UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2008

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

PULTE HOMES, INC.

(Exact name of registrant as specified in its charter)

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

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

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

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

Large accelerated filer þ            Accelerated filer o                      Non-accelerated filer o                      Smaller reporting company o

                          (Do not check if a smaller reporting company)

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

Number of shares of common stock outstanding as of April 30, 2008: 257,376,131

 

 

PULTE HOMES, INC.

INDEX

		Page No.
PART I  FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Consolidated Balance Sheets at March 31, 2008 and December 31, 2007			3
Consolidated Statements of Operations for the three months ended March 31, 2008 and 2007			4
Consolidated Statements of Shareholders’ Equity for the three months ended March 31, 2008 and 2007			5
Consolidated Statements of Cash Flows for the three months ended March 31, 2008 and 2007			6
Notes to Condensed Consolidated Financial Statements			7
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations			26
Item 3 Quantitative and Qualitative Disclosures About Market Risk			39
Item 4 Controls and Procedures			39
PART II OTHER INFORMATION
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds			40
Item 6 Exhibits			40
SIGNATURES			41
Rule 13a-14(a) Certification by Richard J. Dugas, Jr.
Rule 13a-14(a) Certification by Roger A. Cregg
Certification Pursuant to 18 U.S.C. Section 1350

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

PULTE HOMES, INC.

		March 31,				December 31,
		2008				2007
		(Unaudited)				(Note)
ASSETS
Cash and equivalents		$	1,071,165			$	1,060,311
Unfunded settlements			29,017				38,714
House and land inventory			6,179,847				7,027,511
Land held for sale			324,801				252,563
Land, not owned, under option agreements			19,507				20,838
Residential mortgage loans available-for-sale			284,104				447,089
Investments in unconsolidated entities			109,991				105,479
Other assets			922,786				1,167,292
Deferred income tax assets			105,906				105,906
		$	9,047,124			$	10,225,703
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Accounts payable, including book overdrafts of $139,476 and $185,701 in 2008 and 2007, respectively		$	360,571			$	418,637
Customer deposits			133,227				132,720
Accrued and other liabilities			1,085,123				1,308,554
Collateralized short-term debt, recourse solely to applicable non-guarantor subsidiary assets			257,139				440,611
Income taxes			108,105				126,758
Senior notes			3,478,577				3,478,230
Total liabilities			5,422,742				5,905,510
Shareholders’ equity			3,624,382				4,320,193
		$	9,047,124			$	10,225,703

Note: The condensed consolidated balance sheet at December 31, 2007, has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.

See accompanying Notes to Condensed Consolidated Financial Statements.

PULTE HOMES, INC.

		For the Three Months Ended
		March 31,
		2008				2007
Revenues:
Homebuilding		$	1,398,109			$	1,829,908
Financial Services			43,488				39,581
Other non-operating			7,222				1,944
Total revenues			1,448,819				1,871,433
Expenses:
Homebuilding, principally cost of sales			2,106,955				1,977,274
Financial Services			28,474				26,430
Other non-operating, net			10,192				9,301
Total expenses			2,145,621				2,013,005
Other income:
Equity income (loss)			3,746				(976	)
Loss before income taxes			(693,056	)			(142,548	)
Income taxes (benefit)			3,088				(56,876	)
Net loss		$	(696,144	)		$	(85,672	)
Per share data:
Net loss:
Basic		$	(2.75	)		$	(0.34	)
Assuming dilution		$	(2.75	)		$	(0.34	)
Cash dividends declared		$	0.04			$	0.04
Number of shares used in calculation:
Basic:
Weighted-average common shares outstanding			253,166				251,919
Assuming dilution:
Effect of dilutive securities – stock options and restricted stock grants			—				—
Adjusted weighted-average common shares and effect of dilutive securities			253,166				251,919

See accompanying Notes to Condensed Consolidated Financial Statements.

PULTE HOMES, INC.

										Accumulated
										Other
						Additional				Comprehensive
		Common				Paid-in				Income				Retained
		Stock				Capital				(Loss)				Earnings				Total
Shareholders’ Equity, December 31, 2007		$	2,571			$	1,362,504			$	(4,883	)		$	2,960,001			$	4,320,193
Stock option exercises			—				447				—				—				447
Restricted stock awards			5				(5	)			—				—				—
Cash dividends declared — $0.04 per share-			—				—				(10,295	)			(10,295	)			(10,295	)
Stock repurchases			(2	)			(1,214	)			—				(2,400	)			(3,616	)
Stock-based compensation			—				12,350				—				—				12,350
Comprehensive income (loss):
Net loss			—				—				—				(696,144	)			(696,144	)
Change in fair value of derivatives			—				—				1,090				—				1,090
Foreign currency translation adjustments			—				—				357				—				357
Total comprehensive income (loss)																			(694,697	)
Shareholders’ Equity, March 31, 2008		$	2,574			$	1,374,082			$	(3,436	)		$	2,251,162			$	3,624,382
Shareholders’ Equity, December 31, 2006		$	2,553			$	1,284,687			$	(2,986	)		$	5,293,107			$	6,577,361
Adoption of FASB Interpretation No. 48 (FIN 48)			—				—				—				(31,354	)			(31,354	)
Stock option exercises			3				2,439				—				—				2,442
Tax benefit from stock option exercises and restricted stock vesting			—				3,447				—				—				3,447
Restricted stock awards			5				(5	)			—				—				—
Cash dividends declared — $0.04 per share-							—				—				(10,240	)			(10,240	)
Stock repurchases			(1	)			(686	)			—				(4,075	)			(4,762	)
Stock-based compensation			—				19,150				—				—				19,150
Comprehensive income (loss):
Net loss			—				—				—				(85,672	)			(85,672	)
Change in fair value of derivatives			—				—				(694	)			—				(694	)
Foreign currency translation adjustments			—				—				(155	)			—				(155	)
Total comprehensive income (loss)																			(86,521	)
Shareholders’ Equity, March 31, 2007		$	2,560			$	1,309,032			$	(3,835	)		$	5,161,766			$	6,469,523

See accompanying Notes to Condensed Consolidated Financial Statements.

PULTE HOMES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
($000’s omitted)
(Unaudited)

		For The Three Months Ended
		March 31,
		2008				2007
Cash flows from operating activities:
Net loss		$	(696,144	)		$	(85,672	)
Adjustments to reconcile net loss to net cash flows provided by operating activities:
Write-down of land and deposits and pre-acquisition costs			663,585				132,136
Amortization and depreciation			19,715				21,660
Stock-based compensation expense			12,350				19,150
Deferred income taxes			—				7,644
Equity (income) loss from unconsolidated entities			(3,746	)			976
Distributions of earnings from unconsolidated entities			4,771				69
Other, net			(573	)			433
Increase (decrease) in cash due to:
Inventories			111,502				(184,888	)
Residential mortgage loans available-for-sale			174,569				535,343
Other assets			226,218				120,116
Accounts payable, accrued and other liabilities			(273,743	)			(292,336	)
Income taxes			(18,653	)			(72,496	)
Net cash provided by operating activities			219,851				202,135
Cash flows from investing activities:
Distributions from unconsolidated entities			819				1,899
Investments in unconsolidated entities			(8,067	)			(81,683	)
Proceeds from the sale of fixed assets			2,799				2,419
Increase in loans held for investment			957				—
Capital expenditures			(5,263	)			(16,310	)
Net cash used in investing activities			(8,755	)			(93,675	)
Cash flows from financing activities:
Net repayments under Financial Services credit arrangements			(183,472	)			(528,117	)
Repayment of other borrowings			(3,293	)			(5,438	)
Excess tax benefits from share-based awards			—				3,447
Issuance of common stock			447				2,442
Stock repurchases			(3,616	)			(4,762	)
Dividends paid			(10,295	)			(10,240	)
Net cash used in financing activities			(200,229	)			(542,668	)
Effect of exchange rate changes on cash and equivalents			(13	)			(136	)
Net increase (decrease) in cash and equivalents			10,854				(434,344	)
Cash and equivalents at beginning of period			1,060,311				551,292
Cash and equivalents at end of period		$	1,071,165			$	116,948
Supplemental Cash Flow Information:
Interest paid, net of amounts capitalized		$	23,203			$	28,905
Income taxes paid (refunded), net		$	(183,161	)		$	4,261

See accompanying Notes to Condensed Consolidated Financial Statements.

PULTE HOMES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.

Basis of presentation and significant accounting policies

Basis of presentation

     The consolidated financial statements include the accounts of Pulte Homes, Inc. and all of its direct and indirect subsidiaries (the “Company”) and variable interest entities in which the Company is deemed to be the primary beneficiary. The direct subsidiaries of Pulte Homes, Inc. include Pulte Diversified Companies, Inc., Del Webb Corporation (“Del Webb”) and other subsidiaries that are engaged in the homebuilding business. Pulte Diversified Companies, Inc.’s operating subsidiaries include Pulte Home Corporation and other subsidiaries that are engaged in the homebuilding business. The Company also has a mortgage banking company, Pulte Mortgage LLC (“Pulte Mortgage”), which is a subsidiary of Pulte Home Corporation.

     The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by United States generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008. These financial statements should be read in conjunction with the Company’s consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

Earnings per share

     Basic earnings per share is computed by dividing income available to common shareholders (the “numerator”) by the weighted-average number of common shares, adjusted for non-vested shares of restricted stock (the “denominator”) for the period. Computing diluted earnings per share is similar to computing basic earnings per share, except that the denominator is increased to include the dilutive effects of options and non-vested shares of restricted stock. Any options that have an exercise price greater than the average market price are considered to be anti-dilutive and are excluded from the diluted earnings per share calculation. For the three months ended March 31, 2008 and 2007, all stock options and non-vested restricted stock were excluded from the calculation as they were anti-dilutive due to the net loss recorded during the periods.

Land, not owned, under option agreements

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

     In applying the provisions of FIN 46, the Company evaluated all land option agreements and determined that the Company was subject to a majority of the expected losses or entitled to receive a majority of the expected residual returns under a limited number of these agreements. As the primary beneficiary under these agreements, the Company is required to consolidate variable interest entities at fair value. At March 31, 2008 and December 31, 2007, the Company classified $19.5 million and $20.8 million, respectively, as land, not owned, under option agreements on the balance sheet, representing the fair value of land under contract, including deposits of $382 thousand and $169 thousand, respectively. The corresponding liability has been classified within accrued and other liabilities on the balance sheet.

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

1.

Basis of presentation and significant accounting policies (continued)

Land, not owned, under option agreements (continued)

     Land option agreements that did not require consolidation under FIN 46 at March 31, 2008 and December 31, 2007, had a total purchase price of $1.4 billion and $1.6 billion, respectively. In connection with these agreements, the Company had deposits and other related costs of $224 million and $226 million included in other assets at March 31, 2008 and December 31, 2007, respectively.

Allowance for warranties

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

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

		Three Months Ended
		March 31,
		2008				2007
Allowance for warranties at beginning of period		$	90,917			$	117,260
Warranty reserves provided			3,945				17,170
Payments and other adjustments			(18,472	)			(26,480	)
Allowance for warranties at end of period		$	76,390			$	107,950

Residential mortgage loans available-for-sale

     Prior to January 1, 2008, residential mortgage loans available-for-sale were measured at the lower of aggregate cost or market value. In accordance with SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (SFAS 159), the Company elected the fair value option for its portfolio loans available-for-sale and for first mortgage loans originated subsequent to December 31, 2007. SFAS 159 permits entities to measure various financial instruments and certain other items at fair value on a contract-by-contract basis. Election of the fair value option for residential mortgage loans available-for-sale allows a better offset of the changes in fair values of the loans and the derivative instruments used to economically hedge them without having to apply complex hedge accounting provisions. Fair values for agency loans available-for-sale are determined based on quoted market prices for comparable instruments. Fair values for non-agency loans available-for-sale are determined based on actual purchase commitments from whole loan investors. Portfolio loans available-for-sale had a fair value of $2 million upon adoption of SFAS 159, which had no effect as the loans were previously written down to fair value. At March 31, 2008, residential mortgage loans available-for-sale, all of which were accounted for at fair value, had an aggregate fair value of $284.1 million and an aggregate outstanding principal balance of $277.1 million.

     Interest income on these loans is recorded in Financial Services revenues. The net gain resulting from changes in fair value of these loans totaled approximately $850 thousand during the three months ended March 31, 2008 and was included in Financial Services revenues. These changes in fair value were mostly offset by hedging activities. Loan origination costs related to residential mortgage loans available-for-sale are recognized as incurred in Financial Services expenses while the associated loan origination fees are recognized in Financial Services revenues as earned, generally upon loan closing. Prior to the adoption of SFAS 159, mortgage origination costs and fees related to residential mortgage loans available-for-sale were deferred as an adjustment to the cost of the related loans and recognized as an adjustment to Financial Services revenues upon the sale of such loans.

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

1.

Basis of presentation and significant accounting policies (continued)

Mortgage servicing rights

     The Company sells its servicing rights monthly on a flow basis through fixed price servicing contracts. With the adoption of SEC Staff Accounting Bulletin No. 109, “Written Loan Commitments Recorded at Fair Value Through Earnings” (SAB 109) effective January 1, 2008, the Company recognizes the fair value of its rights to service a mortgage loan as revenue at the time of entering into an interest rate lock loan commitment with a borrower. Prior to January 1, 2008, the fair value of such rights were not recognized until the related loan was sold. Fair value is determined based on values in the Company’s servicing sales contracts.

Fair value disclosures

     Effective January 1, 2008, the Company adopted SFAS 157, “Fair Value Measurements” (SFAS 157), for its financial instruments measured at fair value on a recurring basis. SFAS 157 provides a framework for measuring fair value in generally accepted accounting principles, expands disclosures about fair value measurements, and establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The fair value hierarchy can be summarized as follows:

	Level 1		Fair value determined based on quoted prices in active markets for identical assets or liabilities.
	Level 2		Fair value determined using significant observable inputs, generally either quoted prices in active markets for similar assets or liabilities or quoted prices in markets that are not active.
	Level 3		Fair value determined using significant unobservable inputs, such as pricing models, discounted cash flows, or similar techniques.

     The Company’s financial instruments measured at fair value on a recurring basis are summarized below ($000’s omitted):

		Fair Value				Fair Value at
Financial Instrument		Hierarchy				March 31, 2008
Cash and equivalents		Level 1				$	1,071,165
Mortgage loan commitments		Level 2					5,028
Residential mortgage loans available-for-sale		Level 2					284,104
Forward contracts		Level 2					(3,030	)
Whole loan commitments		Level 2					64
						$	1,357,331

New accounting pronouncements

     Effective January 1, 2008, the Company adopted SEC Staff Accounting Bulletin No. 109, “Written Loan Commitments Recorded at Fair Value Through Earnings” (SAB 109) as well as SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (SFAS 159). SAB 109, which revises and rescinds portions of SAB No. 105, “Application of Accounting Principles to Loan Commitments,” specifically requires that the fair value of interest rate lock loan commitments include the fair value of future servicing rights. SFAS 159 permits entities to measure various financial instruments and certain other items at fair value on a contract-by-contract basis. Under SFAS 159, the Company elected the fair value option for residential mortgage loans available-for-sale originated subsequent to December 31, 2007. These accounting changes increased income before income taxes for the three months ended March 31, 2008 by $6.9 million, which consisted of an increase to Financial Services revenues of $9.5 million offset by an increase to Financial Services expenses of $2.6 million.

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

1.

Basis of presentation and significant accounting policies (continued)

New accounting pronouncements (continued)

     Effective January 1, 2008, the Company adopted SFAS 157, “Fair Value Measurements” (SFAS 157), for its financial instruments measured at fair value on a recurring basis. SFAS 157 provides a framework for measuring fair value in generally accepted accounting principles, expands disclosures about fair value measurements, and establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. See the caption “Fair value disclosures” included in Note 1 for additional information regarding the fair value of certain financial assets and liabilities. The Company will adopt SFAS 157 as of January 1, 2009 for its non-financial assets and liabilities and for its financial assets and liabilities measured at fair value on a non-recurring basis. The Company is currently evaluating the effects that the remaining adoption of SFAS 157 will have on its consolidated financial statements.

     On December 4, 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (SFAS 141R). SFAS 141R modifies the accounting for business combinations and requires, with limited exceptions, the acquirer in a business combination to recognize 100 percent of the assets acquired, liabilities assumed, and any non-controlling interest in the acquired company at the acquisition-date fair value. In addition, SFAS 141R requires the expensing of acquisition-related transaction and restructuring costs, and certain contingent assets and liabilities acquired, as well as contingent consideration, to be recognized at fair value.  SFAS 141R also modifies the accounting for certain acquired income tax assets and liabilities. SFAS 141R is effective for new acquisitions consummated on or after January 1, 2009 and early adoption is not permitted.

     On December 4, 2007, the FASB also issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements” (SFAS 160). SFAS 160 requires all entities to report non-controlling (i.e., minority) interests in subsidiaries as equity in the consolidated financial statements and to account for transactions between an entity and non-controlling owners as equity transactions if the parent retains its controlling financial interest in the subsidiary. SFAS 160 also requires expanded disclosure that distinguishes between the interests of the controlling owners and the interests of the non-controlling owners of a subsidiary. SFAS 160 is effective for the Company beginning on January 1, 2009 and earlier adoption is not permitted. The adoption of SFAS 160 is not expected to have a material impact on the Company’s financial condition and results of operations.

2.

Inventory and land held for sale

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

		March 31,				December 31,
		2008				2007
Homes under construction		$	2,127,981			$	2,115,102
Land under development			2,922,823				3,656,623
Land held for future development			1,129,043				1,255,786
Total		$	6,179,847			$	7,027,511

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

2. Inventory and land held for sale (continued)

     The Company capitalizes interest cost into homebuilding inventories. Each layer of capitalized interest is amortized over a period that approximates the average life of communities under development. Interest expense is allocated over the period based on the cyclical timing of unit settlements. Interest expensed to homebuilding cost of sales for the three months ended March 31, 2008 and 2007 includes $33 million and $5 million, respectively, of capitalized interest related to inventory impairments. Information related to interest capitalized into homebuilding inventory is as follows ($000’s omitted):

		Three Months Ended
		March 31,
		2008				2007
Interest in homebuilding inventory at beginning of period		$	160,598			$	235,596
Interest capitalized into homebuilding inventory			57,445				60,360
Interest expensed to homebuilding cost of sales			(58,492	)			(47,958	)
Interest in homebuilding inventory at end of period		$	159,551			$	247,998
Interest incurred *		$	58,193			$	61,350

Land Valuation Adjustments and Write-Offs

Land and community valuation adjustments

     In accordance with SFAS 144, the Company records valuation adjustments on land inventory and related communities under development when events and circumstances indicate that they may be impaired and when the cash flows estimated to be generated by those assets are less than their carrying amounts. Such indicators include gross margin or sales pace significantly below expectations, construction costs or land development costs significantly in excess of budgeted amounts, significant delays or changes in the planned development for the community, and other known qualitative factors. For communities that are not yet active, a significant additional consideration includes an evaluation of the regulatory environment related to the probability, timing, and cost of obtaining necessary approvals from local municipalities and any potential concessions that may be necessary in order to obtain such approvals. The Company also considers potential changes to the product offerings in a community and any alternative strategies for the land, such as the sale of the land either in whole or in parcels. The weakened market conditions throughout the homebuilding industry have resulted in lower than expected net new orders, revenues, and gross margins and higher than expected cancellation rates. As a result, a portion of the Company’s land inventory and communities under development demonstrated potential impairment indicators and were accordingly tested for impairment. As required by SFAS 144, the Company compared the expected undiscounted cash flows for these communities to their carrying value. For those communities whose carrying values exceeded the expected undiscounted cash flows, the Company calculated the fair value of the community. Impairment charges are required to be recorded if the fair value of the community’s inventory is less than its carrying amount. The Company determined the fair value of the community’s inventory using a discounted cash flow model. These estimated cash flows are significantly impacted by estimates related to expected average selling prices and sale incentives, expected sales paces and cancellation rates, expected land development construction timelines, and anticipated land development, construction, and overhead costs. Such estimates must be made for each individual community and may vary significantly between communities. Due to uncertainties in the estimation process, the significant volatility in demand for new housing, and the long life cycles of many communities, actual results could differ significantly from such estimates. The Company’s determination of fair value also requires discounting the estimated cash flows at a rate commensurate with the inherent risks associated with each of the assets and related estimated cash flow streams. The discount rate used in determining each community’s fair value depends on the stage of development of the community and other specific factors that increase or decrease the inherent risks associated with the community’s cash flow streams. For example,

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

2. Inventory and land held for sale (continued)

Land Valuation Adjustments and Write-Offs (continued)

Land and community valuation adjustments (continued)

communities that are entitled and near completion will generally require a lower discount rate than communities that are not entitled and consist of multiple phases spanning several years of development and construction activity.

     The table below provides, as of the date indicated, the number of communities in which the Company recognized impairment charges, the fair value of those communities at such date (net of impairment charges), and the amount of impairment charges recognized ($ in millions).

2008

2007

Fair Value of

Fair Value of

Communities

Communities

Number of

Impaired, Net

Number of

Impaired, Net

Communities

of Impairment

Impairment

Communities

of Impairment

Impairment

Quarter Ended

Impaired

Charges

Charges

Impaired

Charges

Charges

March 31

150

$

597.8

$

598.8

35

$

161.9

$

62.4

     The Company recorded these valuation adjustments in its consolidated statements of operations within homebuilding expense. During the three months ended March 31, 2008, the Company reviewed all of its land positions for potential impairment indicators and performed detailed impairment calculations for approximately 200 communities that showed signs of potential impairment. The discount rate used in the Company’s determination of fair value for the impaired communities ranged from 8% to 19%, with an aggregate average of 13%. In the event that market conditions or the Company’s operations deteriorate in the future or the current difficult market conditions extend beyond the Company’s expectations, additional impairments may be necessary in the future.

Net realizable value adjustments — land held for sale

     In accordance with SFAS 144, the Company values long-lived assets held for sale at the lower of carrying amount or fair value less costs to sell. The Company records these net realizable value adjustments in its consolidated statements of operations within homebuilding expense. As a result of changing market conditions in the homebuilding industry, a portion of the Company’s land held for sale was written down to net realizable value. During the three months ended March 31, 2008 and 2007, the Company recognized net realizable value adjustments related to land held for sale of $64.5 million and $18.3 million, respectively. The Company’s land held for sale balance at March 31, 2008 and December 31, 2007 was as follows ($000’s omitted):

		2008				2007
Land held for sale, gross		$	517,868			$	347,758
Net realizable value reserves			(193,067	)			(95,195	)
Land held for sale, net		$	324,801			$	252,563

Write-off of deposits and other related costs

     From time to time, the Company writes off certain deposits and other costs related to land option contracts the Company no longer plans to pursue. Such decisions take into consideration changes in national and local market conditions, the willingness of land sellers to modify terms of the related purchase agreement, the availability and best use of necessary capital, and other factors. The Company wrote off deposits and other related costs in the amount of $277 thousand and $51.5 million during the three months ended March 31, 2008 and 2007, respectively. The Company records these write-offs of deposits and other related costs in its consolidated statements of operations within homebuilding expense.

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

3.

Segment information

     The Company’s Homebuilding operating segments are engaged in the acquisition and development of land primarily for residential purposes within the continental United States and the construction of housing on such land targeted for first-time, first and second move-up, and active adult home buyers.

     The Company has determined that its Homebuilding operating segments are its Areas, which are aggregated into seven reportable segments based on similarities in the economic and geographic characteristics of the Company’s homebuilding operations. Accordingly, the Company’s reportable Homebuilding segments are as follows:

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

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

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

     Each reportable segment generally follows the same accounting policies described in Note 1 — “Summary of Significant Accounting Policies” to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

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

3. Segment information (continued)

		Operating Data by Segment ($000’s omitted)
		Three Months Ended
		March 31,
		2008				2007
Revenues:
Northeast		$	162,092			$	163,672
Southeast			212,132				229,315
Florida			180,844				302,297
Midwest			167,764				196,196
Central			112,958				167,852
Southwest			353,301				454,846
California			209,018				315,730
Total Homebuilding revenues			1,398,109				1,829,908
Financial Services			43,488				39,581
Corporate and unallocated (a)			7,222				1,944
Consolidated revenues		$	1,448,819			$	1,871,433
Income (loss) before income taxes:
Northeast		$	(53,649	)		$	(32,924	)
Southeast			(228	)			13,908
Florida			(159,451	)			1,461
Midwest			(15,891	)			(65,844	)
Central			2,344				(10,594	)
Southwest			(298,163	)			11,668
California			(100,634	)			(6,944	)
Financial Services (b)			15,044				13,195
Corporate and unallocated (c)			(82,428	)			(66,474	)
Consolidated loss before income taxes (d)		$	(693,056	)		$	(142,548	)

(a)		Corporate and unallocated includes interest income earned from short-term investments of cash and equivalents.
(b)		Financial Services income before income taxes includes interest expense of $1.9 million and $4.6 million and interest income of $3.1 million and $6.2 million for the three months ended March 31, 2008 and 2007, respectively.
(c)		Corporate and unallocated includes amortization of capitalized interest of $58.5 million and $48 million for the three months ended March 31, 2008 and 2007, respectively, and shared services that benefit all operating segments, the costs of which are not allocated to the operating segments reported above.
(d)		Consolidated loss before income taxes includes selling, general and administrative expenses of $238 million and $311.8 million for the three months ended March 31, 2008 and 2007, respectively.

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

3.

Segment information (continued)

		Valuation Adjustments and Write-Offs by Segment ($000’s omitted)
		Three Months Ended
		March 31,
		2008				2007
Land and community valuation adjustments:
Northeast		$	25,154			$	—
Southeast			10,838				—
Florida			139,920				2,365
Midwest			12,256				35,580
Central			—				11,642
Southwest			277,574				—
California			100,079				7,786
Corporate and unallocated (a)			32,964				5,000
Total valuation adjustments		$	598,785			$	62,373
Net realizable value adjustments (NRV) — land held for sale:
Northeast		$	26,867			$	—
Southeast			74				—
Florida			9,147				—
Midwest			1,778				18,000
Central			—				272
Southwest			22,154				—
California			4,503				—
Total NRV adjustments — land held for sale		$	64,523			$	18,272
Write-off of deposits and other related costs (b):
Northeast		$	(257	)		$	23,281
Southeast			86				212
Florida			461				(202	)
Midwest			3				4,319
Central			—				—
Southwest			8				18,210
California			(24	)			5,671
Corporate and unallocated			—				—
Total write-off of deposits and other related costs		$	277			$	51,491
Total valuation adjustments and write-offs		$	663,585			$	132,136

(a)		Includes $33 million and $5 million, respectively, of write-offs of capitalized interest related to land and community valuation adjustments recorded during the three months ended March 31, 2008 and 2007.
(b)		Includes settlements related to costs previously in dispute and considered non-recoverable.

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

3.

Segment information (continued)

     Total assets and inventory by reportable segment were as follows ($000’s omitted):

		Assets				Inventory
As of March 31, 2008:
Northeast		$	1,205,834			$	976,913
Southeast			821,771				721,650
Florida			1,050,605				821,407
Midwest			645,756				583,939
Central			428,068				343,679
Southwest			1,807,789				1,678,101
California			1,021,873				897,569
Financial Services			375,751				—
Corporate and unallocated (a)			1,689,677				156,589
Consolidated		$	9,047,124			$	6,179,847
As of December 31, 2007:
Northeast		$	1,245,240				1,053,403
Southeast			835,085				733,556
Florida			1,223,222				1,020,433
Midwest			678,638				622,779
Central			426,432				345,569
Southwest			2,173,718				2,032,818
California			1,190,970				1,062,277
Financial Services			559,915				—
Corporate and unallocated (a)			1,892,483				156,676
Consolidated		$	10,225,703			$	7,027,511

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

4.

Investments in unconsolidated entities

     The Company participates in a number of joint ventures with independent third parties. Many of these joint ventures purchase, develop, and/or sell land and homes in the United States and Puerto Rico. A summary of the Company’s joint ventures is presented below ($000’s omitted):

		March 31,				December 31,
		2008				2007
Number of joint ventures with limited recourse guarantees			3				4
Number of joint ventures with debt non-recourse to Pulte			4				4
Number of other active joint ventures			12				12
Total number of active joint ventures			19				20
Investments in joint ventures with limited recourse guarantees		$	56,942			$	54,223
Investments in joint ventures with debt non-recourse to Pulte			35,120				35,767
Investments in other active joint ventures			17,929				15,489
Total investments in unconsolidated entities		$	109,991			$	105,479
Pulte’s proportionate share of joint venture debt:
Joint venture debt with limited recourse guarantees		$	107,559			$	124,529
Joint venture debt non-recourse to Pulte			9,473				9,442
Pulte’s total proportionate share of joint venture debt		$	117,032			$	133,971
Total joint venture debt		$	569,377			$	602,507

     The Company has committed through limited recourse guarantees that two of the joint ventures will maintain specified loan to value ratios. One joint venture agreement requires the Company to guarantee the completion of a project if the joint venture does not perform the required development. Additionally, in the case of most joint ventures, the Company has agreed to indemnify the joint venture’s lenders for certain environmental contingencies, and most guarantee arrangements provide that the Company is responsible for its proportionate share of the outstanding debt if the joint venture voluntarily files for bankruptcy. The Company would not be responsible under these guarantees unless the joint venture was unable to meet its contractual borrowing obligations or in instances of fraud, misrepresentation, or other bad faith actions by the Company. The Company has made additional capital contributions to certain joint ventures in order to maintain loan to value requirements. To date, the Company has not been requested to perform under the bankruptcy or environmental guarantees.

     In addition to the joint ventures with limited recourse guarantees, the Company has investments in other unconsolidated entities, some of which have debt. These investments include the Company’s three joint ventures in Puerto Rico, which are in the final stages of liquidation, as well as other entities, the majority of which are not engaged in homebuilding activities. The Company’s proportionate share of debt associated with these entities totaled $7.9 million and $9.4 million at March 31, 2008 and December 31, 2007, respectively. The Company does not have any significant financing exposures related to these entities.

     During the three months ended March 31, 2008 and 2007, the Company made capital contributions of $8.1 million and $81.7 million, respectively, to its joint ventures and received capital and earnings distributions of $5.6 million and $2 million, respectively, from its joint ventures. The Company also made scheduled land purchases from one of its joint ventures that provided the joint venture with the funds necessary to repay its remaining debt, the Company’s portion of which totaled $18.2 million at December 31, 2007. During the three months ended March 31, 2008 and 2007 the Company recognized equity income of $3.7 million and equity losses of $976 thousand, respectively, from its unconsolidated joint ventures.

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

4.

Investments in unconsolidated entities (continued)

     The timing of the repayment obligation under the joint venture debt agreements varies by agreement and in certain instances is contingent upon the joint venture’s sale of its land holdings. If additional capital infusions are required and approved, the Company would need to contribute its pro rata portion of those capital needs in order not to dilute its ownership in the joint ventures. While additional capital contributions may be required in the future, the Company believes the total amount of such contributions will be limited. The Company’s maximum financial loss exposure related to joint ventures is unlikely to exceed the combined investment and limited recourse guarantee totals.

     During 2008 and 2007, the Company made significant efforts to reduce its exposure to future capital requirements under its joint venture arrangements. In April 2008, the Company made a contribution to repay the outstanding debt related to one joint venture at its original scheduled maturity date. The Company’s proportionate share of such debt totaled $27.5 million at March 31, 2008. The Company also has a joint venture that is in default under its debt agreement and whose lender has notified the Company of its intent to enforce the Company’s completion guaranty. While the Company is pursuing a favorable resolution with the joint venture partners and the lender, there is no assurance that additional capital contributions under the completion guaranty will not be required. The Company’s proportionate share of such potential contributions would not exceed the Company’s proportionate share of the joint venture’s outstanding principle plus accumulated interest, the Company’s proportionate share of which totaled approximately $53 million at March 31, 2008. The amount of any potential loss the Company might incur as a result of resolving this matter would be limited to the amount of the required capital contributions, if any. The Company’s only other joint venture with limited recourse guarantees is not expected to require additional capital contributions in order to satisfy the Company’s requirements under the agreement.

5.

Shareholders’ equity

     Pursuant to the two $100 million stock repurchase programs authorized by our Board of Directors in October 2002 and 2005, and the $200 million stock repurchase authorization in February 2006 (for a total stock repurchase authorization of $400 million), the Company has repurchased a total of 9,688,900 shares for a total of $297.7 million, though there were no repurchases under these programs during the three months ended March 31, 2008. The Company had remaining authorization to purchase $102.3 million of common stock at March 31, 2008.

Accumulated other comprehensive income (loss)

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

		March 31,				December 31,
		2008				2007
Foreign currency translation adjustments:
Mexico		$	(94	)		$	(451	)
Fair value of derivatives, net of income taxes of $2,048 in 2008 and $2,717 in 2007			(3,342	)			(4,432	)
		$	(3,436	)		$	(4,883	)

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

6.

Income taxes

     The Company’s income tax expense totaled $3.1 million in the first quarter of 2008 compared with a tax benefit of $56.9 million in the first quarter of 2007. These amounts represent effective income tax rates of 0.4% in the first quarter of 2008 and 39.9% in the first quarter of 2007. The significant change in the Company’s effective tax rate resulted primarily from the recording of a $258 million valuation allowance on the tax benefits related to the Company’s current quarter loss. In accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (SFAS 109), the Company was unable to record a deferred tax benefit, which would have reduced its net loss in the first quarter of 2008, due to the uncertainty of realizing such deferred tax assets. At March 31, 2008 and December 31, 2007, the Company had net deferred tax assets of $996 million and $738 million, respectively, offset by valuation allowances of $890 million and $632 million, respectively. Our net deferred tax asset of $105.9 million at March 31, 2008 and December 31, 2007 is dependent upon carrying back approximately $330 million of projected 2008 federal net operating losses to tax year 2006. The accounting for deferred taxes is based upon an estimate of future results. Differences between the anticipated and actual outcomes of these future tax consequences could have a material impact on the Company’s consolidated results of operations or financial position.

     The Company is currently under examination by various taxing jurisdictions and anticipates finalizing the examinations with certain jurisdictions within the next twelve months. The final outcome of these examinations is not yet determinable. The statute of limitations for the Company’s major tax jurisdictions remains open for examination for tax years 1998-2007.

7.

Supplemental Guarantor information

          At March 31, 2008, Pulte Homes, Inc. had the following outstanding senior note obligations: (1) $339 million, 4.875% due 2009, (2) $200 million, 8.125%, due 2011, (3) $499 million, 7.875%, due 2011, (4) $300 million, 6.25%, due 2013, (5) $500 million, 5.25%, due 2014, (6) $350 million, 5.2%, due 2015, (7) $150 million, 7.625%, due 2017, (8) $300 million, 7.875%, due 2032, (9) $400 million, 6.375%, due 2033, (10) $300 million, 6%, due 2035, and (11) $150 million, 7.375%, due 2046. Such obligations to pay principal, premium (if any), and interest are guaranteed jointly and severally on a senior basis by Pulte Homes, Inc.’s 100%-owned Homebuilding subsidiaries (collectively, the Guarantors). Such guarantees are full and unconditional.

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

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

7.

Supplemental Guarantor information (continued)

CONDENSED CONSOLIDATING BALANCE SHEET
March 31, 2008
($000’s omitted)

		Unconsolidated
		Pulte				Guarantor				Non-Guarantor				Eliminating				Consolidated
		Homes, Inc.				Subsidiaries				Subsidiaries				Entries				Pulte Homes, Inc.
ASSETS
Cash and equivalents		$	—			$	717,179			$	353,986			$	—			$	1,071,165
Unfunded settlements			—				33,910				(4,893	)			—				29,017
House and land inventory			—				6,173,553				6,294				—				6,179,847
Land held for sale			—				324,801				—				—				324,801
Land, not owned, under option agreements			—				19,507				—				—				19,507
Residential mortgage loans available-for-sale			—				—				284,104				—				284,104
Investments in unconsolidated entities			1,348				98,653				9,990				—				109,991
Other assets			99,360				732,937				90,489				—				922,786
Deferred income tax assets			82,679				48				23,179				—				105,906
Investment in subsidiaries			7,907,977				88,174				5,109,086				(13,105,237	)			—
		$	8,091,364			$	8,188,762			$	5,872,235			$	(13,105,237	)		$	9,047,124
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Accounts payable, accrued and other liabilities		$	121,643			$	1,122,587			$	334,691			$	—			$	1,578,921
Collateralized short-term debt, recourse solely to applicable non-guarantor subsidiary assets			—				—				257,139				—				257,139
Income taxes			108,105				—				—				—				108,105
Senior notes			3,478,577				—				—				—				3,478,577
Advances (receivable) payable – subsidiaries			758,657				(857,172	)			98,515				—				—
Total liabilities			4,466,982				265,415				690,345				—				5,422,742
Shareholders’ equity			3,624,382				7,923,347				5,181,890				(13,105,237	)			3,624,382
		$	8,091,364			$	8,188,762			$	5,872,235			$	(13,105,237	)		$	9,047,124

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

7. Supplemental Guarantor information (continued)

CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2007
($000’s omitted)

		Unconsolidated
		Pulte				Guarantor				Non-Guarantor				Eliminating				Consolidated
		Homes, Inc.				Subsidiaries				Subsidiaries				Entries				Pulte Homes, Inc.
ASSETS
Cash and equivalents		$	—			$	715,411			$	344,900			$	—			$	1,060,311
Unfunded settlements			—				37,674				1,040				—				38,714
House and land inventories			—				7,021,018				6,493				—				7,027,511
Land held for sale			—				252,563				—				—				252,563
Land, not owned, under option agreements			—				20,838				—				—				20,838
Residential mortgage loans available-for-sale			—				—				447,089				—				447,089
Investments in unconsolidated entities			1,448				93,392				10,639				—				105,479
Other assets			307,142				745,553				114,597				—				1,167,292
Deferred income tax asset			82,679				48				23,179				—				105,906
Investment in subsidiaries			8,407,720				83,703				5,709,912				(14,201,335	)			—
		$	8,798,989			$	8,970,200			$	6,657,849			$	(14,201,335	)		$	10,225,703
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Accounts payable, accrued and other liabilities		$	157,703			$	1,354,652			$	347,556			$	—			$	1,859,911
Collateralized short-term debt, recourse solely to applicable non-guarantor subsidiary assets			—				—				440,611				—				440,611
Income taxes			126,758				—				—				—				126,758
Senior notes			3,478,230				—				—				—				3,478,230
Advances (receivable) payable — subsidiaries			716,105				(804,897	)			88,792				—				—
Total liabilities			4,478,796				549,755				876,959				—				5,905,510
Shareholders’ equity			4,320,193				8,420,445				5,780,890				(14,201,335	)			4,320,193
		$	8,798,989			$	8,970,200			$	6,657,849			$	(14,201,335	)		$	10,225,703

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

7. Supplemental Guarantor information (continued)

CONSOLIDATING STATEMENT OF OPERATIONS
For the three months ended March 31, 2008
($000’s omitted)

		Unconsolidated																Consolidated
		Pulte				Guarantor				Non-Guarantor				Eliminating				Pulte
		Homes, Inc.				Subsidiaries				Subsidiaries				Entries				Homes, Inc.
Revenues:
Homebuilding		$	—			$	1,398,109			$	—			$	—			$	1,398,109
Financial services			—				3,486				40,002				—				43,488
Other non-operating			26				4,188				3,008				—				7,222
Total revenues			26				1,405,783				43,010				—				1,448,819
Expenses:
Homebuilding:
Cost of sales			—				1,910,002				—				—				1,910,002
Selling, general and administrative and other expense			4,481				184,659				7,813				—				196,953
Financial Services			539				1,871				26,064				—				28,474
Other non-operating, net			16,745				(6,546	)			(7	)			—				10,192
Intercompany interest			48,704				(48,704	)			—				—				—
Total expenses			70,469				2,041,282				33,870				—				2,145,621
Other Income:
Equity income (loss)			—				3,456				290				—				3,746
Income (loss) before income taxes and equity in income of subsidiaries			(70,443	)			(632,043	)			9,430				—				(693,056	)
Income taxes (benefit)			(864	)			55				3,897				—				3,088
Income (loss) before equity in income of subsidiaries			(69,579	)			(632,098	)			5,533				—				(696,144	)
Equity in net income (loss) of subsidiaries			(626,565	)			8,505				(603,056	)			1,221,116				—
Net income (loss)		$	(696,144	)		$	(623,593	)		$	(597,523	)		$	1,221,116			$	(696,144	)