PULTE HOMES INC/MI/ - 10-Q Quarterly Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2002

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days.

YES x NO o

Number of shares of common stock outstanding as of July 31, 2002: 61,193,265

Total pages: 32

Listing of exhibits: 30

TABLE OF CONTENTS


PART I FINANCIAL INFORMATION
	Item 1 Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets, June 30, 2002 and December 31, 2001
	Consolidated Statements of Income, for the Three and Six Months Ended June 30, 2002 and 2001
	Consolidated Statements of Shareholders’ Equity, for the Six Months Ended June 30, 2002 and 2001
	Consolidated Statements of Cash Flows, for the Six Months Ended June 30, 2002 and 2001
	Notes to Condensed Consolidated Financial Statements
	Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3 Quantitative and Qualitative Disclosures About Market Risk
PART II OTHER INFORMATION
	Item 4 Submission of Matters to a Vote of Security Holders
	Item 6 Exhibits and Reports on Form 8-K
SIGNATURES
Certification of Chief Executive Officer
Certification of Chief Financial Officer

PULTE HOMES, INC.

INDEX


		Page No.

PART I FINANCIAL INFORMATION
	Item 1 Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets, June 30, 2002 and December 31, 2001		3
	Consolidated Statements of Income, for the Three and Six Months Ended June 30, 2002 and 2001		4
	Consolidated Statements of Shareholders’ Equity, for the Six Months Ended June 30, 2002 and 2001		5
	Consolidated Statements of Cash Flows, for the Six Months Ended June 30, 2002 and 2001		6
	Notes to Condensed Consolidated Financial Statements		7
	Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations		20
	Item 3 Quantitative and Qualitative Disclosures About Market Risk		29
PART II OTHER INFORMATION
	Item 4 Submission of Matters to a Vote of Security Holders		30
	Item 6 Exhibits and Reports on Form 8-K		30
SIGNATURES			32

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

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


			June 30,		December 31,
			2002		2001

			(Unaudited)		(Note)
ASSETS
Cash and equivalents			$	212,767	$	72,144
Unfunded settlements				40,109		69,631
House inventory				948,410		875,690
Land inventory				3,296,508		2,958,073
Residential mortgage loans available-for-sale				286,484		431,735
Goodwill				307,693		307,693
Intangible assets, net of accumulated amortization of $7,471 and $3,396 in 2002 and 2001, respectively				155,529		159,604
Other assets				801,880		772,687
Deferred income taxes				57,783		67,019

	Total assets		$	6,107,163	$	5,714,276

LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
	Accounts payable and accrued liabilities, including book overdrafts of $155,806 and $119,229 in 2002 and 2001, respectively		$	1,328,893	$	1,155,702
	Unsecured short-term borrowings			—		110,000
	Collateralized short-term debt, recourse solely to applicable non-guarantor subsidiary assets			272,925		413,675
	Income taxes			88,082		35,370
	Subordinated debentures and senior notes			1,949,265		1,722,864

		Total liabilities		3,639,165		3,437,611
Shareholders’ equity				2,467,998		2,276,665

			$	6,107,163	$	5,714,276

Note: The balance sheet at December 31, 2001, has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.

See accompanying Notes to Condensed Consolidated Financial Statements.

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


					Three Months Ended						Six Months Ended
					June 30,						June 30,

					2002			2001				2002			2001

Revenues:
	Homebuilding				$	1,661,670		$	1,040,685			$	3,017,275		$	1,865,732
	Financial services					23,842			17,132				46,866			31,843
	Corporate					51			905				163			1,622

				Total revenues		1,685,563			1,058,722				3,064,304			1,899,197

Expenses:
	Homebuilding, principally cost of sales					1,516,696			940,535				2,759,710			1,700,837
	Financial services					9,376			11,216				21,088			20,328
	Corporate, net					14,513			14,322				29,679			24,581

				Total expenses		1,540,585			966,073				2,810,477			1,745,746

Other income:
	Equity in income of joint ventures					3,244			5,918				6,929			8,724

Income from continuing operations before income taxes						148,222			98,567				260,756			162,175
Income taxes						57,814			37,948				101,708			62,437

Income from continuing operations						90,408			60,619				159,048			99,738
Loss from discontinued operations						(205	)		(825	)			(733	)		(573	)

Net income					$	90,203		$	59,794			$	158,315		$	99,165

Per share data:
	Basic:
		Income from continuing operations			$	1.49		$	1.44			$	2.64		$	2.38
		Loss from discontinued operations				—			(.02	)			(.01	)		(.01	)

		Net income			$	1.49		$	1.42			$	2.63		$	2.37

	Assuming dilution:
		Income from continuing operations			$	1.45		$	1.40			$	2.57		$	2.31
		Loss from discontinued operations				—			(.02	)			(.01	)		(.01	)

		Net income			$	1.45		$	1.38			$	2.56		$	2.30

	Cash dividends declared				$	.04		$	.04			$	.08		$	.08

	Number of shares used in calculation:
		Basic:
			Weighted-average common shares outstanding			60,500			41,987				60,106			41,892
		Assuming dilution:
			Effect of dilutive securities			1,859			1,378				1,827			1,299

			Adjusted weighted-average common shares and effect of dilutive securities			62,359			43,365				61,933			43,191

See accompanying Notes to Condensed Consolidated Financial Statements.

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


									Accumulated
									Other
				Additional					Comprehensive
		Common		Paid-in		Unearned			Income			Retained
		Stock		Capital		Compensation			(Loss)			Earnings			Total

Shareholders’ Equity, December 31, 2001		$	592	$	862,881	$	(3,859	)	$	(13,969	)	$	1,431,020		$	2,276,665
Stock option exercise, including tax benefit of $20,638			17		52,084		—			—			—			52,101
Restricted stock award			2		11,316		(11,318	)		—			—			—
Restricted stock award amortization			—		—		2,498			—			—			2,498
Cash dividends declared			—		—		—			—			(4,866	)		(4,866	)
Comprehensive income (loss):
	Net income		—		—		—			—			158,315			158,315
	Change in fair value of derivatives		—		—		—			437			—			437
	Foreign currency translation adjustments		—		—		—			(17,152	)		—			(17,152	)

	Total comprehensive income															141,600

Shareholders’ Equity, June 30, 2002		$	611	$	926,281	$	(12,679	)	$	(30,684	)	$	1,584,469		$	2,467,998

Shareholders’ Equity, December 31, 2000		$	416	$	109,593	$	—		$	185		$	1,137,737		$	1,247,931
Stock option exercise, including tax benefit of $3,401			5		13,059		—			—			—			13,064
Restricted stock award			1		5,557		(5,558	)		—			—			—
Restricted stock award amortization			—		—		772			—			—			772
Cash dividends declared			—		—		—			—			(3,382	)		(3,382	)
Comprehensive income (loss):
	Net income		—		—		—			—			99,165			99,165
	Change in fair value of derivatives		—		—		—			(312	)		—			(312	)
	Foreign currency translation adjustments		—		—		—			2,132			—			2,132

Total comprehensive income																100,985

Shareholders’ Equity, June 30, 2001		$	422	$	128,209	$	(4,786	)	$	2,005		$	1,233,520		$	1,359,370

See accompanying Notes to Condensed Consolidated Financial Statements.

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


					Six Months Ended
					June 30,

					2002			2001

Continuing operations:
Cash flows from operating activities:
	Net income				$	158,315		$	99,165
	Adjustments to reconcile net income to net cash flows used in operating activities:
			Amortization, depreciation and other			21,119			9,937
			Deferred income taxes			10,490			11,834
			Increase (decrease) in cash due to:
				Inventories		(417,092	)		(499,861	)
				Residential mortgage loans available-for-sale		145,804			55,616
				Other assets		42,149			10,473
				Accounts payable and accrued liabilities		49,686			22,427
				Income taxes		72,050			29,337

Net cash provided by (used in) operating activities						82,521			(261,072	)

Cash flows from investing activities:
	Increase in covered assets and FRF receivables					—			(2,018	)
	Other, net					3,696			781

Net cash provided by (used in) investing activities						3,696			(1,237	)

Cash flows from financing activities:
	Proceeds from borrowings					357,274			218,852
	Repayment of borrowings					(325,224	)		(46,417	)
	Issuance of common stock					31,463			9,663
	Dividends paid					(4,866	)		(3,382	)
	Other, net					(4,241	)		1,413

Net cash provided by financing activities						54,406			180,129

Net increase (decrease) in cash and equivalents						140,623			(82,180	)
Cash and equivalents at beginning of period						72,144			183,985

Cash and equivalents at end of period					$	212,767		$	101,805

Supplemental disclosure of cash flow information- cash paid during the period for:
		Interest, net of amount capitalized			$	22,656		$	10,883

		Income taxes			$	16,565		$	18,345

See accompanying Notes to Condensed Consolidated Financial Statements.

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

1. Basis of presentation and significant accounting policies

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

     The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six month period ended June 30, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. 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, 2001.

     Certain amounts related to non-recourse notes payable, land sales, joint ventures and title operations previously reported in the 2001 financial statements and notes thereto were reclassified to conform to the 2002 presentation.

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

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,
		2002			2001

Foreign currency translation adjustments:
	Argentina	$	(28,539	)	$	(14,110	)
	Mexico		(1,890	)		(451	)
Change in fair value of derivatives, net of income taxes of ($100) in 2002 and $371 in 2001			(255	)		592

		$	(30,684	)	$	(13,969	)

Intangible assets

Intangible assets, which consist of certain trademarks and tradenames, resulted from the acquisition of Del Webb in 2001. The determination of the value of these intangible assets was performed by independent appraisers and advisors utilizing proven valuation procedures. These intangible assets are routinely reviewed for impairment indicators or when events and circumstances warrant. If impairment indicators exist, an assessment of undiscounted future cash flows for the assets related to these intangibles are evaluated accordingly. If the results of the analysis indicate impairment, the assets are adjusted to fair market value. Trademarks and tradenames are amortized on a straight-line basis over a 20-year life.

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

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

New Accounting Pronouncements

     In June 2001, the Financial Accounting Standards Board (FASB) issued Statements of Financial Accounting Standards (SFAS) No. 141, “Business Combinations,” and No. 142, “Goodwill and Other Intangible Assets,” effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill will no longer be amortized but will be subject to annual impairment tests in accordance with SFAS No. 142. Other intangible assets will continue to be amortized over their useful lives.

     Goodwill represents the cost of acquired companies in excess of the fair value of net assets at acquisition date. The majority of the goodwill recorded resulted from the acquisition of Del Webb in 2001 and was allocated to the homebuilding segment. Goodwill is reviewed by management for impairment annually, or whenever events or changes in circumstances indicate the carrying amount may not be recoverable.

     Effective January 1, 2002, the Company adopted the nonamortization provisions of SFAS No. 142 related to the goodwill existing at June 30, 2001. The following table sets forth reported net income and earnings per share, as adjusted to exclude goodwill amortization expense:


		Year ended December 31,						Three Months		Six Months
								Ended		Ended
		2001		2000		1999		June 30, 2001		June 30, 2001

Net income, as reported ($000’s omitted)		$	301,393	$	188,513	$	178,165	$	59,794	$	99,165

Net income, as adjusted ($000’s omitted)		$	305,555	$	192,675	$	182,307	$	60,835	$	101,246

Per share data, as reported:
	Basic	$	6.14	$	4.56	$	4.12	$	1.42	$	2.37

	Diluted	$	5.99	$	4.47	$	4.07	$	1.38	$	2.30

Per share data, as adjusted
	Basic	$	6.22	$	4.66	$	4.22	$	1.45	$	2.42

	Diluted	$	6.07	$	4.57	$	4.16	$	1.40	$	2.34

During the second quarter of 2002, the Company completed the first of the required impairment tests of goodwill as of January 1, 2002, which indicated that no impairment was present.

In October 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” effective for fiscal years beginning after December 15, 2001. This standard supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,” and provides a single accounting model for long-lived assets to be disposed of. SFAS No. 144 provides guidance on differentiating between assets held and used and assets to be disposed of. Assets to be disposed of would be classified as held for sale (and depreciation would cease) when management, having the authority to approve the action, commits to a plan to sell the asset(s) meeting all required criteria. The Company adopted this statement on January 1, 2002, which did not have a material effect on its earnings or financial position.

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

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

New Accounting Pronouncements (continued)

In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” Under the provisions of SFAS No. 145, gains and losses from extinguishment of debt can only be classified as extraordinary items if they meet the criteria in APB Opinion No. 30. This Statement also amends SFAS No. 13, “Accounting for Leases,” to eliminate an inconsistency between the accounting for sale-leaseback transactions and certain lease modifications that have economic effects that are similar. Finally, this Statement amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. Certain provisions of this Statement related to Statement 13 are effective for transactions occurring after May 15, 2002. All other provisions of this Statement will be effective for fiscal years beginning after May 15, 2002. Early application of all the provisions of this Statement is encouraged. SFAS No. 145 is not expected to have a material effect on the Company’s consolidated results of operations, financial position or cash flows.

In July 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” which supercedes EITF No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” SFAS No. 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan as was required by EITF No. 94-3. This statement is effective for disposal activities initiated after December 31, 2002, with early application encouraged. SFAS No. 146 is not expected to have a material effect on the Company’s consolidated results of operations or financial position.

2. Segment information

The Company has three reportable segments: Homebuilding, Financial Services and Corporate.

The Company’s Homebuilding segment consists of the following two business units:

• 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 buyer groups.

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

The Company’s Financial Services segment consists primarily of mortgage banking operations conducted through PMC and its subsidiaries.

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

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,

			2002			2001			2002			2001

Revenues:
	Homebuilding		$	1,661,670		$	1,040,685		$	3,017,275		$	1,865,732
	Financial services			23,842			17,132			46,866			31,843
	Corporate			51			905			163			1,622

Total revenues				1,685,563			1,058,722			3,064,304			1,899,197

Cost of sales:
	Homebuilding			1,326,190			826,199			2,406,176			1,488,923

Selling, general and administrative:
	Homebuilding			172,438			102,250			322,236			191,052
	Financial services			7,955			8,946			18,081			15,749
	Corporate			4,194			3,736			7,333			6,210

		Total selling, general and administrative		184,587			114,932			347,650			213,011

Interest:
	Homebuilding			11,367			8,296			19,890			14,236
	Financial services			1,421			2,270			3,007			4,579
	Corporate			9,821			8,939			19,375			15,305

		Total interest		22,609			19,505			42,272			34,120

Other expense, net:
	Homebuilding			6,701			3,790			11,408			6,626
	Corporate			498			1,647			2,971			3,066

		Total other expense, net		7,199			5,437			14,379			9,692

Total costs and expenses				1,540,585			966,073			2,810,477			1,745,746

Equity in income of joint ventures:
	Homebuilding			1,548			4,339			4,291			6,072
	Financial services			1,696			1,579			2,638			2,652

		Total equity in income of joint ventures		3,244			5,918			6,929			8,724

Income (loss) before income taxes:
	Homebuilding			146,522			104,489			261,856			170,967
	Financial services			16,162			7,495			28,416			14,167
	Corporate			(14,462	)		(13,417	)		(29,516	)		(22,959	)

Total income before income taxes			$	148,222		$	98,567		$	260,756		$	162,175

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, 2002:
	Inventory	$	4,244,918	$	—	$	—	$	4,244,918

	Identifiable assets		5,587,355		336,223		183,585	$	6,107,163

At December 31, 2001:
	Inventory	$	3,833,763	$	—	$	—	$	3,833,763

	Identifiable assets		5,060,583		485,297		168,396	$	5,714,276

3. Debt

     In June 2002, the Company sold $300 million of 7.875% senior notes due in 2032. Net proceeds received from the sale were used to repay short-term debt, certain other indebtedness assumed in the Del Webb merger and for other general corporate purposes.

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

     The Company has the following outstanding senior note obligations: (1) $175,000, 9.5%, due 2003, (2) $100,000, 7%, due 2003, (3) $112,000, 8.375%, due 2004, (4) $125,000, 7.3%, due 2005, (5) $200,000, 8.125%, due 2011, (6) $498,635, 7.875%, due 2011, (7) $150,000, 7.625%, due 2017; and (8) $300,000, 7.875%, due 2032. Obligations under these notes to pay principal, premium, if any, and interest are guaranteed jointly and severally on a senior basis by the Company’s wholly-owned Domestic Homebuilding subsidiaries (collectively, the Guarantors). Del Webb has the following outstanding senior subordinated note obligations: (1) $166,418, 9.375%, due 2009 and (2) $114,469, 10.25%, due 2010. Obligations under these notes to pay principal, premium, if any, and interest are guaranteed jointly and severally on a senior subordinated basis by the Guarantors. Such guarantees are full and unconditional. The principal non-Guarantors include PDCI, Pulte International Corporation, PMC and First Heights.

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

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

4. Supplemental Guarantor information (continued)

CONDENSED CONSOLIDATING BALANCE SHEET
JUNE 30, 2002
($000’s omitted)


		Unconsolidated

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

ASSETS
Cash and equivalents		$	—	$	154,849	$	57,918		$	—		$	212,767
Unfunded settlements			—		41,648		(1,539	)		—			40,109
House and land inventories			—		4,114,697		130,221			—			4,244,918
Residential mortgage loans available-for-sale			—		—		286,484			—			286,484
Land held for sale			—		268,549		—			—			268,549
Goodwill			—		306,993		700			—			307,693
Intangible assets			—		155,529		—			—			155,529
Other assets			54,978		386,816		91,537			—			533,331
Deferred income taxes			57,783		—		—			—			57,783
Investment in subsidiaries			2,251,400		791,273		1,707,195			(4,749,868	)		—
Advances receivable — subsidiaries			1,971,671		206,368		1,656			(2,179,695	)		—

		$	4,335,832	$	6,426,722	$	2,274,172		$	(6,929,563	)	$	6,107,163

LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Accounts payable and accrued liabilities		$	123,931	$	1,074,403	$	130,559		$	—		$	1,328,893
Collateralized short-term debt, recourse solely to applicable non-guarantor subsidiary assets			—		—		272,925			—			272,925
Income taxes			88,082		—		—			—			88,082
Subordinated notes and senior notes			1,652,257		297,008		—			—			1,949,265
Advances payable — subsidiaries			3,564		1,859,775		316,356			(2,179,695	)		—

	Total liabilities		1,867,834		3,231,186		719,840			(2,179,695	)		3,639,165
Shareholders’ equity			2,467,998		3,195,536		1,554,332			(4,749,868	)		2,467,998

		$	4,335,832	$	6,426,722	$	2,274,172		$	(6,929,563	)	$	6,107,163

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

4. Supplemental Guarantor information (continued)

CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2001
($000’s omitted)


		Unconsolidated

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

ASSETS
Cash and equivalents		$	15,621	$	33,643			$	22,880		$	—		$	72,144
Unfunded settlements			—		73,126				(3,495	)		—			69,631
House and land inventories			—		3,796,092				37,671			—			3,833,763
Residential mortgage loans available-for-sale			—		—				431,735			—			431,735
Land held for sale			—		231,397				—			—			231,397
Goodwill			—		306,993				700			—			307,693
Intangible assets			—		159,604				—			—			159,604
Other assets			53,369		381,610				106,311			—			541,290
Deferred income taxes			78,199		(11,225	)			45			—			67,019
Investment in subsidiaries			2,089,940		84,416				1,594,789			(3,769,145	)		—
Advances receivable — subsidiaries			1,729,832		932,092				42,639			(2,704,563	)		—

		$	3,966,961	$	5,987,748			$	2,233,275		$	(6,473,708	)	$	5,714,276

LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Accounts payable and accrued liabilities		$	132,300	$	950,486			$	72,916		$	—		$	1,155,702
Unsecured short-term borrowings			110,000		—				—			—			110,000
Collateralized short-term debt, recourse solely to applicable non-guarantor subsidiary assets			—		—				413,675			—			413,675
Income taxes			59,397		(24,027	)			—			—			35,370
Subordinated notes and senior notes			1,354,290		368,574				—			—			1,722,864
Advances payable — subsidiaries			34,309		2,474,025				196,229			(2,704,563	)		—

	Total liabilities		1,690,296		3,769,058				682,820			(2,704,563	)		3,437,611

	Shareholders’ equity		2,276,665		2,218,690				1,550,455			(3,769,145	)		2,276,665

		$	3,966,961	$	5,987,748			$	2,233,275		$	(6,473,708	)	$	5,714,276

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

4. Supplemental Guarantor information (continued)

CONSOLIDATING STATEMENT OF OPERATIONS
For the three months ended June 30, 2002
($000’s omitted)


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

Revenues:
	Homebuilding		$	—		$	1,610,406	$	51,264		$	—		$	1,661,670
	Financial services			—			3,211		20,631			—			23,842
	Corporate			27			24		—			—			51

Total revenues				27			1,613,641		71,895			—			1,685,563

Expenses:
	Homebuilding:
		Cost of sales		—			1,286,111		40,079			—			1,326,190
		Selling, general and administrative and other expense		2,056			178,574		9,876			—			190,506
	Financial services			—			936		8,440			—			9,376
	Corporate, net			14,155			96		262			—			14,513

Total expenses				16,211			1,465,717		58,657			—			1,540,585

Other Income:
Equity in income of joint ventures				—			955		2,289			—			3,244

Income (loss) from continuing operations before income taxes and equity in income of subsidiaries				(16,184	)		148,879		15,527			—			148,222
Income taxes (benefit)				(6,639	)		58,196		6,257			—			57,814

Income (loss) from continuing operations before equity in income of subsidiaries				(9,545	)		90,683		9,270			—			90,408
Loss from discontinued operations				(202	)		—		(3	)		—			(205	)

Income (loss) before equity in income of subsidiaries				(9,747	)		90,683		9,267			—			90,203

Equity in income (loss) of subsidiaries:
	Continuing operations			99,953			8,239		73,111			(181,303	)		—
	Discontinued operations			(3	)		—		—			3			—

				99,950			8,239		73,111			(181,300	)		—

Net income			$	90,203		$	98,922	$	82,378		$	(181,300	)	$	90,203

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

4. Supplemental Guarantor information (continued)

CONSOLIDATING STATEMENT OF OPERATIONS
For the six months ended June 30, 2002
($000’s omitted)


			Unconsolidated

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

Revenues:
	Homebuilding		$	—		$	2,943,642	$	73,633		$	—		$	3,017,275
	Financial services			—			6,255		40,611			—			46,866
	Corporate			129			34		—			—			163

Total revenues				129			2,949,931		114,244			—			3,064,304

Expenses:
	Homebuilding:
		Cost of sales		—			2,348,268		57,908			—			2,406,176
		Selling, general and administrative and other expense		5,402			331,162		16,970			—			353,534
	Financial services			—			1,911		19,177			—			21,088
	Corporate, net			27,220			2,092		367			—			29,679

Total expenses				32,622			2,683,433		94,422			—			2,810,477

Other Income:
Equity in income of joint ventures				—			1,504		5,425			—			6,929

Income (loss) from continuing operations before income taxes and equity in income of subsidiaries				(32,493	)		268,002		25,247			—			260,756
Income taxes (benefit)				(13,996	)		104,758		10,946			—			101,708

Income (loss) from continuing operations before equity in income of subsidiaries				(18,497	)		163,244		14,301			—			159,048
Loss from discontinued operations				(730	)		—		(3	)		—			(733	)

Income (loss) before equity in income of subsidiaries				(19,227	)		163,244		14,298			—			158,315

Equity in income (loss) of subsidiaries:
	Continuing operations			177,545			14,365		109,348			(301,258	)		—
	Discontinued operations			(3	)		—		—			3			—

				177,542			14,365		109,348			(301,255	)		—

Net income			$	158,315		$	177,609	$	123,646		$	(301,255	)	$	158,315

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

4. Supplemental Guarantor information (continued)

CONSOLIDATING STATEMENT OF OPERATIONS
For the three months ended June 30, 2001
($000’s omitted)


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

Revenues:
	Homebuilding		$	—		$	1,032,412	$	8,273		$	—		$	1,040,685
	Financial services			—			1,950		15,182			—			17,132
	Corporate			21			884		—			—			905

Total revenues				21			1,035,246		23,455			—			1,058,722

Expenses:
	Homebuilding:
		Cost of sales		—			819,178		7,021			—			826,199
		Selling, general and administrative and other expense		686			111,270		2,380			—			114,336
	Financial services			—			543		10,673			—			11,216
	Corporate, net			12,151			2,308		(137	)		—			14,322

Total expenses				12,837			933,299		19,937			—			966,073

Other Income:
Equity in income of joint ventures				—			4,665		1,253			—			5,918

Income (loss) from continuing operations before income taxes and equity in income of subsidiaries				(12,816	)		106,612		4,771			—			98,567
Income taxes (benefit)				(7,071	)		41,079		3,940			—			37,948

Income (loss) from continuing operations before equity in income of subsidiaries				(5,745	)		65,533		831			—			60,619
Loss from discontinued operations				(717	)		—		(108	)		—			(825	)

Income (loss) before equity in income of subsidiaries				(6,462	)		65,533		723			—			59,794

Equity in income (loss) of subsidiaries:
	Continuing operations			66,364			3,572		61,957			(131,893	)		—
	Discontinued operations			(108	)		—		—			108			—

				66,256			3,572		61,957			(131,785	)		—

Net income			$	59,794		$	69,105	$	62,680		$	(131,785	)	$	59,794

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

4. Supplemental Guarantor information (continued)

CONSOLIDATING STATEMENT OF OPERATIONS
For the six months ended June 30, 2001
($000’s omitted)


			Unconsolidated

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

Revenues:
	Homebuilding		$	—		$	1,845,935	$	19,797		$	—		$	1,865,732
	Financial services			—			3,494		28,349			—			31,843
	Corporate			50			1,572		—			—			1,622

Total revenues				50			1,851,001		48,146			—			1,899,197

Expenses:
	Homebuilding:
		Cost of sales		—			1,471,669		17,254			—			1,488,923
		Selling, general and administrative and other expense		1,334			206,413		4,167			—			211,914
	Financial services			—			1,032		19,296			—			20,328
	Corporate, net			21,114			4,055		(588	)		—			24,581

Total expenses				22,448			1,683,169		40,129			—			1,745,746

Other Income:
Equity in income of joint ventures				—			4,595		4,129			—			8,724

Income (loss) from continuing operations before income taxes and equity in income of subsidiaries				(22,398	)		172,427		12,146			—			162,175
Income taxes (benefit)				(11,234	)		66,506		7,165			—			62,437

Income (loss) from continuing operations before equity in income of subsidiaries				(11,164	)		105,921		4,981			—			99,738
Income (loss) from discontinued operations				(1,045	)		—		472			—			(573	)

Income (loss) before equity in income of subsidiaries				(12,209	)		105,921		5,453			—			99,165

Equity in income of subsidiaries:
	Continuing operations			110,902			6,951		103,775			(221,628	)		—
	Discontinued operations			472			—		—			(472	)		—

				111,374			6,951		103,775			(222,100	)		—

Net income			$	99,165		$	112,872	$	109,228		$	(222,100	)	$	99,165

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

4. Supplemental Guarantor information (continued)

CONSOLIDATING STATEMENT OF CASH FLOWS
For the six months ended June 30, 2002
($000’s omitted)


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

Continuing operations:
Cash flows from operating activities:
	Net income			$	158,315		$	177,609		$	123,646		$	(301,255	)	$	158,315
	Adjustments to reconcile net income to net cash flows provided by (used in) operating activities:
		Equity in income of subsidiaries			(177,542	)		(14,365	)		(109,348	)		301,255			—
		Amortization, depreciation and other			3,012			19,815			(1,708	)		—			21,119
		Deferred income taxes			10,490			—			—			—			10,490
		Increase (decrease) in cash due to:
			Inventories		—			(394,556	)		(22,536	)		—			(417,092	)
			Residential mortgage loans available-for-sale		—			—			145,804			—			145,804
			Other assets		(1,609	)		48,894			(5,136	)		—			42,149
			Accounts payable and accrued liabilities		(8,368	)		62,554			(4,500	)		—			49,686
			Income taxes		(4,117	)		70,998			5,169			—			72,050

Net cash provided by (used in) operating activities					(19,819	)		(29,051	)		131,391			—			82,521

Cash flows from investing activities:
	Dividends received from subsidiaries				—			16,500			—			(16,500	)		—
	Investment in subsidiary				—			(645	)		—			645			—
	Advances to affiliates				(179,108	)		38,777			32,681			107,650			—
	Other, net				—			—			3,696			—			3,696

Net cash provided by (used in) investing activities					(179,108	)		54,632			36,377			91,795			3,696

Cash flows from financing activities:
	Proceeds from borrowings				298,819			58,455			—			—			357,274
	Repayment of borrowings				(111,365	)		(70,596	)		(143,263	)		—			(325,224	)
	Capital contributions from parent				—			—			645			(645	)		—
	Advances from affiliates				(30,745	)		107,766			30,629			(107,650	)		—
	Issuance of common stock				31,463			—			—			—			31,463
	Dividends paid				(4,866	)		—			(16,500	)		16,500			(4,866	)
	Other, net				—			—			(4,241	)		—			(4,241	)

Net cash provided by (used in) financing activities					183,306			95,625			(132,730	)		(91,795	)		54,406

Net increase (decrease) in cash and equivalents					(15,621	)		121,206			35,038			—			140,623
Cash and equivalents at beginning of period					15,621			33,643			22,880			—			72,144

Cash and equivalents at end of period				$	—		$	154,849		$	57,918		$	—		$	212,767

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

4. Supplemental Guarantor information (continued)

CONSOLIDATING STATEMENT OF CASH FLOWS
For the six months ended June 30, 2001
($000’s omitted)


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

Continuing operations:
Cash flows from operating activities:
	Net income				$	99,165		$	112,872		$	109,228		$	(222,100	)	$	99,165
		Adjustments to reconcile net income to net cash flows provided by (used in) operating activities:
			Equity in income of subsidiaries			(111,374	)		(6,951	)		(103,775	)		222,100			—
			Amortization, depreciation and other			1,050			9,037			(150	)		—			9,937
			Deferred income taxes			11,834			—			—			—			11,834
			Increase (decrease) in cash due to:
				Inventories		—			(486,179	)		(13,682	)		—			(499,861	)
				Residential mortgage loans available-for-sale		—			—			55,616			—			55,616
				Other assets		(10,070	)		49,326			(28,783	)		—			10,473
				Accounts payable and accrued liabilities		13,194			4,116			5,117			—			22,427
				Income taxes		(41,630	)		66,506			4,461			—			29,337

Net cash provided by (used in) operating activities						(37,831	)		(251,273	)		28,032			—			(261,072	)

Cash flows from investing activities:
	Change in FRF assets					—			—			(2,018	)		—			(2,018	)
	Dividends received from subsidiaries					100,000			1,000			100,000			(201,000	)		—
	Investment in subsidiary					—			(447	)		—			447			—
	Advances to affiliates					(318,414	)		(822	)		(40,870	)		360,106			—
	Other, net					1,820			(408	)		(631	)		—			781

Net cash provided by (used in) investing activities						(216,594	)		(677	)		56,481			159,553			(1,237	)

Cash flows from financing activities:
	Proceeds from borrowings					198,772			15,950			4,130			—			218,852
	Repayment of borrowings					—			—			(46,417	)		—			(46,417	)
	Capital contributions from parent					—			—			447			(447	)		—
	Advances from affiliates					49,372			290,734			20,000			(360,106	)		—
	Issuance of common stock					9,663			—			—			—			9,663
	Dividends paid					(3,382	)		(100,000	)		(101,000	)		201,000			(3,382	)
	Other, net					—			—			1,413			—			1,413

Net cash provided by (used in) financing activities						254,425			206,684			(121,427	)		(159,553	)		180,129

Net decrease in cash and equivalents						—			(45,266	)		(36,914	)		—			(82,180	)
Cash and equivalents at beginning of period						—			133,860			50,125			—			183,985

Cash and equivalents at end of period					$	—		$	88,594		$	13,211		$	—		$	101,805

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 month periods ended June 30, 2002 and 2001 is as follows ($000’s omitted):


		Three Months Ended						Six Months Ended
		June 30,						June 30,

		2002			2001			2002			2001

Pre-tax income (loss):
	Homebuilding operations	$	146,522		$	104,489		$	261,856		$	170,967
	Financial Services operations		16,162			7,495			28,416			14,167
	Corporate		(14,462	)		(13,417	)		(29,516	)		(22,959	)

Pre-tax income from continuing operations			148,222			98,567			260,756			162,175
Income taxes			57,814			37,948			101,708			62,437

Income from continuing operations			90,408			60,619			159,048			99,738
Loss from discontinued operations			(205	)		(825	)		(733	)		(573	)

Net income		$	90,203		$	59,794		$	158,315		$	99,165

Per share data — assuming dilution:
Income from continuing operations		$	1.45		$	1.40		$	2.57		$	2.31
Loss from discontinued operations			—			(.02	)		(.01	)		(.01	)

Net income		$	1.45		$	1.38		$	2.56		$	2.30

A comparison of pre-tax income (loss) for the three and six month periods ended June 30, 2002 and 2001 is as follows:

• Pre-tax income of our homebuilding business segment increased 40% and 53%, respectively, due primarily to the improvement in Domestic Homebuilding operations, which benefited from the acquired operations of Del Webb. Domestic average unit selling price increased by 9% and 10%, respectively, while domestic gross margin percentages remained relatively flat over the prior year periods.

• Pre-tax income of our financial services business segment more than doubled over the prior year periods as a result of higher volumes, steady interest rates and effectively leveraged overheads.

• Pre-tax loss of our corporate business segment increased 8% and 29%, respectively, primarily as a result of higher interest costs related to the merger with Del Webb.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Homebuilding Operations:

Our homebuilding operations are organized into two distinct business units, Domestic and International:

• Domestic Homebuilding operations are conducted in 43 markets, located throughout 25 states. Domestic Homebuilding offers a broad product line to meet the needs of the first-time, first and second move-up and active adult homebuyers.

• International Homebuilding operations are conducted through subsidiaries of Pulte International Corporation in Mexico, Puerto Rico and Argentina. International Homebuilding product offerings focus on the demand of first-time buyers and middle to upper income consumer groups. We also have agreements in place with multi-national corporations to provide social interest and employee housing in Mexico.

Certain operating data relating to our homebuilding operations and Pulte-affiliated joint ventures for the three and six months ended June 30, 2002 and 2001, are as follows ($000’s omitted):


			Three Months Ended				Six Months Ended
			June 30,				June 30,

			2002		2001		2002		2001

Pulte/Pulte-affiliate homebuilding settlement revenues:
		Domestic	$	1,576,285	$	997,712	$	2,885,873	$	1,803,508
		International		57,919		47,575		104,741		97,507

Total Homebuilding			$	1,634,204	$	1,045,287	$	2,990,614	$	1,901,015

Pulte/Pulte-affiliate settlements—units:
	Domestic			6,593		4,551		12,095		8,319
	International:
		Pulte		1,732		54		2,453		143
		Pulte-affiliated entities		43		1,590		964		3,275

	Total International			1,775		1,644		3,417		3,418

Total Pulte and Pulte-affiliate settlements—units				8,368		6,195		15,512		11,737

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Homebuilding Operations (continued):

Domestic Homebuilding:

The Domestic Homebuilding business unit represents our core business. Operations are conducted in 43 markets, located throughout 25 states, and are organized into five groups as follows:


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

Our metropolitan Phoenix operations accounted for 11% of Domestic Homebuilding unit net new orders and unit settlements, and 10% of Domestic Homebuilding settlement revenues for the three-month period ended June 30, 2002. For the six-month period, the metropolitan Phoenix operations accounted for 11% of unit net new orders, 12% of unit settlements and 11% of settlement revenues. No other individual market represented more than 10% of total Domestic Homebuilding unit net new orders, unit settlements or revenues for the three and six-month periods ended June 30, 2002 or 2001.

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


		Three Months Ended				Six Months Ended
		June 30,				June 30,

		2002		2001		2002		2001

Unit settlements:
	Northeast		504		451		920		844
	Southeast		1,888		1,751		3,564		3,360
	Midwest		976		742		1,678		1,190
	Central		1,035		870		1,753		1,502
	West		2,190		737		4,180		1,423

			6,593		4,551		12,095		8,319

Net new orders — units:
	Northeast		660		655		1,454		1,187
	Southeast		2,285		1,954		4,515		4,487
	Midwest		1,246		871		2,546		1,974
	Central		1,308		914		2,592		2,268
	West		2,780		784		5,260		1,717

			8,279		5,178		16,367		11,633

Net new orders — dollars ($000’s omitted)		$	2,041,000	$	1,078,000	$	4,045,000	$	2,477,000

Unit backlog:
	Northeast						1,365		1,153
	Southeast						3,510		3,268
	Midwest						2,243		1,691
	Central						1,742		1,580
	West						4,090		1,099

							12,950		8,791

Backlog at June 30 — dollars ($000’s omitted)						$	3,277,000	$	2,010,000

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Homebuilding Operations (continued):

Domestic Homebuilding (continued):

For the three months ended June 30, 2002, unit settlements increased 45% to 6,593 units. This increase was due to the inclusion of the acquired Del Webb operations, which contributed almost 1,700 units, and an 8% increase in the traditional Pulte operations. For the six-month period, unit settlements also increased 45% with the Del Webb operations contributing over 3,200 units along with a 6% increase in the traditional Pulte operations. Unit net new orders increased 60% and 41% for the three and six-month periods ended June 30, 2002, respectively. The Del Webb operations contributed approximately 2,100 and 3,900 units, respectively, while the traditional Pulte operations increased 19% and 7%, respectively. The average selling price for homes closed increased 9% to $239,000 for the three months ended June 30, 2002, and 10% to $239,000 for the six months then ended. The increase benefited from Del Webb product offerings, which sold for an average of $265,000 for the six month period ended June 30, 2002, while the traditional Pulte operations’ average selling price increased 6% over the same period. Ending backlog, which represents orders for homes that have not yet closed, grew to 12,950 units, including 3,800 Del Webb units. The dollar value of backlog was up 63% to nearly $3.3 billion.

The following table presents a summary of pre-tax income for our Domestic Homebuilding operations for the three and six months ended June 30, 2002 and 2001 ($000’s omitted):


	Three Months Ended						Six Months Ended
	June 30,						June 30,

	2002			2001			2002			2001

Home sale revenue (settlements)	$	1,576,285		$	997,712		$	2,885,873		$	1,803,508
Land sale revenue		34,121			34,700			57,769			42,427
Home cost of sales		(1,262,544	)		(796,877	)		(2,309,469	)		(1,442,647	)
Land cost of sales		(23,567	)		(22,301	)		(38,799	)		(29,022	)
Selling, general and administrative expense		(163,086	)		(99,596	)		(305,881	)		(185,798	)
Interest ^(a)		(11,367	)		(8,296	)		(19,890	)		(14,236	)
Other income (expense), net		(5,265	)		606			(9,175	)		(2,939	)

Pre-tax income	$	144,577		$	105,948		$	260,428		$	171,293

Average sales price	$	239		$	219		$	239		$	217

^(a)The Company capitalizes interest cost into homebuilding inventories and charges the interest to homebuilding interest expense over a period that approximates the average life cycle of our communities.

Gross profit margins were 19.9% and 20.0%, respectively, for the three and six month periods ended June 30, 2002, compared to 20.1% and 20.0%, respectively, for the same periods in the prior year. Purchase accounting adjustments associated with the merger reduced gross margin by approximately $1.2 million, or 10 basis points for the three months ended June 30, 2002, and approximately $2.9 million, or 10 basis points for the six months then ended. As a percentage of home settlement revenue, selling, general and administrative expenses increased approximately 30 basis points for both the three and six-month periods ended June 30, 2002, reflecting the inclusion of Del Webb expenses in 2002. The change in other income (expense), net for both the three and six months ended June 30, 2002 is related to the amortization of certain purchase accounting adjustments. Additionally, both the three and six month periods ended June 30, 2001 includes income from a land development joint venture.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Homebuilding Operations (continued):

Domestic Homebuilding (continued):

We consider land development one of our core competencies. This includes the development and entitlement of certain land positions for sale primarily to other homebuilders, as well as to retail and commercial establishments. Land sales increased over the prior year due to the addition of the Del Webb operations. Revenues and their related gains/losses may vary significantly between periods, depending on the timing of land sales. We continue to rationalize certain existing land positions to ensure the most effective use of invested capital.

Our Domestic Homebuilding operations controlled approximately 118,000 lots at June 30, 2002, of which approximately 83,700 lots were owned and approximately 34,300 lots were controlled through option agreements. At June 30, 2001, we controlled approximately 79,000 lots, of which approximately 44,200 lots were owned, and approximately 34,800 lots were controlled through option agreements.

Domestic Homebuilding inventory at June 30, 2002, was approximately $4.0 billion of which $3.1 billion was related to land and land development. At June 30, 2001, Domestic Homebuilding inventory approximated $2.2 billion, of which $1.6 billion was related to land and land development.

Included in other assets is $268.5 million in land held for disposition as of June 30, 2002, as compared to $177.5 million in the prior year.

In addition, there were approximately 26,700 lots valued at $673 million under option at June 30, 2002, pending approval, that are under review and evaluation for future use by our Domestic Homebuilding operations. This compared to 16,900 lots valued at $425 million at June 30, 2001.

International Homebuilding:

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

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

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

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

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Homebuilding Operations (continued):

International Homebuilding (continued):

The following table presents selected financial data for our International Homebuilding operations for the three and six months ended June 30, 2002 and 2001 ($000’s omitted):


		Three Months Ended						Six Months Ended
		June 30,						June 30,

		2002			2001			2002			2001

Revenues		$	51,264		$	8,273		$	73,633		$	19,797
Cost of sales			(40,079	)		(7,021	)		(57,908	)		(17,254	)
Selling, general and administrative expense			(9,352	)		(2,654	)		(16,355	)		(5,254	)
Other income (expense), net			(82	)		(82	)		(858	)		360
Minority interest			(776	)		—			(396	)		—
Equity in income of joint ventures			970			25			3,312			2,025

Pre-tax income (loss)		$	1,945		$	(1,459	)	$	1,428		$	(326	)

Unit settlements:
	Pulte		1,732			54			2,453			143
	Pulte-affiliated entities		43			1,590			964			3,275

Total Pulte and Pulte-affiliates			1,775			1,644			3,417			3,418

Increased revenues in 2002 are due to the consolidation of the Mexican operations for five months of 2002 and a full period’s reflection of the Argentine operations, which had only begun recognizing its first closings in June of 2001. Revenues from the Mexican operations were $44 million and $62 million for the three and six-month periods ended June 30, 2002, respectively. The Argentine operations contributed $6 million and $10 million, respectively. The increases in cost of sales and selling, general and administrative expense are a result of the consolidation of the Mexican operations. Equity in income of joint ventures in 2002 represents one month of the Mexican joint venture operations and our Puerto Rican joint venture located in San Juan, which had its first closings during the third quarter of 2001.

Our Argentine operations recorded a $75,000 transaction loss for the six months ended June 30, 2002, as the value of the Argentine peso continued to fluctuate following the Argentine government’s decision to de-link its valuation from the U.S. Dollar. We also recorded a foreign currency translation loss of $14.4 million, as a component of other comprehensive income during the first six months of 2002. It remains unclear at this time how the Argentine financial and currency markets will be impacted for the remainder of 2002 or how the current economic situation may affect customer home buying attitudes and the homebuilding business in general. Our remaining net investment in Argentina at June 30, 2002, which is exposed to such risks, approximated $10.6 million.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Financial Services Operations:

We conduct our financial services operations primarily through Pulte Mortgage Corporation (PMC), our mortgage banking subsidiary. Pre-tax income of our financial services operations for the three and six month periods ended June 30, 2002, was $16.2 million and $28.4 million, respectively, compared to $7.5 million and $14.2, respectively, for the prior year periods. This improvement in performance was a result of increased volume, a favorable interest rate environment, effective leverage of overhead costs and the inclusion of Del Webb’s mortgage operations.

The following table presents mortgage origination data for PMC:


		Three Months Ended				Six Months Ended
		June 30,				June 30,

		2002		2001		2002		2001

Total originations:
	Loans		4,994		4,013		9,220		7,271

	Principal ($000’s omitted)	$	804,400	$	613,700	$	1,476,200	$	1,102,800

Originations for Pulte customers:
	Loans		4,393		3,094		7,956		5,396

	Principal ($000’s omitted)	$	708,800	$	470,100	$	1,273,400	$	835,300

Mortgage origination principal volume for the three and six month periods ended June 30, 2002, increased 31% and 34%, respectively, from the comparable 2001 periods due to an increase in capture rate and the inclusion of Del Webb volume. Del Webb accounted for $154 million and $297 million, respectively, of the total mortgage origination principal volume for the three and six-month periods ended June 30, 2002. Refinancings accounted for approximately 3% of total originations for the three months ended June 30, 2002, compared to 11% in the prior year. For the six months ended June 30, refinancings represented 5% of total originations in 2002 compared to 11% in 2001. Adjustable rate mortgages (ARMs) represented 11% of total originations for the three months ended June 30, 2002, compared to 3% in the prior year. ARMs represented 10% and 2% of total originations for the six months ended June 30, 2002 and 2001, respectively. Our Domestic Homebuilding customers continue to account for the majority of total loan production, representing 88% and 86%, respectively, of total PMC volume for the three and six-month periods ended June 30, 2002, compared to 77% and 74%, respectively, in the prior year. At June 30, 2002, loan application backlog increased 21% to $1.2 billion as compared with $991 million at June 30, 2001.

Income from our title operations increased to $2.7 million for the three months ended June 30, 2002, from $1.7 million in 2001, and to $4.9 million for the six months ended, from $3.0 million in 2001. Our minority interest in Su Casita, a Mexican mortgage banking company, contributed income of $1.2 million for the three months ended June 30, 2002, compared to $1.3 million in 2001, and $2.1 million for the six months ended June 30, 2002 compared to $2.2 million in 2001.

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

Corporate:

Corporate is a non-operating business segment which 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. As a result, the corporate segment’s operating results will vary from quarter to quarter as these strategic initiatives evolve.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Corporate (continued):

The following table presents corporate results of operations for the three and six months ended June 30, 2002 and 2001 ($000’s omitted):


	Three Months Ended				Six Months Ended
	June 30,				June 30,

	2002		2001		2002		2001

Net interest expense	$	9,770	$	8,034	$	19,212	$	13,683
Other corporate expenses, net		4,692		5,383		10,304		9,276

Loss before income taxes	$	14,462	$	13,417	$	29,516	$	22,959

The increase in pre-tax loss for Corporate was driven primarily by higher net interest expense due to higher indebtedness as a result of the Del Webb merger and the issuance of $300 million in new senior notes in June 2002. Interest incurred for the three and six-month periods ended June 30, 2002, excluding interest incurred by our financial services operations, was approximately $40.1 million and $79.2 million, respectively.

Corporate net interest expense is net of amounts capitalized into homebuilding inventories. Amounts capitalized are charged to homebuilding interest expense over a period that approximates the average life cycle of our communities. Information related to Corporate interest capitalized into inventory is as follows ($000’s omitted):


	Three Months Ended						Six Months Ended
	June 30,						June 30,

	2002			2001			2002			2001

Interest in inventory at beginning of period	$	89,573		$	28,189		$	68,595		$	24,202
Interest capitalized		29,241			10,296			58,742			20,223
Interest expensed		(11,367	)		(8,296	)		(19,890	)		(14,236	)

Interest in inventory at end of period	$	107,447		$	30,189		$	107,447		$	30,189

Liquidity and Capital Resources:

Our net cash provided by operating activities amounted to $82.5 million compared to a use of cash of $261.1 million in the prior year. An increase in net income, a smaller decrease in cash due to inventories and a larger decrease in PMC’s holdings of residential mortgage loans available-for-sale primarily drove this change. Net cash from investing activities was relatively consistent with the prior year. Net cash from financing activities decreased from $180.1 million in 2001 to $54.4 million in 2002, as proceeds from the issuance of $300 million senior notes were used for the repayment of certain Del Webb debt and our revolving credit facility.

We finance our homebuilding land acquisitions, development and construction activities from internally generated funds and existing credit agreements. We had no borrowings under our $570 million unsecured revolving credit facilities at June 30, 2002. PMC provides mortgage financing for many of its home sales and uses its own funds and borrowings made available pursuant to various committed and uncommitted credit arrangements which, at June 30, 2002, amounted to $400 million, an amount deemed adequate to cover foreseeable needs. There were approximately $273 million of borrowings outstanding under the $400 million PMC arrangement at June 30, 2002. Mortgage loans originated by PMC are subsequently sold to outside investors. We anticipate that there will be adequate mortgage financing available for purchasers of our homes.

Our income tax liabilities are affected by a number of factors. We anticipate that our effective tax rate for 2002 will approximate 39%.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Liquidity and Capital Resources (continued):

In April 2002, we filed a $1 billion mixed securities shelf registration (Form S-3) with the Securities and Exchange Commission. Under this shelf registration we may sell up to $1 billion in various debt and equity securities. Net proceeds from the sale of these securities will be used for general corporate purposes, which may include debt repayments, capital expenditures, acquisitions or share repurchases.

On June 12, 2002, we sold $300 million of 7.875% senior notes, due 2032, from our $1 billion shelf registration. Cash provided by operations, combined with the net proceeds from this sale of senior notes were used to call and redeem approximately $70 million of Del Webb’s senior subordinated notes and to repay short-term borrowings under our revolving bank credit arrangements.

At June 30, 2002, we had cash and equivalents of $212.8 million and total long-term indebtedness of $1.9 billion. Sources of our working capital at June 30, 2002, include cash and equivalents, our $570 million committed unsecured revolving credit facilities and PMC’s $400 million revolving credit facilities. Our debt-to-total capitalization, excluding our non-guarantor asset secured borrowings, was approximately 44% as of June 30, 2002, and approximately 41% on a net basis. We expect to manage our net debt-to-total capitalization to the 40% level by the end of 2002. It is our intent to exercise, over time, the early call provisions of the senior subordinated notes issued by Del Webb, as allowed under these notes. We routinely monitor current operational requirements and financial market conditions to evaluate the use of available financial sources, including securities offerings.

Inflation:

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Quantitative disclosure:

We are subject to interest rate risk on our long-term debt. We seek to minimize our interest rate exposure by using variable rate financing; however, we run the risk of interest rate declines with respect to our fixed rate long term corporate debt instruments. The following table sets forth, as of June 30, 2002, our long-term debt obligations, principal cash flows by scheduled maturity, weighted average interest rates and estimated fair market value ($000’s omitted):


																							Fair
																							Value
			2002			2003			2004			2005			2006		Thereafter			Total			6/30/2002

Rate sensitive liabilities:
	Fixed interest rate debt:
		Pulte Homes, Inc. public debt instruments	$	—		$	275,000		$	112,000		$	125,000		$	—	$	1,429,522		$	1,941,522		$	2,041,027
		Average interest rate		—			8.59	%		8.38	%		7.30	%		—		8.27	%		8.26	%		—
		Pulte Home Corporation other limited-recourse debt	$	520		$	15,833		$	12,833		$	2,758		$	—	$	—		$	31,945		$	31,945
		Average interest rate		7.00	%		6.46	%		6.70	%		9.00	%		—		—			6.78	%		—

Qualitative disclosure:

This information can be found on page 28 of Part II, of Item 7A., Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2001, and is incorporated herein by reference.

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 matters involve risks and uncertainties, including:

• our exposure to certain market risks, changes in economic conditions, tax and interest rates, foreign currency exchange rates, availability of financing, changes in the insurance industry, increases in raw material and labor costs, issues and timing surrounding land entitlement and development, weather conditions, government regulations and environmental matters, as well as, general competitive factors, that may cause actual results to differ materially; and

• our ability to integrate the recently acquired business operations of Del Webb, including Del Webb’s activities, management and corporate culture, with our own, and our ability to develop and manage active adult communities which differ from our historical homebuilding business.

PART II. OTHER INFORMATION

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

The Company’s Annual Meeting of Shareholders was held on May 15, 2002. The following matters were considered and acted upon, with the results indicated below.


									Shares
					Shares				Withholding
			Shares		Voted		Shares		Authority
			Voted For		Against		Abstaining		To Vote

Election of Directors
	The election of Director for term expiring 2003:
		Bernard W. Reznicek		54,899,775		—		401,660		—
	The election of Director for term expiring 2004:
		Michael E. Rossi		54,896,498		—		404,937		—
	The election of Director for term expiring 2005:
		D. Kent Anderson		54,899,856		—		401,579		—
		Mark J. O’Brien		54,899,867		—		401,568		—
		John J. Shea		54,899,953		—		401,482		—
Proposal to amend Pulte’s Articles of Incorporation to increase the number of authorized shares of common stock from 100,000,000 shares, $0.01 par value, to 200,000,000 shares, $0.01 par value				52,460,382		2,660,863		180,191		—
Proposal to adopt the Pulte Homes, Inc. Stock Incentive Plan				46,943,165		8,175,601		182,671		—

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits


		Page Herein or Incorporated
Exhibit Number and Description		By Reference From

(4) (a) Declaration of Trust of PH Trust I		Filed as Exhibit 4.26 to the Company’s
		Registration Statement on Form S-3
		(Registration Statement No 33-86806)

(b) Declaration of Trust of PH Trust II		Filed as Exhibit 4.27 to the Company’s
		Registration Statement on Form S-3
		(Registration Statement No 33-86806)

PART II. OTHER INFORMATION (continued)

(a) Exhibits (continued)


		Page Herein or Incorporated
Exhibit Number and Description		By Reference From

(c)	Certificate of Trust of PH Trust I	Filed as Exhibit 4.29 to the Company’s
		Registration Statement on Form S-3
		(Registration Statement No 33-86806)

(d)	Certificate of Trust of PH Trust II	Filed as Exhibit 4.30 to the Company’s
		Registration Statement on Form S-3
		(Registration Statement No 33-86806)

(e)	Form of Pulte Homes, Inc. Guarantee Agreement	Filed as Exhibit 4.32 to the Company’s
		Registration Statement on Form S-3
		(Registration Statement No 33-86806)

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

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

(b) Report on Form 8-K

On June 6, 2002, we filed a Current Report on Form 8-K, which included a press release dated May 15, 2002, providing information regarding certain organizational changes.

On June 6, 2002, we filed a Current Report on Form 8-K, which included a press release dated May 16, 2002, announcing that Bernard W. Reznicek has joined the Board of Directors.

On June 12, 2002, we filed a Current Report on Form 8-K, announcing the amendment of our Restated Articles of Incorporation to increase the authorized capital from 100,000,000 Common Shares, par value $0.01 per share, to 200,000,000 Common Shares, par value $0.01 per share.

On June 13, 2002, we filed a Current Report on Form 8-K, which included a press release dated June 12, 2002, announcing the completion of a public offering of $300 million principal amount of 7.875% senior notes due 2032, and (2) a notice of our election to redeem all of Del Webb’s outstanding 9% senior subordinated debentures due 2006.

On July 24, 2002, we filed a Current Report on Form 8-K, which included a press release dated June 23, 2002, announcing our earnings for the second quarter ended June 30, 2002.

On August 13, 2002, we filed a Current Report on Form 8-K, which included the sworn statements of Mark J. O’Brien, Chief Executive Officer, and Roger A. Cregg, Chief Financial Officer. The Form 8-K also included a press release dated August 13, 2002, announcing the signing of the sworn statements.

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.

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



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



		Date: August 13, 2002

Exhibit Index


		Page Herein or Incorporated
Exhibit Number and Description		By Reference From

(4) (a)	Declaration of Trust of PH Trust I	Filed as Exhibit 4.26 to the Company’s
		Registration Statement on Form S-3
		(Registration Statement No 33-86806)

(b)	Declaration of Trust of PH Trust II	Filed as Exhibit 4.27 to the Company’s
		Registration Statement on Form S-3
		(Registration Statement No 33-86806)

(c)	Certificate of Trust of PH Trust I	Filed as Exhibit 4.29 to the Company’s
		Registration Statement on Form S-3
		(Registration Statement No 33-86806)

(d)	Certificate of Trust of PH Trust II	Filed as Exhibit 4.30 to the Company’s
		Registration Statement on Form S-3
		(Registration Statement No 33-86806)

(e)	Form of Pulte Homes, Inc. Guarantee Agreement	Filed as Exhibit 4.32 to the Company’s
		Registration Statement on Form S-3
		(Registration Statement No 33-86806)

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

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

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Table of Contents

1.		Basis of presentation and significant accounting policies

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

		The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six month period ended June 30, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. 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, 2001.

		Certain amounts related to non-recourse notes payable, land sales, joint ventures and title operations previously reported in the 2001 financial statements and notes thereto were reclassified to conform to the 2002 presentation.

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

		Other Comprehensive Income (Loss)

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

		Intangible assets

		Intangible assets, which consist of certain trademarks and tradenames, resulted from the acquisition of Del Webb in 2001. The determination of the value of these intangible assets was performed by independent appraisers and advisors utilizing proven valuation procedures. These intangible assets are routinely reviewed for impairment indicators or when events and circumstances warrant. If impairment indicators exist, an assessment of undiscounted future cash flows for the assets related to these intangibles are evaluated accordingly. If the results of the analysis indicate impairment, the assets are adjusted to fair market value. Trademarks and tradenames are amortized on a straight-line basis over a 20-year life.

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

		New Accounting Pronouncements

		In June 2001, the Financial Accounting Standards Board (FASB) issued Statements of Financial Accounting Standards (SFAS) No. 141, “Business Combinations,” and No. 142, “Goodwill and Other Intangible Assets,” effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill will no longer be amortized but will be subject to annual impairment tests in accordance with SFAS No. 142. Other intangible assets will continue to be amortized over their useful lives.

		Goodwill represents the cost of acquired companies in excess of the fair value of net assets at acquisition date. The majority of the goodwill recorded resulted from the acquisition of Del Webb in 2001 and was allocated to the homebuilding segment. Goodwill is reviewed by management for impairment annually, or whenever events or changes in circumstances indicate the carrying amount may not be recoverable.

		Effective January 1, 2002, the Company adopted the nonamortization provisions of SFAS No. 142 related to the goodwill existing at June 30, 2001. The following table sets forth reported net income and earnings per share, as adjusted to exclude goodwill amortization expense:

		During the second quarter of 2002, the Company completed the first of the required impairment tests of goodwill as of January 1, 2002, which indicated that no impairment was present.

		In October 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” effective for fiscal years beginning after December 15, 2001. This standard supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,” and provides a single accounting model for long-lived assets to be disposed of. SFAS No. 144 provides guidance on differentiating between assets held and used and assets to be disposed of. Assets to be disposed of would be classified as held for sale (and depreciation would cease) when management, having the authority to approve the action, commits to a plan to sell the asset(s) meeting all required criteria. The Company adopted this statement on January 1, 2002, which did not have a material effect on its earnings or financial position.

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

		New Accounting Pronouncements (continued)

2.		Segment information

		The Company has three reportable segments: Homebuilding, Financial Services and Corporate.

		The Company’s Homebuilding segment consists of the following two business units:

	•		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 buyer groups.

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

3.		Debt

		In June 2002, the Company sold $300 million of 7.875% senior notes due in 2032. Net proceeds received from the sale were used to repay short-term debt, certain other indebtedness assumed in the Del Webb merger and for other general corporate purposes.

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

		The Company has the following outstanding senior note obligations: (1) $175,000, 9.5%, due 2003, (2) $100,000, 7%, due 2003, (3) $112,000, 8.375%, due 2004, (4) $125,000, 7.3%, due 2005, (5) $200,000, 8.125%, due 2011, (6) $498,635, 7.875%, due 2011, (7) $150,000, 7.625%, due 2017; and (8) $300,000, 7.875%, due 2032. Obligations under these notes to pay principal, premium, if any, and interest are guaranteed jointly and severally on a senior basis by the Company’s wholly-owned Domestic Homebuilding subsidiaries (collectively, the Guarantors). Del Webb has the following outstanding senior subordinated note obligations: (1) $166,418, 9.375%, due 2009 and (2) $114,469, 10.25%, due 2010. Obligations under these notes to pay principal, premium, if any, and interest are guaranteed jointly and severally on a senior subordinated basis by the Guarantors. Such guarantees are full and unconditional. The principal non-Guarantors include PDCI, Pulte International Corporation, PMC and First Heights.

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



	•		Pre-tax income of our homebuilding business segment increased 40% and 53%, respectively, due primarily to the improvement in Domestic Homebuilding operations, which benefited from the acquired operations of Del Webb. Domestic average unit selling price increased by 9% and 10%, respectively, while domestic gross margin percentages remained relatively flat over the prior year periods.

	•		Pre-tax income of our financial services business segment more than doubled over the prior year periods as a result of higher volumes, steady interest rates and effectively leveraged overheads.

	•		Pre-tax loss of our corporate business segment increased 8% and 29%, respectively, primarily as a result of higher interest costs related to the merger with Del Webb.

	•		Domestic Homebuilding operations are conducted in 43 markets, located throughout 25 states. Domestic Homebuilding offers a broad product line to meet the needs of the first-time, first and second move-up and active adult homebuyers.

	•		International Homebuilding operations are conducted through subsidiaries of Pulte International Corporation in Mexico, Puerto Rico and Argentina. International Homebuilding product offerings focus on the demand of first-time buyers and middle to upper income consumer groups. We also have agreements in place with multi-national corporations to provide social interest and employee housing in Mexico.

	•		our exposure to certain market risks, changes in economic conditions, tax and interest rates, foreign currency exchange rates, availability of financing, changes in the insurance industry, increases in raw material and labor costs, issues and timing surrounding land entitlement and development, weather conditions, government regulations and environmental matters, as well as, general competitive factors, that may cause actual results to differ materially; and

	•		our ability to integrate the recently acquired business operations of Del Webb, including Del Webb’s activities, management and corporate culture, with our own, and our ability to develop and manage active adult communities which differ from our historical homebuilding business.