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, 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 $4.7 billion and goodwill impairments of $375.7 million.

The U.S. economy is currently undergoing 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. While the ultimate impact of laws enacted are not yet known, thus far, these actions have not proven to have a significant stimulative impact for the homebuilding industry.

For the three months ended March 31, 2009, our new home settlements and net new orders have declined 54.6% and 44.1%, respectively, compared with the prior year period. We expect these negative trends to continue and substantially all of the markets we serve to remain challenged throughout 2009. 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 cancelling 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. 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.

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 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 further impairments or write-downs, which could result in future charges that might be significant.

Overview (continued)

On April 7, 2009, we entered into an Agreement and Plan of Merger (the "Merger Agreement") with Centex Corporation ("Centex") and Pi Nevada Building Company, our wholly owned subsidiary ("Merger Sub"). The Merger Agreement provides that, upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into Centex, with Centex surviving as our wholly owned subsidiary. Subject to the terms and conditions of the Merger agreement, which has been unanimously approved by each company's respective boards of directors, Centex stockholders will receive 0.975 shares of our common stock for each share of Centex common stock that they own (the "Exchange Ratio"), which we currently expect will result in the issuance of approximately 122 million shares of our common stock being issued that had an approximate value of $1.3 billion as of the date of the Merger Agreement. While the Exchange Ratio is fixed, which means that it will not be changed between the date of the Merger Agreement and the date that the Merger is consummated, the value of the shares to be issued will fluctuate with the market price of our common stock until the Merger is consummated. The proposed transaction is subject to shareholder and regulatory approvals and other customary closing conditions. We expect to consummate the Merger during the third quarter of 2009. Additional information regarding the proposed Merger can be found in our Current Report on Form 8-K filed on April 10, 2009 and our Registration Statement on Form S-4 filed on May 5, 2009.

The following is a summary of our operating results for the three months ended March 31, 2009 and 2008 ($000's omitted, except per share data):

                                                    Three Months Ended
                                                         March, 31
                                                    2009           2008
           Income (loss) before income taxes:
           Homebuilding                          $ (507,433 )   $ (705,130 )
           Financial Services                          (748 )       15,044
           Other non-operating                       (4,065 )       (2,970 )

           Loss before income taxes                (512,246 )     (693,056 )
           Income taxes                               2,572          3,088

           Net loss                              $ (514,818 )   $ (696,144 )

           Per share data - assuming dilution:
           Net loss                              $    (2.02 )   $    (2.75 )

The following is a comparison of our loss before income taxes for the three months ended March 31, 2009 and 2008:

• Our Homebuilding loss before income taxes for the three months ended March 31, 2009 was $507.4 million compared with a loss before income taxes of $705.1 million during the prior year period. The losses experienced in the first quarters of 2009 and 2008 resulted from lower settlement revenues and lower gross margins combined with land-related charges totaling $410.2 million and $663.6 million in 2009 and 2008, respectively. The lower land-related charges were the primary cause for the reduced loss before income taxes in the first quarter of 2009 compared with the prior year period.

• For the three months ended March 31, 2009, Financial Services experienced a loss before income taxes of $0.7 million compared with income before income taxes of $15.0 million during the prior year period. The decrease was due primarily to reduced loan origination volume resulting from the decline in settlement revenues from Homebuilding. Capture rates were 91.5% and 89.9% for the three months ended March 31, 2009 and 2008, respectively.

• Our Other non-operating loss increased for the three months ended March 31, 2009 compared with the prior year period, due primarily to decreases in corporate interest income offset by lower corporate overhead expense.

Homebuilding Operations - Summary

The following table presents a summary of pre-tax loss and unit information for
our Homebuilding operations for the three months ended March 31, 2009 and 2008
($000's omitted):



                                                        Three Months Ended
                                                             March 31,
                                                       2009            2008
      Home sale revenue (settlements)               $  564,733     $  1,396,431
      Land sale revenue                                    610            1,678

      Total Homebuilding revenues                      565,343        1,398,109

      Home cost of sales (a)                          (897,938 )     (1,845,054 )
      Land cost of sales (b)                              (904 )        (64,948 )
      Selling, general and administrative expense     (119,444 )       (201,937 )
      Equity income (loss) (c)                         (50,527 )          3,716
      Other income (expense), net (d)                   (3,963 )          4,984

      Loss before income taxes                      $ (507,433 )   $   (705,130 )


      Active communities at March 31(e)                    549              695
      Unit settlements                                   2,147            4,733
      Average selling price                         $      263     $        295
      Net new orders:
      Units                                              3,022            5,402
      Dollars (f)                                   $  787,000     $  1,461,000
      Backlog at March 31:
      Units                                              3,049            8,559
      Dollars                                       $  853,000     $  2,574,000

(a) Includes homebuilding interest expense, which represents the amortization of capitalized interest. Home cost of sales also includes land and community valuation adjustments of $358.6 million and $598.8 million for the three months ended March 31, 2009 and 2008, respectively.

(b) Includes net realizable value adjustments for land held for sale of $0.6 million and $64.5 million for the three months ended March 31, 2009 and 2008, respectively.

(c) Includes impairments of our investments in unconsolidated joint ventures, which totaled $50.4 million for the three months ended March 31, 2009. There were no impairments of our investments in unconsolidated joint ventures for the three months ended March 31, 2008.

(d) Includes the write off (recovery) of deposits and other related costs for land option contracts we no longer plan to pursue of $0.6 million and $0.3 million for the three months ended March 31, 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.

(f) 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.

Home sale revenues for the three months ended March 31, 2009 were lower than those for the prior year by $831.7 million, or 59.6%. The lower home sale revenues were attributable to a decrease in unit settlements of 54.6%, combined with a decrease in the average selling price of 10.8%. The declines in unit settlements resulted from both reductions in the number of our active communities (down 21.0% at March 31, 2009 compared with the prior year period) and the challenging sales conditions in our local markets. The decrease in average selling price in the first quarter of 2009, compared with the prior year period, reflects a combination of factors, including changes in the product and geographic mix of homes closed during the period as well as lower market selling prices and higher sales incentives. Home sale revenues, unit settlements, and average selling prices decreased in all of our Homebuilding segments during the three months ended March 31, 2009 compared with the prior year period.

Homebuilding Operations - Summary (continued)

Homebuilding gross profit margins from home sales deteriorated to negative 59.0% for the three months ended March 31, 2009 compared with negative 32.1% for the same period in the prior year. The significant decrease in gross profit margins was primarily attributable to land and community valuation adjustments as such adjustments were lower in absolute dollars but higher as a percentage of sales. We recorded land and community valuation adjustments of $358.6 million during the three months ended March 31, 2009, compared with $598.8 million during the prior year period. Excluding these land and community valuation adjustments, gross profit margins deteriorated moderately during the three months ended March 31, 2009 compared with the prior year period 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. Gross profit from land sales had negative margin contributions of $0.3 million and $63.3 million during the three months ended March 31, 2009 and 2008, respectively. These negative margin contributions in the first quarters of 2009 and 2008 included net realizable value adjustments totaling $0.6 million and $64.5 million, respectively, related to land held for sale.

Selling, general, and administrative expense as a percentage of home settlement revenues was 21.2% for the three months ended March 31, 2009 compared with 14.5% for the same period in the prior year. 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 expenses (a decrease of 40.8% compared with the prior year period), these reductions have been offset by reduced operating leverage resulting from the significant decrease in home settlement revenues and lower absorption into inventory of overhead costs due to lower construction volumes. We incurred employee severance costs related to overhead reductions totaling $2.8 million and $7.7 million for the three months ended March 31, 2009 and 2008, respectively.

Equity income (loss) was ($50.5) million and $3.7 million for the three months ended March 31, 2009 and 2008, respectively. The equity loss experienced during the first quarter of 2009 included impairments related to investments in unconsolidated joint ventures totaling $50.4 million. There were no impairments related to investments in unconsolidated joint ventures during the three months ended March 31, 2008.

Other income (expense), net includes the write-off of deposits and pre-acquisition costs resulting from decisions not to pursue certain land acquisitions, which totaled $0.6 million and $0.3 million for the three months ended March 31, 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. Additionally, other income (expense), net includes restructuring charges (primarily asset impairments and lease exit costs) of $2.2 million and $1.2 million for the three months ended March 31, 2009 and 2008, respectively, related to overhead reduction efforts.

For the three months ended March 31, 2009, net new order units decreased 44.1% to 3,022 units, compared with the same period in 2008. Cancellation rates for the quarter were 21%, compared with 28% 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 decreased 46.1% for the three months ended March 31, 2009, compared with the same period in 2008. At March 31, 2009 we had 549 active communities, a decrease of 21.0% from March 31, 2008. Ending backlog, which represents orders for homes that have not yet closed, was 3,049 units at March 31, 2009 with a dollar value of $853.4 million, declines of 64.4% and 66.9%, respectively, compared with March 31, 2008.

We had 4,435 and 5,058 homes in production at March 31, 2009 and December 31, 2008, respectively, excluding 1,305 and 1,372 model homes, respectively. Included in our total homes in production were 2,396 and 3,509 homes that were unsold to customers at March 31, 2009 and December 31, 2008, respectively, of which 1,312 and 1,857 homes, respectively, were completed.

At March 31, 2009 and December 31, 2008, our Homebuilding operations controlled 121,479 and 120,796 lots, respectively. Of these controlled lots, 98,578 and 97,473 lots were owned and 22,901 and 23,250 lots were under option agreements approved for purchase at March 31, 2009 and December 31, 2008, respectively. In addition, there were 73 lots under option agreements pending approval at December 31, 2008. There were no lots under option agreements pending approval at March 31, 2009. During the three months ended March 31, 2009, we withdrew from land option contracts representing 104 lots with purchase prices totaling $8.6 million.

Homebuilding Operations - Summary (continued)

The total purchase price related to approved land under option for use by our Homebuilding operations at future dates approximated $1.3 billion at March 31, 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 $228.5 million, of which $1.4 million is refundable. This balance excludes $19.5 million of 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. We conduct our operations in 48 markets, located throughout 25 states, and have presented our reportable Homebuilding segments as follows:

Atlantic Coast: Atlantic Coast Area includes the following states:

                   Connecticut, Delaware, Georgia, Maryland, Massachusetts, New Jersey,
                   New York, North Carolina, Pennsylvania, Rhode Island, South Carolina,
                   Tennessee, Virginia

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

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

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

*California: California Area includes the following state:

* 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.

Homebuilding Segment Operations (continued)



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



                                        Operating Data by Segment ($000's omitted)
                                                    Three Months Ended
                                                         March 31,
                                             2009                       2008
 Home sale revenue (settlements):
 Atlantic Coast                       $           130,245       $             374,149
 Gulf Coast                                       143,612                     293,327
 Midwest                                           70,378                     167,764
 Southwest                                        135,390                     353,023
 California                                        85,108                     208,168

                                      $           564,733       $           1,396,431

 Income (loss) before income taxes:
 Atlantic Coast                       $          (136,617 )     $             (53,877 )
 Gulf Coast                                      (105,448 )                  (157,107 )
 Midwest                                          (38,046 )                   (15,891 )
 Southwest                                       (132,500 )                  (298,163 )
 California                                       (45,473 )                  (100,634 )
 Unallocated (a)                                  (49,349 )                   (79,458 )

                                      $          (507,433 )     $            (705,130 )

 Unit settlements:
 Atlantic Coast                                       438                       1,141
 Gulf Coast                                           656                       1,292
 Midwest                                              273                         623
 Southwest                                            545                       1,197
 California                                           235                         480

                                                    2,147                       4,733

 Net new orders - units:
 Atlantic Coast                                       760                       1,326
 Gulf Coast                                           756                       1,523
 Midwest                                              398                         579
 Southwest                                            762                       1,467
 California                                           346                         507

                                                    3,022                       5,402

 Unit backlog:
 Atlantic Coast                                       898                       2,257
 Gulf Coast                                           789                       2,353
 Midwest                                              396                         784
 Southwest                                            611                       2,280
 California                                           355                         885

                                                    3,049                       8,559

(a) Unallocated includes amortization of capitalized interest of $55.0 million and $58.5 million for the three months ended March 31, 2009 and 2008, respectively, and certain shared services that benefit all operating segments, the costs of which are not allocated to the operating segments reported above.

Homebuilding Segment Operations (continued)



                                      As of              As of
                                  March 31, 2009   December 31, 2008
               Controlled lots:
               Atlantic Coast             21,476              21,327
               Gulf Coast                 41,355              41,840
               Midwest                     9,407               9,187
               Southwest                  37,954              36,920
               California                 11,287              11,522

                                         121,479             120,796

Atlantic Coast:

For the first quarter of 2009, Atlantic Coast home sale revenues decreased 65.2% compared with the prior year period due to a 61.6% decrease in unit settlements combined with a 9.3% decrease in the average selling price. The significant increase in the loss before income taxes was primarily attributable to an increase in land-related charges to $83.5 million in the first quarter of 2009 from $62.8 million in the prior year period. In addition, Atlantic Coast's first quarter 2009 results included impairments of $31.1 million related to an unconsolidated joint venture. Gross margins excluding land-related charges decreased from the prior year period. Net new order units decreased 42.7% due to the difficult market conditions and a reduction in the number of active communities. Our Georgia and Charlotte markets were the primary cause for the reduction in net new orders. The cancellation rate was 16% and 22% in the first quarter of 2009 and 2008, respectively.

Gulf Coast:

For the first quarter of 2009, Gulf Coast home sale revenues decreased 51.0% compared with the prior year period due to a 49.2% decrease in unit settlements combined with a 3.6% decrease in the average selling price. The reduction in income before income taxes in the first quarter of 2009 was attributable to these lower revenues combined with lower gross margins (excluding land-related charges). Land-related charges decreased to $91.8 million in the first quarter of 2009 compared with $149.5 million in the prior year period. Net new order units declined in every market and by 50.4% overall compared with the prior year period due to lower demand and a reduction in the number of active communities. The cancellation rate was 22% and 27% in the first quarter of 2009 and 2008, respectively.

Midwest:

Midwest home sale revenues decreased 58.0% during the quarter compared with the prior year period due to a 56.2% decrease in unit settlements combined with a 4.3% decrease in the average selling price. The loss before income taxes increased in the first quarter of 2009 compared with the first quarter of 2008 primarily due to an increase in land-related charges to $27.9 million from $14.0 million in the prior year period. Gross margins excluding land-related charges were lower compared with the prior period. Net new order units declined by . . .