UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2007

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

PULTE HOMES, INC.

(Exact name of registrant as specified in its charter)

MICHIGAN (State or other jurisdiction of incorporation or organization)		38-2766606 (I.R.S. Employer 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 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ NO o

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

Large accelerated filer þ            Accelerated filer o           Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES o NO þ

Number of shares of common stock outstanding as of July 31, 2007: 255,905,882

 

 

PULTE HOMES, INC.

INDEX

		Page No.
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Consolidated Balance Sheets at June 30, 2007 and December 31, 2006			3
Consolidated Statements of Operations for the three and six months ended June 30, 2007 and 2006			4
Consolidated Statements of Shareholders’ Equity for the six months ended June 30, 2007 and 2006			5
Consolidated Statements of Cash Flows for the six months ended June 30, 2007 and 2006			6
Notes to Condensed Consolidated Financial Statements			7
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations			27
Item 3 Quantitative and Qualitative Disclosures About Market Risk			41
Item 4 Controls and Procedures			41
PART II OTHER INFORMATION
Item 1A Risk Factors			42
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds			43
Item 4 Submission of Matters to a Vote of Security Holders			44
Item 6 Exhibits			45
SIGNATURES			46
Certification
Certification
Section 1350 Certification

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

PULTE HOMES, INC.

		June 30,				December 31,
		2007				2006
		(Unaudited)				(Note)
ASSETS
Cash and equivalents		$	74,652			$	551,292
Unfunded settlements			37,170				72,597
House and land inventory			9,088,899				9,374,335
Land held for sale			389,582				465,823
Land, not owned, under option agreements			34,848				43,609
Residential mortgage loans available-for-sale			380,555				871,350
Investments in unconsolidated entities			165,217				150,685
Goodwill			375,677				375,677
Intangible assets, net			114,829				118,954
Other assets			850,010				982,034
Deferred income tax assets			440,209				170,518
		$	11,951,648			$	13,176,874
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Accounts payable, including book overdrafts of $230,181 and $280,329 in 2007 and 2006, respectively		$	609,803			$	576,321
Customer deposits			272,576				200,478
Accrued and other liabilities			1,114,973				1,403,793
Unsecured short-term borrowings			173,000				—
Collateralized short-term debt, recourse solely to applicable non-guarantor subsidiary assets			333,071				814,707
Income taxes			524				66,267
Senior notes			3,477,534				3,537,947
Total liabilities			5,981,481				6,599,513
Shareholders’ equity			5,970,167				6,577,361
		$	11,951,648			$	13,176,874

Note: The condensed consolidated balance sheet at December 31, 2006, 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.

(Unaudited)

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2007				2006				2007				2006
Revenues:
Homebuilding		$	1,993,498			$	3,318,055			$	3,823,406			$	6,232,807
Financial services			27,362				40,467				66,943				85,324
Other non-operating			386				445				2,330				3,412
Total revenues			2,021,246				3,358,967				3,892,679				6,321,543
Expenses:
Homebuilding, principally cost of sales			2,741,446				2,935,896				4,718,720				5,474,281
Financial Services			20,886				25,536				47,316				52,776
Other non-operating, net			10,372				8,598				19,673				20,948
Total expenses			2,772,704				2,970,030				4,785,709				5,548,005
Other income:
Gain on sale of equity investment			—				—				—				31,635
Equity income (loss)			(55,151	)			(1,212	)			(56,127	)			96
Income (loss) from continuing operations before income taxes			(806,609	)			387,725				(949,157	)			805,269
Income taxes (benefit)			(299,058	)			143,873				(355,934	)			298,772
Income (loss) from continuing operations			(507,551	)			243,852				(593,223	)			506,497
Loss from discontinued operations			—				(833	)			—				(833	)
Net income (loss)		$	(507,551	)		$	243,019			$	(593,223	)		$	505,664
Per share data:
Basic:
Income (loss) from continuing operations		$	(2.01	)		$	.97			$	(2.35	)		$	2.00
Loss from discontinued operations			—				—				—				—
Net income (loss)		$	(2.01	)		$	.96			$	(2.35	)		$	2.00
Assuming dilution:
Income (loss) from continuing operations		$	(2.01	)		$	.94			$	(2.35	)		$	1.95
Loss from discontinued operations			—				—				—				—
Net income (loss)		$	(2.01	)		$	.94			$	(2.35	)		$	1.95
Cash dividends declared		$	.04			$	.04			$	.08			$	.08
Number of shares used in calculation:
Basic:
Weighted-average common shares outstanding			252,093				252,618				252,006				253,148
Assuming dilution:
Effect of dilutive securities – stock options and restricted stock grants			—				6,329				—				6,704
Adjusted weighted-average common shares and effect of dilutive securities			252,093				258,947				252,006				259,852

See accompanying Notes to Condensed Consolidated Financial Statements.

PULTE HOMES, INC.

(Unaudited)

										Accumulated
										Other
						Additional				Comprehensive
		Common				Paid-in				Income				Retained
		Stock				Capital				(Loss)				Earnings				Total
Shareholders’ Equity, December 31, 2006		$	2,553			$	1,284,687			$	(2,986	)		$	5,293,107			$	6,577,361
Adoption of FASB Interpretation No. 48 (FIN 48)			—				—				—				(31,354	)			(31,354	)
Stock option exercises			4				5,616				—				—				5,620
Tax benefit from stock option exercises and restricted stock vesting			—				3,414				—				—				3,414
Restricted stock awards			3				(3	)			—				—				—
Cash dividends declared - $.08 per share			—				—				—				(20,474	)			(20,474	)
Stock repurchases			(1	)			(754	)							(4,358	)			(5,113	)
Stock-based compensation			—				34,590				—				—				34,590
Comprehensive income (loss):
Net loss			—				—				—				(593,223	)			(593,223	)
Change in fair value of derivatives			—				—				(803	)			—				(803	)
Foreign currency translation adjustments			—				—				149				—				149
Total comprehensive income (loss)																			(593,877	)
Shareholders’ Equity, June 30, 2007		$	2,559			$	1,327,550			$	(3,640	)		$	4,643,698			$	5,970,167
Shareholders’ Equity, December 31, 2005		$	2,570			$	1,209,148			$	(5,496	)		$	4,751,120			$	5,957,342
Stock option exercises			2				3,450								—				3,452
Tax benefit from stock option exercises and restricted stock vesting			—				3,333				—				—				3,333
Restricted stock awards			7				(7	)			—				—				—
Cash dividends declared - $.08 per share			—				—				—				(20,494) (				20,494	)
Stock repurchases			(29	)			(13,841	)			—				(85,744	)			(99,614	)
Stock-based compensation			—				33,476				—				—				33,476
Comprehensive income (loss):
Net income			—				—				—				505,664				505,664
Change in fair value of derivatives			—				—				226				—				226
Foreign currency translation adjustments			—				—				1,225				—				1,225
Total comprehensive income																			507,115
Shareholders’ Equity, June 30, 2006		$	2,550			$	1,235,559			$	(4,045	)		$	5,150,546			$	6,384,610

See accompanying Notes to Condensed Consolidated Financial Statements.

PULTE HOMES, INC.

		For The Six Months Ended
		June 30,
		2007				2006
Cash flows from operating activities:
Net income (loss)		$	(593,223	)		$	505,664
Adjustments to reconcile net income (loss) to net cash flows provided by (used in) operating activities:
Write-down of land and deposits and pre-acquisition costs			827,390				67,326
Gain on sale of equity investment			—				(31,635	)
Amortization and depreciation			43,273				37,987
Stock-based compensation expense			34,590				33,476
Deferred income taxes			(261,139	)			(55	)
Equity loss (income) from unconsolidated entities			56,127				(96	)
Distributions of earnings from unconsolidated entities			4,161				5,312
Other, net			4,645				1,490
Increase (decrease) in cash due to:
Inventories			(519,760	)			(2,104,010	)
Residential mortgage loans available-for-sale			490,795				516,998
Other assets			161,571				112,491
Accounts payable, accrued and other liabilities			(135,552	)			(63,955	)
Income taxes			(105,649	)			(134,451	)
Net cash provided by (used in) operating activities			7,229				(1,053,458	)
Cash flows from investing activities:
Distributions from unconsolidated entities			28,838				31,336
Investments in unconsolidated entities			(94,968	)			(20,744	)
Investments in subsidiaries, net of cash acquired			—				(65,779	)
Proceeds from the sale of equity investments			—				49,216
Proceeds from the sale of fixed assets			5,167				534
Capital expenditures			(32,608	)			(54,393	)
Net cash used in investing activities			(93,571	)			(59,830	)
Cash flows from financing activities:
Net repayments under Financial Services credit arrangements			(481,636	)			(415,973	)
Net borrowings under revolving credit facility			173,000				614,500
Proceeds from other borrowings			—				150,000
Repayment of other borrowings			(64,973	)			(17,519	)
Excess tax benefits from share-based awards			3,414				1,794
Issuance of common stock			5,620				3,452
Stock repurchases			(5,113	)			(99,614	)
Dividends paid			(20,474	)			(20,494	)
Net cash provided by (used in) financing activities			(390,162	)			216,146
Effect of exchange rate changes on cash and equivalents			(136	)			(667	)
Net decrease in cash and equivalents			(476,640	)			(897,809	)
Cash and equivalents at beginning of period			551,292				1,002,268
Cash and equivalents at end of period		$	74,652			$	104,459
Supplemental Cash Flow Information:
Interest paid, net of amounts capitalized		$	8,420			$	6,257
Income taxes paid		$	7,211			$	432,183

See accompanying Notes to Condensed Consolidated Financial Statements.

PULTE HOMES, INC.

1.		Basis of presentation and significant accounting policies
		Basis of presentation

     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 and other subsidiaries that are engaged in the homebuilding business. The Company also has a mortgage banking company, Pulte Mortgage LLC (“Pulte Mortgage”), which is a subsidiary of Pulte Home Corporation.

     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 six months ended June 30, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007. 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, 2006.

Earnings per share

     Basic earnings per share is computed by dividing income available to common shareholders (the “numerator”) by the weighted-average number of common shares, adjusted for non-vested shares of restricted stock (the “denominator”) for the period. Computing diluted earnings per share is similar to computing basic earnings per share, except that the denominator is increased to include the dilutive effects of options and non-vested shares of restricted stock. Any options that have an exercise price greater than the average market price are considered to be anti-dilutive, and are excluded from the diluted earnings per share calculation. The calculation of diluted earnings per share excludes 21,202,516 and 21,515,070 stock options and shares of restricted stock for the three and six months ended June 30, 2007, respectively, and 2,454,200 and 2,414,200 stock options and shares of restricted stock for the three and six months ended June 30, 2006, respectively. For the three and six months ended June 30, 2007, all stock options and non-vested restricted stock were excluded from the calculation as they were anti-dilutive due to the net loss recorded during the period.

Restructuring

     In response to the challenging operating environment that continues to exist, the Company initiated a restructuring plan during the three months ended June 30, 2007 designed to reduce ongoing overhead costs and improve operating efficiencies. The restructuring includes the closure of selected divisional offices, the disposal of related property and equipment, and a reduction in the Company’s workforce of approximately 1,700 employees. Included below is a summary of charges incurred and expected to be incurred related to the restructuring ($000’s omitted):

						Total Expected to
		Incurred to Date				be Incurred
Employee severance benefits		$	31,424			$	32,000 to $35,000
Asset impairments			4,515				5,000 to 8,000
Lease terminations and other exit costs			3,204				5,000 to 7,000
		$	39,143			$	42,000 to $50,000

     Substantially all of these costs have been included in the Consolidated Statements of Operations within Homebuilding expense. We expect to incur $33 million to $40 million of cash expenditures related to the restructuring plan, the majority of which relate to employee severance benefits and will be incurred during 2007. The remaining cash expenditures will be incurred over the remaining terms of the affected office leases, some of which continue through 2014. The restructuring costs relate to each of our reportable segments and are not material to any one segment.

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

1.		Basis of presentation and significant accounting policies (continued)
		Land Valuation Adjustments and Write-Offs Impairment of long-lived assets

     In accordance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long Lived Assets” (SFAS No. 144), the Company records valuation adjustments on land inventory and related communities under development when events and circumstances indicate that they may be impaired and when the cash flows estimated to be generated by those assets are less than their carrying amounts. Such indicators include gross margin or sales paces significantly below expectations, construction costs or land development costs significantly in excess of budgeted amounts, significant delays or changes in the planned development for the community, and other known qualitative factors. For communities that are not yet active, a significant additional consideration includes an evaluation of the regulatory environment related to the probability, timing, and cost of obtaining necessary approvals from local municipalities and any potential concessions that may be necessary in order to obtain such approvals. We also consider potential changes to the product offerings in a community and any alternative strategies for the land, such as the sale of the land either in whole or in parcels. The weakened market conditions that arose during 2006 have persisted into 2007 and resulted in lower than expected net new orders, revenues, and gross margins and higher than expected cancellation rates during the six months ended June 30, 2007. As a result, a portion of the Company’s land inventory and communities under development demonstrated potential impairment indicators and were accordingly tested for impairment. As required by SFAS No. 144, the Company compared the expected undiscounted cash flows for these communities to their carrying value. For those communities whose carrying values exceeded the expected undiscounted cash flows, the Company calculated the fair value of the community. Impairment charges are required to be recorded if the fair value of the community’s inventory is less than its carrying amount. The Company determined the fair value of the community’s inventory using a discounted cash flow model. These estimated cash flows are significantly impacted by estimates related to expected average selling prices and sale incentives, expected sales paces and cancellation rates, expected land development construction timelines, and anticipated land development, construction, and overhead costs. Such estimates must be made for each individual community and may vary significantly between communities. Due to uncertainties in the estimation process, the significant volatility in demand for new housing, and the long life cycles of many communities, actual results could differ significantly from such estimates. The Company’s determination of fair value also requires discounting the estimated cash flows at a rate commensurate with the inherent risks associated with the assets and related estimated cash flow streams. The discount rate used in determining each community’s fair value depends on the stage of development of the community and other specific factors that increase or decrease the inherent risks associated with the community’s cash flow streams. For example, communities that are entitled and near completion will generally require a lower discount rate than communities that are not entitled and consist of multiple phases spanning several years of development and construction activity.

     The Company recorded valuation adjustments of $603.1 million (related to 139 communities) and $9.3 million (related to three communities) for the three months ended June 30, 2007 and 2006, respectively, and $665.5 million (related to 174 communities) and $9.4 million (related to three communities) for the six months ended June 30, 2007 and 2006, respectively, to reduce the carrying value of the impaired assets to their estimated fair value. The Company recorded these valuation adjustments in its Consolidated Statements of Operations within Homebuilding expense. For the three months ended June 30, 2007, the Company performed detailed impairment calculations for 212 communities resulting in impairments for 139 communities. The discount rate used in the Company’s determination of fair value for these 139 communities ranged from 10% to 19% with an aggregate average of 12%, and the remaining carrying value of such communities totaled $695.8 million at June 30, 2007. These 139 communities included 30 of our long-lived active adult communities as well as 39 communities for which impairments were also recorded in prior periods. In the event that market conditions or our operations deteriorate in the future or the current difficult market conditions extend beyond our expectations, additional impairments may be experienced in the future.

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

1.		Basis of presentation and significant accounting policies (continued)
		Land Valuation Adjustments and Write-Offs
		Net realizable value adjustments – land held for sale

     In accordance with SFAS No. 144, the Company values long-lived assets held for sale at the lower of carrying amount or fair value less cost to sell. The Company records these net realizable value adjustments in its Consolidated Statements of Operations within Homebuilding expense. The Company recognized net realizable valuation adjustments to land held for sale of $34 million and $22 million for the three months ended June 30, 2007 and 2006, respectively, and $52.3 million and $22.1 million for the six months ended June 30, 2007 and 2006, respectively.

Write-off of deposits and pre-acquisition costs

     From time to time, the Company writes off certain deposits and pre-acquisition costs related to land option contracts the Company no longer plans to pursue. Such decisions take into consideration changes in national and local market conditions, the willingness of land sellers to modify terms of the related purchase agreement, the timing of required land takedowns, the availability and best use of necessary capital, and other factors. The Company wrote off deposits and pre-acquisition costs in the amount of $58.2 million and $30.8 million for the three months ended June 30, 2007 and 2006, respectively, and $109.7 million and $35.9 million for the six months ended June 30, 2007 and 2006, respectively. The Company records these write-offs of deposits and pre-acquisition costs for land option contracts the Company no longer plans to pursue in its Consolidated Statements of Operations within Homebuilding expense.

Land, not owned, under option agreements

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

     In applying the provisions of FIN 46, the Company evaluated all land option agreements and determined that the Company was subject to a majority of the expected losses or entitled to receive a majority of the expected residual returns under a limited number of these agreements. As the primary beneficiary under these agreements, the Company is required to consolidate variable interest entities at fair value. At June 30, 2007 and December 31, 2006, the Company classified $34.8 million and $43.6 million, respectively, as land, not owned, under option agreements on the balance sheet, representing the fair value of land under contract, including deposits of $3.9 million and $6 million, respectively. The corresponding liability has been classified within accrued and other liabilities on the balance sheet.

     Land option agreements that did not require consolidation under FIN 46 at June 30, 2007 and December 31, 2006, had a total purchase price of $2.9 billion and $4.3 billion, respectively. In connection with these agreements, the Company had refundable and non-refundable deposits and pre-acquisition costs of $312.3 million and $363.5 million which were included in other assets at June 30, 2007 and December 31, 2006, respectively.

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

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

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

     Changes to the Company’s allowance for warranties are as follows ($000’s omitted):

		Six Months Ended
		June 30,
		2007				2006
Allowance for warranties at beginning of period		$	117,259			$	112,297
Warranty reserves provided			35,311				73,152
Payments and other adjustments			(50,997	)			(82,440	)
Allowance for warranties at end of period		$	101,573			$	103,009

Insurance

     We have, and require the majority of our subcontractors to have, general liability, property, errors and omissions, workers compensation and other business insurance. These insurance policies protect us against a portion of the risk of loss from claims, subject to certain self-insured retentions, deductibles, and other coverage limits. Through our captive insurance subsidiaries, we reserve for costs to cover our self-insured and deductible amounts, including any costs of claims and lawsuits, under those policies based on an analysis of our historical claims, which include an estimate of claims incurred but not yet reported. We experienced net increases in insurance-related expenses of $30.3 million and $40 million for the three and six months ended June 30, 2007, respectively, primarily due to the development of several large general liability product claims.

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

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

     In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115” (SFAS No. 159), which permits entities to measure various financial instruments and certain other items at fair value at specified election dates. The election must be made at initial recognition of the financial instrument, and any unrealized gains or losses must be reported at each reporting date. SFAS No. 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Early adoption of the statement is allowed provided that an entity also elects to apply the provisions of SFAS No. 157 (as subsequently presented). The Company is currently reviewing the potential impact of SFAS No. 159 on its consolidated financial statements.

     In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS No. 157), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company is currently reviewing the potential impact of SFAS No. 157 on its consolidated financial statements.

     In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets” (SFAS No. 156), which provides an approach to simplify efforts to obtain hedge-like (offset) accounting. This new Statement amends SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” with respect to the accounting for separately recognized servicing assets and servicing liabilities. The Company adopted SFAS No. 156 effective January 1, 2007. As the Company sells its servicing rights monthly on a flow basis through fixed price servicing sales contracts, the adoption of SFAS No. 156 did not have a significant impact on the Company’s consolidated financial statements.

     The FASB has revised its guidance on SFAS No. 133 Implementation Issues as of March 2006. Several Implementation Issues were revised to reflect the issuance of SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments – an Amendment of FASB Statements No. 133 and 140” (SFAS No. 155), in February 2006. SFAS No. 155 allows any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, to be carried at fair value in its entirety, with changes in fair value recognized in earnings. In addition, SFAS No. 155 requires that beneficial interests in securitized financial assets be analyzed to determine whether they are freestanding derivatives or contain an embedded derivative. SFAS No. 155 also eliminates a prior restriction on the types of passive derivatives that a qualifying special purpose entity is permitted to hold. SFAS No. 155 is applicable to new or modified financial instruments in fiscal years beginning after September 15, 2006, though the provisions related to fair value accounting for hybrid financial instruments can also be applied to existing instruments. The Company adopted SFAS No. 155 effective January 1, 2007. The effect of adoption was not significant.

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

2.

Segment information

     The Company’s Homebuilding operating segments are 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 first-time, first and second move-up, and active adult home buyers.

     The Company has determined that its operating segments are its Areas, which are aggregated into seven reportable segments based on similarities in the economic and geographic characteristics of the Company’s homebuilding operations. During the three months ended June 30, 2007, the Company merged its Rocky Mountain Area with its Nevada Area to form the Mountain West Area. The operating data by segment for the Central and Southwest reportable segments have been reclassified to reflect this change. Accordingly, the Company’s reportable Homebuilding segments are as follows:

Northeast:		Northeast Area includes the following states:
		Connecticut, Delaware, Maryland, Massachusetts, New Jersey,
		New York, Pennsylvania, Virginia
Southeast:		Southeast Area includes the following states:
		Georgia, North Carolina, South Carolina, Tennessee
Florida:		Florida Area includes the following state:
		Florida
Midwest:		Great Lakes Area includes the following states:
		Illinois, Indiana, Michigan, Minnesota, Ohio
Central:		Central Area includes the following states:
		Kansas, Missouri, Texas
Southwest:		Mountain West and Southwest Areas include the following states:
		Arizona, Colorado, Nevada, New Mexico
*California:		Northern California and Southern California Areas include the following state:
		California

*The Company’s homebuilding operations located in Reno, Nevada are reported in the California segment, while its remaining Nevada homebuilding operations are reported in the Southwest segment.

     The Company also has one reportable segment for its Financial Services operations which consists principally of mortgage banking and title operations conducted through Pulte Mortgage and other Company subsidiaries. The Company’s Financial Services segment operates generally in the same markets as the Company’s Homebuilding segments.

     Evaluation of segment performance is based on operating earnings from continuing operations before provision for income taxes which, for the homebuilding operations, is defined as home sales (settlements) and land sale revenues less home cost of sales, land cost of sales and certain selling, general and administrative and other expenses, plus equity income from unconsolidated entities, which are incurred by or allocated to our Homebuilding segments. Operating earnings for the Financial Services segment is defined as revenues less costs associated with our mortgage operations and certain selling, general and administrative expenses incurred by or allocated to the financial services segment.

     Each reportable segment follows the same accounting policies described in Note 1 – “Summary of Significant Accounting Policies” to the consolidated financial statements in the Company’s 2006 Annual Report on Form 10-K.

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

2. Segment information (continued)

		Operating Data by Segment ($000's omitted)
		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2007				2006				2007				2006
Revenues:
Northeast		$	233,218			$	391,373			$	396,890			$	745,161
Southeast			298,952				299,201				528,267				523,664
Florida			299,811				577,178				602,108				1,083,053
Midwest			175,002				275,003				311,230				504,466
Central			147,910				245,542				324,990				465,096
Southwest			527,794				928,028				1,033,380				1,670,245
California			310,811				601,730				626,541				1,241,122
Financial Services			27,362				40,467				66,943				85,324
Total segment revenues			2,020,860				3,358,522				3,890,349				6,318,131
Corporate and unallocated (a)			386				445				2,330				3,412
Consolidated revenues		$	2,021,246			$	3,358,967			$	3,892,679			$	6,321,543
Income (loss) from continuing operations before income taxes:
Northeast		$	(67,609	)		$	46,733			$	(100,533	)		$	82,416
Southeast			26,616				22,477				40,524				34,352
Florida			(122,388	)			132,062				(120,927	)			246,272
Midwest			(106,835	)			(7,265	)			(127,874	)			(7,747	)
Central			(52,631	)			4,124				(78,984	)			11,127
Southwest			(102,012	)			166,954				(119,390	)			311,849
California			(229,952	)			72,837				(236,896	)			170,085
Financial Services (b)			6,568				15,056				19,763				64,400
Total segment income (loss) before income taxes			(648,243	)			452,978				(724,317	)			912,754
Corporate and unallocated (c)			(158,366	)			(65,253	)			(224,840	)			(107,485	)
Consolidated income (loss) from continuing operations before income taxes (d)		$	(806,609	)		$	387,725			$	(949,157	)		$	805,269

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

2. Segment information (continued)

		Valuation Adjustments and Write-Offs by Segment ($000’s omitted)
		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2007				2006				2007				2006
Land and community valuation adjustments:
Northeast		$	56,904			$	—			$	56,904			$	—
Southeast			253				—				253				—
Florida			100,134				—				102,499				—
Midwest			96,944				8,014				109,187				8,072
Central			42,559				1,306				68,094				1,306
Southwest			105,308				—				114,752				—
California			159,158				—				166,944				—
Corporate and unallocated (a)			41,818				—				46,818				—
Total valuation adjustments		$	603,078			$	9,320			$	665,451			$	9,378
Net realizable value adjustments (NRV) — land held for sale:
Northeast		$	—			$	—			$	—			$	—
Southeast			1,070				—				1,070				—
Florida							10,353				—				10,353
Midwest			—				5,660				—				5,660
Central			3,750				1,253				4,022				1,265
Southwest			9,459				15,125				27,459				15,125
California			9,368				—				9,368				—
Corporate and unallocated			—				—				—				—
Total NRV adjustments – land held for sale		$	34,000			$	22,038			$	52,272			$	22,050
Write-off of deposits and pre-acquisition costs (b):
Northeast		$	14,892				3,474				38,173				4,205
Southeast			302				1,400				514				1,451
Florida			10,041				1,123				9,839				1,330
Midwest			2,596				6,047				6,978				8,465
Central			892				1,245				892				1,329
Southwest			16,169				8,729				34,316				9,193
California			13,284				9,162				18,955				9,851
Corporate and unallocated			—				(370	)			—				74
Total write-off of deposits and pre-acquisition costs		$	58,176			$	30,810			$	109,667			$	35,898

The Company also recorded an impairment of $54.1 million in the California reporting segment related to an investment in an unconsolidated joint venture.

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

2.		Segment information (continued)
		Total assets and inventory by reportable segment are as follows ($000’s omitted):

		Assets				Inventory
As of June 30, 2007:
Northeast		$	1,540,915			$	1,267,126
Southeast			786,278				687,420
Florida			1,598,783				1,337,213
Midwest			785,527				750,899
Central			576,232				487,247
Southwest			3,099,019				2,743,846
California			1,771,066				1,608,189
Financial Services			440,924				—
Total segment			10,598,744				8,881,940
Corporate and unallocated (a)			1,352,904				206,959
Consolidated		$	11,951,648			$	9,088,899
As of December 31, 2006:
Northeast		$	1,530,238			$	1,167,454
Southeast			734,001				640,199
Florida			1,742,839				1,464,691
Midwest			902,833				842,714
Central			699,748				574,089
Southwest			3,100,927				2,691,505
California			1,953,240				1,761,000
Financial Services			951,206				—
Total segment			11,615,032				9,141,652
Corporate and unallocated (a)			1,561,842				232,683
Consolidated		$	13,176,874			$	9,374,335

3.

Inventory

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

		June 30,				December 31,
		2007				2006
Homes under construction		$	3,234,237			$	2,606,613
Land under development			4,412,097				5,478,244
Land held for future development			1,442,565				1,289,478
Total		$	9,088,899			$	9,374,335

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

4. Investments in unconsolidated entities

     The Company participates in a number of joint ventures with independent third parties. Many of these joint ventures purchase, develop and/or sell land and homes in the United States and Puerto Rico. If additional capital infusions are required and approved (or are necessary as a result of the limited recourse financing guarantees discussed below), the Company would need to contribute its pro rata portion of those capital needs in order not to dilute its ownership in the joint ventures.

     At June 30, 2007 and December 31, 2006, aggregate outstanding debt of unconsolidated joint ventures was $793 million and $935.9 million, respectively. At June 30, 2007 and December 31, 2006, the Company’s proportionate share of its joint venture debt was approximately $235.4 million and $312.8 million, respectively. The Company provided limited recourse guarantees for $226.3 million and $304.1 million of joint venture debt at June 30, 2007 and December 31, 2006, respectively. Accordingly, the Company may be liable, on a contingent basis, through limited guarantees with respect to a portion of the secured land acquisition and development debt. However, the Company would not be liable unless a joint venture was unable to perform its contractual borrowing obligations.

     For the six months ended June 30, 2007, the Company made additional capital contributions to fund the cash requirements of existing joint ventures totaling approximately $95 million and received capital and earnings distributions from existing joint ventures totaling approximately $33 million. At June 30, 2007 and December 31, 2006, the Company had approximately $165.2 million and $150.7 million, respectively, invested in these joint ventures. These investments are included in the assets of the Company’s Homebuilding segments and are primarily accounted for under the equity method.

5. Acquisitions and divestitures

     In February 2006, Pulte Mortgage sold its investment in Hipotecaria Su Casita (“Su Casita”), a Mexico-based mortgage banking company. Remaining shareholders of Su Casita, who exercised their right of first refusal to acquire the shares, purchased Pulte Mortgage’s 16.7% interest for net proceeds of approximately $49.2 million. As a result of this transaction, the Company recognized a pre-tax gain of approximately $31.6 million for the six months ended June 30, 2006.

6. Shareholders’ equity

     Pursuant to the two $100 million stock repurchase programs authorized by the Board of Directors in October 2002 and 2005 and the $200 million stock repurchase authorization in February 2006 (for a total stock repurchase authorization of $400 million), the Company has repurchased a total of 9,688,900 shares for a total of $297.7 million, though there were no repurchases under these programs during the six months ended June 30, 2007. The Company had remaining authorization to purchase $102.3 million of common stock at June 30, 2007.

     Accumulated other comprehensive income (loss)

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

		June 30,				December 31,
		2007				2006
Foreign currency translation adjustments:
Mexico		$	(167	)		$	(316	)
Fair value of derivatives, net of income taxes of $2,124 in 2007 and $1,637 in 2006			(3,473	)			(2,670	)
		$	(3,640	)		$	(2,986	)

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

7. Income Taxes

     The Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48), effective January 1, 2007. FIN 48 creates a single model to address accounting for uncertainty in tax positions and clarifies accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on de-recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition.

     The January 1, 2007 adoption of FIN 48 resulted in a $31.4 million increase in income tax liabilities and a corresponding charge to beginning retained earnings.

     As of adoption, the Company had $86.7 million of gross unrecognized tax benefits, all of which, if recognized, would affect the effective tax rate. Additionally, the Company had $24.5 million of accrued interest and $13.3 million of accrued penalties as of January 1, 2007.

     Effective in 2007, the Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. Interest related to unrecognized tax benefits was previously included in interest expense.

     The Company is currently under examination by various taxing jurisdictions and anticipates finalizing the examinations with certain jurisdictions within the next twelve months. The final outcome of these examinations is not yet determinable. The statute of limitations for the Company’s major tax jurisdictions remains open for examination for tax years 1998-2006.

8. Debt and Other Financing Arrangements

     The Company repurchased $61.2 million of its 4.875% senior notes due 2009 during the three months ended June 30, 2007. These repurchases resulted in a net gain of approximately $500 thousand which is included in the Consolidated Statements of Operations within Other non-operating, net expenses.

     On June 29, 2007, the Company amended its unsecured revolving credit facility, decreasing the borrowing availability from $2.01 billion to $1.86 billion and extending the maturity date from October 2010 to June 2012. Under the terms of the credit facility, 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 certain restrictive covenants, the most restrictive of which requires the Company not to exceed a debt-to-total capitalization ratio of 55%. The credit facility no longer contains an interest coverage ratio covenant that could create an event of default for the Company, but if the interest coverage ratio (as defined in the credit facility) is less than 2 to 1, LIBOR margin and letter of credit pricing under the credit facility increases in increments ranging from 0.125% to 0.375%. The credit facility’s uncommitted accordion feature remains unchanged at $2.25 billion.

     Pulte Mortgage reduced the amount of capacity available under its asset-backed commercial paper program from $550 million to $400 million effective June 1, 2007 as permitted by its existing agreement as the Company does not anticipate needing such capacity during 2007.

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

9. Supplemental Guarantor information

     At June 30, 2007, Pulte Homes, Inc. had the following outstanding senior note obligations: (1) $339 million, 4.875% due 2009, (2) $200 million, 8.125%, due 2011, (3) $499 million, 7.875%, due 2011, (4) $300 million, 6.25%, due 2013, (5) $500 million, 5.25%, due 2014, (6) $350 million, 5.2%, due 2015, (7) $150 million, 7.625%, due 2017, (8) $300 million, 7.875%, due 2032, (9) $400 million, 6.375%, due 2033, (10) $300 million, 6%, due 2035, and (11) $150 million, 7.375%, due 2046. 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 Homebuilding subsidiaries (collectively, the Guarantors). Such guarantees are full and unconditional.

     Supplemental consolidating financial information of the Company, including such information for the Guarantors, is presented below. Investments in subsidiaries are presented using the equity method of accounting. 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)

9. Supplemental Guarantor information (continued)

CONDENSED CONSOLIDATING BALANCE SHEET
June 30, 2007
($000’s omitted)

		Unconsolidated
																		Consolidated
		Pulte				Guarantor				Non-Guarantor				Eliminating				Pulte
		Homes, Inc.				Subsidiaries				Subsidiaries				Entries				Homes, Inc.
ASSETS
Cash and equivalents		$	—			$	25,383			$	49,269			$	—			$	74,652
Unfunded settlements			—				40,566				(3,396	)			—				37,170
House and land inventory			—				9,078,697				10,202				—				9,088,899
Land held for sale			—				389,582				—				—				389,582
Land, not owned, under option agreements			—				34,848				—				—				34,848
Residential mortgage loans available-for-sale			—				—				380,555				—				380,555
Investments in unconsolidated entities			1,448				150,812				12,957				—				165,217
Goodwill			—				374,977				700				—				375,677
Intangible assets, net			—				114,829				—				—				114,829
Other assets			45,143				727,997				76,870				—				850,010
Deferred income tax assets			423,626				372				16,211				—				440,209
Investment in subsidiaries			9,720,191				80,195				6,776,926				(16,577,312	)			—
		$	10,190,408			$	11,018,258			$	7,320,294			$	(16,577,312	)		$	11,951,648
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Accounts payable, accrued and other liabilities		$	158,957			$	1,528,341			$	310,054			$	—			$	1,997,352
Unsecured short-term borrowings			173,000				—				—								173,000
Collateralized short-term debt, recourse solely to applicable non-guarantor subsidiary assets			—				—				333,071				—				333,071
Income taxes			524				—				—				—				524
Senior notes			3,477,534				—				—				—				3,477,534
Advances (receivable) payable — subsidiaries			410,226				(263,825	)			(146,401	)			—				—
Total liabilities			4,220,241				1,264,516				496,724				—				5,981,481
Total shareholders’ equity			5,970,167				9,753,742				6,823,570				(16,577,312	)			5,970,167
		$	10,190,408			$	11,018,258			$	7,320,294			$	(16,577,312	)		$	11,951,648

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

9. Supplemental Guarantor information (continued)

CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2006
($000’s omitted)

		Unconsolidated
																		Consolidated
		Pulte				Guarantor				Non-Guarantor				Eliminating				Pulte
		Homes, Inc.				Subsidiaries				Subsidiaries				Entries				Homes, Inc.
ASSETS
Cash and equivalents		$	—			$	318,309			$	232,983			$	—			$	551,292
Unfunded settlements			—				68,757				3,840				—				72,597
House and land inventory			—				9,363,933				10,402				—				9,374,335
Land held for sale			—				465,823				—				—				465,823
Land, not owned, under option agreements			—				43,609				—				—				43,609
Residential mortgage loans available-for-sale			—				—				871,350				—				871,350
Investments in unconsolidated entities			1,448				133,195				16,042				—				150,685
Goodwill			—				374,977				700				—				375,677
Intangible assets, net			—				118,954				—				—				118,954
Other assets			46,490				814,136				121,408				—				982,034
Deferred income tax assets			155,178				65				15,275				—				170,518
Investment in subsidiaries			10,198,353				85,444				7,159,877				(17,443,674	)			—
		$	10,401,469			$	11,787,202			$	8,431,877			$	(17,443,674	)		$	13,176,874
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Accounts payable, accrued and other liabilities		$	178,687			$	1,692,037			$	309,868			$	—			$	2,180,592
Collateralized short-term debt, recourse solely to applicable non-guarantor subsidiary assets			—				—				814,707				—				814,707
Income taxes			66,267				—				—				—				66,267
Senior notes			3,537,947				—				—				—				3,537,947
Advances (receivable) payable — subsidiaries			41,207				(144,645	)			103,438				—				—
Total liabilities			3,824,108				1,547,392				1,228,013				—				6,599,513
Total shareholders’ equity			6,577,361				10,239,810				7,203,864				(17,443,674	)			6,577,361
		$	10,401,469			$	11,787,202			$	8,431,877			$	(17,443,674	)		$	13,176,874