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StandardPacific Corp.(NYSE:SPF)

Q4 2007Earnings Call

February 05,2008 11:00 am ET

Executives

SteveScarborough - Chairman, President and CEO

Andy Parnes- EVP and CFO

LloydMcKibbin - VP and Treasurer

Analysts

Larry Taylor- Credit Suisse

Ivy Zelman -Zelman Associates

DaveGoldberg - UBS

WayneCooperman - Cobalt Capital

Tim Jones -Wasserman Associates

MichaelRehaut - JP Morgan

Alex Barron- Agency Trading Group

Sue Berliner- Bear Stearns

Jim Wilson - JMP

Paul Carpenter - SummerfordManagement

Herman Shaw - JP Morgan

JamesEustice - Churchill Pacific

CarlReichardt - Wachovia

John Sykes -Nomura

Peter Simon- Morgan Stanley

CherylVengula - IndependenceUnited

ScottMatthew - Lazard Capital

David Dock-Dock Partners

Operator

Please standby we are about to begin.

Good dayeveryone. Welcome to today's StandardPacific Corp. 2007 fourth quarter and fiscal year end Earnings Call. Today'scall is being recorded. At this time I'dlike to turn the call over to Lloyd McKibbin. Please go ahead sir.

Lloyd McKibbin - VicePresident & Treasurer

Thank youand good morning. Welcome to Standard Pacific 2007 fourth quarter Earnings Calland webcast. A formal presentation will be followed by a question-and-answerperiod. Out of respect for your time, we ask that each caller's questions belimited to one and a follow up. I'm now going to read a notice regardingforward-looking statements.

Thisconference call and accompanying slide presentation contains forward-lookingstatements, including statements about the company's outlook, markets, orders,backlog, land position, operating strategy, maximum NOL carry back, estimatedjoint venture remargin payments, intent to commence discussions with our bankgroup, potential for additional impairments and potential exit from additionaljoint ventures, as well as statements regarding our expected overhead savings,positive cash flow, tax refund and increase in borrowing debt. Repayment of2008 senior notes, decline in interest coverage ratio, control and reduction ofspec homes, joint venture cash flow reductions, management of starts andreduction of land acquisitions and land development spending.

In general,any statements contained in these materials that are not statements ofhistorical facts should be considered forward-looking statement. We caution youthat forward-looking statements involve risks and uncertainties and there are anumber of factors, which could cause our actual results to differ materiallyfrom those that are contained in or implied by these statements.

For a listof certain of these factors, please see our press release of February 04, 2008and our most recent annual report on Form 10-K and subsequent quarterly reportson Form 10-Q. Copies of these documents are readily available including on ourwebsite at www.standardpacifichomes.com or from the company upon request.

Both thepresentation and Q&A sessions are being recorded and can be replayed via theinternet by going to standardpacifichomes.com and visiting our investorrelations section. The recorded presentation will be available for replay by 3:00pm Pacific time this afternoon, and will be available until March 6, 2008. Theaudio portion may also be replayed by dialing 888-348-4629 and entering passcode number 979199.

Ourpresenters this morning are Steve Scarborough, Chairman, CEO and President ofStandard Pacific and Andy Parnes, Executive Vice President and CFO of StandardPacific.

Now, I wouldlike to hand the call over to Steve Scarborough.

Steve Scarborough

Thank you,Lloyd, and good morning. We appreciate your participation on today’s call. Aswe manage our business through these challenging times in the home buildingindustry, we have been focused on reducing our level of consolidatedinventories generating cash, paying down debt and improving our liquidity. AndI am pleased to report that we continue to make important progress on thisfront in the fourth quarter.

During thequarter we generated $348 million in cash flow from operating activities, andwe ended the year with $219 million in cash on our balance sheet. In theprocess we were able to reduce consolidated debt by over $250 million, loweringthe balance outstanding on our revolving credit facility to $90 million. And webegan to retire our senior notes due in October, purchasing $25 million of the notesat a discount during the quarter.

In addition,within the month we expect to receive a tax refund of $235 million in cash, asa result of the company’s NOL carry back for the federal income taxes paid in2005. Next slide, to support our financial objectives and to strengthen ourposition as we entered 2008, we were focused on a number of operatinginitiatives companywide.

During thequarter we were successful in scaling back our joint venture portfolio by exitingsix partnerships. And during the year we reduced the number of lots held injoint venture by 45%. Moreover, the absolute level of joint venture debtdeclined year-over-year by 39% to $771 million.

Partly as aresult of these efforts and with a conversion of our backlog in the sale ofexcess land, we have reduced our inventory of owned and control lots by 43%during the year. We sold approximately 6000 lots in the fourth quarter, whichgenerated $268 million in cash including tax related benefits.

During thequarter we also consolidated our Sarasota operationswith our Tampadivision, marking the sixth division consolidation this year. In addition, wetightened our geographic footprint by substantially exceeding two non-coremarkets, Tucson and San Antonio. And finally, we continue to makethe difficult but necessary adjustments to the company's overhead and coststructure to right size the organization in response to lower volume levelsanticipated going forward.

As a resultof these efforts, we believe that we are in a stronger position to respond tocurrent market realities as we begin the New Year. However, to accomplish thesegoals we incurred additional impairments which in combination with the $180million FAS 109, deferred tax assets charge the company was required to take ityear end, cost us to breach our consolidated tangible net worth covenantcontained in our revolving credit facility. The company has obtained a waiverany default rising from the non-compliance through March 30, 2008. And weintend to immediately comment discussions with our banks to amend our covenantpackage.

At this time,I will turn the presentation over to Andy Parnes for an in-depthreview of our financial results for the quarter and for the year, Andy.

Andy Parnes

Thank you, Steve. Please join me on slide number five. For the2007 fourth quarter, the company generated a net loss of $440.9 million or$6.80 per share, versus a net loss of $98.4 million or $1.53 per share theprevious year. The year-over-year decline was driven by the following factorsfrom continuing operations. A 20% decrease in homebuilding revenues, a negativehomebuilding gross margin of 17% resulting from $276 million of the inventoryimpairment charges, a $36 million increase in homebuilding joint venture loss,which reflects $68.5 million of joint venture inventory impairment charges, an$18.4 million increase in other expense, which includes a $36.4 milliongoodwill impairment charge, and a $11.8 million deposit write-off charge.

A $180.5 million deferred tax asset valuation allowance and a 190basis point increase in our SG&A rate. The company recorded a total of$433.5 million of pretax impairments and write-offs in the quarter, including$40.6 million related to discontinued operations detail of which we will reviewin a moment compared to $290.7 million in the 2006 fourth quarter.

Excluding the impairment and tax reserve charges, we would haveearned $4.8 million or $0.07 per share during the fourth quarter. Please referto the exhibit at the end of the presentation for reconciliation between netincome and earnings per share before and after the impairment and othercharges.

Slide number six provides more detail on the impairment charges reportedduring the fourth quarter. We continue to review every project eachquarter for impairments including projects not yet started or opened. For thevast majority of the projects that were impaired this quarter, we experiencedthe following conditions during the quarter which contributed to the impairmentcharges. Further home price declines and losses on lots sold are held for sale.Until market conditions stabilize, the company may continue to incur additionalinventory impairment charges.

As you cansee from the numbers on this slide nearly 50% of the fourth quarter chargesstemmed from land sold or held for sale. While these charges were steep, we expect to generate $268 million incash from these land sales including the related tax benefits. The company sold5,613 lots during the quarter including 3,342 lots related to the dispositionsin Tucson and San Antonio. The $211 million land saleimpairment charge also reflected an additional 1,900 lots held for sale.

The lotsales during the quarter included dispositions primarily in the Bay area, Phoenix, Tampa and Las Vegas. The impairment charges related to ongoingprojects covered 43 projects, and the joint venture impairments related to 22projects and were most significant in Inland Empire and Southern California, Phoenix, Tampa and the BayArea in Northern California. The company incurred write-offs related togoodwill, related to acquisitions in Floridaand the Carolinas.

Slide numberseven is intended to give you a sense of the aggregate level of the inventoryimpairments recorded by us since January 1, 2006, including joint ventures andthe percentage of lots written down thus far, based on our December 31, 2006lot position. As you can see we have impaired 71% of our own lot positionincluding both ongoing projects and land sold or held for sale. In addition wehave impaired 41% of our joint venture loss since January 01, 2006.

Now turning toSlide 8, the 20% decrease in fourth quarter homebuilding revenues fromcontinuing operations to $934 million was primarily attributable to a 23%decrease in new home deliveries, combined with a 6% decrease in ourconsolidated average home price. These decreases were partially offset by a $90million year-over-year increase in land sale revenues from continuingoperations.

Our backlogconversion for the quarter was 83%, and reflected our strong focus on sellingstanding and nearly completed homes. Our next slide, Slide 9 shows deliveriesby state. In California,consolidated new home deliveries increased 11% from the prior year period.Deliveries were up 4% in Southern California,reflecting the improvement in order activity in the second half of 2007,relative to the extremely week conditions in the second half of 2006. Whilealso still at depressed levels, deliveries increased 38% in northern Californiaand were driven by a similar change in order trends in the second half of '07,as compared to the same period in '06.

In theSouthwest, new home deliveries decreased 45% led by a 69% decline in Arizona, reflecting thecontinued weakening in order activity in the state. New home deliveries weredown 30% in Texas,driven primarily by a softening of demand in Austin and Dallas. New homedeliveries in the company's Southeast region were down 33%, due primarily to a54% year-over-year decline in Florida,as a result of continued weakening in housing demand.

In theCarolinas, deliveries were up 14% from the year earlier period, driven by ahigher delivery total in both the company's Raleigh and Sherwood operations. Slide 10 demonstratesthat our consolidated average home price dropped 6% year-over-year in thefourth quarter to 384,000, primarily due to an increase in the level ofincentives and discounts required to sell homes in California,Florida and Arizona, which was offset in part by changesin the company’s product and geographic delivery mix.

Moving to Slide11, the company's negative gross margin percentage from its homebuilding segmentwas driven by the $276 million of inventory impairment charges related toongoing projects in land sold or held for sale, as well as continued marginpressure from increased levels of incentives and discounts used to sell homes.Excluding the impact of land sales and their related impairments, the company’sgross margin from home sales would have been 2.5% and further excluding ongoingproject inventory impairments, the home sales gross margin would have been14.1% versus 20.1% last year.

Please referto the exhibit at the end of the presentation, which reconciles the grossmargin percentage for the homebuilding segment to that excluding land sales andimpairment charges. The company’s higher SG&A rate for the quarter wasdriven by the lower revenue base from which to spread the G&A [crossover],combined with increased levels of advertising and co-broker commissions. Withthat being said, our absolute level of fourth quarter G&A expensesexcluding the non-cash components was lower by $12 million year-over-year.

Our leaneroverhead structure is a result of division consolidations, market exits, andintense focus on spending in our efforts to right size the organization. Whileour SG&A rate for the full year is up versus 2006, our rate is comparableto many of our larger peers.

On Slide 12, I would like todirect your attention to the left hand side of the slide. You will see that wegenerated $656 million of cash flow from operating activities over the last 12months, which was partially offset by a $198 million of cash used for investingactivities, and as result of this was a reduction in our consolidated unsecuredhomebuilding debt of $148 million over this period combined with ayear-over-year increase in cash on our balance sheet of $199 million.

For the fourth quarter EBITDA wasdown 53% to $78 million driven by the lower level of pre-tax profits afteradjusting for the non-cash impairment charges. For the fiscal year, wegenerated $299 million of EBITDA compared with $706 million in the prior year.Please refer to the next slide for definition of EBITDA and a reconciliation ofEBITDA to operating cash flow.

At quarter end, our adjusted nethomebuilding debt-to-capital ratio stood at 61.1% up from the previous quarterdue to the reduction in our equity from the fourth quarter inventory impairmentcharges and $180 million deferred tax asset valuation allowance. Our total debt-to-capitalratio, which includes indebtedness of our financial services subsidiary and FIN46 liabilities, was 66.2%. Please refer to the exhibit at the end of thepresentation for a reconciliation of total debt-to-adjusted net homebuildingdebt.

Our LTM interest covered ratiowas 2.2 down from 4.8 last year and 2.7 last quarter. It is expected that ourinterest covered ratio will continue to decline during 2008. At December 31,2007, we had utilized nearly 136 million of capacity under our revolving creditfacility including $46 million of letters of credit. Our additional borrowingbase capacity at December 31 was approximately 150 million. Please note thatupon receipt of tax refund which is estimated to be $235 million, our borrowingbase cushion will be increased by a corresponding amount.

We have also included for yourreference the calculated and required ratios and amounts through the bankrevolvers debt equity and consolidated tangible net worth covenants. We wereunder the required minimum consolidated tangible net worth amount as of12/31/07 as a result of the deferred tax asset reserve of $180 million.Accordingly, we sought and received a waiver from our banks through March 30,2008 related to any covenant violation as a result of the FAS 109 deferred taxasset reserve.

The purpose of slide 15 is togive you a better sense of our joint venture portfolio including additionaldetail on our 10 largest homebuilding and land development joint ventures. Allof this information will be included in our fourth coming 10-K for furtherreferences. We thought it would be helpful to give you a sense of the size,balance sheet composition including leverage and credit enhancements associatedwith these 10 ventures. These 10 ventures represent over 80% of the totalcombined JV assets and debt. The total leverage of these 10 ventures is lessthan 49% while the leverage for all of our joint venture is almost 50%.

The company has made meaningfulprogress with respect to its joint ventures. The company exited six jointventures during the fourth quarter for aggregate net cash payments totalingapproximately $3 million. In addition, the company accelerated the take down oflots from one Southern California venture while acquiring a share of unstartedlots from another Southern California jointventure, both moves designed to maximize tax cash flow benefits.

As a result of these actions,combined with activity in previous quarters, the joint venture saw theirabsolute level of joint venture debt, including discontinued operations,decline year-over-year by 39% to $771 million. And we expect the joint venturedebt level to continue to decrease in 2008.

Since the end of 2006, theCompany has reduced the number of losses in its joint ventures, includingdiscontinued operations, by 45%. Looking ahead, the Company will continue tocarefully monitor its joint venture portfolio.

During the fourth quarterStandard Pacific made joint venture load remargin payments of approximately $46million. The Company estimates its share of additional remargin obligationscurrently to be $45 million to $55 million based on present asset values. These amounts, which are reflected in the Company'scash flow projections, do not reflect the impact of any further reductions inasset values which may continue until market conditions stabilize and also donot reflect additional ordinary course Joint Venture capital contributions,also reflected in our cash flow projections, related to acquisitions,development and construction costs, loan step downs, and load maturities.

In addition, during the fourthquarter Standard Pacific unwound the Joint Venture in California that we mentioned in our last earningsrelease by paring the interest of its joint venture partners and paying offapproximately $40 million of the related joint venture debt. Over the course ofthis downturn the Company may find it necessary to exit additional jointventures, which maybe accomplished by acquiring our partner's interest,disposing of our interest or other means. We are not currently in discussionswith any of our joint venture partners to acquire their interest.

On slide 17, we have includedcertain data regarding loans originated by our mortgage subsidiary for thecurrent in year earlier periods. Generally, product mix continues to shift to ahigher percentage of conforming loans to the tightened liquidity in the jumbomarket, also the level of "Alt-A" and subprime loans continues todecrease as those markets also continue to experience limited sources for thistype of product.

Now, I'd like to turn the callback over to Steve for a review of other operating (inaudible). Thank you

Steve Scarborough

Thank you, Andy. On slide 18, wesee that net new orders companywide from continuing operations excluding jointventures for the 2007 fourth quarter decreased to 11% to 1,002 new homes for amonthly sales rate of approximately 1.5 per community. The Company'sconsolidated cancellation rate for the 2007 fourth quarter was 37% compared to44% on the 2006 fourth quarter, and 35% in the 2007 third quarter. While theCompany's cancellation rate as a percentage of beginning backlog for the 2007fourth quarter was 25% compared to 22% in the year earlier period.

The overall decrease in that neworders during the 2007 fourth quarter, resulted primarily from decreases inorders in Texas, the Carolinas, and Colorado and to lesser extent a decline in California. Thesedecreases were partially offset by modest order increases in Floridaand Arizona.

Our absolute sales absorptionrates continue to reflect difficult housing conditions in most of our marketsresulting from reduced housing affordability, higher mortgage interest ratesand the growing levels of completed new and existing homes available for saleincluding an increasing level of foreclosure properties in the marketplace.

These conditions have beenmagnified by the tightening of available mortgage credit for homebuyers,including increased pricing for jumbo loans in the substantial reduction inavailability of "Alt-A" mortgage products. All of these conditionshave resulted in the declining home price environment which is contributed toan erosion of homebuyer confidence.

Moving to slide 19, as housingmarket conditions began to erode in 2006, our cancellation rate increasedmeaningfully resulting in a higher level of spec homes across the Company. Our levelof spec homes peaked at12.9 homes per community at the end of June, 2006 andhas been steadily at around eight to nine homes per community over the pastthree quarters and is down 27%, when compared to the total specs per communityat December 31, 2006.

During the past year, weintensified our review of specs starts in an effort to balance our corporateinventory objectives with our divisions requirement to maintain an appropriatelevel of homes that can be sold and closed in a relatively short period of timewhich many buyers prefer today. We will continue to carefully monitor our levelof specs starts in an attempt to control and ultimately reduce the number ofcompleted spec homes companywide.

On slide 20, we show the progressthat we have made over the past two years to reduce our lot positions. Weclosed the year with approximately 35,000 lots owned and controlledcompanywide, down from 61,000 lots during the same period last year. Over thepast two years, we have achieved the 53% decrease in our total lot positionowned and controlled. In our lots owned declined 37% over the past two years tojust under 22,000 lots. These results were achieved across a number of fronts. Wehave been able to sell lots to third parties from both our on balance sheetprojects as well as from our joint ventures in an effort to generate cash, reducefuture cash outflows and reduce inventory levels.

In addition, we have walk awayfrom a number of lot option and land purchase contracts in order to save futurecash outflows. We've also exited a number of joint ventures which will alsoresult in future cash flow reduction. I would like to spend a moment toreiterate and reinforce the important progress that we have made during thequarter to reduce our debt and improve our liquidity.

On slide 21, you can see that wereduced our debt by $251 million in the fourth quarter through paying down therevolver by $163 million, repurchasing $24 million of our 6.5% senior notes,and paying down our $66 million in trust deed notes. Given our cash on hand andexpected cash flow in 2008, we see no reason why we cannot retire the remaining6.5% senior notes due in October. We talked a little bit earlier that toaddress our liquidity going forward, we acquired waiver from our bank groupthrough March 30 and will begin discussions shortly to amend our current covenantpackage.

In summary, we have takenproductive steps to strengthen our cash position in 2007, and we will continueto maintain our focus on cash generation and cash management in 2008, bygenerating sales and deliveries, balancing our price volume and marginobjectives, managing starts, minimizing land acquisitions, reducing landdevelopment spending, and when necessary lowering overhead through staffreductions and division consolidations.

We were cash flow positive during2007, and we believe we will end 2008 cash flow positive as well; although, wewill likely to be cash flow negative excluding the tax refund for the firstquarter, which is traditionally a lower volume period for the company. I wantto commend our team for their accomplishments in 2007 under very difficultconditions. There's a great deal of work left to be done but we are ready totake it on.

That closes our formalpresentation, and I want to thank you for your time today. We will now open thecall to your question.

Question-and-Answer Session

Thank you. (OperatorInstructions). And we will take our first question. Your line is open please goahead.

Larry Taylor - Credit Suisse

Hi this is Larry Taylor fromCredit Suisse can you hear me?

Andy Parnes

Yes we can.

Larry Taylor - Credit Suisse

Great. Couple of questions one onthe JV front, you say that you are not in active discussions with the JVs andyou did provide a little bit of an outlook. But I wonder if you could give ussome more color in terms of how you expect things may unfold there withoutasking you to be too specific, but just to help us understand your strategy interms of going forward with the JVs.

Andy Parnes

Well we've taken a good hard lookat all of our joint ventures. As we mentioned we did exit six during thequarter, we're looking carefully to maximize our cash flow, and looking at theJVs is one aspect of that. But we can exit a JV with a minimal like initialcash impact that can save cash down the road through eliminating potentialfuture re-margin exposure, just normal capital infusions., we think that makesa lot of sense.

We've also looked at unwindingsome JVs or I should say may be accelerating the takedown of land from JVs,primarily to take advantage of the tax losses that were embedded in those assetsas a result of impairments. We did two such transactions like that during thefourth quarter, and those transactions are also accretive to our borrowing baseas well.

We wanted to have consolidatingand unwinding I believe four joint ventures last year, but we had partners thatweren’t committed to the ventures. We have taken care of those, those didconsume [cash], and even in spite of that we did generate a significant amountof cash during the year. So a lot of progress made. We expect to continue tosee the level of JV debt decrease this year through either normal debtreductions, or in some cases, just the lots out of the JVs and putting those onour balance sheet.

So the JV debt I think is downabout $500 million from the end of last year and we expect that to meaningfullyreduce this year as well.

Larry Taylor - Credit Suisse

Great, thank you, and then onevery quick question. How important were the change in the agency limit forconfirming more (inaudible) you guys given the price point that you sell at.

Steve Scarborough

I think Larry that could be avery impactful for us particularly in California,which is as you know a big market for our company; just raising the limitsparticularly in areas like the Inland Empirewould we think help considerably.

Operator

And we'll take our next question.

Unidentified Analyst

Hey guys can you hear me?

Steve Scarborough

Yes.

Unidentified Analyst

Hi. Wanted to just ask you alittle bit, if could comment on kind of ….

Steve Scarborough

Is this Andrew?

Unidentified Analyst

Yes.

Steve Scarborough

Okay

Unidentified Analyst

I wanted to see if you couldpotentially comment on some more recent market trends that you saw in theoverall housing market, and if there is anything to note whether reduced homeprices/reduced rates have kind of spurred any additional sales or additionalinterest in your community.

Steve Scarborough

Andrew, it's probably a littleearly, as you can appreciate just in January you are getting a good read onthat, but I could mention to you that for the month of January our sales as faras our company targets were on target, but year-over-year there're off about39%. Cancellations for January are running lower than we've seen recently atabout 28%, cancellations interestingly in Floridadown to about 19%, and Arizonain the range of 24%. Cancellations are a little bit higher in California. So again I think you know weneed to get in to February to have a little better sense of how buyers arereacting to rates and conditions in the market place.

Unidentified Analyst

Sure. Okay. And I guess my onlyquestion was, with regards to the credit facility obviously good that you got awaiver, I was curious if you could talk a little bit about what you guys thinkmight be the outcome obviously with what sort of preliminary discussions youmight have had with your lenders or what you envision potentially being invarious types of covenant changes that might happen going forward.

Andy Parnes

I think it a little premature tocomment on that. We really haven't had much of an opportunity to chat with ourlenders. As you can appreciate the waiver process went very quickly and we gotit in the midst of closing our year-end books and we hadn't had the opportunityto share our business plan with the lenders yet. So, we really haven't startedthat process in earnest, so I think we'll have a better feel for that over theensuing month or two.

Operator

(Operator Instructions). Andwe'll take our next question.

Steve Scarborough

Okay go ahead

Ivy Zelman - Zelman Associates

I am sorry I didn't hear my name,its Ivy Zelman guys with Zelman Associates. I just wanted to see if you canhelp us. Your cash flow numbers for '08 seemed relatively conservative and ifyou can help us see what the expectations for absorptions or you're going toassume that you stay it to 1.5 per community and if you can also elaborate onyour expectations for development spend relative to '07 please.

Steve Scarborough

Yes. Hi Ivy. Asfar as our absorption targets, we do expect that they will be, and we are modelingthat they quite possibly could be lower than what we experienced last year. You'llrecall that during the year last year we averaged about 2.3 sales per communityon average, and it tailed off a little bit at the latter part of the year, andwe are modeling in the range of 1.5 to 2, depending on how conditions unfoldduring the year. So certainly we are looking at lower volume levels goingforward.

And as far asland development spend, I think we are in a fairly fortunate position in thatregard in the sunset of the lots that are currently underdevelopment for thecompany, approximately 80% are finished. So we don’t have the requirement orthe need to spend significant amount of development cost to bring those lotsthrough.

Andy Parnes

I think Ivy,the amount we are going to spend on land development in '08 is going to beabout a third of what we spent in ’07, so a pretty meaningful reduction.

Ivy Zelman - Zelman Associates

Great. Well,good job on the cash guys. Thanks.

Steve Scarborough

Thank you.

Operator

And we'll takeour next question.

Unidentified Analyst

Hi it's [Danfrom Oppenheim]. Just a quick question for you, talking about the decline inthe spec homes in the overall. Wondering with the increase in cancellationrates in California,how are the specs regionally, if there is any color you can provide there?

Andy Parnes

Are youtalking about the standing specs?

Unidentified Analyst

Yes

Andy Parnes

Okay. They did increase a littlebit in Californiafrom where they were in the prior quarter, and they are up just a little bitfrom where they were at the end of last year.

The absolute level outstandingunit is down year-over-year, but kind of locations have shifted around a littlebit. There are some markets that just naturally have a higher level of specunits like in Carolina and Texas. We traditionally carry a higher levelof specs. I would say the areas right now that probably have maybe excess back-- kind of above our targets would be in Southern California and maybe a littlebit in Florida, particularly Southwest Florida.

Unidentified Analyst

Got it. And so, are youanticipating doing something on the sales and pricing side to clear thatinventory in those markets?

Andy Parnes

Yeah. That's definitely a focusfor the Company. We're energized to monetize the cash, some credit in thosepositions and we do think that is still relatively low level at around threeper community. So it's manageable but it is a very big focus for our operatorsacross the Company.

Steve Scarborough

No, I think the other thing toois just carefully restricting starts. So we can burn through the outstandingunits just to normal sales.

Operator

And we'll take our next question.

Dave Goldberg - UBS

Hi. It's Dave Goldberg from UBS.Good morning.

Steve Scarborough

Hi, David.

Dave Goldberg - UBS

I was wondering if you could --maybe follow-up on Dan's question a little bit, to get an idea of the change inunfold completed home, I know we have the net number, how much net investmentbut maybe what was added to that and how much you sold, I mean with possibilitylooks like on the spec homes that were finishing you sold in the quarter?

Andy Parnes

You know I don't have a rollforward in front of me, but one of the things we do look at every quarter is anageing of our standing units and the ageing of our standing units hasn't reallychanged. If anything in some markets, its probably done a little bit better. SoI think the standing units that you are seeing are, what I would call, kind offresh units. Its not that these are units that are staying out they are forlong periods of time and as Steve had mentioned in his prepared comments, we'refinding there are lot of buyers today are looking for a very short escrowanywhere from 30 to 60 days.

So we -- I think in order to hitour sales objectives, we do need to keep some level of standing units on hand.And I don't think we're that far from kind of a good target for us. We could bea little heavy, but I wouldn't see that there is a need to cut thisdramatically. Again, I think the market dynamic today is such that we need tokeep some standing units in more normal conditions, buyers like -- they don'tmind the six-month escrow pick in their home and their lot and waiting for thehome to get built.

Today, because a lot of buyersare trying to sell their existing home first and buying their new home later.They really don't have a much of the window to accomplish that.

Dave Goldberg - UBS

Great. And then follow-up. I waswondering, Andy, if you can just go over the remargining aspects that were inthe press release, 45 plus million. I am sorry that was last quarter, I guessit was 45 to 55 this quarter. Just how you guys think about that, what kind of stresstest you do around in maybe some ranges? If conditions do deteriorate morewhere could that number be in terms of how much one have to remargin?

Andy Parnes

Well, we take a fresh look atthat every quarter. Lloyd McKibbin and his treasury teams spend a good deal oftime analyzing each of our joint ventures and in making that assessment and wetried to take a very realistic view of the joint ventures and we do stress testit and in some cases we anticipate further declines.

With that being said, a lot of itis just a function of the temperament of the appraiser when he approaches it,and we've seen some appraisals come out extremely conservative and numbers thatare hard to rationalize but it is what it is and in some case the appraisalshave come in above where our estimates came in at.

I think one thing to keep in mindthough is just the absolute level of debt reduction we've seen in our jointventures. Again a $0.5 billion or so decline from the end of 2006 and wecontinue to expect that number to decrease. So I think just the pool ofremargin debt that's out there has been shrinking and we expect it to continueto do so going forward.

Operator

And we'll take our next question.

Andy Parnes

Go ahead.

Wayne Cooperman - Cobalt Capital

Can you hear me? Because they arenot telling who has the next question.

Andy Parnes

No, we can hear you. I thinkthere is kind of a technical glitch here today that the operator doesn't knowwho it is. So it's -- go ahead.

Wayne Cooperman - Cobalt Capital

Okay. It's Wayne Cooperman.

Andy Parnes

Hi, Wayne.

Wayne Cooperman - Cobalt Capital

I'm just kind of curious if youcould elaborate a bit of a longer term strategy. I mean how long can you keepshrinking inventories and generating cash and sort of where do you go from hereafter that?

Andy Parnes

Wayne, hard to predict where this market isgoing but we feel like we've made the appropriate steps in consolidatingdivisions. I think we've right-sized the company appropriately. And we thinkthat we've adjusted the values in our lots appropriately such that we are in agood position to bring lots through during the next several years at lowervolume levels.

Wayne Cooperman - Cobalt Capital

I mean you think you'll addprofitable margins?

Andy Parnes

I think it will be a challenge onthe profit side for the next year or so. But we believe that through our cashgeneration, alternately we'll be in a position to reinvest in these marketswhere the land has been repriced and that's going to be the foundation for ourprofits going forward.

Wayne Cooperman - Cobalt Capital

Okay. Thanks.

Operator

And we'll take our next question.

Steve Scarborough

Go ahead. Question?

Tim Jones - Wasserman Associates

Tim Jones. Can you hear me?

Steve Scarborough

Yes. Hi, Tim, how are you doing?

Tim Jones - Wasserman Associates

I’m fine. Thank you.Congratulations to all of you on that tax refund. What a pleasant surprise.

Steve Scarborough

Thank you

Tim Jones - Wasserman Associates

Yeah. I know you gave theborrowing base in the slide show, but I didn't catch it. I am not watching theslide show. What was your borrowing base at yearend?

Andy Parnes

We had a $150 million of cushionin the borrowing base. So we had seen $136 million utilized. So the borrowingbase would have been about $180 million, I am sorry, $280 million.

Tim Jones - Wasserman Associates

280?

Andy Parnes

280, less the 136 that we drewgiving us cushion of about a $150 million.

Tim Jones - Wasserman Associates

So, you got the cushion of, okay,150 and of course, you're going to get the 235, once you get the cash.

Andy Parnes

That's right. Then that willincrease the borrowing base cushion.

Tim Jones - Wasserman Associates

That will be nice. A questionabout -- just a second. There is proposal, I don't know who are standing nowfrom the Senate to take their tax loss carry forward back from two years tofive years. Do you know or have a feeling where that stood, that's obvious thatthey bail out the pains, but I think it would have a meaningful impact on youroperation?

Andy Parnes

Yeah. That is something that Ithink will be coming to ahead here within the next few days. I believe theSenate is going to vote tomorrow on their version of the stimulus package. Andthe homebuilding group and the NAHP have been working diligently to try to getsome extended carry back in there, and again, it has been a very dynamic influid process but that obviously would be very beneficial but that does indeedget included in that stimulus package.

Tim Jones - Wasserman Associates

They couldn'tjust exclude the homebuilders and do it for the banks.

Andy Parnes

Yeah. I knowthere is a number of industries that they are looking at and one would thinkthat the homebuilding industry would be one that should be very serving of thattoday.

Tim Jones - Wasserman Associates

Okay. Andlastly, you did $250 million of the cash flow in the fourth quarter, like each about$650 for the year, did you give a cash flow projection for next year?

Andy Parnes

Well, we didnot. We made a very broad statement that we believe we'll generate at leastenough cash during the year to cover the remaining redemption of the 2008 notes.

Operator

And we willtake our next question.

Michael Rehaut - JP Morgan

Hi. This isMike Rehaut from JP Morgan. How are you?

Steve Scarborough

Hi, Mike. Howare you doing?

Michael Rehaut - JP Morgan

Good. Newtwist on the conference calls here, mechanism that is. Anyway, my firstquestion relates to the pricing that you are seeing our there, it isinteresting that from a closing perspective, your price was flattishyear-over-year despite coming down nicely, flattish year-over-year despitecoming down sequentially. I was wondering if you would look at orders, webacked into an order price down pretty strongly year-over-year. Are you awareyou need to be and given that you are expecting absorptions to perhaps tocontinue to fall here? Do you get even more aggressive on price from here orhow are you looking at where your position relative to the marketplace?

Steve Scarborough

Mike, weobviously every month we're looking very aggressively at how we're positionedrelative to our competition in our markets and you can see from various frommarket-to-market and our competitors' strategies can change readily. So we're veryfocused on that at the very highest level of our operations in our divisions, Ibelieve that we are in a very sound competitive environment as far as ourpricing as we speak you may know that in many of our markets we've seenconsiderable erosion of price particularly in the California, Arizona andfurther markets where we had seen a pretty big run up in price. So it's oursense that there has been a quite a bit of erosion a large in many marketswe've gone back to 2004 pricing. Example, what we've seen and markets say likeSan Diego this last year prices have year-over-year were off say anywhere from5% to 15% in our projects and in the quarter maybe 3% to 5%. So it seems likein the San Diegomarket that the pricing erosion has slowed somewhat, the target project wherethat’s going to go forward but during this last quarter it was fairly modest.And the East Bay of the Northern California year-over-year and in many of ourprojects we saw about 25% to 30% erosion in price and 10% of that was in thelast quarter so that market is still stabilizing as far as where the price isgoing to end up. So again it's various by market, we keep it very current asfar as our competition and we intend to balance our margin and price and volumegoals through adjusting price to stay competitive and meet our absorptiontargets.

Michael Rehaut - JP Morgan

Thanks for that. Second questionjust on the JV debt that that remains [indicative]. Give us that number againand give us expense for how much is the recourse or subject to completion onmaintenance guarantees and what the portion of that debt is or the JVs portionof the debt would be of JVs that are from partnered with the large eitherpublic builders or what you would consider to be more stable our financialpartners?

Andy Parnes

Okay the total JV debt at the endof the year was $771 million and then of that we have $283 million where we arejointly and severely responsible for re-margin and $117 where we are severelyresponsible for the re-margins so that's a total of $408 million of the $771million. We do have a couple of joint venture loans that are non-recourseincluding, if you refer back to the slide the November 2005 land investorsthat's a $182 million of the $771 million and that's that the fourth party jointventure that we're involved in Las Vegas. So I think that covered yourquestion.

Operator

And we will take our nextquestion.

Alex Barron - Agency Trading Group

Yeah this is Alex Barron withAgency Trading Group.

Steve Scarborough

Hi Alex.

Alex Barron - Agency Trading Group

Hi Andy. Hi Steve. Wanted to askyou guys if you had the number of communities you guys impaired this quarter aswell as the total for the year?

Steve Scarborough

I have the number we impaired forthe quarter here. We impaired 43 ongoing projects, 18 that we either sold orheld for sale on 22 Joint Venture communities for a total of 83 and I don’thave the number for the full year handy. I do have it back in my office if youwant to call me later I can get that for you.

Alex Barron - Agency Trading Group

Okay I will. Were any of thosere-impairs or were they all first time this quarter?

Steve Scarborough

There were some that werere-impaired. Again I don’t know how many I would say the minority of a morere-impaired. Not a majority of it.

Operator

And we'll take our next question.

Sue Berliner - Bear Stearns

Hi it's Sue Berliner with BearStearns. Great job on the cash flow. I just wanted to focus, I don’t know ifyou can provide an update like you did with the markets for January in terms ofwhere your cash stands now or your bank outstanding stand now and just kind ofgo over why there was such a large portion of trust notes payable on this pastquarter?

Steve Scarborough

That we paid off?

Sue Berliner - Bear Stearns

Yes.

Steve Scarborough

I believe the bulk of that camefrom the Joint Venture that we consolidated at the end of the third quarterthat we unwound during the fourth quarter that the debt related to that was $60million so that was 60 of the 66. Without getting into kind of our day to daycash balance we did indicate, at least Steve indicated in his comments thatduring the first quarter excluding the tax refund we do expect to be cash flownegative. And that really isn’t unusual considering end of the low seasonalvolume that we generate during the quarter. And we did have a couple of lottake downs from Joint Ventures in January that did require some use of cash aswell. So it is off from where we were at the end of the quarter.

Sue Berliner - Bear Stearns

And I guess just the secondquestion would be in terms of your cash flow guidance in excess of paying offthe October maturity, what is that coming from, does it include any of the anytax refunds, land sales what is it made up off?

Andy Parnes

The tax refund is included inthere you know we're anticipating some level of land sales this year althoughour expectation is its probably going to be quite a bit less than it was in2007. I think that’s going to be a pretty fluid analysis for us.

Operator

And we'll take our next question.

Jim Wilson - JMP

Hi it's Jim Wilson at JMP.

Steve Scarborough

Hi Jim.

Jim Wilson - JMP

I lets see I guess my twoquestions were both looking at the regional information. Why don't you a littlecolor on how margins before impairments looked by your regional markets onSunday you gave a number of 14% for the entire company for Q4?

Andy Parnes

You know what I don't have that Idon't have it adjusted for the impairments, so Jim I don't have that handy.

Jim Wilson - JMP

Okay that’s right. And then theother was just looking at I mean you had pretty good sales comps in terms ofunits Q3 and I know obviously you have got prices pretty aggressively and theyare still fairly stable for Q4. I was wondering is there -- could you give alittle color on any material changing and pricing strategy in any of yourregions from what you saw in Q3 react to the credit crunch to what you did inQ4 -- further did in Q 4.

Steve Scarborough

Jim again that did vary dependingon markets as we indicated to relative to standing units, we are prettyaggressively pricing to monetize those units during the quarter so there was alittle bit of a more aggressive posture taken in some of the divisions in aneffort to reduce our inventories. But I wouldn’t say measurably different butagain [we are seeing] very cramped with our competitors and trying to staywithin a range of absorption that is built into our models.

Jim Wilson - JMP

Okay. Thanks.

Operator

And we will take our nextquestion.

Steve Scarborough

Go ahead.

Paul Carpenter - Summerford Management

It is Paul Carpenter fromSummerford Management. I had a question about the way you measure EBITDA forhome building EBITDA and it looks as if the land sales, and excuse me if I amnot as fast to speak as some of the other questioners. But let's take the landsale. Land sales are included home building EBITDA. Can you break our, as youget the cash flow generation, targets for next year, are the range that youhave given which is helpful. The amount that you expect to receive from landsales and the amount that you would expect to generate from actual sales ofhomes.

Steve Scarborough

In 2008?

Paul Carpenter - Summerford Management

Great I believe you said that in 2008you expect to have enough sufficient cash to retire those notes maturing inOctober so that to me sounds like a bit of cash flow projection.

Andy Parnes

It is, and that is about all thegranularity that we are going to be providing. We haven’t thought in any morespecific than that in terms of deliveries, revenues, land sales and so forth.

Operator

And we will take our nextquestion

Steve Scarborough

Go ahead

Herman Shaw - JP Morgan

Hi, [Herman Shaw] with J. P.Morgan. Hello.

Steve Scarborough

Good morning.

Herman Shaw - JP Morgan

Good morning, hi. Questions, justfirst thing on the revolver, you guys, you talked about you had a borrowingbase availability of 150 plus, and obviously, this tax on refund. During thewavier period, not that you have a need for it, but are you able to draw on it?

Steve Scarborough

Yes.

Herman Shaw - JP Morgan

And you are?

Steve Scarborough

Yes.

Herman Shaw - JP Morgan

Okay. And the second thing, justto confirm and want to make sure that I am hearing it properly. You are talkingabout the $235 million tax refund in February, so that will be pro forma foryour December cash, would be talking about something to the tune of $450million of cash on balance sheet?

Steve Scarborough

If you record it that at the endof the year, that's right, yes.

Herman Shaw - JP Morgan

Okay, great. Just wanted to makesure I heard that right. Thanks.

Operator

And we will take our nextquestion

Steve Scarborough

Go ahead.

James Eustice - Churchill Pacific

This is James Eustice, ChurchillPacific. Can you just tell me the nature of what you have left for the trustfees?

Andy Parnes

I think there is a couple ofseller notes that are left, and that's typically what would be in that accountwould be seller related notes where we buy land and the seller takes back thenote. There could be Lloyd, 2, 3, 4 of them in there.

Lloyd McKibbin

Yeah, I would say handful. Therewas that bigger amount previously as we consolidated the JV.

Andy Parnes

But they are typically sellerrelated financing.

James Eustice - Churchill Pacific

And what's the remaining balancefrom …

Andy Parnes

I think it's about $35 million,yeah, $35 million.

James Eustice - Churchill Pacific

And would those be senior to likethe notes in your terms loans?

Andy Parnes

Well. They’re generallynon-recourse notes secured by the underlying property which related to thetransaction. And those assets related to the -- those trusty notes would notbeen borrowing base eligible assets.

James Eustice - Churchill Pacific

And just one final question theinstead of the one that you took out in this quarter those were just as yousaid just related to JV's or land selling notes?

Andy Parnes

Yeah one of them was -- the vastmajority of them were related to one joint venture that we paid off during thequarter then they may have been either one note paid off or payment madeagainst I can't remember about maybe 6 million.

James Eustice - Churchill Pacific

All right appreciate it thankyou.

Operator

And we’ll take our next question.

Steve Scarborough

Go ahead.

Carl Reichardt - Wachovia

Hi it's Carl Reichardt fromWachovia. Hi Andy. Hi Steve.

Steve Scarborough

Hey Carl.

Carl Reichardt - Wachovia

I just had a question about storecount for ’08. Andy as you guys are looking at it I am thinking about yourSG&A will be due. What are your plans for your store count it has come downa little bit less than from some of your peers?

Steve Scarborough

It’ll will clearly comedown in2008. We’re going to be opening a fraction of the communities in ’08 that weopened in ’07 so it won't come down.

Carl Reichardt - Wachovia

Do you have a magnitude for me?

Andy Parnes

Again Carl that’s a pretty fluidnumber but it's not going to be an insignificant reduction. We ended the yearwith 226 communities we should get under 200 preferably.

Steve Scarborough

Excluding joint ventures.

Carl Reichardt - Wachovia

Okay and then has there been anynotable that for the last three or four months any differentiation betweenexcluding geography between lower end price points, entry level stuff versussort of more traditional standard specific mid end price [reforms]. Has therebeen any kind of absorption differential that you’ve noted?

Steve Scarborough

We’ve had as you might expectwith the pricing of Jumbo loans a little bit of an erosion and softness in theupper end and so that is one trend that we’ve seen in California but other thanthat I think it's been very much the same as far as the demand for the lowerprice product and mid-range product not being measurably different across thecountry.

Operator

And we'll take our next question.

John Sykes - Nomura

Yeah, hi, it's John Sykes withNomura.

Steve Scarborough

Hi, John.

John Sykes - Nomura

Hi, how is everything?

Steve Scarborough

Good.

John Sykes - Nomura

I had a question on your taxrefund number. That doesn't factor in any benefits from the upcominglegislation or accelerating take downs or joint ventures where you might, Iguess, benefit from capital losses or that type of thing, right? So, your 235doesn't include anything like that at this point, beyond what you saw on '07?

Andy Parnes

It does not reflect any change ina well carry back provision and that nothing has been signed into law yet. Wedid have some joint venture transactions during the fourth quarter where weaccelerated land takedowns for the purpose of taking advantage of theimpairments that were previously embedded in those lots.

John Sykes - Nomura

Right, okay.

Andy Parnes

So, taking the lots out, allowedus to then deduct those impairments on our track record. So, there is someelement of that refund that reflects those JV impairment losses.

John Sykes - Nomura

Just, with respect to theimpairments, was that sort of a differential on cost versus current price valueor was it more what you guys thought it was worth at that point relative towhat you thought it was worth when you got involved with it on the JV side?

Steve Scarborough

We analyze the JV impairments thesame way we do on our balance sheet and we’re not required to take anyimpairment until the operating numbers turned negative once we have operatingloss and when we take on an impairment and it could very well be that there isa difference between our analysis and the appraisal. The operating analysiswere FAS 144s based upon undiscounted cash flow whereas appraisal, will usesome type of discounting method which could come up with a different valuation.

Operator

And we will take our nextquestion

Peter Simon - Morgan Stanley

Hi, this is [Peter Simon] withMorgan Stanley.

Steve Scarborough

Good afternoon.

Peter Simon - Morgan Stanley

Good afternoon. I wanted tofollow-up on your sales absorption rate target, trying to reconcile that withwhat I’m seeing in the number of units in backlog if that 1300 units there andyour new orders trending around at 1000 units per quarter to achieve the targetof 1.5 to 2 absorption rate without relying on speculative units which youregarded to earlier in your call, it’s seems like you would be expecting significantincreases in the orders in ’08? Can you please elaborate on that?

Steve Scarborough

I think when you said trendingfor the quarter, the first quarter is typically a lower rate and the fourthquarter was at about 1000 sales, so that’s a lower rate than we would expectgetting into the heat of the new season. And without getting into specifics wedid indicate in the press release how we expect our deliveries this year aregoing to be down from where they were in ’07.

Peter Simon - Morgan Stanley

And you have some guidance howmuch that will be down?

Steve Scarborough

No. We haven’t got anythingspecific.

Peter Simon - Morgan Stanley

And do you have an idea of howmany homes you would need to sell during 2008 to make the redemption on the[results] of ’08 maybe SG&A current on the interest and other fixedcharges?

Steve Scarborough

We know what that number is butthat is not again something that we share publicly.

Operator

And we will take our nextquestion.

Cheryl Vengula - IndependenceUnited

Hi, [Cheryl Vengula, Independence United]. Ijust wanted to clarify something on your JV bank debt. Now is that bank debtsecured or unsecured?

Andy Parnes

It is all secured against thespecific properties within the joint venture.

Cheryl Vengula - IndependenceUnited

Okay.

Andy Parnes

I would characterize it as prettytraditional project type of financing, A&D loans, construction loans thattype of thing.

Cheryl Vengula - IndependenceUnited

Okay. And the higher mortgagelimit on conforming loans, is that something if it's a done deal or waiting forthat to happen?

Andy Parnes

I believe part of that is part ofthe stimulus package that is still pending in Congress so I don’t know if thathas, I don’t think it has been finalized yet, I think we should be finding outhere probably within the next week or so.

Operator

And we will take our nextquestion.

Steve Scarborough

Go ahead.

Unidentified Analyst

Can you hear me?

Steve Scarborough

Yes.

Unidentified Analyst

Regarding your, revolver if youhave to provide collateral for that, which other debt instrument will you haveto provide collateral for?

Steve Scarborough

It really depends on the natureof the collateral that we will have to provide to the revolver. In fact, thatis what we do. We do have some [carbouts] in our public notes that do allow usto provide some level of wins without having to provide that to the public noteholders.

Unidentified Analyst

Could you get a little morespecific, which level would trigger that?

Steve Scarborough

Well thereis I believe there's generally three baskets within the public note indentures.One is just kind of a general lean basket that ranges from $50 million to $100million. There is also a model home lean basket that allows us to lean or modelhomes and I believe that balance was about $160 million or $170 million at theend of the year. And then there is another basket that allows in certaincircumstances security on projects acquired, developed or constructed.

Operator

And we'll take our next question.

Unidentified Analyst

Hi two questions, one is justmore on high level. Can you give us a sense for sort of from here what youthink home price need come down by in each year markets to get back to a levelof equilibrium? And then secondly, I don't know if you've ever disclosed this,but can you tell us how much the land spend was in 2007?

Steve Scarborough

Yeah, as far as the land spend in2007 it was about half of what we had spent in 2006. And then this year weexpect that level to be at least half of what we spent in 2007. So it's comingdown --

Unidentified Analyst

How about a dollar number?

Steve Scarborough

Significantly.

Unidentified Analyst

Can we get a dollar number.

Steve Scarborough

I think we talked about in '06 ofhaving spent about $900 million, so it gives you an idea. And as far as prices,again that's hard to speculate on. Again we talked about that earlier,(inaudible) trying on what our competitors are doing. We've been selling atprices and rates that we've modeled in our plan our cash flow plan and thatwe'll need to stay current on where prices are going, again at various endmarkets. And in many of our markets we've seen 25% to 30% reductions in pricehas been very significant. And with those price reductions in many cases, we'veseen a pick up in sales absorption rates.

Operator

And we will take our nextquestion.

Scott Matthew - Lazard Capital

Hi good morning guys this is[Scott Matthew with Lazard Capital].

Steve Scarborough

Hi Scott.

Scott Matthew - Lazard Capital

Hi I just want to step backbigger picture, want to think about I know you've disclosed your backlog interms of value, but I just wanted if you could just generalize for us justoverall land position and inventory position right now by value. Californiaversus outside of California and then may be drove a little bit in to what youthink California may be more coastal versus more inland.

Andy Parnes

We'll have most of thatinformation in the upcoming 10-K. Californiahas always been representative of a disproportionate share of our inventory,it's going to be about half of our total inventory at the end of the year. Ourtotal loaned inventory is going to be about $2.1 billion, and about $1.1 ofthat is in California, and then the rest wouldbe spread throughout the Florida, Arizona, Texas marketswith Floridabeing the largest.

Southern California is abouttwo-thirds of the total California.So that kind of give you may be a state by state geography. And then within California, I don't havethat kind of broken up between coastal and non coastal, but we have a largerpresence in the coastal markets and the land is more expensive in the coastalmarket. So that would lead one to believe that a good chunk of California real estatevalue would be located in the coastal markets.

Scott Matthew - Lazard Capital

Thanks that's helpful. And then Ijust wanted to ask quickly, just kind of get a feel for how two differentprojects were going. I think and correct me if I am wrong, is it the Dadourian and[Paivista] was one of the previous JVs that you did take in but was nearingcompletion and sales were about to accelerate, and that’s the property, I hopeI am talking about is the one that’s tucked inside the five. Was curious ifthose properties were selling and how that was progressing?

Steve Scarborough

(Inaudible) we did notconsolidate Scott, that's still a joint-venture.

Andy Parnes

I think it's the Tempo project...

Steve Scarborough

Tempo, we did and we weresuccessful and taking that to market and I think we've sold a majority of theunits. We might have 15 or so.

Andy Parnes

Yeah I don’t have the exactnumbers, but we have sold of most of the units there and sales have gone well.

Operator

And we will take our finalquestion.

David Dock- Dock Partners

This is [David Dock from DockPartners]. If the [stimulus] bill includes the carry back from two to fiveyears to extend their carry back. Do you think that’s going to add pressure onthe price of land for a time? In other words will people who have takenwrite-offs now try to effectuate that from a tax point of view by actuallyselling the land?

Andy Parnes

I don’t know if that’snecessarily the case. I think companies are going to be selling positions thatthey deem excess at the time, and you have to carefully balance the cashbenefit to what that does to your equity. May be at the end of the day there'sa still an [erosion] equity to sell some of these properties. I think you justneed to carefully balance your cash needs, how you are positioned relative toyour covenants, what were your land position as relative to your needs and thenwhat you would consider excess plan that is disposable at any point of time.

David Dock- Dock Partners

What level in your inventories island that’s really raw land at this point?

Andy Parnes

Of the 2.1 billion of inventorythat we own, about half of that is land or land that is developed, so the otherhalf would be work-in-process in model homes. And Steve mentioned earlier thata very high percentage of our land is represented by finished lots. I thinkit's about 80% of our

David Dock- Dock Partners

80% of lots under development arefinished, so there's a very small percentage that's either raw or either beingdeveloped.

Operator

And that does conclude thequestions-and-answer session today. At this time, I would like to turn the callback over to our speakers for any additional or closing remarks.

Steve Scarborough

Yes, thank you very much. We wantto thank you all for your participation on the call this morning. You've heardthat we had a good quarter as far as executing on our cash generation and cashmanagement strategies, and we look forward to updating you as the next quartercloses. So again we appreciate your attention this morning.

Operator

And once again that does concludetoday's call. We do appreciate your participation. You may disconnect at thistime. Thank you.

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