SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2007

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)

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

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

Title of each class		Name of each exchange on which registered
Common Stock, par value $0.01		New York Stock Exchange
Pulte Homes, Inc. 7.375% Senior Notes due 2046		New York Stock Exchange

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES þ NO o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES o NO þ

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

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

Indicate by check mark whether the registrant is 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

The aggregate market value of the registrant’s voting stock held by nonaffiliates of the registrant as of June 30, 2007, based on the closing sale price per share as reported by the New York Stock Exchange on such date, was $4,714,989,510.

As of February 20, 2008, the registrant had 257,522,674 shares of common stock outstanding.

Documents Incorporated by Reference

Applicable portions of the Proxy Statement for the 2008 Annual Meeting of Shareholders are incorporated by reference in Part III of this Form.

 

 

PULTE HOMES, INC.
TABLE OF CONTENTS

Item				Page
No.				No.
		Part I
1		Business			3
1A		Risk Factors			9
1B		Unresolved Staff Comments			13
2		Properties			13
3		Legal Proceedings			13
4		Submission of Matters to a Vote of Security Holders			14
4A		Executive Officers of the Registrant			14
		Part II
5		Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			15
6		Selected Financial Data			17
7		Management’s Discussion and Analysis of Financial Condition and Results of Operations			19
7A		Quantitative and Qualitative Disclosures About Market Risk			40
8		Financial Statements and Supplementary Data			42
9		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			87
9A		Controls and Procedures			87
9B		Other Information			89
9C		CEO/CFO Certifications			89
		Part III
10		Directors, Executive Officers and Corporate Governance			89
11		Executive Compensation			89
12		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			89
13		Certain Relationships and Related Transactions and Director Independence			89
14		Principal Accountant Fees and Services			89
		Part IV
15		Exhibits and Financial Statement Schedules			90
		Signatures			95
Form of Restricted Stock Award Agreement
Form of Stock Option Agreement
Form of Stock Option Agreement
Ratio of Earnings to Fixed Charges at December 31, 2007
Subsidiaries of the Registrant
Consent of Independent Registered Public Accounting Firm
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 Section 1350

PART I

ITEM 1. BUSINESS

Pulte Homes, Inc.

     Pulte Homes, Inc. is a publicly held holding company whose subsidiaries engage in the homebuilding and financial services businesses. Pulte Homes, Inc. is a Michigan corporation and was organized in 1956. Our assets consist principally of the capital stock of our subsidiaries and our income primarily consists of dividends from our subsidiaries. Our direct subsidiaries include Pulte Diversified Companies, Inc., Del Webb Corporation (“Del Webb”), and other subsidiaries engaged in the homebuilding business. Pulte Diversified Companies, Inc.’s operating subsidiaries include Pulte Home Corporation, Pulte International Corporation (“International”), and other subsidiaries engaged in the homebuilding business. We also have a mortgage banking company, Pulte Mortgage LLC (“Pulte Mortgage”), which is a subsidiary of Pulte Home Corporation.

     During 2007 and 2006, the U.S. housing market was impacted by a lack of consumer confidence, decreased housing affordability, and large supplies of resale and new home inventories and related pricing pressures. During 2007, these conditions continued to deteriorate and were accompanied by increased foreclosure activity and constraints on the availability of certain mortgage financing products. These factors contributed to weakened demand for new homes, slower sales, higher cancellation rates, and increased price discounts and selling incentives to attract homebuyers compared with recent years when we had experienced record growth. The combination of these homebuilding industry and related mortgage financing developments resulted in significant decreases in our revenues and profitability during 2007.

     Homebuilding, our core business, is engaged in the acquisition and development of land principally for residential purposes within the continental United States and Puerto Rico and the construction of housing on such land targeted for the first-time, first and second move-up, and active adult home buyers. We have determined our operating segments to be our Areas, which are aggregated into seven reportable segments based on similarities in the economic and geographic characteristics of our homebuilding operations. Accordingly, our 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

*      Our homebuilding operations located in Reno, Nevada are reported in the California segment, while our remaining Nevada homebuilding operations are reported in the Southwest segment.

     We also have one reportable segment for our financial services operations which consists principally of mortgage banking and title operations conducted through Pulte Mortgage and our other subsidiaries. Our financial services segment operates generally in the same markets as our homebuilding segments.

Pulte Homes, Inc. (continued)

     Financial information, including revenues, income (loss) from continuing operations before income taxes, valuation adjustments and write-offs, depreciation and amortization, equity income (loss), total assets, and inventory for each of our business segments is included in Note 3 of our Consolidated Financial Statements.

Available Information

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

Homebuilding Operations

		Years Ended December 31,
		($000’s omitted)
		2007				2006				2005				2004				2003
Homebuilding settlement revenues		$	8,881,509			$	13,975,387			$	14,370,667			$	11,094,617			$	8,482,341
Homebuilding settlement units			27,540				41,487				45,630				38,612				32,693

     Through our brands, which include Pulte Homes, Del Webb, and DiVosta, we offer a wide variety of home designs including single family detached, townhouses, condominiums, and duplexes at different prices and with varying levels of options and amenities to all of our major customer segments: first-time, first and second move-up, and active adult. Over our 58-year history, we have delivered over 500,000 homes.

     As of December 31, 2007, our Homebuilding operations offered homes for sale in 636 communities. Sales prices of homes currently offered for sale in 72% of our communities fall within the range of $100,000 to $400,000 with a 2007 average unit selling price of $322,000, compared with $337,000 in 2006, $315,000 in 2005, $287,000 in 2004, and $259,000 in 2003. Sales of single-family detached homes, as a percentage of total unit sales, were 74% in both 2007 and 2006, compared with 72% in 2005, 80% in 2004, and 83% in 2003. The decline in the percentage of single-family detached homes can be attributed to an increase in sales of townhouses, condominiums, and duplexes, which are most popular among our first-time and active adult homebuyers. Our Homebuilding operations are geographically diverse and, as a result, help to insulate us from demand changes in individual markets. As of December 31, 2007, our Homebuilding business operated in 51 markets spanning 26 states.

Land acquisition and development

     We select locations for development of homebuilding communities after completing extensive market research, enabling us to match the location and product offering with our targeted consumer group. We consider factors such as proximity to developed areas, population and job growth patterns and, if applicable, estimated development costs. We historically have managed the risk of controlling our land positions through the use of option contracts. We typically control land with the intent to complete sales of housing units within 24 to 36 months from the date of opening a community, except in the case of certain Del Webb active adult developments and other selected large projects for which the completion of community build-out requires a longer time period due to typically larger project sizes. As a result, land is generally purchased after it is properly zoned and developed or is ready for development. In addition, we dispose of owned land not required in the business through sales to appropriate end users. Where we develop land, we engage directly in many phases of the development process, including land and site planning, and obtaining environmental and other regulatory approvals, as well as constructing roads, sewers, water and drainage facilities, and other amenities. We use our staff and the services of independent engineers and consultants for land development activities. Land development work is performed primarily by independent contractors and local government authorities who construct sewer and water systems in some areas. At December 31, 2007, we controlled approximately 157,900 lots, of which 131,400 were owned and 26,500 were under option agreements.

Homebuilding Operations (continued)

Sales and marketing

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

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

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

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

     We have received recognition and awards as a result of our achievements as a homebuilder. In June 2007, Pulte Homes was named among the Top 100 Best Places to Work in IT in Computerworld’s annual rankings. In April 2007, we ranked number 170 on the FORTUNE 500 List. In addition, our Albuquerque, Central Valley, Chicago (Del Webb), Ft. Myers/Naples, Houston, Jacksonville, L.A./Ventura, Orlando, Palm Beach (DiVosta), Philadelphia (Del Webb) and Tucson (Del Webb) operations were recognized for ranking the highest in their markets in the J.D. Power and Associates^® 2007 New Home-Builder Customer Satisfaction Study. Nine of our operations ranked second in their respective markets, while six operations ranked third. Pulte brands, which include Pulte Homes, Del Webb, and DiVosta, were surveyed in 26 of the 34 total markets analyzed. The survey noted customer service, home readiness at the time of closing, and the company’s sales staff as the three factors that most heavily influenced the customer’s overall level of satisfaction. This year’s homebuilder rankings also included new studies which evaluated homebuyers’ satisfaction with new-home quality, new-home design, and builder mortgage origination. Pulte Homes’ market operations earned top rankings for new-home quality in eight markets, new-home design in nine markets, and builder mortgage origination in three markets.

     Our Homeowner for Life^TM philosophy has increased our business from customers who have previously owned a Pulte home or have been referred by a Pulte homeowner by ensuring a positive home buying and home owning experience. We introduce our homes to prospective buyers through a variety of media advertising, illustrated brochures, Internet listings and link placements, and other advertising displays. In addition, our websites, www.pulte.com, www.delwebb.com, and www.divosta.com provide tools to help users find a home that meets their needs, investigate financing alternatives, communicate moving plans, maintain a home, learn more about us, and communicate directly with us. Approximately 7.3 million potential customers visited our websites during 2007.

Homebuilding Operations (continued)

Construction

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

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

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

Competition and other factors

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

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

Financial Services Operations

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

     Our mortgage underwriting, processing and closing functions are centralized in Denver, Colorado and Charlotte, North Carolina using a mortgage operations center (“MOC”) concept. We also use a centralized telephone loan officer concept where loan officers are centrally located at mortgage application centers (“MAC”) in Denver and Charlotte. We believe both the MOC and the MAC improve the speed and efficiency of our mortgage operations, thereby improving our profitability and allowing us to focus on creating attractive mortgage financing opportunities for our customers. In 2007, we had a high level of utilization of our online customer questionnaire. The majority of our customers now send us their data online to start the mortgage process. Once the questionnaire is received, an interview is scheduled and the combination of the interview with the data sent online represents our mortgage application.

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

     Our capture rates for 2007, 2006, and 2005 were 92%, 91%, and 89%, respectively. Our capture rate represents loan originations from our homebuilding business as a percentage of total loan opportunities from our homebuilding business excluding cash settlements. During 2007, 2006, and 2005, we originated mortgage loans for 76%, 77%, and 75%, respectively, of the homes we sold. Such originations represented substantially all of our total originations in each of those years.

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

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

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

     Our subsidiary title insurance companies serve as title insurance agents in selected markets by providing title insurance policies, and examination and closing services to buyers of homes we sell.

Financial Information About Geographic Areas

     We currently operate primarily within the United States. However, we have some non-operating foreign entities, which are insignificant to our consolidated financial results.

Discontinued Operations

First Heights

     In 2005, we completed the disposal of First Heights, our former bank subsidiary. During the years ended December 31, 2006 and 2005, results of operations were included in income from discontinued operations. Income from discontinued operations for the year ended December 31, 2005 included income tax benefits resulting from the favorable resolution of certain tax matters. We also received payment in December 2005 for a judgment resulting from litigation related to First Heights’ 1988 acquisition from the Federal Savings and Loan Insurance Corporation and First Heights’ ownership of five failed thrifts. The payment was recorded as income from discontinued operations.

Mexico Homebuilding Operations

     In January 2005, the minority shareholders of Pulte Mexico S. de R.L. de C.V. (“Pulte Mexico”) exercised a put option under the terms of a reorganization agreement dated as of December 31, 2001, to sell their shares to us, the consummation of which resulted in our owning 100% of Pulte Mexico. In March 2005, we purchased 60% of the minority interest of Pulte Mexico for approximately $18.7 million in cash. In June 2005, we purchased the remaining 40% of the minority interest of Pulte Mexico for approximately $12.5 million in cash.

     In December 2005, we sold substantially all of our Mexico homebuilding operations to a consortium of purchasers involved in residential and commercial real estate development. We realized cash of $131.5 million related to the sale. The sale of these operations did not include our investment in the capital stock of a mortgage company in Mexico as well as various non-operating entities, which are not considered to be material to our results of operations or our financial position. For 2007, 2006, and 2005, the Mexico homebuilding operations have been presented as discontinued operations in our Consolidated Financial Statements.

Argentina

     In January 2005, we sold all of our Argentina operations to an Argentine company involved in residential and commercial real estate development. For the year ended December 31, 2006, loss from discontinued operations included a provision resulting from a contractual adjustment related to the disposition.

Other Non-Operating Expenses

     Other non-operating expenses, net consists of income and expenses related to corporate services provided to our subsidiaries. These expenses are incurred for financing, developing, and implementing strategic initiatives centered on new business development and operating efficiencies and providing the necessary administrative support associated with being a publicly traded entity listed on the New York Stock Exchange.

Organization/Employees

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

     At December 31, 2007, we employed approximately 8,500 people, of which approximately 2,200 people were employed in our vertically-integrated construction operations in our Southwest reporting segment. Our employees are not represented by any union. Contracted work, however, may be performed by union contractors. Homebuilding and mortgage banking management personnel are paid performance bonuses and incentive compensation. Performance bonuses are based on individual performance while incentive compensation is based on the performance of the applicable business unit, subsidiary or the Company. Our corporate management personnel are paid incentive compensation based on our overall performance. Each subsidiary is given autonomy regarding employment of personnel, although our senior corporate management acts in an advisory capacity in the employment of subsidiary officers. We consider our employee and contractor relations to be satisfactory.

ITEM 1A. RISK FACTORS

     Discussion of our business and operations included in this annual report on Form 10-K should be read together with the risk factors set forth below. They describe various risks and uncertainties to which we are, or may become subject. These risks and uncertainties, together with other factors described elsewhere in this report, have the potential to affect our business, financial condition, results of operations, cash flows, strategies, or prospects in a material and adverse manner.

Downward changes in general economic, real estate construction, or other business conditions could adversely affect our business or our financial results.

     The residential homebuilding industry is sensitive to changes in economic conditions and other factors, such as the level of employment, consumer confidence, consumer income, availability of financing, and interest rate levels. Adverse changes in any of these conditions generally, or in the markets where we operate, could decrease demand and pricing for new homes in these areas or result in customer cancellations of pending contracts, which could adversely affect the number of home deliveries we make or reduce the prices we can charge for homes, either of which could result in a decrease in our revenues and earnings and would adversely affect our financial condition.

The homebuilding industry is currently experiencing an economic down cycle, which has had an adverse effect on our business and results of operations.

     Prior to 2006, land and home prices rose significantly in many of our markets. However, during 2007 and 2006, the homebuilding industry was impacted by lack of consumer confidence, decreased housing affordability, and large supplies of resale and new home inventories which resulted in an industry-wide softening of demand for new homes. As a result of these factors, we have experienced significant decreases in our revenues and profitability. We have also incurred substantial impairments of our land and certain other assets. We cannot predict the duration or the severity of the current market conditions, nor provide any assurances that the adjustments we have made in our operating strategy to address these conditions will be successful.

If the market value of our land and homes drops significantly, our profits could decrease.

     The market value of land, building lots and housing inventories can fluctuate significantly as a result of changing market conditions and the measures we employ to manage inventory risk may not be adequate to insulate our operations from a severe drop in inventory values. We acquire land for expansion into new markets and for replacement of land inventory and expansion within our current markets. If housing demand decreases below what we anticipated when we acquired our inventory, we may not be able to make profits similar to what we have made in the past, we may experience less than anticipated profits, and/or we may not be able to recover our costs when we sell and build homes. When market conditions are such that land values are not appreciating, option arrangements previously entered into may become less desirable, at which time we may elect to forego deposits and pre-acquisition costs and terminate the agreement. In the face of adverse market conditions, we may have substantial inventory carrying costs, we may have to write-down our inventory to its fair value, and/or we may have to sell land or homes at a loss.

     As a result of the changing market conditions in the homebuilding industry which occurred during 2007 and 2006, we incurred significant land-related charges in 2007 and 2006 resulting from the write-off of deposit and other related costs related to land transactions we no longer plan to pursue, net realizable valuation adjustments related to land positions sold or held for sale, impairments on land assets related to communities under development or to be developed in the future, and impairments of our investments in unconsolidated joint ventures. It is possible that the estimated cash flows from these projects may change and could result in a future need to record additional valuation or net realizable adjustments. Additionally, if conditions in the homebuilding industry worsen in the future or if our strategy related to certain communities changes, we may be required to evaluate our assets, including additional projects, for additional impairments or write-downs, which could result in additional charges that might be significant.

Our success depends on our ability to acquire land suitable for residential homebuilding at reasonable prices, in accordance with our land investment criteria.

     The homebuilding industry is highly competitive for suitable land. The availability of finished and partially finished developed lots and undeveloped land for purchase that meet our internal criteria depends on a number of factors outside our control, including land availability in general, competition with other homebuilders and land buyers for desirable property, inflation in land prices, zoning, allowable housing density, and other regulatory requirements. Should suitable lots or land become less available, the number of homes we may be able to build and sell could be reduced, and the cost of land could be increased, perhaps substantially, which could adversely impact our results of operations.

     Our long-term ability to build homes depends on our acquiring land suitable for residential building at reasonable prices in locations where we want to build. Over the past few years, we have experienced an increase in competition for suitable land as a result of land constraints in many of our markets. As competition for suitable land increases, and as available land is developed, the cost of acquiring suitable remaining land could rise, and the availability of suitable land at acceptable prices may decline. Any land shortages or any decrease in the supply of suitable land at reasonable prices could limit our ability to develop new communities or result in increased land costs. We may not be able to pass through to our customers any increased land costs, which could adversely impact our revenues, earnings, and margins.

Future increases in interest rates, reductions in mortgage availability, or increases in the effective costs of owning a home could prevent potential customers from buying our homes and adversely affect our business and financial results.

     Most of our customers finance their home purchases through our mortgage bank. Interest rates have been at historical lows for several years. Many homebuyers have also chosen adjustable rate, interest-only, or other types of mortgages that involve lower initial monthly payments. As a result, new homes have been more affordable. Increases in interest rates or decreases in availability of mortgage financing, however, could reduce the market for new homes. Potential homebuyers may be less willing or able to pay the increased monthly costs or to obtain mortgage financing that exposes them to interest rate changes. Lenders may increase the qualifications needed for mortgages or adjust their terms to address any increased credit risk. Even if potential customers do not need financing, changes in interest rates and mortgage availability could make it harder for them to sell their current homes to potential buyers who need financing. These factors could adversely affect the sales or pricing of our homes and could also reduce the volume or margins in our financial services business. Beginning in early 2007, the availability of certain mortgage financing products has become more constrained as the mortgage industry began to more closely scrutinize sub-prime, Alt-A, and other non-conforming mortgage products. While we do not retain any material risks associated with the loans we originate, our financial services business could be impacted to the extent we are unable to match interest rates and amounts on loans we have committed to originate through the various hedging strategies we employ. Additionally, these developments have had, and may continue to have, a material adverse effect on the overall demand for new housing and thereby on the results of operations for our homebuilding business.

     In addition, we believe that the availability of FHA and VA mortgage financing is an important factor in marketing some of our homes. We also believe that the liquidity provided by Fannie Mae and Freddie Mac to the mortgage industry is important to the housing market. Any limitations or restrictions on the availability of financing by these agencies could adversely affect interest rates, mortgage financing, and our sales of new homes and mortgage loans.

Our future growth may require additional capital, which may not be available.

     Our operations require significant amounts of cash. We may be required to seek additional capital, whether from sales of equity or debt or additional bank borrowings, for the future growth and development of our business. We can give no assurance as to the availability of such additional capital or, if available, whether it would be on terms acceptable to us. Moreover, the indentures for most of our outstanding public debt and the covenants of our revolving credit facility contain provisions that may restrict the debt we may incur in the future. If we are not successful in obtaining sufficient capital, it could reduce our sales and may adversely affect our future growth and financial results.

Competition for homebuyers could reduce our deliveries or decrease our profitability.

     The housing industry in the United States is highly competitive. We compete primarily on the basis of price, reputation, design, location, and quality of our homes. We compete in each of our markets with numerous national, regional, and local homebuilders. This competition with other homebuilders could reduce the number of homes we deliver or cause us to accept reduced margins in order to maintain sales volume.

     We also compete with resales of existing or foreclosed homes, housing speculators, and available rental housing. Increased competitive conditions in the residential resale or rental market in the regions where we operate could decrease demand for new homes and increase cancellations of sales contracts in backlog.

Supply shortages and other risks related to the demand for skilled labor and building materials could increase costs and delay deliveries.

     The homebuilding industry is highly competitive for skilled labor and materials. Increased costs or shortages of skilled labor and/or lumber, framing, concrete, steel, and other building materials could cause increases in construction costs and construction delays. The current national debate related to immigration reform could impact the related laws and regulations in the markets in which we operate and result in shortages of skilled labor and higher labor and compliance costs, potentially affecting our ability to complete construction and land development. We generally are unable to pass on increases in construction costs to those customers who have already entered into sale contracts as those sales contracts generally fix the price of the home at the time the contract is signed, which may be well in advance of the construction of the home. Sustained increases in construction costs may, over time, erode our margins, and pricing competition for materials and labor may restrict our ability to pass on any additional costs, thereby decreasing our margins.

Our income tax provision and tax reserves may be insufficient if a taxing authority is successful in asserting positions that are contrary to our interpretations and related reserves, if any.

     Significant judgment is required in determining our provision for income taxes and our reserves for federal, state, and local taxes. In the ordinary course of business, there may be matters for which the ultimate outcome is uncertain. Although we believe our approach to determining the tax treatment is appropriate, no assurance can be given that the final tax authority review will not be materially different than that which is reflected in our income tax provision and related tax reserves. Such differences could have a material adverse effect on our income tax provision in the period in which such determination is made and, consequently, on our net income for such period.

     From time to time, we are audited by various federal, state, and local authorities regarding tax matters. Our current audits are in various stages of completion; however, no outcome for a particular audit can be determined with certainty prior to the conclusion of the audit, appeal and, in some cases, litigation process. As each audit is concluded, adjustments, if any, are appropriately recorded in our financial statements in the period determined. To provide for potential tax exposures, we maintain tax reserves based on reasonable estimates of potential audit results. However, if the reserves are insufficient upon completion of an audit, there could be an adverse impact on our financial position and results of operations.

We may not realize our deferred income tax assets.

     The ultimate realization of our deferred income tax assets is dependent upon utilization of taxable income in prior carryback years, generating future taxable income, executing tax planning strategies, and reversals of existing taxable temporary differences. We have recorded a valuation allowance against certain deferred income tax assets. The valuation allowance may fluctuate as conditions change or if we are unable to implement certain tax planning strategies. An increase in the valuation allowance would reduce the carrying value of the deferred income tax assets and have an adverse impact on our financial position and results of operations.

Government regulations could increase the cost and limit the availability of our development and homebuilding projects or affect our related financial services operations and adversely affect our business or financial results.

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

     New housing developments may be subject to various assessments for schools, parks, streets, and other public improvements. These can cause an increase in the effective prices for our homes. In addition, increases in property tax rates by local governmental authorities, as recently experienced in response to reduced federal and state funding, can adversely affect the ability of potential customers to obtain financing or their desire to purchase new homes.

     We also are subject to a variety of local, state, and federal laws and regulations concerning protection of health, safety, and the environment. The impact of environmental laws varies depending upon the prior uses of the building site or adjoining properties and may be greater in areas with less supply where undeveloped land or desirable alternatives are less available. These matters may result in delays, may cause us to incur substantial compliance, remediation and other costs, and can prohibit or severely restrict development and homebuilding activity in environmentally sensitive regions or areas.

     Our financial services operations are also subject to numerous federal, state, and local laws and regulations. These include eligibility requirements for participation in federal loan programs and compliance with consumer lending and similar requirements such as disclosure requirements, prohibitions against discrimination, and real estate settlement procedures. They may also subject our operations to examination by applicable agencies. These may limit our ability to provide mortgage financing or title services to potential purchasers of our homes.

Homebuilding is subject to warranty and liability claims in the ordinary course of business that can be significant.

     As a homebuilder, we are subject to home warranty and construction defect claims arising in the ordinary course of business. We record warranty and other reserves for the homes we sell based on historical experience in our markets and our judgment of the qualitative risks associated with the types of homes built. We have, and require the majority of our subcontractors to have, general liability, property, errors and omissions, workers compensations, and other business insurance. These insurance policies protect us against a portion of our risk of loss from claims, subject to certain self-insured retentions, deductibles, and other coverage limits. Through our captive insurance subsidiaries, we reserve for costs to cover our self-insured and deductible amounts under these policies and for any costs of claims and lawsuits, based on an analysis of our historical claims, which includes an estimate of claims incurred but not yet reported. Because of the uncertainties inherent to these matters, we cannot provide assurance that our insurance coverage, our subcontractor arrangements and our reserves will be adequate to address all our warranty and construction defect claims in the future. Contractual indemnities can be difficult to enforce, we may be responsible for applicable self-insured retentions and some types of claims may not be covered by insurance or may exceed applicable coverage limits. Additionally, the coverage offered by and the availability of general liability insurance for construction defects are currently limited and costly. We have responded to the recent increases in insurance costs and coverage limitations by increasing our self-insured retentions and claim reserves. There can be no assurance that coverage will not be further restricted and become more costly.

Natural disasters and severe weather conditions could delay deliveries, increase costs, and decrease demand for new homes in affected areas.

     Our homebuilding operations are located in many areas that are subject to natural disasters and severe weather. The occurrence of natural disasters or severe weather conditions can delay new home deliveries, increase costs by damaging inventories, reduce the availability of materials, and negatively impact the demand for new homes in affected areas. Furthermore, if our insurance does not fully cover business interruptions or losses resulting from these events, our earnings, liquidity, or capital resources could be adversely affected.

Inflation may result in increased costs that we may not be able to recoup if demand declines.

     Inflation can have a long-term impact on us because increasing costs of land, materials, and labor may require us to increase the sales prices of homes in order to maintain satisfactory margins. However, inflation is often accompanied by higher interest rates, which have a negative impact on housing demand, in which case we may not be able to raise home prices sufficiently to keep up with the rate of inflation and our margins could decrease.

Future terrorist attacks against the United States or increased domestic and international instability could have an adverse effect on our operations.

     A future terrorist attack against the United States could cause a sharp decrease in the number of new contracts signed for homes and an increase in the cancellation of existing contracts. Accordingly, adverse developments in the war on terrorism, future terrorist attacks against the United States, or increased domestic and international instability could adversely affect our business.

ITEM 1B. UNRESOLVED STAFF COMMENTS

     This Item is not applicable.

ITEM 2. PROPERTIES

     Our homebuilding and corporate headquarters are located at 100 Bloomfield Hills Parkway, Bloomfield Hills, Michigan 48304, where we lease 155,392 square feet of office space. We lease 54,380 square feet of office space at 1230 West Washington Street, Tempe, Arizona 85281 for certain corporate and business services. Pulte Mortgage’s offices are located at 7475 South Joliet Street, Englewood, Colorado 80112 and 12300 East Arapahoe Road, Centennial, Colorado 80112. We lease approximately 61,436 square feet and 43,050 square feet, respectively, of office space at these locations. Pulte Mortgage also leases 31,803 square feet of office space at 3700 Arco Corporate Drive, Charlotte, North Carolina 28273. Our homebuilding markets and mortgage branch operations generally lease office space for their day-to-day operations.

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

     ITEM 3. LEGAL PROCEEDINGS

     We are involved in various legal and governmental proceedings incidental to our continuing business operations, many involving claims related to certain construction defects. The consequences of these matters are not presently determinable but, in our opinion after consulting with legal counsel and taking into account insurance and reserves, the ultimate liability is not expected to have a material adverse impact on our results of operations, financial position, or cash flows.

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

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

     This Item is not applicable.

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

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

								Year Became
Name		Age				Position		An Officer
William J. Pulte			75			Chairman of the Board			1956
Richard J. Dugas, Jr.			42			President and Chief Executive Officer			2002
Steven C. Petruska			49			Executive Vice President and Chief Operating Officer			2004
Roger A. Cregg			51			Executive Vice President and Chief Financial Officer			1997
James R. Ellinghausen			49			Executive Vice President, Human Resources			2005
Peter J. Keane			42			Senior Vice President, Operations			2006
Steven M. Cook			49			Vice President, General Counsel and Secretary			2006
Vincent J. Frees			57			Vice President and Controller			1995
Gregory M. Nelson			52			Vice President and Assistant Secretary			1993
Bruce E. Robinson			46			Vice President and Treasurer			1998

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

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

Mr. Dugas was appointed President and Chief Executive Officer in July 2003. Prior to that date, he served as Executive Vice President and Chief Operating Officer. He was appointed Chief Operating Officer in May 2002 and Executive Vice President in December 2002. Since joining our company in 1994, he has served in a variety of management positions.

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

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

Mr. Ellinghausen was appointed Executive Vice President, Human Resources in December 2006 and previously held the position of Senior Vice President, Human Resources since April 2005. Prior to joining our Company, Mr. Ellinghausen held the position of Head of Human Resources for Bristol-Meyers Squibb Company Worldwide Businesses and was employed by Bristol-Meyers Squibb Company since 1997.

Mr. Keane was appointed Senior Vice President, Operations, in January 2006. He joined Pulte in 1993 and has served in a variety of management positions, mostly in the Midwest region. Most recently, he was the President of the Great Lakes Area.

Mr. Cook was appointed Vice President, General Counsel and Secretary in February 2006. Prior to joining our Company, Mr. Cook most recently held the position of Vice President and Deputy General Counsel, Corporate, at Sears Holdings Corporation and was employed by Sears, Roebuck and Co. since 1996.

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

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

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

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

PART II

ITEM 5.		MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

     Our common shares are listed on the New York Stock Exchange (Symbol: PHM).

     Related Stockholder Matters

     The table below sets forth, for the quarterly periods indicated, the range of high and low closing prices and cash dividends declared per share.

		2007												2006
										Declared												Declared
		High				Low				Dividends				High				Low				Dividends
1st Quarter		$	35.10			$	25.99			$	0.04			$	40.72			$	36.04			$	0.04
2nd Quarter			27.61				22.45				0.04				37.05				26.56				0.04
3rd Quarter			21.85				13.47				0.04				33.23				27.53				0.04
4th Quarter			13.68				9.08				0.04				34.80				28.29				0.04

     At February 20, 2008, there were 1,838 shareholders of record.

Issuer Purchases of Equity Securities (1)

														(d)
														Approximate dollar
										(c)				value of shares
										Total number of				that may yet be
		(a)				(b)				shares purchased				purchased under
		Total number				Average				as part of publicly				the plans or
		of shares				price paid				announced plans				programs
		purchased (2)				per share (2)				or programs				($000’s omitted)
October 1, 2007 to October 31, 2007			582			$	14.15				—			$	102,342	(1)
November 1, 2007 to November 30, 2007			—				—				—			$	102,342	(1)
December 1, 2007 to December 31, 2007			87,535			$	11.58				—			$	102,342	(1)
Total			88,117			$	11.59				—			$	102,342	(1)

Performance Graph

     The following line graph compares for the fiscal years ended December 31, 2003, 2004, 2005, 2006, and 2007 (a) the yearly cumulative total shareholder return (i.e. , the change in share price plus the cumulative amount of dividends, assuming dividend reinvestment, divided by the initial share price, expressed as a percentage) on Pulte’s common shares, with (b) the cumulative total return of the Standard & Poor’s 500 Stock Index, and with (c) the cumulative total return on the common stock of publicly-traded peer issuers we deem to be our principal competitors in the homebuilding line of business (assuming dividend reinvestment and weighted based on market capitalization at the beginning of each year):

Performance Graph (continued)

COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG PULTE HOMES, INC. , S&P 500 INDEX, AND PEER INDEX
Fiscal Year Ended December 31, 2007
Assumes Initial Investment of $100

				2002					2003					2004					2005					2006					2007
	PULTE HOMES INC				100.00					196.18					268.30					332.10					280.86					90.22
	S&P 500 Index — Total Return				100.00					128.69					142.68					149.69					173.33					182.85
	PEER Only**				100.00					217.61					288.76					336.34					266.28					116.74

ITEM 6. SELECTED FINANCIAL DATA

     Set forth below is selected consolidated financial data for each of the past five fiscal years. The selected financial data should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and our Consolidated Financial Statements and Notes thereto included elsewhere in this report.

		Years Ended December 31,
		($000’s omitted)
		2007				2006				2005				2004				2003
OPERATING DATA:
Homebuilding:
Revenues		$	9,121,730			$	14,075,248			$	14,528,236			$	11,400,008			$	8,701,661
Income (loss) before income taxes		$	(2,509,492	)		$	1,010,368			$	2,298,822			$	1,635,580			$	1,000,513
Financial Services:
Revenues		$	134,769			$	194,596			$	161,414			$	112,719			$	115,847
Income before income taxes		$	42,980			$	115,460			$	70,586			$	47,429			$	68,846
Other non-operating:
Revenues		$	6,595			$	4,564			$	4,885			$	1,749			$	3,281
Loss before income taxes		$	(30,391	)		$	(43,100	)		$	(92,394	)		$	(90,685	)		$	(75,351	)
Consolidated results:
Revenues		$	9,263,094			$	14,274,408			$	14,694,535			$	11,514,476			$	8,820,789
Income (loss) from continuing operations before income taxes		$	(2,496,903	)		$	1,082,728			$	2,277,014			$	1,592,324			$	994,008
Income taxes (benefit)			(222,486	)			393,082				840,126				598,751				376,460
Income (loss) from continuing operations			(2,274,417	)			689,646				1,436,888				993,573				617,548
Income (loss) from discontinued operations(a)			18,662				(2,175	)			55,025				(7,032	)			7,086
Net income (loss)		$	(2,255,755	)		$	687,471			$	1,491,913			$	986,541			$	624,634
PER SHARE DATA:
Earnings per share — basic:
Income (loss) from continuing operations		$	(9.02	)		$	2.73			$	5.62			$	3.93			$	2.53
Income (loss) from discontinued operations (a)			0.07				(0.01	)			0.22				(0.03	)			0.03
Net income (loss)		$	(8.94	)		$	2.73			$	5.84			$	3.91			$	2.56
Weighted-average common shares outstanding (000’s omitted)			252,192				252,200				255,492				252,590				244,323
Earnings per share — assuming dilution:
Income (loss) from continuing operations		$	(9.02	)		$	2.67			$	5.47			$	3.82			$	2.46
Income (loss) from discontinued operations (a)			0.07				(0.01	)			0.21				(0.03	)			0.03
Net income (loss)		$	(8.94	)		$	2.66			$	5.68			$	3.79			$	2.48
Weighted-average common shares outstanding and effect of dilutive securities (000’s omitted)			252,192				258,621				262,801				260,234				251,460
Shareholders’ equity		$	16.80			$	25.76			$	23.18			$	17.68			$	13.78
Cash dividends declared		$	0.16			$	0.16			$	0.13			$	0.10			$	0.05

ITEM 6. SELECTED FINANCIAL DATA (continued)

		December 31,
		($000’s omitted)
		2007				2006				2005				2004				2003
BALANCE SHEET DATA:
House and land inventories		$	7,027,511			$	9,374,335			$	8,756,093			$	7,241,350			$	5,378,125
Total assets			10,225,703				13,176,874				13,060,860				10,406,897				8,072,151
Senior notes			3,478,230				3,537,947				3,386,527				2,861,550				2,150,972
Shareholders’ equity			4,320,193				6,577,361				5,957,342				4,522,274				3,448,123

		Years Ended December 31,
		2007				2006				2005				2004				2003
OTHER DATA:
Homebuilding:
Total markets, at year-end			51				52				54				45				44
Total active communities			636				690				662				626				535
Total settlements — units			27,540				41,487				45,630				38,612				32,693
Total net new orders — units (a)			25,175				33,925				47,531				40,576				34,989
Backlog units, at year-end			7,890				10,255				17,817				15,916				13,952
Average unit selling price		$	322,000			$	337,000			$	315,000			$	287,000			$	259,000
Gross profit margin from home sales (b)			(5.0	)%			17.4	%			23.4	%			22.6	%			20.6	%

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

Overview

     During 2007 and 2006, the U.S. housing market was impacted by a lack of consumer confidence, decreased housing affordability, and large supplies of resale and new home inventories and related pricing pressures. During 2007, these conditions continued to deteriorate and were accompanied by increased foreclosure activity and constraints on the availability of certain mortgage financing products. These factors contributed to weakened demand for new homes, slower sales, higher cancellation rates, and increased price discounts and selling incentives to attract homebuyers compared with recent years when we had experienced record growth. The combination of these homebuilding industry and related mortgage financing developments resulted in significant decreases in our revenues and profitability during 2007. Additionally, we incurred total land-related charges of $2 billion and $409.5 million in 2007 and 2006, respectively, which represent significant increases from land-related charges of $30 million in 2005. We also recorded impairments of our investments in unconsolidated joint ventures totaling $189.9 million and $95.4 million in 2007 and 2006, respectively, and goodwill impairments of $370 million in 2007.

     We continue to operate our business with the expectation that difficult market conditions will continue to impact us for at least the near term. We expect these trends in our unit settlements and pricing to continue and the majority of the markets we serve to remain challenging throughout 2008. We have adjusted our approach to land acquisition and development and construction practices and continue to shorten our land pipeline, limit land development expenditures, reduce production volumes, and balance home price and profitability with sales pace. We are delaying planned land purchases and development spending and have significantly reduced our total number of controlled lots owned and under option. Additionally, we are significantly reducing the number of speculative homes put into production. While we will continue to purchase select land positions where it makes strategic and economic sense to do so, we currently anticipate minimal investment in new land parcels in the near term. We have also closely evaluated and made significant reductions in employee headcount and overhead expenses. In May 2007, we announced a restructuring plan designed to reduce costs and improve ongoing operating efficiencies, which resulted in related charges of $45.7 million in 2007. Given the persistence of these difficult market conditions, improving the efficiency of our overhead costs will continue to be a significant area of focus. We believe that these measures will help to strengthen our market position and allow us to take advantage of opportunities that may develop in the future.

     Given the continued weakness in new home sales and closings, visibility as to future earnings performance is limited. Our outlook is tempered with caution, as conditions in many of the markets we serve across the United States have become increasingly challenging. Our evaluation for land-related charges recorded to date assumed our best estimates of cash flows for the communities tested. If conditions in the homebuilding industry worsen in the future or if our strategy related to certain communities changes, we may be required to evaluate our assets, including additional projects, for additional impairments or write-downs, which could result in additional charges that might be significant.

     The following is a summary of our operating results for 2007, 2006, and 2005 ($000’s omitted):

		Years Ended December 31,
		2007				2006				2005
Pre-tax income (loss):
Homebuilding		$	(2,509,492	)		$	1,010,368			$	2,298,822
Financial Services			42,980				115,460				70,586
Other non-operating			(30,391	)			(43,100	)			(92,394	)
Income (loss) from continuing operations before income taxes			(2,496,903	)			1,082,728				2,277,014
Income taxes (benefit)			(222,486	)			393,082				840,126
Income (loss) from continuing operations			(2,274,417	)			689,646				1,436,888
Income (loss) from discontinued operations			18,662				(2,175	)			55,025
Net income (loss)		$	(2,255,755	)		$	687,471			$	1,491,913
Per share data — assuming dilution:
Income (loss) from continuing operations		$	(9.02	)		$	2.67			$	5.47
Income (loss) from discontinued operations			0.07				(0.01	)			0.21
Net income (loss)		$	(8.94	)		$	2.66			$	5.68

Overview (continued)

     The following is a comparison of pre-tax income (loss) for 2007, 2006, and 2005:

•		Homebuilding pre-tax loss for 2007 was $2.5 billion compared with Homebuilding pre-tax income of $1 billion and $2.3 billion, respectively, for 2006 and 2005. The pre-tax loss experienced in 2007 resulted from lower settlement revenues combined with lower gross margins. In addition, for 2007 and 2006, results of operations were affected by land-related charges totaling $2 billion and $409.5 million, respectively, and impairments of our investments in unconsolidated joint ventures of $189.9 million and $95.4 million, respectively. Gross margins in 2007 were unfavorably impacted by lower selling prices and increased sales incentives. Land-related charges for 2007 and 2006 consisted of write-offs of deposits and other related costs for land transactions we no longer plan to pursue ($239.7 million and $151.2 million, respectively), net realizable valuation adjustments related to land positions sold or held for sale ($199.2 million and $54.6 million, respectively), and impairments on land assets related to communities under development or to be developed in the future ($1.6 billion and $203.8 million, respectively). In addition, we incurred goodwill impairment charges of $370 million in 2007. There were no significant land-related charges in 2005.
•		Pre-tax income from our Financial Services business segment decreased 63% in 2007 compared with 2006 after increasing 64% in 2006 compared with 2005. Pre-tax income for 2006 includes a one-time gain of $31.6 million related to the sale of our investment in Su Casita, a Mexican mortgage banking company, which occurred in the first quarter of 2006. The significant decrease in 2007 is also the result of lower loan originations due to significant decreases in the number of homes closed as well as increased loan loss reserves. Capture rates were 92%, 91%, and 89% in 2007, 2006, and 2005, respectively.
•		Our Other non-operating loss decreased 29% in 2007 compared with 2006 after decreasing 53% in 2006 compared with 2005, due primarily to reductions in compensation-related costs.

Homebuilding Operations

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

		Year Ended December 31,
		2007				2006				2005
Home sale revenue (settlements)		$	8,881,509			$	13,975,387			$	14,370,667
Land sale revenue			240,221				99,861				157,569
Home cost of sales (a)			(9,329,354	)			(11,544,905	)			(11,005,591	)
Land cost of sales (b)			(418,177	)			(138,528	)			(139,377	)
Selling, general, and administrative expenses			(1,060,818	)			(1,136,027	)			(1,107,816	)
Equity income (loss) (c)			(190,383	)			(95,244	)			72,604
Other income (expense), net (d)			(632,490	)			(150,176	)			(49,234	)
Pre-tax income (loss)		$	(2,509,492	)		$	1,010,368			$	2,298,822
Unit settlements			27,540				41,487				45,630
Average selling price		$	322			$	337			$	315
Net new orders:
Units			25,175				33,925				47,531
Dollars (e)		$	7,812,000			$	11,253,000			$	15,518,000
Backlog at December 31:
Units			7,890				10,255				17,817
Dollars		$	2,510,000			$	3,580,000			$	6,301,000

     Home sale revenues for the year ended December 31, 2007 were lower than those for the prior year by approximately $5.1 billion, or 36%. Unit settlements decreased 34% in 2007 to 27,540 units, compared with 2006 and increased 9% for 2006 to 41,487 units, compared with 2005. The average selling price for homes closed in 2007, 2006, and 2005 was $322,000, $337,000, and $315,000, respectively. The changes in average selling price reflect a combination of factors, including changes in product mix and geographic mix of homes closed during the period as well as lower market selling prices. The average selling price decreased in the majority of our Homebuilding segments during 2007.

     Homebuilding gross profit margins from home sales in 2007 were negative 5%, compared with positive 17.4% in 2006. In 2006, homebuilding gross profit margins decreased 600 basis points from 23.4% in 2005. The significant decreases in gross profit margins that commenced in 2006 and continued into 2007 were attributable to the difficult market conditions and challenging sales environment where we have realized lower average selling prices and increased sales incentives related to homes closed during the year. In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144), we recorded land and community valuation adjustments of $1.6 billion and $203.8 million in 2007 and 2006, respectively, which included capitalized interest of $110.8 million and $16 million in 2007 and 2006, respectively. There were no significant valuation adjustments recorded during the year ended December 31, 2005.

Homebuilding Operations (continued)

     We acquire land primarily for the construction of our homes for sale to homebuyers. We select locations for development of homebuilding communities after completing extensive market research, enabling us to match the location and product offering with our targeted consumer group. Where we develop land, we engage directly in many phases of the development process, including land and site planning, obtaining environmental and other regulatory approvals, as well as constructing roads, sewers, water and drainage facilities, and other amenities. We will often sell select parcels of land within or adjacent to our communities to retail and commercial establishments. We also will, on occasion, sell lots within our communities to other homebuilders. Gross profit from land sales had negative margin contributions of $178 million and $38.7 million for 2007 and 2006, respectively, compared with a positive margin contribution of $18.2 million for 2005. Land sale revenues and their related gains/losses may vary significantly between periods, depending on the timing of land sales. We continue to evaluate our existing land positions to ensure the most effective use of capital. Land held for disposition was $252.6 million as of December 31, 2007, compared with $465.8 million at December 31, 2006. During 2007 and 2006, we recorded net realizable value adjustments for land held for sale of $199.2 and $54.6 million, respectively. There were no significant net realizable value adjustments in 2005.

     For the year ended December 31, 2007, selling, general, and administrative expenses, as a percentage of home settlement revenues, increased 380 basis points to 11.9% compared with 2006, after increasing 40 basis points to 8.1% in 2006 compared with 2005. These increases are attributable primarily to reduced overhead leverage as a result of the significant decrease in revenues, lower absorption into inventory of overhead costs due to lower construction volume, net increases in insurance related expenses of $57.7 million and $15.5 million in 2007 and 2006, respectively, and employee severance benefits, including $32 million of severance benefits related to the restructuring plan initiated in May 2007.

     Equity loss was $190.4 million and $95.2 million for 2007 and 2006, respectively, compared with equity income of $72.6 million for 2005. The equity losses experienced for 2007 and 2006 included impairments related to investments in unconsolidated joint ventures totaling $189.9 million and $95.4 million, respectively. Additionally, the decrease in 2006 equity income, compared with the prior year, is also the result of our January 2006 acquisition of the remaining 50% interest in an entity that supplies and installs basic building components and operating systems. As a result of this acquisition, we own 100% of this entity, which is consolidated in our financial statements. In 2005, earnings for this investment were recorded in equity income. In addition, earnings from our 50% investment in a Nevada-based joint venture, related to the sale of commercial and residential properties, decreased in 2006 as the venture substantially completed its operations in 2005.

     Other income (expense), net includes the write-off of deposits and other related costs resulting from decisions not to pursue certain land acquisitions and options, insurance-related expenses and settlements, and other non-operating expenses. The changes in other income (expense), net are due in part to write-offs of deposit and other related costs during 2007, 2006, and 2005 of $239.7 million, $151.2 million, and $19.2 million, respectively. These write-offs vary in amount from year to year as we continue to evaluate potential land acquisitions for the most effective use of capital. Other income (expense), net also includes goodwill impairment charges of $370 million in 2007 and charges of $2.3 million and $18.5 million in 2007 and 2006, respectively, related to the closure of a production facility located in Virginia.

Homebuilding Operations (continued)

     For 2007, unit net new orders decreased 26% to 25,175 units compared with 2006. For 2006, unit net new orders decreased 29% to 33,925 units, compared with 2005. Cancellation rates were 33%, 29%, and 17% in 2007, 2006, and 2005, respectively. Most markets experienced a substantial increase in resale and new home inventory, and this, combined with declining consumer confidence, decreased housing affordability, increased interest rates, difficulties experienced by customers in selling their existing homes, and the more restrictive mortgage financing market, has resulted in higher cancellation rates and reduced net new orders during 2007 and 2006.

     The dollar value of net new orders decreased 31% for 2007 compared with 2006 and decreased 27% for 2006 compared with 2005. The average selling price of net new orders decreased 7% to $310,000 in 2007 after increasing 2% to $332,000 in 2006. At December 31, 2007, we had 636 active selling communities, a decrease of 8% from December 31, 2006. At December 31, 2006, we had 690 active selling communities, an increase of 4% from December 31, 2005. Ending backlog, which represents orders for homes that have not yet closed, was 7,890 units at December 31, 2007 with a dollar value of $2.5 billion. Ending backlog was 10,255 units at December 31, 2006 with a dollar value of $3.6 billion.

     At December 31, 2007 and 2006, our Homebuilding operations controlled approximately 157,900 and 232,200 lots, respectively. Approximately 131,400 and 158,800 lots were owned, and approximately 24,800 and 63,700 lots were under option agreements approved for purchase at December 31, 2007 and 2006, respectively. In addition, there were approximately 1,700 and 9,700 lots under option agreements, pending approval, at December 31, 2007 and 2006, respectively. During 2007, we withdrew from land option contracts representing approximately 43,900 lots valued at $2.4 billion.

     The total purchase price related to approved land under option for use by our Homebuilding operations at future dates approximated $1.5 billion at December 31, 2007. In addition, total purchase price related to land under option pending approval was valued at approximately $95.1 million at December 31, 2007. Land option agreements, which may be cancelled at our discretion, may extend over several years and are secured by deposits and advanced costs totaling $226.2 million, of which $3.7 million is refundable. This balance excludes $25.8 million of contingent payment obligations which may or may not become actual obligations of the Company.

Homebuilding Segment Operations

     The Homebuilding operations represent our core business. Homebuilding offers a broad product line to meet the needs of first-time, first and second move-up, and active adult homebuyers. We have determined our operating segments to be our Areas, which are aggregated into seven reportable segments based on similarities in the economic and geographic characteristics of our homebuilding operations. We conduct our operations in 51 markets, located throughout 26 states, and have presented our reportable homebuilding segments 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

     We also have one reportable segment for our financial services operations which consists principally of mortgage banking and title operations conducted through Pulte Mortgage and our other subsidiaries. Our Financial Services segment operates generally in the same markets as our Homebuilding segments.

Homebuilding Segment Operations (continued)

     The following table presents selected financial information for our homebuilding reporting segments:

		Year Ended December 31,
		2007				2006				2005
Home sale revenue (settlements) ($000’s omitted):
Northeast		$	1,113,805			$	1,650,129			$	1,856,906
Southeast			1,173,485				1,254,337				950,792
Florida			1,087,918				2,209,864				2,247,513
Midwest			1,146,991				1,639,940				2,055,483
Central			575,541				894,450				793,273
Southwest			2,316,147				3,694,571				3,259,913
California			1,467,622				2,632,096				3,206,787
		$	8,881,509			$	13,975,387			$	14,370,667
Income (loss) before income taxes ($000’s omitted):
Northeast		$	(149,793	)		$	127,376			$	326,399
Southeast			72,799				88,162				86,683
Florida			(347,587	)			381,924				475,939
Midwest			(339,193	)			(90,695	)			140,232
Central			(121,351	)			16,038				10,560
Southwest			(249,173	)			714,185				745,163
California			(545,369	)			107,368				654,940
Unallocated (a)			(829,825	)			(333,990	)			(141,094	)
		$	(2,509,492	)		$	1,010,368			$	2,298,822
Unit settlements:
Northeast			2,573				3,489				3,909
Southeast			3,990				4,504				4,127
Florida			4,007				7,374				8,784
Midwest			3,888				5,548				7,344
Central			2,623				4,815				4,959
Southwest			7,318				10,548				10,237
California			3,141				5,209				6,270
			27,540				41,487				45,630
Net new orders – units:
Northeast			2,447				2,813				4,019
Southeast			3,563				4,632				4,888
Florida			4,047				4,501				8,383
Midwest			3,319				5,201				7,701
Central			2,371				4,323				5,776
Southwest			6,609				8,365				10,723
California			2,819				4,090				6,041
			25,175				33,925				47,531
Unit backlog:
Northeast			791				917				1,593
Southeast			1,281				1,708				1,580
Florida			1,252				1,212				4,085
Midwest			828				1,397				1,744
Central			870				1,122				1,614
Southwest			2,010				2,719				4,902
California			858				1,180				2,299
			7,890				10,255				17,817

Homebuilding Segment Operations (continued)

		Year Ended December 31,
		2007				2006				2005
Controlled Lots:
Northeast			13,152				27,524				44,088
Southeast			17,170				23,332				31,863
Florida			35,348				48,640				70,434
Midwest			14,098				23,082				47,414
Central			13,023				18,320				28,251
Southwest			49,746				66,034				97,290
California			15,321				25,291				43,275
			157,858				232,223				362,615
Land and community valuation adjustments ($000’s omitted):
Northeast		$	116,418			$	22,206			$	—
Southeast			17,089				1,083				—
Florida			283,919				22,715				—
Midwest			240,380				73,152				7,110
Central			97,615				3,269				608
Southwest			335,044				9,774				—
California			398,717				55,569				—
Total segment land and community valuation adjustments			1,489,182				187,768				7,718
Corporate and unallocated (a)			114,473				16,000				—
Total valuation adjustments		$	1,603,655			$	203,768			$	7,718
Net realizable value adjustments (NRV) - land held for sale ($000’s omitted):
Northeast		$	16,051			$	3,204			$	—
Southeast			6,652				—				14
Florida			27,633				5,596				—
Midwest			103,374				29,784				314
Central			19,140				8,679				2,756
Southwest			14,859				7,014				—
California			11,538				293				—
Total NRV adjustments – land held for sale			199,247			$	54,570			$	3,084
Write-off of deposits and pre-acquisition costs ($000’s omitted):
Northeast		$	60,863			$	33,798			$	2,931
Southeast			3,114				4,514				2,194
Florida			46,763				25,108				1,119
Midwest			10,940				31,644				7,590
Central			5,302				3,987				1,767
Southwest			54,870				21,013				2,283
California			57,864				33,102				2,548
Total segment write-off of deposits and pre-acquisition costs			239,716				153,166				20,432
Corporate and unallocated			—				(1,981	)			(1,237	)
Total write-off of deposits and pre-acquisition costs		$	239,716			$	151,185			$	19,195
Impairments of investments in unconsolidated joint ventures:
Southwest		$	59,075			$	—			$	—
California			128,303				95,400				—
Corporate and unallocated (b)			2,485				—				—
Total joint venture impairments		$	189,863			$	95,400			$	—

Homebuilding Segment Operations (continued)

Northeast:

     For 2007, Northeast home sale revenues decreased 33% compared with the prior year period due to a 26% decrease in unit settlements combined with an 8% decrease in the average selling price, including significant home sale revenue reductions in our Metro New York market. The loss before income taxes was primarily attributable to this reduction in revenues combined with a significant decline in gross margin and $193.3 million in impairments and land-related charges, which resulted in a reduction of approximately 12,800 lots under control. Northeast recorded impairments and land-related charges of $59.2 million in 2006. Net new orders decreased 13% compared with 2006 while the cancellation rate increased to 24% compared with 22% in 2006.

     For 2006, Northeast operations experienced weakened demand for new homes primarily as a result of increases in existing home inventories. Home sale revenues in 2006 decreased 11% due to an 11% decrease in closings. Average sales prices in 2006 were consistent with 2005. For 2006, operating results were negatively impacted by $59.2 million of impairments and land-related charges. There were no significant impairments or land-related charges in 2005. Net new orders for 2006 decreased 30% compared with 2005. During 2006, increased cancellation rates were attributable to lower new order sign-up activity and increased cancellations in all markets. Cancellation rates for 2006 were 22% compared with 14% for 2005.

Southeast:

     Our Southeast segment continued to contribute positively to operating results in 2007 due to strength in local demographic factors and a continued shift in our product mix toward higher price point customers, especially active adult buyers as large active adult communities were opened in our markets in Georgia and the Carolinas at various points during 2006 and 2007. For 2007, Southeast home sale revenues decreased 6% compared with the prior year period as an 11% decrease in unit settlements was offset by a 6% increase in the average selling price. Income before income taxes decreased compared with the prior year period due to $26.9 million in impairments and land-related charges, which resulted in a reduction of approximately 4,700 lots under control. Southeast recorded land-related charges of $5.6 million in 2006. Net new orders declined by 23% compared with 2006 partially due to 2006 including new orders from the successful openings of our large active adult communities in our Charlotte, Raleigh, and Georgia markets. The cancellation rate in 2007 was 28% compared with 24% in 2006.

     For 2006, Southeast operations contributed positively to our Homebuilding operating results, evidenced by increased revenues and unit settlements as well as higher average selling prices and profits compared with prior year periods. The increases in the Southeast’s profitability were attributable to a continued shift in product mix toward the active adult homebuyer. Additionally, we opened a new large active adult community in Charlotte during 2006. Southeast home sale revenues increased 32% compared with 2005 due to a 9% increase in unit settlements combined with a 21% increase in the average selling price. Our Southeast operations recorded impairments and land-related charges of $5.6 million in 2006. There were no significant impairments or land-related charges recorded in 2005. Net new orders in 2006 decreased 5% compared with 2005. The reduction in new orders during 2006 contributed to the increase in cancellation rates. Cancellation rates for 2006 were 24% compared with 18% for 2005.

Homebuilding Segment Operations (continued)

Florida:

     Our Florida segment continues to be challenged due to the combination of a significant decrease in demand combined with high levels of new and existing home inventories, especially in the southern portion of the state. For 2007, Florida home sale revenues decreased 51% compared with the prior year period due to a 46% decrease in unit settlements combined with a 9% decrease in the average selling price, including significant home sale revenue reductions in our Orlando and Southwest Florida markets. The loss before income taxes was primarily attributable to this reduction in revenues combined with a significant decline in gross margin and $358.3 million in impairments and land-related charges, which resulted in a reduction of approximately 7,700 lots under control. Florida recorded impairments and land-related charges of $53.4 million in 2006. Net new orders declined by 10% due to the difficult market conditions. Cancellation rates for 2007 were 30%, which was comparable to the 2006 cancellation rate of 31%.

     During 2006, our Florida operations experienced weakened demand, largely attributable to increased existing home inventories, especially in Orlando and Naples/Ft. Myers. Florida experienced high cancellation rates and pricing pressures associated with excess inventories and aggressive sales incentives offered by competitors. Florida’s home sale revenues decreased 2% compared with 2005, as a 16% decrease in unit settlements was offset by a 17% increase in average selling price. During 2006, we recorded impairments and land-related charges of $53.4 million. There were no significant impairments and land-related charges recorded in 2005. Net new orders for 2006 decreased 46% compared with 2005. For 2006, increased cancellation rates were attributable to lower new order sign-up activity and increased cancellations in all Florida markets. For 2006, cancellation rates were approximately 31% compared with 12% for 2005.

Midwest:

     Our Midwest segment continues to face difficult local economic conditions in the majority of its markets. For 2007, Midwest home sale revenues decreased 30% compared with the prior year period due to a 30% decrease in unit settlements, as all of our Midwest markets experienced home sale revenue reductions. Average selling prices were flat. The increase in the loss before income taxes was primarily attributable to this reduction in revenues and $354.7 million in impairments and land-related charges, which resulted in a reduction of approximately 2,900 lots under control. Midwest recorded impairments and land-related charges of $134.6 million in the prior year period. Net new orders declined by 36% due to the difficult market conditions. Cancellation rates were approximately 26% for 2007 compared with 20% for 2006.

     The Midwest operations were one of the most challenged areas in the country in 2006 as Cleveland and Michigan experienced weakened demand due to difficult local economic conditions. Midwest home sale revenues decreased 20% compared with 2005 as a 24% decrease in unit settlements was offset by a 6% increase in average selling price. For 2006, Midwest operating results were negatively impacted by impairments and land-related charges of $134.6 million. There were no significant impairments or land-related charges recorded in 2005. During 2006, reduced new order sign-up activity resulted in higher cancellation rates. Net new orders in 2006 decreased 32% compared with 2005. For 2006, cancellation rates were approximately 20% compared with 17% for 2005.

Central:

     For 2007, Central home sale revenues decreased 36% compared with the prior year period due to a 46% decrease in unit settlements, as all of our Central markets experienced home sale revenue reductions. This lower unit volume was partially offset by an 18% increase in average selling prices. The loss before income taxes was primarily attributable to this reduction in revenues and $122.1 million in impairments and land-related charges, which resulted in a reduction of approximately 1,400 lots under control. Central recorded impairments and land-related charges of $15.9 million in 2006. Net new orders declined by 45% due to the difficult market conditions. For 2007, cancellation rates were approximately 34% compared with 30% for 2006.

     For 2006, Central home sale revenue increased 13% compared with 2006 as a 3% decrease in unit settlements was offset by a 16% increase in average selling price. Higher average selling prices realized during 2006 were the result of unit settlements in new communities in Texas. During 2006, Central operating results were negatively impacted by impairments and land-related charges of $15.9 million. There were no significant impairments or land-related charges in 2005. Net new orders for 2006 decreased 25% compared with 2005. For 2006, cancellation rates were approximately 30% compared with 22% for 2005.

Homebuilding Segment Operations (continued)

Southwest:

     Market conditions in our Arizona operations deteriorated markedly in 2007 while our Las Vegas and New Mexico markets remained challenged as well. For 2007, Southwest home sale revenues decreased 37% compared with the prior year period due to a 31% decrease in unit settlements combined with a 10% decrease in average selling prices, mostly due to home sale revenue reductions in our Las Vegas market. The loss before income taxes was primarily attributable to this decrease in revenues combined with a significant decline in gross margin and $404.8 million in impairments and land-related charges, which resulted in a reduction of approximately 7,600 lots under control. In addition, Southwest’s results include impairments of $59.1 million related to two unconsolidated joint ventures. Southwest recorded impairments and land-related charges of $37.8 million in 2006. Net new orders declined by 21% due to the difficult market conditions. Cancellation rates were approximately 37% for 2007 compared with 35% for 2006.

     In 2006, the Southwest operations contributed positively to our Homebuilding operating results, evidenced by increased revenues, unit settlements and higher average selling prices compared with 2005. Southwest home sale revenue increased 13% in 2006 due to a 3% increase in unit settlements combined with a 10% increase in average selling price. However, during 2006, our Southwest operations recorded impairments and land-related charges of $37.8 million. There were no significant impairments or land-related charges recorded in 2005. Operating results for the Southwest segment were positively impacted by our January 2006 acquisition of the remaining 50% interest in an entity that supplies and installs basic building components and operating systems in both Arizona and Nevada. During 2005, income from this entity was recorded as equity income and had no impact on segment pre-tax income. Net new orders for 2006 decreased 22% compared with 2005. During 2006, reduced new order sign-up activity resulted in higher cancellation rates. For 2006, cancellation rates were approximately 35% compared with 16% for 2005.

California:

     Our California operations have been impacted by significantly weakened demand for new homes, affordability issues, and an excess supply of resale inventory in substantially all of our markets. For 2007, California home sale revenues decreased 44% compared with the prior year period due to a 40% decrease in unit settlements combined with an 8% decrease in average selling prices, as a majority of our California markets experienced home sale revenue reductions. The loss before income taxes was primarily attributable to this reduction in revenues combined with a significant decline in gross margin and $468.1 million in impairments and land-related charges, which resulted in a reduction of approximately 6,900 lots under control. Also included in California’s results for 2007 is an impairment of $128.3 million related to unconsolidated joint ventures. In 2006, California recorded impairments and land-related charges of $89 million and a $95.4 million valuation adjustment related to two of our unconsolidated joint ventures located in Sacramento. Net new orders declined by 31% in 2007 due to the difficult market conditions. Cancellation rates were approximately 43% for 2007 compared with 36% for 2006.

     The California segment was impacted in 2006 by weakened demand for new homes, evidenced by increased resale inventories and pricing pressures, especially in Sacramento. California home sale revenues decreased 18% in 2006 due primarily to a 17% decrease in unit settlements. Average selling prices remained consistent with 2005. In 2006, California recorded impairments and land-related charges of $89 million and a $95.4 million valuation adjustment related to two of our unconsolidated joint ventures located in Sacramento. There were no significant impairments or land-related charges recorded in 2005. During 2006, reduced new order sign-up activity resulted in higher cancellation rates. Net new orders for 2006 decreased 32% compared with 2005. For 2006, cancellation rates were approximately 36% compared with 24% for 2005.

Financial Services Operations

     We conduct our Financial Services business, which includes mortgage and title operations, through Pulte Mortgage and other subsidiaries. We originate mortgage loans using our own funds or borrowings made available through various credit arrangements, and then sell such mortgage loans monthly to outside investors. Also, we sell our servicing rights on a flow basis through fixed price servicing sales contracts. Due to the short period of time the servicing rights are held, we do not amortize the servicing asset. Since the servicing rights are recorded based on the value in the servicing sales contracts, there are no impairment issues related to these assets.

     The following table presents selected financial information for our Financial Services operations ($000’s omitted):

		Years Ended December 31,
		2007				2006				2005
Net gain from sale of mortgages		$	75,539			$	110,759			$	81,084
Mortgage origination and servicing fees			12,807				17,317				22,020
Interest income			21,807				33,494				25,961
Title services			20,802				29,833				29,496
Other revenues			3,814				3,193				2,853
Total Financial Services revenues			134,769				194,596				161,414
Expenses			(92,150	)			(111,468	)			(93,574	)
Gain on sale of equity investment			—				31,635				—
Equity income			361				697				2,746
Income before income taxes		$	42,980			$	115,460			$	70,586
Total originations:
Loans			23,404				40,269				42,994
Principal		$	5,336,400			$	8,683,500			$	8,528,600
Originations for Pulte customers:
Loans			23,272				40,117				42,302
Principal		$	5,309,100			$	8,642,900			$	8,397,600

     Mortgage origination unit volume and principal volume decreased 42% and 39%, respectively, in 2007 compared with 2006. The decreases in unit and principal volume are due primarily to lower home settlements in 2007 compared with 2006. This factor was partially offset by an increase in the capture rate to 92% in 2007 from 91% in 2006 as well as a higher average loan size. During 2006, mortgage origination unit volume decreased 6% while mortgage origination principal volume increased 2% compared with 2005. The decrease in unit volume is attributable to lower home settlements offset by a higher capture rate in 2006 (91%) compared with 2005 (89%), while the increase in origination principal volume is attributable to a higher average loan size. Our capture rate represents loan originations from our Homebuilding operations as a percentage of total loan opportunities from our Homebuilding operations, excluding cash settlements. Our Homebuilding customers continue to account for substantially all loan production, representing nearly 100% of Pulte Mortgage unit production for 2007 and 2006 compared with 98% in 2005.

     The mortgage industry experienced a significant shift away from adjustable rate mortgages (ARMs) to fixed rate mortgages during 2007 and 2006. ARMs, which generally have a lower profit per loan than fixed rate products, represented 8% of total funded origination dollars and 6% of total funded origination units in 2007 compared with 28% and 22%, respectively, in 2006 and 45% and 39%, respectively, in 2005. Interest-only mortgages, a component of ARMs, represented 74% of ARMs origination dollars and 72% of ARMs origination units in 2007 compared with 79% and 81%, respectively, in 2006 and 65% and 56%, respectively, in 2005. As a result, interest-only mortgages represented 6%, 22%, and 29% of total funded origination dollars in 2007, 2006, and 2005, respectively.

Financial Services Operations (continued)

     Our customers’ average FICO scores for 2007, 2006, and 2005 were 745, 743, and 741, respectively. Average Combined Loan-to-Value was 82% for both 2007 and 2006 and 81% for 2005. At December 31, 2007, our loan application backlog was $1.5 billion, compared with $2.1 billion and $4.2 billion at December 31, 2006 and 2005, respectively.

     Based on principal dollars, approximately 4% of the loans we originated during 2007 were considered sub-prime loans, which we define as first mortgages with FICO scores below 620. Approximately 14% of 2007 originations were considered Alt-A loans, which we define as non-full documentation first mortgages with FICO scores of 620 or higher. The remaining 82% of 2007 originations were prime loans, which we define as full documentation first mortgages with FICO scores of 620 or higher. Because we sell our loans monthly and retain only limited risk for sold loans for a short period of time, we believe that our Financial Services operations do not have any material direct risks related to sub-prime and Alt-A loans. However, the availability of certain mortgage financing products has become more constrained in 2007 as the mortgage industry is now more closely scrutinizing sub-prime, Alt-A, and other non-conforming mortgage products. These developments have had and may continue to have a material adverse effect on the overall demand for new housing and thereby on the results of operations of both our Homebuilding and Financial Services businesses.

     Pre-tax income decreased 63% in 2007 compared with 2006. During 2006, we sold our investment in Su Casita, a Mexico-based mortgage banking company. As a result of this transaction, we recognized a pre-tax gain of approximately $31.6 million in 2006. Excluding this gain, pre-tax income decreased significantly in 2007 compared with 2006, primarily due to lower originations and increased loan loss reserves. This decrease was partially offset by an increase in average loan size and the shift in funded product mix toward fixed rate and agency loans, which are more profitable for us. The percentage of total origination dollars from brokered loans, which are funded by third party lenders and are therefore less profitable to us, was comparable in 2007 and 2006.

     Pre-tax income increased 64% in 2006 compared with 2005, primarily due to the sale of our investment in Su Casita. Excluding this gain, pre-tax income increased in 2006 compared with 2005 due to the combination of increased origination principal volume and a shift in product mix to more profitable loans, including a small decline in the mix from brokered loans.

     Interest income in 2007 was 35% lower than in 2006, primarily due to the significant decrease in loan origination volume offset slightly by higher loan yields. For 2006, interest income increased 29% compared with 2005, due to the increase in funded origination volume combined with higher loan yields. Revenues from our title operations decreased 30% in 2007 compared with 2006 due to the decline in loan origination volume and stayed fairly even in 2006 compared with 2005 based on the lack of significant change in origination principal volume. Expenses decreased significantly in 2007 due to the decrease in volume and reduced headcount offset by higher loan loss reserves and less leverage of our fixed operating costs.

     Since we sell the majority of our loans monthly and retain only limited risk related to the loans we originate, our overall loan loss reserves have historically not been significant. During 2007, however, we experienced increases in our loans held for investment, non-performing portfolio loans, and foreclosed properties as well as higher expected losses on repurchased loans. As a result, our overall loan loss reserves increased to $11.7 million at December 31, 2007 compared with $1.7 million at December 31, 2006.

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

Other Non-Operating

     Other non-operating expenses consists of income and expenses related to corporate services provided to our subsidiaries. These expenses are incurred for financing, developing, and implementing strategic initiatives centered on new business development and operating efficiencies and providing the necessary administrative support associated with being a publicly traded entity listed on the New York Stock Exchange. Accordingly, these results will vary from year to year as these strategic initiatives evolve.

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

		Years Ended December 31,
		2007				2006				2005
Net interest (income) expense		$	(2,731	)		$	531			$	43,344
Other expenses, net			33,122				42,569				49,050
Loss before income taxes		$	30,391			$	43,100			$	92,394

     Our higher invested cash balances during 2007 resulted in interest income in excess of amounts expensed compared with net interest expense in 2006. The decrease in net interest expense in 2006 compared with 2005 was the result of an increase in the amount of interest capitalized into homebuilding inventory. Changes in other expenses, net for 2007 and 2006 compared with 2005 were primarily due to reductions in compensation-related costs.

     Interest capitalized into homebuilding inventory is charged to home cost of sales based on the cyclical timing of our unit settlements over a period that approximates the average life cycle of our communities. Interest expensed to homebuilding cost of sales for the years ended December 31, 2007 and 2006 includes $110.8 and $16 million, respectively, related to land and community valuation adjustments. Information related to corporate interest capitalized into homebuilding inventory is as follows ($000’s omitted):

		Years Ended December 31,
		2007				2006				2005
Interest in homebuilding inventory at beginning of year		$	235,596			$	229,798			$	223,591
Interest capitalized into homebuilding inventory			240,000				261,486				185,792
Interest expensed to homebuilding cost of sales			(314,998	)			(255,688	)			(179,585	)
Interest in homebuilding inventory at end of year		$	160,598			$	235,596			$	229,798
Interest incurred *		$	243,864			$	266,561			$	234,024

Income Taxes

     Our income tax assets and liabilities and related effective tax rate are affected by a number of factors. Income taxes were provided at an effective tax rate of 8.9%, 36.3%, and 36.9% for 2007, 2006, and 2005, respectively. The effective tax rate during 2007 was lower than in prior years primarily due to a $621.9 million non-cash deferred tax valuation allowance. Excluding the valuation allowance and goodwill impairment charges, the effective tax rate would have been approximately 38% for 2007.

Discontinued Operations

First Heights

     In 2005, we completed the disposal of First Heights, our former bank subsidiary. During the years ended December 31, 2006 and 2005, after-tax income was $189 thousand and $56.5 million, respectively, and is included in income from discontinued operations. Income from discontinued operations for the year ended December 31, 2005 includes $7.8 million related to the recognition of income tax benefits resulting from the favorable resolution of certain tax matters. We also received payment in December 2005 of a $48.7 million judgment resulting from litigation related to First Heights’ 1988 acquisition from the Federal Savings and Loan Insurance Corporation and First Heights’ ownership of five failed thrifts. The payment was recorded as income from discontinued operations.

Mexico Homebuilding Operations

     In January 2005, the minority shareholders of Pulte Mexico S. de R.L. de C.V. (“Pulte Mexico”) exercised a put option under the terms of a reorganization agreement dated as of December 31, 2001, to sell their shares to us, the consummation of which resulted in our owning 100% of Pulte Mexico. In March 2005, we purchased 60% of the minority interest of Pulte Mexico for approximately $18.7 million in cash. In June 2005, we purchased the remaining 40% of the minority interest of Pulte Mexico for approximately $12.5 million in cash.

     In December 2005, we sold substantially all of our Mexico homebuilding operations to a consortium of purchasers involved in residential and commercial real estate development. We realized cash of $131.5 million related to the sale. The sale of these operations did not include our investment in the capital stock of a mortgage company in Mexico as well as various non-operating entities, which are not considered to be material to the Company’s results of operations or its financial position.

     For 2007, 2006, and 2005, the Mexico homebuilding operations have been presented as discontinued operations in our Consolidated Financial Statements. For 2007, income from discontinued operations represents $18.7 million in refundable income taxes related to our investment in our discontinued Mexico homebuilding operations.

Argentina Operations

     In January 2005, we sold all of our Argentina operations to an Argentine company involved in residential and commercial real estate development. For the year ended December 31, 2006, loss from discontinued operations included a provision of $111 thousand, net of taxes, resulting from a contractual adjustment related to the disposition.

Liquidity and Capital Resources

     We finance our homebuilding land acquisitions, development, and construction activities by using internally-generated funds and existing credit arrangements. We routinely monitor current operational requirements and financial market conditions to evaluate the use of available financing sources, including securities offerings. Based on our current financial condition and credit relationships, we believe that our operations and borrowing resources will provide for our current and long-term capital requirements. However, we continue to evaluate the impact of market conditions on our liquidity and may determine that modifications are necessary if market conditions continue to deteriorate or if the current difficult market conditions extend beyond our expectations.

     At December 31, 2007, we had cash and equivalents of $1.1 billion and $3.5 billion of senior notes outstanding. Other financing included non-recourse collateralized financing totaling $9.4 million. Sources of our working capital include our cash and equivalents, our committed unsecured revolving credit facility, and Pulte Mortgage’s committed credit arrangements.

     Our ratio of debt-to-total capitalization, excluding our land-collateralized and Pulte Mortgage debt, was 44.6% at December 31, 2007, and approximately 35.9% net of cash and equivalents.

     We amended our unsecured revolving credit facility twice during 2007, decreasing the borrowing capacity from $2.01 billion to $1.86 billion and extending the maturity date from October 2010 to June 2012. In February 2008, we amended the credit facility again and decreased the borrowing capacity to $1.6 billion. Under the terms of the credit facility, we have the capacity to issue letters of credit totaling up to $1.125 billion. Borrowing availability is reduced by the amount of letters of credit outstanding. The credit facility includes a borrowing base limitation when we do not have an investment grade senior unsecured debt rating from at least two of Fitch Ratings, Moody’s Investor Service, and Standard and Poor’s Corporation. Under the borrowing base limitation, the sum of our senior debt and the amount drawn on the revolving credit facility may not exceed an amount based on certain percentages of various categories of our unencumbered inventory and other assets.

Liquidity and Capital Resources (continued)

     The credit facility contains certain financial covenants. We are required to not exceed a debt-to-total capitalization ratio of 55%, and we are required to meet a tangible net worth minimum each quarter. At December 31, 2007, our debt-to-total capitalization ratio (as defined in the credit facility) was 42.6% while our tangible net worth (as defined in the credit facility) cushion was $818.5 million after giving effect to the February 2008 amendment. In the event market conditions deteriorate in the future and result in additional significant land-related charges, our tangible net worth may come close to or fall below the required minimum. Violations of any of the covenants in the credit facility, if not cured or waived by the lenders, could result in an optional maturity date acceleration by the lenders. In the event this were to occur, we would seek to replace the financing provided by the credit facility. The credit facility no longer contains an interest coverage ratio covenant that could create an event of default for us, but if the interest coverage ratio (as defined in the credit facility) is less than 2 to 1, LIBOR margin and letter of credit pricing under the credit facility can increase in increments ranging from 0.125% to 0.375% and the debt-to-total capitalization ratio covenant threshold can decrease in increments of 2.5%. The credit facility’s uncommitted accordion feature remains unchanged at $2.25 billion. As of December 31, 2007, we had no borrowings outstanding and $1.41 billion available for borrowing under this facility.

     Pulte Mortgage provides mortgage financing for many of our home sales and uses its own funds and borrowings made available pursuant to various committed and uncommitted credit arrangements. At December 31, 2007, Pulte Mortgage had committed credit arrangements of $705 million, comprised of a $405 million bank revolving credit facility and a $300 million asset-backed commercial paper program. Due to the reduced loan origination volume and unfavorable changes in the asset-backed commercial paper market, Pulte Mortgage amended its commercial paper program twice during 2007, which, among other things, reduced the capacity from $550 million to the $300 million available at December 31, 2007. In February 2008, Pulte Mortgage further amended the commercial paper program to reduce the capacity to $150 million. After giving effect to the most recent amendment, Pulte Mortgage has committed credit arrangements of $555 million, comprised of a $405 million bank revolving credit facility and a $150 million commercial paper program. The credit agreements require Pulte Mortgage to maintain a consolidated tangible net worth of at least $50 million or eighty-five percent of the average month-end tangible net worth for the last twelve months of the preceding calendar year ($52.8 million for 2008) and funded debt cannot exceed 15 times tangible net worth. Pulte Mortgage had $440.6 million outstanding under its committed credit arrangements at December 31, 2007.

     We have experienced downgrades in our credit ratings during 2007 by each of the major credit rating agencies. While such downgrades do not directly impact our senior notes, they could increase the cost of borrowing under our unsecured revolving credit facility and limit our ability to obtain additional financing or refinancing on favorable terms. In the event of additional downgrades, the lenders under Pulte Mortgage’s asset-backed commercial paper program may have the right at their discretion to require early repayment of outstanding balances or place other restrictions on our ability to utilize the asset-backed commercial paper program. In the event of such an occurrence, we believe we have capacity through other sources to meet Pulte Mortgage’s anticipated financing needs.

     Our net cash provided by operating activities in 2007 amounted to $1.2 billion while net cash used in operating activities was $267.5 million in 2006. For 2005, net cash provided by operating activities was $18.7 million. The primary drivers of cash flow from operations are profitability and investments in inventory. In 2007, the net loss was largely attributable to non-cash asset impairments, including land-related charges, impairments of goodwill and investments in unconsolidated entities, and a deferred tax valuation allowance. In addition, we significantly reduced our investments in land inventory in light of the challenging conditions in the homebuilding industry. In 2006, the reduced profitability compared with 2005 was coupled with significant investments in land inventory. In 2005, net income was offset primarily by significant investments in land inventory.

     Cash used in investing activities was $221.4 million in 2007 compared with $86.7 million in 2006 and $25.3 million in 2005. The increase in cash used in investing activities during 2007 compared with 2006 resulted primarily from investments of $217.5 million in unconsolidated entities. The increase in cash used in investing activities in 2006 compared with 2005 resulted primarily from the use of $65.8 million, net of cash acquired, to purchase the remaining 50% of an entity that installs basic building components and operating systems. In addition, we received cash of $49.2 million in 2006 for the sale of subsidiaries and equity investments, primarily resulting from the sale of our Mexico homebuilding operations.

Liquidity and Capital Resources (continued)

     Net cash used in financing activities totaled $487.6 million and $96.2 million in 2007 and 2006, respectively, compared with net cash provided by financing activities of $700.4 million in 2005. The cash used in financing activities in 2007 and 2006 were largely attributable to reductions in outstanding borrowings under various credit arrangements as the result of the lower volumes in our Homebuilding and Financial Services operations. Offsetting this to some degree in 2007 was a significant reduction in stock repurchases under our stock repurchase programs. The cash provided by financing activities in 2005 resulted primarily from increased borrowings under our Pulte Mortgage credit arrangements to fund the increase in funded loan originations and the issuance of $650 million in senior notes to help fund additional investments in land inventory.

     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), we have repurchased a total of 9,688,900 shares for a total of $297.7 million. There were no repurchases under these programs during 2007. We had remaining authorization to purchase common stock aggregating $102.3 million at December 31, 2007.

Inflation

     We, and the homebuilding industry in general, may be adversely affected during periods of high inflation because of higher land and construction costs. Inflation may also increase our financing, labor, and material costs. In addition, higher mortgage interest rates significantly affect the affordability of permanent mortgage financing to prospective homebuyers. While we attempt to pass to our customers increases in our costs through increased sales prices, the current industry conditions have resulted in lower sales prices in many of our markets. If we are unable to raise sales prices enough to compensate for higher costs, or if mortgage interest rates increase significantly, affecting our prospective homebuyers’ ability to adequately finance home purchases, our revenues, gross margins, and net income would be adversely affected.

Seasonality

     We experience variability in our quarterly results from operations due to the seasonal nature of the homebuilding industry. Historically, we have experienced significant increases in revenues and cash flow from operations during the fourth quarter based on the timing of home settlements.

Contractual Obligations and Commercial Commitments

     The following table summarizes our payments under contractual obligations as of December 31, 2007:

		Payments Due by Period
		($000’s omitted)
		Total				2008				2009-2010				2011-2012				After 2012
Contractual obligations:
Long-term debt (a)		$	6,408,960			$	224,857			$	772,008			$	1,051,604			$	4,360,491
Operating lease obligations			239,537				56,118				81,714				38,888				62,817
Other long-term liabilities (b)			10,465				4,677				4,833				955				—
Total contractual obligations (c)		$	6,658,962			$	285,652			$	858,555			$	1,091,447			$	4,423,308

     We are subject to the usual obligations associated with entering into contracts (including option contracts) for the purchase, development, and sale of real estate in the routine conduct of our business. Option contracts for the purchase of land enable us to defer acquiring portions of properties owned by third parties and unconsolidated entities until we are ready to build homes on them. This reduces our financial risks associated with long-term land holdings. At December 31, 2007, we had agreements to acquire approximately 26,500 homesites through option contracts and unconsolidated entities in which we have investments. At December 31, 2007, we had $222.5 million of non-refundable option deposits and advanced costs related to certain of these agreements.

     We are subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. We are also subject to income tax in certain foreign jurisdictions related to operations previously sold or discontinued. As of December 31, 2007, we had $86.2 million of gross unrecognized tax benefits and $21.1 million and $12.1 million of related accrued interest and penalties, respectively. We are currently under examination by various taxing jurisdictions and anticipate finalizing the examinations with certain jurisdictions within the next twelve months. However, the final outcome of these examinations is not yet determinable. The statute of limitations for our major tax jurisdictions remains open for examination for tax years 1998-2006.

     The following table summarizes our other commercial commitments as of December 31, 2007:

		Amount of Commitment Expiration by Period
		($000’s omitted)
		Total				2008				2009-20010				2011-2012				After 2012
Other commercial commitments:
Guarantor revolving credit facilities (a)		$	1,860,000			$	—			$	—			$	1,860,000			$	—
Non-guarantor revolving credit facilities (b)			705,000				300,000				405,000				—				—
Standby letters of credit (c)			46,549				39,699				6,850				—				—
Total commercial commitments (d)		$	2,611,549			$	339,699			$	411,850			$	1,860,000			$	—