Overview

Since early 2006, the U.S. housing market has been unfavorably impacted by a lack of consumer confidence, tightened mortgage standards, and large supplies of resale and new home inventories and related pricing pressures. These factors have contributed to weakened demand for new homes, slower sales, higher cancellation rates, and increased price discounts and sales incentives to attract homebuyers. During 2009, these conditions have been accompanied by significant foreclosure activity, a more challenging appraisal environment, increasing unemployment, and significant uncertainty in the U.S. economy. As a result of the combination of these homebuilding industry, mortgage financing, and broader economic factors, we have experienced a net loss in each quarter since the fourth quarter of 2006. Such losses resulted from a combination of reduced operational profitability and significant asset impairments. Since the beginning of 2006, we have incurred total land-related charges of $5.0 billion and goodwill impairments of $375.7 million.

On August 18, 2009, we completed the acquisition of Centex through the merger of Pulte's merger subsidiary with and into Centex pursuant to the Agreement and Plan of Merger dated as of April 7, 2009 among Pulte, Pi Nevada Building Company, and Centex. As a result of the merger, Centex became a wholly-owned subsidiary of Pulte. Accordingly, the results of Centex are included in our consolidated financial statements from the date of the merger.

The U.S. economy remains in a period of economic uncertainty, and the related financial markets are experiencing significant volatility. These factors have contributed to continued significant declines throughout the homebuilding industry. In response to these adverse macroeconomic conditions, the U.S. government has made significant efforts to stabilize these conditions and increase the regulatory oversight of the financial markets. However, the ultimate impact of laws enacted is not yet known.

On November 6, 2009, the Worker, Homeownership, and Business Assistance Act of 2009 (the "Act") was enacted into law. The Act amended Section 172 of the Internal Revenue Code to allow net operating losses realized in either tax year 2008 or 2009 to be carried back up to five years (previously limited to a two-year carryback). This change will allow us and certain of our subsidiaries to carry back 2009 taxable losses to prior years and receive refunds of previously paid Federal income taxes. Based on our projected taxable losses for 2009, we anticipate that such refunds should be in excess of $450 million. The ultimate amount of such refunds realized is dependent on a variety of factors, including our actual taxable losses for 2009, which are not yet completed and may vary significantly from our current expectations.

The Act also extended and expanded the current homebuyer tax credit until April 30, 2010. While the ultimate impact of this legislation is not yet determinable, we believe that it could have a stimulative impact on the demand for new housing.

Overview (continued)

For the nine months ended September 30, 2009, our new home settlements and net new orders have declined 43.3% and 22.9%, respectively, compared with the prior year period. We expect substantially all of the markets we serve to remain challenged throughout 2009 and into 2010. Therefore, 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 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 and cash flow at each of our communities. We are delaying or canceling planned land purchases and development spending and have significantly reduced our total number of controlled lots owned and under option. Additionally, we are closely managing 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 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. Due to the persistence of these difficult market conditions, improving the efficiency of our overhead costs will continue to be a significant area of focus. We are also adjusting the content in our homes (such as cabinets, flooring, and appliances) to provide our customers more affordable alternatives and continue to build homes with smaller floor plans in certain of our communities to make our homes more affordable. We are maintaining our focus on our lean operating goals, a long-term initiative designed to extract unnecessary waste out of the home construction process. The targeted benefits include better scheduling, direct-order materials, eliminating waste at the construction site, and reducing the amount of time it takes to build our homes. Pulte is committed to a more efficient homebuilding operation and this lean focus is part of our overall goal of continuous improvement for all of our operations. As a result of the Centex merger, we expect to achieve significant savings in corporate and divisional overhead costs and interest costs for the combined entity as well as synergies in the areas of purchasing leverage and operational best practices. We also anticipate that the Centex merger will contribute to growth through expanded geographic and customer segment diversity and the ability to leverage additional brands. We believe that the combination of our operational improvement activities with the benefits of the Centex merger will help strengthen our market position and allow us to take advantage of opportunities that may develop in the future.

If the current trends in economic conditions or financial market volatility continue, it could adversely affect our business and results of operations in future periods, including a further reduction in the demand for housing as well as difficulties in accessing financing on acceptable terms. Given these conditions and the continued weakness in new home sales and closings, visibility as to future earnings performance is limited. 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 or our local markets are worse than our expectations, or if our strategy related to certain communities changes, we may be required to evaluate our assets, including additional projects, for further impairments or write-downs, which could result in future charges that might be significant.

Overview (continued)



The following is a summary of our operating results by line of business for the
three and nine months ended September 30, 2009 and 2008 ($000's omitted, except
per share data):



                                            Three Months Ended                   Nine Months Ended
                                               September 30,                       September 30,
                                           2009             2008              2009               2008
Income (loss) before income taxes:
Homebuilding                            $ (291,605 )     $ (301,966 )     $   (986,521 )     $ (1,228,417 )
Financial Services                          (8,612 )         10,092            (18,730 )           35,938
Other non-operating                        (58,502 )         (2,717 )          (52,643 )          (10,395 )

Loss before income taxes                  (358,719 )       (294,591 )       (1,057,894 )       (1,202,874 )
Income tax expense (benefit)                 2,668          (14,204 )            7,776            (67,926 )

Net loss                                $ (361,387 )     $ (280,387 )     $ (1,065,670 )     $ (1,134,948 )

Per share data - assuming dilution:
Net loss                                $    (1.15 )     $    (1.11 )     $      (3.88 )     $      (4.48 )

The following is a comparison of our loss before income taxes for 2009 and 2008:

• Our Homebuilding loss before income taxes was $291.6 million and $986.5 million for the three and nine months ended September 30, 2009, respectively, compared with a Homebuilding loss before income taxes of $302.0 million and $1.2 billion, for the same periods in the prior year. The losses experienced in the third quarters of 2009 and 2008 resulted primarily from lower home sale revenues and lower gross margins combined with land-related charges totaling $163.8 million and $693.3 million respectively, for the three and nine months ended September 30, 2009, respectively, compared with $266.2 million and $1.2 billion for the same periods in the prior year. The lower land-related charges were the primary cause for the reduced loss before income taxes in 2009 compared with the prior year. The Homebuilding loss before income taxes also includes certain transaction and integration costs directly related to the Centex merger totaling $76.7 million and $82.5 million for the three and nine months ended September 30, 2009, respectively. Such costs consisted primarily of severance benefits, lease exit and related asset impairment costs, investment banking fees, and other professional fees.

• For the three and nine months ended September 30, 2009, Financial Services experienced a loss before income taxes of $8.6 million and $18.7 million, respectively, compared with income before income taxes of $10.1 million and $35.9 million for the same periods in the prior year. The decrease was due primarily to reduced loan origination volume resulting from the decline in home sale revenues from Homebuilding coupled with a significant increase in loan losses. The Financial Services loss before income taxes also includes certain transaction and integration costs directly related to the Centex merger totaling $4.5 million for the three and nine months ended September 30, 2009. Such costs consisted primarily of severance benefits and lease exit and related asset impairment costs.

• Our Other non-operating loss increased for the three and nine months ended September 30, 2009 compared with the prior year periods due primarily to a loss realized on the repurchase of debt. The Other non-operating loss before income taxes also includes certain transaction and integration costs directly related to the Centex merger totaling $5.5 million for the three and nine months ended September 30, 2009.

• The operating results for the three months ended September 30, 2009 include Centex's results for the period from August 19 to September 30 as follows ($000's omitted):

                                                               Income
                                           Loss Before           Tax
                              Revenues     Income Taxes        Expense    Net Loss
        Homebuilding          $ 331,324   $       (9,448 )
        Financial Services       11,071           (9,268 )
        Other non-operating          -           (25,969 )

        Total Centex          $ 342,395   $      (44,685 )    $     829   $ (45,514 )

Homebuilding Operations - Summary

The following table presents a summary of pre-tax loss and unit information for
our Homebuilding operations for the three and nine months ended September 30,
2009 and 2008 ($000's omitted):



                                           Three Months Ended                     Nine Months Ended
                                              September 30,                         September 30,
                                         2009               2008               2009               2008
Home sale revenues                   $  1,053,787       $  1,508,825       $  2,272,231       $  4,460,393
Land sale revenues                          3,004             12,964              7,785             39,973

Total Homebuilding revenues             1,056,791          1,521,789          2,280,016          4,500,366

Home cost of revenues (a)              (1,080,256 )       (1,599,064 )       (2,703,085 )       (4,981,387 )
Land cost of revenues (b)                 (12,492 )          (27,910 )          (24,760 )         (160,979 )
Selling, general and
administrative expenses                  (209,055 )         (191,997 )         (442,574 )         (571,577 )
Equity income (loss) (c)                   (4,176 )           (2,689 )          (57,212 )             (760 )
Other income (expense), net (d)           (42,417 )           (2,095 )          (38,906 )          (14,080 )

Loss before income taxes             $   (291,605 )     $   (301,966 )     $   (986,521 )     $ (1,228,417 )


Active communities at
September 30 (e)                                                                    957                627
Unit settlements                            4,166              5,377              8,813             15,548
Average selling price                $        253       $        281       $        258       $        287
Net new orders:
Units (f)                                   4,048              3,008             10,437             13,543
Dollars (g)                          $  1,081,000       $    785,000       $  2,730,000       $  3,659,000
Backlog at September 30 (h):
Units                                                                             8,383              5,885
Dollars                                                                    $  2,197,000       $  1,709,000

(a) Includes homebuilding interest expense, which represents the amortization of capitalized interest. Home cost of revenues also includes land and community valuation adjustments of $132.6 million and $249.9 million for the three months ended September 30, 2009 and 2008, respectively, and $600.4 million and $1.0 billion for the nine months ended September 30, 2009 and 2008, respectively.

(b) Includes net realizable value adjustments for land held for sale of $8.3 million and $15.9 million for the three months ended September 30, 2009 and 2008, respectively, and $16.2 million and $125.1 million for the nine months ended September 30, 2009 and 2008, respectively.

(c) Includes impairments of our investments in unconsolidated joint ventures, of $5.8 million and $1.4 million for the three months ended September 20, 2009 and 2008, respectively, and $58.6 million and $3.1 million for the nine months ended September 30, 2009 and 2008, respectively.

(d) Includes the write off (recovery) of deposits and pre-acquisition costs for land option contracts we no longer plan to pursue of $17.2 million and ($0.9) million for the three months ended September 30, 2009 and 2008, respectively, and $18.2 million and $19.4 million for the nine months ended September 30, 2009 and 2008, respectively.

(e) In response to the significant decline in net new order volume in recent periods, the criteria for determining active communities was modified during the first quarter of 2009 in order to provide a more accurate measure of communities with active selling efforts. The active community counts for prior periods have been recalculated to conform to the current presentation. Active communities at September 30, 2009 include 488 active Centex communities.

(f) Net new order units for the three and nine months ended September 30, 2009 include Centex's operations, which contributed 1,125 units.

(g) Net new order dollars represent a composite of new order dollars combined with other movements of the dollars in backlog related to cancellations and change orders. Net new order dollars for the three months ended September 30, 2009 include $314.0 million related to Centex.

(h) Backlog at September 30, 2009 includes 4,316 units and $1.1 billion related to Centex.

Homebuilding Operations - Summary (continued)

Home sale revenues for the three and nine months ended September 30, 2009, which include $331.0 million related to Centex, were lower than those for the prior year by $455.0 million and $2.2 billion, or 30.2% and 49.1%, respectively. The decreases in home sale revenues for the three and nine months ended September 30, 2009 compared with the prior year periods were primarily attributable to 22.5% and 43.3% decreases, respectively, in unit settlements, combined with decreases in the average selling price of 9.9% and 10.1%, respectively. The decrease in average selling price in the three and nine months ended September 30, 2009, compared with the prior year periods, reflects a combination of factors, including changes in the product and geographic mix of homes closed during the periods as well as lower market selling prices and elevated sales incentives. Home sale revenues, unit settlements, and average selling prices decreased in each of our Homebuilding segments during the three and nine months ended September 30, 2009 compared with the prior year periods.

Homebuilding gross profit margins from home sales improved to negative 2.5% for the three months ended September 30, 2009 compared with negative 6.0% for the same period in the prior year. For the nine months ended September 30, 2009, Homebuilding gross profit margins were negative 19.0% compared with negative 11.7% for the same period in 2008. We recorded land and community valuation adjustments of $132.6 million and $600.4 million during the three and nine months ended September 30, 2009, respectively, compared with $249.9 million and $1.0 billion, respectively, during the corresponding prior year periods. Excluding these land and community valuation adjustments, gross profit margins were lower during the three and nine months ended September 30, 2009, compared with the prior year periods primarily as the result of lower average selling prices.

We continue to evaluate our existing land positions to ensure the most effective use of capital. Land sale revenues and their related gains or losses may vary significantly between periods, depending on the timing of land sales. Land sales had negative margin contributions of $9.5 million and $17.0 million during the three and nine months ended September 30, 2009, respectively, compared with negative margin contributions of $14.9 million and $121.0 million during the three and nine months ended September 30, 2008, respectively. These negative margin contributions included net realizable value adjustments related to land held for sale totaling $8.3 million and $16.2 million for the three and nine months ended September, 30, 2009, respectively, compared with $15.9 million and $125.1 million in the prior year periods.

Selling, general, and administrative expense as a percentage of home sale revenues was 19.8% for the three months ended September 30, 2009 compared with 12.7% for the same period in the prior year. For the nine months ended September 30, 2009, selling, general and administrative expense as a percentage of home sale revenues was 19.5% compared with 12.8% in the prior year period. While our internal initiatives focused on controlling costs and matching our overall cost structure with the current business environment have resulted in significant reductions in our selling, general and administrative costs, we experienced an increase in our selling, general, and administrative expenses for the three months ended September 30, 2009 compared with the prior year due primarily to duplicative corporate and divisional overhead costs during the transition period following the Centex merger. Homebuilding selling, general and administrative expenses also include transaction and integration costs related to the Centex merger totaling $50.9 million and $56.6 million for the three and nine months ended September 30, 2009. For the nine months ended September 30, 2009 we experienced a 22.6% decrease in selling, general and administrative expenses compared with the prior year periods despite such merger-related costs and the duplicative overhead expenses discussed above. The reductions in selling, general and administrative expenses have been offset by reduced operating leverage resulting from the significant decrease in home sale revenues and lower absorption into inventory of overhead costs due to lower construction volumes.

Equity loss was $4.2 million and $57.2 million for the three and nine months ended September 30, 2009, respectively, and $2.7 million and $0.8 million in the three and nine months ended September 30, 2008, respectively. The equity loss experienced during the three and nine months ended September 30, 2009 included impairments related to investments in unconsolidated joint ventures totaling $5.8 million and $58.6 million, respectively. There were impairments related to investments in unconsolidated joint ventures of $1.4 million and $3.1 million for the three and nine months ended September 30, 2008, respectively.

Homebuilding Operations - Summary (continued)

Other income (expense), net includes the write-off (recovery) of deposits and pre-acquisition costs resulting from decisions not to pursue certain land acquisitions, which totaled $17.2 million and ($0.9) million for the three months ended September 30, 2009 and 2008, respectively, and $18.2 million and $19.4 million for the nine months ended September 30, 2009 and 2008, respectively. These write-offs vary in amount from period to period as we continue to evaluate potential land acquisitions for the most effective use of capital. For the nine months ended September 30, 2009, other income (expense), net also includes approximately $14.9 million related to the favorable resolution of certain matters arising from two prior land sale transactions. Additionally, other income (expense), net includes certain integration costs directly related to the Centex merger totaling $15.4 million for the three and nine months ended September 30, 2009, which consisted primarily of lease exit and related asset impairment costs.

For the three and nine months ended September 30, 2009, net new order units increased 34.6% to 4,048 units and decreased 22.9% to 10,437 units, respectively, compared with the same periods in 2008. Excluding Centex, net new order units decreased for the three and nine months ended September 30, 2009. Cancellation rates for the third quarter of 2009 were 23%, compared with 37% for the same period in 2008. Most markets continued to have substantial resale and new home inventory, and this, combined with low consumer confidence, difficulties experienced by customers in selling their existing homes, and the restrictive mortgage financing market, has resulted in reduced net new orders.

The dollar value of net new orders increased $296.2 million and decreased $928.5 million for the three and nine months ended September 30, 2009, respectively, compared with the same periods in 2008. At September 30, 2009 we had 957 active communities, an increase of 52.6% from September 30, 2008. Centex contributed 488 active communities at September 30, 2009. Ending backlog, which represents orders for homes that have not yet closed, was 8,383 units at September 30, 2009 with a dollar value of $2.2 billion, increases of 42.4% and 28.6%, respectively, compared with September 30, 2008. Ending backlog for the period included 4,316 Centex units with a dollar value of $1.1 billion.

We had 8,807 and 5,058 homes in production at September 30, 2009 and December 31, 2008, respectively, excluding 1,766 and 1,372 model homes, respectively. Included in our total homes in production were 2,505 and 3,509 homes that were unsold to customers at September 30, 2009 and December 31, 2008, respectively, of which 1,051 and 1,857 homes, respectively, were completed. Centex contributed 4,134 homes in production at September 30, 2009, excluding 591 model homes.

At September 30, 2009 and December 31, 2008, our Homebuilding operations controlled 176,727 and 120,796 lots, respectively. Of these controlled lots, 153,618 and 97,473 lots were owned and 21,453 and 23,250 lots were under option agreements approved for purchase at September 30, 2009 and December 31, 2008, respectively. In addition, there were 1,656 lots and 73 lots under option agreements pending approval at September 30, 2009 and December 31, 2008, respectively. At September 30, 2009, Centex contributed 61,988 controlled lots including 56,345 owned lots, 4,314 lots under option agreements approved for purchase, and 1,329 lots under option agreements pending approval. During the three and nine months ended September 30, 2009, we withdrew from land option contracts representing 3,271 lots with purchase prices totaling $233.2 million and 4,423 lots valued at $276.5 million, respectively.

The total purchase price related to approved land under option for use by our Homebuilding operations at future dates approximated $1.1 billion at September 30, 2009. These land option agreements, which may be cancelled at our discretion and may extend over several years, are secured by deposits and pre-acquisition costs totaling $220.6 million, of which $2.2 million is refundable. This balance excludes contingent payment obligations which may or may not become actual obligations to us.

Homebuilding Segment Operations

Our 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 that our operating segments are our Areas. In connection with the Centex merger, the Company realigned the organizational structure for certain of its markets. The operating data by segment provided below have been reclassified to conform to the current presentation. We conduct our operations in 69 markets, located throughout 29 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, Rhode Island, Virginia

 Southeast:     Southeast Area includes the following states:
                Georgia, North Carolina, South Carolina, Tennessee

 Gulf Coast:    Gulf Coast Area includes the following states:
                Florida, Texas

 Midwest:       Midwest Area includes the following states:
                Colorado, Illinois, Indiana, Missouri, Michigan, Minnesota, Ohio

 Southwest:     Southwest Area includes the following states:
                Arizona, Nevada, New Mexico

*West: West Area includes the following states:

* Our homebuilding operations located in Reno, Nevada are reported in the West segment, while our remaining Nevada homebuilding operations are reported in the Southwest segment. Also, our Hawaii and Puerto Rico operations are included in Other homebuilding, which does not represent a reportable segment.

Homebuilding Segment Operations (continued)



The following table presents selected financial information for our reportable
Homebuilding segments:


. . .