PulteGroup 10Q 2005 Q2 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2005
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 Section 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.
YESþ NOo

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12-b2 of the Exchange Act).
YESþ NOo

Number of shares of common stock outstanding as of July 31, 2005: 129,232,820

Website Access to Company Reports, Codes and Charters

Our 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, our corporate governance guidelines and the charters of the Audit, Compensation, and Nominating and Governance committees of our Board of Directors, are also posted on our website and are available in print upon request.

PULTE HOMES, INC.

INDEX


		Page No.
PART I FINANCIAL INFORMATION

Item 1	Financial Statements

Condensed Consolidated Balance Sheets at June 30, 2005 and December 31, 2004			3

Consolidated Statements of Operations for the three and six months ended June 30, 2005 and 2004			4

Consolidated Statements of Shareholders’ Equity for the six months ended June 30, 2005 and 2004			5

Consolidated Statements of Cash Flows for the six months ended June 30, 2005 and 2004			6

Notes to Condensed Consolidated Financial Statements			7

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		25

Item 3	Quantitative and Qualitative Disclosures About Market Risk		36

Item 4	Controls and Procedures		36

PART II OTHER INFORMATION

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds		37

Item 4	Submission of Matters to a Vote of Security Holders		37

Item 6	Exhibits		38

SIGNATURES			39
Rule 13a-14(a) Certification by Richard J. Dugas, Jr. President and CEO
Rule 13a-14(a) Certification by Roger A. Cregg, VP and CFO
Certification Pursuant to 18 United States Code Section 1350

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

PULTE HOMES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
($000’s omitted)


	June 30,		December 31,
	2005		2004
	(Unaudited)		(Note)
ASSETS

Cash and equivalents	$	450,772	$	314,634
Unfunded settlements		70,427		118,471
House and land inventory		8,703,503		7,390,791
Land held for sale		182,882		230,743
Land, not owned, under option agreements		109,473		106,380
Residential mortgage loans available-for-sale		519,550		697,077
Investments in unconsolidated entities		242,080		258,868
Goodwill		312,975		307,693
Intangible assets, net		131,329		135,454
Other assets		908,082		846,786


Total assets	$	11,631,073	$	10,406,897


LIABILITIES AND SHAREHOLDERS’ EQUITY

Liabilities:
Accounts payable, accrued and other liabilities, including book overdrafts of $377,284 and $304,394 in 2005 and 2004, respectively	$	1,941,984	$	1,862,051
Customer deposits		480,447		341,050
Collateralized short-term debt, recourse solely to applicable non-guarantor subsidiary assets		455,837		617,415
Income taxes		157,506		202,557
Senior notes and unsubordinated notes		3,510,813		2,861,550


Total liabilities		6,546,587		5,884,623

Shareholders’ equity		5,084,486		4,522,274


Total liabilities and shareholders’ equity	$	11,631,073	$	10,406,897

Note: The condensed consolidated balance sheet at December 31, 2004, 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.

PULTE HOMES, INC.

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


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2005			2004			2005			2004
Revenues:
Homebuilding	$	3,253,456		$	2,490,722		$	5,776,526		$	4,496,985
Financial services		36,258			23,874			66,534			48,446
Corporate		1,257			562			2,505			1,459


Total revenues		3,290,971			2,515,158			5,845,565			4,546,890

Expenses:
Homebuilding, principally cost of sales		2,778,830			2,181,021			4,954,527			3,970,095
Financial services		21,174			16,131			42,692			31,714
Corporate, net		30,363			24,430			54,367			45,555


Total expenses		2,830,367			2,221,582			5,051,586			4,047,364

Other income:
Equity income		23,841			10,383			38,636			17,606

Income from continuing operations before income taxes		484,445			303,959			832,615			517,132

Income taxes		180,680			115,489			310,530			196,485


Income from continuing operations		303,765			188,470			522,085			320,647

Loss from discontinued operations		(54	)		(867	)		(132	)		(1,415	)


Net income	$	303,711		$	187,603		$	521,953		$	319,232


Per share data:

Basic:
Income from continuing operations	$	2.37		$	1.49		$	4.09		$	2.55
Loss from discontinued operations		—			(.01	)		—			(.01	)


Net income	$	2.37		$	1.49		$	4.09		$	2.54

Assuming dilution:
Income from continuing operations	$	2.30		$	1.46		$	3.97		$	2.49
Loss from discontinued operations		—			(.01	)		—			(.01	)


Net income	$	2.30		$	1.45		$	3.97		$	2.48


Cash dividends declared	$	.05		$	.05		$	.10		$	.10


Number of shares used in calculation:
Basic:
Weighted-average common shares outstanding		127,937			126,254			127,686			125,538
Assuming dilution:
Effect of dilutive securities		3,902			3,102			3,940			3,287

Adjusted weighted-average common shares and effect of dilutive securities		131,839			129,356			131,626			128,825

See accompanying Notes to Condensed Consolidated Financial Statements.

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, 2004	$	1,279		$	1,116,018		$	(44	)	$	(14,380	)	$	3,419,401		$	4,522,274
Stock option exercise, including tax benefit of $24,143		12			47,302						—			—			47,314
Stock-based compensation		—			23,144			—			—			—			23,144
Restricted stock award		4			(4	)		—			—			—			—
Restricted stock award amortization		—			—			44			—			—			44
Cash dividends declared		—			—			—			—			(12,963	)		(12,963	)
Stock repurchases		(3	)		(2,518	)		—			—			(18,598	)		(21,119	)
Comprehensive income (loss):
Net income		—			—			—			—			521,953			521,953
Change in fair value of derivatives		—			—			—			(324	)		—			(324	)
Foreign currency translation adjustments		—			—			—			4,163			—			4,163


Total comprehensive income																	525,792


Shareholders’ Equity, June 30, 2005	$	1,292		$	1,183,942		$	—		$	(10,541	)	$	3,909,793		$	5,084,486


Shareholders’ Equity, December 31, 2003	$	1,252		$	1,015,991		$	(656	)	$	(39,142	)	$	2,470,678		$	3,448,123
Stock option exercise, including tax benefit of $21,505		15			47,435			—			—			—			47,450
Stock-based compensation		—			10,923			—			—			—			10,923
Restricted stock award		2			(2	)		—			—			—			—
Restricted stock award amortization		—			—			347			—			—			347
Cash dividends declared		—			—			—			—			(12,679	)		(12,679	)
Comprehensive income:
Net income		—			—			—			—			319,232			319,232
Change in fair value of derivatives		—			—			—			(230	)		—			(230	)
Foreign currency translation adjustments		—			—			—			(1,817	)		—			(1,817	)


Total comprehensive income																	317,185


Shareholders’ Equity, June 30, 2004	$	1,269		$	1,074,347		$	(309	)	$	(41,189	)	$	2,777,231		$	3,811,349

See accompanying Notes to Condensed Consolidated Financial Statements.

PULTE HOMES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
($000’s omitted)
(Unaudited)


	For The Six Months Ended
	June 30,
	2005			2004
Cash flows from operating activities:
Net income	$	521,953		$	319,232
Adjustments to reconcile net income to net cash flows used in operating activities:
Amortization and depreciation		28,698			22,026
Stock-based compensation expense		23,188			11,270
Deferred income taxes		34,785			18,410
Other, net		(2,113	)		(16,631	)
Increase (decrease) in cash due to:
Inventories		(1,324,967	)		(1,307,949	)
Residential mortgage loans available-for-sale		177,527			205,646
Other assets		28,333			85,198
Accounts payable, accrued and other liabilities		193,024			117,617
Income taxes		(20,909	)		56,880


Net cash used in operating activities		(340,481	)		(488,301	)


Cash flows from investing activities:
Investment in subsidiary		(31,172	)		—
Distributions from unconsolidated entities		123,180			29,846
Investments in unconsolidated entities		(92,042	)		(142,290	)
Proceeds from sales of subsidiaries		11,366			—
Proceeds from sales of property and equipment		3,251			5,159
Capital expenditures		(37,666	)		(38,586	)
Other, net		—			503


Net cash used in investing activities		(23,083	)		(145,368	)


Cash flows from financing activities:
Proceeds from borrowings		672,011			629,747
Repayment of borrowings		(161,608	)		(322,744	)
Issuance of common stock		23,171			25,945
Common stock repurchases		(21,119	)		—
Dividends paid		(12,963	)		(12,679	)


Net cash provided by financing activities		499,492			320,269


Effect of exchange rate changes on cash and equivalents		210			968


Net increase (decrease) in cash and equivalents		136,138			(312,432	)

Cash and equivalents at beginning of period		314,634			401,883


Cash and equivalents at end of period	$	450,772		$	89,451


Supplemental disclosure of cash flow information—cash paid during the period for:

Interest, net of amounts capitalized	$	18,308		$	15,220

Income taxes	$	301,903		$	119,994

See accompanying Notes to Condensed Consolidated Financial Statements.

PULTE HOMES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Basis of presentation and significant accounting policies

The consolidated financial statements include the accounts of Pulte Homes, Inc. and all of its direct and indirect subsidiaries (the “Company”) and variable interest entities in which the Company is deemed to be the primary beneficiary. The direct subsidiaries of Pulte Homes, Inc. include Pulte Diversified Companies, Inc., Del Webb Corporation (“Del Webb”) and other subsidiaries that are engaged in the homebuilding business. Pulte Diversified Companies, Inc.’s operating subsidiaries include Pulte Home Corporation, Pulte International Corporation (“International”) and other subsidiaries that are engaged in the homebuilding business. Pulte Diversified Companies, Inc.’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 Pulte Home Corporation.

In January 2005, the Company sold all of its Argentina operations. At December 31, 2004, the Argentina operations were classified as held for sale and presented as discontinued operations in the consolidated financial statements.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles 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 United States generally accepted accounting principles 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 and six-month periods ended June 30, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. 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, 2004.

Certain amounts previously reported in the 2004 financial statements and notes thereto were reclassified to conform to the 2005 presentation.

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 for 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 are as follows ($000’s omitted):


	Six Months Ended
	June 30,
	2005			2004
Allowance for warranties at beginning of period	$	83,652		$	62,091

Warranty reserves provided		59,825			45,217
Payments and other adjustments		(59,676	)		(44,400	)


Allowance for warranties at end of period	$	83,801		$	62,908

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 recognizes compensation expense on an accelerated basis over the vesting period based on the fair value provisions of SFAS No. 123. Grants made prior to January 1, 2003 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 if the Company had applied the fair value recognition provisions of SFAS No. 123 to all stock based employee compensation. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model.


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2005			2004			2005			2004
Net income, as reported ($000’s omitted)	$	303,711		$	187,603		$	521,953		$	319,232

Add: Stock-based employee compensation expense included in reported net income, net of related tax effects ($000’s omitted)		2,761			2,306			8,016			4,918

Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects ($000’s omitted)		(2,930	)		(4,492	)		(8,313	)		(8,083	)


Pro forma net income ($000’s omitted)	$	303,542		$	185,417		$	521,656		$	316,067


Earnings per share:
Basic — as reported	$	2.37		$	1.49		$	4.09		$	2.54

Basic — pro forma	$	2.37		$	1.47		$	4.09		$	2.52


Diluted — as reported	$	2.30		$	1.45		$	3.97		$	2.48

Diluted — pro forma	$	2.30		$	1.43		$	3.96		$	2.45

The Company also recorded compensation expense for restricted stock awards, net of related tax effects, of $3.9 million and $6.5 million for the three and six months ended June 30, 2005, compared with $1.0 million and $2.1 million for the three and six months ended June 30, 2004. These amounts have been excluded from the reconciliation above, as they would have no impact on pro forma net income as presented.

PULTE HOMES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

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

		Land, not owned, under option agreements

In the ordinary course of business, the Company enters into land option agreements in order to procure land for the construction of homes in the future. Pursuant to these land option agreements, the Company will provide a deposit to the seller as consideration for the right to purchase land at different times in the future, usually at predetermined prices. Under FASB Interpretation No. 46, “Consolidation of Variable Interest Entities,” as amended by FIN 46-R issued in December 2003 (collectively referred to as “FIN 46”), if the entity holding the land under option is a variable interest entity, the Company’s deposit represents a variable interest in that entity. Creditors of the variable interest entities have no recourse against the Company.

In applying the provisions of FIN 46, the Company evaluated all land option agreements and determined that the Company was subject to a majority of the expected losses or entitled to receive a majority of the expected residual returns under a limited number of these agreements. As the primary beneficiary under these agreements, the Company is required to consolidate variable interest entities at fair value. At June 30, 2005 and December 31, 2004, the Company classified $109.5 and $106.4 million, respectively, as land, not owned, under option agreements on the balance sheet, representing the fair value of land under contract, including deposits of $15.2 million and $18.9 million, respectively. The corresponding liability has been classified within accounts payable, accrued and other liabilities on the balance sheet.

Land option agreements that did not require consolidation under FIN 46 at June 30, 2005 and December 31, 2004, had a total purchase price of $7.2 billion and $6.3 billion, respectively. In connection with these agreements, the Company had deposits and advanced costs of $375.7 million and $311.7 million, included in other assets, as well as letters of credit and surety bonds posted in lieu of cash deposits at June 30, 2005 and December 31, 2004, respectively.

New accounting pronouncements

On December 15, 2004, the Financial Accounting Standards Board issued SFAS No. 123(R), Share-Based Payment, which amends SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123(R) requires that all share-based payments to employees, including grants of employee stock options, be accounted for at fair value. The pro forma disclosures previously permitted under SFAS No. 123 no longer will be an alternative to financial statement recognition. Under SFAS No. 123(R), the Company must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at date of adoption. The Company previously adopted the fair-value-based method of accounting for share-based payments under SFAS No. 123 effective January 1, 2003 using the prospective method described in SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure. Currently, the Company uses the Black-Scholes option pricing model to estimate the value of stock options granted to employees and is considering the lattice model. Because SFAS No. 123(R) must be applied not only to new awards but to previously granted awards that are not fully vested on the effective date, and the Company adopted SFAS No. 123 using the prospective transition method (which applied only to awards granted, modified or settled after the adoption date), compensation cost for some previously granted awards that was not recognized under SFAS No. 123 will be recognized under SFAS No. 123(R). SFAS No. 123(R) also amends SFAS No. 95, Statement of Cash Flows, to require that excess tax benefits be reported as a financing cash inflow rather than as a reduction of taxes paid. As originally issued, SFAS No. 95 required all income tax payments to be classified as operating cash outflows. This statement is effective for fiscal periods beginning after December 15, 2005. The Company is still evaluating the impact of adopting SFAS No. 123(R).

PULTE HOMES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

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

		New accounting pronouncements (continued)

In March 2005, the SEC released Staff Accounting Bulletin (“SAB”) No. 107, Share-Based Payment. SAB No. 107 provides the SEC staff position regarding the application of SFAS No. 123(R) and contains interpretive guidance related to the interaction between SFAS No. 123(R) and certain SEC rules and regulations, as well as provides the staff’s views regarding the valuation of share-based payment arrangements for public companies. Additionally, SAB No. 107 highlights the importance of disclosures made related to the accounting for share-based payment transactions. The Company is currently reviewing the effect of SAB No. 107 on its consolidated financial statements.

Segment information

The Company’s operations are classified into two reportable business segments, Homebuilding and Financial Services, and one non-operating segment, Corporate.

The 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 and Puerto Rico.

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

Corporate is a non-operating segment that 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 administrative support associated with being a publicly traded entity listed on the New York Stock Exchange.

PULTE HOMES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

Segment information (continued)


	Operating Data by Segment ($000’s omitted)
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2005			2004			2005			2004
Revenues:
Homebuilding	$	3,253,456		$	2,490,722		$	5,776,526		$	4,496,985
Financial services		36,258			23,874			66,534			48,446
Corporate		1,257			562			2,505			1,459


Total revenues		3,290,971			2,515,158			5,845,565			4,546,890


Cost of sales(a):
Homebuilding		2,494,195			1,940,411			4,399,624			3,509,245


Selling, general and administrative:
Homebuilding		274,714			230,741			537,373			443,041
Financial services		17,905			14,655			36,622			28,740
Corporate		14,249			11,761			23,283			20,325


Total selling, general and administrative		306,868			257,157			597,278			492,106

Interest:
Financial services		3,269			1,476			6,070			2,974
Corporate		16,160			12,673			31,155			25,205


Total interest		19,429			14,149			37,225			28,179


Other (income) expense, net:
Homebuilding		9,921			9,869			17,530			17,809
Corporate		(46	)		(4	)		(71	)		25


Total other (income) expense, net		9,875			9,865			17,459			17,834


Total costs and expenses		2,830,367			2,221,582			5,051,586			4,047,364


Equity income:
Homebuilding		23,399			9,757			36,868			15,880
Financial services		442			626			1,768			1,726


Total equity income		23,841			10,383			38,636			17,606


Income (loss) before income taxes:
Homebuilding		498,025			319,458			858,867			542,770
Financial services		15,526			8,369			25,610			18,458
Corporate		(29,106	)		(23,868	)		(51,862	)		(44,096	)


Total income from continuing operations before income taxes	$	484,445		$	303,959		$	832,615		$	517,132


^(a)		Domestic homebuilding interest expense, which represents the amortization of capitalized interest, of $41.1 million and $29.5 million for the three months ended June 30, 2005 and 2004 and $71.6 million and $51.1 million for the six months ended June 30, 2005 and 2004, has been included as part of homebuilding cost of sales.

PULTE HOMES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

Segment information (continued)


	*Asset Data by Segment ($000’s omitted)*
			Financial
	Homebuilding		Services		Corporate		Total
At June 30, 2005:

Inventory	$	8,703,503	$	—	$	—	$	8,703,503

Total assets		10,994,731		564,878		71,464	$	11,631,073


At December 31, 2004:

Inventory	$	7,390,791	$	—	$	—	$	7,390,791

Total assets		9,448,050		719,505		239,342	$	10,406,897

Inventory

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


	June 30,		December 31,
	2005		2004
Homes under construction	$	3,495,754	$	2,616,027
Land under development		4,302,964		4,089,878
Land held for future development		904,785		684,886


Total	$	8,703,503	$	7,390,791

Investments in unconsolidated entities

The Company’s investments in unconsolidated entities totaled $242.1 million at June 30, 2005 and $258.9 million at December 31, 2004. All of these investments are accounted for under the equity method, except for the Company’s ownership interest in a Mexican mortgage banking company, as described below.

During February 2005, 25% of the Company’s investment in the capital stock of a mortgage banking company in Mexico was redeemed for a gain of approximately $620 thousand. The remaining ownership interest of 16.66% is accounted for under the cost method.

Acquisition

During January 2005, the minority shareholders of Pulte Mexico S. de R.L. de C.V. (“Pulte Mexico”) exercised a put option under the terms of a reorganization agreement dated as of December 31, 2001, to sell their shares to the Company, the consummation of which has resulted in the Company owning 100% of Pulte Mexico. In March 2005, the Company purchased 60% of the minority interest of Pulte Mexico for approximately $18.7 million in cash. In June 2005, the Company purchased the remaining 40% of the minority interest of Pulte Mexico for approximately $12.5 million in cash. The Company has assigned approximately $17.6 million of the purchase price premium to house and land inventory, which will be amortized through cost of sales as homes are sold. The excess of the purchase price over the estimated fair values of the underlying assets acquired and liabilities assumed, of $5.3 million, was recorded as goodwill.

PULTE HOMES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

Senior notes and unsubordinated notes

The Company’s $125 million, 7.3% unsecured senior notes are due in October 2005. The Company anticipates repaying these notes by using its revolving credit facility and/or cash provided by operations.

In February 2005, the Company sold $350 million of 5.2% senior notes, which mature on February 15, 2015, and $300 million of 6% senior notes, which mature on February 15, 2035, which are guaranteed by Pulte Homes, Inc. and certain of its 100%-owned subsidiaries. These notes are unsecured and rank equally with all of the Company’s other unsecured and unsubordinated indebtedness. Proceeds from the sale were used to repay the indebtedness of the Company’s revolving credit facility and for general corporate purposes, including continued investment in the Company’s business.

In connection with the sale of the $300 million unsecured senior notes, as noted above, $250 million in securities were available for sale under the Company’s shelf registration statement on Form S-3. As permitted by the rules of the Securities and Exchange Commission (the “SEC”), the additional $50 million of securities were to be registered through a supplemental registration statement filed at the time of sale pursuant to Rule 462(b) of the Securities Act of 1933 (the “Securities Act”). Due to an administrative error, the supplemental registration statement was not filed with the SEC. Consequently, $50 million of the notes were sold without registration under the Securities Act, which may give rise to certain claims by purchasers of the notes under Section 12(a)(1) of the Securities Act. The Company would vigorously defend against any such claims and believes that the aggregate impact of any such claims, if successful, would be immaterial. The Company further believes it would be impossible to determine which notes have been affected by its administrative error.

During April 2005, the Company amended its credit agreement to increase its committed unsecured revolving credit facility from $1.31 billion to $1.345 billion. During May 2005, the Company amended its credit agreement to increase its committed unsecured revolving credit facility from $1.345 billion to $1.38 billion.

Shareholders’ equity

Pursuant to the $100 million stock repurchase program authorized by the Company’s Board of Directors in October 2002, the Company repurchased 115,000 shares and 285,000 shares of Pulte Homes, Inc. common stock in open-market transactions or otherwise, for a total of $9.5 million and $21.1 million, for the three and six months ended June 30, 2005, respectively. As of June 30, 2005, the Company had remaining authorization to purchase common stock aggregating $41.6 million.

On July 27, 2005 the Company’s Board of Directors declared a two-for-one stock split of the common stock which will be distributed on September 1, 2005, to shareholders of record as of August 15, 2005.

Accumulated other comprehensive income (loss)

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


	June 30,			December 31,
	2005			2004
Foreign currency translation adjustments:
Mexico	$	(10,355	)	$	(14,518	)
Fair value of derivatives, net of income taxes of $(114) in 2005 and $84 in 2004		(186	)		138


	$	(10,541	)	$	(14,380	)

PULTE HOMES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

Supplemental Guarantor information

At June 30, 2005, Pulte Homes, Inc. had the following outstanding senior note obligations: (1) $125 million, 7.3%, due 2005, (2) $400 million, 4.875%, due 2009, (3) $200 million, 8.125%, due 2011, (4) $499 million, 7.875%, due 2011, (5) $300 million, 6.25%, due 2013, (6) $500 million, 5.25%, due 2014, (7) $350 million, 5.2%, due 2015, (8) $150 million, 7.625%, due 2017, (9) $300 million, 7.875%, due 2032, (10) $400 million, 6.375%, due 2033, and (11) $300 million, 6%, due 2035. Such obligations to pay principal, premium, if any, and interest are guaranteed jointly and severally on a senior basis by Pulte Homes, Inc.’s 100%-owned Domestic Homebuilding subsidiaries (collectively, the Guarantors). Such guarantees are full and unconditional.

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, except as described in Note 4. 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.

PULTE HOMES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

Supplemental Guarantor information (continued)

CONDENSED CONSOLIDATING BALANCE SHEET
June 30, 2005
($000’s omitted)


	Unconsolidated
	Pulte		Guarantor			Non-Guarantor			Eliminating			Consolidated
	Homes, Inc.		Subsidiaries			Subsidiaries			Entries			Pulte Homes, Inc.
ASSETS
Cash and equivalents	$	—	$	416,789		$	33,983		$	—		$	450,772
Unfunded settlements		—		95,871			(25,444	)		—			70,427
House and land inventory		—		8,499,144			204,359			—			8,703,503
Land held for sale		—		182,141			741			—			182,882
Land, not owned, under option agreements		—		109,473			—			—			109,473
Residential mortgage loans available-for-sale		—		—			519,550			—			519,550
Investments in unconsolidated entities		1,448		207,749			32,883			—			242,080
Goodwill		—		306,993			5,982			—			312,975
Intangible assets, net		—		131,329			—			—			131,329
Other assets		43,887		780,981			83,214			—			908,082
Investment in subsidiaries		9,388,760		69,569			1,345,871			(10,804,200	)		—


	$	9,434,095	$	10,800,039		$	2,201,139		$	(10,804,200	)	$	11,631,073


LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Accounts payable, accrued and other liabilities	$	173,047	$	1,973,097		$	276,287		$	—		$	2,422,431
Collateralized short-term debt, recourse solely to applicable non-guarantor subsidiary assets		—		—			455,837			—			455,837
Income taxes		158,087		—			(581	)		—			157,506
Senior notes and unsubordinated notes		3,510,813		—			—			—			3,510,813
Advances (receivable) payable — subsidiaries		507,662		(589,186	)		81,524			—			—


Total liabilities		4,349,609		1,383,911			813,067			—			6,546,587

Shareholders’ equity		5,084,486		9,416,128			1,388,072			(10,804,200	)		5,084,486


	$	9,434,095	$	10,800,039		$	2,201,139		$	(10,804,200	)	$	11,631,073

PULTE HOMES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

8. Supplemental Guarantor information (continued)

CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2004
($000’s omitted)


	Unconsolidated
	Pulte		Guarantor			Non-Guarantor			Eliminating			Consolidated
	Homes, Inc.		Subsidiaries			Subsidiaries			Entries			Pulte Homes, Inc.
ASSETS
Cash and equivalents	$		$	185,375		$	129,259		$	—		$	314,634
Unfunded settlements		—		158,795			(40,324	)		—			118,471
House and land inventory		—		7,224,777			166,014			—			7,390,791
Land held for sale		—		230,086			657			—			230,743
Land, not owned, under option agreements		—		106,380			—			—			106,380
Residential mortgage loans available-for-sale		—		—			697,077			—			697,077
Investments in unconsolidated entities		44		222,358			36,466			—			258,868
Goodwill		—		306,993			700			—			307,693
Intangible assets, net		—		135,454			—			—			135,454
Other assets		64,807		663,967			118,012			—			846,786
Investment in subsidiaries		8,725,758		75,162			2,201,365			(11,002,285	)		—

	$	8,790,609	$	9,309,347		$	3,309,226		$	(11,002,285	)	$	10,406,897


LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Accounts payable, accrued and other liabilities	$	154,958	$	1,758,644		$	289,499		$	—		$	2,203,101
Collateralized short-term debt, recourse solely to applicable non-guarantor subsidiary assets		—		—			617,415			—			617,415
Income taxes		203,806		—			(1,249	)		—			202,557
Senior notes and unsubordinated notes		2,861,550		—			—			—			2,861,550
Advances (receivable) payable — subsidiaries		1,048,021		(1,239,413	)		191,392			—			—

Total liabilities		4,268,335		519,231			1,097,057			—			5,884,623

Shareholders’ equity		4,522,274		8,790,116			2,212,169			(11,002,285	)		4,522,274


	$	8,790,609	$	9,309,347		$	3,309,226		$	(11,002,285	)	$	10,406,897

PULTE HOMES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

8. Supplemental Guarantor information (continued)

CONSOLIDATING STATEMENT OF OPERATIONS
For the three months ended June 30, 2005
($000’s omitted)


	Unconsolidated
													Consolidated
	Pulte			Guarantor			Non-Guarantor			Eliminating			Pulte
	Homes, Inc.			Subsidiaries			Subsidiaries			Entries			Homes, Inc.
Revenues:
Homebuilding	$	—		$	3,213,430		$	40,026		$	—		$	3,253,456
Financial services		—			6,404			29,854			—			36,258
Corporate		12			1,198			47			—			1,257


Total revenues		12			3,221,032			69,927			—			3,290,971


Expenses:
Homebuilding:
Cost of sales		—			2,458,880			35,315			—			2,494,195
Selling, general and administrative and other expense		4,660			275,278			4,697			—			284,635
Financial services		(258	)		2,251			19,181			—			21,174
Corporate, net		35,208			(2,128	)		(2,717	)		—			30,363
Intercompany interest		44,499			(44,499	)		—						—


Total expenses		84,109			2,689,782			56,476			—			2,830,367


Other Income:
Equity income		—			21,999			1,842			—			23,841

Income (loss) from continuing operations before income taxes and equity in income of subsidiaries		(84,097	)		553,249			15,293			—			484,445
Income taxes (benefit)		(31,811	)		207,143			5,348			—			180,680

Income (loss) from continuing operations before equity in income of subsidiaries		(52,286	)		346,106			9,945			—			303,765
Income (loss) from discontinued operations		(42	)		—			(12	)		—			(54	)

Income (loss) before equity in income of subsidiaries		(52,328	)		346,106			9,933			—			303,711

Equity in income (loss) of subsidiaries:
Continuing operations		356,051			7,244			110,609			(473,904	)		—
Discontinued operations		(12	)		—			—			12			—


		356,039			7,244			110,609			(473,892	)		—


Net income	$	303,711		$	353,350		$	120,542		$	(473,892	)	$	303,711

PULTE HOMES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

8. Supplemental Guarantor information (continued)

CONSOLIDATING STATEMENT OF OPERATIONS
For the six months ended June 30, 2005
($000’s omitted)


	Unconsolidated
													Consolidated
	Pulte			Guarantor			Non-Guarantor			Eliminating			Pulte
	Homes, Inc.			Subsidiaries			Subsidiaries			Entries			Homes, Inc.
Revenues:
Homebuilding	$	—		$	5,699,724		$	76,802		$	—		$	5,776,526
Financial services		—			12,143			54,391			—			66,534
Corporate		70			2,255			180			—			2,505


Total revenues		70			5,714,122			131,373			—			5,845,565


Expenses:
Homebuilding:
Cost of sales		—			4,336,107			63,517			—			4,399,624
Selling, general and administrative and other expense		8,843			533,258			12,802			—			554,903
Financial services		1,039			4,185			37,468			—			42,692
Corporate, net		66,275			(7,044	)		(4,864	)		—			54,367
Intercompany interest		87,289			(87,289	)		—			—			—


Total expenses		163,446			4,779,217			108,923			—			5,051,586


Other Income:
Equity income		—			34,651			3,985			—			38,636

Income (loss) from continuing operations before income taxes and equity in income of subsidiaries		(163,376	)		969,556			26,435			—			832,615
Income taxes (benefit)		(61,129	)		361,676			9,983			—			310,530

Income (loss) from continuing operations before equity in income of subsidiaries		(102,247	)		607,880			16,452			—			522,085
Income (loss) from discontinued operations		(106	)		—			(26	)		—			(132	)

Income (loss) before equity in income of subsidiaries		(102,353	)		607,880			16,426			—			521,953

Equity in income (loss) of subsidiaries:
Continuing operations		624,332			11,025			161,291			(796,648	)		—
Discontinued operations		(26	)		—			—			26			—


		624,306			11,025			161,291			(796,622	)		—


Net income	$	521,953		$	618,905		$	177,717		$	(796,622	)	$	521,953

PULTE HOMES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

8. Supplemental Guarantor information (continued)

CONSOLIDATING STATEMENT OF OPERATIONS
For the three months ended June 30, 2004
($000’s omitted)


	Unconsolidated
													Consolidated
	Pulte			Guarantor			Non-Guarantor			Eliminating			Pulte
	Homes, Inc.			Subsidiaries			Subsidiaries			Entries			Homes, Inc.
Revenues:
Homebuilding	$	—		$	2,450,473		$	40,249		$	—		$	2,490,722
Financial services		—			4,523			19,351			—			23,874
Corporate		89			301			172			—			562


Total revenues		89			2,455,297			59,772			—			2,515,158


Expenses:
Homebuilding:
Cost of sales		—			1,907,839			32,572			—			1,940,411
Selling, general and administrative and other expense		3,761			222,822			14,027			—			240,610
Financial services		245			1,364			14,522			—			16,131
Corporate, net		23,134			1,377			(81	)		—			24,430
Intercompany interest		26,290			(26,290	)		—			—			—


Total expenses		53,430			2,107,112			61,040			—			2,221,582


Other Income:
Equity income		—			8,346			2,037			—			10,383

Income (loss) from continuing operations before income taxes and equity in income of subsidiaries		(53,341	)		356,531			769			—			303,959
Income taxes (benefit)		(20,359	)		135,678			170			—			115,489

Income (loss) from continuing operations before equity in income of subsidiaries		(32,982	)		220,853			599			—			8,470
Income (loss) from discontinued operations		(106	)		—			(761	)		—			(867	)

Income (loss) before equity in income of subsidiaries		(33,088	)		220,853			(162	)		—			187,603

Equity in income of subsidiaries:
Continuing operations		221,452			3,144			59,880			(284,476	)		—
Discontinued operations		(761	)		—			—			761			—

		220,691			3,144			59,880			(283,715	)		—


Net income	$	187,603		$	223,997		$	59,718		$	(283,715	)	$	187,603

PULTE HOMES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

8. Supplemental Guarantor information (continued)

CONSOLIDATING STATEMENT OF OPERATIONS
For the six months ended June 30, 2004
($000’s omitted)


	Unconsolidated
													Consolidated
	Pulte			Guarantor			Non-Guarantor			Eliminating			Pulte
	Homes, Inc.			Subsidiaries			Subsidiaries			Entries			Homes, Inc.
Revenues:
Homebuilding	$	—		$	4,416,155		$	80,830		$	—		$	4,496,985
Financial services		—			8,771			39,675			—			48,446
Corporate		89			1,078			292			—			1,459


Total revenues		89			4,426,004			120,797			—			4,546,890


Expenses:
Homebuilding:
Cost of sales		—			3,443,775			65,470			—			3,509,245
Selling, general and administrative and other expense		7,586			431,310			21,954			—			460,850
Financial services		497			2,595			28,622			—			31,714
Corporate, net		42,899			2,741			(85	)		—			45,555
Intercompany interest		53,752			(53,752	)		—			—			—


Total expenses		104,734			3,826,669			115,961			—			4,047,364


Other Income:
Equity income		—			13,927			3,679			—			17,606

Income (loss) from continuing operations before income taxes and equity in income of subsidiaries		(104,645	)		613,262			8,515			—			517,132
Income taxes (benefit)		(40,133	)		233,193			3,425			—			196,485

Income (loss) from continuing operations before equity in income of subsidiaries		(64,512	)		380,069			5,090			—			320,647
Income (loss) from discontinued operations		(314	)		—			(1,101	)		—			(1,415	)

Income (loss) before equity in income of subsidiaries		(64,826	)		380,069			3,989			—			319,232

Equity in income of subsidiaries:
Continuing operations		385,159			7,515			110,153			(502,827	)		—
Discontinued operations		(1,101	)		—			—			1,101			—


		384,058			7,515			110,153			(501,726	)		—


Net income	$	319,232		$	387,584		$	114,142		$	(501,726	)	$	319,232

PULTE HOMES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

8. Supplemental Guarantor information (continued)

CONSOLIDATING STATEMENT OF CASH FLOWS
For the six months ended June 30, 2005
($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	$	521,953		$	618,905		$	177,717		$	(796,622	)	$	521,953
Adjustments to reconcile net income to net cash flows provided by (used in) operating activities:
Equity in income of subsidiaries		(624,306	)		(11,025	)		(161,291	)		796,622			—
Amortization and depreciation		—			24,469			4,229			—			28,698
Stock-based compensation expense		23,188			—			—			—			23,188
Deferred income taxes		34,028			(3	)		760						34,785
Other, net		705			387			(3,205	)		—			(2,113	)
Increase (decrease) in cash due to:
Inventory		—			(1,309,491	)		(15,476	)					(1,324,967	)
Residential mortgage loans available-for-sale		—			—			177,527			—			177,527
Other assets		(11,522	)		21,302			18,553			—			28,333
Accounts payable, accrued and other liabilities		15,098			189,974			(12,048	)		—			193,024
Income taxes		(235,578	)		207,279			7,390			—			(20,909	)

Net cash provided by (used in) operating activities		(276,434	)		(258,203	)		194,156			—			(340,481	)


Cash flows from investing activities:
Dividends received from subsidiaries		1,362			18,000			—			(19,362	)		—
Investment in subsidiary		(36,217	)		(1,106	)		(31,172	)		37,323			(31,172	)
Distributions from unconsolidated subsidiaries		—			122,480			700			—			123,180
Investments in unconsolidated subsidiaries		—			(92,042	)		—			—			(92,042	)
Proceeds from sales of subsidiaries		—			—			11,366			—			11,366
Proceeds from sales of property and equipment		—			3,033			218			—			3,251
Capital expenditures		—			(32,037	)		(5,629	)		—			(37,666	)

Net cash provided by (used in) investing activities		(34,855	)		18,328			(24,517	)		17,961			(23,083	)

PULTE HOMES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

8. Supplemental Guarantor information (continued)

CONSOLIDATING STATEMENT OF CASH FLOWS (continued)
For the six months ended June 30, 2005
($000’s omitted)


	Unconsolidated												Consolidated
	Pulte			Guarantor			Non-Guarantor			Eliminating			Pulte
	Homes, Inc.			Subsidiaries			Subsidiaries			Entries			Homes, Inc.
Cash flows from financing activities:
Proceeds from borrowings		648,557			23,454			—			—			672,011
Repayment of borrowings		—			—			(161,608	)		—			(161,608	)
Capital contributions from parent		—			7,943			29,380			(37,323	)		—
Advances (to) from affiliates		(326,357	)		441,254			(114,897	)		—			—
Issuance of common stock		23,171			—			—			—			23,171
Common stock repurchases		(21,119	)		—			—			—			(21,119	)
Dividends paid		(12,963	)		(1,362	)		(18,000	)		19,362			(12,963	)

Net cash provided by (used in) financing activities		311,289			471,289			(265,125	)		(17,961	)		499,492


Effect of exchange rate changes on cash and equivalents		—			—			210			—			210

Net increase (decrease) in cash and equivalents		—			231,414			(95,276	)		—			136,138
Cash and equivalents at beginning of period		—			185,375			129,259			—			314,634


Cash and equivalents at end of period	$	—		$	416,789		$	33,983		$	—		$	450,772

PULTE HOMES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

8. Supplemental Guarantor information (continued)

CONSOLIDATING STATEMENT OF CASH FLOWS
For the six months ended June 30, 2004
($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	$	319,232		$	387,584		$	114,142		$	(501,726	)	$	319,232
Adjustments to reconcile net income to net cash flows provided by (used in) operating activities:
Equity in income of subsidiaries		(384,058	)		(7,515	)		(110,153	)		501,726			—
Amortization and depreciation		—			18,939			3,087			—			22,026
Stock-based compensation expense		11,270			—			—			—			11,270
Deferred income taxes		23,146			—			(4,736	)		—			18,410
Other, net		580			(13,716	)		(3,495	)		—			(16,631	)
Increase (decrease) in cash due to:
Inventory		—			(1,295,263	)		(12,686	)		—			(1,307,949	)
Residential mortgage loans available-for-sale		—			—			205,646			—			205,646
Other assets		49,411			15,585			20,202			—			85,198
Accounts payable, accrued and other liabilities		1,170			119,160			(2,713	)		—			117,617
Income taxes		(82,849	)		135,678			4,051			—			56,880

Net cash provided by (used in) operating activities		(62,098	)		(639,548	)		213,345			—			(488,301	)


Cash flows from investing activities:
Dividends received from subsidiaries		8,526			11,000			—			(19,526	)		—
Investment in subsidiary		(103,000	)		(836	)		(128,274	)		232,110			—
Distributions from unconsolidated subsidiaries		—			27,558			2,288			—			29,846
Investments in unconsolidated subsidiaries		—			(141,889	)		(401	)		—			(142,290	)
Proceeds from sales of property and equipment		—			5,109			50			—			5,159
Capital expenditures		—			(31,042	)		(7,544	)		—			(38,586	)
Other, net		—			—			503			—			503

Net cash provided by (used in) investing activities		(94,474	)		(130,100	)		(133,378	)		212,584			(145,368	)

PULTE HOMES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

8. Supplemental Guarantor information (continued)

CONSOLIDATING STATEMENT OF CASH FLOWS (continued)
For the six months ended June 30, 2004
($000’s omitted)


	Unconsolidated												Consolidated
	Pulte			Guarantor			Non-Guarantor			Eliminating			Pulte
	Homes, Inc.			Subsidiaries			Subsidiaries			Entries			Homes, Inc.
Cash flows from financing activities:
Proceeds from borrowings		626,655			—			3,092			—			629,747
Repayment of borrowings		—			(133,518	)		(189,226	)		—			(322,744	)
Capital contributions from parent		—			128,273			103,837			(232,110	)		—
Advances (to) from affiliates		(486,298	)		547,149			(60,851	)		—			—
Issuance of common stock		25,945			—			—			—			25,945
Dividends paid		(12,679	)		(8,526	)		(11,000	)		19,526			(12,679	)

Net cash provided by (used in) financing activities		153,623			533,378			(154,148	)		(212,584	)		320,269


Effect of exchange rate changes on cash and equivalents		—			—			968			—			968


Net decrease in cash and equivalents		(2,949	)		(236,270	)		(73,213	)		—			(312,432	)

Cash and equivalents at beginning of period		2,949			305,356			93,578			—			401,883


Cash and equivalents at end of period	$	—		$	69,086		$	20,365		$	—		$	89,451

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 and six months ended June 30, 2005 and 2004 is as follows ($000’s omitted):


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2005			2004			2005			2004
Pre-tax income (loss):
Homebuilding operations	$	498,025		$	319,458		$	858,867		$	542,770
Financial services operations		15,526			8,369			25,610			18,458
Corporate		(29,106	)		(23,868	)		(51,862	)		(44,096	)


Income from continuing operations before income taxes		484,445			303,959			832,615			517,132
Income taxes		180,680			115,489			310,530			196,485


Income from continuing operations		303,765			188,470			522,085			320,647
Loss from discontinued operations		(54	)		(867	)		(132	)		(1,415	)


Net income	$	303,711		$	187,603		$	521,953		$	319,232


Per share data — assuming dilution:
Income from continuing operations	$	2.30		$	1.46		$	3.97		$	2.49
Loss from discontinued operations		—			(.01	)		—			(.01	)


Net income	$	2.30		$	1.45		$	3.97		$	2.48

A comparison of pre-tax income for the three and six months ended June 30, 2005 and 2004 is as follows:

	•		Continued strong demand for new homes in many of our markets, market share gains, geographic and product mix shifts, average unit selling price increases and benefits from leveraging construction costs throughout the operations drove pre-tax income of our homebuilding business segment to increase 56% and 58% for the three and six months ended June 30, 2005, respectively. Domestic unit settlements increased 20% and 17%, respectively, for the three and six months ended June 30, 2005, and domestic average unit selling prices increased 10% for both the three and six months ended June 30, 2005. Domestic homebuilding settlement gross margin percentages increased 170 basis points to 23.8% for the three months ended June 30, 2005 and 210 basis points to 24.1% for the six months ended June 30, 2005.

	•		Pre-tax income of our financial services business segment increased 86% and 39% for the three and six months ended June 30, 2005, respectively, as a result of increased volume originations and the favorable interest rate environment experienced during the second quarter of 2005. The capture rates were 88.0% and 88.4% for the quarters ended June 30, 2005 and 2004, respectively, and 88.3% and 87.4% for the six months ended June 30, 2005 and 2004, respectively.

	•		Higher net interest expense associated with increased debt funding to support business growth in 2005 and beyond, along with higher compensation related expenses, resulted in an increase in the pre-tax loss of our non-operating Corporate segment of 22% and 18% for the three and six months ended June 30, 2005, respectively.

Homebuilding Operations

Our Homebuilding segment consists of the following operations:

	•		Domestic Homebuilding — We conduct our Domestic Homebuilding operations in 54 markets located throughout 28 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.

	•		International Homebuilding — We conduct our International Homebuilding operations through subsidiaries of Pulte International Corporation (International) in Mexico and Puerto Rico. International operations focus on meeting the demand of first-time buyers and middle-to-upper income consumer groups. We are currently in the process of evaluating various long-term strategic alternatives with regard to our International operations.

Certain operating data relating to our homebuilding operations are as follows ($000’s omitted):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2005		2004		2005		2004
Homebuilding settlement revenues:
Domestic	$	3,155,898	$	2,394,778	$	5,618,007	$	4,337,319
International		40,026		40,249		76,802		80,830

Total	$	3,195,924	$	2,435,027	$	5,694,809	$	4,418,149

Homebuilding settlements units:
Domestic		10,194		8,480		18,213		15,519
International		1,542		1,533		2,805		3,080


Total		11,736		10,013		21,018		18,599

Note: Homebuilding settlement revenues of affiliates, not included in the table above, for the three months ended June 30, 2005 and 2004 were $22,302 and $21,616, respectively; for the six months ended June 30, 2005 and 2004, were $37,116 and $30,166, respectively. Homebuilding unit settlements of affiliates not included in the table above, for the three months ended June 30, 2005 and 2004 were 61 and 78, respectively; for the six months ended June 30, 2005 and 2004 were 111 and 114, respectively.

Domestic Homebuilding

The Domestic Homebuilding business unit represents our core business. Our operations are conducted in 54 markets located throughout 28 states, presented geographically as follows:


Northeast:		Connecticut, Delaware, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Virginia

Southeast:		Florida, Georgia, North Carolina, South Carolina, Tennessee

Midwest:		Illinois, Indiana, Kansas, Michigan, Minnesota, Missouri, Ohio

Central:		Colorado, New Mexico, Texas

West:		Arizona, California, Nevada

Homebuilding Operations (continued)

Domestic Homebuilding (continued)

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


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2005		2004		2005		2004
Unit settlements:
Northeast		868		695		1,406		1,214
Southeast		2,952		2,058		5,283		3,763
Midwest		1,147		1,163		2,048		1,936
Central		1,538		1,214		2,464		2,188
West		3,689		3,350		7,012		6,418

		10,194		8,480		18,213		15,519


Net new orders – units:
Northeast		1,228		856		2,256		1,570
Southeast		3,717		2,426		7,434		5,195
Midwest		1,710		1,449		3,229		2,936
Central		2,291		1,605		3,911		3,181
West		4,635		4,440		8,818		8,645

		13,581		10,776		25,648		21,527

Net new orders – dollars ($000’s omitted)	$	4,406,000	$	3,303,000	$	8,239,000	$	6,456,000


Unit backlog:
Northeast						2,333		1,891
Southeast						7,456		5,158
Midwest						2,458		2,401
Central						2,524		2,149
West						8,580		8,361

						23,351		19,960

Backlog at June 30 – dollars ($000’s omitted)					$	7,775,000	$	6,266,000

Continued strong demand for new homes, an increase in the number of active selling communities, and market share expansion drove increases in net new orders, unit settlements and unit backlog, particularly in the Northeast, Southeast and Central regions. For the three and six months ended June 30, 2005, unit net new orders increased 26% and 19% to a record 13,581 and 25,648 units, respectively, compared with the same periods in 2004. The dollar value of net new orders increased 33% and 28%, respectively, for the three and six months ended June 30, 2005, compared with the same periods in 2004. For the quarter ended June 30, 2005, we had 649 active selling communities, an increase of 17% from the same period in the prior year. Unit settlements also set a record for the respective three and six months ended June 30, 2005, at 10,194 and 18,213 units, representing an increase of 20% and 17% over the same periods in 2004. The average selling price for homes closed increased 10% to $310,000 and $308,000 for the respective three and six months ended June 30, 2005 compared with the same periods in 2004. Changes in average selling price reflect a number of factors, including changes in market selling prices, and the mix of product closed during each period. Ending backlog, which represents orders for homes that have not yet closed, grew to a record 23,351 units at June 30, 2005. The dollar value of backlog was up 24% to $7.8 billion.

Homebuilding Operations (continued)

Domestic Homebuilding (continued)

The following table presents markets that represent 10% or more of total Domestic Homebuilding unit new orders, unit settlements, and settlement revenues for the three and six months ended June 30, 2005 and 2004:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2005			2004			2005			2004
Unit net new orders:
Phoenix		*			17.9	%		11.2	%		16.2	%

Unit settlements:
Phoenix		14.0	%		15.6	%		14.9	%		16.1	%
Las Vegas		*			10.2	%		*			10.7	%

Settlement revenues:
Phoenix		13.5	%		13.1	%		13.9	%		13.2	%
Las Vegas		*			13.3	%		*			13.9	%


*		Represents less than 10%.

At June 30, 2005 and December 31, 2004, our Domestic Homebuilding operations controlled approximately 365,700 and 343,400 lots, respectively. Approximately 166,600 and 158,000 lots were owned, and approximately 144,100 and 125,800 lots were under option agreements approved for purchase at June 30, 2005 and December 31, 2004, respectively. In addition, there were approximately 55,000 and 59,600 lots under option agreements, pending approval, at June 30, 2005 and December 31, 2004, respectively. We believe that the strength of our land supply, and our entitlement expertise, will enable us to continue opening new communities during the course of 2005 and beyond.

The total purchase price related to approved land under option for use by our homebuilding operations at future dates approximated $5.3 billion at June 30, 2005. In addition, total purchase price related to land under option pending approval was valued at $2.0 billion at June 30, 2005. Land option agreements, which may be cancelled at our discretion, may extend over several years and are secured by deposits and advanced costs totaling $387.2 million, which are generally non-refundable.

The following table presents a summary of pre-tax income for our Domestic Homebuilding operations for the three and six months ended June 30, 2005 and 2004 ($000’s omitted):


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2005			2004			2005			2004
Home sale revenue (settlements)	$	3,155,898		$	2,394,778		$	5,618,007		$	4,337,319
Land sale revenue		57,532			55,695			81,717			78,836
Home cost of sales(a)		(2,405,353	)		(1,865,771	)		(4,261,821	)		(3,382,095	)
Land cost of sales		(53,527	)		(42,068	)		(74,286	)		(61,680	)
Selling, general and administrative expense		(267,327	)		(223,651	)		(521,758	)		(429,252	)
Equity income		21,557			7,908			33,609			13,212
Other income (expense), net		(10,277	)		(8,809	)		(17,383	)		(15,733	)


Pre-tax income	$	498,503		$	318,082		$	858,085		$	540,607


Average sales price	$	310		$	282		$	308		$	279


^(a)		Domestic homebuilding interest expense, which represents the amortization of capitalized interest, of $41.1 million and $29.5 million for the three months ended June 30, 2005 and 2004 and $71.6 million and $51.1 million for the six months ended June 30, 2005 and 2004, has been included as part of homebuilding cost of sales.

Homebuilding Operations (continued)

Domestic Homebuilding (continued)

Domestic homebuilding gross profit margins from home settlements increased to 23.8% for the three months ended June 30, 2005, compared with 22.1% for the same period in the prior year. For the six months ended June 30, 2005, domestic homebuilding gross margin increased to 24.1%, compared with 22.0% for the same period in 2004. This increase is primarily attributable to favorable home pricing and product and geographic mix, as well as our ongoing initiatives to improve operational efficiencies, partially offset by increases in material and labor costs.

We consider land acquisition and entitlement among our core competencies. We acquire land primarily for the construction of our homes for sale to homebuyers. We will often sell select parcels of land within or adjacent to our communities to retail and commercial establishments. On occasion, we also will sell lots within our communities to other homebuilders. Gross profits from land sales for the three months ended June 30, 2005 and 2004 were $4 million and $13.6 million, respectively, compared with $7.4 million and $17.2 million, respectively, for the six months ended June 30, 2005 and 2004. Revenues and their related gains/losses may vary significantly between periods, depending on the timing of land sales. We continue to evaluate our existing land positions to ensure the most effective use of capital. As of June 30, 2005, we had $182 million of land held for sale.

Selling, general and administrative expenses as a percentage of home settlement revenues declined to 8.5% for the three months ended June 30, 2005 compared with 9.3% for the same period in the prior year. For the six months ended June 30, 2005, selling, general and administrative expenses as a percentage of home settlement revenues declined to 9.3% from 9.9% for the same period in the prior year. This improvement can be attributed to increased selling prices and better overhead leverage from increased volume compared with the prior year period.

The increase in equity income for the second quarter and first half of 2005, compared with the prior year periods, was primarily due to increased income from our joint venture which supplies and installs basic building components and operating systems, and a Nevada-based land development joint venture, related to the sale of commercial and residential properties.

Homebuilding Operations (continued)

International Homebuilding

Our International Homebuilding operations are primarily conducted through subsidiaries of International in Mexico and Puerto Rico. We are currently in the process of evaluating various long-term strategic alternatives with regard to our International operations.

The following table presents selected financial data for our International Homebuilding operations for the three and six months ended June 30, 2005 and 2004 ($000’s omitted):


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2005			2004			2005			2004
Revenues	$	40,026		$	40,249		$	76,802		$	80,830
Cost of sales		(35,315	)		(32,572	)		(63,517	)		(65,470	)
Selling, general and administrative expense		(7,387	)		(7,090	)		(15,615	)		(13,789	)
Other income (expense), net		114			(796	)		(188	)		(1,415	)
Minority interest		242			(264	)		41			(661	)
Equity in income of joint ventures		1,842			1,849			3,259			2,668


Pre-tax income (loss)	$	(478	)	$	1,376		$	782		$	2,163


Unit settlements		1,542			1,533			2,805			3,080

During January 2005, the minority shareholders of Pulte Mexico S. de R.L. de C.V. (“Pulte Mexico”) exercised a put option under the terms of a reorganization agreement dated as of December 31, 2001, to sell their shares to us, the consummation of which would result in our owning 100% of Pulte Mexico. In March 2005, we purchased 60% of the minority interest of Pulte Mexico for approximately $18.7 million in cash. In June 2005, we purchased the remaining 40% minority interest, for approximately $12.5 million in cash. We assigned approximately $17.6 million of the purchase price premium to house and land inventory, which will be amortized through cost of sales as homes are sold. During the three and six months ended June 30, 2005 approximately $2.7 million of purchase price premium was amortized through cost of sales. The excess of the purchase price over the estimated fair values of the underlying assets acquired and liabilities assumed, of $5.3 million, was recorded as goodwill.

International revenues and unit settlements for the three months ended June 30, 2005 were comparable with the second quarter of 2004. For the six months ended June 30, 2005, international revenues and unit settlements decreased 5% and 8.9%, respectively, compared with the six months ended June 30, 2004. Gross margins decreased approximately 730 basis points to 11.8% for the three months ended June 30, 2005 and 170 basis points to 17.3% for the six months ended June 30, 2005, as compared with the prior year periods, due to the amortization of premium resulting from the purchase of the minority interest in Pulte Mexico discussed above. Selling, general and administrative expenses as a percent of revenues increased to 18.5% from 17.6% for the three-month period and to 20.3% from 17.1% for the six-month period due to increased marketing expenses, new community start-up expenses, and non-recurring administrative costs.

Our operations in Mexico are affected by fluctuations in currency rates for those countries. Transaction gains and losses for the three and six months ended June 30, 2005 and 2004, included in other income (expense), net, were not significant. During the three and six months ended June 30, 2005, we recorded foreign currency translation gains of $2.4 million and $3.5 million, respectively, as a component of accumulated other comprehensive income on the balance sheet. At June 30, 2005, our investments in Puerto Rico and Mexico, net of accumulated foreign currency translation adjustments, approximated $29.6 million and $116 million, respectively. At December 31, 2004, our investment in Puerto Rico and Mexico, net of accumulated foreign currency translation adjustments, approximated $28.8 million, and $72.2 million, respectively.

Financial Services Operations

We conduct our financial services business, which includes mortgage and title operations, through Pulte Mortgage and other subsidiaries. Pre-tax income of our financial services operations for the three and six months ended June 30, 2005 was $15.5 million and $25.6 million, respectively, compared with $8.4 million and $18.5 million, respectively, for the prior year periods. Loan originations for the three and six months ended June 30, 2005 increased 19% and 21% to 9,445 and 17,037 mortgages, respectively, compared with the prior year periods.

The following table presents mortgage origination data for our Financial Services operations:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2005		2004		2005		2004
Total originations:
Loans		9,445		7,957		17,037		14,070

Principal ($000’s omitted)	$	1,829,200	$	1,495,800	$	3,318,600	$	2,648,500


Originations for Pulte customers:
Loans		9,235		7,037		16,450		12,472

Principal ($000’s omitted)	$	1,790,700	$	1,348,400	$	3,218,600	$	2,393,000

Mortgage origination unit and principal volume for the three months ended June 30, 2005 increased 19% and 22%, respectively, over the same period in 2004. For the six months ended June 30, 2005, mortgage origination unit and principal volume increased 21% and 25%, respectively, over the same period in 2004. The growth is attributable to volume increases experienced in our homebuilding business and an increase in the average loan size. Our Domestic Homebuilding customers continue to account for the majority of total loan production, representing 98% and 97% of total Pulte Mortgage unit production for the three and six months ended June 30, 2005, respectively, compared with 88% and 89% for the same periods in 2004. Refinancings accounted for approximately 1.1% and 1.6% of total unit originations for the three and six months ended June 30, 2005, respectively, compared with 3.4% and 3.7% for the same periods in the prior year. At June 30, 2005, loan application backlog increased to $5.2 billion as compared with $3.8 billion at June 30, 2004.

Adjustable rate mortgages (ARMs), which generally have a lower profit per loan than fixed rate products, represented 48% of total funded origination dollars and 43% of total funded origination units for the three months ended June 30, 2005, compared with 42% and 40% in the prior year period, respectively. For the six months ended June 30, 2005, ARMs represented 50% of total funded origination dollars and 45% of total funded origination units compared with 37% and 35% in the prior year period, respectively. Interest only mortgages, a component of ARMs, represented 63% of ARMs origination dollars and 52% of ARMs origination units for the three months ended June 30, 2005, compared with 35% and 26% in the prior year period, respectively. For the six months ended June 30, 2005, interest only mortgages represented 63% of ARMs origination dollars and 51% of ARMs origination units, compared with 29% and 21% in the prior year period, respectively.

Income from our title operations increased to $4.5 million and $8.7 million for the three and six months ended June 30, 2005, respectively, from $3.5 million and $6.8 million for the same periods in 2004, respectively. Our minority interest in Su Casita, a Mexican mortgage banking company, contributed income from operations of approximately $700 thousand for the six months ended June 30, 2005. During February 2005, 25% of our investment in the capital stock of Su Casita was redeemed for a gain of approximately $620 thousand. Our remaining interest of 16.66% is accounted for under the cost method of accounting and therefore no income was recorded for the three months ended June 30, 2005. Income for the three and six months ended June 2004, was $200 thousand and $1 million, respectively.

We hedge portions of our forecasted cash flow from sales of closed mortgage loans with derivative financial instruments to minimize the impact of changes in interest rates. We do not use derivative financial instruments for trading purposes.

Corporate

Corporate is a non-operating segment that supports the operations of our 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 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 and six months ended June 30, 2005 and 2004 ($000’s omitted):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2005		2004		2005		2004
Net interest expense	$	14,903	$	12,111	$	28,650	$	23,746
Other corporate expenses, net		14,203		11,757		23,212		20,350

Loss before income taxes	$	29,106	$	23,868	$	51,862	$	44,096

Interest expense, net of interest capitalized into inventory, increased $2.8 million in the three months ended June 30, 2005 and $4.9 million for the six months ended June 30. This is a result of the continued increase in debt levels necessary to support our growth. Interest incurred for the three months ended June 30, 2005 and 2004, excluding interest incurred by our financial services operations, was approximately $60 million and $50.4 million, respectively, and $115.6 million and $99.2 million for the six months ended June 30, 2005 and 2004, respectively.

The increase in other corporate expenses, net for the three and six months ended June 30, 2005 is due primarily to increased compensation-related expense.

Interest capitalized into inventory is charged to home cost of sales based on the cyclical timing of our unit settlements, over a period that approximates the average life cycle of our communities. Interest in inventory has increased primarily as a result of higher levels of indebtedness. Information related to Corporate interest capitalized into inventory is as follows ($000’s omitted):


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2005			2004			2005			2004
Interest in inventory at beginning of period	$	233,711		$	215,253		$	223,591		$	200,584
Interest capitalized		43,810			37,737			84,474			74,018
Interest expensed		(41,103	)		(29,508	)		(71,647	)		(51,120	)


Interest in inventory at end of period	$	236,418		$	223,482		$	236,418		$	223,482

Liquidity and Capital Resources

We finance our homebuilding land acquisitions, development and construction activities from internally generated funds and existing credit agreements.

At June 30, 2005, we had cash and equivalents of $450.8 million and $3.5 billion of senior and unsubordinated notes outstanding. Other financing included limited recourse collateralized financing totaling $71.3 million. Sources of our working capital include our cash and equivalents, our $1.38 billion committed unsecured revolving credit facility and Pulte Mortgage’s $940 million committed credit arrangements.

During April 2005, we amended our credit agreement to increase our committed unsecured revolving credit facility from $1.31 billion to $1.345 billion. During May 2005, we amended the credit agreement to increase our committed unsecured revolving credit facility from $1.345 billion to $1.38 billion. We had no outstanding borrowings under this unsecured revolving credit facility at June 30, 2005.

Our debt-to-total capitalization, excluding our collateralized debt, was approximately 40.8% at June 30, 2005, and approximately 37.6% net of cash and equivalents. We routinely monitor current operational requirements and financial market conditions to evaluate the use of available financing sources, including securities offerings.

Pulte Mortgage provides mortgage financing for many of our home sales and uses its own funds and borrowings made available pursuant to various committed and uncommitted credit arrangements. At June 30, 2005, Pulte Mortgage had committed credit arrangements of $940 million comprised of a $390 million bank revolving credit facility and a $550 million annual asset-backed commercial paper program.

On July 27, 2005, our Board of Directors declared a two-for-one stock split to be effected in the form of a 100 percent stock dividend. The additional shares of common stock will be distributed on September 1, 2005, to the shareholders of record as of August 15, 2005. We also announced a $.03 per share increase in our quarterly dividend, from $.05 to $.08 on a pre-split basis, an increase of 60%. The quarterly dividend of $.04 per share on a post-split basis will be payable October 3, 2005 to shareholders of record as of September 26, 2005.

Our income tax liability and related effective tax rate are affected by a number of factors. At June 30, 2005, our effective tax rate was 37.3% compared to 38% at June 30, 2004. The reduction in the effective tax rate for 2005 was principally due to the new manufacturing deduction established by the American Jobs Creation Act of 2004. We anticipate that our effective tax rate for 2005 will be approximately 37.3%.

Our net cash used in operating activities for the six months ended June 30, 2005 was $340.5 million, compared with $488.3 million for the six months ended June 30, 2004. Net income for both years was offset primarily by significant investments in land necessary to support the continued growth of the business.

Cash used in investing activities was $23.1 million for the six months ended June 30, 2005, compared with $145.4 million for the six months ended June 30, 2004. During the six months ended June 30, 2005, we invested approximately $31.2 million to purchase our minority shareholders’ interest in Pulte Mexico. In addition, we invested approximately $12.5 million in new joint ventures that develop and/or sell land within the United States. Also, we made $79.5 million of additional capital contributions to and received $123.2 million in distributions from our unconsolidated joint ventures for the six months ended June 30, 2005. Further, we incurred approximately $37.7 million in capital expenditures to support the growth of our business.

Net cash provided by financing activities totaled $499.5 million for the six months ended June 30, 2005. Cash inflows from financing activities for the six months ended June 30, 2005 are primarily attributed to the issuance of senior notes. Cash outflows from financing activities for the six months ended June 30, 2005 primarily relate to net repayment of debt from Pulte Mortgage’s committed credit arrangements, dividends paid and stock repurchases.

We anticipate repaying our $125 million, 7.3% unsecured senior notes, due in 2005, using our revolving credit facility and/or using cash provided by operations.

During January 2005, the minority shareholders of Pulte Mexico exercised a put option under the terms of a reorganization agreement dated as of December 31, 2001, to sell their shares to us, the consummation of which would result in our owning 100% of Pulte Mexico. In March 2005, we purchased 60% of the minority interest of Pulte Mexico for approximately $18.7 million in cash. In June 2005, we purchased the remaining 40% minority interest, for approximately $12.5 million in cash.

Liquidity and Capital Resources (continued)

In February 2005, we sold $350 million of 5.2% senior notes, which mature on February 15, 2015, and $300 million of 6% senior notes, which mature on February 15, 2035, which are guaranteed by Pulte Homes, Inc. and certain of its 100%-owned subsidiaries. These notes are unsecured and rank equally with all of our other unsecured and unsubordinated indebtedness. Proceeds from the sale were used to repay the indebtedness of our revolving credit facility and for general corporate purposes, including continued investment in our business.

In connection with the sale of the $300 million unsecured senior notes, as discussed above, $250 million in securities were available for sale under our shelf registration statement on Form S-3. As permitted by the rules of the Securities and Exchange Commission (the “SEC”), the additional $50 million of securities were to be registered through a supplemental registration statement filed at the time of sale pursuant to Rule 462(b) of the Securities Act of 1933 (the “Securities Act”). Due to an administrative error, the supplemental registration statement was not filed with the SEC. Consequently, $50 million of the notes were sold without registration under the Securities Act, which may give rise to certain claims by purchasers of the notes under Section 12(a)(1) of the Securities Act. We would vigorously defend against any such claims and believe that the aggregate impact of such claims, if successful, would be immaterial. We also believe it would be impossible to determine which notes have been affected by our administrative error.

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 to our customers any increases in our costs through increased sales prices. 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.

New Accounting Pronouncements

On December 15, 2004, the Financial Accounting Standards Board issued SFAS No. 123(R), Share-Based Payment, which amends SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123(R) requires that all share-based payments to employees, including grants of employee stock options, be accounted for at fair value. The pro forma disclosures previously permitted under SFAS No. 123 no longer will be an alternative to financial statement recognition. Under SFAS No. 123(R), we must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at date of adoption. We previously adopted the fair-value-based method of accounting for share-based payments under SFAS No. 123 effective January 1, 2003 using the prospective method described in SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure. Currently, we use the Black-Scholes model to estimate the value of stock options granted to employees and we are considering the lattice model. Because SFAS No. 123(R) must be applied not only to new awards but to previously granted awards that are not fully vested on the effective date, and because we adopted SFAS No. 123 using the prospective transition method (which applied only to awards granted, modified or settled after the adoption date), compensation cost for some previously granted awards that was not recognized under SFAS No. 123 will be recognized under SFAS No. 123(R). SFAS No. 123(R) also amends SFAS No. 95, Statement of Cash Flows, to require that excess tax benefits be reported as a financing cash inflow rather than as a reduction of taxes paid. As originally issued, SFAS No. 95 required all income tax payments to be classified as operating cash outflows. This statement is effective for fiscal periods beginning after December 15, 2005. We are still evaluating the impact of adopting SFAS No. 123(R).

Critical Accounting Policies and Estimates

There have been no significant changes to our critical accounting policies and estimates during the six months ended June 30, 2005 compared with 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, 2004.

Item 3. Quantitative and Qualitative Disclosures 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 June 30, 2005, 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 June 30, 2005 for the
	years ended December 31,
																There-						Fair
	2005			2006			2007			2008			2009			after			Total			Value
Rate sensitive liabilities:

Fixed interest rate debt:

Senior notes	$	125,000		$	—		$	—		$	—		$	400,000		$	2,998,563		$	3,523,563		$	3,752,554
Average interest rate		7.3	%		—			—			—			4.88	%		6.58	%		6.41	%

Limited recourse collateralized financing	$	42,022		$	20,960		$	4,642		$	2,741		$	934		$	—		$	71,299		$	71,299
Average interest rate		2.93	%		2.33	%		1.99	%		3.07	%		7.25	%		—			3.05	%

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, 2004, and is incorporated herein by reference.

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 our actual results, performance or achievements 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 in our 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 we have little or no control.

Item 4. Controls and Procedures

Management, including our President & Chief Executive Officer and Executive Vice President & Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2005. Based upon, and as of the date of that evaluation, our President & Chief Executive Officer and Executive 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 we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required.

There has been no change in our internal control over financial reporting during the quarter ended June 30, 2005 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 (1)

(d)

Approximate dollar

(c)

value of shares

Total number of

that may yet be

(a)

(b)

shares purchased

purchased under

Total Number

Average

as part of publicly

the plans or

of shares

price paid

announced plans

programs

purchased

per share

or programs

($000’s omitted)

June 1, 2005 through June 30, 2005

115,000

83.09

115,000

41,646

Total

115,000

(2)

83.09

115,000

(1) In October 2002 our Board of Directors authorized the repurchase of $100 million of Pulte Homes, Inc. common stock in open-market transactions or otherwise.

(2) All shares were purchased pursuant to the publicly announced programs.

Item 4. Submission of Matters to a Vote of Security Holders

Our Annual Meeting of Shareholders was held on May 12, 2005. The following matters were considered and acted upon, with the results indicated below.


	Shares		Shares
	Voted For		Withheld
Election of Directors - Nominees to Serve a Three Year Term Expiring at the 2008 Annual Meeting:

D. Kent Anderson		113,498,878		3,666,824
John J. Shea		113,332,026		3,833,676
William B. Smith		113,497,961		3,667,741

Item 4. Submission of Matters to a Vote of Security Holders (continued)


			Shares
	Shares		Voted		Shares
	Voted For		Against		Abstaining
Ratification of the appointment of the Company’s independent accountants by shareholders		114,925,662		1,530,595		709,445

Amendment to our Articles of Incorporation to increase our authorized shares of common stock to 400,000,000 shares		107,847,969		8,650,991		666,742

Reapproval of the performance criteria under Pulte’s Long Term Incentive Plan		111,160,126		5,205,935		799,641

Shares

Voted

Shares

Broker

Voted For

Against

Abstaining

Non-Votes

Election of Directors by a majority, rather than plurality, vote

47,327,463

47,785,577

8,292,320

13,760,342

Item 6. Exhibits

(a) Exhibits

Exhibit Number and Description


31(a)		Rule 13a-14(a) Certification by Richard J. Dugas, Jr., President and Chief Executive Officer

31(b)		Rule 13a-14(a) Certification by Roger A. Cregg, Executive Vice President and Chief Financial Officer

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

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. Cregg
		Roger A. Cregg
		Executive Vice President and
		Chief Financial Officer
		(Principal Financial Officer)


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

		Date: August 4, 2005

EXHIBIT INDEX


Exhibit Number		Description
31(a)		Rule 13a-14(a) Certification by Richard J. Dugas, Jr., President and Chief Executive Officer

31(b)		Rule 13a-14(a) Certification by Roger A. Cregg, Executive Vice President and Chief Financial Officer

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

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	8th grade Avg

PulteGroup (PHM) 10-Q2005 Q2 Quarterly report

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