adoption permitted, and requires full retrospective application on adoption. We are currently evaluating the impact the standard will have on our financial statements.

In January 2017, the FASB issued ASU No. 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment" ~~("ASU 2017-04")~~, which removes the requirement to perform a hypothetical purchase

~~PULTEGROUP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

price allocation to measure goodwill impairment. AUnder the new standard, goodwill impairment will now be 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. ~~ASU 2017-04~~The standard is effective for us for annual and interim periods beginning January 1, 2020, with early adoption permitted, and applied prospectively. We do not expect ~~ASU 2017-04~~the standard to have a material impact on our financial statements.

PULTEGROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

2. Inventory

Major components of inventory were as follows ($000’s omitted):


	June 30, 2018		December 31, 2017		March 31, 2019		December 31, 2018
Homes under construction	$	2,922,260	$	2,421,405	$	2,892,328	$	2,630,158
Land under development	4,045,615		4,135,814		4,161,168		4,129,225
Raw land	531,790		589,911		453,047		493,970
	$	7,499,665	$	7,147,130	$	7,506,543	$	7,253,353

We capitalize interest cost into inventory during the active development and construction of our communities. In all periods presented, we capitalized all Homebuilding interest costs into inventory because the level of our active inventory exceeded our debt levels. Information related to interest capitalized into inventory is as follows ($000’s omitted):


	Three Months Ended						Six Months Ended						Three Months Ended
	June 30,						June 30,						March 31,
	2018			2017			2018			2017			2019			2018
Interest in inventory, beginning of period	$	240,013		$	203,828		$	226,611		$	186,097		$	227,495		$	226,611
Interest capitalized	43,771			44,949			87,731			89,872			42,381			43,960
Interest expensed	(40,157		)	(35,927		)	(70,715		)	(63,119		)	(34,563		)	(30,558		)
Interest in inventory, end of period	$	243,627		$	212,850		$	243,627		$	212,850		$	235,313		$	240,013

Land option agreements

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

If an entity holding the land under option is a variable interest entity ("VIE"), our deposit represents a variable interest in that entity. No VIEs required consolidation at either ~~June 30, 2018~~March 31, 2019 or December 31, ~~2017~~2018 because we determined that we were not the VIEs' primary beneficiary. Our maximum exposure to loss related to these VIEs is generally limited to our deposits and pre-acquisition costs under the land option agreements.

PULTEGROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following provides a summary of our interests in land option agreements as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 ($000’s omitted):


	June 30, 2018				December 31, 2017				March 31, 2019				December 31, 2018
	Deposits and Pre-acquisition Costs		Remaining Purchase Price		Deposits and Pre-acquisition Costs		Remaining Purchase Price		Deposits and Pre-acquisition Costs		Remaining Purchase Price		Deposits and Pre-acquisition Costs		Remaining Purchase Price
Land options with VIEs	$	73,940	$	1,145,136	$	78,889	$	977,480	$	99,742	$	1,073,520	$	90,717	$	1,079,507
Other land options	144,497		1,603,950		129,098		1,485,099		138,597		1,561,597		127,851		1,522,903
	$	218,437	$	2,749,086	$	207,987	$	2,462,579	$	238,339	$	2,635,117	$	218,568	$	2,602,410

~~Land-related charges~~

~~We recorded the following significant land-related charges in the three months ended June 30, 2017 ($000's omitted):~~

Statement of Operations Classification June 30,
2017
Net realizable value adjustments ("NRV") - land held for sale Land sale cost of revenues $ 81,006
Land inventory impairments Home sale cost of revenues 31,487
Impairments of unconsolidated entities Other expense, net 8,017
Write-offs of deposits and pre-acquisition costs Other expense, net 5,063
Total land-related charges $ 125,573

We periodically elect to sell parcels of land to third parties in the event such assets no longer fit into our strategic operating plans or are zoned for commercial or other development. The NRV adjustments for the three months ended June 30, 2017 were primarily the result of a plan we announced in May 2017 to sell select non-core and underutilized land parcels following a strategic review of our land portfolio, pursuant to which it was determined that we would sell certain inactive land parcels, representing approximately 17 communities and 4,600 lots. These land parcels were located in diverse geographic areas and no longer fit into our strategic plans. The land parcels identified for sale included: land requiring significant additional development spend that would not yield suitable returns; land in excess of near-term need; and land entitled for certain product types inconsistent with our primary offerings. As a consequence of the change in strategy with respect to the future use of these land parcels, we recorded NRV adjustments totaling $81.0 million in the three months ended June 30, 2017 relating to inventory with a pre-NRV carrying value of $151.0 million. The estimated fair values of these inactive land parcels held for sale were generally based on comparisons to market comparable transactions, letters of intent, active negotiations with market participants, or similar market-based information supplemented in certain instances by estimated future net cash flows discounted for inherent risk associated with each underlying asset.

Land inventory impairments relate to communities that are either active or that we intend to eventually open and build out. As part of the May 2017 strategic review, we decided to accelerate the monetization of two small communities primarily through a combination of changing the product offerings and lowering the sales prices within the communities. This decision resulted in land impairments of $31.5 million in the three months ended June 30, 2017.

We determine the fair value of a community's inventory, and any related impairments, using a combination of discounted cash flow models and market comparable transactions, where available. These estimated cash flows are significantly impacted by estimates related to expected average selling prices, expected sales paces, expected land development and construction timelines, and anticipated land development, construction, and overhead costs. The assumptions used in the discounted cash flow models are specific to each community, which may be located in a variety of geographic markets, and offer homes at sales

~~PULTEGROUP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

~~prices reflective of the product offering and market. 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 impairments recorded in the three months ended June 30, 2017:~~

Range
June 30, 2017
Average selling price ($000s) $253 to $461
Sales pace per quarter (units) 5 to 9
Discount rate 18% to 25%

Our evaluations for impairments are based on our best estimates of the future cash flows to be generated from our communities. Due to uncertainties in the estimation process, the significant volatility in demand for new housing, the long life cycles of many communities, and potential changes in our strategy related to certain communities, actual results could differ significantly from such estimates.

3. Segment information

Our Homebuilding operations are engaged in the acquisition and development of land primarily for residential purposes within the U.S. and the construction of housing on such land. For reporting purposes, our Homebuilding operations are aggregated into six reportable segments:



Northeast:		Connecticut, Maryland, Massachusetts, New Jersey, ~~New York,~~ Pennsylvania, Virginia
Southeast:		Georgia, North Carolina, South Carolina, Tennessee
Florida:		Florida
Midwest:		Illinois, Indiana, Kentucky, Michigan, Minnesota, ~~Missouri,~~ Ohio
Texas:		Texas
West:		Arizona, California, Nevada, New Mexico, Washington

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

PULTEGROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


	Operating Data by Segment ($000’s omitted)												Operating Data by Segment ($000’s omitted)
	Three Months Ended						Six Months Ended						Three Months Ended
	June 30,						June 30,						March 31,
	2018			2017			2018			2017			2019			2018
Revenues:
Northeast	$	200,626		$	148,303		$	333,062		$	256,904		$	110,492		$	132,436
Southeast	445,506			381,132			820,129			710,244			375,417			374,623
Florida	455,637			363,421			804,346			677,717			396,443			348,709
Midwest	356,466			357,985			653,972			602,491			293,590			297,506
Texas	330,692			288,669			577,331			523,210			269,003			246,638
West	728,031			435,075			1,252,273			792,129			507,886			524,243
	2,516,958			1,974,585			4,441,113			3,562,695			1,952,831			1,924,155
Financial Services	52,764			47,275			98,702			89,042			43,862			45,938
Consolidated revenues	$	2,569,722		$	2,021,860		$	4,539,815		$	3,651,737		$	1,996,693		$	1,970,093

Income (loss) before income taxes (d):
Income (loss) before income taxes:
Northeast	$	25,158		$	(38,249	)	$	34,470		$	(33,849	)	$	7,928		$	9,312
Southeast	54,357			40,274			94,814			72,640			37,856			40,457
Florida (a)	67,491			36,110			112,436			80,633
Florida													49,596			44,945
Midwest	43,050			37,573			71,451			55,827			26,158			28,401
Texas	50,859			46,522			81,395			79,318			30,971			30,536
West (b)	154,414			(1,850		)	243,619			32,234
West													90,182			89,205
Other homebuilding ~~(c)~~(a)	(6,876		)	(16,781		)	(39,374		)	(57,441		)	(38,397		)	(32,498		)
	388,453			103,599			598,811			229,362			204,294			210,358
Financial Services	20,717			18,948			34,551			32,451			12,409			13,833
Consolidated income before income taxes	$	409,170		$	122,547		$	633,362		$	261,813		$	216,703		$	224,191


(a)	~~Florida includes a warranty charge of $12.1 million for the three and six months ended June 30, 2017 related to a closed-out community (see~~ ~~Note 8~~).


~~(b)~~	~~West includes gains of $26.4 million related to~~ ~~two~~ ~~land sale transactions in California that closed in the three and six months ended June 30, 2018.~~

~~(c)~~

Other homebuilding includes the amortization of intangible assets and capitalized interest and other items not allocated to the operating segments. Other homebuilding also includes insurance reserve reversals of $37.9 million and $19.8 million for the three and six months ended June 30, 2018 and 2017, respectively, and a write-off of $15.0 million of insurance receivables associated with the resolution of certain insurance matters in the six months ended June 30, 2017 (see ~~Note 8~~).


~~(d)~~	~~Includes land-related charges, as summarized in the below table.~~

~~PULTEGROUP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

Operating Data by Segment
($000’s omitted)
Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
Land-related charges*:
Northeast $ 498
$ 49,820
$ 1,683
$ 49,918
Southeast 689
491
1,731
958
Florida 226
8,602
409
8,754
Midwest 372
7,567
1,118
8,095
Texas 220
589
270
847
West 148
54,409
361
56,441
Other homebuilding 269
4,095
269
4,095
$ 2,422
$ 125,573
$ 5,841
$ 129,108


*	Land-related charges include land impairments, net realizable value adjustments on land held for sale, impairments of investments in unconsolidated entities, and write-offs of deposits and pre-acquisition costs for land option contracts we elected not to pursue (see ~~Note 2). Other homebuilding consists primarily of write-offs of capitalized interest related to such land-related charges.~~

PULTEGROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Operating Data by Segment
($000's omitted)
June 30, 2018
Homes Under
Construction Land Under
Development Raw Land Total
Inventory Total
Assets
Northeast $ 298,241
$ 272,358
$ 73,577
$ 644,176
$ 811,067
Southeast 506,116
633,489
78,183
1,217,788
1,355,703
Florida 488,392
879,165
97,481
1,465,038
1,602,996
Midwest 371,665
420,733
28,727
821,125
909,295
Texas 332,420
417,251
88,727
838,398
915,707
West 869,845
1,161,466
143,544
2,174,855
2,357,858
Other homebuilding (a)
55,581
261,153
21,551
338,285
1,389,431
2,922,260
4,045,615
531,790
7,499,665
9,342,057
Financial Services —
—
—
—
473,519
$ 2,922,260
$ 4,045,615
$ 531,790
$ 7,499,665
$ 9,815,576


	Operating Data by Segment										Operating Data by Segment ($000’s omitted)
	($000's omitted)										Three Months Ended
	December 31, 2017										March 31,
	Homes Under Construction		Land Under Development		Raw Land		Total Inventory		Total Assets		2019		2018
Land-related charges*:
Northeast	$	234,413	$	327,599	$	73,574	$	635,586	$	791,511	$	324	$	1,185
Southeast	433,411		613,626		121,238		1,168,275		1,287,992		572		1,042
Florida	359,651		876,856		109,069		1,345,576		1,481,837		481		183
Midwest	299,896		476,694		28,482		805,072		877,282		1,103		746
Texas	251,613		435,018		87,392		774,023		859,847		68		50
West	798,706		1,137,940		147,493		2,084,139		2,271,328		431		213
Other homebuilding (a)	43,715		268,081		22,663		334,459		1,469,234
Other homebuilding											—		—
	2,421,405		4,135,814		589,911		7,147,130		9,039,031		$	2,979	$	3,419
Financial Services	—		—		—		—		647,618
	$	2,421,405	$	4,135,814	$	589,911	$	7,147,130	$	9,686,649


*	Land-related charges include land impairments, net realizable value adjustments on land held for sale and write-offs of deposits and pre-acquisition costs for land option contracts we elected not to pursue.



	Operating Data by Segment
	($000's omitted)
	March 31, 2019
	Homes Under Construction		Land Under Development		Raw Land		Total Inventory		Total Assets
Northeast	$	328,021	$	296,198	$	25,513	$	649,732	$	738,662
Southeast	462,382		676,532		89,750		1,228,664		1,372,245
Florida	514,551		926,254		76,340		1,517,145		1,675,802
Midwest	313,244		431,144		29,151		773,539		861,452
Texas	326,344		436,409		95,942		858,695		936,709
West	896,861		1,126,206		118,589		2,141,656		2,376,073
Other homebuilding (a)	50,925		268,425		17,762		337,112		1,801,106
	2,892,328		4,161,168		453,047		7,506,543		9,762,049
Financial Services	—		—		—		—		445,287
	$	2,892,328	$	4,161,168	$	453,047	$	7,506,543	$	10,207,336

PULTEGROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)



	Operating Data by Segment
	($000's omitted)
	December 31, 2018
	Homes Under Construction		Land Under Development		Raw Land		Total Inventory		Total Assets
Northeast	$	268,900	$	291,467	$	52,245	$	612,612	$	704,515
Southeast	443,140		676,087		90,332		1,209,559		1,347,427
Florida	467,625		892,669		85,321		1,445,615		1,601,906
Midwest	314,442		433,056		29,908		777,406		849,596
Texas	284,405		427,124		98,415		809,944		881,629
West	805,709		1,131,841		118,579		2,056,129		2,208,092
Other homebuilding (a)	45,937		276,981		19,170		342,088		2,006,825
	2,630,158		4,129,225		493,970		7,253,353		9,599,990
Financial Services	—		—		—		—		572,986
	$	2,630,158	$	4,129,225	$	493,970	$	7,253,353	$	10,172,976


(a)	Other homebuilding primarily includes cash and equivalents, capitalized interest, intangibles, deferred tax assets, and other corporate items that are not allocated to the operating segments.

4. Debt

Notes payable

Our senior notes are summarized as follows ($000’s omitted):


	June 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018
4.250% unsecured senior notes due March 2021 (a)	$	700,000		$	700,000		$	700,000		$	700,000
5.500% unsecured senior notes due March 2026 (a)	700,000			700,000			700,000			700,000
5.000% unsecured senior notes due January 2027 (a)	600,000			600,000			600,000			600,000
7.875% unsecured senior notes due June 2032 (a)	300,000			300,000			300,000			300,000
6.375% unsecured senior notes due May 2033 (a)	400,000			400,000			400,000			400,000
6.000% unsecured senior notes due February 2035 (a)	300,000			300,000			300,000			300,000
Net premiums, discounts, and issuance costs (b)	(13,152		)	(13,057		)	(13,295		)	(13,247		)
Total senior notes	2,986,848			2,986,943			2,986,705			2,986,753
Other notes payable	18,842			20,024			37,708			41,313
Notes payable	$	3,005,690		$	3,006,967		$	3,024,413		$	3,028,066
Estimated fair value	$	2,998,340		$	3,263,774		$	3,091,068		$	2,899,143


(a)	Redeemable prior to maturity; guaranteed on a senior basis by certain wholly-owned subsidiaries.


(b)	The carrying value of senior notes reflects the impact of premiums, discounts, and issuance costs that are amortized to interest cost over the respective terms of the senior notes.

Other notes payable include non-recourse and limited recourse collateralized notes with third parties that totaled ~~$18.8~~$37.7 million and ~~$20.0~~$41.3 million at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively. These notes have maturities ranging up to three years, are secured by the applicable land positions to which they relate, and have no recourse to any other assets. The stated interest rates on these notes range up to ~~7.8%~~5.17%.

PULTEGROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Revolving credit facility

In June 2018, we entered into the Second Amended and Restated Credit Agreement ("Revolving Credit Facility") which replaced the Company's previous credit agreement. The Revolving Credit Facility contains substantially similar terms to the previous credit agreement and extended the maturity date from June 2019 to June 2023. The Revolving Credit Facility has a maximum borrowing capacity of $1.0 billion and contains an uncommitted accordion feature that could increase the capacity to $1.5 billion, subject to certain conditions and availability of additional bank commitments. The Revolving Credit Facility also provides for the issuance of letters of credit that reduce the available borrowing capacity under the Revolving Credit Facility, with a sublimit of $500.0 million at ~~June 30, 2018.~~March 31, 2019. The interest rate on borrowings under the Revolving Credit Facility may be based on either the London Interbank Offered Rate ("LIBOR") or a base rate plus an applicable margin, as defined therein. We had no borrowings outstanding at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, and ~~$214.6~~$232.9 million and ~~$235.5~~$239.4 million of letters of credit issued under the Revolving Credit Facility at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively.

The Revolving Credit Facility contains financial covenants that require us to maintain a minimum Tangible Net Worth, a minimum Interest Coverage Ratio, and a maximum Debt-to-Capitalization Ratio (as each term is defined in the Revolving Credit Facility). As of ~~June 30, 2018,~~March 31, 2019, we were in compliance with all covenants. Our available and unused borrowings

under the Revolving Credit Facility, net of outstanding letters of credit, amounted to ~~$785.4~~$767.1 million and ~~$764.5~~$760.6 million at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively.

Joint venture debt

At ~~June 30, 2018,~~March 31, 2019, aggregate outstanding debt of unconsolidated joint ventures was ~~$55.0~~$35.2 million, of which ~~$54.2~~$34.4 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 under 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;~~project, (ii) an environmental indemnity provided to the ~~lender;~~lender, and (iii) an indemnification of the lender from certain "bad boy acts" of the joint venture.

Financial Services debt

Pulte Mortgage maintains a master repurchase agreement (the "Repurchase Agreement") with third party lenders ~~(the “Repurchase Agreement”)~~ that matures in August ~~2018.~~2019. The maximum aggregate commitment was ~~$400.0~~$350.0 million at ~~June 30, 2018,~~March 31, 2019 and ~~will remain unchanged~~continues through maturity. Borrowings under the Repurchase Agreement are secured by residential mortgage loans available-for-sale. The Repurchase Agreement contains various affirmative and negative covenants applicable to Pulte Mortgage, including quantitative thresholds related to net worth, net income, and liquidity. Pulte Mortgage had ~~$264.0~~$222.1 million and ~~$437.8~~$348.4 million outstanding under the Repurchase Agreement at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively, and was in compliance with all of its covenants and requirements as of such dates.

5. Shareholders’ equity

During the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019, we declared cash dividends totaling ~~$52.0~~$30.8 million and repurchased ~~3.5~~0.9 million shares under our repurchase authorization for ~~$105.1~~$25.0 million. For the ~~six~~three months ended ~~June 30, 2017,~~March 31, 2018, we declared cash dividends totaling ~~$56.9~~$26.1 million and repurchased ~~17.5~~1.7 million shares under our repurchase authorization for ~~$399.9~~$52.5 million. At ~~June 30, 2018,~~March 31, 2019, we had remaining authorization to repurchase ~~$489.3~~$274.9 million of common shares.

Under our share-based compensation plans, we accept shares as payment under certain conditions related to stock option exercises and vesting of shares, generally related to the payment of minimum tax obligations. During the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 and ~~2017~~2018, participants surrendered shares valued at $~~7.4~~10.4 million and $~~5.9~~7.0 million, respectively, under these plans. Such share transactions are excluded from the above noted share repurchase authorization.

PULTEGROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

6. Income taxes

Our effective tax rate for the three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2019 was ~~20.8% and 21.9%~~23.0%, ~~respectively,~~ compared to ~~17.8% and 26.6%, respectively,~~23.8% for the same ~~periods~~period in ~~2017.~~2018. Our effective tax rate for the three and six months ended June 30, 2018 differs from the federal statutory rate primarily due to state income tax expense on current year earnings, tax benefits due to Internal Revenue Service acceptance of an accounting method change applicable to the 2017 tax year, energy credits, and tax law changes. For the same periods in the prior year, our effective tax rate differed from the federal statutory rate primarily due to state income tax expense on current year earnings, tax benefits for equity compensation, and the favorable resolution of certain state income tax ~~matters, and~~matters. Our effective tax ~~law changes. The federal statutory~~ rate ~~was reduced from 35% in 2017 to 21% in 2018~~for the three months ended March 31, 2019 is lower than the prior year period primarily due to the ~~Tax Cuts and Jobs Act (the “Tax Act”), which was enacted on December 22, 2017.~~

~~We have not fully completed our accounting for the~~favorable resolution of certain state income tax effects of the Tax Act. As discussed in the SEC Staff Accounting Bulletin No. 118, the accounting for the Tax Act should be completed within one year from the Tax Act enactment. During the three and six months ended June 30, 2018, we have made no material adjustments to the provisional amounts recorded at December 31, 2017. Adjustments to the provisional amounts recorded at December 31, 2017 will be reflected upon the completion of our accounting for the Tax Act.matters.

At ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, we had deferred tax assets, net of deferred tax liabilities and valuation allowance, of ~~$511.4~~$250.9 million and ~~$645.3~~$275.6 million, respectively. The accounting for deferred taxes is based upon estimates of future results. Differences between estimated and actual results could result in changes in the valuation of deferred tax assets that could have a material impact on our consolidated results of operations or financial position. Changes in existing tax laws could also affect actual tax results and the realization of deferred tax assets over time.

Unrecognized tax benefits represent the difference between tax positions taken or expected to be taken in a tax return and the benefits recognized for financial statement purposes. ~~At June 30, 2018 and December 31, 2017, we~~We had ~~$19.9~~$22.4 million and ~~$48.6~~$30.6 million ~~respectively,~~ of gross unrecognized tax benefits at March 31, 2019 and ~~$5.2 million and $4.9 million, respectively, of related~~December 31, 2018, respectively. Additionally, we had accrued interest and ~~penalties.~~penalties of $5.8 million at both March 31, 2019 and December 31, 2018. It is reasonably possible within the next twelve months that our gross unrecognized tax benefits may decrease by up to ~~$11.2~~$8.4 million, excluding interest and penalties, primarily due to potential audit settlements.

7. Fair value disclosures

ASC 820, “Fair Value Measurements and Disclosures,” provides a framework for measuring fair value in generally accepted accounting principles and establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The fair value hierarchy can be summarized as follows:



Level 1		Fair value determined based on quoted prices in active markets for identical assets or liabilities.

Level 2		Fair value determined using significant observable inputs, generally either quoted prices in active markets for similar assets or liabilities or quoted prices in markets that are not active.

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

~~PULTEGROUP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

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

Financial Instrument Fair Value
Hierarchy Fair Value
June 30,
2018 December 31,
2017

Measured at fair value on a recurring basis:
Residential mortgage loans available-for-sale Level 2 $ 369,634
$ 570,600
Interest rate lock commitments Level 2 11,634
5,583
Forward contracts Level 2 (2,240 ) (385 )
Whole loan commitments Level 2 406
(147 )

Measured at fair value on a non-recurring basis:
House and land inventory Level 3 $ 1,631
$ 11,045
Land held for sale Level 2 5,279
8,600

Disclosed at fair value:
Cash, cash equivalents, and restricted cash Level 1 $ 401,915
$ 306,168
Financial Services debt Level 2 264,043
437,804
Other notes payable Level 2 18,842
20,024
Senior notes payable Level 2 2,979,498
3,243,750

PULTEGROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)



Financial Instrument	Fair Value Hierarchy	Fair Value
Financial Instrument	Fair Value Hierarchy	March 31, 2019			December 31, 2018

Measured at fair value on a recurring basis:
Residential mortgage loans available-for-sale	Level 2	$	326,995		$	461,354
Interest rate lock commitments	Level 2	11,332			9,035
Forward contracts	Level 2	(3,873		)	(6,914		)
Whole loan commitments	Level 2	(285		)	(718		)

Measured at fair value on a non-recurring basis:
House and land inventory	Level 3	$	—		$	18,253
Land held for sale	Level 2	1,330			17,813

Disclosed at fair value:
Cash, cash equivalents, and restricted cash	Level 1	$	1,080,953		$	1,133,700
Financial Services debt	Level 2	222,139			348,412
Other notes payable	Level 2	37,708			41,313
Senior notes payable	Level 2	3,053,360			2,857,830

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

Certain assets are required to be recorded at fair value on a non-recurring basis when events and circumstances indicate that the carrying value may not be recoverable. The non-recurring fair values included in the above table represent only those assets whose carrying values were adjusted to fair value as of the respective balance sheet dates. ~~See~~ ~~Note 2~~ ~~forthe valuation techniques and inputs applied in determining the fair value of house and land inventory and land held for sale.~~

The carrying amounts of cash and equivalents, Financial Services debt, and other notes payable approximate their fair values due to their short-term nature and/or floating interest rate terms. The fair values of senior notes are based on quoted market prices, when available. If quoted market prices are not available, fair values are based on quoted market prices of similar issues. The carrying value of senior notes was $3.0 billion at both ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018.

~~PULTEGROUP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

8. Commitments and contingencies

Loan origination liabilities

Our mortgage operations may be responsible for losses associated with mortgage loans originated and sold to investors in the event of errors or omissions relating to representations and warranties made by us that the loans met certain requirements, including representations as to underwriting standards, the existence of primary mortgage insurance, and the validity of certain borrower representations in connection with the loan. In addition, certain trustees and investors continue to attempt to collect damages based on losses from loans that originated prior to 2009. Some of our mortgage subsidiaries are currently defendants in litigation related to such claims. If a loan is determined to be faulty, we either indemnify the investor for potential future losses, repurchase the loan from the investor, or reimburse the investor's actual losses.

CTX Mortgage Company, LLC ("CTX Mortgage") was the mortgage subsidiary of Centex and ceased originating loans in December 2009. In the matter Lehman Brothers Holdings, Inc. ("Lehman") in the U.S. Bankruptcy Court in the Southern District of New York, Lehman has initiated an adversary proceeding against CTX Mortgage seeking indemnity for loans sold to

PULTEGROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

it by CTX Mortgage prior to 2009. This claim is part of a broader action by Lehman in U.S. Bankruptcy Court against more than 100 mortgage originators and brokers. On August 13, 2018, the court denied a motion to dismiss filed by CTX Mortgage and other defendants, and on December 17, 2018, Lehman filed an amended adversary complaint against CTX Mortgage. Lehman's complaint alleges claims for indemnifiable losses of up to $261 million due from CTX Mortgage. We believe that CTX Mortgage has meritorious defenses and CTX Mortgage will continue to vigorously defend itself in this matter. We have recorded a liability for an amount that we consider to be the best estimate within a range of potential losses.

In addition, both CTX Mortgage and Pulte Mortgage sold certain loans originated prior to 2009 to financial institutions that were subsequently included in residential mortgage-backed securities or other securitizations issued by such financial institutions. In connection with such sales, CTX Mortgage and Pulte Mortgage have been put on notice of potential direct and / or third-party claims for indemnification arising out of litigation relating to certain of these residential mortgage-backed securities or other securitizations. Neither CTX Mortgage nor Pulte Mortgage is named as a defendant in these actions. We cannot yet quantify CTX Mortgage's or Pulte Mortgage's potential liability as a result of these indemnification obligations. We do not believe, however, that these matters will have a material adverse impact on the results of operations, financial position, or cash flows of the Company.

Our recorded liabilities for all such claims ~~totaled $34.5 million and $34.6~~decreased from $50.3 million at ~~June 30, 2018 and~~ December 31, ~~2017, respectively.~~2018 to $25.5 million at March 31, 2019 as the result of funding previously settled claims. Determining the liabilities for anticipated losses requires a significant level of management judgment. Given the nature of these claims and the uncertainty regarding their ultimate resolution, actual costs could differ from our current estimates.

Letters of credit and surety bonds

In the normal course of business, we post letters of credit and surety bonds pursuant to certain performance-related obligations, as security for certain land option agreements, and under various insurance programs. The majority of these letters of credit and surety bonds are in support of our land development and construction obligations to various municipalities, other government agencies, and utility companies related to the construction of roads, sewers, and other infrastructure. We had outstanding letters of credit and surety bonds totaling ~~$214.6~~$232.9 million and ~~$1.2~~$1.3 billion, respectively, at ~~June 30, 2018~~March 31, 2019 and $~~235.5~~239.4 million and $~~1.2~~1.3 billion, respectively, at December 31, ~~2017~~2018. In the event any such letter of credit or surety bond is drawn, we would be obligated to reimburse the issuer of the letter of credit or surety bond. ~~We do not believe that a material amount, if any, of the letters of credit or surety bonds will be drawn.~~ Our surety bonds generally do not have stated expiration dates; rather we are released from the surety bonds as the underlying contractual performance is completed. Because significant construction and development work has been performed related to projects that have not yet received final acceptance by the respective counterparties, the aggregate amount of surety bonds outstanding is in excess of the projected cost of the remaining work to be performed. We do not believe that a material amount, if any, of the letters of credit or surety bonds will be drawn.

Litigation and regulatory matters

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

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

PULTEGROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Allowance for warranties

Home purchasers are provided with a limited warranty against certain building defects, including a one-year comprehensive limited warranty and coverage for certain other aspects of the home’s construction and operating systems for periods of up to and, in limited instances, exceeding 10 years. We estimate the costs to be incurred under these warranties and record liabilities in the amount of such costs at the time product revenue is recognized. Factors that affect our warranty liabilities include the number of homes sold, historical and anticipated rates of warranty claims, and the cost per claim. We periodically assess the adequacy of the warranty liabilities for each geographic market in which we operate and adjust the amounts as necessary. Actual warranty costs in the future could differ from the current estimates. Changes to warranty liabilities were as follows ($000’s omitted):


	Three Months Ended						Six Months Ended						Three Months Ended
	June 30,						June 30,						March 31,
	2018			2017			2018			2017			2019			2018
Warranty liabilities, beginning of period	$	70,986		$	64,681		$	72,709		$	66,134		$	79,154		$	72,709
Reserves provided	15,731			12,446			27,647			23,088			12,262			11,916
Payments	(17,129		)	(16,815		)	(31,411		)	(28,914		)	(16,130		)	(14,282		)
Other adjustments ~~(a)~~	2,581			13,041			3,224			13,045			4,461			643
Warranty liabilities, end of period	$	72,169		$	73,353		$	72,169		$	73,353		$	79,747		$	70,986


~~(a)~~	~~During the three and six months ended June 30, 2017, we recognized a charge of $12.1 million related to estimated costs to complete repairs in a closed-out community in Florida.~~

Self-insured risks

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

Our general liability insurance includes coverage for certain construction defects. While construction defect claims can relate to a variety of circumstances, the majority of our claims relate to alleged problems with siding, plumbing, foundations and other concrete work, windows, roofing, and heating, ventilation and air conditioning systems. The availability of general liability insurance for the homebuilding industry and its subcontractors has become increasingly limited, and the insurance policies available require us to maintain significant per occurrence and aggregate retention levels. In certain instances, we may offer our subcontractors the opportunity to purchase insurance through one of our captive insurance subsidiaries or participate in a project-specific insurance program provided by us. Policies issued by our captive insurance subsidiaries represent self-insurance of these risks by us. 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 omissions, workers' compensation, and other business insurance coverage. We reserve for costs associated with such claims (including expected claims management expenses) on an undiscounted basis at the time revenue is recognized for each home closing and evaluate the recorded liabilities based on actuarial analyses of our historical claims. The actuarial analyses calculate estimates of the ultimate net cost of all unpaid losses, including estimates for incurred but not reported losses ("IBNR"). IBNR represents losses related to claims incurred but not yet reported plus development on reported claims.

Our recorded reserves for all such claims totaled ~~$725.5~~$729.2 million and ~~$758.8~~$737.0 million at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively, the vast majority of which relate to general liability claims. The recorded reserves include loss estimates

~~PULTEGROUP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

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 ~~62%~~66% and 65% of the total general liability reserves at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively. The actuarial analyses that determine the IBNR portion of reserves consider a

PULTEGROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

variety of factors, including the frequency and severity of losses, which are based on our historical claims experience supplemented by industry data. The actuarial analyses of the reserves also consider historical third party recovery rates and claims management expenses.

Housing market conditions ~~have been~~can be volatile, ~~across most of our markets over the past ten years,~~ and we believe such conditions can affect the frequency and cost of construction defect claims. Additionally, IBNR estimates comprise the majority of our liability and are subject to a high degree of uncertainty due to a variety of factors, including changes in claims reporting and resolution patterns, third party recoveries, insurance industry practices, the regulatory environment, and legal precedent. State regulations vary, but construction defect claims are typically reported and resolved over an extended period often exceeding ten years. Changes in the frequency and timing of reported claims and estimates of specific claim values can impact the underlying inputs and trends utilized in the actuarial analyses, which could have a material impact on the recorded reserves. Additionally, the amount of insurance coverage available for each policy period also impacts our recorded reserves. Because of the inherent uncertainty in estimating future losses and the timing of such losses related to these claims, actual costs could differ significantly from estimated costs.

Adjustments to reserves are recorded in the period in which the change in estimate occurs. We reduced general liability reserves by $37.9 million during the three and six months ended June 30, 2018 and $19.8 million during the three and six months ended June 30, 2017. These reductions were the result of changes in estimates driven by claim experience being less than anticipated in previous actuarial projections. These changes in actuarial estimates did not involve any changes in actuarial methodology but did impact the development of estimates for future periods, which resulted in adjustments to the IBNR portion of our recorded liabilities.

Costs associated with our insurance programs are classified within selling, general, and administrative expenses. Changes in these liabilities were as follows ($000's omitted):


	Three Months Ended						Six Months Ended						Three Months Ended
	June 30,						June 30,						March 31,
	2018			2017			2018			2017			2019			2018
Balance, beginning of period	$	771,104		$	835,326		$	758,812		$	831,058		$	737,013		$	758,812
Reserves provided, net	23,235			23,411			42,895			43,126
Reserves provided													17,396			19,660
Adjustments to previously recorded reserves ~~(a)~~	(37,529		)	(19,813		)	(35,068		)	(21,793		)	(3,875		)	2,461
Payments, net ~~(b)~~(a)	(31,328		)	(24,168		)	(41,157		)	(37,635		)	(21,364		)	(9,829		)
Balance, end of period	$	725,482		$	814,756		$	725,482		$	814,756		$	729,170		$	771,104


(a)	~~Includes general liability reserve reversals of $37.9 million for the three and six months ended June 30, 2018 and $19.8 million for the three and six months ended June 30, 2017.~~


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

In certain instances, we have the ability to recover a portion of our costs under various insurance policies or from subcontractors or other third parties. Estimates of such amounts are recorded when recovery is considered probable. Such receivables are recorded in other assets and totaled ~~$155.3~~$128.0 million and ~~$213.4~~$153.0 million at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively. The insurance receivables relate to costs incurred to perform corrective repairs, settle claims with customers, and other costs related to the continued progression of construction defect claims that we believe are insured. Given the complexity inherent with resolving construction defect claims in the homebuilding industry as described above, there generally exists a significant lag between our payment of claims and our reimbursements from applicable insurance carriers. In addition, disputes between homebuilders and carriers over coverage positions relating to construction defect claims are common. Resolution of claims with carriers involves the exchange of significant amounts of information and frequently involves legal action.

During the ~~six~~three months ended ~~June 30, 2017,~~March 31, 2019, we wrote-off ~~$15.0~~$11.6 million of insurance receivables in ~~conjunction~~connection with ~~settling insurance policies~~the settlement of an arbitration with ~~multiple~~one of our carriers, ~~covering multiple years. At June 30, 2018,~~pursuant to which we received the majority of the coverage under the policy.

Leases

We lease certain office space and equipment for use in our operations. We recognize lease expense for these leases on a straight-line basis over the lease term and combine lease and non-lease components for all leases. Right-of-use ("ROU") assets and lease liabilities are recorded on the ~~plaintiff~~balance sheet for all leases with an expected term of at least one year. Some leases include one or more options to renew. The exercise of lease renewal options is generally at our discretion. The depreciable lives of ROU assets and leasehold improvements are limited to the expected lease term. Certain of our lease agreements include rental payments based on a pro-rata share of the lessor’s operating costs which are variable in ~~an arbitration~~nature. Our lease agreements do not contain any residual value guarantees or material restrictive covenants.

PULTEGROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

~~proceeding~~ROU assets are classified within other assets on the balance sheet, while lease liabilities are classified within accrued and other liabilities. Leases with ~~one~~an initial term of ~~our insurance carriers in regard to $22.3~~12 months or less are not recorded on the balance sheet. ROU assets and lease liabilities were $73.3 million and $98.5 million at March 31, 2019, respectively. During the three months ended March 31, 2019, we obtained an additional $7.8 million of ~~recorded insurance receivables relating to~~ROU assets under operating leases. Payments on lease liabilities during the ~~applicability~~three months ended March 31, 2019 totaled $5.8 million.

Lease expense includes costs for leases with terms in excess of ~~coverage to such~~one year as well as short-term leases with terms of less than one year. For the three months ended March 31, 2019, our total lease expense was $8.8 million, which includes variable lease costs of $1.7 million. Short-term lease costs and external sublease income are de minimis.

The future minimum lease payments required under ~~their policy. We believe collection~~our leases as of our recorded insurance receivables, including those in litigation, is probable based on the legal merits of our positions after review by legal counsel, the high credit ratings of our carriers, and our long history of collecting significant amounts of insurance reimbursements under similar insurance policies related to similar claims. While the outcome of these matters cannot be predicted with certainty, we do not believe that the resolution of such matters will have a material adverse impact on our results of operations, financial position, or cash flows.March 31, 2019 are as follows ($000's omitted):



Years Ending December 31,
2019 (a)	$	17,903
2020	20,548
2021	18,262
2022	16,690
2023	15,085
Thereafter	$	30,381
Total lease payments (b)	118,869
Less: Interest (c)	20,407
Present value of lease liabilities (d)	$	98,462


(a)	Remaining payments are for the nine-months ending December 31, 2019.


(b)	Lease payments include options to extend lease terms that are reasonably certain of being exercised. There were no legally binding minimum lease payments for leases signed but not yet commenced at March 31, 2019.


(c)	Our leases do not provide a readily determinable implicit rate. Therefore, we must estimate our discount rate for such leases to determine the present value of lease payments at the lease commencement date.


(d)	The weighted average remaining lease term and weighted average discount rate used in calculating our lease liabilities were 6.3 years and 5.8%, respectively, at March 31, 2019.

9. Supplemental Guarantor information

All of our senior notes are guaranteed jointly and severally on a senior basis by certain of our wholly-owned Homebuilding subsidiaries and certain other wholly-owned subsidiaries (collectively, the “Guarantors”). Such guaranties are full and unconditional. Our subsidiaries comprising the Financial Services segment along with certain other subsidiaries (collectively, the "Non-Guarantor Subsidiaries") do not guarantee the senior notes. In accordance with Rule 3-10 of Regulation S-X, supplemental consolidating financial information of the Company, including such information for the Guarantors, is presented below. Investments in subsidiaries are presented using the equity method of accounting.

PULTEGROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

CONDENSED CONSOLIDATING BALANCE SHEET

~~JUNE 30, 2018~~MARCH 31, 2019

($000’s omitted)


	Unconsolidated							Eliminating Entries			Consolidated PulteGroup, Inc.		Unconsolidated							Eliminating Entries			Consolidated PulteGroup, Inc.
	PulteGroup, Inc.		Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminating Entries			Consolidated PulteGroup, Inc.		PulteGroup, Inc.		Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminating Entries			Consolidated PulteGroup, Inc.
ASSETS
Cash and equivalents	$	—	$	318,811	$	48,280		$	—		$	367,091	$	—	$	1,009,042	$	46,415		$	—		$	1,055,457
Restricted cash	—		33,634		1,190			—			34,824		—		24,117		1,379			—			25,496
Total cash, cash equivalents, and restricted cash	—		352,445		49,470			—			401,915		—		1,033,159		47,794			—			1,080,953
House and land inventory	—		7,402,692		96,973			—			7,499,665		—		7,423,308		83,235			—			7,506,543
Land held for sale	—		77,941		—			—			77,941		—		38,525		906			—			39,431
Residential mortgage loans available- for-sale	—		—		369,634			—			369,634		—		—		326,995			—			326,995
Investments in unconsolidated entities	—		61,182		536			—			61,718		—		55,509		216			—			55,725
Other assets	17,108		576,371		165,751			—			759,230		15,985		642,824		164,257			—			823,066
Intangible assets	—		134,092		—			—			134,092		—		123,742		—			—			123,742
Deferred tax assets, net	519,188		—		(7,807		)	—			511,381		258,311		—		(7,430		)	—			250,881
Investments in subsidiaries and intercompany accounts, net	7,084,815		288,223		7,967,379			(15,340,417		)	—		7,736,546		328,963		8,686,446			(16,751,955		)	—
	$	7,621,111	$	8,892,946	$	8,641,936		$	(15,340,417	)	$	9,815,576	$	8,010,842	$	9,646,030	$	9,302,419		$	(16,751,955	)	$	10,207,336
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable, customer deposits, accrued and other liabilities	$	85,067	$	1,661,695	$	249,885		$	—		$	1,996,647	$	72,590	$	1,688,847	$	247,800		$	—		$	2,009,237
Income tax liabilities	22,484		—		—			—			22,484		18,108		—		—			—			18,108
Financial Services debt	—		—		264,043			—			264,043		—		—		222,139			—			222,139
Notes payable	2,986,848		17,962		880			—			3,005,690		2,986,705		37,708		—			—			3,024,413
Total liabilities	3,094,399		1,679,657		514,808			—			5,288,864		3,077,403		1,726,555		469,939			—			5,273,897
Total shareholders’ equity	4,526,712		7,213,289		8,127,128			(15,340,417		)	4,526,712		4,933,439		7,919,475		8,832,480			(16,751,955		)	4,933,439
	$	7,621,111	$	8,892,946	$	8,641,936		$	(15,340,417	)	$	9,815,576	$	8,010,842	$	9,646,030	$	9,302,419		$	(16,751,955	)	$	10,207,336

PULTEGROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

CONDENSED CONSOLIDATING BALANCE SHEET

DECEMBER 31, ~~2017~~2018

($000’s omitted)


	Unconsolidated							Eliminating Entries			Consolidated PulteGroup, Inc.		Unconsolidated							Eliminating Entries			Consolidated PulteGroup, Inc.
	PulteGroup, Inc.		Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminating Entries			Consolidated PulteGroup, Inc.		PulteGroup, Inc.		Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminating Entries			Consolidated PulteGroup, Inc.
ASSETS
Cash and equivalents	$	—	$	125,462	$	147,221		$	—		$	272,683	$	—	$	906,961	$	203,127		$	—		$	1,110,088
Restricted cash	—		32,339		1,146			—			33,485		—		22,406		1,206			—			23,612
Total cash, cash equivalents, and restricted cash	—		157,801		148,367			—			306,168		—		929,367		204,333			—			1,133,700
House and land inventory	—		7,053,087		94,043			—			7,147,130		—		7,157,665		95,688			—			7,253,353
Land held for sale	—		68,384		—			—			68,384		—		36,849		—			—			36,849
Residential mortgage loans available- for-sale	—		—		570,600			—			570,600		—		—		461,354			—			461,354
Investments in unconsolidated entities	—		62,415		542			—			62,957		—		54,045		545			—			54,590
Other assets	9,417		592,045		143,661			—			745,123		66,154		579,452		184,753			—			830,359
Intangible assets	—		140,992		—			—			140,992		—		127,192		—			—			127,192
Deferred tax assets, net	646,227		—		(932		)	—			645,295		282,874		—		(7,295		)	—			275,579
Investments in subsidiaries and intercompany accounts, net	6,661,638		284,983		7,300,127			(14,246,748		)	—		7,557,245		500,138		8,231,342			(16,288,725		)	—
	$	7,317,282	$	8,359,707	$	8,256,408		$	(14,246,748	)	$	9,686,649	$	7,906,273	$	9,384,708	$	9,170,720		$	(16,288,725	)	$	10,172,976
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable, customer deposits, accrued and other liabilities	$	89,388	$	1,636,913	$	274,626		$	—		$	2,000,927	$	90,158	$	1,598,265	$	278,713		$	—		$	1,967,136
Income tax liabilities	86,925		—		—			—			86,925		11,580		—		—			—			11,580
Financial Services debt	—		—		437,804			—			437,804		—		—		348,412			—			348,412
Notes payable	2,986,943		16,911		3,113			—			3,006,967		2,986,753		40,776		537			—			3,028,066
Total liabilities	3,163,256		1,653,824		715,543			—			5,532,623		3,088,491		1,639,041		627,662			—			5,355,194
Total shareholders’ equity	4,154,026		6,705,883		7,540,865			(14,246,748		)	4,154,026		4,817,782		7,745,667		8,543,058			(16,288,725		)	4,817,782
	$	7,317,282	$	8,359,707	$	8,256,408		$	(14,246,748	)	$	9,686,649	$	7,906,273	$	9,384,708	$	9,170,720		$	(16,288,725	)	$	10,172,976

PULTEGROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME

For the three months ended ~~June 30, 2018~~March 31, 2019

($000’s omitted)


	Unconsolidated												Consolidated PulteGroup, Inc.			Unconsolidated												Consolidated PulteGroup, Inc.
	PulteGroup, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminating Entries						PulteGroup, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminating Entries
Revenues:
Homebuilding
Home sale revenues	$	—		$	2,421,643		$	28,411		$	—		$	2,450,054		$	—		$	1,907,808		$	42,048		$	—		$	1,949,856
Land sale and other revenues	—			66,418			486			—			66,904			—			2,325			650			—			2,975
	—			2,488,061			28,897			—			2,516,958			—			1,910,133			42,698			—			1,952,831
Financial Services	—			—			52,764			—			52,764			—			—			43,862			—			43,862
	—			2,488,061			81,661			—			2,569,722			—			1,910,133			86,560			—			1,996,693
Homebuilding Cost of Revenues:
Home sale cost of revenues	—			(1,840,487		)	(21,646		)	—			(1,862,133		)	—			(1,460,895		)	(31,896		)	—			(1,492,791		)
Land sale cost of revenues	—			(37,884		)	(299		)	—			(38,183		)	—			(944		)	(1,106		)	—			(2,050		)
	—			(1,878,371		)	(21,945		)	—			(1,900,316		)	—			(1,461,839		)	(33,002		)	—			(1,494,841		)
Financial Services expenses	—			(133		)	(32,091		)	—			(32,224		)	—			(132		)	(31,317		)	—			(31,449		)
Selling, general, and administrative expenses	—			(221,590		)	(4,466		)	—			(226,056		)	—			(234,118		)	(18,609		)	—			(252,727		)
Other expense, net	(196		)	(13,436		)	11,676			—			(1,956		)
Other income (expense), net																(122		)	(4,986		)	4,135			—			(973		)
Intercompany interest	(2,085		)	—			2,085			—			—			(1,996		)	—			1,996			—			—
Income (loss) before income taxes and equity in income (loss) of subsidiaries	(2,281		)	374,531			36,920			—			409,170			(2,118		)	209,058			9,763			—			216,703
Income tax (expense) benefit	547			(75,977		)	(9,651		)	—			(85,081		)	508			(47,650		)	(2,804		)				(49,946		)
Income (loss) before equity in income (loss) of subsidiaries	(1,734		)	298,554			27,269			—			324,089			(1,610		)	161,408			6,959			—			166,757
Equity in income (loss) of subsidiaries	325,823			24,504			258,352			(608,679		)	—			168,367			18,304			113,696			(300,367		)	—
Net income (loss)	324,089			323,058			285,621			(608,679		)	324,089			166,757			179,712			120,655			(300,367		)	166,757
Other comprehensive income	30			—			—			—			30			25			—			—			—			25
Comprehensive income (loss)	$	324,119		$	323,058		$	285,621		$	(608,679	)	$	324,119		$	166,782		$	179,712		$	120,655		$	(300,367	)	$	166,782

PULTEGROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME

For the three months ended ~~June 30, 2017~~March 31, 2018

($000’s omitted)


	Unconsolidated												Consolidated PulteGroup, Inc.			Unconsolidated												Consolidated PulteGroup, Inc.
	PulteGroup, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminating Entries						PulteGroup, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminating Entries
Revenues:
Homebuilding
Home sale revenues	$	—		$	1,945,312		$	20,329		$	—		$	1,965,641		$	—		$	1,885,431		$	26,167		$	—		$	1,911,598
Land sale and other revenues	—			7,399			1,545			—			8,944			—			11,558			999			—			12,557
	—			1,952,711			21,874			—			1,974,585			—			1,896,989			27,166			—			1,924,155
Financial Services	—			—			47,275			—			47,275			—			—			45,938			—			45,938
	—			1,952,711			69,149			—			2,021,860			—			1,896,989			73,104			—			1,970,093
Homebuilding Cost of Revenues:
Home sale cost of revenues	—			(1,533,402		)	(16,535		)	—			(1,549,937		)	—			(1,438,347		)	(21,593		)	—			(1,459,940		)
Land sale cost of revenues	—			(86,408		)	(1,191		)	—			(87,599		)	—			(10,830		)	(718		)	—			(11,548		)
	—			(1,619,810		)	(17,726		)	—			(1,637,536		)	—			(1,449,177		)	(22,311		)	—			(1,471,488		)
Financial Services expenses	—			(124		)	(28,354		)	—			(28,478		)	—			(142		)	(32,071		)	—			(32,213		)
Selling, general, and administrative expenses	—			(210,110		)	(6,101		)	—			(216,211		)	—			(231,418		)	(9,475		)	—			(240,893		)
Other expense, net	(129		)	(23,877		)	6,918			—			(17,088		)
Other income (expense), net																(142		)	(7,601		)	6,435			—			(1,308		)
Intercompany interest	(544		)	—			544			—			—			(1,468		)	—			1,468			—			—
Income (loss) before income taxes and equity in income (loss) of subsidiaries	(673		)	98,790			24,430			—			122,547			(1,610		)	208,651			17,150			—			224,191
Income tax (expense) benefit	256			(12,733		)	(9,321		)	—			(21,798		)	387			(49,531		)	(4,296		)	—			(53,440		)
Income (loss) before equity in income (loss) of subsidiaries	(417		)	86,057			15,109			—			100,749
Income before equity in income of subsidiaries																(1,223		)	159,120			12,854			—			170,751
Equity in income (loss) of subsidiaries	101,166			11,013			45,621			(157,800		)	—			171,974			12,564			110,671			(295,209		)	—
Net income (loss)	100,749			97,070			60,730			(157,800		)	100,749			170,751			171,684			123,525			(295,209		)	170,751
Other comprehensive income	20			—			—			—			20			21			—			—			—			21
Comprehensive income (loss)	$	100,769		$	97,070		$	60,730		$	(157,800	)	$	100,769		$	170,772		$	171,684		$	123,525		$	(295,209	)	$	170,772

PULTEGROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

CONSOLIDATING STATEMENT OF ~~OPERATIONS AND COMPREHENSIVE INCOME~~CASH FLOWS

For the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019

($000’s omitted)

Unconsolidated Consolidated
PulteGroup,
Inc.
PulteGroup,
Inc. Guarantor
Subsidiaries Non-Guarantor
Subsidiaries Eliminating
Entries
Revenues:
Homebuilding
Home sale revenues $ —
$ 4,316,500
$ 45,152
$ —
$ 4,361,652
Land sale and other revenues —
77,977
1,484
—
79,461
—
4,394,477
46,636
—
4,441,113
Financial Services —
—
98,702
—
98,702
—
4,394,477
145,338
—
4,539,815
Homebuilding Cost of Revenues:
Home sale cost of revenues —
(3,286,043 ) (36,030 ) —
(3,322,073 )
Land sale cost of revenues —
(48,714 ) (1,017 ) —
(49,731 )
—
(3,334,757 ) (37,047 ) —
(3,371,804 )
Financial Services expenses —
(275 ) (64,161 ) —
(64,436 )
Selling, general, and administrative
expenses —
(453,535 ) (13,415 ) —
(466,950 )
Other expense, net (336 ) (21,037 ) 18,110
—
(3,263 )
Intercompany interest (3,553 ) —
3,553
—
—
Income (loss) before income taxes and
equity in income (loss) of
subsidiaries (3,889 ) 584,873
52,378
—
633,362
Income tax (expense) benefit 934
(125,508 ) (13,947 ) —
(138,521 )
Income (loss) before equity in income
(loss) of subsidiaries (2,955 ) 459,365
38,431
—
494,841
Equity in income (loss) of subsidiaries 497,796
37,068
369,023
(903,887 ) —
Net income (loss) 494,841
496,433
407,454
(903,887 ) 494,841
Other comprehensive income 50
—
—
—
50
Comprehensive income (loss) $ 494,891
$ 496,433
$ 407,454
$ (903,887 ) $ 494,891

~~PULTEGROUP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

~~CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME~~

~~For the six months endedJune 30, 2017~~

~~($000’s omitted)~~

Unconsolidated Consolidated
PulteGroup,
Inc.
PulteGroup,
Inc. Guarantor
Subsidiaries Non-Guarantor
Subsidiaries Eliminating
Entries
Revenues:
Homebuilding
Home sale revenues $ —
$ 3,521,958
$ 29,105
$ —
$ 3,551,063
Land sale and other revenues —
9,311
2,321
—
11,632
—
3,531,269
31,426
—
3,562,695
Financial Services —
—
89,042
—
89,042
—
3,531,269
120,468
—
3,651,737
Homebuilding Cost of Revenues:
Home sale cost of revenues —
(2,743,042 ) (24,573 ) —
(2,767,615 )
Land sale cost of revenues —
(89,004 ) (1,823 ) —
(90,827 )
—
(2,832,046 ) (26,396 ) —
(2,858,442 )
Financial Services expenses —
(263 ) (56,583 ) —
(56,846 )
Selling, general, and administrative
expenses —
(428,085 ) (24,394 ) —
(452,479 )
Other expense, net (259 ) (36,763 ) 14,865
—
(22,157 )
Intercompany interest (878 ) —
878
—
—
Income (loss) before income taxes and
equity in income (loss) of
subsidiaries (1,137 ) 234,112
28,838
—
261,813
Income tax (expense) benefit 432
(58,658 ) (11,319 ) —
(69,545 )
Income (loss) before equity in income
(loss) of subsidiaries (705 ) 175,454
17,519
—
192,268
Equity in income (loss) of subsidiaries 192,973
18,266
82,930
(294,169 ) —
Net income (loss) 192,268
193,720
100,449
(294,169 ) 192,268
Other comprehensive income 41
—
—
—
41
Comprehensive income (loss) $ 192,309
$ 193,720
$ 100,449
$ (294,169 ) $ 192,309

~~PULTEGROUP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

~~CONSOLIDATING STATEMENT OF CASH FLOWS~~

~~For the six months ended June 30, 2018~~

~~($000’s omitted)~~


	Unconsolidated											Consolidated PulteGroup, Inc.			Unconsolidated											Consolidated PulteGroup, Inc.
	PulteGroup, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminating Entries					PulteGroup, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminating Entries
Net cash provided by (used in) operating activities	$	259,028		$	63,775		$	224,779		$	—	$	547,582		$	27,743		$	(14,838	)	$	146,004		$	—	$	158,909
Cash flows from investing activities:
Capital expenditures	—			(28,908		)	(4,151		)	—		(33,059		)	—			(13,216		)	(2,854		)	—		(16,070		)
Investments in unconsolidated entities	—			(1,000		)	—			—		(1,000		)	—			(1,183		)	(106		)	—		(1,289		)
Other investing activities, net	—			5,759			1,156			—		6,915			—			190			101			—		291
Net cash provided by (used in) investing activities	—			(24,149		)	(2,995		)	—		(27,144		)	—			(14,209		)	(2,859		)	—		(17,068		)
Cash flows from financing activities:
Financial Services borrowings (repayments)	—			—			(173,761		)	—		(173,761		)
Financial Services borrowing (repayments), net															—			—			(126,273		)	—		(126,273		)
Repayments of debt	—			(81,758		)	(674		)	—		(82,432		)	—			(3,068		)	(537		)	—		(3,605		)
Borrowings under revolving credit facility	1,566,000			—			—			—		1,566,000			—			—			—			—		—
Repayments under revolving credit facility	(1,566,000		)	—			—			—		(1,566,000		)	—			—			—			—		—
Debt issuance costs	(8,090		)	—			—			—		(8,090		)												—
Stock option exercises	4,467			—			—			—		4,467			1,445			—			—			—		1,445
Share repurchases	(112,491		)	—			—			—		(112,491		)	(35,353		)	—			—					(35,353		)
Dividends paid	(52,384		)	—			—			—		(52,384		)	(30,802		)	—			—			—		(30,802		)
Intercompany activities, net	(90,530		)	236,776			(146,246		)	—		—			36,967			135,907			(172,874		)			—
Net cash provided by (used in) financing activities	(259,028		)	155,018			(320,681		)	—		(424,691		)	(27,743		)	132,839			(299,684		)	—		(194,588		)
Net increase (decrease)	—			194,644			(98,897		)	—		95,747
Net increase (decrease) in cash, cash equivalents, and restricted cash															—			103,792			(156,539		)	—		(52,747		)
Cash, cash equivalents, and restricted cash at beginning of year	—			157,801			148,367			—		306,168			—			929,367			204,333			—		1,133,700
Cash, cash equivalents, and restricted cash at end of year	$	—		$	352,445		$	49,470		$	—	$	401,915		$	—		$	1,033,159		$	47,794		$	—	$	1,080,953

PULTEGROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

CONSOLIDATING STATEMENT OF CASH FLOWS

For the ~~six~~three months ended ~~June 30, 2017~~March 31, 2018

($000’s omitted)


	Unconsolidated											Consolidated PulteGroup, Inc.			Unconsolidated											Consolidated PulteGroup, Inc.
	PulteGroup, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminating Entries					PulteGroup, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminating Entries
Net cash provided by (used in) operating activities	$	58,415		$	(29,931	)	$	147,842		$	—	$	176,326		$	310,937		$	(340,357	)	$	198,433		$	—	$	169,013
Cash flows from investing activities:
Capital expenditures	—			(14,346		)	(2,546		)	—		(16,892		)	—			(13,537		)	(1,891		)	—		(15,428		)
Investments in unconsolidated entities	—			(17,832		)	—			—		(17,832		)	—			(1,000		)	—			—		(1,000		)
Other investing activities, net	—			2,874			269			—		3,143			—			—			452			—		452
Net cash provided by (used in) investing activities	—			(29,304		)	(2,277		)	—		(31,581		)	—			(14,537		)	(1,439		)	—		(15,976		)
Cash flows from financing activities:
Financial Services borrowings (repayments)	—			—			(177,918		)	—		(177,918		)
Financial Services borrowings (repayments), net															—			—			(190,852		)	—		(190,852		)
Repayments of debt	—			(1,382		)	(771		)	—		(2,153		)	—			—			(451		)	—		(451		)
Borrowings under revolving credit facility	110,000			—			—			—		110,000			768,000			—			—			—		768,000
Repayments under revolving credit facility	(110,000		)	—			—			—		(110,000		)	(768,000		)	—			—			—		(768,000		)
Stock option exercises	15,966			—			—			—		15,966			2,723			—			—			—		2,723
Share repurchases	(405,819		)	—			—			—		(405,819		)	(59,491		)	—			—			—		(59,491		)
Dividends paid	(58,214		)	—			—			—		(58,214		)	(26,347		)	—			—			—		(26,347		)
Intercompany activities, net	389,652			(360,529		)	(29,123		)	—		—			(227,822		)	332,689			(104,867		)	—		—
Net cash provided by (used in) financing activities	(58,415		)	(361,911		)	(207,812		)	—		(628,138		)	(310,937		)	332,689			(296,170		)	—		(274,418		)
Net increase (decrease)	—			(421,146		)	(62,247		)	—		(483,393		)
Net increase (decrease) in cash, cash equivalents, and restricted cash															—			(22,205		)	(99,176		)	—		(121,381		)
Cash, cash equivalents, and restricted cash at beginning of year	—			611,185			112,063			—		723,248			—			157,801			148,367			—		306,168
Cash, cash equivalents, and restricted cash at end of year	$	—		$	190,039		$	49,816		$	—	$	239,855		$	—		$	135,596		$	49,191		$	—	$	184,787

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

Demand conditions became more challenging across the U.S. new home industry beginning in mid-2018 as affordability concerns, driven in part by the combination of increased home prices and higher mortgage rates, caused homebuyers to become more cautious. However, we have experienced increased traffic to our communities relative to the same period in 2018 as mortgage rates have declined slightly. We continue to see U.S. housing demand being supported by a number of positive market dynamics, including an expanding economy, ongoing growth in jobs and wages, ~~historically~~ low unemployment, and ~~sustained~~ high ~~levels of~~ consumer confidence. ~~Against this favorable demand dynamic~~In addition, there is a generally limited supply of new homes across the markets we serve as land and labor resources remain ~~constrained along with affordability challenges, especially among first-time~~constrained. Accordingly, we continue to maintain a positive view on the overall housing cycle and ~~move-up buyers, due~~our competitive position in the markets in which we operate. Within this environment, we will remain disciplined in our business practices while looking to ~~the combination of increased home prices~~capitalize on market opportunities that can help deliver long-term growth and ~~higher mortgage rates.~~strong financial performance.

Our investments have put us in a position to open new communities, which are allowing us to grow the business, as evidenced by net new order dollars increasing 10% for the six months ended June 30, 2018, as compared to the prior year, and our backlog increasing by 17% to $5.2 billion as of June 30, 2018. While customer traffic to our communities has increased during 2018, we did experience lower than expected conversions of traffic to signups, especially among first-time and move-up buyers, beginning in May 2018 when mortgage rates increased. This resulted in a 1% decrease in our signups for the three months ended June 30, 2018, as compared to the prior year. However, consistent with our efforts to drive enhanced operational performance, we realized significant improvements in gross margins, overhead leverage, and income before income taxes as compared to the prior year. The favorable market conditions and our sizable backlog of orders give us confidence that we have the business well-positioned to deliver strong performance throughout 2018, continue to use our capital to support future growth, and consistently return funds to shareholders through dividends and share repurchases. The following is a summary of our operating results by line of business ($000's omitted, except per share data):


	Three Months Ended						Six Months Ended						Three Months Ended
	June 30,						June 30,						March 31,
	2018			2017			2018			2017			2019			2018
Income before income taxes:
Homebuilding	$	388,453		$	103,599		$	598,811		$	229,362		$	204,294		$	210,358
Financial Services	20,717			18,948			34,551			32,451			12,409			13,833
Income before income taxes	409,170			122,547			633,362			261,813			216,703			224,191
Income tax expense	(85,081		)	(21,798		)	(138,521		)	(69,545		)	(49,946		)	(53,440		)
Net income	$	324,089		$	100,749		$	494,841		$	192,268		$	166,757		$	170,751
Per share data - assuming dilution:
Net income	$	1.12		$	0.32		$	1.71		$	0.60		$	0.59		$	0.59

•Homebuilding income before income taxes for the three ~~and six~~ months ended ~~June 30, 2018 increased 275% and 161%, respectively,~~March 31, 2019 decreased 3% compared ~~with the prior year periods as the result of higher revenues, better overheard utilization, and the net impact of the following significant income (expense) items ($000's omitted):~~

Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
Land inventory impairments (see Note 2)
$ (553 ) $ (31,487 ) $ (553 ) $ (31,487 )
Net realizable value adjustments ("NRV") - land held for sale (see Note 2)
(217 ) (81,006 ) (1,027 ) (82,886 )
Impairments of unconsolidated entities (see Note 2)
—
(8,017 ) —
(8,017 )
Write-offs of deposits and pre-acquisition costs (see Note 2)
(1,652 ) (5,063 ) (4,261 ) (6,718 )
Warranty claim (see Note 8)
—
(12,106 ) —
—
Write-off of insurance receivable (see Note 8)
—
—
—
(15,000 )
Land sale gains (see Note 3)
26,402
—
26,402
—
Insurance reserve reversal (see Note 8)
37,890
19,813
37,890
19,813
$ 61,870
$ (117,866 ) $ 58,451
$ (124,295 )

~~For additional information on each of the above, see the applicable Notes~~ to the ~~Condensed Consolidated Financial Statements.~~

three months ended March 31, 2018 primarily due to: lower gross margin; higher selling, general, and administrative expenses; partially offset by slightly higher revenues.

Financial Services income before income taxes ~~increased~~decreased 10% for the three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2019 compared with the three ~~and six~~ months ended ~~June 30, 2017 due to an increase in origination volume resulting from~~March 31, 2018 primarily as the result of the competitive pricing environment within the mortgage industry, partially offset by slightly higher ~~volumes in the Homebuilding segment.~~production volumes.

Our effective tax rate for the three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2019 was ~~20.8% and 21.9%, respectively,~~23.0% compared to ~~17.8% and 26.6%~~23.8% for the same periods in 2017. For three and six months ended June 30, 2018, our 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 acceptance of an accounting method change applicable to the 2017 tax year, energy credits, and tax law changes. For the same period in 2018. Our effective tax rate for the three months ended March 31, 2019 was lower than the prior year ~~our effective tax rate differed from the federal statutory rate~~period primarily due to ~~state income tax expense on current year earnings,~~ the favorable resolution of certain state income tax ~~matters, and tax law changes. The federal statutory rate was reduced from 35% in 2017 to 21% in 2018 due to the Tax Act, which was enacted on December 22, 2017.~~matters.

Homebuilding Operations

The following presents selected financial information for our Homebuilding operations ($000’s omitted):


	Three Months Ended								Six Months Ended								Three Months Ended
	June 30,								June 30,								March 31,
	2018			2018 vs. 2017		2017			2018			2018 vs. 2017		2017			2019			2019 vs. 2018		2018
Home sale revenues	$	2,450,054		25	%	$	1,965,641		$	4,361,652		23	%	$	3,551,063		$	1,949,856		2	%	$	1,911,598
Land sale and other revenues ~~(a)~~	66,904			648	%	8,944			79,461			583	%	11,632			2,975			(76	)%	12,557
Total Homebuilding revenues	2,516,958			27	%	1,974,585			4,441,113			25	%	3,562,695			1,952,831			1	%	1,924,155
Home sale cost of revenues ~~(b)~~(a)	(1,862,133		)	20	%	(1,549,937		)	(3,322,073		)	20	%	(2,767,615		)	(1,492,791		)	2	%	(1,459,940		)
Land sale cost of revenues ~~(c)~~	(38,183		)	(56	)%	(87,599		)	(49,731		)	(45	)%	(90,827		)	(2,050		)	(82	)%	(11,548		)
Selling, general, and administrative expenses ("SG&A") ~~(d)~~	(226,056		)	5	%	(216,211		)	(466,950		)	3	%	(452,479		)	(252,727		)	5	%	(240,893		)
Other expense, net ~~(e)~~	(2,133		)	(88	)%	(17,239		)	(3,548		)	(84	)%	(22,412		)	(969		)	(32	)%	(1,416		)
Income before income taxes	$	388,453		275	%	$	103,599		$	598,811		161	%	$	229,362		$	204,294		(3	)%	$	210,358

Supplemental data:
Gross margin from home sales ~~(b)~~	24.0		%	290 bps		21.1		%	23.8		%	170 bps		22.1		%	23.4		%	(20) bps		23.6		%
SG&A as a percentage of home sale revenues ~~(d)~~	9.2		%	(180) bps		11.0		%	10.7		%	(200) bps		12.7		%	13.0		%	40 bps		12.6		%
Closings (units)	5,741			14	%	5,044			10,367			12	%	9,269			4,635			—	%	4,626
Average selling price	$	427		10	%	$	390		$	421		10	%	$	383		$	421		2	%	$	413
Net new orders (f):
Net new orders (b):
Units	6,341			(1	)%	6,395			13,216			6	%	12,521			6,463			(6	)%	6,875
Dollars	$	2,694,271		3	%	$	2,625,091		$	5,587,823		10	%	$	5,071,230		$	2,735,852		(5	)%	$	2,893,552
Cancellation rate	14		%			13		%	13		%			12		%	12		%			12		%
Active communities at June 30									847			5	%	803
Backlog at June 30:
Active communities at March 31																	858			2	%	844
Backlog at March 31:
Units									11,845			11	%	10,674			10,550			(6	)%	11,245
Dollars									$	5,205,234		17	%	$	4,461,680		$	4,622,145		(7	)%	$	4,961,018


(a)	Includes ~~net gains gains~~the amortization of ~~$26.4 million related to two land sale transactions in California that closed during the three and six months ended June 30, 2018 (see~~ ~~Note 3~~). capitalized interest.


(b)	~~Includes land inventory impairments of $31.5 million (see~~ ~~Note 2) and a warranty charge of $12.1 million related to a closed-out community (see~~ ~~Note 8) for the three and six months ended June 30, 2017. Also includes the amortization of capitalized interest.~~


~~(c)~~	~~Includes net realizable value adjustments on land held for sale of $81.0 million and $82.9 million for the three and six months ended June 30, 2017, respectively (see~~ ~~Note 2~~).


~~(d)~~	Includes insurance reserve reversals of $37.9 million and $19.8 million for the three and six months ended June 30, 2018 and 2017, respectively, and a write-off of $15.0 million of insurance receivables associated with the resolution of certain insurance matters in the six months ended June 30, 2017 (see ~~Note 8~~).


~~(e)~~	~~Includes an $8.0 million impairment of an investment in an unconsolidated entity in the three and six months ended June 30, 2017 (see~~ ~~Note 2~~).


~~(f)~~	~~New~~Net new order dollars represent a composite of new order dollars combined with other movements of the dollars in backlog related to cancellations and change orders.

Home sale revenues

Home sale revenues for the three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2019 were higher than the prior year by ~~$484.4 million and $810.6 million, respectively.~~$38.3 million. For the three months ended ~~June 30, 2018,~~March 31, 2019, the ~~25%~~2% increase was attributable to a ~~14%~~slight increase in closings and ~~10% increase in average selling price. For the six months ended June 30, 2018, the 23% increase was attributable to~~ a ~~12% increase in closings and 10%~~2% increase in average selling price. The ~~increase in~~increased closings ~~reflects~~occurred primarily as the ~~significant investments we have made and the resulting increase in our~~result of a higher number of active ~~communities, combined with ongoing increases in the overall demand for new homes.~~communities. The higher average selling price ~~occurred across the majority of our markets and~~primarily reflects shifts in product mix ~~including a small increase in~~throughout the ~~mix of closings in Northern California, where our average selling prices are significantly higher than the Company average.~~country.

Home sale gross margins

Home sale gross margins were ~~24.0% and 23.8%~~23.4% for the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, respectively, compared to ~~21.1% and 22.1% for the~~23.6% three ~~and six~~ months ended ~~June 30, 2017,~~March 31, 2018, respectively. Gross margins for the three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2019 remain strong relative to historical levels and reflect a combination of factors, including shifts in community mix, a small increase in the mix of closings in Northern California, favorable pricing conditions in the majority of our markets, and slightly lower amortized interest costs (160 bps for both the three and six months ended June 30, 2018 compared to 180 bps for the same periods in 2017). Gross margins for the three and six months ended June 30, 2017 include the aforementioned land inventory impairments totaling $31.5 million, or 160 bps and 90 bps, respectively (see ~~Note 2~~). Gross margin for the three and six months ended June 30, 2017, also includes a warranty charge of $12.1 million, or 60 bps and 30 bps, respectively, related to a closed-out community in Florida (see ~~Note 8~~).mix. The supportive pricing environment that exists in many of our markets is allowing us to effectively manage ongoing pressure in house and land costs ~~particularly as it relates~~and slightly higher amortized interest costs (1.8% for the three months ended March 31, 2019 compared to 1.6% for the same period in 2018), though sales discounts have increased moderately in response to the ~~sustained high levels of lumber and trade labor pricing.~~softening in demand.

Land sale and other revenues

We periodically elect to sell parcels of land to third parties in the event such assets no longer fit into our strategic operating plans or are zoned for commercial or other development. Land sale and other revenues and their related gains or losses vary between periods, depending on the timing of land sales and our strategic operating decisions. Land sales and other revenues contributed income of ~~$28.7 million and $29.7~~$0.9 million for the three ~~and six~~ months ended ~~June 30, 2018, respectively,~~March 31, 2019 compared to ~~losses of $78.7 million and $79.2~~$1.0 million for the three ~~and six~~ months ended June 30, 2017, respectively. The gains in 2018 resulted primarily from two land sale transactions in California that contributed $26.4 million. The losses in 2017 resulted from the aforementioned NRV charges of $81.0 million and $82.9 million for the three and six months ended June 30, 2017, respectively (see ~~Note 2~~).March 31, 2018.

SG&A

SG&A as a percentage of home sale revenues was ~~9.2% and 10.7%~~13.0% for the three ~~and six~~ months ended ~~June 30, 2018, respectively,~~March 31, 2019, compared with ~~11.0% and 12.7%~~12.6% for the three ~~and six~~ months ended ~~June 30, 2017, respectively.~~March 31, 2018. The gross dollar amount of our SG&A increased ~~$9.8~~$11.8 million, or 5%, for the three months ended ~~June 30, 2018~~March 31, 2019 compared to ~~June 30, 2017~~March 31, 2018. The increase is primarily attributable to higher variable operating costs, including insurance, compensation, and increased $14.5 million, or 3%, for the six months ended June 30, 2018 compared to June 30, 2017. The improved overhead leverage resulted from volume efficiencies, realized cost efficiencies, and includes the aforementioned insurance reserve reversals of $37.9 million and $19.8 million for the three and six months ended June 30, 2018 and 2017, respectively, offset by a write-off of $15.0 million associated with the resolution of certain insurance matters in the six months ended June 30, 2017 (see ~~Note 8~~).

sales commissions.

Other expense, net

Other expense, net includes the following ($000’s omitted):


	Three Months Ended						Six Months Ended						Three Months Ended
	June 30,						June 30,						March 31,
	2018			2017			2018			2017			2019			2018
Write-offs of deposits and pre-acquisition costs	$	(1,652	)	$	(5,063	)	$	(4,261	)	$	(6,718	)	$	(2,917	)	$	(2,609	)
Amortization of intangible assets	(3,450		)	(3,450		)	(6,900		)	(6,900		)	(3,450		)	(3,450		)
Interest income	835			599			1,399			1,432			4,949			564
Interest expense	(165		)	(134		)	(308		)	(271		)	(144		)	(143		)
Equity in earnings (losses) of unconsolidated entities ~~(a)~~	265			(5,763		)	1,226			(4,569		)	37			961
Miscellaneous, net	2,034			(3,428		)	5,296			(5,386		)	556			3,261
Total other expense, net	$	(2,133	)	$	(17,239	)	$	(3,548	)	$	(22,412	)	$	(969	)	$	(1,416	)


~~(a)~~	~~Includes an $8.0 million impairment of a joint venture investment in the three and six months ended June 30, 2017 (see~~ ~~Note 2~~).

Net new orders

Net new ~~order~~orders in units decreased 1%6% while net new orders in dollars decreased 5% for the three months ended ~~June 30, 2018, as compared with the prior year period, and increased 6% for the six months ended June 30, 2018,~~March 31, 2019, as compared with the prior year period. ~~Our higher number~~The lower order volume in 2019 resulted from the industry-wide softening that began in the second quarter of active communities combined with the overall demand environment resulted in a strong start to the spring selling season. 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.

Net new orders in dollars increased by 3% and 10% for the three and six months ended June 30, 2018, respectively, compared to the same periods in 2017 due to the changes in units combined with higher average selling prices.2018. The cancellation rate (canceled orders for the period divided by gross new orders for the period) was ~~14% and 13%~~12% for both the three ~~and six~~ months ended ~~June 30, 2018, respectively, compared to 13%~~March 31, 2019 and ~~12% for the same periods in 2017.~~2018. Ending backlog, which represents orders for homes that have not yet closed, ~~increased 11%~~decreased 6% in units at ~~June 30, 2018~~March 31, 2019 compared with ~~June 30, 2017,~~March 31, 2018, primarily as a result of ~~the higher~~decreased net new order ~~volume, and 17% in dollars due to the unit increase and a higher average selling price.~~volume.

Homes in production

The following is a summary of our homes in production:


	June 30, 2018	June 30, 2017	March 31, 2019	March 31, 2018
Sold	8,550	7,360	7,152	7,473
Unsold
Under construction	2,043	1,741	2,513	1,871
Completed	565	487	662	610
	2,608	2,228	3,175	2,481
Models	1,192	1,116	1,222	1,189
Total	12,350	10,704	11,549	11,143

The number of homes in production at ~~June 30, 2018~~March 31, 2019 was ~~15%~~4% higher than at ~~June 30, 2017, due primarily~~March 31, 2018, The increase in homes under production resulted from an increase in the number of unsold, or "spec", homes, which is a result of a strategic decision to allow spec production to run higher than in the ~~higher net new order volume~~prior year period to ensure access to construction suppliers and ~~backlog. As part~~to position communities ahead of ~~our inventory management strategies, we expect to maintain reasonable inventory levels relative to demand in each of our markets.~~

the spring selling season.

Controlled lots

The following is a summary of our lots under control at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017:~~2018:


	June 30, 2018						December 31, 2017						March 31, 2019						December 31, 2018
	Owned		Optioned		Controlled		Owned		Optioned		Controlled		Owned		Optioned		Controlled		Owned		Optioned		Controlled
Northeast	5,015		6,979		11,994		5,194		5,569		10,763		5,726		4,223		9,949		5,813		3,694		9,507
Southeast	15,165		12,467		27,632		15,404		11,085		26,489		16,309		9,646		25,955		15,800		11,806		27,606
Florida	18,789		13,449		32,238		18,458		11,887		30,345		18,611		14,687		33,298		18,652		15,855		34,507
Midwest	10,550		12,156		22,706		10,612		9,196		19,808		10,091		10,687		20,778		10,097		11,883		21,980
Texas	14,099		7,961		22,060		13,923		8,320		22,243		15,159		12,543		27,702		14,380		11,035		25,415
West	25,559		6,913		32,472		25,662		6,099		31,761		24,679		6,337		31,016		24,788		5,774		30,562
Total	89,177		59,925		149,102		89,253		52,156		141,409		90,575		58,123		148,698		89,530		60,047		149,577

Developed (%)	40	%	19	%	32	%	37	%	20	%	31	%	39	%	19	%	31	%	39	%	21	%	32	%

Of our controlled lots, ~~89,177~~90,575 and ~~89,253~~89,530 were owned and ~~59,925~~58,123 and ~~52,156~~60,047 were controlled under land option agreements at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively. While competition for well-positioned land is robust, we continue to pursue land investments that we believe can achieve appropriate risk-adjusted returns on invested capital. The remaining purchase price under our land option agreements totaled ~~$2.7~~$2.6 billion at ~~June 30, 2018.~~March 31, 2019. These land option agreements generally may be canceled at our discretion and in certain cases extend over several years. Our maximum exposure related to these land option agreements is generally limited to our deposits and pre-acquisition costs, which totaled ~~$218.4~~$238.3 million, of which ~~$14.1~~$14.6 million is refundable, at ~~June 30, 2018.~~March 31, 2019.

Homebuilding Segment Operations

As of ~~June 30, 2018,~~March 31, 2019, we conducted our operations in 4542 markets located throughout 2523 states. For reporting purposes, our Homebuilding operations are aggregated into six reportable segments:



Northeast:		Connecticut, Maryland, Massachusetts, New Jersey, ~~New York,~~ Pennsylvania, Virginia
Southeast:		Georgia, North Carolina, South Carolina, Tennessee
Florida:		Florida
Midwest:		Illinois, Indiana, Kentucky, Michigan, Minnesota, ~~Missouri,~~ Ohio
Texas:		Texas
West:		Arizona, California, Nevada, New Mexico, Washington

The following tables present selected financial information for our reportable Homebuilding segments:


	Operating Data by Segment ($000's omitted)																Operating Data by Segment ($000's omitted)
	Three Months Ended								Six Months Ended								Three Months Ended
	June 30,								June 30,								March 31,
	2018			2018 vs. 2017		2017			2018			2018 vs. 2017		2017			2019			2019 vs. 2018		2018
Home sale revenues:
Northeast	$	198,811		34	%	$	148,272		$	331,151		29	%	$	256,804		$	110,263		(17	)%	$	132,339
Southeast	444,720			17	%	378,857			818,163			16	%	706,443			374,455			—	%	373,443
Florida	455,533			27	%	359,946			796,605			18	%	674,028			396,131			16	%	341,071
Midwest	354,855			(1	)%	357,847			651,750			8	%	602,259			292,852			(1	)%	296,895
Texas	330,215			14	%	288,519			575,324			10	%	522,785			268,741			10	%	245,110
West	665,920			54	%	432,200			1,188,659			51	%	788,744			507,414			(3	)%	522,740
	$	2,450,054		25	%	$	1,965,641		$	4,361,652		23	%	$	3,551,063		$	1,949,856		2	%	$	1,911,598
Income (loss) before income taxes (a):
Northeast	$	25,158		(e)		$	(38,249	)	$	34,470		(e)		$	(33,849	)	$	7,928		(15	)%	$	9,312
Southeast	54,357			35	%	40,274			94,814			31	%	72,640			37,856			(6	)%	40,457
Florida (b)	67,491			87	%	36,110			112,436			39	%	80,633
Florida																	49,596			10	%	44,945
Midwest	43,050			15	%	37,573			71,451			28	%	55,827			26,158			(8	)%	28,401
Texas	50,859			9	%	46,522			81,395			3	%	79,318			30,971			1	%	30,536
West (c)	154,414			(e)		(1,850		)	243,619			(e)		32,234
West																	90,182			1	%	89,205
Other homebuilding ~~(d)~~	(6,876		)	59	%	(16,781		)	(39,374		)	31	%	(57,441		)	(38,397		)	(18	)%	(32,498		)
	$	388,453		275	%	$	103,599		$	598,811		161	%	$	229,362		$	204,294		(3	)%	$	210,358


(a)	Includes land-related charges ~~of $125.6 million and $129.1 million for the three and six months ended June 30, 2017 (See~~ ~~Note 2~~).


~~(b)~~	~~Includes a warranty charge of $12.1 million for the three and six months ended June 30, 2017 related to a closed-out community (see~~ ~~Note 8~~).


~~(c)~~	~~Includes gains of $26.4 million related to two land sale transactions in California~~as summarized in the ~~three and six months ended June 30, 2018.~~

~~(d)~~

Other homebuilding includes insurance reserve reversals of $37.9 million and $19.8 million for the three and six months ended June 30, 2018 and 2017, respectively, and a write-off of insurance receivables associated with the resolution of certain insurance matters of $15.0 million for the six months ended June 30, 2017 (see ~~Note 8), amortization of intangible assets, amortization of capitalized interest, and other items not allocated to the operating segments.~~


~~(e)~~	~~Percentage not meaningful.~~table below.

Operating Data by Segment ($000's omitted)
Three Months Ended Six Months Ended
June 30, June 30,
2018 2018 vs. 2017 2017 2018 2018 vs. 2017 2017
Closings (units):
Northeast 401
35 % 296
652
23 % 528
Southeast 1,072
13 % 949
1,996
12 % 1,785
Florida 1,134
25 % 910
2,021
16 % 1,742
Midwest 872
(4 )% 907
1,639
4 % 1,575
Texas 1,096
5 % 1,042
1,905
1 % 1,882
West 1,166
24 % 940
2,154
23 % 1,757
5,741
14 % 5,044
10,367
12 % 9,269

Average selling price:
Northeast $ 496
(1 )% $ 501
$ 508
4 % $ 486
Southeast 415
4 % 399
410
4 % 396
Florida 402
2 % 396
394
2 % 387
Midwest 407
3 % 395
398
4 % 382
Texas 301
9 % 277
302
9 % 278
West 571
24 % 460
552
23 % 449
$ 427
10 % $ 390
$ 421
10 % $ 383

Net new orders - units:
Northeast 450
20 % 376
898
14 % 787
Southeast 1,093
(8 )% 1,193
2,352
4 % 2,270
Florida 1,347
24 % 1,090
2,791
31 % 2,130
Midwest 1,055
(3 )% 1,089
2,157
(4 )% 2,251
Texas 1,183
(1 )% 1,189
2,506
4 % 2,400
West 1,213
(17 )% 1,458
2,512
(6 )% 2,683
6,341
(1 )% 6,395
13,216
6 % 12,521

Net new orders - dollars:
Northeast $ 234,492
16 % $ 201,355
$ 469,142
14 % $ 410,491
Southeast 459,197
(3 )% 475,692
983,106
9 % 900,594
Florida 547,704
31 % 417,249
1,120,479
38 % 810,461
Midwest 427,996
2 % 418,136
878,522
— % 881,461
Texas 373,118
6 % 350,398
777,972
12 % 695,901
West 651,764
(14 )% 762,261
1,358,602
(1 )% 1,372,322
$ 2,694,271
3 % $ 2,625,091
$ 5,587,823
10 % $ 5,071,230


	Operating Data by Segment ($000's omitted)													Operating Data by Segment ($000's omitted)
	Three Months Ended					Six Months Ended								Three Months Ended
	June 30,					June 30,								March 31,
	2018		2018 vs. 2017	2017		2018			2018 vs. 2017		2017			2019		2019 vs. 2018		2018
Cancellation rates:
Closings (units):
Northeast	9	%		10	%	8		%			10		%	219		(13	)%	251
Southeast	12	%		11	%	11		%			11		%	897		(3	)%	924
Florida	12	%		13	%	12		%			12		%	1,008		14	%	887
Midwest	12	%		11	%	11		%			10		%	726		(5	)%	767
Texas	18	%		15	%	17		%			15		%	849		5	%	809
West	15	%		14	%	14		%			14		%	936		(5	)%	988
	14	%		13	%	13		%			12		%	4,635		—	%	4,626

Unit backlog:
Average selling price:
Northeast						758			17	%	646			$	503	(5	)%	$	527
Southeast						2,072			12	%	1,856			417		3	%	404
Florida						2,448			36	%	1,806			393		2	%	385
Midwest						2,005			1	%	1,983			403		4	%	387
Texas						2,027			5	%	1,930			317		5	%	303
West						2,535			3	%	2,453			542		2	%	529
						11,845			11	%	10,674			$	421	2	%	$	413

Backlog dollars:
Net new orders - units:
Northeast						$	391,642		14	%	$	343,282		361		(19	)%	448
Southeast						883,109			14	%	777,911			1,073		(15	)%	1,259
Florida						1,005,463			45	%	692,660			1,346		(7	)%	1,444
Midwest						815,311			4	%	780,280			1,024		(7	)%	1,102
Texas						652,445			13	%	575,607			1,366		3	%	1,323
West						1,457,264			13	%	1,291,940			1,293		—	%	1,299
						$	5,205,234		17	%	$	4,461,680		6,463		(6	)%	6,875

Net new orders - dollars:
Northeast														$	196,298	(16	)%	$	234,650
Southeast														454,388		(13	)%	523,909
Florida														550,305		(4	)%	572,775
Midwest														425,642		(6	)%	450,526
Texas														412,043		2	%	404,854
West														697,176		(1	)%	706,838
														$	2,735,852	(5	)%	$	2,893,552



	Operating Data by Segment ($000's omitted)
	Three Months Ended
	March 31,
	2019			2019 vs. 2018		2018
Cancellation rates:
Northeast	10		%			6		%
Southeast	11		%			10		%
Florida	11		%			12		%
Midwest	11		%			10		%
Texas	13		%			16		%
West	14		%			13		%
	12		%			12		%

Unit backlog:
Northeast	612			(14	)%	709
Southeast	1,786			(13	)%	2,051
Florida	2,227			—	%	2,235
Midwest	1,700			(7	)%	1,822
Texas	2,009			4	%	1,940
West	2,216			(11	)%	2,488
	10,550			(6	)%	11,245

Backlog dollars:
Northeast	$	343,847		(3	)%	$	355,961
Southeast	778,963			(10	)%	868,632
Florida	954,226			4	%	913,293
Midwest	721,210			(3	)%	742,170
Texas	629,514			3	%	609,542
West	1,194,385			(19	)%	1,471,420
	$	4,622,145		(7	)%	$	4,961,018


	Operating Data by Segment ($000’s omitted)								Operating Data by Segment ($000’s omitted)
	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
	2018		2017		2018		2017		2019		2018
Land-related charges*:
Northeast	$	498	$	49,820	$	1,683	$	49,918	$	324	$	1,185
Southeast	689		491		1,731		958		572		1,042
Florida	226		8,602		409		8,754		481		183
Midwest	372		7,567		1,118		8,095		1,103		746
Texas	220		589		270		847		68		50
West	148		54,409		361		56,441		431		213
Other homebuilding	269		4,095		269		4,095		—		—
	$	2,422	$	125,573	$	5,841	$	129,108	$	2,979	$	3,419

Land-related charges include land inventory impairments, net realizable value adjustments on land held for sale, impairments of investments in unconsolidated entities, and write-offs of deposits and pre-acquisition costs for land option contracts we elected not to ~~pursue (Note 2~~).pursue. Other homebuilding consists primarily of write-offs of capitalized interest related to such land-related charges.

~~Northeast~~

~~For the second quarter of 2018,~~ Northeast home sale revenues increased 34% compared with the prior year period due to a 35% increase in closings, offset by a slight decrease in the average selling price. The higher revenues occurred primarily in Mid-Atlantic and New England. Income before income taxes increased primarily due to the increased revenues when combined with the land-related charges recognized in the prior year period. Improved overhead leverage also contributed to the improvement. Net new orders increased across all markets.

For the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019, Northeast home sale revenues ~~increased~~decreased by ~~29%~~17% when compared with the prior year period due to a ~~23% increase~~13% decrease in closings. The decrease in closings ~~combined with an increased average selling price of 4%. The increase~~occurred across substantially all markets due to the softening in ~~closings was attributable to Mid-Atlantic and New England. The increased average selling price occurred~~demand that began in ~~Mid-Atlantic. The increased income~~mid-2018. Income before income taxes ~~resulted from higher revenues and improved overhead utilization, combined with~~decreased 15% primarily due to the ~~land-related charges recognized~~aforementioned decrease in ~~2017.~~closings. Net new orders ~~increased~~decreased across all ~~markets.~~markets except New England, which saw a slight increase.

Southeast

For the ~~second quarter of 2018,~~three months ended March 31, 2019, Southeast home sale revenues increased ~~17%~~slightly compared with the prior year ~~period due to~~as the result of a ~~13%~~3% increase in ~~closings combined with~~average selling price partially offset by a 4%3% decrease in closings. The increase in ~~the~~ average selling ~~price. The increased~~price and decrease in closings occurred across ~~all markets, while~~ the ~~increased average selling price was broad-based except for Raleigh.~~majority of markets. Income before income taxes ~~increased~~decreased 6% primarily as ~~the~~a result of ~~the higher revenues.~~lower gross margin. Net new orders decreased across all ~~markets with the exception of Coastal Carolinas.~~markets.

Florida

For the ~~six~~three months ended ~~June 30, 2018, Southeast~~March 31, 2019, Florida home sale revenues increased 16% compared with the prior year ~~as the result of~~period due to a 4%14% increase in ~~average selling price~~closings combined with a ~~12%~~2% increase in ~~closings. The increase in closings occurred across all markets except for Charlotte, while~~ the ~~increase in~~ average selling ~~price was broad-based except for Raleigh.~~price. Income before income taxes increased ~~31%, primarily a result of~~10% due to the ~~increased revenues.~~higher revenues, partially offset by lower gross margin. Net new orders ~~increased~~decreased across ~~all markets with~~ the ~~exception~~majority of ~~Georgia and Tennessee.~~markets.

~~Florida~~Midwest

For the ~~second quarter of 2018, Florida~~three months ended March 31, 2019, Midwest home sale revenues ~~increased 27%~~decreased 1% compared with the prior year period due to a 25% increase in closings combined with a 2% increase in average selling price. The increase in closings occurred across all markets, while the increased average selling price occurred in North Florida and West Florida. Income before income taxes increased due to the higher revenues combined with the land-related charges and warranty adjustment recognized in the prior year period (see ~~Note 2~~ ~~and~~ ~~Note 8). Net new orders increased across all markets, reflecting improved order levels driven by the opening of new communities.~~

For the six months ended June 30, 2018, Florida home sale revenues increased 18% compared with the prior year period due to a 2% increase in the average selling price combined with a 16% increase in closings. Income before income taxes increased due to higher revenues combined with the aforementioned land-related charges and warranty adjustment recognized in 2017 (see ~~Note 2~~ ~~and~~ ~~Note 8). Net new orders increased across all markets reflecting improved order levels driven by the opening of new communities.~~

~~Midwest~~

~~For the second quarter of 2018, Midwest home sale revenues slightly decreased over the prior year period due to a 4%~~5% decrease in closings, partially offset by a 3%4% increase in average selling price. The ~~increased average selling price occurred~~lower revenues were primarily the result of the wind down of our St. Louis operations in 2018. Results were mixed across the ~~majority of markets while the decreased closings were concentrated in Illinois and Indianapolis-Louisville.~~other local markets. Income before income taxes ~~increased compared to the prior year~~decreased primarily due to the ~~land-related charges (see~~ ~~Note 2) in the prior year period. Net new orders~~ decreased ~~across all markets with the exception of Michigan.~~

For the six months ended June 30, 2018, Midwest home sale revenues increased 8% compared with the prior year period due to a 4% increase in average selling price combined with a 4% increase in closings. The higher revenues occurred across most markets with the exception of Minnesota and Indianapolis-Louisville. Income before income taxes increased primarily due to increased revenues. Net new orders decreased across ~~all markets, except for Michigan.~~the majority of markets.

Texas

For the second quarter of 2018, Texas home sale revenues increased 14% compared with the prior year period due to a 9% increase in average selling price, combined with a 5% increase in closings. The increase in average selling price occurred across all markets, while the increase in closings occurred primarily in Houston and Central Texas. Income before income taxes increased primarily due to the increased revenues, which were partially offset by higher overhead costs. Net new orders remained flat compared to the prior year period.

~~For the six~~three months ended ~~June 30, 2018,~~March 31, 2019, Texas home sale revenues increased 10% compared with the prior year period due to a 1%5% increase in closings combined with a 9%5% increase in the average selling price. The average selling price increased across all markets. Closings increased primarily in Houston and Central Texas, partially offset by decreased closings in Dallas and San Antonio due to timing differences between when older communities were closed out and newer communities became active. The higher revenues ~~and closings led to an increase~~were driven by increases in ~~income before income taxes.~~all markets except Houston, which was flat. Net new orders increased ~~across all markets except for Houston.~~primarily in Central Texas.

West

For the ~~second quarter of 2018,~~three months ended March 31, 2019, West home sale revenues increased 54% compared with the prior year period resulting from a 24% increase in average selling price, combined with a 24% increase in closings. The increased average selling price and closings occurred across all markets. The increased revenues contributed to increased income before income taxes in all markets. A large portion of the increases in revenues, average selling price, and income before income taxes resulted from one multifamily project in Northern California. In addition, we closed on two land sale transactions in Northern California which generated gains totaling $26.4 million in the second quarter of 2018 and the prior year period included higher land-related charges (see ~~Note 3). Net new orders~~ decreased ~~17% overall, which was concentrated in Northern California, primarily due to a lower number of active communities combined with actions taken in certain communities to manage backlog.~~

~~For the six months ended June 30, 2018, West home sale revenues increased 51%~~3% compared with the prior year period due to a ~~23%~~5% decrease in closings, partially offset by a 2% increase in average selling ~~price,~~price. Revenues were higher in each market except for Northern California. The decline in Northern California reflects the completion, or near completion, of several high performing communities in Northern California that have been or will be replaced with smaller communities combined with a ~~23% increase~~softening in closings. The increased average selling price and closings occurred across all markets. The increased revenues led to increased income taxes, primarily due to the results of Northern California's aforementioned multifamily project and land sales, combined with the land-related charges recognized in 2017 (see ~~Note 3~~).demand. Net new orders ~~decreased 6% overall and was concentrated~~were essentially flat across the West as we continue to see variation in ~~Northern California primarily due to a lower number of active communities combined~~results, with ~~actions taken~~ongoing strength in ~~certain communities to manage backlog.~~Arizona offsetting slower demand in California.

Financial Services Operations

We conduct our Financial Services operations, which include mortgage ~~operations,~~banking, title, ~~services,~~ and insurance brokerage operations, through Pulte Mortgage and other subsidiaries. In originating mortgage loans, we initially use our own funds, including funds available pursuant to credit agreements with third parties. Substantially all of the loans we originate are sold in the secondary market within a short period of time after origination, generally within 30 days. We also sell the servicing rights for the loans we originate through fixed price servicing sales contracts to reduce the risks and costs inherent in servicing loans. This strategy results in owning the loans and related servicing rights for only a short period of time. Operating as a captive business model primarily targeted to supporting our Homebuilding operations, the business levels of our Financial Services operations are highly correlated to Homebuilding. Our Homebuilding customers continue to account for substantially all loan production. We believe that our capture rate, which represents loan originations from our Homebuilding operations as a percentage of total loan opportunities from our Homebuilding operations, excluding cash closings, is an important metric in evaluating the effectiveness of our captive mortgage business model. The following tables present selected financial information for our Financial Services operations ($000's omitted):


	Three Months Ended								Six Months Ended								Three Months Ended
	June 30,								June 30,								March 31,
	2018			2018 vs. 2017		2017			2018			2018 vs. 2017		2017			2019			2019 vs. 2018		2018
Mortgage revenues	$	38,668		7	%	$	35,971		$	73,695		7	%	$	68,672		$	31,873		(9	)%	$	35,027
Title services revenues	11,666			15	%	10,132			20,603			13	%	18,167			9,842			10	%	8,937
Insurance brokerage commissions	2,430			107	%	1,172			4,404			100	%	2,203			2,147			9	%	1,974
Total Financial Services revenues	52,764			12	%	47,275			98,702			11	%	89,042			43,862			(5	)%	45,938
Expenses	(32,224		)	13	%	(28,478		)	(64,436		)	13	%	(56,846		)	(31,449		)	(2	)%	(32,213		)
Other income, net	177			17	%	151			285			12	%	255
Other income (expense), net																	(4		)	(104	)%	108
Income before income taxes	$	20,717		9	%	$	18,948		$	34,551		6	%	$	32,451		$	12,409		(10	)%	$	13,833
Total originations:
Loans	3,635			9	%	3,330			6,627			7	%	6,203			2,998			—	%	2,992
Principal	$	1,122,017		16	%	$	969,691		$	2,031,817		14	%	$	1,776,043		$	914,711		1	%	$	909,800


	Six Months Ended						Three Months Ended
	June 30,						March 31,
	2018			2017			2019			2018
Supplemental data:
Capture rate	76.6		%	79.5		%	79.7		%	77.7		%
Average FICO score	751			749			752			750
Loan application backlog	$	2,714,571		$	2,545,209		$	2,508,561		$	2,765,386
Funded origination breakdown:
Government (FHA, VA, USDA)	20		%	24		%	18		%	21		%
Other agency	67		%	69		%	71		%	67		%
Total agency	87		%	93		%	89		%	88		%
Non-agency	13		%	7		%	11		%	12		%
Total funded originations	100		%	100		%	100		%	100		%

Revenues

Total Financial Services revenues for the three ~~and six~~ months ended ~~June 30, 2018 increased 12% and 11%~~March 31, 2019 decreased 5%, ~~respectively,~~ compared towith the same ~~periods~~period in ~~2017,~~2018. This decrease occurred primarily ~~due to~~as the result of the competitive pricing environment within the mortgage industry, partially offset by slightly higher loan origination volume resulting from higher volumes in the Homebuilding segment. A higher average loan size primarily driven by higher average selling prices in the Homebuilding segment also contributed to the higher revenues.production volume.

Income before income taxes

Income before income taxes for the three ~~and six~~ months ended ~~June 30, 2018 increased 9% and 6%, respectively, when~~March 31, 2019 decreased 10% compared towith the prior year ~~periods.~~period. The ~~increases over~~decrease versus the prior year ~~were~~was due primarily to ~~higher revenues that were largely offset by higher expenses. Refinance activity has slowed~~the aforementioned decrease in ~~the mortgage industry, which has increased competition, pressured loan pricing, and resulted in lower margins on our loan originations in 2018.~~revenues.

Income Taxes

Our effective tax rate for the three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2019 was ~~20.8% and 21.9%~~23.0%, ~~respectively,~~ compared ~~to 17.8% and 26.6%, respectively~~with 23.8% for the same periods in 2017. For the three and six months ended June 30, 2018 our 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 acceptance of an accounting method change applicable to the 2017 tax year, energy credits, and tax law changes. For the same period in 2018. Our effective tax rate for the three months ended March 31, 2019 is lower than the prior year ~~our effective tax rate differed from the federal statutory rate~~period primarily due to ~~state income tax expense on current year earnings,~~ the favorable resolution of certain state income tax ~~matters, and tax law changes. The federal statutory rate was reduced from 35% in 2017 to 21% in 2018 due to the Tax Act, which was enacted on December 22, 2017.~~matters.

Liquidity and Capital Resources

We finance our land acquisition, development, and construction activities and financial services operations using internally-generated funds supplemented by credit arrangements with third parties and capital market financing. We routinely monitor current and expected operational requirements and financial market conditions to evaluate accessing other available financing sources, including revolving bank credit and securities offerings.

At ~~June 30, 2018,~~March 31, 2019, we had unrestricted cash and equivalents of ~~$367.1 million,~~$1.1 billion, restricted cash balances of ~~$34.8~~$25.5 million, and ~~$785.4~~$767.1 million available under our Revolving Credit Facility. We follow a diversified investment approach for our cash and equivalents by maintaining such funds with a broad portfolio of banks within our group of relationship banks in high quality, highly liquid, short-term deposits and investments.

Our ratio of debt to total capitalization, excluding our Financial Services debt, was ~~39.9%~~38.0% at ~~June 30, 2018.~~March 31, 2019.

Unsecured senior notes

We had $3.0 billion of unsecured senior notes outstanding at ~~June 30, 2018~~both March 31, 2019 and December 31, ~~2017, respectively,~~2018 with no repayments due until 2021, when $700.0 million of unsecured senior notes are scheduled to mature.

Other notes payable

Revolving credit facility

In June 2018, we entered into the Revolving Credit Facility which replaced the Company's previous credit agreement. The Revolving Credit Facility contains substantially similar terms to the previous credit agreement and extended the maturity date from June 2019 to June 2023. The Revolving Credit Facility has a maximum borrowing capacity of $1.0 billion and contains an uncommitted accordion feature that could increase the capacity to $1.5 billion, subject to certain conditions and availability of additional bank commitments. The Revolving Credit Facility also provides for the issuance of letters of credit that reduce the available borrowing capacity under the Revolving Credit Facility, with a sublimit of $500.0 million at ~~June 30, 2018.~~March 31, 2019. The interest rate on borrowings under the Revolving Credit Facility may be based on either the London Interbank Offered Rate ("LIBOR") or a base rate plus an applicable margin, as defined therein. We had no borrowings outstanding at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, and ~~$214.6~~$232.9 million and ~~$235.5~~$239.4 million of letters of credit issued under the Revolving Credit Facility at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively.

Credit Facility). As of ~~June 30, 2018,~~March 31, 2019, we were in compliance with all covenants. Outstanding balances under the Revolving Credit Facility are guaranteed by certain of our wholly-owned subsidiaries.

Financial Services debt

Pulte Mortgage maintains a master repurchase agreement with third party lenders ~~(the “Repurchase Agreement”)~~ that matures in August ~~2018.~~2019. The maximum aggregate commitment was ~~$400.0~~$350.0 million at ~~June 30, 2018,~~March 31, 2019 and ~~will remain unchanged~~continues through maturity. Borrowings under the Repurchase Agreement are secured by residential mortgage loans available-for-sale. The Repurchase Agreement contains various affirmative and negative covenants applicable to Pulte Mortgage, including quantitative thresholds related to net worth, net income, and liquidity. Pulte Mortgage had ~~$264.0~~$222.1 million and ~~$437.8~~$348.4 million outstanding under the Repurchase Agreement at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively, and was in compliance with all of its covenants and requirements as of such dates.

Dividends and share repurchase program

During the ~~six~~three months ended ~~June 30, 2018,~~March 31, 2019, we declared cash dividends totaling ~~$52.0~~$30.8 million and repurchased ~~3.5~~0.9 million shares under our repurchase authorization totaling ~~$105.1~~$25.0 million. At ~~June 30, 2018,~~March 31, 2019, we had remaining authorization to repurchase ~~$489.3~~$274.9 million of common shares.

Cash flows

Operating activities

Our net cash provided by operating activities for the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 was ~~$547.6~~$158.9 million, compared with net cash provided by operating activities of ~~$176.3~~$169.0 million for the ~~six~~three months ended ~~June 30, 2017.~~March 31, 2018. Generally, the primary drivers of our cash flow from operations are profitability and changes in the levels of inventory and residential mortgage loans available-for-sale, each of which experiences seasonal fluctuations. The positive cash flow from operations for the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 was primarily due to our ~~pretax~~net income of ~~$633.4~~$166.8 million, supplemented by ~~$127.0~~$24.7 million of deferred income taxes and a seasonal ~~reduction of $199.6~~$134.2 million decrease in residential mortgage loans available-for-sale. These sources of cash were partially offset by a net increase in inventories of ~~$281.4~~$259.9 million resulting from ongoing land acquisition and development investment to support future growth, combined with a seasonal build of house ~~inventory to support our higher backlog.~~inventory.

Our ~~positive~~net cash ~~flow from operations~~provided by operating activities for the ~~six~~three months ended ~~June 30, 2017~~March 31, 2018 was primarily due to our ~~pretax~~net income of ~~$261.8~~$170.8 million, ~~which reflected $129.1 million in non-cash land-related charges, and~~supplemented by a seasonal reduction of ~~$172.9~~$185.1 million in residential mortgage loans available-for-sale. These ~~sources~~factors were partially offset by a net increase in inventories of ~~$486.4~~$237.2 million resulting from ~~increased~~ land ~~investment~~investments, combined with a seasonal build of house inventory.

Investing activities

Investing activities are generally not a significant source or use of cash for us. Net cash used in investing activities for the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 was ~~$27.1~~$17.1 million, compared with net cash used in investing activities of ~~$31.6~~$16.0 million for the ~~six~~three months ended ~~June 30, 2017.~~March 31, 2018. These cash outflows primarily reflected ongoing investments in model home parks in our new communities as well as information technology applications.

Financing activities

Net cash used in financing activities for the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 totaled ~~$424.7~~$194.6 million, compared with net cash used in financing activities of ~~$628.1~~$274.4 million for the ~~six~~three months ended ~~June 30, 2017.~~March 31, 2018. The net cash used in financing activities for the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 resulted primarily from the repurchase of ~~3.5~~0.9 million common shares for ~~$105.1~~$25.0 million under our share repurchase authorization, repayments of debt totaling ~~$82.4~~$3.6 million, ~~$52.4~~payments of $30.8 million in cash dividends, and net repayments of ~~$173.8~~$126.3 million for borrowings under the Repurchase Agreement related to a seasonal reduction in residential mortgage loans available-for-sale.

Net cash used in financing activities for the ~~six~~three months ended ~~June 30, 2017~~March 31, 2018 resulted primarily from the repurchase of ~~17.5~~1.7 million common shares for ~~$399.9~~$52.5 million under our repurchase authorization, ~~payment~~payments of ~~$58.2~~$26.3 million in cash dividends, and net repayments of ~~$177.9~~$190.9 million for borrowings under the Repurchase ~~Agreement.~~Agreement related to a seasonal reduction in residential mortgage loans available-for-sale.

Inflation

We, and the homebuilding industry in general, may be adversely affected during periods of inflation because of higher land and construction costs. Inflation may also increase our financing costs. In addition, higher mortgage interest rates affect the affordability of our products to prospective homebuyers. While we attempt to pass on to our customers increases in our costs through increased sales prices, market forces may limit our ability to do so. If we are unable to raise sales prices enough to compensate for higher costs, or if mortgage interest rates increase significantly, our revenues, gross margins, and net income could be adversely affected.

Seasonality

Although significant changes in market conditions have impacted our seasonal patterns in the past and could do so again, we historically experience variability in our quarterly results from operations due to the seasonal nature of the homebuilding industry. We generally experience increases in revenues and cash flow from operations during the fourth quarter based on the timing of home closings. This seasonal activity increases our working capital requirements in our third and fourth quarters to support our home production and loan origination volumes. As a result of the seasonality of our operations, our quarterly results of operations are not necessarily indicative of the results that may be expected for the full year.

Contractual Obligations and Commercial Commitments

Off-Balance Sheet Arrangements

We use letters of credit and surety bonds to guarantee our performance under various contracts, principally in connection with the development of our homebuilding projects. The expiration dates of the letter of credit contracts coincide with the expected completion date of the related homebuilding projects. If the obligations related to a project are ongoing, annual extensions of the letters of credit are typically granted on a year-to-year basis. At ~~June 30, 2018,~~March 31, 2019, we had outstanding letters of credit totaling ~~$214.6~~$232.9 million. Our surety bonds generally do not have stated expiration dates; rather, we are released from the bonds as the contractual performance is completed. These bonds, which approximated ~~$1.2~~$1.3 billion at ~~June 30, 2018,~~March 31, 2019, are typically outstanding over a period of approximately three to five years. Because significant construction and development work has been performed related to projects that have not yet received final acceptance by the respective counterparties, the aggregate amount of surety bonds outstanding is in excess of the projected cost of the remaining work to be performed.

In the ordinary course of business, we enter into land option agreements in order to procure land for the construction of houses in the future. At ~~June 30, 2018,~~March 31, 2019, these agreements had an aggregate remaining purchase price of ~~$2.7~~$2.6 billion. Pursuant to these land option agreements, we generally provide a deposit to the seller as consideration for the right to purchase land at different times in the future, usually at predetermined prices.

At ~~June 30, 2018,~~March 31, 2019, aggregate outstanding debt of unconsolidated joint ventures was ~~$55.0~~$35.2 million of which ~~$54.2~~$34.4 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.

Critical Accounting Policies and Estimates

There have been no significant changes to our critical accounting policies and estimates during the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 compared with those contained in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, ~~2017, except that we updated our revenue recognition policies pursuant to the adoption of ASC 606 (see "~~2018.~~New accounting pronouncements"~~ ~~withinNote 1) as included below:~~

~~Home sale revenues~~ - Home sale revenues and related profit are generally recognized when title to and possession of the home are transferred to the buyer at the home closing date. Little to no estimation is involved in recognizing such revenues.

~~Land sale revenues~~ - We periodically elect to sell parcels of land to third parties in the event such assets no longer fit into our strategic operating plans or are zoned for commercial or other development. Land sales are generally outright sales of specified land parcels with cash consideration due on the closing date, which is generally when performance obligations are satisfied. Certain land sale contracts may contain unique terms that require management judgment in determining the appropriate revenue recognition, but the impact of such transactions is generally immaterial.

~~Financial services revenues~~ - Mortgage servicing fees represent fees earned for servicing loans for various investors. Servicing fees are based on a contractual percentage of the outstanding principal balance, or a contracted set fee in the case of certain sub-servicing arrangements, and are credited to income when related mortgage payments are received or the sub-servicing fees are earned. Loan origination fees, commitment fees, and certain direct loan origination costs are recognized as incurred. Expected gains and losses from the sale of residential mortgage loans and their related servicing rights are included in the measurement of written loan commitments that are accounted for at fair value through Financial Services revenues at the time of commitment. The determination of fair value for certain of these financial instruments requires the use of estimates and management judgment. Subsequent changes in the fair value of these loans are reflected in Financial Services revenues as they occur. Interest income is accrued from the date a mortgage loan is originated until the loan is sold.

Revenues associated with our title operations are recognized as closing services are rendered and title insurance policies are issued, both of which generally occur as each home is closed. Insurance brokerage commissions relate to commissions on homeowner and other insurance policies placed with third party carriers through various agency channels. Our performance obligations for policy renewal commissions are satisfied upon issuance of the initial policy. The contract assets for estimated future renewal commissions are included in other assets and totaled $29.8 million at June 30, 2018. Due to uncertainties in the estimation process and the long duration of renewal policies, which can extend many years into the future, actual results could differ from such estimates.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Quantitative disclosure

We are subject to market risk on our debt instruments primarily due to fluctuations in interest rates. We utilize both fixed-rate and variable-rate debt. For fixed-rate debt, changes in interest rates generally affect the fair value of the debt instrument but not our earnings or cash flows. Conversely, for variable-rate debt, changes in interest rates generally do not affect the fair value of the debt instrument but could affect our earnings and cash flows. Except in very limited circumstances, we do not have an obligation to prepay fixed-rate debt prior to maturity. As a result, interest rate risk and changes in fair value should not have a significant impact on our fixed-rate debt until we are required or elect to refinance or repurchase such debt.

The following table sets forth the principal cash flows by scheduled maturity, weighted-average interest rates, and estimated fair value of our debt obligations as of ~~June 30, 2018~~March 31, 2019 ($000’s omitted):


	As of June 30, 2018 for the Years ending December 31,																							As of March 31, 2019 for the Years ending December 31,
	2018			2019			2020			2021			2022			Thereafter			Total			Fair Value		2019			2020			2021			2022			2023			Thereafter			Total			Fair Value
Rate-sensitive liabilities:
Fixed rate debt	$	—		$	8,423		$	9,539		$	700,000		$	—		$	2,300,000		$	3,017,962		$	3,016,302	$	21,021		$	9,968		$	706,719		$	—		$	—		$	2,300,000		$	3,037,708		$	3,091,068
Average interest rate	—		%	—		%	3.98		%	4.25		%	—		%	5.90		%	5.50		%			4.68		%	3.81		%	4.26		%	—		%	—		%	5.90		%	5.50		%

Variable rate debt (a)	$	264,639		$	283		$	—		$	—		$	—		$	—		$	264,922		$	264,922	$	222,139		$	—		$	—		$	—		$	—		$	—		$	222,139		$	222,139
Average interest rate	4.35		%	7.80		%	—		%	—		%	—		%	—		%	4.35		%			4.55		%	—		%	—		%	—		%	—		%	—		%	4.55		%

(a) Includes the Pulte Mortgage Repurchase Agreement and amounts outstanding under our Revolving Credit Facility, under which there was no amount outstanding at ~~June 30, 2018.~~March 31, 2019.

Qualitative disclosure

There have been no material changes to the qualitative disclosure found in Item 7A, Quantitative and Qualitative Disclosures about Market Risk, of our Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018.

SPECIAL NOTES CONCERNING FORWARD-LOOKING STATEMENTS

As a cautionary note, except for the historical information contained herein, certain matters discussed in Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations, and Item 3, Quantitative and Qualitative Disclosures About Market Risk, are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to a number of risks, uncertainties and other factors that could cause our actual results, performance, prospects or opportunities, as well as those of the markets we serve or intend to serve, to differ materially from those expressed in, or implied by, these statements. You can identify these statements by the fact that they do not relate to matters of a strictly factual or historical nature and generally discuss or relate to forecasts, estimates or other expectations regarding future events. Generally, the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “plan,” “project,” “may,” “can,” “could,” “might,” "should", “will” and similar expressions identify forward-looking statements, including statements related to any impairment charge and the impacts or effects thereof, expected operating and performing results, planned transactions, planned objectives of management, future developments or conditions in the industries in which we participate and other trends, developments and uncertainties that may affect our business in the future.

Such risks, uncertainties and other factors include, among other things: interest rate changes and the availability of mortgage financing; competition within the industries in which we operate; the availability and cost of land and other raw materials used by us in our homebuilding operations; the impact of any changes to our strategy in responding to the cyclical nature of the industry, including any changes regarding our land positions and the levels of our land spend; the availability and cost of insurance covering risks associated with our businesses; shortages and the cost of labor; weather related slowdowns; slow growth initiatives and/or local building moratoria; governmental regulation directed at or affecting the housing market, the homebuilding industry or construction activities; uncertainty in the mortgage lending industry, including revisions to underwriting standards and repurchase requirements associated with the sale of mortgage loans; the interpretation of or changes to tax, labor and environmental laws ~~including, but not limited to the Tax Cuts and Jobs Act~~ which could have a greater impact on our effective tax rate or the value of our deferred tax assets than we anticipate; economic changes nationally or in our local markets, including inflation, deflation, changes in consumer confidence and preferences and the state of the market for homes in general; legal or regulatory proceedings or claims; our ability to generate sufficient cash flow in order to successfully implement our capital allocation priorities; required accounting changes; terrorist acts and other acts of war; and other factors of national, regional and global scale, including those of a political, economic, business and competitive nature. See PulteGroup's Annual Report on Form 10-K for the fiscal year ended December 31, ~~2017~~2018, and other public filings with the Securities and Exchange Commission (the ~~“SEC”~~"SEC") for a further discussion of these and other risks and uncertainties applicable to our businesses. ~~We undertake~~PulteGroup undertakes no duty to update any forward-looking statement, whether as a result of new information, future events or changes in ~~our~~PulteGroup's expectations.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Management, including our President and Chief Executive Officer and Executive Vice President and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of ~~June 30, 2018~~March 31, 2019. Based upon, and as of the date of that evaluation, our President and Chief Executive Officer and Executive Vice President and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of ~~June 30, 2018~~March 31, 2019.

Management is responsible for establishing and maintaining effective internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). There was no change in our internal control over financial reporting during the quarter ended ~~June 30, 2018~~March 31, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

Total number
of shares
purchased (1)

Average
price paid
per share (1)

Total number of
shares purchased
as part of publicly
announced plans
or programs

Approximate dollar
value of shares
that may yet be
purchased under
the plans or
programs
($000’s omitted)
April 1, 2018 to April 30, 2018 571,563
$ 29.54
571,563
$ 525,068
(2)
May 1, 2018 to May 31, 2018 588,407
$ 30.49
587,140
$ 507,168
(2)
June 1, 2018 to June 30, 2018 592,921
$ 30.09
591,265
$ 489,328
(2)
Total 1,752,891
$ 30.05
1,749,968



	Total number of shares purchased (1)	Average price paid per share (1)		Total number of shares purchased as part of publicly announced plans or programs	Approximate dollar value of shares that may yet be purchased under the plans or programs ($000’s omitted)
January 1, 2019 to January 31, 2019	—	$	—	—	$	299,882	(2)
February 1, 2019 to February 28, 2019	761,554	$	26.88	383,411	$	289,477	(2)
March 1, 2019 through March 31, 2019	547,808	$	27.17	537,074	$	274,882	(2)
Total	1,309,362	$	27.00	920,485


(1)	During the ~~second~~ ~~quarter of~~ ~~2018~~,three months ended March 31, 2019, participants surrendered ~~2,923~~0.4 million shares for payment of minimum tax obligations upon the vesting or exercise of previously granted share-based compensation awards. Such shares were not repurchased as part of our publicly-announced share repurchase programs.

(2)

During the ~~six~~three months ended ~~June 30, 2018,~~March 31, 2019, we repurchased ~~3.5~~0.9 million shares for a total of ~~$105.1 million.~~$25.0 million under an existing share repurchase program authorized by the Company's Board of Directors. The share repurchase authorization has ~~$489.3~~$274.9 million remaining as of ~~June 30, 2018~~.March 31, 2019. There is no expiration date for this program.

Item 6. Exhibits

Exhibit Number and Description



3	(a)	Restated Articles of Incorporation, of PulteGroup, Inc. (Incorporated by reference to Exhibit 3.1 of our Current Report on Form 8-K, filed with the SEC on August 18, 2009)

	(b)	Certificate of Amendment to the Articles of Incorporation, dated March 18, 2010 (Incorporated by reference to Exhibit 3(b) of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2010)

	(c)	Certificate of Amendment to the Articles of Incorporation, dated May 21, 2010 (Incorporated by reference to Exhibit 3(c) of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2010)

	(d)	Amended and Restated By-Laws of PulteGroup, Inc. (Incorporated by reference to Exhibit 3.2 of our Current Report on Form 8-K, filed with the SEC on May 5, 2017)

	(e)	Certificate of Designation of Series A Junior Participating Preferred Shares, dated August 6, 2009 (Incorporated by reference to Exhibit 3(b) of our Registration Statement on Form 8-A, filed with the SEC on August 18, 2009)

4	(a)	Any instrument with respect to long-term debt, where the securities authorized thereunder do not exceed 10% of the total assets of PulteGroup, Inc. and its subsidiaries, has not been filed. The Company agrees to furnish a copy of such instruments to the SEC upon request.

	(b)	Amended and Restated Section 382 Rights Agreement, dated as of March 18, 2010, between PulteGroup, Inc. and Computershare Trust Company, N.A., as rights agent, which includes the Form of Rights Certificate as Exhibit B thereto (Incorporated by reference to Exhibit 4 of PulteGroup, Inc.’s Registration Statement on Form 8-A/A, filed with the SEC on March 23, 2010)

	(c)	First Amendment to Amended and Restated Section 382 Rights Agreement, dated as of March 14, 2013, between PulteGroup, Inc. and Computershare Trust Company, N.A., as rights agent (Incorporated by reference to Exhibit 4.1 of PulteGroup, Inc.’s Current Report on Form 8-K, filed with the SEC on March 15, 2013)

	(d)	Second Amendment to Amended and Restated Section 382 Rights Agreement, dated as of March 10, 2016, between PulteGroup, Inc. and Computershare Trust Company, N.A., as rights agent (Incorporated by reference to Exhibit 4.1 of PulteGroup, Inc.’s Current Report on Form 8-K, filed with the SEC on March 10, 2016)

10	~~(a)~~(e)	~~Second~~Third Amendment to Amended and Restated ~~Credit~~Section 382 Rights Agreement, dated ~~June 22, 2018 among~~as of March 7, 2019, between PulteGroup, Inc.~~, as Borrower, Bank of America,~~ and Computershare Trust Company, N.A., as ~~Administrative Agent, and the other Lenders party thereto~~rights agent (Incorporated by reference to Exhibit ~~10.1~~4.1 of PulteGroup, Inc.'s’s Current Report on Form 8-K, filed with the SEC on ~~June 22, 2018)~~March 7, 2019)

10	(a)	PulteGroup, Inc. 2019 Senior Management Incentive Plan (Incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K, filed with the SEC on February 8, 2019)

31	(a)	Rule 13a-14(a) Certification by Ryan R. Marshall, President and Chief Executive Officer (Filed herewith)

	(b)	Rule 13a-14(a) Certification by Robert T. O'Shaughnessy, Executive Vice President and Chief Financial Officer (Filed herewith)

32		Certification Pursuant to 18 United States Code § 1350 and Rule 13a-14(b) of the Securities Exchange Act of 1934 (Furnished herewith)

101.INS		XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



PULTEGROUP, INC.



/s/ Robert T. O'Shaughnessy
Robert T. O'Shaughnessy
Executive Vice President and Chief Financial Officer
(Principal Financial Officer and duly authorized officer)
Date:	~~July 26, 2018~~April 23, 2019

5247



	Statement of Operations Classification	June 30,
	Statement of Operations Classification	2017
Net realizable value adjustments ("NRV") - land held for sale	Land sale cost of revenues	$	81,006
Land inventory impairments	Home sale cost of revenues	31,487
Impairments of unconsolidated entities	Other expense, net	8,017
Write-offs of deposits and pre-acquisition costs	Other expense, net	5,063
Total land-related charges		$	125,573



	Range
	June 30, 2017
Average selling price ($000s)	$253	to	$461
Sales pace per quarter (units)	5	to	9
Discount rate	18%	to	25%