SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

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

Commission File Number 1-9804

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PULTE HOMES, INC.

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

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of class)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ NO o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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

Aggregate market value of voting stock held by nonaffiliates of the registrant as of June 30, 2004: $5,478,360,450
Number of shares of common stock outstanding as of February 28, 2005: 128,789,362

Documents Incorporated by Reference

Applicable portions of the Proxy Statement for the 2005 Annual Meeting of Shareholders are incorporated by reference in Part III of this Form.

Website Access to Company Reports, Codes and Charters

Our internet website address is www.pulte.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to section 13(a) or 15(d) of the Exchange Act are available free of charge through our website as soon as reasonably practicable after we electronically file with or furnish them to the Securities and Exchange Commission. Our code of ethics for principal officers, our corporate governance guidelines and the charters of the Audit, Compensation, and Nominating and Governance committees of our Board of Directors, are also posted on our website and are available in print upon request.

 

PULTE HOMES, INC.
TABLE OF CONTENTS

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PART I

ITEM 1. BUSINESS

Pulte Homes, Inc.

     Pulte Homes, Inc. is a publicly held holding company whose subsidiaries engage in the homebuilding and financial services businesses. Our assets consist principally of the capital stock of our subsidiaries and our income primarily consists of dividends from our subsidiaries. Our direct subsidiaries include Pulte Diversified Companies, Inc., Del Webb Corporation (“Del Webb”) and other subsidiaries engaged in the homebuilding business. Pulte Diversified Companies, Inc.’s operating subsidiaries include Pulte Home Corporation, Pulte International Corporation (“International”) and other subsidiaries engaged in the homebuilding business. Pulte Diversified Companies, Inc.’s non-operating thrift subsidiary, First Heights Bank, fsb (“First Heights”), is classified as a discontinued operation (see Note 3 of Notes to Consolidated Financial Statements). We also have a mortgage banking company, Pulte Mortgage LLC (“Pulte Mortgage”), which is a subsidiary of Pulte Home Corporation.

     In January 2005, we sold all of our Argentina operations. At December 31, 2004, the Argentina operations have been classified as held for sale and presented as discontinued operations. (See Note 3 of Notes to Consolidated Financial Statements).

     We have two reportable business segments, Homebuilding and Financial Services, and one non-operating segment, Corporate.

     The Homebuilding segment consists of the following two business units:

	•	Domestic Homebuilding, our core business, is engaged in the acquisition and development of land principally for residential purposes within the continental United States and the construction of housing on such land targeted for the first-time, first and second move-up, and active adult home buyers.
	•	International Homebuilding is primarily engaged in the acquisition and development of land principally for residential purposes, and the construction of housing on such land in Mexico and Puerto Rico.

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

     Corporate is a non-operating segment that supports the operations of our subsidiaries by acting as the internal source of financing, developing and implementing strategic initiatives centered on new business development and operating efficiencies, and providing the administrative support associated with being a publicly traded entity listed on the New York Stock Exchange.

     Financial information, including revenue, pre-tax income and total assets of each of our business segments is included in Note 2 of Notes to Consolidated Financial Statements.

3

Homebuilding Operations

Note: Homebuilding settlement revenues of affiliates, not included in the table above, for the years ended December 31, 2004 through 2000 were $72,126, $32,511, $40,723, $180,621 and $148,798, respectively. Homebuilding unit settlements of affiliates, not included in the table above, for the years ended December 31, 2004 through 2000 were 250, 149, 1,022, 7,258 and 7,718, respectively.

Domestic Homebuilding

     Consistent with our strategy of serving all major customer segments: first-time, first and second move-up and active adult, our communities offer a wide variety of home designs including single family detached, townhouses, condominiums and duplexes at different prices and with varying levels of options and amenities. Expanding the number of customer segments served within each of our markets has enabled us to approximately double our annual closings over the past five years to a record 38,612 homes closed in 2004. Over our 54-year history, we have delivered more than 408,000 homes throughout the United States.

     On July 31, 2001, we merged with Del Webb in a tax-free stock-for-stock transaction. Del Webb was primarily a homebuilder with operations in seven states. For the fiscal year ended June 30, 2001, Del Webb reported net income of $91.2 million on revenues of $1.9 billion and 7,038 unit settlements. Backlog reported at June 30, 2001, was 3,682 units valued at approximately $994 million. This merger expanded and supported our leadership position. In particular, we believe the merger strengthened our position among active adult (age 55 and older) homebuyers, added important strategic land positions, provided operational savings from economies of scale, bolstered our purchasing leverage, and enhanced our overall competitive position. In accordance with our operational strategy, we will continue to evaluate available strategic acquisition opportunities that are consistent with our long-range goals.

     As of December 31, 2004, our Domestic Homebuilding operations offered homes for sale in 626 communities at sales prices ranging from $62,000 to $3.2 million. Sales prices of homes currently offered for sale in 70% of our communities fall within the range of $100,000 to $350,000 with a 2004 average unit selling price of $287,000, compared with $259,000 in 2003, $242,000 in 2002, $225,000 in 2001 and $206,000 in 2000. Sales of single-family detached homes, as a percentage of total unit sales, were 80% in 2004, compared with 83% in 2003, 86% in 2002, and 82% in 2001 and 2000. Our Domestic Homebuilding operations are geographically diverse and, as a result, better insulate us from demand changes in individual markets. As of December 31, 2004, our Domestic Homebuilding business operated in 45 markets spanning 27 states.

     As of December 31, 2004, our Domestic Homebuilding operations had 15,916 units in backlog valued at approximately $5.2 billion.

International Homebuilding

     Our International Homebuilding operations are principally conducted through subsidiaries of International in Mexico and Puerto Rico. International Homebuilding product offerings focus on the demand of first-time buyers and middle-to-upper income consumer groups. Effective January 1, 2002, International reorganized its structure within Mexico to create a single company, Pulte Mexico S. de R.L. de C.V., 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 S. de R.L. de C.V. and have consolidated Pulte Mexico S. de R.L. de C.V. into our financial statements. In accordance with the terms of a reorganization agreement dated as of December 31, 2001, the minority shareholders notified us in January 2005 of their intent to exercise a put option to sell their shares back to us, the consummation of which would result in the our owning 100% of Pulte Mexico S. de R.L. de C.V. We believe that this transaction will not have a material impact on our results of operations, financial position or cash flows.

     We are currently in the process of evaluating various long-term strategic alternatives with regard to our International operations.

4

Homebuilding Operations (continued)

Land acquisition and development

     We select locations for development of homebuilding communities after completing extensive market research, enabling us to match the location and product offering with our targeted consumer group. We consider factors such as proximity to developed areas, population and job growth patterns and, if applicable, estimated development costs. We historically have managed the risk of controlling our land positions through use of option contracts and outright acquisition. We typically control land with the intent to complete sales of housing units within 24 to 36 months from the date of opening a community, except in the case of certain Del Webb active adult developments and other selected large projects for which the completion of community build out requires a longer time period due to typically larger project sizes. As a result, land is generally purchased after it is properly zoned and developed or is ready for development. In addition, we dispose of owned land not required in the business through sales to appropriate end users. Where we develop land, we engage directly in many phases of the development process, including land and site planning, obtaining environmental and other regulatory approvals, as well as constructing roads, sewers, water and drainage facilities and other amenities. We use our staff and the services of independent engineers and consultants for land development activities. Land development work is performed primarily by independent contractors and local government authorities who construct sewer and water systems in some areas. At December 31, 2004, we controlled approximately 343,000 lots, of which 158,000 were owned and 185,000 were under option agreements.

Sales and marketing

     We are dedicated to improving the quality and value of our domestic homes through innovative proprietary architectural and community designs and state-of-the-art customer marketing techniques. Analyzing various qualitative and quantitative data obtained through extensive market research, we segment our potential customers into well-defined buyer profiles. Segmentation analysis provides a method for understanding the business opportunities and risks across the full spectrum of consumer groups in each market. Once the demands of potential buyers are understood, we link our home design and community development efforts to the specific lifestyle of each targeted consumer group.

     To meet the demands of our various domestic customers, we have established a solid design expertise for a wide array of product lines. We believe that we are an innovator in the design of our homes and we view design capacity as an integral aspect of our marketing strategy. Our in-house architectural services teams and management, supplemented by outside consultants, are successful in creating distinctive design features, both in exterior facades and interior options and features. In certain markets our strategy is to offer “the complete house” in which all features shown in the home are included in the sales price. Standard features typically offered include vaulted ceilings, appliances, and a variety of available flooring and carpet.

     Typically, our domestic sales teams, together with outside sales brokers, are responsible for guiding the customer through the sales process. We are committed to industry-leading customer service through a variety of quality initiatives, including the customer care program, which ensures that homeowners are comfortable at every stage of the building process. Using a seven-step, interactive process, homeowners are kept informed during their homebuilding and home owning experience. The steps include (1) a pre-construction meeting with the superintendent; (2) pre-dry wall frame walk; (3) quality assurance inspection; (4) first homeowner orientation; (5) 30-day follow-up after the close of the home; (6) three-month follow-up; and (7) an 11-month quality list after the close of the home. Fully furnished and landscaped model homes are used to showcase our homes and their distinctive design features. We have great success with the first-time buyer in the low to moderate price range; in such cases, financing under United States Government-insured and guaranteed programs is often used and is facilitated through our mortgage company. We also enjoy strong sales to the move-up buyer and, in certain markets, offer semi-custom homes in higher price ranges.

     As a result of the Del Webb merger, we are better able to address the needs of active adults, among the fastest growing homebuying segments. We offer both destination communities and “in place” communities, for those buyers who prefer to remain in their current geographic area. These communities, with highly amenitized products such as golf courses, recreational centers and educational classes, offer the active adult buyer many options to maintain an active lifestyle.

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Homebuilding Operations (continued)

Sales and marketing (continued)

     We have received recognition and awards as a result of our achievements as a homebuilder. In 2004, the Environmental Protection Agency named Pulte as an ENERGY STAR Partner of the Year. Pulte was also named as a Top-Ranked Homebuilder in BusinessWeek’s List of 50 Best Performers among the S&P 500, coming in at number 11. We were number 78 on the Fortune 100 Fastest-Growing Companies list. Pulte was the recipient of the inauguaral J.D. Power and Associates Platinum Award for customer satisfaction, and was the winner of the first National Housing Quality “Gold Award”.

     In addition, our Charlotte, Dallas/Ft. Worth, Detroit, Ft. Myers/Naples, Houston, Jacksonville, Las Vegas, Minneapolis/St. Paul, Orlando, Palm Beach, Philadelphia, Tampa, Tucson, and Washington, D.C. markets were recognized for ranking the highest in their markets in a national customer satisfaction study. Nine of our markets came in second place, while six obtained third place positions. The survey of twenty-five U. S. markets (with Pulte presence in twenty-four of those markets) noted customer service, home readiness at the time of closing, and the company’s sales staff as the three factors that most heavily influenced the customer’s overall level of satisfaction. Developing the Pulte Homes brand and leveraging the strength of the “DiVosta,” “Del Webb” and “Sun City” tradenames helps to distinguish our communities from the competition, and can often be rewarded with the advantages of additional sales pace, choice community locations, and reduced overall customer acquisition costs.

     Our Homeowner for Life^TM philosophy has increased our business from those who have previously owned a Pulte home or have been referred by a Pulte homeowner by ensuring a positive home buying and home owning experience. We introduce our homes to prospective buyers through a variety of media advertising, illustrated brochures, Internet listings and link placements, and other advertising displays. In addition, our websites, www.pulte.com, www.delwebb.com, www.divosta.com, and www.espanol.pulte.com provide tools to help users find a home that meets their needs, investigate financing alternatives, communicate moving plans, maintain a home, learn more about us and communicate directly with us. Approximately 3.5 million potential customers visited our websites during 2004.

     Our international sales and marketing efforts focus on the identification of underserved market demand, with strong emphasis on quality initiatives and customer service. In Mexico, where our product is focused largely on social interest housing, sales and marketing efforts target areas experiencing population and employment growth.

Construction

     The construction process for our domestic homes begins with the in-house design of the homes we sell. The building phase is conducted under the supervision of our on-site construction superintendents. The construction work is usually performed by independent contractors under contracts that, in many instances, cover both labor and materials on a fixed-price basis. We believe that Pulte Preferred Partnerships (P³), an extension of our quality assurance program, continues to establish new standards for contractor relations. Using a selective process, we have teamed up with what we believe are premier contractors and suppliers to improve all aspects of the land development and house construction processes.

     We maintain efficient construction operations by using standard materials and components from a variety of sources and, when possible, by building on contiguous lots. To minimize the effects of changes in construction costs, the contracting and purchasing of building supplies and materials generally is negotiated at or near the time when related sales contracts are signed. In addition, we leverage our size by actively negotiating our materials needs on a national or regional basis to minimize production component cost. We are also working to establish a more integrated system that can effectively link suppliers, contractors and the production schedule through various strategic business partnerships and e-business initiatives.

     Housing in Mexico and Puerto Rico consists primarily of reinforced poured concrete, concrete block and/or brick construction with flat roofs and public water, electric and sanitary system connections. Building materials, supplies and components are sourced locally and the construction work is performed by general contractors and/or independent contractors, which in many cases include both labor and materials.

     We cannot determine the extent to which necessary building materials will be available at reasonable prices in the future and have, on occasion, experienced shortages of skilled labor in certain trades and of building materials in some markets.

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Homebuilding Operations (continued)

Competition and other factors

     Our dedication to customer satisfaction is evidenced by our consumer and value-based brand approach to product development, and is something that we believe distinguishes us in the homebuilding industry and contributes to our long-term competitive advantage. The housing industry in the United States, however, is highly competitive. In each of our market areas, there are numerous homebuilders with which we compete. We also compete with the resales of existing house inventory. Any provider of housing units, for-sale or to rent, including apartment builders, may be considered a competitor. Conversion of apartments to condominiums further provides certain segments of the population an alternative to traditional housing, as does manufactured housing. We compete primarily on the basis of price, reputation, design, location and quality of our homes. The housing industry is affected by a number of economic and other factors including: (1) significant national and world events, which impact consumer confidence; (2) changes in the costs of building materials and labor; (3) changes in interest rates; (4) changes in other costs associated with home ownership, such as property taxes and energy costs; (5) various demographic factors; (6) changes in federal income tax laws; (7) changes in government mortgage financing programs, and (8) availability of sufficient mortgage capacity. In addition to these factors, our business and operations could be affected by shifts in demand for new homes.

     Our operations are subject to building, environmental and other regulations of various federal, state, local and foreign governing authorities. For our homes to qualify for Federal Housing Administration (“FHA”) or Veterans Administration (“VA”) mortgages, we must satisfy valuation standards and site, material and construction requirements of those agencies. Our compliance with federal, state, local and foreign laws relating to protection of the environment has had, to date, no material effect upon capital expenditures, earnings or competitive position. More stringent requirements could be imposed in the future on homebuilders and developers, thereby increasing the cost of compliance.

Financial Services Operations

     We conduct our financial services business, which includes mortgage and title operations, through Pulte Mortgage and other subsidiaries.

Mortgage banking

     Our mortgage bank arranges financing through the origination of mortgage loans primarily for the benefit of our domestic homebuyers, but also services the general public. We also engage in the sale of such loans and the related servicing rights. We are a lender approved by the FHA and VA and are a seller/servicer approved by Government National Mortgage Association (“GNMA”), Federal National Mortgage Association (“FNMA”), Federal Home Loan Mortgage Corporation (“FHLMC”) and other investors. In our conventional mortgage lending activities we follow underwriting guidelines established by FNMA and FHLMC.

     Our mortgage underwriting, processing and closing functions are centralized in Denver, Colorado using a mortgage operations center (“MOC”) concept. We also use a centralized telephone loan officer concept where loan officers are centrally located at a mortgage application center (“MAC”) in Denver. Our sales representatives, who are the mortgage customers’ main contact, forward the loan applications to a MAC loan counselor who calls the customer to complete the loan application and then forwards it to the MOC for processing. We believe both the MOC and the MAC improve the speed and efficiency of our mortgage operations, thereby improving our profitability and allowing us to focus on creating attractive mortgage financing opportunities for our customers.

     In originating mortgage loans, we initially use our own funds and borrowings made available to us through various credit arrangements. Subsequently, we sell such mortgage loans and mortgage-backed securities to outside investors.

     Our capture rate for the years ended December 31, 2004, 2003, and 2002 was approximately 88%, 83% and 78%, respectively. Our capture rate represents loan originations from our homebuilding business as a percent of total loan opportunities, excluding cash settlements, from our homebuilding business. During the years ended December 31, 2004, 2003 and 2002, we originated mortgage loans for approximately 84%, 73% and 68%, respectively, of the homes we sold domestically. Such originations represented 92%, 83% and 85%, respectively, of our originations.

     We sell our servicing rights on a flow basis through fixed price servicing sales contracts to reduce the risks inherent in servicing loans. This strategy results in owning the servicing rights for only a short period of time, generally less than four months after the loan is originated, which substantially reduces the risk of impairment with respect to the fair value of these reported assets. The servicing sales contracts provide for the reimbursement of payments made when loans prepay within specified periods of time, usually 90 days after sale or securitization.

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Financial Services Operations (continued)

Mortgage banking (continued)

     The mortgage industry in the United States is highly competitive. We compete with other mortgage companies and financial institutions to provide attractive mortgage financing to both our homebuyers and to the general public. The Internet is also an important resource for homebuyers in obtaining financing as a number of companies provide online approval for their customers. These Internet-based mortgage companies may also be considered competitors.

     In originating and servicing mortgage loans, we are subject to rules and regulations of the FHA, VA, GNMA, FNMA and FHLMC. In addition to being affected by changes in these programs, our mortgage banking business is also affected by several of the same factors that impact our homebuilding business.

Discontinued operations

First Heights

     During the first quarter of 1994, we adopted a plan of disposal for First Heights and announced our strategy to exit the thrift industry and increase our focus on housing and related mortgage banking. First Heights sold all but one of its 32 bank branches and related deposits to two unrelated purchasers. The sale was substantially completed during the fourth quarter of 1994. Although we expected to complete the plan of disposal within a reasonable period of time, contractual disputes precluded us from completing the disposal in accordance with our original plan.

     First Heights’ day-to-day activities are principally devoted to supporting residual regulatory compliance matters and the litigation with the United States government, discussed in Item 3, and are not reflective of the active operations of the former thrift, such as maintaining traditional transaction accounts (e.g., checking and savings accounts) or making loans. Accordingly, such operations are presented as discontinued.

Argentina

     In January 2005, we sold all of our Argentina operations to an Argentine company involved in residential and commercial real estate development. The disposition of these operations was the chosen action to improve our overall returns. At December 31, 2004, the Argentina operations have been classified as held for sale and presented as discontinued operations in the consolidated financial statements. Previously, the Argentina operations were included in the Homebuilding segment. Total assets to be disposed of at December 31, 2004 were $15.4 million, consisting primarily of cash and inventories. Total liabilities to be disposed of at December 31, 2004 were $13.7 million and consisted primarily of accounts payable and other accrued liabilities.

Corporate

     Corporate is a non-operating segment that is comprised primarily of Pulte Homes, Inc. and Pulte Diversified Companies, Inc., both of which are holding companies. The primary purpose of Corporate is to support the operations of our subsidiaries by acting as the internal source of financing, developing and implementing strategic initiatives centered around new business development and operating efficiencies. Business development activities include the pursuit of additional domestic and international opportunities as well as the development of innovative building components and processes. Corporate also includes the activities associated with supporting a publicly traded entity listed on the New York Stock Exchange.

     Corporate assets include equity investments in its subsidiaries, short-term financial instruments and affiliate advances. Liabilities include senior and subordinated debt and income taxes. Corporate revenues consist primarily of investment earnings of excess funds, while its expenses include costs associated with supporting a publicly traded company and its subsidiaries’ operations, and investigating strategic initiatives.

Organization/Employees

     All subsidiaries and operating units operate independently with respect to daily operations. Homebuilding real estate purchases and other significant homebuilding, mortgage banking, financing activities and similar operating decisions must be approved by the business unit and/or corporate senior management.

     At December 31, 2004, we employed approximately 13,000 people. Our employees are not represented by any union. Contracted work, however, may be performed by union contractors. Homebuilding and mortgage banking management personnel are paid performance bonuses and incentive compensation. Performance bonuses are based on individual performance while incentive compensation is based on the performance of the applicable business unit or subsidiary. Our corporate management personnel are paid incentive compensation based on our overall performance. Each subsidiary is given autonomy regarding employment of personnel, although our senior corporate management acts in an advisory capacity in the employment of subsidiary officers. We consider our employee and contractor relations to be satisfactory.

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ITEM 2. PROPERTIES

     Our homebuilding and corporate headquarters are located at 100 Bloomfield Hills Parkway, Bloomfield Hills, Michigan 48304, where we lease 81,740 square feet of office space. We lease 54,380 square feet of office space at 1230 West Washington Street, Tempe, Arizona 85281 for certain corporate and business services. Pulte Mortgage’s offices are located at 7475 South Joliet Street, Englewood, Colorado 80112, 99 Inverness Drive East, Englewood, Colorado 80112, and 12300 East Arapahoe Road, Centennial, Colorado 80112. We lease approximately 61,436 square feet, 24,400 square feet and 43,050 square feet, respectively, of office space at these locations. Our homebuilding markets and mortgage branch operations generally lease office space for their day-to-day operations. First Heights’ administrative office is located in 550 square feet of leased space at 2010 North Loop West, Suite 105, Houston, Texas 77018.

     Because of the nature of our homebuilding operations, significant amounts of property are held as inventory in the ordinary course of our homebuilding business. Such properties are not included in response to this Item.

ITEM 3. LEGAL PROCEEDINGS

     We are involved in various litigation incidental to our continuing business operations. We believe that none of this litigation will have a material adverse impact on our results of operations, financial position or cash flows.

Storm Water Discharge Practices

     In April 2004, we received a request for information from the United States Environmental Protection Agency (“EPA”) pursuant to Section 308 of the Clean Water Act. The request seeks information about storm water discharge practices in connection with homebuilding projects completed or underway by us. We have provided the EPA with this information. Although the matter has since been referred to the United States Department of Justice (“DOJ”) for enforcement, the EPA has asked that we engage in “pre-filing” negotiations to resolve the matter short of litigation. We are actively engaged in these negotiations. If the negotiations fail and the DOJ alleges that we have violated regulatory requirements applicable to storm water discharges, the government may seek injunctive relief and penalties. We believe that we have defenses to any such allegations. At this time, however, we can neither predict the outcome of this inquiry, nor can we currently estimate the costs that may be associated with its eventual resolution.

First Heights-related litigation

     We are a party to a lawsuit relating to First Heights’ 1988 acquisition from the Federal Savings and Loan Insurance Corporation (“FSLIC”) and First Heights’ ownership of five failed Texas thrifts. The lawsuit (the Court of Federal Claims Case) was filed on December 26, 1996, in the United States Court of Federal Claims (Washington, D.C.) by Pulte Homes, Inc., Pulte Diversified Companies, Inc. and First Heights (collectively, the Pulte Parties) against the United States.

     In the Court of Federal Claims Case, the Pulte Parties assert breaches of contract on the part of the United States in connection with the enactment of Section 13224 of the Omnibus Budget Reconciliation Act of 1993 (“OBRA”). That provision repealed portions of the tax benefits that the Pulte Parties claim they were entitled to under the contract to acquire the failed Texas thrifts. The Pulte Parties also assert other claims concerning the contract, including that the United States (through the FDIC as receiver) improperly attempted to amend the failed thrifts’ pre-acquisition tax returns and that this attempt was made in an effort to deprive the Pulte Parties of tax benefits for which they had contracted.

     On August 17, 2001, the United States Court of Federal Claims ruled that the United States government is liable to the Pulte Parties for breach of contract by enacting Section 13224 of OBRA. In September 2003, the United States Court of Federal Claims issued final judgment that the Pulte Parties had been damaged by approximately $48.7 million as a result of the United States government’s breach of contract with them. The United States government and the Pulte Parties appealed the final judgment to the United States Court of Appeals for the Federal Circuit in October 2003. Accordingly, any gain related to this litigation will be recognized only upon final resolution.

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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     This Item is not applicable.

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

     Set forth below is certain information with respect to our executive officers.

     The following is a brief account of the business experience of each officer during the past five years:

     Mr. Pulte was appointed Chairman of the Board in December 2001. He has also served as Chairman of the Executive Committee of the Board of Directors since January 1999.

     Mr. Dugas was appointed President and Chief Executive Officer in July 2003. Prior to that date, he served as Executive Vice President and Chief Operating Officer. He was appointed Chief Operating Officer in May 2002 and Executive Vice President in December 2002. Since 1994, he has served in a variety of management positions. Most recently, he was Coastal Region President with responsibility for our Georgia, North Carolina, South Carolina, and Tennessee operations.

     Mr. Petruska was appointed Executive Vice President and Chief Operating Officer in January 2004. Since joining our company in 1984, he has held a number of management positions. Most recently, he was the President for both the Arizona Area and Nevada Area operations.

     Mr. Cregg was appointed Executive Vice President in May 2003 and was named Chief Financial Officer effective January 1998.

     Mr. Sherbin was appointed Vice President, General Counsel and Secretary in January 2005. Before joining the Company, Mr. Sherbin was Senior Vice President, General Counsel and Secretary at Federal-Mogul Corporation since 1997.

     Mr. Frees has been Vice President and Controller since May 1995.

     Mr. Nelson has been Vice President and Assistant Secretary since August 1993.

     Mr. Robinson has been Vice President and Treasurer since July 1998.

     There is no family relationship between any of the officers. Each officer serves at the pleasure of the Board of Directors.

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     To date, we issued 208,000 shares of common stock under an equity plan, which had been approved by shareholders, but not registered with the Securities and Exchange Commission. We filed a Form S-8 Registration Statement on March 9, 2005 for the Pulte Homes, Inc. 2002 Stock Incentive Plan, which has been incorporated by reference as Exhibit 10(m).

     The table below, which has been adjusted to retroactively reflect our two-for-one stock split announced December 11, 2003 and effected January 2, 2004, sets forth, for the quarterly periods indicated, the range of high and low closing prices and cash dividends declared per share.

		2004												2003
										Declared												Declared
		High				Low				Dividends				High				Low				Dividends
1st Quarter		$	58.15			$	40.00			$	.05			$	26.59			$	22.73			$	.02
2nd Quarter			56.50				44.75				.05				35.99				24.66				.02
3rd Quarter			64.07				48.87				.05				34.88				28.98				.02
4th Quarter			65.00				47.46				.05				49.42				33.73				.05

		Years Ended December 31,
		($000’s omitted)
		2004				2003				2002				2001(a)				2000
OPERATING DATA:
Homebuilding:
Revenues		$	11,596,748			$	8,892,786			$	7,338,110			$	5,300,173			$	4,195,675
Income before income taxes		$	1,643,793			$	1,005,124			$	724,369			$	519,187			$	387,149
Financial Services:
Revenues		$	112,719			$	115,847			$	106,628			$	77,222			$	50,669
Income before income taxes		$	47,429			$	68,846			$	66,723			$	36,948			$	24,788
Corporate:
Revenues		$	1,749			$	3,281			$	1,202			$	2,210			$	633
Loss before income taxes		$	(90,685	)		$	(75,351	)		$	(61,968	)		$	(57,452	)		$	(56,296	)
Consolidated results:
Revenues		$	11,711,216			$	9,011,914			$	7,445,940			$	5,379,605			$	4,246,977
Income from continuing operations before income taxes		$	1,600,537			$	998,619			$	729,124			$	498,683			$	355,641
Income taxes			602,529				379,376				284,339				192,017				136,922
Income from continuing operations			998,008				619,243				444,785				306,666				218,719
Income (loss) from discontinued operations (b)			(11,467	)			5,391				8,860				(5,273	)			(30,206	)
Net income		$	986,541			$	624,634			$	453,645			$	301,393			$	188,513

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(a)		Del Webb operations were merged effective July 31, 2001.
(b)		In January 2005, the Company sold all of its Argentina operations. At December 31, 2004, the Argentina operations have been classified as held for sale and presented as discontinued operations in the consolidated financial statements (see Note 3 of Notes to Consolidated Financial Statements). All prior periods have been reclassified to conform to the 2004 presentation.

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(a)		Total net new orders-units for the years ended December 31, 2003 and 2001, do not include 1,051 units and 3,953 units, respectively, of acquired backlog.
(b)		Domestic homebuilding interest expense, which represents the amortization of capitalized interest, is included as part of homebuilding cost of sales.
(c)		Homebuilding unit settlements of affiliates, not included in the table above, for the years ended December 31, 2004 through 2000 were 250, 149, 1,022, 7,258 and 7,718, respectively.

12

ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

     A summary of our operating results by business segment for the years ended December 31, 2004, 2003, and 2002 is as follows ($000’s omitted, except per share data):

Key financial highlights and events for the years ended December 31, 2004, 2003, and 2002 are as follows:

Homebuilding Operations

	•	Continued strong demand for new homes in many of our markets, market share gains, geographic and product mix shifts, average unit selling price increases and benefits from the ongoing initiatives to simplify processes and leverage construction costs throughout the operations contributed to increases in pre-tax income of our homebuilding business segment. Pre-tax income increased 64% for the year ended December 31, 2004, compared with the same period in the prior year. Pre-tax income increased 39% in 2003, compared to the year ended December 31, 2002.
	•	Domestic homebuilding settlement gross margin percentages were up approximately 200 basis points to 22.6% for the year ended December 31, 2004 and 120 basis points to 20.6% for the year ended December 31, 2003, respectively, compared with the same periods in the prior years.
	•	Units in backlog increased to a record 15,916 units, valued at $5.2 billion at December 31, 2004, compared with 13,952 units, valued at $4.1 billion at December 31, 2003. There were 10,605 units in backlog at December 31, 2002 valued at $2.9 billion. The increase in backlog is primarily attributed to continued strong demand for new homes in many of our markets.
	•	During the third quarter of 2004, we were impacted by hurricanes in the southeastern United States. In addition, during October 2004, we lowered pricing in Las Vegas to better align pricing in our communities with the market.
	•	In January 2005, we sold all of our Argentina operations. At December 31, 2004, the Argentina operations have been classified as held for sale and presented as discontinued operations.

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Overview (continued)

     Financial Services Operations

•

Mortgage origination units, origination principal and our capture rate increased during 2004 compared with 2003, and during 2003 compared with 2002. Pre-tax income for the year ended December 31, 2004 decreased 31% compared with 2003 due to a shift in our product mix, starting in the second half of 2003, toward adjustable rate mortgages (“ARMs”) versus fixed rate mortgages due to changes in customer mortgage product preference. Pre-tax income of our financial services business segment increased 3% from 2002 in 2003, driven by an increase in loan originations and a higher capture rate tempered by product mix changes and a less favorable interest rate environment during the last half of the year.

     Corporate

•

Pre-tax loss of our non-operating Corporate segment increased 20% in 2004 to $90.7 million and in 2003, pre-tax loss increased 22% from 2002. During 2004, net interest expense increased due to higher debt levels as a result of our growth. Other corporate expenses, net in 2004 were impacted by increased charitable contributions expense. In addition, income recognized during 2003 and 2002 from the sale and adjustment to fair value of various non-operating parcels of commercial land held for sale did not recur in 2004, resulting in higher net expense. During 2003, other corporate expenses, net increased due principally to higher compensation-related costs.

Homebuilding Operations

     Our Homebuilding segment consists of the following operations:

	•	Domestic Homebuilding - We conduct our Domestic Homebuilding operations in 45 markets located throughout 27 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 International Corporation (International) in Mexico and Puerto Rico. International focuses on the demand of first-time buyers and middle-to-upper income consumer groups. We are currently in the process of evaluating various long-term strategic alternatives with regard to our International operations.

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

Note:	Homebuilding revenues of affiliates, not included in the table above, for the years ended December 31, 2004 through 2002 were $72,126, $32,511, and $40,723, respectively. Homebuilding unit settlements of affiliates, not included in the table above, for the years ended December 31, 2004 through 2002 were 250, 149, and 1,022, respectively.

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Homebuilding Operations (continued)

Domestic Homebuilding

     The Domestic Homebuilding operations represent our core business. We conduct our operations in 45 markets, located throughout 27 states, presented geographically as follows:

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

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(a)

Net new orders for the year ended December 31, 2003 do not include 1,051 units of acquired backlog and the related dollars.

     Continued strong demand for new homes, supported by a favorable interest rate environment, an increase in the number of active communities and market share expansion, drove increases in net new orders, unit settlements and unit backlog. Net new orders increased 16% to a record 40,576 units, for the year ended December 31, 2004. Net new orders for the year ended December 31, 2003 increased 13% to 34,989 units compared with 30,830 units for the year ended December 31, 2002

     Home settlements set a record for the year ended December 31, 2004 at 38,612 units, an increase of 18% over the same period in 2003. In 2003, home settlements also reached a record high, increasing 13% to 32,693 units. Active communities increased from 460 in 2002 to 535 in 2003 to 626 in 2004.

15

Homebuilding Operations (continued)

     Changes in average selling price reflect a number of factors, including price increases, the mix of product closed during a period and the number of options purchased by customers. The average selling price for our homes increased 11% for the year ended December 31, 2004, to $287,000 compared with 2003 and increased to $259,000 in 2003 from $242,000 in 2002. The most significant price increases for both 2004 and 2003 were in the West, Northeast and Florida in the Southeast geographic areas.

     Ending backlog, which represents orders for homes that have not yet closed, grew to a record 15,916 units at December 31, 2004 compared with 13,952 units at December 31, 2003 and 10,605 units at December 31, 2002. The dollar value of our backlog was up 24% to $5.2 billion at December 31, 2004, compared with $4.1 billion at December 31, 2003 and $2.9 billion at December 31, 2002. Our most significant increases at December 31, 2004, occurred in the Southeast and West, which had unit increases of 42% and 10% respectively. At December 31, 2003, compared with December 31, 2002, strong demand resulted in significant increases in backlog for all geographic areas of the country except the Midwest.

     As announced on October 4, 2004, we lowered pricing in Las Vegas to better align pricing in our communities with pricing in the market. This action was in response to a period of slow sign-ups and increased cancellation rates, which we attributed to our then above-market pricing. However, since the price reductions took effect in October of 2004, our communities in Las Vegas have experienced improved traffic and new order activity. Las Vegas backlog totaled 883 units, with a value of $379 million at December 31, 2004, which represented 6% and 7% of total domestic homebuilding units and dollars, respectively. At December 31, 2003, Las Vegas backlog totaled 1,770 units, with a value of $627.6 million, which represented 13% and 15% of total domestic homebuilding units and dollars, respectively.

     During August and September of 2004 four hurricanes occurred throughout Florida and the southeastern areas of the United States. We sustained minimal property damage, but did experience delayed home settlements and incurred additional overhead expenses related to lost workdays and cleanup efforts undertaken as a result of the hurricanes. Further, the impact of the storms delayed the opening of several new communities and resulted in shortages of building materials in some Florida markets.

     The West contributed the largest portion of our operating activities, compared with the other geographic areas in the domestic homebuilding operations, representing 37% of unit net new orders and unit settlements for the year ended December 31, 2004 compared with 35% of settlements and 37% of net new orders during 2003, and 32% of settlements and 33% of net new orders during 2002. The West contributed the largest portion of our backlog, compared with other geographic areas in the domestic homebuilding operations, representing 43%, 44% and 38% of the total domestic homebuilding backlog units at December 31, 2004, 2003 and 2002, respectively.

     The following table presents markets that represent 10% or more of unit new orders, unit settlements, and settlement revenues for the years ended December 31, 2004, 2003 and 2002:

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*

Represents less than 10%.

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Homebuilding Operations (continued)

     At December 31, 2004 and 2003, our Domestic Homebuilding operations controlled approximately 343,400 and 256,900 lots, respectively. Approximately 158,000 and 120,400 lots were owned, and approximately 125,800 and 66,000 lots were under option agreements approved for purchase at December 31, 2004 and 2003, respectively. In addition, there were approximately 59,600 lots under option agreements at December 31, 2004, pending approval, that are under review and evaluation for future use by our Domestic Homebuilding operations. This compared to 70,500 lots at December 31, 2003.

     The total purchase price applicable to approved land under option for use by our homebuilding operations at future dates approximated $4.1 billion at December 31, 2004. In addition, total purchase price applicable to land under option pending approval was valued at $2.4 billion at December 31, 2004. Land option agreements, which may be cancelled at our discretion, may extend over several years and are secured by deposits and advanced costs totaling $327.6 million, which are generally non-refundable.

     The following table presents a summary of pre-tax income for our Domestic Homebuilding operations ($000’s omitted):

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*

Domestic homebuilding interest expense, which represents the amortization of capitalized interest, is included as part of homebuilding cost of sales.

     Homebuilding gross profit margins from home sales in 2004 increased 200 basis points over 2003 to 22.6%, and in 2003 increased 120 basis points to 20.6% compared with 2002. The increases are due to strong consumer demand, positive home pricing, favorable shifts in product and geographic mix, the benefits of leverage-buy purchasing activities and effective production and inventory management.

     We consider land acquisition one of our core competencies. We acquire land primarily for the construction of our homes for sale to homebuyers. We will often sell select parcels of land within or adjacent to our communities to retail and commercial establishments. We also will, on occasion, sell lots within our communities to other homebuilders. Gross profits from land sales were $99.8 million and $65.9 million for the years ended December 31, 2004 and 2003, respectively, representing increases of $33.9 million and $12.9 million, respectively, from the previous years totals. Revenues and their related gains/losses may vary significantly between periods, depending on the timing of land sales. We continue to evaluate our existing land positions to ensure the most effective use of capital. Included in other assets is approximately $230.1 million in land held for disposition as of December 31, 2004, as compared to $251.2 million and $218.8 million at December 31, 2003 and 2002, respectively.

     For the year ended December 31, 2004, selling, general and administrative expenses, as a percentage of home settlement revenues, decreased 90 basis points to 8.8% compared with 2003 after increasing 20 basis points to 9.7% in 2003 compared with 2002. The improvement in 2004 can be attributed to greater leverage as a result of volume increases and the favorable pricing environment for our homes. The increase in 2003 is principally attributable to costs associated with the realignment of our field operations and organizations to meet the challenge and opportunity for future growth.

     Equity income for 2004 includes earnings from our 50% investment in a joint venture that supplies and installs basic building components and operating systems, acquired in January 2004, and two Nevada-based joint ventures, related to the sale of commercial and residential properties. Equity income for 2003 primarily includes earnings from the two Nevada-based joint ventures.

     Other income (expense), net includes the write-off of deposits and pre-acquisition costs resulting from decisions not to pursue certain land acquisitions and options, insurance-related expenses and settlements and other non-operating expenses. For the year ended December 31, 2004, the increase in expense is due to larger write-offs of deposit and pre-acquisition costs, as we continue to evaluate potential land acquitions for the most effective use of capital.

17

Homebuilding Operations (continued)

International Homebuilding

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

     The following table presents selected financial data for our International Homebuilding operations for the years ended December 31, 2004, 2003 and 2002 ($000’s omitted)*:

Note:	Homebuilding unit settlements of affiliates, not included in the table above, for the years ended December 31, 2004, 2003, and 2002 were 250, 149, and 1,022, respectively.

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     International unit settlements for the years ended December 31, 2004 and 2003, increased 12% and 9%, respectively. International revenues for the years ended December 31, 2004 and 2003 increased 3% and 12%, respectively, over the prior year periods. Revenues increased for both years primarily due to increased unit closings in Mexico. Our operations in Puerto Rico have experienced decreased unit closings and revenue as more of our business there has shifted to joint venture affiliates.

     The higher proportion of unit settlements derived from Mexico, coupled with a higher percentage of those closings coming from economic housing, which is the lowest price point served in Mexico, had a negative impact on gross margins in 2004 compared with 2003. Gross margins decreased approximately 100 basis points to 19.2% for the year ended December 31, 2004. For the year ended December 31, 2003, gross margins were 20.2%, an increase of 50 basis points compared with 2002, due to favorable product and geographic mix shifts in Mexico.

     Selling, general and administrative expenses as a percent of revenue decreased by 340 basis points to 14.5% in 2004 from 17.9% in 2003 and 17.3% in 2002. The increase from 2002 to 2003 was driven primarily by reorganization costs incurred during the restructuring of our operations in Mexico in an effort to enhance future profitability while the improvement in 2004 reflects the benefits of the restructuring actions.

     Our operations in Mexico are affected by fluctuations in currency rates for that country. Transaction gains and losses for the years ended December 31, 2004, 2003 and 2002, classified as other income (expense), net, were not significant. For the years ended December 31, 2004 and 2003, we recorded a foreign currency translation gain of $781 thousand and a loss of $5.9 million, respectively, for Mexico, as a component of accumulated other comprehensive income on the balance sheet. For the year ended December 31, 2002, we recorded a foreign currency translation gain of $8.6 million for Mexico. At December 31, 2004, our investment in Puerto Rico and Mexico, net of accumulated foreign currency translation adjustments, approximated $28.8 million, and $72.2 million, respectively.

18

Financial Services Operations

     We conduct our financial services business, which includes mortgage and title operations, through Pulte Mortgage and other subsidiaries.

     We sell our servicing rights on a flow basis through fixed price servicing sales contracts. Due to the short period of time the servicing rights are held, generally less than four months, we do not amortize the servicing asset. Since the servicing rights are recorded based on the value in the servicing sales contracts, there are no impairment issues related to these assets. We also originate mortgage loans using our own funds or borrowings made available through various credit arrangements, and then sell such mortgage loans to outside investors.

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

     Pre-tax income of our financial services operations was $47.4 million, $68.8 million and $66.7 million for the years ended December 31, 2004, 2003 and 2002, respectively.

     Mortgage origination unit and principal volume for the year ended December 31, 2004, increased 23% and 35%, respectively, over 2003. Mortgage origination unit and principal volume for the year ended December 31, 2003, increased 24% and 32%, respectively, over 2002. This growth can be attributed to increases in the capture rate of 510 basis points to 87.8% in 2004 and 510 basis points to 82.7% in 2003, combined with the volume increases experienced in our homebuilding business and an increase in average loan size. Our capture rate represents loan originations from our homebuilding business as a percent of total loan opportunities, excluding cash settlements, from our homebuilding business. Our domestic homebuilding customers continue to account for the majority of total loan production, representing 92% of Pulte Mortgage unit production for 2004, compared with 83% in 2003 and 85% in 2002.

     Adjustable rate mortgages (ARMs) represented 43% of total funded origination dollars and 42% of total funded origination units for the year ended December 31, 2004, compared with 24% and 22%, respectively, in 2003 and 16% and 13%, respectively, in 2002. Refinancings represented 3% of total loan production in 2004, compared with 8% in both 2003 and 2002.

     At December 31, 2004, loan application backlog was $3.5 billion, compared with $2.2 billion and $1.4 billion at December 31, 2003 and 2002, respectively.

     Pre-tax income decreased 31% for the year ended December 31, 2004, compared with 2003, as increased volume was offset by changes in product mix to ARMs, which generally have a lower profit per loan than fixed rate products. The shift to ARMs is attributable to customer mortgage product preference. In addition, in 2004, 36% of total originations were brokered loans, which are less profitable to us, compared with 16% in 2003. Mortgage origination fees increased to $20.5 million for the year ended December 31, 2004, compared with $7.5 million in 2003, due to the increase in brokered loans. Gains from the sale of mortgages during 2004 decreased $14.1 million, or 22%, from $64.4 million in 2003, and net interest income decreased $5.5 million, to $9.7 million during 2004 as compared with $15.1 million in 2003. These decreases were due to the product mix shifts and an unfavorable interest rate environment in 2004 compared with 2003. Income from our title operations was $17.6 million in 2004, an increase of 30% over 2003. Our minority interest in Su Casita, a Mexican mortgage banking company, contributed income of $4 million for the year ended December 31, 2004, compared with $4.4 million in 2003. Selling, general and administrative expense for the year ended December 31, 2004, increased 41% to $57.5 million compared with 2003 due to increased origination volume.

     Pre-tax income for the year ended December 31, 2003, increased 3% to $68.8 million, as a result of increased volume, partially offset by a less favorable interest rate environment for selling loans during the last six months of the year and an increase in training, systems, and facilities costs incurred in anticipation of the projected growth of the business. Gains from the sale of mortgages increased $2.0 million, or 3%, from the same period in 2002. As compared with 2002, net interest income increased $3.8 million to $15.1 million during 2003 due to increased production. Title income grew 11% contributing $13.5 million to pre-tax income for the year.

19

Financial Services Operations (continued)

     We hedge portions of our forecasted cash flow from sales of closed mortgage loans with derivative financial instruments. For the year ended December 31, 2004, we did not recognize any material net gains or losses related to an ineffective portion of the hedging instrument. We also did not recognize any material net gains or losses during 2004 for cash flow hedges that were discontinued because it is probable that the original forecasted transaction will not occur. At December 31, 2004, we expect to reclassify $138 thousand, net of taxes, of net gains on derivative instruments from accumulated other comprehensive income to earnings during the next twelve months from sales of closed mortgage loans.

Corporate

     Corporate is a non-operating segment that supports the operations of our subsidiaries by acting as the internal source of financing, developing and implementing strategic initiatives centered on new business development and operating efficiencies, and providing the necessary 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 year to year as these strategic initiatives evolve.

     The following table presents this segment’s results of operations ($000’s omitted):

     Interest expense, net of interest capitalized into inventory, increased 20% to $47.4 million in 2004 and 3% to $39.4 million in 2003. This trend is a result of an increase in debt levels necessary to support our growth. Interest incurred for the years ended December 31, 2004, 2003, and 2002, excluding interest incurred by our financial services operations, was approximately $205.2 million, $179 million and $162.5 million, respectively.

     The increase in other corporate expenses, net for the year ended December 31, 2004, compared with the prior year was partially due to increased charitable contributions. Additionally, during 2003 and 2002, we recognized income from the sale and adjustment to fair value of various non-operating parcels of commercial land held for sale. Other corporate expense, net in 2003 increased $12.2 million compared with 2002 principally as a result of higher compensation-related costs.

     Interest capitalized into inventory is charged to home cost of sales based on the cyclical timing of our unit settlements, over a period that approximates the average life cycle of our communities. Interest in inventory, has increased primarily as a result of higher levels of indebtedness and the addition of the Del Webb properties, which have a longer life cycle. Information related to Corporate interest capitalized into inventory is as follows ($000’s omitted):

20

Discontinued Operations

     First Heights - During the third quarter of 2004, 2003 and 2002, we recorded non-cash, after-tax gains of $10.8 million, $7.9 million and $10 million, respectively, related to the favorable resolution of certain tax matters relating to our thrift operation, First Heights Bank, fsb (First Heights), which we discontinued in 1994.

     In September 2003, the United States Court of Federal Claims issued final judgment that Pulte Homes, Inc., Pulte Diversified Companies, Inc. and First Heights (collectively, the Pulte Parties) had been damaged by approximately $48.7 million as a result of the United States government’s breach of contract with them. The final judgment follows the Court’s August 17, 2001 ruling that the United States breached the contract related to the Pulte Parties’ 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 Pulte Parties filed Notices of Appeal with the United States Court of Appeals for the Federal Circuit in October 2003. Accordingly, any gain related to this litigation will be recognized only upon final resolution.

     Argentina — In January 2005, we sold all of our Argentina operations to an Argentine company involved in residential and commercial real estate development. The disposition of these operations was the chosen action to improve our overall returns. At December 31, 2004, the Argentina operations have been classified as held for sale and presented as discontinued operations in the consolidated financial statements. Previously, the Argentina operations were included in the Homebuilding segment.

     For the years ended December 31, 2004, 2003, and 2002, discontinued Argentine operations reported pre-tax losses of $1.4 million, $1.9 million, and $200 thousand, respectively. In addition, we recognized a pre-tax loss of $33.2 million ($20.6 million after-tax) on the write-down of the Argentina operations to fair value less costs to sell.

     Our operations in Argentina are affected by fluctuations in currency rates. At December 31, 2004, foreign currency translation losses of $25.1 million, which were previously recorded as a component of accumulated other comprehensive income on the balance sheet, were recognized in the income statement in connection with the classification of these operations as held for sale. These were included in the pre-tax loss of $33.2 million on the write-down to fair value. For the year ended December 31, 2003, we recorded a foreign currency translation gain of $1.9 million for Argentina, as a component of accumulated other comprehensive income on the balance sheet.

     Total assets to be disposed of at December 31, 2004 were $15.4 million, consisting primarily of cash and inventories. Total liabilities to be disposed of at December 31, 2004 were $13.7 million and consisted primarily of accounts payable and other accrued liabilities.

21

Liquidity and Capital Resources

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

     At December 31, 2004, we had cash and equivalents of $314.6 million and $2.9 billion of senior notes outstanding. Other financing included limited recourse collateralized financing totaling $81.9 million. Sources of our working capital include our cash and equivalents, our $1.31 billion committed unsecured revolving credit facility and Pulte Mortgage’s $940 million committed credit arrangements.

     Our debt-to-total capitalization, excluding our collateralized debt, was approximately 38.8% at December 31, 2004, and approximately 36% net of cash and equivalents. We routinely monitor current operational requirements and financial market conditions to evaluate the use of available financing sources, including securities offerings.

     Pulte Mortgage provides mortgage financing for many of our home sales and uses its own funds and borrowings made available pursuant to various committed and uncommitted credit arrangements. At December 31, 2004, Pulte Mortgage had committed credit arrangements of $940 million comprised of a $390 million bank revolving credit facility and a $550 million annual asset-backed commercial paper program.

     Our income tax liability and related effective tax rate are affected by a number of factors. In 2004, our effective tax rate was 37.65% compared to 38% in 2003 and 39% in 2002. The reduction in the effective tax rate for 2004 was principally due to the favorable resolution of certain state tax matters. The reduction in the effective tax rate during 2003 was principally due to a lower than expected effective state income tax rate for 2003 and the shareholders’ approval of our new Senior Management Annual Incentive Plan, which allows full tax deductibility of Plan payments under Section 162(m) of the Internal Revenue Service Code. We anticipate that our effective tax rate for 2005 will be approximately 38%.

     Our net cash used in operating activities for the year ended December 31, 2004, amounted to $698.3 million, compared with $331.3 million for the year ended December 31, 2003. The increases in net income for both years were offset primarily by significant investments in land necessary to support the continued growth of the business. Our net cash provided by operating activities for the year ended December 31, 2002, was $158.8 million. The increase in net income was aided by the realization of certain tax benefits and an increase in accrued liabilities, while inventories continued to build to support the growth of the business.

     Cash used in investing activities was $198.6 million for the year ended December 31, 2004, compared with $4.3 million in the prior year. The change in net cash used in investing activities primarily relates to our investments in unconsolidated entities. During January 2004, we invested $35 million for a 50% ownership interest in an entity that supplies and installs basic building components and operating systems. During 2004, we invested approximately $117.8 million in three new joint ventures that develop and/or sell land within the United States. Also, we contributed $44.2 million of additional capital contributions to and received $66.1 million in distributions from our unconsolidated joint ventures for the year ended December 31, 2004. Further, we incurred approximately $75.2 million in capital expenditures to support the growth of our business. Net cash provided by investing activities was $12.1 million in 2002.

     Net cash provided by financing activities totaled $809.6 million for the year ended December 31, 2004. Cash inflows from financing activities for the year ended December 31, 2004 are primarily attributed to proceeds received from our $500 million, 5.25% senior notes issued in January 2004 and our $400 million, 4.875% senior notes issued in July 2004, and $44 million of cash received from the exercise of stock options. Cash outflows from financing activities for the year ended December 31, 2004 primarily relate to the repayment of our $112 million, 8.375% senior notes in August 2004, redemption of the remaining $77 million of Del Webb 10.25% senior subordinated notes in February 2004, approximately $25.4 million of cash dividends paid to our shareholders, $44.9 million used to repay borrowings, and $14.7 million used to repurchase our common stock.

     Net cash provided by financing activities for the year ended December 31, 2003, was $128.9 million, reflecting proceeds from the $300 million senior notes issued in February and the $400 million senior notes issued in May and proceeds from employee stock option exercises, offset by the repayment of debt, dividends paid and stock repurchases.

     Net cash provided by financing activities for the year ended December 31, 2002, was $374 million, reflecting proceeds from the $300 million senior notes issued in June 2002, proceeds from borrowings under our various credit facilities and proceeds from employee stock option exercises, offset by the repayment of debt, dividends paid and stock repurchases.

22

Liquidity and Capital Resources (continued)

     Our $125 million, 7.3% unsecured senior notes are due in 2005. We anticipate repaying these notes in 2005 by issuing new unsecured senior notes and/or using cash provided by operations.

     In September 2004, we restructured and amended the 5-year unsecured revolving credit facility, increasing the borrowing availability from $850 million to $1.31 billion, extending the maturity date from September 30, 2008 to September 15, 2009, with pricing more favorable to the Company. The credit facility includes an uncommitted accordion feature, under which the credit facility may be increased to $1.5 billion. The Company has the capacity to issue letters of credit up to $750 million. Borrowing availability is reduced by the amount of letters of credit outstanding. The credit facility contains restrictive covenants, the most restrictive of which requires the Company not to exceed a debt-to-total capitalization ratio of 50% as defined in the agreement. We had no outstanding borrowings under this unsecured revolving credit facility at December 31, 2004.

     In September 2004, Pulte Mortgage amended its commercial paper conduit, which increased a sub-limit for eligible collateral, eliminated the $50 million quarterly accordion feature, and made pricing more favorable to Pulte Mortgage. The commercial paper conduit is a $550 million committed line of credit. We had outstanding borrowings of $525 million under the commercial paper conduit at December 31, 2004.

     In July 2004, we expanded the capacity on Pulte Mortgage’s revolving credit facility from $355 million to $390 million. The revolving credit facility contains restrictive covenants, the most restrictive of which requires Pulte Mortgage to maintain a minimum tangible net worth of $30 million and adjusted liabilities cannot exceed 12 times adjusted net worth. There were approximately $91.2 million of borrowings outstanding under Pulte Mortgage’s revolving credit facility at December 31, 2004. 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 July 2004, we sold $400 million of 4.875% senior notes, which mature on July 15, 2009 and are guaranteed by Pulte Homes, Inc. and certain of its 100%-owned subsidiaries. These notes are unsecured and rank equally with all of our other unsecured and unsubordinated indebtedness. Proceeds from this offering were used for the repayment of expiring notes due on August 15, 2004 of approximately $112 million and for general corporate purposes, including continued investment in our business.

     In January 2004, we sold $500 million of 5.25% senior notes, which mature on January 15, 2014 and are guaranteed by Pulte Homes, Inc. and certain of its 100%-owned subsidiaries. These notes are unsecured and rank equally with all of our other unsecured and unsubordinated indebtedness. Proceeds from the sale were used to retire the $77 million outstanding Del Webb 10.25% senior subordinated notes and for general corporate purposes, including continued investment in our business.

     At December 31, 2004, we had $600 million remaining under our current mixed security shelf registration. Subsequent to December 31, 2004, we sold $350 million of 5.2% senior notes, which mature on February 15, 2015, and $300 million of 6% senior notes, which mature on February 15, 2035, which are guaranteed by Pulte Homes, Inc. and certain of its 100%-owned subsidiaries. These notes are unsecured and rank equally with all of our other unsecured and unsubordinated indebtedness. Proceeds from the sale were used to repay the indebtedness of our revolving credit facility and for general corporate purposes, including continued investment in our business.

     At December 31, 2004, we had remaining authorization to purchase common stock aggregating $62.8 million, pursuant to our $100 million share repurchase program. As of December 31, 2004, we have repurchased a total of 1,256,400 shares for a total of $37.2 million.

     In December 2003, we increased our dividend 150% to $.05 per share from $.02 per share, effective for the fourth quarter of 2003. There was no change to our dividend rate during 2004.

Inflation

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

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Contractual Obligations and Commercial Commitments

     The following table summarizes our payments under contractual obligations as of December 31, 2004:

---

	(a)		Represents our senior notes and subordinated notes and related interest payments
	(b)		Represents our limited recourse collateralized financing arrangements and related interest payments

     The following table summarizes our other commercial commitments as of December 31, 2004:

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	(a)		Includes capacity to issue up to $750 million in standby letters of credit of which $316.1 million was outstanding at December 31, 2004.
	(b)		Excludes standby letters of credit issued under the Guarantor revolving credit facilities.

Off-Balance Sheet Arrangements

     We use standby letters of credit and performance bonds to guarantee our performance under various contracts, principally in connection with the development of our projects. The expiration dates of the letter of credit contracts coincide with the expected completion date of the related projects. If the obligations related to a project are ongoing, annual extensions of the letters of credit are typically granted on a year-to-year basis. At December 31, 2004, we had outstanding letters of credit of $356 million. Performance bonds do not have stated expiration dates; rather, we are released from the bonds as the contractual performance is completed. These bonds, which approximated $1.49 billion at December 31, 2004, are typically outstanding over a period that approximates 3-5 years. We do not believe that we will be required to draw upon any such letters of credit or performance bonds.

     In the ordinary course of business, we enter into land option or option type agreements in order to procure land for the construction of houses in the future. At December 31, 2004, these agreements totaled approximately $6.5 billion. Pursuant to these land option agreements, we provide a deposit to the seller as consideration for the right to purchase land at different times in the future, usually at predetermined prices. If the entity holding the land under option is a variable interest entity, our deposit represents a variable interest in that entity. At December 31, 2004, we consolidated certain variable interest entities with assets totaling $106.4 million.

     At December 31, 2004 and 2003, our unconsolidated joint ventures had outstanding debt of $58.1 million and $72.6 million, respectively. We have not guaranteed any of this outstanding indebtedness.

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Critical Accounting Policies and Estimates

     The accompanying consolidated financial statements were prepared in conformity with United States generally accepted accounting principles. When more than one accounting principle, or the method of its application, is generally accepted, we select the principle or method that is appropriate in our specific circumstances (see Note 1 of Notes to Consolidated Financial Statements). Application of these accounting principles requires us to make estimates about the future resolution of existing uncertainties; as a result, actual results could differ from these estimates. In preparing these consolidated financial statements, we have made our best estimates and judgments of the amounts and disclosures included in the consolidated financial statements, giving due regard to materiality. The development and selection of the following critical accounting policies and estimates have been discussed with the Audit Committee of the Board of Directors.

Revenue recognition

     Homebuilding – Homebuilding revenues are recorded when the sales of homes are completed and ownership has transferred to the customer. Unfunded settlements are deposits in transit on homes for which the sale was completed. We do not engage in arrangements whereby we have ongoing relationships with our homebuyers that require us to repurchase our homes or provide homebuyers with the right of return.

     Financial Services – Mortgage servicing fees represent fees earned for servicing loans for various investors. Servicing fees are based on a contractual percentage of the outstanding principal balance, or a contracted set fee in the case of certain sub-servicing, and are credited to income when related mortgage payments are received. Loan origination fees, commitment fees and certain direct loan origination costs are deferred as an adjustment to the cost of the related mortgage loan until such loan is sold. Gains and losses from sales of mortgage loans are recognized when the loans are sold. Interest income is accrued from the date a mortgage loan is originated until the loan is sold.

Inventory valuation

     Our finished inventories are stated at the lower of accumulated costs or net realizable value. Included in inventories are all direct development costs. Inventories under development or held for development are stated at accumulated cost, unless they are determined to be impaired, in which case these inventories are measured at fair value. If actual market conditions are less favorable than those projected by management, additional inventory adjustments may be required.

     We capitalize interest cost into homebuilding inventories. Interest capitalized each quarter is identified as a separate layer in our capitalized interest balance sheet pool. Each layer of capitalized interest is amortized over a period that approximates the average life of communities under development. Interest expense is allocated to the quarters over the amortization period based on the cyclical timing of unit settlements.

     Sold units are expensed on a specific identification basis. Under the specific identification basis, cost of sales includes the construction cost of the home, an average lot cost by project based on land acquisition and development costs, and closing costs and commissions. Construction cost of the home includes amounts paid through the closing date of the home, plus an accrual for costs incurred but not yet paid, based on an analysis of budgeted construction cost. This accrual is reviewed for accuracy based on actual payments made after closing compared to the amount accrued, and adjustments are made if needed. Total project land acquisition and development costs are based on an analysis of budgeted costs compared to actual costs incurred to date and estimates to complete. Adjustments to estimated total project land acquisition and development costs for the project affect the amount of future lots costed.

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Critical Accounting Policies and Estimates (continued)

Residential mortgage loans available-for-sale

     Residential mortgage loans available-for-sale are stated at the lower of aggregate cost or market value. Gains and losses from sales of mortgage loans are recognized when the loans are sold. We hedge our residential mortgage loans available-for-sale. Gains and losses from closed commitments and futures contracts are matched against the related gains and losses on the sale of mortgage loans.

Goodwill and intangible assets

     We have recorded certain intangible assets and goodwill, most recently as a result of the Del Webb merger in 2001. Intangible assets, primarily trademarks and tradenames, were valued using proven valuation procedures and are amortized over their estimated useful life. Goodwill is subject to annual impairment testing. The carrying value and ultimate realization of these assets is dependent upon estimates of future earnings and benefits that we expect to generate from their use. If our expectations of future results and cash flows decrease significantly, intangible assets and goodwill may be impaired and the resulting charge to operations may be material. If we determine that the carrying value of intangible assets, long-lived assets and goodwill may not be recoverable based upon the existence of one or more indicators of impairment, we measure impairment based on one of three methods. For assets related to ongoing operations, we use a projected undiscounted cash flow method to determine if impairment exists and then measure impairment using discounted cash flows. For assets to be disposed of, we assess the fair value of the asset based on current market conditions for similar assets. For goodwill, we assess fair value by measuring discounted cash flows of our reporting units and measure impairment as the difference between the resulting implied fair value of goodwill and the recorded book value.

     The estimates of useful lives and expected cash flows require us to make significant judgments regarding future periods that are subject to some factors outside of our control. Changes in these estimates could result in significant revisions to the carrying value of these assets and material charges to the results of operations.

Allowance for warranties

     Home purchasers are provided with warranties against certain building defects. The specific terms and conditions of those warranties vary geographically. Most warranties cover different aspects of the home’s construction and operating systems for a period of up to ten years. We estimate the costs to be incurred under these warranties and record a liability in the amount of such costs at the time product revenue is recognized. Factors that affect our warranty liability include the number of homes sold, historical and anticipated rates of warranty claims, and cost per claim. We periodically assess the adequacy of recorded warranty liabilities and adjust the amounts as necessary. Although we have not made significant adjustments to the accrual in the past, actual warranty cost in the future could differ from our current estimate.

Insurance

     The Company has, and requires the majority of its subcontractors to have general liability and workers compensation insurance. These insurance policies protect the Company against a portion of its risk of loss from claims, subject to certain self-insured retentions, deductibles, and other coverage limits. The Company reserves for costs to cover its self-insured and deductible amount under those policies and for any costs of claims and lawsuits in excess of its coverage limits or not covered by such policies, based on an analysis of the Company’s historical claims, which includes an estimate of claims incurred but not yet reported. The Company’s total reserves for such items were $115.6 million and $81.1 million at December 31, 2004 and 2003, respectively. Expenses related to such claims were approximately $58.4 million, $40.9 million, and $25.8 million for the years ended December 31, 2004, 2003, and 2002, respectively.

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 Statement of Financial Accounting Standards (“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 recognize compensation expense on an accelerated basis over the vesting period based on the fair value provisions of SFAS No. 123. Grants made prior to January 1, 2003 continue to be accounted for under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. With the exception of certain variable stock option grants, no stock-based employee compensation cost is reflected in net income for grants made prior to January 1, 2003, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of the grant.

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Critical Accounting Policies and Estimates (continued)

Stock-based compensation (continued)

     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.

     On December 15, 2004, the Financial Accounting Standards Board issued SFAS No. 123(R), Share-Based Payment, which amends SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123(R) requires that all share-based payments to employees, including grants of employee stock options, be accounted for at fair value. The pro forma disclosures previously permitted under SFAS No. 123 no longer will be an alternative to financial statement recognition. Under SFAS No. 123(R), we must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at date of adoption. We previously adopted the fair-value-based method of accounting for share-based payments under SFAS No. 123 effective January 1, 2003 using the prospective method described in SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure. Currently, we use the Black-Scholes model to estimate the value of stock options granted to employees and we are considering the preferred lattice model. Because SFAS No. 123(R) must be applied not only to new awards but to previously granted awards that are not fully vested on the effective date, and because we adopted SFAS No. 123 using the prospective transition method (which applied only to awards granted, modified or settled after the adoption date), compensation cost for some previously granted awards that were not recognized under SFAS No. 123 will be recognized under SFAS No. 123(R). SFAS No. 123(R) also amends SFAS No. 95, Statement of Cash Flows, to require that excess tax benefits be reported as a financing cash inflow rather than as a reduction of taxes paid. As originally issued, SFAS No. 95 required all income tax payments to be classified as operating cash outflows. This statement is effective for fiscal periods beginning after June 15, 2005. We are still evaluating the impact of adopting SFAS No. 123(R).

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We are subject to interest rate risk on our rate-sensitive financing to the extent long-term rates decline. The following tables set forth, as of December 31, 2004 and 2003, our rate-sensitive financing obligations, principal cash flows by scheduled maturity, weighted-average interest rates and estimated fair market value ($000’s omitted).

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     Pulte Mortgage, operating as a mortgage banker, is also subject to interest rate risk. Interest rate risk begins when we commit to lend money to a customer at agreed-upon terms (i.e., commit to lend at a certain interest rate for a certain period of time). The interest rate risk continues through the loan closing and until the loan is sold to an investor. During 2004 and 2003, this period of interest rate exposure averaged approximately 60 days. In periods of rising interest rates, the length of exposure will generally increase due to customers locking in an interest rate sooner as opposed to letting the interest rate float.

     We minimize interest rate risk by (i) financing the loans via a variable rate borrowing agreement tied to the Federal Funds rate and (ii) hedging our loan commitments and closed loans through derivative financial instruments. These financial instruments include cash forward placement contracts on mortgage-backed securities, whole loan investor commitments, options on treasury future contracts and options on cash forward placement contracts on mortgage-backed securities. We do not use any derivative financial instruments for trading purposes.

     Hypothetical changes in the fair values of our financial instruments arising from immediate parallel shifts in long-term mortgage rates of plus 50, 100 and 150 basis points would not be material to our financial results.

     At December 31, 2004, our aggregate net investments exposed to foreign currency exchange rate risk include our operations in Mexico, which approximated $72.2 million, and our mortgage banking joint venture investment in Mexico, which approximated $21.1 million.

SPECIAL NOTES CONCERNING FORWARD-LOOKING STATEMENTS

     As a cautionary note, except for the historical information contained herein, certain matters discussed in Item 7., Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 7A., Quantitative and Qualitative Disclosures About Market Risk, are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Reform Act”).

     Forward-looking statements give current expectations or forecasts of future events. Words such as “anticipate”, “expect”, “intend”, “plan”, “believe”, “seek”, “estimate”, and other words and terms of similar meaning in connection with discussions of future operating or financial performance signify forward-looking statements. From time to time, we also may provide oral or written forward-looking statements in other materials released to the public. Such statements are made in good faith by us pursuant to the “Safe Harbor” provisions of the Reform Act.

     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 our 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) state and federal governmental regulations, 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.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

PULTE HOMES, INC.

See Notes to Consolidated Financial Statements.

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PULTE HOMES, INC.

See Notes to Consolidated Financial Statements.

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