Executives
Timothy Eller - Chairman and Chief Executive Officer
Cathy R. Smith - Chief Financial Officer
Mark D. Kemp - Controller
Analysts
Ivy Zelman - Zelman & Associates
Joel Walker - SBN Securities
Robert Henderson - Deutsche Bank
Daniel Oppenheim - Credit Suisse
David Goldberg - UBS Securities
Joshua Levin - Citigroup
Kenneth Zener - Macquarie Capital
Robert Stevenson - Fox-Pitt Kelton
Michael Rehaut - J.P. Morgan
Stephen East - Pali Capital
Stephen Kim - Alpine Woods Capital Investors
Megan McGrath - Barclays Capital.
Carl Reichardt - Wachovia Securities
Eric Landry - Morningstar
Alex Barron - Agency Trading Group
Jim Wilson - Jolson Merchant Partners LLC
James McCanless - FTN Midwest Securities
Centex Corporation (CTX) F3Q09 (Qtr End 12/31/08) Earnings Call February 4, 2009 10:00 AM ET
Operator
Good morning and welcome to the Centex Corporation Fiscal Year 2009 Third Quarter Earnings Conference Call with senior management. Today's call will be recorded and transcribed. Today's call also will be simultaneously webcast at ir.centex.com.
A copy of today's presentation is now available on the website. As usual, participants must download and advance their own slides during today's conference. Continuing on slide two, Centex wishes to emphasize to everyone listening on the call and via the Internet that certain statements made during the course of this call are forward-looking. These statements are not guarantees of future performance and are subject to significant risks and uncertainties that could cause actual results to differ materially from those discussed during the call.
For further information regarding these risks and uncertainties and Centex's forward-looking statements, please refer to the forward-looking statements disclosure in the presentation and to Centex's reports on Forms 10-K and 10-Q filed with the SEC.
All participants will be in a listen-only mode. There will be a question-and-answer session after management's remarks. (Operator Instructions). In the interest of time we will limit each person to one question and one follow-up question. If you have additional questions following today's call, please contact Matt Moyer, Vice President of Investor Relations at 214-981-5000.
I will now turn the call over to Tim Eller, Chairman and CEO. Please go ahead Sir.
Timothy Eller
Thank you, Melinda and Good morning everyone. Thanks for joining us for our fiscal year 2009 third quarter conference call. With me today is Cathy Smith, our Chief Financial Officer; Mark Kemp, our Chief Accounting Officer and Matt Moyer, Head of Investor Relations.
I'll start our call today on slide three with my perspective on the marketplace and our performance during the quarter. As always provide insight into actions we're taking to navigate this cycle. Next, Cathy will discuss details about our financial performance for the quarter, then I'll offer some closing comments and we'll address your questions.
In the third quarter, disruptions in the economy and the credit markets caused unprecedented buyer hesitancy. As unemployment rose and consumer confidence fell, buyers remained firmly on sidelines. As a consequence, our sales were extremely weak truly in the quarter.
With some adjustments and incentives, sales momentum returned in December and is carried into January. We sold more homes in December than October, November combined and January was better than December. We also protected our backlog. Centex ended the quarter with 4,600 units in backlog, with more than $1.2 billion.
Cancellations were higher as the percentage of sales actually declined sequentially in absolute terms. And by quarter's end, cancellations had declined to the lowest level in two years. Based on my experiences the multiple housing downturns, I believe Centex has taken the right actions to navigate this cycle. We've been consistent with our actions and grounded in current market realities.
We've responded with a strategy that remains centered on selling homes, reducing costs, generating cash and restoring profitability. We're maintaining a strong cash position. Our cash balance increased during the quarter by $200 million to nearly 1.5 billion. We expect to generate positive cash flow from operations in the fourth quarter and for next fiscal year as well. We're aggressively minimizing cash expenditures at all levels of the organization. We've lowered land related spending and intend to reduce it even further in fiscal 2010. We've cut corporate and home building SG&A expenses by 48% from a year ago.
Every expenditure is scrutinized to see if we can eliminate it, reduce it or make it more efficient. And we are continuing to focus on restoring operational profitability. With prices continuing to decline, our efforts to restore profitability are concentrated on aggressively attacking direct construction and overhead costs while preparing for the new land opportunities that will arise.
Since the beginning of the fiscal year, we've achieved direct construction savings that averaged 17% per square foot. We've captured these savings by collaborating with our trade partners to improve production efficiencies in ways that are mutually beneficial.
Overhead costs are also trending down and we're accelerating overhead reductions in response to a deteriorating economy and housing market outlook. Our headcount has been reduced by 30%, since September 30th, and we continue to be aggressive about further reductions.
We further realigned our operations to serve 35 markets from 19 operating divisions. Support functions continue to be centralized to improve efficiencies. We understand the current market realities and the importance of signs (ph) in the organization for what could be a sustained period of low demand.
As the cycle progresses, we'll start to see the banks work through the land and lots they've acquired. We've been in continuous contact with the banks so we can move quickly when the time is right. They're ramping up their processes now and we're prepared to take advantage of a new lower cost land opportunities that we believe will appear in the near future.
Turning to slide five, looking ahead, we're aggressively building a better Centex. Our core operating model is to primarily pre-sell homes to create a quality backlog, then build those homes to a cadence.
In the current environment, we're also staying flexible by maintaining three to five inventory homes per neighborhood, mainly from a natural level of cancellations to serve those buyers who require a faster delivery. A year ago, we launched an operational excellence campaign to standardize our core business processes in ways that will accelerate our recovery and create a sustainable competitive advantage. And we're seeing successes in lower brick and water costs, faster cycle times and lower area rates.
The quality of our homes continues to satisfy our customers. And satisfied customers have become a valuable extension to our sales force; referring more friends and family members to Centex than a year ago. It's a testament to the operational excellence of our teams in the field. We've improved our home plans and designs to a deliberate and thoughtful approach that fulfils our brand promise of delivering a better way to a better home.
Our design processes have streamlined the time to market for new home plans in the product portfolio, improving product development cycles to less than 90 days, allowing us to be nimble and responding to shifting customer demand. Now of course it's not only about style and livability, it's about value.
For many of our markets today if not most, mortgage payments for entry level homes are below local rental rates. There's rarely been a time when new home affordability has been this broad based. With the improvements we made in value engineering, process control and design, Centex was concentrating on selling and building homes for the first time and first move up buyers who have traditionally formed our core customer base.
These customers also appreciate and value our new standard energy efficiency package which we call the Centex Energy Advantage. As of January 1, Centex Energy Advantage is a standard feature in every new Centex home in every market. The Centex Energy Advantage is a combination of features that tackles energy efficiency in a way that makes operating the home more affordable.
Energy efficiency and sustainability remain key components of continuous improvement for Centex. When (ph) measured in terms of quality efficiency or returns, we're intent on building a better Centex. With that, I'll it over to Cathy to take us through some of the specifics for the quarter.
Cathy R. Smith
Good morning. I'd characterize our fiscal third quarter much like I have the last couple of quarters. We generated cash, improved gross margins and reduced overhead costs. I'm on slide six. Our home building operations were cash flow positive for the sixth straight quarter. This reflects our keen focus on cash.
In the past nine months, we have retired $265 million of debt and increased our cash balance by almost 900 million. In the quarter, we generated positive cash flow from operations and increased our cash balance by 173 million. We continue to generate cash through selling homes, minimizing cash uses and utilizing our developed lot supply. Another positive of the third quarter is the year-over-year improvement in our gross margins.
Housing gross margins improved a 110 basis points year-over-year to 13.6% including interest released through cost of sales. Before interest, our housing gross margin was 16.5% versus 14.5% a year ago, demonstrating solid progress toward improving profitability in our core home building business. We also made good stride toward improving profitability through overhead cost reductions. We reduced our home building overhead per closing by 8% year-over-year. And lowered combined housing and corporate SG&A as a percent of revenue by nearly 300 basis points sequentially.
Our headcount will likely finish the year down 70%, from the beginning of the fiscal year, as we continue to consolidate regions and divisions, and make adjustments to our corporate operations. Despite our progress in growth margins and G&A, we know we still have work to do. Our urgency to restore profitability has not diminished.
In January, we also successfully amended our credit -- revolving credit facility. We voluntarily reduced the facility to 500 million. We adequately sized the facility based on our anticipated working capital needs. As we've said previously, we don't anticipate using the facility other than for letters of credit. We had good support in the amendment process with just over 90% approval. The macro outlook continues to deteriorate, with the eventual recovery moving farther out in time, and additional price reductions expected in most markets.
On a pre-tax basis, this quarter we recorded $590 million in impairments and land related charges; including 467 million in land impairments, 14 million in optional walk-away costs, 71 million in JV impairments, and 38 million in goodwill impairment. By way of perspective on this, we impaired a 127 neighborhoods this quarter, which brings the total number of neighborhoods impaired at least once, to about half of our total active and inactive neighborhoods.
We have included future price reductions, and slower absorptions in our impairment DCF (ph) model. As I've said each quarter, we take a consistent methodical approached to land valuation. We recognize this as a dynamic environment. We'll continue to take the same disciplined approach to valuing our assets each quarter. Along with the impairment analysis, it's essential to assess each neighborhood for positive incremental cash flow. We evaluate every asset every quarter, to make sure we have the right strategy for that particular asset. We assess whether the highest return is to sell, build through, or hold.
We're still finding that the best answer, most of the time, is to continue to build through our assets. Continuing to build through our assets will leave us with a leaner balance sheet, and an opportunity to add faster turnings, higher yielding assets in the future. We also increased our valuation allowance, related to our deferred tax assets, by 239 million.
In total, the growth balance of our DTA is 1.23 billion with a valuation allowance against it of 1.18 billion, or just over $9.50 per share. We'll realize this asset, as we see stability in improving environment, and a return to profitability. However, I should note the current NOL (ph) carry back legislation, could have a positive impact if enacted.
Let me give you some details regarding our financial services statement. Last quarter, we told you we were winding down our retail operations. As we focused solely onto putting our home building business, we are now creating a more efficient flexible business model, by centralizing our mortgage processing. We plan to complete the centralization efforts by the end of our fiscal year. And related to the centralization, we expensed $4.3 million in the period. We expect to have additional charges of 5 to $10 million in our fourth fiscal quarter, as we complete the transition.
In total, our financial services recorded a loss of 14 million this quarter, versus the $60 million loss a year ago. Included in the financial services loss, is 6.5 million in additional provisions for losses on mortgage loans and real estate owned. In the quarter's loss is also the centralization cost I discussed earlier. In fiscal 2010, we expect financial services to be profitable in the builder only business model.
Slide seven provides the details around the home building operations for the third quarter. We closed 3,405 homes in a quarter, 49% fewer than last year. The average price of homes closed in the quarter declined 10% to 241,000. Total home building revenues were down 53% to 843 million. Sales in units were down 80% year-over-year. On a per neighborhood basis, sales were down 75% as average neighborhoods declined 23% to 499.
As Tim said earlier, we've seen a rebound in sales activity recently, to the point that January sales were almost equal of that of the entire December quarter. Some of our sales weakness was also likely due to elimination of the DPA loans that have been running out about a third of our orders. Our cancellation rate was 55% in the quarter. But on a client perspective, as a percent of beginning backlog, our cancellation rate was 19%; which was actually down nearly 1,000 basis points year-over-year, and over 400 basis points sequentially.
All that said, we took advantage of the lower interest rate environment, and promoted some mortgage rate incentives, and buyers responded. Following the weaker sales phase and higher cancellations, our backlog fell by 46% year-over-year, to 4,628 units valued at 1.22 billion. This is one of the strongest backlog positions in the industry, and a direct result of our build-to-order model, and our more discrete use of incentives within our transparent pricing model.
As I have mentioned in the past, the right level of backlog will be increasingly important to us. Creating a pre-sold backlog allows us to build to a cadence. Building to a cadence using standardized business processes; yields operating efficiencies, higher margins, and more predictable results. And developing a backlog through pre-selling enables the asset like aspects of our business model.
Additionally during the past 12 months, we have lowered the number of JVs with leverage from 18 to 10. Our investment JVs has gone from $241 million to less than 140. We've reduced our share of debt relating to these JVs from 262 million to a 152million. We expect to make even more progress on all these metrics, before the end of the fiscal year.
Let me take a few minutes to review the regional results. Slide eight details sales and closings by region. In our East region, sales were down 76%. The coastal Carolinas and DC metro continue to be relatively better performers than the rest of the region.
In the Central Region, our Texas divisions were the better performers. And in the West Region, sales were down 89% as we all know inland California, Phoenix and Nevada continue to be among the nation's most challenged markets. Similar to sales, year-over-year closings were down across the board, reflecting the soft market environment, and the reductions in active neighborhood.
Moving to slide nine, the current conditions in the housing market highlight even more, the strength of our strategic choices, as they are yielding the expected positive results. Our business model emphasizes selling to a backlog, and then building into a cadence. This increases our profitability and predictability.
Our gross margins before interest, have now improved 640 basis points in the last nine months to 16.5% in the third quarter. Incentives and discounts are down to 7.3% this quarter, versus 15.2% a year ago. This is the fourth consecutive quarter with a sequential decrease. We have further reduced our land acquisition and development spending for the entire fiscal year to $350 million. Of which about 50 million of the spending remains. And given the recent volumes, we expect our land spending next fiscal year, to be less than this year.
We have reduced our direct construction cost by 9% per unit year-over-year. Our operators and trade partners are working hard to take advantage of the efficiencies gained in our production cadence model. These efficiencies will become more meaningful when volumes return. For the foreseeable future, we expect to take advantage of the fully and partially developed lots in most markets, using a cash light model.
In all our markets, we are actively assessing and cataloging future potential land. For this acquisition model to be effective, we are establishing important relationships now, both with developers and capital sources. Starting early in this cycle, we recognized our value propositions to shareholders will be to consistently produce a solid home building margin, and a high asset efficiency.
We'll execute a finished lot strategy, and will be generally averse to tying up large amounts of capital in slow turning undeveloped land. We ended this quarter with a cash balance of 1.47 billion and we're expecting our cash balance to increase by the end of our fiscal year. Additionally we expect to generate positive cash flow from operations in fiscal 2010. Our priorities and focus remains consistent. Sell homes, generate cash and structure for profitability. I'll now turn the call back over to Tim for his concluding remarks.
Timothy Eller
Thanks, Cathy. I am on slide 12. The recent economic and credit market shocks caused unprecedented buyer hesitancy during the quarter. Sales were severely impacted early in the quarter, but we adjusted successfully to the difficult environment. Through this cycle, we've been steadfast in our strategy for turbulent times.
Sell homes, reduce cost, generate cash and restore profitability. We're acting swiftly and appropriately to navigate this cycle. I believe we're doing what's necessary to rank among the winners when the score of this historic downturn is finally counted. Our quick adjustments restored sales momentum to December and into January, and we protected the quality and quantity of our backlog.
Centex has bolstered its cash position. Cash on hand for the fiscal third quarter reached nearly $1.5 billion. We're currently expecting positive cash flow from operations in the fiscal fourth quarter and for fiscal 2010. We're minimizing cash expenditures at all levels of the company. We'll reduce land related spending in the fiscal fourth quarter and achieve further savings in the next fiscal year. We're keenly focused on restoring profitability. Direct construction costs are coming down and we've accelerated overhead reductions.
We're also prepared to take advantage of lower land and lots as the banks begin to work through their land portfolios. We're making progress on key initiatives that are fundamentally reshaping our company. The restructured scalable division operations that reach the markets we deem most desirable and centralize support functions for higher efficiency.
We've improved our home and community design processes, repositioned our home plan portfolio to align with customer and demand. We've focused both on the appeal of the product and a value oriented price for our traditional core customers, first time and first move up buyers.
Despite the turbulence, I believe Centex is making hard part progress toward our objective of becoming the most efficient, highest returning, highest quality national home builder. We intent to be among the winners as we emerge from this cycle, and now Melinda, lets address questions.
Question-and-Answer Session
Operator
At this time we will begin taking questions. (Operator Instructions). Thank you. Our first question comes from Ivy Zelman from Zelman & Associates. Your line is open.
Ivy Zelman - Zelman & Associates
Hi, good morning everyone, thank you.
Timothy Eller
Hi Ivy.
Cathy Smith
Good morning.
Ivy Zelman - Zelman & Associates
I'm home in the snow storm with a dog barking, so I apologize the background. You guys have done a great job at explaining to us the details behind the impairments and really the significance you've taken so far is 35% of your tangible adjusted basis -- we show you're tangible equity on a tax adjusted basis.
Can you help us further by may be helping understanding how much of that has been on the undeveloped portion of your portfolio versus finished and realizing, if that 35% is the severity is the undeveloped portion being written down to that level of magnitude? And may be some clarity on differences between finished and undeveloped?
Cathy Smith
Yeah, Ivy we had, out of the $590 million of total impairments this quarter, probably little less than a third, probably more like 25% or so was against land held, which would be predominantly -- that's not going to be in production for the next years. So not all of that -- undeveloped but, that's I think the larger piece of that. Does that help?
Ivy Zelman - Zelman & Associates
Okay just one moment.
Timothy Eller
There is a technical difficulty here, so standby.
Operator
Ms. Zelman, your line is open.
Ivy Zelman - Zelman & Associates
Thanks, sorry Cathy. I guess what I was just hoping is that you said 25% of the 590 but if you actually looked at an undeveloped lot on average in the land held, would you be writing it down to $0.50 in the original purchase, or some severity that we can understand, because it seems as if, comparable to other builders like Horton yesterday, that took only 50 plus million in impairments. You've -- obviously impairing more aggressively. So, maybe we can understand in benchmark better, because I think it's confusing investors?
Cathy Smith
Yeah. Let me help, maybe provide some understanding of our methodology. We look at all of our active and inactive neighborhoods as you know, every single quarter. And we look at those through a build out scenario. And so we say when, whether it's an active neighborhood or one that's inland held, we say; when are we going to put that asset in production, and then; we use some third party economic forecast to help us understand that specific market, and what's going to happen with price and recovery times.
So, that helps us -- and so, what I'm saying is, we really don't look any differently at the undeveloped versus the developed. And typically, the undeveloped or the land held stuff is just farther out in time. But we use the exact same methodology.
Ivy Zelman - Zelman & Associates
Okay. But, you don't have at this point any ability to tell us how much you've written down, as an example. I guess, it's hard to do that with the portfolio as big it is. But let me sneak in the second question, and then I promise I'll stop. Just with respect to your land spend, the 350 million in '09, with less being spend in 2010. You've got roughly 50% of your portfolios finished I think is what you said on the last conference call that you hosted?
Cathy Smith
Yes.
Ivy Zelman - Zelman & Associates
And I hope that number is still right. One of the conundrums you probably have is when do you start putting infrastructure spending in undeveloped ground, because you've got to plan for that well in advance. And one of the things we are curious about is what's happening with bond insurance, with infrastructure spend; where bond insurers have pretty much left the industry. Curious if you're seeing challenges there. And are you doing any infrastructure spending, or is it really not in the game plan and when will it be?
Timothy Eller
Good question Ivy. So let me talk about the land spend. Right now there is some of the obligatory land spend, what we call obligatory; primarily to reduce our bonding situation. So we actually finish out lots, and neighborhoods, and then release the bond. So most of that spend is around exiting our existing neighborhoods. And relieving our bonds. So, our bonding is coming steadily down to the tune of about $200 million, or more per quarter.
In terms of our bonding, on our surety bonds on the balance, where -- we have had no issue with our bonding providers, or surety providers. And we continue to work with them, and even on new sub divisions.
In terms of additional land spend for development, we're finding that we can do very small increments now in land development, down to 20, 25 lots, sometimes even less than that depending on the situation. And we're primarily developing in the markets that you would expect, which are still relatively robust which is Texas, and the Carolinas, and to an extent in DC.
Ivy Zelman - Zelman & Associates
Well thanks a lot Tim.
Cathy Smith
Well you know, Ivy we also have the access of a lot of finished lots for a while. And so, we'll be able to continue to -- we won't have to invest in our own infrastructure, because we'll have -- the markets, most markets will provide that.
Ivy Zelman - Zelman & Associates
Cathy, a lot of people criticize that the finished lots are in the unfortunately, not the best locations, which you've been in the market; looking for lots. For example, in Metro DC, and maybe that's not the case everywhere. But would you agree that there are some areas that you'll have to replenish, because you don't have a desirable finished lots in all the areas you'd like?
Cathy Smith
The A locations will go first. But there are finished lots in pretty much, I would say, in every market. And Tim was going to answer.
Timothy Eller
Yeah. I think we have a variety of positions, A locations, B locations. What happens in these downturns like this is, the A locations will go first. And they won't be replaced, because no one will want to invest in infrastructure. So, then the B locations will become more valuable.
We see that happening in a lot of markets. Even in a very over supplied market, you and I have talked about this before, like Atlanta. Where, there's just a very few limited number of A locations. And we've identified those, we're acquiring a few. But once they're gone, it will be the Bs.
Ivy Zelman - Zelman & Associates
Okay, thanks guys.
Operator
Our next question comes from Joel Walker from SBN Securities. Your line is open.
Joel Walker - SBN Securities
Hi guys. Just on your gross margins I guess they showed a nice improvement in the second quarter. And then I guess, took a 144 dip decline in this quarter. And I was wondering with your construction costs continuing to decline and the further impairments benefiting future margins if your gross margins backlog were signaling a bounce back towards the second quarter level.
Cathy Smith
Yeah, this quarter as you said sequentially did come down. It is really as we saw our price continue to come down a little faster than we can get cost coming down, so that's the difference for this quarter.
Joel Walker - SBN Securities
Great, but I'll just say in backlog, are you seeing those improve just because now you might have caught back up with the price declines?
Cathy Smith
As we've continued to say, we know our margins and backlog are going to be much better than they would be selling inventory homes.
Joel Walker - SBN Securities
Selling inventory, alright thanks a lot.
Operator
Our next question comes from Nishu Sood from Deutsche Bank. Your line is open.
Robert Henderson - Deutsche Bank
Good morning this is actually Rob Henderson I'm in for Nishu. Just on -- as a follow up on the impairments, on average, what type of price declines were you incorporating into your models and where there any areas where it was a lot larger than others?
Cathy Smith
Averages are tough but somewhere between probably 5 and 10 %.
Robert Henderson - Deutsche Bank
Okay and we'd heard basically that this week some of the builders were in Washington and some of the Senate Republican's were on Board with a $15,000 tax credit. Just wanted to see if you guys were there this week or if you've any update on beginning inroads to Washington especially with the new administration?
Timothy Eller
Well we're here, we're not there. But, I've been there. So its -- we are all working towards the same goal which is to stimulate this economy and we believe that there can't be a viable stimulus package without stimulating housing. We have to absolutely stimulate the demand side of housing in order to begin to provide some price support for the prices that are continuing to decline and of course absorb the continuing per closures.
Operator
Your next question comes from Dan Oppenheim from Credit Suisse, your line is open.
Daniel Oppenheim - Credit Suisse
Great, thanks very much. I was wondering if you can provide a little more color in terms the -- your comments on having the specs in the neighborhood and also the build-to-order strategy. I guess what I'm trying to understand is, you're talking about having 2 or 5 specs per neighborhood and if it's probably about 500 neighborhood, its anywhere between a 1000 and 2500 specs. And for the past quarter, it was just under a little 1100 orders. Seems that there'll be a lot of specs, I'm just trying to understand how you are looking at that here, how many specs you've got third quarter end?
Timothy Eller
Well we said 2 to 5 and it doesn't have average is on the high side its probably averaging on the low side. Just to give you some color on our spec level, unsold inventory level end of the quarter was in the neighborhood of 1400 units, little bit less than that I think. So it's really neighborhood by neighborhood Dan, and what we actually have a plan for each neighborhood, and in the more popular neighborhoods that require quicker deliveries and to some extent roughly 50% of our sales this last quarter were inventory units.
We need to provide products for the consumer whose demands that. Now having said that we're not changing our model at all. This doesn't imply that we're changing our model one bit, in fact been able to provide a and monitor the amount of specs for neighborhood fits very comfortably in our model.
Daniel Oppenheim - Credit Suisse
Okay and if you -- little more color on terms of the order trends in the quarter, you talked about how much better December was relative to October, November. Did you see basically a rash of cancellations there in October though, and was the region let's say in the west where you had negative net orders for the month or what was driving that and how -- when did your cancellations come in?
Timothy Eller
Cancellations actually continued to decline during the quarter. What happened was sales declined faster. And again buyers just chose to stay on the line -- sidelines for us and October and November was particularly poor for us.
Now, but we're helped and we helped ourselves through interest rate incentives. So as mortgage rates came down during that same period of time, we were able to provide pretty attractive mortgage rates, 4.5% fixed 30 year rates in the three and a quarter three and two quarter's range for two year buy down mortgage rates. So, we were able to provide at a reasonable cost some attractive mortgage rate incentives.
And when you think about mortgage rates in the 4%, 4.5% range, we're talking about a monthly payment on a $200,000 loan that's well below a $1,000 -- in fact, well below $900. So, we're very much competing with apartments now, in this interest rate environment.
Operator
Your next question comes from David Goldberg from UBS. Your line is open.
David Goldberg - UBS Securities
Thanks. Good morning, everybody.
Cathy Smith
Good morning.
Timothy Eller
Good morning.
David Goldberg - UBS Securities
First question I had was about the transparent pricing model, and how you guys know where your competitors are pricing, how frequently you're shopping, other communities to get an idea if your pricing is in line with what's being offered by your competitors, because they have more fixed pricing?
Timothy Eller
It's it takes some frequency, you are right David, in terms of really understanding what's going on in every neighborhood, as much as weekly. Just reviewing what's happening weekly, and sometimes it's harder to sort out than others. So, there is some hunt and pecked occasionally. But what we find is once we get a pretty good sense of the market and what's happening and price transparently. And we always offer some in room for incentive, in addition to our transparent pricing. We find that we can correct pretty quickly, which is what we did in December.
David Goldberg - UBS Securities
But, do you think there is consistently a lag in a declining market. You're constantly there's always going to be a little under performance until you can. And maybe that's what happened in October, November, even those were tough times?
Timothy Eller
I'd say it happened to us in October and November. We probably just stuck with it a little bit longer than, we should have because we had a very strong backlog. So, we did make adjustments; more dramatically in December, and now our adjustments are really ongoing if needed.
David Goldberg - UBS Securities
And my follow-up question is actually about cycle times, and kind of where you guys are cycle times now, relative to maybe where you were let's say six months or a year ago. And where you think you can get cycle times, and how that translates into an inventory turnover figure?
Timothy Eller
Well, for example, if we just look at home, new home under construction, six to eight months ago, our cycle time may have been 90 days. And through our process improvements we've taken that down to 75 days, sometimes even 70 days.
Having said that, we really need to have a backlog in order to develop the cadence. So, we're actually loosing scale and some markets it's a little bit more difficult to build to that backlog. But when we have it, we're seeing pretty dramatic efficiencies, and it's a lot more around the predictability of the scheduled David, than it is shortening the schedule. So, we are optimizing our schedules in that 70 or 75 day range and we're finding that's the sweet spot.
Operator
Your next question comes from Josh Levin from Citi. Your line is open.
Joshua Levin - Citigroup
Hey, good morning everybody.
Cathy Smith
Good morning.
Joshua Levin - Citigroup
Hey, I wanted to ask about your statement, that you expect to have positive cash flow in fiscal 2010. I think, if I recall correctly, in your last call you said you'd be cash flow positive. At what were then, I guess your current volumes. What are your assumptions now about volumes and relative to where they are know in backlog, and what the minimum level of closings you'll need to be cash flow neutral or positive for next year?
Cathy Smith
Yeah, we obviously I want to steer away a little bit from guidance. When we say we can be cash flow positive, I -- kind of probably a good indication would be half of our trailing 12 month sales is probably a good set of models or so. And that's pretty consistent with what we told you last time.
Joshua Levin - Citigroup
Okay, so half of your current 12 months. Okay. Second question, Tim you talked about buyer hesitancy late last year. Do you have a sense from being on the field or talking to your operatives out in the field, how much of that hesitancy was due to low consumer confidence versus buyers, keeping in the paper that interest rates are going to fall, and they are waiting to try to get the low interest rates?
Timothy Eller
There's three primary reasons that we find. One, is just concern about the economy and jobs, and that is the principal concern. It was then, and is now. What's going to happen to the economy? What's going to happen to my job?
Second is concern about decline in home prices. Are home prices are going to continue to decline. And third is, can I sell my home. Now, we've responded in some ways by -- we've actually increased our proportion of first time buyers, which traditionally has been about 45% of our business. It's now closer to 55% of our business which is a good way to make up that. But buyers are still concerned about selling their homes well, if they have a home to sell they first move up particularly. Offsetting that is the attractiveness of 4.5 or so percentage interest rates, locking those in for 30 years, and that's what buyers are particularly choosing to do is lock those in for 30 years. They're not looking at arms, they're not looking as much a two year buy downs, they're looking at give me a 30 year fixed mortgage at 4.5% or something like that. And that's a very powerful draw and its very powerful impact on affordability.
Operator
Our next question comes from Ken Zener from Macquarie Capital. Your line is open.
Kenneth Zener - Macquarie Capital
Good morning.
Cathy Smith
Good morning.
Timothy Eller
Morning.
Kenneth Zener - Macquarie Capital
Tim you'd talked about the need to get demand and has and this is kind of a top line bigger picture question, that how concerned are you, that a lot of the closings -- I guess first how many of your closings were tied to FHA type loans and then what are your concerns about those loan type programs which use very low equity, given prices are falling and they could be underwater, which is part of the problem that we're facing right now. How do you think about the benefits of spurring demand relative to destabilizing your equity base wellness (ph)?
Timothy Eller
Well FHA has been an increasing portion of our business kind of peeked actually, at almost 80% for a while, speck down to about 65% of our originations right now, our buyers -- 65% of our buyers are choosing FHA.
FHA is a very seasoned program with a lot of history in terms of performance and defaults. FHA has actually tightened up its credit underwriting in these times and they've actually increased their down payment requirements through closing cost allocation.
So we continue to believe it's a very viable program. We don't see a lot of risk there; these are very qualified buyers who understand what's happening. And buyers today if they're in the market understand what's happening, understand the risk and are there we believe to perform their underwriting is tighter than its ever really been, in my recollection.
Kenneth Zener - Macquarie Capital
Okay I appreciate that. And then the back -- your gross margins are 13.5% compared to where you are kind of thinking backlog might have been delivering margins in that 15% or plus range. Is that really just a matter of half of your sales being what seem to be spec sales with just a mix between your backlog and spec or is there some other factor?
Cathy Smith
Yeah, I know. You really -- that's really as Tim said; we are seeing a good portion of sales right now, be inventory homes and we did have a number of inventory homes especially with the cans (ph) from this last this last quarter and then that's driving some of the margin and its just price dropping little faster than we can get cost down.
Operator
Our next question is from Rob Stevenson from Fox-Pitt Kelton. Your line is open.
Robert Stevenson - Fox-Pitt Kelton
Good morning guys. Cathy you talked about the decline in sales in regions. Can you talk about the impairments in the East and on a sequential basis it looks like it went from like 30 million or so up to 218 and sort of what are markets its either declined operationally the most or what changed in your underwriting assumptions there to cause the big jump impairments in that region?
Cathy Smith
Yeah in the East, it's really have been a couple of areas, a lot of it's down as you would expect in Florida, where we're seeing the recovery we extended out in time which is causing some of that as well as some additional pressure on price.
Robert Stevenson - Fox-Pitt Kelton
Okay and then follow up, what's the year-over-year change in the average square foot of the house that your building today?
Timothy Eller
Actually it's not that much. And we looked at that recently but it's continuing to hold around 20 -- 200 square feet. So interesting; prices are certainly coming down but the size is at least in terms of what we're selling which includes high proportional type (ph) buyers.
Operator
Our next question is from Michael Rehaut from J.P. Morgan, you're line is open.
Michael Rehaut - J.P. Morgan
Hi, thanks for letting me ask a question. Just wanted to ask ...
Timothy Eller
Always, Michael always.
Michael Rehaut - J.P. Morgan
Thank a lot. Thanks Tim. On the gross margin, just wanted to kind of zero down on that a little bit. You've had a nice improvement from a couple of quarters ago and with the increased impairments right now, I know this was kind of alluded to in an earlier question, but how are you looking at that going forward over the next couple of quarters in terms of again additional incremental efforts to reduce costs at same the time, you have lowered price this past quarter which drove the impairments and you of course would be taking, getting a better benefit. So just trying to get a sense I guess with the backlog now set for a quarter or two, directionally how should we think about that -- the 13.5% we're at right now, how should we think in a quarter or two?
Timothy Eller
Well, let me take about the cost reduction and then, Cathy can talk about the margin implications. We're continuing to get cost reductions. We've talked over past couple calls about 0.5% per month. It continues to run at that rate, actually I think that may accelerate a little bit here in the next few months as commodity prices begin to -- at least the decline in moderate commodity prices begins to come through some of the products. But we also are seeing continuing price reductions as well, so.
Cathy Smith
Yeah. And with regards to the impairments and the implications around margin, what we've seen, it's amazingly consistent. Actually if you look quarter-over-quarter in our homes side cost as a percent of revenue, and so; what that tells me is the impairments are really kind of manning the price reductions. Because if we're really not seeing, I wouldn't say a huge benefit. We're getting back it in price, or it's what's required in the market right now. And then, as Tim said too, we're continuing to work on the other elements of the cost structure. And then as we can, we'll buy more economically advantaged land.
Operator
Our next question is from Stephen East from Pali Capital. Your line is open.
Stephen East - Pali Capital
Thank you. First question has to with the incentives that you've been talking about. It sounds like the mortgage buy down was the primary incentive that you were using. What is the cost involved on a per house basis for that and will that be the primary incentive that you're going to use going forward, or was there something else you were also heavily promoting?
Timothy Eller
It's not significant Steve. And, cost per house its a few percentage points just think about buying down on interest rate and do a through forward commitments, which we do and you can do it through just straight interest rates buy downs.
I wouldn't say it's significantly different than, what its been running. It's certainly up probably a couple of percentage points. But we've benefited greatly from the decline in mortgage rates, over the last few months. So, I'll tell you at 4% -- it's not -- any kind of 4% handle is a powerful draw. And frankly, that's what we found as well. People -- not everyone chose to take that interest rate, because again those are primarily focused on inventory homes. We are continuing to sell houses to be built. We are continuing to do that. And customers are continuing to buy houses to be built. And of course, we're not able to guarantee interest rates out until completion for those customers, but they find it attractive to buy a house to be built. And so I'd say the incentive was much more around generating traffic and promotion, as much as realizing sales.
Stephen East - Pali Capital
Okay. And then, if we look at the gross margin, just to follow-on along Mike's questioning, what are you getting from the impairment benefit, because as I look at it obviously, you all have been just about the most aggressive in taking the charges. And yet, when you look at how your gross margins have not jumped up relative to your peers, I guess; I am trying to understand what type of impairment benefits you're getting. And what's going on there you think, versus maybe some of your peers that have seen a bigger jump?
Cathy Smith
Well you know Steve, I am not going have a point (ph) answer here, because we really don't track it -- that and we've kind of have said that over the last several quarters, because it becomes very difficult to track. So, we don't actually look at it. What I do look at is our home side costs or the cost of that lot and the value in that lot, versus as a percent of revenue. And that has been very consistent for a number of quarters.
So, that tells me that we're back to what I said to Michael, we are really -- the impairments are necessary, as a way to value the land, based on the sales price of the home.
Operator
Our next question is from Stephen Kim from Alpine. Your line is open.
Stephen Kim - Alpine Woods Capital Investors
Hey guys.
Timothy Eller
Hi Steven.
Cathy Smith
Hi Steven.
Stephen Kim - Alpine Woods Capital Investors
I had a question regarding a comment I think you made Cathy, if I heard you right, you said that roughly half of the communities you currently have today were impaired at least once. That was right, right?
Cathy Smith
Yes. The half of the active and inactive.
Stephen Kim - Alpine Woods Capital Investors
And inactive.
Cathy Smith
Inactive. Right. So we look at all.
Stephen Kim - Alpine Woods Capital Investors
Okay, okay. I guess, what I wanted to clarify was whether or not a meaningful number of communities or lots that were not impaired were nevertheless benefited from a significant renegotiation of the terms at a point in time when they were let's say options, but before you actually took them down, I'm just trying to get a sense for to what degree prices today reflect, maybe deals that were struck many years ago or is in fact they were sort of mark-to-market if you will before you actually owned them?
Cathy Smith
You know Steven we've been pretty aggressive about reducing our option, our option exposure through gosh a number of quarters and we evaluate the economics in the option, every single quarter and we either reserve for or we terminate the option if it economically doesn't make sense in today's market on in the foreseeable future of that asset. And so that's why our option dollars have continued to come down every single quarter and we took again some charges this quarter.
We're down to a very small amount of I think option deposits and pre-acquisition costs are less than 40 million in total for the company now. So I guess my point being is we would, we'll renegotiate the economics that make sense or we terminate the options.
Stephen Kim - Alpine Woods Capital Investors
Great, the other second question I had sort of a house keeping point. Do you have any optioned lots which are held in a JV left or do not have any of those left?
Cathy Smith
Yeah we would have -- I guess I am looking at Mark and no, we have a few. We don't have a lot of JV work in efforts anymore, but Mark's telling me we have a few.
Operator
Our next question is from Megan McGrath from Barclays Capital, your line is open.
Megan McGrath - Barclays Capital.
Hi thanks, good morning.
Cathy Smith
Hi.
Megan McGrath - Barclays Capital.
Tim I wanted to just follow up on your comments initially that you're increasing your contact with the banks about potential future land purchases. Where do you think, given your experience we are in this process and what's keeping the banks from pricing attractively now? Is it just that there's really no demands on the builder side or are they relying too much on appraisals? What do you think is going on in that market?
Timothy Eller
All of the above Megan and more, so its -- I think we saw the same last year that we expected 2009, down the year 2009 to be the year that the land began to flow from the banks. So we know that their ramping up their infrastructure to deal with it.
We know that they're going through the process, the foreclosure processes which is typically what it is now. With the builders and developers to get to acquire the land. One I think issue that may delay it a little bit more is this whole notion of abet (ph) bank, which is now equivalent to at RTC of older previous cycles.
So I think banks are kind of wondering and maybe pausing a little bit to see what the administration is really going to do to the for financial system restructuring if at all. But depending on how that works out, these things take a while to workout, and we expect that the latter half of 2009 we'll see a fair amount of activity. We're already starting to see some now and we're expected to accelerate through the year.
Megan McGrath - Barclays Capital.
Okay great. And then just a quick modeling question, I want to make sure that I understood the 8-K that you put around your credit facility, renegotiation. Was the restricted cash -- did that happen after the quarter so we should expect to see more in restricted cash in the March quarter?
Cathy Smith
Yes, we amended the facility in January. So you'll see it in this next quarter.
Megan McGrath - Barclays Capital.
Okay and that was about 350 million?
Cathy Smith
Correct.
Megan McGrath - Barclays Capital.
Okay, thanks.
Operator
Your next question comes from Carl Reichardt from Wachovia Securities, your line is open.
Carl Reichardt - Wachovia Securities
Hi guys.
Cathy Smith
Good morning Carl.
Carl Reichardt - Wachovia Securities
Does the change in -- a potential change in the annual carry back affect your thought process on bulk selling land over the course of that whatever -- however the fiscal year will work for you guys, especially given what you've already done?
Timothy Eller
Well we don't know what's going to happen with the NOL carry back. It's in build amount conclusion (ph). Centex's is working its way through on all of those issues. They're not going to conference and then we'll just kind of have to see what comes out of it. So it's kind of hard to plan for something that doesn't really exist at this point and until it does, then we'll have to decide. And I don't know the answer to the question at this point either Carl, so we would have to look at the benefits of a tax refund versus the potential cost if any, selling land potentially at a loss.
So, we don't have a point of view yet. That's probably the best way to characterize it. And we'll just have to see what the legislation looks like, and then decide.
Carl Reichardt - Wachovia Securities
Okay. And then, I mean, thinking along those lines, Centex Tim, I mean, has been historically a company that's being relatively -- that's spread wide across the country, with relatively thin share. But the focus on the new model is to effectively reverse that. How comfortable do you feel that you've shrunk the number of markets you are in, and expect to deepen your share and not that you can maximize your efficiencies for a lot of the stuff you've talked about over the last several years?
It just doesn't seem to me, looking at the map that you guys have shrunken not in terms of number of markets. My guess is that your share is increasing to a degree, but I'm just curious as to whether or not to land portfolio is going to change a lot, regardless of the change in the NOL carry back. Can you talk a little bit about that?
Timothy Eller
We have been pretty consistent Carl, in terms of focusing on 30 markets, which is I think still the case. So, and we've actually at the markets that are in the process versus rest of the markets that don't fit that. Having said that, we have some legacy assets and markets that we're going to have to work through.
On the other hand, there are markets that are going to recover, quicker and faster, than other markets. And that's where we'll really focus our energy and our efforts. So, you think about markets like the Carolina's, DC, Texas of course; are going to be faster recovery markets. So that's where we'll concentrate our resources, both in terms of people and cash.
But I think, and continue to believe that from a cash standpoint, we'll be able to do this on a very asset by basis, even in those markets. So again, back to your question in terms of breadth and depth, we've consolidated all of our Florida operations into one division for example, because we see that market recovery has been beyond the near term. But we want to maintain a presence in that market, because we could be wrong, number one. And it will recover.
Operator
Our next question comes from Eric Landry from Morningstar. Your line is open.
Eric Landry - Morningstar
Good morning, thanks.
Cathy Smith
Good morning.
Eric Landry - Morningstar
Cathy when I do the math here for average order price, I'm getting about a 191,000 per unit. First of all, is that in the ballpark, and second of all; could you explain what's going on there if it is?
Timothy Eller
Yeah. I do that calculation every quarter, and that's the right math. I'll tell you that there was -- because of the increase in the number of specs we closed this quarter there was a number of homes, probably higher than the last several quarters, that sold and closed in the same quarter, or sold and closed in the quarter, which would reduce your -- kind of -- it would artificially lower the sales price that goes in the backlog. We know that if you just divide backlog dollars by unit dollars, it's -- of course, it's much higher than that.
Eric Landry - Morningstar
Right. So that would -- go on.
Cathy Smith
Oh, and I was just going to add little bit more color there. We know that mix wise that we've had some fairly strong sales like in our Texas markets for example. And that will typically drive that average price down little bit in backlogs.
Eric Landry - Morningstar
Okay. So, this is not an indication that backlog is going to see a 30% drop here anytime soon?
Timothy Eller
No.
Cathy Smith
No.
Eric Landry - Morningstar
Okay. Next question is, could you give me some idea the difference in gross margin between a spec sale and a backlog, or to be built sale?
Cathy Smith
Yeah. In last several quarters it's been somewhere between 4 and 6%.
Timothy Eller
400 and 600 bips.
Cathy Smith
Sorry.
Timothy Eller
Same thing.
Operator
Our next question is from Michael Rehaut from J. P. Morgan. Your line is open.
Michael Rehaut - J.P. Morgan
Thanks.
Timothy Eller
Welcome real back, Michael.
Michael Rehaut - J.P. Morgan
Thanks Tim. Two real questions, if I could. First, on the legislative front, you guys have done a great job garnering cash and generating positive cash flow. At the same time, there is this potential incremental look back period that's made it through the house, and I guess is being discussed in the Senate. Why not use that money given, yourself and other large builders; do have much better balance sheets and cash positions? Why not push to direct that money more towards the stimulus, like the down payment assistance, or tax refund on a for a home purchase?
Timothy Eller
Yeah. Welcome to Washington politics. I mean, that is all being discussed. Michael it's interesting to watch the process. But, I think there the three areas that various aspects of the administration and Congress are focusing on is, one foreclosure prevention. Everyone would like to prevent as many foreclosures from happening as possible. And of course, we're facing as many if not, more foreclosures in the next couple of years than we faced in the past couple of years. So I think that's key on everyone's agenda. The issue is how to go about it, how to do it? The mechanics of doing it, becomes very complicated.
Second, I think is the -- how to stimulate the economy. And we believe that stimulating housing has to be first and foremost in any plan to stimulate the economy. So, that's where we've come up with the housing tax credit. And the size of which is being debated right now -- it's 7500 in the House, and now hopefully, proponents in the Senate are arguing for 15,000. We've actually said make it variables from 10 to 22,000.
So, stimulating housing demand we think, will support housing prices, and interrupt the continuing decline of housing values, which is now is totaled into the trillions of dollars of housing that was for the American people. So, I think -- and then finally, the interest rate subsidy or bought (ph) down interest rates are being also proposed in the Senate. Those three, we think, those three key attributes of a stimulus package is what's necessary for the economy, and for housing. So, that's independent of whatever you might do in NOLs. The NOL cost for home builders is insignificant.
Michael Rehaut - J.P. Morgan
Okay, thanks Tim. The second question just on the impairments, you know the previous couple of quarters you had a fairly low number and I believe you had talked about an optimism that you were closer towards the end of the cycle. This quarter obviously with the sharp drop off in absorption and volume, it was a different world and so, going forward, how are you guys looking about becoming perhaps a little bit more responsive than in fiscal first half '09, in terms of price, and how should we think about impairments going forward given that it appears that again in the first half of the year, you were more comfortable holding price and not taking that type of impairment hit?
Timothy Eller
Well, I don't think that's true at all Michael. So we were very aggressive if you recall a year ago. When we said the mortgage market is changing, the underwriting requirements are tightening, down payments are increasing, we have to move to FHA and GSE mortgages and we did that.
We did that through transparent pricing and we took a look neighborhood-by-neighborhood and market by market. That served us well. We generated a lot of sales in the first half of our 2009, created a tremendous backlog which we continue to enjoy today and so perhaps I would say that when November and October and November hit and the world changed, not in our world but pretty much the economic world across the world changed, we had a backlog that we're delivering and we adjusted.
You could argue that okay, it took us a month too long to adjust. But we've approached this with the same urgency that we have from the beginning and our strategies have been the same, which is sell homes; first thing we have to do is sell homes, reduce our cost, generate cash, restore profitability. That's been our strategy, continues to be our strategy and we'll continue to execute that.
Operator
Our next question is from Alex Barron from Agency Trading Group. Your line is open.
Alex Barron - Agency Trading Group
Yeah thanks. Good morning guys.
Cathy Smith
Good morning.
Alex Barron - Agency Trading Group
You gave I guess a statistic of about 50% of your communities have been impaired at least once. Can you kind of break that down by regions just to get a sense of how that compares and, the West like California versus Florida versus Texas?
Timothy Eller
Alex, I'd say that it's probably weighted toward Florida and California and then obviously Phoenix and the desert but we're not going to provide that number regionally.
Alex Barron - Agency Trading Group
Okay. I guess my other question was just about some of the banks accelerating land sales going forward and I am just kind of wondering what you guys think is the impact of those land prices as they clear the market on the remaining land that may be you and other builders own in similar markets, where those land sales might happen. In another words is that going to drive further impairments?
Timothy Eller
Well I don't think so, necessarily Alex. All the land will be priced to the residual value. Start with the sales price of the house, what can customers afford; just back out cost and then what's left after all the cost is what the land is worth. So it's a residual pricing model that is pretty consistent through time and across markets.
So its we its going to be what its going to be. And it's may be the best way to characterize it, and its going to be all around buyers ability to afford it in the current economic interest rate and mortgage qualification environment and we'll back -- we'll just back into the value of the land.
Cathy Smith
Yeah. I'd remind you too that we do have one of the lighter land supplies of the builders; that we'll be able to take advantage of those newer land supplies coming through the banks.
Operator
Our next question is from Jim Wilson from JMP Securities, your line is open.
Jim Wilson - Jolson Merchant Partners LLC
Well thanks, I guess most of my questions have been answered. But, I was wondering Cathy in the impairments, what amount of it was run through cost of sales, looks like most of it those run through across the land sales but...?
Cathy Smith
I'm actually going have Mark or Matt.
Mark Kemp
There was very little, 43 million. No-no. Actually, there was none this quarter.
Alex Barron - Agency Trading Group
Oh, its none at all. It's entirely run goodwill?
Cathy Smith
Through demand.
Mark Kemp
Yeah, while there was some goodwill that wouldn't be in there. But that has it's own line.
Alex Barron - Agency Trading Group
Okay, you're right, okay. Okay, thanks. And then, the other question is in the West, and I know you've focused on both success in California -- sorry in Texas, secure line is in DC, and focus on Texas, secure lines in DC. The West obviously is very -- was the weakest. I mean, you're obviously deemphasizing it. What do you need to do there? Is to move product there, or is there little enough inventory, not worried about it. Or how would you characterize your strategy in the West California, Arizona and the Nevada?
Timothy Eller
I'd say it's a tale of two markets really in California. So, in the Northern markets of California, we're actually fairly land short. We're selling out of neighborhoods, or not finding a significant amount of opportunity for replacement neighborhoods. And we'll just have to wait until we do.
In Southern California, it's more around the Inland Empire, and that market has been historically true, it is pretty significantly impacted by foreclosures right now, and will continue to be. So, it's very difficult to compete with foreclosures. The good locations continue to sell. We continue to sell new homes in good locations. And the more peripheral locations of these for example, are more difficult.
Again, as historically the case in Southern California, the coastal markets will come back more quickly. So, we continue to maintain a presence in Orange County and San Diego. And actually are looking at opportunities in those two markets. They will come back before the Inland Empire and we're there.
Operator
Our next question is from James McCanless from FTN Equity. Your line is open.
James McCanless - FTN Midwest Securities
Hey, good morning everyone. Wanted to address the NOL question again, and ask it this way. If the five year look back was enacted today, Centex didn't do anymore land sales for the end of the fiscal year. Is there a dollar range you all could give us of a cash refund you might expect?
Cathy Smith
Really, I hate to say it but it really it's just too early to tell. And the reason why is it depends on the langrage if it's the beginning or the ending tax year, langrage, depending on what we'll be able to access in taxes already paid. So, if we get the benefit of another full year to transact the built in losses that'd be great. But, given that it is politics, I -- we just -- it's really just too early to tell. I know we'd all like to write that check right now. But it's just a little early.
James McCanless - FTN Midwest Securities
Okay. Second question, since you are assuming slow absorptions going forward, I think that implies that your lots on hand right now, are more like five six years worth of lots to build out. Where do you want to be on lots in terms of years, or is it just a actual number you want to gravitate to?
Timothy Eller
Historically we've owned somewhere around 1.5 to 2 year supply of lots in option and in equivalent amount. Coming out of these kind of cycles, we can shorten up our position. And that's why we look at the number of finished lots that are in the market will it be sufficient for us, for the next several years. And we'll be able to be fairly asset light, coming out of the cycle. So I expect our new owned position that is our new acquisitions to be much more heavily weighted around options than owned.
Operator
We have reached the end of our allotted time for questions. I will now turn the call over to Tim Eller for his closing remarks.
Timothy Eller
Thanks Melinda. And thanks to all of you for joining us today. We look forward to discussing our results with you again, during our fourth quarter and year-end conference call in April.
Operator
This concludes Centex's Fiscal Year 2009 Third Quarter Earnings Conference Call. Thank you for your participation.
Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!