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Pulte Homes, Inc. (NYSE:PHM)

Q3 2007 Earnings Call

October 25, 2007 8:30 am ET


Calvin Boyd - Vice President, Investor and CorporateCommunications

Richard J. Dugas - President, Chief Executive Officer,Director

Roger A. Cregg - Chief Financial Officer, Executive VicePresident

Steven C. Petruska - Executive Vice President, ChiefOperating Officer

Vincent J. Frees - Vice President and Controller


Michael Rehaut - J.P. Morgan

Nishu Sood - Deutsche Bank

Phil Drummer - Merrill Lynch

Timothy Jones - Wasserman and Associates

Stephen Kim - Citigroup

Alex Barron - Agency Trading Group

David Goldberg - UBS

Susan Berliner - Bear Stearns

Dan Oppenheim - Banc of America Securities

Carl E. Reichardt, Jr. - Wachovia Securities

James Wilson - JMP Securities

Dennis McGill - Gillman & Associates

James Mccanless - FTN Midwest Securities

Stuart Hosansky - Vanguard


Good day and welcome to the third quarter 2007 Pulte Homes earningsconference call. My name is Carol and I will be your coordinator for today.(Operator Instructions) I would now like to turn the call over to Mr. CalvinBoyd. Please proceed, sir.

Calvin Boyd

Thank you, Carol. Good morning and thank you for joining usto discuss Pulte Homes financial results for the three and nine months endedSeptember 30, 2007. I am Calvin Boyd, Vice President of Investor andCorporation Communications. You’ve all had a chance to review the press releasewe issued last night detailing Pulte's third quarter 2007 operating andfinancial performance. On the call to discuss these results are: Richard Dugas,President and Chief Executive Officer; Steve Petruska, Executive Vice Presidentand Chief Operating Officer; Roger Cregg, Executive Vice President and CFO; andVinnie Frees, Vice President and Controller.

For those of you who have access to the Internet, a slidepresentation available at will accompany this discussion. Thepresentation will be archived on the site for the next 30 days for those whowant to review it at a later time.

As with prior conference calls, I want to alert everyonelistening on the call and via the Internet that certain statements and commentsmade during the course of this call must be considered forward-lookingstatements as defined by the Securities Litigation Reform Act of 1995. PulteHomes believes such statements are based on reasonable assumptions, but thereare no assurances that actual outcomes will not be materially different from thosediscussed today.

All forward-looking statements are based on informationavailable to the company on the date of this call and the company does notundertake any obligation to publicly update or revise any forward-lookingstatements as a result of new information in the future.

Participants on today’s call should refer to Pulte's annualreport on Form 10-K for the year ended December 31, 2006, and subsequent Forms 10-Q for a detailed list of therisks and uncertainties associated with the business.

In addition, this call may refer to certain non-GAAPfinancial measures. For a reconciliation of these measures, please see theslide presentation that accompanies this discussion. As always, at the end ofour prepared comments, we will have time for Q&A. We will wait until thenbefore opening the queue for questions.

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

Richard J. Dugas

Thank you, Calvin and good morning, everyone. The operatingenvironment for home building has been difficult for some time now and ourthird quarter proved to be a challenging one as well. The inventory of new andexisting homes continues to be elevated, cancellation rates remain high, andprices of new homes are still under pressure, all having a negative impact onalready low buyer confidence.

In addition, concerns surrounding tighter lending standardsand ongoing impairments and land related charges pushes any signs ofstabilization further away.

Our third quarter 2007 net loss was due largely to sizableimpairments and land-related charges, along with good will impairments takenduring the period. These charges result from a weak pricing environment in mostmajor markets in which we operate. We will cover these charges in more detailduring Roger’s prepared comments.

However, in the midst of this challenging environment, Pultewas able to make substantial progress in the following key areas: we generateda profit from continuing operations before consideration of impairments andland related charges. The profit realized exceeded the upper end of theguidance we provided during our second quarter earnings call. We consider thatan important accomplishment in such a challenging environment as this.

In our third quarter, there was approximately $175 millionof net cash generated by the company, another very important accomplishmentthat we are proud of. Our goal was to sell and close homes at reasonable pricesto generate cash and we accomplished that. In addition, despite the very weakoperating environment, our operators are doing an outstanding job of closinghomes and managing land acquisition and development spending, allowing us toproject approximately $1 billion of cash on hand by the end of the fourthquarter this year. Roger will have more details in a moment.

Our backlog at the end of the third quarter stood at 12,000units, valued at just over $4 billion, the best among public home builders whohave reported to date.

During our second quarter of 2007, we announced arestructuring plan designed to reduce SG&A costs and improve operatingefficiencies to match the current demand environment for housing. Our progressis evident, as our SG&A spend in the third quarter was approximately $65million lower than the same period last year.

We were pleased with our progress on SG&A and are ontrack to meet the targeted savings we announced earlier this year.

We stated in our prior earnings call that our immediate goalduring this downturn was to return our core operations to profitability, excludingany impairment in land-related charges. Pulte accomplished this in the thirdquarter, and as you saw in our press release, we are also projecting a modestoperating profit in the fourth quarter, again excluding any impairment in land-relatedcharges.

During the third quarter, we again lowered pricing in manyof our markets in order to move inventory. Although this strategy achieved somesuccess, we feel that in several cases, lower pricing is not necessarilygenerating additional sales volume. Therefore, moving forward, we are reducingpricing and using incentives only in limited cases where we feel that willresult in more sign-ups leading to closings and incremental positive cash flow,mostly for communities with substantial inventory on the ground.

At this point, in a few cases we feel we are bettermothballing communities or not putting incremental cash in where it is notneeded, versus continuing the downward price spiral.

On the house inventory front, we continue to work towardlower spec inventory levels. Despite this focus, spec levels remain relativelyflat during the quarter, as cancellations ticked up noticeably given themortgage turmoil so widely reported.

We remain committed to keeping house inventory levels low.On the land front, we once again reduced our level of controlled lots, againwith the goal of reducing inventory while navigating through this downturn. Ourshort-term goals remain focused on properly managing inventory, having SG&Aexpenses match the current demand environment, maximizing sales, and overallbalance sheet strength.

Pulte's restructuring efforts have led to a leaner overheadposition that will continue to benefit us going forward. Pulte's backlogposition remains relatively strong going into the fourth quarter, and combinedwith our overhead reductions, serves as the basis for our fourth quarterguidance, similar to our thinking behind our third quarter guidance.

We will continue to focus on reducing inventory levels,particularly spec inventory, with cash generation as the primary goal.

Time has proven that no one can be sure when this particulardownturn will end or begin to show signs of stabilization. Since we are notsure how long this environment will stay this bad, Pulte plans to be preparedfor the worst. We are staying committed to our short-term goals, ready toadjust our tactics as needed to navigate through this tough environment.

Demographic trends, household formations, and populationgrowth are the factors that will eventually bring back housing to moreattractive levels and help sustain positive operating performance. Pulte plansto be one of the major builders that will thrive during that time period.

Finally, let me take a moment to thank our Pulte employeeswho are doing a remarkable job operating in the worst housing recession inmemory. Your dedication, commitment and attitude are outstanding and deserve myheartfelt thanks. I am proud to work alongside each of you.

Thank you and now let me turn the call over to Roger Cregg.Roger.

Roger A. Cregg

Thank you and good morning. The third quarter home buildingnet new unit order rate decreased approximately 37% from the third quarter lastyear, on 7% less communities versus the same quarter last year.

Revenues from home settlements from the home buildingoperations decreased approximately 31% from the prior year quarter toapproximately $2.4 billion. Lower revenues for the period were driven primarilyby the lower unit closings that were below prior year by approximately 28%. Theaverage sales price decreased approximately 4% versus the prior year quarter toan average of $322,000 per home.

In the third quarter, land sales generated approximately $31million in total revenues, which is an increase versus the previous year’squarter of approximately $16 million.

Home building gross profits from home settlements, includinghome building interest expense for the quarter, decreased approximately 149% toa loss of approximately $293 million. Third quarter home building gross marginsfrom home settlements as a percentage of revenues was a negative 12.2% comparedwith 17.1% in the third quarter of 2006.

The decreased margin conversion versus the prior yearquarter is attributed to land and community valuation adjustments, in additionto increased selling incentives. Adjusting the current quarter for land andcommunity valuation charges, the gross margin from home settlements as apercentage of revenues was at a run-rate of approximately 13.4% for thequarter.

The third quarter benefited from the impact of priorquarters land and community valuation adjustments by approximately 150 basispoints, or $36 million.

Additionally, home building interest expense increasedduring the quarter to approximately $98 million versus approximately $65million in the prior year. Included in the interest expense of $98 million isan additional $43 million of expense related to the land and communityvaluation adjustment taken in the current quarter.

Also included in the gross margin for the quarter was acharge related to land and community valuation adjustments in the amount ofapproximately $572 million. For the third quarter, we tested approximately 245communities for potential impairment and valuation adjustments. We recordedvaluation adjustments on approximately 169 communities for the third quarter.

The total gross loss from land sales posted for the quarterwas approximately $79 million. The loss is mainly attributed to the fair marketvalue adjustment in the current quarter for land being held for disposition in theamount of approximately $80 million, which is included in the land cost ofsales.

The gross profit contribution from specific land salestransactions were approximately $1 million for the current quarter. Land saletransactions during the quarter included single family custom lot sales, alongwith residential and commercial land parcels.

SG&A expenses as a percentage of home sales for thequarter was approximately 9.8%, an increase of approximately 180 basis pointsover the prior year quarter. Additionally, the current quarter also included aninsurance reserve related charge of approximately $20 million associated withthe development of general liability product claims based on an actuarialbasis. This additional charge in the third quarter represented approximately 83basis points in conversion.

As Richard mentioned, we reduced our overhead spending inalmost every category, yielding a gross reduction of approximately $62 millionversus the prior year quarter before the additional non-cash insurance reserveadjustment, netting approximately a $43 million reduction versus the prior yearquarter.

In the other income and expense category for the quarter,the expense of approximately $490 million includes the write-off of landdeposits and other related costs of approximately $95 million associated withland option contracts that we determined not to exercise.

Additionally, a valuation adjustment of approximately $51million related to certain investments in unconsolidated joint ventures, andapproximately $7 million in restructuring charges related to our overheadrestructuring initiatives implemented in the second quarter.

Also in included in the quarter is an impairment chargerelated to good will of approximately $336 million. In accordance with statementof financial accounting standards number 142, we determined that as a result ofthe current market conditions, our book value exceeded the fair value in anumber of our reporting segments, resulting in the impairment of good will.

Recapping the components of the $1.178 billion inimpairments in land related charges for the third quarter, we have included inthe webcast a slide breaking out the charges by the categories I discussed andby reporting segment.

Additionally in the third quarter, we dropped land optionsrepresenting approximately 8,400 lots with a purchase price value ofapproximately $669 million.

The home building pretax loss for the third quarter ofapproximately $1.099 billion resulted in a pretax margin of approximately anegative 45% on total home builder revenues.

Excluding the charges related to the valuation adjustmentsin land inventory and investments, land held for sale, the write-off of landdeposits and other related costs, good will and restructuring charges, homebuilding pretax margins converted at approximately 3.2% for the currentquarter.

At the end of the third quarter, our home buildingoperations had a backlog of 12,042 homes, valued at approximately $4.1 billion,compared to 16,375 homes valued at $5.8 billion as of the prior year quarter.

The third quarter pretax income from Pulte's financialservices operation was approximately $13 million, or a decrease compared withthe prior year quarter of approximately $8 million. The decrease is mainlyattributed to lower revenues from decreased volumes, offsetting a favorableproduct mix shift to higher profit loans and an increase in the capture rate.The favorable shift to agency versus non-agency products during the quarterresulted in greater profits due to higher servicing values and betterstructured guidelines allowing greater leveraged processing efficiencies in theoperation.

The level of adjustable rate mortgage products originatedduring the third quarter of 2007 decreased from approximately 26% oforigination dollars funded from our warehouse line in the third quarter of theprevious year to approximately 7% this quarter.

Pulte Mortgages capture rate for the current quarter wasapproximately 93%. Mortgage origination dollars decreased in the quarter byapproximately $731 million, or 34% when compared to the same period last year.The decreases related to the overall volume decrease in home builder closingactivity for the quarter.

In an analysis of our loans closed for the third quarter,based on dollars, we estimate that approximately 4% of the loans with anaverage FICO score of 588, fell into the sub-prime category. Additionally, 85%fell into the prime category, with an average FICO score of 746, and theremaining 11% in the category of Alt-A product, with an average FICO score of754.

Overall, the average FICO score of our loans closed for theperiod was 740, with 83% of the loans averaging a FICO score greater than orequal to 681. This is consistent with our analysis performed for the first halfof this year.

In the other non-operating category, pretax loss for thethird quarter of approximately $8 million includes mainly corporate expenses ofapproximately $8 million. The net loss for the third quarter was approximately$788 million, or a loss of $3.12 per share, as compared to net income ofapproximately $190 million, or $0.74 per diluted share for the same last year.The number of shares used in the EPS calculation was approximately 252.3million shares for the quarter.

On the balance sheet for the third quarter, we ended with acash balance of approximately $102 million, increasing $27 million from thesecond quarter of this year. House and land inventory ended the quarter atapproximately $8.1 billion.

Excluding the inventory adjustments for the third quarter,total inventory decreased approximately $340 million from the second quarter.House inventory, excluding land for the quarter, increased approximately $43million, related to the seasonal increase in home construction in progress.

Land inventory during the third quarter, excludingadjustments, decreased approximately $380 million as land relief offset rollinglot option take downs and land development spending.

After generating $175 million in net cash during the thirdquarter, excluding financial services, we paid down $148 million on ourrevolving credit facility and remain with $25 million outstanding on thefacility at the end of the quarter. The company’s gross debt-to-cap ratio wasapproximately 40.3% and on a net basis, 39.6% for the third quarter.

Interest incurred amounted to approximately $62 million inthe third quarter, compared to $73 million for the same period last year.Multi-home shareholder equity for the third quarter was approximately $5.2billion. We repurchased no shares during the third quarter and the company hasapproximately $102 million remaining on our current authorization.

Now, looking forward to the next quarter and under the SECregulation FD guidelines, we provide the following guidance on our currentexpectations and projections for the fourth quarter of 2007.

Fourth quarter earnings per share are estimated to be in therange of approximately a break even to $0.10 per diluted share. This range doesnot include the potential for additional land valuation adjustments, optiondeposit, and other related charges, or additional good will impairment charges.Although we may incur additional write-offs, it is uncertain at this time as tothe estimate of those amounts. This earnings per share number is calculatedbased on approximately 258 million fully diluted shares.

Unit settlements in the fourth quarter of 2007 are projectedto be approximately 14% to 15% above the second quarter of 2007 deliveries --excuse me, the third quarter of 2007 deliveries. Again, that’s 14% to 15% abovethe third quarter.

Average selling prices for the closings in the fourthquarter are estimated to be approximately $327,000. The projected averageselling price is primarily being driven by product and geographical mix, aswell as the additional incentives for homes projected to be delivered duringthe fourth quarter.

Gross margin performance from home settlements as a percentof sales for the fourth quarter are anticipated to be in the approximate rangeof 10% to 11%. The projected gross margins for the quarter primarily reflectpricing strategies generating sales momentum and pricing incentives experiencedover the period, in response to the market conditions for homes to bedelivered.

In addition, this gross margin range includes an estimated150 basis points improvement from the recovery of additional inventoryvaluation adjustments taken in the third quarter of 2007.

We are currently projecting no land sale gains for thefourth quarter.

As a percentage of sales, SG&A is expected to be in therange of approximately 9.3% to 9.6% for the quarter.

In the home building other income and expense category forthe fourth quarter, we are projecting expense of approximately $6 million to $7million. Pretax income in our financial service operation is expected to beapproximately $12 million to $14 million for the fourth quarter.

Total other non-operating expenses are projected to beapproximately $13 million to $14 million for the fourth quarter.

We are projecting the effective income tax rate to beapproximately 37% for the fourth quarter of 2007. Given the continueduncertainty in this challenging market environment, and the lack of visibilityto look beyond the quarter, we are offering no full year outlook for 2008 atthis time. We will continue to assess the conditions through the next quarterand provide an update accordingly on our fourth quarter conference call.

As I’ve mentioned over the course of this year, with respectto our goals in timing and cash management, we continue to target ending theyear with a cash position of approximately $1 billion, less any senior debtrepurchases completed.

Additionally, we anticipate no outstandings on our revolvingcredit facility at year-end. We have continued to focus on reducing our landpipeline, generating cash, and are committed to maintaining a solid andflexible balance sheet.

Now I will turn the call over to Steve Petruska for morecomments on the operations for the third quarter. Steve.

Steven C. Petruska

Thanks, Roger, and good morning, everyone. As Richard noted,continued high inventory of new and existing homes, tighter mortgage liquidity,and weak consumer demand were factors that contributed to the difficultoperating environment we experienced in the third quarter. With this housing downturnshowing no immediate signs of relenting, it remains paramount for Pulte tostick with its near-term operational goals of managing our land developmentspend, starting only sold homes, aggressively moving spec inventory, andmatching our overhead spend to the size of our business.

We are also focused on capturing the demand that does existtoday by finding the right combination of pace and price in each of our marketsand communities. Let me discuss our progress in these areas.

I stated that our strategies surrounding land inventorycenters on significantly reducing spending on land development, reducing thesupply of lots under control, and renegotiating existing option agreements topurchase land. At the end of Q3 2007, Pulte controlled approximately 172,000lots, down 10% sequentially from the second quarter 2007, down 41% from thesame period last year, and 53% lower than our third quarter 2005 peak.

Our spending on land will continue to be small and focusedon limiting the spending to current projects and take-downs on finished lots,where we still see an acceptable absorption pace in margin. We want to generatecash at the community level in every project where that is practical.

To touch on house inventory for a moment, the number ofspeculative homes at the end of the third quarter was approximately 4,000units, down 48% from last year’s third quarter. Our completed spec inventorystood at approximately 1,100 homes, or about 1.6 finished homes per community.This represents a small increase of 300 units versus the second quarter of2007, but a 34% improvement versus this time a year ago.

Given the high cancellation rate for the quarter, we arerelatively pleased with our ability to keep total spec and completed spec unitsunder control. Our field operators are doing a good job managing this area ofour business, as they continue to focus on reducing spec inventory to thelowest possible levels in each of our markets.

I’ve stated for a while that we strive to preserve marginand not force volume where we see an absence of demand. With cancellation ratesstill high and buyer sentiment waning, it is not prudent to begin constructionof homes where we are not confident we can sell that home prior to completion.

Part of our short-term strategy continues to be on reducingspec inventory and not forcing volume through continuing price decreases.Settlement revenues for the third quarter 2007 declined 31% from the thirdquarter 2006 levels, as home closings decreased 28% for the same period. Averagesales price was also down approximately 4%.

Third quarter 2007 sign-ups totaled $1.3 billion, as ouraverage sales price per sign-ups were 16% lower from the same period a yearago, and unit volumes decreased approximately 37% year over year.

Net new ordered dollars represent a composite of new orderdollars, combined with other movements of the dollars in backlog related to thecancellations and other change orders.

Our cancellation rate was 44% for the third quarter, higherthan the 36% rate for the third quarter of 2006 and an increase from the 28%rate we experienced in the second quarter of 2007. Once again, Dell Weboutperformed Pulte's other brands, with a 35% cancellation rate for the thirdquarter 2007.

The increase in the overall cancellation rate reflects botha tightening of mortgage liquidity and the inability of buyers to sell theirexisting homes in order to close on ours.

Let me provide some commentary on what our regionsexperienced. After three consecutive quarters of some improvement, ourNortheast operations were somewhat softer in the quarter. Sign-ups for theNortheast in the third quarter were down 35% year over year. New communitiesopened earlier this year in Long Island helped sales there. However, temporaryinterruptions in mortgage availability for our customers in Washington D.C. andPhiladelphia significantly impacted our sales and backlog.

The Southeast, which includes the Carolinas, Georgia, andTennessee, saw their sign-ups increase 8% compared with last year’s third quarter.An increase in community count helped our South Carolina coastal and Atlantamarkets increase their sign-ups year over year by 37% and 15% respectively. Wecontinue to see better performance from our Southeast divisions relative to therest of the country.

Our sign-ups are down only 6% in our Florida operationsversus the third quarter of 2006. However, the environment remains difficult ashigh levels of both resale inventory and unsold specs continued to negativelyimpact margins.

Our sales in Fort Myers, Sarasota were down nearly 50% fromthe third quarter of 2006, as inventories are high in this market and pricingremains soft. Our Southeast Florida, Orlando and Tampa markets showed increasedsales of 45%, 22%, and 9% respectively versus the third quarter of 2006. Wewere very aggressive with our pricing to drive this volume improvement toreduce spec inventory and overall, these are still very difficult markets.

Sign-ups were down 57% in our Midwest operations versus thethird quarter of 2006, signaling that the operating environment there continuesto be very challenging. Minneapolis and Chicago were our softest markets with a67% and 62% decrease in sign-ups respectively year over year. Our Chicagooperations benefited last year from the opening of our Grand Dominion by DellWeb community in the third quarter of 2006, when it accounted for over 270sign-ups. That community is still performing well today but not at the pace wesaw in 2006. Our other Midwest markets, Michigan, Cleveland, and Indianapolisalso showed weakness in sign-ups.

Our Central region, which includes all of our Texas market,saw sign-ups decline 46% year over year, consistent with the weakness we haveseen in this area throughout the year. Our Houston and San Antonio markets sufferedthe largest decline, each slightly over 50% versus the third quarter of 2006.Our strategy to reduce community count in these markets is responsible for someof this decline.

Other factors are the difficulty our customers are havingselling their existing homes. This is particularly troublesome for our activeadult communities in Dallas and San Antonio, where they attract a more localbuyer versus destination buyers.

Our Southwest segment, which includes Colorado, New Mexico,Las Vegas and Arizona, showed a 47% decrease in sign-ups from the third quarterof 2006. This decline was most felt in our Phoenix market, with sign-ups down73% year over year. High cancellations had a much greater impact on thisdecline in sign-ups versus the decrease in gross orders, as tighter lendingstandards and excess inventory really had a significant impact on ouroperations there. Two of our markets, New Mexico and Las Vegas, suffered muchsmaller declines in sign-ups of 4% and 17% respectively.

Sign-ups declined 51% year over year in our Californiaoperations, as compared with only an 18% declined during the second quarter of 2007. In Northern California, we sawa 54% decline in sign-ups and we were off an additional 47% in SouthernCalifornia. The amount of excess inventory of new and existing homes continuesto plague both of these areas.

Our Central Valley operations in Northern California and theRiverside market in Southern California were particularly hard hit. Californiais a very difficult housing environment and we will continue to makeadjustments to drive the best performance we can in the midst of this downturn.

We know that the deteriorating operating conditions we sawin the third quarter were driven by a number of factors that we’ve alreadydiscussed, including the tightening of mortgage liquidity. Unfortunately, untilmortgage liquidity returns to the appropriate levels, we can expect highcancellation rates to continue. In the meantime, our operators are finding theright price to move spec inventory, putting the brakes on land spending, andfocusing their efforts on being cash flow positive in all their communities.This challenging operating environment may be with us for some time and we areexecuting on these short-term strategies to position Pulte for long-termsuccess when the dust settles from the current downturn.

I would now like to turn the call back over to Calvin Boyd.

Calvin Boyd

Thank you, Steve. I want to thank everyone for your time andattention on the call this morning. We are now prepared to answer yourquestions. So that everyone gets a chance, participants will be limited to onequestion and a follow-up, after which they will have a chance to get back intothe queue. At this time, we will open up the call to questions.



(Operator Instructions) Your first question comes from theline of Michael Rehaut with J.P. Morgan. Please proceed.

Michael Rehaut - J.P.Morgan

Thanks. Good morning. First question is on the impairments.I was wondering if you could -- I’m sorry if you did this already, but kind ofgive a regional breakout of where the impairments were concentrated thisquarter. And in terms of the approach, I was wondering -- I think last quarteryou might have mentioned that you were still more sticking to a -- in terms offuture assumptions, that pricing would be more constant, and I was wondering ifwith the continued large charges, if you’ve become even more aggressive withyour future assumptions in terms of pricing, maybe even going forward wouldfall another 5% or 10%.

So two parts to that question -- first again the regionalconcentration and secondly, if you’ve become more aggressive in your futurepricing assumptions.

Roger A. Cregg

I think if you look at the webcast, we supplied a slidethere that breaks that down. Three of the main areas, certainly Florida, theSouthwest and California represent probably about 77% of the total, so you cansee those areas and the areas where pricing and mortgage availability playedinto that.

From a pricing standpoint, we’ve been holding our prices butdiscounting. Certainly I think if you look at our margin levels that we’vetalked about over the last couple of quarters, for what we’ve been impairingand getting back into our margins, we’re certainly seeing the discountingmoving in that direction as well. For instance, our first quarter was about12.8% in margins and then second quarter, about 13.1%, and then third quarter,about 13.5%, and that was all without impairments -- 13.4% in the third quarter,excuse me.

So what we are ending impairing and getting back, we arealso seeing the discounting to go with that as well. So in each one of thosemarkets, it is competitive and we are continuing to drive for cash as well, sowe are not going to sit there with product not going anywhere, as we see a lotof that competition.

I think the guidance in the fourth quarter for margins,looking in the 10% to 11% range again is indicative of what we experiencedthrough the last quarter, maybe a little bit more for deliveries. So we haveseen deterioration as we’ve talked about and others have talked about comingthrough 2007 and it’s almost been a month-by-month.

Michael Rehaut - J.P.Morgan

But in terms of the assumptions for the actual impairmentsthemselves, have you become -- given that this is the second quarter in a rowof a substantial impairment number, this quarter versus last, have you beenassuming -- are you starting to assume a continued decline in pricing andthat’s why the impairments continue to be so large, or is it just that inreaction to the continued deterioration in the market?

Roger A. Cregg

I would tell you it’s a significant amount of the reaction,if you look where -- again, where we experience most of it, you look into morethan 50% in the Southwest and in California, you’ve got a lot of the Dell Webproduct there, the length of time for those projects plays a lot on thediscounting and the cash flow methodology. So overall, we are working into theimpairments based on the current market pricing, so I would say it isindicative of what is going on in the market, not a view that we want tocontinue to drive the pricing down.

Richard J. Dugas

Just to add to that, we did state pretty clearly that we didlower pricing pretty dramatically during the third quarter and we do feel we’reat the point in some communities where price is not moving product a lot, it’sgetting to be a bit inelastic. So we’re have to see what happens in the fourthquarter relative to pricing and what that does to impairments going forward.

Michael Rehaut - J.P.Morgan

Finally, could you just concentrate or apply that statementto Florida? Certainly that’s -- you know, the declines there have moderated alittle bit for you and what do you attribute that to? I know you’ve kind ofgone through some areas where you’ve gained some traction from a unitstandpoint, but is it just that you felt that you’ve lowered price to theextent that you found the buyer, or -- what particular dynamics are do youthink driving some lesser declines relative to the rest of the company?

Steven C. Petruska

You hit the nail pretty much on the head. The only placesthat we were kind of showing some stabilization are Orlando and Tampa and ourbusiness in the Southeast was fairly okay. And that is really driven by price.I mean, we have -- it’s a very, very competitive market and our operators aredoing a pretty good job of driving price there. I think that they’ve got a goodreputation in those markets as well and they’ve consistently been J.D. Powerwinners and those type of things work to your advantage in this environment.

But it’s not for the market getting any better, that’s forsure.


And your next question comes from the line of Nishu Soodwith Deutsche Bank. Please proceed.

Nishu Sood - DeutscheBank

Thanks. Good morning. I wanted to follow up on this issue oflowering prices to the level to attract demand, and the related question ofwhether or not communities should be mothballed.

Just curious; what parts of the country are you seeing theinelasticity of demand where you are not able to lower your prices enough toattract the demand and related, so where are you mothballing communities andapproximately how many? Or is it not really an issue of geography, it’s more ofwithin a market, market by market?

Richard J. Dugas

I’ll just begin and then Roger can give you a little bit ofdetail. I would tell you it’s not really by geography. It’s kind of more of abroad-based situation. I think earlier this year, as you lower pricing you gotsomething for it. Now, it appears you are not driving as much volume, so henceour focus to really concentrate on more promotional activities or other thingsto try to drive business versus just a pure price play.

Roger, I know you might have some more detail.

Roger A. Cregg

Yeah, just a definition. There’s a lot of definitions ofwhat mothballed is and I would tell you we have very few communities that weare selling in that we just decided we are going to close up the models andleave them vacant and walk away. So that is not our definition of mothballing.

Our definition of mothballing is we’ve got a project thattypically we’ve either started to develop or not started to develop, anddecided putting money into those developments now where we don’t need the lots,we don’t want to do.

So our view of mothballing is to take properties like thatand not put any more money into it until potentially there’s a time andopportunity going forward. Also, that does not mean that we don’t take impairmentson those because we have taken impairments on mothball communities as well, sowe are not trying to defer any bad news on that aspect.

I would tell you probably roughly about 20-some odd parcels,and they are not particularly concentrated anywhere but around the UnitedStates, where we looked at the lots that we have on the ground, the demand thatwe particularly don’t need to be putting money and the cash into that at thispoint in time. So that’s relatively how we view projects that are mothballed.

Nishu Sood - DeutscheBank

So is the issue with these communities, maybe a commonthread might be that they are perhaps B-grade locations rather than A-gradelocations, for example?

Roger A. Cregg

I would say there are some like that, of course. Again, aswe were looking at land that we had taken down in particular markets, or thedemand actually fell off, so there are some in the A category as well that wefeel pretty good about, but the lots in that market just today, we don’t needto be putting the cash in. So if the demand picks up, we’re looking to get backinto the game there. But in the short-run, looking at just putting cash in and watching it sit in the ground as thedemand continues to languish in these markets is not prudent management at thispoint.

Richard J. Dugas

Just to add a bit of color there, really our test on thatcomes down to cash flow. And as Steve mentioned in his comments, we want to becash flow positive in as many if not all communities going forward. And versusan A or B location descriptor, there’s so many factors that are hitting thehousing market right now, I don’t think it’s fair to say that it’s all Blocations. It’s more a question of are you going to be cash flow positive overthe next six to 12 months or not, and if you’re not, in a lot of cases we’rechoosing to just wait with that investment.

But as Roger indicated, it doesn’t mean we wouldn’t impairit based on what we think, so it is a focus on cash generation, very clearly.


(Operator Instructions) Your next question comes from theline of Kenneth Zener with Merrill Lynch. Please proceed.

Phil Drummer -Merrill Lynch

Hi, this is Phil [Drummer] calling for Ken. I’m justwondering if we can get your total number of units under production.

Richard J. Dugas

Bear with us as we dig for that, Phil. Something else maybein the meantime?

Phil Drummer -Merrill Lynch

Well, just kind of related, just wondering if you have anormalized target for total units under production that you are striving for.And then, once you’ve reached that level, what’s that going to mean for futurecash flow, whether it’s going to be more difficult to generate future cash onceall these finished homes are sold off and ones you can’t really rely on yet,the declining whip anymore.

Richard J. Dugas

First of all, I’ll let Vinnie give you the numbers and thenI’ll answer your question on --

Vincent J. Frees

As of 9/30/07,we had just under 13,000 units under construction, and that’s comparative to 9/30/2006 where we had just under20,000 units under construction.

Richard J. Dugas

And then in answer to your question, there is not a targetfor units under production that we have. Obviously we are trying to start onlysold homes. That doesn’t happen to be the case all the time, and like a 40-unitbuilding in the Northeast where we’ll -- with a 10-month or a nine-monthbuilding time where we’ll sell half the units and then start the building andknow that we can complete the rest of the units during the -- complete the saleof the rest of the units during the course of construction.

So our target remains really around starting sold homes, soyou’ll see our work in process continue to grow if we could increase oursign-up pace a little bit, but from an overall standpoint, we want to focus ontaking spec production out and put sole production in.

Roger A. Cregg

And from a cash flow standpoint, we continue to look at thedemand and the need for development. Again, all that plays into the cash flowthat’s needed in any given month in any given week in any given quarter, as wecontinue to balance the supply and demand. So all of that is based on what wesell and what goes forward, not just on what’s in production at any point intime.


And your next question comes from the line of Timothy Jones withWasserman and Associates. Please proceed.

Timothy Jones -Wasserman and Associates

Good morning. A couple of questions; one, could you give meyour number of employees this year versus last year and the peak both in thehousing number and the total number?

Vincent J. Frees

Tim, I can probably find our employee count for you. Ouremployee count this year, at 9/30/07, is 9,400. That’s down about 3,100employees from 12/31/06. That’s about a 25% decline. Did I hear you ask aquestion about the peak?

Timothy Jones -Wasserman and Associates

Well, the peak or the other thing, I mean, was that justgeneral employee count include your non-housing operation? Is that just forhousing or in total?

Vincent J. Frees

It includes our Pulte business building systems in Arizonaand Nevada, and it includes our mortgage operations as well.

Timothy Jones -Wasserman and Associates

What I’m trying to do is compare people with just thehousing operation.

Vincent J. Frees

Okay, that looks like, of the 9,400 -- let me think. I’vegot to add a few numbers together -- about just over 8,500 relate to housing.

Richard J. Dugas

Tim, just to clarify, that includes a substantial number atour PVS operation out in Arizona and Nevada, which actually construct homes, soit may not be an apples-to-apples versus the way some other builders have theirnumber.

Timothy Jones -Wasserman and Associates

Okay, the other question is you talked about 150 basis pointreversal or something in the upcoming quarter. Is that having to do with a planthat you’ve taken that you have in the reversal -- what was that?

Richard J. Dugas

Yes, that is the margin impact that we are expecting orprojecting in the fourth quarter from impairments that we took in the thirdquarter. So we would see that 150 basis points in the margin percentage priorto or before any adjustments that could be made from valuation adjustments.


And your next question comes from the line of Stephen Kimwith Citigroup. Please proceed.

Stephen Kim -Citigroup

I guess my first question is could we get the specificnumbers for homes under construction and land under development [inaudible] future,with any adjustments, you know, breaking out the adjustments from thewrite-offs this quarter?

Roger A. Cregg

Not on the call, Stephen.

Stephen Kim -Citigroup

Okay, let me get two more questions then, if you don’t mind.My first one relates to the issue that Tim just mentioned. He was talking aboutthe backing out, and I just wanted to make sure that we were very clear. Youare saying that 150 basis points of benefit is anticipated in the fourthquarter as a result of prior write-offs. Is that a number that you could sharefor us as for what happened this quarter? Because I missed it, if you gave it.

Roger A. Cregg

Let me be specific; the 150 is not from prior -- the 150 in the fourth quarter that I’manticipating is from this quarter, and so each quarter, there are benefits fromother quarters in the current quarter. So for the fourth quarter, that was whatI was relating to, was the 150 from this quarter.

In the third quarter, from the impairments we took in thesecond quarter -- excuse me, probably the first, second and third quarters, orfirst and second quarters in the third quarter, was about 105 basis points. Andthen if you looked at this year and took last year as well, there was probablyabout 46 basis points. So our impairments in the third quarter would havecontributed roughly about 150 basis points in the third quarter.

Stephen Kim - Citigroup

Okay, that’s really helpful.

Richard J. Dugas

Which I think you indicated was about $36 million?

Roger A. Cregg

About $36 million, yes.

Stephen Kim -Citigroup

Okay, that’s really helpful. The second question I haverelated to this insurance charge. It’s been what, $30 million in the secondquarter, I think another $20 million you said this quarter. I just wanted tomake sure I understood exactly what that was related to and are you suggestingin your guidance that that’s pretty much going to go away after the thirdquarter?

Roger A. Cregg

Yes, we believe so. We believe based on severity andfrequency of construction claims, and we do this actuarially, so we work withactuaries putting together these claims and they project out. So I think Imentioned even last quarter, if you have something like a hundred-year flood,and then you have two of them, actuarially, you have to make an assumption thatyou may have more than one.

So actuarially, we look at our reserves and we calculatebased on our experience and frequency and severity of the claims going forwardwhat they may be. So far this year, we’ve taken roughly about $50 million inadjustments to that reserve. And again, as things come up, we continue to lookat it and scrutinize it, we feel pretty good about the level of the reserve atthis point.


And your next question comes from the line of Alex Barronwith Agency Trading Group. Please proceed. Mr. Barron, your line is open, sir.

Alex Barron - AgencyTrading Group

Can you talk about how you are going to get to the $1billion in a little bit more detail, please?

Richard J. Dugas

I can give you an overview and then maybe Roger can chime inwith some specifics, Alex. It’s really a combination of closings, bringing cashin along with a substantial reduction in overall spending going forward,particularly on the land development side.

As Roger mentioned, we are looking at every singlecommunity, looking at making sure that it is going to be as close to cash flowpositive, if not cash flow positive, as we can. So it’s a combination of volumecoming in and reduced spending. We’ve been projecting that target for sometime.

Roger, you might want to --

Roger A. Cregg

That’s exactly what it is. It’s a change in working capitalfrom sales and relief of land, so that’s what’s going to generate the cash.

Alex Barron - AgencyTrading Group

Can you also talk about this monster sale you guys arerunning? Is that nationwide and what’s the average price cut you are offering?

Steven C. Petruska

I can speak to that. We had an event, it was last weekend,and it was nationwide and it -- you know, in most cases what our operators weredoing with their pricing was repackaging what we had out there already anyway.

I would tell you that on homes that could close within a 30to 60 day time period, they were a bit more aggressive and we might have seenan incremental 5% to 7%, but we were already fairly aggressive with our pricingat that point and what we wanted to do was create a certain amount of energy ina national event around that, and obviously leverage our spend from anadvertising standpoint.


And your next question comes from the line of David Goldbergwith UBS. Please proceed.

David Goldberg - UBS

Thanks. Good morning, guys. My first question is about theTCG and as you know -- the TCG way to estimate demand and try to figure outwhat demand is going to be and how that changes in the current marketenvironment. Are you guys making changes to what each of the target groups wouldwant?

Richard J. Dugas

Actually, we continue to refine each of the 11 consumergroups that we target in terms of their offering. That’s kind of a continuousbasis and we still have a strong effort underway there.

In this environment, in terms of what they want, generallyspeaking the choices that people are interested in overall don’t change. It’s aquestion of whether they can afford them, given the mortgage situation and theamount of inventory out there. So I would tell you no, we’re not radically changinga lot. We are continuing to focus on including as many things standard into thehome that people want going forward.

Steve, you might speak to that a little bit more.

Steven C. Petruska

Just on an overall basis, what we -- we’re afforded theopportunity today with obviously some of the impairments on our land is to saynow can we hit a price point where we can attract additional TCGs and does thatwarrant a different go-to-market strategy that might increase the absorptionsin the community? We’re seeing opportunities to do that and in many cases, wewill redeploy a different model park scheme. We may be able to afford to put alarger home on a similar lot now and still offer it at a price that isextremely competitive in the marketplace.

So we’re looking at all that. Our focus on the consumerobviously gets sharper during times like this and we are seeing that as acontinued opportunity.

David Goldberg - UBS

I guess my follow-up question is for Roger; if you could getinto helping us quantify on these mothball communities, how you run impairmentcharges? What kind of assumptions you make? If there’s no big price, how canyou figure out what your potential impairments are going to be?

Roger A. Cregg

I think what you look at is that if you assume that you weregoing to sell product on there for $300,000 for a price out of a home, but thathouse is selling at $200,000 today, you wouldn’t necessarily mothball it at the$300,000 level. So it gives us an idea of what the homes are selling for inthat market, because we clearly had intentions of selling specific homestargeted at specific TCGs in that particular community. So our effort there isto take a look at what the market is doing for that particular product,relative to the market itself, and then we take a look at the overall cashflows of that, based on current market pricing versus what we anticipated andreally, how we underwrote it.


And your next question comes from the line of Susan Berlinerwith Bear Stearns.

Susan Berliner - BearStearns

Good morning. Just a couple of questions; I apologize if Imissed this -- did you give the average incentive rate for this quarter?

Roger A. Cregg

The average incentive for home discounts and that type ofthing?

Susan Berliner - BearStearns


Roger A. Cregg

No, we didn’t. Roughly the -- I’ll categorize this in acouple of different categories, because discounting has been running anywherebetween 6% and 12%. On average, we’ve been running around 9% for the quarter.Commissions and closing at discount points probably represent almost another6%, so roughly it’s been running in the 14% to 15% range for this quarter.

If you went back almost a year ago, it was roughly around11% with all those combinations, so I think what we’ve seen is deteriorationcoming through and certainly that’s based on closings. That’s not based on whatactually we’re seeing today in the market. We’ve talked a little bit about thedeterioration and that was the overall view of the fourth quarter and the margindeterioration [has moved that closer] to the P&L as we close the homes.

Susan Berliner - BearStearns

That’s great. My second question is can you guys give anycolor as to any impact or what you are seeing with the fires in California andhow your insurance would protect you?

Richard J. Dugas

Right now, we don’t have any exposure. We don’t havecommunities in those specific areas right now, so we are in pretty good shapefrom that point. Typically, it would be homes that we had constructed that wehadn’t closed yet that we’d be liable for at that point, from an insurancestandpoint for coverage. But again, we don’t have any exposure there.


And your next question comes from the line of Dan Oppenheimwith Banc of America Securities. Please proceed, sir.

Dan Oppenheim - Bancof America Securities

Thanks very much. I was wondering if you could talk a littlebit more about your expectations for the fourth quarter and you were talkingabout doing more in terms of building homes only when they are pre-sold. Isyour expectation that the cancellation rate comes down from 44% currently goingto the fourth quarter guidance? I guess I want to get more color in terms ofhow that cancellation rate trended during the quarter and if it was stillrising. So just how you are thinking about dealing with that and pricing.

Steven C. Petruska

I would tell you that overall, yeah, we’re expectingcancellation rates to stay high. I would expect that given mortgage liquidityand still house sell difficulty, we’re going to continue to see, whether itwould be high 30s to low 40s on a cancellation rate standpoint. So that’s allfactored into the guidance that Roger gave and it is certainly factored intothe way we are looking at the first quarter.

Unfortunately, we still continue to get a pre-sell, we’llstart the home but given that cancellation rate, we’re end up getting back atsome point during the construction process and we attempt to move that housevery quickly.

That’s why on an overall standpoint, we’re saying we areonly starting sold homes, but as you know, that home business base soldthroughout the course of production.

Dan Oppenheim - Bancof America Securities

Thanks very much.


And your next question comes from the line of Carl Reichardtwith Wachovia Securities. Please proceed.

Carl E. Reichardt,Jr. - Wachovia Securities

I wanted to ask a little bit about stores. If you guys endup hitting what your expectations are from an absorption and sales priceperspective that’s embedded in your impairments going forward, what is yoursense as to what will happen to your store count in ’08 versus where you willend up in ’07?

Richard J. Dugas

They are going to come down but we are not providing a lotof detail on that right now, Carl. Go ahead, Roger.

Roger A. Cregg

That’s right. We’re not giving any guidance on it butcertainly with the effort on pulling back because the market is pulling back,the community count we’ll be pulling back as well.

Carl E. Reichardt,Jr. - Wachovia Securities

Okay, and then you mentioned, or I think Steve was talking alittle bit about potential mix shifts within communities that might be sellingat a slower pace than you’d like. How do you look at Web communities inparticular, where you’ve got a lot of lots out in front of you and you may needto shift the mix of product? How do you increase demand without priceadjustments in a Web community? What tactics do you use?

Steven C. Petruska

That’s a real difficult one. Mostly, the tactic that we useis lot size tactic, and we will look at what product is actually moving. It istypically not an introduction of new product, because our Dell Web product lineacross the country is fairly tight, in that we probably don’t offer an array ofany more than 15 to 20 floor plans nationwide on that.

But you know, it’s real difficult because we are way moresensitive in a Web community about any price decrease, so we can tackle itpretty aggressively with pricing as it relates to premium values and thosetypes of things, but on base pricing, we don’t have much room to move and we’lladjust mix where we can, but even in that case most of those projects, eventhough they have a large lot count, Carl, are fairly fixed on an overalldensity, so we can’t mess with it too much.


And your next question comes from the line of James Wilsonwith JMP Securities. Please proceed.

James Wilson - JMPSecurities

I was wondering, just continue on Dell Web, could youcontrast a little bit what you are seeing in the way -- I know you say it’shard to pull down pricing, but what you are seeing in sales pace or how themargins look in -- I guess maybe in particular in some of your largest Dell Webcommunities around the country compared to the corporate averages?

Steven C. Petruska

On an overall basis, I would tell you that we’ve got a hitor miss opportunity with our web communities as well. They’re performing verywell in the Carolinas, with pretty healthy margins still. Not necessarily atthe pace they were 18 months ago, but it’s still acceptable absorption paces,whereas in Arizona, they are still soft and whether that buyer is local and wesee a lot more impact where it’s local, as I talked about in my preparedcomments in Texas, or whether that buyer is relocating, in many cases they stillhave a home to sell to be able to put their money in to the Dell Web home. Soit’s still impairing our ability but as you can see by our lower cancellationrate, that typically when we get these buyers under contract, we can maintainthem in our backlog for a little bit longer and typically bring them toclosing. But it is a struggle, it’s just not quite the struggle that we see onthe Pulte side of the business.

Richard J. Dugas

I think it’s just a slightly different environment there.The buyer still wants to buy a Web home -- it’s just a question of house tosell. It’s not that it’s not impacted, but as Steve indicated, impacted justless.

James Wilson - JMPSecurities

And again, are the margins -- is the profitability runningbetter at Dell Web than it is for the rest of Pulte, so that actually Webotherwise brings margin best?

Richard J. Dugas

I would say mostly representative across the country, theDell Web product has got better margin points than the traditional side.


And your next question comes from the line of [DennisMcGill] with [Gillman & Associates]. Please proceed.

Dennis McGill -Gillman & Associates

The first question just has to do with the developmentspending that you had talked about. In certain communities you are pulling backthere, focusing on the cash flow. Can you just talk about in ’07, what youexpect to spend on development in total, how that compares to last year, andthen how much flexibility you have with that number moving forward? And then Ihave a follow-up.

Roger A. Cregg

I don’t have the specific numbers on how much we spend forthe whole year. You know, our focus is definitely to slow down the spendingfrom -- typically, looking at a growth environment, so the development dollarswe continue to look at. We have a great deal of flexibility in that and when weput money in the ground, how many lots we developed in a community, when we putamenity centers and that type of thing, so we’ve got a lot of flexibility tolook at that cash spending.

Typically we try to run very efficiently in a lot of ouroperations, putting down hundreds of lots at a time to be efficient with theoverall process, and some of that we would give up efficiency to make sure thatwe are not sitting here with lots in front of us that may last three yearsinstead of typically maybe six months or one year.

So it’s a community-by-community, market-by-market approachand we think we’ve got a pretty good focus on it and our operators in the fieldare doing an outstanding job of managing all that on a day-to-day basis.

Richard J. Dugas

Dennis, before you ask a follow-up, just to put a point onthat, the environment clearly is still difficult in housing and one of thereasons we are able to still keep the $1 billion target relative to our cash onhand at the end of the year is because of the great degree of ability we haveto move that number, and our operators, as Roger indicated, are looking at itliterally community by community and each section of each community to makesure we are focusing in on cash.

Dennis McGill -Gillman & Associates

Do you have a relative sense of how much that spending wouldbe down versus last year?

Roger A. Cregg

Not versus last year. Again, I think at the beginning of theyear, we talked about almost somewhat being neutral and then with the downturn,we started to pull back on it, which again would generate cash for us. But Idon’t have that number comparative to last year.

Richard J. Dugas

Dennis, perhaps we can look into that in more detail off thecall.


And your next question comes from the line of JamesMccanless with FTN Midwest Securities. Please proceed.

James Mccanless - FTNMidwest Securities

I’ve got a couple of questions for you; first question, inFlorida, what is the status of the insurance down there for homeowners? Is itgetting any better, any worse?

Roger A. Cregg

Anecdotally, because we haven’t talked to our operatorspecifically about that, I have not heard that it is getting worse. I would notsuspect that it is getting any better, so I think that it stabilized somewhatfrom -- after the number of hurricanes that they had over the last couple ofyears.

James Mccanless - FTNMidwest Securities

My other question is on land pricing. With the bankruptcy ofNewman earlier this week and some others that we’ve heard about, could you tellus if that’s having any effect on raw land pricing? And then just give us aquick overview what prices have been doing lately?

Roger A. Cregg

Overall, pricing has been coming down for sure, mostly, aswe’ve talked about on previous calls, focused around the terms that you can getthe land on, as opposed to necessarily the base price. But we have seen somebetter opportunities to go out and buy land. Quite frankly, we still don’tthink it’s a good enough price.

I think that things like the Newman bankruptcy that youtalked about take time to process its way through before the land actuallyreaches market. And we still think that there is still a lot of downside leftto come in some of these marketplaces, so in addition to not wanting to putcash into the marketplace, it wouldn’t be a good time even if you want to, inmy opinion.


And your next question comes from the line of StuartHosansky with Vanguard. Please proceed.

Stuart Hosansky -Vanguard

I’ve got a couple of questions and you might have answeredthis in different ways, but first, can you provide a little more information onyour geographic pricing trends? You talked about in general that the pricing islower, but can you be a little more granular on that?

Richard J. Dugas

Generally speaking, price has been difficult across thecountry. I guess the one area I would highlight that it has not been is theCarolina, mid-Atlantic area. More specifically, as Steve indicated, we continueto enjoy better results in that part of the country than elsewhere. But Steve,beyond that, anything stand out?

Steven C. Petruska

I think California obviously has been the hardest hit. We’veseen that both Arizona and Nevada probably had some of the most aggressiveprice increases on land throughout the upturn, so they are seeing some verysignificant price decreases.

We are at or near the bottom in the Midwest. Texas, wedidn’t have a high average sales price to start with there, so as a percentage,it may be down fairly good but from a dollar standpoint, it’s not down much.

But California and the Southwest, and in Florida, they areprobably the most significant price decreases that we’ve seen over the last 12to 18 months.

Stuart Hosansky - Vanguard

Do you think we are anywhere near the bottom in those areas?

Richard J. Dugas

I wish we could tell you. I did mention in my preparedremarks and then on a question earlier that price does not appear to be thedriver that it was. I don’t know is the answer to the question. I wish we couldgive anybody a projection on that. We’ll have to wait and see -- don’t know.


I would now like to turn the call back over to Mr. Boyd forclosing remarks.

Calvin Boyd

Thank you, Carol. Thanks, everyone, for your participationon the call today. If you have any follow-up questions, please feel free togive me a call. Have a great day.


Thank you for your participation in today’s conference. Youmay now disconnect and have a wonderful day.

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