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PULTEGROUP INC 10-Q 2005

Documents found in this filing:

  1. 10-Q
  2. Ex-31.(A)
  3. Ex-31.(B)
  4. Ex-32
  5. Ex-32
e10vq
Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2005
OR
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-9804
PULTE HOMES, INC.
(Exact name of registrant as specified in its charter)
     
MICHIGAN   38-2766606
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)
100 Bloomfield Hills Parkway, Suite 300
Bloomfield Hills, Michigan 48304
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code (248) 647-2750
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days.
YES þ NO o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12-b2 of the Exchange Act).
YES þ NO o
Number of shares of common stock outstanding as of July 31, 2005: 129,232,820
Website Access to Company Reports, Codes and Charters
Our internet website address is www.pulte.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to section 13(a) or 15(d) of the Exchange Act are available free of charge through our website as soon as reasonably practicable after we electronically file with or furnish them to the Securities and Exchange Commission. Our code of ethics for principal officers, our corporate governance guidelines and the charters of the Audit, Compensation, and Nominating and Governance committees of our Board of Directors, are also posted on our website and are available in print upon request.
 
 

 


PULTE HOMES, INC.
INDEX
             
        Page No.
PART I      FINANCIAL INFORMATION        
 
           
  Financial Statements        
 
           
    3  
 
           
    4  
 
           
    5  
 
           
    6  
 
           
    7  
 
           
  Management’s Discussion and Analysis of Financial Condition and Results of Operations     25  
 
           
  Quantitative and Qualitative Disclosures About Market Risk     36  
 
           
  Controls and Procedures     36  
 
           
PART II      OTHER INFORMATION        
 
           
  Unregistered Sales of Equity Securities and Use of Proceeds     37  
 
           
  Submission of Matters to a Vote of Security Holders     37  
 
           
  Exhibits     38  
 
           
        39  
 Rule 13a-14(a) Certification by Richard J. Dugas, Jr. President and CEO
 Rule 13a-14(a) Certification by Roger A. Cregg, VP and CFO
 Certification Pursuant to 18 United States Code Section 1350

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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PULTE HOMES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
($000’s omitted)
                 
    June 30,   December 31,
    2005   2004
    (Unaudited)   (Note)
ASSETS
               
 
               
Cash and equivalents
  $ 450,772     $ 314,634  
Unfunded settlements
    70,427       118,471  
House and land inventory
    8,703,503       7,390,791  
Land held for sale
    182,882       230,743  
Land, not owned, under option agreements
    109,473       106,380  
Residential mortgage loans available-for-sale
    519,550       697,077  
Investments in unconsolidated entities
    242,080       258,868  
Goodwill
    312,975       307,693  
Intangible assets, net
    131,329       135,454  
Other assets
    908,082       846,786  
 
               
 
               
Total assets
  $ 11,631,073     $ 10,406,897  
 
               
 
               
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
 
               
Liabilities:
               
Accounts payable, accrued and other liabilities, including book overdrafts of $377,284 and $304,394 in 2005 and 2004, respectively
  $ 1,941,984     $ 1,862,051  
Customer deposits
    480,447       341,050  
Collateralized short-term debt, recourse solely to applicable non-guarantor subsidiary assets
    455,837       617,415  
Income taxes
    157,506       202,557  
Senior notes and unsubordinated notes
    3,510,813       2,861,550  
 
               
 
               
Total liabilities
    6,546,587       5,884,623  
 
               
Shareholders’ equity
    5,084,486       4,522,274  
 
               
 
               
Total liabilities and shareholders’ equity
  $ 11,631,073     $ 10,406,897  
 
               
Note: The condensed consolidated balance sheet at December 31, 2004, has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.
See accompanying Notes to Condensed Consolidated Financial Statements.

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PULTE HOMES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(000’s omitted, except per share data)
(Unaudited)
                                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
    2005   2004   2005   2004
Revenues:
                               
Homebuilding
  $ 3,253,456     $ 2,490,722     $ 5,776,526     $ 4,496,985  
Financial services
    36,258       23,874       66,534       48,446  
Corporate
    1,257       562       2,505       1,459  
 
                               
 
                               
Total revenues
    3,290,971       2,515,158       5,845,565       4,546,890  
 
                               
Expenses:
                               
Homebuilding, principally cost of sales
    2,778,830       2,181,021       4,954,527       3,970,095  
Financial services
    21,174       16,131       42,692       31,714  
Corporate, net
    30,363       24,430       54,367       45,555  
 
                               
 
                               
Total expenses
    2,830,367       2,221,582       5,051,586       4,047,364  
 
                               
Other income:
                               
Equity income
    23,841       10,383       38,636       17,606  
 
                               
Income from continuing operations before income taxes
    484,445       303,959       832,615       517,132  
 
                               
Income taxes
    180,680       115,489       310,530       196,485  
 
                               
 
                               
Income from continuing operations
    303,765       188,470       522,085       320,647  
 
                               
Loss from discontinued operations
    (54 )     (867 )     (132 )     (1,415 )
 
                               
 
                               
Net income
  $ 303,711     $ 187,603     $ 521,953     $ 319,232  
 
                               
 
                               
Per share data:
                               
 
                               
Basic:
                               
Income from continuing operations
  $ 2.37     $ 1.49     $ 4.09     $ 2.55  
Loss from discontinued operations
          (.01 )           (.01 )
 
                               
 
                               
Net income
  $ 2.37     $ 1.49     $ 4.09     $ 2.54  
 
                               
Assuming dilution:
                               
Income from continuing operations
  $ 2.30     $ 1.46     $ 3.97     $ 2.49  
Loss from discontinued operations
          (.01 )           (.01 )
 
                               
 
                               
Net income
  $ 2.30     $ 1.45     $ 3.97     $ 2.48  
 
                               
 
                               
Cash dividends declared
  $ .05     $ .05     $ .10     $ .10  
 
                               
 
                               
Number of shares used in calculation:
                               
Basic:
                               
Weighted-average common shares outstanding
    127,937       126,254       127,686       125,538  
Assuming dilution:
                               
Effect of dilutive securities
    3,902       3,102       3,940       3,287  
 
                               
Adjusted weighted-average common shares and effect of dilutive securities
    131,839       129,356       131,626       128,825  
 
                               
See accompanying Notes to Condensed Consolidated Financial Statements.

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PULTE HOMES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
($000’s omitted)
(Unaudited)
                                                 
                            Accumulated        
                            Other        
            Additional           Comprehensive        
    Common   Paid-in   Unearned   Income   Retained    
    Stock   Capital   Compensation   (Loss)   Earnings   Total
Shareholders’ Equity, December 31, 2004
  $ 1,279     $ 1,116,018     $ (44 )   $ (14,380 )   $ 3,419,401     $ 4,522,274  
Stock option exercise, including tax benefit of $24,143
    12       47,302                           47,314  
Stock-based compensation
          23,144                         23,144  
Restricted stock award
    4       (4 )                        
Restricted stock award amortization
                44                   44  
Cash dividends declared
                            (12,963 )     (12,963 )
Stock repurchases
    (3 )     (2,518 )                 (18,598 )     (21,119 )
Comprehensive income (loss):
                                               
Net income
                            521,953       521,953  
Change in fair value of derivatives
                      (324 )           (324 )
Foreign currency translation adjustments
                      4,163             4,163  
 
                                               
 
Total comprehensive income
                                            525,792  
 
                                               
 
                                               
Shareholders’ Equity, June 30, 2005
  $ 1,292     $ 1,183,942     $     $ (10,541 )   $ 3,909,793     $ 5,084,486  
 
                                               
 
                                               
Shareholders’ Equity, December 31, 2003
  $ 1,252     $ 1,015,991     $ (656 )   $ (39,142 )   $ 2,470,678     $ 3,448,123  
Stock option exercise, including tax benefit of $21,505
    15       47,435                         47,450  
Stock-based compensation
          10,923                         10,923  
Restricted stock award
    2       (2 )                        
Restricted stock award amortization
                347                   347  
Cash dividends declared
                            (12,679 )     (12,679 )
Comprehensive income:
                                               
Net income
                            319,232       319,232  
Change in fair value of derivatives
                      (230 )           (230 )
Foreign currency translation adjustments
                      (1,817 )           (1,817 )
 
                                               
 
Total comprehensive income
                                            317,185  
 
                                               
 
                                               
Shareholders’ Equity, June 30, 2004
  $ 1,269     $ 1,074,347     $ (309 )   $ (41,189 )   $ 2,777,231     $ 3,811,349  
 
                                               
See accompanying Notes to Condensed Consolidated Financial Statements.

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PULTE HOMES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($000’s omitted)
(Unaudited)
                 
    For The Six Months Ended
    June 30,
    2005   2004
Cash flows from operating activities:
               
Net income
  $ 521,953     $ 319,232  
Adjustments to reconcile net income to net cash flows used in operating activities:
               
Amortization and depreciation
    28,698       22,026  
Stock-based compensation expense
    23,188       11,270  
Deferred income taxes
    34,785       18,410  
Other, net
    (2,113 )     (16,631 )
Increase (decrease) in cash due to:
               
Inventories
    (1,324,967 )     (1,307,949 )
Residential mortgage loans available-for-sale
    177,527       205,646  
Other assets
    28,333       85,198  
Accounts payable, accrued and other liabilities
    193,024       117,617  
Income taxes
    (20,909 )     56,880  
 
               
 
               
Net cash used in operating activities
    (340,481 )     (488,301 )
 
               
 
               
Cash flows from investing activities:
               
Investment in subsidiary
    (31,172 )      
Distributions from unconsolidated entities
    123,180       29,846  
Investments in unconsolidated entities
    (92,042 )     (142,290 )
Proceeds from sales of subsidiaries
    11,366        
Proceeds from sales of property and equipment
    3,251       5,159  
Capital expenditures
    (37,666 )     (38,586 )
Other, net
          503  
 
               
 
               
Net cash used in investing activities
    (23,083 )     (145,368 )
 
               
 
               
Cash flows from financing activities:
               
Proceeds from borrowings
    672,011       629,747  
Repayment of borrowings
    (161,608 )     (322,744 )
Issuance of common stock
    23,171       25,945  
Common stock repurchases
    (21,119 )      
Dividends paid
    (12,963 )     (12,679 )
 
               
 
               
Net cash provided by financing activities
    499,492       320,269  
 
               
 
               
Effect of exchange rate changes on cash and equivalents
    210       968  
 
               
 
               
Net increase (decrease) in cash and equivalents
    136,138       (312,432 )
 
               
Cash and equivalents at beginning of period
    314,634       401,883  
 
               
 
               
Cash and equivalents at end of period
  $ 450,772     $ 89,451  
 
               
 
               
Supplemental disclosure of cash flow information—cash paid during the period for:
               
 
               
Interest, net of amounts capitalized
  $ 18,308     $ 15,220  
 
               
Income taxes
  $ 301,903     $ 119,994  
 
               
See accompanying Notes to Condensed Consolidated Financial Statements.

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PULTE HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.   Basis of presentation and significant accounting policies
     The consolidated financial statements include the accounts of Pulte Homes, Inc. and all of its direct and indirect subsidiaries (the “Company”) and variable interest entities in which the Company is deemed to be the primary beneficiary. The direct subsidiaries of Pulte Homes, Inc. include Pulte Diversified Companies, Inc., Del Webb Corporation (“Del Webb”) and other subsidiaries that are engaged in the homebuilding business. Pulte Diversified Companies, Inc.’s operating subsidiaries include Pulte Home Corporation, Pulte International Corporation (“International”) and other subsidiaries that are engaged in the homebuilding business. Pulte Diversified Companies, Inc.’s non-operating thrift subsidiary, First Heights Bank, fsb (“First Heights”), is classified as a discontinued operation. The Company also has a mortgage banking company, Pulte Mortgage LLC (“Pulte Mortgage”), which is a subsidiary of Pulte Home Corporation.
     In January 2005, the Company sold all of its Argentina operations. At December 31, 2004, the Argentina operations were classified as held for sale and presented as discontinued operations in the consolidated financial statements.
     The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by United States generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six-month periods ended June 30, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. These financial statements should be read in conjunction with the Company’s consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2004.
     Certain amounts previously reported in the 2004 financial statements and notes thereto were reclassified to conform to the 2005 presentation.
Allowance for warranties
     Home purchasers are provided with warranties against certain building defects. The specific terms and conditions of those warranties vary geographically. Most warranties cover different aspects of the home’s construction and operating systems for a period of up to ten years. The Company estimates the costs to be incurred under these warranties and records a liability for the amount of such costs at the time product revenue is recognized. Factors that affect the Company’s warranty liability include the number of homes sold, historical and anticipated rates of warranty claims, and cost per claim. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.
     Changes to the Company’s allowance for warranties are as follows ($000’s omitted):
                 
    Six Months Ended
    June 30,
    2005   2004
Allowance for warranties at beginning of period
  $ 83,652     $ 62,091  
 
               
Warranty reserves provided
    59,825       45,217  
Payments and other adjustments
    (59,676 )     (44,400 )
 
               
 
               
Allowance for warranties at end of period
  $ 83,801     $ 62,908  
 
               

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PULTE HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
1.   Basis of presentation and significant accounting policies (continued)
 
    Stock-based compensation
     The Company currently has several stock-based employee compensation plans. Effective January 1, 2003, the Company adopted the preferable fair value recognition provisions of SFAS No. 123, “Accounting for Stock Issued to Employees.” The Company selected the prospective method of adoption as permitted by SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure.” Under the prospective method, the Company recognizes compensation expense on an accelerated basis over the vesting period based on the fair value provisions of SFAS No. 123. Grants made prior to January 1, 2003 continue to be accounted for under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. With the exception of certain variable stock option grants, no stock-based employee compensation cost is reflected in net income for grants made prior to January 1, 2003, as all options granted in those years had an exercise price equal to the market value of the underlying common stock on the date of grant.
     The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to all stock based employee compensation. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model.
                                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
    2005   2004   2005   2004
Net income, as reported ($000’s omitted)
  $ 303,711     $ 187,603     $ 521,953     $ 319,232  
 
                               
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects ($000’s omitted)     2,761       2,306       8,016       4,918  
 
                               
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects ($000’s omitted)     (2,930 )     (4,492 )     (8,313 )     (8,083 )
 
                               
 
                               
Pro forma net income ($000’s omitted)
  $ 303,542     $ 185,417     $ 521,656     $ 316,067  
 
                               
 
                               
Earnings per share:
                               
Basic — as reported
  $ 2.37     $ 1.49     $ 4.09     $ 2.54  
 
                               
Basic — pro forma
  $ 2.37     $ 1.47     $ 4.09     $ 2.52  
 
                               
 
                               
Diluted — as reported
  $ 2.30     $ 1.45     $ 3.97     $ 2.48  
 
                               
Diluted — pro forma
  $ 2.30     $ 1.43     $ 3.96     $ 2.45  
 
                               
     The Company also recorded compensation expense for restricted stock awards, net of related tax effects, of $3.9 million and $6.5 million for the three and six months ended June 30, 2005, compared with $1.0 million and $2.1 million for the three and six months ended June 30, 2004. These amounts have been excluded from the reconciliation above, as they would have no impact on pro forma net income as presented.

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PULTE HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
1.   Basis of presentation and significant accounting policies (continued)
 
    Land, not owned, under option agreements
     In the ordinary course of business, the Company enters into land option agreements in order to procure land for the construction of homes in the future. Pursuant to these land option agreements, the Company will provide a deposit to the seller as consideration for the right to purchase land at different times in the future, usually at predetermined prices. Under FASB Interpretation No. 46, “Consolidation of Variable Interest Entities,” as amended by FIN 46-R issued in December 2003 (collectively referred to as “FIN 46”), if the entity holding the land under option is a variable interest entity, the Company’s deposit represents a variable interest in that entity. Creditors of the variable interest entities have no recourse against the Company.
     In applying the provisions of FIN 46, the Company evaluated all land option agreements and determined that the Company was subject to a majority of the expected losses or entitled to receive a majority of the expected residual returns under a limited number of these agreements. As the primary beneficiary under these agreements, the Company is required to consolidate variable interest entities at fair value. At June 30, 2005 and December 31, 2004, the Company classified $109.5 and $106.4 million, respectively, as land, not owned, under option agreements on the balance sheet, representing the fair value of land under contract, including deposits of $15.2 million and $18.9 million, respectively. The corresponding liability has been classified within accounts payable, accrued and other liabilities on the balance sheet.
     Land option agreements that did not require consolidation under FIN 46 at June 30, 2005 and December 31, 2004, had a total purchase price of $7.2 billion and $6.3 billion, respectively. In connection with these agreements, the Company had deposits and advanced costs of $375.7 million and $311.7 million, included in other assets, as well as letters of credit and surety bonds posted in lieu of cash deposits at June 30, 2005 and December 31, 2004, respectively.
    New accounting pronouncements
     On December 15, 2004, the Financial Accounting Standards Board issued SFAS No. 123(R), Share-Based Payment, which amends SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123(R) requires that all share-based payments to employees, including grants of employee stock options, be accounted for at fair value. The pro forma disclosures previously permitted under SFAS No. 123 no longer will be an alternative to financial statement recognition. Under SFAS No. 123(R), the Company must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at date of adoption. The Company previously adopted the fair-value-based method of accounting for share-based payments under SFAS No. 123 effective January 1, 2003 using the prospective method described in SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure. Currently, the Company uses the Black-Scholes option pricing model to estimate the value of stock options granted to employees and is considering the lattice model. Because SFAS No. 123(R) must be applied not only to new awards but to previously granted awards that are not fully vested on the effective date, and the Company adopted SFAS No. 123 using the prospective transition method (which applied only to awards granted, modified or settled after the adoption date), compensation cost for some previously granted awards that was not recognized under SFAS No. 123 will be recognized under SFAS No. 123(R). SFAS No. 123(R) also amends SFAS No. 95, Statement of Cash Flows, to require that excess tax benefits be reported as a financing cash inflow rather than as a reduction of taxes paid. As originally issued, SFAS No. 95 required all income tax payments to be classified as operating cash outflows. This statement is effective for fiscal periods beginning after December 15, 2005. The Company is still evaluating the impact of adopting SFAS No. 123(R).

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PULTE HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
1.   Basis of presentation and significant accounting policies (continued)
 
    New accounting pronouncements (continued)
     In March 2005, the SEC released Staff Accounting Bulletin (“SAB”) No. 107, Share-Based Payment. SAB No. 107 provides the SEC staff position regarding the application of SFAS No. 123(R) and contains interpretive guidance related to the interaction between SFAS No. 123(R) and certain SEC rules and regulations, as well as provides the staff’s views regarding the valuation of share-based payment arrangements for public companies. Additionally, SAB No. 107 highlights the importance of disclosures made related to the accounting for share-based payment transactions. The Company is currently reviewing the effect of SAB No. 107 on its consolidated financial statements.
2.   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.

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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,
    2005   2004   2005   2004
Revenues:
                               
Homebuilding
  $ 3,253,456     $ 2,490,722     $ 5,776,526     $ 4,496,985  
Financial services
    36,258       23,874       66,534       48,446  
Corporate
    1,257       562       2,505       1,459  
 
                               
 
                               
Total revenues
    3,290,971       2,515,158       5,845,565       4,546,890  
 
                               
 
                               
Cost of sales (a):
                               
Homebuilding
    2,494,195       1,940,411       4,399,624       3,509,245  
 
                               
 
Selling, general and administrative:
                               
Homebuilding
    274,714       230,741       537,373       443,041  
Financial services
    17,905       14,655       36,622       28,740  
Corporate
    14,249       11,761       23,283       20,325  
 
                               
 
                               
Total selling, general and administrative
    306,868       257,157       597,278       492,106  
 
                               
Interest:
                               
Financial services
    3,269       1,476       6,070       2,974  
Corporate
    16,160       12,673       31,155       25,205  
 
                               
 
                               
Total interest
    19,429       14,149       37,225       28,179  
 
                               
 
                               
Other (income) expense, net:
                               
Homebuilding
    9,921       9,869       17,530       17,809  
Corporate
    (46 )     (4 )     (71 )     25  
 
                               
 
                               
Total other (income) expense, net
    9,875       9,865       17,459       17,834  
 
                               
 
                               
Total costs and expenses
    2,830,367       2,221,582       5,051,586       4,047,364  
 
                               
 
Equity income:
                               
Homebuilding
    23,399       9,757       36,868       15,880  
Financial services
    442       626       1,768       1,726  
 
                               
 
                               
Total equity income
    23,841       10,383       38,636       17,606  
 
                               
 
                               
Income (loss) before income taxes:
                               
Homebuilding
    498,025       319,458       858,867       542,770  
Financial services
    15,526       8,369       25,610       18,458  
Corporate
    (29,106 )     (23,868 )     (51,862 )     (44,096 )
 
                               
 
                               
Total income from continuing operations before income taxes
  $ 484,445     $ 303,959     $ 832,615     $ 517,132  
 
                               
 
(a)   Domestic homebuilding interest expense, which represents the amortization of capitalized interest, of $41.1 million and $29.5 million for the three months ended June 30, 2005 and 2004 and $71.6 million and $51.1 million for the six months ended June 30, 2005 and 2004, has been included as part of homebuilding cost of sales.

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PULTE HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
2.   Segment information (continued)
                                 
    Asset Data by Segment ($000’s omitted)
            Financial        
    Homebuilding   Services   Corporate   Total
At June 30, 2005:
                               
 
                               
Inventory
  $ 8,703,503     $     $     $ 8,703,503  
 
                               
Total assets
    10,994,731       564,878       71,464     $ 11,631,073  
 
                               
 
                               
At December 31, 2004:
                               
 
                               
Inventory
  $ 7,390,791     $     $     $ 7,390,791  
 
                               
Total assets
    9,448,050       719,505       239,342     $ 10,406,897  
 
                               
3.   Inventory
          Major components of the Company’s inventory were as follows ($000’s omitted):
                 
    June 30,   December 31,
    2005   2004
Homes under construction
  $ 3,495,754     $ 2,616,027  
Land under development
    4,302,964       4,089,878  
Land held for future development
    904,785       684,886  
 
               
 
               
Total
  $ 8,703,503     $ 7,390,791  
 
               
4.   Investments in unconsolidated entities
     The Company’s investments in unconsolidated entities totaled $242.1 million at June 30, 2005 and $258.9 million at December 31, 2004. All of these investments are accounted for under the equity method, except for the Company’s ownership interest in a Mexican mortgage banking company, as described below.
     During February 2005, 25% of the Company’s investment in the capital stock of a mortgage banking company in Mexico was redeemed for a gain of approximately $620 thousand. The remaining ownership interest of 16.66% is accounted for under the cost method.
5.   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.

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PULTE HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
6.   Senior notes and unsubordinated notes
     The Company’s $125 million, 7.3% unsecured senior notes are due in October 2005. The Company anticipates repaying these notes by using its revolving credit facility and/or cash provided by operations.
     In February 2005, the Company sold $350 million of 5.2% senior notes, which mature on February 15, 2015, and $300 million of 6% senior notes, which mature on February 15, 2035, which are guaranteed by Pulte Homes, Inc. and certain of its 100%-owned subsidiaries. These notes are unsecured and rank equally with all of the Company’s other unsecured and unsubordinated indebtedness. Proceeds from the sale were used to repay the indebtedness of the Company’s revolving credit facility and for general corporate purposes, including continued investment in the Company’s business.
     In connection with the sale of the $300 million unsecured senior notes, as noted above, $250 million in securities were available for sale under the Company’s shelf registration statement on Form S-3. As permitted by the rules of the Securities and Exchange Commission (the “SEC”), the additional $50 million of securities were to be registered through a supplemental registration statement filed at the time of sale pursuant to Rule 462(b) of the Securities Act of 1933 (the “Securities Act”). Due to an administrative error, the supplemental registration statement was not filed with the SEC. Consequently, $50 million of the notes were sold without registration under the Securities Act, which may give rise to certain claims by purchasers of the notes under Section 12(a)(1) of the Securities Act. The Company would vigorously defend against any such claims and believes that the aggregate impact of any such claims, if successful, would be immaterial. The Company further believes it would be impossible to determine which notes have been affected by its administrative error.
     During April 2005, the Company amended its credit agreement to increase its committed unsecured revolving credit facility from $1.31 billion to $1.345 billion. During May 2005, the Company amended its credit agreement to increase its committed unsecured revolving credit facility from $1.345 billion to $1.38 billion.
7.   Shareholders’ equity
     Pursuant to the $100 million stock repurchase program authorized by the Company’s Board of Directors in October 2002, the Company repurchased 115,000 shares and 285,000 shares of Pulte Homes, Inc. common stock in open-market transactions or otherwise, for a total of $9.5 million and $21.1 million, for the three and six months ended June 30, 2005, respectively. As of June 30, 2005, the Company had remaining authorization to purchase common stock aggregating $41.6 million.
     On July 27, 2005 the Company’s Board of Directors declared a two-for-one stock split of the common stock which will be distributed on September 1, 2005, to shareholders of record as of August 15, 2005.
Accumulated other comprehensive income (loss)
     The accumulated balances related to each component of other comprehensive income (loss) are as follows ($000’s omitted):
                 
    June 30,   December 31,
    2005   2004
Foreign currency translation adjustments:
               
Mexico
  $ (10,355 )   $ (14,518 )
Fair value of derivatives, net of income taxes of $(114) in 2005 and $84 in 2004
    (186 )     138  
 
               
 
               
 
  $ (10,541 )   $ (14,380 )
 
               

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PULTE HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
8.   Supplemental Guarantor information
     At June 30, 2005, Pulte Homes, Inc. had the following outstanding senior note obligations: (1) $125 million, 7.3%, due 2005, (2) $400 million, 4.875%, due 2009, (3) $200 million, 8.125%, due 2011, (4) $499 million, 7.875%, due 2011, (5) $300 million, 6.25%, due 2013, (6) $500 million, 5.25%, due 2014, (7) $350 million, 5.2%, due 2015, (8) $150 million, 7.625%, due 2017, (9) $300 million, 7.875%, due 2032, (10) $400 million, 6.375%, due 2033, and (11) $300 million, 6%, due 2035. Such obligations to pay principal, premium, if any, and interest are guaranteed jointly and severally on a senior basis by Pulte Homes, Inc.’s 100%-owned Domestic Homebuilding subsidiaries (collectively, the Guarantors). Such guarantees are full and unconditional.
     Supplemental consolidating financial information of the Company, specifically including such information for the Guarantors, is presented below. Investments in subsidiaries are presented using the equity method of accounting, except as described in Note 4. Separate financial statements of the Guarantors are not provided as the consolidating financial information contained herein provides a more meaningful disclosure to allow investors to determine the nature of the assets held by and the operations of the combined groups.

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PULTE HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
8.   Supplemental Guarantor information (continued)
CONDENSED CONSOLIDATING BALANCE SHEET
June 30, 2005
($000’s omitted)
                                         
    Unconsolidated        
    Pulte   Guarantor   Non-Guarantor   Eliminating   Consolidated
    Homes, Inc.   Subsidiaries   Subsidiaries   Entries   Pulte Homes, Inc.
ASSETS
                                       
Cash and equivalents
  $     $ 416,789     $ 33,983     $     $ 450,772  
Unfunded settlements
          95,871       (25,444 )           70,427  
House and land inventory
          8,499,144       204,359             8,703,503  
Land held for sale
          182,141       741             182,882  
Land, not owned, under option agreements
          109,473                   109,473  
Residential mortgage loans available-for-sale
                519,550             519,550  
Investments in unconsolidated entities
    1,448       207,749       32,883             242,080  
Goodwill
          306,993       5,982             312,975  
Intangible assets, net
          131,329                   131,329  
Other assets
    43,887       780,981       83,214             908,082  
Investment in subsidiaries
    9,388,760       69,569       1,345,871       (10,804,200 )      
 
                                       
 
                                       
 
  $ 9,434,095     $ 10,800,039     $ 2,201,139     $ (10,804,200 )   $ 11,631,073  
 
                                       
 
                                       
LIABILITIES AND SHAREHOLDERS’ EQUITY
                                       
Liabilities:
                                       
Accounts payable, accrued and other liabilities
  $ 173,047     $ 1,973,097     $ 276,287     $     $ 2,422,431  
Collateralized short-term debt, recourse solely to applicable non-guarantor subsidiary assets
                455,837             455,837  
Income taxes
    158,087             (581 )           157,506  
Senior notes and unsubordinated notes
    3,510,813                         3,510,813  
Advances (receivable) payable — subsidiaries
    507,662       (589,186 )     81,524              
 
                                       
 
                                       
Total liabilities
    4,349,609       1,383,911       813,067             6,546,587  
 
                                       
Shareholders’ equity
    5,084,486       9,416,128       1,388,072       (10,804,200 )     5,084,486  
 
                                       
 
                                       
 
  $ 9,434,095     $ 10,800,039     $ 2,201,139     $ (10,804,200 )   $ 11,631,073  
 
                                       

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PULTE HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
8. Supplemental Guarantor information (continued)
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2004
($000’s omitted)
                                         
    Unconsolidated        
    Pulte   Guarantor   Non-Guarantor   Eliminating   Consolidated
    Homes, Inc.   Subsidiaries   Subsidiaries   Entries   Pulte Homes, Inc.
ASSETS
                                       
Cash and equivalents
  $       $ 185,375     $ 129,259     $     $ 314,634  
Unfunded settlements
          158,795       (40,324 )           118,471  
House and land inventory
          7,224,777       166,014             7,390,791  
Land held for sale
          230,086       657             230,743  
Land, not owned, under option agreements
          106,380                   106,380  
Residential mortgage loans available-for-sale
                697,077             697,077  
Investments in unconsolidated entities
    44       222,358       36,466             258,868  
Goodwill
          306,993       700             307,693  
Intangible assets, net
          135,454                   135,454  
Other assets
    64,807       663,967       118,012             846,786  
Investment in subsidiaries
    8,725,758       75,162       2,201,365       (11,002,285 )      
 
                                       
 
  $ 8,790,609     $ 9,309,347     $ 3,309,226     $ (11,002,285 )   $ 10,406,897  
 
                                       
 
                                       
LIABILITIES AND SHAREHOLDERS’ EQUITY
                                       
Liabilities:
                                       
Accounts payable, accrued and other liabilities
  $ 154,958     $ 1,758,644     $ 289,499     $     $ 2,203,101  
Collateralized short-term debt, recourse solely to applicable non-guarantor subsidiary assets
                617,415             617,415  
Income taxes
    203,806             (1,249 )           202,557  
Senior notes and unsubordinated notes
    2,861,550                         2,861,550  
Advances (receivable) payable — subsidiaries
    1,048,021       (1,239,413 )     191,392              
 
                                       
Total liabilities
    4,268,335       519,231       1,097,057             5,884,623  
 
                                       
Shareholders’ equity
    4,522,274       8,790,116       2,212,169       (11,002,285 )     4,522,274  
 
                                       
 
                                       
 
  $ 8,790,609     $ 9,309,347     $ 3,309,226     $ (11,002,285 )   $ 10,406,897  
 
                                       

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PULTE HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
8. Supplemental Guarantor information (continued)
CONSOLIDATING STATEMENT OF OPERATIONS
For the three months ended June 30, 2005
($000’s omitted)
                                         
    Unconsolidated            
                                    Consolidated
    Pulte   Guarantor   Non-Guarantor   Eliminating   Pulte
    Homes, Inc.   Subsidiaries   Subsidiaries   Entries   Homes, Inc.
Revenues:
                                       
Homebuilding
  $     $ 3,213,430     $ 40,026     $     $ 3,253,456  
Financial services
          6,404       29,854             36,258  
Corporate
    12       1,198       47             1,257  
 
                                       
 
                                       
Total revenues
    12       3,221,032       69,927             3,290,971  
 
                                       
 
                                       
Expenses:
                                       
Homebuilding:
                                       
Cost of sales
          2,458,880       35,315             2,494,195  
Selling, general and administrative and other expense
    4,660       275,278       4,697             284,635  
Financial services
    (258 )     2,251       19,181             21,174  
Corporate, net
    35,208       (2,128 )     (2,717 )           30,363  
Intercompany interest
    44,499       (44,499 )                    
 
                                       
 
                                       
Total expenses
    84,109       2,689,782       56,476             2,830,367  
 
                                       
 
                                       
Other Income:
                                       
Equity income
          21,999       1,842             23,841  
 
                                       
Income (loss) from continuing operations before income taxes and equity in income of subsidiaries
    (84,097 )     553,249       15,293             484,445  
Income taxes (benefit)
    (31,811 )     207,143       5,348             180,680  
 
                                       
Income (loss) from continuing operations before equity in income of subsidiaries
    (52,286 )     346,106       9,945             303,765  
Income (loss) from discontinued operations
    (42 )           (12 )           (54 )
 
                                       
Income (loss) before equity in income of subsidiaries
    (52,328 )     346,106       9,933             303,711  
 
                                       
Equity in income (loss) of subsidiaries:
                                       
Continuing operations
    356,051       7,244       110,609       (473,904 )      
Discontinued operations
    (12 )                 12        
 
                                       
 
                                       
 
    356,039       7,244       110,609       (473,892 )      
 
                                       
 
                                       
Net income
  $ 303,711     $ 353,350     $ 120,542     $ (473,892 )   $ 303,711  
 
                                       

17


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PULTE HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
8. Supplemental Guarantor information (continued)
CONSOLIDATING STATEMENT OF OPERATIONS
For the six months ended June 30, 2005
($000’s omitted)
                                         
    Unconsolidated            
                                    Consolidated
    Pulte   Guarantor   Non-Guarantor   Eliminating   Pulte
    Homes, Inc.   Subsidiaries   Subsidiaries   Entries   Homes, Inc.
Revenues:
                                       
Homebuilding
  $     $ 5,699,724     $ 76,802     $     $ 5,776,526  
Financial services
          12,143       54,391             66,534  
Corporate
    70       2,255       180             2,505  
 
                                       
 
                                       
Total revenues
    70       5,714,122       131,373             5,845,565  
 
                                       
 
                                       
Expenses:
                                       
Homebuilding:
                                       
Cost of sales
          4,336,107       63,517             4,399,624  
Selling, general and administrative and other expense
    8,843       533,258       12,802             554,903  
Financial services
    1,039       4,185       37,468             42,692  
Corporate, net
    66,275       (7,044 )     (4,864 )           54,367  
Intercompany interest
    87,289       (87,289 )                  
 
                                       
 
                                       
Total expenses
    163,446       4,779,217       108,923             5,051,586  
 
                                       
 
                                       
Other Income:
                                       
Equity income
          34,651       3,985             38,636  
 
                                       
Income (loss) from continuing operations before income taxes and equity in income of subsidiaries
    (163,376 )     969,556       26,435             832,615  
Income taxes (benefit)
    (61,129 )     361,676       9,983             310,530  
 
                                       
Income (loss) from continuing operations before equity in income of subsidiaries
    (102,247 )     607,880       16,452             522,085  
Income (loss) from discontinued operations
    (106 )           (26 )           (132 )
 
                                       
Income (loss) before equity in income of subsidiaries
    (102,353 )     607,880       16,426             521,953  
 
                                       
Equity in income (loss) of subsidiaries:
                                       
Continuing operations
    624,332       11,025       161,291       (796,648 )      
Discontinued operations
    (26 )                 26        
 
                                       
 
                                       
 
    624,306       11,025       161,291       (796,622 )      
 
                                       
 
                                       
Net income
  $ 521,953     $ 618,905     $ 177,717     $ (796,622 )   $ 521,953  
 
                                       

18


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PULTE HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
8. Supplemental Guarantor information (continued)
CONSOLIDATING STATEMENT OF OPERATIONS
For the three months ended June 30, 2004
($000’s omitted)
                                         
    Unconsolidated            
                                    Consolidated
    Pulte   Guarantor   Non-Guarantor   Eliminating   Pulte
    Homes, Inc.   Subsidiaries   Subsidiaries   Entries   Homes, Inc.
Revenues:
                                       
Homebuilding
  $     $ 2,450,473     $ 40,249     $     $ 2,490,722  
Financial services
          4,523       19,351             23,874  
Corporate
    89       301       172             562  
 
                                       
 
                                       
Total revenues
    89       2,455,297       59,772             2,515,158  
 
                                       
 
                                       
Expenses:
                                       
Homebuilding:
                                       
Cost of sales
          1,907,839       32,572             1,940,411  
Selling, general and administrative and other expense
    3,761       222,822       14,027             240,610  
Financial services
    245       1,364       14,522             16,131  
Corporate, net
    23,134       1,377       (81 )           24,430  
Intercompany interest
    26,290       (26,290 )                  
 
                                       
 
                                       
Total expenses
    53,430       2,107,112       61,040             2,221,582  
 
                                       
 
                                       
Other Income:
                                       
Equity income
          8,346       2,037             10,383  
 
                                       
Income (loss) from continuing operations before income taxes and equity in income of subsidiaries
    (53,341 )     356,531       769             303,959  
Income taxes (benefit)
    (20,359 )     135,678       170             115,489  
 
                                       
Income (loss) from continuing operations before equity in income of subsidiaries
    (32,982 )     220,853       599             8,470  
Income (loss) from discontinued operations
    (106 )           (761 )           (867 )
 
                                       
Income (loss) before equity in income of subsidiaries
    (33,088 )     220,853       (162 )           187,603  
 
                                       
Equity in income of subsidiaries:
                                       
Continuing operations
    221,452       3,144       59,880       (284,476 )      
Discontinued operations
    (761 )                 761        
 
                                       
 
    220,691       3,144       59,880       (283,715 )      
 
                                       
 
                                       
Net income
  $ 187,603     $ 223,997     $ 59,718     $ (283,715 )   $ 187,603  
 
                                       

19


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PULTE HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
8. Supplemental Guarantor information (continued)
CONSOLIDATING STATEMENT OF OPERATIONS
For the six months ended June 30, 2004
($000’s omitted)
                                         
    Unconsolidated            
                                    Consolidated
    Pulte   Guarantor   Non-Guarantor   Eliminating   Pulte
    Homes, Inc.   Subsidiaries   Subsidiaries   Entries   Homes, Inc.
Revenues:
                                       
Homebuilding
  $     $ 4,416,155     $ 80,830     $     $ 4,496,985  
Financial services
          8,771       39,675             48,446  
Corporate
    89       1,078       292             1,459  
 
                                       
 
                                       
Total revenues
    89       4,426,004       120,797             4,546,890  
 
                                       
 
                                       
Expenses:
                                       
Homebuilding:
                                       
Cost of sales
          3,443,775       65,470             3,509,245  
Selling, general and administrative and other expense
    7,586       431,310       21,954             460,850  
Financial services
    497       2,595       28,622             31,714  
Corporate, net
    42,899       2,741       (85 )           45,555  
Intercompany interest
    53,752       (53,752 )                  
 
                                       
 
                                       
Total expenses
    104,734       3,826,669       115,961             4,047,364  
 
                                       
 
                                       
Other Income:
                                       
Equity income
          13,927       3,679             17,606  
 
                                       
Income (loss) from continuing operations before income taxes and equity in income of subsidiaries
    (104,645 )     613,262       8,515             517,132  
Income taxes (benefit)
    (40,133 )     233,193       3,425             196,485  
 
                                       
Income (loss) from continuing operations before equity in income of subsidiaries
    (64,512 )     380,069       5,090             320,647  
Income (loss) from discontinued operations
    (314 )           (1,101 )           (1,415 )
 
                                       
Income (loss) before equity in income of subsidiaries
    (64,826 )     380,069       3,989             319,232  
 
                                       
Equity in income of subsidiaries:
                                       
Continuing operations
    385,159       7,515       110,153       (502,827 )      
Discontinued operations
    (1,101 )                 1,101        
 
                                       
 
                                       
 
    384,058       7,515       110,153       (501,726 )      
 
                                       
 
                                       
Net income
  $ 319,232     $ 387,584     $ 114,142     $ (501,726 )   $ 319,232  
 
                                       

20


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PULTE HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
8. Supplemental Guarantor information (continued)
CONSOLIDATING STATEMENT OF CASH FLOWS
For the six months ended June 30, 2005
($000’s omitted)
                                         
    Unconsolidated           Consolidated
    Pulte   Guarantor   Non-Guarantor   Eliminating   Pulte
    Homes, Inc.   Subsidiaries   Subsidiaries   Entries   Homes, Inc.
Cash flows from operating activities:
                                       
Net income
  $ 521,953     $ 618,905     $ 177,717     $ (796,622 )   $ 521,953  
Adjustments to reconcile net income to net cash flows provided by (used in) operating activities:
                                       
Equity in income of subsidiaries
    (624,306 )     (11,025 )     (161,291 )     796,622        
Amortization and depreciation
          24,469       4,229             28,698  
Stock-based compensation expense
    23,188                         23,188  
Deferred income taxes
    34,028       (3 )     760               34,785  
Other, net
    705       387       (3,205 )           (2,113 )
Increase (decrease) in cash due to:
                                       
Inventory
          (1,309,491 )     (15,476 )             (1,324,967 )
Residential mortgage loans available-for-sale
                177,527             177,527  
Other assets
    (11,522 )     21,302       18,553             28,333  
Accounts payable, accrued and other liabilities
    15,098       189,974       (12,048 )           193,024  
Income taxes
    (235,578 )     207,279       7,390             (20,909 )
 
                                       
Net cash provided by (used in) operating activities
    (276,434 )     (258,203 )     194,156             (340,481 )
 
                                       
 
                                       
Cash flows from investing activities:
                                       
Dividends received from subsidiaries
    1,362       18,000             (19,362 )      
Investment in subsidiary
    (36,217 )     (1,106 )     (31,172 )     37,323       (31,172 )
Distributions from unconsolidated subsidiaries
          122,480       700             123,180  
Investments in unconsolidated subsidiaries
          (92,042 )                 (92,042 )
Proceeds from sales of subsidiaries
                11,366             11,366  
Proceeds from sales of property and equipment
          3,033       218             3,251  
Capital expenditures
          (32,037 )     (5,629 )           (37,666 )
 
                                       
Net cash provided by (used in) investing activities
    (34,855 )     18,328       (24,517 )     17,961       (23,083 )
 
                                       

21


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PULTE HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
8. Supplemental Guarantor information (continued)
CONSOLIDATING STATEMENT OF CASH FLOWS (continued)
For the six months ended June 30, 2005
($000’s omitted)
                                         
    Unconsolidated           Consolidated
    Pulte   Guarantor   Non-Guarantor   Eliminating   Pulte
    Homes, Inc.   Subsidiaries   Subsidiaries   Entries   Homes, Inc.
Cash flows from financing activities:
                                       
Proceeds from borrowings
    648,557       23,454                   672,011  
Repayment of borrowings
                (161,608 )           (161,608 )
Capital contributions from parent
          7,943       29,380       (37,323 )      
Advances (to) from affiliates
    (326,357 )     441,254       (114,897 )            
Issuance of common stock
    23,171                         23,171  
Common stock repurchases
    (21,119 )                       (21,119 )
Dividends paid
    (12,963 )     (1,362 )     (18,000 )     19,362       (12,963 )
 
                                       
Net cash provided by (used in) financing activities
    311,289       471,289       (265,125 )     (17,961 )     499,492  
 
                                       
 
                                       
Effect of exchange rate changes on cash and equivalents
                210             210  
 
                                       
Net increase (decrease) in cash and equivalents
          231,414       (95,276 )           136,138  
Cash and equivalents at beginning of period
          185,375       129,259             314,634  
 
                                       
 
                                       
Cash and equivalents at end of period
  $     $ 416,789     $ 33,983     $     $ 450,772  
 
                                       

22


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PULTE HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
8. Supplemental Guarantor information (continued)
CONSOLIDATING STATEMENT OF CASH FLOWS
For the six months ended June 30, 2004
($000’s omitted)
                                         
    Unconsolidated            
                                    Consolidated
    Pulte   Guarantor   Non-Guarantor   Eliminating   Pulte
    Homes, Inc.   Subsidiaries   Subsidiaries   Entries   Homes, Inc.
Cash flows from operating activities:
                                       
Net income
  $ 319,232     $ 387,584     $ 114,142     $ (501,726 )   $ 319,232  
Adjustments to reconcile net income to net cash flows provided by (used in) operating activities:
                                       
Equity in income of subsidiaries
    (384,058 )     (7,515 )     (110,153 )     501,726        
Amortization and depreciation
          18,939       3,087             22,026  
Stock-based compensation expense
    11,270                         11,270  
Deferred income taxes
    23,146             (4,736 )           18,410  
Other, net
    580       (13,716 )     (3,495 )           (16,631 )
Increase (decrease) in cash due to:
                                       
Inventory
          (1,295,263 )     (12,686 )           (1,307,949 )
Residential mortgage loans available-for-sale
                205,646             205,646  
Other assets
    49,411       15,585       20,202             85,198  
Accounts payable, accrued and other liabilities
    1,170       119,160       (2,713 )           117,617  
Income taxes
    (82,849 )     135,678       4,051             56,880  
 
                                       
Net cash provided by (used in) operating activities
    (62,098 )     (639,548 )     213,345             (488,301 )
 
                                       
 
                                       
Cash flows from investing activities:
                                       
Dividends received from subsidiaries
    8,526       11,000             (19,526 )      
Investment in subsidiary
    (103,000 )     (836 )     (128,274 )     232,110        
Distributions from unconsolidated subsidiaries
          27,558       2,288             29,846  
Investments in unconsolidated subsidiaries
          (141,889 )     (401 )           (142,290 )
Proceeds from sales of property and equipment
          5,109       50             5,159  
Capital expenditures
          (31,042 )     (7,544 )           (38,586 )
Other, net
                503             503  
 
                                       
Net cash provided by (used in) investing activities
    (94,474 )     (130,100 )     (133,378 )     212,584       (145,368 )
 
                                       

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PULTE HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
8. Supplemental Guarantor information (continued)
CONSOLIDATING STATEMENT OF CASH FLOWS (continued)
For the six months ended June 30, 2004
($000’s omitted)
                                         
    Unconsolidated           Consolidated
    Pulte   Guarantor   Non-Guarantor   Eliminating   Pulte
    Homes, Inc.   Subsidiaries   Subsidiaries   Entries   Homes, Inc.
Cash flows from financing activities:
                                       
Proceeds from borrowings
    626,655             3,092             629,747  
Repayment of borrowings
          (133,518 )     (189,226 )           (322,744 )
Capital contributions from parent
          128,273       103,837       (232,110 )      
Advances (to) from affiliates
    (486,298 )     547,149       (60,851 )            
Issuance of common stock
    25,945                         25,945  
Dividends paid
    (12,679 )     (8,526 )     (11,000 )     19,526       (12,679 )
 
                                       
Net cash provided by (used in) financing activities
    153,623       533,378       (154,148 )     (212,584 )     320,269  
 
                                       
 
Effect of exchange rate changes on cash and equivalents
                968             968  
 
                                       
 
                                       
Net decrease in cash and equivalents
    (2,949 )     (236,270 )     (73,213 )           (312,432 )
 
Cash and equivalents at beginning of period
    2,949       305,356       93,578             401,883  
 
                                       
 
                                       
Cash and equivalents at end of period
  $     $ 69,086     $ 20,365     $     $ 89,451  
 
                                       

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Item 2. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations
Overview
     A summary of our operating results by business segment for the three and six months ended June 30, 2005 and 2004 is as follows ($000’s omitted):
                                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
    2005   2004   2005   2004
Pre-tax income (loss):
                               
Homebuilding operations
  $ 498,025     $ 319,458     $ 858,867     $ 542,770  
Financial services operations
    15,526       8,369       25,610       18,458  
Corporate
    (29,106 )     (23,868 )     (51,862 )     (44,096 )
 
                               
 
                               
Income from continuing operations before income taxes
    484,445       303,959       832,615       517,132  
Income taxes
    180,680       115,489       310,530       196,485  
 
                               
 
                               
Income from continuing operations
    303,765       188,470       522,085       320,647  
Loss from discontinued operations
    (54 )     (867 )     (132 )     (1,415 )
 
                               
 
                               
Net income
  $ 303,711     $ 187,603     $ 521,953     $ 319,232  
 
                               
 
                               
Per share data — assuming dilution:
                               
Income from continuing operations
  $ 2.30     $ 1.46     $ 3.97     $ 2.49  
Loss from discontinued operations
          (.01 )           (.01 )
 
                               
 
                               
Net income
  $ 2.30     $ 1.45     $ 3.97     $ 2.48  
 
                               
     A comparison of pre-tax income for the three and six months ended June 30, 2005 and 2004 is as follows:
    Continued strong demand for new homes in many of our markets, market share gains, geographic and product mix shifts, average unit selling price increases and benefits from leveraging construction costs throughout the operations drove pre-tax income of our homebuilding business segment to increase 56% and 58% for the three and six months ended June 30, 2005, respectively. Domestic unit settlements increased 20% and 17%, respectively, for the three and six months ended June 30, 2005, and domestic average unit selling prices increased 10% for both the three and six months ended June 30, 2005. Domestic homebuilding settlement gross margin percentages increased 170 basis points to 23.8% for the three months ended June 30, 2005 and 210 basis points to 24.1% for the six months ended June 30, 2005.
 
    Pre-tax income of our financial services business segment increased 86% and 39% for the three and six months ended June 30, 2005, respectively, as a result of increased volume originations and the favorable interest rate environment experienced during the second quarter of 2005. The capture rates were 88.0% and 88.4% for the quarters ended June 30, 2005 and 2004, respectively, and 88.3% and 87.4% for the six months ended June 30, 2005 and 2004, respectively.
 
    Higher net interest expense associated with increased debt funding to support business growth in 2005 and beyond, along with higher compensation related expenses, resulted in an increase in the pre-tax loss of our non-operating Corporate segment of 22% and 18% for the three and six months ended June 30, 2005, respectively.

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Homebuilding Operations
     Our Homebuilding segment consists of the following operations:
    Domestic Homebuilding — We conduct our Domestic Homebuilding operations in 54 markets located throughout 28 states. Domestic Homebuilding offers a broad product line to meet the needs of the first-time, first and second move-up, and active adult homebuyers.
 
    International Homebuilding — We conduct our International Homebuilding operations through subsidiaries of Pulte International Corporation (International) in Mexico and Puerto Rico. International operations focus on meeting the demand of first-time buyers and middle-to-upper income consumer groups. We are currently in the process of evaluating various long-term strategic alternatives with regard to our International operations.
     Certain operating data relating to our homebuilding operations are as follows ($000’s omitted):
                                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
    2005   2004   2005   2004
Homebuilding settlement revenues:
                               
Domestic
  $ 3,155,898     $ 2,394,778     $ 5,618,007     $ 4,337,319  
International
    40,026       40,249       76,802       80,830  
 
                               
Total
  $ 3,195,924     $ 2,435,027     $ 5,694,809     $ 4,418,149  
 
                               
Homebuilding settlements units:
                               
Domestic
    10,194       8,480       18,213       15,519  
International
    1,542       1,533       2,805       3,080  
 
                               
 
                               
Total
    11,736       10,013       21,018       18,599  
 
                               
Note: Homebuilding settlement revenues of affiliates, not included in the table above, for the three months ended June 30, 2005 and 2004 were $22,302 and $21,616, respectively; for the six months ended June 30, 2005 and 2004, were $37,116 and $30,166, respectively. Homebuilding unit settlements of affiliates not included in the table above, for the three months ended June 30, 2005 and 2004 were 61 and 78, respectively; for the six months ended June 30, 2005 and 2004 were 111 and 114, respectively.
Domestic Homebuilding
     The Domestic Homebuilding business unit represents our core business. Our operations are conducted in 54 markets located throughout 28 states, presented geographically as follows:
     
Northeast:
  Connecticut, Delaware, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Virginia
 
   
Southeast:
  Florida, Georgia, North Carolina, South Carolina, Tennessee
 
   
Midwest:
  Illinois, Indiana, Kansas, Michigan, Minnesota, Missouri, Ohio
 
   
Central:
  Colorado, New Mexico, Texas
 
   
West:
  Arizona, California, Nevada

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Table of Contents

Homebuilding Operations (continued)
Domestic Homebuilding (continued)
     The following table presents selected unit information for our Domestic Homebuilding operations:
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2005     2004     2005     2004  
Unit settlements:
                               
Northeast
    868       695       1,406       1,214  
Southeast
    2,952       2,058       5,283       3,763  
Midwest
    1,147       1,163       2,048       1,936  
Central
    1,538       1,214       2,464       2,188  
West
    3,689       3,350       7,012       6,418  
 
                                 
 
    10,194       8,480       18,213       15,519  
 
                                 
 
                               
Net new orders – units:
                               
Northeast
    1,228       856       2,256       1,570  
Southeast
    3,717       2,426       7,434       5,195  
Midwest
    1,710       1,449       3,229       2,936  
Central
    2,291       1,605       3,911       3,181  
West
    4,635       4,440       8,818       8,645  
 
                                 
 
    13,581       10,776       25,648       21,527  
 
                                 
Net new orders – dollars ($000’s omitted)
  $ 4,406,000     $ 3,303,000     $ 8,239,000     $ 6,456,000  
 
                               
 
                               
Unit backlog:
                               
Northeast
                    2,333       1,891  
Southeast
                    7,456       5,158  
Midwest
                    2,458       2,401  
Central
                    2,524       2,149  
West
                    8,580       8,361  
 
                               
 
                    23,351       19,960  
 
                              
Backlog at June 30 – dollars ($000’s omitted)
                  $ 7,775,000     $ 6,266,000  
 
                               
     Continued strong demand for new homes, an increase in the number of active selling communities, and market share expansion drove increases in net new orders, unit settlements and unit backlog, particularly in the Northeast, Southeast and Central regions. For the three and six months ended June 30, 2005, unit net new orders increased 26% and 19% to a record 13,581 and 25,648 units, respectively, compared with the same periods in 2004. The dollar value of net new orders increased 33% and 28%, respectively, for the three and six months ended June 30, 2005, compared with the same periods in 2004. For the quarter ended June 30, 2005, we had 649 active selling communities, an increase of 17% from the same period in the prior year. Unit settlements also set a record for the respective three and six months ended June 30, 2005, at 10,194 and 18,213 units, representing an increase of 20% and 17% over the same periods in 2004. The average selling price for homes closed increased 10% to $310,000 and $308,000 for the respective three and six months ended June 30, 2005 compared with the same periods in 2004. Changes in average selling price reflect a number of factors, including changes in market selling prices, and the mix of product closed during each period. Ending backlog, which represents orders for homes that have not yet closed, grew to a record 23,351 units at June 30, 2005. The dollar value of backlog was up 24% to $7.8 billion.

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Homebuilding Operations (continued)
Domestic Homebuilding (continued)
     The following table presents markets that represent 10% or more of total Domestic Homebuilding unit new orders, unit settlements, and settlement revenues for the three and six months ended June 30, 2005 and 2004:
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2005     2004     2005     2004  
Unit net new orders:
                               
Phoenix
    *       17.9 %     11.2 %     16.2 %
 
Unit settlements:
                               
Phoenix
    14.0 %     15.6 %     14.9 %     16.1 %
Las Vegas
    *       10.2 %     *       10.7 %
 
Settlement revenues:
                               
Phoenix
    13.5 %     13.1 %     13.9 %     13.2 %
Las Vegas
    *       13.3 %     *       13.9 %
 
*   Represents less than 10%.
     At June 30, 2005 and December 31, 2004, our Domestic Homebuilding operations controlled approximately 365,700 and 343,400 lots, respectively. Approximately 166,600 and 158,000 lots were owned, and approximately 144,100 and 125,800 lots were under option agreements approved for purchase at June 30, 2005 and December 31, 2004, respectively. In addition, there were approximately 55,000 and 59,600 lots under option agreements, pending approval, at June 30, 2005 and December 31, 2004, respectively. We believe that the strength of our land supply, and our entitlement expertise, will enable us to continue opening new communities during the course of 2005 and beyond.
     The total purchase price related to approved land under option for use by our homebuilding operations at future dates approximated $5.3 billion at June 30, 2005. In addition, total purchase price related to land under option pending approval was valued at $2.0 billion at June 30, 2005. Land option agreements, which may be cancelled at our discretion, may extend over several years and are secured by deposits and advanced costs totaling $387.2 million, which are generally non-refundable.
     The following table presents a summary of pre-tax income for our Domestic Homebuilding operations for the three and six months ended June 30, 2005 and 2004 ($000’s omitted):
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2005     2004     2005     2004  
Home sale revenue (settlements)
  $ 3,155,898     $ 2,394,778     $ 5,618,007     $ 4,337,319  
Land sale revenue
    57,532       55,695       81,717       78,836  
Home cost of sales (a)
    (2,405,353 )     (1,865,771 )     (4,261,821 )     (3,382,095 )
Land cost of sales
    (53,527 )     (42,068 )     (74,286 )     (61,680 )
Selling, general and administrative expense
    (267,327 )     (223,651 )     (521,758 )     (429,252 )
Equity income
    21,557       7,908       33,609       13,212  
Other income (expense), net
    (10,277 )     (8,809 )     (17,383 )     (15,733 )
 
                               
 
                               
Pre-tax income
  $ 498,503     $ 318,082     $ 858,085     $ 540,607  
 
                                 
 
                               
Average sales price
  $ 310     $ 282     $ 308     $ 279  
 
                               
 
(a)   Domestic homebuilding interest expense, which represents the amortization of capitalized interest, of $41.1 million and $29.5 million for the three months ended June 30, 2005 and 2004 and $71.6 million and $51.1 million for the six months ended June 30, 2005 and 2004, has been included as part of homebuilding cost of sales.

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Table of Contents

Homebuilding Operations (continued)
Domestic Homebuilding (continued)
     Domestic homebuilding gross profit margins from home settlements increased to 23.8% for the three months ended June 30, 2005, compared with 22.1% for the same period in the prior year. For the six months ended June 30, 2005, domestic homebuilding gross margin increased to 24.1%, compared with 22.0% for the same period in 2004. This increase is primarily attributable to favorable home pricing and product and geographic mix, as well as our ongoing initiatives to improve operational efficiencies, partially offset by increases in material and labor costs.
     We consider land acquisition and entitlement among our core competencies. We acquire land primarily for the construction of our homes for sale to homebuyers. We will often sell select parcels of land within or adjacent to our communities to retail and commercial establishments. On occasion, we also will sell lots within our communities to other homebuilders. Gross profits from land sales for the three months ended June 30, 2005 and 2004 were $4 million and $13.6 million, respectively, compared with $7.4 million and $17.2 million, respectively, for the six months ended June 30, 2005 and 2004. Revenues and their related gains/losses may vary significantly between periods, depending on the timing of land sales. We continue to evaluate our existing land positions to ensure the most effective use of capital. As of June 30, 2005, we had $182 million of land held for sale.
     Selling, general and administrative expenses as a percentage of home settlement revenues declined to 8.5% for the three months ended June 30, 2005 compared with 9.3% for the same period in the prior year. For the six months ended June 30, 2005, selling, general and administrative expenses as a percentage of home settlement revenues declined to 9.3% from 9.9% for the same period in the prior year. This improvement can be attributed to increased selling prices and better overhead leverage from increased volume compared with the prior year period.
     The increase in equity income for the second quarter and first half of 2005, compared with the prior year periods, was primarily due to increased income from our joint venture which supplies and installs basic building components and operating systems, and a Nevada-based land development joint venture, related to the sale of commercial and residential properties.

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Table of Contents

Homebuilding Operations (continued)
International Homebuilding
     Our International Homebuilding operations are primarily conducted through subsidiaries of International in Mexico and Puerto Rico. We are currently in the process of evaluating various long-term strategic alternatives with regard to our International operations.
     The following table presents selected financial data for our International Homebuilding operations for the three and six months ended June 30, 2005 and 2004 ($000’s omitted):
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2005     2004     2005     2004  
Revenues
  $ 40,026     $ 40,249     $ 76,802     $ 80,830  
Cost of sales
    (35,315 )     (32,572 )     (63,517 )     (65,470 )
Selling, general and administrative expense
    (7,387 )     (7,090 )     (15,615 )     (13,789 )
Other income (expense), net
    114       (796 )     (188 )     (1,415 )
Minority interest
    242       (264 )     41       (661 )
Equity in income of joint ventures
    1,842       1,849       3,259       2,668  
 
                               
 
                               
Pre-tax income (loss)
  $ (478 )   $ 1,376     $ 782     $ 2,163  
 
                                 
 
                               
Unit settlements
    1,542       1,533       2,805       3,080  
 
                               
Note: Homebuilding settlement revenues of affiliates, not included in the table above, for the three months ended June 30, 2005 and 2004 were $22,302 and $21,616, respectively; for the six months ended June 30, 2005 and 2004, were $37,116 and $30,166, respectively. Homebuilding unit settlements of affiliates not included in the table above, for the three months ended June 30, 2005 and 2004 were 61 and 78, respectively; for the six months ended June 30, 2005 and 2004 were 111 and 114, respectively.
     During January 2005, the minority shareholders of Pulte Mexico S. de R.L. de C.V. (“Pulte Mexico”) exercised a put option under the terms of a reorganization agreement dated as of December 31, 2001, to sell their shares to us, the consummation of which would result in our owning 100% of Pulte Mexico. In March 2005, we purchased 60% of the minority interest of Pulte Mexico for approximately $18.7 million in cash. In June 2005, we purchased the remaining 40% minority interest, for approximately $12.5 million in cash. We assigned approximately $17.6 million of the purchase price premium to house and land inventory, which will be amortized through cost of sales as homes are sold. During the three and six months ended June 30, 2005 approximately $2.7 million of purchase price premium was amortized through cost of sales. The excess of the purchase price over the estimated fair values of the underlying assets acquired and liabilities assumed, of $5.3 million, was recorded as goodwill.
     International revenues and unit settlements for the three months ended June 30, 2005 were comparable with the second quarter of 2004. For the six months ended June 30, 2005, international revenues and unit settlements decreased 5% and 8.9%, respectively, compared with the six months ended June 30, 2004. Gross margins decreased approximately 730 basis points to 11.8% for the three months ended June 30, 2005 and 170 basis points to 17.3% for the six months ended June 30, 2005, as compared with the prior year periods, due to the amortization of premium resulting from the purchase of the minority interest in Pulte Mexico discussed above. Selling, general and administrative expenses as a percent of revenues increased to 18.5% from 17.6% for the three-month period and to 20.3% from 17.1% for the six-month period due to increased marketing expenses, new community start-up expenses, and non-recurring administrative costs.
     Our operations in Mexico are affected by fluctuations in currency rates for those countries. Transaction gains and losses for the three and six months ended June 30, 2005 and 2004, included in other income (expense), net, were not significant. During the three and six months ended June 30, 2005, we recorded foreign currency translation gains of $2.4 million and $3.5 million, respectively, as a component of accumulated other comprehensive income on the balance sheet. At June 30, 2005, our investments in Puerto Rico and Mexico, net of accumulated foreign currency translation adjustments, approximated $29.6 million and $116 million, respectively. At December 31, 2004, our investment in Puerto Rico and Mexico, net of accumulated foreign currency translation adjustments, approximated $28.8 million, and $72.2 million, respectively.

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Financial Services Operations
     We conduct our financial services business, which includes mortgage and title operations, through Pulte Mortgage and other subsidiaries. Pre-tax income of our financial services operations for the three and six months ended June 30, 2005 was $15.5 million and $25.6 million, respectively, compared with $8.4 million and $18.5 million, respectively, for the prior year periods. Loan originations for the three and six months ended June 30, 2005 increased 19% and 21% to 9,445 and 17,037 mortgages, respectively, compared with the prior year periods.
     The following table presents mortgage origination data for our Financial Services operations:
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2005     2004     2005     2004  
Total originations:
                               
Loans
    9,445       7,957       17,037       14,070  
 
                                 
Principal ($000’s omitted)
  $ 1,829,200     $ 1,495,800     $ 3,318,600     $ 2,648,500  
 
                                 
 
Originations for Pulte customers:
                               
Loans
    9,235       7,037       16,450       12,472  
 
                                 
Principal ($000’s omitted)
  $ 1,790,700     $ 1,348,400     $ 3,218,600     $ 2,393,000  
 
                               
     Mortgage origination unit and principal volume for the three months ended June 30, 2005 increased 19% and 22%, respectively, over the same period in 2004. For the six months ended June 30, 2005, mortgage origination unit and principal volume increased 21% and 25%, respectively, over the same period in 2004. The growth is attributable to volume increases experienced in our homebuilding business and an increase in the average loan size. Our Domestic Homebuilding customers continue to account for the majority of total loan production, representing 98% and 97% of total Pulte Mortgage unit production for the three and six months ended June 30, 2005, respectively, compared with 88% and 89% for the same periods in 2004. Refinancings accounted for approximately 1.1% and 1.6% of total unit originations for the three and six months ended June 30, 2005, respectively, compared with 3.4% and 3.7% for the same periods in the prior year. At June 30, 2005, loan application backlog increased to $5.2 billion as compared with $3.8 billion at June 30, 2004.
     Adjustable rate mortgages (ARMs), which generally have a lower profit per loan than fixed rate products, represented 48% of total funded origination dollars and 43% of total funded origination units for the three months ended June 30, 2005, compared with 42% and 40% in the prior year period, respectively. For the six months ended June 30, 2005, ARMs represented 50% of total funded origination dollars and 45% of total funded origination units compared with 37% and 35% in the prior year period, respectively. Interest only mortgages, a component of ARMs, represented 63% of ARMs origination dollars and 52% of ARMs origination units for the three months ended June 30, 2005, compared with 35% and 26% in the prior year period, respectively. For the six months ended June 30, 2005, interest only mortgages represented 63% of ARMs origination dollars and 51% of ARMs origination units, compared with 29% and 21% in the prior year period, respectively.
     Income from our title operations increased to $4.5 million and $8.7 million for the three and six months ended June 30, 2005, respectively, from $3.5 million and $6.8 million for the same periods in 2004, respectively. Our minority interest in Su Casita, a Mexican mortgage banking company, contributed income from operations of approximately $700 thousand for the six months ended June 30, 2005. During February 2005, 25% of our investment in the capital stock of Su Casita was redeemed for a gain of approximately $620 thousand. Our remaining interest of 16.66% is accounted for under the cost method of accounting and therefore no income was recorded for the three months ended June 30, 2005. Income for the three and six months ended June 2004, was $200 thousand and $1 million, respectively.
     We hedge portions of our forecasted cash flow from sales of closed mortgage loans with derivative financial instruments to minimize the impact of changes in interest rates. We do not use derivative financial instruments for trading purposes.

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Corporate
     Corporate is a non-operating segment that supports the operations of our subsidiaries by acting as the internal source of financing, developing and implementing strategic initiatives centered on new business development and operating efficiencies, and providing the administrative support associated with being a publicly traded entity listed on the New York Stock Exchange. As a result, the corporate segment’s operating results will vary from quarter to quarter as these strategic initiatives evolve.
     The following table presents results of operations for this segment for the three and six months ended June 30, 2005 and 2004 ($000’s omitted):
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2005     2004     2005     2004  
Net interest expense
  $ 14,903     $ 12,111     $ 28,650     $ 23,746  
Other corporate expenses, net
    14,203       11,757       23,212       20,350  
 
                                 
Loss before income taxes
  $ 29,106     $ 23,868     $ 51,862     $ 44,096  
 
                                 
     Interest expense, net of interest capitalized into inventory, increased $2.8 million in the three months ended June 30, 2005 and $4.9 million for the six months ended June 30. This is a result of the continued increase in debt levels necessary to support our growth. Interest incurred for the three months ended June 30, 2005 and 2004, excluding interest incurred by our financial services operations, was approximately $60 million and $50.4 million, respectively, and $115.6 million and $99.2 million for the six months ended June 30, 2005 and 2004, respectively.
     The increase in other corporate expenses, net for the three and six months ended June 30, 2005 is due primarily to increased compensation-related expense.
     Interest capitalized into inventory is charged to home cost of sales based on the cyclical timing of our unit settlements, over a period that approximates the average life cycle of our communities. Interest in inventory has increased primarily as a result of higher levels of indebtedness. Information related to Corporate interest capitalized into inventory is as follows ($000’s omitted):
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2005     2004     2005     2004  
Interest in inventory at beginning of period
  $ 233,711     $ 215,253     $ 223,591     $ 200,584  
Interest capitalized
    43,810       37,737       84,474       74,018  
Interest expensed
    (41,103 )     (29,508 )     (71,647 )     (51,120 )
 
                                 
 
                               
Interest in inventory at end of period
  $ 236,418     $ 223,482     $ 236,418     $ 223,482  
 
                                 

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Liquidity and Capital Resources
     We finance our homebuilding land acquisitions, development and construction activities from internally generated funds and existing credit agreements.
     At June 30, 2005, we had cash and equivalents of $450.8 million and $3.5 billion of senior and unsubordinated notes outstanding. Other financing included limited recourse collateralized financing totaling $71.3 million. Sources of our working capital include our cash and equivalents, our $1.38 billion committed unsecured revolving credit facility and Pulte Mortgage’s $940 million committed credit arrangements.
     During April 2005, we amended our credit agreement to increase our committed unsecured revolving credit facility from $1.31 billion to $1.345 billion. During May 2005, we amended the credit agreement to increase our committed unsecured revolving credit facility from $1.345 billion to $1.38 billion. We had no outstanding borrowings under this unsecured revolving credit facility at June 30, 2005.
     Our debt-to-total capitalization, excluding our collateralized debt, was approximately 40.8% at June 30, 2005, and approximately 37.6% net of cash and equivalents. We routinely monitor current operational requirements and financial market conditions to evaluate the use of available financing sources, including securities offerings.
     Pulte Mortgage provides mortgage financing for many of our home sales and uses its own funds and borrowings made available pursuant to various committed and uncommitted credit arrangements. At June 30, 2005, Pulte Mortgage had committed credit arrangements of $940 million comprised of a $390 million bank revolving credit facility and a $550 million annual asset-backed commercial paper program.
     On July 27, 2005, our Board of Directors declared a two-for-one stock split to be effected in the form of a 100 percent stock dividend. The additional shares of common stock will be distributed on September 1, 2005, to the shareholders of record as of August 15, 2005. We also announced a $.03 per share increase in our quarterly dividend, from $.05 to $.08 on a pre-split basis, an increase of 60%. The quarterly dividend of $.04 per share on a post-split basis will be payable October 3, 2005 to shareholders of record as of September 26, 2005.
     Our income tax liability and related effective tax rate are affected by a number of factors. At June 30, 2005, our effective tax rate was 37.3% compared to 38% at June 30, 2004. The reduction in the effective tax rate for 2005 was principally due to the new manufacturing deduction established by the American Jobs Creation Act of 2004. We anticipate that our effective tax rate for 2005 will be approximately 37.3%.
     Our net cash used in operating activities for the six months ended June 30, 2005 was $340.5 million, compared with $488.3 million for the six months ended June 30, 2004. Net income for both years was offset primarily by significant investments in land necessary to support the continued growth of the business.
     Cash used in investing activities was $23.1 million for the six months ended June 30, 2005, compared with $145.4 million for the six months ended June 30, 2004. During the six months ended June 30, 2005, we invested approximately $31.2 million to purchase our minority shareholders’ interest in Pulte Mexico. In addition, we invested approximately $12.5 million in new joint ventures that develop and/or sell land within the United States. Also, we made $79.5 million of additional capital contributions to and received $123.2 million in distributions from our unconsolidated joint ventures for the six months ended June 30, 2005. Further, we incurred approximately $37.7 million in capital expenditures to support the growth of our business.
     Net cash provided by financing activities totaled $499.5 million for the six months ended June 30, 2005. Cash inflows from financing activities for the six months ended June 30, 2005 are primarily attributed to the issuance of senior notes. Cash outflows from financing activities for the six months ended June 30, 2005 primarily relate to net repayment of debt from Pulte Mortgage’s committed credit arrangements, dividends paid and stock repurchases.
     We anticipate repaying our $125 million, 7.3% unsecured senior notes, due in 2005, using our revolving credit facility and/or using cash provided by operations.
     During January 2005, the minority shareholders of Pulte Mexico exercised a put option under the terms of a reorganization agreement dated as of December 31, 2001, to sell their shares to us, the consummation of which would result in our owning 100% of Pulte Mexico. In March 2005, we purchased 60% of the minority interest of Pulte Mexico for approximately $18.7 million in cash. In June 2005, we purchased the remaining 40% minority interest, for approximately $12.5 million in cash.

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Liquidity and Capital Resources (continued)
     In February 2005, we sold $350 million of 5.2% senior notes, which mature on February 15, 2015, and $300 million of 6% senior notes, which mature on February 15, 2035, which are guaranteed by Pulte Homes, Inc. and certain of its 100%-owned subsidiaries. These notes are unsecured and rank equally with all of our other unsecured and unsubordinated indebtedness. Proceeds from the sale were used to repay the indebtedness of our revolving credit facility and for general corporate purposes, including continued investment in our business.
     In connection with the sale of the $300 million unsecured senior notes, as discussed above, $250 million in securities were available for sale under our shelf registration statement on Form S-3. As permitted by the rules of the Securities and Exchange Commission (the “SEC”), the additional $50 million of securities were to be registered through a supplemental registration statement filed at the time of sale pursuant to Rule 462(b) of the Securities Act of 1933 (the “Securities Act”). Due to an administrative error, the supplemental registration statement was not filed with the SEC. Consequently, $50 million of the notes were sold without registration under the Securities Act, which may give rise to certain claims by purchasers of the notes under Section 12(a)(1) of the Securities Act. We would vigorously defend against any such claims and believe that the aggregate impact of such claims, if successful, would be immaterial. We also believe it would be impossible to determine which notes have been affected by our administrative error.
Inflation
     We, and the homebuilding industry in general, may be adversely affected during periods of high inflation because of higher land and construction costs. Inflation also increases our financing, labor and material costs. In addition, higher mortgage interest rates significantly affect the affordability of permanent mortgage financing to prospective homebuyers. We attempt to pass to our customers any increases in our costs through increased sales prices. To date, inflation has not had a material adverse effect on our results of operations. However, there is no assurance that inflation will not have a material adverse impact on our future results of operations.

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New Accounting Pronouncements
     On December 15, 2004, the Financial Accounting Standards Board issued SFAS No. 123(R), Share-Based Payment, which amends SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123(R) requires that all share-based payments to employees, including grants of employee stock options, be accounted for at fair value. The pro forma disclosures previously permitted under SFAS No. 123 no longer will be an alternative to financial statement recognition. Under SFAS No. 123(R), we must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at date of adoption. We previously adopted the fair-value-based method of accounting for share-based payments under SFAS No. 123 effective January 1, 2003 using the prospective method described in SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure. Currently, we use the Black-Scholes model to estimate the value of stock options granted to employees and we are considering the lattice model. Because SFAS No. 123(R) must be applied not only to new awards but to previously granted awards that are not fully vested on the effective date, and because we adopted SFAS No. 123 using the prospective transition method (which applied only to awards granted, modified or settled after the adoption date), compensation cost for some previously granted awards that was not recognized under SFAS No. 123 will be recognized under SFAS No. 123(R). SFAS No. 123(R) also amends SFAS No. 95, Statement of Cash Flows, to require that excess tax benefits be reported as a financing cash inflow rather than as a reduction of taxes paid. As originally issued, SFAS No. 95 required all income tax payments to be classified as operating cash outflows. This statement is effective for fiscal periods beginning after December 15, 2005. We are still evaluating the impact of adopting SFAS No. 123(R).
     In March 2005, the SEC released Staff Accounting Bulletin (“SAB”) No. 107, Share-Based Payment. SAB No. 107 provides the SEC staff position regarding the application of SFAS No. 123(R) and contains interpretive guidance related to the interaction between SFAS No. 123(R) and certain SEC rules and regulations, as well as provides the staff’s views regarding the valuation of share-based payment arrangements for public companies. Additionally, SAB No. 107 highlights the importance of disclosures made related to the accounting for share-based payment transactions. The Company is currently reviewing the effect of SAB No. 107 on its consolidated financial statements.
Critical Accounting Policies and Estimates
     There have been no significant changes to our critical accounting policies and estimates during the six months ended June 30, 2005 compared with those disclosed in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our annual report on Form 10-K for the year ended December 31, 2004.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Quantitative disclosure:
     We are subject to interest rate risk on our rate-sensitive financing to the extent long-term rates decline. The following table sets forth, as of June 30, 2005, our rate-sensitive financing obligations, principal cash flows by scheduled maturity, weighted-average interest rates and estimated fair market values ($000’s omitted).
                                                                 
    As of June 30, 2005 for the  
    years ended December 31,  
                                            There-             Fair  
    2005     2006     2007     2008     2009     after     Total     Value  
Rate sensitive liabilities:
                                                               
 
                                                               
Fixed interest rate debt:
                                                               
 
                                                               
Senior notes
  $ 125,000     $     $     $     $ 400,000     $ 2,998,563     $ 3,523,563     $ 3,752,554  
Average interest rate
    7.3 %                       4.88 %     6.58 %     6.41 %        
 
                                                               
Limited recourse collateralized financing
  $ 42,022     $ 20,960     $ 4,642     $ 2,741     $ 934     $     $ 71,299     $ 71,299  
Average interest rate
    2.93 %     2.33 %     1.99 %     3.07 %     7.25 %           3.05 %        
Qualitative disclosure:
     This information can be found in Item 7A., Quantitative and Qualitative Disclosures about Market Risk, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2004, and is incorporated herein by reference.
Special Notes Concerning Forward-Looking Statements
     As a cautionary note, except for the historical information contained herein, certain matters discussed in Item 2., Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 3., Quantitative and Qualitative Disclosures About Market Risk, are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such factors include, among other things, (1) general economic and business conditions; (2) interest rate changes and the availability of mortgage financing; (3) the relative stability of debt and equity markets; (4) competition; (5) the availability and cost of land and other raw materials used in our homebuilding operations; (6) the availability and cost of insurance covering risks associated with our business; (7) shortages and the cost of labor; (8) weather related slowdowns; (9) slow growth initiatives and/or local building moratoria; (10) governmental regulation, including the interpretation of tax, labor and environmental laws; (11) changes in consumer confidence and preferences; (12) required accounting changes; (13) terrorist acts and other acts of war; and (14) other factors over which we have little or no control.
Item 4. Controls and Procedures
     Management, including our President & Chief Executive Officer and Executive Vice President & Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2005. Based upon, and as of the date of that evaluation, our President & Chief Executive Officer and Executive Vice President & Chief Financial Officer concluded that the disclosure controls and procedures were effective, in all material respects, to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required.
     There has been no change in our internal control over financial reporting during the quarter ended June 30, 2005 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities (1)
                                 
                            (d)
                            Approximate dollar
                    (c)   value of shares
                    Total number of   that may yet be
    (a)   (b)   shares purchased   purchased under
    Total Number   Average   as part of publicly   the plans or
    of shares   price paid   announced plans   programs
    purchased   per share   or programs   ($000’s omitted)
June 1, 2005 through June 30, 2005
    115,000     $ 83.09       115,000     $ 41,646  
 
                               
 
Total
    115,000    (2)   $ 83.09       115,000          
 
                               
 
(1) In October 2002 our Board of Directors authorized the repurchase of $100 million of Pulte Homes, Inc. common stock in open-market transactions or otherwise.
(2) All shares were purchased pursuant to the publicly announced programs.
Item 4. Submission of Matters to a Vote of Security Holders
     Our Annual Meeting of Shareholders was held on May 12, 2005. The following matters were considered and acted upon, with the results indicated below.
                 
    Shares     Shares  
    Voted For     Withheld  
Election of Directors - Nominees to Serve a Three Year Term Expiring at the 2008 Annual Meeting:
               
 
               
D. Kent Anderson
    113,498,878       3,666,824  
John J. Shea
    113,332,026       3,833,676  
William B. Smith
    113,497,961       3,667,741  

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Item 4. Submission of Matters to a Vote of Security Holders (continued)
                         
            Shares        
    Shares     Voted     Shares  
    Voted For     Against     Abstaining  
Ratification of the appointment of the Company’s independent accountants by shareholders
    114,925,662       1,530,595       709,445  
 
                       
Amendment to our Articles of Incorporation to increase our authorized shares of common stock to 400,000,000 shares
    107,847,969       8,650,991       666,742  
 
                       
Reapproval of the performance criteria under Pulte’s Long Term Incentive Plan
    111,160,126       5,205,935       799,641  
                                 
        Shares        
    Shares   Voted   Shares   Broker
    Voted For   Against   Abstaining   Non-Votes
Election of Directors by a majority, rather than plurality, vote
    47,327,463       47,785,577       8,292,320       13,760,342  
 
Item 6. Exhibits
(a) Exhibits
Exhibit Number and Description
     
31(a)
  Rule 13a-14(a) Certification by Richard J. Dugas, Jr., President and Chief Executive Officer
 
31(b)
  Rule 13a-14(a) Certification by Roger A. Cregg, Executive Vice President and Chief Financial Officer
 
32
  Certification Pursuant to 18 United States Code § 1350 and Rule 13a-14(b) of the Securities Exchange Act of 1934

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SIGNATURES
     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
         
 
  PULTE HOMES, INC.
   
 
       
/s/ Roger A. Cregg
   
 
  Roger A. Cregg    
 
  Executive Vice President and    
 
  Chief Financial Officer    
 
  (Principal Financial Officer)    
 
 
       
 
 
/s/ Vincent J. Frees
   
 
  Vincent J. Frees    
 
  Vice President and Controller    
 
  (Principal Accounting Officer)    
 
       
 
  Date: August 4, 2005    

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EXHIBIT INDEX
     
Exhibit Number   Description
31(a)
  Rule 13a-14(a) Certification by Richard J. Dugas, Jr., President and Chief Executive Officer
 
31(b)
  Rule 13a-14(a) Certification by Roger A. Cregg, Executive Vice President and Chief Financial Officer
 
32
  Certification Pursuant to 18 United States Code § 1350 and Rule 13a-14(b) of the Securities Exchange Act of 1934

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