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 $4.8 billion and goodwill impairments of $375.7 million.

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. 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 six months ended June 30, 2009, our new home settlements and net new orders have declined 54.3% and 39.4%, 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 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. 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 a wholly owned subsidiary of Pulte (the "Merger"). Subject to the terms and conditions of the Merger Agreement, which has been unanimously approved by the boards of directors of both Pulte and Centex, 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 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 by us will fluctuate with the market price of our common stock until the Merger is consummated. While all applicable regulatory approvals have been obtained, the proposed transaction is subject to shareholder approval and other customary closing conditions. We and Centex have scheduled our respective special meetings of shareholders for August 18, 2009 and expect to consummate the Merger promptly thereafter. Additional information regarding the proposed Merger can be found in our Registration Statement on Form S-4/A filed on July 16, 2009 and in various other filings made since April 7, 2009.

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

                                              Three Months Ended                 Six Months Ended
                                                   June 30,                          June 30,
                                             2009             2008             2009             2008
Income (loss) before income taxes:
Homebuilding                              $ (187,483 )     $ (221,321 )     $ (694,916 )     $ (926,451 )
Financial Services                            (9,370 )         10,802          (10,118 )         25,846
Other non-operating                            9,924           (4,708 )          5,859           (7,678 )

Loss before income taxes                    (186,929 )       (215,227 )       (699,175 )       (908,283 )
Income tax expense (benefit)                   2,536          (56,810 )          5,108          (53,722 )

Net loss                                  $ (189,465 )     $ (158,417 )     $ (704,283 )     $ (854,561 )

Per share data - assuming dilution:
Net loss                                  $    (0.74 )     $    (0.63 )     $    (2.77 )     $    (3.37 )

The following is a comparison of our loss before income taxes for the three and six months ended June 30, 2009 and 2008:

• Our Homebuilding loss before income taxes was $187.5 million and $694.9 million for the three and six months ended June 30, 2009, respectively, compared with a Homebuilding loss before income taxes of $221.3 million and $926.5 million, for the same periods in the prior year. The losses experienced in the second quarters of 2009 and 2008 resulted from lower home sale revenues and lower gross margins combined with land-related charges totaling $119.3 million and $529.5 million for the three and six months ended June 30, 2009, respectively, compared with $220.1 million and $883.7 million 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 the second quarter of 2009 compared with the prior year period.

• For the three and six months ended June 30, 2009, Financial Services experienced a loss before income taxes of $9.4 million and $10.1 million, respectively, compared with income before income taxes of $10.8 million and $25.8 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 increased loan loss reserves.

• Our Other non-operating income increased for the three and six months ended June 30, 2009, compared with the prior year periods, due primarily to a gain realized on the repurchase of debt, which was partially offset by lower net interest income.

Homebuilding Operations - Summary

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



                                          Three Months Ended                    Six Months Ended
                                               June 30,                             June 30,
                                        2009              2008               2009               2008
Home sale revenues                   $  653,711       $  1,555,137       $  1,218,444       $  2,951,568
Land sale revenues                        4,171             25,331              4,781             27,009

Total Homebuilding revenues             657,882          1,580,468          1,223,225          2,978,577

Home cost of revenues (a)              (724,891 )       (1,537,269 )       (1,622,829 )       (3,382,323 )
Land cost of revenues (b)               (11,364 )          (68,121 )          (12,268 )         (133,069 )
Selling, general and
administrative expenses                (114,075 )         (177,643 )         (233,519 )         (379,580 )
Equity income (loss) (c)                 (2,509 )           (1,787 )          (53,036 )            1,929
Other income (expense), net (d)           7,474            (16,969 )            3,511            (11,985 )

Loss before income taxes             $ (187,483 )     $   (221,321 )     $   (694,916 )     $   (926,451 )


Active communities at June 30 (e)                                                 497                673
Unit settlements                          2,500              5,438              4,647             10,171
Average selling price                $      261       $        286       $        262       $        290
Net new orders:
Units                                     3,367              5,133              6,389             10,535
Dollars (f)                          $  862,000       $  1,413,000       $  1,649,000       $  2,874,000
Backlog at June 30:
Units                                                                           3,916              8,254
Dollars                                                                  $  1,061,000       $  2,432,000

(a) Includes homebuilding interest expense, which represents the amortization of capitalized interest. Home cost of revenues also includes land and community valuation adjustments of $109.2 million and $153.6 million for the three months ended June 30, 2009 and 2008, respectively, and $467.8 million and $752.3 million for the six months ended June 30, 2009 and 2008, respectively.

(b) Includes net realizable value adjustments for land held for sale of $7.3 million and $44.7 million for the three months ended June 30, 2009 and 2008, respectively, and $7.9 million and $109.3 million for the six months ended June 30, 2009 and 2008, respectively.

(c) Includes impairments of our investments in unconsolidated joint ventures, which totaled $2.4 million and $52.9 million for the three and six months ended June 30, 2009, respectively. Impairments of our investments in unconsolidated joint ventures were $1.7 million for both the three and six months ended June 30, 2008.

(d) Includes the write off (recovery) of deposits and other related costs for land option contracts we no longer plan to pursue of $0.3 million and $20.1 million for the three months ended June 30, 2009 and 2008, respectively, and $1.0 million and $20.4 million for the six months ended June 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.

(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 and six months ended June 30, 2009 were lower than those for the prior year by $901.4 million and $1.7 billion, or 58.0% and 58.7%, respectively. The decreases in home sale revenues for the three and six months ended June 30, 2009 compared with the prior year periods were primarily attributable to 54.0% and 54.3% decreases, respectively, in unit settlements, combined with decreases in the average selling price of 8.6% and 9.6%, respectively. The declines in unit settlements resulted from both reductions in the number of our active communities (down 26.2% at June 30, 2009 compared with June 30, 2008) and the challenging sales conditions in our local markets. The decrease in average selling price in the three and six months ended June 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 all of our Homebuilding segments during the three and six months ended June 30, 2009 compared with the prior year periods.

Homebuilding Operations - Summary (continued)

Homebuilding gross profit margins from home sales deteriorated to negative 10.9% for the three months ended June 30, 2009 compared with positive 1.1% for the same period in the prior year. For the six months ended June 30, 2009, Homebuilding gross profit margins were negative 33.2% compared with negative 14.6% for the same period in 2008. 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 home sale revenues. We recorded land and community valuation adjustments of $109.2 million and $467.8 million during the three and six months ended June 30, 2009, respectively, compared with $153.6 million and $752.3 million, respectively, during the corresponding prior year periods. Excluding these land and community valuation adjustments, gross profit margins deteriorated moderately during the three and six months ended June 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 $7.2 million and $7.5 million during the three and six months ended June 30, 2009, respectively, compared with negative margin contributions of $42.8 million and $106.1 million during the three and six months ended June 30, 2008, respectively. These negative margin contributions included net realizable value adjustments related to land held for sale totaling $7.3 million and $7.9 million for the three and six months ended June, 30, 2009, respectively, compared with $44.7 million and $109.3 million in the prior year periods.

Selling, general, and administrative expense as a percentage of home sale revenues was 17.5% for the three months ended June 30, 2009 compared with 11.4% for the same period in the prior year. For the six months ended June 30, 2009, selling, general and administrative expense as a percentage of home sale revenues was 19.2% compared with 12.9% 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 expenses (a decrease of 35.8% and 38.5% for the three and six months ended June 30, 2009, respectively, compared with the prior year periods), these reductions 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. We incurred employee severance costs related to overhead reductions totaling $1.1 million and $2.5 million for the three months ended June 30, 2009 and 2008, respectively, and $3.9 million and $10.2 million during the six months ended June 30, 2009 and 2008, respectively.

Equity income (loss) was ($2.5) million and ($53.0) million for the three and six months ended June 30, 2009, respectively, and ($1.8) million and $1.9 million in the three and six months ended June 30, 2008. The equity loss experienced during the three and six months ended June 30, 2009 included impairments related to investments in unconsolidated joint ventures totaling $2.4 million and $52.9 million, respectively. There were impairments related to investments in unconsolidated joint ventures of $1.7 million during both the three and six months ended June 30, 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 $0.3 million and $20.1 million for the three months ended June 30, 2009 and 2008, respectively, and $1.0 million and $20.4 million for the six months ended June 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 three and six months ended June 30, 2009, Other income (expense), net also includes $10.8 million related to the favorable resolution of certain matters arising from two prior land sale transactions. Additionally, Other income (expense), net includes certain restructuring charges (primarily asset impairments and lease exit costs) of $0.3 million and $2.5 million for the three and six months ended June 30, 2009, respectively, compared to restructuring charges of $0.9 million and $2.1 million for the three and six months ended June 30, 2008, respectively, related to overhead reduction efforts.

For the three and six months ended June 30, 2009, net new order units decreased 34.4% to 3,367 units and 39.4% to 6,389 units, respectively, compared with the same periods in 2008. Cancellation rates for the second quarter were 22%, compared with 29% 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 39.0% and 42.6% for the three and six months ended June 30, 2009, respectively, compared with the same periods in 2008. At June 30, 2009 we had 497 active communities, a decrease of 26.2% from June 30, 2008. Ending backlog, which represents orders for homes that have not yet closed, was 3,916 units at June 30, 2009 with a dollar value of $1.1 billion, declines of 52.6% and 56.4%, respectively, compared with June 30, 2008.

Homebuilding Operations - Summary (continued)

We had 4,517 and 5,058 homes in production at June 30, 2009 and December 31, 2008, respectively, excluding 1,229 and 1,372 model homes, respectively. Included in our total homes in production were 1,815 and 3,509 homes that were unsold to customers at June 30, 2009 and December 31, 2008, respectively, of which 788 and 1,857 homes, respectively, were completed.

At June 30, 2009 and December 31, 2008, our Homebuilding operations controlled 118,470 and 120,796 lots, respectively. Of these controlled lots, 96,721 and 97,473 lots were owned and 21,110 and 23,250 lots were under option agreements approved for purchase at June 30, 2009 and December 31, 2008, respectively. In addition, there were 639 lots and 73 lots under option agreements pending approval at June 30, 2009 and December 31, 2008, respectively. During the three and six months ended June 30, 2009, we withdrew from land option contracts representing 1,048 lots with purchase prices totaling $34.7 million and 1,152 lots valued at $43.3 million, respectively.

The total purchase price related to approved land under option for use by our Homebuilding operations at future dates approximated $1.2 billion at June 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 $227.5 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.

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                  Six Months Ended
                                                June 30,                           June 30,
                                         2009             2008              2009              2008
Home sale revenue (settlements):
Atlantic Coast                        $  180,708       $   486,795       $   310,953       $   860,944
Gulf Coast                               155,106           320,219           298,718           613,546
Midwest                                   69,962           171,873           140,340           339,637
Southwest                                138,231           370,455           273,621           723,478
California                               109,704           205,795           194,812           413,963

                                      $  653,711       $ 1,555,137       $ 1,218,444       $ 2,951,568

Income (loss) before income taxes:
Atlantic Coast                        $  (33,987 )     $     5,149       $  (170,604 )     $   (48,728 )
Gulf Coast                               (40,624 )         (13,841 )        (146,072 )        (170,948 )
Midwest                                   (9,758 )         (37,251 )         (47,804 )         (53,142 )
Southwest                                (43,983 )         (91,238 )        (176,483 )        (389,401 )
California                               (24,229 )         (27,584 )         (69,702 )        (128,218 )
Unallocated (a)                          (34,902 )         (56,556 )         (84,251 )        (136,014 )

                                      $ (187,483 )     $  (221,321 )     $  (694,916 )     $  (926,451 )

Unit settlements:
Atlantic Coast                               597             1,424             1,035             2,565
Gulf Coast                                   711             1,430             1,367             2,722
Midwest                                      290               615               563             1,238
Southwest                                    591             1,423             1,136             2,620
California                                   311               546               546             1,026

                                           2,500             5,438             4,647            10,171

Net new orders - units:
Atlantic Coast                               916             1,279             1,676             2,605
Gulf Coast                                   866             1,278             1,622             2,801
Midwest                                      390               700               788             1,279
Southwest                                    850             1,420             1,612             2,887
California                                   345               456               691               963

                                           3,367             5,133             6,389            10,535

Unit backlog:
Atlantic Coast                                                                 1,217             2,112
Gulf Coast                                                                       944             2,201
Midwest                                                                          496               869
Southwest                                                                        870             2,277
California                                                                       389               795

                                                                               3,916             8,254

(a) Unallocated includes amortization of capitalized interest of $33.3 million . . .