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

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UNITED STATES
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 September 30, 2003
OR

( ) 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 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 ( )

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12-b2 of the Exchange Act). YES (X) NO ( )

Number of shares of common stock outstanding as of October 31, 2003: 62,050,647

Website Access to Company Reports, Codes and Charters

Pulte’s 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.

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
	ITEM 1. FINANCIAL STATEMENTS
		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONSOLIDATED STATEMENTS OF OPERATIONS
		CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
		CONSOLIDATED STATEMENTS OF CASH FLOWS
		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 Disclosure About Market Risk
	Item 4. Controls and Procedures
PART II. OTHER INFORMATION
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBIT INDEX
Credit Agreement
Employment Separation Agreement
Master Purchase Agreement, dated December 22, 2000
Amended and Restated Addendum
Amended and Restated Loan Agreement
Amended and Restated Collateral Agency Agreement
Omnibus Amendment, dated as of December 31, 2003
Second Omnibus Amendment, dated August 25, 2003
Third Omnibus Amendment, dated September 30, 2003
Fourth Amended and Restated Revolving Credit Agrmt
First Amendment to Credit Agreement
Second Amendment to Credit Agreement
Third Amendment to Credit Agreement
Third Amended and Restated Security and Collateral
302 Certification of Chief Executive Officer
302 Certification of Chief Financial Officer
906 Certification of Chief Executive Officer
906 Certification of Chief Financial Officer

PULTE HOMES, INC.

INDEX


			Page No.

PART I FINANCIAL INFORMATION
	Item 1 Financial Statements (Unaudited)
		Condensed Consolidated Balance Sheets at September 30, 2003 and December 31, 2002		3
		Consolidated Statements of Operations for the three and nine months ended September 30, 2003 and 2002		4
		Consolidated Statements of Shareholders’ Equity for the nine months ended September 30, 2003 and 2002		5
		Consolidated Statements of Cash Flows for the nine months ended September 30, 2003 and 2002		6
		Notes to Condensed Consolidated Financial Statements		7
	Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
	Item 3 Quantitative and Qualitative Disclosures About Market Risk			31
	Item 4 Controls and Procedures			32
PART II OTHER INFORMATION
	Item 6 Exhibits and Reports on Form 8-K			33
SIGNATURES				34

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

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


			September 30,		December 31,
			2003		2002

			(Unaudited)		(Note)
ASSETS
Cash and equivalents			$	312,151	$	613,168
Unfunded settlements				62,986		60,641
House inventory				1,260,950		863,507
Land inventory				4,212,677		3,430,090
Land, not owned, under option agreements				62,324		—
Residential mortgage loans available-for-sale				518,292		600,339
Goodwill				307,693		307,693
Intangible assets, net of accumulated amortization of $17,733 and $11,546 in 2003 and 2002, respectively				145,767		151,954
Other assets				949,783		833,279
Deferred income taxes				41,580		27,784

	Total assets		$	7,874,203	$	6,888,455

LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
	Accounts payable, accrued and other liabilities, including book overdrafts of $225,355 and $181,816 in 2003 and 2002, respectively		$	1,871,174	$	1,565,131
	Collateralized short-term debt, recourse solely to applicable non-guarantor subsidiary assets			468,068		559,621
	Income taxes			127,646		90,009
	Senior notes and subordinated debentures			2,254,055		1,913,268

		Total liabilities		4,720,943		4,128,029
Shareholders’ equity				3,153,260		2,760,426

			$	7,874,203	$	6,888,455

Note: The condensed consolidated balance sheet at December 31, 2002, has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.

See accompanying Notes to Condensed Consolidated Financial Statements.

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


					Three Months Ended				Nine Months Ended
					September 30,				September 30,

					2003		2002		2003		2002

Revenues:
	Homebuilding				$	2,373,364	$	1,831,317	$	5,822,514	$	4,848,592
	Financial services					25,851		27,836		85,221		74,702
	Corporate					588		353		2,843		516

				Total revenues		2,399,803		1,859,506		5,910,578		4,923,810

Expenses:
	Homebuilding, principally cost of sales					2,119,789		1,652,004		5,243,812		4,411,714
	Financial services					13,719		10,091		37,944		31,179
	Corporate, net					18,189		13,607		57,859		43,286

				Total expenses		2,151,697		1,675,702		5,339,615		4,486,179

Other income:
	Equity income					11,559		2,290		24,694		9,219

Income from continuing operations before income taxes						259,665		186,094		595,657		446,850
Income taxes						98,630		72,585		226,321		174,293

Income from continuing operations						161,035		113,509		369,336		272,557
Income from discontinued operations						7,851		9,937		7,404		9,204

Net income					$	168,886	$	123,446	$	376,740	$	281,761

Per share data:
	Basic:
		Income from continuing operations			$	2.63	$	1.87	$	6.07	$	4.52
		Income from discontinued operations				.13		.16		.12		.15

		Net income			$	2.76	$	2.03	$	6.19	$	4.67

	Assuming dilution:
		Income from continuing operations			$	2.56	$	1.83	$	5.91	$	4.42
		Income from discontinued operations				.13		.16		.12		.15

		Net income			$	2.69	$	1.99	$	6.03	$	4.57

	Cash dividends declared				$	.04	$	.04	$	.12	$	.12

	Number of shares used in calculation:
		Basic:
			Weighted-average common shares outstanding			61,124		60,792		60,865		60,343
		Assuming dilution:
			Effect of dilutive securities			1,765		1,158		1,644		1,371

			Adjusted weighted-average common shares and effect of dilutive securities			62,889		61,950		62,509		61,714

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, 2002		$	611		$	933,162		$	(9,866	)	$	(35,371	)	$	1,871,890		$	2,760,426
Stock option exercise, including tax benefit of $12,159			7			30,126			—			—			—			30,133
Stock-based compensation			—			8,839			—			—			—			8,839
Restricted stock award			2			(2	)		—			—			—			—
Restricted stock award amortization			—			—			5,659			—			—			5,659
Cash dividends declared			—			—			—			—			(7,358	)		(7,358	)
Stock repurchases			(4	)		(6,066	)		—			—			(12,234	)		(18,304	)
Comprehensive income (loss):
	Net income		—			—			—			—			376,740			376,740
	Change in fair value of derivatives		—			—			—			(438	)		—			(438	)
	Foreign currency translation adjustments		—			—			—			(2,437	)		—			(2,437	)

	Total comprehensive income		—			—			—			—			—			373,865

Shareholders’ Equity, September 30, 2003		$	616		$	966,059		$	(4,207	)	$	(38,246	)	$	2,229,038		$	3,153,260

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			18			53,439			—			—			—			53,457
Stock-based compensation			—			4,283			—			—			—			4,283
Restricted stock award			2			11,316			(11,318	)		—			—			—
Restricted stock award amortization			—			—			3,905			—			—			3,905
Cash dividends declared			—			—			—			—			(7,314	)		(7,314	)
Comprehensive income (loss):
	Net income		—			—			—			—			281,761			281,761
	Change in fair value of derivatives		—			—			—			(1,607	)		—			(1,607	)
	Foreign currency translation adjustments		—			—			—			(18,246	)		—			(18,246	)

	Total comprehensive income																	261,908

Shareholders’ Equity, September 30, 2002		$	612		$	931,919		$	(11,272	)	$	(33,822	)	$	1,705,467		$	2,592,904

See accompanying Notes to Condensed Consolidated Financial Statements.

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


					For The Nine Months Ended
					September 30,

					2003			2002

Cash flows from operating activities:
	Net income				$	376,740		$	281,761
	Adjustments to reconcile net income to net cash flows provided by (used in) operating activities:
			Amortization and depreciation			29,023			23,790
			Stock-based compensation expense			14,498			8,188
			Deferred income taxes			(13,796	)		15,668
			Other, net			(4,077	)		(7,272	)
			Increase (decrease) in cash due to:
				Inventories		(1,332,247	)		(636,726	)
				Residential mortgage loans available-for-sale		70,121			102,574
				Other assets		25,993			42,502
				Accounts payable, accrued and other liabilities		350,686			197,050
				Income taxes		49,794			66,194

Net cash provided by (used in) operating activities						(433,265	)		93,729

Cash flows from investing activities:
	Sales (purchases) of property and equipment, net					(22,823	)		11,586
	Other, net					(8,360	)		(2,331	)

Net cash provided by (used in) investing activities						(31,183	)		9,255

Cash flows from financing activities:
	Proceeds from borrowings					713,927			343,552
	Repayment of borrowings					(541,825	)		(330,258	)
	Issuance of common stock					17,974			32,820
	Common stock repurchases					(18,304	)		—
	Dividends paid					(7,358	)		(7,314	)

Net cash provided by financing activities						164,414			38,800

Effect of exchange rate changes on cash and equivalents						(983	)		(1,851	)

Net increase (decrease) in cash and equivalents						(301,017	)		139,933
Cash and equivalents at beginning of period						613,168			72,144

Cash and equivalents at end of period					$	312,151		$	212,077

Supplemental disclosure of cash flow information—cash paid during the period for:
		Interest, net of amounts capitalized			$	36,456		$	34,926

		Income taxes			$	187,944		$	89,271

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 consolidated financial statements include the accounts of Pulte Homes, Inc. and all of its direct and indirect subsidiaries (the Company or Pulte). The direct subsidiaries of Pulte Homes, Inc. (PHI) include Pulte Diversified Companies, Inc. (PDCI), North American Builders Indemnity Company (NABIC), the Company’s captive insurance company, 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 that 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 LLC (Pulte Mortgage), 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 nine-month period ended September 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. 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, 2002.

       Certain amounts previously reported in the 2002 financial statements and notes thereto were reclassified to conform to the 2003 presentation.

       Effective January 1, 2002, the Company reorganized the structure of its operations within Mexico to create a single company, Pulte Mexico S. de R.L. de C.V. (Pulte Mexico). Under the new ownership structure, these operations, which previously were conducted primarily through joint ventures, have been combined into Pulte Mexico, which is 63.8% owned by International. Results for the nine months ended September 30, 2002 include joint venture operations for one month and operations as a consolidated entity for eight months, as the Mexican operations report on a one-month lag.

Allowance for warranties

       Home purchasers are provided with warranties against certain building defects. The specific terms and conditions of these 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 for the nine months ended September 30, 2003 are as follows ($000’s omitted):


December 31, 2002	$	51,973
Warranty reserves provided		55,209
Payments and other adjustments		(54,294	)

September 30, 2003	$	52,888

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 will recognize compensation expense based on the fair value provisions of SFAS No. 123 for all new stock option grants effective January 1, 2003. Grants made prior to January 1, 2003 will 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 as if the fair value method had been applied to all outstanding stock options in each period. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model.


		Three Months Ended						Nine Months Ended
		September 30,						September 30,

		2003			2002			2003			2002

Net income, as reported ($000’s omitted)		$	168,886		$	123,446		$	376,740		$	281,761
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects ($000’s omitted)			1,103			2,613			4,317			2,613
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects ($000’s omitted)			(2,650	)		(2,877	)		(5,933	)		(9,469	)

Pro forma net income ($000’s omitted)		$	167,339		$	123,182		$	375,124		$	274,905

Earnings per share:
	Basic-as reported	$	2.76		$	2.03		$	6.19		$	4.67

	Basic-pro forma	$	2.74		$	2.03		$	6.16		$	4.56

	Diluted-as reported	$	2.69		$	1.99		$	6.03		$	4.57

	Diluted-pro forma	$	2.66		$	1.99		$	6.00		$	4.45

The Company also recorded compensation expense for restricted stock awards, net of related tax effects, of $2.2 million and $4.7 million for the three and nine months ended September 30, 2003, compared to $0.9 million and $2.4 million for the three and nine months ended September 30, 2002. These amounts have been excluded from the reconciliation above as they would have no impact on pro forma net income as presented.

Land, not owned, under option agreements

In January 2003, the FASB issued Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities.” Until this interpretation was issued, a company generally included another entity in its consolidated financial statements only if it controlled the entity through voting interests. FIN 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the expected losses from the variable interest entity’s activities or is entitled to receive a majority of the entity’s expected residual returns. FIN 46 applied immediately to all variable interest entities created after January 31, 2003 and is effective no later than the first interim or annual period ending after December 15, 2003 for variable interest entities created prior to February 1, 2003.

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 (continued)

      In the ordinary course of business, the Company enters into land option agreements in order to procure land for the construction of houses 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 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. The Company does not guarantee the obligations or performance of the variable interest entity.

      In applying the provisions of FIN 46, the Company evaluated all post-January 31, 2003 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 the fair value of the variable interest entity. At September 30, 2003, the Company classified $62.3 million as Land, Not Owned, Under Option Agreements on the balance sheet, representing the fair value of land under contract including deposits. The corresponding liability has been classified as Accounts Payable, Accrued and Other Liabilities on the balance sheet. The adoption of FIN 46 has had no impact on the Company’s results of operations or cash flows.

      The Company is in the process of evaluating its land option agreements and other agreements entered into prior to February 1, 2003. Depending on the terms and conditions of these agreements, the Company may be required to consolidate other variable interest entities. This evaluation will be completed by December 31, 2003.

New accounting pronouncements

      In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This statement establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. With the exception of certain measurement criteria deferred indefinitely by the FASB, SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The implementation of SFAS No. 150 is not expected to have a material impact on the Company’s results of operations, financial condition or cash flows.

2.  Segment information

      The Company’s operations are classified into three reportable segments: Homebuilding, Financial Services and Corporate.

      The Company’s 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, Puerto Rico and Argentina.

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

Corporate is a non-operating business segment that supports the operations of the Company 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 PHI as a publicly traded entity listed on the New York Stock Exchange.

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						Nine Months Ended
			September 30,						September 30,

			2003			2002			2003			2002

Revenues:
	Homebuilding		$	2,373,364		$	1,831,317		$	5,822,514		$	4,848,592
	Financial services			25,851			27,836			85,221			74,702
	Corporate			588			353			2,843			516

Total revenues				2,399,803			1,859,506			5,910,578			4,923,810

Cost of sales:
	Homebuilding			1,867,472			1,462,356			4,575,512			3,868,532

Selling, general and administrative:
	Homebuilding			222,590			169,920			600,141			492,156
	Financial services			11,700			8,394			32,521			26,475
	Corporate			9,437			11,265			30,593			18,598

		Total selling, general and administrative		243,727			189,579			663,255			537,229

Interest:
	Homebuilding			22,197			13,254			50,709			33,144
	Financial services			2,019			1,697			5,423			4,704
	Corporate			10,819			9,624			31,554			28,999

		Total interest		35,035			24,575			87,686			66,847

Other (income) expense, net:
	Homebuilding			7,530			6,474			17,450			17,882
	Corporate			(2,067	)		(7,282	)		(4,288	)		(4,311	)

		Total other (income) expense, net		5,463			(808	)		13,162			13,571

Total costs and expenses				2,151,697			1,675,702			5,339,615			4,486,179

Equity income:
	Homebuilding			10,310			867			20,616			5,158
	Financial services			1,249			1,423			4,078			4,061

		Total equity income		11,559			2,290			24,694			9,219

Income (loss) before income taxes:
	Homebuilding			263,885			180,180			599,318			442,036
	Financial services			13,381			19,168			51,355			47,584
	Corporate			(17,601	)		(13,254	)		(55,016	)		(42,770	)

Total income before income taxes			$	259,665		$	186,094		$	595,657		$	446,850

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 September 30, 2003:
	Inventory	$	5,535,951	$	—	$	—	$	5,535,951

	Total assets		7,144,668		566,431		163,104	$	7,874,203

At December 31, 2002:
	Inventory	$	4,293,597	$	—	$	—	$	4,293,597

	Total assets		6,092,102		645,977		150,376	$	6,888,455

3. Senior notes and subordinated notes

In February 2003, PHI sold $300 million of 6.25% unsecured senior notes, callable prior to maturity and guaranteed by PHI and certain wholly owned subsidiaries of PHI. The notes are due 2013.

In March 2003, under the terms of Del Webb’s $200 million 9.375% senior subordinated notes due 2009, the Company exercised its right to redeem the remaining outstanding principal balance of approximately $155 million. The notes were redeemed in May 2003 at a price equal to 104.688% of the principal amount. Furthermore, PHI’s $175 million 9.5% senior notes matured and were retired in April 2003.

In May 2003, PHI sold $400 million of 6.375% unsecured senior notes, callable prior to maturity and guaranteed by PHI and certain wholly owned subsidiaries of PHI. The notes are due 2033.

4. Other financing arrangements

Effective October 1, 2003, PHI replaced its $570 million revolving credit facility with a $850 million facility that includes the capacity to issue letters of credit up to $500 million. This new credit facility expires October 1, 2008.

During 2003, Pulte Mortgage replaced and expanded its $175 million revolving credit facility with a $275 million facility and replaced its $325 million asset-backed commercial paper program with a $550 million program. The revolving credit facility expires in March 2005 and the asset-backed commercial paper program can be extended to August 2005.

5. Shareholder’s equity

In October 2002, PHI’s Board of Directors authorized the repurchase of $100 million of PHI common stock in open-market transactions or otherwise. Pursuant to this authorization, 395,400 common shares were repurchased at an aggregate cost of approximately $18.2 million during the first half of 2003. At September 30, 2003, PHI had remaining authorization to purchase PHI common stock aggregating $77.5 million.

Accumulated other comprehensive income (loss)

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


		September 30,			December 31,
		2003			2002

Foreign currency translation adjustments:
	Argentina	$	(24,854	)	$	(26,876	)
	Mexico		(11,074	)		(6,615	)
Change in fair value of derivatives, net of income taxes of $1,420 in 2003 and $1,177 in 2002			(2,318	)		(1,880	)

		$	(38,246	)	$	(35,371	)

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

6. Discontinued operations

During the third quarter of 2003, the Company recorded a non-cash, after-tax gain of $7.9 million related to the favorable resolution of certain tax matters relating to its thrift operation, which it discontinued in 1994.

In September 2003, the United States Court of Federal Claims issued final judgment that the Company has been damaged by approximately $48.7 million as a result of the United States government’s breach of contract with the Company. The final judgment follows the Court’s August 17, 2001 ruling that the United States breached the contract related to the Company’s 1988 acquisition of five savings and loan associations by enacting Section 13224 of the Omnibus Budget Reconciliation Act of 1993. The United States government and the Company recently filed Notices of Appeal with the United States Court of Appeals for the Federal Circuit. Accordingly, any gain related to this litigation will be recognized only upon final resolution.

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

PHI has the following outstanding senior note obligations: (1) $100 million, 7%, due 2003, (2) $112 million, 8.375%, due 2004, (3) $125 million, 7.3%, due 2005, (4) $200 million, 8.125%, due 2011, (5) $499 million, 7.875%, due 2011, (6) $300 million, 6.25%, due 2013, (7) $150 million, 7.625%, due 2017, (8) $300 million, 7.875%, due 2032, and (9) $400 million, 6.375%, due 2033. Such obligations to pay principal, premium, if any, and interest are guaranteed jointly and severally on a senior basis by PHI’s wholly owned Domestic Homebuilding subsidiaries (collectively, the Guarantors). The Company has outstanding $77 million, 10.25%, senior subordinated notes due 2010, which are callable at a price equal to 105.125% of the principal in the first quarter of 2004. Such obligations to pay principal, premium, if applicable, and interest are guaranteed jointly and severally on a senior subordinated basis by 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. 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)

7. Supplemental Guarantor information (continued)

CONDENSED CONSOLIDATING BALANCE SHEET
September 30, 2003
($000’s omitted)


		Unconsolidated

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

ASSETS
Cash and equivalents		$	2,949		$	249,276	$	59,926		$	—		$	312,151
Unfunded settlements			—			77,119		(14,133	)		—			62,986
House and land inventories			—			5,295,523		178,104			—			5,473,627
Land, not owned, under option agreements			—			62,324		—			—			62,324
Residential mortgage loans available-for-sale			—			—		518,292			—			518,292
Land held for sale			—			293,200		—			—			293,200
Goodwill			—			306,993		700			—			307,693
Intangible assets			—			145,767		—			—			145,767
Other assets			71,709			495,610		89,264			—			656,583
Deferred income taxes			41,580			—		—			—			41,580
Investment in subsidiaries			4,373,770			67,429		1,982,574			(6,423,773	)		—

		$	4,490,008		$	6,993,241	$	2,814,727		$	(6,423,773	)	$	7,874,203

LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Accounts payable, accrued and other liabilities		$	135,844		$	1,558,841	$	176,489		$	—		$	1,871,174
Collateralized short-term debt, recourse solely to applicable non-guarantor subsidiary assets			—			—		468,068			—			468,068
Income taxes			127,646			—		—			—			127,646
Senior notes and subordinated notes			2,173,396			80,659		—			—			2,254,055
Advances (receivable)payable - subsidiaries			(1,100,138	)		899,846		200,292			—			—

	Total liabilities		1,336,748			2,539,346		844,849			—			4,720,943
Shareholders’ equity			3,153,260			4,453,895		1,969,878			(6,423,773	)		3,153,260

		$	4,490,008		$	6,993,241	$	2,814,727		$	(6,423,773	)	$	7,874,203

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

7. Supplemental Guarantor information (continued)

CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2002
($000’s omitted)


		Unconsolidated

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

ASSETS
Cash and equivalents		$	—		$	541,095	$	72,073		$	—		$	613,168
Unfunded settlements			—			66,203		(5,562	)		—			60,641
House and land inventories			—			4,143,827		149,770			—			4,293,597
Residential mortgage loans available-for- sale			—			—		600,339			—			600,339
Land held for sale			—			226,054		—			—			226,054
Goodwill			—			306,993		700			—			307,693
Intangible assets			—			151,954		—			—			151,954
Other assets			54,295			457,805		95,125			—			607,225
Deferred income taxes			27,784			—		—			—			27,784
Investment in subsidiaries			3,553,786			93,710		1,809,031			(5,456,527	)		—

		$	3,635,865		$	5,987,641	$	2,721,476		$	(5,456,527	)	$	6,888,455

LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Accounts payable, accrued and other liabilities		$	125,941		$	1,281,648	$	157,542		$	—		$	1,565,131
Collateralized short-term debt, recourse solely to applicable non-guarantor subsidiary assets			—			—		559,621			—			559,621
Income taxes			90,009			—		—			—			90,009
Senior notes and subordinated notes			1,652,602			260,666		—			—			1,913,268
Advances (receivable)payable – subsidiaries			(993,113	)		768,997		224,116			—			—

	Total liabilities		875,439			2,311,311		941,279			—			4,128,029
Shareholders’ equity			2,760,426			3,676,330		1,780,197			(5,456,527	)		2,760,426

		$	3,635,865		$	5,987,641	$	2,721,476		$	(5,456,527	)	$	6,888,455

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

7. Supplemental Guarantor information (continued)

CONSOLIDATING STATEMENT OF OPERATIONS
For the three months ended September 30, 2003
($000’s omitted)


			Unconsolidated

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

Revenues:
	Homebuilding		$	—		$	2,312,997	$	60,367		$	—		$	2,373,364
	Financial services			—			4,458		21,393			—			25,851
	Corporate			11			414		163			—			588

Total revenues				11			2,317,869		81,923			—			2,399,803

Expenses:
	Homebuilding:
		Cost of sales		—			1,819,592		47,880			—			1,867,472
		Selling, general and administrative and other expense		3,722			236,472		12,123			—			252,317
	Financial services			—			1,199		12,520			—			13,719
	Corporate, net			17,065			1,516		(392	)		—			18,189

Total expenses				20,787			2,058,779		72,131			—			2,151,697

Other Income:
Equity income				—			10,148		1,411			—			11,559

Income (loss) from continuing operations before income taxes and equity in income of subsidiaries				(20,776	)		269,238		11,203			—			259,665
Income taxes (benefit)				(6,299	)		100,878		4,051			—			98,630

Income (loss) from continuing operations before equity in income of subsidiaries				(14,477	)		168,360		7,152			—			161,035
Income from discontinued operations				7,851			—		—			—			7,851

Income (loss) before equity in income of subsidiaries				(6,626	)		168,360		7,152			—			168,886

Equity in income (loss) of subsidiaries:
	Continuing operations			175,512			5,997		23,449			(204,958	)		—
	Discontinued operations			—			—		—			—			—

				175,512			5,997		23,449			(204,958	)		—

Net income			$	168,886		$	174,357	$	30,601		$	(204,958	)	$	168,886

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

7. Supplemental Guarantor information (continued)

CONSOLIDATING STATEMENT OF OPERATIONS
For the nine months ended September 30, 2003
($000’s omitted)


			Unconsolidated

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

Revenues:
	Homebuilding		$	—		$	5,669,881	$	152,633		$	—		$	5,822,514
	Financial services			—			11,257		73,964			—			85,221
	Corporate			33			2,335		475			—			2,843

Total revenues				33			5,683,473		227,072			—			5,910,578

Expenses:
	Homebuilding:
		Cost of sales		—			4,453,651		121,861			—			4,575,512
		Selling, general and administrative and other expense		8,016			627,781		32,503			—			668,300
	Financial services			—			3,456		34,488			—			37,944
	Corporate, net			59,059			567		(1,767	)		—			57,859

Total expenses				67,075			5,085,455		187,085			—			5,339,615

Other Income:
Equity income				—			19,218		5,476			—			24,694

Income (loss) from continuing operations before income taxes and equity in income of subsidiaries				(67,042	)		617,236		45,463			—			595,657
Income taxes (benefit)				(24,895	)		234,076		17,140			—			226,321

Income (loss) from continuing operations before equity in income of subsidiaries				(42,147	)		383,160		28,323			—			369,336
Income from discontinued operations				7,404			—		—			—			7,404

Income (loss) before equity in income of subsidiaries				(34,743	)		383,160		28,323			—			376,740

Equity in income (loss) of subsidiaries:
	Continuing operations			411,483			26,624		154,806			(592,913	)		—
	Discontinued operations			—			—		—			—			—

				411,483			26,624		154,806			(592,913	)		—

Net income			$	376,740		$	409,784	$	183,129		$	(592,913	)	$	376,740

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

7. Supplemental Guarantor information (continued)

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


			Unconsolidated

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

Revenues:
	Homebuilding		$	—		$	1,780,776		$	50,541	$	—		$	1,831,317
	Financial services			—			3,676			24,160		—			27,836
	Corporate			20			333			—		—			353

Total revenues				20			1,784,785			74,701		—			1,859,506

Expenses:
	Homebuilding:
		Cost of sales		—			1,420,844			41,512		—			1,462,356
		Selling, general and administrative and other expense		1,630			179,067			8,951		—			189,648
	Financial services			—			1,007			9,084		—			10,091
	Corporate, net			17,899			(4,404	)		112		—			13,607

Total expenses				19,529			1,596,514			59,659		—			1,675,702

Other Income:
Equity income				—			768			1,522		—			2,290

Income (loss) from continuing operations before income taxes and equity in income of subsidiaries				(19,509	)		189,039			16,564		—			186,094
Income taxes (benefit)				(7,007	)		73,734			5,858		—			72,585

Income (loss) from continuing operations before equity in income of subsidiaries				(12,502	)		115,305			10,706		—			113,509
Income from discontinued operations				9,937			—			—		—			9,937

Income (loss) before equity in income of subsidiaries				(2,565	)		115,305			10,706		—			123,446

Equity in income (loss) of subsidiaries:
	Continuing operations			126,011			9,896			49,165		(185,072	)		—
	Discontinued operations			—			—			—		—			—

				126,011			9,896			49,165		(185,072	)		—

Net income			$	123,446		$	125,201		$	59,871	$	(185,072	)	$	123,446

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

7. Supplemental Guarantor information (continued)

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


			Unconsolidated

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

Revenues:
	Homebuilding		$	—		$	4,724,418		$	124,174		$	—		$	4,848,592
	Financial services			—			9,931			64,771			—			74,702
	Corporate			149			367			—			—			516

Total revenues				149			4,734,716			188,945			—			4,923,810

Expenses:
	Homebuilding:
		Cost of sales		—			3,769,112			99,420			—			3,868,532
		Selling, general and administrative and other expense		7,032			510,229			25,921			—			543,182
	Financial services			—			2,918			28,261			—			31,179
	Corporate, net			45,119			(2,312	)		479			—			43,286

Total expenses				52,151			4,279,947			154,081			—			4,486,179

Other Income:
Equity income				—			2,272			6,947			—			9,219

Income (loss) from continuing operations before income taxes and equity in income of subsidiaries				(52,002	)		457,041			41,811			—			446,850
Income taxes (benefit)				(21,003	)		178,492			16,804			—			174,293

Income (loss) from continuing operations before equity in income of subsidiaries				(30,999	)		278,549			25,007			—			272,557
Income (loss) from discontinued operations				9,207			—			(3	)		—			9,204

Income (loss) before equity in income of subsidiaries				(21,792	)		278,549			25,004			—			281,761

Equity in income (loss) of subsidiaries:
	Continuing operations			303,556			24,261			158,513			(486,330	)		—
	Discontinued operations			(3	)		—			—			3			—

				303,553			24,261			158,513			(486,327	)		—

Net income			$	281,761		$	302,810		$	183,517		$	(486,327	)	$	281,761

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

7. Supplemental Guarantor information (continued)

CONSOLIDATING STATEMENT OF CASH FLOWS
For the nine months ended September 30, 2003
($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			$	376,740		$	409,784		$	183,129		$	(592,913	)	$	376,740
	Adjustments to reconcile net income to net cash flows provided by (used in) operating activities:
		Equity in income of subsidiaries			(411,483	)		(26,624	)		(154,806	)		592,913			—
		Amortization and depreciation			857			25,445			2,721			—			29,023
		Stock-based compensation expense			14,498			—			—			—			14,498
		Deferred income taxes			(13,796	)		—			—			—			(13,796	)
		Other, net			—			(1,072	)		(3,005	)		—			(4,077	)
		Increase (decrease) in cash due to:
			Inventories		—			(1,297,687	)		(34,560	)		—			(1,332,247	)
			Residential mortgage loans available-for-sale		—			—			70,121			—			70,121
			Other assets		(17,414	)		16,517			26,890			—			25,993
			Accounts payable, accrued and other liabilities		10,227			306,253			34,206			—			350,686
			Income taxes		(54,295	)		100,749			3,340			—			49,794

Net cash provided by (used in) operating activities					(94,666	)		(466,635	)		128,036			—			(433,265	)

Cash flows from investing activities:
	Dividends received from subsidiaries				40,339			13,000			—			(53,339	)		—
	Investment in subsidiary				(452,038	)		(1,378	)		—			453,416			—
	Purchases of property and equipment, net				—			(22,823	)		—			—			(22,823	)
	Other, net				—			—			(8,360	)		—			(8,360	)

Net cash provided by (used in) investing activities					(411,699	)		(11,201	)		(8,360	)		400,077			(31,183	)

Cash flows from financing activities:
	Proceeds from borrowings				694,937			16,976			2,014			—			713,927
	Repayment of borrowings				(175,000	)		(273,007	)		(93,818	)		—			(541,825	)
	Capital contributions from parent				—			452,038			1,378			(453,416	)		—
	Advances (to) from affiliates				(2,935	)		30,349			(27,414	)		—			—
	Issuance of common stock				17,974			—			—			—			17,974
	Common stock repurchases				(18,304	)		—			—			—			(18,304	)
	Dividends paid				(7,358	)		(40,339	)		(13,000	)		53,339			(7,358	)

Net cash provided by (used in) financing activities					509,314			186,017			(130,840	)		(400,077	)		164,414

Effect of exchange rate changes on cash and equivalents					—			—			(983	)		—			(983	)

Net increase (decrease) in cash and equivalents					2,949			(291,819	)		(12,147	)		—			(301,017	)

Cash and equivalents at beginning of period					—			541,095			72,073			—			613,168

Cash and equivalents at end of period				$	2,949		$	249,276		$	59,926		$	—		$	312,151

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

7. Supplemental Guarantor information (continued)

CONSOLIDATING STATEMENT OF CASH FLOWS
For the nine months ended September 30, 2002
($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			$	281,761		$	302,810		$	183,517		$	(486,327	)	$	281,761
	Adjustments to reconcile net income to net cash flows provided by (used in) operating activities:
			Equity in income of subsidiaries		(303,553	)		(24,261	)		(158,513	)		486,327			—
			Amortization and depreciation		777			21,288			1,725			—			23,790
			Stock-based compensation expense		8,188			—			—			—			8,188
			Deferred income taxes		15,668			—			—			—			15,668
			Other, net		—			(1,438	)		(5,834	)		—			(7,272	)
		Increase (decrease) in cash due to:
			Inventories		—			(584,796	)		(51,930	)		—			(636,726	)
			Residential mortgage loans available-for-sale		—			—			102,574			—			102,574
			Other assets		3,683			39,770			(951	)		—			42,502
			Accounts payable, accrued and other liabilities		(16,416	)		177,550			35,916			—			197,050
			Income taxes		(25,646	)		86,535			5,305			—			66,194

Net cash provided by (used in) operating activities					(35,538	)		17,458			111,809			—			93,729

Cash flows from investing activities:
	Dividends received from subsidiaries				—			23,500			—			(23,500	)		—
	Investment in subsidiary				—			(978	)		—			978			—
	Sales of property and equipment, net				—			11,586			—			—			11,586
	Other, net				—			1,405			(3,736	)		—			(2,331	)

Net cash provided by (used in) investing activities					—			35,513			(3,736	)		(22,522	)		9,255

Cash flows from financing activities:
	Proceeds from borrowings				298,819			44,660			73			—			343,552
	Repayment of borrowings				(111,437	)		(101,272	)		(117,549	)		—			(330,258	)
	Capital contributions from parent				—			—			978			(978	)		—
	Advances (to) from affiliates				(192,971	)		117,944			75,027			—			—
	Issuance of common stock				32,820			—			—			—			32,820
	Dividends paid				(7,314	)		—			(23,500	)		23,500			(7,314	)

Net cash provided by (used in) financing activities					19,917			61,332			(64,971	)		22,522			38,800

Effect of exchange rate changes on cash and equivalents					—			—			(1,851	)		—			(1,851	)
Net increase (decrease) in cash and equivalents					(15,621	)		114,303			41,251			—			139,933
Cash and equivalents at beginning of period					15,621			33,643			22,880			—			72,144

Cash and equivalents at end of period				$	—		$	147,946		$	64,131		$	—		$	212,077

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 nine-month periods ended September 30, 2003 and 2002 is as follows ($000’s omitted):


		Three Months Ended						Nine Months Ended
		September 30,						September 30,

		2003			2002			2003			2002

Pre-tax income (loss):
	Homebuilding operations	$	263,885		$	180,180		$	599,318		$	442,036
	Financial services operations		13,381			19,168			51,355			47,584
	Corporate		(17,601	)		(13,254	)		(55,016	)		(42,770	)

Pre-tax income from continuing operations			259,665			186,094			595,657			446,850
Income taxes			98,630			72,585			226,321			174,293

Income from continuing operations			161,035			113,509			369,336			272,557
Income from discontinued operations			7,851			9,937			7,404			9,204

Net income		$	168,886		$	123,446		$	376,740		$	281,761

Per share data – assuming dilution:
Income from continuing operations		$	2.56		$	1.83		$	5.91		$	4.42
Income from discontinued operations			.13			.16			.12			.15

Net income		$	2.69		$	1.99		$	6.03		$	4.57

A comparison of pre-tax income (loss) for the three and nine months ended September 30, 2003 and 2002 is as follows:

• Continued strong demand for new housing in many of our markets, geographic and product mix shifts, and benefits from the ongoing initiatives to leverage construction costs throughout the operations drove pre-tax income of our homebuilding business segment to increase 46% and 36%, respectively. Domestic average unit selling prices increased 9% and 8%, respectively. Such factors combined to drive domestic homebuilding settlement gross margin percentages up 120 basis points and 140 basis points, respectively.

• Pre-tax income of our financial services business segment decreased 30% and increased 8%, respectively. During the three months ended September 30, 2003, increased volume was offset by the impact of a less favorable interest rate environment and an increase in overhead costs necessary for the continued growth of these operations. The nine-month period continued to benefit from the favorable interest rate environment experienced during the first six months of the year. The increase in volume was driven in large part by an increase in the capture rate to 83% for both the three and nine-month periods.

• Higher net interest expense, combined with a gain on the sale of commercial property recognized in the prior year, resulted in an increase in pre-tax loss of our corporate business segment for both periods.

During the third quarter of 2003 and 2002, we recorded non-cash, after-tax gains of $7.9 million and $10.0 million, respectively, related to the favorable resolution of certain tax matters relating to our thrift operation, which we discontinued in 1994.

Homebuilding Operations:

Our Homebuilding segment consists of the following operations:

• Domestic Homebuilding - We conduct our Domestic Homebuilding operations in 44 markets located throughout 26 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, Puerto Rico and Argentina. International Homebuilding product offerings focus on the demand of first-time buyers and middle-to-upper income consumer groups.

Certain operating data relating to our homebuilding operations and Pulte-affiliated joint ventures for the three and nine months ended September 30, 2003 and 2002, are as follows ($000’s omitted):


			Three Months Ended				Nine Months Ended
			September 30,				September 30,

			2003		2002		2003		2002

Pulte Homebuilding settlement revenues:
	Domestic		$	2,273,234	$	1,752,045	$	5,565,893	$	4,637,918
	International			60,367		50,541		152,633		124,174

		Total Pulte		2,333,601		1,802,586		5,718,526		4,762,092

Pulte-affiliate international homebuilding settlement revenues				6,525		4,724		23,062		35,832

Total Pulte/Pulte-affiliate homebuilding settlement revenues			$	2,340,126	$	1,807,310	$	5,741,588	$	4,797,924

Pulte homebuilding settlement units:
	Domestic			8,637		7,280		21,534		19,375
	International			1,921		1,950		4,580		4,403

		Total Pulte		10,558		9,230		26,114		23,778

Pulte-affiliate international homebuilding settlement units				29		28		114		992

Total Pulte and Pulte-affiliate settlement units				10,587		9,258		26,228		24,770

Homebuilding Operations (continued):

Domestic Homebuilding:

The Domestic Homebuilding business unit represents our core business. Our operations are conducted in 44 markets located throughout 26 states within the following geographic regions:


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, New Mexico

West:		Arizona, California, Nevada

The metropolitan Phoenix market accounted for 12% of Domestic Homebuilding unit net new orders and unit settlements and 11% of Domestic Homebuilding settlement revenues for the three-month period ended September 30, 2003. Furthermore, the metropolitan Las Vegas market accounted for 12% of unit net new orders and 10% of settlement revenues for the same period. For the nine-month period of 2003, the metropolitan Phoenix market accounted for 12% of unit net new orders and unit settlements and 10% of settlement revenues, while the metropolitan Las Vegas market accounted for 10% of unit net new orders. In the prior year, the metropolitan Phoenix market accounted for 11% of unit net new orders and unit settlements and 10% of settlement revenues for the three and nine months ended September 30, 2002. No other individual market represented more than 10% of total Domestic Homebuilding unit net new orders, unit settlements or revenues for the three or nine-month periods ended September 30, 2003 or 2002.

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


		Three Months Ended				Nine Months Ended
		September 30,				September 30,

		2003		2002		2003		2002

Unit settlements:
	Northeast		626		593		1,605		1,513
	Southeast		2,105		2,122		5,613		5,686
	Midwest		1,422		1,269		3,305		2,947
	Central		1,392		1,101		3,259		2,854
	West		3,092		2,195		7,752		6,375

			8,637		7,280		21,534		19,375

Net new orders – units*:
	Northeast		766		680		2,411		2,134
	Southeast		2,323		2,305		7,027		6,820
	Midwest		1,119		1,151		3,659		3,697
	Central		1,392		1,174		3,894		3,766
	West		3,500		2,695		9,533		7,955

			9,100		8,005		26,524		24,372

Net new orders – dollars* ($000’s omitted)		$	2,525,000	$	2,011,000	$	7,145,000	$	6,056,000

Unit backlog:
	Northeast						1,935		1,452
	Southeast						4,353		3,693
	Midwest						1,955		2,125
	Central						1,949		1,815
	West						6,454		4,590

							16,646		13,675

Backlog at September 30 – dollars ($000’s omitted)						$	4,654,000	$	3,536,000

* Net new orders for the three and nine months ended September 30, 2003, do not include 984 units and 1,051 units, respectively, of acquired backlog and the related dollars.

Homebuilding Operations (continued):

Domestic Homebuilding (continued):

Continued strong demand for new housing was the primary driver for increases in net new orders and unit settlements. Net new orders increased 14% to a record 9,100 units for the three months ended September 30, 2003. Net new orders for the nine months ended September 30, 2003 increased 9%. Unit settlements also set a record for the quarter at 8,637 units, representing an increase of 19% over the same period in 2002. Unit settlements for the nine months ended September 30, 2003 increased 11%. The average selling price for homes closed increased 9% to $263,000 for the three months ended September 30, 2003, and 8% to $258,000 for the nine months then ended. 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 16,646 units. The dollar value of backlog was up 32% to $4.7 billion.

The following table presents a summary of pre-tax income for our Domestic Homebuilding operations for the three and nine months ended September 30, 2003 and 2002 ($000’s omitted):


	Three Months Ended						Nine Months Ended
	September 30,						September 30,

	2003			2002			2003			2002

Home sale revenue (settlements)	$	2,273,234		$	1,752,045		$	5,565,893		$	4,637,918
Land sale revenue		39,763			28,731			103,988			86,500
Home cost of sales		(1,786,982	)		(1,398,781	)		(4,374,806	)		(3,708,250	)
Land cost of sales		(32,610	)		(22,063	)		(78,845	)		(60,862	)
Selling, general and administrative expense		(211,805	)		(161,489	)		(568,766	)		(467,370	)
Interest (a)		(22,197	)		(13,254	)		(50,709	)		(33,144	)
Equity income		9,667			294			18,202			1,273
Other income (expense), net		(6,033	)		(5,656	)		(15,841	)		(15,810	)

Pre-tax income	$	263,037		$	179,827		$	599,116		$	440,255

Average sales price	$	263		$	241		$	258		$	239

^(a) We capitalize interest cost into homebuilding inventories and charge the interest to homebuilding interest expense over a period that approximates the average life cycle of our communities.

Homebuilding gross profit margins from home settlements increased to 21.4% for both the three and nine months ended September 30, 2003, compared to 20.2% and 20.0%, respectively, for the same periods in the prior year. This increase is primarily attributable to continued strong customer demand, positive home pricing and product and geographic mix.

We consider land development one of our core competencies. This includes the entitlement and development of certain land positions for sale primarily to other homebuilders, as well as to retail and commercial establishments. Contributions from land sales were relatively flat when compared to the prior year period. 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 capital.

Selling, general and administrative expenses as a percentage of home settlement revenues increased 10 basis points for both the three and nine months ended September 30, 2003 to 9.3% and 10.2%, respectively. Selling, general and administrative expenses were negatively impacted by higher startup costs associated with an increased number of new communities and additional expenses incurred in the Northeast, Southeast and Midwest due to prolonged periods of adverse weather conditions.

Homebuilding Operations (continued):

Domestic Homebuilding (continued):

Interest expense increased $8.9 million and $17.6 million, respectively, over the three and nine months ended September 30, 2003 as amounts previously capitalized into inventory are charged to interest expense. Interest capitalized into inventory has increased as a result of higher levels of inventory and indebtedness to support the continued growth of the business.

Equity income increased $9.4 million and $16.9 million, respectively, during the three and nine-month periods ended September 30, 2003. The increase in both periods was driven by earnings from two Nevada-based joint ventures related to the sale of commercial and residential properties.

Other income (expense), net, which was relatively flat for both the three and nine-month period, includes several miscellaneous items including amortization of intangible assets.

Domestic Homebuilding inventory at September 30, 2003, was approximately $5.1 billion, of which $3.9 billion related to land and land development. At September 30, 2002, inventory was approximately $4.2 billion, of which $3.1 billion related to land and land development. Other assets included approximately $293.2 million and $247.3 million in land held for disposition at September 30, 2003 and 2002, respectively.

At September 30, 2003 and 2002, our Domestic Homebuilding operations controlled approximately 239,500 and 158,300 lots, respectively. Approximately 103,300 and 84,400 lots were owned, and approximately 82,800 and 34,100 lots were under option agreements approved for purchase at September 30, 2003 and 2002, respectively. In addition, there were approximately 53,400 and 39,800 lots under option agreements, pending approval, at September 30, 2003 and 2002, respectively.

The total purchase price applicable to approved land under option for use by our homebuilding operations at future dates approximated $2.4 billion at September 30, 2003. In addition, total purchase price applicable to land under option pending approval was valued at $1.5 billion at September 30, 2003. Land option agreements, which may be cancelled at our discretion, may extend over several years and are secured by deposits totaling $106.9 million, which are generally non-refundable.

International Homebuilding:

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

Mexico — Effective January 1, 2002, International reorganized the structure of its operations within Mexico to create a single company, Pulte Mexico S. de R.L. de C.V. (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 three 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.

Modest gains in our International Homebuilding operations for the third quarter of 2003 compared with the prior year reflect actions we have taken to drive performance, rationalize land investments and enhance current returns. We are also in the process of evaluating various long-term strategic alternatives with regard to our International operations.

Homebuilding Operations (continued):

International Homebuilding (continued):

The following table presents selected financial data for our International Homebuilding operations for the three and nine months ended September 30, 2003 and 2002 ($000’s omitted):


		Three Months Ended						Nine Months Ended
		September 30,						September 30,

		2003			2002			2003			2002

Revenues		$	60,367		$	50,541		$	152,633		$	124,174
Cost of sales			(47,880	)		(41,512	)		(121,861	)		(99,420	)
Selling, general and administrative expense			(10,785	)		(8,431	)		(31,375	)		(24,786	)
Other income (expense), net			(561	)		(591	)		(1,654	)		(1,449	)
Minority interest			(936	)		(227	)		45			(623	)
Equity in income of joint ventures			643			573			2,414			3,885

Pre-tax income		$	848		$	353		$	202		$	1,781

Unit settlements:
	Pulte		1,921			1,950			4,580			4,403
	Pulte-affiliated entities		29			28			114			992

Total Pulte and Pulte-affiliates			1,950			1,978			4,694			5,395

Unit settlements for Pulte and Pulte-affiliated entities were down 1% and 13%, respectively, for the three and nine months ended September 30, 2003, as slight increases in Puerto Rico and Argentina were negated by a decline in Mexico. Settlements for Pulte and Pulte-affiliated entities in Mexico were 1,852 and 4,362 for the three and nine months ended September 30, 2003 compared to 1,915 and 5,175 in 2002. Activity in Mexico continues to be slowed by the impact of changes made to local lending practices and the lack of alternative funding sources for homebuyers.

Revenues for the three months ended September 30, 2003 increased 19% as a result of higher selling prices realized in Mexico and Argentina. Increased revenues for the nine-month period are due to consolidation of the operations in Mexico for a full nine months in 2003 versus eight months in 2002, aided by higher selling prices in Mexico and Argentina. Revenues from our operations in Mexico were $48.5 million and $115.6 million, respectively, for the three and nine months ended September 30, 2003, compared to $44.9 million and $107.1 million in 2002. Argentina contributed revenues of $8.6 million and $23.1 million for the three and nine months ended September 30, 2003 compared to $3.6 million and $13.8 million in 2002. Revenues in Puerto Rico were $3.3 million and $13.9 million, respectively, for the three and nine-month periods in 2003 versus $2.1 million and $3.3 million in 2002. Our consolidated operations in Puerto Rico did not have any closings during the first five months of 2002 as various factors delayed the opening of replacement communities during that time period.

Higher selling prices and product mix shifts had a positive impact on gross margins. Gross margins increased 280 basis points to 20.7% for the three months ended September 30, 2003 and 30 basis points to 20.2% for the nine-month period.

Selling, general and administrative expenses as a percent of revenues increased to 17.9% from 16.7% for the three-month period and 20.6% from 20.0% for the nine month period. This increase in selling, general and administrative expenses as a percent of revenue for both periods was driven by restructuring expenses incurred in an effort to enhance the overall performance of our operations in Mexico.

Our operations in Argentina and Mexico are affected by fluctuations in currency rates for those countries. Transaction gains and losses for the three and nine months ended September 30, 2003 and 2002, classified as other income (expense), net, were not significant. During the nine months ended September 30, 2003, we recorded a foreign currency translation gain of $2.0 million for Argentina and a translation loss of $4.5 million for Mexico, as a component of accumulated other comprehensive income on the balance sheet. At September 30, 2003, our investment in Argentina and Mexico, net of accumulated foreign currency translation adjustments, approximated $14.0 million and $66.1 million, respectively.

Financial Services Operations:

We conduct our financial services operations principally through Pulte Mortgage LLC (Pulte Mortgage), our mortgage banking subsidiary. Pre-tax income of our financial services operations for the three and nine-month periods ended September 30, 2003, was $13.4 million and $51.4 million, respectively, compared to $19.2 million and $47.6 million for the prior year periods. The decrease in pretax income for the three months was primarily the result of a less favorable interest rate environment during the quarter and an increase in selling, general and administrative expenses necessary to support higher production levels. The increase in pretax income for the nine months was due to higher production volume and more favorable interest rates experienced in the first six months of the year.

The following table presents mortgage origination data for Pulte Mortgage:


		Three Months Ended				Nine Months Ended
		September 30,				September 30,

		2003		2002		2003		2002

Total originations:
	Loans		7,634		5,740		19,572		14,960

	Principal ($000’s omitted)	$	1,340,200	$	945,100	$	3,368,400	$	2,421,300

Originations for Pulte customers:
	Loans		6,255		4,809		15,776		12,765

	Principal ($000’s omitted)	$	1,098,400	$	791,000	$	2,712,500	$	2,064,500

Mortgage origination unit and principal volume for the three months ended September 30, 2003, increased 33% and 42%, respectively, and 31% and 39% for the nine-month period, respectively. The growth is attributable to an increase in the capture rate from 78% to 83% for the three-month period and 77% to 83% for the nine-month period combined with the volume increases experienced in our homebuilding business and an increase in the average loan size over both periods. Our Domestic Homebuilding customers continue to account for the majority of total loan production, representing 82% and 81% of total Pulte Mortgage unit production for the three and nine months ended September 30, 2003, respectively, compared with 84% and 85%, respectively, in 2002. Refinancings accounted for approximately 9% of total originations for the three months ended September 30, 2003, compared to 8% in the prior year. For the nine months ended September 30, 2003, refinancings represented 10% of total originations, compared to 8% in 2002. Adjustable rate mortgages (ARMs) represented 24% of total originations for the three months ended September 30, 2003, compared to 14% in the prior year. ARMs represented 19% and 12% of total originations for the nine months ended September 30, 2003 and 2002, respectively. At September 30, 2003, loan application backlog more than doubled to $2.7 billion as compared with $1.3 billion at September 30, 2002.

Income from our title operations increased to $3.7 million for the three months ended September 30, 2003, from $3.1 million in 2002, and to $8.8 million for the nine-month period, from $8.0 million in 2002. Our minority interest in Su Casita, a Mexican mortgage banking company, contributed income of $768,000 for the three months ended September 30, 2003, compared to $876,000 in 2002, and $3.1 million for the nine months ended September 30, 2003 compared to $2.8 million in 2002.

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

Corporate:

Corporate is a non-operating business segment whose primary purpose is to support the operations of our subsidiaries as the internal source of financing, to develop and implement strategic initiatives centered on new business development and operating efficiencies, and to provide the administrative support associated with being a publicly traded entity listed on the New York Stock Exchange. As a result, the corporate segment’s operating results will vary from quarter to quarter as these strategic initiatives evolve.

The following table presents results of operations for this segment for the three and nine-month periods ended September 30, 2003 and 2002 ($000’s omitted):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,

	2003		2002		2003		2002

Net interest expense	$	10,231	$	9,271	$	28,711	$	28,483
Other corporate expenses, net		7,370		3,983		26,305		14,287

Loss before income taxes	$	17,601	$	13,254	$	55,016	$	42,770

The increase in other corporate expenses, net for both the three and nine months ended September 30, 2003 can be attributed to income recognized in the prior year periods from the sale and adjustment to fair value of various non-operating parcels of commercial land held for sale.

Corporate net interest expense is net of amounts capitalized into homebuilding inventories. Capitalized interest is amortized to homebuilding interest expense over a period that approximates the average life cycle of our communities. Interest in inventory at September 30, 2003, increased primarily as a result of higher levels of inventory and indebtedness compounded by an increase in the average life cycle. Information related to Corporate interest capitalized into inventory is as follows ($000’s omitted):


	Three Months Ended						Nine Months Ended
	September 30,						September 30,

	2003			2002			2003			2002

Interest in inventory at beginning of period	$	180,967		$	107,447		$	142,984		$	68,595
Interest capitalized		33,351			31,510			99,846			90,253
Interest expensed		(22,197	)		(13,254	)		(50,709	)		(33,145	)

Interest in inventory at end of period	$	192,121		$	125,703		$	192,121		$	125,703

Interest incurred for the three and nine-month periods ended September 30, 2003 and 2002, excluding interest incurred by our financial services operations, was approximately $44.2 and $131.4 million and $40.1 and $119.3 million, respectively.

Discontinued Operations:

In September 2003, the United States Court of Federal Claims issued final judgment that we have been damaged by approximately $48.7 million as a result of the United States government’s breach of contract with us. The final judgment follows the Court’s August 17, 2001 ruling that the United States breached the contract related to our 1988 acquisition of five savings and loan associations by enacting Section 13224 of the Omnibus Budget Reconciliation Act of 1993. The United States government and we recently filed Notices of Appeal with the United States Court of Appeals for the Federal Circuit. Accordingly, any gain related to this litigation will be recognized only upon final resolution.

Liquidity and Capital Resources:

Our net cash used in operating activities amounted to $433.3 million compared to cash provided by operating activities of $93.7 million in the prior year. This change was primarily driven by an increase in inventories. Net cash used in and provided by investing activities primarily represents proceeds from the sale and purchase of property and equipment. Net cash provided by financing activities of $164.4 million in 2003 primarily represents proceeds from our $300 million senior notes issued in February 2003 and our $400 million senior notes issued in May 2003 largely offset by the repayment of Pulte Mortgage’s revolving credit facilities, our $175 million 9.5% senior notes and the remaining $155 million of Del Webb’s 9.375% subordinated notes. Net cash provided by financing activities was $38.8 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. Effective October 1, 2003, we replaced our $570 million revolving credit facility with an $850 million facility that includes the capacity to issue letters of credit up to $500 million. This new credit facility expires October 1, 2008. We had no borrowings under our unsecured revolving credit facility at September 30, 2003.

Pulte Mortgage provides mortgage financing for many of our home sales and uses its own funds and borrowings made available pursuant to various credit arrangements. Pulte Mortgage has committed credit arrangements of $825 million comprised of a $275 million bank revolving credit facility and a $550 million annual asset-backed commercial paper program. There were approximately $468.1 million of borrowings outstanding under existing Pulte Mortgage arrangements at September 30, 2003. Mortgage loans originated by Pulte Mortgage are subsequently sold to outside investors. We anticipate that there will be adequate mortgage financing available for purchasers of our homes.

In February 2003, we sold $300 million of 6.25% unsecured senior notes, due 2013. Proceeds from this issuance were used to retire our $175 million 9.5% senior notes that matured on April 1, 2003 and redeem the remaining outstanding principal balance of approximately $155 million of Del Webb’s $200 million 9.375% senior subordinated notes due 2009 that were called for redemption in March at a price equal to 104.688% of the principal amount.

In May 2003, we sold $400 million of 6.375% unsecured senior notes, due 2033, in anticipation of the scheduled retirement of approximately $180 million principal outstanding of senior and subordinated notes coming due and callable in the fourth quarter of 2003 and the first quarter of 2004. The balance of this issuance will be used for general corporate purposes including continued investment in our business.

Pursuant to our $100 million share repurchase program, we repurchased 395,400 common shares at an aggregate cost of approximately $18.2 million during the first nine months of 2003. At September 30, 2003, we had remaining authorization to purchase common stock aggregating $77.5 million.

We anticipate that our effective tax rate for 2003 will approximate 38%, a decrease from the 2002 effective tax rate of 39%. Our income tax liability and related effective tax rate are affected by a number of factors. The reduction in the effective tax rate for 2003 is principally due to a lower expected effective state income tax rate for 2003 and the shareholders’ approval of our new Senior Management Annual Incentive Plan, which will allow for full tax deductibility of Plan payments under section 162(m) of the Internal Revenue Service Code.

At September 30, 2003, we had cash and equivalents of $312.2 million and $2.3 billion of senior notes and senior subordinated notes. Other financing included limited recourse collateralized financing totaling $106.4 million. Sources of our working capital include our cash and equivalents, our $850 million committed unsecured revolving credit facility and Pulte Mortgage’s $825 million revolving credit facilities. Our debt-to-total capitalization, excluding our collateralized debt, was approximately 42% at September 30, 2003, and approximately 38% net of cash and equivalents. We expect to maintain our net debt-to-total capitalization at or below the 40% level. It is our intent to exercise the early call provision 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 financing sources, including securities offerings.

In September 2003, we filed a mixed-security shelf registration statement with the Securities and Exchange Commission pursuant to which we may issue up to a combined $1.5 billion of debt and equity securities.

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 for 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.

New Accounting Pronouncements:

In January 2003, the FASB issued Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities.” Until this interpretation was issued, a company generally included another entity in its consolidated financial statements only if it controlled the entity through voting interests. The interpretation requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns. FIN 46 applied immediately to all variable interest entities created after January 31, 2003 and is effective no later than the first interim or annual period ending after December 15, 2003 for variable interest entities created prior to February 1, 2003.

In the ordinary course of business, we enter into land option agreements in order to procure land for the construction of houses in the future. Pursuant to these land option agreements, we 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 FIN 46, if the entity holding the land under option is a variable interest entity, our deposit represents a variable interest in that entity. We do not guarantee the obligations or performance of the variable interest entity.

In applying the provisions of FIN 46, we evaluated all post-January 31, 2003 land option agreements and determined that we are 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, we are required to consolidate the fair value of the variable interest entity. At June 30, 2003, we classified $62.3 million as Land, Not Owned, Under Option Agreements, representing the fair value of land under contract including deposits. The corresponding liability has been classified as Accounts Payable, Accrued and Other Liabilities on the balance sheet. The adoption of FIN 46 has had no impact on our results of operations or cash flows.

We are in the process of evaluating our land option agreements and joint venture agreements entered into prior to February 1, 2003. Depending on the terms and conditions of these agreements, we may be required to consolidate other variable interest entities. This evaluation will be completed by December 31, 2003.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This statement establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. With the exception of certain measurement criteria deferred indefinitely by the FASB, SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The implementation of SFAS No. 150 is not expected to have a material impact on our results of operations, financial condition or cash flows.

Critical Accounting Policies and Estimates:

There have been no significant changes to our critical accounting policies and estimates during the nine months ended September 30, 2003 compared to 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, 2002, except for the following:

Stock-based compensation:

We currently have several stock-based employee compensation plans. Effective January 1, 2003 we adopted the preferable fair value recognition provisions of SFAS No. 123, “Accounting for Stock Issued to Employees.” We selected the prospective method of adoption as permitted by SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure.” Under the prospective method, we will recognize compensation expense based on the fair value provisions of SFAS No. 123 for all new stock option grants effective January 1, 2003. Grants made prior to January 1, 2003 will 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 under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant.

We use the Black-Scholes option-pricing model to determine the fair value of each option grant. The Black-Scholes model includes assumptions regarding dividend yields, expected volatility, risk-free interest rates and expected lives. These assumptions reflect management’s best estimates, but these items involve inherent uncertainties based on market conditions generally outside of our control. As a result, if other assumptions had been used, stock-based compensation expense could have been materially impacted. Furthermore, if management uses different assumptions in future periods, stock-based compensation expense could be materially impacted in future periods.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

Quantitative disclosure:

We are subject to interest rate risk on our rate-sensitive financing to the extent long-term rates decline. The following table sets forth, as of September 30, 2003, our rate-sensitive financing obligations, principal cash flows by scheduled maturity, weighted-average interest rates and estimated fair market values ($000’s omitted).


			As of September 30, 2003 for the
			years ended December 31,

																		There-						Fair
			2003			2004			2005			2006			2007			after			Total			Value

Rate sensitive liabilities:
	Fixed interest rate debt:
		Senior notes and subordinated notes	$	100,000		$	112,000		$	125,000		$	—		$	—		$	1,925,146		$	2,262,146		$	2,488,313
		Average interest rate		7.00	%		8.38	%		7.30	%		—			—			7.41	%		7.43	%		—
		Limited recourse collateralized financing	$	17,347		$	35,938		$	33,680		$	11,594		$	2,674		$	5,161		$	106,394		$	106,394
		Average interest rate		2.42	%		5.28	%		5.96	%		3.00	%		5.45	%		5.25	%		4.78	%		—

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, 2002, 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 September 30, 2003. Based upon, and as of the date of that evaluation, our President & Chief Executive Officer and Executive Vice President & Chief Financial Officer concluded that the disclosure controls and procedures were effective, in all material respects, to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required.

There has been no change in our internal control over financial reporting during the quarter ended September 30, 2003 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

Exhibit Number and Description


10.1		Credit Agreement among Pulte Homes, Inc. as Borrower, the Lenders
		Identified Herein, and Bank One, NA, as Administrative Agent, dated as of
		October 1, 2003.

10.2		Employment Separation Agreement and Release of All Liability, dated as of
		May 13, 2003, between Pulte Homes, Inc. and Mark J. O’Brien

10.3		Master Repurchase Agreement, dated as of December 22, 2000, between Pulte
		Mortgage Corporation and Pulte Funding, Inc.

10.4		Amended and Restated Addendum to Master Repurchase Agreement, dated as of
		August 23, 2003, between Pulte Mortgage Corporation and Pulte Funding,
		Inc.

10.5		Amended and Restated Loan Agreement, dated as of August 23, 2003, by and
		among Pulte Funding, Inc., Atlantic Asset Securitization Corp., Jupiter
		Securitization Corporation, Credit Lyonnais New York Branch, Bank One, NA
		(Main Office Chicago), Lloyds TSB Bank PLC and Pulte Mortgage Corporation

10.6		Amended and Restated Collateral Agency Agreement, dated as of August 23,
		2003, by and among Pulte Funding, Inc., Credit Lyonnais New York Branch
		and LaSalle Bank National Association

10.7		Omnibus Amendment, dated as of December 31, 2002, by and among Pulte
		Funding, Inc., Pulte Mortgage Corporation, Pulte Homes, Inc., Atlantic
		Asset Securitization Corp., Credit Lyonnais New York Branch, Lloyds TSB
		Bank PLC, Bank One, NA (Main Office Chicago), Jupiter Securitization
		Corporation and LaSalle Bank National Association

10.8		Second Omnibus Amendment, dated as of August 25, 2003, by and among Pulte
		Funding, Inc., Pulte Mortgage Corporation, Credit Lyonnais New York
		Branch, Atlantic Asset Securitization Corp., Bank One, NA (Main Office
		Chicago), Jupiter Securitization Corporation, Lloyds TSB Bank PLC and
		LaSalle Bank National Association

10.9		Third Omnibus Amendment, dated as of September 30, 2003, by and among
		Pulte Funding, Inc., Pulte Mortgage LLC, Atlantic Asset Securitization
		Corp., Credit Lyonnais New York Branch, Lloyds TSB Bank PLC, Bank One, NA
		(Main Office Chicago), Jupiter Securitization Corporation and LaSalle Bank
		National Association

10.10		Fourth Amended and Restated Revolving Credit Agreement, dated as of
		March 31, 2003, among Pulte Mortgage LLC, as the Borrower, the banks
		identified on the signature pages hereof, as the Lenders, and Bank One,
		NA, as administrative agent for the Lenders

10.11		First Amendment to Credit Agreement, made as of July 31, 2003, by and
		among Pulte Mortgage LLC, as the Borrower, Bank One, NA, as the Increasing
		Lender, and Bank One, NA, as Agent

10.12		Second Amendment to Credit Agreement, made as of October 6, 2003, by and
		among Pulte Mortgage LLC, as the Borrower, Bank One, NA, as the Agent, and
		Bank One, NA, Bank of America, N.A. and Credit Lyonnais New York Branch,
		as the Supplemental Lenders

10.13		Third Amendment to Credit Agreement, made as of October 27, 2003, by and
		among Pulte Mortgage LLC, as the Borrower, Bank One, NA, as the Agent and
		Washington Mutual Bank, FA and National City Bank of Kentucky, as the
		Supplemental Lenders

10.14		Third Amended and Restated Security and Collateral Agency Agreement,
		dated as of March 31, 2003, by and among Pulte Mortgage LLC, Bank One, NA
		and LaSalle Bank National Association

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

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

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

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

(b) Reports on Form 8-K

No reports on Form 8-K were filed by us during the quarter for which this report is filed. We furnished a Current Report on Form 8-K on October 23, 2003, reporting the information required by Item 12 in connection with our press release dated October 22, 2003, announcing our earnings for the three and nine months ended September 30, 2003. No financial statements were filed, although we furnished the financial information included in the press release with the Form 8-K.

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: November 5, 2003

10-Q EXHIBIT INDEX


EXHIBIT NO.		DESCRIPTION

10.1		Credit Agreement among Pulte Homes, Inc. as Borrower, the Lenders
		Identified Herein, and Bank One, NA, as Administrative Agent, dated as of
		October 1, 2003.

10.2		Employment Separation Agreement and Release of All Liability, dated as of
		May 13, 2003, between Pulte Homes, Inc. and Mark J. O’Brien

10.3		Master Repurchase Agreement, dated as of December 22, 2000, between Pulte
		Mortgage Corporation and Pulte Funding, Inc.

10.4		Amended and Restated Addendum to Master Repurchase Agreement, dated as of
		August 23, 2003, between Pulte Mortgage Corporation and Pulte Funding,
		Inc.

10.5		Amended and Restated Loan Agreement, dated as of August 23, 2003, by and
		among Pulte Funding, Inc., Atlantic Asset Securitization Corp., Jupiter
		Securitization Corporation, Credit Lyonnais New York Branch, Bank One, NA
		(Main Office Chicago), Lloyds TSB Bank PLC and Pulte Mortgage Corporation

10.6		Amended and Restated Collateral Agency Agreement, dated as of August 23,
		2003, by and among Pulte Funding, Inc., Credit Lyonnais New York Branch
		and LaSalle Bank National Association

10.7		Omnibus Amendment, dated as of December 31, 2002, by and among Pulte
		Funding, Inc., Pulte Mortgage Corporation, Pulte Homes, Inc., Atlantic
		Asset Securitization Corp., Credit Lyonnais New York Branch, Lloyds TSB
		Bank PLC, Bank One, NA (Main Office Chicago), Jupiter Securitization
		Corporation and LaSalle Bank National Association

10.8		Second Omnibus Amendment, dated as of August 25, 2003, by and among Pulte
		Funding, Inc., Pulte Mortgage Corporation, Credit Lyonnais New York
		Branch, Atlantic Asset Securitization Corp., Bank One, NA (Main Office
		Chicago), Jupiter Securitization Corporation, Lloyds TSB Bank PLC and
		LaSalle Bank National Association

10.9		Third Omnibus Amendment, dated as of September 30, 2003, by and among
		Pulte Funding, Inc., Pulte Mortgage LLC, Atlantic Asset Securitization
		Corp., Credit Lyonnais New York Branch, Lloyds TSB Bank PLC, Bank One, NA
		(Main Office Chicago), Jupiter Securitization Corporation and LaSalle Bank
		National Association

10.10		Fourth Amended and Restated Revolving Credit Agreement, dated as of
		March 31, 2003, among Pulte Mortgage LLC, as the Borrower, the banks
		identified on the signature pages hereof, as the Lenders, and Bank One,
		NA, as administrative agent for the Lenders

10.11		First Amendment to Credit Agreement, made as of July 31, 2003, by and
		among Pulte Mortgage LLC, as the Borrower, Bank One, NA, as the Increasing
		Lender, and Bank One, NA, as Agent

10.12		Second Amendment to Credit Agreement, made as of October 6, 2003, by and
		among Pulte Mortgage LLC, as the Borrower, Bank One, NA, as the Agent, and
		Bank One, NA, Bank of America, N.A. and Credit Lyonnais New York Branch,
		as the Supplemental Lenders

10.13		Third Amendment to Credit Agreement, made as of October 27, 2003, by and
		among Pulte Mortgage LLC, as the Borrower, Bank One, NA, as the Agent and
		Washington Mutual Bank, FA and National City Bank of Kentucky, as the
		Supplemental Lenders

10.14		Third Amended and Restated Security and Collateral Agency Agreement,
		dated as of March 31, 2003, by and among Pulte Mortgage LLC, Bank One, NA
		and LaSalle Bank National Association

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

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

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

32.2		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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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 or Pulte). The direct subsidiaries of Pulte Homes, Inc. (PHI) include Pulte Diversified Companies, Inc. (PDCI), North American Builders Indemnity Company (NABIC), the Company’s captive insurance company, 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 that 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 LLC (Pulte Mortgage), 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 nine-month period ended September 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. 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, 2002.

		Certain amounts previously reported in the 2002 financial statements and notes thereto were reclassified to conform to the 2003 presentation.

		Effective January 1, 2002, the Company reorganized the structure of its operations within Mexico to create a single company, Pulte Mexico S. de R.L. de C.V. (Pulte Mexico). Under the new ownership structure, these operations, which previously were conducted primarily through joint ventures, have been combined into Pulte Mexico, which is 63.8% owned by International. Results for the nine months ended September 30, 2002 include joint venture operations for one month and operations as a consolidated entity for eight months, as the Mexican operations report on a one-month lag.

		Allowance for warranties

		Home purchasers are provided with warranties against certain building defects. The specific terms and conditions of these 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 for the nine months ended September 30, 2003 are as follows ($000’s omitted):

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 will recognize compensation expense based on the fair value provisions of SFAS No. 123 for all new stock option grants effective January 1, 2003. Grants made prior to January 1, 2003 will 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 as if the fair value method had been applied to all outstanding stock options in each period. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model.

		The Company also recorded compensation expense for restricted stock awards, net of related tax effects, of $2.2 million and $4.7 million for the three and nine months ended September 30, 2003, compared to $0.9 million and $2.4 million for the three and nine months ended September 30, 2002. These amounts have been excluded from the reconciliation above as they would have no impact on pro forma net income as presented.

		Land, not owned, under option agreements

		In January 2003, the FASB issued Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities.” Until this interpretation was issued, a company generally included another entity in its consolidated financial statements only if it controlled the entity through voting interests. FIN 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the expected losses from the variable interest entity’s activities or is entitled to receive a majority of the entity’s expected residual returns. FIN 46 applied immediately to all variable interest entities created after January 31, 2003 and is effective no later than the first interim or annual period ending after December 15, 2003 for variable interest entities created prior to February 1, 2003.

	•		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, Puerto Rico and Argentina.

	•		Continued strong demand for new housing in many of our markets, geographic and product mix shifts, and benefits from the ongoing initiatives to leverage construction costs throughout the operations drove pre-tax income of our homebuilding business segment to increase 46% and 36%, respectively. Domestic average unit selling prices increased 9% and 8%, respectively. Such factors combined to drive domestic homebuilding settlement gross margin percentages up 120 basis points and 140 basis points, respectively.

	•		Pre-tax income of our financial services business segment decreased 30% and increased 8%, respectively. During the three months ended September 30, 2003, increased volume was offset by the impact of a less favorable interest rate environment and an increase in overhead costs necessary for the continued growth of these operations. The nine-month period continued to benefit from the favorable interest rate environment experienced during the first six months of the year. The increase in volume was driven in large part by an increase in the capture rate to 83% for both the three and nine-month periods.

	•		Higher net interest expense, combined with a gain on the sale of commercial property recognized in the prior year, resulted in an increase in pre-tax loss of our corporate business segment for both periods.

	•		Domestic Homebuilding - We conduct our Domestic Homebuilding operations in 44 markets located throughout 26 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, Puerto Rico and Argentina. International Homebuilding product offerings focus on the demand of first-time buyers and middle-to-upper income consumer groups.