PulteGroup (PHM) 10-Q 2003 Q1 Quarterly report

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 March 31, 2003
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-9804

PULTE HOMES, INC.
(Exact name of registrant as specified in its charter)

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

100 Bloomfield Hills Parkway, Suite 300
Bloomfield Hills, Michigan 48304
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code (248) 647-2750

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12-b2 of the Exchange Act). YES ü NO     

Number of shares of common stock outstanding as of April 30, 2003: 61,084,462

Website Access to Company Reports, Codes and Charters

Pulte’s internet website address iswww.pulte.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to section 13(a) or 15(d) of the Exchange Act are available free of charge through our website as soon as reasonably practicable after we electronically file with or furnish them to the Securities and Exchange Commission. Our code of ethics for principal officers and the charters of the Audit, Compensation, and Nominating and Governance committees of our Board of Directors, are also posted on our website.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements (Unaudited)
		Condensed Consolidated Balance Sheets at March 31, 2003 and December 31, 2002
		Consolidated Statements of Operations for the three months ended March 31, 2003 and 2002
		Consolidated Statements of Shareholders’ Equity for the three months ended March 31, 2003 and 2002
		Consolidated Statements of Cash Flows for the three months ended March 31, 2003 and 2002
		Notes to Condensed Consolidated Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosure About Market Risk
	Item 4. Controls and Procedures
PART II. OTHER INFORMATION
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
CERTIFICATIONS
906 Certification of Chief Executive Officer
906 Certification of Chief Financial Officer

PULTE HOMES, INC.

INDEX

			Page No.
PART I FINANCIAL INFORMATION
	Item 1 Financial Statements (Unaudited)
		Condensed Consolidated Balance Sheets at March 31, 2003 and December 31, 2002		3
		Consolidated Statements of Operations for the three months ended March 31, 2003 and 2002		4
		Consolidated Statements of Shareholders’ Equity for the three months ended March 31, 2003 and 2002		5
		Consolidated Statements of Cash Flows for the three months ended March 31, 2003 and 2002		6
		Notes to Condensed Consolidated Financial Statements		7
	Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations			19
	Item 3 Quantitative and Qualitative Disclosures About Market Risk			28
	Item 4 Controls and Procedures			29
PART II OTHER INFORMATION
	Item 6 Exhibits and Reports on Form 8-K			29
SIGNATURES				30
CERTIFICATIONS				31

2

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

PULTE HOMES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
($000’s omitted)

				March 31,		December 31,
				2003		2002
				(Unaudited)		(Note)
ASSETS
Cash and equivalents				$	479,577	$	613,168
Unfunded settlements					49,754		60,641
House inventory					1,001,410		863,507
Land inventory					3,602,798		3,430,090
Residential mortgage loans available-for-sale					389,150		600,339
Goodwill					307,693		307,693
Intangible assets, net of accumulated amortization of $13,608 and $11,546 in 2003 and 2002, respectively					149,892		151,954
Other assets					817,658		833,279
Deferred income taxes					4,948		27,784
		Total assets		$	6,802,880	$	6,888,455
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
	Accounts payable, accrued and other liabilities, including book overdrafts of $128,068 and $181,816 in 2003 and 2002, respectively			$	1,376,538	$	1,565,131
	Collateralized short-term debt, recourse solely to applicable non-guarantor subsidiary assets				343,724		559,621
	Income taxes				41,678		90,009
	Senior notes and subordinated notes				2,209,882		1,913,268
			Total liabilities		3,971,822		4,128,029
Shareholders’ equity					2,831,058		2,760,426
				$	6,802,880	$	6,888,455

Note: The balance sheet at December 31, 2002 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.

See accompanying Notes to Condensed Consolidated Financial Statements.

3

PULTE HOMES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(000’s omitted, except per share data)
(Unaudited)

					For The Three Months Ended
					March 31,
					2003			2002
Revenues:
	Homebuilding				$	1,523,439		$	1,355,605
	Financial Services					27,596			23,024
	Corporate					1,555			112
				Total revenues		1,552,590			1,378,741
Expenses:
	Homebuilding, principally cost of sales					1,393,430			1,243,014
	Financial Services					11,737			11,712
	Corporate, net					16,924			15,166
				Total expenses		1,422,091			1,269,892
Other income:
	Equity income					8,660			3,685
Income from continuing operations before income taxes						139,159			112,534
Income taxes						52,858			43,894
Income from continuing operations						86,301			68,640
Income (loss) from discontinued operations						(164	)		(528	)
Net income					$	86,137		$	68,112
Per share data:
	Basic:
		Income from continuing operations			$	1.42		$	1.15
		Income (loss) from discontinued operations				—			(.01	)
		Net income			$	1.42		$	1.14
	Assuming dilution:
		Income from continuing operations			$	1.39		$	1.12
		Income (loss) from discontinued operations				—			(.01	)
		Net income			$	1.39		$	1.11
	Cash dividends declared				$	.04		$	. 04
	Number of shares used in calculation:
		Basic:
			Weighted-average common shares outstanding			60,667			59,863
		Assuming dilution:
			Effect of dilutive securities — stock options and restricted stock awards			1,352			1,609
			Adjusted weighted-average common shares and effect of dilutive securities			62,019			61,472

See accompanying Notes to Condensed Consolidated Financial Statements.

4

PULTE HOMES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
($000’s omitted)
(Unaudited)

											Accumulated
											Other
					Additional						Comprehensive
		Common			Paid-in			Unearned			Income			Retained
		Stock			Capital			Compensation			(Loss)			Earnings			Total
Shareholders’ equity, December 31, 2002		$	611		$	933,162		$	(9,866	)	$	(35,371	)	$	1,871,890		$	2,760,426
Stock option exercise, including tax benefit of $1,766			2			4,768			—			—			—			4,770
Stock-based compensation			—			1,054			—			—			—			1,054
Restricted stock award			2			(2	)		—			—			—			—
Restricted stock award amortization			—			—			1,407			—			—			1,407
Cash dividends declared			—			—			—			—			(2,441	)		(2,441	)
Stock repurchases			(4	)		(6,036	)		—			—			(12,164	)		(18,204	)
Comprehensive income (loss):
	Net income		—			—			—			—			86,137			86,137
	Change in fair value of derivatives, net of income taxes of ($690)		—			—			—			1,125			—			1,125
	Foreign currency translation adjustments		—			—			—			(3,216	)		—			(3,216	)
	Total comprehensive income																	84,046
Shareholders’ equity, March 31, 2003		$	611		$	932,946		$	(8,459	)	$	(37,462	)	$	1,943,422		$	2,831,058
Shareholders’ equity, December 31, 2001		$	592		$	862,881		$	(3,859	)	$	(13,969	)	$	1,431,020		$	2,276,665
Stock option exercise, including tax benefit of $15,626			13			39,978			—			—			—			39,991
Restricted stock award			2			11,316			(11,318	)		—			—			—
Restricted stock award amortization			—			—			1,092			—			—			1,092
Cash dividends declared			—			—			—			—			(2,422	)		(2,422	)
Comprehensive income (loss):
	Net income		—			—			—			—			68,112			68,112
	Change in fair value of derivatives, net of income taxes of ($655)		—			—			—			1,040			—			1,040
	Foreign currency translation adjustments		—			—			—			(8,028	)		—			(8,028	)
	Total comprehensive income																	61,124
Shareholders’ equity, March 31, 2002		$	607		$	914,175		$	(14,085	)	$	(20,957	)	$	1,496,710		$	2,376,450

See accompanying Notes to Condensed Consolidated Financial Statements.

5

PULTE HOMES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($000’s omitted)
(Unaudited)

					For The Three Months Ended
					March 31,
					2003			2002
Cash flows from operating activities:
	Net income				$	86,137		$	68,112
	Adjustments to reconcile net income to net cash flows provided by (used in) operating activities:
			Amortization and depreciation			7,528			8,339
			Stock-based compensation expense			2,461			1,092
			Deferred income taxes			22,836			26,533
			Other, net			(1,831	)		(1,832	)
			Increase (decrease) in cash due to:
				Inventories		(340,230	)		(101,465	)
				Residential mortgage loans available-for-sale		199,263			153,226
				Other assets		41,500			46,616
				Accounts payable, accrued and other liabilities		(117,921	)		(105,840	)
				Income taxes		(46,564	)		3,635
Net cash provided by (used in) operating activities						(146,821	)		98,416
Cash flows from investing activities:
	Other, net					(8,622	)		(6,684	)
Net cash provided by (used in) investing activities						(8,622	)		(6,684	)
Cash flows from financing activities:
	Proceeds from borrowings					297,153			31,198
	Repayment of borrowings					(257,489	)		(155,622	)
	Issuance of common stock					3,004			24,365
	Common stock repurchases					(18,204	)		—
	Dividends paid					(2,441	)		(2,422	)
	Other, net					—			43
Net cash provided by (used in) financing activities						22,023			(102,438	)
Effect of exchange rate changes on cash and equivalents						(171	)		(1,666	)
Net increase (decrease) in cash and equivalents						(133,591	)		(12,372	)
Cash and equivalents at beginning of period						613,168			72,144
Cash and equivalents at end of period					$	479,577		$	59,772
Supplemental disclosure of cash flow information—cash paid during the period for:
		Interest, net of amounts capitalized			$	7,775		$	15,601
		Income taxes			$	75,684		$	12,592

See accompanying Notes to Condensed Consolidated Financial Statements.

6

PULTE HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

1.     Basis of presentation and significant accounting policies

     The consolidated financial statements include the accounts of Pulte Homes, Inc. (the “Company” or “Pulte”) and all of its direct subsidiaries. The Company’s direct subsidiaries include Pulte Diversified Companies, Inc. (PDCI), North American Builders Indemnity Company (NABIC), the Company’s captive insurance company, Del Webb Corporation (Del Webb) and other subsidiaries, which are engaged in the homebuilding business. PDCI’s operating subsidiaries include Pulte Home Corporation (PHC), Pulte International Corporation (International) and other subsidiaries, which are engaged in the homebuilding business. PDCI’s non-operating thrift subsidiary, First Heights Bank, fsb (First Heights), is classified as a discontinued operation. The Company also has a mortgage banking company, Pulte Mortgage LLC (Pulte Mortgage), which is a subsidiary of PHC.

     The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States 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 accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. These financial statements should be read in conjunction with the Company’s consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2002.

     Certain amounts previously reported in the 2002 financial statements and notes thereto were reclassified to conform to the 2003 presentation.

     Effective January 1, 2002, the Company reorganized its structure within Mexico to create a single company, Pulte Mexico S. de R.L. de C.V. (Pulte Mexico). Under the new ownership structure, these operations, which were primarily conducted through joint ventures, have been combined into Pulte Mexico and are 63.8% owned by International. Results for 2002 include joint venture operations for one month and operations as a consolidated entity for two months, as the Mexican operations report on a one-month lag.

Allowance for warranties

     Home purchasers are provided with warranties against certain building defects. The specific terms and conditions of those warranties vary geographically. Most warranties cover different aspects of the home’s construction and operating systems for a period of up to ten years. The Company estimates the costs to be incurred under these warranties and records a liability in the amount of such costs at the time product revenue is recognized. Factors that affect the Company’s warranty liability include the number of homes sold, historical and anticipated rates of warranty claims, and cost per claim. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.

     Changes to the Company’s allowance for warranties for the three months ended March 31, 2003 are as follows ($000’s omitted):

December 31, 2002	$	51,973
Warranty reserves provided		14,256
Payments and other adjustments		(15,745	)
March 31, 2003	$	50,484

7

PULTE HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

1.     Basis of presentation and significant accounting policies (continued)

Stock-based compensation

     The Company currently has several stock-based employee compensation plans. Effective January 1, 2003 the Company adopted the preferable fair value recognition provisions of SFAS No. 123, “Accounting for Stock Issued to Employees.” The Company selected the prospective method of adoption as permitted by SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure.” Under the prospective method, the Company will recognize compensation expense based on the fair value provisions of SFAS No. 123 for all new stock option grants effective January 1, 2003. Grants made prior to January 1, 2003 will continue to be accounted for under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. With the exception of certain variable stock option grants, no stock-based employee compensation cost is reflected in net income for grants made prior to January 1, 2003, as all options granted in those years had an exercise price equal to the market value of the underlying common stock on the date of grant.

     The following table illustrates the effect on net income and earnings per share as if the fair value method had been applied to all outstanding stock options in each period. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model.

		For the Three Months
		Ended March 31,
		2003		2002
Net income, as reported ($000’s omitted)		$	86,137	$	68,112
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects ($000’s omitted)			366		—
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects ($000’s omitted)			2,636		2,757
Pro forma net income ($000’s omitted)		$	83,867	$	65,355
Earnings per share:
	Basic-as reported	$	1.42	$	1.14
	Basic-pro forma	$	1.38	$	1.09
	Diluted-as reported	$	1.39	$	1.11
	Diluted-pro forma	$	1.35	$	1.06

     The Company also recorded compensation expense for restricted stock awards, net of related tax effects, of $1.2 million and $0.7 million for the three months ended March 31, 2003 and 2002, respectively. These amounts have been excluded from the reconciliation above as they would have no impact on pro forma net income as presented.

New accounting pronouncements

     In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities.” Until this interpretation was issued, a company generally included another entity in its consolidated financial statements only if it controlled the entity through voting interests. The interpretation requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns. Interpretation No. 46 is effective immediately for all variable interest entities created after January 31, 2003 and effective no later than the beginning of the first interim period that starts after June 15, 2003 for variable interest entities created prior to February 1, 2003. Interpretation No. 46 is not expected to have a material effect on the Company’s consolidated results of operations, financial position or cash flows.

8

PULTE HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

2.     Segment information

     The Company’s operations are classified into three reportable segments: Homebuilding, Financial Services and Corporate.

     The Company’s Homebuilding segment consists of the following operations:

• Domestic Homebuilding, the Company’s core business, is engaged in the acquisition and development of land primarily for residential purposes within the continental United States and the construction of housing on such land targeted for the first-time, first and second move-up, and active adult home buyers.

• International Homebuilding is primarily engaged in the acquisition and development of land principally for residential purposes, and the construction of housing on such land in Mexico, Puerto Rico and Argentina.

     The Company’s Financial Services segment consists principally of mortgage banking and title operations conducted through Pulte Mortgage and other Company subsidiaries.

     Corporate is a non-operating business segment which supports the operations of the Company’s subsidiaries by acting as the internal source of financing, developing and implementing strategic initiatives centered on new business development and operating efficiencies, and providing the necessary administrative functions to support the Company as a publicly traded entity listed on the New York Stock Exchange.

9

PULTE HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

2.     Segment information (continued)

			Operating Data by Segment ($000's omitted)
			For The Three Months Ended
			March 31,
			2003			2002
Revenues:
	Homebuilding		$	1,523,439		$	1,355,605
	Financial Services			27,596			23,024
	Corporate			1,555			112
		Total revenues		1,552,590			1,378,741
Cost of sales:
	Homebuilding			1,203,560			1,079,986
Selling, general and administrative:
	Homebuilding			177,563			149,798
	Financial Services			10,060			10,126
	Corporate			5,560			3,139
		Total selling, general and administrative		193,183			163,063
Interest:
	Homebuilding			11,409			8,523
	Financial Services			1,677			1,586
	Corporate			10,571			9,554
		Total interest		23,657			19,663
Other expense, net:
	Homebuilding			898			4,707
	Corporate			793			2,473
		Total other expense, net		1,691			7,180
Total costs and expenses				1,422,091			1,269,892
Equity Income:
	Homebuilding			7,403			2,743
	Financial Services			1,257			942
		Total equity income		8,660			3,685
Income (loss) before income taxes:
	Homebuilding			137,412			115,334
	Financial Services			17,116			12,254
	Corporate			(15,369	)		(15,054	)
Total income before income taxes			$	139,159		$	112,534

10

PULTE HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

2.     Segment information (continued)

		Asset Data by Segment ($000's omitted)
				Financial
		Homebuilding		Services		Corporate		Total
At March 31, 2003:
	Inventory	$	4,604,208	$	—	$	—	$	4,604,208
	Total assets		6,057,173		427,316		318,391	$	6,802,880
At December 31, 2002:
	Inventory	$	4,293,597	$	—	$	—	$	4,293,597
	Total assets		6,092,102		645,977		150,376	$	6,888,455

3.     Senior notes and subordinated notes

     In February 2003, the Company sold $300 million of 6.25% unsecured senior notes, callable prior to maturity and guaranteed by Pulte and certain wholly owned subsidiaries of Pulte. The notes are due 2013.

     In March 2003, under the terms of Del Webb’s $200 million 9.375% senior subordinated notes due 2009, the Company exercised its optional right to redeem the remaining outstanding principal balance of approximately $155 million. The notes will be redeemed in May 2003 at a price equal to 104.688% of the principal amount. Furthermore, the Company’s $175 million 9.5% senior notes matured and were retired on April 1, 2003.

4.     Shareholder’s equity

     In October 2002, the Company’s Board of Directors authorized the repurchase of $100 million of Company common stock in open-market transactions or otherwise. Pursuant to this authorization, 395,400 common shares were repurchased at an aggregate cost of approximately $18.2 million during the first quarter 2003. At March 31, 2003, the Company had remaining authorization to purchase common stock aggregating $77.5 million.

Accumulated other comprehensive income (loss)

     The accumulated balances related to each component of other comprehensive income are as follows ($000’s omitted):

		March 31,			December 31,
		2003			2002
Foreign currency translation adjustments:
	Argentina	$	(25,292	)	$	(26,876	)
	Mexico		(11,415	)		(6,615	)
Change in fair value of derivatives, net of income taxes of $514 in 2003 and $1,204 in 2002			(755	)		(1,880	)
		$	(37,462	)	$	(35,371	)

11

PULTE HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

5.     Supplemental Guarantor information ($000’s omitted)

     The Company has the following outstanding senior note obligations: (1) $175 million, 9.5%, due 2003 (retired on April 1, 2003), (2) $100 million, 7%, due 2003, (3) $112 million, 8.375%, due 2004, (4) $125 million, 7.3%, due 2005, (5) $200 million, 8.125%, due 2011, (6) $499 million, 7.875%, due 2011, (7) $300 million, 6.25%, due 2013, (8) $150 million, 7.625%, due 2017 and (9) $300 million, 7.875%, due 2032. Such obligations to pay principal, premium, if any, and interest are guaranteed jointly and severally on a senior basis by the Company’s wholly owned Domestic Homebuilding subsidiaries (collectively, the Guarantors). The Company has the following outstanding senior subordinated note obligations: (1) $155 million, 9.375%, due 2009, (2) $92 million, 10.25%, due 2010. Such obligations to pay principal, premium, if applicable, and interest are guaranteed jointly and severally on a senior subordinated basis by the Guarantors. Such guarantees are full and unconditional. The principal non-Guarantors include PDCI, International, Pulte Mortgage, NABIC and First Heights.

     Supplemental consolidating financial information of the Company, specifically including such information for the Guarantors, is presented below. Investments in subsidiaries are presented using the equity method of accounting. Separate financial statements of the Guarantors are not provided as the consolidating financial information contained herein provides a more meaningful disclosure to allow investors to determine the nature of the assets held by and the operations of the combined groups.

12

PULTE HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

5.     Supplemental Guarantor information (continued)

CONDENSED CONSOLIDATING BALANCE SHEET
MARCH 31, 2003
($000’s omitted)

		Unconsolidated
												Consolidated
		Pulte		Guarantor		Non-Guarantor			Eliminating			Pulte
		Homes, Inc.		Subsidiaries		Subsidiaries			Entries			Homes, Inc.
ASSETS
Cash and equivalents		$	183,313	$	226,942	$	69,322		$	—		$	479,577
Unfunded settlements			—		65,442		(15,688	)		—			49,754
House and land inventories			—		4,457,722		146,486			—			4,604,208
Residential mortgage loans available-for-sale			—		—		389,150			—			389,150
Goodwill			—		306,993		700			—			307,693
Intangible assets			—		149,892		—			—			149,892
Other assets			64,541		663,428		89,689			—			817,658
Deferred income taxes			4,948		—		—			—			4,948
Investment in subsidiaries			4,100,603		98,505		1,865,758			(6,064,866	)		—
Advances receivable — subsidiaries			1,918,804		—		—			(1,918,804	)		—
		$	6,272,209	$	5,968,924	$	2,545,417		$	(7,983,670	)	$	6,802,880
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Accounts payable, accrued and other liabilities		$	122,466	$	1,113,223	$	140,849		$	—		$	1,376,538
Collateralized short-term debt, recourse solely to applicable non-guarantor subsidiary assets			—		—		343,724			—			343,724
Income taxes			41,678		—		—			—			41,678
Subordinated notes and senior notes			1,950,044		259,838		—			—			2,209,882
Advances payable — subsidiaries			1,326,963		373,120		218,721			(1,918,804	)		—
	Total liabilities		3,441,151		1,746,181		703,294			(1,918,804	)		3,971,822
Shareholders’ equity			2,831,058		4,222,743		1,842,123			(6,064,866	)		2,831,058
		$	6,272,209	$	5,968,924	$	2,545,417		$	(7,983,670	)	$	6,802,880

13

PULTE HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

5.     Supplemental Guarantor information (continued)

CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2002
($000’s omitted)

		Unconsolidated
												Consolidated
		Pulte		Guarantor		Non-Guarantor			Eliminating			Pulte
		Homes, Inc.		Subsidiaries		Subsidiaries			Entries			Homes, Inc.
ASSETS
Cash and equivalents		$	—	$	541,095	$	72,073		$	—		$	613,168
Unfunded settlements			—		66,203		(5,562	)		—			60,641
House and land inventories			—		4,143,827		149,770			—			4,293,597
Residential mortgage loans available-for-sale			—		—		600,339			—			600,339
Goodwill			—		306,993		700			—			307,693
Intangible assets			—		151,954		—			—			151,954
Other assets			54,295		683,859		95,125			—			833,279
Deferred income taxes			27,784		—		—			—			27,784
Investment in subsidiaries			3,553,786		93,710		1,809,031			(5,456,527	)		—
Advances receivable — subsidiaries			1,470,816		1,491		—			(1,472,307	)		—
		$	5,106,681	$	5,989,132	$	2,721,476		$	(6,928,834	)	$	6,888,455
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Accounts payable, accrued and other liabilities		$	125,941	$	1,281,648	$	157,542		$	—		$	1,565,131
Collateralized short-term debt, recourse solely to applicable non-guarantor subsidiary assets			—		—		559,621			—			559,621
Income taxes			90,009		—		—			—			90,009
Senior notes and subordinated notes			1,652,602		260,666		—			—			1,913,268
Advances payable — subsidiaries			477,703		770,488		224,116			(1,472,307	)		—
	Total liabilities		2,346,255		2,312,802		941,279			(1,472,307	)		4,128,029
Shareholders’ equity			2,760,426		3,676,330		1,780,197			(5,456,527	)		2,760,426
		$	5,106,681	$	5,989,132	$	2,721,476		$	(6,928,834	)	$	6,888,455

14

PULTE HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

5.     Supplemental Guarantor information (continued)

CONSOLIDATING STATEMENT OF OPERATIONS
For the three months ended March 31, 2003
($000’s omitted)

			Unconsolidated
														Consolidated
			Pulte			Guarantor		Non-Guarantor			Eliminating			Pulte
			Homes, Inc.			Subsidiaries		Subsidiaries			Entries			Homes, Inc.
Revenues:
	Homebuilding		$	—		$	1,480,107	$	43,332		$	—		$	1,523,439
	Financial Services			—			3,166		24,430			—			27,596
	Corporate			—			1,384		171			—			1,555
Total revenues				—			1,484,657		67,933			—			1,552,590
Expenses:
	Homebuilding:
		Cost of sales		—			1,167,876		35,684			—			1,203,560
		Selling, general and administrative and other expense		1,847			178,280		9,743			—			189,870
	Financial Services			—			1,097		10,640			—			11,737
	Corporate, net			16,142			1,242		(460	)		—			16,924
Total expenses				17,989			1,348,495		55,607			—			1,422,091
Other Income:
Equity income				—			6,375		2,285			—			8,660
Income (loss) from continuing operations before income taxes and equity in income of subsidiaries				(17,989	)		142,537		14,611						139,159
Income taxes (benefit)				(7,296	)		54,299		5,855			—			52,858
Income (loss) from continuing operations before equity in income of subsidiaries				(10,693	)		88,238		8,756						86,301
Income (loss) from discontinued operations				(165	)		—		1			—			(164	)
Income (loss) before equity in income of subsidiaries				(10,858	)		88,238		8,757			—			86,137
Equity in income of subsidiaries:
	Continuing operations			96,994			9,178		57,326			(163,498	)		—
	Discontinued operations			1			—		—			(1	)		—
Net income			$	86,137		$	97,416	$	66,083		$	(163,499	)	$	86,137

15

PULTE HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

5.     Supplemental Guarantor information (continued)

CONSOLIDATING STATEMENT OF OPERATIONS
For the three months ended March 31, 2002
($000’s omitted)

				Unconsolidated
														Consolidated
				Pulte			Guarantor		Non-Guarantor		Eliminating			Pulte
				Homes, Inc.			Subsidiaries		Subsidiaries		Entries			Homes, Inc.
Revenues:
	Homebuilding			$	—		$	1,333,236	$	22,369	$	—		$	1,355,605
	Financial Services				—			3,044		19,980		—			23,024
	Corporate				102			10		—		—			112
Total revenues					102			1,336,290		42,349		—			1,378,741
Expenses:
	Homebuilding:
			Cost of sales		—			1,062,157		17,829		—			1,079,986
			Selling, general and administrative and other expense		3,346			152,588		7,094		—			163,028
	Financial Services				—			975		10,737		—			11,712
	Corporate, net				13,065			1,996		105		—			15,166
Total expenses					16,411			1,217,716		35,765		—			1,269,892
Other Income:
Equity income					—			549		3,136		—			3,685
Income (loss) from continuing operations before income taxes and equity in income of subsidiaries					(16,309	)		119,123		9,720		—			112,534
Income taxes (benefit)					(7,357	)		46,562		4,689		—			43,894
Income (loss) from continuing operations before equity in income of subsidiaries					(8,952	)		72,561		5,031		—			68,640
Income (loss) from discontinued operations					(528	)		—		—		—			(528	)
Income (loss) before equity in income of subsidiaries					(9,480	)		72,561		5,031		—			68,112
Equity in income of subsidiaries:
		Continuing operations			77,592			6,126		36,237		(119,955	)		—
Net income				$	68,112		$	78,687	$	41,268	$	(119,955	)	$	68,112

16

PULTE HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

5.     Supplemental Guarantor information (continued)

CONSOLIDATING STATEMENT OF CASH FLOWS
For the three months ended March 31, 2003
($000’s omitted)

				Unconsolidated
																Consolidated
				Pulte			Guarantor			Non-Guarantor			Eliminating			Pulte
				Homes, Inc.			Subsidiaries			Subsidiaries			Entries			Homes, Inc.
Cash flows from operating activities:
	Net income			$	86,137		$	97,416		$	66,083		$	(163,499	)	$	86,137
	Adjustments to reconcile net income to net cash flows provided by (used in) operating activities:
		Equity in income of subsidiaries			(96,995	)		(9,178	)		(57,326	)		163,499			—
		Amortization and depreciation			288			6,518			722			—			7,528
		Stock-based compensation expense			2,461			—			—			—			2,461
		Deferred income taxes			22,836			—			—			—			22,836
		Other, net			—			(551	)		(1,280	)		—			(1,831	)
		Increase (decrease) in cash due to:
			Inventories		—			(339,578	)		(652	)		—			(340,230	)
			Residential mortgage loans available-for-sale		—			—			199,263			—			199,263
			Other assets		(10,245	)		31,817			19,928			—			41,500
			Accounts payable, accrued and other liabilities		(3,851	)		(115,637	)		1,567			—			(117,921	)
			Income taxes		(106,970	)		54,299			6,107			—			(46,564	)
Net cash provided by (used in) operating activities					(106,339	)		(274,894	)		234,412			—			(146,821	)
Cash flows from investing activities:
	Dividends received from subsidiaries				—			5,000			—			(5,000	)		—
	Investment in subsidiary				(451,538	)		(423	)		—			451,961			—
	Advances to affiliates				(387,582	)		1,491			(1,413	)		387,504			—
	Other, net				—			(5,115	)		(3,507	)		—			(8,622	)
Net cash provided by (used in) investing activities					(839,120	)		953			(4,920	)		834,465			(8,622	)
Cash flows from financing activities:
	Proceeds from borrowings				297,153			—			—			—			297,153
	Repayment of borrowings				—			(40,082	)		(217,407	)		—			(257,489	)
	Capital contributions from parent				—			451,538			423			(451,961	)		—
	Advances from affiliates				849,260			(451,668	)		(10,088	)		(387,504	)		—
	Issuance of common stock				3,004			—			—			—			3,004
	Common stock repurchases				(18,204	)		—			—			—			(18,204	)
	Dividends paid				(2,441	)		—			(5,000	)		5,000			(2,441	)
Net cash provided by (used in) financing activities					1,128,772			(40,212	)		(232,072	)		(834,465	)		22,023
Effect of exchange rate changes on cash and equivalents					—			—			(171	)		—			(171	)
Net increase (decrease) in cash and equivalents					183,313			(314,153	)		(2,751	)		—			(133,591	)
Cash and equivalents at beginning of period					—			541,095			72,073			—			613,168
Cash and equivalents at end of period				$	183,313		$	226,942		$	69,322		$	—		$	479,577

17

PULTE HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

5.     Supplemental Guarantor information (continued)

CONSOLIDATING STATEMENT OF CASH FLOWS
For the three months ended March 31, 2002
($000’s omitted)

				Unconsolidated
																Consolidated
				Pulte			Guarantor			Non-Guarantor			Eliminating			Pulte
				Homes, Inc.			Subsidiaries			Subsidiaries			Entries			Homes, Inc.
Cash flows from operating activities:
	Net income			$	68,112		$	78,687		$	41,268		$	(119,955	)	$	68,112
	Adjustments to reconcile net income to net cash flows provided by (used in) operating activities:
		Equity in income of subsidiaries			(77,592	)		(6,126	)		(36,237	)		119,955			—
		Amortization and depreciation			258			7,658			423			—			8,339
		Stock-based compensation expense			1,092			—			—			—			1,092
		Deferred income taxes			26,533			—			—			—			26,533
		Other, net			—			375			(2,207	)		—			(1,832	)
		Increase (decrease) in cash due to:
			Inventories		—			(88,700	)		(12,765	)		—			(101,465	)
			Residential mortgage loans available-for-sale		—			—			153,226			—			153,226
			Other assets		(842	)		33,255			14,203			—			46,616
			Accounts payable, accrued and other liabilities		(13,150	)		(85,873	)		(6,817	)		—			(105,840	)
			Income taxes		(59,614	)		59,379			3,870			—			3,635
Net cash provided by (used in) operating activities					(55,203	)		(1,345	)		154,964			—			98,416
Cash flows from investing activities:
	Dividends received from subsidiaries				—			10,000			—			(10,000	)		—
	Investment in subsidiary				—			(328	)		—			328			—
	Advances to affiliates				(5,818	)		(25,581	)		(11,741	)		43,140			—
	Other, net				—			(5,903	)		(781	)		—			(6,684	)
Net cash provided by (used in) investing activities					(5,818	)		(21,812	)		(12,522	)		33,468			(6,684	)
Cash flows from financing activities:
	Proceeds from borrowings				15,000			16,198			—			—			31,198
	Repayment of borrowings				—			—			(155,622	)		—			(155,622	)
	Capital contributions from parent				—			—			328			(328	)		—
	Advances from affiliates				8,457			17,751			16,932			(43,140	)		—
	Issuance of common stock				24,365			—			—			—			24,365
	Dividends paid				(2,422	)		—			(10,000	)		10,000			(2,422	)
	Other, net				—			—			43			—			43
Net cash provided by (used in) financing activities					45,400			33,949			(148,319	)		(33,468	)		(102,438	)
Effect of exchange rate changes on cash and equivalents					—			—			(1,666	)		—			(1,666	)
Net increase (decrease) in cash and equivalents					(15,621	)		10,792			(7,543	)		—			(12,372	)
Cash and equivalents at beginning of period					15,621			33,643			22,880			—			72,144
Cash and equivalents at end of period				$	—		$	44,435		$	15,337		$	—		$	59,772

18

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

Overview:

     A summary of our operating results by business segment for the three months ended March 31, 2003 and 2002 are as follows ($000’s omitted, except per share data):

		Three Months Ended
		March 31,
		2003			2002
Pre-tax income (loss):
	Homebuilding	$	137,412		$	115,334
	Financial Services		17,116			12,254
	Corporate		(15,369	)		(15,054	)
Pre-tax income from continuing operations			139,159			112,534
Income taxes			52,858			43,894
Income from continuing operations			86,301			68,640
Income (loss) from discontinued operations			(164	)		(528	)
Net income		$	86,137		$	68,112
Per share data — assuming dilution:
	Income from continuing operations	$	1.39		$	1.12
	(Loss) income from discontinued operations		—			(.01	)
	Net income	$	1.39		$	1.11

     A comparison of pre-tax income (loss) for the three months ended March 31, 2003 and 2002 is as follows:

• Continued strong demand for new housing in many of our markets, geographic and product mix shifts, and benefits from the ongoing initiatives to leverage construction costs throughout the operations drove pre-tax income of our homebuilding business segment to increase 19%. Domestic average unit selling price increased by 5% to $250,000 and domestic homebuilding settlement gross margin percentages were up 90 basis points to 21.0%.

• Pre-tax income of our financial services business segment increased 40% to $17.1 million as a result of increased volume, a favorable interest rate environment and effective leverage of overhead costs. The increase in volume was driven in large part by a 5% increase in the capture rate to 80%.

• Pre-tax loss of our corporate business segment was relatively flat when compared to the prior year quarter as an increase in interest income offset increases in interest expense and selling, general and administrative expenses consistent with the growth of the business.

19

Homebuilding Operations:

     Our Homebuilding segment consists of the following operations:

• We conduct our Domestic Homebuilding operations in 44 markets, located throughout 25 states. Domestic Homebuilding offers a broad product line to meet the needs of the first-time, first and second move-up, and active adult homebuyers.

• We conduct our International Homebuilding operations through subsidiaries of Pulte International Corporation (International) in Mexico, Puerto Rico and Argentina. International Homebuilding product offerings focus on the demand of first-time buyers and middle-to-upper income consumer groups. We also provide housing for employees of multi-national corporations in Mexico.

     Certain operating data relating to our homebuilding operations and Pulte-affiliated joint ventures are as follows ($000’s omitted):

			Three Months Ended
			March 31,
			2003		2002
Pulte Homebuilding settlement revenues:
	Domestic		$	1,447,198	$	1,309,588
	International			43,332		22,369
		Total Pulte	$	1,490,530	$	1,331,957
Pulte-affiliate international homebuilding settlement revenues			$	8,521	$	24,453
Total Pulte/Pulte-affiliate homebuilding settlement revenues			$	1,499,051	$	1,356,410
Pulte Homebuilding settlement units:
	Domestic			5,785		5,502
	International			1,191		721
		Total Pulte		6,976		6,223
Pulte-affiliate international homebuilding settlement units				48		921
Total Pulte/Pulte-affiliate homebuilding settlement units				7,024		7,144

20

Homebuilding Operations (continued):

Domestic Homebuilding:

     The Domestic Homebuilding operations represent our core business. We conduct our operations in 44 markets, located throughout 25 states, and are presented geographically as follows:

Northeast:	Connecticut, Delaware, Maryland, Massachusetts, New Jersey, New York, Pennsylvania, Rhode Island, Virginia
Southeast:	Florida, Georgia, North Carolina, South Carolina, Tennessee
Midwest:	Illinois, Indiana, Kansas, Michigan, Minnesota, Ohio
Central:	Colorado, Texas
West:	Arizona, California, Nevada

     Our greater Phoenix operations accounted for 12% and 11% of Domestic Homebuilding unit net new orders, 10% and 13% of Domestic Homebuilding unit settlements and 9% and 12% of Domestic Homebuilding settlement revenues for the three-month periods ended March 31, 2003 and 2002, respectively. Our operations in Northern California accounted for 12% of Domestic Homebuilding settlement revenues for the three months ended March 31, 2003. No other individual market represented more than 10% of total Domestic Homebuilding unit net new orders, unit settlements or revenues for the three-month periods ended March 31, 2003 or 2002.

     The following table presents selected unit information for our Domestic Homebuilding operations:

		Three Months Ended
		March 31,
		2003		2002
Unit settlements:
	Northeast		426		416
	Southeast		1,749		1,676
	Midwest		842		702
	Central		734		718
	West		2,034		1,990
			5,785		5,502
Net new orders—units:
	Northeast		736		794
	Southeast		2,263		2,230
	Midwest		1,118		1,300
	Central		1,185		1,284
	West		2,931		2,480
			8,233		8,088
Net new orders—dollars ($000’s omitted)		$	2,154,000	$	2,004,000
Backlog at March 31—units:
	Northeast		1,439		1,209
	Southeast		3,453		3,113
	Midwest		1,877		1,973
	Central		1,356		1,469
	West		4,928		3,500
			13,053		11,264
Backlog at March 31—dollars ($000’s omitted)		$	3,564,000	$	2,812,000

21

Homebuilding Operations (continued):

Domestic Homebuilding (continued):

     Net new orders increased 2% to a record 8,233 units for the three months ended March 31, 2003, from 8,088 in the prior year period. Unit settlements also set a record for the quarter at 5,785 units, an increase of 5% over the same period in 2002. The average selling price for homes closed during the quarter increased to $250,000 in 2003 from $238,000 in 2002. Changes in average selling price reflect a number of factors, including changes in market selling prices and the mix of product closed during a period. Ending backlog, which represents orders for homes that have not yet closed, grew to 13,053 units. The dollar value of backlog was up 27% to over $3.5 billion.

     The following table presents a summary of pre-tax income for our Domestic Homebuilding operations for the three months ended March 31, 2003 and 2002 ($000’s omitted):

	Three Months Ended
	March 31,
	2003			2002
Home sale revenue (settlements)	$	1,447,198		$	1,309,588
Land sale revenue		32,909			23,648
Home cost of sales		(1,143,816	)		(1,046,925	)
Land cost of sales		(24,060	)		(15,232	)
Selling, general and administrative expense		(167,100	)		(142,795	)
Interest †		(11,409	)		(8,523	)
Equity income		6,358			401
Other income (expense), net		(1,642	)		(4,311	)
Pre-tax income	$	138,438		$	115,851
Average sales price	$	250		$	238

† We capitalize interest cost into homebuilding inventories and charge the interest to homebuilding interest expense over a period that approximates the average life cycle of our communities.

     Homebuilding gross profit margins from home settlements increased to 21.0% for the three-month period ended March 31, 2003, compared to 20.1%, in the same period of the prior year. This increase is attributable to continued strong customer demand, positive home pricing and product and geographic mix. Purchase accounting adjustments associated with the merger with Del Webb reduced gross margin for the three months ended March 31, 2002 by approximately $1.7 million, or 10 basis points.

     We consider land development one of our core competencies. This includes the development and entitlement of certain land positions for sale primarily to other homebuilders, as well as to retail and commercial establishments. Contributions from land sales were relatively flat when compared to the prior year period. Revenues and their related gains/losses may vary significantly between periods, depending on the timing of future land sales. We continue to rationalize certain existing land positions to ensure the most effective use of capital.

     For the three months ended March 31, 2003, selling, general and administrative expenses, as a percentage of home settlement revenues, increased 60 basis points to 11.5% when compared to the prior year period. On a comparative basis, excluding purchase accounting, selling, general and administrative expenses, as a percentage of home settlement revenues, increased 80 basis points. This increase is primarily attributed to higher startup costs for new communities and additional expenses incurred in the Northeast and Midwest due to prolonged periods of adverse weather conditions.

     Interest expense increased $2.9 million to $11.4 million in the three months ended March 31, 2003 as amounts previously capitalized into inventory are charged to interest expense. Interest capitalized into inventory has increased as a result of higher levels of inventory and indebtedness related to the merger with Del Webb and to support the continued growth of the business.

     Equity income for the three months ended March 31, 2003 increased approximately $6.0 million over the prior year period to $6.4 million. The increase was driven by earnings from two Nevada-based joint ventures related to the sale of commercial and residential properties.

22

Homebuilding Operations (continued):

Domestic Homebuilding (continued):

     Other income (expense), net totaled expense of $1.6 million and $4.3 million for the three months ended March 31, 2003 and 2002, respectively. The change is primarily due to the write-down of a land development investment and related receivable in 2002.

     At March 31, 2003 and 2002, our Domestic Homebuilding operations controlled approximately 189,700 and 138,700 lots, respectively. Approximately 91,500 and 81,400 lots were owned, and approximately 45,900 and 33,400 lots were under option agreements approved for purchase at March 31, 2003 and 2002, respectively. In addition, there were approximately 52,300 and 23,900 lots under option agreements, pending approval, at March 31, 2003 and 2002, respectively.

     Domestic Homebuilding inventory at March 31, 2003, was approximately $4.5 billion, of which $3.4 billion related to land and land development. At March 31, 2002, inventory was approximately $3.9 billion, of which $2.9 billion related to land and land development. Other assets included approximately $220.5 million and $240.5 million in land held for disposition at March 31, 2003 and 2002, respectively.

International Homebuilding:

     Our International Homebuilding operations are primarily conducted through subsidiaries of International in Mexico, Puerto Rico and Argentina.

     Mexico — Effective January 1, 2002, International reorganized its structure within Mexico to create a single company, Pulte Mexico S. de R.L. de C.V. (Pulte Mexico), which ranks as one of the largest builders in the country. Prior to the reorganization, these operations were conducted primarily through five joint ventures throughout Mexico. Under the new ownership structure, which combines the largest of these entities, we own 63.8% of Pulte Mexico and have consolidated Pulte Mexico into our financial statements. The new operating structure facilitates growth, enables operating leverage and improves efficiencies through standardized systems and procedures.

     Puerto Rico — Operations in Puerto Rico are conducted through International’s 100%-owned subsidiary, Pulte International Caribbean Corporation, and three joint ventures.

     Argentina — Operations in Argentina, which are based in the greater Buenos Aires area, are conducted through Pulte SRL, International’s 100%-owned Argentine subsidiary.

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Homebuilding Operations (continued):

International Homebuilding (continued):

     The following table presents selected financial data for our International Homebuilding operations for the three months ended March 31, 2003 and 2002 ($000’s omitted):

		Three Months Ended
		March 31,
		2003			2002
Revenues		$	43,332		$	22,369
Cost of sales			(35,684	)		(17,829	)
Selling, general and administrative expense			(10,463	)		(7,003	)
Other income (expense), net			(391	)		(776	)
Minority interest			1,135			380
Equity income			1,045			2,342
Pre-tax income (loss)		$	(1,026	)	$	(517	)
Unit settlements:
	Pulte		1,191			721
	Pulte-affiliated entities		48			921
			1,239			1,642

     Unit settlements for Pulte and Pulte-affiliated entities were down 25% as increases in Argentina and Puerto Rico were negated by a decline in Mexico. Settlements for Pulte and Pulte affiliated entities in Mexico were 1,107 for the three months ended March 31, 2003 compared to 1,581 in 2002. Activity in Mexico continues to be slowed by the impact of changes made to local lending practices and the lack of alternative funding sources for homebuyers.

     Increased revenues in 2003 are due to consolidation of the operations in Mexico for a full three months in 2003 versus two months in 2002 aided by increased closings in Argentina and Puerto Rico. Revenues from our operations in Mexico were $29.4 million and $18.4 million for the three months ended March 31, 2003 and 2002, respectively. Revenues in Argentina increased to $6.7 million from $4.0 million in the prior year period. Our operations in Puerto Rico contributed $7.2 million for the three months ended March 31, 2003. Our consolidated operations in Puerto Rico did not have any closings during the three months ended March 31, 2002 as various factors delayed the opening of replacement communities into the second quarter of 2002.

     The decline of sales activity in Mexico caused some inefficiency which had a negative impact on gross margins for International. Gross margins declined to 17.6% in 2003 from 20.3% in 2002. Selling, general and administrative expenses as a percent of revenues declined to 24.1% from 31.3% as a result of a reduction in community start-up costs associated with our operations in Argentina.

     Our operations in Argentina recorded transaction losses of $174,000 for the three months ended March 31, 2003, despite a slight recovery by the Argentine peso to U.S. dollar exchange. There were no foreign currency transaction losses recorded in the three months ended March 31, 2002. We also recorded a foreign currency translation gain of $1.6 million, as a component of cumulative other comprehensive income during the three months ended March 31, 2003. It remains unclear at this time how the financial and currency markets in Argentina will be impacted through the remainder of 2003 or how the current economic situation may affect customer home buying attitudes and the homebuilding business in general. At March 31, 2003, our investment in Argentina, net of cumulative foreign currency translation adjustments, approximated $14.3 million. Our operations in Mexico have been affected by a fluctuating dollar to Mexican peso exchange where transaction gains of $207,000 were recorded in the three months ended March 31, 2003 as compared to transaction losses of $488,000 in 2002. Furthermore, we recorded a foreign currency translation loss of $3.8 million, as a component of cumulative other comprehensive income during the three months ended March 31, 2003. At March 31, 2003, our investment in Mexico, net of cumulative foreign currency translation adjustments, approximated $61.1 million.

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Financial Services Operations:

     We conduct our financial services operations principally through Pulte Mortgage LLC (Pulte Mortgage), our mortgage banking subsidiary. Pre-tax income of our financial services operations for the three months ended March 31, 2003 and 2002, was $17.1 million and $12.3 million, respectively. This increase was due to higher production volume and favorable interest rates.

     The following table presents mortgage origination data for Pulte Mortgage:

		Three Months Ended
		March 31,
		2003		2002
Total originations:
	Loans		5,162		4,226
	Principal ($000’s omitted)	$	867,200	$	671,800
Originations for Pulte customers:
	Loans		4,143		3,563
	Principal ($000’s omitted)	$	690,800	$	564,600

     Mortgage origination unit and principal volume for the three months ended March 31, 2003, increased 22% and 29%, respectively, over 2002. The growth can be attributed to an increase in the capture rate from 75% to 80% and an increase in the average loan size. Our Domestic Homebuilding customers continue to account for the majority of total loan production, representing 80% of total Pulte Mortgage unit production for 2003, compared with 84% in 2002. Refinancings represented 12% of total loan production in 2003, compared with 7% in 2002. At March 31, 2003, loan application backlog increased 70% to $1.7 billion as compared to $1.0 billion at March 31, 2002.

     Our title operations contributed income of $2.1 million for the three months ended March 31, 2003, which was flat as compared to the prior year. Our minority interest in Su Casita, a Mexican mortgage banking company, contributed income of $1.2 million for the three months ended March 31, 2003, compared to $0.8 million in 2002.

     We hedge portions of our forecasted cash flow from sales of closed mortgage loans with derivative financial instruments. The effect of these derivative financial instruments continues to be immaterial to our financial position, results of operations and cash flows.

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Corporate:

     Corporate is a non-operating business segment whose primary purpose is to support the operations of our subsidiaries as the internal source of financing, to develop and implement strategic initiatives centered on new business development and operating efficiencies, and to provide the administrative support associated with being a publicly traded entity listed on the New York Stock Exchange. As a result, the corporate segment’s operating results will vary from quarter to quarter as these strategic initiatives evolve.

     The following table presents results of operations for this segment for the three months ended March 31, 2003 and 2002 ($000’s omitted):

	Three Months Ended
	March 31,
	2003		2002
Net interest expense	$	9,016	$	9,442
Other corporate expenses, net		6,353		5,612
Loss before income taxes	$	15,369	$	15,054

     Pre-tax loss of our corporate business segment increased from the three-month period ended March 31, 2002. The change was due to increases in general corporate expenses consistent with the growth of the business off set in large part by $1.6 million of interest income earned on large cash balances held during the three months ended March 31, 2003.

     Corporate net interest expense is net of amounts capitalized into homebuilding inventories. Capitalized interest is amortized to homebuilding interest expense over a period that approximates the average life cycle of our communities. Interest in inventory at March 31, 2003, increased primarily as a result of higher levels of inventory and indebtedness compounded by an increase in the average life cycle. Information related to Corporate interest capitalized into inventory is as follows ($000’s omitted):

	Three Months Ended
	March 31,
	2003			2002
Interest in inventory at beginning of period	$	142,984		$	68,595
Interest capitalized		33,646			29,501
Interest expensed		(11,409	)		(8,523	)
Interest in inventory at end of period	$	165,221		$	89,573

     Interest incurred for the three months ended March 31, 2003 and 2002, excluding interest incurred by the Company’s financial services operations, was $44.2 million and $39.1 million, respectively.

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Liquidity and Capital Resources:

     Our net cash used in operating activities amounted to $146.8 million compared to cash provided by operating activities of $98.4 million in the prior year. This change was primarily driven by an increase in inventories. Net cash used in investing activities of $8.6 million was comparable to last year’s $6.7 million. Net cash provided by financing activities of $22.0 million in 2003 primarily represents proceeds from our $300 million senior notes issued in February 2003 largely offset by the repayment of Pulte Mortgage’s revolving credit facilities and common stock repurchases. Net cash used in financing activities of $102.4 million in 2002 was primarily due to repayments of Pulte Mortgage’s revolving credit facilities.

     We finance our homebuilding land acquisitions, development and construction activities from internally generated funds and existing credit agreements. We had no borrowings under our $570 million unsecured revolving credit facility at March 31, 2003.

     Pulte Mortgage provides mortgage financing for many of our home sales and uses its own funds and borrowings made available pursuant to various credit arrangements. At March 31, 2003, Pulte Mortgage has committed credit arrangements of $500 million comprised of a $175 million bank revolving credit facility and a $325 million annual asset-backed commercial paper program. This amount is deemed adequate to cover foreseeable needs. During the first quarter of 2003, the $175 million bank revolving credit facility expired and was replaced with a new $175 million revolving credit facility with substantially the same terms expiring in March 2005. There were approximately $343 million of borrowings outstanding under the $500 million Pulte Mortgage arrangements at March 31, 2003. Mortgage loans originated by Pulte Mortgage are subsequently sold to outside investors. We anticipate that there will be adequate mortgage financing available for purchasers of our homes.

     In February 2003, we sold $300 million of 6.25% unsecured senior notes, due 2013. The notes were sold in anticipation of retiring certain other debt coming due and callable in 2003. Subsequently, in March 2003, under the terms of Del Webb’s $200 million 9.375% senior subordinated notes due 2009, we exercised our optional right to redeem the remaining outstanding principal balance of approximately $155 million. The notes will be redeemed in May 2003 at a price equal to 104.688% of the principal amount. Furthermore, our $175 million 9.5% senior notes matured and were retired on April 1, 2003.

     Pursuant to our $100 million share repurchase program, we repurchased 395,400 common shares at an aggregate cost of approximately $18.2 million during the first quarter 2003. At March 31, 2003, we had remaining authorization to purchase common stock aggregating $77.5 million.

     We anticipate that our effective tax rate for 2003 will approximate 38%, a decrease from the 2002 effective tax rate of 39%. Our income tax liability and related effective tax rate are affected by a number of factors. The reduction in the effective tax rate for 2003 is principally due to a lower expected effective state income tax rate for 2003 and anticipated shareholder approval of the Company’s Senior Management Annual Incentive Plan, which will allow for tax deductibility of Plan payments under section 162(m) of the Internal Revenue Service Code.

     At March 31, 2003, we had cash and equivalents of $479.6 million and $2.2 billion of senior notes and senior subordinated notes. Other financing included limited recourse collateralized financing totaling $126.2 million. Sources of our working capital at March 31, 2003, include our cash and equivalents, our $570 million committed unsecured revolving credit facility and Pulte Mortgage’s $500 million revolving credit facilities. Our debt-to-total capitalization, excluding our collateralized debt, was approximately 44% at March 31, 2003, and approximately 38% net of cash and equivalents. We expect to maintain our net debt-to-total capitalization at or below the 40% level. It is our intent to exercise, over time, the early call provision of the senior subordinated notes issued by Del Webb, as allowed under these notes. We routinely monitor current operational requirements and financial market conditions to evaluate the use of available financing sources, including securities offerings. At March 31, 2003, we had $400 million remaining under our current mixed securities shelf registration.

Inflation:

     We, and the homebuilding industry in general, may be adversely affected during periods of high inflation, because of higher land and construction costs. Inflation also increases our financing, labor and material costs. In addition, higher mortgage interest rates significantly affect the affordability of permanent mortgage financing to prospective homebuyers. We attempt to pass through to our customers any increases in our costs through increased sales prices and, to date, inflation has not had a material adverse effect on our results of operations. However, there is no assurance that inflation will not have a material adverse impact on our future results of operations.

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Critical Accounting Policies and Estimates:

     There have been no significant changes to our critical accounting policies and estimates during the three months ended March 31, 2003 compared to those disclosed in Item 7,Management’s Discussion and Analysis of Financial Condition and Results of Operationsincluded in our annual report on Form 10-K for the year ended December 31, 2002, except for the following:

Stock-based compensation:

     We currently have several stock-based employee compensation plans. Effective January 1, 2003 we adopted the preferable fair value recognition provisions of SFAS No. 123, “Accounting for Stock Issued to Employees.” We selected the prospective method of adoption as permitted by SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure.” Under the prospective method, we will recognize compensation expense based on the fair value provisions of SFAS No. 123 for all new stock option grants effective January 1, 2003. Grants made prior to January 1, 2003 will continue to be accounted for under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. With the exception of certain variable stock option grants, no stock-based employee compensation cost is reflected in net income for grants made prior to January 1, 2003, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant.

     We use the Black-Scholes option-pricing model to determine the fair value of each option grant. The Black-Scholes model includes assumptions regarding dividend yields, expected volatility, risk-free interest rates and expected lives. These assumptions reflect management’s best estimates, but these items involve inherent uncertainties based on market conditions generally outside of our control. As a result, if other assumptions had been used, stock-based compensation expense could have been materially impacted. Furthermore, if management uses different assumptions in future periods, stock-based compensation expense could be materially impacted in future periods.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

Quantitative disclosure:

     We are subject to interest rate risk on our rate-sensitive financing to the extent long-term rates decline. The following table sets forth, as of March 31, 2003, our rate-sensitive financing obligations, principal cash flows by scheduled maturity, weighted-average interest rates and estimated fair market values ($000’s omitted).

			As of March 31, 2003 for the
			years ended December 31,
																		There-						Fair
			2003			2004			2005			2006			2007			after			Total			Value
Rate sensitive liabilities:
	Fixed interest rate debt:
		Senior notes and subordinated notes	$	275,000		$	112,000		$	125,000		$	—		$	—		$	1,695,611		$	2,207,611		$	2,400,877
		Average interest rate		8.59	%		8.38	%		7.30	%		—			—			7.86	%		7.95	%		—
		Limited recourse
		collateralized financing	$	50,314		$	35,087		$	29,793		$	9,347		$	1,250		$	425		$	126,216		$	126,216
		Average interest rate		3.89	%		5.45	%		5.99	%		2.46	%		6.50	%		6.50	%		4.75	%		—

Qualitative disclosure:

     This information can be found in Item 7A.,Quantitative and Qualitative Disclosures about Market Risk,of our Annual Report on Form 10-K for the fiscal year ended December 31, 2002, and is incorporated herein by reference.

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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 Operationsand 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 involve known risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such factors include, among other things, (1) general economic and business conditions; (2) interest rate changes and the availability of mortgage financing; (3) the relative stability of debt and equity markets; (4) competition; (5) the availability and cost of land and other raw materials used by the Company in its homebuilding operations; (6) the availability and cost of insurance covering risks associated with our business; (7) shortages and the cost of labor; (8) weather related slowdowns; (9) slow growth initiatives and/or local building moratoria; (10) governmental regulation, including the interpretation of tax, labor and environmental laws; (11) changes in consumer confidence and preferences; (12) required accounting changes; (13) terrorist acts and other acts of war; and (14) other factors over which the Company has little or no control.

Item 4. Controls and Procedures

     During the 90-day period prior to the filing date of this report, management, including the Company’s President & Chief Executive Officer and Senior Vice President & Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based upon, and as of the date of that evaluation, the President & Chief Executive Officer and Senior Vice President & Chief Financial Officer concluded that the disclosure controls and procedures were effective, in all material respects, to ensure that information required to be disclosed in the reports the Company files and submits under the Exchange Act is recorded, processed, summarized and reported as and when required.

     There have been no significant changes in the Company’s internal controls or in other factors which could significantly affect internal controls subsequent to the date the Company carried out its evaluation. There were no significant deficiencies or material weaknesses identified in the evaluation and, therefore, no corrective actions were taken.

PART II. OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

(a)  Exhibits

Exhibit Number and Description

99.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(b)  Report on Form 8-K

     On March 17, 2003, we filed a Current Report on Form 8-K, which included a press release dated the same day, announcing our election to expense stock options in financial statements effective January 1, 2003. The release also discussed several enhancements to our corporate governance policies.

     On March 28, 2003, we filed a Current Report on Form 8-K, which included a press release dated March 27, 2003, announcing that Del Webb Corporation had given notice of its election to redeem all of Del Webb’s outstanding 9.375% senior subordinated debentures due 2009, with an original principal amount of $200 million.

     On April 24, 2003, we filed a Current Report on Form 8-K, which included a press release dated the same day, announcing our earnings for the three months ended March 31, 2003.

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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.

PULTE HOMES, INC.

/s/ Roger A. CreggRoger A. Cregg
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)

/s/ Vincent J. FreesVincent J. Frees
Vice President and Controller
(Principal Accounting Officer)

Date: May 12, 2003

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CERTIFICATIONS

I, Mark J. O’Brien, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Pulte Homes, Inc.;
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a.	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b.	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
c.	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a.	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b.	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 12, 2003	/s/ Mark J. O’BrienMark J. O’Brien
	President and Chief Executive Officer

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CERTIFICATIONS (continued)

I, Roger A. Cregg, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Pulte Homes, Inc.;
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a.	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b.	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
c.	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a.	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b.	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 12, 2003	/s/ Roger A. Cregg Roger A. Cregg
	Senior Vice President and
	Chief Financial Officer

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Exhibit Index

Exhibit Number and Description

99.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

33