PulteGroup 10Q 2005 Q3 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 September 30, 2005


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 such filing requirements for the past 90 days.
YESþ NOo

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
YESþ NOo

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

Number of shares of common stock outstanding as of October 31, 2005: 258,470,568

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 onForm 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 September 30, 2005 and December 31, 2004		3

Consolidated Statements of Operations for the three and nine months ended September 30, 2005 and 2004		4

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

Consolidated Statements of Cash Flows for the nine months ended September 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 5 Other Information		37

Item 6 Exhibits		38

SIGNATURES		39
Second Amended & Restated Credit Agreement
Section 302 Certification of Chief Executive Officer
Section 302 Certification of Chief Financial Officer
Section 906 Certification of Chief Executive & Chief Financial Officers

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

PULTE HOMES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
($000’s omitted)


	September 30,		December 31,
	2005		2004
	(Unaudited)		(Note)

ASSETS

Cash and equivalents	$	214,897	$	314,634
Unfunded settlements		96,269		118,471
House and land inventory		9,379,528		7,390,791
Land held for sale		186,752		230,743
Land, not owned, under option agreements		88,243		106,380
Residential mortgage loans available-for-sale		554,900		697,077
Investments in unconsolidated entities		289,771		258,868
Goodwill		312,975		307,693
Intangible assets, net		129,267		135,454
Other assets		1,031,155		846,786


Total assets	$	12,283,757	$	10,406,897


LIABILITIES AND SHAREHOLDERS’ EQUITY

Liabilities:
Accounts payable, accrued and other liabilities, including book overdrafts of $406,853 and $304,394 in 2005 and 2004, respectively	$	2,147,569	$	1,862,051
Customer deposits		482,932		341,050
Collateralized short-term debt, recourse solely to applicable non-guarantor subsidiary assets		461,740		617,415
Income taxes		213,048		202,557
Senior notes and unsubordinated notes		3,511,170		2,861,550


Total liabilities		6,816,459		5,884,623

Shareholders’ equity		5,467,298		4,522,274


Total liabilities and shareholders’ equity	$	12,283,757	$	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				Nine Months Ended
	September 30,				September 30,
	2005		2004		2005		2004

Revenues:
Homebuilding	$	3,798,000	$	2,931,974	$	9,574,526	$	7,428,959
Financial services		42,383		27,706		108,917		76,152
Corporate		1,120		125		3,625		1,584


Total revenues		3,841,503		2,959,805		9,687,068		7,506,695


Expenses:
Homebuilding, principally cost of sales		3,193,707		2,514,195		8,148,234		6,484,290
Financial services		23,922		19,092		66,614		50,806
Corporate, net		25,853		24,695		80,220		70,250


Total expenses		3,243,482		2,557,982		8,295,068		6,605,346


Other income:
Equity income		15,681		16,146		54,317		33,752

Income from continuing operations before income taxes		613,702		417,969		1,446,317		935,101

Income taxes		225,983		158,845		536,513		355,330


Income from continuing operations		387,719		259,124		909,804		579,771

Income from discontinued operations		7,702		10,812		7,570		9,397


Net income	$	395,421	$	269,936	$	917,374	$	589,168


Per share data:
Basic:
Income from continuing operations	$	1.51	$	1.02	$	3.56	$	2.31
Income from discontinued operations		.03		.04		.03		.04


Net income	$	1.54	$	1.07	$	3.59	$	2.34


Assuming dilution:
Income from continuing operations	$	1.47	$	.99	$	3.46	$	2.24
Income from discontinued operations		.03		.04		.03		.04


Net income	$	1.50	$	1.03	$	3.49	$	2.27


Cash dividends declared	$	.04	$	.03	$	.09	$	.08


Number of shares used in calculation:
Basic:
Weighted-average common shares outstanding		256,081		253,133		255,611		251,402
Assuming dilution:

Effect of dilutive securities		7,827		7,837		7,201		7,780


Adjusted weighted-average common shares and effect of dilutive securities		263,908		260,970		262,812		259,182

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	$	2,558		$	1,114,739		$	(44	)	$	(14,380	)	$	3,419,401		$	4,522,274
Stock option exercise, including tax benefit of $28,341		26			54,146			—			—			—			54,172
Stock-based compensation		—			33,368			—			—			—			33,368
Restricted stock award		11			(11	)		—			—			—			—
Restricted stock award amortization		—			—			44			—			—			44
Cash dividends declared		—			—			—			—			(23,421	)		(23,421	)
Stock repurchases		(10	)		(4,626	)		—			—			(36,435	)		(41,071	)
Comprehensive income (loss):
Net income		—			—			—			—			917,374			917,374
Change in fair value of derivatives		—			—			—			780			—			780
Foreign currency translation adjustments		—			—			—			3,778			—			3,778


Total comprehensive income																	921,932


Shareholders’ Equity, September 30, 2005	$	2,585		$	1,197,616		$	—		$	(9,822	)	$	4,276,919		$	5,467,298


Shareholders’ Equity, December 31, 2003	$	2,504		$	1,014,739		$	(656	)	$	(39,142	)	$	2,470,678		$	3,448,123
Stock option exercise, including tax benefit of $31,425		44			68,393			—			—			—			68,437
Stock-based compensation		—			16,834			—			—			—			16,834
Restricted stock award		4			(4	)		—			—			—			—
Restricted stock award amortization		—			—			479			—			—			479
Cash dividends declared		—			—			—			—			(19,058	)		(19,058	)
Comprehensive income (loss):
Net income		—			—			—			—			589,168			589,168
Change in fair value of derivatives		—			—			—			406			—			406
Foreign currency translation adjustments		—			—			—			(1,779	)		—			(1,779	)


Total comprehensive income																	587,795


Shareholders’ Equity, September 30, 2004	$	2,552		$	1,099,962		$	(177	)	$	(40,515	)	$	3,040,788		$	4,102,610

See accompanying Notes to Condensed Consolidated Financial Statements.

PULTE HOMES, INC.

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


	For The Nine Months Ended
	September 30,
	2005			2004

Cash flows from operating activities:
Net income	$	917,374		$	589,168
Adjustments to reconcile net income to net cash flows used in operating activities:
Amortization and depreciation		44,810			34,041
Stock-based compensation expense		33,412			17,313
Deferred income taxes		17,972			5,607
Undistributed earnings of affiliates		(23,426	)		(31,252	)
Other, net		1,423			1,994
Increase (decrease) in cash due to:
Inventories		(2,025,797	)		(2,376,800	)
Residential mortgage loans available-for-sale		142,177			185,470
Other assets		(82,970	)		34,177
Accounts payable, accrued and other liabilities		435,859			277,547
Income taxes		38,832			74,899


Net cash used in operating activities		(500,334	)		(1,187,836	)


Cash flows from investing activities:
Investment in subsidiary		(31,172	)		—
Distributions from unconsolidated entities		135,126			50,029
Investments in unconsolidated entities		(142,262	)		(155,982	)
Proceeds from sales of subsidiaries		11,366			—
Proceeds from sales of property and equipment		3,526			4,946
Capital expenditures		(61,074	)		(54,784	)
Other, net		—			503


Net cash used in investing activities		(84,490	)		(155,288	)


Cash flows from financing activities:
Proceeds from borrowings		679,289			1,469,115
Repayment of borrowings		(155,735	)		(431,193	)
Issuance of common stock		25,831			37,012
Common stock repurchases		(41,071	)		—
Dividends paid		(23,421	)		(19,058	)


Net cash provided by financing activities		484,893			1,055,876


Effect of exchange rate changes on cash and equivalents		194			(134	)


Net decrease in cash and equivalents		(99,737	)		(287,382	)

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


Cash and equivalents at end of period	$	214,897		$	114,501


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

Interest, net of amounts capitalized	$	57,986		$	35,390


Income taxes	$	479,158		$	272,832

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 former 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 nine-month periods ended September 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. In addition, all share and per share amounts have been restated to retroactively reflect the Company’s two-for-one stock split effected September 1, 2005.

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):


	Nine Months Ended
	September 30,
	2005			2004

Allowance for warranties at beginning of period	$	83,652		$	62,091

Warranty reserves provided		101,297			70,694

Payments and other adjustments		(93,269	)		(64,870	)


Allowance for warranties at end of period	$	91,680		$	67,915

PULTE HOMES, INC.

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

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 Statement of Financial Accounting Standards (“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						Nine Months Ended
	September 30,						September 30,
	2005			2004			2005			2004

Net income, as reported ($000’s omitted)	$	395,421		$	269,936		$	917,374		$	589,168

Add: Stock-based employee compensation expense included in reported net income, net of related tax effects ($000’s omitted)		3,401			2,803			11,417			7,721

Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects ($000’s omitted)		(3,861	)		(3,499	)		(12,174	)		(11,582	)


Pro forma net income ($000’s omitted)	$	394,961		$	269,240		$	916,617		$	585,307


Earnings per share:
Basic — as reported	$	1.54		$	1.07		$	3.59		$	2.34

Basic — pro forma	$	1.54		$	1.06		$	3.59		$	2.33


Diluted — as reported	$	1.50		$	1.03		$	3.49		$	2.27

Diluted — pro forma	$	1.50		$	1.03		$	3.49		$	2.26

The Company also recorded compensation expense for restricted stock awards, net of related tax effects, of $3.1 million and $9.6 million for the three and nine months ended September 30, 2005, compared with $0.9 million and $3 million for the three and nine months ended September 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)

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 September 30, 2005 and December 31, 2004, the Company classified $88.2 million 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 $14.3 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 September 30, 2005 and December 31, 2004, had a total purchase price of $8 billion and $6.3 billion, respectively. In connection with these agreements, the Company had deposits and advanced costs of $442.2 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 September 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). Because these amounts are not significant, the adoption of SFAS No. 123(R) is not expected to have a material impact on the Company’s results of operations or financial position. This statement is effective for fiscal periods beginning after December 15, 2005.

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

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 does not expect the adoption of SAB No. 107 to have a material impact on its results of operations or financial position.

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						Nine Months Ended
	September 30,						September 30,
	2005			2004			2005			2004

Revenues:
Homebuilding	$	3,798,000		$	2,931,974		$	9,574,526		$	7,428,959
Financial services		42,383			27,706			108,917			76,152
Corporate		1,120			125			3,625			1,584


Total revenues		3,841,503			2,959,805			9,687,068			7,506,695


Cost of sales(a):
Homebuilding		2,904,136			2,242,371			7,303,760			5,751,616


Selling, general and administrative:
Homebuilding		280,109			257,298			817,482			700,339
Financial services		19,756			17,417			56,378			46,157
Corporate		12,492			12,252			35,775			32,577


Total selling, general and administrative		312,357			286,967			909,635			779,073

Interest:
Financial services		4,166			1,675			10,236			4,649
Corporate		13,333			12,306			44,488			37,511


Total interest		17,499			13,981			54,724			42,160


Other (income) expense, net:
Homebuilding		9,462			14,526			26,992			32,335
Corporate		28			137			(43	)		162


Total other (income) expense, net		9,490			14,663			26,949			32,497


Total costs and expenses		3,243,482			2,557,982			8,295,068			6,605,346


Equity income:
Homebuilding		15,099			13,466			51,967			29,346
Financial services		582			2,680			2,350			4,406


Total equity income		15,681			16,146			54,317			33,752


Income (loss) before income taxes:
Homebuilding		619,392			431,245			1,478,259			974,015
Financial services		19,043			11,294			44,653			29,752

Corporate		(24,733	)		(24,570	)		(76,595	)		(68,666	)


Total income before income taxes	$	613,702		$	417,969		$	1,446,317		$	935,101


^(a)		Domestic homebuilding interest expense, which represents the amortization of capitalized interest, of $49.4 million and $121.1 million for the three and nine months ended September 30, 2005 and $36.2 million and $87.4 million for the three and nine months ended September 30, 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 September 30, 2005:

Inventory	$	9,379,528		—		—	$	9,379,528

Total assets	$	11,489,532		577,255		216,970	$	12,283,757


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):


	September 30,		December 31,
	2005		2004

Homes under construction	$	4,108,258	$	2,616,027
Land under development		4,431,128		4,089,878

Land held for future development		840,142		684,886


Total	$	9,379,528	$	7,390,791

Investments in unconsolidated entities

The Company’s investments in unconsolidated entities totaled $289.8 million at September 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. During the three and nine months ended September 30, 2005, approximately $2.8 million and $5.5 million of purchase price premium was amortized through cost of sales.

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

Senior notes and unsubordinated notes

In October 2005, the Company restructured and amended the 5-year unsecured revolving credit facility, increasing the borrowing availability from $1.38 billion to $1.615 billion, and extending the maturity date from September 2009 to October 2010, with pricing more favorable to the Company. The credit facility includes an uncommitted accordion feature, under which the credit facility may be increased to $2.25 billion. The Company has the capacity to issue letters of credit up to $1.125 billion. Borrowing availability is reduced by the amount of letters of credit outstanding. The credit facility contains restrictive covenants, the most restrictive of which requires the Company not to exceed a debt-to-total capitalization ratio of 60% as defined in the agreement.

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

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. The Company had no outstanding borrowings under this unsecured revolving credit facility at September 30, 2005.

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, as amended (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.

Discontinued operations

The Company recorded non-cash, after-tax gains of $7.8 million and $10.8 million during the third quarter of 2005 and 2004, respectively, related to the favorable resolution of certain tax matters in connection with its former thrift operation, which was discontinued in 1994.

Shareholders’ equity

Pursuant to the $100 million stock repurchase program authorized by the Company’s Board of Directors in October 2002, the Company repurchased 461,000 shares and 1,031,000 shares of Pulte Homes, Inc. common stock in open-market transactions or otherwise, for a total of $20 million and $41.1 million, for the three and nine months ended September 30, 2005, respectively. As of September 30, 2005, the Company had remaining authorization to purchase common stock aggregating $21.7 million.

PULTE HOMES, INC.

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

Shareholders’ equity (continued)

In October 2005, the Company’s Board of Directors approved an increase to the Company’s stock repurchase authorization of up to $100 million in open-market transactions or otherwise. After approval of the increase, the Company had $121.7 million available for stock repurchases.

In July 2005, the Company’s Board of Directors declared a two-for-one stock split effected in the form of a 100 percent stock dividend. The additional shares of common stock were distributed on September 1, 2005, to the shareholders of record as of August 15, 2005. All share and per share amounts have been restated to retroactively reflect the stock split.

Accumulated other comprehensive income (loss)

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


	September 30,			December 31,
	2005			2004

Foreign currency translation adjustments:
Mexico	$	(10,740	)	$	(14,518	)

Change in fair value of derivatives, net of income taxes of $562 in 2005 and $84 in 2004		918			138


	$	(9,822	)	$	(14,380	)

Supplemental Guarantor information

At September 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
September 30, 2005
($000’s omitted)


	Unconsolidated

	Pulte		Guarantor			Non-Guarantor			Eliminating			Consolidated
	Homes, Inc.		Subsidiaries			Subsidiaries			Entries			Pulte Homes, Inc.

ASSETS
Cash and equivalents	$	—	$	81,597		$	133,300		$	—		$	214,897
Unfunded settlements		—		144,082			(47,813	)		—			96,269
House and land inventory		—		9,166,560			212,968			—			9,379,528
Land held for sale		—		186,038			714			—			186,752
Land, not owned, under option agreements		—		88,243			—			—			88,243
Residential mortgage loans available-for-sale		—		—			554,900			—			554,900
Investments in unconsolidated entities		1,448		254,516			33,807			—			289,771
Goodwill		—		306,993			5,982			—			312,975
Intangible assets, net		—		129,267			—			—			129,267
Other assets		50,283		866,589			114,283			—			1,031,155
Investment in subsidiaries		10,253,394		77,776			1,684,871			(12,016,041	)		—


	$	10,305,125	$	11,301,661		$	2,693,012		$	(12,016,041	)	$	12,283,757


LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Accounts payable, accrued and other liabilities	$	147,901	$	2,164,301		$	318,299		$	—		$	2,630,501
Collateralized short-term debt, recourse solely to applicable non-guarantor subsidiary assets		—		—			461,740			—			461,740
Income taxes		213,606		—			(558	)		—			213,048
Senior notes and unsubordinated notes		3,511,170		—			—			—			3,511,170
Advances (receivable) payable — subsidiaries		965,150		(1,140,205	)		175,055			—			—


Total liabilities		4,837,827		1,024,096			954,536			—			6,816,459

Shareholders’ equity		5,467,298		10,277,565			1,738,476			(12,016,041	)		5,467,298


	$	10,305,125	$	11,301,661		$	2,693,012		$	(12,016,041	)	$	12,283,757

PULTE HOMES, INC.

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

9. Supplemental Guarantor information (continued)

CONDENSED CONSOLIDATING BALANCE SHEET

December 31, 2004
($000’s omitted)


	Unconsolidated

	Pulte		Guarantor			Non-Guarantor			Eliminating			Consolidated Pulte
	Homes, Inc.		Subsidiaries			Subsidiaries			Entries			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)

9. Supplemental Guarantor information (continued)

CONSOLIDATING STATEMENT OF OPERATIONS

For the three months ended September 30, 2005
($000’s omitted)


	Unconsolidated
													Consolidated
	Pulte			Guarantor			Non-Guarantor			Eliminating			Pulte
	Homes, Inc.			Subsidiaries			Subsidiaries			Entries			Homes, Inc.

Revenues:
Homebuilding	$	—		$	3,750,669		$	47,331		$	—		$	3,798,000
Financial services		—			7,361			35,022			—			42,383
Corporate		75			900			145			—			1,120

Total revenues		75			3,758,930			82,498			—			3,841,503


Expenses:									��
Homebuilding:
Cost of sales		—			2,863,617			40,519			—			2,904,136
Selling, general and administrative and other expense		4,140			281,530			3,901			—			289,571
Financial services		536			2,014			21,372			—			23,922
Corporate, net		32,446			(3,931	)		(2,662	)		—			25,853
Intercompany interest		36,368			(36,368	)		—						—

Total expenses		73,490			3,106,862			63,130			—			3,243,482


Other Income:
Equity income		—			13,732			1,949			—			15,681

Income (loss) from continuing operations before income taxes and equity in income of subsidiaries		(73,415	)		665,800			21,317			—			613,702
Income taxes (benefit)		(27,953	)		245,114			8,822			—			225,983


Income (loss) from continuing operations before equity in income of subsidiaries		(45,462	)		420,686			12,495						387,719
Income (loss) from discontinued operations		7,691			—			11			—			7,702

Income (loss) before equity in income of subsidiaries		(37,771	)		420,686			12,506			—			395,421

Equity in income (loss) of subsidiaries:
Continuing operations		433,181			8,514			144,127			(585,822	)		—
Discontinued operations		11			—			—			(11	)		—


		433,192			8,514			144,127			(585,833	)		—


Net income	$	395,421		$	429,200		$	156,633		$	(585,833	)	$	395,421

PULTE HOMES, INC.

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

9. Supplemental Guarantor information (continued)

CONSOLIDATING STATEMENT OF OPERATIONS

For the nine months ended September 30, 2005
($000’s omitted)


	Unconsolidated
													Consolidated
	Pulte			Guarantor			Non-Guarantor			Eliminating			Pulte
	Homes, Inc.			Subsidiaries			Subsidiaries			Entries			Homes, Inc.

Revenues:
Homebuilding	$	—		$	9,450,393		$	124,133		$	—		$	9,574,526
Financial services		—			19,504			89,413			—			108,917
Corporate		145			3,155			325			—			3,625

Total revenues		145			9,473,052			213,871			—			9,687,068


Expenses:
Homebuilding:
Cost of sales		—			7,199,724			104,036			—			7,303,760
Selling, general and administrative and other expense		12,983			814,788			16,703			—			844,474
Financial services		1,575			6,199			58,840			—			66,614
Corporate, net		98,721			(10,975	)		(7,526	)		—			80,220
Intercompany interest		123,657			(123,657	)		—			—			—

Total expenses		236,936			7,886,079			172,053			—			8,295,068


Other Income:
Equity income		—			48,383			5,934			—			54,317

Income (loss) from continuing operations before income taxes and equity in income of subsidiaries		(236,791	)		1,635,356			47,752			—			1,446,317
Income taxes (benefit)		(89,082	)		606,790			18,805			—			536,513

Income (loss) from continuing operations before equity in income of subsidiaries		(147,709	)		1,028,566			28,947			—			909,804
Income (loss) from discontinued operations		7,585			—			(15	)		—			7,570

Income (loss) before equity in income of subsidiaries		(140,124	)		1,028,566			28,932			—			917,374

Equity in income (loss) of subsidiaries:
Continuing operations		1,057,513			19,539			305,418			(1,382,470	)		—
Discontinued operations		(15	)		—			—			15			—


		1,057,498			19,539			305,418			(1,382,455	)		—


Net income	$	917,374		$	1,048,105		$	334,350		$	(1,382,455	)	$	917,374

PULTE HOMES, INC.

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

9. Supplemental Guarantor information (continued)

CONSOLIDATING STATEMENT OF OPERATIONS

For the three months ended September 30, 2004
($000’s omitted)


	Unconsolidated
													Consolidated
	Pulte			Guarantor			Non-Guarantor			Eliminating			Pulte
	Homes, Inc.			Subsidiaries			Subsidiaries			Entries			Homes, Inc.

Revenues:
Homebuilding	$	—		$	2,885,121		$	46,853		$	—		$	2,931,974
Financial services		—			5,300			22,406			—			27,706
Corporate		3			122			—			—			125

Total revenues		3			2,890,543			69,259			—			2,959,805


Expenses:
Homebuilding:
Cost of sales		—			2,204,210			38,161			—			2,242,371
Selling, general and administrative and other expense		3,586			260,165			8,073			—			271,824
Financial services		260			1,403			17,429			—			19,092
Corporate, net		23,533			1,650			(488	)		—			24,695
Intercompany interest		24,048			(24,048	)		—			—			—


Total expenses		51,427			2,443,380			63,175			—			2,557,982


Other Income:
Equity income		—			12,533			3,613			—			16,146

Income (loss) from continuing operations before income taxes and equity in income of subsidiaries		(51,424	)		459,696			9,697						417,969
Income taxes (benefit)		(18,495	)		174,542			2,798			—			158,845

Income (loss) from continuing operations before equity in income of subsidiaries		(32,929	)		285,154			6,899			—			259,124
Income from discontinued operations		10,786			—			26			—			10,812

Income (loss) before equity in income of subsidiaries		(22,143	)		285,154			6,925			—			269,936

Equity in income of subsidiaries:
Continuing operations		292,053			4,417			107,877			(404,347	)		—
Discontinued operations		26			—			—			(26	)		—


		292,079			4,417			107,877			(404,373	)		—


Net income	$	269,936		$	289,571		$	114,802		$	(404,373	)	$	269,936

PULTE HOMES, INC.

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

9. Supplemental Guarantor information (continued)

CONSOLIDATING STATEMENT OF OPERATIONS

For the nine months ended September 30, 2004
($000’s omitted)


	Unconsolidated
													Consolidated
	Pulte			Guarantor			Non-Guarantor			Eliminating			Pulte
	Homes, Inc.			Subsidiaries			Subsidiaries			Entries			Homes, Inc.

Revenues:
Homebuilding	$	—		$	7,301,276		$	127,683		$	—		$	7,428,959
Financial services		—			14,071			62,081			—			76,152
Corporate		92			1,200			292			—			1,584

Total revenues		92			7,316,547			190,056			—			7,506,695


Expenses:
Homebuilding:
Cost of sales		—			5,647,985			103,631			—			5,751,616
Selling, general and administrative and other expense		11,172			691,475			30,027			—			732,674
Financial services		757			3,998			46,051			—			50,806
Corporate, net		66,432			4,391			(573	)		—			70,250
Intercompany interest		77,800			(77,800	)		—			—			—


Total expenses		156,161			6,270,049			179,136			—			6,605,346


Other Income:
Equity income		—			26,460			7,292			—			33,752

Income (loss) from continuing operations before income taxes and equity in income of subsidiaries		(156,069	)		1,072,958			18,212						935,101
Income taxes (benefit)		(58,628	)		407,735			6,223			—			355,330

Income (loss) from continuing operations before equity in income of subsidiaries		(97,441	)		665,223			11,989			—			579,771
Income from discontinued operations		10,472			—			(1,075	)		—			9,397

Income (loss) before equity in income of subsidiaries		(86,969	)		665,223			10,914			—			589,168

Equity in income of subsidiaries:
Continuing operations		677,212			11,932			218,030			(907,174	)		—
Discontinued operations		(1,075	)		—			—			1,075			—


		676,137			11,932			218,030			(906,099	)		—


Net income	$	589,168		$	677,155		$	228,944		$	(906,099	)	$	589,168

PULTE HOMES, INC.

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

9. Supplemental Guarantor information (continued)

CONSOLIDATING STATEMENT OF CASH FLOWS

For the nine months ended September 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	$	917,374		$	1,048,105		$	334,350		$	(1,382,455	)	$	917,374
Adjustments to reconcile net income to net cash flows provided by (used in) operating activities:
Equity in income of subsidiaries		(1,057,498	)		(19,539	)		(305,418	)		1,382,455			—
Amortization and depreciation		—			38,694			6,116			—			44,810
Stock-based compensation expense		33,412			—			—			—			33,412
Deferred income taxes		23,309			33			(5,370	)		—			17,972
Undistributed earnings of affiliates		—			(18,059	)		(5,367	)		—			(23,426	)
Other, net		1,063			239			121			—			1,423
Increase (decrease) in cash due to:
Inventory		—			(2,001,872	)		(23,925	)		—			(2,025,797	)
Residential mortgage loans available-for-sale		—			—			142,177			—			142,177
Other assets		(10,190	)		(76,852	)		4,072			—			(82,970	)
Accounts payable, accrued and other liabilities		(6,780	)		396,441			46,198			—			435,859
Income taxes		(218,038	)		245,078			11,792			—			38,832

Net cash provided by (used in) operating activities		(317,348	)		(387,732	)		204,746			—			(500,334	)


Cash flows from investing activities:
Dividends received from subsidiaries		1,362			20,000			—			(21,362	)		—
Investment in subsidiary		(467,217	)		(1,770	)		(370,172	)		807,987			(31,172	)
Distributions from unconsolidated subsidiaries		—			133,451			1,675			—			135,126
Investments in unconsolidated subsidiaries		—			(142,262	)		—			—			(142,262	)
Proceeds from sales of subsidiaries		—			—			11,366			—			11,366
Proceeds from sales of property and equipment		—			3,526			—			—			3,526
Capital expenditures		—			(52,459	)		(8,615	)		—			(61,074	)

Net cash provided by (used in) investing activities		(465,855	)		(39,514	)		(365,746	)		786,625			(84,490	)

PULTE HOMES, INC.

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

9. Supplemental Guarantor information (continued)

CONSOLIDATING STATEMENT OF CASH FLOWS (continued)

For the nine months ended September 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			30,732			—			—			679,289
Repayment of borrowings		—			—			(155,735	)		—			(155,735	)
Capital contributions from parent		—			438,941			369,046			(807,987	)		—
Advances (to) from affiliates		173,307			(144,843	)		(28,464	)		—			—
Issuance of common stock		25,831			—			—			—			25,831
Common stock repurchases		(41,071	)		—			—			—			(41,071	)
Dividends paid		(23,421	)		(1,362	)		(20,000	)		21,362			(23,421	)

Net cash provided by (used in) financing activities		783,203			323,468			164,847			(786,625	)		484,893

Effect of exchange rate changes on cash and equivalents		—			—			194			—			194

Net increase (decrease) in cash and equivalents		—			(103,778	)		4,041			—			(99,737	)

Cash and equivalents at beginning of period		—			185,375			129,259			—			314,634


Cash and equivalents at end of period	$	—		$	81,597		$	133,300		$	—		$	214,897

PULTE HOMES, INC.

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

9. Supplemental Guarantor information (continued)

CONSOLIDATING STATEMENT OF CASH FLOWS

For the nine months ended September 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	$	589,168		$	677,155		$	228,944		$	(906,099	)	$	589,168
Adjustments to reconcile net income to net cash flows provided by (used in) operating activities:
Equity in income of subsidiaries		(676,137	)		(11,932	)		(218,030	)		906,099			—
Amortization and depreciation		—			28,879			5,162			—			34,041
Stock-based compensation expense		17,313			—			—			—			17,313
Deferred income taxes		10,362			—			(4,755	)		—			5,607
Undistributed earnings of affiliates		—			(23,960	)		(7,292	)		—			(31,252	)
Other, net		911			(50	)		1,133			—			1,994
Increase (decrease) in cash due to:
Inventory		—			(2,362,048	)		(14,752	)		—			(2,376,800	)
Residential mortgage loans available-for-sale		—			—			185,470			—			185,470
Other assets		45,627			(35,198	)		23,748			—			34,177
Accounts payable, accrued and other liabilities		(11,269	)		273,521			15,295			—			277,547
Income taxes		(237,149	)		309,924			2,124			—			74,899

Net cash provided by (used in) operating activities		(261,174	)		(1,143,709	)		217,047			—			(1,187,836	)

Cash flows from investing activities:
Dividends received from subsidiaries		8,526			16,000			—			(24,526	)		—
Investment in subsidiary		(103,000	)		(1,320	)		(128,774	)		233,094			—
Distributions from unconsolidated subsidiaries		—			47,249			2,780			—			50,029
Investments in unconsolidated subsidiaries		—			(155,495	)		(487	)		—			(155,982	)
Proceeds from sales of property and equipment		—			4,922			24			—			4,946
Capital expenditures		—			(44,851	)		(9,933	)		—			(54,784	)
Other, net		—			—			503			—			503

Net cash provided by (used in) investing activities		(94,474	)		(133,495	)		(135,887	)		208,568			(155,288	)

PULTE HOMES, INC.

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

9. Supplemental Guarantor information (continued)

CONSOLIDATING STATEMENT OF CASH FLOWS (continued)

For the nine months ended September 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		1,465,915			—			3,200			—			1,469,115
Repayment of borrowings		(112,000	)		(126,698	)		(192,495	)		—			(431,193	)
Capital contributions from parent		—			128,273			104,821			(233,094	)		—
Advances (to) from affiliates		(1,019,170	)		1,069,030			(49,860	)		—			—
Issuance of common stock		37,012			—			—			—			37,012
Common stock repurchases		—			—			—			—
Dividends paid		(19,058	)		(8,526	)		(16,000	)		24,526			(19,058	)

Net cash provided by (used in) financing activities		352,699			1,062,079			(150,334	)		(208,568	)		1,055,876

Effect of exchange rate changes on cash and equivalents		—			—			(134	)		—			(134	)

Net (increase) decrease in cash and equivalents		(2,949	)		(215,125	)		(69,308	)		—			(287,382	)

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


Cash and equivalents at end of period	$	—		$	90,231		$	24,270		$	—		$	114,501

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-month and nine-month periods ended September 30, 2005 and 2004 is as follows ($000’s omitted):


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2005			2004			2005			2004

Pre-tax income (loss):
Homebuilding operations	$	619,392		$	431,245		$	1,478,259		$	974,015
Financial services operations		19,043			11,294			44,653			29,752
Corporate		(24,733	)		(24,570	)		(76,595	)		(68,666	)

Pre-tax income from continuing operations		613,702			417,969			1,446,317			935,101
Income taxes		225,983			158,845			536,513			355,330

Income from continuing operations		387,719			259,124			909,804			579,771
Income from discontinued operations		7,702			10,812			7,570			9,397

Net income	$	395,421		$	269,936		$	917,374		$	589,168

Per share data — assuming dilution:
Income from continuing operations	$	1.47		$	.99		$	3.46		$	2.24

Income from discontinued operations		.03			.04			.03			.04


Net income	$	1.50		$	1.03		$	3.49		$	2.27

A comparison of pre-tax income for the three and nine months ended September 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 44% and 52% for the three and nine months ended September 30, 2005, respectively, compared with the prior year periods. Domestic unit settlements increased 21% and 19%, respectively, for the three and nine months ended September 30, 2005. Domestic average unit selling prices increased 9% and 10% for the three and nine months ended September 30, 2005, compared with the prior year periods. Domestic Homebuilding settlement gross margin percentages increased 30 basis points to 23.8% for the three months ended September 30, 2005 and 140 basis points to 24.0% for the nine months ended September 30, 2005, compared with the prior year periods.

	•		Pre-tax income of our financial services business segment increased 69% and 50% for the three and nine months ended September 30, 2005, respectively, compared with the prior year periods, as a result of the volume related increase in originations and the favorable interest rate environment experienced during the third quarter of 2005. The capture rates were 88.8% and 88.5% for the three and nine months ended September 30, 2005, respectively, and 87.3% for both the three and nine months ended September 30, 2004, respectively.

	•		Pre-tax losses associated with our non-operating Corporate segment increased 1% and 12% for the three and nine months ended September 30, 2005, respectively, compared with the prior year periods. While expenses for the three-month period remained comparable with the prior year, increases related to the nine-month period resulted from higher net interest expense associated with increased debt funding to support business growth in 2005 and beyond, in addition to higher compensation related expenses.

	•		We recorded non-cash, after-tax gains of $7.8 million and $10.8 million during the third quarter of 2005 and 2004, respectively, related to the favorable resolution of certain tax matters in connection with our former thrift operation, which was discontinued in 1994.

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 all of our International operations.

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


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2005		2004		2005		2004

Homebuilding settlement revenues:
Domestic	$	3,725,537	$	2,816,060	$	9,343,544	$	7,153,379
International		47,331		46,853		124,133		127,683

Total	$	3,772,868	$	2,862,913	$	9,467,677	$	7,281,062


Homebuilding settlements units:
Domestic		11,747		9,669		29,960		25,188

International		1,833		1,898		4,638		4,978


Total		13,580		11,567		34,598		30,166


Note:		Homebuilding settlement revenues of affiliates, not included in the table above, for the three and nine months ended September 30, 2005, were $22,520 and $59,636, respectively, compared with $15,968 and $46,134 for the three and nine months ended September 30, 2004, respectively. Homebuilding unit settlements of affiliates not included in the table above, for the three and nine months ended September 30, 2005 were 64 and 175, respectively, compared with 54 and 168 for the three and nine months ended September 30, 2004, 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)

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


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2005		2004		2005		2004

Unit settlements:
Northeast		1,003		869		2,409		2,083
Southeast		3,427		2,293		8,710		6,056
Midwest		1,638		1,447		3,686		3,383
Central		1,726		1,531		4,190		3,719

West		3,953		3,529		10,965		9,947


		11,747		9,669		29,960		25,188


Net new orders — units:
Northeast		1,066		849		3,322		2,419
Southeast		3,284		2,859		10,718		8,054
Midwest		1,670		1,315		4,899		4,251
Central		2,185		1,518		6,096		4,699

West		3,857		3,568		12,675		12,213


		12,062		10,109		37,710		31,636


Net new orders — dollars ($000’s omitted):	$	3,994,000	$	2,995,000	$	12,233,000	$	9,451,000


Unit backlog:
Northeast						2,396		1,871
Southeast						7,313		5,724
Midwest						2,490		2,269
Central						2,983		2,136

West						8,484		8,400


						23,666		20,400


Backlog at September 30 — dollars ($000’s omitted):					$	8,043,000	$	6,445,000

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 both the three and nine months ended September 30, 2005, unit net new orders increased 19% to a record 12,062 and 37,710 units, respectively, compared with the same periods in 2004. Net new order growth in the Midwest increased 27% for the three months ended September 30, 2005 compared with the same period in the prior year, despite challenging market conditions in this region. The dollar value of net new orders increased 33% and 29%, respectively, for the three and nine months ended September 30, 2005, compared with the same periods in 2004. For the quarter ended September 30, 2005, we had 662 active selling communities, an increase of 9% from the same period in the prior year. Unit settlements also set a record for the respective three and nine months ended September 30, 2005, at 11,747 and 29,960 units, representing an increase of 21% and 19% over the same periods in 2004. The average selling price for homes closed increased 9% and 10% to $317,000 and $312,000 for the respective three and nine months ended September 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 23,666 units at September 30, 2005. The dollar value of backlog was up 25% to $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 nine months ended September 30, 2005 and 2004:

Three Months Ended

Nine Months Ended

September 30,

2005

2004

2005

2004

Net new orders:

Phoenix

17%

Unit settlements:

Phoenix

11%

14%

13%

15%

Las Vegas

10%

Settlement revenues:

Phoenix

10%

12%

13%

Las Vegas

13%

14%


*		Represents less than 10%.

At September 30, 2005 and December 31, 2004, our Domestic Homebuilding operations controlled approximately 369,300 and 343,400 lots, respectively. Approximately 169,000 and 158,000 lots were owned, and approximately 129,700 and 125,800 lots were under option agreements approved for purchase at September 30, 2005 and December 31, 2004, respectively. In addition, there were approximately 70,600 and 59,600 lots under option agreements, pending approval, at September 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 Domestic Homebuilding operations at future dates approximated $5.8 billion at September 30, 2005. In addition, total purchase price related to land under option pending approval was valued at $2.3 billion at September 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 $452.7 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 nine months ended September 30, 2005 and 2004 ($000’s omitted):


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2005			2004			2005			2004

Home sale revenue (settlements)	$	3,725,537		$	2,816,060		$	9,343,544		$	7,153,379
Land sale revenue		25,132			69,061			106,849			147,897
Home cost of sales(a)		(2,839,913	)		(2,154,902	)		(7,101,734	)		(5,536,997	)
Land cost of sales		(23,704	)		(49,308	)		(97,990	)		(110,988	)
Selling, general and administrative expense		(272,158	)		(249,730	)	��	(793,916	)		(678,982	)
Equity income		13,150			11,964			46,759			25,176

Other income (expense), net		(10,028	)		(13,496	)		(27,411	)		(29,229	)


Pre-tax income	$	618,016		$	429,649		$	1,476,101		$	970,256


Average sales price	$	317		$	291		$	312		$	284


^(a)		Domestic homebuilding interest expense, which represents the amortization of capitalized interest, of $49.4 million and $121.1 million for the three and nine months ended September 30, 2005 and $36.2 million and $87.4 million for the three and nine months ended September 30, 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% and 24% for the three and nine months ended September 30, 2005, compared with 23.5% and 22.6%, respectively, for the same periods in the prior year. 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 and nine months ended September 30, 2005 were $1.4 million and $8.9 million, respectively, compared with $19.8 million and $36.9 million, respectively, for the three and nine months ended September 30, 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 September 30, 2005, we had $186.8 million of land held for sale.

Selling, general and administrative expenses as a percentage of home settlement revenues declined to 7.3% for the three months ended September 30, 2005 compared with 8.9% for the same period in the prior year. For the nine months ended September 30, 2005, selling, general and administrative expenses as a percentage of home settlement revenues declined to 8.5% from 9.5% 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 third quarter and nine months 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 all of our International operations.

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


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2005			2004			2005			2004

Revenues	$	47,331		$	46,853		$	124,133		$	127,683
Cost of sales		(40,519	)		(38,161	)		(104,036	)		(103,631	)
Selling, general and administrative expense		(7,951	)		(7,568	)		(23,566	)		(21,357	)
Other income (expense), net		566			(616	)		378			(2,031	)
Minority interest		—			(414	)		41			(1,075	)

Equity in income of joint ventures		1,949			1,502			5,208			4,170


Pre-tax income	$	1,376		$	1,596		$	2,158		$	3,759


Unit settlements		1,833			1,898			4,638			4,978


Note:		Homebuilding settlement revenues of affiliates, not included in the table above, for the three and nine months ended September 30, 2005, were $22,520 and $59,636, respectively, compared with $15,968 and $46,134 for the three and nine months ended September 30, 2004, respectively. Homebuilding unit settlements of affiliates not included in the table above, for the three and nine months ended September 30, 2005 were 64 and 175, respectively, compared with 54 and 168 for the three and nine months ended September 30, 2004, respectively.

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. 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. During the three and nine months ended September 30, 2005, approximately $2.8 million and $5.5 million of purchase price premium was amortized through cost of sales.

International revenues for the three months ended September 30, 2005 were comparable with the same period in 2004. For the three months ended September 30, 2005, international unit settlements decreased 3% compared to the same period in 2004. For the nine months ended September 30, 2005, international revenues and unit settlements decreased 3% and 7%, respectively, compared with the nine months ended September 30, 2004. Gross margins decreased approximately 420 basis points to 14.4% for the three months ended September 30, 2005 and 260 basis points to 16.2% for the nine months ended September 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 settlement revenues increased to 16.8% from 16.2% for the three months ended September 30, 2005 and to 19.0% from 16.7% for the nine months ended September 30, 2005 due to increased marketing expenses, new community start-up expenses, and non-recurring administrative costs.

Our operations in Mexico are affected by fluctuations in the currency rate for this country. Transaction gains and losses for the three and nine months ended September 30, 2005 and 2004, included in other income (expense), net, were not significant. During the three and nine months ended September 30, 2005, we recorded foreign currency translation gains of $400 thousand and $3.1 million, respectively, as a component of accumulated other comprehensive income on the balance sheet. At September 30, 2005, our investments in Puerto Rico and Mexico, net of accumulated foreign currency translation adjustments, approximated $29.7 million and $116.1 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 nine months ended September 30, 2005 was $19 million and $44.7 million, respectively, compared with $11.3 million and $29.8 million, respectively, for the prior year periods. Loan originations for the three and nine months ended September 30, 2005 increased 24% and 22% to 10,985 and 28,022 mortgages, respectively, compared with the prior year periods.

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


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2005		2004		2005		2004

Total originations:
Loans		10,985		8,846		28,022		22,916

Principal ($000’s omitted)	$	2,163,100	$	1,705,900	$	5,481,700	$	4,354,400


Originations for Pulte customers:
Loans		10,920		8,213		27,370		20,685

Principal ($000’s omitted)	$	2,146,100	$	1,610,900	$	5,364,700	$	4,003,600

Mortgage origination unit and principal volume for the three months ended September 30, 2005 increased 24% and 27%, respectively, over the same period in 2004. For the nine months ended September 30, 2005, mortgage origination unit and principal volume increased 22% and 26%, 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 99% and 98% of total Pulte Mortgage unit production for the three and nine months ended September 30, 2005, respectively, compared with 93% and 90% for the same periods in 2004. Refinancings accounted for approximately 1% of total unit originations for the three and nine months ended September 30, 2005, respectively, compared with 2% and 3% for the same periods in the prior year. At September 30, 2005, loan application backlog increased to $5.4 billion as compared with $4 billion at September 30, 2004.

Adjustable rate mortgages (ARMs), which generally have a lower profit per loan than fixed rate products, represented 42% of total funded origination dollars and 37% of total funded origination units for the three months ended September 30, 2005, compared with 45% and 44% in the prior year period, respectively. For the nine months ended September 30, 2005, ARMs represented 47% of total funded origination dollars and 41% of total funded origination units compared with 40% and 38% in the prior year period, respectively. Interest only mortgages, a component of ARMs, represented 67% of ARMs origination dollars and 57% of ARMs origination units for the three months ended September 30, 2005, compared with 41% and 30% in the prior year period, respectively. For the nine months ended September 30, 2005, interest only mortgages represented 64% of ARMs origination dollars and 53% of ARMs origination units, compared with 34% and 25% in the prior year period, respectively.

Income from our title operations increased to $5.8 million and $14.5 million for the three and nine months ended September 30, 2005, respectively, from $4.4 million and $11.2 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 nine months ended September 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 September 30, 2005. Income for the three and nine months ended September 2004, was $1.3 million and $2.3 million, respectively. We are currently in the process of evaluating various long-term strategic alternatives with regard to all of our International operations.

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 nine months ended September 30, 2005 and 2004 ($000’s omitted):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2005		2004		2005		2004

Net interest expense	$	12,213	$	12,181	$	40,863	$	35,927

Other corporate expenses, net		12,520		12,389		35,732		32,739


Loss before income taxes	$	24,733	$	24,570	$	76,595	$	68,666

Interest expense, net of interest capitalized into inventory, remained consistent for the quarter ended September 30, 2005 with the same period in the prior year. Interest expense, net of interest capitalized into inventory, increased $4.9 million for the nine months ended September 30, 2005. This is a result of the continued increase in debt levels necessary to support our growth. For the three-month period, higher interest expense related to increased debt funding was offset by the reversal of interest from the favorable resolution of certain tax matters. Interest incurred, excluding interest incurred by our financial services operations, for the three and nine months ended September 30, 2005, was approximately $57.5 million and $173.2 million, and for the three and nine months ended September 30, 2004 was approximately $55.3 million and $154.5 million, respectively.

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. Information related to Corporate interest capitalized into inventory is as follows ($000’s omitted):


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2005			2004			2005			2004

Interest in inventory at beginning of period	$	236,418		$	223,482		$	223,591		$	200,584
Interest capitalized		44,187			42,968			128,661			116,986

Interest expensed		(49,431	)		(36,241	)		(121,078	)		(87,361	)


Interest in inventory at end of period	$	231,174		$	230,209		$	231,174		$	230,209

Liquidity and Capital Resources

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

At September 30, 2005, we had cash and equivalents of $214.9 million and $3.5 billion of senior and unsubordinated notes outstanding. Other financing included limited recourse collateralized financing totaling $68.5 million. Sources of our working capital include our cash and equivalents, our committed unsecured revolving credit facility (see below) and Pulte Mortgage’s $940 million committed credit arrangements.

In October 2005, we restructured and amended our 5-year unsecured revolving credit facility, increasing the borrowing availability from $1.38 billion to $1.615 billion, and extending the maturity date from September 2009 to October 2010, with pricing more favorable to us. The credit facility includes an uncommitted accordion feature, under which the credit facility may be increased to $2.25 billion. We have the capacity to issue letters of credit up to $1.125 billion. Borrowing availability is reduced by the amount of letters of credit outstanding. The credit facility contains restrictive covenants, the most restrictive of which requires that we do not exceed a debt-to-total capitalization ratio of 60% as defined in the agreement.

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 September 30, 2005.

Our debt-to-total capitalization, excluding our collateralized debt, was approximately 39.1% at September 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 September 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.

Pursuant to the $100 million stock repurchase program authorized by our Board of Directors in October 2002, the Company repurchased 461,000 shares and 1,031,000 shares of Pulte Homes, Inc. common stock in open-market transactions or otherwise, for a total of $20 million and $41.1 million, for the three and nine months ended September 30, 2005, respectively. As of September 30, 2005, we had remaining authorization to purchase common stock aggregating $21.7 million under this stock repurchase program.

In October 2005, our Board of Directors approved an increase to our stock repurchase authorization of up to $100 million in open-market transactions or otherwise. After approval of the increase, we had $121.7 million available for stock repurchases.

In July 2005, our Board of Directors declared a two-for-one stock split effected in the form of a 100 percent stock dividend. The additional shares of common stock were distributed on September 1, 2005, to the shareholders of record as of August 15, 2005. All share and per share amounts have been restated to retroactively reflect the stock split.

In July 2005, our Board of Directors approved an increase in our quarterly dividend of $.03 per share, 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 was 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 September 30, 2005, our effective tax rate was 37.1% compared to 38% at September 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%.

Our net cash used in operating activities for the nine months ended September 30, 2005 was $500.3 million, compared with $1.2 billion for the nine months ended September 30, 2004. Net income for both years was offset primarily by significant investments in land necessary to support the continued growth of the business.

Liquidity and Capital Resources (continued)

Cash used in investing activities was $84.5 million for the nine months ended September 30, 2005, compared with $155.3 million for the nine months ended September 30, 2004. During the nine months ended September 30, 2005, we invested approximately $31.2 million to purchase our minority shareholders’ interest in Pulte Mexico. In addition, we invested approximately $20.6 million in new joint ventures that develop and/or sell land within the United States. Also, we made $121.7 million of additional capital contributions to and received $135.1 million in distributions from our unconsolidated joint ventures for the nine months ended September 30, 2005. Further, we incurred approximately $61.1 million in capital expenditures to support the growth of our business.

Net cash provided by financing activities totaled $484.9 million for the nine months ended September 30, 2005. Cash inflows from financing activities for the nine months ended September 30, 2005 are primarily attributed to the issuance of senior notes. Cash outflows from financing activities for the nine months ended September 30, 2005 primarily relate to net repayment of debt from Pulte Mortgage’s committed credit arrangements, dividends paid and stock repurchases.

We have repaid our $125 million, 7.3% unsecured senior notes, which were due in October 2005, using both our revolving credit facility and 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 resulted 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 are currently in the process of evaluating various long-term strategic alternatives with regard to all of our International operations.

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, as amended (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 option pricing model to estimate the value of stock options granted to employees and 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 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). Because these amounts are not significant, the adoption of SFAS No. 123(R) is not expected to have a material impact on our results of operations or financial position. This statement is effective for fiscal periods beginning after December 15, 2005.

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. We do not expect the adoption of SAB No. 107 to have a material impact on our results of operations or financial position.

Critical Accounting Policies and Estimates

There have been no significant changes to our critical accounting policies and estimates during the nine months ended September 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 September 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 September 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		$	3,584,426
Average interest rate		7.3	%		—			—			—			4.88	%		6.58	%		6.41	%

Limited recourse collateralized financing	$	41,117		$	15,896		$	5,247		$	4,923		$	373		$	934		$	68,490		$	68,490
Average interest rate		1.71	%		1.87	%		1.24	%		1.37	%		7.25	%		7.25	%		1.79	%

Qualitative disclosure:

This information can be found in Item 7A.,Quantitative and Qualitative Disclosures about Market Risk,of our Annual Report on Form10-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 September 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 September 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 (2)

per share (2)

or programs

($000’s omitted)

August 1, 2005 through August 31, 2005

461,000

43.34

461,000

21,667

(1)

Total

461,000

(3)

43.34

461,000


(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. As of September 30, 2005 the Company had remaining authorization to purchase common stock aggregating $21,667 million under this program.

		In October 2005, our Board of Directors approved an increase to the stock repurchase authorization of $100 million of Pulte Homes, Inc. common stock in open-market transactions or otherwise. After approval of the increase, we had $121.7 million available for stock repurchases. This increase in share repurchase authorization has not been reflected in column (d) above, as it occurred subsequent to September 30, 2005.

(2)		Share information has been adjusted to reflect the Company’s two-for-one stock split, effected in the form of a 100 percent stock dividend, which was distributed on September 1, 2005, to shareholders of record as of August 15, 2005.

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

Item 5. Other Information

On October 31, 2005, Pulte Homes, Inc. (the “Company”) restructured and amended its 5-year unsecured revolving credit facility (the “Credit Facility”), increasing the borrowing availability from $1.38 billion to $1.615 billion, and extending the maturity date from September 2009 to October 2010, with pricing more favorable to the Company. The credit facility includes an uncommitted accordion feature, under which the credit facility may be increased to $2.25 billion. The Company has the capacity to issue letters of credit up to $1.125 billion. Borrowing availability is reduced by the amount of letters of credit outstanding. The credit facility contains restrictive covenants, the most restrictive of which requires the Company not to exceed a debt-to-total capitalization ratio of 60% as defined in the agreement.

J.P. Morgan Securities, Inc. served as Lead Arranger and Sole Bookrunner for the Credit Facility on the Company’s behalf, and JP Morgan Chase Bank, N.A., served as Administrative Agent. The Credit Facility was broadly syndicated among 36 participants.

A copy of the restructured and amended Credit Facility is filed herewith as Exhibit 10.1.

Item 6. Exhibits

(a) Exhibits

Exhibit Number and Description

10.1		Second Amended and Restated Credit Agreement among Pulte Homes, Inc., as Borrower, The Lenders Identified Herein, JP Morgan Chase Bank, NA, as Administrative Agent, and Citigroup Global Markets, Inc., as Syndication Agent and Barclays Bank PLC, BNP Paribas, Calyon New York Branch, Comerica Bank, Deutsche Bank Trust Company Americas, Merrill Lynch Bank USA, The Royal Bank of Scotland PLC, Suntrust Bank, UBS Loan Finance LLC, and Wachovia Bank, National Association, as Documentation Agents and The Bank of Tokyo-Mitsubishi, Ltd., Chicago Branch, Bank of America, N.A., Guaranty Bank, Lloyds TSB Bank PLC, Mizuho Corporate Bank, Ltd., and PNC Bank, National Association as Managing Agents and LaSalle Bank National Association, Washington Mutual Bank, AmSouth Bank, Fifth Third Bank, A Michigan Bank Corporation, and U.S. Bank, National Association, as Co-Agents dated as of October 31, 2005.

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 and duly authorized officer)



	/s/ Vincent J. Frees

	Vincent J. Frees Vice President and Controller (Principal Accounting Officer and duly authorized officer)

	Date: November 4, 2005

Exhibits Index

Exhibit No.		Description

10.1		Second Amended and Restated Credit Agreement among Pulte Homes, Inc., as Borrower, The Lenders Identified Herein, JP Morgan Chase Bank, NA, as Administrative Agent, and Citigroup Global Markets, Inc., as Syndication Agent and Barclays Bank PLC, BNP Paribas, Calyon New York Branch, Comerica Bank, Deutsche Bank Trust Company Americas, Merrill Lynch Bank USA, The Royal Bank of Scotland PLC, Suntrust Bank, UBS Loan Finance LLC, and Wachovia Bank, National Association, as Documentation Agents and The Bank of Tokyo-Mitsubishi, Ltd., Chicago Branch, Bank of America, N.A., Guaranty Bank, Lloyds TSB Bank PLC, Mizuho Corporate Bank, Ltd., and PNC Bank, National Association as Managing Agents and LaSalle Bank National Association, Washington Mutual Bank, AmSouth Bank, Fifth Third Bank, A Michigan Bank Corporation, and U.S. Bank, National Association, as Co-Agents dated as of October 31, 2005.

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 Q3 Quarterly report

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