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Executives

Jim Zeumer – VP of Investor and Corporate Communications

Richard Dugas – Chairman, President and CEO

Roger Cregg – EVP and CFO

Steve Petruska – EVP and COO

Mike Schweninger – VP and Controller

Analysts

Megan McGrath – Barclays Capital

Michael Rehaut – JPMorgan

Dave Goldberg – UBS

Dennis McGill – Zelman and Associates

Rob Hansen - Deutsche Bank

Dan Oppenheim – Credit Suisse

Carl Reichardt – Wells Fargo

Joshua Pollard – Goldman Sachs

Ken Zener – Macquarie

Alex Barron – Agency Trading Group

Susan Berliner – JPMorgan

Pulte Homes, Inc. (PHM) Q3 2009 Earnings Call Transcript November 4, 2009 8:30 AM ET

Operator

Good day, ladies and gentlemen, and welcome to the third quarter 2009 Pulte Homes Incorporated earnings conference call. My name is Katina and I will be your coordinator for today. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I would now like to presentation over to your host for today’s call, Mr. Jim Zeumer. Please proceed.

Jim Zeumer

Thank you, Katina. And let me welcome everyone on the call and listening via the Internet to this morning’s call to discuss Pulte Homes’ results for the third quarter and nine months ended September 30th, 2009.

On the call with me to discuss our results are Richard Dugas, Chairman, President and Chief Executive Officer; Steve Petruska, Executive Vice President and Chief Operating Officer; Roger Cregg, Executive Vice President and Chief Financial Officer; and Mike Schweninger, Vice President and Controller.

For those of you who have access to the Internet, a slide presentation available at www.pulteinc.com will accompany this discussion. Given our third quarter merger with Centex and the resulting impact on our reported third quarter results, we have expanded the slide content. We believe these slides will greatly assist the understanding and analysis of our third quarter financial performance and we strongly encourage everyone to review this material. The slides will be archived on the site for the next 30 days for those who want to review it at a later time.

As a reminder, on August 18th, 2009, Pulte Homes completed its merger with Centex Corporation. Unless otherwise identified, results reported in the release and on this call reflect the inclusion of Centex’s operations in the period from August 19th, 2009 through September 30th, 2009. Prior period results have not been adjusted for this merger.

Finally, I want to alert everyone listening on the call and via the Internet that certain statements and comments made during the course of this call must be considered forward-looking statements as defined by the Securities Litigation Reform Act of 1995. Pulte Homes believes such statements are based on reasonable assumptions, but there are no assurances that actual outcomes will not be materially different from those discussed today. All forward-looking statements are based on information available to the company on the date of this call and the company does not undertake any obligation to publicly update or revise any forward-looking statements as a result of new information in the future.

Participants in today's call should refer to Pulte's Annual Report on Form 10-K for the year ended December 31, 2008 and this morning’s press release for a detailed list of the risks and uncertainties associated with the business. As always, at the end of our prepared comments, we will have time for Q&A. We will wait until then to open the queue for questions.

I will now turn the call over to Richard Dugas for opening comments. Richard?

Richard Dugas

Thanks, Jim and thank you to everyone joining us on the call today. Back in April of this year, we explained the strategic importance of our merger with Centex and highlighted opportunities around business synergies, land and customer diversification, and branding. In the third quarter, we completed this transaction and I am confident in saying that the rationale underlying this combination has only grown more compelling in the months since the announcement.

At that time, we highlighted the opportunity for us to realize $350 million in synergies by the third year after completion of the merger. In addition to having now raised the target by 25% to $440 million in expected annualized savings, we have already implemented needed actions to capture more than half of these savings. We expect to reach the initial target of $350 million in annualized savings early in 2010, far earlier than originally projected and then achieve the $440 million annual run rate in the back half of 2010.

Once the merger closed, our purchasing team was able to dive much deeper into Centex’s practices and better assess the buying opportunities for the merged company. Based on the team’s initial analysis, they have identified between $150 million and $200 million in annualized synergies that can be realized on future buying volumes. This work is still in the early stages, but preliminary findings point to tremendous opportunities to lower cost and support Pulte’s efforts to return to profitability as quickly as possible.

If the economy rebounds in 2010, these savings can provide great leverage and help accelerate Pulte’s return to profitability. If, however, the economy drifts sideways or even stumbles, $440 million in savings would be even more important. Either way, we are excited about the overall leverage this merger can provide.

Building on top of any immediate savings, we expect the lots we obtained through the Centex merger can deliver long-term value to the company. The recent Wall Street Journal article on the absence of land transactions was similar in tone to some recent research pieces, all of which suggest that we won’t experience an RTC-like purge of A-plus land on to the market like we did 20 years ago.

What is becoming clear is that banks are retaining many of their land parcels, especially the A-rated positions until market conditions improve and they can realize better pricing. Right now, banks are not being pushed to sell their land portfolios. In addition, banks see and hear all the same reports as we do and they understand that some builders may be forced to move bids higher in order to replenish a land pipeline that is running on empty. Giving their – given their low cost of carry, banks can afford to be patient.

Even the recent talk about a big uptick in land transactions maybe a lot more smoke than any real fire. In a number of markets across the country, builders continue to make bids and submit a series of offers, but relatively few of these transactions are meaningful enough to set a new benchmark price for prime land parcels.

As for the deals that are getting done, they are typically for a small number of lots under some form of rolling option terms that allow the builder to walk away if housing demand isn’t there. Clearly, we are a long way from the volume or scale of land transactions that were undertaken in this industry in 2006 and before.

Could conditions change if the economy gets weaker instead of stronger in 2010 and banks find themselves under more pressure? Of course. But given that banks have held on this long, we believe that a few incremental deals might get forced out, but not the flood of lots that many have expected and feared.

With approximately 177,000 lots under control, of which roughly one-third are developed, Pulte Homes has a land pipeline that can support future sales and cash flows without having to invest significant dollars in acquisition or development. As in this quarter, we have had to adjust these land positions to more accurately reflect current market value, but we are left at a well located and diversified portfolio that is properly valued and that can be a source of future benefits to the company.

Managing these land assets as well as our entire operations effectively requires that we integrate the businesses quickly and that we get everyone refocused on the basic blocking and tackling of homebuilding. To this end, our senior and area leadership teams are in place and effectively all of the Pulte and Centex market offices are now combined. We have scaled operations to reflect current market realities and we are making plans for 2010 with conservative assumptions about market conditions.

As the mid-quarter merger and related acquisition accounting can make analysis more difficult, let me say that market conditions for much of the quarter were consistent with what we experienced earlier in the year. More specifically, customer traffic, demand levels, and cancellation rates were in line with prior periods of 2009, but we continue to see some volatility.

For example, business through July and August were stable, but we did see some softness in September, likely due to the pending expiration of the $8,000 tax credit. Our sales may have also been slowed by our decision not to build inventory to catch the last of the tax credit buyers as we felt it was more important to continue our shift to higher-margin pre-sold homes and you can see the benefits beginning to show in our Q3 results. I will highlight that on a standalone basis. Pulte’s roughly 3,000 signups for the quarter were effectively flat with last year, but were achieved on almost 150 fewer communities.

Roger will provide more detail on Q3 and where possible, try to isolate Pulte versus Centex versus acquisition accounting. This is important because as expected, the merger makes our financial results more challenging to analyze and interpret. Peel back the onion however and you will find we are making steady progress in the business and toward returning to profitability.

With the inclusion of Centex’s operations for approximately six weeks, Pulte reported revenue for the quarter increased from the second quarter by roughly 60% to more than $1 billion. Looking at our underlying business, sequential gross margin showed an increase of 370 basis points from Q2 to 13.1% before the impact of interest, merger costs, land impairments, and other land charges.

For the quarter, we continue to benefit from our focus on cost controls and the ongoing emphasis on pre-selling homes. It is great to see margin expansion and with improved margins in backlog, our expectations are for continued gains in the future.

Having ended the quarter with $1.6 billion in cash after paying down $1.7 billion of debt, Pulte continues to maintain ample liquidity as we look to close out 2009 with an expected cash position of approximately $2 billion. We are working hard to return to profitability and the opportunities for future gains, particularly resulting from the merger, are significant.

Before turning over the call, I just want to thank all of our employees for their efforts during the quarter and in the period leading up to the merger. The integration planning and subsequent implementation involved hundreds of people and thousands upon thousands of hours. Throughout the process, our team continued to serve our customers and deliver industry-leading quality and service as evidenced by our dominance in the J.D. Power and Associates’ annual survey results that were reported in September. I thank our employees for their efforts and ongoing commitment to the success of Pulte Homes.

Now, let me turn the call over to Roger Cregg for additional details on Pulte’s third quarter financial results. Roger?

Roger Cregg

Thank you, Richard and good morning, everyone. As you are aware, on August 18th, 2009, the company completed the merger with Centex and accordingly, the results of Centex are included in the company’s consolidated financial statements from the date of the merger. We have added supplemental information on the webcast slides to aid in the understanding of some of the third quarter results and the contributions by each company during the quarter. As we quickly work toward a full integration of both organizations, the information of standalone details will become less meaningful and available. We will therefore be limited on breaking out these details in the future in a similar format.

During the third quarter, homebuilding net new unit order rate increased approximately 35% from the third quarter last year, which is all attributed to the additional Centex orders in the quarter of 1,125 homes. Revenues from home settlements for the homebuilding operation decreased approximately 30% from the prior year quarter to approximately $1.1 billion. Lower revenues reflect lower unit closings that were below prior year by approximately 23% including the contribution of 1,394 closings from Centex.

The average sales price decreased approximately 10% versus the prior year quarter to an average of $253,000, which includes an average sales price of $237,000 from the Centex closings and $261,000 from the Pulte closings. In the third quarter, land sales generated approximately $3 million in total revenues, which is a decrease of approximately $10 million versus the prior year’s quarter.

Homebuilding gross profits from home settlements for the quarter including homebuilding interest expense was a loss of approximately $26 million versus a loss of $90 million in the prior year quarter. For those with access to the webcast slides, I refer you to slide number eight, which outlines our gross margins in the following details.

Homebuilding gross margins from home settlements, as a percentage of revenues, was a negative 2.5% compared with a negative 6% in the third quarter of 2008. Adjusting the current quarter gross margins for land and community valuation charges, interest expense and the acquisition accounting write-off for the Centex work in process resulted in a 13.1% conversion compared to 9.4% for the second quarter of 2009 or – and an improvement of 370 basis points.

As I mentioned in our prior conference call, we expected sequential quarterly improvements in gross margins as we worked our way through the backlog of higher incentives from the fourth and first quarters and the house cost reduction initiatives we executed during the first quarter of 2009.

On a further note, the Centex closings converted on an adjusted margin basis of approximately 14% and the Pulte closings at 12.6%. The bring-back to gross margins from the fair value accounting adjustments on the Centex land was approximately $3 million or a contribution of approximately 30 basis points for the quarter on the combined revenue.

Homebuilding interest expense decreased during the quarter to approximately $36 million versus approximately $53 million in the prior year. Included in the interest expense of $36 million is an additional $15 million of expense related to land and community valuation adjustment taken in the current quarter. Also included in the gross margin for the quarter was a charge related to land and community valuation adjustment in the amount of approximately $117 million.

For the third quarter, we tested approximately 74 Pulte communities for potential impairments and valuation adjustments. We recorded valuation adjustments on approximately 48 communities for the quarter, of which approximately 39 communities or 81% had previously been impaired. Of the $117 million of land and community valuation adjustments, approximately 63% or $74 million were related to Del Webb communities, reflecting adjustments due to current absorption rates and pricing.

The total gross loss from land sales posted for the quarter was approximately $9 million. The loss is mainly attributed to the fair market value adjustment in the current quarter for land being held for disposition and land sold in the amount of approximately $8 million, which is included in the land cost of sales.

Homebuilding SG&A expenses as a percentage of home sales for the quarter was approximately 19.8% or $209 million, an increase of approximately $17 million or approximately 9% versus the prior year quarter. The current quarter reflects the inclusion of the Centex operations after the merger. In addition, the third quarter includes approximately $51 million for employee severance costs and merger and integration expenses.

In the homebuilding other income and expense category for the quarter, the expense of approximately $47 million includes the write-off of deposits and pre-acquisition costs, resulting from the decision not to pursue certain land acquisitions in the amount of $17 million, the valuation adjustment in unconsolidated joint-venture investments totaling approximately $6 million.

Also included in the category for the quarter was approximately $15 million associated with restructuring charges related to overhead expense reductions associated with lease exit costs and fixed asset impairment and the amortization of intangible assets associated with the backlog related to the merger with Centex.

The homebuilding pretax loss for the third quarter of approximately $292 million resulted in a pretax margin of approximately a negative 27.6% on total homebuilding revenues. Adjusting for the impact of the charges related to the valuation adjustments in land inventory and investments, land held for sale, severance and related charges, merger and integration expenses, and the Centex work-in-process adjustment of approximately $241 million, homebuilding pretax margins converted at approximately a negative 4.8% from operations or approximately a $51 million loss for the current quarter.

The pretax loss for Pulte’s financial services operations for the third quarter was approximately $8.6 million or a decrease compared with the previous year’s quarter of approximately $19 million. The loss in the quarter is mainly attributed to the reduction in loan origination principal volume from reduced settlements, an increase in loan loss reserves by approximately $12 million during the quarter, and integration costs related to the Centex merger of approximately $5 million.

Total mortgage origination dollars were $622 million, a decrease of 29% when compared to the same period last year. The decrease is related to volume decrease in the homebuilder closing activity for the quarter. Total agency originations were $586 million, non-agency originations were approximately $2 million, and brokered or non-funded loans were approximately $34 million. Additionally, with the funded agency originations, FHA loans were approximately 43% of loans funded from the financing line in the third quarter compared to approximately 34% in the second quarter of 2009.

FHA loans in the quarter for Pulte on a standalone basis represented 35% and Centex was 60%. Pulte mortgages capture rate for the current quarter on a combined basis was approximately 86% with Pulte on a standalone basis at approximately 92%. In the other non-operating category, pretax loss for the third quarter of approximately $59 million includes $47 million of losses related to repurchase of Pulte senior notes, corporate expenses of approximately $7 million, net interest income of approximately $1 million related to the invested cash balance during the quarter, and approximately $5 million of transaction and integration costs directly related to the Centex merger.

For the third quarter, the company’s pretax loss was approximately $359 million. Pretax loss includes $298 million for the charges related to valuation adjustments on land inventory and investments, land held for sale, severance and related charges, the merger and integration related expenses, and the loss on the repurchase debt.

The net loss for the third quarter was approximately $361 million or a loss of $1.15 per share as compared to a net loss of approximately $280 million or a loss of $1.11 per share for the same period last year. The third quarter of 2008 reflects a tax benefit of approximately $14 million, primarily due to an adjustment in the deferred income taxes.

The number of shares used in the EPS calculation was approximately 313 million shares for the third quarter. Please note that the share count was based on the weighted average count for the quarter. The total shares outstanding at September 30th, 2009 was approximately 380.2 million shares.

The Centex merger was accounted for in accordance with ASC 805 Business Combinations. The acquired assets and assumed liabilities were recorded at their estimated fair values with certain limited exceptions. We determine the estimated fair values with the assistance of appraisals or valuations performed by independent third-party specialists, discounted cash flow analysis, quoted market prices where available, and estimates made by management. To the extent the consideration transferred exceeded the fair value of the net assets acquired; the excess was assigned to goodwill.

We have completed the majority of the business combination accounting as of September 30th, 2009 and we expect to substantially complete the remainder in the fourth quarter of 2009. We have not received final valuations from certain independent valuation specialists. Final determination of the values of assets acquired and liabilities assumed may result in adjustments to the values presented with the corresponding adjustment to goodwill.

Before specifically turning to the balance sheet for the quarterly activity, I want to highlight the development of the major items included in goodwill for the Centex merger. Again, for those with access to the webcast slides, I refer you to slide number 13 that presents the major items in goodwill. Pursuant to the terms of the merger agreement, Pulte acquired all of the outstanding shares of Centex, issuing approximately 122 million Pulte shares at a closing price on August 18th, 2009 of $12.33 per share, resulting in total consideration of approximately $1.5 billion.

Centex closing book value of net assets acquired on August 18th, 2009 was approximately $905 million, resulting in $600 million to goodwill before considering any fair value adjustments related to acquisition accounting. With respect to acquisition accounting adjustments, we determined the intangible assets, trade names and trademarks associated primarily with Centex brand and expected to be targeting the first-time homebuyer of approximately $100 million using valuation assistance of independent third-party specialists.

The fair value of inventory was determined on a community-by-community basis, primarily using a combination of discounted cash flow models, market comparable land transactions where available, and on a limited basis, independent third-party appraisals. These cash flows are impacted by estimates related to average selling prices, sales closing paces, land development and construction times and assumptions related to land development, construction and overhead costs, and discount rates.

The estimated fair value adjustments to the Centex land inventory was a net write-down of approximately $674 million plus the elimination of $150 million of capitalized interest. The estimated fair value process was performed on approximately 750 communities, of which approximately 70% were determined through the discounted cash flow method and the remainder by comparable market analysis and third-party independent appraisals on several non-traditional assets.

Of the net write-down of approximately $674 million, approximately 5% of the communities represented $450 million or 80% of the net write-down. The net fair value adjustment reflects differences between fair value accounting and FAS 144 accounting, recent performance, strategic marketing changes, and direction in some of the assets related to long asset lives, changes to price, development and construction costs, and closing pace assumptions. In total, approximately 52% of the communities had write-downs, 31% had write-ups and 17% remained unchanged. The all other net includes the estimated fair value adjustments of all other assets and liabilities.

Now to review the balance sheet for the quarter, we ended with a cash balance of approximately $1.55 billion, decreasing approximately $85 million from the second quarter of 2009. The major components of the net change in cash use of approximately $85 million for the quarter included the acquired cash from the Centex merger of approximately $1.8 billion, offset by the repurchase of approximately $1.8 billion of debt and the related transaction and integration costs associated with the merger and normal operating activities.

House and land inventory ended the quarter at approximately $5.6 billion. During the quarter, we added approximately $2.1 billion to the inventory from the Centex merger. Major changes in land inventory for the second quarter in addition – in the third quarter in addition to the – from the second quarter, in addition to the Centex inventory, on a combined basis or from home settlements of approximately $253 million, offset by investments in rolling lot option takedowns and purchases of approximately $56 million and land development spending of approximately $137 million for the quarter.

In accordance with FAS 109, the accounting for income taxes, at September 30th, we had net deferred tax assets of approximately $3.1 billion, which were substantially offset by a valuation allowance due to the uncertainty of realizing these deferred tax assets. With approximately $1.55 billion in cash to end the third quarter, we had no outstanding balance drawn on the revolving credit facility at the end of the quarter. The company’s gross debt to total capitalization ratio was approximately 56.4% and on a net basis, 45.2%.

Interest incurred amounted to approximately $61 million in the third quarter compared to $54 million for the same period last year. Pulte Homes’ shareholder equity for the third quarter was approximately $3.3 billion. We repurchased no shares during the quarter and the company has approximately $102 million remaining on our current authorization.

On our financial covenants for the third quarter, the required debt to total capitalization ratio was not to exceed 55% and at September 30th, the ratio as defined in the credit facility was 53.8%. And on the tangible net worth test as defined in the credit agreement was to have required a tangible net worth of $2 billion. As of September 30th, we were not in compliance with the tangible net worth covenant under the credit facility.

We subsequently requested and received a limited waiver from the banks until December 15th, 2009. We expect to negotiate a permanent amendment by December 15th, 2009, but there can be no assurance that any agreement regarding the amendment can be reached. If we do not reach an agreement with the banks prior to the expiration of the waiver, we may seek an extension of the waiver or alternatively terminate the credit facility. In the event we terminate the facility, we believes we have sufficient liquidity given our current and expected cash position.

I will turn the call over to Steve for some additional comments on the quarter. Steve?

Steve Petruska

Thanks, Roger and again, good morning, everyone. Having spent most of the past two months visiting our operations throughout the country, I am even more confident in the long-term success of our business. The nuts-and-bolts integration work continues, but operationally, we are looking ahead and making plans on how to best manage the total asset position within each given market and how to best – to leverage our greater local and national scale.

Nationally, our purchasing group has already hosted a series of vendor meetings as we work to centralize and leverage our post-merger volumes. Based on the integration planning work and these follow-on meetings, we’ve identified $150 million to $200 million of annualized purchasing savings that can be realized in the future. These are potential savings on top of the $440 million target we have already established.

Locally, we have already started rolling out required – the required tools and training to shift our business towards a more of a built to order planned production model. Some of you maybe familiar with Centex achieving competitive excellence for ace building processes. By strategically integrating select ace practices into our Pulte operating system, we can be in a better position to achieve our goals of lowering house costs, gaining greater construction efficiencies, pre-selling from a position of strength, and driving at more level production cadence.

Simply put, through our Pulte operating system, we see opportunities to reduce our total cost of operations and make it easier for us to expand margins by reducing costs and improving revenue. We are very pleased with our progress so far. Altering our business model will take a few quarters, but we are well under way. The success we are achieving in controlling speculative inventory is in alignment with where we are headed. Pulte ended the quarter with 2,500 spec units, including just 930 that were in Centex communities.

On a standalone basis, Pulte’s spec inventory was below 1,600 homes, which was down 13% from Q2 of this year and down almost 60% from the same period last year. Again, looking at just the Pulte units, we ended Q3 with less than 700 finished specs, which is a drop of 16% from the second quarter and represents the lowest finish count we have seen in years.

Our reduced spec position may have resulted in the loss of a few sales tied to the expiring tax credit, but we believe it puts Pulte in a stronger selling position going forward. As we discussed on the second quarter call, we think managing specs appropriately is critical to driving margin expansion and ultimately, getting back to profitability.

As Richard touched on, we are continuing to see a recovery in our margins that were 13.1% before interest, merger costs, impairments, and the work-in-process write-up compared with 9.4% in Q2 of this year. The quarter benefited from getting past the volume of spec units we sold at a big discount in late 2008 and early 2009. Part of the gain also reflects our ongoing efforts to get cost out of our homes and construction processes.

We ended the quarter with roughly 177,000 lots under control including 62,000 lots associated with the Centex communities. Of these total lots, approximately 154,000 were owned and 23,000 are controlled with options. Supporting the comment Richard made, in the quarter, we completed only a handful of land transactions, the majority of which were continuations of existing projects.

In general, our basic project profile hasn't changed as we remain focused on selling – focused on asset-efficient transactions typically defined as small deals, finished lot option takedowns, quick turns with limited capital outlays. These types of opportunities can be tough to find and we certainly remain engaged in the process throughout our markets.

Getting a little deeper into our numbers, the cancellation rate for the quarter came in just below 23%. This was little changed from the second quarter and the overall trend was positive as the cancellation rates were lower in the back half of the quarter. At 18%, cancellation rates in our Del Webb communities continue to track slightly better than our traditional projects.

On a reported basis, signups for the quarter totaled 4,050 homes, which represented an increase of 20% over the second quarter of 2009 and 35% over the same period last year. Reported signups in Q3 obviously benefited from the inclusion of Centex’s business for the final six weeks of the quarter. On a standalone basis, Pulte’s signups were down about 13% from Q2 and roughly flat with the prior year, but on 25% fewer communities.

Pulte’s reported backlog at quarter-end totaled just under 8,400 homes. Quarter-end backlog reflects the usual signup and closing activity, as well as the inclusion of roughly 4,300 Centex homes. Let me point out that when the merger was closed, Centex had approximately 4,600 units in their backlog. We chose to roll these homes directly into our backlog rather than to take them through signups as we’ve done with prior transactions.

As with prior conference calls, let me provide some comments about how our areas performed during the quarter. Before I get to the details, let me point out that we are now reporting under our six-area structure that we went to following the merger. Also, I think it would be too confusing to give numbers and comments with them without Centex. So the following numbers are inclusive of the Centex operations for the final six weeks of the quarter. I will, however, try to adjust for the differences and really just talk to the market conditions.

Given our expanded presence in the Mid-Atlantic markets following the merger, we elected to separate what has been our Atlantic Coast area into what is now our Northeast and Southeast areas. Reported signups for our Northeast area, which is essentially Northern Virginia to Massachusetts, totaled 502 homes, which is up 17% from Q2. The primary driver of the increase was the addition of the Centex operations as our base business was relatively stable, showing a typical seasonal slowdown as we moved through the quarter.

In our new Southeast area, signups for the third quarter were up 55% to 753 homes. Along with the new Centex signups, we continue to experience good demand in Georgia, Charlotte, and in South Carolina. We expect these markets to be areas of strength for Pulte not only now, but into 2010 and beyond.

Pulte’s Midwest area saw improved signups in the quarter with a 29% sequential increase from Q2 to 502 homes. Beyond the gains driven by the merger, we actually saw improved signups in Michigan relative to the second quarter combined with stable signups in most Midwest markets, except for Cleveland. In aggregate, our Gulf Coast operations posted a 40% in reported signups. Relative to the second quarter, demand across all of our Florida operations was modest, but consistent. Our results in Texas benefited from the strong position Centex maintained throughout the key markets.

After a better showing in the first half of the year, our Southwest operations experienced much softer demand in the quarter with signups falling 25% from Q2. The Centex merger had minimal impact on reported numbers for the quarter. Demand in both Las Vegas and Phoenix was noticeably weaker as potential homebuyers moved into the resale market to take advantage of the available foreclosure inventory or these buyers moved to the sidelines entirely.

In our West area, reported signups for the quarter showed an increase of 22% from Q2 as our results benefited from the inclusion of Centex operations for the last six weeks of the period. Demand in our California market was stable for the first couple of months, but we did a see a trail-off modestly as the quarter progressed. This was fairly consistent in both Northern and Southern California.

And finally, we ended the quarter with 957 communities, of which 469 were Pulte or Del Webb and 488 were Centex. It’s worth noting that our definition of what constitutes an active selling effort differed from Centex. Directionally, we expect the combined number will decline going forward as sold-out communities are not immediately replaced.

As with Richard and Roger’s comments, the merger makes it more difficult to get a clean read on market conditions just by looking at the numbers. Based on comments from our operators, I would say the market is holding up although September was softer than July or August, most likely driven by uncertainty over the tax credit extension and some normal seasonality.

Our field teams are focused on finalizing the integration and on shifting our business towards a pre-sale planned production operating model that will continue to drive better margins. Everyone involved is working overtime to implement the needed changes, but the operating and purchasing synergies are important to getting this back to profitability and I am very proud and pleased with the work they are doing.

I’ll turn the call back over to Jim now for some Q&A. Jim?

Jim Zeumer

Thanks, Steve. We will now open the call to questions. As we’ve done on prior calls, we ask that you keep to one question and one follow-up. If you have additional questions, please feel free to get back in the queue where you can follow-up with us directly after the call. Operator, if you would please give any needed directions, we’ll now open the call to questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Your first question comes from the line of Megan McGrath, representing Barclays Capital. Please proceed.

Megan McGrath – Barclays Capital

Good morning, thank you. I have a ton of questions, but I guess the first one is more of a modeling question, but I appreciate the chart on the goodwill. I guess I’m still a little bit confused. Can you explain the difference in the goodwill balance from when you filed your 8-K in September when it was about 6.90 to the 1.4 it ended up today?

Roger Cregg

Yes, Megan. This is Roger. There is a couple of differences against that one. One was about – roughly about $170 million associated with the debt. Again, we are fair valuing and looking at the debt as we came through quarters and as you know, the prices continue to come in from the discount that Centex was trading at. So by the time we got to the closing date, there was very little difference between the market and book value on that.

The other was about $400 million in the assets themselves and basically, we – as I mentioned, they were driven really around a very small number of communities, but when we ended up looking at what we were doing on the fair value to the more extensive opportunity we got to look at the assets themselves and do a lot more analysis on it, we wound up with some variances related to loss densities, asset lives, some of the assumptions on pricing as I mentioned.

So a lot of those things that I mentioned earlier were some of the things that drove some of the differences in some of the projects, but they are really isolated to rather a few projects, not all projects and some of them were concentrated more in the Southeastern part of the United States in the Florida market.

Megan McGrath – Barclays Capital

Okay, thanks. That’s helpful. And then Richard, sort of a more higher view question, but as we move throughout 2010, you’ve acknowledged that the P&L and balance sheet could be a little complex over the next couple of quarters. How would you suggest the investors evaluate the success of this merger as we go throughout the year? What are some things we can look for to say that this merger is really working?

Richard Dugas

I think you need to look at the financial performance of kind of the core run rate of the business, Megan, excluding these adjustments that are going to flow through primarily in this quarter and next. So that’s why we try to obviously isolate the kind of run rate of the business relative to margins as an example. You can see the improvement that we have there and our comments are for further expectation of improvement in the future. It’s those items, margins, SG&A performance, signup performance, the typical, I would say, metrics that you look at to determine P&L success and obviously, that’s our keen focus.

So we are extremely pleased with what see going forward. And to your point, it’s going to take a little bit of time for investors to be able to interpret through the noise, but that’s why we are trying to provide disclosures. So Steve, I don't know if you want to add anything to that.

Steve Petruska

No. I think that’s exactly – I mean, certainly gross profit margins is a huge area of focus for us and I think indicative of both the work we are doing and certainly the health of the business, Richard mentioned signups and closing and – and then this continued notion of leveraging the overhead of the two companies. We increased our guidance on that quite frankly and I think that we’ve got opportunities to hit that much quicker than what we originally thought. So as you look at that metric, we will continue to report on how we are doing versus what we think is out there.

Operator

Your next question comes from the line of Michael Rehaut, representing JPMorgan. Please proceed.

Michael Rehaut – JPMorgan

Hi, thanks. Mike Rehaut, good morning, everyone.

Richard Dugas

Good morning, Mike.

Michael Rehaut – JPMorgan

First question focuses on the synergies and then I have a second question on the – on gross margins, I believe. But did the synergies – I’m wondering if you could give us a sense for – given that you have this accelerated kind of timeline let’s say or that you think you can get more quicker, just looking out into fourth quarter relative to what perhaps you’ve already been able to capture in the third quarter, how are we to think of incremental benefits from synergies vis-à-vis the impact on gross margin and SG&A from the current numbers that we see in the 3Q results?

Roger Cregg

Mike, this is Roger. It’s going to be a little bit more difficult in the fourth quarter and that’s why we are trying to break out sort of the run rate here. Of the $350 million we’ve talked about being at about $270 million on an annual rate, we are in the process of really from the bottoms-up putting our business plans together to get a better view of that so that we’ve got at the lowest level in the organization from a zero base budget approach so to speak.

So in the short term, it’s going to be hard because some of the charges that we are going to have still flowing through in the fourth quarter, but that's where we are trying to separate these for you as we go forward. And as I mentioned, we had about $270 million run rate captured through the fourth quarter and we expect about $350 million through the first quarter and then the balance coming through the balance of the year.

So – and we are showing it more in the margin and that’s why we have broken these out this way as well to show you what kind of the run rate has been and the improvement that we’ve had on really the Pulte side, not so much at Centex at this point because as we are coming off – if you look at that chart from the Pulte side, from the specs we drove it down.

So I think as we go forward, you ought to see better improvement in the overhead leverage, which we should expect as we continue to have charges, but we’ll separate those so you get a better view of those as we move into 2010.

Michael Rehaut – JPMorgan

And second question with gross margins related to the impairments taken, I guess, particularly on the Centex side, but maybe you could speak to both businesses, what – with the kind of a different – the DCF approach and some more aggressive perhaps approaches that taking that versus perhaps originally expecting to take, can you give us a sense for the post impairment what the gross margins might be on those projects and also just remind us typically what type of margins the Pulte part of the inventory, what gross margins you are impairing those assets to as well?

Roger Cregg

Well, again, I think we – as far as the current impairments, we showed that in the quarter and again, we broke those out. So if you look on that chart, you’ll see the Pulte numbers there without those. Certainly, we expect to benefit on those going forward. Some of the current impairments that we’ve had are on the longer-lived assets at Del Webb. So they are not going to flow immediately through those – the gross margins. And that’s what we’ve really been experiencing in the last two or three quarters as more of our projects are the longer-lived assets. So we are not seeing our margins rebound significantly because of that.

On the Centex side, specifically for the fair value accounting, when we made those adjustments, just roughly – as we look at some margins move by about 500 basis points in total – on the total project roughly from where they were to the after fair value adjustments. Now again, you can’t look at those and say that 500 basis points are going to show up next quarter because you have to look at the life of the asset. That would be the gross margins, if you will, on the asset for the life of the asset and again, some of those have longer life.

So when you start to look at gross margins, some of the price appreciation assumptions you use in modeling could be further out. So – again, that’s not to say that they are all back-end loaded, but that 500 basis points won’t grow in on an immediate basis as we get to the next quarter – in the next quarter, but again, that’s why we are somewhat trying to break out looking at the margins at this point from where we are starting from to where we are going to in the future.

Operator

Your next question comes from the line of Dave Goldberg, representing UBS. Please proceed.

Dave Goldberg – UBS

Good morning, everybody.

Richard Dugas

Hi, David.

Dave Goldberg – UBS

The first question is on the deferred tax asset and the FAS 109 allowances and Roger, I know you gave $3.1 billion. I’m wondering if we can get some more clarity around what was acquired, deferred tax assets that are potentially subject to 382 and if you guys have any kind of visibility or better visibility than you did when you first announced the merger as to the usability or the realizability or potentially what you get to eliminate because of 382 among the assets that you acquired from Centex.

Roger Cregg

Yes, David. When I look at the deferred tax asset that was acquired from Centex was roughly about $1.3 billion. And roughly – what we determined is we are at a run rate now of about $68 million a year on a 382 limited basis. So roughly that’s about $1.7 billion if you take it out almost over 25 years and 35% would be – roughly about $600 million of that would be available to us on a limited basis. And then again, when you end up with land that you still own after the five-year period, that becomes unlimited and this tax claim that goes into that as well going forward. So just on a limited basis, we would have access to roughly about $600 million.

Dave Goldberg – UBS

I guess the question was really how much of the $600 million – do you think – in other words, I want to make sure I say this right. I understand the limitation of the $600 million. Do you think you are going to exceed that level; do you have any better visibility as to the actual recognizability and what might be lost?

Roger Cregg

No, I can’t tell you today. That depends on profitability and timing and things like that, but as we’ve said, we are working very quickly and diligently to try to get to profitability to be able to maximize our value on that and anything else we can get off of it as well.

So there is a fair amount of tax planning that needs to go with projects. Some of that – again, we’ve talked about in the past if you have two projects together and they both did the same thing, one the Pulte, one the Centex, you may slow down Centex or push on Pulte so that you’ve got the ability to carry that over after a period of time. So you start it up in year three instead of year one and then you’ve got an ability to carry it over and maximize the opportunity for the potential of that non-limited amount.

So again, all of that is what we are working on today with the organization to look at the opportunity to capture as much as possible.

Operator

Your next question comes from the line of Dennis McGill, representing Zelman and Associates. Please proceed.

Dennis McGill – Zelman and Associates

Good morning, guys.

Richard Dugas

Hi, Dennis.

Dennis McGill – Zelman and Associates

Hi. Roger or Richard, the comment you were making earlier about sort of the view of how land assets are going to coming out of the banks or other distressed sellers I think obviously implying that might not be as advantageous for those that are sitting on cash to reload at really attractive prices. And you had an opportunity here through Centex to get the quality assets at arguably good prices. You don't have to use cash to do it and that obviously – probably benefits you more than anybody else as you look out at how the land market might evolve in the next couple of years.

Can you maybe just give us a sense of how your combined company now can look from a cash flow basis and from a growth basis as far as being able to open communities without really having to invest a lot of cash and maybe even being able to generate cash from when the market turns around as opposed to others that maybe who are going to have to put a lot of money into the ground? Just trying to understand the – how maybe the advantage of having the Centex assets might change the cash needs of your company versus others.

Richard Dugas

Dennis, this is Richard. I’ll start and then throw it to Roger or Steve if they have any additional comments. Generally speaking, we are not looking to invest a tremendous amount of money into new acquisition in the near term. We still of course have development dollars that are going to be flowing through some limited transactions where we can find opportunities on a very asset-efficient basis. But directionally, the way you characterize it is the way we are thinking about it. We like the land positions we have, we have obviously made significant investment in land here with the Centex combination and we expect to reap the benefits from that.

So our operators are not feeling the need to be aggressive with regard to land acquisition. We got a sizeable position in quite a few markets. So we are pleased with that, we are not giving any guidance yet on how we see cash flow coming in yet. Perhaps, we’ll have more to say about that in the future, but generally speaking, we agree with kind of what you said there. We don't see the need to have to reload anytime soon and we feel like over time, the value in this dirt will show itself as land sellers are smart and are going to raise prices as people need land and we are not one of those who need land.

Roger, you want to add to that?

Roger Cregg

Yes, I’ll just add that we just acquired 488 communities roughly. So our ability to have to go out and buy is much more limited. And we do have a number of communities that are rolling off. So there are smaller communities that are going to generate cash much quicker in the short run and our ability to have to use cash for land is limited as Richard said. Our more pressing need would be putting cash into WIP as the business begins to improve. So we’ll see some of the cash go back over there because we need it into the overall working capital side of it.

And as we go forward, again, looking at opportunities, we still have that ability to replace where we need to and we still continue to focus on what we just acquired. So in the short run, again, I think from a cash standpoint, we will be pretty solid from that going forward here.

Operator

Your next question comes from the line of Nishu Sood, representing Deutsche Bank. Please proceed.

Rob Hansen - Deutsche Bank

Hi, this is Rob Hansen actually on for Nishu. Just kind of building on the last question, going forward – you have said that relative to time maturity schedule on this land, how much cash are you comfortable with on the balance sheet going forward and what would be your goal to keep kind of a minimum level if the revolver is terminated or if you keep the revolver?

Roger Cregg

Rob, this is Roger. Certainly a lot of “what ifs.” But in the short run, as we’ve talked about over the last couple of years, liquidity is very important at this point. So being comfortable with certain amounts certainly I don't think you can never have enough in this environment and again, we need to continue to watch where the future environment is going to go, still very choppy and fragile market that we are in today. I think having enough is very important to us from a liquidity standpoint.

So I think our maturities are in good shape, we’ve set ourselves up very well for that and not having any near-term significant maturities coming at us and we can be patient about what we want to do going forward from this point. So we haven't set a target exactly. We are still coming out of a very deteriorated market and pretty shattering on the balance sheets of the industry that cash is king at this point until we clearly see an avenue to make investments one way or the other.

Rob Hansen - Deutsche Bank

All right. And in terms of – I just wanted to get – trying to get a little more detail in terms of your purchasing synergies. Where exactly that is and what kind of volume level you would need for that?

Steve Petruska

Yes, Rob. This is Steve Petruska. I would tell you that when we got a chance to really dig into things post merger, we focused on three key areas and I would tell you that the immediate synergies are coming out of two out of those three key areas.

The first being vendor consolidation. In the markets that we operate in, obviously our vendor segment was not the same. And as you might expect, pricing differed sometimes in favor in Centex, sometimes in favor of Pulte and certainly, our town hall meetings with our vendors and suppliers was designed to consolidate that vendor group. It’s not like any of them are operating at peak capacity and they certainly would like to get some more work and certainly we can see some better pricing because of that. But that was the first bucket and that’s a fairly large bucket.

The second one is what we call price rationalization. As we became bigger in each one of these markets in addition to the trade base being able to be more efficient because we can give them more work, we also saw a lot of price rationalization between materials used in building of the product. And that’s a fairly large bucket for us and we are aggressively going after those dollars and hope to have a lot of that into what we call our Schedule As, which is our ability as we start new homes by January 1 to start really recognizing that.

And then the third is as we look at our overall specifications of product, both of us were operating businesses that were targeting similar consumers yet we found that because Centex’s business was much more targeted towards the entry-level buyer. They had a much more defined spec base for that entry-level product than Pulte did. And so we are able to go in and look at the standard specifications out of Pulte Homes targeting the entry-level consumer and adjust those specifications and see some significant house cost savings at a base level.

So when we look at the $150 million to $200 million that we think we can build to in the future on a run rate, it’s coming out of primarily those three buckets.

Operator

Your next question comes from the line of Dan Oppenheim, representing Credit Suisse. Please proceed.

Dan Oppenheim – Credit Suisse

Thanks very much. I was wondering if you can talk about the merger synergies. With the $270 million run rate in the fourth quarter, imagine that basically the savings and the interest come – actually included in that. So of the remainder – how much of those is coming from corporate versus field versus financial at this point and what should we expect to see coming next?

Roger Cregg

Yes. Dan, this is Roger. I don't have the specific numbers for the fourth quarter in front of me, but you are right. There is a combination of the interest savings on a quarterly basis. Of course, the corporate was the first thing that was going to contribute the largest amount earliest because we had redundant functions in both companies. So we made changes very quickly there.

I would tell you that the majority is going to start to really generate from the corporate savings plus the interest. The field organization is still working on a lot of theirs, but had moved very aggressively through that as well. So it’s a combination of each one of those. And again, I don't have the specific detail in front of me, but really corporate interest and then if you look at the field organization, we’ll generate that kind of in that order at this point.

Richard Dugas

Dan, this is Richard. I would just add that we did a lot of the planning of this between the time of announcement and the time of closing. So we are able to move very quickly. That’s one of the reasons we’ve upped the timeline as we are able to kind of exceed our own expectations in terms of pace of play here.

Dan Oppenheim – Credit Suisse

Great. And then I guess wondering also in terms of your comments about the slowdown in September due to the uncertainty of the tax credit and the seasonality there. Can you quantify that and also, how do you think about the potential for this demand having been pulled forward there so it’s not some uncertainty but we’ve seen some of the demand so we maybe a bit lower level as we go through the fall and start of 2010?

Richard Dugas

Dan, actually we think that the overall demand level is – this is Richard. The overall demand level for housing in the country has actually been fairly consistent. What we’ve seen over the last few weeks though is a shift to the resale market where there is inventory available, particularly for closed inventory and I think that’s reflected in the numbers that just got reported just in the last few days on – pretty stark difference between new housing numbers which came in “disappointing” versus resale numbers which came in far exceeding expectations.

And I think what you are seeing is that new homebuilders for the most part have not built much inventory to try to capture the tax credit. And the resale market of course still has a ton of inventory out there. So I think demand has been relatively flat and consistent. Having said that, we are certainly in favor of the tax credit getting extended and expanded. And we are very hopeful that that happens because the economy is still relatively fragile.

It’s hard to quantify how much has been “pulled forward.” I’ve seen some of the write-ups on that and candidly, it’s very difficult to know, but as we talk to operators and get anecdotal evidence out there, still a lot of buyers shopping, but they can’t get home from us by November 30, they are buying from a resale.

Operator

Your next question comes from the line of Carl Reichardt, representing Wells Fargo. Please proceed.

Carl Reichardt – Wells Fargo

Good morning, guys. How are you?

Richard Dugas

Good morning, Carl.

Carl Reichardt – Wells Fargo

Rob asked one of my questions, but Roger, I wanted to ask – you had mentioned that you haven't – there are some appraisals that haven't been completed that might adjust that goodwill number as we look at the next quarter. Can you give me a sense is that likely to be a significant adjustment or do you think it will be relatively minor? I just – I want to make sure that we are pegged to a goodwill number here or close to it.

Roger Cregg

Well, Carl, I’m always cautious about what material or not as a point. But we have a number of projects; it’s a handful of projects, it’s not hundreds of them that we are getting third-party appraisals on, but we still have some of the JVs that we are working on, income taxes, deferred taxes, some of the PP&E, and then some casualty insurance. I mean, those are couple of buckets that we continue to work on with third-party appraisers and participants.

So it’s hard for me to tell you until we actually get there and get to a conclusion on them. But – so I don't know what to tell you on a number at this point.

Carl Reichardt – Wells Fargo

Okay. And then just second, if you look out – what of the next couple of quarters would you expect we’d see the most impact from the written-up Centex deliveries for? I mean, where should we be looking at them? I would assume it’s Q4 and Q1, but where should we be looking at the most significant impact from those written-up deliveries? And then also, could you just tell me whether or not right now, you give me a sense of whether or not you think you could be actually cash flow positive in 2010 given all that you’ve got now that you’ll be moving through?

Roger Cregg

Okay, I’ll start with the first one on the acquisition accounting. Centex, basically on their WIP, we wrote up to roughly $39 million and we took $10.5 million in the third quarter. It will be almost twice that amount basically in the fourth quarter and then a little bit more in the first and second quarter of next year. So that’s pretty much how it probably is going to roll out. That is all dependent of course on the volume and the level of activity that comes through on the closings, but kind of just rule of thumb, fourth quarter should see the biggest impact and then less in the first and second. That will be that piece.

Cash flow again, I would tell you that we need to first see our business plans, understand those. Naturally, we are not going to change our stripes as a company. So you would have seen what we’ve done over the last couple of years in managing the business. These are the things that we are going to continue to do on the consolidated basis with both companies. So our efforts there won’t change from where we’ve been. The drive is going to be to try to have a very healthy balance sheet and business going forward.

Operator

Your next question comes from the line of Joshua Pollard, representing Goldman Sachs. Please proceed.

Joshua Pollard – Goldman Sachs

Hey, good morning.

Richard Dugas

Good morning.

Joshua Pollard – Goldman Sachs

It seems that you guys are guiding investors most closely to your cost improvements and you’ve raised your guidance there twice post the Centex merger. Can you outline what the base is for the $440 million of cost synergies?

Roger Cregg

Yes, Josh. This is Roger. Basically what we did is when we began to work with Centex, we put baselines together in our April time frame of this year. That was where the business was at that point in time and then we base-lined it off of there to go forward. So we took both organizations, looked at our cost structures, put them together and put estimates together of pulling cost out of both of those organizations –

Joshua Pollard – Goldman Sachs

Hello.

Roger Cregg

Yes, we can still hear you.

Joshua Pollard – Goldman Sachs

Okay, I apologize. My phone must have cut off and I didn’t hear the end. I guess my question there is you guys are cutting the $440 million, but what was the total number of costs for the combined company, the way you guys are calculating it?

Roger Cregg

Well, it’s hard to show you because a lot of it’s public information and what we had was information from our business plans and our forecast internally. So if you are looking at prior year, add them together, the number will exceed the $440 million of course because each business has been on a downturn from the last couple of years. So every single quarter that we’ve come through the last couple of years, our overhead cost structures have been coming down, but what we set as a baseline for what we thought internally our business was going forward and of course we didn’t give that guidance and we've discontinued our guidance given the environment today.

But if you were to add prior periods together, you would see that number eventually wind up to be larger than the $440 million, but we had view of what our run rate was at that point in time.

Operator

Your next question comes from the line of Ken Zener repressing Macquarie. Please proceed.

Ken Zener – Macquarie

Good morning.

Richard Dugas

Good morning, Ken.

Ken Zener – Macquarie

I wonder if you could just expand, give a little more color on the land impairments that you guys took with Centex. I thought that was a fascinating it’s at only 5% of the communities, created 80% of the write-down. Can you just give us some thought process as to why that happened based on where the prior accounting process in terms of triggers occurred? A, was it related to mothballs [ph] and perhaps what the implications would be for your book?

Roger Cregg

Yes, Ken. Again, this is Roger. I pretty much described all the components that went into it naturally when you take a look at it and we had 750 communities to look through. As we got deeper involved in some communities as I mentioned in the Southeastern part of the U.S., in the Florida market specifically, we had a number of projects there where we took a look at the strategy of those projects, the pays, the pricing, some of the assumptions that went into them and we made some strategic modifications to those as we reviewed them. Others came through looking at the pace of what we say versus potentially what we had modeled earlier.

All of those started to play into it, but the significant ones were the differences in the larger projects as I mentioned in the Southeastern part of the U.S. where we saw some strategic differences and the way we were going to run it, changing densities, that type of thing, generated probably a bigger portion of the overall change.

Ken Zener – Macquarie

Okay, I appreciate that. And then I guess just to follow up on that, one thing you wrote up, what was the actual dollar value there and if you guys could give us the combined units under construction for – both for the combined company and related to your own lots? I think when you move a lot to held-for-sale, you actually remove it from your own lot count. If you could quantify that related to the merged portfolio?

Roger Cregg

Yes, I’ll answer the first one and Mike will take the second one. And again, looking at what was the total write-up, I didn’t calculate which dollars were the total write-up, which dollars were the total write-down. Again, this was a net adjustment and again, we’ve got some up and some down. So I don't have a total number of which ones are write-up other than statistics I gave you of percentage of the communities that went up and down, but I don't have the dollars at – specifically for the write-ups on a gross basis.

Mike Schweninger

And Ken, this is Mike. Total units under construction combined was 8,807. That does not include model units.

Operator

Your next question comes from the line of Alex Barron, representing Agency Trading Group. Please proceed.

Alex Barron – Agency Trading Group

Thanks, guys. I wasn't sure if you guys gave the number of the benefit to gross margins from previous impairments.

Roger Cregg

Yes. Alex, this is Roger. We didn’t and I think I’ve mentioned this a number of times. It’s becoming less meaningless, quite frankly, to continue to talk about that number, roughly we are – Pulte standalone, if you were to look at it, it was roughly about $95 million of bring-back in the quarter. And again, you can see on the total margin, it’s becoming meaningless because we had pricing movement and stuff like that. So it doesn't do a lot to give that.

And then on the Centex side, as I mentioned, their adjustment, we had two of them in the margin this quarter. $10.5 million from the WIP and basically there was a positive impact of $3 million in bring-back from the Centex land fair value adjustments in the quarter as well.

Alex Barron – Agency Trading Group

Okay, great. And the other thing I was wondering going back to this slide on the goodwill accounting, as I add kind of the inventory write-downs and the capitalized interest, it comes to about $900 million. Is there any reason that couldn’t just be written down this quarter as opposed to be put on as goodwill?

Roger Cregg

Well, that’s the accounting convention, Alex. And so – no, that’s not the alternative is to run it through your P&L. The accounting convention is to take it to goodwill.

Operator

Your final question comes from the line of Susan Berliner, representing JPMorgan. Please proceed.

Susan Berliner – JPMorgan

Good morning, thanks. Two quick questions. One was I was wondering if you guys could talk about what you are hearing on the NOL potentially passing and how that would – how you are kind of looking at and what it could potentially provide to you? And the second question, I was wondering with your large land supply now, if you can give any more additional details with regards to how much is exactly finished, partially finished, et cetera.

Richard Dugas

Sue, this is Richard. I can take the first one and then perhaps Roger or Mike can help you on the second one. We are really not commenting on the NOL legislation at this point. It’s obviously a work in process and not sure where it’s going to go. A lot of our focus is obviously on the tax credit legislation.

But Roger or Mike, you have any details on the – ?

Mike Schweninger

Yes, this is Mike. In terms of our owned lots, 50,500 are finished.

Operator

Ladies and gentlemen, this concludes the time that we have for questions on today. I would now like to turn the call back to Mr. Jim Zeumer for closing remarks.

Jim Zeumer

Yes, thanks very much. Thank you everybody for your time and attention today. We are certainly available after this call ends for any additional questions. We look forward to speaking with you on the next quarter.

Operator

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes your presentation. You may now disconnect. Good day.

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Source: Pulte Homes, Inc. Q3 2009 Earnings Call Transcript
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