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Executives

Ara Hovnanian – President and Chief Executive Officer

J. Larry Sorsby – Executive Vice President, Chief Financial Officer

Paul W. Buchanan – Senior Vice President, Chief Accounting Officer

Brad O’Connor – Vice President, Corporate Controller

David G. Valiaveedan – Vice President Finance and Treasurer

Jeffrey T. O’Keefe – Director of Investor Relations

Analysts

Michael Rehaut - J.P. Morgan

[Unidentified Analyst] for Ivy Zelman - Zelman & Associates

Daniel Oppenheim - Credit Suisse

Carl Reichardt - Wells Fargo Securities, LLC

Nishu Sood - Deutsche Bank

[Unidentified Analyst] for David Goldberg - UBS

Megan McGrath - Barclays Capital

Joel Locker - FBN Securities

Keith Wiley - Goldman Sachs

Hovnanian Enterprises, Inc. (HOV) F4Q09 Earnings Call December 17, 2009 11:00 AM ET

Operator

Good morning, and thank you for joining us today for Hovnanian Enterprises fiscal 2009 fourth quarter and year end earnings conference call. An archive of the webcast will be available after the completion of the call and run for 12 months. (Operator Instructions)

Before we begin, I would like to remind everyone that the cautionary language about forward-looking statements contained in the press release also applies to any comments made during this conference call and to the information in the slide presentation.

I would now like to turn over the conference call to Ara Hovnanian, President and Chief Executive Officer of Hovnanian Enterprises. Ara, please go ahead.

Ara Hovnanian

Good morning and thanks for participating in today’s call to review the results of our fourth quarter and year ended for October of ’09.

Joining me today from the company are Larry Sorsby our Executive Vice President and CFO; Paul Buchanan, our Senior Vice President and Chief Accounting Officer; Brad O’Connor, Vice President and Corporate Controller; David Valiaveedan, Vice President Finance and Treasurer; and Jeff O’Keefe, Director of Investor Relations.

On Slide 3, you’ll see a brief summary of our full year results. As usual, we give this data and more, as well as the corresponding quarterly results in our press release, which we issued yesterday. 2009 as you know was another disappointing year. The results in almost all key categories were negative when compared to the prior year, but as the year progressed we did see some signs which indicate that the market is at or is at least approaching a bottom.

Now that we are comfortable with our liquidity, in addition to focusing on cash flow we can now be more focused on returning to profitability. Unfortunately we can’t flip a switch and get there. There are a number of pieces of the puzzle that need to come together in order for us to accomplish this goal. One piece of the puzzle, Slide 4, that began in the beginning of fiscal ’09 is the improvement in net contracts per active selling community.

On a monthly basis, as is shown on Slide 5, we’ve seen an increase in 11 of the 12 months in fiscal ’09. We started our first month of fiscal 2010 with an increase in our sales pace per community as well. On an absolute basis, the seasonally slow period began a little earlier than usual this year, but that could very well be attributed to the tax credit that was set to expire at the end of November. The sequential reduction in net contracts for two of the last three months was slightly more than a typical seasonal adjustment. However, on a year-over-year basis, each month was still substantially better than last year. Over the same timeframe, existing home sales continued to improve through October which leads me to believe that the drop-off in new home sales was due to the fact that a new home could not be sold and completed and delivered in time before the tax credit was scheduled to expire on November 30, 2009.

As you all know by now, the first time home buyers tax credit that was set to expire in November was not only extended but was enhanced as well. Slide 6 gives a brief summary of the new tax credit. We are pleased to see the $8,000 first time home buyer tax credit extended to contracts that are signed by April 30, 2010, and homes that are closed before July 1. The tax credit was also expanded to included repeat buyers this time. If you lived in your home for five of the last eight years, you can get a $6,500 tax credit, not as big as the credit as it is for first time home buyers but a reasonable amount of credit nonetheless. The same time parameters for contract and closing apply to this credit as well.

Income limits were also raised, which is important in some of the markets where we build like New Jersey, California and the D.C. suburbs. In some of these markets, home buyers met the first time requirement but were excluded from getting a tax credit because they exceeded the maximum income limits. The increase in income limits is a very positive development that will allow more home buyers to benefit from the tax credit.

While it’s difficult to determine the exact impact that the tax credit has had on our sales, we do have a general sense of the magnitude by looking at the percentage of the applications that our mortgage company takes that would be eligible for the tax credit. Our first quarter, which ended in January of ’09, was prior to the $8,000 tax credit being passed by Congress. Even though there was no tax credit available, 29% of our customers were first time home buyers. You can see that on Slide 7. The stimulus bill was passed in February of ’09, the first month of our second quarter. During the second quarter, 32% of our buyers qualified for the tax credit. That percentage grew to 37% in the third quarter and then increased more to 39% in our fourth quarter.

First time home buyers have also been an important component of our broad product array, but the 10% increase between the 29% in the first quarter and the 39% in the fourth quarter is probably a good indication of just how impactful the $8,000 first time home buyer credit was on our sales. Now that the tax credit has been expanded to include repeat buyers, it’s logical to assume that there should be an incremental impact to our sales in that segment as well, although it’s hard to know if that would be a 2% incremental impact or a 10% or a 12%. We’ll have to see. My guess is it’ll have a bigger impact on our second quarter results than it does on our first quarter results due to the typical seasonal patterns.

Getting back to our selling pace, Slide 8 shows the quarterly sales pace of net contracts per active selling community. For the first three quarters of the year, the improvements increased as the year progressed. During the fourth quarter, we had a 60% year-over-year increase. Looking at these trends over a longer period of time, the first quarter was a 5% year-over-year improvement. In the second quarter of ’09 we not only exceeded ’08 but also ’07. In the third quarter and fourth quarter of ’09, we began to approach ’06 levels, and approximately 60% improvements once again. So the improvements, particularly in the second half of the year, were quite significant.

On an annual basis, you can see on Slide 9 that our ’09 sales pace was an improvement compared to ’08. Even though ’09 was better, it was still the second worse year going back to 1997 and well below our average in the normal times of about 47 sales per active selling community. Improvements in sales pace is only one piece of the puzzle to getting us back to profitability.

Even if we sell more homes per community, if our community counts continue to decrease the results will likely be fewer deliveries and less revenue. So the second piece of the puzzle is that we need to once again grow our community count as we show in Slide 10. Organically this will happen as previously mothballed communities are open for sale, but in many cases, un-mothballing communities will only occur when we start to see home price appreciation. In the near term, we cannot rely solely on reopening mothballed communities to drive an increase to our community count. We’ve got to identify and purchase new land parcels that make sense at today’s sales pace and today’s sales price, and open those newly identified communities for sale so that we can deliver those new homes.

After being unable to find land deals that make economic sense for several years, we have finally started to see land deals during the second half of ’09 that meet our criteria so that we can begin to reload our land supply. Slide 11 shows that we have contracted to buy, outright purchased or optioned almost 4,000 lots in the third and fourth quarter of fiscal ’09.

We have three general categories of land purchases. The first time can be best characterized as just in time finished lot takedowns, or rolling lot options, as they’re referred to in the industry. These deals are predominantly taking place in our Texas markets, but we did sign option contracts for land in Arizona and Florida as well. During our third and fourth quarter, we signed new option contracts for 859 lots. Today, the deposit amount required to secure land and lot options is minimal, and we purchased them on a wholly owned basis. Because of the just in time nature of the land purchase, the incremental capital commitment is very manageable.

The second kind of land deal is for small bulk takedowns of finished or partially finished lots. Generally, if these purchases only require a few million dollars of investment, we will complete them on a wholly owned basis. During the third and fourth quarter, we purchased or contracted to purchase 1,145 lots on a wholly owned basis. These lots were purchased in Arizona, California, Delaware, Florida, Minnesota and Virginia. More times than not, these deals are purchased from banks that are looking to sell REO or nonperforming loans.

The third category of land deals is for larger bulk transactions that are better suited for joint venture investments. These larger bulk deals require more significant capital. To date, we’ve signed and closed two joint ventures for almost 2,000 lots that are located in Florida and Chicago. When underwriting these land deals, for those with a community life of less than two years we used current sales pace, current home prices and current construction costs. Although we never assume increases in home prices, on longer life communities we do gradually increase the sales pace in the outer years. For the first time in about three years, land deals are finally starting to make sense based on the current sales pace and the current sales price. Many times these deals are being marketed by banks that have either taken back the land as REO or they have a nonperforming loan that they’re willing to sell at a discount.

In many instances where we’ve purchased improved lots, we have paid a fraction of the cost to put in the streets, underground utilities, etc., that have been expended to date. And in essence, we’ve been able to purchase the land for free. We believe that the recent thawing we have witnessed in the land market is the tip of the iceberg. In many instances, banks are holding on to the nonperforming assets because their balance sheet would take a hit if they reduced the price to market them and sold them. At some point, banks will have to face reality and sell more land. I’m not sure if this is going to come at the hand of the regulators or because a new wave of commercial real estate loans are about to hit the banks, but something’s going to give and we’re going to see more and more land being sold and we intend to continue identifying and purchasing land that meets our underwriting criteria.

I am happy to report that the active land acquisition environment has continued in our first quarter. It can take anywhere from six to 18 months to get the new communities up and running. When dealing with a nonperforming loan, we purchase the loan and then go through the foreclosure process. Even in a case where the foreclosure is friendly, we still have to go through the court system and in some cases there is a log jam just to get through the court’s docket. This has added to the time required to get these communities to market. Once we open for sale, it can be four to six months before a first home is delivered.

As such, we wouldn’t expect to see too many deliveries from these new communities until the second half of 2010. And we expect our deliveries will then gradually start to pick up. So far, we have talked about improvements in sales pace and reloading on the land, which will eventually lead to top line growth and improved margins.

If we turn to Slide 12, we’re trying to make the point that improving margins is the third piece to the puzzle. Throughout 2009, we saw our gross margin improve as you can see on Slide 13. These improvements in gross margins were helped by our impairment reversals, which were for approximately $36 million, $49 million, $51 million and $59 million in each of our four quarters respectively. However, the improvement in our fourth quarter gross margin was driven primarily from an improved mix, as many of the poorer performing communities were finished in the prior quarters.

As we move forward, the new land we are purchasing at discounted rates will generate higher margins. The new land parcels are expected to deliver homes with about 20% plus gross margin.

The second part of improving our operating profits has to do with leveraging our SG&A costs. We have taken appropriate steps to reduce our staffing levels. On Slide 14, you can see that from a peak level of just below 7,000 associates in June of ’06 we have reduced our staffing levels by about 75% as of October of ’09. Even if you just look at what we’ve done in the last 12 months, staffing levels are down 38%. This is the most painful process of any downturn, but right sizing the business to our current production levels is necessary. While I believe the majority of the staffing level reductions are behind us, we will still have to make adjustments where necessary.

Even though we’ve taken these dramatic reductions, our SG&A as a percentage of sales remains at elevated levels. On the left hand side of Slide 15, you can see our SG&A as a percentage of total revenues for the last ten years. For the full year ’09 we were at 20%, which is not quite double but still significantly higher than the average of 12% over that time period. In order to better leverage our current level of SG&A, we also need to see top line growth, which is why growth in community count along with the improved sales pace is so important.

2010 will be a year of transition for us. We have started down a path that we believe will eventually return us to profitability, and we’ll work hard to insure success. Excluding the benefits that we expect from the tax refund, we would not expect to be profitable until sometime after 2010.

I will now turn it to Larry Sorsby who will discuss our inventory, capital markets activity and our mortgage operation as well as other topics.

J. Larry Sorsby

Thanks Ara. Let me start with the discussion of our current inventory from a couple of different perspectives.

On Slide 16, you can see that our community count has declined 60% to 179 active selling communities from the peak of 437 communities in July, 2007. For nine quarters in a row, this number has come down. During this time, we only opened a handful of communities and sold out of many others. For the first time in a couple of years, we’re now on the cusp of opening more communities and expect to see this trend of fewer communities slow down, and as we successfully purchase more new communities, the trend will actually reverse.

If you turn to Slide 17, you will see our owned and optioned land position broken out by our publicly reported segments. Based on a trailing 12 month delivery basis, we own slightly more than three years worth of land. From the perspective of working off our higher priced legacy land, this compares well to the land each of our peers owns, which is illustrated on Slide 18. The good news is that each quarter we work through the land we purchased at higher prices. At some point in the future, we will have worked through much of the land we purchased at the peak of the housing cycle and will have reloaded our land supply with lots that are purchased near the bottom of the cycle at discounted prices. We expect that this combination will lead to sustainable gross margins back in the 20% range. We do not need to have home price appreciation to see this occur, just a shift in the mix of lots that we own. This will not happen overnight, but we have started down the right road.

If pricing power does return, getting back to a normalized gross margin could happen even sooner. Our own lot position decreased by about 3,100 lots during the quarter. We delivered approximately 1,400 homes and sold slightly more than 2,200 lots. Offsetting these reductions, we purchased about 600 lots in both new land transactions and lots that were previously under option. As we move forward, we will reduce the number of legacy lots owned at higher prices and reload with new lots bought today at discounted prices.

On Slide 19, we show a breakdown of the 16,477 lots we owned at the end of the fourth quarter. Approximately 43% of these were 80% or more finished, 13% had 30% to 80% of the improvements already in place, and the remaining 44% had less than 30% of the improvement dollars spent.

I will now talk about the land related charges that we took during the fourth quarter. We continue to walk away from legacy land options when they don’t make economic sense and we can’t renegotiate the terms. During the fourth quarter, we walked away from 2,472 lots and took a write off of $15.3 million related to these option lots. Slide 20 shows how these charges were broken out between our publicly reported segments. Our remaining investment in land option deposits were $26.7 million at October 31, 2009, with $20.3 million in cash deposits and the other $6.4 million of deposits being secured by letters of credit. Additionally, we have another $46.3 million invested in predevelopment expenses.

The next category of pretax charges relates to impairments and is shown on the same Slide. We took $122.7 million of impairment charges during the fourth quarter. We saw a small number of communities account for the majority of the impairment charges that we took. Four communities alone made up $79 million or 64% of the charges. There were a few different reasons for these four communities to trigger an impairment. One community in northern California is having permit delays due to the uncertainty as to when the Army Corps of Engineers will build the needed flood levees. The impairment for this community alone was about $25 million. Another is a community in northern New Jersey where we decided to sell the land as opposed to building homes, which triggered an $18 million impairment. Two of our active adult four seasons communities in southern coastal New Jersey triggered $36 million in impairments due to continued home price declines in that market. The remaining charge of $43.7 million was spread out over 68 communities or about $640,000 per community, many of which were almost sold out.

On the whole, we are seeing more price stability across our markets. Absent the impact from four communities, our impairments would have been more modest. We test all of our communities, including communities not open for sale, at the end of each quarter for impairments. If home prices continue to deteriorate, we will see additional impairments in future quarters, even if the deterioration is isolated to only a handful of communities. During the fourth quarter of 2009, we also recorded $8.4 million of write downs associated with our investment in joint ventures, which shows up on the loss from unconsolidated joint ventures line in our income statement.

Turning to Slide 21, we show that we have 7,626 lots that were mothballed as of October 31, and we break these lots out by our segments. Both book value at the end of the fourth quarter for these communities was $295 million, net of an impairment balance of $547 million. Looking at all of our consolidated communities in the aggregate, including mothballed communities, we have an inventory of book value of $1.1 billion net of $1 billion of impairments which were recorded on 222 of our communities.

Turning to Slide 22, it shows our investment in inventory broken out into two distinct categories, sold and unsold homes, which includes homes which are in backlog, started unsold homes and model homes, as well as the land underneath those homes. The other category includes both finished lots and lots under development which are associated with all other owned lots that do not have sales contracts for vertical construction. We’ve reduced our total dollar investment in these two categories by 75% since our peak level in July, 2006.

Turning now to Slide 23, you can see that we continue to reduce the number of started and unsold homes excluding models. We ended the quarter with 659 started and unsold homes, which is a decline of 80% from the peak level at July 31, 2006. This translates to 3.7 started and unsold homes per active selling community. We may slightly increase the number of started unsold homes per community over the next couple of quarters in order to have more homes available to close before the June 30 expiration date of the home buyer tax credit. While we may have a temporary increase in spec homes, after the expiration of the tax credit we would expect to return to around the average of five started and unsold homes per community we’ve averaged over the past dozen years or so, as seen on Slide 24.

One more area of charges for the quarter is related to taxes and the current and deferred tax asset allowance. We concluded we should book an additional $113.7 million after tax, non cash asset valuation allowance during the fourth quarter. While our tax asset valuation allowance charge was non cash in nature, it did affect our net worth by the same dollar amount during the quarter and increased our total valuation allowance to date to $987.6 million. We ended the year with stockholders equity deficit of $350 million. If you add back the total valuation allowance, as we’ve done on Slide 25, our stockholders equity would be $638 million or about $8 per share.

Some of this will be reversed when we report our first quarter results. During the first quarter we expect to receive a tax refund of $275 million to $295 million due to changes in the tax legislation. Let me reiterate that the tax asset valuation allowance is for GAAP purposes only. For tax purposes, our tax assets may be carried forward for 20 years and we expect to utilize those tax loss carry forwards as we generate profits in the future.

Based on the remaining balance of $693 million, adjusted for the high end of the tax refund range, we will not have to pay federal taxes on roughly the next $2 billion of pretax earnings we generate. While extremely unlikely at our current stock price, at some point we may want to raise more equity. We have received a fair number of questions recently about IRS Rule 382 and how that would limit our ability to raise equity. We recently ran the calc again for 382 purposes. If we were to complete an equity offering today, we have sufficient room to issue a very significant number of common shares before we would even come close to triggering 382. So the impact of 382 is not a limiting factor to our ability to issue stock today.

Now let me update you briefly on our mortgage markets and our mortgage finance operation. Turning to Slide 26, with our average FICO scores at 733, our recent data indicates that our average credit quality of our mortgage customers remains strong. We’re also pleased to see our mortgage capture rate increase 80%, 82% of our non cash deliveries for the full year.

Turning to Slide 27, we show a breakout of all the various loan types originated by our mortgage operations during fiscal 2009 and compared it to all of fiscal 2008. During 2009, FHA VA loans made up 46% of our volume for the year and slightly higher during the fourth quarter when it was 48%, compared to 36% for government loan originations throughout all of fiscal 2008 and only 8% for all of fiscal 2007. If FHA guidelines are tightened, which appears likely according to remarks from HUD Secretary Donovan a couple of weeks ago, it will mean that slightly less people will qualify for FHA loans in the future. This will certainly be less helpful in the short term, but over the long term, much like the demise of sub-prime and Alt-A, the end result will be a much healthier mortgage and housing environment.

Overall, the mortgage industry continues to be risk averse and has embraced sound, reasonable lending practices. We continue to offer competitive mortgage rates and loan programs, and we are leveraging our mortgage associates knowledge and expertise to assist our home buyers in obtaining mortgage loans suited to their needs and qualifications.

I will now discuss our joint venture activity. On October 31, 2009, after cumulative charges, we had $41 million invested in seven land developments and eight home building joint ventures.

As a result of the cumulative effect of $372 million of impairments since 2006 within our joint ventures, you can see on Slide 28 that our debt to cap of all our joint ventures in the aggregate increased to 62%. Historically, we financed our joint ventures solely on a non-recourse basis. The most recent joint ventures we initiated during the second half of 2009 are all equity deals and have no debt. We are now more than four years into this downturn, and because the loans on our JVs are non-recourse, we have not had any margin or capital calls on any of the debt associated with our joint ventures.

We disclosed during our bond offering in October that we had set aside about $140 million of cash to be invested in joint ventures. To date, we’ve signed two new home building joint ventures and have put about $10 million of that money to work. One of the most significant steps we’ve taken so far in this downturn with respect to our capital structure was accomplished during the latter part of our fourth quarter.

Turning to Slide 29, it shows our debt maturity schedule as of July 31, 2009 at the end of our third quarter, which you very clearly see is that we reduced our debt by $740 million during the first nine months of 2009 and have very few maturities coming due in 2010 through 2012. However, we did have a very significant $600 million senior secured note coming due in the spring of 2013.

On Slide 30, we outline the steps we took in the fourth quarter. We’ve tendered for all the existing secured debt and certain existing unsecured notes. Then we issued $785 million of senior secured first lien notes. This was essentially a cash neutral transaction as the postage we raised paid for the premium we paid for the secured debt we tendered, as well as for the fees associated with the transaction. Lastly, we made open market debt repurchases totaling $53 million face amount during the quarter.

On Slide 31, you can see our revised maturity schedule. Over the next three years, we have less than $200 million of debt maturing now.

Our more significant debt maturities are now pushed out all the way until the end of 2016. By then we expect to be in a very different market and in an improved financial condition. In terms of cash, we have the liquidity we need to weather this downturn. We had more cash in the beginning of the year as you can see on Slide 32, but we saw that come down, primarily as a result of the open market repurchases we made to reduce our debt by $754 million during the year.

Based on the recent changes to the tax legislation, we expect to receive a federal tax refund in the second quarter of fiscal 2010 of between $275 and $295 million, up from $250 to $275 million we projected previously.

A couple of housekeeping notes. With respect to cash, we did see a significant increase to our restricted cash in the fourth quarter. We terminated our credit facility at the time of our bond offering and used $135.2 million of cash to finalize our letters of credit on October 31, 2009. We incurred about $4 million of non-cash FAS 123 expense relating to stock options that were voluntarily canceled by executives and board members during the fourth quarter. These canceled options were granted to senior executives and the board from 2003 through 2007. For the full year, we took about $16 million of charges related to options voluntarily canceled.

The other operations line in our income statement was $15 million for the fourth quarter of ’09. This is higher than the typical $2 million to $4 million we incur. The difference or increase is primarily related to an accrual for unused leased office space.

I’ll now turn it back to Ara for some closing comments.

Ara Hovnanian

Thanks, Larry. As we sit here and look out into 2010, we know that while we’ve accomplished a lot we still have a lot more work to do.

As we look back on where we’ve come from, it’s clear that we were too aggressive at the peak of the cycle with land and company acquisitions in ’04 and ’05. Looking at the stockholders deficit that we’ve accumulated, it’s painfully obvious that our target of 50% debt to equity was not conservative enough and didn’t anticipate this kind of market change.

We have dug ourselves into a hole, but most of the goals that we have recently accomplished have provided a way out. There is a ladder down here. We have a substantial amount of cash and close to $300 million more cash coming in, thanks to the change in the tax legislation. Our debt maturity schedule is modest over the next several years, thanks to our bond repurchases and our other capital market transactions. We have adequate capital that not only buys us time for the housing markets to get back to normal, but also gives us the ability to take advantage of the many opportunities at the bottom of the market.

We have taken advantage of many of the market troughs over the 50 year history, and again we fully intend to do that this time. As the pieces of the puzzle fit together and we get back to profitability, we will not be paying federal taxes on about the first $2 billion that we earn. This should allow us to wipe out our stockholders deficit quickly and then to begin to grow our equity once again.

We believe that we have a great franchise in the markets where we operate. We plan to maintain our presence and in each of those markets, we have the right people on the ground to get the job done. And now they have the added experience of operating in particularly difficult conditions.

We have begun to get back into the land acquisition market with a vengeance, but we are now holding steady to our underwriting criteria. We’ll continue to reload our land position with new, better priced lots that meet our return hurdles. Our gross margins have been trending up with every quarter and will only be helped with the margins from the new acquisitions.

Our SG&A costs have begun to decline with the aggressive steps that we have taken and will only get better if we can accomplish the top line growth through these new communities. Homebuilding is a cyclical industry. It’s really bad when the market’s correcting, but it does come back with time. Demographics are destiny over the long run and they are very favorable. Simply said, the United States population is growing and in fact it’s going to be growing faster this decade than over many of the past few decades. Public builders, interestingly, are still a small share of the overall market, less than a quarter. Public home builders share has been growing dramatically over the past decade, as you can see on Slide 33, but we think that this will be growing even more in the future.

The smaller project builders have been closing their doors at a phenomenal rate. The list on the right side of the Slide shows some of those names. There’s a website in fact that tracks the demise of home builders called BuilderImplode.com. Capital has dried up for the remaining private home builders as well, and it’s extremely difficult for them to get the dollars they need to open their next communities. The combination of the community count of the public home builders coming down and many private builders closing their doors creates a very different competitive landscape.

Add to that the fact that nobody is entitling new land or improving new land, it gets even more interesting. What that means is that as the market recovers, the existing communities should enjoy a robust pick up in velocity, because when demand returns to near normal levels, there is only going to be a fraction of the communities and a fraction of the home builders left to deliver the new homes. We think that’s going to create a very healthy environment for those builders that are left standing.

Before we get to that better environment, we realize we have some work to do to better position our companies. And externally we still have to deal with the high level of unemployment which is at 10% in November. This is the first time the unemployment has seen double digits since the early 1980’s, but we’ve been through the 1980’s. Foreclosure and the impact that they’ll have are still an unknown and we recognize that. There will certainly be more foreclosures and the timing of when they come and the success of the loan modification programs is still not able to be determined today.

As a company, we’ve proven that we can achieve impressive returns in a good market, not just among home builders but we were one of the top performers compared to any industry a few years ago. We know how to do well in an improving home building marketplace, and we have done that not just with this downturn, but with each of the downturns that we have been through over our 50 year history. We plan to do that once again as we come out on the other side of the market.

That concludes my comments and we’ll be happy to open up the floor for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Michael Rehaut - J.P. Morgan.

Michael Rehaut - J.P. Morgan

First question, just in terms of the new land deals that you’ve done and then I have a second separate question. But on the new land deals, can you give us an idea as we get to the end of next year what percent of closings you would anticipate those new deals would represent? And you know on the deals, you know you’ve talked about that you’re getting a 20% gross margin, you know there’s been a lot of talk around the fact that the land market has become a lot more competitive and that a lot of builders are accepting gross margins more in the mid to high teens even or even closer to mid teens. Are all your deals essentially the 20% or better and you know what approach are you taking that might be differently? Are you just not competing in some of the markets that are getting more heated up?

Ara Hovnanian

Well, I’ll try to address that second part of your question first. While the market is heating up for acquisition, and it is competitive, I would say in general it’s still less competitive than its been over the last seven or eight years. Keep in mind, you know, we’re competing with the public home builders. We’ve always competed with the public home builders. They’re 25% of the market. We’ve also competed historically with the private home builders. They are virtually gone from the marketplace. So while it is competitive, it is less so than it has been. And the good thing about the public home builders is generally speaking, you know, they seem to exhibit a little more discipline and rationale and analysis in making their acquisitions. You tend to have fewer rogue acquisitions among the public home builders.

Having said that, in some markets it is just a little bit tighter on returns, but generally speaking most of our acquisitions now are still you know in the 20% range. They are slightly lower in Texas, but that’s primarily because our SG&A costs run lower in Texas, so we can meet our return hurdles with slightly gross margins. Overall, we’re really seeing the amount of deal flow, I’d say over the last six months the amount of deal flow seems to be increasing a little bit each month. And these are solid deals and again I’ll remind you that we are not programming in any return, any price appreciation.

Generally speaking our underwriting criteria has historically been 30% plus. We are approving some deals that are on an unlevered 25% plus, but there aren’t many of those and there would be more extenuating circumstances that would require that. But to that extent we’re doing slightly lower return deals but not significantly.

Michael Rehaut - J.P. Morgan

And in terms of the percent of closings by the end of next year you anticipate from these deals?

Ara Hovnanian

You know we haven’t done a firm schedule yet, and I prefer to wait on that as we get a little better handle on the timing of openings. I’d say in 2010, they’re not going to be a particularly significant number. In 2011, they will undoubtedly be a much more significant percentage of overall deliveries, but I’d say it’s a little too early yet to project all the way out to 2011 with the deliveries. I mean we’ll still be making many acquisitions through, you know, through 2010 that we’ll be delivering in 2011, so it’s a little early to give that number.

Michael Rehaut - J.P. Morgan

The community count, you know, Larry, I think you spoke to that earlier on in terms of, or I’m sorry it might have been Ara. You know, starting to hopefully turn the corner in the near future, starting to open more and close less per se. When do you anticipate that number stabilizing sequentially or perhaps even growing? Can you give us [inaudible] order next year?

Ara Hovnanian

Yes, I project we’re going to hit bottom in the community count in the middle of this year, and then start increasing. You know it would be my goal to end the year with more communities than we began, but we’ll see how we do with the acquisition. But I’d say in the current environment it feels like we should be able to achieve that. So you know first two quarters continued decrease in community count, I’m fairly confident that we’ll see the bottom and we will begin the upward trend by the third quarter and hope to end exceeding the beginning of the year.

Operator

Your next question comes from [Unidentified Analyst] for Ivy Zelman - Zelman & Associates.

[Unidentified Analyst] for Ivy Zelman - Zelman & Associates

Ara, I was hoping to follow up a little bit on some of your comments about the land acquisition. We were a little bit surprised to see at least the pace of acquisitions slow relative to the third quarter, and I think you mentioned you tied up about 3,100 lots in 3Q and just about 900 in 4Q.

Ara Hovnanian

We never disclosed what we did in third quarter so I’m a little confused.

[Unidentified Analyst] for Ivy Zelman - Zelman & Associates

Well I’m pretty sure you said last quarter that it was about 3,100 and then this quarter you said about 4,000 through the.

Ara Hovnanian

No, I think last quarter we talked about what we had done year-to-date, but I’m not positive. But I believe that’s the case. I’d say our pace of acquisitions has been picking up.

[Unidentified Analyst] for Ivy Zelman - Zelman & Associates

Well then the second question would just be on your price. Both order and closing price had a nice pick up in the fourth quarter and yes, some of that may have been mix related, but it looks like it was increasing in just about every region, so can you comment on that a little bit in terms of what you’re seeing there? Is there any type of product mix or are you bumping price in any particular markets? And if so, you know, how much?

Ara Hovnanian

We are bumping prices in some markets. Right now it’s more anecdotal. It’s not the majority or the average case, but we are bumping prices. I can’t say that there’s any particular market where I’d make that point. It’s really extremely situational, you know, even within a given market. In general, notwithstanding a particular neighborhood, in general we’re absolutely seeing more stability in pricing and the ability to reduce concessions or discounts or even raise base prices. I’m definitely feeling the tides shifting. It’s interesting, with every one of our, you know, experiences in the cycles, what has happened every time is that the velocity picks up first and then pricing follows. You know there’s usually a time delay for pricing. Well, velocity has really been picking up every quarter as we’ve talked and mentioned.

You know, with pricing we shall see. It’s just the beginning so far. It’s hard to tell what’s going to happen. What happens with foreclosures, and I know Ivy’s been very much on top of this and it’s something that concerns her very much, and that’s going to be a big question that will affect pricing I think. You know if we’re not able to get the loan modifications that we’d all hope as a country, then it could delay pricing increases and I know Ivy’s projecting even pricing decreases on existing homes. I’m a little more optimistic on the effect with new homes, particularly those where they’re not particularly, you know, foreclosure high concentrated markets. But that’s the big unknown. So there’s a long winded answer to a short question.

Operator

Your next question comes from Daniel Oppenheim - Credit Suisse.

Daniel Oppenheim - Credit Suisse

I was wondering if you could elaborate a little bit more in terms of what the plans or goals would be in terms of spec construction over the next couple months and quarters here to beat that June 30 deadline. How high do you think the number of specs would be per community?

J. Larry Sorsby

Dan, we don’t have a specific goal. What we’ve done is we’ve asked each of our division presidents to look at their communities, especially communities that would be most likely to utilize the first time home buyer component of the tax credit and just make sure that we have enough at the proper stages of construction to meet the anticipated demand. So we’re going to edge it up, but there’s not a specific directive that we’ve given on a specific number, but we don’t want to be caught short. So we are going to be willing to increase, but no specific goals.

Daniel Oppenheim - Credit Suisse

And do you worry at all if a lot of builders have the same strategy of not wanting to be caught short that as of May 1 when buyers and sellers sign contracts that we’ll end up with lots of white elephants out there?

J. Larry Sorsby

Yes, Dan, I’m a CFO so I worry about a lot of things all the time and constantly, so yes I do worry. But when I sent an email out to all of our head operations guys earlier this week I told them they may want to frame the email because the CFO was asking them to build a few extra homes. We don’t want to do something crazy, so we’re going to monitor it closely, but we think it’s prudent to have a few extra especially in light of the slowdown that we saw as we approached the November expiration date or projected initial expiration date before it was extended. So I think you saw an increase in resale home sales, but a slight slowdown in new home sales and I think it’s directly related to us not having any inventory.

Ara Hovnanian

The public builders in general I think as a group we’ve been running somewhere around two-and-a-half months supply of started, unsold homes. Even if everybody doubled the number and you know which would be a big number, that would put it at a five month supply which is high but given the tax credit expiration I don’t think that’s a number that would get out of control.

Daniel Oppenheim - Credit Suisse

I was wondering about the mothballed communities. It looks if all the mothballed communities are owned communities there would look to be not quite half the owned lots. How far away are those mothballed communities from making sense in terms of the numbers?

Ara Hovnanian

It’s a good question and interestingly we had a meeting with our northern California operation that has several mothballed communities, specifically in the northern Central Valley, Stockton, Modesto, Fresno. We have several. The situation has improved there to the point where we could justify un-mothballing some right now and the question is well, okay, you know land is hard to come by, how quickly do we want to un-mothball some of those communities? I mean prices have gone up and we can definitely generate cash flow, but you know we’re feeling a lot more confident about our cash position and liquidity. And we are focusing more on profitability. So now the question is okay, well you know do we want to wait a little bit, even though we can justify some coming out, should we wait just a bit and see what happens in the spring or early summer? That’s an interesting question. I’m happy we have that decision and dilemma to make, but I’m not sure we know how quickly, even when they can justify it, I’m not sure how quickly we want to bring them to the market. We may want to wait just a bit more so we can get the margins up in addition to the cash flow that they will be generating.

Operator

Your next question comes from Carl Reichardt - Wells Fargo Securities, LLC.

Carl Reichardt - Wells Fargo Securities, LLC

I’ve got a question about the Slide you have on the land you’ve added to the bank or options you’ve added to the bank, about 4,000 in the last two quarters and you mentioned, I think Larry mentioned that on deals under two years you’re looking at your pro formas with flat price, flat pace and flat inputs. What percentage of those 4,000 are going to fall into that category of under two years on a pro forma versus an over two year pro forma where you might have price appreciation or other assumptions built in?

J. Larry Sorsby

I’d say ballpark it’s probably close to 50/50. A substantial number of the acquisitions are in terms of number of communities are 40 or 50 lot acquisitions that will have less than a two year life. That’s true everywhere. On the other hand we did a few acquisitions that will have longer life. So if I had to do just a quick ballpark guess, and it’s probably reasonably close, it’d say 50/50.

Ara Hovnanian

Carl, keep in mind, I just want to reiterate that in even those longer lived communities no price appreciation is ever assumed, only a very gradual pace increase is assumed, sometime after year two.

Carl Reichardt - Wells Fargo Securities, LLC

As you’re looking at the potential transactions that you’re analyzing now, Ara, and perhaps you can give me a sense over the next couple or three quarters, are you expecting that you’re likely to do maybe half your lots in JV structure? Do you think you’re going to be looking at more deals with longer than two year lives or do you expect a lot of under two year deals? I’m just trying to think about what the mix of your new land might look like as you go forward. I know it’s hard to answer, but I’m just curious what your sense is.

Ara Hovnanian

That’s another good question. It’s been on one side a little frustrating because we’d like to do some of the larger transactions. Interestingly, some of the larger transactions get on the radar screen of the hedge funds or equity funds that are out there for distressed properties and the prices you know are driven up a bit so that it makes it tougher to make our hurdles. So you know to some extent, there seem to be better opportunities at this moment on the smaller transactions. But you know it goes in fits and waves. We are looking at a couple right now of larger portfolios that at the moment we think could make sense, but you know they haven’t been bid up yet. So we’ll see.

I wish I could answer that. It’s an interesting one. I thought we’d see more large transactions, but we are seeing smaller ones, which are okay too. I mean singles and doubles are not the worst thing in the world at the moment either.

Operator

Your next question comes from Nishu Sood - Deutsche Bank.

Nishu Sood - Deutsche Bank

My first question I wanted to ask was about your turn over ratio, you know the percentage of backlog you converted to closings. It was down on a year-over-year basis and you know that breaks kind of a 11 month streak you’d had of it rising on a year-over-year basis. Now obviously it can’t rise on a year-over-year basis forever. We were a little surprised to see it fall, though, especially in a quarter just ahead of the expiration of the first tax credit. So I just wanted to get a little better understanding of the dynamic that might have happened this quarter, what we should expect going forward especially since you know SG&A absorption is going to be a big part of your returning to profitability.

J. Larry Sorsby

That is just not something that we monitor or project with, so I know sitting in your chair it’s another data point that you use to kind of gauge the reasonableness of your own internal model, but we have much better data than that that we look at. You know, where communities are, what kind of sales pace we’re having and what the actual projections are. So it’s just not deeply embedded into our radar screen, so I don’t know that we have a lot of clarity we can add.

Ara Hovnanian

A similar metric that we do track is the cancellation rate. I mean that’s really the key metric that’s driving. And it’s down to the low 20’s. It bounces around there a little bit, you know, one month could be up just a little bit, one month could be down a little bit or one quarter. But in general, it’s getting back to normalized levels with normalized volatility right now.

Nishu Sood - Deutsche Bank

Our focus is on you know your SG&A leverage is going to be a critical component of your returning to profitability, so I mean I guess when we look at the picture you know, looking from the external metric, you know, you’ve been closing your backlog at a more rapid pace during the downturn which is what we would expect. There’s no construction delays, you don’t want to let things sit in your backlog, and even be prone to cancellation. Your absorptions as you describe you know in your slideshow are now getting back to even levels that you’ve seen in 2006, and yet in spite of that you’re still having a very poor SG&A leverage ratio. So as you’re looking at it just from kind of a pushing volumes perspective what do you need to see or how are you analyzing it? What are the key drivers of getting back to a lower SG&A percentage ratio in terms of expenses?

Ara Hovnanian

Well, I mean, first of all we need absolute number of sales and communities. That helps on the divisional overhead level and that helps at the corporate overhead level. That’s a key component. The other part we need is velocity per community. It has gone up year-over-year, but as we pointed out you know it’s still the second worst velocity per community over the last ten years. So you know it’s not at an efficient level. I say just in terms of the SG&A focus we need overall top line growth and we need better velocity per community. I mean we’re up from under 20 to 23. That’s good. I’m happy to have an uptick but you know the mid 40’s is normal, so we’re still significantly below normal right now.

However, you know, as we pointed out in the script, the number of communities, if you take the public home builders, the number of communities that we all have is down dramatically. I mean we’ve all cut our store fronts by half. Our old communities are finishing and we haven’t been replenishing. Secondly, private home builders are closing their store fronts. They’re going out of business and their properties, you know, and models aren’t there. And net new stores aren’t coming online because nobody’s going through the entitlement process. So what that means is as the market continues to improve, and I suspect overall we’ll see new home sales increase in 2010 compared to 2009, as that happens when you have fewer communities from which to sell new homes I think the velocity per community is going to get much healthier in 2010. And that’s going to be an important step to getting better SG&A efficiency.

Operator

Your next question comes from [Unidentified Analyst] for David Goldberg – UBS.

[Unidentified Analyst] for David Goldberg - UBS

In terms of the $275 million that you expect to get back, and I know you’ve spoken broadly about this, but can you give us some idea of how much of that will be used to further reduce debt or improve your capital structure versus building cash on your balance sheet?

J. Larry Sorsby

Well I think you can assume that obviously it’s going to improve cash on our balance sheet, and as Ara and I both mentioned during our prepared remarks, you know we’re going to be active in the land market. So it gives us a little extra cushion to be able to reload some land near the bottom of the cycle so that we can get to more efficiency in SG&A and return to kind of normalized margins and return to a path of profitability. So I think that’s going to be the focus, more so than any direct reduction in debt although obviously it’ll help reducing net debt because there’s more cash. But that’s going to be the primary use.

[Unidentified Analyst] for David Goldberg – UBS

And then in terms of the comments you made about increasing your community count, given the improvement in liquidity that you’re expecting and you mentioned also your ability to issue equity and those things, how quickly do you think you could grow your business if we did see a real change in the operating environment if demand significantly improved?

Ara Hovnanian

Well, we think we have a lot of excess capacity right now, even with the significant reductions in staffing. I mean we are learning to do more with less. It’s just a necessity of the times, but its one of the good outcomes of going through these difficult times. We just, two years ago, three years ago in ’06 delivered 21,000 homes including our JV deliveries. We’re doing a fraction of that now. We think we could ramp up pretty significantly. We have the capital to ramp up pretty significantly, maybe not getting 21,000 homes right away, but to grow a significant amount. The issue will really be just how quickly can we find the land opportunities that meet our financial hurdles and how quickly can we bring those to market? That’s really the key driver right now. And we’re completely focused on that area.

We actually had a meeting and we are hiring in the area of land acquisition personnel right now, so after years of reduction we are actually out hiring and growing in our land acquisition departments across the entire country.

Operator

Your next question comes from Megan McGrath - Barclays Capital.

Megan McGrath - Barclays Capital

I wanted to follow up on your comments around the cancellation rate. Just curious if you saw any increase in cancellations toward the end of November into December when the tax credit got extended and maybe folks realized they had a little bit more time.

J. Larry Sorsby

Our cancellation rate was relatively stable throughout the entire quarter and when 1% of the cancellation rate we reported in the prior quarter. Nothing unusual really happened during the quarter.

Megan McGrath - Barclays Capital

And not since the tax credit extension?

J. Larry Sorsby

No. Nothing really strange.

Megan McGrath - Barclays Capital

And then I was also wondering, you gave us a little bit of analysis around your views on potentially how much the tax credit may have contributed. I’m wondering if you’ve done anything internally on the new FHA restrictions or proposed restrictions that you mentioned, potentially how many of your buyers wouldn’t qualify under the higher FICO score or the higher down payment requirement?

J. Larry Sorsby

Well, nobody’s actually come up with what those numbers would be so it would be very difficult to do any analysis on it. And even if we had the data, it’d probably be difficult to do the analysis. I think as I mentioned in my comments you know in the short term it won’t be helpful, so the incrementally less people that qualify, but we don’t have any specific data to tell you precisely how many. I don’t think it will be terribly significant because I think the government balance, you know, tightening up FHA underwriting criteria for less defaults with, you know, the impact that it has on the overall U.S. economy to shut down the housing economy again as well. So it really just depends on where those numbers come out, but I don’t expect it to be terribly significant.

Megan McGrath - Barclays Capital

And then Larry if I could just ask a quick modeling question for clarification. On the tax refund it sounds like, tell me if I’m wrong, that you’re expecting to get the cash in the second quarter but may reverse the credit in the P&L in the first quarter?

J. Larry Sorsby

That’s correct.

Operator

Your next question comes from Joel Locker - FBN Securities.

Joel Locker - FBN Securities

Just on your orders, I saw that you know they’re up 14.4% on a net basis but wondering if you had a number just on the gross number? Because I’m sure cancellations affected the net number.

J. Larry Sorsby

I’m not sure I followed. What’s up 14%?

Joel Locker - FBN Securities

The average price for the net orders.

J. Larry Sorsby

That’s really nothing but a mix issue both you know mix of communities, mix of product types, that kind of thing rather than anything you could really draw a trend analysis around.

Joel Locker - FBN Securities

Do you have any other order numbers for the first half of December? Have they changed any from the November period?

J. Larry Sorsby

You know you’re in a seasonal slow period, you know, kind of the period between Thanksgiving and the Super Bowl for those of you on the call that are old enough, we call it we’re behind the moon when the space module couldn’t communicate with earth any longer. And you know it’s really hard to tell what’s going on right now, but nothing significant or unusual is happening. It’s a typical seasonal slowdown from our perspective.

Operator

Your next question comes from Keith Wiley - Goldman Sachs.

Keith Wiley - Goldman Sachs

I’m just trying to think about the new land deals that you’re doing at 20% and I’m trying to understand what percentage of your sales would have to come from those land deals before you became profitable? Because you know after the 12% or 15% SG&A, I’m guessing your EBIT would be 5% or so and I’m not sure how much interest is allocated to these new land deals versus your old land deals, but you know I think your interest incurred is about $200 million a year so it would have to be a fairly high gross margin just to cover that. So maybe you could shed some light on that?

Ara Hovnanian

Well, first of all, interest incurred is not $200 going forward. With the restructuring it’s somewhere around $150 million.

J. Larry Sorsby

Closer to $170 million but I’m not sure I’m going to be able to walk you through your entire model, but what has to happen is we’ve got to work through some of our legacy land that even after the impairments isn’t generating normalized margin, and get some top line growth with communities that are generating normalized margins. Call it the 20% range. Now when we underwrite land deals, you know, although they average kind of that 20% margin, what we really underwrite to is a 25% to 30% plus un-levered IRR. And in a Texas market you might have slightly lower than 20% because of the inventory. Turns are higher there because of the way we can control it. But in order to get the SG&A benefit, you know, we can’t continue to cut headcount. I mean we’re already down 75% from the peak.

So the only way we’re going to get kind of SG&A efficiency is driving some top line growth which could occur by increasing pace per community, which we kind of began to see in the fiscal 2009 year. We can see more of that and combine that with more new communities opening so that will drive over time SG&A efficiency. It’s not going to be overnight. There’s no flip that we can switch as Ara mentioned, so it’s not something that’s going to be months. Its going to take, you know, multiple quarters for that to happen, so it’s a gradual process that you just shift to a more profitable mix of communities and drive some top line growth in order to get back to a profitable proposition.

Keith Wiley - Goldman Sachs

If the sales pace just held as it was, and if you were doing let’s say 50% of your sales were coming from these new land deals that are 20% or 25%, would that get you to profitable at a company level? Would you be, you know, clearing your interest expense from profit?

J. Larry Sorsby

I’m sorry, repeat the number you said earlier?

Keith Wiley - Goldman Sachs

Oh, 50%. If you got to 50% of your sales coming from these new land deals where you’re getting a 20% to 25% gross margin on, would that be enough to pay for the total company?

Ara Hovnanian

That is right about the turning point. If we could get in 2011 50% of our deliveries from new acquisitions, that would be the turning point to get to profitability. You know obviously there are a lot of other factors and what’s the velocity per community, and what’s happening with pricing on our old communities? You know is there a little improvement? You know if there’s a little improvement in pricing between now and 2011, then you know probably less than 50% would get us there.

Keith Wiley - Goldman Sachs

And are you at 5% now or did you say where you were at now?

Ara Hovnanian

No, we didn’t say, but we said it’s a very small percent for 2010.

Operator

Your next question comes from Michael Rehaut - J.P. Morgan.

Michael Rehaut - J.P. Morgan

You know when you were talking before about gross margins better in part due to the better mix, you know at the same time this was a pretty dramatic improvement relative to the last several quarters. And so you know, in terms of 2010, is that a number that’s sustainable or even a number that can be worked off of in the positive direction, particularly if incentives come down?

J. Larry Sorsby

I think probably the way you ought to look at it is that you know if I was sitting in your chair, that’s the best data point that you’ve got and depending on whether you want to assume that certainly something we don’t, but if you wanted to assume that net prices increased because of either we raised base prices or lowered incentives or some combination thereof, it would improve from there. If you had flat prices and flat incentive, it wouldn’t improve from there. And if you assume that we’re going to have declining prices, all of these are market conditions based, margins could potentially go down. So I think that’s how you’ve got to think of it, Mike.

Michael Rehaut - J.P. Morgan

So in other words, Larry, what you’re saying is that the mix that you know contributed along with the benefit from prior impairments, that’s something that you see, is it a reasonable number to work off of going forward?

J. Larry Sorsby

I don’t think that mix is going to change significantly over the next few quarters so it’s a good base starting point for whatever assumptions you want to tag onto that after.

Michael Rehaut - J.P. Morgan

And in terms of incentives, can you just remind us as a percent of home price where you were at the beginning of the year and where you are now? And what’s kind of normal?

J. Larry Sorsby

I don’t think we’ve ever made any disclosures and frankly we don’t even track it that way, so I’m confident we’ve never given you any specifics on how much incentives we put out there on average.

Michael Rehaut - J.P. Morgan

But at the same time you’re saying it has come down some and I assume it’s still well above what is historically the norm?

J. Larry Sorsby

Oh, yes, it’s well above what we historically.

Ara Hovnanian

I mean for us, you know, we focus on net pricing and net pricing comes from either an increase of base price through a reduction of incentives, from a change of what you include as standard. It can happen in a number of ways and you know all in all, we’ve seen greater stability. We’ve seen anecdotal situations throughout the country of price increases. And you know we still have a few competitive locations where we’ve seen some price cuts. So on the whole, though, the mix is becoming much more favorable.

Michael Rehaut - J.P. Morgan

The FHA, you gave the mix on a full year basis, this year versus last. I’m sorry if I missed this, but what was the fourth quarter itself?

J. Larry Sorsby

I gave it. Let me look it up. Its up like 1% or 2% from what the full year is, but hold on and I can get there. 48% in the fourth quarter.

Operator

There are no further questions at this time. I would now like to turn the call back over to Mr. Ara Hovnanian, President and Chief Executive Officer, for any closing remarks.

Ara Hovnanian

Great. Thanks so much. As we said it was a difficult year. We’re happy to have it behind us. 2010 is going to be a transition year but a critical one to position ourselves to get back into a profitable environment. We’re pleased we’ve taken the steps that will allow that to happen and we’ll look forward to giving you updates throughout the year. Thank you.

Operator

This concludes our conference call for today. Thank you all for participating and have a nice day. All parties may now disconnect.

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