UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

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

For the quarterly period ended June 30, 2006

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, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ      Accelerated filer o     Non-accelerated filer o

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 July 31, 2006: 255,029,052

 

 

PULTE HOMES, INC.

INDEX

		Page No.
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Consolidated Balance Sheets at June 30, 2006 and December 31, 2005			4
Consolidated Statements of Operations for the three and six months ended June 30, 2006 and 2005			5
Consolidated Statements of Shareholders’ Equity for the six months ended June 30, 2006 and 2005			6
Consolidated Statements of Cash Flows for the six months ended June 30, 2006 and 2005			7
Notes to Condensed Consolidated Financial Statements			8
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations			30
Item 3 Quantitative and Qualitative Disclosures About Market Risk			45
Item 4 Controls and Procedures			45
PART II OTHER INFORMATION
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds			46
Item 4 Submission of Matters to a Vote of Security Holders			46
Item 6 Exhibits			47
SIGNATURES			48
Rule 13a-14(a) Certification by Richard J. Dugas, Jr. President and Chief Executive Officer
Rule 13a-14(a) Certification by Roger A. Cregg, Executive Vice President and Chief Financial Officer
Certification Pursuant to Rule 13a-14(b)

PULTE HOMES, INC.
FORM 10-Q/A FOR THE QUARTER ENDED JUNE 30, 2006

Explanatory Paragraph

     This Form 10-Q/A for the quarterly period ended June 30, 2006 is filed for the purpose of restating Note 2 in our Notes to Condensed Consolidated Financial Statements in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 131, “Disclosures About Segments of an Enterprise and Related Information.” The restatement has expanded our reportable segment footnote disclosure related to our homebuilding operations and does not affect our condensed consolidated balance sheets at June 30, 2006 and December 31, 2005, consolidated statements of operations and related earnings per share amounts for the three and six months ended June 30, 2006 and 2005, consolidated statements of cash flows or consolidated statements of shareholders’ equity for the six months ended June 30, 2006 and 2005. Conforming changes have been made to Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this Form 10-Q/A. See Note 2 in the Notes to Condensed Consolidated Financial Statements for further information relating to the restatement.

     For ease of reference, this Form 10-Q/A restates the Form 10-Q for the quarterly period ended June 30, 2006 in its entirety, except for certain exhibits, which have been incorporated by reference. In order to preserve the nature and character of the disclosures set forth in such items as originally filed, no attempt has been made in this amendment to modify or update the disclosures in the original Form 10-Q except to give effect to the restatement discussed in Note 2 in our Notes to Condensed Consolidated Financial Statements and the discussion included within Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. As a result, this Form 10-Q/A contains forward-looking information which has not yet been updated for events subsequent to the date of the original filing. Accordingly, we direct you to our SEC filings made subsequent to the original filing date for additional information.

PULTE HOMES, INC

Item 1. Financial Statements

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

		June 30,				December 31,
		2006				2005
		(Unaudited)				(Note)
ASSETS
Cash and equivalents		$	104,459			$	1,002,268
Unfunded settlements			54,794				156,663
House and land inventory			10,676,352				8,756,093
Land held for sale			397,818				257,724
Land, not owned, under option agreements			61,526				76,671
Residential mortgage loans available-for-sale			521,508				1,038,506
Investments in unconsolidated entities			222,228				301,613
Goodwill			377,040				307,693
Intangible assets, net			123,079				127,204
Other assets			1,084,889				1,023,739
Total assets		$	13,623,693			$	13,048,174
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Accounts payable, including book overdrafts of $416,346 and $405,411 in 2006 and 2005, respectively		$	938,718			$	789,399
Customer deposits			423,046				392,041
Accrued and other liabilities			1,157,354				1,402,620
Unsecured short-term borrowings			614,500				—
Collateralized short-term debt, recourse solely to applicable non-guarantor subsidiary assets			477,028				893,001
Income taxes			81,721				219,504
Deferred income tax liability			9,479				7,740
Senior notes and unsubordinated notes			3,537,237				3,386,527
Total liabilities			7,239,083				7,090,832
Shareholders’ equity			6,384,610				5,957,342
		$	13,623,693			$	13,048,174

Note: The condensed consolidated balance sheet at December 31, 2005, 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.

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2006				2005				2006				2005
Revenues:
Homebuilding		$	3,318,055			$	3,213,430			$	6,232,807			$	5,699,724
Financial services			40,467				36,258				85,324				66,534
Other non-operating			445				1,257				3,412				2,505
Total revenues			3,358,967				3,250,945				6,321,543				5,768,763
Expenses:
Homebuilding, principally cost of sales			2,935,896				2,737,434				5,474,281				4,877,630
Financial Services			25,536				21,174				52,776				42,692
Other non-operating, net			8,598				30,363				20,948				54,367
Total expenses			2,970,030				2,788,971				5,548,005				4,974,689
Other income:
Gain on sale of equity investment			—				—				31,635				620
Equity income (loss)			(1,212	)			23,848				96				38,025
Income from continuing operations before income taxes			387,725				485,822				805,269				832,719
Income taxes			143,873				180,635				298,772				309,985
Income from continuing operations			243,852				305,187				506,497				522,734
Loss from discontinued operations			(833	)			(1,476	)			(833	)			(781	)
Net income		$	243,019			$	303,711			$	505,664			$	521,953
Per share data:
Basic:
Income from continuing operations		$	.97			$	1.19			$	2.00			$	2.05
Loss from discontinued operations			—				(.01	)			—				—
Net income		$	.96			$	1.19			$	2.00			$	2.04
Assuming dilution:
Income from continuing operations		$	.94			$	1.16			$	1.95			$	1.99
Loss from discontinued operations			—				(.01	)			—				—
Net income		$	.94			$	1.15			$	1.95			$	1.98
Cash dividends declared		$	.04			$	.025			$	.08			$	.05
Number of shares used in calculation:
Basic:
Weighted-average common shares outstanding			252,618				255,874				253,148				255,373
Assuming dilution:
Effect of dilutive securities — stock options and restricted stock grants			6,329				7,803				6,704				7,880
Adjusted weighted-average common shares and effect of dilutive securities			258,947				263,677				259,852				263,253

See accompanying Notes to Condensed Consolidated Financial Statements.

PULTE HOMES, INC.

														Accumulated
														Other
						Additional								Comprehensive
		Common				Paid-in				Unearned				Income				Retained
		Stock				Capital				Compensation				(Loss)				Earnings				Total
Shareholders’ Equity, December 31, 2005		$	2,570			$	1,209,148			$	—			$	(5,496	)		$	4,751,120			$	5,957,342
Stock option exercise, including tax benefit of $3,333			2				6,783				—				—				—				6,785
Restricted stock award			7				(7	)			—				—				—				—
Cash dividends declared — $.08 per share			—				—				—				—				(20,494	)			(20,494	)
Stock repurchases			(29	)			(13,841	)			—				—				(85,744	)			(99,614	)
Stock-based compensation			—				33,476				—				—				—				33,476
Comprehensive income (loss):
Net income			—				—				—				—				505,664				505,664
Change in fair value of derivatives			—				—				—				226				—				226
Foreign currency translation adjustments			—				—				—				1,225				—				1,225
Total comprehensive income																							507,115
Shareholders’ Equity, June 30, 2006		$	2,550			$	1,235,559			$	—			$	(4,045	)		$	5,150,546			$	6,384,610
Shareholders’ Equity, December 31, 2004		$	2,558			$	1,114,739			$	(44	)		$	(14,380	)		$	3,419,401			$	4,522,274
Stock option exercise, including tax benefit of $24,143			24				47,290								—				—				47,314
Restricted stock award			8				(8	)			—				—				—				—
Cash dividends declared -$.05 per share			—				—				—				—				(12,963	)			(12,963	)
Stock repurchases			(6	)			(2,515	)			—				—				(18,598	)			(21,119	)
Stock-based compensation			—				23,144				—				—				—				23,144
Restricted stock award amortization			—				—				44				—				—				44
Comprehensive income (loss):
Net income			—				—				—				—				521,953				521,953
Change in fair value of derivatives			—				—				—				(324	)			—				(324	)
Foreign currency translation adjustments			—				—				—				4,163				—				4,163
Total comprehensive income																							525,792
Shareholders’ Equity, June 30, 2005		$	2,584			$	1,182,650			$	—			$	(10,541	)		$	3,909,793			$	5,084,486

See accompanying Notes to Condensed Consolidated Financial Statements.

PULTE HOMES, INC.

		For The Six Months Ended
		June 30,
		2006				2005
Cash flows from operating activities:
Net income		$	505,664			$	521,953
Adjustments to reconcile net income to net cash flows Provided by (used in) operating activities:
Write-down of land and deposits and pre-acquisition costs			67,326				6,505
Gain on sale of equity investments			(31,635	)			(620	)
Amortization and depreciation			37,987				28,698
Stock-based compensation expense			33,476				23,188
Deferred income taxes			(55	)			30,834
Distributions in excess of (less than) earnings of affiliates			5,216				(2,760	)
Other, net			1,490				1,267
Increase (decrease) in cash due to:
Inventories			(2,104,010	)			(1,308,685	)
Residential mortgage loans available-for-sale			516,998				177,527
Other assets			112,491				1,570
Accounts payable, accrued and other liabilities			(63,955	)			201,165
Income taxes			(134,451	)			(21,577	)
Net cash used in operating activities			(1,053,458	)			(340,935	)
Cash flows from investing activities:
Distributions from unconsolidated entities			31,336				123,180
Investments in unconsolidated entities			(20,744	)			(92,042	)
Investment in subsidiaries, net of cash acquired			(65,779	)			(31,172	)
Proceeds from sale of subsidiaries			—				3,000
Proceeds from sale of investments			49,216				8,366
Proceeds from sale of fixed assets			534				3,251
Capital expenditures			(54,393	)			(37,666	)
Net cash used in investing activities			(59,830	)			(23,083	)
Cash flows from financing activities:
Proceeds from borrowings			764,500				672,011
Repayment of borrowings			(433,492	)			(161,608	)
Excess tax benefits from share-based awards			1,794				—
Issuance of common stock			3,452				23,171
Stock repurchases			(99,614	)			(21,119	)
Dividends paid			(20,494	)			(12,963	)
Net cash provided by financing activities			216,146				499,492
Effect of exchange rate changes on cash and equivalents			(667	)			210
Net increase (decrease) in cash and equivalents			(897,809	)			135,684
Cash and equivalents at beginning of period			1,002,268				308,118
Cash and equivalents at end of period		$	104,459			$	443,802
Supplemental disclosure of cash flow information — cash paid during the period for:
Interest, net of amounts capitalized		$	6,257			$	18,308
Income taxes		$	432,183			$	301,903

See accompanying Notes to Condensed Consolidated Financial Statements.

PULTE HOMES, INC.

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, Pulte International Corporation (“International”) and other subsidiaries that are engaged in the homebuilding business. Pulte Diversified Companies, Inc.’s former thrift subsidiary, First Heights Holding Corp, LLC (“First Heights”) is classified as a discontinued operation. The Company also has a mortgage banking company, Pulte Mortgage LLC (“Pulte Mortgage”), which is a subsidiary of Pulte Home Corporation.

     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 June 30, 2006 are not necessarily indicative of the results that may be expected for the year ending December 31, 2006. 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/A for the year ended December 31, 2005.

Reclassification

     Certain amounts previously reported in the 2005 financial statements and notes thereto were reclassified to conform to the 2006 presentation. The Mexico homebuilding operations, which were sold in December 2005, have been presented as discontinued operations in the Company’s Consolidated Statement of Operations. Additionally, all share and per share amounts have been restated to retroactively reflect the Company’s two-for-one stock split effected September 1, 2005.

Segment Information (as Restated)

     Subsequent to the issuance of the Company’s condensed consolidated financial statements for the quarterly period ended June 30, 2006, the Company expanded its disclosure of reportable segments in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 131, “Disclosures About Segments of an Enterprise and Related Information.” The Company had historically aggregated its homebuilding operating segments into a single reportable segment, but has restated its segment disclosure to include seven reportable homebuilding segments for the three and six months ended June 30, 2006 and 2005 (see Note 2). The restatement has no impact on the Company’s condensed consolidated balance sheets as of June 30, 2006 and December 31, 2005, or its consolidated statements of operations and related earnings per share amounts for the three and six months ended June 30, 2006 and 2005, consolidated statements of cash flows or its consolidated statements of shareholders’ equity for the six months ended June 30, 2006 and 2005.

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

     In the ordinary course of business, the Company enters into land option agreements in order to procure land for the construction of homes in the future. Pursuant to these land option agreements, the Company will provide a deposit to the seller as consideration for the right to purchase land at different times in the future, usually at predetermined prices. Under FASB Interpretation No. 46, “Consolidation of Variable Interest Entities,” as amended by FIN 46-R issued in December 2003 (collectively referred to as “FIN 46”), if the entity holding the land under option is a variable interest entity, the Company’s deposit represents a variable interest in that entity. Creditors of the variable interest entities have no recourse against the Company.

     In applying the provisions of FIN 46, the Company evaluated all land option agreements and determined that the Company was subject to a majority of the expected losses or entitled to receive a majority of the expected residual returns under a limited number of these agreements. As the primary beneficiary under these agreements, the Company is required to consolidate variable interest entities at fair value. At June 30, 2006 and December 31, 2005, the Company classified $61.5 million and $76.7 million, respectively, as land, not owned, under option agreements on the balance sheet, representing the fair value of land under contract, including deposits of $10.9 million and $13.4 million, respectively. The corresponding liability has been classified within accounts payable, accrued and other liabilities on the balance sheet.

     Land option agreements that did not require consolidation under FIN 46 at June 30, 2006 and December 31, 2005, had a total purchase price of $6.8 billion and $7.5 billion, respectively. In connection with these agreements, the Company had refundable and non-refundable deposits and pre-acquisition costs of $477.4 million and $431.4 million, included in other assets at June 30, 2006 and December 31, 2005, 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 for the amount of such costs at the time product revenue is recognized. Factors that affect the Company’s warranty liability include the number of homes sold, historical and anticipated rates of warranty claims, and cost per claim. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.

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

		Six Months Ended
		June 30,
		2006				2005
Allowance for warranties at beginning of period		$	112,297			$	83,397
Warranty reserves provided			73,152				59,535
Payments and other adjustments			(82,440	)			(59,309	)
Allowance for warranties at end of period		$	103,009			$	83,623

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

1.		Basis of presentation and significant accounting policies (continued)
		Stock-based compensation

     The Company currently has several stock-based compensation plans for its employees (“Employee Plans”) and nonemployee directors (the “Director Plan”). At June 30, 2006, the Company had 31.4 million shares authorized for issuing various equity-based incentives including stock options, stock appreciation rights and restricted stock, including 11.6 million shares available for future grants.

     Prior to January 1, 2006, the Company accounted for its stock-based awards under the fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock Issued to Employees.” The Company selected the prospective method of adoption as permitted by SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure.” Under the prospective method, the Company recognized 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 were 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 was reflected in net income for grants made prior to January 1, 2003, as all options granted in those years had an exercise price equal to the market value of the underlying common stock on the date of grant.

     As of January 1, 2006, the Company adopted SFAS No. 123(R), “Share Based Payments,” which is a revision of SFAS No. 123 and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and amends SFAS Statement No. 95, “Statement of Cash Flows.” The Company adopted SFAS 123(R) using the modified prospective method of transition. Accordingly, prior periods have not been restated. The adoption of SFAS 123(R) was not significant and had no effect on basic and diluted earnings per share for the three and six months ended June 30, 2006.

     Prior to the adoption of SFAS No. 123(R), the Company presented all benefits of the tax deductions resulting from the exercise of share-based compensation as operating cash flows in its Consolidated Statements of Cash Flows. SFAS 123(R) requires classification of the benefits of tax deductions in excess of the compensation cost recognized for those options (excess tax benefits) as financing cash flows. As a result, the Company classified $1.8 million of excess tax benefits as financing cash inflows for the six months ended June 30, 2006.

     The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123(R) to all stock based employee compensation for the three and six months ended June 30, 2005 (000’s omitted, except per share data):

		Three Months Ended				Six Months Ended
		June 30, 2005				June 30, 2005
Net income, as reported		$	303,711			$	521,953
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects			2,761				8,016
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects ($000’s omitted)			(2,930	)			(8,313	)
Pro forma net income		$	303,542			$	521,656
Earnings per share:
Basic-as reported		$	1.19			$	2.04
Basic-pro forma		$	1.19			$	2.04
Diluted-as reported		$	1.15			$	1.98
Diluted-pro forma		$	1.15			$	1.98

PULTE HOMES, INC.

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

1.		Basis of presentation and significant accounting policies (continued)
		Stock-based compensation (continued)

     The Company measures compensation cost for its stock options at fair value on the date of grant and recognizes compensation cost on the graded vesting method over the vesting period, generally four years. The graded vesting method provides for vesting of portions of the overall awards at interim dates and results in greater expense in earlier years than the straight-line method. The fair value of the Company’s stock options is determined using the Black-Scholes valuation model. The fair value of restricted stock is determined based on the number of shares granted and the quoted price of the Company’s common stock. Compensation expense related to the Company’s share-based awards is generally included in selling, general and administrative expense within the Company’s Consolidated Statements of Operations.

     The Company’s stock option participant agreements provide continued vesting for certain retirement eligible employees who have achieved a predetermined level of service based on their combined age and years of service. For awards granted prior to January 1, 2006, the Company recognized the related compensation cost ratably over the nominal vesting period. For awards granted after the adoption of SFAS No. 123(R), the Company now records related compensation cost over the period through the date the employee first becomes eligible to retire and is no longer required to provide services to earn the award.

     The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants made during the six months ended June 30, 2006 and 2005.

		Weighted-average assumptions
		Six Months Ended June 30,
		2006				2005
Expected life of options in years			5.2				6.1 - 6.2
Expected stock price volatility			34%				35.3% - 36.0	%
Expected dividend yield			0.4%				0.23% - 0.27	%
Risk-free interest rate			5.1%				3.9% - 4.2	%
Fair value per option granted		$	14.47 - $14.85			$	12.89 - $15.95

     A summary of the status of the Company’s stock options for the six months ended June 30, 2006 is presented below (000’s omitted, except per share data):

						Weighted-Average				Weighted-Average
						Per Share				Remaining				Aggregate
		Shares				Exercise Price				Contractual Term				Intrinsic Value
Outstanding at December 31, 2005			16,850			$	19
Granted			33				39
Exercised			(242	)			(14	)
Forfeited			(264	)			(29	)
Outstanding at June 30, 2006			16,377			$	19			6.6 years				$	189,989
Options exercisable at June 30, 2006			9,700			$	12			5.5 years				$	162,564

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

1.		Basis of presentation and significant accounting policies (continued)
		Stock-based compensation (continued)

     In connection with stock option awards, the Company recognized compensation expense of $7.9 million and $14.3 million for the three and six months ended June 30, 2006, respectively. Total compensation cost related to nonvested stock option awards not yet recognized was $42.9 million at June 30, 2006. These costs will be expensed over a weighted average period of approximately 3 years. The aggregate intrinsic value of options exercised during the six months ended June 30, 2006 and 2005 was $5.5 million and $62.8 million, respectively. The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option.

     A summary of the Company’s restricted stock activity for the six months ended June 30, 2006, is presented below (000’s omitted, except per share data):

						Weighted-Average
						Per Share
						Grant Date
		Shares				Fair Value
Nonvested at December 31, 2005			3,023			$	31.44
Granted			759			$	39.02
Vested			(215	)		$	15.60
Forfeited			(119	)		$	33.32
Nonvested at June 30, 2006			3,448			$	34.03

     In connection with restricted stock awards, of which a majority cliff vest at the end of three years, the Company recognized compensation expense of $9.7 million and $5 million for the three months ended June 30, 2006 and 2005 and $19.1 million and $9.1 million for the six months ended June 30, 2006 and 2005, respectively. Total compensation cost related to restricted stock awards not yet recognized was $75.6 million at June 30, 2006. These costs will be expensed over a weighted average period of approximately 2.3 years.

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

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

     In June 2006, the FASB issued FASB Interpretation No. 48, “An Interpretation of FASB Statement No. 109,” which clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” This Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 reflects the benefit recognition approach, where a tax benefit is recognized when it is “more likely than not” to be sustained based on the technical merits of the position. This Interpretation is effective for fiscal years beginning after December 15, 2006. The Company is evaluating the impact of FIN No. 48 on its consolidated financial statements.

     In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets,” which provides an approach to simplify efforts to obtain hedge-like (offset) accounting. This new Statement amends SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” with respect to the accounting for separately recognized servicing assets and servicing liabilities. SFAS No. 156 is effective for all separately recognized servicing assets and liabilities as of the beginning of an entity’s fiscal year that begins after September 15, 2006, with earlier adoption permitted in certain circumstances. Due to the short period of time the Company’s servicing rights are held, generally less than four months, the Company does not expect SFAS No. 156 will have a significant impact on its consolidated financial statements.

     The FASB has revised its guidance on SFAS No. 133 Implementation Issues as of March 2006. Several Implementation Issues were revised to reflect the issuance of SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments — an Amendment of FASB Statements No. 133 and 140,” in February 2006. SFAS No. 155 allows any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” to be carried at fair value in its entirety, with changes in fair value recognized in earnings. In addition, SFAS No. 155 requires that beneficial interests in securitized financial assets be analyzed to determine whether they are freestanding derivatives or contain an embedded derivative. SFAS No. 155 also eliminates a prior restriction on the types of passive derivatives that a qualifying special purpose entity is permitted to hold. SFAS No. 155 is applicable to new or modified financial instruments in fiscal years beginning after September 15, 2006, though the provisions related to fair value accounting for hybrid financial instruments can also be applied to existing instruments. The Company does not expect SFAS No. 155 will have a significant impact on its consolidated financial statements.

     In December 2004, the FASB issued Staff Position 109-1, “Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004” (FSP 109-1). The American Jobs Creation Act, which was signed into law in October 2004, provides a 3% tax deduction on qualified domestic production activities income for 2005 and 2006. When fully phased-in, the deduction will be 9% of the lesser of “qualified production activities income” or taxable income. Based on the guidance provided by FSP 109-1, this deduction was accounted for as a special deduction under SFAS No. 109 and reduced tax expense. Tax benefits resulting from this deduction have resulted in a reduction in the Company’s federal income tax rate.

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

2.

Segment information (as restated)

     Subsequent to the issuance of the Company’s condensed consolidated financial statements for the quarterly period ended June 30, 2006, the Company expanded its disclosure of reportable segments in accordance with the provisions of SFAS 131. The Company had historically aggregated its homebuilding operating segments into a single reportable segment, but has restated its segment disclosure to include seven reportable homebuilding segments for the three and six months ended June 30, 2006 and 2005. The restatement has no impact on the Company’s condensed consolidated balance sheets as of June 30, 2006 and December 31, 2005, consolidated statements of operations and related earnings per share amounts for the three and six months ended June 30, 2006 and 2005, consolidated statements of cash flows or its consolidated statements of shareholders’ equity for the six months ended June 30, 2006 and 2005.

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

		Northeast:		Northeast and Mid-Atlantic Areas include the following states:
				Connecticut, Delaware, Maryland, Massachusetts, New Hampshire, 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:
				Illinois, Indiana, Michigan, Ohio, Minnesota
		Central:		Rocky Mountain and Texas Areas include the following states:
				Colorado, Kansas, Missouri, Texas
		Southwest:		Arizona and Nevada Areas include 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 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 our mortgage operations and certain selling, general and administrative expenses incurred by or allocated to the financial services segment.

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

2.

Segment information (as restated) (continued)

     Each reportable segment follows the same accounting policies described in Note 1 — “Summary of Significant Accounting Policies” to the consolidated financial statements in the Company’s 2005 Annual Report on Form 10-K/A.

		Operating Data by Segment ($000's omitted)
		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2006				2005				2006				2005
Revenues:
Northeast		$	391,373			$	384,543			$	745,161			$	642,309
Southeast			299,201				234,744				523,664				422,998
Florida			577,178				522,514				1,083,053				905,681
Midwest			275,003				326,134				504,466				572,988
Central			330,781				250,818				599,692				397,507
Southwest			842,789				766,265				1,535,649				1,455,173
California			601,730				728,412				1,241,122				1,303,068
Financial Services			40,467				36,258				85,324				66,534
Total segment revenues			3,358,522				3,249,688				6,318,131				5,766,258
Corporate and unallocated (a)			445				1,257				3,412				2,505
Consolidated revenues		$	3,358,967			$	3,250,945			$	6,321,543			$	5,768,763
Income (loss) from continuing operations before income taxes:
Northeast		$	46,733			$	58,771			$	82,416			$	87,150
Southeast			22,477				19,791				34,352				32,283
Florida			132,062				100,786				246,272				167,350
Midwest			(7,265	)			19,332				(7,747	)			23,920
Central			(9,312	)			6,123				(2,725	)			204
Southwest			180,390				184,403				325,701				338,168
California			72,837				149,544				170,085				266,634
Financial Services			15,056				15,526				64,400				25,610
Total segment income before income taxes			452,978				554,276				912,754				941,319
Corporate and unallocated (b)			(65,253	)			(68,454	)			(107,485	)			(108,600	)
Consolidated income from continuing operations before income taxes		$	387,725			$	485,822			$	805,269			$	832,719

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

2.

Segment information (as restated) (continued)

		Valuation Adjustments and Write-Offs by Segment ($000's omitted)
		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2006				2005				2006				2005
Land and community valuation adjustments:
Northeast		$	—			$	—			$	—			$	—
Southeast			—				—				—				—
Florida			—				—				—				—
Midwest			8,014				—				8,072				—
Central			1,306				164				1,306				608
Southwest			—				—				—				—
California			—				—				—				—
Corporate and unallocated			—				—				—				—
Total valuation adjustments (a)		$	9,320			$	164			$	9,378			$	608
Net realizable value adjustments (NRV) — land held for sale:
Northeast		$	—			$	—			$	—			$	—
Southeast			—				14				—				14
Florida			—				—				—				—
Midwest			5,660				—				5,660				—
Central			16,253				159				16,265				159
Southwest			125				—				125				—
California			—				—				—				—
Corporate and unallocated			—				—				—				—
Total NRV adjustments — land held for sale (a)		$	22,038			$	173			$	22,050			$	173
Write-off of deposits and pre-acquisition costs:
Northeast		$	3,474			$	524			$	4,205			$	1,555
Southeast			1,400				763				1,451				1,049
Florida			1,123				143				1,330				179
Midwest			6,047				370				8,465				1,155
Central			2,991				206				3,129				360
Southwest			6,983				597				7,393				1,141
California			9,162				365				9,851				741
Corporate and unallocated			(370	)			(384	)			74				(456	)
Total write-off of deposits and pre-acquisition costs (a)		$	30,810			$	2,584			$	35,898			$	5,724

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

2.

Segment information (as restated) (continued)

		Assets				Inventory
As of June 30, 2006:
Northeast		$	1,818,838			$	1,355,890
Southeast			810,298				731,000
Florida			1,872,462				1,664,448
Midwest			1,138,640				1,040,671
Central			1,132,637				909,293
Southwest			2,944,511				2,630,827
California			2,376,821				2,085,121
Financial Services			591,893				—
Total segment			12,686,100				10,417,250
Corporate and unallocated (a)			937,593				259,102
Consolidated		$	13,623,693			$	10,676,352
As of December 31, 2005:
Northeast		$	1,676,368			$	1,252,923
Southeast			651,306				572,948
Florida			1,522,628				1,305,645
Midwest			1,030,659				923,893
Central			1,018,036				801,674
Southwest			2,192,893				1,961,703
California			2,126,576				1,721,746
Financial Services			1,052,578				—
Total segment			11,271,044				8,540,532
Corporate and unallocated (a)			1,777,130				215,561
Consolidated		$	13,048,174			$	8,756,093

3.

Inventory

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

		June 30,				December 31,
		2006				2005
Homes under construction		$	4,464,413				3,136,708
Land under development			5,532,265				4,844,913
Land held for future development			679,674				774,472
Total		$	10,676,352			$	8,756,093

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. 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.

     At June 30, 2006 and December 31, 2005, aggregate outstanding debt of unconsolidated joint ventures was $908.5 million and $882.2 million, respectively. At June 30, 2006 and December 31, 2005, the Company’s proportionate share of its joint venture debt was approximately $307.2 million and $293.8 million, respectively. At June 30, 2006, the Company provided limited recourse guarantees for its proportionate share of joint venture debt of $307.2 million while the Company provided limited recourse debt guarantees of approximately $288.2 million at December 31, 2005. Accordingly, the Company may be liable, on a contingent basis, through limited guarantees with respect to a portion of the secured land acquisition and development debt. However, the Company would not be liable other than in instances of fraud, misrepresentation or other bad faith actions by the Company, unless the joint venture was unable to perform its contractual borrowing obligations. As of June 30, 2006, the Company does not anticipate the Company will incur any significant costs under these guarantees.

     For the six months ended June 30, 2006, the Company made additional capital contributions to these joint ventures totaling approximately $20.7 million and received capital and earnings distributions from these entities totaling approximately $36.6 million. At June 30, 2006 and December 31, 2005, the Company had approximately $222.2 million and $301.6 million, respectively, invested in these joint ventures. These investments are included in the assets of the Company’s Homebuilding segment and are primarily accounted for under the equity method.

5.

Acquisitions and divestitures

     In February 2006, Pulte Mortgage sold its investment in Hipotecaria Su Casita (“Su Casita”), a Mexico-based mortgage banking company. Remaining shareholders of Su Casita, who exercised their right of first refusal to acquire the shares, purchased Pulte Mortgage’s 16.7% interest for net proceeds of approximately $49.2 million. As a result of this transaction, the Company recognized a pre-tax gain of approximately $31.6 million ($19.9 million after-tax) for the three months ended March 31, 2006. During February 2005, 25% of the Company’s investment in the capital stock of Su Casita was redeemed for a pre-tax gain of approximately $620 thousand.

     In January 2006, the Company exercised its option and acquired the remaining 50% interest in an entity that supplies and installs basic building components and operating systems. The Company’s initial investment was made in January 2004 to secure a dedicated building supply trade base for its construction activities in Arizona and Nevada. The aggregate stepped purchase price exceeded the preliminary estimated fair value of the underlying assets acquired and liabilities assumed by approximately $69 million, which was recorded as goodwill. The Company accounted for its initial 50% investment under the equity method. Since January 2006, the Company has consolidated this wholly-owned subsidiary in its financial statements.

     In December 2005, the Company sold substantially all of its Mexico homebuilding operations. For the three and six months ended June 30, 2005, the Mexico operations have been presented as discontinued operations.

     In January 2005, the Company sold all of its Argentina operations, as reflected in the Company’s consolidated statements of cash flows for the six months ended June 30, 2005. The Argentina operations were presented as discontinued operations in 2004.

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

6.

Senior notes and unsubordinated notes

     In May 2006, the Company sold $150 million of 7.375% senior notes, which mature on June 1, 2046, and are guaranteed by Pulte Homes, Inc. and certain of its 100%-owned subsidiaries. These notes are unsecured and rank equally with all of the Company’s other unsecured and unsubordinated indebtedness. The notes are redeemable at any time on or after June 1, 2011, at a redemption price equal to 100% of the principal amount to be redeemed, plus accrued and unpaid interest thereon to the redemption date. Proceeds from the sale were used to repay the indebtedness of the Company’s revolving credit facility and for general corporate purposes, including continued investment in the company’s business.

7.

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 8,987,600 shares for a total of $277.8 million. At June 30, 2006, the Company had remaining authorization to purchase common stock aggregating $122.2 million.

     Accumulated other comprehensive income (loss)

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

		June 30,				December 31,
		2006				2005
Foreign currency translation adjustments:
Mexico		$	(361	)		$	(1,586	)
Fair value of derivatives, net of income taxes of $2,258 in 2006 and $2,397 in 2005			(3,684	)			(3,910	)
		$	(4,045	)		$	(5,496	)

8.

Supplemental Guarantor information

     At June 30, 2006, Pulte Homes, Inc. had the following outstanding senior note obligations: (1) $400 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)

8.

Supplemental Guarantor information (continued)

CONDENSED CONSOLIDATING BALANCE SHEET
June 30, 2006
($000’s omitted)

		Unconsolidated
		Pulte				Guarantor				Non-Guarantor				Eliminating				Consolidated
		Homes, Inc.				Subsidiaries				Subsidiaries				Entries				Pulte Homes, Inc.
ASSETS
Cash and equivalents		$	—			$	65,157			$	39,302			$	—			$	104,459
Unfunded settlements			—				51,954				2,840				—				54,794
House and land inventory			—				10,664,216				12,136				—				10,676,352
Land held for sale			—				397,818				—				—				397,818
Land, not owned, under option agreements			—				61,526				—				—				61,526
Residential mortgage loans available-for-sale			—				—				521,508				—				521,508
Investments in unconsolidated entities			1,448				202,933				17,847				—				222,228
Goodwill			—				376,340				700				—				377,040
Intangible assets, net			—				123,079				—				—				123,079
Other assets			47,903				951,478				85,508				—				1,084,889
Investment in subsidiaries			11,991,124				77,356				3,639,517				(15,707,997	)			—
		$	12,040,475			$	12,971,857			$	4,319,358			$	(15,707,997			$	13,623,693
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Accounts payable, accrued and other liabilities		$	192,809			$	2,114,249			$	221,539			$	—			$	2,528,597
Unsecured short-term borrowings			614,500				—				—								614,500
Collateralized short-term debt, recourse solely to applicable non-guarantor subsidiary assets			—				—				477,028				—				477,028
Income taxes			81,721				—				—				—				81,721
Senior notes and unsubordinated notes			3,537,237				—				—				—				3,537,237
Advances (receivable) payable — subsidiaries			1,229,598				(1,168,116	)			(61,482	)			—				—
Total liabilities			5,655,865				946,133				637,085				—				7,239,083
Shareholders’ equity			6,384,610				12,025,724				3,682,273				(15,707,997	)			6,384,610
		$	12,040,475			$	12,971,857			$	4,319,358			$	(15,707,997	)		$	13,623,693