Pulte Homes Inc. Q4 2007 Earnings Call Transcript

Jan.31.08 | About: PulteGroup, Inc. (PHM)

Pulte Homes Inc. (NYSE:PHM)

Q4 2007 Earnings Call

January 31, 2008 8:30 am ET

Executives

Calvin Boyd – VP Investor and Corporate Communications

Richard Dugas – President, CEO

Roger Cregg – Executive VP, CFO

Steve Petruska – Executive VP, COO

Analysts

Mike Rehaut – J.P. Morgan

Ivy Zelman – Zelman & Associates

Susan Berliner – Bear Stearns

David Goldberg – UBS

Carl Reichardt – Wachovia

Buck Horne – Raymond James

Ken Zener – Merrill Lynch

Dan Oppenheim – Banc of America

Stephen East – Polly Capital

Nishu Sood – Deutsche Bank

Jay Mccanless – Ftn Midwest

Alex Barron – Agency Trading Group

Operator

Good day ladies and gentlemen and welcome to the fourth quarter 2007 Pulte Homes Incorporated earnings conference call. My name is Erik and I’ll be your coordinator for today. At this time all participants are in a listen only mode. We will facilitate the question and answer session towards the end of the conference. If at any time during the call you require assistance, press star followed by zero and a coordinator will be happy to assist you. I will now like to turn your presentation over to your host for today’s call, Mr. Calvin Boyd, Vice President of Investor and Corporate Communications. Please proceed.

Calvin Boyd

Thank you Erik. Good morning and thank you for joining us to discuss Pulte Home’s financial results for the three months and year ended December 31, 2007. I am Calvin Boyd, Vice President of Investor and Corporate Communications. You’ve all had a chance to review the press release we issued last night detailing Pulte’s fourth quarter 2007 operating and financial performance. On the call to discuss these results are Richard Dugas, President and Chief Executive Officer, Steve Petruska, Executive Vice President and Chief Operating Officer, Roger Cregg, Executive Vice President and CFO and Vinny Frees, Vice President and Controller.

For those of you who have access to the internet, a slide presentation available at www.pulte.com will accompany this discussion. The presentation will be archived on the site for the next 30 days, for those who want to review it at a later time. As with prior conference calls, I want to alert everyone listening on the call via the internet that certain statements and comments made during the course of this call must be considered forward looking statements as defined by the Securities Litigation Reform Act of 1995.

Pulte Homes believes such statements are based on reasonable assumptions but there are no assurances that actual outcomes will not be materially different from those discussed today. All forward looking statements are based on information available to the company on the date of this call and the company does not undertake any obligation to publicly update or revise any forward looking statements as a result of new information in the future.

Participants in today’s call should refer to Pulte’s annual report on form 10K for the year ended December 31, 2006 and subsequent forms 10Q for a detailed list of the risk and uncertainties associated with the business. As always, at the end of our prepared comments we will have time for Q&A. We will wait until then before opening the queue for questions. I will now turn over the call to Richard Dugas for his opening comments. Richard.

Richard Dugas

Thank you Calvin and good morning everyone. For the homebuilding industry the year 2007 will likely be remembered as one of the most difficult and challenging in decades. Factors that signaled the beginning of this downturn, such as high cancellation rates, elevated supply of for sale homes, both new and existing, and [audio interrupt].

Operator

Ladies and gentlemen we apologize for the technical difficulties, we are waiting for the line to reopen.

Richard Dugas

Erik can you hear us now?

Operator

Yes we can hear you again.

Richard Dugas

Okay. My apologies, should we start with your comments Calvin?

Calvin Boyd

Yes let’s do that, just in case. [Repeating prepared comments].

Richard Dugas

Thanks Calvin and good morning everyone. For the homebuilding industry the year 2007 will likely be remembered as one of the most difficult and challenging in decades. Factors that signaled the beginning of this downturn, such as high cancellation rates, elevated supply of for sale homes, both new and existing and the tightening of mortgage availability simply worsened as the year progressed. By the end of the year gross margins remained under pressure as the competition for home sales intensified during this market downturn.

Consumer confidence continues to be depressed, particularly with higher energy prices and the fear of a recession on the mind of many potential homebuyers. The aggregate impact of the above factors was the main force that led to Pulte’s first annual loss in the company’s 58 year history. Our fourth quarter 2007 net loss was due largely to sizable impairments and land related charges, the write off of most of our deferred tax assets along with goodwill impairments taken during the period.

The presence of these charges reflects the continued decline in sales and the ongoing pressure on home prices due to increased competition. Roger’s prepared comments will cover these charges in more detail. However, during this challenging period, we embarked upon a set of short term goals that we deem prudent in such an industry downturn. We are pleased to report that we were successful in achieving these goals. Let me take a moment to reflect on some of the successes.

First, we generated positive cash flow during the year, particularly in the fourth quarter. We ended the year with a cash balance of approximately $1.1 billion, an increase of about $900 million from the end of our third quarter 2007. Meeting our goal of $1 billion of cash at year end is a significant accomplishment. We thank our field operators as they generated the necessary sales and managed land acquisition and development spending in order for this goal to be reached.

Second, we generated a profit from continuing operations before consideration of charges related to land, goodwill and deferred taxes. The profit realized exceeded the upper end of the guidance we provided during our third quarter earnings call and finally our overhead spending was substantially lower than last year’s fourth quarter. We continue to size our business for reduced demand levels and the result is a leaner overall structure. The success realized in reaching these goals is part of our pursuit to return our core operations to profitability, excluding any impairments, write offs and land related charges.

Although we were able to accomplish this for the last two quarters, the challenging market conditions that plagued 2007 will likely have a significant impact on 2008 as well. While in the midst of this downturn, generating sales continues to be difficult. Increased competition in most of our markets continued to put downward pressure on our sales prices. Although forced to price our product competitively given this challenging environment, sales levels are still depressed as compared to prior periods.

As a result, we continue to ratchet back our investment in new land purchases and land development. As we look at house and land inventory, properly managing the number of spec homes and controlled lots are top of mind. Despite continued high cancellation rates, we were able to drive spec inventory levels lower, a substantial accomplishment in this weak environment. We were also successful in lowering the number of controlled lots.

Overall, driving down house and land inventory levels continues to be one of our primary goals. It is widely believed that the challenges experienced by the homebuilding industry in 2007 will impact operations for 2008 and beyond. The depth and duration of this downturn remains difficult to determine. As this uncertainty continues to linger, Pulte will be persistent in pursuing its short term goals of properly managing inventory, aligning SG&A expenses to match the current demand environment, generating cash and maintaining overall balance sheet strength.

We are committed to these short term goals and have demonstrated our ability to deliver on our objectives. Although managing prudently during this industry downturn is paramount, we will not lose sight of a long term drivers for this industry. Demographic trends, household formation and population growth will play an important role in creating a stronger demand for new homes in the future. As the industry eventually emerges from this challenging operating environment, the combination of our short term strategy and long term view will position Pulte to be a stronger, leaner and more efficient industry player.

Lastly, although somewhat overshadowed by the severity of the housing recession in 2007, our outstanding Pulte employees continue to do an excellent job during such challenging times. I continue to be thankful for the dedication, commitment and can do attitude of the Pulte team. Thank you and now let me turn the call over to Roger Cregg. Roger.

Roger Cregg

Thank you and good morning. Fourth quarter home building net new unit order rate decreased approximately 29% from the fourth quarter last year on 8% less communities versus the same quarter last year. Revenues from home settlements for the homebuilding operation has decreased approximately 35% from the prior year quarter to approximately $2.8 billion. Lower revenues for the period were driven primarily by lower unit closings that were below prior year by approximately 31%.

The average sales price decreased approximately 6% versus the prior year quarter to an average of $319,000 per home. In the fourth quarter, land sales generated approximately $77 million in total revenues which is an increase versus the previous year’s quarter of approximately $32 million. Home building gross profits from home settlements, including homebuilding interest expense for the quarter decreased versus the prior year quarter by approximately 99% to approximately $3 million.

Fourth quarter homebuilding gross margins from home settlements as a percentage of revenues was one-tenth of one percent compared to 11% in the fourth quarter of 2006. The decreased margin conversion versus the prior year quarter is attributed to lower closing volumes, land and community valuation adjustments in addition to increased selling incentives. Adjusting the current quarter for land and community valuation charges, the gross margin from home settlements as a percentage of revenues was at a run rate of approximately 11.6% for the quarter.

The fourth quarter benefited from the impact of prior quarter’s land and community valuation adjustments by approximately 338 basis points or $94 million. Additionally, homebuilding interest expense decreased during the quarter to approximately $72 million versus approximately $93 million in the prior year. Included in the interest expense of $72 million is an additional $20 million of expense related to the land and community valuation adjustments taken in the current quarter. Also included in the gross margin for the quarter was a charge related to land and community valuation adjustments in the amount of approximately $298 million.

The fourth quarter we tested approximately 180 communities for potential impairment and valuation adjustments. We recorded valuation adjustments on approximately 118 communities for the fourth quarter. The total gross loss from land sales posted for the quarter was approximately $56 million. The loss is mainly attributed to the fair market value adjustment in the current quarter for land being held for disposition in the amount of approximately $66 million which is included in the land cost of sales.

The gross profit contribution from specific land sales transactions were approximately $10 million for the current quarter. Land sales transactions for the quarter included single family custom lot sales along with residential and commercial land parcels. SG&A expenses as a percentage of home sales for the quarter was approximately 8.9% or $247 million, a decrease of approximately $59 million versus the prior year quarter. Additionally, the current quarter also included approximately $6 million in severance charges related to further overhead reductions made during the quarter.

Overall, we exceeded our restructuring expense reduction target announced in the second quarter of $90-$110 million, reducing expenses in the third and fourth quarter by approximately $150 million. In the other income and expense category for the quarter, the expense of approximately $159 million includes the write off of land deposits and other related costs of approximately $35 million associated with land option contracts that we determined not to exercise.

Additionally, a valuation adjustment of approximately $85 million related to certain investments in unconsolidated joint ventures. Also included in the quarter is the impairment charge related to goodwill of approximately $34 million. In accordance with FAS 142, we determined that as a result of current market conditions, our book value exceeded the fair value in our Florida reporting segment resulting in the impairment of goodwill.

Recapping the components of the $509 million in impairments, land related charges for the fourth quarter, we have included in the webcast the slide breaking out the charges by categories and by reporting segment. Additionally in the fourth quarter we dropped land options representing approximately 4,800 lots with a purchase price value of approximately $343 million. The homebuilding pretax loss for the fourth quarter of approximately $459 million resulted in a pretax margin of approximately negative 16% on total homebuilding revenues.

Excluding the charges related to valuation adjustments and land inventory and investments, land held for sale, the write off of land deposits and other related costs, goodwill and restructuring charges, homebuilding pretax margins converted at approximately 2.9% or a pretax profit from operations of approximately $84 million for the current quarter. At the end of the fourth quarter, homebuilding operations had a backlog of 7,890 homes valued at approximately $2.5 billion, compared to 10,255 homes valued at $3.6 billion as of the prior year quarter.

The fourth quarter pretax income from Pulte’s financial services operations was approximately $10 million or a decrease compared with prior year quarter of approximately $19 million. The decrease is mainly attributed to lower revenues from decreased volumes. The level of adjustable rate mortgage products originated during the fourth quarter of 2007 decreased from approximately 23% of origination dollars funded from our warehouse line in the fourth quarter of the previous year to approximately 3% this year.

Pulte mortgages capture rate for the current quarter was approximately 91%. Mortgage origination dollars decreased in the quarter approximately $1.2 billion or 42% when compared to the same period last year. The decrease is related to the overall volume decrease in the homebuilder closing activity for the quarter. The average FICO score of our loans closed for the period was 738 with 82% of the loans averaging a FICO score greater than or equal to 681. This is consistent with our analysis performed for the prior quarters this year.

The fourth quarter mortgage environment continued to experience tighter mortgage lending standards and increasing down payment requirements. In the other non operating category, pretax loss for the fourth quarter of approximately $5 million includes mainly corporate expense of approximately $8 million offset by $3 million in net interest income related to our cash balance in the quarter. During the fourth quarter, we established a valuation allowance on deferred tax assets resulting in a non cash after tax charge of approximately $622 million.

In accordance with FAS 109, we assessed with our auditors and determined that a valuation allowance should be established based on the consideration of all available evidence using a more likely than not level of assurance standard. In making this determination, we considered all objectively verifiable evidence in accordance with FAS 109 requirements, as to the recoverability of the deferred tax assets. Accordingly, expectations about future taxable income are overshadowed by our loss experience in the recent year and such expectations are not objectively verifiable under FAS 109.

Despite the accounting treatment, the tax code currently provides the ability for a two year carry back and a 20 year carry forward to realize the economic value of these assets, assuming the generation of taxable income in the future. The net loss from continuing operations for the fourth quarter was approximately $893 million or a loss of $3.54 per share as compared to net loss of approximately $8 million or $0.03 per diluted share for the same period last year.

Income from discontinued operations of approximately $19 million for the fourth quarter represents refundable income taxes related to our discontinued Mexico homebuilding operations. The net loss after discontinued operations for the fourth quarter was approximately $875 million or a loss of $3.46 per share. The number of shares used in the EPS calculation was approximately 252.5 million shares for the quarter. Moving over to the balance sheet for the fourth quarter, we ended with a cash balance of approximately $1.1 billion, increasing approximately $959 million from the third quarter of this year. House and land inventory ended the quarter at approximately $7 billion.

Excluding the inventory adjustments for the fourth quarter, total inventory decreased approximately $780 million from the third quarter. House inventory, excluding land for the quarter decreased approximately $480 million related to the seasonal increase in home closings for the quarter. Land inventory during the fourth quarter excluding adjustments decreased approximately $300 million as land relief offset rolling lot option take downs and land development spending. After generating approximately $1 billion in net cash during the fourth quarter, we paid down $25 million on our revolving credit facility and have no outstanding balance drawn on the facility at the end of the quarter.

The company’s gross debt to total capitalization ratio was approximately 44.6% and on a net basis, 35.9% for the fourth quarter reflecting the additional deferred tax valuation allowance during the quarter. Interest incurring amounted to approximately $59 million in the fourth quarter compared to $71 million in the same period last year. Pulte Home’s shareholder’s equity for the fourth quarter was approximately $4.3 billion.

We repurchased no shares during the fourth quarter and the company has approximately $102 million remaining on our current authorization. Now looking forward to the first quarter of 2008 and under the SEC regulation FD guidelines, we provide the following guidance on our current expectations and projections. First quarter earnings per share are estimated to be a loss in the range of approximately $0.15-$0.30 per diluted share. This range does not include a tax benefit or the potential for additional land valuation adjustments, option deposit and other related charges.

Although we may incur additional write offs, it is uncertain at this time as to the estimate of the amounts. This earnings per share calculation is based on approximately 252 million fully diluted shares. Unit settlements in the first quarter of 2008 are projected to be in the range of approximately 4,600-4,700 deliveries. Average selling price for closings in the first quarter are estimated to be approximately $299,000.

The projected average selling price is primarily being driven by product and geographical mix as well as additional incentives for the homes projected to be delivered during the first quarter. Gross margin performance from home settlements as a percentage of sales for the first quarter is anticipated to be in the approximate range of 10-10.3%. Projected gross margins for the quarter primarily reflect community pricing strategies and generating sales momentum and pricing incentives experienced over the period in response to local market conditions.

In addition, this gross margin range includes an estimated 75 basis point improvement from the recovery of additional inventory valuation adjustments taken in the fourth quarter of 2007. We are currently projecting no land sale gains for the first quarter. As a percentage of sales, SG&A is expected to be in the range of 14.4-14.6% for the quarter, an improvement of 110-130 basis point conversion over the first quarter of 2007. In the homebuilding other income and expense category for the first quarter, we are projected an expense of approximately $5-$6 million.

Pretax income in our financial services operation is expected to be approximately $5-$6 million for the first quarter. Total other non operating expenses are projected to be $1-$2 million for the first quarter with other non operating expenses partially offset by increased net interest income. For the first quarter, tax rate, we have chosen to take a conservative approach in our guidance and are projecting no tax benefit due to the complexities associated with FAS 109. Given the uncertain and challenging market environment, we are offering no full year outlook for 2008 at this time.

We will continue to assess conditions through the next quarter and provide any update accordingly on our first quarter conference call. With our focus on cash management and house and land inventory, we are targeting ending the year of 2008 with an additional increase in our cash position of approximately $900 million to $1.1 billion or an ending balance of $2-$2.2 billion less any senior debt repurchases that may be completed during the year. Additionally, with this level of cash, we anticipate no outstandings on our revolving credit facility at year end. We have continued to focus on reducing our land pipeline, generating cash and maintaining a solid balance sheet. Now I’ll turn the call over to Steve Petruska for more comments on operations for the quarter. Steve.

Steve Petruska

Thanks Roger and good morning everyone. I want to echo Richard’s sentiments that the fourth quarter and most of 2007 was hampered by high inventory levels for new and existing homes, tighter mortgage liquidity and weak consumer demand that contributed to the difficult operating environment. The depth and duration of a downturn such as this requires Pulte to execute against a consistent near term strategy and to maximize sales in each of our markets and communities by finding the right combination of pace and price.

I’ll take a few moments to discuss the operational components of this strategy. Our goal surrounding land inventories centers on keeping dollars spent on land development minimal and reducing the supply of lots under control. At the end of fourth quarter 2007, Pulte controlled approximately 158,000 lots, down 8% sequentially from the third quarter 2007 and down 32% from the same period last year. Going into 2008, we are continuing our focus on reducing land inventory and further restricting future land investments to current projects and take downs on finished lots where absorption pace and margin are acceptable.

This supports our overarching goal of generating cash at each community where that is practical. To touch on house inventory for a moment, the number of speculative homes at the end of the fourth quarter was approximately 3,700 units, down 7% sequentially from our third quarter 2007 and 25% lower than last year’s fourth quarter. Our completed spec inventory sits at approximately 1,300 homes or about two finished homes per community. This represents a small increase versus the third quarter 2007 and is essentially flat as compared with a year ago.

I continue to be pleased with the effectiveness of our field operators to keep spec inventory relatively low, particularly given the high cancellation rates faced in the industry. We stated in our previous earnings call that we strive to preserve margin and not force volume where we see an absence of demand. However, the continued deterioration of the operating environment for homebuilding and actions by our competition forced us to reduce our prices in many communities to generate some level of sales volume. We continue to adjust our short term tactics as needed in response to shifting market dynamics.

What does this mean going forward? We will do our best to keep prices at acceptable levels in stronger communities but remain responsive to the pricing environment, especially for finished inventory. Settlement revenues for the fourth quarter 2007 decline 35% from the fourth quarter 2006 level as home closing decreased 31% for the same period. Average sales price was also down approximately 6%. Fourth quarter 2007 signups totaled $1.2 billion as our average sales price for signups were 17% lower from the same period a year ago and unit volumes decreased approximately 29% year over year.

Net new order dollars represent a composite of new order dollars combined with other movements of dollars in backlog related to cancellations and change orders. Our cancellation rate was 40% for the fourth quarter, higher than the 35% rate for the fourth quarter 2006, but below the 44% rate we experienced in the third quarter of 2007. Once again, Dell Web outperformed Pulte’s other brand with a cancellation rate of 34% for the fourth quarter 2007. Cancellation rates continue to be elevated due to the inability of buyers to sell their existing homes as well as a lower level of buyer demand in most markets.

And, after that, the discontinuance of many bridge mortgage programs and you get an environment that continues to be difficult on our backlog. Let me provide some commentary on what some of our regions experienced. Signups for our Northeast operations fell for the second consecutive quarter, down 28% year over year. In addition to lower buyer demand, a smaller community count was present year over year. Also, a spike in cancellation rates in Washington DC contributed to this decline.

The Southeast, which includes the Carolinas, Georgia and Tennessee saw their signups down a relatively modest 8% compared with last year’s fourth quarter. Cane Bay, a Dell Web community in the South Carolina coastal market helped signups in this region. That was offset by declines in our Atlanta and Tennessee markets. Our Atlanta market continues to suffer from a high level of resale inventory which led to the year over year decline in signups of 25% in that market. Our signups were down 11% in our Florida operations versus the fourth quarter of 2006.

High levels of both resale and new home inventories continue to be a problem for this region, keeping downward pressure on gross margins. Sales in Ft. Meyers, Sarasota and Jacksonville were down 34% and 31% respectively as compared with the fourth quarter of 2006. Our Tampa and Ocala markets showed increased sales of 27% and 10% respectively versus the fourth quarter of 2006. We were once again very aggressive in our response to market conditions with our pricing to drive this volume improvement and overall the Florida region is an extremely difficult housing environment.

Our Midwest operations continue to be challenging with signups down 41% versus the fourth quarter of 2006. Our Illinois market was down 60% year over year as some communities begin to phase out while the openings of some new communities are purposefully delayed due to low overall buyer demand. The 50% decrease in community count in our Minneapolis market was the primary driver behind its 56% decline in signups versus last year’s fourth quarter. Our Michigan and Indianapolis markets also showed weakness in signups.

Our Central region which includes all of our Texas markets saw signups decline 33% year over year, consistent with the weakness we have seen in this area during the year. Our Houston and San Antonio markets suffered the largest decline, with signups falling 42% and 39% respectively versus the fourth quarter of 2006. We continue to drive down our community count in these markets as we delay further investment until buyer sentiment improves.

Our Southwest segment which includes New Mexico, Las Vegas and Arizona showed a 26% decrease in signups from the fourth quarter 2006. A reduced community count was again a factor in our Phoenix market which saw signups fall 40% year over year. Our Las Vegas market also decline 30% versus the prior year quarter. This market continues to suffer from a relatively high cancellation rate. Conversely, an increase in selling communities for our Tucson operations as well as some relative strength in the market led to a 69% increase in signups in that market versus the fourth quarter of 2006. Signups declined 52% year over year in our California operations but remained relatively flat when compared to the third quarter of 2007.

Our Central Valley and Bay Area markets in Northern California were the hardest hit, with signups lower by 79% and 73% respectively year over year. The amount of excess inventory in new and existing homes continues to afflict this area as well as overall consumer demand. California continues to be one of the most difficult housing environments in the country. Our geographic diversity does provide a small benefit as our investment in California is smaller than most other national homebuilders who are comparable in size to Pulte.

The entire industry continues to be severely impacted by this housing downturn with no immediate relief in sight. Pulte continues to focus on its near term goals, achieving our internal sales and closing goals and centering on being cash flow positive in all of our communities. We feel this is best accomplished by continuing to eliminate land acquisition and development spending, managing price and pace in all communities and driving spec inventory to the lowest level possible. Our field operators are becoming very adept at employing these tactics as this challenging environment continues. Our consistent approach will certainly position Pulte for long term success once these challenges begin to subside.

Finally I want to echo Richard’s sentiments regarding the great job our field leaders and all Pulte employees continue to do each day. Regardless of how long this downturn persists, the organizations that have the best people on the front lines will emerge victorious. I’m proud of the men and women who make up the Pulte organization and I continue to be inspired by their performance. Now let me turn the call back over to Calvin.

Calvin Boyd

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

Question-and-Answer Session

Operator

Ladies and gentlemen, if you would like to ask an audio question please press star followed by one on your touchtone telephone. If your question has been answered and you wish to withdraw the question, press star two. Please press star one to begin and standby for the questions. Your first question comes from the line of Mike Rehaut, J.P. Morgan, please proceed.

Mike Rehaut – J.P. Morgan

Hi, thanks, good morning. First question, kind of surrounds the gross margins and I just want to complement you for breaking out the benefit from prior quarters, some builders have, some builders haven’t, I think it’s really helpful, the benefit from prior impairments. But you know with that I guess begs the question, in the fourth quarter, excluding, if I heard it right, it was 11, 6, but excluding the benefit it was closer to about 8%, 8, 2 I guess.

And you know that’s obviously a pretty steep drop from 3Q and in some ways more than your peers. I wanted to know if there’s any, obviously there are more incentives, tougher pricing, but given the bit steeper decline than maybe some of your peers, I was wondering if you had a sense for any company specific factors that might be driven that relative to the rest of the group or particularly aggressive spec reduction or maybe you could shed some light there.

Roger Cregg

Yeah Mike, this is Roger, I think definitely our focus on spec inventory in the back half of the year, coming through the third and fourth quarter drove some of that driving it down as we had those specs to continue to focus on liquidating to generate cash you know was a main focus. And again what comes out of the backlog or what you end up coming through the period is some of the things you’ve done in the prior quarter as well as the current quarter. So definitely our focus has been on that. Again, you said, other people don’t break it out but certainly that’s been our focus quite frankly throughout the year.

Mike Rehaut – J.P. Morgan

Second question just on the cash flow guidance. I was wondering if you could for 08 if you could perhaps try and break it down a little bit more, the 650-850 from operations, how much of that would be from land sales versus just the selling of homes and maybe also give us a sense for, over the last couple of years, what your spend on land and land development has been and what you expect it to be for 08?

Roger Cregg

Yeah Mike, again this is Roger, you know unlike some other builders, we’re not liquidating our land in bulk sales. So even as demonstrated during the fourth quarter of this year, it was from home sales. So even next year the projections do not anticipate any land bulk sales at all, that is truly coming from operations and the reduction in inventory overall. If you look at some of what we spent this year, we spent close to $1.9 billion in land acquisition and development and roughly about 23% of that was what I consider land acquisition.

Next year, we anticipate basically spending about $1.2 billion, roughly in the same area, about 22-23% would be rolling lot option take downs and the balance would be land development. So overall you look at it, we’re close to about $800 million year over year coming down. I think if you look at our community count as well, we look at community count coming down next year, roughly around 15% from where we ended this year. So the combination of all of that overhead coming down next year and the cash generation coming out of inventory from not replacing all generates the guidance that we gave on the cash end for next year.

As far as cash flow for the year, we do anticipate consuming cash in the first quarter and then generating cash in the second, third and fourth quarter. We do anticipate the tax refund that we outlined coming into the cash probably in the second quarter of 2008.

Operator

Your next question comes from the line of Ivy Zelman with Zelman & Associates, please proceed.

Ivy Zelman – Zelman & Associates

Good morning guys, you said you had 158,000 lots I think overall and I just didn’t know if you gave the breakdown, I didn’t hear the owned versus controlled, but if you could help me understand the decision and maybe quantify how much of your land today you’re moth-balling and where the moth-balling is most prevalent given the fact that you know you have good assets or it doesn’t make sense to bring it forward.

A lot of people ask about real estate taxes, carry costs, site maintenance, things that obviously you have to carry as a fixed cost, so the burden of moth-balling, can you walk us through the analysis and maybe give us an idea of what percent of those lots might be under your consideration for moth-balling?

Richard Dugas

I think I could help you out with a little bit of the data points. Of the 158,000 lots controlled, 131,400 or just about 83% are owned.

Ivy Zelman – Zelman & Associates

Okay.

Steve Petruska

Ivy, on the other things, as Roger kind of looks for some specifics, you know we’ve got probably about 50 communities, a little over 50 communities that are quote, unquote moth-balled. Of those I would tell you all but about ten, we had never even opened yet, so they could be in a raw ground state as well and obviously some of the things that you pointed out, property taxes, continued storm water management, those type of things, are a lot less expensive when the land is unimproved and so it obviously makes a heck of a lot more sense to put a community in moth-ball in this demand environment when we haven’t put a lot, other than the acquisition of the land, you know, money into the ground. So we continue to be focused on that.

It’s a difficult decision as you go forward where you’ve got street improvements and those type of things and we continue in most cases as I indicated to kind of continue to plough through those because it just seems the most prudent thing in this environment of trying to generate cash to find the right price in those communities and move through them. I think Roger’s got some specifics maybe on the numbers.

Roger Cregg

Yeah Ivy, if you look at the number of projects we’ve moth-balled, it’s basically, roughly around 29 physical projects, we count them as communities, so wound up to roughly be about 58 and of that 58, 46 of them have never been opened. So again to Steve’s point, it’s not that we’ve put a lot of value into those projects at this point and have to carry a lot of value on the balance sheet at this point as well.

Ivy Zelman – Zelman & Associates

Roger, thank you that was very helpful. If you can elaborate too, I think a lot of us in the industry are trying to understand, the investment community, if we look at your G&A overall, some companies have indicated that G&A could be I guess nothing in housing is really fixed because you could just close down communities and get out of the business, or exit markets, but if you were to think about the fixed costs associated with your G&A, would it be roughly 20-25% or how can you walk down the big components of G&A for us? I think that would be helpful.

Roger Cregg

Well I don’t have a lot of specifics but you know again it’s usually construction overhead, sales and administration are the big components of that. And certainly administration again you try to flex with levels of activity. Sales as well go with levels of activity so if you’ve got communities that’s driving it. And certainly what you want to do is continue to drive the pace out of those communities to be able to leverage the overhead.

I think for us as I mentioned, we targeted saving between $90-$110 million on a gross basis and we came out with about $150 million in savings overall the last two quarters of this year. So I think we’re in good shape going into 2008 as I mentioned, if the community counts come down as we look forward to next year, as I mentioned down about 15%, again that will affect the overall leverage that we’re able to capture going forward as well in the sales and physical community cost.

Ivy Zelman – Zelman & Associates

Is there a number Roger though that you can’t reduce because it’s just part of the fixed operations that you would look at it that it’s not a flex number?

Roger Cregg

Yeah, you know, yes I don’t have a number specifically but yes there’s a percentage and that’s really going to be in the administrative side more than anything else. We do allocate some corporate costs in there as well but there is a fixed cost that yes we can’t get to but as we’ve gone along, as you say that can’t get to it, we continue to focus on being able to drive that, so we never say never, we want to make sure we’re doing the right things for our business from a consumer side as well as from a compliance side.

Ivy Zelman – Zelman & Associates

But that’s a small number on a relative basis, the fixed component, would you say that much at least?

Roger Cregg

Yes I would say relatively speaking maybe 70% of it is more field oriented which you might consider that relatively variable under 30% overall, maybe fixed.

Ivy Zelman – Zelman & Associates

Great, thanks guys, thanks very much.

Operator

Your next question comes from the line of Susan Berliner with Bear Stearns, please proceed.

Susan Berliner – Bear Stearns

Hi, good morning, Roger I was wondering if you could talk about your joint ventures? It seems like your investment in joint ventures, there was a pretty big drop in the quarter so I was just looking for color you know on the strategy, what you’re trying to do there and if you could just remind us of your largest joint ventures?

Roger Cregg

Yes, basically we only have four major US ventures, they’re in Phoenix, Vegas and DC. So at the end of this fourth quarter, we had about $105 million in investment and limited recourse debt on that was about $125 million. So throughout the year, certainly there’s been impairments as I mentioned on that over the last couple of quarters. Again we’ve also paid off one of them that was dead in there that we paid off in there in the quarter as well.

So our focus is really to continue not to do joint ventures. As you know we’ve talked about this in the past. Our focus on joint ventures had never been for financing reasons. Others have done it for financing, we only did it because of strategic value for markets that we were in to try to get access to land that particularly we didn’t want to have a great deal of risk in for an entire project. So our focus there has been more just strategic and not financing and overall as the markets continue to decline we’ve continued not to get into any new ones or even impair these that we had on our books.

Susan Berliner – Bear Stearns

Great and just a follow up, I guess if you can kind of go through your strategy for hording a massive amount of cash versus, I know you didn’t buy any bonds back in the open market, I was just wondering how you kind of balance that out and what you’re looking for in 2008?

Steve Petruska

Well, we’re watching all the signs like in any dashboard, we have to continue to watch the liquidity of the business, where we’re going in the future, any of our obligations, any of our liabilities. So as we manage all of these, again in a very tumultuous market, we’re just at this point sitting here and watching all the indicators to make sure we understand before we launch off in one direction or another.

So I think the prudent thing is at this point, we’re just in a mode where we’re generating the cash and as we see some movement in the market we’ll choose one way or the other but at the present time, our focus is to continue to generate cash and at this point hold onto it. As far as the ratios of the debt and the tangible net worth, all those things, debt to cap continue to be in focus for us so as we look at all this, we’re taking those into consideration about future opportunities as well.

Susan Berliner – Bear Stearns

Great, thank you very much.

Operator

Your next question comes from the line of David Goldberg with UBS, please proceed.

David Goldberg – UBS

Thanks, good morning, I was wondering if you guys could talk about the declining communities that you’ve seen so far. You know up to now, relative to the traditional business versus Dell Web and with that as you look forward to the 15% decline targeted next year, what’s that going to look like for the Dell Web, you know the [unintelligible] buyer versus the traditional buyer?

Roger Cregg

Yeah, Dave, this is Roger, we don’t have a lot of specifics on that today. The guidance wasn’t going to be that specific on where we were going to go but generally speaking the Dell Web are longer projects. So I think intuitively you know that more of those might be around versus some of the smaller projects. But again we’re not going to be that specific with the guidance at this point.

David Goldberg – UBS

Could you maybe give us some idea what the carrying costs look like on the Dell Web projects given that they’re longer, they tend to be bigger communities versus the traditional projects?

Richard Dugas

David, this is Richard, from a return standpoint I think we’ve indicated before, they tend to be at or above the traditional projects because of the combination of pace and margin that we’re able to drive out of the communities vis-à-vis the traditional side. So I don’t have a more specific answer for you on carrying costs but from a return standpoint, we’re pleased with those communities, as pleased as you can be in this kind of environment.

David Goldberg – UBS

Thanks and then just a quick follow up, Roger you mentioned before in the Q&A that you didn’t anticipate any bulk land sales moving forward and I was wondering if that’s more of a question of the bids that are being offered for the land positions or if you guys are actively seeking trying to sell maybe some bulk parcels and if not, if you’re not trying to actively seek, maybe why not? [Overlay]

Roger Cregg

Yeah, exactly, we’re not lost on the carry back but you know we’re looking at shareholder value as well and some may be very happy to take $0.20 on the dollar so take another $0.20-$0.30 hit on their book for that. So for us it’s not been a focus of having to do it in necessity to generate cash. We’re looking at the value of it and yes there’s a lot of people out there today looking for the very bottom of these things and we don’t feel compelled to have to do that from a cash standpoint.

The carry back is not lost on us but you have to look at what you have to give up to do that. There is value to those carried backs, even going forward and so again it’s really a timing different more than anything else and what the value of that is for what you have to give up. So our focus really has been to continue to focus on what we’re doing, not focus on bulk sales or having to generate cash through bulk sales and what we are looking at them of course, we’re looking at projects we have that particularly we don’t want to build out or might not want to build out for sale like any period though we do the same thing. So it just hasn’t been a necessity for us to try to generate that cash and that’s kind of been our strategy.

David Goldberg – UBS

Okay, thanks.

Operator

Your next question comes from the line of Carl Reichardt with Wachovia, please proceed.

Carl Reichardt – Wachovia

Thanks, hi guys, actually David just asked both my questions but let me ask one more. Roger do you have a goal for 08 SG&A reduction given how well you did relative to what you mentioned to us a couple quarters ago in 07?

Roger Cregg

Yes we do and again we’re not going to give guidance on that Carl at this point, a little premature, but you know I think you can clearly see in the last two quarters our focus on continuing to focus the business for the size of the business going forward, you know we’ve been clearly focused on being able to drive profitability from it. We’re chasing it down with the price from a profitability standpoint, but I think our focus and efforts are going to continue to be in that area and I think we’re well positioned for where we are going into 2008.

Carl Reichardt – Wachovia

Okay, fair enough, thanks.

Operator

Your next question comes from the line of Buck Horne with Raymond James, please proceed.

Buck Horne – Raymond James

Hi, good morning, can you give us or quantify for us how many of your active communities have taken at least one impairment so far and maybe how many of the inactive communities have taken at least one charge?

Richard Dugas

We really haven’t broken them apart into active and the inactive. And when you say thus far I know Roger had given some activity for the quarter, you mean from inception perhaps?

Buck Horne – Raymond James

Right, right, cycle to date, they’ve seen one charge.

Roger Cregg

That’s very hard to do again, we’ve got communities, we’ve got some closed and not necessarily on the books today since we started this thing back in 2006.

Buck Horne – Raymond James

Any ballpark, I mean, does it, you know, like one-third maybe, anything?

Richard Dugas

We’re looking for some information Buck, perhaps that’s a level of detail we could get back to you on later today if that’s okay.

Buck Horne – Raymond James

My other follow up would be, of the lots you still have on the books that are owned, I think 131,000, what just roughly, what percentage of those are fully developed lots?

Steve Petruska

Roughly one-third to 40%.

Buck Horne – Raymond James

Okay, perfect, thanks guys.

Operator

This question comes from the line of Ken Zener with Merrill Lynch, please proceed.

Ken Zener – Merrill Lynch

Good morning, your cancellation rate of 40%, the way I look at it, your cancellations as a percent of backlogs is actually remaining fairly steady at about 25% which is below other builders and your backlog is down only 23% year over year which is again better than other builders. Could you give us thoughts you know why these differences might exist? And if there’s any material differences within your Dell Web and traditional businesses relative to the backlog and cancellation?

Richard Dugas

This is Richard, it’s a little complex but I would tell you the primary differences are from a customer group that you target and overall looking at their credit quality is a piece of it, as Roger mentioned, our FICO scores, we have one of the highest if not the highest credit quality as measured by FICO of the builders that I’ve heard reported and I think the Dell Web factor is clearly there. Our cancellation rates in Dell Web continue to be anywhere from 6-700 basis points in one quarter to maybe 1,000 basis points in another better than our traditional business and that makes up 45% plus or minus of our business, that’s a big factor.

Ken Zener – Merrill Lynch

Very good and I guess I wonder when you’re looking at that backlog which is I think, the can rate, at least a little better than other builders and then if I were to look at your first quarter guidance where you’re kind of talking about 10% gross margin and if that were to be compared against the fourth quarter you’re actually expecting a better core margin or an improvement in core margins if you were to recognize the only 75 basis point points from prior impairments.

Can you talk about what gives you, is it that backlog, those cancellation rates that you’ve been seeing that gives you that confidence to say your actual core margin will be moving up excluding those benefits fourth quarter to first quarter? Thank you.

Roger Cregg

The big thing here you’ve got in the backlog is certainly mix and when they’re delivered so that gets to be very confusing to look out at the end of the quarter but what we try to do is estimate what we have today, what we think the backlog margins are and are going to close during the quarter.

Now a lot of times you’ve got movement and the dynamics in the market also don’t give you a guarantee that the backlog delivers at that rate so it’s hard to tell you that from one quarter to the next that those deliveries are going to be better than or worse than. So really the biggest part of that in the first quarter is going to be mix against the fourth quarter. And I think that’s really what’s driving the 10 versus the 10, the 11.6 that we had in the fourth quarter.

Ken Zener – Merrill Lynch

I appreciate that and just a last one, of those 58 communities that have been moth-balled, is there a big split there between traditional and Dell Web? Thank you.

Roger Cregg

We don’t have that breakdown and that finite detail at this point so it’d be hard to give that at this point.

Ken Zener – Merrill Lynch

Thank you.

Operator

Your next question comes from the line of Dan Oppenheim with Banc of America, please proceed.

Dan Oppenheim – Banc of America

Thanks very much, I was wondering if you could elaborate a bit more on Dell Web, you talked about how the returns have been very strong there based on the base of sales and margins. In terms of the pace, can you give us a sense in terms of the sales per community for that business versus the traditional business?

Richard Dugas

Dan, this is Richard, we don’t have that specific number and frankly it tends to be a little misleading if you look at it on just that particular indicator because the communities are so large. So frankly they need to generate typically two, three, maybe four times the volume of a traditional community, two pencils, so I’m not sure how relevant the particular number would be, but we don’t track it on that basis to have the detail.

Dan Oppenheim – Banc of America

I guess I’m trying to get a better sense in terms of how the Dell Web business is going, you talked about how it’s difficult for people to sell homes and given that most Dell Web buyers would be selling an existing home, just trying to get any more color you could offer in terms of the Dell Web business in terms of performance there now.

Richard Dugas

I think the biggest thing I would say is that unlike the traditional buyer, the Dell Web buyer that we’re seeing come in our communities still has a high propensity to want to buy, they don’t seem near as skittish as the traditional buyer. The biggest challenge with the Dell Web buyer is that, you know the home to sell as you mentioned. The traditional buyer of course is very nervous and anxious about potentially falling home prices to pull the trigger and make a decision.

We’re not seeing that with the Dell Web buyer. It seems like when that buyer makes the mental decision to move into an active adult home, they’re ready to go and if they have to take a little less for their home, they’re willing to do that. It’s just the weakness there is more driven by house to sell. But I think the mentality of that buyer is a little different and Steve I don’t know if you have any other color there?

Steve Petruska

Yeah I mean, Dan they’re moving for a lifestyle decision versus in a lot of cases a true housing decision. So, to Richard’s point, there’s a lot more reasons why when they make the decision they’re willing to go and plus they know they’re going to be in the property for several years after they buy it so they’re not as concerned about maybe a short term blip in the marketplace. I guess anecdotally what we would tell you is and the numbers show it as well that that business continues to be steadier for us albeit still at a much lower volume than it was two or three years ago obviously.

Dan Oppenheim – Banc of America

Okay, thanks and just a follow up would be in terms of the impairments, when you talk about bulk land sales, you weren’t interested in selling for $0.20 to the dollar example you gave, can you, if you think about the impairments you’ve taken, how would those impairments compare with the prices you’ve seen in terms of some of the land sales out there?

Roger Cregg

This is Roger, I think again you know it’s all about negotiation at that point. I think again people are looking for less than what is impaired on the books today, so just as an example, if you impaired by 50% from an original basis, people are looking for almost half of that as well. And you know again for different reasons. Sometimes those are rates that people are looking for because they may think that some people are desperate to generate the cash and at any cost. People go back and they look at the ability to recover the tax benefit so they’re probably looking for some of the opportunity to share in that as well. So I think maybe generally directional it was roughly about half of what has been impaired already.

Dan Oppenheim – Banc of America

Okay, thanks very much.

Operator

Your next question comes from the line of Stephen East with Polly Capital, please proceed.

Stephen East – Polly Capital

Hi, good morning guys, just a couple quick questions on cash flow if I could. If you look at your Dell Web product versus your core Pulte product, is there any differential in cash flow generation per home with that?

Roger Cregg

This is Roger, Stephen, that’s somewhat of a tough question, you’re looking at project by project, house by house. Again it’s too hard to answer from that standpoint because you may be doing development in those areas. We actually look at projects, we look at the amount of money we’re putting in projects, how much money comes off, so I don’t know that that’s very relevant overall and it’s a level of detail that quite frankly we just don’t get into.

Typically if you look at the price of a house and what the margins are you can assume that some are better than others and so if the price of an active adult house in Dell Web is more than others than you’re going to generate more cash from a house sale. That’s generally any community, but it’s a level of specific, you know analyzing like that, it’s not something we really focus on.

Steve Petruska

Yeah, this is Steve, I would add that our opportunities in the Dell Web community for cash flow, positive cash flow generation really center around the timing of amenities and those type of things. Those are incremental spends on top of land development, just normal lot development cost that you would see in the Pulte communities. So in some communities we can be opportunistic because we haven’t put as many homeowners in there quite frankly and maybe we don’t have to build the next amenity center or finish the golf course or something like that at the time pace that we thought we were going to thus being able to generate a lot more cash in a particular community versus what we thought we were going to.

Stephen East – Polly Capital

Yeah and that’s why I was wondering because with the sunk coast up front you know when you recapture that cost for each home that you sold whether you had a bigger cash flow generation versus a traditional Pulte community.

Richard Dugas

Steve, this is Richard, I think a big piece of it too is what do you have to outlay to keep your business going and as Steve indicated, a significant percentage of our owned lots are developed. So from that standpoint we don’t have as big a commitment as we would have had in other years to put the land into the actual communities so it’s more harvest mode at this point.

Stephen East – Polly Capital

Okay and then just one other question for you. The cash flow generation in the fourth quarter was pretty strong, what percentage of homes sold in the quarter were spec homes starting at the beginning of the quarter?

Roger Cregg

Again Stephen that’s pretty hard to track because sometimes a house could wind up as a sale and then cancelled during the quarter and wind up as a spec and then you sell it. So that’s a level of detail that is very hard to try to capture, although we try to do it, the fact is with cancellation rates the way they are it just makes the number almost meaningless so, can’t give you an answer on that.

Stephen East – Polly Capital

Okay, thanks a lot guys.

Operator

Your next question comes from the line of Nishu Sood with Deutsche Bank, please proceed.

Nishu Sood – Deutsche Bank

Thanks. First question for Richard, last quarter you had mentioned the idea of price inelasticity you were seeing in some of your communities, I just wanted to get a sense of how that has changed since then. I would imagine a spread so what types of communities you’re seeing and then maybe if you could even try and give us a sense of how many of your communities percentage wise you’re seeing that in?

Richard Dugas

I think the comment is generally still accurate and to your point may have even spread as the conditions worsen through the quarter. I couldn’t give you a good estimate on the number of communities. I don’t know if Steve might have anymore color on that but generally speaking what we’re trying to do is be smart.

Our goal is to generate cash and to do our best to make money ex any charges on a given quarterly basis and in the short term those continue to be our focus points so we’re not trying to do anything crazy from a standpoint of pricing but on the other hand we’re trying to be competitive to maintain that cash flow focus but price is still relatively inelastic in many of our communities. Steve, I don’t know if you have any more detail on that, probably not. Okay.

Nishu Sood – Deutsche Bank

I guess what I’m trying to get sense of is it just a handful you’re seeing this in or is it a substantial number?

Richard Dugas

It’s a fairly substantial number. You know one guy’s substantial is it, I would put it at somewhere in the 25-50% range. There’s a lot of communities that are there but that’s just anecdotal you know I want to be careful there. I don’t have specific evidence there but it’s more than a handful of communities that we’re not seeing a lot of price elasticity.

Steve Petruska

And it’s dynamic based on the conditions that exist in that submarket. Our operators would tell you that their competition at any given point in time is the competitors that are around them and based on activities of those competitors it’ll either drive a very inelastic demand, i.e. we can’t sell at any price because there’ a lot of inventory out there and people are competing for a very small universe of buyers, or if we have communities around us that sell out in a given quarter, then we may have a little bit more elasticity, we can lure that buyer into our community with a discount or an incentive.

Nishu Sood – Deutsche Bank

Got it and a follow up question, on the restructuring that you had announced back in May I believe, other builders have just kind of gone about the cost cutting and the reduction of staff on an incremental basis, you chose to package it into a more traditional restructuring type plan. Now in retrospect, what do you think the advantages and disadvantages have been of that and I guess also the related question, given how much worse things have gotten, is it time for another one?

Roger Cregg

Yeah, this is Roger, first back then it was about transparency and to talk about the relative charges that we were about to take, so again I think it being open and transparent here and talking about what we’re doing in the business and what the impact could be, we felt it was appropriate to talk about it.

As we go on, we’re doing the same thing, you know we’re not announcing restructuring, we continue to make changes in the organization accordingly and they’re ongoing from quarter to quarter and I think you can probably see that in the numbers you know roughly the $150 million net if you took the $45 million in charges that we took in 2007 for the restructuring against $150, it’s $105 and we gave guidance of $50-$60 net so again there’s a lot more things that have gone as well even outside the initial restructuring we talked about in May.

Nishu Sood – Deutsche Bank

Okay, great, that’s very helpful, thanks a lot.

Operator

Next question comes from the line of Jay Mccanless with Ftn Midwest, please proceed.

Jay Mccanless – Ftn Midwest

Hi, good morning a couple quick questions for you. First one, if I look at the backlogs at the end of the fourth quarter, what would be the mix in there of FHA and conventional loans versus jumbo and other products?

Roger Cregg

Yeah Jay, this is Roger, sorry we don’t have that, we’re not tracking what’s in there. Again like I have said when you get cancellations you can go crazy with trying to continue to track that type of thing by the mortgage products so we don’t do that.

Jay Mccanless – Ftn Midwest

Do you have a historical average for where it might be?

Roger Cregg

No I don’t.

Jay Mccanless – Ftn Midwest

Okay. The second question I wanted to ask was on current traffic, in other builders that we’ve heard from this week have discussed trying to hold the line on pricing sometime later this year. Just wanted to see what you all had to say about current traffic and what you all thought about being able to get some pricing power back with the consumer, thanks.

Steve Petruska

As it pertains to current traffic, we’re not kind of giving any guidance on what’s going on in the first quarter but anecdotally, we always see a little bit better traffic in the seasonal time periods but relatively speaking it’s still a very, very difficult environment out there.

Operator

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

Alex Barron – Agency Trading Group

Thanks, good morning guys, I was wondering if you guys could somehow put your cash flow which was pretty substantial this quartet into buckets for us? Like the different components of where you guys saw the improvement?

Roger Cregg

Well I thought I did that Alex and told you where, you know how the inventory reduced in land and house. So basically in the fourth quarter we had about $780 million reduction in inventory both house and land and that’s one bucket and that certainly came through sales. And then you know there’s profitability in the quarter and we had some land sales in the quarter and then there’s all others. So I think that pretty much rounds out generating close to $985 million in the quarter.

Alex Barron – Agency Trading Group

Okay, but of the 780, how much of that would you say was close out of communities versus reduction in spec versus just kind of seasonal I guess variation on inventory?

Roger Cregg

Again Alex we don’t track that type of information from a cash flow standpoint to that level. Certainly again you know we’ve got communities we’ve listed where the closings have come from across the country, it’s not necessarily whether it’s a closed out community or it’s a closing on an existing community that’s going to be ongoing, so again we’re not tracking it to that level of detail but it’s coming from sales of homes and closings of homes, not from bulk land sales.

Alex Barron – Agency Trading Group

Got it. I wanted to ask you a question just to understand your comments on the tax rate going forward. So how should I think about you know when I get to my pretax line number, how should I think about what happens below that going forward?

Roger Cregg

Yeah I think that’s a difficult thing right now as you know we clearly sitting here today, we don’t have a very good focus on it, just again as I mentioned because of the complexities of 109. I think as we understand the ability to look at the roll offs and the timing differences that are in those deferred tax assets, we’ll have a better view of that and be able to give you guidance on that but as I mentioned, you could take a tax rate or you could not and our view was to be conservative and not take one therefore giving you a greater loss.

Again that’s a complexity within and I can’t comment anymore than that because I really don’t know at this point but we continue to work on that even at this given moment to better understand the complexity of 109 and how it’s going to affect our deferred tax asset going forward.

Alex Barron – Agency Trading Group

Okay and one last one, I guess you mentioned some land sales at $0.20 on the dollar or whatever, $0.50, you guys feel that those kind of land sales are going to eventually have an impact on where book values end up going or not necessarily?

Roger Cregg

Just to be clear Alex, my comment was to, what I was seeing in the market not to what we did. But certainly I think clearly at those levels you’ve already seen it because there have been builders out here doing some of these bulk sales and they’re taking those levels of adjustments on the book. Now again, whether they own the land in the end or they get it back in the end, it’s all different than what they paid for it is all different based on the structures they put together for those bulk land sales. But again, yes, it could effect it going forward and the more you write off certainly the more the margin might be in the future and again play with profitability but overall if you’re selling it at $0.20 and buying it back at $0.50, again that’s a different value I think for the shareholder and again those are all going to play out in the market as we go forward. So it’s very hard to tell you where that’s going to go but I think clearly you’ve seen it in some of the sales that have happened in the markets.

Alex Barron – Agency Trading Group

Okay, thanks a lot Roger.

Operator

Ladies and gentlemen this concludes our Q&A session, I would now like to turn the call over to Mr. Calvin Boyd for closing remarks.

Calvin Boyd

Thank you Erik. Thanks to everyone for your participation on the call today, if you have any follow up questions please feel free to give me a call. Thank you and have a great day.

Operator

Thank you for your participation in today’s conference, this concludes the presentation, you may now disconnect, have a good day.

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